-----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, I51C6owY0MXxd0FqYqqS+hF8iDzb9EGfrsFC5IIzn/vSVSU1a4YA/F1iBxackow6 G5OktO7QSJfIrfq5O1cC3Q== /in/edgar/work/20000714/0001012870-00-003773/0001012870-00-003773.txt : 20000920 0001012870-00-003773.hdr.sgml : 20000920 ACCESSION NUMBER: 0001012870-00-003773 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 16 FILED AS OF DATE: 20000714 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHIPPAC INC CENTRAL INDEX KEY: 0001093779 STANDARD INDUSTRIAL CLASSIFICATION: [3674 ] IRS NUMBER: 770463048 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-39428 FILM NUMBER: 673448 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-1/A 1 0001.txt AMENDMENT #1 TO THE S-1 REGISTRATION STATEMENT As filed with the Securities and Exchange Commission on July 14, 2000 Registration No. 333-39428 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------- AMENDMENT No. 1 to FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ----------- CHIPPAC, INC. (Exact Name of Registrant as Specified in its Charter) ----------- Delaware 3674 77-0463-48 (State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Incorporation or Organization) Classification Code Number) Identification Number)
3151 Coronado Drive Santa Clara, California 95054 Telephone: (408) 486-5900 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) ----------- Dennis P. McKenna President and Chief Executive Officer 3151 Coronado Drive Santa Clara, California 95054 Telephone: (408) 486-5900 (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 Telephone: (213) 680-8400 New York, New York 10019-7475 Telephone: (212) 474-1000
----------- Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. 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 (the "Securities Act"), 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 this Form is a post-effective amendment filed pursuant to Rule 462(d) 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 Aggregate Amount of Title of Each Class of Amount to be Offering Price Offering Registration Securities to be Registered Registered(1) Per Share Price(2) Fee(3) - --------------------------------------------------------------------------------------------------- Class A Common Stock, par value $0.01 per share...... 17,825,000 shares $22.00 $392,150,000 $103,528 - --------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------
(1) Includes 2,325,000 shares that the underwriters have the option to purchase from ChipPAC, Inc. to cover over-allotments, if any. (2) Estimated solely for the purpose of calculating the registration fee pursuant to paragraph (a) of Rule 457 of the Securities Act. (3) $85,800 was paid with the previous filing of the 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 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +The information in this prospectus is not complete and may be changed. We may + +not sell these securities 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 state where the offer or sale is not permitted. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED JULY 14, 2000 15,500,000 Shares [ChipPAC LOGO] Class A Common Stock --------- Prior to this offering, there has been no public market for our Class A common stock. The initial public offering price of our Class A common stock is expected to be between $20.00 and $22.00 per share. We have applied to list our Class A common stock on The Nasdaq Stock Market's National Market under the symbol "CHPC". The underwriters have an option to purchase a maximum of 2,325,000 additional shares to cover over-allotments of shares. Investing in our Class A common stock involves risks. See "Risk Factors" on page 10.
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 , 2000. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. Credit Suisse First Boston Deutsche Banc Alex. Brown Merrill Lynch & Co. Robertson Stephens Thomas Weisel Partners LLC The date of this prospectus is , 2000. [cover art] ------------ TABLE OF CONTENTS
Page ---- Prospectus Summary....................................................... 1 Risk Factors............................................................. 10 Cautionary Note Regarding Forward-Looking Statements..................... 18 Use of Proceeds.......................................................... 19 Dividend Policy.......................................................... 20 Capitalization........................................................... 21 The Reclassification..................................................... 23 Dilution................................................................. 25 Unaudited Pro Forma Combined Condensed Financial Data.................... 27 Selected Historical Financial Data of Chippac, Inc. ..................... 37 Selected Historical Financial Data of Malaysian Business................. 39 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 40 Industry................................................................. 49 Business................................................................. 51
Page ---- Management................................................................ 62 Principal Stockholders.................................................... 72 Concurrent Private Placement.............................................. 75 Significant Relationships and Related Transactions........................ 75 Description of Capital Stock.............................................. 81 Description of Financing Arrangements..................................... 84 Shares Eligible for Future Sale........................................... 89 Material United States Tax Considerations for Non-United States Holders... 91 Underwriting.............................................................. 94 Notice to Canadian Residents.............................................. 97 Legal Matters............................................................. 98 Experts................................................................... 98 Where You Can Find More Information....................................... 98 Index to Financial Statements............................................. F-1 Glossary.................................................................. G-1
------------ 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. Dealer Prospectus Delivery Obligation Until , 2000 (25 days after the commencement of this offering), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the dealer's obligation to deliver a prospectus when acting as an underwriter and with respect to its allotments or subscriptions. 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 the financial data and related notes, before making an investment decision. On June 30, 2000, we consummated the acquisition of Intersil Technology Sdn. Bhd., a former wholly- owned subsidiary of Intersil Corporation with semiconductor packaging and test operations in Kuala Lumpur, Malaysia, which is referred to in this prospectus as the Malaysian business. See the "Glossary" section for a description of other technical terms used in this prospectus. ChipPAC ChipPAC is one of the world's largest providers of semiconductor packaging and test services. We focus exclusively on packaging and test services and offer one of the broadest portfolios of services available in the industry. 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. We also provide advanced packaging products that address the needs of semiconductors used in wireless and wireline communications applications, including flip-chip, chip-scale and stacked die technologies. Outsourcing of packaging and test services to independent packagers like ChipPAC is expanding rapidly due to several factors, including cost reduction, resource allocation, equipment utilization, time-to-market pressures, the increased technological complexity of packaging and the growth of "fabless" semiconductor manufacturers. Our headquarters are located in Santa Clara, California and our facilities are strategically located in Arizona, South Korea, China and Malaysia to address the needs of our customers who are typically high growth integrated device manufacturers, or IDMs. We believe the following business strengths further 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 more than 50% of our packaging revenues during the twelve months ended March 31, 2000 pro forma for the acquisition of the Malaysian business. Our BGA packages are used for most high end applications. For example, our BGA packages provide non-microprocessor packaging solutions for computing and communications devices including Qualcomm Incorporated's CDMA chipsets. Our advanced package portfolio also includes next generation flip-chip technology for system on a chip, or SOC, which is used in Internet servers and telecom switching devices, as well as multi-die packaging for digital signal processors, or DSPs, and other wireless chipsets. In addition, our recently completed acquisition of the Malaysian business expands our mixed-signal testing platforms and provides us with 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 lead the development of solutions for next generation semiconductor packages. . Focus on Communications End Markets--In order to address the small footprint needs of wireless networks, Internet appliances and handheld computing devices, we have developed smaller, more efficient and lighter weight products, including EconoCSP(TM), FlipPAC(TM) and M/2/CSP(TM). As a result, we provide packaging and test services for most of the flash memory manufacturers including Atmel Corporation, Intel Corporation, STMicroelectronics N.V., Advanced Micro Devices and Hyundai Electronics Industries Co., Ltd., which we refer to as Hyundai Electronics. Additionally because of our design win focus, our new customer growth has been significant. Many of these new customers service the communications end markets and include Lucent Technologies Inc., Virata Semiconductor, Qualcomm, Intersil and Level One Communications, Inc. In addition, we provide packaging and test services for the fast growing digital multi-media end markets served by C-Cube Microsystems Inc. and NVIDIA Corporation. 1 . Long-term Partnerships with Key Customers--Pro forma for the acquisition of the Malaysian business, over half of our 1999 revenues were covered by long term agreements. One of our agreements is a five-year supply agreement with Intersil to assemble and test its PRISM(R) wireless LAN chipsets as well as its other analog, mixed signal and power semiconductors. We also have a two and one-half year supply agreement with Intel to package its chipsets as well as its other non- microprocessor devices. We are well positioned to benefit from the potential growth of Rambus Dynamic Random Access Memory, known as RDRAM, through our three and one-half year agreement with Hyundai Electronics to provide our chip-scale packaging and test services for Hyundai Electronics' outsourced RDRAM packaging needs. Qualcomm has agreed to enter into a three-year supply agreement with us under which we will provide packaging and test services for integrated circuit devices for Qualcomm. Each of Intel, Hyundai Electronics America and Intersil is, and upon completion of a private placement concurrent with the closing of this offering, Qualcomm will be, a stockholder of our company. . Geographic Diversification that Enhances Growth--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 makes us the largest packaging and test provider in China, and we plan to be the first independent provider of chip-scale packages in that country. In addition, we expect to become an important source of local content for products sold into the Chinese market, including cellular telephones and portable devices. Local content requirements are being driven by the Chinese government. Our principal packaging site for BGA packages is in Ichon, Korea which is strategically located near the large Korean semiconductor companies including Hyundai Electronics and Samsung Semiconductor, Inc., who are aggressively expanding into non- memory products and selling semiconductor foundry capacity. The Malaysian facility in Kuala Lumpur is less than 200 miles from Singapore and 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 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. . High Growth Opportunities in 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. According to Semiconductor Business News, spending on outsourced test services is growing by more than 40.0% per year and it is expected to reach $2.0 billion by 2001. We have invested significantly in testing equipment and have the capability to test mixed-signal, digital logic, memory, power and RF devices. Through increased emphasis on and additional capacity of our test business, we have seen a significant acceleration in our test revenues over the most recent four quarters, and we expect the growth to continue. Our core customer base includes some of the world's largest and most prominent semiconductor manufacturers, including Atmel, Hyundai Electronics, Intel, International Business Machines Corporation, LSI Logic Corp., Samsung 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, QuickLogic Corporation and LSI Logic, Intel's 1999 Preferred Quality Supplier Award and Intel's 2000 e-business supply chain award. Pro forma for the acquisition of the Malaysian business, in 1999 we packaged over one billion units and believe that we achieved one of the most efficient assembly yields in advanced substrate packaging. 2 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 IDMs 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 mixed-signal testing for communications semiconductors; . 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 IDMs; 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 Transactions On June 30, 2000, we consummated our acquisition of Intersil's packaging and test operations located in Kuala Lumpur, Malaysia along with related intellectual property for approximately $70.0 million in cash and preferred stock. In connection with the acquisition, we entered into a five-year supply agreement with Intersil to provide assembly and test services on an exclusive basis. The Malaysian business increases our exposure to high growth advanced communications products, provides a presence in Malaysia and enhances our intellectual property in key areas. In addition, the Malaysian business expands our mixed-signal testing capabilities and provides us with critical expertise in RF testing. For its fiscal year ended July 2, 1999, the Malaysian business had revenues of $110.5 million. On July 13, 2000, Qualcomm agreed to enter into a three-year supply agreement with us under which we will provide packaging and test services for integrated circuit devices for Qualcomm and to purchase from us $25.0 million of our Class A common stock at a purchase price per share equal to 95% of the initial public offering price in this offering in a private placement that will occur concurrently with the closing of this offering. Based on an assumed initial public offering price of $21.00, the midpoint of the range set forth on the cover page of this prospectus, Qualcomm will purchase 1,253,133 shares of our Class A common stock in the concurrent private placement. The share numbers in this prospectus have assumed a purchase by Qualcomm of our Class A common stock based on an initial public offering price of $21.00 per share. 3 The Recapitalization On August 5, 1999, affiliates of Bain Capital, Inc. and SXI Group LLC, a portfolio concern of Citicorp Venture Capital Ltd., which we refer to collectively as the "Equity Investors," and management acquired a controlling interest in ChipPAC, Inc. from Hyundai Electronics and Hyundai Electronics America, which we collectively refer to as Hyundai, through a series of transactions, including a merger into ChipPAC, Inc. of a special purpose corporation organized by the Equity Investors. The merger was structured and accounted for as a recapitalization. We refer to this transaction in this prospectus as the recapitalization. Additional Information ChipPAC, Inc. was incorporated in Delaware in June 2000 for the purpose of reincorporating ChipPAC, Inc., a California corporation, under the laws of the state of Delaware in a reclassification that is described elsewhere in this prospectus. We refer to the Delaware corporation as ChipPAC Delaware and to the California corporation as ChipPAC California. Unless specifically indicated in this prospectus or the context otherwise requires: . the terms "we," "us," "our," "ChipPAC" and the "company" refer to ChipPAC California prior to the reclassification and to ChipPAC Delaware, the issuer of the shares offered by this prospectus, after giving effect to the reclassification; . the term "offering" refers to the offering of Class A common stock of ChipPAC Delaware made under this prospectus; and . the information in this prospectus gives effect to the reclassification, including the reincorporation of ChipPAC California under the laws of the state of Delaware. Our principal executive office is located at 3151 Coronado Drive, Santa Clara, California 95054, and our telephone number is (408) 486-5900. We maintain a website on the Internet at www.chippac.com. Our website and the information it contains is not a part of this prospectus. 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, Dataquest, Electronic Trends Publications, Fabless Semiconductor Association, Semiconductor Business News and Worldwide Semiconductor Trade Statistics, market research reports, analyst reports and other 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. None of the sources that we rely on for information about the semiconductor market has consented to the disclosure and use of their information in this prospectus. 4 The Offering 15,500,000 shares by ChipPAC, Class A common stock offered.................... Inc. Class A common stock purchased in the concurrent private placement.............................. 1,253,133 shares by Qualcomm Common stock to be outstanding after this 66,558,735 shares of Class A offering and the concurrent private placement.. common stock 0 shares of Class B common stock 66,558,735 total shares of common stock 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. Holders of Class B common stock will have no voting rights, other than as required by law. Each share of Class A common stock is exchangeable on a share- for-share basis into Class B common stock at the option of the holder. Each share of Class B common stock is exchangeable on a share-for- share basis into Class A common stock at the option of the holder. Use of proceeds................................. We intend to use the net proceeds of this offering: . to redeem the outstanding shares of our Class B preferred stock issued to Hyundai; . to repay a portion of our outstanding indebtedness under our senior credit facilities; . to redeem a portion of our outstanding senior subordinated notes due 2009 and pay the redemption premium and the accrued and unpaid interest on those notes; . to pay fees and expenses of this offering and the concurrent private placement. We intend to use the proceeds of the concurrent private placement for capital expenditures and general corporate purposes. Proposed Nasdaq National Market Symbol.......... CHPC
Immediately prior to the closing of this offering, we will effect the reclassification of our capital stock, which is further described under "The Reclassification." Some of the terms of the reclassification, the concurrent private placement and the conversion of the Class A convertible preferred stock and Class C preferred stock will depend on the initial public offering price and/or the effective date of the registration statement of which this prospectus forms a part. The share numbers in this prospectus assume an initial public offering price of $21.00, the midpoint of the range set forth on the cover page of this prospectus, a registration statement effective date of August 3, 2000, and an issuance of 16,753,133 shares in this offering and the concurrent private placement. 5 Unless we indicate otherwise, the information in this prospectus reflects: . the reclassification of our capital stock; . the automatic conversion of all outstanding shares of our Class A convertible preferred stock held by Intel into an aggregate of 2,792,803 shares of our Class A common stock upon the closing of this offering; . the automatic conversion of all outstanding shares of Class C preferred stock held by Intersil into an aggregate of 883,715 shares of our Class A common stock upon the closing of this offering; and . a 1 for 2.625 reverse stock split of our common stock to be effected prior to the closing of this offering, other than the historical and pro forma financial data which do not give effect to this reverse stock split. The common stock to be outstanding after this offering does not include: . 1,748,361 shares of Class A common stock issuable upon the exercise of options outstanding or expected to be issued prior to the closing of this offering, at a weighted average exercise price of $2.99 per share, none of which will be exercisable immediately after the offering; . 2,285,926 additional shares of Class A common stock expected to be reserved for future grants, awards or sale under the 2000 Equity Incentive Plan or sale under the 2000 Employee Stock Purchase Plan; . 297,619 shares of Class B common stock issuable upon the exercise of a warrant held by Intel; and . the exercise by the underwriters of their option to purchase up to 2,325,000 additional shares of Class A common stock from us to cover over-allotments. The estimated fully-diluted number of shares expected to be outstanding after this offering and the concurrent private placement, including the shares of Class A common stock issuable upon the exercise of options outstanding or expected to be issued prior to the closing of this offering and the shares of Class B common stock issuable upon the exercise of a warrant held by Intel, is 68,604,714 shares. See "The Reclassification," "Management--Option Grants," "--Employee Stock Purchase Plan" and "Description of Financing Arrangements--Intel Warrant." 6 Summary Historical and Pro Forma As Adjusted Financial and Operating Data The following summary financial historical data for ChipPAC as of and for each of the years in the three-year period ended December 31, 1999 were derived from our audited financial statements and as of and for the three months ended March 31, 2000 were derived from our unaudited financial statements, all of which are included elsewhere in this prospectus. The following summary historical financial data for the Malaysian business as of and for the fiscal years ended June 27, 1997, July 3, 1998 and July 2, 1999 were derived from the audited financial statements of the Malaysian business and as of and for the nine months ended April 2, 1999 and March 31, 2000 were derived from the unaudited financial statements of the Malaysian business, all of which are included elsewhere in this prospectus. The summary pro forma as adjusted statements of operations and other operating data for the year ended December 31, 1999 and the three months ended March 31, 1999 and 2000 give effect to our recapitalization, the acquisition of the Malaysian business, the reclassification, this offering and the application of the net proceeds from this offering, as if they had occurred on January 1, 1999. The pro forma as adjusted balance sheet as of March 31, 2000 gives effect to the acquisition of the Malaysian business, the reclassification, this offering and the concurrent private placement and the applications of the net proceeds from this offering and the concurrent private placement, as if they had occurred at that date. The following summary pro forma as adjusted financial data are intended for informational purposes and should not be considered indicative of either the future results of operations or the results that might have occurred if our recapitalization, the acquisition of the Malaysian business, the reclassification, this offering and the concurrent private placement and the application of the net proceeds from this offering and the concurrent private placement had been consummated on the indicated date or had been in effect for the period presented. The following table should be read in conjunction with "Capitalization," "Unaudited Pro Forma Combined Condensed Financial Data," "Selected Historical Financial Data of ChipPAC, Inc.," "Selected Historical Financial Data of Malaysian Business," "The Reclassification," "Management's Discussion and Analysis of Financial Condition and Results of Operations," the historical financial statements, the unaudited interim financial data and the related notes included elsewhere in this prospectus. 7 ChipPAC, Inc.
Historical Pro Forma As Adjusted --------------------------- ----------------------------------- Year Ended Year Ended Three Months Ended December 31, December 31, March 31, --------------------------- ------------ ---------------------- 1997 1998 1999 1999 1999 2000 -------- -------- -------- ------------ --------- ----------- (dollars in thousands, except per share data) Statement of Operations Data:(1) Revenue................. $289,429 $334,081 $375,530 $477,394 $ 109,195 $120,392 Gross profit............ 60,191 63,716 58,042 72,267 16,734 22,741 Selling, general and administrative, including management fees charged by Hyundai................ 19,052 15,595 21,219 21,219 4,511 7,099 Research and development............ 4,052 7,692 12,362 12,362 3,003 2,631 Write-down of impaired assets(2).............. 11,569 -- -- -- -- -- Change of control expense(3)............. -- -- 11,842 -- -- -- -------- -------- -------- -------- --------- -------- Operating income........ $ 25,518 $ 40,429 $ 12,619 $ 38,686 $ 9,220 $ 13,011 ======== ======== ======== ======== ========= ======== Net income (loss)....... $(46,118) $ 32,303 $ (7,308) $ 19,234 $ 5,148 $ 7,257 ======== ======== ======== ======== ========= ======== Net income (loss) available to common stockholders(4)........ $(46,118) $ 32,303 $(11,528) $ 18,974 $ 5,148 $ 7,101 ======== ======== ======== ======== ========= ======== Earnings (loss) per common share: Basic................... $ 0.33 $ 0.09 $ 0.12 Diluted................. 0.33 0.09 0.11 Weighted average common shares outstanding: Basic................... 57,590 56,491 61,090 Diluted(5).............. 58,132 56,491 62,313 Other Financial Data: Depreciation............ $ 40,682 $ 45,855 $ 56,701 $ 74,990 $ 17,699 $ 11,661 Amortization............ -- -- 774 774 -- 375 Capital expenditures, including capital leases................. 136,594 63,523 57,856 77,969 15,167 12,749 As of March 31, 2000 ---------------------- Pro Forma Actual As Adjusted --------- ----------- Balance Sheet Data: Cash and cash equivalents....................................... $ 19,538 $ 46,620 Working capital................................................. 9,279 33,853 Total assets.................................................... 328,954 448,987 Total liabilities and preferred stock........................... 452,147 232,809 Total stockholders' equity (deficit)............................ (123,193) 216,178
- -------------------- (1) For fiscal years 1997 and 1998 and the portion of fiscal 1999 prior to the recapitalization, statement of operations data includes the expense of the ChipPAC business of Hyundai and allocated expenses from Hyundai. These amounts may not be comparable to the historical and pro forma data for fiscal year 1999. (2) At December 1997, in compliance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, we recorded a charge of $11.6 million to write down the value of those assets which had been identified as economically impaired as a result of management's decision to discontinue particular product lines or which were judged to be in excess of foreseeable requirements. (3) As a result of our recapitalization, we were contractually required to make a one-time change of control payment to our unionized Korean employees of approximately $11.8 million, which resulted in a corresponding reduction in the recapitalization consideration paid to Hyundai. (4) Net income (loss) available to common stockholders represents net income (loss) from continuing operations less dividends accreted on preferred stock, the accretion of the recorded value on the Intel warrant and, for the pro forma year ended December 31, 1999, the extraordinary loss on retirement of some of the debt in connection with the recapitalization. (5) The estimated fully-diluted number of shares expected to be outstanding after this offering and the concurrent private placement, including the shares of Class A common stock issuable upon the exercise of options outstanding or expected to be issued prior to the closing of this offering and the shares of Class B common stock issuable upon the exercise of a warrant held by Intel, is 68,604,714 shares. 8 Malaysian Business
Fiscal Year Ended Nine Months Ended ------------------------- --------------------- Successor Predecessor Predecessor Combined ------------------------- ----------- --------- June 27, July 3, July 2, April 2, March 31, 1997 1998 1999 1999 2000 -------- ------- -------- ----------- --------- (dollars in thousands) Statement of Operations Data: Revenue....................... $83,674 $80,376 $110,504 $77,837 $68,473 Gross profit and operating income....................... $14,601 $10,266 $ 16,078 $11,125 $ 9,907 ======= ======= ======== ======= ======= Other Financial Data: Depreciation(1) .............. $12,308 $14,823 $ 18,289 $13,646 $11,771 Capital expenditures, including capital leases..... 37,016 38,798 20,113 14,836 3,896
Balance Sheet Data (at period end): Cash and cash equivalents............................................. $ 2,082 Working capital....................................................... (17,162) Total assets.......................................................... 92,050 Total liabilities..................................................... 29,851 Total stockholders' equity............................................ 62,199
- -------------------- (1) There is no amortization associated with the Malaysian business. 9 RISK FACTORS You should carefully consider the following factors in addition to the other information set forth in this prospectus in analyzing an investment in our Class A common stock. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties that we do not presently know about or that we currently believe are immaterial may also impact our business operations. 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 Class A common stock could fall, and you may lose all or part of the money you paid to buy our Class A common stock. Risks Related to 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. Beginning in 1997 and continuing through the beginning of 1999, we experienced particularly intense competition and a general slowdown in the semiconductor industry. In addition, we increase our level of operating expenses and investment in packaging services capacity based on customer demand forecast(s) and anticipated revenue growth. If our revenues do not grow as anticipated or the forecasts upon which we rely are inaccurate, and we are unable to decrease these expenses, our operating income would decrease. 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 10 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 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. If our relationship with Hyundai, our owner prior to our recapitalization, deteriorates, our business operations could be interrupted. Our facilities in Ichon, Korea occupy a portion of a building located on property owned by Hyundai, our former owner. In addition, our operations at this site are dependent upon various service and support personnel employed by Hyundai. An unfavorable change in our relations with Hyundai could prevent us from gaining access to and effectively managing this facility and its operations, which would interrupt our business operations. 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, Intel, Atmel Corporation, LSI Logic, Intersil or any other large customer. Additionally, we may encounter difficulties in soliciting new customers. Pro forma for the Malaysian business, in 1999, sales of packaging and test services to Intel, Intersil, Atmel Corporation and LSI Logic accounted for approximately 48.7%, 21.3%, 6.0% and 5.1% of our net revenues, respectively, and sales to our top five customers in the aggregate accounted for approximately 84.4% of total net revenues. If any of our main customers were to purchase significantly less of our services in the future, these decreased levels of purchases could, ultimately, 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 $25,000 to $50,000. 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 11 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 to a particular or potential customer once it selects another vendor's packaging services. 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 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 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 Hyundai, 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. 12 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 Hyundai Electronics. In connection with our recapitalization, we entered into a patent and technology license agreement by which Hyundai Electronics granted us a 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 Hyundai to use patented BGA technologies owned by Motorola, which expires on December 31, 2002. Motorola licenses these patents to others, including our competitors. Pro forma for the Malaysian business, these BGA technologies contributed to 51.3% of our net revenues in 1999. 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 three 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, semiconductor device assemblies having an overall height of less than 1.2 millimeters and enhanced plastic ball grid array packages for semiconductor devices, respectively. The LSI Logic license relating to flip-chip semiconductor devices becomes perpetual and irrevocable upon our payment of fees (including a total of $6.0 million in royalties) or January 1, 2004, whichever occurs first. The other two LSI Logic licenses are 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. 13 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. As of March 31, 2000, over half 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 Korea, China and Malaysia, could make it more difficult for us to operate successfully. For 1996, 1997, 1998 and 1999, we generated approximately 38.2%, 17.6%, 7.2% and 16.3% of total revenues, respectively, from international markets, primarily from customers in Korea and Japan. In addition, all of the facilities currently used to provide our packaging services are located in Korea, China and Malaysia. 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 Korea, China and Malaysia. If future operations are negatively affected by these changes, our sales or profits may suffer. 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 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 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 recent acquisition of the Malaysian business, 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. The operation of the Malaysian business as an independent entity may result in 14 our incurring operating costs and expenses significantly greater than we anticipated prior to our acquisition of the Malaysian business. During 1999, the Malaysian business incurred costs for customer support and general and administrative activities. These costs represented expenses incurred directly by the Malaysian business and charges allocated to it by Intersil. The Malaysian business will now obtain many of these services on an arm's length basis. However, to obtain these services after our acquisition of the Malaysian business, we entered into a three-year 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 Intersil will perform under the services agreement or that upon termination of the agreement, we will be able to obtain similar services on comparable terms. The pro forma data contained in this prospectus are based on the historical intercompany revenues of the Malaysian business. We cannot assure you that future revenues will be consistent with these historical revenues. We entered into supply contracts with Intersil in connection with our recent acquisition of the Malaysian business, and any decrease in the purchase requirements of Intersil or the inability of Intersil 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. 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. We may not be able to successfully integrate the Malaysian business into our operations. On June 30, 2000, we consummated the acquisition of the Malaysian business. The acquisition could result in our incurring unanticipated expenses and losses and there can be no guarantee that we will realize any anticipated benefits from the acquisition. Moreover, the process of integrating the 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. In addition, although we expect that Intersil will assist us in integrating the operations of the Malaysian business into our operations under the three-year services agreement, we may encounter unforeseen obstacles or costs in that integration. 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 additional debt, 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. 15 Risks Related to This Offering A limited number of persons indirectly control us and may exercise their control in a manner adverse to your interests. Upon completion of this offering and the concurrent private placement, funds affiliated with Bain Capital, Inc. and SXI Group LLC will own 38,850,380 shares, or approximately 58.4%, of our outstanding common stock. By virtue of this stock ownership, they have the power to direct 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. See "Principal Stockholders." 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 the 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. Some of our existing stockholders have the right to require us to register the public sale of their shares; all of our total outstanding shares of common stock may be sold into the market in the near future; future sales of those shares could depress the market price of our Class A common stock. Immediately after this offering and the concurrent private placement, the public market for our common stock will include only the 15,500,000 shares of Class A common stock that we are selling in this offering, assuming the over- allotment option is not exercised. At that time, there will be 51,058,735 additional shares of our common stock outstanding. Substantially all shares held by our existing stockholders and all shares acquired in the concurrent private placement by Qualcomm, are subject to "lock-up" agreements that prohibit them from selling shares of our common stock for 180 days after the date of this prospectus. When the 180-day "lock-up" period expires, or if Credit Suisse First Boston Corporation consents, in its sole discretion, to an earlier sale, our existing stockholders will be able to sell their shares in the public market, subject to legal restrictions on transfer. Some of our existing stockholders are parties to agreements with us that provide for "demand" registration rights to cause us to register under the Securities Act of 1933 all or part of their shares of our common stock, as well as "piggyback" registration rights. Registration of the sale of these shares of our common stock would permit their sale into the market immediately. If our existing 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 common stock could depress the market price of the Class A common stock. See "Shares Eligible for Future Sale." 16 Our Class A common stock has never been publicly traded so we cannot predict the extent to which a trading market will develop for our Class A common stock. There has not been a public market for our Class A common stock. We cannot predict the extent to which a trading market will develop or how liquid that market might become. The initial public offering price will be determined by negotiations between representatives of the underwriters and us, and may not be indicative of prices that will prevail in the trading market. Because you will pay more for your shares than existing stockholders, the value of your investment in our Class A common stock will be diluted. If you purchase our Class A common stock in this offering, you will pay more for your shares than the amount paid by existing stockholders or individuals or companies which acquired shares by exercising options granted or warrants issued before this offering. As a result, the value of your investment based on the value of our net tangible assets, as recorded on our books, will be less than the amount you pay for shares of our Class A common stock in this offering. In addition, the total amount of our capital will be less than what it would have been had you and all of the existing stockholders, optionees and warrant holders paid the same amount per share of our common stock as you will pay in this offering. You may experience further dilution to the extent that additional shares of our common stock are issued upon the exercise of stock options or warrants. See "Dilution." 17 CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS Some of the statements contained in this prospectus contain forward-looking information. They include statements concerning: . our business; . our growth strategy; . our expanding new customer base, including expectations regarding the contribution to our total revenues in 2000 from new customers; . our growing test business, including expected increases in revenues attributable to this business; . our dependence on continuous introduction of new services based on the latest technology; . our ability to compete in the intensely competitive semiconductor packaging and test foundry industry; . our strategy of pursuing long term partnership agreements and strategic acquisitions; . risks associated with our international business activities and with acquisition and integration of acquired companies; . our dependence on proprietary information and technology and key personnel; . conditions in the semiconductor packaging and test foundry industry; . our response to general economic conditions, including economic conditions related to the semiconductor packaging and test foundry industry; . our fluctuating quarterly results; . liquidity and capital expenditures; and . our future financial position and sources of revenue. You can identify these statements by forward-looking words including "believe," "expect," "anticipate," "intend" and other similar expressions. Potential investors are cautioned not to place undue reliance on these forward- looking statements, which speak only as of their dates. These forward-looking statements are based largely on our current expectations and are subject to a number of risks and uncertainties, including those identified under the "Risk Factors" section and elsewhere in this prospectus and other risks and uncertainties indicated from time to time in our filings with the SEC. Actual results could differ materially from these forward-looking statements. In addition, important factors to consider in evaluating these forward-looking statements include changes in external market factors, changes in our business or growth strategy or an inability to execute our strategy due to changes in our industry or the economy generally, the emergence of new or growing competitors and various other competitive factors. In light of these risks and uncertainties, there can be no assurance that the matters referred to in the forward-looking statements contained in this prospectus will in fact occur. We do not undertake to update our forward-looking statements or risk factors to reflect future events or circumstances. 18 USE OF PROCEEDS The net proceeds from the sale of 15,500,000 shares of Class A common stock in this offering, after deducting underwriting discounts and commissions and estimated offering expenses, based on an assumed initial public offering price of $21.00 per share, the midpoint of the range set forth on the cover of this prospectus, are estimated to be approximately $295.5 million. In addition, we estimate that our net proceeds from the concurrent private placement will be approximately $25.0 million. The gross proceeds from this offering and the concurrent private placement will be used as set forth below. The following table sets forth the estimated sources and uses of funds as of March 31, 2000, the latest date for which financial information is available:
Amount Amount ------ ------ (in millions) (in millions) Sources: Uses: Gross public offering proceeds.... $325.5 Redeem Class B preferred stock(1)..... $ 75.9 Gross private placement proceeds.. 25.0 Repay senior credit facilities in part(2).............. 160.4 Redeem senior subordinated notes due 2009 in part(3).. 59.2 Capital expenditures and general corporate purposes............... 25.0 Fees and expenses(4).. 30.0 ------ ------ Total sources................. $350.5 Total uses.......... $350.5 ====== ======
- --------------------- (1) The 70,000 outstanding shares of our Class B preferred stock issued to Hyundai Electronics and Hyundai Electronics America have an initial aggregate liquidation preference of $70.0 million plus accumulated and unpaid dividends. Dividends on these shares accrete on a daily basis at a rate of 12.5% per annum. (2) Our senior credit facilities currently provide for a term A loan for $70.0 million, a term B loan for $80.0 million, a term C loan for $55.0 million, revolving loans of up to $50.0 million and capital expenditure loans of up to $20.0 million. As of March 31, 2000, after giving effect to our recent acquisition of the Malaysian business, we owed $212.5 million under our senior credit facilities. As of July 10, 2000, the interest rates for outstanding indebtedness under our senior credit facilities were 9.88%, 10.63%, 10.63% and 11.75% for the term A, term B, term C and revolving loans, respectively. The actual amount repaid will be reduced by approximately $44,000 per day, the accrued interest on our senior subordinated notes and accreted dividends on our Class B preferred stock, until the closing of this offering. (3) Our senior subordinated notes due 2009 in the aggregate outstanding principal amount of $150.0 million bear interest at the rate of 12.75% per annum. Under the terms of the indenture relating to the senior subordinated notes, we are permitted to use a portion of the net proceeds from this offering to redeem up to $52.5 million of the aggregate outstanding principal amount of the senior subordinated notes at a redemption price of 112.75% or $59.2 million, plus accrued and unpaid interest to the redemption date. (4) Includes underwriting discounts, commissions and a one-time payment to terminate the advisory agreements with the Equity Investors upon the closing of this offering. 19 DIVIDEND POLICY We have not in the past paid, and do not expect for the foreseeable future to pay, dividends on our common stock. Instead, we anticipate that all of our earnings, if any, in the foreseeable future will be used for working capital and other general corporate purposes. The payment of dividends by us to holders of our common stock is prohibited by our senior credit facility and is restricted by the indenture relating to our senior subordinated notes. 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 condition, capital requirements and contractual restrictions. 20 CAPITALIZATION The following table sets forth our capitalization at March 31, 2000: . on an actual basis; . on a pro forma basis to reflect: (1) the acquisition of the Malaysian business; (2) the incurrence of $55.0 million of debt under the term C loan; and (3) the issuance of 17,500 shares of our Class C preferred stock. . on a pro forma basis as adjusted for: (1) the sale by us of 15,500,000 shares of Class A common stock in this offering and the receipt of the estimated net proceeds from this offering, after deducting estimated underwriting discounts and commissions and estimated offering expenses; (2) the sale by us of 1,253,133 shares of Class A common stock in the concurrent private placement and the receipt of the estimated net proceeds from the concurrent private placement; (3) the conversion of our Class A convertible preferred stock outstanding as of March 31, 2000 into 2,765,146 shares of Class A common stock upon the closing of this offering; (4) the conversion of our Class C preferred stock issued in connection with the acquisition of the Malaysian business into 879,630 shares of Class A common stock upon the closing of this offering; (5) the repayment of $212.9 million of debt plus accrued interest and the redemption premium for early repayment of debt; (6) the redemption of Class B preferred stock plus accreted dividends; and (7) the reclassification.
As of March 31, 2000 --------------------------------- Pro Forma Actual Pro Forma As Adjusted --------- --------- ----------- (in thousands, except per share data) Cash and cash equivalents.................... $ 19,538 $ 21,620 $ 46,620 ========= ========= ========= Long term debt (including current portion): Revolving loans(1).......................... $ 7,500 $ 7,500 $ -- Term loans under senior credit facilities(2).............................. 150,000 205,000 52,100 12.75% Senior subordinated notes due 2009... 150,000 150,000 97,500 --------- --------- --------- Total long term debt (including current portion)................................... 307,500 362,500 149,600 --------- --------- --------- Mandatorily redeemable preferred stock: 10.0% cumulative convertible preferred stock, class A held by Intel--par value $0.01 per share; 10,000 shares authorized, issued and outstanding at March 31, 2000, actual and pro forma; no shares issued and outstanding, pro forma as adjusted......... 9,832 9,832 -- 12.5% cumulative preferred stock, class B held by Hyundai--par value $0.01 per share; 105,000 shares authorized and 70,000 shares issued and outstanding at March 31, 2000, actual and pro forma; no shares issued and outstanding, pro forma as adjusted......... 75,853 75,853 -- 5% cumulative preferred stock, class C held by Intersil--par value $0.01 per share; 17,500 shares authorized, no shares issued and outstanding at March 31, 2000, actual; 17,500 shares issued and outstanding, pro forma; no shares issued and outstanding, pro forma as adjusted...................... -- 15,786 -- --------- --------- --------- Total mandatorily redeemable preferred stock...................................... 85,685 101,471 -- Stockholders' equity (deficit): Common stock, class A--par value $0.01 per share; 180,000,000 shares authorized and 96,254,000 shares issued and outstanding at March 31, 2000, actual and pro forma (250,000,000 shares authorized and 68,604,714 issued, pro forma as adjusted).. 974 974 686 Common stock, class B--par value $0.01 per share; 180,000,000 shares authorized and no shares issued or outstanding at March 31, 2000, actual and pro forma (250,000,000 shares authorized and no shares issued, pro forma as adjusted)......................... -- -- -- Common stock, class L--par value $0.01 per share; 20,000,000 shares authorized and 10,456,000 shares issued and outstanding at March 31, 2000, actual and pro forma (no shares authorized or issued, pro forma as adjusted).................................. 104 104 -- Warrants, Class B Common Stock (the Intel Warrant)................................... 1,250 1,250 1,250 Additional paid-in-capital.................. 86,336 86,336 434,728 Divisional equity, net of capital redemption................................. (167,714) (167,714) (167,714) Receivable from stockholders................ (1,478) (1,478) (1,478) Accumulated deficit......................... (51,834) (51,834) (60,463) Accumulated other comprehensive income (loss)..................................... 9,169 9,169 9,169 --------- --------- --------- Total stockholders' equity (deficit)........ (123,193) (123,193) 216,178 --------- --------- --------- Total capitalization....................... $ 269,992 $ 340,778 $ 365,778 ========= ========= =========
Footnotes to table appear on following page. 21 Footnotes to table from previous page. - --------------------- (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. (2) Our senior credit facilities currently provide for a term A loan for $70.0 million, a term B loan for $80.0 million, a term C loan for $55.0 million, revolving loans of up to $50.0 million and capital expenditure loans of up to $20.0 million. The term A loan, term B loan and term C loan amortize quarterly with the balance of the term A loan due July 31, 2005, the term B loan due July 31, 2006 and the term C loan due July 31, 2007. As of March 31, 2000, after giving effect to the acquisition of the Malaysian business, we owed $212.5 million under our senior credit facilities. As of July 10, 2000, the interest rates for outstanding indebtedness under our senior credit facilities were 9.88%, 10.63%, 10.63% and 11.75% for the term A, term B, term C and revolving loans, respectively. The actual amount repaid will be reduced by approximately $44,000 per day, the accrued interest on our senior subordinated notes and accreted dividends on our Class B preferred stock, until the closing of this offering. This capitalization table excludes the following shares as of March 31, 2000: . 1,300,674 shares of Class A common stock at a weighted average exercise price of $3.91 per share that were subject to outstanding options as of March 31, 2000; and . 297,619 shares of Class B common stock issuable upon the exercise of the Intel warrant at an exercise price of $16.80, assuming an initial public offering price of $21.00, less a 20% discount. 22 THE RECLASSIFICATION A reclassification will be effected immediately prior to the effectiveness of the registration statement of which this prospectus forms a part. The reclassification will be effected pursuant to a merger whereby ChipPAC California will merge with and into ChipPAC Delaware, the newly formed, wholly owned subsidiary of ChipPAC California that is incorporated under the laws of the state of Delaware and that will issue the Class A common stock in this offering. The merger will have the effect of reincorporating our company under the laws of the state of Delaware. In connection with the merger: . each share of Class A common stock of ChipPAC California will become one share of Class A common stock of ChipPAC Delaware; . each share of Class B common stock of ChipPAC California will become one share of Class B common stock of ChipPAC Delaware; . each share of Class L common stock of ChipPAC California will become one share of Class A common stock of ChipPAC Delaware, plus an additional number of shares of Class A common stock of ChipPAC Delaware, rounded to the nearest whole share, determined by dividing the Preference Amount described below by the value of a share of Class A common stock of ChipPAC Delaware based on the initial public offering price; . each share of Class A convertible preferred stock of ChipPAC California will become one share of Class A convertible preferred stock of ChipPAC Delaware; . each share of Class B preferred stock of ChipPAC California will become one share of Class B preferred stock of ChipPAC Delaware; . each share of Class C preferred stock of ChipPAC California will become one share of Class C preferred stock of ChipPAC Delaware; and . each outstanding option and warrant for the purchase of Class A common stock of ChipPAC California will become an option and warrant for the purchase of Class A common stock of ChipPAC Delaware. The foregoing is referred to throughout this prospectus as the reclassification. As a result of the reclassification, stockholders of ChipPAC California will become stockholders of ChipPAC Delaware. Immediately prior to the reclassification, this offering and the concurrent private placement, ChipPAC California has three classes of common stock, designated as Class A common stock, Class B common stock and Class L common stock. The Class A common stock and Class B common stock are identical, except that the Class B common stock is non-voting and is convertible on a share-for- share basis into Class A common stock at any time. The Class A common stock is convertible at any time on a share-for-share basis into Class B common stock. The Class L common stock is identical to the Class B common stock, except that the Class L common stock is not convertible and each share of Class L common stock is entitled to a preferential payment upon any distribution by ChipPAC California to holders of Class A common stock and Class B common stock, whether by dividend, liquidating distribution or otherwise, equal to the original cost of the share of the Class L common stock ($9.00 per share) plus an amount which accrues on a daily basis at a rate of 12.0% per annum, compounded quarterly. This preferential amount is referred to in this prospectus as the Preference Amount. As of March 31, 2000, the weighted average Preference Amount was $9.10 per share of Class L common stock. On August 3, 2000, the weighted average Preference Amount will be $9.45 per share of Class L common stock. As discussed above, the number of shares of Class A common stock of ChipPAC Delaware issuable upon the conversion of the Class L common stock of ChipPAC California depends on both the timing of that conversion and the initial public offering price in this offering. The share numbers in this prospectus have assumed a Class L common stock conversion date of August 3, 2000 and an initial public offering price 23 of $21.00 per share, the midpoint of the range set forth on the cover page of this prospectus. The Class L common stock of ChipPAC California will convert into Class A common stock of ChipPAC Delaware as part of the reclassification, which is currently expected to occur immediately prior to the effectiveness of the registration statement of which this prospectus forms a part. Accordingly, if the effective date is prior to or after August 3, 2000 and/or if the initial public offering price is greater or less than $21.00 per share, then: . a smaller or greater number of shares of Class A common stock of ChipPAC Delaware will be issued upon the conversion of the Class L common stock of ChipPAC California; . a smaller or greater number of shares of Class A common stock of ChipPAC Delaware will be outstanding upon the closing of this offering; and . the shares of Class A common stock of ChipPAC Delaware issued in this offering will represent a greater or lesser percentage of our outstanding common stock. Following the reclassification, in connection with the closing of this offering, all outstanding shares of Class A convertible preferred stock and Class C preferred stock of ChipPAC Delaware will automatically convert into an aggregate of 3,676,518 shares of Class A common stock of ChipPAC Delaware, based on the assumptions described below. The actual number of shares of Class A common stock of ChipPAC Delaware issuable upon the conversion of the Class A convertible preferred stock and Class C preferred stock of ChipPAC Delaware depends on the initial public offering price in this offering. The share numbers in this prospectus have assumed conversion based on an initial public offering price of $21.00 per share, the midpoint of the range set forth on the cover page of this prospectus. Accordingly, if the initial public offering price is greater or less than $21.00 per share, then: . a smaller or greater number of shares of Class A common stock of ChipPAC Delaware will be issued upon the conversion of the Class A convertible preferred stock and the Class C preferred stock of ChipPAC California; . a smaller or greater number of shares of Class A common stock of ChipPAC Delaware will be outstanding upon the closing of this offering; and . the shares of Class A common stock of ChipPAC Delaware issued in this offering will represent a greater or lesser percentage of our outstanding common stock. 24 DILUTION Purchasers of our Class A common stock offered by this prospectus will suffer an immediate and substantial dilution in the net tangible book value per share. Dilution is the amount by which the price paid by the purchasers of the shares of our Class A common stock will exceed the net tangible book value per share of Class A common stock after the offering and the concurrent private placement. As of March 31, 2000, our pro forma tangible net capital deficiency was $33.5 million, or $0.49 per share of common stock. Pro forma tangible net capital deficiency per share is determined by dividing our tangible net capital deficiency by the aggregate number of shares of common stock outstanding, assuming the reclassification had taken place on March 31, 2000 and an assumed initial public offering price of $21.00 per share, the midpoint of the range set forth on the cover page of this prospectus. For these purposes, we calculated our net capital deficiency by subtracting our intangible assets and total liabilities from our total assets. After giving effect to (1) the sale of the shares of Class A common stock in this offering, at an assumed initial public offering price of $21.00 per share, the midpoint of the range set forth on the cover of this prospectus, (2) the concurrent private placement at a purchase price per share equal to 95% of the assumed initial public offering price, (3) the receipt and application of the net proceeds of this offering as described in "Use of Proceeds", (4) the conversion of our Class L common stock into shares of Class A common stock as of March 31, 2000, (5) the conversion of our Class A convertible preferred stock into shares of Class A common stock as of March 31, 2000 and (6) the conversion of our Class C preferred stock into shares of Class A common stock as of March 31, 2000, pro forma net tangible book value as of March 31, 2000, would have been approximately $204.4 million, or $2.98 per share. This represents an immediate increase in pro forma net tangible book value of $3.47 per share to the current stockholders and an immediate dilution in pro forma net tangible book value of $18.02 per share to purchasers of Class A common stock in this offering. The following table illustrates this per share dilution:
Per Share -------------- Assumed initial public offering price........................ $21.00 Pro forma net tangible book value before this offering .... $(0.49) Increase in pro forma net tangible book value attributable to new investors (including the concurrent private placement)................................................ 3.47 ------ Pro forma net tangible book value after this offering and the concurrent private placement................................ 2.98 ------ Dilution to new investors.................................... $18.02 ======
The following table summarizes, on a pro forma basis, as of March 31, 2000, the number of shares purchased, the total consideration paid (or to be paid) and the average price per share paid (or to be paid) by (1) the existing common stockholders, (2) stockholders who are having their Class A convertible preferred stock and Class C preferred stock converted into shares of Class A common stock, (3) the purchasers of Class A common stock in this offering, at an assumed initial public offering price of $21.00 per share, the midpoint of the range set forth on the cover of this prospectus, before deducting the estimated offering expenses and underwriting discounts and commissions and (4) Qualcomm in the concurrent private placement at a purchase price per share equal to 95% of the assumed initial public offering price:
Shares of Common Stock Purchased or Converted Total Consideration ------------------ --------------------- Average (in millions) Price Number Percent Amount Percent Per Share ---------- ------- ------------- ------- --------- Existing common stockholders........... 46,608,522 69.6% $105.6 21.9% $ 2.27 Converted preferred stockholders........... 3,644,766 5.4 25.8 5.4 7.08 Investors in this offering............... 15,500,000 23.1 325.5 67.5 21.00 Qualcomm................ 1,253,133 1.9 25.0 5.2 19.95 ---------- ----- ------ ----- Total................. 67,006,421 100.0% $481.8 100.0% ========== ===== ====== =====
25 If the underwriters exercise their over-allotment option in full, the following will occur: . the number of shares of Class A common stock held by existing stockholders and converted preferred stockholders will represent approximately 72.3% of the total number of shares of Class A common stock outstanding; and . the number of shares of Class A common stock held by new public investors after the offering and Qualcomm after the concurrent private placement will be increased to 19,078,133, or approximately 27.7% of the total number of shares of our Class A common stock outstanding after this offering and the concurrent private placement. As of March 31, 2000, there were an aggregate of: (1) 1,300,674 shares of Class A common stock issuable upon the exercise of outstanding options granted under our stock plans, of which none were then exercisable, at exercise prices ranging from $0.29 to $5.39 per share; (2) 2,336,164 additional shares of Class A common stock expected to be reserved for grants, awards or sale under the 2000 Equity Incentive Plan or sale under the 2000 Employee Stock Purchase Plan; and (3) 297,619 shares of Class A common stock issuable upon the exercise of the Intel Warrant. Immediately after this offering and the concurrent private placement, 1,748,361 shares of Class A common stock are issuable upon the exercise of options outstanding or expected to be issued prior to the closing of this offering, at the weighted average exercise price of $2.99 per share, none of which will be exercisable immediately after this offering and the concurrent private placement. See "Management--Option Grants," "--Employee Stock Purchase Plan" and "Description of Financing Arrangements--Intel Warrant." To the extent these options and warrants are exercised, there may be further dilution to new investors. 26 UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA The following unaudited pro forma combined condensed statements of operations for the year ended December 31, 1999 and the three month periods ended March 31, 1999 and March 31, 2000, and the unaudited pro forma balance sheet as of March 31, 2000, have been derived by the application of pro forma adjustments to our combined results included elsewhere in this prospectus. The pro forma statements of operations give effect to the following, as if they had occurred on January 1, 1999: (1) the recapitalization and (2) the acquisition of the Malaysian business. The pro forma as adjusted statements of operations give effect to the items in (1) and (2) and to the reclassification, this offering and the concurrent private placement and the application of proceeds from this offering and the concurrent private placement, as if they had occurred on January 1, 1999. The unaudited pro forma balance sheet as of March 31, 2000 gives effect to the acquisition of the Malaysian business, as if it had occurred as of March 31, 2000. The unaudited pro forma as adjusted balance sheet as of March 31, 2000 gives effect to the acquisition of the Malaysian business, the reclassification, this offering and the concurrent private placement and the application of proceeds from this offering and the concurrent private placement, as if they had occurred as of March 31, 2000. The estimated pro forma adjustments arising from the acquisition of the Malaysian business are derived from the purchase price paid and estimated fair values of the assets acquired and liabilities assumed. The final determination of fair value and resulting goodwill may differ significantly from that reflected in these pro forma statements of operations and other data. The unaudited pro forma financial statements do not purport to represent what our financial position or results of operations would have actually been had our recapitalization, the acquisition of the Malaysian business, the reclassification, this offering and the concurrent private placement and the application of the net proceeds of this offering and the concurrent private placement in fact occurred on the dates assumed, or to project results of operations for any future period. The pro forma financial statements should be read in conjunction with the "Capitalization," "Prospectus Summary--Summary Historical and Pro Forma Financial and Operating Data," "Selected Historical Financial Data of ChipPAC, Inc.," "Selected Historical Financial Data of Malaysian Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections and the historical combined financial statements and the related notes included elsewhere in this prospectus. Prior to the recapitalization, our activities were conducted as part of Hyundai Electronics' overall operations, and separate financial statements were not prepared. Our financial statements as of and for the year ended December 31, 1999 were prepared in part, and for the three months ended March 31, 1999 were prepared entirely from the historical accounting records of Hyundai Electronics and include various allocations for costs and expenses. Therefore, our statement of operations may not be indicative of the results of operations that would have resulted if we had operated on a stand-alone basis. All of the allocations and estimates reflected in our financial statements are based on assumptions that we believe are reasonable under the circumstances and that have been reviewed by Hyundai Electronics America. During the periods covered by the financial statements of the Malaysian business, the activities of the Malaysian business were conducted as part of Intersil's overall operations, and separate financial statements were not prepared. The Malaysian business' financial statements were prepared from the historical accounting records of Intersil and include various allocations for costs and expenses. Therefore, the statement of operations for the Malaysian business may not be indicative of the results of operations that would have resulted if the Malaysian business had operated on a stand-alone basis. All of the allocations and estimates reflected in the financial statements of the Malaysian business are based on assumptions that we believe are reasonable under the circumstances. The fiscal year end of the Malaysian business was July 2, 1999. The pro forma statement of operations for the twelve months ended December 31, 1999 includes the third and fourth quarters of the fiscal year ended July 2, 1999 and the first and second quarters of the fiscal year ending June 30, 2000 of the Malaysian business. 27 Unaudited Pro Forma Combined Condensed Statement of Operations Year Ended December 31, 1999
ChipPAC, Inc. Recapitalization Malaysian Acquisition Pro Forma ChipPAC, Inc. ChipPAC, Inc. Pro Forma Business Pro Forma Before Offering Pro Forma Historical Adjustments Historical Adjustments Offering Adjustments As Adjusted ------------- ---------------- ---------- ----------- ------------- ----------- ------------- (in thousands, except per share data) Pro Forma Combined Condensed Statements of Operations: Revenues................ $375,530 $ -- $101,864 $ -- $477,394 $ -- $477,394 Costs of revenues....... 317,488 -- 85,952 1,687 (3) 405,127 -- 405,127 -------- ------- -------- ------- -------- -------- -------- Gross profit............ 58,042 -- 15,912 (1,687) 72,267 -- 72,267 Operating expenses: Selling, general and administrative........ 21,219 -- -- -- 21,219 -- 21,219 Research and development........... 12,362 -- -- -- 12,362 -- 12,362 Change of control expense............... 11,842 (11,842)(1) -- -- -- -- -- -------- ------- -------- ------- -------- -------- -------- Operating income........ 12,619 11,842 15,912 (1,687) 38,686 -- 38,686 Interest expense........ 21,241 12,976 (2) -- 5,844 (4) 40,061 (20,809)(6) 19,252 Interest income......... (2,751) -- (86) -- (2,837) -- (2,837) Foreign currency gain... (1,224) -- -- -- (1,224) -- (1,224) Other income............ (650) -- 102 -- (548) -- (548) -------- ------- -------- ------- -------- -------- -------- Income (loss) before provision for income taxes.................. (3,997) (1,134) 15,896 (7,531) 3,234 20,809 24,043 Provision (benefit) for income taxes........... 1,938 (227) 7,745 (8,809)(5) 647 4,162 (5) 4,809 -------- ------- -------- ------- -------- -------- -------- Net income (loss) from continuing operations............ $ (5,935) $ (907) $ 8,151 $ 1,278 $ 2,587 $ 16,647 $ 19,234 ======== ======= ======== ======= ======== ======== ======== Net income (loss) available to common stockholders(7)....... $(11,528) $(6,103) $ 8,151 $ 403 $ (7,704) $ 26,678 $ 18,974 ======== ======= ======== ======= ======== ======== ======== Earnings per common share: Basic................... $ 0.33 Diluted................. 0.33 Weighted average common shares outstanding: Basic .................. 57,590 Diluted(8) ............. 58,132 Other Data: Dividends accreted on Class B preferred stock(9)............... 3,554 5,196 -- -- 8,750 (8,750) -- Dividends accreted on Class A convertible preferred stock(10).... 406 -- -- -- 406 (406) -- Dividends accreted on Class C preferred stock(11).............. -- -- -- 875 875 (875) -- Accretion of recorded value of the Intel warrant................ 260 -- -- -- 260 -- 260
- ------------------- See Notes to Unaudited Pro Forma Combined Condensed Statement of Operations. 28 Unaudited Pro Forma Combined Condensed Statement of Operations Three Months Ended March 31, 1999
ChipPAC, Inc. Recapitalization Malaysian Acquisition Pro Forma ChipPAC, Inc. ChipPAC, Inc. Pro Forma Business Pro Forma Before Offering Pro Forma Historical Adjustments Historical Adjustments Offering Adjustments As Adjusted ------------- ---------------- ---------- ----------- ------------- ----------- ------------- (in thousands, except per share data) Pro Forma Combined Condensed Statements of Operations: Revenues................ $85,548 $ -- $23,647 $ -- $109,195 $ -- $109,195 Costs of revenues....... 72,131 -- 19,908 422 (3) 92,461 -- 92,461 ------- ------- ------- ------- -------- ------ -------- Gross profit............ 13,417 -- 3,739 (422) 16,734 -- 16,734 Operating expenses: Selling, general and administrative........ 4,511 -- -- -- 4,511 4,511 Research and development........... 3,003 -- -- -- 3,003 -- 3,003 ------- ------- ------- ------- -------- ------ -------- Operating income........ 5,903 -- 3,739 (422) 9,220 9,220 Interest expense........ 3,007 5,547 (2) -- 1,461 (4) 10,015 (5,202)(6) 4,813 Interest income......... (950) -- (20) -- (970) -- (970) Foreign currency gain... (946) -- -- -- (946) -- (946) Other income............ (127) -- 15 -- (112) -- (112) ------- ------- ------- ------- -------- ------ -------- Income (loss) before provision for income taxes.................. 4,919 (5,547) 3,744 (1,883) 1,233 5,202 6,435 Provision (benefit) for income taxes........... 3,115 (1,109)(5) -- (1,759)(5) 247 1,040 (5) 1,287 ------- ------- ------- ------- -------- ------ -------- Net income (loss)...... $ 1,804 $(4,438) $ 3,744 $ (124) $ 986 $4,162 $ 5,148 ======= ======= ======= ======= ======== ====== ======== Net income (loss) available to common stockholders(7)....... $ 1,804 $(6,626) $ 3,744 $ (343) $ (1,421) $6,569 $ 5,148 ======= ======= ======= ======= ======== ====== ======== Earnings per common shares: Basic................... $ 0.09 Diluted................. $ 0.09 Weighted average common shares outstanding: Basic................... 56,491 Diluted(8).............. 56,491 Other Data: Dividends accreted on Class B preferred stock(9)............... -- 2,188 -- -- 2,188 (2,188) -- Dividends accreted on Class A convertible preferred stock(10).... -- -- -- -- -- -- -- Dividends accreted on Class C preferred stock(11).............. -- -- -- 219 219 (219) --
- ------------------- See Notes to Unaudited Pro Forma Combined Condensed Statement of Operations. 29 Unaudited Pro Forma Combined Condensed Statement of Operations Three Months Ended March 31, 2000
ChipPAC, Inc. Malaysian Acquisition Pro Forma ChipPAC Pro ChipPAC, Inc. Business Pro Forma Before Offering Forma Historical Historical Adjustments Offering Adjustments As Adjusted ------------- ---------- ----------- ------------- ----------- ----------- (in thousands, except per share data) Pro Forma Combined Condensed Statements of Operations: Revenues................ $97,469 $22,923 $ -- $120,392 $ -- $120,392 Costs of revenues....... 77,044 20,185 422 (3) 97,651 -- 97,651 ------- ------- ------- -------- ------ -------- Gross profit............ 20,425 2,738 (422) 22,741 -- 22,741 Operating expenses: Selling, general and administrative........ 7,099 -- -- 7,099 -- 7,099 Research and development........... 2,631 -- -- 2,631 -- 2,631 ------- ------- ------- -------- ------ -------- Operating income........ 10,695 2,738 (422) 13,011 -- 13,011 Interest expense........ 8,764 -- 1,461 (4) 10,225 (5,523)(6) 4,702 Interest income......... (238) (10) -- (248) -- (248) Foreign currency gain... (399) -- -- (399) -- (399) Other income............ (134) 18 -- (116) -- (116) ------- ------- ------- -------- ------ -------- Income (loss) before provision for income taxes.................. 2,702 2,730 (1,883) 3,549 5,523 9,072 Provision (benefit) for income taxes........... 542 3,165 (2,997)(5) 710 1,105 (5) 1,815 ------- ------- ------- -------- ------ -------- Net income (loss)...... $ 2,160 $ (435) $ 1114 $ 2,839 $4,418 $ 7,257 ======= ======= ======= ======== ====== ======== Net income (loss) available to common stockholders(7)....... $ (555) $ (435) $ 896 $ (84) $7,185 $ 7,101 ======= ======= ======= ======== ====== ======== Earnings per common share: Basic................... $ 0.12 Diluted................. 0.11 Weighted average common shares outstanding: Basic................... 61,090 Diluted(8).............. 62,313 Other Data: Dividends accreted on Class B preferred stock(9)............... 2,299 -- -- 2,299 (2,299) -- Dividends accreted on Class A convertible preferred stock(10).... 250 -- -- 250 (250) -- Dividends accreted on Class C preferred stock(11).............. -- -- 218 218 (218) -- Accretion of recorded value of the Intel Warrant................ 156 -- -- 156 -- 156
- ------------------- See Notes to Unaudited Pro Forma Combined Condensed Statement of Operations. 30 Notes to Unaudited Pro Forma Combined Condensed Statement of Operations Year Ended December 31, 1999 and Three Months Ended March 31, 1999 and 2000 (1) As a result of our recapitalization, we were contractually required to make a one-time change of control payment to our unionized Korean employees of approximately $11.8 million, which resulted in a corresponding reduction to the recapitalization consideration paid to Hyundai. The payment was recorded as an operating expense during the three months ended September 30, 1999. This amount has been excluded from the pro forma operating results for the year ended December 31, 1999, as it represents a one-time charge directly related to our recapitalization. (2) The increase to pro forma interest expense as a result of our recapitalization is summarized as follows:
Three Months Year Ended Ended December 31, March 31, 1999 1999 ------------ ------------ (in millions) Interest on term loans--8.86%.................... $ 13.3 $ 3.3 Interest on senior subordinated notes due 2009-- 12.75%.......................................... 19.1 4.8 Amortization of debt issuance costs ($14.4 million over 8 years) .......................... 1.8 0.5 ------ ----- Interest expense from recapitalization debt requirements.................................... 34.2 8.6 Less: historical interest expense................ (21.2) (3.0) ------ ----- Net increase................................... $ 13.0 $ 5.5 ====== =====
An increase or decrease in the assumed weighted average interest rate on the senior credit facilities of 0.125% would change pro forma interest expense by $187,500 for the year ended December 31, 1999. (3) As part of cost of revenues, we expect to include amortization expense based on the fair value of acquired intangibles over a period of seven years. The pro forma expense for the year ended December 31, 1999 is $1.7 million and the pro forma expense for the three months ended March 31, 1999 and 2000 is $0.4 million. Acquired intangibles comprise the estimated fair value of intellectual property, primarily trade secrets and patents. (4) The increase to pro forma interest as a result of the acquisition of the Malaysian business is summarized as follows:
Three Months Three Months Year Ended Ended Ended December 31, 1999 March 31, 1999 March 31, 2000 ----------------- -------------- -------------- (in millions) Interest on term C loan-- 10.62625%................ $5.8 $1.5 $1.5 ==== ==== ====
(5) As a result of the recapitalization, we believe our effective tax rate will be 20% on an ongoing basis. We believe that the acquisition of the Malaysian business did not change our effective 20% tax rate. Accordingly, the pro forma adjustments reflect the income tax required to result in a pro forma income tax provision based on a 20% effective tax rate. 31 Notes to Unaudited Pro Forma Combined Condensed Statement of Operations--(Continued) (6) A portion of the proceeds of the offering will be used to repay a portion of our senior subordinated notes and amounts outstanding under our senior credit facilities, resulting in lower debt after the offering and lower interest expense. The estimated pro forma reductions to interest expense for the pro forma year ended December 31, 1999 and the three months ended March 31, 1999 and 2000 are set forth below:
Three Months Three Months Year Ended Ended Ended December 31, 1999 March 31, 1999 March 31, 2000 ----------------- -------------- -------------- (in millions) Senior subordinated notes-- 12 3/4%.................. $ 6.6 $1.6 $1.6 Senior credit facilities: term A loan--9.3825% in 2000, 8.86% in 1999..... 6.2 1.5 1.6 term B loan--10.1325% in 2000, 8.86% in 1999..... 2.4 0.6 0.7 term C loan--10.1325%.... 5.6 1.4 1.4 revolving loans--11.25%.. -- -- 0.1 ----- ---- ---- $20.8 $5.2 $5.5 ===== ==== ====
(7) Net income (loss) available to common stockholders represents net income (loss) from continuing operations less dividends accreted on preferred stock, the accretion of the recorded value on the Intel warrant and, for the pro forma year ended December 31, 1999, the extraordinary loss on retirement of a portion of the debt in connection with recapitalization. The following table sets forth the computation of net income (loss) per share of common stock:
Pro Forma As Adjusted -------------------------------- Three Months Ended Year Ended December 31, Year Ended March 31, ---------------------------- December 31, ------------------- 1997 1998 1999 1999 1999 2000 --------- -------- -------- ------------ --------- --------- (in thousands, except per share data) Net income (loss)....... $ (46,118) $ 32,303 $ (5,935) $ 19,234 $ 5,148 $ 7,257 Extraordinary item(a).. -- -- (1,373) -- -- -- Mandatorily redeemable preferred stock dividends............. -- -- (3,960) -- -- -- Accretion of the recorded value of the Intel warrant......... -- -- (260) (260) -- (156) --------- -------- -------- -------- --------- --------- Net income (loss) available to common stockholders........... $(46,118) $ 32,303 $(11,528) $ 18,974 $ 5,148 $ 7,101 ========= ======== ======== ======== ========= ========= Weighted average shares outstanding used for basic and diluted income (loss) per share: Class A common stock.... 57,590 56,491 61,090 Class L common stock.... -- -- -- -------- --------- --------- Common Stock............ 57,590 56,491 61,090 -------- --------- --------- Basic earnings per share.................. $ 0.33 $ 0.09 $ 0.12 ======== ========= ========= Fully diluted shares outstanding............ 58,132 56,491 62,313 Diluted earnings per share.................. $ 0.33 $ 0.09 $ 0.11 ======== ========= =========
- --------------------- (a) On early retirement of some of the debt upon recapitalization, we incurred termination penalties and recorded an extraordinary loss of $1.4 million, net of related tax benefit. 32 Notes to Unaudited Pro Forma Combined Condensed Statement of Operations--(Continued) (8) The estimated fully-diluted number of shares expected to be outstanding after this offering and the concurrent private placement, including the shares of Class A common stock issuable upon the exercise of options outstanding or expected to be issued prior to the closing of this offering and the shares of Class B common stock issuable upon the exercise of a warrant held by Intel, is 68,604,714 shares. (9) Dividends on our Class B preferred stock accrete on a daily basis at a rate of 12.5% per annum. Until February 5, 2005, dividends will not be paid in cash, but will be capitalized as accumulated and unpaid dividends as part of mandatorily redeemable preferred stock. (10) Dividends on our Class A convertible preferred stock accrete on a daily basis at a rate of 10% per annum. Accumulated and unpaid dividends as of the balance sheet date are capitalized as part of mandatorily redeemable preferred stock. (11) Dividends on our Class C preferred stock accrete on a daily basis at a rate of 5% per annum. Accumulated and unpaid dividends as of the balance sheet date are capitalized as part of mandatorily redeemable preferred stock. The Class C preferred stock has been valued at $15.8 million and has a liquidation value of $17.5 million, with the difference being accreted over a three-year period to the redemption date. 33 UNAUDITED PRO FORMA BALANCE SHEET AS OF MARCH 31, 2000 (In thousands)
Pro Forma Malaysian Acquisition Pro Forma as Adjusted ChipPAC, Inc. Business Pro Forma Before Offering for the Historical Historical Adjustments Offering Adjustments Offering ------------- ---------- ----------- --------- ----------- ----------- ASSETS ------ Current assets: Cash and cash equivalents........... $ 19,538 $ 2,082 $ -- $ 21,620 $ 25,000 (8) $ 46,620 Accounts receivable, less allowance for doubtful accounts..... 35,535 -- -- 35,535 -- 35,535 Inventories............ 14,941 5,612 -- 20,553 -- 20,553 Deferred taxes......... 716 -- -- 716 -- 716 Prepaid expenses and other current assets ...................... 7,799 373 1,800 (1) 9,972 -- 9,972 --------- -------- -------- --------- --------- --------- Total current assets.............. 78,529 8,067 1,800 88,396 25,000 113,396 Property, plant and equipment, net......... 229,430 83,983 (10,623)(2) 302,790 -- 302,790 Intangibles ............ -- -- 11,806 (3) 11,806 -- 11,806 Other assets............ 20,995 -- -- 20,995 -- 20,995 --------- -------- -------- --------- --------- --------- Total assets......... $ 328,954 $ 92,050 $ 2,983 $ 423,987 $ 25,000 $ 448,987 ========= ======== ======== ========= ========= ========= LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND EQUITY - ------------------------ Current liabilities: Revolving loans........ $ 7,500 $ -- $ -- $ 7,500 $ (7,500)(9) $ -- Accounts payable....... 35,723 7,369 -- 43,092 -- 43,092 Accrued expenses and other liabilities .... 18,725 2,926 7,500 (4) 29,151 -- 29,151 Current portion of long-term debt........ 7,300 -- -- 7,300 -- 7,300 Payable to parent ..... -- 14,934 (14,934) (5) -- -- -- --------- -------- -------- --------- --------- --------- Total current liabilities......... 69,248 25,229 (7,434) 87,043 (7,500) 79,543 --------- -------- -------- --------- --------- --------- Long-term debt, less current portion........ 292,700 -- 55,000 347,700 (205,400)(9) 142,300 Deferred taxes.......... -- 4,622 1,830 6,452 -- 6,452 Other long-term liabilities............ 4,514 -- -- 4,514 -- 4,514 --------- -------- -------- --------- --------- --------- Total liabilities.... 366,462 29,851 49,396 445,709 (212,900) 232,809 --------- -------- -------- --------- --------- --------- Commitments and contingencies Mandatorily redeemable preferred stock: 10.0% cumulative convertible preferred stock, class A held by Intel--par value $0.01 per share: 10,000 shares authorized, issued and outstanding at March 31, 2000, actual and pro forma; no shares issued and outstanding, pro forma as adjusted..... 9,832 -- -- 9,832 (9,832)(9) -- 12.5% cumulative preferred stock, class B held by Hyundai--par value $0.01 per share: 105,000 shares authorized and 70,000 shares issued and outstanding at March 31, 2000, actual and pro forma; no shares issued and outstanding, pro forma as adjusted..... 75,853 -- -- 75,853 (75,853)(9) -- 5% cumulative convertible preferred stock, class C held by Intersil--par value $0.01 per share; 17,500 shares authorized, no shares issued and outstanding at March 31, 2000, actual; 17,500 shares issued and outstanding, pro forma; no shares issued and outstanding, pro forma as adjusted .... -- -- 15,786 (6) 15,786 (15,786)(9) -- Stockholders' equity (deficit): Common stock, class A--par value $0.01 per share; 180,000,000 shares authorized, 96,254,000 shares issued and outstanding at March 31, 2000, actual and pro forma (250,000,000 shares authorized and 68,604,714 issued, pro forma as adjusted)............. 974 81,092 (81,092) (7) 974 (288)(9) 686 Common stock, class B--par value $0.01 per share; 180,000,000 shares authorized, no shares issued or outstanding at March 31, 2000, actual and pro forma (250,000,000 shares authorized and no shares issued pro forma as adjusted).... -- -- -- -- -- -- Common stock, class L--par value $0.01 per share; 20,000,000 shares authorized, 10,456,000 shares issued and outstanding at March 31, 2000, actual and pro forma (no shares authorized or issued, pro forma as adjusted).......... 104 -- -- 104 (104)(9) -- Warrants, class B Common Stock (the Intel Warrant)........ 1,250 -- -- 1,250 -- 1,250 Additional paid-in- capital............... 86,336 5,923 (5,923)(7) 86,336 348,392 (9) 434,728 Divisional equity, net of capital redemption............ (167,714) -- (167,714) -- (167,714) Receivable from shareholders.......... (1,478) -- -- (1,478) -- (1,478) Accumulated deficit ... (51,834) (24,816) (24,816) (7) (51,834) (8,629)(10) (60,463) Accumulated other comprehensive income (loss)................ 9,169 -- -- 9,169 -- 9,169 --------- -------- -------- --------- --------- --------- Total stockholders' equity (deficit).... (123,193) 62,199 (46,413) (123,193) 339,371 216,178 --------- -------- -------- --------- --------- --------- Total liabilities, mandatorily redeemable preferred stock and equity.... $ 328,954 $ 92,050 $ 2,983 $ 423,987 $ 25,000 $ 448,987 ========= ======== ======== ========= ========= =========
- ------------------- See Notes to Unaudited Pro Forma Balance Sheet. 34 Notes to Unaudited Pro Forma Balance Sheet On June 30, 2000, we consummated the acquisition of Intersil's Malaysian business. The acquisition is being accounted for using purchase accounting. Under purchase accounting, the total purchase price of the Malaysian business is being allocated to the acquired assets and liabilities based on their relative fair values as of the closing date of the acquisition. We are undertaking a study which will be finalized to determine the allocation of the total purchase price to the various assets acquired and the liabilities assumed. Accordingly, the final allocations could be different from the amounts reflected below, and these differences may be significant. The purchase price of $70.0 million represents the total of the cash consideration and the stated value of the Class C preferred stock exchanged for the whole of the issued shares of the Malaysian business and certain intellectual property. The amount and components of the estimated purchase price along with the allocation of the estimated purchase price to assets purchased and liabilities assumed as though the Malaysian business acquisition had occurred on March 31, 2000 are as follows:
(in millions) Purchase Price: Cash consideration............................................... $52.5 Estimated fair value of Class C preferred stock.................. 15.8 Estimated expenses............................................... 3.5 Less: payment due from Intersil................................... (1.8) ----- $70.0 ===== Allocation of Purchase Price: Estimated fair value of Buildings....................................................... $16.9 Plant and equipment............................................. 56.5 Intellectual property........................................... 11.8 Restructuring accrual........................................... (7.5) Deferred taxes.................................................. (6.9) Net other assets and liabilities................................ (0.8) ----- $70.0 =====
There is no goodwill arising from the acquisition of the Malaysian business. The estimated fair value of total assets and liabilities exceeded the purchase price, resulting in negative goodwill of $57.7 million. The negative goodwill has been allocated in full to non-current assets as summarized below:
Estimated Negative Fair Goodwill Adjusted Non-current asset Value Allocated Fair Value ----------------- --------- --------- ---------- (in millions) Buildings..................................... $ 29.0 $(12.1) $16.9 Plant and equipment........................... 93.0 (36.5) 56.5 Intellectual property......................... 20.9 (9.1) 11.8 ------ ------ ----- $142.9 $(57.7) $85.2 ====== ====== =====
The terms of the acquisition of the Malaysian business require, for the period from the closing of the acquisition to June 30, 2003, the payment of additional contingent incentive payments to the seller based on the achievement of milestones with respect to the transfer of the seller's packaging business, currently subcontracted by the seller to a third party, to us. These contingent payments will be recorded as additional purchase price if and when earned and paid on a quarterly basis. (1) The terms of the transaction require Intersil to pay $1.8 million to us on October 1, 2000. This payment for expenses expected to be incurred by us after the acquisition is completed has been recorded as a receivable and a reduction in purchase price. 35 Notes to Unaudited Pro Forma Balance Sheet--(Continued) (2) The acquisition pro forma adjustment to property, plant and equipment has been computed as set out below:
As of March 31, 2000 ---------------- (in millions) Malaysian business historical basis........................ $ 84.0 Fair value adjustments..................................... $ 38.0 Allocation of negative goodwill............................ (48.6) (10.6) ------- ------- Pro forma basis............................................ $ 73.4 =======
(3) Intangibles comprise the estimated fair value of intellectual property acquired, primarily consisting of trade secrets and patents. The pro forma adjustment is a result of the purchase price allocation. (4) An accrual of $7.5 million has been established for expected costs of restructuring the Malaysian business. These one time non-recurring costs are expected to be incurred in connection with factory reorganization, product discontinuance and employee related costs. (5) Reflects the elimination of the liability payable to the parent entity in accordance with the terms of the purchase agreement for the Malaysian business. (6) The Class C preferred stock has been independently valued at $15.8 million and has a liquidation value of $17.5 million. (7) Reflects the elimination of the Malaysian business' historical equity as a result of purchase accounting. (8) Reflects the net proceeds from the concurrent private placement. (9) The offering and the concurrent private placement contemplate using the estimated net proceeds of $320.5 million for the repayment of amounts owing under the revolving loans of $7.5 million, the senior subordinated notes of $52.5 million, exclusive of the redemption premium and accrued interest, and term loans of $152.9 million. The remaining $25.0 million of net proceeds has been added to cash balances. The offering also contemplates the conversion of Class A convertible preferred stock and Class C preferred stock into shares of our Class A common stock and the redemption of Class B preferred stock. (10) Pro forma adjustments to accumulated deficit arising from the offering are set forth below:
(in millions) Prepayment fee on redemption of senior subordinated notes.... $6.7 Accretion to liquidation value: Class A convertible preferred stock........................ 0.1 Class B preferred stock.................................... 0.1 Class C preferred stock.................................... 1.7 ---- $8.6 ====
36 SELECTED HISTORICAL FINANCIAL DATA OF CHIPPAC, INC. The following table presents our selected historical statements of operations, balance sheet and other data for the periods presented. This information should only be read in conjunction with our audited and unaudited combined financial statements and the related notes, "Unaudited Pro Forma Combined Condensed Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," all included elsewhere in this prospectus. The statement of operations data for each of the years in the two year period ended December 31, 1996 and the balance sheet data as of December 31, 1995, 1996 and 1997 have been derived from audited financial statements not included in this prospectus. The statement of operations data for each of the years in the three year period ended December 31, 1999 and the balance sheet data as of December 31, 1998 and 1999 have been derived from our audited financial statements included elsewhere in this prospectus. The historical consolidated financial data as of and for the three months ended March 31, 1999 and 2000 have been derived from our unaudited financial statements that are included elsewhere in this prospectus. We believe that such unaudited financial statements include all adjustments necessary for the fair presentation of our financial condition and the results of operations for these periods and as of these dates. This information should be read in conjunction with our financial statements included elsewhere in this prospectus and "Management's Discussion and Analysis of Financial Condition and Results of Operations."
Three Months Ended Year Ended December 31, March 31, ------------------------------------------------ ------------------- 1995 1996 1997 1998 1999 1999 2000 -------- -------- -------- -------- --------- -------- --------- (dollars in thousands, except per share data) Statement of Operations Data(1): Revenue................. $179,234 $191,655 $289,429 $334,081 $ 375,530 $ 85,548 $ 97,469 Costs and expenses: Cost of revenue........ 158,527 166,665 229,238 270,365 317,488 72,131 77,044 Selling, general and administrative expenses.............. 11,805 11,431 15,853 15,067 21,219 4,511 7,099 Research and development expenses.............. 1,724 2,617 4,052 7,692 12,362 3,003 2,631 Management fees charged by affiliate............. 138 3,322 3,199 528 -- -- -- Write-down of impaired assets(2)............. -- -- 11,569 -- -- -- -- Change in control expenses(3)........... -- -- -- -- 11,842 -- -- -------- -------- -------- -------- --------- -------- --------- Operating income..... 7,040 7,620 25,518 40,429 12,619 5,903 10,695 Interest expense........ 3,151 5,780 10,972 13,340 21,241 3,007 8,764 Interest income......... -- (108) (96) (1,276) (2,751) (950) (238) Foreign currency (gains) losses(4).............. 1,012 5,041 69,669 (24,670) (1,224) (946) (399) Other (income) expense, net.................... 802 (351) 762 168 (650) (127) (134) -------- -------- -------- -------- --------- -------- --------- Income (loss) before income taxes........ 2,075 (2,742) (55,789) 52,867 (3,997) 4,919 2,702 Provision for (benefit from) income taxes..... 1,977 2,883 (9,671) 20,564 1,938 3,115 542 Extraordinary item: Loss from early extinguishment of debt, net of related income tax benefit(5)............ -- -- -- -- 1,373 -- -- -------- -------- -------- -------- --------- -------- --------- Net income (loss).... 98 (5,625) (46,118) 32,303 (7,308) 1,804 2,160 Accretion of dividends on mandatorily redeemable preferred stock.................. -- -- -- -- (3,960) -- (2,559) Accretion of recorded value of the Intel Warrants............... -- -- -- -- (260) -- (156) -------- -------- -------- -------- --------- -------- --------- Net income (loss) available to common stockholders........ $ 98 $ (5,625) $(46,118) $ 32,303 $ (11,528) $ 1,804 $ (555) ======== ======== ======== ======== ========= ======== ========= Earnings per common share: Basic................... $ 0.00 $ (0.06) $ (0.45) $ 0.32 $ (0.11) $ 0.02 $ (0.16) Diluted................. 0.00 (0.06) (0.45) 0.32 (0.11) 0.02 (0.16) Weighted average common shares outstanding: Basic................... 102,009 102,009 102,009 102,009 102,211 102,009 107,454 Diluted................. 102,009 102,009 102,009 102,009 102,211 102,009 107,454 Other Financial Data: Depreciation............ 27,917 26,632 40,682 45,855 56,701 13,465 8,515 Amortization............ -- -- -- -- 774 -- 375 Capital expenditures.... 51,462 118,971 136,594 63,523 57,856 4,343 11,044 Balance Sheet Data (at period end): Cash and cash equivalents............ $ 2,602 $ 2,323 $ 3,067 $ 68,767 $ 32,117 $ 66,765 $ 19,538 Accounts receivable..... 20,694 30,156 37,729 30,003 26,130 35,535 Working capital......... 20,240 29,637 20,320 10,224 8,314 9,279 Total assets............ 127,984 215,932 233,241 359,472 343,429 334,415 328,954 Total long-term debt, including current portion................ 52,468 109,053 152,410 133,715 300,000 128,672 300,000 Mandatorily redeemable preferred stock........ -- -- -- -- 82,970 -- 85,685 Total stockholders' equity (deficit)....... 11,559 53,692 9,472 113,191 (122,886) 132,644 (123,193)
Footnotes to table appear on the following page. 37 Footnotes to table from previous page. - --------------------- (1) For fiscal years 1997 and 1998 and the portion of fiscal 1999 prior to the recapitalization, statement of operations data includes the expense of the ChipPAC business of Hyundai and allocated expenses from Hyundai. These amounts may not be comparable to the historical and pro forma data for fiscal year 1999. (2) At December 1997, consistent with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, we recorded a charge of $11.6 million to write down the value of those assets which had been identified as economically impaired, as a result of management's decision to discontinue particular product lines or which were judged to be in excess of foreseeable requirements. (3) The $11.8 million change in control charge was a special bonus paid to employees of our Korean subsidiary arising from the change in control in our recapitalization transaction, which resulted in a corresponding reduction to the recapitalization consideration paid to Hyundai. (4) The foreign currency gains and losses were primarily the result of U.S. Dollar-denominated debt of our Korean subsidiary. Consistent with U.S. GAAP, as the U.S. Dollar/South Korean Won exchange rates change, resulting foreign currency exchange gains/(losses) are recorded in our Combined Statement of Operations. (5) The extraordinary loss of $1.4 million, net of tax effects, represents costs related to the early retirement of debt, in connection with the recapitalization of the company on August 5, 1999. 38 SELECTED HISTORICAL FINANCIAL DATA OF MALAYSIAN BUSINESS The following table presents the selected historical statements of operations, balance sheet and other data of the Malaysian business for the periods presented. This information should only be read in conjunction with audited and unaudited combined financial statements and the related notes of the Malaysian business, "Unaudited Pro Forma Combined Condensed Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," all included elsewhere in this prospectus. The Malaysian business, which was formed on August 13, 1999, includes the operations of its predecessor, Harris Advanced Technology Sdn. Bhd ("Predecessor"), prior to August 13, 1999. The statement of operations data for the fiscal years ended June 27, 1997, July 3, 1998 and July 2, 1999 and the balance sheet data as of July 3, 1998 and July 2, 1999 are derived from the financial statements of the Malaysian business which include the accounts of the Predecessor company and have been audited by Ernst & Young LLP, Intersil's independent certified public accountant. The selected historical financial data as of and for the nine months ended April 2, 1999 and March 31, 2000 have been derived from unaudited financial statements of the Malaysian business that are included elsewhere in this prospectus. The unaudited condensed consolidated balance sheet as of July 2, 1999 and the unaudited condensed consolidated statements of operations for the nine months ended March 31, 1999, include the accounts of the Predecessor company. The unaudited combined condensed consolidated statements of operations for the nine months ended March 31, 1999, include the accounts of the Predecessor company from July 3, 1999 to August 13, 1999. We believe that such unaudited financial statements included all adjustments necessary for the fair presentation of the financial condition and the results of operations of the Malaysian business for these periods and as of these dates. During the periods covered by the financial statements of the Malaysian business, the activities of the Malaysian business were conducted as part of Intersil's overall operations, and separate financial statements were not prepared. The Malaysian business' financial statements were prepared from the historical accounting records of Intersil and include various allocations for costs and expenses. Therefore, the statements of operations for the Malaysian business may not be indicative of the results of operations that would have resulted if the Malaysian business had operated on a stand-alone basis. All of the allocations and estimates reflected in the financial statements of the Malaysian business are based on assumptions that we believe are reasonable under the circumstances.
Fiscal Year Ended Nine Months Ended --------------------------- --------------------- Successor Predecessor Predecessor Combined --------------------------- ----------- --------- June 27, July 3, July 2, April 2, March 31, 1997 1998 1999 1999 2000 -------- ------- -------- ----------- --------- (dollars in thousands) Statement of Operations Data: Revenue.................... $83,674 $80,376 $110,504 $77,837 $68,473 Costs and expenses: Cost of revenue........... 69,073 70,110 94,426 66,712 58,566 ------- ------- -------- ------- ------- Operating income........ 14,601 10,266 16,078 11,125 9,907 Interest income............ (160) (139) (134) (106) (49) Other (income) expense, net....................... 95 57 69 55 40 ------- ------- -------- ------- ------- Income before income taxes..................... 14,666 10,348 16,143 11,176 9,916 Pro forma provision for (benefit from) income taxes..................... 3,060 (5,911) 1,182 (1,180) 6,528 ------- ------- -------- ------- ------- Net income................. $11,606 $16,259 $ 14,961 $12,356 $ 3,388 ======= ======= ======== ======= ======= Other Financial Data: Depreciation............... 12,308 14,823 18,289 13,646 11,771 Capital expenditures....... 37,016 38,798 20,113 14,836 3,896
Balance Sheet Data (at period end): Cash and cash equivalents.............. $ 131 $ 802 $ 2,684 $ 2,082 Working capital (deficit).............. 120,032 46,445 122,307 (17,162) Total assets........................... 250,664 175,525 249,692 92,050 Total stockholders' equity............. 237,559 165,339 241,470 62,199
39 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations covers periods prior to the completion of our recapitalization. As part of our recapitalization, we entered into financing arrangements and, as a result, we have a different capital structure. Accordingly, the results of operations for periods subsequent to our recapitalization are not necessarily comparable to prior periods. The following discussion should be read in conjunction with the combined financial statements and unaudited combined condensed pro forma financial statements contained elsewhere in this prospectus. Overview In 1984, our packaging business began operating as a separate division of Hyundai Electronics, one of the world's largest semiconductor manufacturers and a member of the Hyundai Group, the Korean conglomerate. In 1997, we were incorporated as a distinct entity and established as the parent of a stand- alone worldwide business. In 1999, as part of our recapitalization, the Equity Investors obtained control of our company and Hyundai Electronics America retained approximately 10.0% of our outstanding common stock. Our revenues consist of fees charged to our customers for the packaging and testing of their integrated circuits, which we refer to as ICs. From 1995 to 1999, net revenues increased from $179.2 million to $375.5 million, primarily from the growth of BGA packaging. We are one of the largest providers of outsourced BGA packaging services worldwide and the main supplier of BGA packaging services to Intel, whom we believe is the largest consumer of these products and represented over 40% of the BGA independent packaging market in 1999. The capital investments made by Hyundai Electronics from 1995 to 1997 totaled approximately $300.0 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 other customers who required BGA packaging services. We also have a significant business in leaded packaging, which accounted for 29.1% and 34.8% of our sales in 1999 and during the three months ended March 31, 2000, respectively. The following table describes the composition of revenue by product group and test services, as a percentage of total revenues:
Three Months Fiscal Year Ended Ended March December 31, 31, ------------------- ------------ 1997 1998 1999 1999 2000 ----- ----- ----- ----- ----- BGA....................................... 37.7% 61.8% 68.1% 73.0% 59.5% Leaded.................................... 59.5 35.5 29.1 25.5 34.8 Test...................................... 2.8 2.7 2.8 1.5 5.7 ----- ----- ----- ----- ----- Total................................... 100.0% 100.0% 100.0% 100.0% 100.0% ===== ===== ===== ===== =====
Historically, our foreign currency gains and losses have arisen primarily from the holding of monetary assets and liabilities denominated in U.S. Dollars by our Korean subsidiary, which we refer to throughout this prospectus as ChipPAC Korea. ChipPAC Korea's U.S. Dollar-denominated liabilities consist primarily of long- and short-term debt, and accounts payable, while its U.S. Dollar monetary assets consist primarily of intercompany receivables from other ChipPAC entities. From 1995 until December 31, 1998, ChipPAC Korea's U.S. Dollar-denominated liabilities exceeded its U.S. Dollar monetary assets. From December 31, 1998 through July 31, 1999 ChipPAC Korea's U.S. Dollar monetary assets exceeded its U.S. Dollar-denominated liabilities. From August 1, 1999 until December 31, 1999, ChipPAC Korea's U.S. Dollar-denominated liabilities exceeded its U.S. Dollar monetary assets. 40 We changed the functional currency of ChipPAC Korea and our Chinese subsidiaries, which we refer to throughout this prospectus as ChipPAC China, from the respective local currencies to the U.S. Dollar, effective October 1, 1999. The consolidated effect of this change was to reduce net income for the year ended December 31, 1999, by $4.8 million and to reduce both total assets and stockholders' equity as at December 31, 1999, by $9.5 million. This change had no effect on cash flows from operations or net cash flows for the year ended December 31, 1999. Quarterly Results (Unaudited) The following table describes our unaudited historical quarterly sales and gross profit in thousands of U.S. Dollars.
1997 1998 1999 ---------------------------------- ---------------------------------- ------------------------------------ Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------- -------- Revenues........ $53,130 $67,662 $82,052 $86,585 $77,130 $78,020 $82,818 $96,113 $85,548 $80,853 $101,270 $107,859 Gross profit.... 3,228 13,298 19,308 24,357 23,196 12,862 15,911 11,747 13,417 9,684 16,791 18,150 Gross margin.... 6.1% 19.7% 23.5% 28.1% 30.1% 16.5% 19.2% 12.2% 15.7% 12.0% 16.6% 16.8% 2000 -------- Q1 -------- Revenues........ $97,469 Gross profit.... 20,425 Gross margin.... 21.0%
The above table illustrates the cyclical and seasonal nature of our financial performance, although we believe that as a provider of packaging and test services, we are less susceptible to cyclical fluctuations than the semiconductor industry as a whole. We have historically experienced steadily rising revenue levels during the course of the year, peaking in the fourth quarter, due to a peak in demand from the personal computer industry in the fourth quarter of the year. Malaysian Business On June 30, 2000, we consummated the acquisition of the Malaysian business and intellectual property related to this business, in exchange for approximately $70.0 million in cash and preferred stock. In connection with the acquisition, we entered into a five-year supply agreement with Intersil to provide assembly and test services on an exclusive basis. The Malaysian business increases our exposure to high growth advanced communications products, provides a presence in Malaysia and enhances our intellectual property in key areas. In addition, the Malaysian business expands our mixed- signal testing capabilities and provides us with critical expertise in RF testing. The Malaysian business had revenues of $83.7 million, $80.4 million and $110.5 million for the fiscal years ended June 27, 1997, July 3, 1998 and July 2, 1999, respectively. All of these revenues represented intercompany sales to Intersil. Pro forma for the acquisition of the Malaysian business, all of the revenues of the Malaysian business and 21.3% of our consolidated revenues in 1999 would have been from sales to Intersil. 41 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 December Three Months Ended 31, March 31, ----------------------- -------------------- 1997 1998 1999 1999 2000 ----- ------- ------- --------- --------- Weighted average exchange rate of Won per U.S. Dollar........ 939.0 1,388.9 1,189.3 1,198.2 1,125.5 ===== ======= ======= ========= ========= Historical Statement of Operations Data: Revenue........................ 100.0% 100.0% 100.0% 100.0% 100.0% Gross margin................... 20.8 19.1 15.5 15.7 21.0 Selling, general & administrative................ 5.5 4.5 5.7 5.3 7.3 Research & development......... 1.4 2.3 3.3 3.5 2.7 Write down of impaired assets.. 4.0 -- -- -- -- Management fees................ 1.1 0.2 -- -- 0.1 Change of control expenses..... -- -- 3.2 -- -- ----- ------- ------- --------- --------- Operating income............... 8.8% 12.1% 3.4% 6.9% 11.0% ===== ======= ======= ========= =========
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999 Revenues: Net revenues in the three months ended March 31, 2000 increased 14.0% to $97.5 million from $85.5 million in the prior year period, primarily due to the growth from new customers in the communications and multi- application end markets. This increase was partially offset by a reduction in revenues from the computing end market. Laminate product assembly revenue, 59.5% of our revenues for the three months ended March 31, 2000, declined 6.9% over the comparable prior year period from $62.4 million to $58.1 million, primarily due to a reduction in average selling price. BGA, a component of our laminate product assembly revenue, continued to be fueled by demand for wireless communications applications. Leaded product assembly revenue, 34.8% of our revenues for the three months ended March 31, 2000, increased 55.5% over the prior year period from $21.8 million to $33.9 million, primarily due to increased demand for services to the flash memory market at our Chinese facility. Test revenues comprised 5.7% of our revenues for the three months ended March 31, 2000 and continued to grow dramatically increasing 323.9% over the prior year period from $1.3 million to $5.5 million, primarily due to new customer growth. End-market demand in communications and multi-applications remained very strong for the three months ended March 31, 2000, with revenue growth of approximately 70% over the prior year period in each end-market. Demand in the computing end market for the three months ended March 31, 2000 declined 23.3% from the prior year period, primarily due to a reduction in chip-set packaging requirements from one of our core customers. Gross Profit: Gross profit increased to $20.4 million in the three months ended March 31, 2000, resulting in a gross margin of 21.0% compared to gross profit of $13.4 million and a gross margin of 15.7% in the prior year period. 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 such equipment and our internal assessment, we changed the estimated useful lives of assembly and test product equipment and furniture and fixtures from five years to eight years. Previously, such equipment was depreciated on a straight line basis over an estimated useful life of five 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 such assets were originally placed in service. This change resulted in depreciation expense for the quarter ended March 31, 2000 being $6.7 million lower than would have been recorded using five year lives. The remaining increase in gross profit was attributable to improved materials procurement, partially offset by an increase in average labor costs and strengthening of the Won against the U.S. Dollar. 42 Selling, General and Administrative: Selling, general and administrative expenses increased to $7.1 million for the three months ended March 31, 2000 compared to $4.5 million in the prior year period. As a percentage of revenues these expenses increased to 7.3% from 5.3%. General and administrative costs for the three months ended March 31, 2000 increased by $2.1 million compared to the prior year period, primarily due to additions to management personnel, MIS development and management advisory fees. The remaining increase was due to additional sales, marketing and customer service headcount in support of the acquisition of new customers. Research and Development: Research and development expenses decreased to $2.6 million for the three months ended March 31, 2000 from $3.0 million in the prior year period, despite a 38% increase in total research and development headcount. Spending on consumable materials, supplies, and tooling was significantly curtailed as we have focused our research efforts on highly collaborative programs with major customers. In addition, research and development expenses for the three months ended March 31, 1999 included significant start-up costs incurred in connection with the Santa Clara flip- chip prototype design and development laboratory. Net Interest Expense: The total outstanding interest bearing debt, including capital leases, increased to $307.5 million at March 31, 2000 from $143.5 million at March 31, 1999, principally as a result of the recapitalization. Related interest expense was $8.8 million for the three months ended March 31, 2000, an increase of 191.5% over the prior year period. Interest income was $0.2 million for the three months ended March 31, 2000 compared to $1.0 million for the prior year period. Foreign Currency Gains (Losses): The foreign currency gain was $0.4 million in the three months ended March 31, 2000 compared to $0.9 million in the prior year period. Our exposure to foreign currency gains and losses has been significantly mitigated by two related factors. First, on October 1, 1999, we changed our functional currency to the U.S. Dollar from the local currencies of our Korean and Chinese subsidiaries. Second, we negotiated with the large majority of our material and equipment suppliers to denominate our purchase transactions in U.S. Dollars. Income Taxes: Income tax expense for the three months ended March 31, 2000 decreased to $0.5 million from $3.1 million in the prior year period, for an effective tax rate of 20%. Concurrently with the recapitalization, we were reorganized and now a significant portion of our total worldwide income is earned in jurisdictions having relatively low tax rates, or where we enjoy tax holidays or other similar tax benefits. During the three months ended March 31, 1999, we incurred a $4.4 million loss from operations in China, for which no tax benefit was realized. Our remaining income before taxes of $9.3 million was taxed at an effective rate of 33.3% during the three months ended March 31, 1999. Net Income: As of a result of the items described above, net income increased to $2.2 million for the three months ended March 31, 2000 from $1.8 million during the prior year period before preferred dividends and recorded value of the Intel Warrant. Year Ended December 31, 1999 Compared to Year Ended December 31, 1998 Revenues: Net revenues in 1999 increased 12.4% to $375.5 million from $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 was partially offset by strengthening 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 1998 was 43 significantly higher than usual due to the large depreciation of the 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 Korea in 1998. Selling, General and Administrative: Selling, general and administrative expenses increased to $21.2 million in 1999 from $15.1 million during 1998. As a percentage of revenues, these expenses increased to 5.6% from 4.5%. This increase was due to additional expenses associated with hiring new personnel in the areas of administration, sales and marketing. Research and Development: Research and development expenses increased to $12.4 million in 1999 from $7.7 million in 1998. As a percentage of revenues, these expenses increased to 3.3% from 2.3%. 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 for the prototype development center increased by $1.7 million during 1999 over 1998. Change of Control Expense: As result of our recapitalization, we were contractually required to make a one-time change of control payment to our unionized Korean employees of approximately $11.8 million. The payment was recorded as an operating expense during the three months ended September 30, 1999. Extraordinary Loss: We incurred an extraordinary loss of $1.4 million, net of tax benefit, related to the early retirement of our debt upon the recapitalization. Management fees charged by affiliate: From 1995 to June 30, 1998, Hyundai charged us fees for the use of technology and technical support for our facility in China. This agreement was terminated on June 30, 1998. We are internally providing this support today. 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. 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 incurred as part of our 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-denominated assets and from an appreciation in the value of the Won. During 1999, we incurred a non-cash foreign currency gain of $1.2 million. Other Income (Expense): Other expense increased from $0.2 million in 1998 to other income of $0.6 million in 1999. The increase in other income arose principally from an increase in the gains from the sale of miscellaneous excess equipment and supplies. Income Taxes: Income tax expense was $1.9 million in 1999 compared to $20.6 million in 1998. The effective tax rate was approximately negative 48% 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. Net Income (Loss): As a result of the items described above, we had a net loss of $7.3 million for 1999 compared to net income of $32.3 million in 1998. Year Ended December 31, 1998 Compared to Year Ended December 31, 1997 Revenues: Net revenues in 1998 increased 15.4% to $334.1 million from $289.4 million in 1997. This increase was primarily due to sales growth in BGA packaging, which grew approximately 89.2% for 1998 as 44 compared to the prior year. As a percentage of total revenues, BGA packaging revenues increased from 37.7% in 1997 to 61.8% in 1998. Revenues from leaded packaging services declined to $127.2 million in 1998 from $172.1 million in 1997. The decline in revenues from leaded packaging services arose from a combination of soft market conditions in the semiconductor industry in 1998 and from management's decision to discontinue several unprofitable product lines in the fourth quarter of 1997. Testing revenues increased from $8.2 million to $9.3 million as a result of management's efforts to increase sales in the test area. Gross Profit: Gross profit increased to $63.7 million in 1998 from $60.2 million in 1997. Gross margin declined to 19.1% in 1998 from 20.8% in 1997. The decline in gross margin arose primarily from soft market conditions prevailing in the semiconductor industry during 1998, which led to lower average selling prices. The decline of gross margin was partially offset by higher volumes of BGA packaging, reductions in materials costs from suppliers, cost reduction programs and a decline in labor and overhead costs due to devaluation of the Won against the U.S. Dollar. Selling, General and Administrative: Selling, general and administrative expenses decreased to $15.1 million in 1998 from $15.9 million in 1997. As a percentage of revenues, these expenses decreased to 4.5% in 1998 from 5.5% in 1997. The decrease in selling, general and administrative expenses arose primarily from a weaker Won which was partially offset by an increase in administrative and sales infrastructure costs incurred in connection with the implementation of a new corporate infrastructure, including the addition of a new senior management team. Research and Development: Research and development expenses increased to $7.7 million in 1998 from $4.1 million in 1997. As a percentage of revenues, these expenses increased to 2.3% in 1998 from 1.4% in 1997. Research and development costs grew in 1998 primarily due to the effect of having a full year's expenses from the research and development center established at Chandler, Arizona, and from additional investment in BGA development. The 1998 increases in R&D costs attributable to the Chandler R&D center and to spending for BGA development were $2.2 million and $0.9 million, respectively. Management Fees Charged by Affiliate: In 1998, the management fees charged by Hyundai declined to $0.5 million from $3.2 million charged in 1997. The decline in the level of management fees reflects the decline in the need for support from Hyundai, which led to the termination of the management fee agreement with Hyundai effective June 30, 1998. Write Down of Impaired Assets: Consistent with U.S. GAAP, management reviews all assets for possible impairment arising from changes in technology and market conditions. At December 1997, we recorded a charge of $11.6 million to write down particular equipment as a result of a combination of our decision to discontinue unprofitable product lines and from the identification of particular production equipment judged to be in excess of foreseeable requirements. Interest Income: Interest income increased to $1.3 million in 1998 compared to $0.1 million during 1997. Prior to July 1, 1998, our Korean operations did not have any significant cash balances because they existed as a division of Hyundai. As a division, almost all cash receipts and disbursements were handled through Hyundai. Most of the interest income earned in 1998 was earned during the second half of 1998 by our investments of surplus cash in time deposits. Interest Expense: Interest expense for 1998 increased to $13.3 million from $11.0 million during 1997. The increase arose from a combination of an increase in the average level of bank debt from approximately $157 million during 1997 to $168 million in 1998 and from increases in the interest rates charged to us by our lenders. Foreign Currency (Gains) Losses: During 1998, we incurred a non-cash gain of $24.7 million as the value of the Won increased to 1,196 Won per U.S. Dollar at December 31, 1998 from 1,696 Won per U.S. Dollar at December 31, 1997. Other Income (Expense): Net other expense declined to $0.2 million in 1998 from $0.8 million in 1997. Most of the 1997 net other expense consisted of losses recorded on the disposition of surplus equipment. 45 Income Taxes: We recorded a provision for income taxes of $20.6 million during 1998 compared with a tax benefit of $9.7 million on a pretax loss of $55.8 million for 1997. Our effective tax rate was 38.9% in 1998. Our effective tax rate in 1997 was significantly impacted by non-deductible operating losses in 1997. The effective tax rates during both periods were adversely affected by losses incurred by our operations in China, for which no tax benefit was realized. Net Income (Loss): As a result of the items described above, we had net income of $32.3 million for 1998 compared to net loss of $46.1 million in 1997. Liquidity and Capital Resources We 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. In addition, borrowings of up to $20.0 million are available for acquiring equipment and making other specified capital expenditures under the capital expenditure line of our senior credit facilities. We may borrow and repay under the capital expenditure line until August 5, 2001. Amounts that we repay under the capital expenditure line after August 5, 2001 may not be reborrowed by us later. The final maturity for both these facilities is August 5, 2005. We did not draw upon these facilities in connection with our recapitalization. In connection with our acquisition of the Malaysian business, we added a $55.0 million term C loan to our senior credit facilities and we obtained the ability to increase our revolving credit line by $25.0 million without further consent from our existing lenders. The proceeds of the term C loan were used to finance our proposed acquisition of the Malaysian business and pay transaction fees and expenses. Our ongoing primary cash needs are for operations and equipment purchases. Prior to our recapitalization, we met a significant portion of our cash requirements from a combination of (1) short- and long-term bank loans and (2) capital contributions from Hyundai. All short and long-term debt, loans, leases and other credit facilities existing prior to our recapitalization were repaid and terminated at the recapitalization date. Subsequent to year end, we made an initial borrowing of $13.5 million on our revolving line of credit. Prior to the recapitalization, Hyundai Electronics invested significant amounts of capital to increase our packaging and test services capacity. The capital investments made by Hyundai Electronics from 1995 to 1997 totaled approximately $300 million. We intend to spend approximately $108.2 million in capital expenditures in 2000. We spent approximately $57.9 million in capital expenditures in 1999, a decline of 8.8% from the $63.5 million spent in capital expenditures in 1998, and a decline of 57.6% from the $136.6 million spent in 1997. Under the recapitalization agreement, Hyundai Electronics may receive up to an additional $55.0 million of cash during the four-year period beginning January 1, 1999 if we exceed specified levels of EBITDA as described in the recapitalization agreement. Hyundai Electronics is entitled to receive 33.3% of the amount by which our EBITDA, which is defined in the recapitalization agreement, exceeds $116.5 million, $171.3 million, $198.5 million and $231.8 million, respectively, in each of the first four years following our recapitalization. No payment was made to Hyundai Electronics in 1999 under these terms. 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 will be 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 $117.9 million in the aggregate. As of March 31, 2000, our debt consisted of $307.5 million of borrowings which were comprised of $7.5 million of revolving loans, $150.0 million in term loans and $150.0 million of senior subordinated notes. We also have $85.7 million of preferred stock. We believe that our existing cash balances, cash flows from operations, available equipment lease financing, available borrowings under our senior credit facilities and the net proceeds from this offering and the concurrent private placement will be sufficient to meet our projected capital expenditures, working capital and other cash requirements for the next twelve months. 46 Our debt instruments require that we meet specified financial tests, including, without limitation, a maximum leverage ratio, a minimum interest coverage ratio and minimum fixed charge coverage ratio. These debt instruments also contain covenants restricting our operations. There were no violations of these covenants through March 31, 2000 and we expect to comply with all these covenants during the next twelve months. Therefore, our liquidity and capital resources are not expected to be impacted by these covenants. 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 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, the gains and losses from these contracts have been recorded as foreign currency gains and losses. We had a net gain of $2.2 million and no gain or loss arising in 1998 and 1999, respectively, from forward foreign currency contracts. As of March 31, 2000, we had no foreign currency contracts outstanding. Recent Accounting Pronouncements In June 1999, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 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, "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, 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 are required to adopt SFAS 133 in the first quarter of our fiscal year 2001. We are in process of evaluating the effect of SFAS 133 on our financial statements. In December 1999, the Securities and Exchange Commission issued SAB No. 101, "Revenue Recognition in Financial Statements," which provides guidance on the recognition, presentation, and disclosure of revenue in financial statements filed with the SEC. SAB No. 101 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosures related to revenue recognition policies. We believe that the impact of SAB No. 101 will have no material effect on our financial position or results of operations. In April 2000, the Financial Accounting Standards Board issued FASB interpretation of No. 44, Accounting for Certain Transactions Involving Stock Compensation, an interpretation of APB Opinion No. 25. Among other issues, this interpretation clarifies the definition of employees for purposes of applying Opinion No. 25, the criteria for determining whether a plan qualifies as a non- compensatory plan, the accounting consequence of various modifications to the terms of a previously fixed stock option or award and the accounting for an exchange of stock compensation awards in a business combination. This interpretation is effective July 1, 2000, but certain conclusions in the interpretation cover specific events that occur after either December 15, 1998 or January 12, 2000. To the extent that this interpretation covers events occurring during the period after December 15, 1998, or January 12, 2000, but before the effective date of July 1, 2000, the effect of applying this interpretation is recognized on a prospective basis from July 1, 2000. We are currently reviewing stock grants to determine the impact, if any, that may arise from implementation of this interpretation, although we do not expect the impact, if any, to be material to our financial statements. 47 Quantitative and Qualitative Disclosure about Market Risk We are exposed to financial market risks, including changes in interest rates and foreign currency exchange rates. We utilize derivative financial instruments but do not use derivative financial instruments for speculative or trading purposes. 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 $1.5 million based on our outstanding indebtedness as of March 31, 2000. A majority of our revenue and capital spending is transacted in U.S. Dollars. We do, however, enter into transactions in other currencies, primarily the Korean Won. With effect from October 1, 1999 we have changed the functional currency of ChipPAC Korea and ChipPAC China from their respective local currencies to the U.S. Dollar. The use of the U.S. Dollar as the functional currency will result in a much lower level of foreign exchange gains and losses in our overseas subsidiaries. 48 INDUSTRY General The production of a semiconductor is a complex process that requires increasingly sophisticated expertise. The production process can be divided broadly into three primary stages: . fabricating a wafer; . slicing the wafer into multiple die and processing these die into finished devices, which is referred to as "packaging"; and . testing of finished devices and other value-added processes. According to Worldwide Semiconductor Trade Statistics, worldwide semiconductor market revenues grew 18.9% in 1999 to approximately $149.4 billion. From 1992 to 1999, the global semiconductor market has expanded at a compounded annual growth rate of approximately 14.0%. The worldwide semiconductor market can be divided into three segments: . microcomponents, including microprocessors and microcontrollers, which process data; . memory devices, which store data, including flash memory, Dynamic Random Access Memory, which is referred to as DRAM and Static Random Access Memory, which is referred to as SRAM; and . moving and shaping devices, which move and shape electronic signals around a printed circuit board, including logic, analog, discrete and power devices and chipsets. According to Worldwide Semiconductor Trade Statistics, the semiconductor industry's revenues are expected to grow at a compounded annual growth rate of 20.0% from 1999 to 2003. Semiconductor growth continues to be driven by strong end-user demand for telecommunications, computers and consumer products, which require semiconductors characterized by greater functionality, increased speed and smaller size. One of the principal drivers of growth in the semiconductor industry during the next several years is expected to be increased sales of communications semiconductors used in applications including computer modems, networks, cellular phones and Internet and electronic commerce hardware and appliances. The proliferation of digital technology, particularly in communications applications, has increased demand for analog functionality, which helps the digital electronics interact with the real world of sound, light, heat and motion. Increasing cost pressure and size constraints are prompting silicon providers to integrate high performance analog and digital functionality into mixed-signal semiconductors. This functional integration of analog and digital components onto single chips makes these mixed-signal semiconductors more difficult to design and test than most other types of semiconductors. In 1999, according to Electronic Trends Publications, total packaging revenues for the semiconductor industry were $18.3 billion, of which revenues from independent packaging companies, like us, represented $7.2 billion, or 39.3%, of total packaging revenues. Independent packaging revenues are expected to grow at a compounded annual growth rate of 17.6% from 1999 to 2004. Revenues for BGA packaging services, the fastest growing component of the independent packaging market, are expected to grow at a compounded annual growth rate of 24.9% over the same period. Today, most major semiconductor manufacturers use independent packaging and test service providers for at least a portion of their packaging and test needs. We expect this outsourcing trend to continue as semiconductor manufacturers focus on their core strengths, like chip design and wafer fabrication. According to Semiconductor Business News, spending on outsourced test services is growing by more than 40.0% per year and is expected to reach $2.0 billion by 2001. 49 Industry Trend Toward Outsourcing Historically, semiconductor companies primarily manufactured semiconductors in their own facilities. In recent years, however, the need for semiconductor companies to outsource their semiconductor packaging and test needs has grown dramatically. Principal factors contributing to this are as follows: . Time-to-Market Pressures Are Increasing for Semiconductor Companies. End-users are increasingly demanding more sophisticated electronic products in a market in which product life cycles are becoming shorter. As a result, semiconductor companies are increasingly seeking to shorten their time-to-market for new products. Having the right packaging technology and capacity in place is a critical factor in reducing time-to-market. Semiconductor companies frequently do not have the equipment or production experience to implement new packaging solutions or sufficient time to develop these capabilities before introducing a new product into the market. For this reason, semiconductor companies are increasingly utilizing the resources and capabilities of independent packaging and test companies to deliver their new products to market more quickly. . ""Fabless'' Semiconductor Companies Are Focusing Exclusively on Semiconductor Design Process and Application Support. There continues to be growth of "fabless" semiconductor companies, which are companies that outsource all of their manufacturing and all of their packaging and test service needs. According to the Fabless Semiconductor Association and Dataquest, fabless companies' revenues have increased as a percentage of the worldwide semiconductor market from 3.0% in 1994 to 7.6% in 1999. Fabless companies' revenues are expected to increase to approximately $37 billion, or an 11.8% market share, in 2004. The significant growth in the number of fabless semiconductor companies has been driven in large part by the ability of these companies to effectively outsource virtually every significant step of the semiconductor manufacturing process. This development has allowed fabless semiconductor companies to introduce new semiconductors very quickly without committing significant amounts of capital and other resources to manufacturing. We believe that the growth of fabless semiconductor companies will continue to be a significant driver of growth in the independent semiconductor manufacturing industry. . Significant Capital Expenditures Are Required for Semiconductor Manufacturing. Semiconductor packaging and test services have evolved into increasingly complex processes that require a substantial investment in specialized equipment, resources and facilities. For example, the capital investment in facilities and equipment necessary for a processing line capable of packaging 100 million BGA packages per year can be as much as $200 million. As a result of these substantial costs, equipment must be utilized at a high capacity level in order to be cost effective. Independent providers of packaging and test services, like us, can use existing equipment at high utilization levels over a longer period of time by providing services for a broad range of customers. Moreover, as the cost to build a new state-of-the-art wafer fabrication facility has increased to nearly $1.2 billion, semiconductor companies have been forced to concentrate their capital resources on core wafer manufacturing activities. As a result, semiconductor companies are increasingly using independent packaging and test providers who are able to invest capital to develop new packaging and test capacity. . Sophisticated Expertise and Technological Innovation Are Necessary. Semiconductor companies are facing ever-increasing demands for miniaturization, higher lead counts for more connections and improved thermal and electrical performance from IC packaging. In addition, the proliferation of package types and the increased value of advanced packaging as a percentage of the overall value of a semiconductor have resulted in semiconductor companies turning to companies like us for sophisticated expertise and technological innovation in packaging and test technology. 50 BUSINESS Company Overview We are one of the world's largest providers of semiconductor packaging and test services. We focus exclusively on packaging and test services and offer one of the broadest portfolios of services available in the industry, serving all segments of semiconductor usage. We are a leader in providing high end packaging solutions, including ball grid array packages, or BGA packages, one of the most advanced mass produced type of packages. We also provide advanced packaging products that address the needs of semiconductors used in wireless and wireline communications applications, including flip-chip, chip-scale and stacked die technologies. A semiconductor package is a plastic, ceramic or metal covering that protects and insulates the enclosed semiconductor chip and attaches to a printed circuit board. As a result, packages are an integral part of the basic functionality of semiconductors and contribute to their overall performance. We provide packaging and test services to 77 customers worldwide, including 41 customers in the United States. Our customers include many of the world's largest and most prominent semiconductor manufacturers, including: Atmel, Intel, IBM, LSI Logic, Lucent Technologies, Inc., Samsung, STMicroelectronics and Intersil. Our facilities are strategically located to address the needs of our customers, who are typically high growth semiconductor companies who are leaders within their respective end markets. Our headquarters are located in Santa Clara, California. Our Business Strategy Our business strategy emphasizes the following key elements: Continue to implement long term partnership agreements with key customers. Pro forma for the acquisition of the Malaysian business, over half of our 1999 revenues were covered by long term contracts, including the five- year contract we have with Intersil to assemble and test their PRISM(R) wireless LAN chipsets and the two and one-half year supply agreement with Intel to assemble and test its personal computer and Internet server chipsets and communications devices. We also have a three and one-half year agreement with Hyundai Electronics to provide our chip-scale packaging and test services for Hyundai's outsourced RDRAM assembly needs and a three year supply agreement with Qualcomm to provide packaging and test services for integrated circuit devices. Each of Intel, Hyundai Electronics America and Intersil is, and upon completion of the concurrent private placement, Qualcomm will become, a stockholder of our company. Our goal is to increase our share of our customers' packaging business by providing superior customer service, providing quality packaging with the highest yield rates and providing new and advanced packaging, like BGA, flip-chip, chip-scale packaging and multi-die systems in a package. Our customers today are leaders in multiple semiconductor market segments, including flash memory, personal computer chipsets, 3D video graphics chipsets chips, system ICs, wireless ICs, communications ICs, and mass storage ICs. Advanced Micro Devices, Hyundai, IBM, Intel, LSI Logic, Samsung, STMicroelectronics and Taiwan Semiconductor Manufacturing Corporation accounted for approximately 41% of worldwide semiconductor revenues in 1999. All of these customers compete in large segments within the semiconductor industry and demand packaging and test services to address the trend to smaller, thinner, lighter and higher performance packaging. Expand our test business, as the need for outsourced test service grows. Growth in independent packaging and test services is expected to be greater than that of the overall semiconductor market because of the increasing trend of semiconductor companies to outsource their packaging and test needs. Through increased emphasis on and additional capacity of our test business, we have seen a significant acceleration in our test revenues over the most recent four quarters, and we expect the growth to continue, due to increasing demand for our test services, notably from LSI Logic, Atmel and nVidia. We provide test services for flash and eeprom memories for wireless applications, mixed- signal for DSP-based applications and digital testing for applications like three-dimensional graphics. We intend to grow the test portion of our business to provide "one-stop shopping" capabilities for both packaging and test services for our customers, aiding in the reduction of their time-to-market and increasing our share of this higher margin business. 51 Utilize our product breadth, technology and geographic locations to secure relationships with the foundries that are servicing the fabless semiconductor manufacturers. Fabless semiconductor companies' revenues have grown faster than the total semiconductor market, increasing as a percentage of the worldwide semiconductor market from 3% in 1994 to 7.6% in 1999. Because these companies do not own their own manufacturing facilities, they must outsource all their manufacturing needs. To capitalize on this outsourcing trend, we intend to develop closer working relationships with fabless semiconductor customers using wafer foundries in Malaysia, Singapore, Korea, China and the United States. We believe that we are well-positioned to increase our share of fabless semiconductor customers' packaging needs due to our technology leadership, particularly in BGA, and our strategically located facilities in Korea, China and Malaysia. Pursue strategic acquisitions, licensing and joint development projects in the fragmented packaging and test industry. We continue to evaluate candidates for strategic acquisitions, particularly back end facilities owned by IDMs who are focusing their resources on chip design and wafer fabrication, to strengthen our core business, broaden our technology portfolio and expand our geographic reach. We intend to structure these acquisitions, if any, with long- term supply contracts and intellectual property transfers. Develop new packaging technology that will attract new customers and allow us to become early stage partners with our customers. We believe that a key to expanding our customer base will be to capitalize on our technological leadership in developing new packaging. We have introduced or plan to introduce the following advanced new packages: Flip-chip CSP, TBGA, M/2/BGA(TM), EconoCSP(TM) and FBGA-T, TBGAII and EconoCSPT(TM). In 1999, we established a U.S. research and development center that allows customers to validate future flip-chip packaging options early in the development process. Pro forma for the acquisition of the Malaysian business, research and development spending was approximately 2.6% of revenues during 1999, which is comparable to that of the independent packaging industry, but is significantly lower than that of most semiconductor manufacturing companies. As of March 31, 2000 we had 90 engineers dedicated to new packaging development. 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. Pro forma for the acquisition of the Malaysian business, approximately 92.0% and 8.0% of our revenues during 1999 and approximately 91.9% and 8.1% of our revenues during the quarter ended March 31, 2000 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 do 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 to third parties since 1984, and offer a broad range of packaging formats for a wide variety of electronics applications. Pro forma 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% of revenue, respectively, for 1999, and 43.5% and 48.4% of revenue, respectively, for the three months ended March 31, 2000. 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, and in 1999 comprised over half of the total industry packaging volume. Leaded packages are characterized by 52 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, which is 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 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 MQFP, TQFP, iQUAD, TSSOP and SSOP. Leaded Package Profile Substrate, or BGA, Packaging. BGA packaging 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 electronics devices, like 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. 53 BGA Package Profile 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. 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. The following chart summarizes the packaging services we offer. Packaging revenues are pro forma for the acquisition of the Malaysian business. The full names of each packaging type are provided in the "Glossary."
Percentage of Pro Forma 1999 Packaging Revenue Packaging Types Application Pin Count ---------- ------------------------------------ ------------------------ --------- Leaded 31.1% Traditional: PDIP, PLCC, SOIC, SOJ, Telecommunications, 8-304 SSOP, SIP, DPAK and automobiles, household D/2/PAK appliances, and desktop and notebook computers 10.6% Advanced: TQFP, TSOP, QFP, LQFP, Personal computers and 32-176 TSSOP, TO5, iQUAD(TM) telecommunications and MQFP BGA 54.5% Standard PBGA, M/2/BGA(TM), Personal computer 119-371 BGA: TBGA and EBGA chipsets, graphic controllers 3.7% Chip-Scale EconoCSP(TM), eBGA(TM), Wireless telephones, 36-280 BGA: M/2/CSP(TM) and FBGA-T personal digital assistants, video cameras and wireless pagers 0.1% Flip-Chip FlipPAC(TM), RamPAC(TM) High-end network servers 36-1732 BGA: and FlashPAC(TM) 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 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 begun to capitalize on this trend by enhancing our test service capabilities. We operate 72 testers, and in 1999, we achieved 12.8% year-over-year growth. We achieved over 300% growth for the three months ended March 31, 2000 compared to the three months ended March 31, 1999. The Malaysian business expands our mixed-signal testers and provides us with critical expertise for testing RF devices, one of the fastest growth areas for test outsourcing. 54 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 Santa Clara, California, Chandler, Arizona and Ichon, 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 We provide packaging and test services to 77 customers worldwide, including 41 in the United States. Our customers include many of the world's largest and most prominent semiconductor manufacturers including: Atmel, Hyundai, Intel, IBM, LSI Logic, Lucent, Samsung, STMicroelectronics and Intersil. Pro forma for the acquisition of the Malaysian business, during 1999 approximately 48.7%, 21.3%, 6.0% and 5.1% of our revenues were derived from Intel, Intersil, Atmel and LSI Logic, respectively. We anticipate that this customer concentration will decrease as new customers for which we have already become qualified and customers with which we are undergoing qualification, including Texas Instruments Incorporated, Broadcom Corporation, TranSwitch Corporation and Sony Corporation, begin to ship semiconductor devices to us for packaging. Pro forma for the acquisition of the Malaysian business, in 1999, we derived approximately 79.2% of our revenues from the U.S., 16.1% from Asia and 4.7% from Europe. 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 55 leaded package and can take more than six months for a typical BGA package and, in each case, can cost the customer approximately $25,000 to $50,000. 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 and test services for a full portfolio of packages. Our success in becoming one of the world leaders in BGA technology is due in significant part to our being selected as one of the key suppliers to Intel. BGA technology is used in almost every personal computer that is built today, and Intel was the first semiconductor company to require BGA technology solutions from independent packagers in high volume. Due to the significant volume of Intel semiconductors sold worldwide, in 1999, we believe Intel represented over 40% of the BGA independent packaging market. We are currently one of four suppliers of BGA packaging technology to Intel. In 1999, we were awarded Intel's Preferred Quality Supplier award. As a result of our relationship with Intel, we have been able to grow our infrastructure to support the development of advanced BGA technology. In doing so, we have gained an early advantage relative to our competitors in packaging capability, yield enhancement, quality and reliability. Furthermore, we have developed the expertise to use BGA technology across almost all Intel business groups, including personal computer chipsets, Internet server chipsets, graphic controllers, memory, networking and communications. Intel does not currently outsource packaging services for any of its microprocessors, including the Pentium III(TM) and Celeron(TM) lines. Both we and Intel have numerous resources dedicated to improving BGA technology and new technologies like stacked multi-die packages. Marketing, Sales and Customer Support We provide sales support to our customers through an international network of offices located in: . the United States, . Santa Clara, California (our worldwide headquarters), . San Diego, California, . Chandler, Arizona, . Boston, Massachusetts, . Dallas, Texas, . Palm Bay, Florida . Kampen, The Netherlands, . Tokyo, Japan, . Shanghai, China, . Ichon, 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. Our 107 marketing, sales support 56 and customer service personnel's performance is measured by each team's revenue achievements and number of design "wins," which consist of providing other value-added services to customers and completing package qualifications with customers. As is industry practice, customers deliver near-term forecasts to guide us on anticipated volumes. As a result, we have 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 ChipPAC and our advanced device packaging technologies and an understanding of our end-user market applications in networking, memory, storage, graphics and wireless. We market our leadership in advanced packaging and test technology 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. We engage in semi-annual and quarterly reviews with our customers; we regularly collect data from different segments of the semiconductor industry, for example, personal computers, wireless telephony and digital cameras. When possible, we work closely with our customers to design and develop packaging and test solutions for their new products. These "co-development" or "sponsorship" projects can be critical when customers seek large scale early market entry with a significant, new product. Task teams assigned by both ChipPAC and our customers work together to design and develop new solutions and to analyze and review the outcomes to ascertain if a project's objectives are being met in a cost-effective manner. Depending on the project, the cost of development may be borne entirely by us or may be shared with the customer. 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 insure the timely availability of materials supplies, and we are not dependent on any one supplier for a substantial portion of our materials requirements. We have no significant supply contracts or arrangements with any supplier of materials, and we typically purchase materials by entering into written purchase orders. Approximately 70% of our substrate costs were incurred from the purchase of materials from Korea, with the balance 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 and Taiwan. 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. Operations and Facilities Our packaging process begins by cutting customer supplied wafers into individual die using a high speed precision saw. For leaded packaging, the individual die are then mounted onto metal strips called lead frames, which are generally made of copper with selective silver plating on which a pattern of input/output, or I/O, leads has been cut. For BGA packaging, individual die are placed onto plastic or tape laminate substrates which are miniature printed circuit boards. Next, very fine gold wires, with an average diameter of about 0.001 inch, are attached to the die and the lead frame or substrate, as applicable. These gold wires provide the electrical connection between the electronic circuits on the die and the I/O points of the lead frame or substrate. Each die is then encapsulated in a plastic casing and marked. 57 For leaded packaging, the next step consists of plating the protruding leads with a tin alloy which facilitates soldering when the finished chips are placed onto a printed circuit board. The die then go through a series of mechanical stamping processes where the leads are then trimmed and formed into the requisite finished shape. For BGA packaging, the next step consists of attaching tiny solder balls to the bottom of the substrates. The completed devices then undergo a final inspection before being packed and shipped to customers. We are not responsible for shipping customer packaged products; customers either retrieve their finished packaged products directly from our facilities or third parties deliver the finished packaged products to the airport to be retrieved by customers. Our operations are conducted through six operating facilities. Our corporate headquarters are located in Santa Clara, California, and we provide all packaging, warehousing and test services through our facilities in Ichon and Chungju, Korea, Shanghai, China and Kuala Lumpur, Malaysia. Our Chungju facility provides electroplating services on leadframes from the Ichon facility. Our 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. The following chart summarizes our packaging and research and development facilities:
Principal Packaging or Owned/ Service Provided or Facility Location Leased Sq. Ft. Functions/Services Being Developed ----------------- ------ ------- ------------------ ---------------------- Santa Clara, Leased 40,000 Executive offices, Flip-Chip BGA, Flip- California............. Research and Chip and CSP Design Development, Sales and Services Marketing Chandler, Arizona....... Leased 5,000 Research and Design and Development, Sales and Characterization Marketing Services Shanghai, China......... Owned(1) 442,000 Packaging and Test Traditional Leaded Services Chip-Scale Packaging and Test Services Ichon, Korea............ Leased 474,000 Packaging and Test Advanced Leaded, BGA Services; Research and Packaging, Chip-Scale Development and Test Services Chungju, Korea.......... Leased 129,000 Electroplating leadframes from Ichon, Korea Kuala Lumpur, Malaysia.. Owned(1) 524,000 Packaging and Test Discrete Power, Services Traditional Leaded Packaging and Test Services
- --------------------- (1) 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 primary competitors and their locations are as follows: . Advanced Semiconductor Engineering, Inc.--Taiwan . Amkor Technology, Inc.--Korea and Philippines . ASAT, Ltd.--Hong Kong . ASE Test Limited--Taiwan and Malaysia 58 . Shinko Electric Industries Co., Ltd.--Japan . Siliconware Precision Industries Co., Ltd.--Taiwan . ST Assembly Test Services Limited--Singapore 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 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 packaging designs and process capabilities and on improving the efficiency and capabilities of our existing packaging and test services. We believe that technology development is one of the key success factors in the packaging market and we believe that we have considerable ability in this area. During the past two years, we have introduced the following new packages: . Flip-Chip CSP, . TBGA, . M/2/BGA(TM), . EconoCSP(TM) and . FBGA-T. We expect to introduce the following packages during the remainder of 2000: . TBGA II and . EconoCSPT(TM). In 1999, we established a U.S. research and development center that allows us to work closer with our customers to validate future flip-chip packaging options early in the development process by giving direct access to flip-chip materials, equipment and our engineering expertise. We believe materials engineering will play a more critical role in future advanced packages and we are currently working on furthering our research and development within package development. In addition to our own development, we will also license technology where appropriate to strengthen a strategic relationship or where it offers competitive or time-to-market advantages. For example, we are currently licensing flip-chip package technology from LSI Logic. As of March 31, 2000, we employed approximately 90 full-time research and development personnel. During 1999, we spent approximately $12.4 million on research and development. Employees As of March 31, 2000, we employed 3,851 full-time employees, of whom approximately 90 were employed in research and development, 3,545 in packaging and test services and 242 in marketing, sales, customer service and administration. 59 Approximately 2,100 of our employees at the Ichon, Korea facility are represented by ChipPAC Korea Labor Union and are covered by a collective bargaining agreement which provides for salary and wages through May 1, 2000 and expires on May 1, 2001. We are currently negotiating salary and wages for our employees represented by ChipPAC Korea Labor Union. We believe that we have good relationships with our employees and unions. As of March 31, 2000, the Malaysian business employed 2,912 full-time employees. 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 also 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 Hyundai Electronics, which we refer to as the Hyundai Electronics 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 Hyundai Electronics License may be extended by us from year to year upon payment of a nominal annual license fee. Hyundai Electronics may terminate the Hyundai Electronics License prior to December 31, 2003 if we breach the Hyundai Electronics 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 micro BGA, 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 can expire. In connection with our recapitalization, we obtained a non-exclusive sublicense from Hyundai Electronics 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 Hyundai Electronics 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 three 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 (including a total of $6.0 million in royalties) or January 1, 2004, whichever occurs first. The LSI flip-chip license also requires LSI Logic to purchase 20% of its requirements for flip-chip packaging services from us for three years following our completion of LSI's flip-chip qualification requirements, provided that we remain competitive with respect to price, quality and turn-around time and that we reach an agreement with LSI Logic concerning the terms that will govern their purchase of those flip-chip packaging services. 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. 60 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. Our third license from LSI Logic, which we refer to as the LSI EPGA license, grants us a worldwide, non-exclusive, royalty-bearing license to use LSI packaging technology and technical information to manufacture, use and sell enhanced plastic ball grid array packages for semiconductor devices. In addition to milestone payments that we are to make to LSI Logic pursuant to this agreement, the LSI EPGA license requires that we pay a royalty on each enhanced plastic ball grid array package that we sell to third parties before May 1, 2003, up to a maximum license fee of $1 million. Our right under the LSI EPGA license perpetual but LSI Logic may terminate the LSI EPGA license if we breach the LSI EPGA 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. Any intellectual property rights in the bonding diagrams, test programs, maskworks and test boards uniquely related to the Intersil products for which we will provide packaging and test services under a five-year supply agreement with Intersil are licensed to us only for use in providing those services. Our primary trademark and trade name is "ChipPAC." We own or are licensed to use other secondary trademarks. Environmental Matters Our business is affected by 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 and on the generation, storage, handling, discharge, treatment, transportation and disposal of chemicals which we use, and on employee exposure to hazardous substances in the workplace. It is our policy to comply with all applicable environmental, health and safety laws and regulations, and we believe we are currently in material compliance with all applicable laws and regulations. In September 1996, we received ISO- 14001 certification for our facilities in Ichon and Chongju by Lloyd's Register Quarterly Assurance. Significant regulatory and public attention has been focused on the environmental impact of semiconductor packaging operations and the risk of chemical releases from these operations. 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 do not anticipate making material environmental capital expenditures in fiscal years 2000 and 2001. There can be no assurance that applicable environmental, health and safety laws will not in the future impose the need for additional capital equipment or other process requirements upon us, curtail our operations, or restrict our ability to expand operations. The adoption of new environmental, health and safety laws, the failure to comply with new or existing laws, or issues relating to hazardous substances could result in future material liability for us. Legal Proceedings We are not involved in any legal proceedings, the outcome of which we believe would have a material adverse effect on our business, financial condition or results of operations. From time to time, however, we are involved in claims that arise in the ordinary course of business, and we maintain insurance that we believe to be adequate to cover these claims. 61 MANAGEMENT Directors and Executive Officers The following table provides information about our directors and executive officers.
Name Age Position ---- --- -------- Dennis P. McKenna....... 50 President, Chief Executive Officer and Director Robert Krakauer......... 34 Senior Vice President and Chief Financial Officer Gregory S. Bronzovic.... 43 Vice President, Worldwide Sales Bruce Stromstad......... 55 Vice President, Manufacturing Process and Planning Marcos Karnezos......... 55 Vice President, Technology Robert Bowden........... 52 Vice President, Chief Procurement Officer (Peter) Phang Guk Bing.. 51 President, ChipPAC Assembly and Test (Shanghai) Company Ltd. S.N. Lee................ 55 President and Chief Executive Officer, ChipPAC Korea Company, Ltd. C.B. Teh................ 52 President, ChipPAC (Malaysia) Bnd. Sdn. Edward Conard........... 42 Director Michael A. Delaney...... 45 Director David Dominik........... 43 Director Marshall Haines......... 32 Director Joseph Martin........... 51 Director Chong Sup Park.......... 51 Director Paul C. Schorr, IV...... 33 Director
Dennis P. McKenna has been President and Chief Executive Officer since October 1997. He was appointed to these positions when ChipPAC California was incorporated as a separate United States corporation. From October 1995 to October 1997, he served as Senior Vice President of the Components Group for Hyundai Electronics. He joined Hyundai Electronics in January 1993 and served as Vice President and General Manager of the Semiconductor Group until October 1995. Prior to joining Hyundai Electronics, Mr. McKenna, who has over 28 years of industry experience, held management positions at TRW, Inc. and Oki Semiconductor, a division of Oki America, Inc. Robert Krakauer has been Senior Vice President and Chief Financial Officer since November 1999. Prior to that time, he 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 served as Corporate Controller at Altera Corporation. From June 1993 to June 1996, he was Vice President, Finance and Chief Financial Officer at Alphatec Electronics USA. Gregory S. Bronzovic joined us in April 1998 as Vice President, North American Sales. From September 1998 to the present, he has served as Vice President, Worldwide Sales. From January 1995 until April 1998, he was Director of Sales, Hyundai America; prior to that time, he served as Western Area Manager, Hyundai America from February 1994. Bruce Stromstad has been Vice President, Manufacturing Process and Planning since December 1999. Prior to this, he was Vice President, Operations at Silicon Motion from May 1999 to December 1999. He was General Manager of Substrate Manufacturing at Allied Signal from June 1998 to April 1999. From June 1996 to June 1998, he was Vice President, Manufacturing with Cirrus Logic. From 1993 to 1996, he was President at Alphatec. He was employed at Coopers & Lybrand from 1989 to 1993 as a Managing Associate. 62 Marcos Karnezos has been Vice President, Technology since October 1998. From December 1996 to October 1998, he served as Vice President, Technology at Signetics KP. Prior to that, he was Vice President, Technology at ASAT, Ltd. from November 1992 to December 1996. From September 1981 to October 1992 he held various technical positions with Hewlett Packard, most recently as a Department Manager. Robert Bowden has been Vice President, Chief Procurement Officer since June 1999. From June 1974 through May 1999 he was with Hewlett Packard, most recently as Director Contract Manufacturing, HP Procurement from 1995 to 1999 and previously held the positions of Director Semiconductor Procurement from 1991 to 1994 and Operations Manager, Secure Products Operation from 1989 to 1991. (Peter) Phang Guk Bing was appointed as President, ChipPAC Assembly and Test (Shanghai) Company Ltd. in November 1999. From July 1998 to October 1999, he served as Vice President of Operations at ChipPAC (Shanghai) Company Ltd. From September 1994 to June 1998, he was employed by Silicon Systems Singapore, where he was Director of Manufacturing Support Engineering and, prior to that, Director of Assembly Operations. S.N. Lee has been President and Chief Executive Officer, ChipPAC Korea Company, Ltd. since July 1998. Mr. Lee served from October 1996 through June 1998 as Executive Vice President of the Assembly and Test Division of Hyundai Electronics, the predecessor of ChipPAC Korea Company, Ltd. From January 1996 to October 1996, Mr. Lee served as Senior Vice President of the LCD Division of Hyundai Electronics. Prior to this, Mr. Lee served as Senior Vice President of the Assembly and Test Division of Hyundai Electronics from April 1986 through December 1995. C.B. Teh joined us in June 2000 as the President, ChipPAC (Malaysia) Bhd.Sdn. 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 joined Bain Capital in 1993 as a Managing Director. Prior to joining Bain Capital, Mr. Conard was a director of Wasserstein Perella from 1990 to 1992, where he headed the firm's Transaction Development Group. Previously, Mr. Conard was a Vice President at Bain & Company, where he headed the firm's operations practice and managed major client relationships in the industrial manufacturing and consumer goods industries. Mr. Conard currently serves on the boards of Waters Corporation, Cambridge Industries, Dynamic Details Inc., Medical Specialties Group, Inc., Alliance Commercial Laundry, Inc. and U.S. Synthetics, Inc. Michael A. Delaney has been Managing Director of Citicorp Venture Capital Ltd., an investor in the SXI Group LLC, since 1989. Mr. Delaney is also a director of JAC Holdings, Palomar Technologies, Inc., SC Processing, Inc., CLARK Material Handling Inc., MSX International Inc., Delco Remy International, Inc., Fabri-Steel Products Inc., Trianon Industries Corporation, Strategic Industries Inc., Hoover Corporation and Great Lakes Dredge & Dock Corporation. David Dominik is founder and managing director of CCG, Inc. and a special limited partner of Bain Capital. From 1990 to March 2000, Mr. Dominik was a Managing Director of Bain Capital. Mr. Dominik serves on the board of directors of Therma-Wave, Inc., Dynamic Details, Incorporated, OneSource Information Services, Inc. and Integrated Circuit Systems, Inc. Marshall Haines joined Bain Capital in 1993 and has been an Associate since 1995. Prior to joining Bain Capital, Mr. Haines was a management consultant with The LEK Partnership. Mr. Haines currently serves on the board of directors of TravelCLICK, Incorporated. 63 Joseph Martin has been Executive Vice President and Chief Financial Officer of Fairchild Semiconductor Corp. since 1997, prior to which time he was Vice President of Finance, Worldwide Operations for National Semiconductor Corp. since 1989. Mr. Martin is also a director of Fairchild Semiconductor Corp. Chong Sup Park joined Hyundai Electronics in 1983 and served as President and Chief Executive Officer of Hyundai Electronics America from October 1996 to March 2000. Mr. Park has served as Chairman of Hyundai Electronics America since November 1999 and was named President and Chief Executive Officer, Hyundai Electronic Industries Company, Limited, in March 2000. From February 1995 to October 1996, he served as President and Chief Executive Officer of Maxtor Corporation and has served as Chairman of Maxtor Corporation since February 1995. Mr. Park is also a director of Dot Hill Systems Corporation and Viador, Inc. Paul C. Schorr, IV has been Managing Director, Equity Investments for Citicorp Venture Capital Ltd., an investor in the SXI Group LLC, since January 2000. Mr. Schorr served as Vice President from 1996 through 1999. Prior to that, Mr. Schorr was an Engagement Manager in Management Consulting at McKinsey & Company. Mr. Schorr serves on the board of directors of KEMET Corporation, Sybron Chemicals and Fairchild Semiconductor Corp. Compensation of Directors We reimburse members of the board of directors for any out-of-pocket expenses incurred by them in connection with services provided in this capacity. In addition, we pay the independent members of our board of directors, who are currently Messrs. Dominik, Martin and Park, the following for their services as directors: . $10,000 annual retainer fee; . $2,500 for in-person attendance at each regularly-scheduled board meeting; and . $1,250 for telephonic participation at each regularly-scheduled board meeting. We have also entered into an agreement with each of Messrs. Martin and Park for the grant of stock options to purchase shares of our Class A common stock. The options granted under to these agreements will begin vesting in August 2000. We intend to enter into a similar agreement with Mr. Dominik. After the closing of the offering, employees of our company serving on the board of directors will not be entitled to receive any compensation for serving on the board. Following this offering, directors who are not employees of our company or who are not otherwise affiliated with us or our principal stockholders may receive compensation that is commensurate with arrangements offered to directors of companies that are similar to our company. Compensation arrangements for independent directors established by our board could be in the form of cash payment and/or option grants. 64 Executive Compensation Summary Compensation Table The following table provides, for the year ended December 31, 1999, the compensation paid to our Chief Executive Officer and our four other most highly compensated executive officers whose total annual salary and bonus was in excess of $100,000 for fiscal year 1999. For ease of reference, we refer to each of these executive officers throughout this section as a Named Executive Officer and collectively as the Named Executive Officers.
Annual Compensation Long-Term Compensation(2) ------------------------------------ -------------------------------------------- Securities Other Annual Restricted Restricted Underlying All Other Name and Compensation Stock Stock Options/SARS Compensation Principal Position Salary Bonus (1) Awards ($) Awards (#) (#) (3) ------------------ ----------- ----------- ------------ ---------- ---------- ------------ ------------ Dennis P. McKenna....... $376,480.40 $277,520.90 $ -- $66,660(5)(6) 228,593(5)(6) 259,072 $46,741.54 President and Chief Executive Officer, ChipPAC, Inc. Tony Lin................ 183,420.36 105,085.64 -- 16,665(5)(6) 57,148(5)(6) 57,148 20,884.12 Vice President, Manufacturing Finance, ChipPAC, Inc. Gregory S. Bronzovic.... 190,040.28 70,710.46 -- 11,110(5)(6) 38,099(5)(6) 38,099 10,972.94 Vice President, Worldwide Sales, ChipPAC, Inc. Marcos Karnezos......... 186,252.05 55,985.32 -- 11,110(5)(6) 38,099(5)(6) 38,099 7,803.10 Vice President, Technology, ChipPAC, Inc. Peter Phang............. 155,533.46 26,240.19 80,800.00(4) 11,110(5)(6) 38,099(5)(6) 38,099 3,150.00 Managing Director and President ChipPAC Shanghai
- --------------------- (1) Excludes perquisites and other personal benefits or property aggregating less than the lesser of either: (i) $50,000 or (ii) 10% of the total annual salary and bonus reported for the applicable Named Executive Officer. (2) At the closing of the recapitalization on August 5, 1999, all options held by the Named Executive Officers were canceled in the case of unexercised options, or converted into the right to receive cash, in the case of vested options. Please see "Other Compensation" for more information about cash payments made to our Named Executive Officers in return for their vested options. A new ChipPAC, Inc. 1999 Stock Purchase and Option Plan was adopted as of August 5, 1999 and these options were granted under that plan, none of which have been exercised as of the date of this prospectus. (3) Includes amounts contributed (a) under our 401(k) plan for 1999 as follow: Mr. McKenna--$4,325; Mr. Lin--$3,787; Mr. Karnezos--$2,137; and Mr. Bronzovic--$2,026, (b) for premiums for a life insurance policy as follow: Mr. McKenna--$1,917; Mr. Lin--$1,347; Mr. Karnezos--$2,291; and Mr. Bronzovic--$509 and (c) for cancellation of vested stock options from the 1997 ChipPAC Stock Option Plan as follow: Mr. McKenna--$40,500; Mr. Lin--$15,570; Mr. Karnezos--$3,375; Mr. Bronzovic-- $8,438; and Mr. Phang-- $3,150. (4) Represents an overseas allowance of $15,300 and a housing allowance of $65,500 for Mr. Phang. (5) Represents shares of Class A common stock with a fair value of $0.2916 per share as determined by the board of directors based upon a good faith estimate on the conversion described in the following note. Each of the Named Executive Officers purchased these shares at a purchase price of $0.2916 per share on the conversion described in the following note. Twenty percent of the stock vests at the end of the first year, an additional twenty percent vests at the end of the second year, an additional thirty percent vests at the end of the third year and the remaining thirty percent vests at the end of the fourth year. (6) These shares previously represented options for Class A common stock which were converted into restricted shares of the Class A common stock upon notification of the intention to convert from the Named Executive Officers during the year ended December 31, 1999. 65 Option Grants in Last Fiscal Year Individual Grants The following table sets forth the option grants during the year ended December 31, 1999 for the Named Executive Officers.
Potential Realizable Value at Assumed Annual Rate of Stock Number of % of Total Price Appreciation Securities Options Exercise for Underlying Granted to or Base Option Term(3) Options Employees in Price Expiration ------------------- Name Granted(1) Fiscal Year(2) ($/Share) Date 5%($) 10%($) ---- ---------- -------------- --------- -------------- -------- ---------- Dennis P. McKenna....... 259,072 19.5% $5.51 August 4, 2009 $898,062 $2,275,863 Tony Lin................ 57,148 4.3 5.51 August 4, 2009 198,102 502,029 Gregory S. Bronzovic.... 38,099 2.9 5.51 August 4, 2009 132,068 334,686 Marcos Karnezos......... 38,099 2.9 5.51 August 4, 2009 132,068 334,686 Peter Phang............. 38,099 2.9 5.51 August 4, 2009 132,068 334,686
- --------------------- (1) These options for Class A common stock were granted under the ChipPAC, Inc. 1999 Stock Purchase and Option Plan. Twenty percent of the options vests at the end of the first year, an additional twenty percent vests at the end of the second year, an additional thirty percent vests at the end of the third year and the remaining thirty percent vests at the end of the fourth year. (2) For purposes of calculating this percentage, options for Class A common stock which were converted into restricted shares of the Class A common stock were not counted as options granted to employees during the year ended December 31, 1999. (3) Amounts reflect assumed rates of appreciation set forth in the executive compensation disclosures rules of the SEC. Actual gains, if any, on stock option exercises depend on future performance of our stock and overall market conditions. 66 Fiscal Year End Option Values The following table contains information regarding unexercised options held by the Named Executive Officers as of December 31, 1999. The value of "in-the- money" options represents the difference between the exercise price of an option and the fair market value of our common stock as of December 31, 1999. No options were exercised by the Named Executive Officers during the year ended December 31, 1999.
Value of Unexercised Number of Securities In-the-Money Underlying Unexercised Options at Options at Fiscal Fiscal Year-End Year-End(#)(1) ($)(2) ---------------------- --------------- Exercisable/ Exercisable/ Name Unexercisable Unexercisable ---- ---------------------- --------------- Dennis P. McKenna..................... 0/259,072 $0/0 Tony Lin.............................. 0/ 57,148 0/0 Gregory S. Bronzovic.................. 0/ 38,099 0/0 Marcos Karnezos....................... 0/ 38,099 0/0 Peter Phang........................... 0/ 38,099 0/0
- --------------------- (1) At the closing of the recapitalization on August 5, 1999, all options held by the Named Executive Officers were canceled in the case of unexercised options, or converted into the right to receive cash, in the case of vested options. The ChipPAC, Inc. 1999 Stock Purchase and Option Plan was adopted and these options were granted under that plan. (2) The fair market value of the common stock at December 31, 1999 as determined by the board of directors based upon a good faith estimate was equal to the exercise price of the options. Employment Agreements Mr. McKenna Mr. McKenna is employed under an employment agreement with us that provides that Mr. McKenna will serve as our President and Chief Executive Officer. The initial term of the agreement terminates on December 31, 2001 and automatically renews for successive one-year periods unless either party notifies the other of his or our intention not to renew the agreement. Under the agreement, we pay Mr. McKenna a base salary of $400,000 per year, which may be increased if approved by the board of directors, plus a bonus of up to 80% of his base salary upon attainment by us of financial performance targets described in the agreement. The agreement also provides for customary fringe benefits. We have agreed to pay Mr. McKenna a bonus equal to twice his base salary plus a portion of his annual bonus if we terminate Mr. McKenna for any reason other than cause, or if Mr. McKenna terminates his employment for good reason. If Mr. McKenna dies before the end of his employment period, we will pay his estate a pro rated portion of the bonus he would have earned in the year of his death. The agreement also provides that, should Mr. McKenna continue to serve as President and Chief Executive Officer following a change of our control, the provisions of the employment agreement shall remain in force and effect following the change of control. Messrs. Bronzovic, Karnezos, Krakauer, Lin and Phang Messrs. Bronzovic, Karnezos, Krakauer, Lin and Phang are employed under letter agreements with us. Messrs. Bronzovic's, Karnezos' and Lin's letter agreements provide that Messrs. Bronzovic, Karnezos and Lin are employees-at- will and that either party has the right to terminate the employment relationship at any time with or without cause. 67 Mr. Bronzovic's letter agreement provides that he serves as Vice President, Worldwide Sales. Mr. Bronzovic's current base salary is $201,350. In addition to his base salary, Mr. Bronzovic is eligible to earn an annual bonus targeted at $100,000. Mr. Karnezos' letter agreement provides that he serves as Vice President, Technology. Mr. Karnezos' current base salary is $198,132. In addition to his base salary, Mr. Karnezos is eligible to earn an annual bonus targeted at 30% of his base salary based on the attainment of financial performance targets determined by us and personal performance goals. Mr. Krakauer's letter agreement provides that he serves as Senior Vice President and Chief Financial Officer. Mr. Krakauer's current base salary is $235,000. In addition to his base salary, Mr. Krakauer is eligible to earn an annual bonus targeted at $117,500. For 2000 only, he will receive a minimum bonus of $82,250. In the event of termination by us for reasons other than cause, he is eligible to receive eight months of severance. This severance amount may be reduced by any other employment compensation he receives from another company during that eight month period. Mr. Lin's letter agreement provides that he serves as Vice President, Manufacturing Finance. Mr. Lin's current base salary is $185,229. In addition to his base salary, Mr. Lin is eligible to earn an annual bonus targeted at 30% of his base salary based on the attainment of financial performance targets determined by us and personal performance goals. Mr. Phang's letter agreement provides that he serves as President, ChipPAC Assembly and Test (Shanghai) Company Ltd. Mr. Phang's current base salary is $175,000. In addition to his base salary, Mr. Phang is eligible to receive an annual bonus targeted at $52,500. Mr. Phang also receives a monthly housing allowance of $7,500 and an overseas allowance of $17,500, which is payable upon completion of each 12 months of his assignment. Mr. Phang's assignment is for four years and renewable by mutual agreement. Mr. Phang's assignment may be terminated by either party with three months written notice if Mr. Phang voluntarily terminates or six months written notice if we terminate his employment for reasons other than cause. If we terminate his employment for reasons other than cause, we will pay for Mr. Phang's relocation back to Singapore, and any unvested options held by Mr. Phang would immediately vest upon this termination. Messrs. Bronzovic's, Karnezos', Krakauer's, Lin's and Phang's letter agreements provide for perquisites, including automobile allowances, and customary personal benefits. Other Compensation Following our 1999 recapitalization, we paid cash to the Named Executive Officers in return for the vested options held by each of these officers. The amounts of those cash payments were $8,438, $3,375, $15,750, $40,500 and $3,150 in the case of Messrs. Bronzovic, Karnezos, Lin, McKenna and Phang, respectively. Messrs. McKenna and Lin also received special bonuses of $100,000 and $50,000, respectively, in connection with the closing of our 1999 recapitalization. Option Grants Under the recapitalization agreement, each option to purchase our common stock that was outstanding prior to our recapitalization was, in the case of unvested options, canceled, and in the case of vested options, converted into the right to receive cash from us immediately prior to the recapitalization. 1999 Stock Purchase and Option Plan Our board of directors has adopted the 1999 Stock Purchase and Option Plan, or the 1999 Stock Plan, which authorizes the granting of stock options and the sale of Class A common stock or Class L common stock to current or future employees, directors, consultants or advisors of us or our subsidiaries. Under the 1999 Stock Plan, a committee of the board of directors is authorized to sell or otherwise issue Class A common 68 stock or Class L common stock at any time prior to the termination of the 1999 Stock Plan in a quantity, at a price and on terms and conditions as established by the committee up to an aggregate of 5,905,310 shares of Class A common stock and 190,494 shares of Class L common stock, including shares of common stock for which options may be granted, which may be adjusted upon the occurrence of specified events to prevent any dilution or expansion of the rights of participants that might otherwise result from the occurrence of these events. As of December 31, 1999, shares of Class A common stock and Class L common stock and options to purchase stock were granted under the 1999 Stock Plan as depicted in Management Equity Sales below and in the Principal Stockholders section. To date, none of these shares or options has vested. 2000 Equity Incentive Plan The 2000 Equity Incentive Plan, or the 2000 Plan, is expected to be adopted by our board of directors and approved by our stockholders prior to the completion of this offering. As of the date of this prospectus, no awards have been made under the 2000 Plan. No future grants will be made under the 1999 Stock Plan upon the effectiveness of the 2000 Plan. The 2000 Plan provides for the grant of incentive stock options to our employees (including officers and employee directors) and for the grant of nonstatutory stock options to our employees, directors and consultants. A total of (1) 1,142,963 shares of Class A common stock, (2) any shares returned to the 1999 Stock Plan as a result of termination of options and (3) annual increases to be added on the date of each annual meeting of stockholders of ChipPAC commencing in 2001 equal to 1.0% of the outstanding shares of common stock, or a lesser amount as may be determined by the board of directors, will be reserved for issuance under the 2000 Plan. The administrator of the 2000 Plan has the power to determine the terms of the options granted, including the exercise price of the option, the number of shares subject to each option, the exercisability of the option, and the form of consideration payable upon exercise. In addition, our board of directors has the authority to amend, suspend or terminate the 2000 Plan, provided that no action may affect any share of Class A common stock previously issued and sold or any option previously granted under the 2000 Plan. Options granted under the 2000 Plan are generally not transferable by the optionee, and each option is exercisable during the lifetime of the optionee and only by that optionee. Options granted under the 2000 Plan must generally be exercised within 30 days after the end of an optionee's status as an employee, director or consultant of ChipPAC, or within six months after an optionee's termination by death or disability, but in no event later than the expiration of the option term. The exercise price of all incentive stock options granted under the 2000 Plan must be at least equal to the fair market value of the Class A common stock on the date of grant. The exercise price of nonstatutory stock options granted under the 2000 Plan is determined by the administrator, but with respect to nonstatutory stock options intended to qualify as "performance-based compensation" within the meaning of Section 162(m) of the Internal Revenue Code, the exercise price must be at least equal to the fair market value of the Class A common stock on the date of grant. With respect to any participant who owns stock possessing more than 10% of the voting power of all classes of the outstanding capital stock of ChipPAC, the exercise price of any incentive stock option granted must be at least equal to 110% of the fair market value on the grant date and the term of the incentive stock option must not exceed five years. The term of all other options granted under the 2000 Plan may not exceed ten years. The 2000 Plan provides that in the event of a merger of ChipPAC with or into another corporation, or a sale of substantially all of our assets, each option shall be assumed or an equivalent option substituted for by the successor corporation. If the outstanding options are not assumed or substituted for by the successor corporation, the administrator shall provide for the optionee to have the right to exercise the option as to all of the optioned stock, including shares as to which it would not otherwise be exercisable. If the administrator makes an option exercisable in full in the event of a merger or sale of assets, the administrator shall notify the 69 optionee that the option shall be fully exercisable for a period of fifteen (15) days from the date of that notice, and the option will terminate upon the expiration of that period. Employee Stock Purchase Plan The 2000 Employee Stock Purchase Plan, or the Stock Purchase Plan, will be adopted by our board of directors and our stockholders prior to the completion of this offering. The Stock Purchase Plan will be established to give employees desiring to do so a convenient means of purchasing shares of Class A common stock through payroll deductions or lump sum cash payments. The Stock Purchase Plan provides an incentive to participate by permitting purchases at a discounted price. We believe that ownership of stock by employees will foster greater employee interest in the success, growth and development of ChipPAC. A total of 1,142,963 shares of our Class A common stock will be reserved for issuance under the Stock Purchase Plan, which is intended to qualify under Section 423 of the Internal Revenue Code but also allows for grants of options which do not qualify under Section 423 of the Internal Revenue Code. The Stock Purchase Plan will be implemented through a series of overlapping purchase periods of six months in duration, with new purchase periods (other than the first purchase period) commencing on February 1 and August 1 of each year. The initial purchase period is expected to commence on the date of this offering and end on January 31, 2000. The Stock Purchase Plan will be administered by our board of directors or by a committee appointed by the board. Our employees, including officers and employee directors, and the employees of any majority-owned subsidiary designated by our board of directors, are eligible to participate in the Stock Purchase Plan if they are employed by us or any designated majority-owned subsidiary for at least 35 hours per week and more than five months per year. The Stock Purchase Plan permits eligible employees to purchase shares of our Class A common stock through payroll deductions or lump sum cash payments, which may not exceed 15% of an employee's compensation, at a price equal to the lower of 85% of the fair market value of our Class A common stock at the beginning or end of each purchase period. In circumstances described in the Stock Purchase Plan, the purchase price may be adjusted during a purchase period to avoid our having to incur adverse accounting charges. Employees may end their participation in the Stock Purchase Plan at any time during the purchase period, and participation in the Stock Purchase Plan ends automatically upon termination of employment with us. Unless terminated earlier by our board of directors, the Stock Purchase Plan will have a term of ten years. Qualified 401(k) Plan We maintain a qualified 401(k) plan. Employees are permitted to contribute up to 15.0% of their annual compensation to our 401(k) plan, not to exceed $10,500 per year. Under the plan, we make matching contributions of up to 50.0% of the first 6.0% of annual deferral per participant, limited by IRS rules. We contributed and expensed $175,000 in 1999, $119,000 in 1998 and $49,000 in 1997. Pension Plans and Deferred Compensation Plans We do not maintain any pension plans or deferred compensation plans other than the 401(k) plan described above. In connection with our recapitalization, members of management may receive deferred compensation arrangements. The terms of these arrangements have not yet been finalized. Management Equity Sales Under the 1999 Stock Plan, we entered into stock purchase agreements, which we refer to as purchase agreements, with many of our senior employees, including Mr. Bronzovic, Mr. Karnezos, Mr. Krakauer, Mr. Lee, Mr. Lin and Mr. McKenna. Under the purchase agreements, these senior-level employees purchased shares of our Class A common stock and Class L common stock. We have loaned these senior-level employees up to 50% of the purchase price of the common stock purchased under these purchase agreements. These loans 70 are represented by promissory notes between the employee and us. Prior to the consummation of this offering, the common stock purchased under the purchase agreements may be repurchased by us upon termination of the employee's employment. Compensation Committee Interlocks and Insider Participation We currently do not have a compensation committee. The compensation arrangements for each of our executive officers were established under the terms of the respective employment agreements between us and each executive officer. The terms of the employment agreements were established in arms-length negotiations between us and each executive officer and approved by our board of directors, except that agreement relating to Mr. McKenna, which was negotiated between representatives of the Equity Investors and Mr. McKenna. Following this offering, any changes in the compensation arrangements of our executive officers will be determined by the compensation committee of our board of directors. Committees of the Board of Directors Upon the closing of this offering, the board of directors will have an audit committee and a compensation committee. The audit committee will report to the board regarding the appointment of our independent public accountants, the scope and results of our annual audits, compliance with our accounting and financial policies and management's procedures and policies relative to the adequacy of our internal accounting controls. Upon the completion of the initial public offering, the audit committee will consist exclusively of directors not otherwise affiliated with us. The compensation committee of the board of directors will review and make recommendations to the board regarding our compensation policies and all forms of compensation to be provided to our executive officers. In addition, the compensation committee will review bonus and stock compensation arrangements for all of our other employees. Upon the completion of the initial public offering, the compensation committee will consist of at least two non-employee directors (as defined in Rule 16b-3 under the Securities Exchange Act of 1934). 71 PRINCIPAL STOCKHOLDERS The following table provides information with respect to the beneficial ownership of our Class A common stock, as of March 31, 2000 after giving effect to the reclassification as of an assumed effective date of August 3, 2000 (a) prior to this offering of 15,500,000 shares of our Class A common stock and sales of 1,253,133 shares of our Class A common stock in the concurrent private placement and (b) immediately following this offering and the concurrent private placement, in each case by: . each person or group of affiliated persons who is known by us to own beneficially more than 5% of our Class A common stock; . each of our directors; . each of our executive officers; and . all directors and executive officers as a group. The table includes the number of shares and percentage ownership represented by the shares determined to be beneficially owned by a person under the rules of the Securities and Exchange Commission. The number of shares beneficially owned by a person includes: (a) shares of Class A common stock that are subject to options held by that person that are currently exercisable within 60 days of March 31, 2000 and (b) shares of Class A common stock that are subject to repurchase but vest within 60 days of March 31, 2000. These shares are deemed outstanding for the purpose of computing the percentage of outstanding shares owned by that person. These shares are not deemed outstanding, however, for the purposes of computing the percentage ownership of any other person. The column entitled "Percentage After the Offering" assumes no exercise of the underwriters' over-allotment option. Except as otherwise noted and subject to community property laws, the persons or entities in this table have sole voting and investment power with respect to all the shares of common stock owned by them. Unless otherwise provided herein, the street address of each director and executive officer is 3151 Coronado Drive, Santa Clara, California 95054.
Shares Beneficially Owned ----------------------------- Percentage of Shares Outstanding ------------------ Number Prior to After the Name and Address of Shares Offering Offering - ---------------- ---------- -------- --------- Principal Stockholders: Bain Capital Funds(1)............................. 19,835,263 43.0 29.8 c/o Bain Capital, Inc. Two Copley Place Boston, Massachusetts 02116 SXI Group LLC(2).................................. 19,595,759 42.5 29.4 c/o Citicorp Venture Capital, Ltd. 399 Park Avenue New York, NY 10043 Hyundai Electronics America....................... 4,354,613 9.4 6.5 3101 North First Street San Jose, California 95134
72
Shares Beneficially Owned ----------------------------- Percentage of Shares Outstanding ------------------ Number Prior to After the Name and Address of Shares Offering Offering - ---------------- ---------- -------- --------- Directors and Executive Officers: Dennis P. McKenna............................... 216,749 * * Robert Krakauer................................. 173,201 * * Gregory S. Bronzovic............................ 34,680 * * Bruce Stromstad................................. 43,300 * * Marcos Karnezos................................. 43,350 * * Robert Bowden................................... 54,187 * * (Peter) Phang Guk Bing.......................... 9,733 * * S.N. Lee........................................ 108,375 * * C.B. Teh........................................ -- -- -- Edward Conard(3)................................ -- -- -- Michael A. Delaney(4)........................... 19,595,759 42.5 29.4 David Dominik(5)................................ -- -- -- Marshall Haines(6).............................. -- -- -- Joseph Martin(7)................................ 19,595,759 42.5 29.4 Chong Sup Park.................................. -- -- -- Paul C. Schorr, IV(8)........................... 19,595,759 42.5 29.4 All directors and executive officers as a group (16 persons)................................... 20,279,334 44.0 30.3
- --------------------- * Less than one percent. (1) Includes: (a) 15,251,287 shares of Class A common stock owned by Bain Capital Fund VI, L.P., whose sole general partner is Bain Capital Partners VI, L.P., whose sole general partner is Bain Capital Investors VI, Inc., a Delaware corporation wholly owned by W. Mitt Romney; (b) 2,090,728 shares of Class A common stock owned by BCIP Associates II, whose managing partner is Bain Capital, Inc., a Delaware corporation wholly owned by W. Mitt Romney; (c) 367,537 shares of Class A common stock owned by BCIP Associates II-B, whose managing partner is Bain Capital, Inc., a Delaware corporation wholly owned by W. Mitt Romney; (d) 670,025 shares of Class A common stock owned by BCIP Trust Associates II, L.P., whose general partner is Bain Capital, Inc., a Delaware corporation wholly owned by W. Mitt Romney; (e) 177,062 shares of Class A common stock owned by BCIP Trust Associates II-B, whose general partner is Bain Capital, Inc., a Delaware corporation wholly owned by W. Mitt Romney; (f) 792,326 shares of Class A common stock owned by BCIP Associates II-C, whose managing partner is Bain Capital, Inc., a Delaware corporation wholly owned by W. Mitt Romney; (g) 50,837 shares of Class A common stock owned by PEP Investments Pty, Ltd., whose controlling persons are Timothy J. Sims, Richard J. Gardell, Simon D. Pillar and Paul J. McCullagh; and (h) 435,461 shares of Class A common stock by Sankaty High Yield Asset Partners, L.P., whose sole general partner is Sankaty High Yield Asset Investors, LLC, whose managing member is Sankaty High Yield Asset Investors, Ltd., a Bermuda corporation wholly owned by W. Mitt Romney. (2) Citicorp Venture Capital Ltd. owns an interest in SXI Group LLC and could have the right to exchange that interest for up to 19,595,759 shares of our Class A common stock. Prior to the closing of this offering, we expect that SXI Group LLC will be liquidated and, accordingly, Citicorp Venture Capital Ltd. will own these shares of our Class A common stock directly. (3) Mr. Conard is a limited partner of Bain Capital Partners VI, L.P. which is the general partner of the Bain Capital Fund VI, L.P. In addition, Mr. Conard is a general partner of BCIP Associates II, BCIP Associates II-B, BCIP Associates II-C, BCIP Trust Associates II, L.P. and BCIP Trust Associates II-B. In such capacity, Mr. Conard has a pecuniary interest in certain of the shares held by the Bain Capital Funds. Mr. Conard's address is c/o Bain Capital, Inc., Two Copley Place, Boston, Massachusetts 02116. 73 (4) Mr. Delaney is an investor in SXI Group LLC, a member of its Board of Representatives and a Managing Director of Citicorp Venture Capital, Ltd. Accordingly, Mr. Delaney may be deemed to beneficially own all shares held by SXI Group LLC. Mr. Delaney disclaims beneficial ownership of all shares held by SXI Group LLC, except those shares reported for Mr. Delaney, which Mr. Delaney could have the right to acquire in exchange for an ownership interest in SXI Group LLC. Mr. Delaney's address is c/o Citicorp Venture Capital, Ltd., 399 Park Avenue, New York, New York 10043. (5) Mr. Dominik is a special limited partner of Bain Capital Partners VI, L.P. and has a pecuniary interest in certain shares held by the Bain Capital Funds. Mr. Dominik's address is c/o Bain Capital, Inc., Two Copley Plaza, Boston, Massachusetts 02116. (6) Mr. Haines is a general partner of BCIP Associates II, BCIP Associates II- B, BCIP Associates II-B, BCIP Trust Associates II, L.P. and BCIP Trust Associates II-B and has a pecuniary interest in certain shares held by these funds. Mr. Haines' address is c/o Bain Capital, Inc., One Embarcadero, Suite 2260, San Francisco, California 94111. (7) Mr. Martin is an investor in SXI Group LLC and, accordingly, may be deemed to beneficially own all shares held by SXI Group LLC. Mr. Martin disclaims beneficial ownership of all shares held by SXI Group LLC, except those shares reported for Mr. Martin, which Mr. Martin could have the right to acquire in exchange for an ownership interest in SXI Group LLC. Mr. Martin's address is c/o Fairchild Semiconductor Corporation, 333 Western Avenue, South Portland, Maine 04106. (8) Mr. Schorr is an investor in SXI Group LLC, a member of its Board of Representatives and a Managing Director of Citicorp Venture Capital, Ltd. Accordingly, Mr. Schorr may be deemed to beneficially own all shares held by SXI Group LLC. Mr. Schorr disclaims beneficial ownership of all shares held by SXI Group LLC, except those shares reported for Mr. Schorr, which Mr. Schorr could have the right to acquire in exchange for an ownership interest in SXI Group LLC. Mr. Schorr's address is c/o Citicorp Venture Capital, Ltd., 399 Park Avenue, New York, New York 10043. 74 CONCURRENT PRIVATE PLACEMENT The Qualcomm Private Placement On July 13, 2000, we entered into an agreement with Qualcomm, in which Qualcomm agreed to purchase from us a number of shares of our Class A common stock equal to $25.0 million divided by a purchase price per share equal to 95% of the initial public offering price in this offering in a private placement that will occur concurrently with the closing of this offering. Based on an assumed initial public offering price of $21.00, the midpoint of the range set forth on the cover page of this prospectus, Qualcomm will purchase 1,253,133 shares of Class A common stock in the concurrent private placement. Accordingly, if the initial public offering price is greater or less than $21.00 per share, then: . a smaller or greater number of shares of our Class A common stock will be issued in the concurrent private placement; . a smaller or greater number of our Class A common stock will be outstanding upon the closing of this offering and the concurrent private placement; and . the shares of our Class A common stock issued in the offering will represent a greater or lesser percentage of our outstanding common stock. The agreement provides that Qualcomm will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any of our Class A common stock acquired in the private placement without the prior written consent of Credit Suisse First Boston Corporation for a period of 180 days after the date of this prospectus. Qualcomm has also agreed to enter into a three-year supply agreement which automatically renews every year after the initial term unless either party provides 90 day written notice to the other party of its intent to terminate the agreement. Under the supply agreement, ChipPAC will provide packaging and test services for integrated circuit devices for Qualcomm. In addition, after an offering of our stock to the public and before the seventh anniversary of the closing of the concurrent private placement, the holders of a majority of the registrable securities held by Qualcomm may require us to register under the Securities Act of 1933 all those shares under one "long form" or "short form" registration at our expense. SIGNIFICANT RELATIONSHIPS AND RELATED TRANSACTIONS Because this is a summary, it does not contain all of the information that may be important to you. You should read the complete document before making an investment decision. These documents have been filed as exhibits to the registration statement of which this prospectus forms a part. See "Where You Can Find More Information." Malaysian Business On June 30, 2000, we consummated the acquisition of the Malaysian business. The acquisition of the Malaysian business involved the acquisition of all equity interests in the Malaysian business along with related intellectual property, in exchange for $52.5 million in cash and newly authorized shares of our Class C preferred stock having an aggregate liquidation preference of $17.5 million. In addition, during the period from June 1, 2000 to June 30, 2003, Intersil will be 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 $117.9 million in the aggregate. 75 In connection with the acquisition, we entered into a five-year supply agreement with Intersil under which we will supply Intersil and each of its current and future affiliates with their packaging and test services requirements. In addition, Intersil assigned to us patents, copyrights and technical information used exclusively in or associated exclusively with the Malaysian business. Furthermore, Intersil granted us a worldwide, non-exclusive, royalty- free license under other Intersil patents, copyrights and technical information which is also 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 will provide packaging and test services under the supply agreement with Intersil are licensed to us only for use in providing those services. We also entered into a long term joint services agreement with Intersil in connection with the acquisition of the Malaysian business under which each party is required to assist the other in a smooth transition of each party's operations following the acquisition. Intersil is an affiliate of SXI Group LLC, one of our principal stockholders. The Reclassification The reclassification will be effected immediately prior to the effectiveness of the registration statement of which this prospectus is a part. The reclassification will be effected pursuant to a merger whereby ChipPAC California will merge with and into ChipPAC Delaware, the newly formed, wholly owned subsidiary of ChipPAC California that is incorporated under the laws of the state of Delaware and that will issue the Class A common stock in this offering. The merger will have the effect of reincorporating our company under the laws of the state of Delaware. In connection with the merger: . each share of Class A common stock of ChipPAC California will become one share of Class A common stock of ChipPAC Delaware; . each share of Class B common stock of ChipPAC California will become one share of Class B common stock of ChipPAC Delaware; . each share of Class L common stock of ChipPAC California will become one share of Class A common stock of ChipPAC Delaware, plus an additional number of shares of Class A common stock of ChipPAC Delaware, rounded to the nearest whole share, determined by dividing the Preference Amount by the value of a share of Class A common stock of ChipPAC Delaware based on the initial public offering price; . each share of Class A convertible preferred stock of ChipPAC California will become one share of Class A convertible preferred stock of ChipPAC Delaware; . each share of Class B preferred stock of ChipPAC California will become one share of Class B preferred stock of ChipPAC Delaware; . each share of Class C preferred stock of ChipPAC California will become one share of Class C preferred stock of ChipPAC Delaware; and . each outstanding option and warrant for the purchase of Class A common stock of ChipPAC California will become an option and warrant for the purchase of Class A common stock of ChipPAC Delaware. As a result of the reclassification, stockholders of ChipPAC California will become stockholders of ChipPAC Delaware. The reclassification will be affected under an agreement and plan of merger between ChipPAC California and ChipPAC Delaware and the certificate of incorporation included within that agreement and plan of merger, each as approved by the requisite vote of our current stockholders. See "The Reclassification." 76 The Recapitalization On March 13, 1999, our company, ChipPAC Merger Corp., Hyundai Electronics and Hyundai Electronics America entered into a recapitalization agreement to consummate the recapitalization. The recapitalization was consummated on August 5, 1999. Under the recapitalization agreement, Hyundai Electronics and Hyundai Electronics America agreed to jointly indemnify us against any and all losses resulting from any misrepresentation or breach of warranty made by us in the recapitalization agreement, a claim for which must generally be made no later than 24 months after the closing of the recapitalization. The indemnification obligations of Hyundai Electronics and Hyundai Electronics America under the recapitalization agreement have a $3.85 million minimum aggregate threshold amount and are limited to a maximum aggregate amount payable of no more than $38.5 million; provided, however, that in cases where indemnification obligations are not affected by this payment limitation, if the amount of any indemnification obligation would exceed 50.0% of the total consideration to be paid to Hyundai Electronics and Hyundai Electronics America, then the recapitalization may be rescinded. In addition, Hyundai Electronics and Hyundai Electronics America have jointly agreed to indemnify us for any and all losses and liabilities: . that are owed to third parties and are in the nature of "successor liability" or which are caused by the pre-closing conduct of Hyundai Electronics or its affiliates; and . that (a) we may incur within ten years of the recapitalization and (b) which relate to patent infringement claims brought by specified third parties; in this case the indemnification obligations are limited to $5.0 million. In addition, we will indemnify Hyundai Electronics and Hyundai Electronics America against any and all losses arising out of a breach of any of ChipPAC Merger Corp.'s representations or warranties, covenants or agreements described in the recapitalization agreement, with limitations. Hyundai Electronics and Hyundai Electronics America have also agreed for a period of four years after the closing of the recapitalization not to provide semiconductor packaging or test services to any person or any entity anywhere in the world, except for fabricated products for their respective semiconductor units. Hyundai Electronics and Hyundai Electronics America have also agreed for a period of two years after the closing of the recapitalization not to offer employment to or hire any of our current or former employees, other than any employee that was terminated by us on or prior to December 1, 1998. As part of the transfer of control in the recapitalization, Hyundai Electronics, Hyundai Electronics America and/or their affiliates, entered into or amended a number of ancillary agreements with us and our operating subsidiaries, including: . utility and service agreements with ChipPAC Korea to provide it with utility service at its Ichon and Chungju, Korea facilities; . an information technology services agreement relating to maintenance and support of our computer hardware and software; and . a lease for our Ichon and Chungju, Korea facilities and a sublease for our Santa Clara, California facility. All of these ancillary agreements are on terms we believe are market and customary. Advisory Agreements At the time of our recapitalization, we entered into advisory agreements with the Equity Investors. Under these agreements, the Equity Investors may provide financial, advisory and consulting services to us. In exchange for these services, the Equity Investors will be entitled to receive fees billed at the Equity Investors' 77 customary rates for actual time spent performing these services plus reimbursement for out-of-pocket expenses; provided that, commencing with the three months ended March 31, 2000, the Equity Investors will each be entitled to an annual advisory fee, the amount of which will be limited by our senior credit agreements, for the remaining term of the advisory agreement. For the three months ended March 31, 2000, we paid approximately $0.5 million to the Equity Investors under these agreements. There are no minimum levels of service required to be provided under the advisory agreements. At the time of our recapitalization, the Equity Investors received a one-time fee of 1.0% of the aggregate value of the recapitalization. In addition, the Equity Investors will each receive a fee not to exceed 1.0% of the aggregate value of any acquisition, divestiture or financing transaction of the company in which the Equity Investors are involved, including the acquisition of the Malaysian business. Each advisory agreement will remain in effect for an initial term of ten years, but they may be terminated by the Equity Investors or us upon written notice 90 days prior to the expiration of the initial term or any extension. Each advisory agreement includes customary indemnification provisions in favor of each of the Equity Investors. We and the Equity Investors have agreed to terminate the advisory agreements upon the closing of this offering in exchange for a one-time aggregate payment of $8.0 million in cash. Stockholders Agreement At the time of our recapitalization, our company, each of the Equity Investors and all of the other non-management equity holders, including Hyundai Electronics America and Intel, entered into a stockholders agreement that provides for restrictions on the transfer of shares and specified preemptive rights. Also under the stockholders agreement, our board of directors will be comprised of . our chief executive officer, . three representatives designated by Bain Capital, . three representatives designated by SXI Group LLC and . one representative designated by Hyundai Electronics America. All of the provisions of the stockholders agreement described above will terminate upon the consummation of this offering. Registration Agreement Our company, the Equity Investors and their designees, Hyundai Electronics America and Intel entered into a registration agreement which provides for "demand" registration rights to cause us to register under the Securities Act of 1933 all or part of the shares of our stock held by them, as well as "piggyback" registration rights. Specifically, the registration agreement provides that: . the holders of a majority of our registrable securities 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; . after an offering of our stock to the public, with specified exceptions, (a) at any time, the holders of a majority of the registrable securities held by Hyundai Electronics or Hyundai America may require one "long form" or "short form" registration at our expense and (b) before August 5, 2006, the holders of a majority of the registrable securities held by Intel 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 of 1933, with specified exceptions. We have agreed to indemnify all holders of registered securities against specified liabilities, including liabilities under the Securities Act of 1933. 78 Transition Services Agreement We entered into a transition services agreement with affiliates of Hyundai Electronics under which these affiliates will continue to provide administrative and other services to us for amounts to be determined depending upon the type and number of services performed. Services to be provided by these affiliates under the transition services agreement include: . purchasing assistance; . transit insurance; . water freight services; . uniform and travel services; . office space in Tokyo, Japan; . services of employees located in Tokyo, Japan; and . consulting services. Patent and Technology License Agreement We entered into a patent and technology license agreement with Hyundai Electronics under which we received a non-exclusive license to use intellectual property in connection with our semiconductor packaging activities. Following the expiration of its initial term on December 31, 2003, the patent and technology license agreement may be extended by us from year to year upon payment of a nominal annual license fee. Hyundai Electronics may terminate the patent and technology license agreement prior to December 31, 2003 if we breach the agreement and do not cure within the applicable time period, or in the event of a bankruptcy or similar event, or if a force majeure event prevents performance of the agreement. Services Agreement We entered into a services agreement with Hyundai Electronics for the packaging of Hyundai Electronics' RDRAM chips. Under the services agreement, we must procure sufficient capital equipment to meet Hyundai's packaging requests. However, if this equipment is not utilized, Hyundai is required to reimburse us for the cost of underutilization of the equipment. The initial term of the agreement expires on June 30, 2002, but may be terminated for cause. Intel Materials Agreement On August 5, 1999, ChipPAC Limited and Intel entered into the Intel Materials Agreement under which Intel will outsource to ChipPAC Limited a portion of its semiconductor packaging needs. In return, we will provide Intel with rebates based upon the dollar volume of packaging services outsourced to us. Rebates are deducted from revenue and accrued as current liabilities when the sale is made. The rebate percentage applied in computing the accrual is based on projected total sales and the relevant rebate percentages for the periods stated in the agreement. The Intel Materials Agreement covers semiconductor packaging services for which Intel has an ongoing purchasing requirement and for which we are a qualified source and where costs, yields and quality are equal to that of the same services provided by other semiconductor packaging companies. The Intel Materials Agreement also provides that Intel will not enter into other agreements for packaging services that contain provisions relating to competitive pricing and volume guarantees similar to those contained in the Intel Materials Agreement. This restriction only applies to agreements with semiconductor packaging companies that (a) are qualified to provide packaging services to Intel and (b) provide the same type of packaging services provided by us. 79 The Intel Materials Agreement also obligates us to first offer to Intel rights to license from us intellectual property related to new packaging services technology developed by us. Following the expiration of its initial term on December 31, 2001, the Intel Materials Agreement may be extended upon the mutual consent of ChipPAC Limited and Intel. Intel Stock Purchase Agreement Immediately following our recapitalization, we entered into the stock purchase agreement with Intel. Under this agreement, we issued to Intel (a) the Intel Preferred Stock, which has an initial aggregate liquidation preference of $10.0 million, and (b) the Intel Warrant, which entitles Intel to purchase $5.0 million of our Class B common stock at a 20.0% discount to the initial public offering price when and if we complete an initial public offering of our common stock. The ability of the warrant holder to exercise the warrant is conditioned entirely upon our completing an initial public offering of our common stock. Accordingly, we have valued the Intel Warrant at $1.25 million and this amount has been recorded as equity. The Intel Preferred Stock has been recorded net of this amount and is being accreted to redemption value over the period to August 1, 2001, the first date at which the Intel Preferred Stock becomes redeemable. See "Description of Financing Arrangements--Intel Preferred Stock; Intel Warrant." Senior Subordinated Notes and Senior Credit Facilities Sankaty High Yield Asset Partners, L.P., an affiliate of Bain Capital, Inc., will receive a portion of the net proceeds of this offering from the redemption and repurchase of the senior subordinated notes and from the repayment of some of our indebtedness under our senior credit facilities. Interests of Experts Randolph Street Partners owns 193,072 shares of Class A common stock acquired in our recapitalization. In connection therewith, Randolph Street Partners entered into the stockholders agreement and is considered part of the Bain Group under the stockholders agreement and the registration agreement. Some partners of Kirkland & Ellis are partners in Randolph Street Partners. Kirkland & Ellis has provided legal services to us, including services in connection with this offering, and to Bain Capital from time to time and may continue to do so in the future. 80 DESCRIPTION OF CAPITAL STOCK General Matters Following the reclassification and upon completion of this offering and the concurrent private placement, the total amount of our authorized capital stock will consist of 250,000,000 shares of Class A common stock, 250,000,000 shares of Class B common stock, 10,000 shares of Class A convertible preferred stock, 105,000 shares of Class B preferred stock, 17,500 shares of Class C preferred stock and 9,867,500 shares of undesignated preferred stock. After giving effect to this offering and the concurrent private placement and the application of the net proceeds from this offering and the concurrent private placement, assuming an initial public offering price of $21.00 per share, the midpoint of the range set forth on the cover of this prospectus and a Preference Amount of $9.45 per share of Class L common stock, we will have 66,558,735 shares of Class A common stock and no shares of Class B common stock or of any series of preferred stock outstanding. As of March 31, 2000 , we had 43 stockholders of record with respect to our common stock. 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 the registration statement of which this prospectus forms a part, and by the provisions of applicable law. 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 our 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. See "Dividend Policy." 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. We have applied to list the Class A common stock on the Nasdaq National Market under the symbol "CHPC." Class B Common Stock In connection with the reclassification, we will authorize shares of a new class of Class B common stock. The holders of Class B common stock will be 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 will: . not be entitled to vote, except as required by law; and . be able to convert their shares into Class A common stock on a share- for-share basis at any time. 81 Class A Convertible Preferred Stock The Class A convertible preferred stock has a liquidation preference of $1,000 per share, plus all accreted and unpaid dividends. Dividends on the Class A convertible preferred stock accrete at a rate of 10.0% per annum. The Class A convertible preferred stock is convertible by the holders thereof at any time into shares of Class A common stock and, moreover, automatically converts into shares of Class A common stock upon consummation of an initial public offering, including this offering, in which gross proceeds to ChipPAC exceed $50.0 million. At any time after August 1, 2005, we have the right to redeem all or any portion of any outstanding Class A convertible preferred stock. Each share of Class A convertible preferred stock has that number of votes equal to the number of shares of Class A common stock then issuable upon the conversion of that share of Class A convertible preferred stock. Except as otherwise required by law or as provided in the following sentence, the holders of Class A convertible preferred stock and the holders of Class A common stock vote together as a single class on all matters submitted to a vote of stockholders. The prior written consent of the holders of at least 66 2/3% of the outstanding Class A convertible preferred stock is required to change the terms of the Class A convertible preferred stock or to authorize, create or issue any new shares of stock or reclassify any outstanding shares of capital stock into shares having superior rights to those of the Class A convertible preferred stock. All of the shares of Class A convertible preferred stock are held by Intel. Class B Preferred Stock The Class B preferred stock has a liquidation preference of $1,000 per share, plus all accreted and unpaid dividends. Dividends on the Class B preferred stock accrete at a rate of 12.5% per annum. The Class B preferred stock has a scheduled redemption date of August 5, 2010 and is otherwise redeemable by us at any time in our sole discretion. Except as required by law, the Class B preferred stock does not entitle the holder of the stock to vote on matters submitted to a vote of stockholders. The terms of the Class B preferred stock cannot be altered or changed without the prior written consent of the holders of a majority of the Class B preferred stock outstanding at the time that action is taken. See "Description of Financing Arrangements--Hyundai Preferred Stock." All of the shares of Class B preferred stock are held by Hyundai Electronics America. Class C Preferred Stock The Class C preferred stock has an aggregate liquidation preference of $17.5 million, plus all accreted and unpaid dividends. Dividends on the Class C preferred stock accrete at a rate of 5.0% per annum. The Class C preferred stock automatically converts into shares of Class A common stock upon consummation of this offering. Fifty percent of these shares convert at the initial public offering price and the remaining 50% of these shares convert at 90% of the initial public offering price. Except as required by law, the Class C preferred stock does not entitle the holder of the stock to vote on matters submitted to a vote of stockholders. The prior written consent of the holders of at least 66 2/3% of the outstanding Class C preferred stock is required to change the terms of the Class C preferred stock or to authorize, create or issue any new shares of stock or reclassify any outstanding shares of capital stock into shares having superior rights to those of the Class C preferred stock. All of the shares of Class C preferred stock are held by Intersil. Other 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, 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 82 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 Bain Capital Funds and SXI Group LLC. 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. 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. Transfer Agent and Registrar The transfer agent and registrar for our Class A common stock is Firstar Bank, N.A. 83 DESCRIPTION OF FINANCING ARRANGEMENTS Senior Credit Facilities The senior credit facilities currently provide for three term loans: the term A loan for $70.0 million, the term B loan for $80.0 million and the term C loan for $55.0 million. In addition, the senior credit facilities provide for a capital expenditure line of up to $20.0 million and for revolving loans of up to $50.0 million, including letters of credit. In addition, the senior credit facilities permit us to request the lenders to make available to us up to an additional $25.0 million of revolving loans. Subject to various restrictions, we may use the senior credit facilities in the future for our working capital and general corporate purposes. The different loans under the senior credit facilities are due as follows: . the term A loan--$6.5 million during the period from June 30, 2000 through March 31, 2001; $11.5 million during the period June 30, 2001 through March 31, 2002; $12.0 million during the period from June 30, 2002 through March 31, 2003; $14.3 million during the period from June 30, 2003 through March 31, 2004; $20.3 million during the period from June 30, 2004 through March 31, 2005; and the balance due on July 31, 2005; . the term B loan--$200,000 on the last business day of March, June, September and December in each year, commencing on the last business day of March 2000, with the balance due on July 31, 2006; . the term C loan--$137,500 on the last business day of March, June, September and December in each year, commencing on the last business day of September 2000, with the balance due on July 31, 2007; . the capital expenditure line--approximately 15.0%, 22.5%, 25.0% and 37.5% during the periods from September 30, 2001 through June 30, 2002, September 30, 2002 through June 30, 2003, September 30, 2003 through June 30, 2004 and September 30, 2004 through July 31, 2005, respectively; and . the revolving loans will mature on July 31, 2005. Also, it is mandatory that we repay any outstanding borrowings under the senior credit facilities out of a portion of net proceeds we receive from types of asset sales, insurance recovery and condemnation events, specified equity issuances, including this offering, and annual excess cash flow. These facilities also contain covenants, which restrict our ability to: . make capital expenditures; . incur liens or engage in sale-leaseback transactions; . transact with affiliates; . incur indebtedness and contingent obligations; . declare dividends or redeem or repurchase capital stock; . prepay, redeem or repurchase indebtedness; . change the business being conducted; . make loans and investments; and . engage in mergers, acquisitions, consolidations and asset sales. The senior credit facilities also require that we satisfy customary affirmative covenants and provide customary indemnifications in favor of the senior lenders. These credit facilities contain customary events of 84 default, including, without limitation, payment defaults, breaches of representations and warranties in all material respects, covenant defaults, some events of bankruptcy and insolvency, ERISA violations, judgment defaults, cross-defaults to other indebtedness and a change in control. Senior Subordinated Notes The senior subordinated notes were issued under an indenture, dated as of July 29, 1999, by and between us, one of our subsidiaries and Firstar Bank of Minnesota, National Association, as trustee. The senior subordinated notes are limited in aggregate principal amount to $150.0 million and will mature on August 1, 2009. Interest on the senior subordinated notes accrues at the rate of 12.75% per annum and is payable semiannually in cash on each August 1 and February 1, to the persons who are registered holders of the senior subordinated notes at the close of business on the July 15 and January 15, respectively, immediately preceding the applicable interest payment date. The senior subordinated notes are not entitled to the benefit of any mandatory sinking fund. The senior subordinated notes are general obligations of ours and are subordinated in right of payment to all of our current and future senior debt. The subordinated notes rank pari passu in right of payment with all other senior unsecured obligations of our company. The senior subordinated notes are guaranteed by us and some of our subsidiaries. The senior subordinated notes are redeemable, at our option, in whole at any time or in part from time to time, on and after August 1, 2004, upon not less than 30 nor more than 60 days' notice at the following redemption prices, expressed as percentages of the principal amount of the notes, if redeemed during the twelve-month period commencing on August 1 of the years set forth below, plus, in each case, accrued interest to the date of redemption:
Year Percentage ---- ---------- 2004.......................................................... 106.375% 2005.......................................................... 104.250% 2006.......................................................... 102.125% 2007 and thereafter........................................... 100.000%
At any time, or from time to time, on or prior to August 1, 2002, we may, at our option, use the net cash proceeds of one or more equity offerings to redeem up to 35% of the aggregate principal amount of senior subordinated notes due 2009 originally issued at a redemption price equal to 112.75% of the principal amount plus accrued and unpaid interest on those notes, if any, to the date of the redemption; provided that at least 65% of the aggregate principal amount of senior subordinated notes originally issued remains outstanding immediately after any redemption. We intend to exercise this option in connection with this offering. The indenture provides that, upon the occurrence of specified change of control events, each holder will have the right to require that we purchase all or a portion of the senior subordinated notes, at a purchase price equal to 101% of the principal amount plus accrued interest on those notes to the date of purchase. The following events are defined in the indenture as "events of default": . the failure to pay interest on any senior subordinated notes and that default continues for a period of 30 days; . the failure to pay the principal on any senior subordinated notes; . the failure to comply with the restrictive covenant prohibiting mergers and consolidations with any other person; . the failure to comply for 30 days after notice with specified significant covenants; . the failure to comply for 60 days after notice with other agreements contained in the indenture; 85 . the failure to pay any indebtedness within any applicable grace period after final maturity or the acceleration by the holders of any indebtedness because of a default and the total amount of the indebtedness unpaid or accelerated exceeds $10.0 million; . events of bankruptcy, insolvency or reorganization affecting us or any of our significant subsidiaries; . any judgment or decree for the payment of money in excess of $10.0 million is entered against us or any of our significant subsidiaries, remains outstanding for a period of 60 days following the judgment and is not discharged, waived or stayed within 10 days after notice; and . except as permitted by the indenture, any note guarantee cases to be in full force and effect or any of the guarantors denies or disaffirms its obligations under its note guarantee. The indenture contains covenants for the benefit of the holders of the senior subordinated notes that, among other things, limit our ability and any of our restricted subsidiaries to: . incur indebtedness; . pay dividends or make other restricted payments; . impose restrictions on the ability of a subsidiary to pay dividends or make payments to us and our subsidiaries; . sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of our assets; . enter into transactions with affiliates; or . merge or consolidate with any other person. Hyundai Preferred Stock As part of our recapitalization, we issued to Hyundai Electronics America 70,000 shares of Class B preferred stock, which we refer to as the Hyundai Preferred Stock, which has an initial aggregate liquidation preference of $70.0 million. Dividends on the Hyundai Preferred Stock accrue on a daily basis from August 5, 1999 at a rate of 12.5% per annum. Until February 5, 2005, dividends will not be paid in cash, but will be capitalized as accumulated and unpaid dividends. All dividends accruing on the Hyundai Preferred Stock from and after this period will be paid in cash, semiannually, beginning after February 5, 2005. In the event we fail to pay any dividend when due, the dividend rate on the Hyundai Preferred Stock will immediately increase by 2.5% per annum and the holders of a majority of the outstanding Hyundai Preferred Stock will have the exclusive right to nominate and elect one additional member of our board of directors, in each case until there is no longer any default. The Hyundai Preferred Stock has a scheduled redemption date of August 5, 2010 and is otherwise redeemable by us at any time in our sole discretion. We intend to redeem all of the outstanding shares of Class B preferred stock with the proceeds from this offering. The prior written consent of the holders of a majority of the outstanding Hyundai Preferred Stock is required to amend, modify or waive the terms of the Hyundai Preferred Stock. In addition, Hyundai Electronics may receive up to an additional $55.0 million in cash during the four-year period beginning January 1, 1999 if we exceed specified levels of EBITDA as described in the recapitalization agreement. Hyundai Electronics is entitled to receive 33.3% of the amount by which our EBITDA, defined in the recapitalization agreement as net income before interest, taxes, depreciation, amortization, extraordinary items and advisory fees, exceeds $116.5 million, $171.3 million, $198.5 million and $231.8 million, respectively, in each of the first four years following our recapitalization. In the event the final $20.0 million of this $55.0 million in cash is required to be paid to Hyundai Electronics, it shall be paid by the mandatory redemption of an equal amount of Hyundai Preferred Stock. Therefore, since we intend to redeem all outstanding shares of Class B preferred stock, the $55.0 million cash earnout payment will be reduced to a maximum payment of $35.0 million. 86 Intel Preferred Stock Under the Intel Stock Purchase Agreement, we issued 10,000 shares of Class A convertible preferred stock to Intel, which we refer to as the Intel Preferred Stock. Dividends on the Intel Preferred Stock accrete on a daily basis from the date of issuance at a rate of 10.0% per annum, payable when and as declared by the board of directors; provided, however, that dividends will be paid prior to the payment of any dividends on any of our capital stock or equity securities, which we refer to as junior securities, other than the Hyundai Preferred Stock. Dividends on each share of Intel Preferred Stock will accrete from the date of issuance of the Intel Preferred Stock to the first to occur of: . the date upon which the face value ($1,000 per share) of a share of Intel Preferred Stock plus all accrued but unpaid dividends is paid; . the date upon which a share of Intel Preferred Stock is converted into common stock, as described below; or . the date upon which a share of Intel Preferred Stock is acquired by us. At any time, and from time to time, holders of the Intel Preferred Stock may convert all or any portion of the Intel Preferred Stock into shares of common stock at an initial conversion price equal to 150.0% of the weighted average price per share of common stock paid by the Equity Investors in connection with our recapitalization, although the purchase price may be adjusted. In the event of any liquidation, dissolution or winding up of our company, holders of the Intel Preferred Stock will be entitled to receive, prior to any distribution to the holders of junior securities, an amount equal to the face value of $1,000 per share of the Intel Preferred Stock, plus all accrued and unpaid dividends on the stock. In addition, each of the following will be deemed a liquidation, dissolution or winding up of our company: . any sale by us of all or substantially all of our assets; . any consolidation or merger of our company as a result of which holders of our common stock possessing the voting power to elect a majority of the board of directors immediately prior to a consolidation or merger cease to own capital stock of the surviving corporation possessing the voting power to elect a majority of the surviving corporation's board of directors; or . any issuance, sale or transfer to any third party of our capital stock as a result of which holders of our outstanding capital stock possessing the voting power to elect a majority of the board of directors immediately prior to that issuance, sale or transfer cease to own capital stock of our company possessing the voting power to elect a majority of the board of directors, each of which we refer to as a Liquidation Event. At any time, and from time to time, after August 1, 2005, we have the right to redeem all or any portion of the Intel Preferred Stock then outstanding at a redemption price per share equal to the greater of (a) its fair market value and (b) its face value of $1,000 per share, plus all accrued and unpaid dividends on the stock plus a redemption premium of 10.0%. The premium shall decrease ratably from year to year and shall be zero on or after August 1, 2010. In addition, if we do not complete an underwritten initial public offering of shares of our common stock with gross proceeds in excess of $50.0 million on or prior to August 1, 2001, holders of not less than a majority of the Intel Preferred Stock may require us to redeem all or a portion of the Intel Preferred Stock at a price per share equal to a stock's face value plus all accrued and unpaid dividends on the stock; provided, however, that any redemption will be limited by all restrictions of applicable law and our debt and equity financing arrangements. Each share of Intel Preferred Stock has that number of votes equal to the number of shares of voting common stock then issuable upon the conversion of that share of Intel Preferred Stock. Except as required by 87 law or as provided in the following sentence, holders of the Intel Preferred Stock are entitled to vote on all matters submitted to the stockholders for a vote and will vote together with holders of our common stock as a single class. The prior written consent of the holders of at least 66 2/3% of the outstanding Intel Preferred Stock is required for: . any amendment or change of the rights, preferences, privileges or powers of, or the restrictions provided for the benefits of, the Intel Preferred Stock; . any action that authorized, created or issued any new shares of any class of stock having preferences superior to the Intel Preferred Stock, other than any issuance of the Hyundai Preferred Stock; or . any action that reclassifies any outstanding shares of capital stock into shares having preferences or priority as to dividends or assets senior to the preference of the Intel Preferred Stock. Intel Warrant Under the Intel Stock Purchase Agreement we issued the Intel Warrant to Intel. The Intel Warrant provides that, for 180 days after we have completed our first underwritten public offering, Intel is entitled to purchase $5.0 million of our non-voting common stock at a 20.0% discount to its initial public offering price. This right may expire prior to completion of the 180 day period on the earlier of (a) our sale or (b) August 5, 2009. Intel, at its election, may exercise the Intel Warrant in whole or in part and on one or more occasions. The warrant has been assigned a value of $1.25 million. The foregoing summary of the material provisions of our senior credit facility, the indenture, the Hyundai Preferred Stock, the Intel Preferred Stock and the Intel Warrant is qualified in its entirety by reference to all of the provisions of the senior credit facility, the indenture, our certificate of incorporation and the Intel Warrant, respectively, which have been filed as exhibits to the registration statement of which this prospectus forms a part. See "Where You Can Find More Information." 88 SHARES ELIGIBLE FOR FUTURE SALE Prior to this offering, there was no market for our Class A common stock. We can make no predictions as to the effect, if any, that sales of shares or the availability of 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 and the concurrent private placement, we will have, assuming an initial public offering price of $21.00 per share, the midpoint of the range set forth on the cover of this prospectus and a Preference Amount of $9.45 per share on Class L common stock, 66,558,735 shares of common stock outstanding. In addition, of the 1,748,361 shares of Class A common stock issuable upon the exercise of stock options outstanding or expected to be issued prior to the closing of this offering, none will be exercisable immediately after this offering. The 297,619 shares of Class B common stock issuable upon the exercise of the Intel Warrant are currently exercisable. Of the shares outstanding after the offering, 15,500,000 shares of common stock, or 17,825,000 shares if the underwriters' over-allotment is exercised in full, are freely tradeable without restriction under the Securities Act of 1933, 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 of 1933, which shares will be subject to the volume limitations and other restrictions of Rule 144 described below. An aggregate of 49,805,602 shares of common stock held by our existing stockholders upon completion of the offering and the 1,253,133 shares of common stock purchased by Qualcomm in the concurrent private placement will be "restricted securities," as that phrase is defined in Rule 144, and may not be resold in the absence of registration under the Securities Act of 1933 or under an exemption from registration under the Securities Act, including among others, the exemptions provided by Rule 144. In general, under Rule 144 as currently in effect, beginning 90 days after the date of this prospectus, if a period of at least one year has elapsed since the later of the date the "restricted securities" were acquired from us or the date they were acquired from an affiliate, then the holder of 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. Beginning 90 days after the date of this prospectus, approximately 4,290,489 shares of our common stock will be eligible for sale in the public market under Rule 144(k). Securities issued in reliance on Rule 701, including shares of common stock acquired upon exercise of options granted under our stock plans, are also restricted and, beginning 90 days after the effective date of this prospectus, may be sold by stockholders other than our affiliates, subject only to the manner of sale provisions of Rule 144, and by affiliates under Rule 144 without compliance with its one-year holding period requirement. 89 Options We intend to file registration statements on Form S-8 under the Securities Act of 1933 to register approximately 4,034,287 shares of common stock issuable under our stock plans. These registration statements are expected to be filed within six months of the effective date of the registration statement of which this prospectus forms a part and will be effective upon filing. Shares issued upon the exercise of stock options after the effective date of the Form S-8 registration statements will be 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, Intel, Intersil and various other holders of our common stock, who together own substantially all of our common stock, and Qualcomm, in connection with the concurrent private placement, have agreed that they will not 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 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 180 days after the date of this prospectus. Registration Agreement In connection with our recapitalization, our company, the Equity Investors and their designees, Hyundai Electronics America and Intel entered into a registration agreement which provides for "demand" registration rights to cause us to register under the Securities Act of 1933 all or part of the shares of our stock held by them, as well as "piggyback" registration rights. See "Significant Relationships and Related Transactions--Registration Agreement." 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 of 1933. Beginning 180 days after the completion of the offering, the holders of an aggregate of 48,692,642 shares of common stock, assuming an initial public offering price of $21.00 per share, the midpoint of the range set forth on the cover of this prospectus, and a Preference Amount of $9.45 per share on Class L common stock, will have limited rights to require us to register their shares of common stock under the Securities Act of 1933 at our expense. 90 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 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 Stated 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. In the case of a partnership that holds our common stock, any partner described in any of (i) through (iv) above is also a United States person. 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 Stated 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, 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. 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. 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, in the case of an individual, 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 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. Dividends may be subject to backup withholding at the rate of 31% unless the Non-United States Holder certifies to required information as specified in United States Treasury Regulations applicable to withholding and information reporting. Currently, backup withholding does not apply to dividends paid to a Non-United States Holder at an address outside the United States. However, under final regulations regarding withholding and information reporting, which will generally be effective for payments made after December 31, 2000, payment of dividends to a Non-United States Holder at an address outside of the United States may be subject 91 to backup withholding unless that Non-United States Holder satisfies applicable certification requirements. 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. 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, in which case all or a portion of that gain, in the case of a corporate Non-United States Holder, may 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 31% 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 is: (i) a United States person; (ii) a "controlled foreign corporation" for United States tax purposes; (iii) a foreign person 50% or more of whose gross income for a specified three-year period is effectively connected with a United States trade or business or (iv) with respect to payments made after December 31, 2000, a foreign partnership, if at any time during its taxable year, one or more of its partners are United States persons who in the aggregate hold more than 50% of the income or capital interest in the partnership or if, at any time during its taxable year, the foreign partnership is engaged in a United States trade or business, unless the Non- United States Holder establishes an exemption as specified in the current or final United States Treasury Regulations regarding withholding and information reporting, as applicable. The final regulations regarding withholding and information reporting unify current certification procedures and forms and clarify reliance standards. Except as noted above with respect to foreign brokers that are partnerships, the final regulations generally do not significantly alter the substantive withholding and information reporting requirements but do alter the procedures for claiming the benefits of an income tax treaty and change the certification procedures relating to the receipt by intermediaries of payments on behalf of the beneficial owner of shares of common stock. Non-United States Holders should consult their own tax advisors regarding the effect, if any, of the final regulations on their particular situations. 92 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 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. Accordingly, investors are urged to consult their own tax advisors with respect to the income tax consequences 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. 93 UNDERWRITING Under the terms and subject to the conditions contained in an underwriting agreement, dated , 2000, we have agreed to sell to the underwriters named below, for whom Credit Suisse First Boston Corporation, Deutsche Bank Securities Inc., FleetBoston Robertson Stephens Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Thomas Weisel Partners LLC are acting as representatives, the following respective numbers of shares of Class A common stock:
Number of Underwriter Shares ----------- ---------- Credit Suisse First Boston Corporation............................ Deutsche Bank Securities Inc...................................... FleetBoston Robertson Stephens Inc................................ Merrill Lynch, Pierce, Fenner & Smith Incorporated................................................ Thomas Weisel Partners LLC........................................ ---------- Total........................................................... 15,500,000 ==========
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 2,325,000 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 public offering price and concession and discount to broker/dealers may be changed by the representatives. The following table summarizes the compensation and estimated expenses we will pay.
Per Share Total ------------------- ------------------- Without With Without With Over- Over- Over- Over- Allotment Allotment Allotment Allotment --------- --------- --------- --------- Underwriting Discounts and Commissions paid by us................. $ $ $ $ Expenses payable by us.................. $ $ $ $
The underwriters do not intend to confirm sales to any accounts over which they exercise discretionary authority. We intend to use more than 10% of the net proceeds of the sale of our Class A common stock to repay indebtedness under our existing senior credit facilities owed by us to banking affiliates of certain of the underwriters. Accordingly, the offering is being made in compliance with the requirements of Rule 2710(c)(8) of the National Association of Securities Dealers, Inc. Conduct Rules. This rule provides that if more than 10% of the net proceeds from the sale of our Class A common stock, not including underwriting compensation, is paid to the underwriters or their affiliates, the initial public offering price of the stock may not be higher than 94 that recommended by a "qualified independent underwriter" meeting certain standards. Accordingly, Deutsche Bank Securities Inc. is assuming the responsibilities of acting as the qualified independent underwriter in pricing the offering and conducting due diligence. The initial public offering price of the shares of our Class A common stock will be no higher than the price recommended by Deutsche Bank Securities Inc. 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 180 days after the date of this prospectus. Our officers and directors, Intel, Intersil, various other holders of our common stock and Qualcomm, in connection with the concurrent private placement, have agreed that they will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, 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 such transaction, swap, hedge or other arrangement, without, in each case, the prior written consent of Credit Suisse First Boston Corporation for a period of 180 days after the date of this prospectus. The underwriters have reserved for sale, at the initial public offering price up to 775,000 shares of Class A common stock for employees, directors and other persons associated with us who have expressed an interest in purchasing Class A common stock in the offering. The number of shares available for sale to the general public in the offering will be reduced to the extent persons purchase reserved shares. Any reserved shares not so purchased will be offered by the underwriters to the general public on the same terms as the other shares. 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. We have applied to list the shares of Class A common stock on The Nasdaq Stock Market's National Market subject to official notice of issuance, under the symbol "CHPC." Prior to this offering, there has been no public market for our Class A common stock. The initial public offering price for the Class A common stock will be negotiated among us and the representatives. Among the principal factors to be considered in determining the initial public offering price will be: . market conditions for initial public offerings; . the history of and prospects for our business; . our past and present operations; . our past and present earnings and current financial position; . an assessment of our management; . the market of securities of companies in businesses similar to ours; and . the general condition of the securities markets. There can be no assurance that the initial public offering price will correspond to the price at which the Class A common stock will trade in the public market subsequent to the offering or that an active trading market will develop and continue after the offering. 95 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 429,049 shares of our Class A common stock after giving effect to the reclassification. Deutsche Bank Securities Inc. and FleetBoston Robertson Stephens Inc. are lenders under our senior credit facilities. Bank Boston, N.A., an affiliate of FleetBoston Robertson Stephens Inc., and certain funds associated with Merrill Lynch, Pierce, Fenner & Smith Incorporated are also lenders under our senior credit facilities. We are currently in compliance with the terms of our senior credit facility. The decision of Credit Suisse First Boston Corporation to distribute our shares of Class A common stock was made independent of Credit Suisse First Boston, New York branch, and the affiliate of Credit Suisse First Boston Corporation that owns an interest in SXI Group LLC, which affiliates had no involvement in determining whether or when to distribute our shares of Class A common stock under this offering or the terms of this offering. The decision of each of the other underwriters to distribute our shares of Class A common stock was made independent of their respective affiliates that are lenders under our senior credit facilities, which affiliates had no involvement in determining whether or when to distribute our shares of Class A common stock under this offering or the terms of this offering. The underwriters, exclusive of their banking affiliates, will not receive any benefit from this offering other than their respective portions of the underwriting fee as paid by us. The representatives may engage in over-allotment, stabilizing transactions, syndicate covering transactions and penalty bids under Regulation M of the Securities Exchange Act of 1934. . Over-allotment involves syndicate sales in excess of the offering size, which creates a syndicate short position. . Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum. . 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. . Penalty bids permit the representatives to reclaim a selling concession from a syndicate member when the common stock originally sold by that syndicate member is purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions. These stabilizing transactions, syndicate covering transactions and penalty bids may cause the price of the Class A common stock to be higher than it would otherwise be in the absence of these transactions. These transactions may be effected on The Nasdaq Stock Market's National Market or otherwise and, if commenced, may be discontinued at any time. A prospectus in electronic form may be 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. Thomas Weisel Partners LLC, one of the representatives of the underwriters, was organized and registered as a broker/dealer in December 1998. Since December 1998, Thomas Weisel Partners has acted as a lead or co-manager on numerous public offerings of equity securities. Thomas Weisel Partners does not have any material relationship with us or any of our officers, directors or other controlling persons except with respect to its expected contractual relationship with us under the underwriting agreement expected to be entered into in connection with this offering. 96 NOTICE TO CANADIAN RESIDENTS Resale Restrictions The distribution of the Class A 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 Class A common stock are effected. Accordingly, any resale of the Class A common stock in Canada must be made in accordance with applicable securities laws which will vary depending on the relevant jurisdiction, and which may require resales to be made in accordance with available statutory exemptions or pursuant to a discretionary exemption granted by the applicable Canadian securities regulatory authority. Purchasers are advised to seek legal advice prior to any resale of our Class A common stock. Representations of Purchasers Each purchaser of the Class A common stock in Canada who receives a purchase confirmation will be deemed to represent to us and the dealer from whom such purchase confirmation is received that (i) such purchaser is entitled under applicable provincial securities laws to purchase such Class A common stock without the benefit of a prospectus qualified under such securities laws, (ii) where required by law, that such purchaser is purchasing as principal and not as agent and (iii) such purchaser has reviewed the test above under "Resale Restrictions." Rights of Action (Ontario Purchasers) The securities being offered are those of a foreign issuer and Ontario purchasers will not receive the contractual right of action prescribed by Ontario securities law. As a result, Ontario purchasers must rely on other remedies that may be available, including common law rights of action for damage or rescission or rights of action under the civil liability provisions of the U.S. federal securities laws. Enforcement of Legal Rights All of the issuer's 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 the issuer or such persons. All or a substantial portion of the assets of the issuer and such persons may be located outside of Canada and, as a result, it may not be possible to satisfy a judgment against the issuer or such persons in Canada or to enforce a judgement obtained in Canadian courts against such issuer or persons outside of Canada. Notice to British Columbia Residents A purchaser of Class A common stock to whom the Securities Act (British Columbia) applies is advised that such purchaser is required to file with the British Columbia Securities Commission a report within ten days of the sale of any Class A common stock acquired by such purchaser pursuant to this offering. Such report must be in the form attached to British Columbia Securities Commission Blanket Order BOR #95/17, a copy of which may be obtained from us. Only one report must be filed in respect of shares of Class A common stock acquired on the same date and under the same prospectus exemption. Taxation and Eligibility for Investment Canadian purchasers of Class A common stock should consult their own legal and tax advisors with respect to the tax consequences of an investment in the Class A common stock in their particular circumstances and with respect to the eligibility of the Class A common stock for investment by the purchaser under relevant Canadian legislation. 97 LEGAL MATTERS Some of the legal matters in connection with the issuance of the Class A common stock will be passed upon for us by Kirkland & Ellis, Los Angeles, California. Partners of Kirkland & Ellis are partners in Randolph Street Partners, which acquired less than 1.0% of our 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 in connection with various legal matters and Bain Capital and some of their affiliates (including our company and our direct and indirect subsidiaries) in connection with legal matters. EXPERTS The financial statements of ChipPAC, Inc. as of December 31, 1999 and 1998, and for each of the three years in the period ended December 31, 1999 included in this prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. Ernst & Young LLP, independent certified public accountants, have audited the financial statements of Intersil Technology Sdn. Bhd. at July 2, 1999 and July 3, 1998 and for each of the three fiscal years in the period ended July 2, 1999, as set forth in their report. We have included Intersil's financial statements in the prospectus and registration statement in reliance on Ernst & Young LLP's report, given on their authority as experts in accounting and auditing. WHERE YOU CAN FIND MORE INFORMATION ChipPAC California is currently subject to the informational requirements of the Securities Exchange Act of 1934, and consequently, ChipPAC California is required to file periodic reports and other information with the SEC. The reports and other information filed by ChipPAC California with the SEC may be inspected and copied at the public reference facilities maintained by the SEC as described below. We have filed with the SEC a registration statement on Form S-1, which we refer to as the Registration Statement and which term shall encompass all amendments, exhibits, annexes and schedules to said Registration Statement, under the Securities Act, and the rules and regulations promulgated under the Securities Act, with respect to the shares of our Class A common stock. This prospectus, which constitutes part of the Registration Statement, does not contain all the information set forth in the Registration Statement, parts of which are omitted in compliance with the rules and regulations of the SEC. For further information with respect to us and our Class A common stock, reference is made to the Registration Statement. Statements made in this prospectus as to the contents of any contract, agreement or other document referred to are not necessarily complete. With respect to each contract, agreement or other document filed as an exhibit to the Registration Statement, reference is made to the exhibit for a more complete description of the document or matter involved, and each of these statements shall be deemed qualified in its entirety by this reference. The Registration Statement, including the exhibits thereto, can be inspected and copied at the public reference facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 (telephone number: 1-800- SEC-0330), at the Regional Offices of the SEC at 7 World Trade Center, 13th Floor, New York, New York 10048 and at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of these materials can be obtained from the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The SEC maintains a website that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address of the site is http://www.sec.gov. We intend to furnish our stockholders with annual reports containing financial statements audited by an independent accounting firm, and to make available quarterly reports containing unaudited financial information for the first three quarters of each fiscal year. 98 INDEX TO FINANCIAL STATEMENTS ChipPAC, Inc.
Page ---- (1) Annual Financial Statements Report of Independent Accountants........................................ F-2 Balance Sheets........................................................... F-3 Statements of Operations................................................. F-4 Statement of Shareholders' and Divisional Equity......................... F-5 Statements of Cash Flows................................................. F-6 Notes to Financial Statements............................................ F-7 (2) Interim Financial Statements (unaudited) Condensed Consolidated Balance Sheets.................................... F-37 Condensed Consolidated Statements of Operations.......................... F-38 Condensed Consolidated Statements of Cash Flows.......................... F-39 Notes to Condensed Consolidated Financial Statements..................... F-40 Intersil Technology Sdn. Bhd. (3) Annual Financial Statements Independent Certified Public Accountants' Report ........................ F-50 Balance Sheet............................................................ F-51 Statement of Income...................................................... F-52 Statement of Cash Flows.................................................. F-53 Notes to Financial Statements............................................ F-54 (4) Interim Financial Statements (unaudited) Condensed Balance Sheets................................................. F-58 Condensed Statements of Income........................................... F-59 Condensed Statements of Cash Flows....................................... F-60 Notes to Condensed Consolidated Financial Statements..................... F-61
F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Boards of Directors and Shareholders of ChipPAC, Inc. In our opinion, the ChipPAC, Inc. financial statements listed in the index under item (1) on page F-1 present fairly, in all material respects, the financial position of ChipPAC, Inc. and its subsidiaries at December 31, 1998 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PricewaterhouseCoopers LLP February 29, 2000 San Jose, California F-2 ChipPAC, Inc. BALANCE SHEETS (In thousands)
December 31, ------------------- 1998 1999 -------- --------- ASSETS Current assets: Cash and cash equivalents............................... $ 68,767 $ 32,117 Receivable from shareholder............................. 4,922 11,662 Accounts receivable, less allowance for doubtful accounts of $1,162 and $1,196.......................... 37,729 30,003 Inventories............................................. 10,325 17,497 Deferred taxes.......................................... 803 775 Prepaid expenses and other current assets............... 2,923 2,386 -------- --------- Total current assets................................... 125,469 94,440 Property, plant and equipment, net........................ 229,002 226,931 Other assets.............................................. 5,001 22,058 -------- --------- Total assets........................................... $359,472 $ 343,429 ======== ========= LIABILITIES AND EQUITY Current liabilities: Accounts payable........................................ $ 61,853 $ 52,208 Accrued expenses and other liabilities.................. 7,677 27,208 Short-term debt......................................... 18,777 -- Current portion of long-term debt....................... 31,954 4,800 Current portion of HEI long-term debt................... 2,610 -- Payables to affiliates.................................. 22,918 -- -------- --------- Total current liabilities.............................. 145,789 84,216 -------- --------- Long-term debt, less current portion...................... 80,943 295,200 HEI long-term debt, less current portion.................. 18,208 -- Deferred taxes............................................ -- 240 Other long-term liabilities............................... 1,341 3,689 -------- --------- Total liabilities...................................... 246,281 383,345 -------- --------- Commitments and contingencies (Note 9) Mandatorily redeemable preferred stock: 10.0% cumulative convertible preferred stock, class A-- par value $0.01 per share; 10,000 shares authorized, issued and outstanding at December 31, 1999............ -- 9,416 12.5% cumulative preferred stock, class B--par value $0.01 per share; 105,000 shares authorized, issued and outstanding 70,000 shares at December 31, 1999......... -- 73,554 Shareholders' and divisional equity (deficit): Common stock, class A--par value $0.01 per share; 180,000,000 shares authorized, issued and outstanding 96,254,000 shares at December 31, 1999................. -- 963 Common stock, class B--par value $0.01 per share; authorized 180,000,000 shares, no shares issued or outstanding at December 31, 1999....................... -- -- Common stock, class L--par value $0.01 per share; 20,000,000 shares authorized, issued and outstanding 10,456,000 shares at December 31, 1999................. -- 104 Warrants, Class A Common Stock (the Intel Warrant)...... -- 1,250 Additional paid-in-capital.............................. -- 85,750 Divisional equity, net of capital redemption............ 180,091 (167,714) Receivable for shareholders............................. (37,626) (1,128) Accumulated deficit..................................... (39,752) (51,280) Accumulated other comprehensive income (loss)........... 10,478 9,169 -------- --------- Total shareholders' and divisional equity (deficit).... 113,191 (122,886) -------- --------- Total liabilities, mandatorily redeemable preferred stock, and equity..................................... $359,472 $ 343,429 ======== =========
The accompanying notes are an integral part of these financial statements. F-3 ChipPAC, Inc. STATEMENTS OF OPERATIONS (In thousands)
Year Ended December 31, ---------------------------- 1997 1998 1999 -------- -------- -------- Revenue.......................................... $289,429 $334,081 $375,530 Cost of revenue.................................. 229,238 270,365 317,488 -------- -------- -------- Gross profit..................................... 60,191 63,716 58,042 Operating expenses: Selling, general & administrative.............. 15,853 15,067 21,219 Research & development......................... 4,052 7,692 12,362 Management fees charged by affiliate........... 3,199 528 -- Change of control expense...................... -- -- 11,842 Write down of impaired assets.................. 11,569 -- -- -------- -------- -------- Total operating expenses..................... 34,673 23,287 45,423 -------- -------- -------- Operating income................................. 25,518 40,429 12,619 Non-operating income (expenses): Interest income................................ 96 1,276 2,751 Interest expense............................... (10,972) (13,340) (21,241) Foreign currency gains (losses)................ (69,669) 24,670 1,224 Other income (expenses), net................... (762) (168) 650 -------- -------- -------- Non-operating income (expenses).............. (81,307) 12,438 (16,616) -------- -------- -------- Income (loss) before income taxes................ (55,789) 52,867 (3,997) Provision for (benefit from) income taxes........ (9,671) 20,564 1,938 -------- -------- -------- Income (loss) before extraordinary item.......... $(46,118) $ 32,303 $ (5,935) -------- -------- -------- Extraordinary Item: Loss from early extinguishment of debt, net of related income tax benefit of $272............ -- -- 1,373 -------- -------- -------- Net income (loss)............................ $(46,118) $ 32,303 $ (7,308) -------- -------- -------- Accretion of dividends on mandatorily redeemable preferred stock................................. -- -- (3,960) Accretion of recorded value of the Intel warrant......................................... -- -- (260) -------- -------- -------- Net income (loss) available to common shareholders.................................... $(46,118) $ 32,303 $(11,528) ======== ======== ======== Comprehensive income: Net income (loss).............................. $(46,118) $ 32,303 $ (7,308) Currency translation gain (loss)............... (16,942) 28,261 (1,309) -------- -------- -------- Comprehensive income (loss).................. $(63,060) $ 60,564 $ (8,617) ======== ======== ======== Basic and diluted earnings (loss) per common share........................................... (0.45) 0.32 (0.11) ======== ======== ======== Basic and diluted weighted average common shares outstanding..................................... 102,009 102,009 102,211 ======== ======== ========
The accompanying notes are an integral part of these financial statements. F-4 ChipPAC, Inc. STATEMENT OF SHAREHOLDERS' AND DIVISIONAL EQUITY (In thousands)
Divisional Common Stock Warrants, Equity, Accumulated -------------- Class A Additional Net of Amount Due Other No. of Common Paid-in Capital From Comprehensive Accumulated Shares Amount Stock Capital Redemption Shareholders Income (Loss) Deficit Total ------- ------ --------- ---------- ---------- ------------ ------------- ----------- --------- Balances at December 31, 1996............. -- -- -- -- $ 70,769 -- $ (841) $(16,236) $ 53,692 Capital increase...... -- -- -- -- 26,306 -- -- -- 26,306 Advances to HEA....... -- -- -- -- -- $ (7,466) -- -- (7,466) Currency translation loss................. -- -- -- -- -- -- (16,942) -- (16,942) Net loss.............. -- -- -- -- -- -- -- (46,118) (46,118) ------- ------ ------ ------- --------- -------- -------- -------- --------- Balances at December 31, 1997............. -- -- -- 97,075 (7,466) (17,783) (62,354) 9,472 Capital increase...... -- -- -- -- 82,953 -- -- -- 82,953 Advances to HEA....... -- -- -- -- -- (30,160) -- -- (30,160) Amortization of stock option compensation.. -- -- -- -- 63 -- -- -- 63 Currency translation gain................. -- -- -- -- -- -- 28,261 -- 28,261 Dividends declared by CPK.................. -- -- -- -- -- -- -- (9,701) (9,701) Net income............ -- -- -- -- -- -- -- 32,303 32,303 ------- ------ ------ ------- --------- -------- -------- -------- --------- Balances at December 31, 1998............. -- -- -- -- 180,091 (37,626) 10,478 (39,752) 113,191 Proceeds from common stock issuance at recapitalization net of issuance cost of $17,982.............. 102,000 $1,020 -- $82,998 (10,000) -- -- -- 74,018 Sale of Common Stock to management........ 4,710 47 -- 2,752 -- (1,128) -- -- 1,671 Capital of contributions........ -- -- -- -- (16,401) 37,626 -- -- 21,225 Conversion of divisional equity to redeemable preferred stock................ -- -- -- -- (30,000) -- -- -- (30,000) Capital redemption at recapitalization..... -- -- -- -- (311,220) -- -- -- (311,220) Capital contribution by HEI at recapitalization..... -- -- -- -- 19,816 -- -- -- 19,816 Issuance of Intel warrant.............. -- -- $1,250 -- -- -- -- -- 1,250 Accretion of recorded value of Intel warrant.............. -- -- -- -- -- -- -- (260) (260) Dividend accretion on mandatorily redeemable preferred stock................ -- -- -- -- -- -- -- (3,960) (3,960) Currency translation loss................. -- -- -- -- -- -- (1,309) -- (1,309) Net loss.............. -- -- -- -- -- -- -- (7,308) (7,308) ------- ------ ------ ------- --------- -------- -------- -------- --------- Balances at December 31, 1999............. 106,710 $1,067 $1,250 $85,750 $(167,714) $ (1,128) $ 9,169 $(51,280) $(122,886) ======= ====== ====== ======= ========= ======== ======== ======== =========
The accompanying notes are an integral part of these financial statements. F-5 ChipPAC, Inc. STATEMENTS OF CASH FLOWS (In thousands)
Year Ended December 31 ------------------------------ 1997 1998 1999 --------- -------- --------- Cash flows provided by operating activities: Net income (loss)............................. $ (46,118) $ 32,303 $ (7,308) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization................ 40,682 45,855 57,475 Write down of impaired assets................ 11,569 -- -- Provision for inventory and accounts receivable.................................. 3,502 (425) (1,060) Non-operating early debt extinguishment loss........................................ -- -- 1,373 Foreign currency (gains) losses.............. 69,669 (24,670) (1,224) (Gain) loss on sale of equipment............. 515 26 (282) Changes in assets and liabilities: Accounts receivable........................ (10,092) (12,740) 750 Inventories................................ (16,122) 9,089 (5,415) Prepaid expenses and other assets.......... (16,471) 11,859 (2,878) Advances (to) from affiliates.............. 2,418 4,671 (7,424) Accounts payable........................... 5,006 39,979 (11,615) Accrued expenses and other current liabilities............................... (2,569) 126 20,021 Other long-term liabilities................ 1,226 (7,326) 3,519 --------- -------- --------- Net cash provided by operating activities.............................. 43,215 98,747 45,932 --------- -------- --------- Cash flows used in investing activities: Acquisition of property and equipment......... (110,693) (61,332) (57,856) Proceeds from sale of equipment............... 17 1,635 1,347 --------- -------- --------- Net cash used in investing activities.... (110,676) (59,697) (56,509) --------- -------- --------- Cash flows provided by (used in) financing activities: Advances to affiliates........................ (7,466) (30,160) (4,430) Proceeds from short-term loans................ 86,014 63,391 1,169 Repayment of short-term loans................. (63,612) (79,093) (19,469) Net proceeds from long-term loans............. 39,511 10,185 285,631 Capital redemption at recapitalization........ -- -- (311,220) Capital contribution by HEI at recapitalization............................. -- -- 19,816 Repayment of long-term debt and capital leases....................................... (17,181) (31,795) (133,615) Payment made to extinguish debt early......... -- -- (1,373) Dividend paid................................. -- -- (9,435) Net proceeds from common stock issuance at recapitalization............................. -- -- 74,018 Net proceeds from preferred stock issuance.... -- -- 50,000 Net proceeds from sale of stock to management................................... -- -- 1,671 Contributions to paid in capital.............. 26,306 82,953 20,750 --------- -------- --------- Net cash provided by (used in) financing activities.............................. 63,572 15,481 (26,487) --------- -------- --------- Effect on cash from changes in exchange rates........................................ 4,633 11,169 414 --------- -------- --------- Net increase (decrease) in cash............... 744 65,700 (36,650) Cash and cash equivalents at beginning of year......................................... 2,323 3,067 68,767 --------- -------- --------- Cash and cash equivalents at end of year...... $ 3,067 $ 68,767 $ 32,117 ========= ======== ========= Supplemental disclosure of noncash investing and financing activities Acquisition of equipment under capital leases....................................... $ 25,901 $ 2,191 -- ========= ======== ========= Dividend declared and accreted................ -- $ (9,701) $ (3,960) ========= ======== ========= Accretion of recorded value of the Intel warrant...................................... -- -- (260) ========= ======== ========= Conversion of HEA equity to preferred stock... -- -- $ 30,000 ========= ======== ========= Contribution of non-cash capital.............. -- -- $ 475 ========= ======== ========= Sale of common stock for shareholder notes.... -- -- $ 1,128 ========= ======== ========= Supplemental disclosure of cash flow information Income taxes paid in cash..................... -- $ 195 $ 1,442 ========= ======== ========= Interest paid in cash......................... $ 10,364 $ 12,708 $ 12,400 ========= ======== =========
The accompanying notes are an integral part of these financial statements. F-6 ChipPAC, Inc. NOTES TO FINANCIAL STATEMENTS Note 1: Business, Recapitalization and Basis of Presentation Business and Organization ChipPAC Inc. and its subsidiaries, (the "Company") provides packaging and testing services to the worldwide semiconductor industry. The Company packages and tests integrated circuits from wafers provided by its customers. The Company markets its services worldwide, with emphasis on the North American market. The Company's packaging and testing operations are located in the Republic of Korea ("South Korea" or "Korea") and the People's Republic of China ("China"). Recapitalization Prior to August 5, 1999 the Company represented the combination of three business units of Hyundai Electronics Industries Co., Ltd. ("HEI") which operated collectively as HEI's worldwide packaging and testing operations. These three business units historically consisted of the Assembly and Test Division of HEI, Hyundai Electronics Co. (Shanghai) Ltd. ("HECS"), and the Assembly and Test Division of Hyundai Electronics America ("HEA"), a majority owned subsidiary of HEI. Sales and marketing services were primarily performed by the Assembly and Test Division of HEA, and packaging and testing services were performed by HECS and the Assembly and Test Division of HEI. Beginning in 1995 HEI's packaging business, comprised of the packaging and test divisions, began to provide greater levels of advanced substrate packaging services which significantly increased the growth rate of the business and the managerial complexity of the divisions. The transfer of the packaging and test divisions into stand-alone subsidiaries facilitated the separate management, operation and control of the packaging business. ChipPAC, Inc. was formed in September 1997 by HEA, the US based majority owned subsidiary of HEI. In June of 1998 HEI transferred its packaging and test business to a wholly owned subsidiary that was subsequently renamed ChipPAC Korea, Ltd. The transfer of HEA's and HEI's packaging and test businesses to ChipPAC, Inc. and ChipPAC Korea, Ltd. respectively was done in connection with HEI's desire to more definitively separate the packaging and test division from HEI's core business operations. The formation of ChipPAC, Inc. and the transfer of HEA's packaging and test division was undertaken solely by HEA. During the first quarter of 1998, management of the packaging and test division drafted plans for the spin-off of the ChipPAC entities, with ChipPAC, Inc. as the parent company. This plan was approved by Hyundai's board of directors in March 1998. During the second quarter of 1998 Hyundai retained Merrill Lynch to act as investment bankers and assist Hyundai in determining how best to dispose of ChipPAC. In July 1998, Hyundai, with the assistance of Merrill Lynch, initiated an auction process for the packaging and test division, which transpired through March 1999. On August 5, 1999, affiliates of Bain Capital, Inc. and SXI Group LLC, a portfolio concern of Citicorp Venture Capital Ltd., which we refer to collectively as the "Equity Investors," and management acquired a controlling interest in the Company from Hyundai Electronics and Hyundai Electronics America through a series of transactions, including a merger into ChipPAC, Inc. of a special purpose corporation organized by the Equity Investors. The merger was structured to be accounted for as a recapitalization. Specifically: . the Equity Investors and other parties, including members of our management, invested $92.0 million to acquire common stock of ChipPAC, Inc. which represented approximately 90.2% of its common stock outstanding immediately following the recapitalization; F-7 ChipPAC, Inc. NOTES TO FINANCIAL STATEMENTS--(Continued) . the prior stockholders of ChipPAC, Inc. retained a portion of their common stock in ChipPAC, Inc. equal to $10.0 million, or approximately 9.8% of ChipPAC, Inc.'s common stock outstanding immediately following the recapitalization; and . the prior stockholders received as consideration for the remainder of their common stock (i) an aggregate of $384.0 million in cash and (ii) mandatorily redeemable convertible preferred stock payable for up to an aggregate of $70.0 million. Net payment to Hyundai of $384 million, included capital redemption of $311 million and debt retirement of $133 million, offset by Hyundai investment of $40 million in mandatorily redeemable preferred stock, and a capital contribution of $20 million. The formation of ChipPAC, Inc. did not result from any planned or integrated series of transactions with the Equity Investors in 1999 and was not negotiated by Hyundai and the Equity Investors in connection with transferring control of the packaging and test division. Basis of Presentation The financial statements for the period subsequent to the recapitalization and as at December 31, 1999 have been prepared on a consolidated basis. The consolidated financial statements include the accounts of ChipPAC, Inc. and its majority controlled and owned subsidiaries. All significant intercompany balances have been eliminated on consolidation. For the comparative disclosures for the two years ended December 31, 1998 and the balance sheets at December 31, 1998, the Company represents the combination of four corporations then owned by Hyundai Electronics Industries Co., Ltd (HEI) and Hyundai Electronics America (HEA). These four corporations are ChipPAC, Inc. (CPI), ChipPAC Korea Co., Ltd (CPK), ChipPAC Assembly and Test Co. Ltd. (CATS), and Hyundai Electronics Co. (Shanghai) Ltd., (HECS). Accordingly the financial statements for the comparative periods are prepared on a combined basis. These comparative financial statements prepared on a combined basis include the accounts of CPI, CPK, HECS and CATS, or the divisional accounts of the predecessor Assembly and Test Divisions for periods prior to the business transfers referred to above, and reflect the combined financial position, results of operations, and cash flows of these entities. All inter-company or inter-divisional transactions have been eliminated in the combination. The combined statements of operations include all revenue and costs attributable to the Company including an allocation of the costs of shared facilities, costs of general and administrative services and overhead costs of HEI and HEA. For the periods prior to the legal formations of CPI and CPK, such allocated expenses were determined according to allocation bases deemed appropriate for the nature of each expense item, including relative headcount, relative occupancy of shared facilities, and relative sales volume. Costs allocated by HEI and HEA after the legal formations were based on services rendered, the costs of which were specified by affiliate agreements. In addition, subsequent to the legal formations, CPI and CPK established internal administrative and support functions, significantly reducing their reliance on HEI and HEA for such services. Since inception, HECS generally maintained its own internal administrative and support functions and was not allocated any costs by HEI. Management fees charged by HEI to HECS have been included in the combined results of operations and varied based on the level of services provided by HEI. Interest is not charged on intercompany trading balances. Management believes that the allocation methods used are reasonable. However, the financial information included herein may not be representative of the combined financial position, results of operations, and cash flows of the Company in the future or what they would have been had the Company operated as a separate entity during the periods presented. F-8 ChipPAC, Inc. NOTES TO FINANCIAL STATEMENTS--(Continued) Note 2: Summary of Significant Accounting Policies Accounting Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and revenues and expenses in the financial statements and accompanying notes. Significant estimates made by management include those related to the useful lives of property, plant and equipment, allowances for doubtful accounts and customer returns, inventory realizability, contingent assets and liabilities and allocated expenses, among others. Actual results could differ from those estimates, and such differences may be material to the combined financial statements. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Financial Instruments The amounts reported for cash and cash equivalents, accounts receivable, certain other assets, accounts payable, certain accrued and other liabilities, and short-term and long-term debt approximate fair value due to their short maturities or market interest rates. Obligations due to or receivable from related parties and mandatorily redeemable preferred stockholders have no ascertainable fair value as no market exists for such instruments. Inventories Inventories are stated at the lower of cost (computed using first-in, first- out method) or market value. Property, Plant and Equipment Property, plant and equipment are stated at cost and are depreciated on a straight-line basis over the estimated useful lives of the assets, which generally range from three to ten years except for building facilities and building improvements in Shanghai, China which are depreciated over thirty and fifteen years, respectively. In addition, land use rights in Shanghai, China are amortized over fifty years. Assets under capital leases and leasehold improvements are amortized over the shorter of the asset life or the remaining lease term. Amortization of assets under capital leases is included with depreciation expense. Upon disposal or sale, the Company removes the asset and accumulated depreciation from its records and recognizes the gain or loss in operations. The Company reviews property, plant and equipment and other long lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company determines whether there has been an impairment by comparing the anticipated undiscounted future net cash flows to the related asset's carrying value. If an asset is considered impaired, the asset is written down to fair value which is either determined based on discounted cash flows or appraised values, depending on the nature of the asset. The Company recognized an impairment write down in 1997, see Note 4. Concentration of Credit Risk and Major Customers Financial instruments which potentially subject the Company to concentrations of credit risk, consist principally of trade accounts receivable and cash and cash equivalents. F-9 ChipPAC, Inc. NOTES TO FINANCIAL STATEMENTS--(Continued) The Company's customers are comprised of companies in the semiconductor industry located primarily in the United States. Credit risk with respect to the Company's trade receivables is mitigated by selling to well established companies, performing ongoing credit evaluations and maintaining frequent contact with customers. The allowance for doubtful accounts is based upon the expected collectibility of the Company's accounts receivable. At December 31, 1998, two customers accounted for 68% and 13% of outstanding trade receivables, respectively. At December 31, 1999 three customers accounted for 24%, 14% and 11% of the outstanding trade receivables, respectively. Loss of or default by these customers could have an adverse effect upon the Company's financial position, results of operations and cash flows. During the year ended December 31, 1997, two customers accounted for 45% and 15% of the Company's revenue, respectively. During the year ended December 31, 1998, two customers accounted for 67% and 10% of the Company's revenue, respectively. During the year ended December 31, 1999, one customer accounted for 62% of the Company's revenue. Cash and cash equivalents are deposited with banks in the United States, Korea and China. Deposits in these banks may exceed the amount of insurance provided on such deposits; however, the Company is exposed to loss only to the extent of the amount of cash reflected on its balance sheet. The Company has not experienced any losses to date on its bank cash deposits. Revenue Recognition The Company recognizes revenue, net of rebates and discounts, upon shipment of packaged semiconductors to its customers. The Company does not take ownership of customer-supplied semiconductors as these materials are sent to the Company on a consignment basis. Accordingly, the customer supplied materials are not reflected in revenue or in cost of revenue. Research and Development Costs Research and development costs are charged to expense as incurred. Accounting for Income Taxes The Company accounts for deferred income taxes using the liability method whereby deferred tax assets and liabilities are recorded for temporary differences between amounts reported in the financial statements and amounts that would have been reported had the combined companies filed separate income tax returns. A valuation allowance is provided for deferred tax assets when it is more likely than not that all or a portion of the deferred tax assets will not be realized through future operations. The provision for income taxes represents taxes that would have been payable for the current period, plus the net change in deferred tax amounts. Foreign Exchange Contracts In the ordinary course of business the Company enters into foreign exchange forward contracts to mitigate the effect of foreign currency movements associated with its international operations. The contracts entered into require the purchase of Korean won or Japanese yen, and the delivery of US dollars, and generally have maturities which do not exceed six months. To date contracts entered into by the Company do not qualify as hedges and therefore are included in foreign currency gains and losses in the period in which the exchange rates change. There were no deferred gains or losses at December 31, 1999. At December 31, 1999 the Company had outstanding forward contracts to purchase Japanese yen totaling $25.5 million. F-10 ChipPAC, Inc. NOTES TO FINANCIAL STATEMENTS--(Continued) Foreign Currency Translation Upon completion of the recapitalization, management decided to change the functional currency of its foreign operations to the US Dollar effective October 1999. Previously, the Company's functional currencies of its foreign operations were the respective local currencies and the net of the effect of the translation of the accounts of the foreign operation was included in equity as a cumulative translation adjustment. Stock-Based Compensation The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," in accounting for its employee stock purchase options. Accordingly, compensation for stock purchase options is measured by the excess of the fair market value of the Company's stock at the date of the grant over the amount an employee must pay to acquire the stock. The Company has adopted the disclosure of pro-forma information required under SFAS No. 123, "Accounting for Stock-Based Compensation". 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"), "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. The Company is required to adopt SFAS 133 in the first quarter of its fiscal year 2001. The company is in the process of evaluating the effect of SFAS 133 on its financial statements. In December 1999, the Securities and Exchange Commission issued SAB No. 101. "Revenue Recognition in Financial Statements," which provides guidance on the recognition, presentation, and disclosure of revenue in financial statements filed with the SEC. SAB No. 101 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosures related to revenue recognition policies. We believe that the impact of SAB No. 101 will have no material effect on our financial position or results of operations. Net Income (Loss) Per Common Share The Company has presented net income (loss) per share pursuant to SFAS No. 128, Earnings per Share, and the Securities and Exchange Commission Staff Accounting Bulletin No. 98. Basic income (loss) per share was computed by dividing net income (loss) applicable to common stockholders by the weighted average shares of common stock outstanding. F-11 ChipPAC, Inc. NOTES TO FINANCIAL STATEMENTS--(Continued) The following table reconciles net income (loss) to net income (loss) applicable to common stockholders, and basic to diluted weighted average shares outstanding:
Year Ended December 31, --------------------------- 1997 1998 1999 -------- -------- -------- (in thousands, except per share data) Net income (loss)................................ $(46,118) $ 32,303 $ (5,935) Extraordinary item(a)........................... -- -- (1,373) Mandatorily redeemable preferred stock dividends...................................... -- -- (3,960) Accretion of the recorded value of the Intel warrant........................................ -- -- (260) -------- -------- -------- Net income (loss) available to common stockholders $(46,118) $ 32,303 $(11,528) ======== ======== ======== Weighted average shares outstanding used for basic and diluted income (loss) per share: Class A common stock............................. 91,809 91,809 92,000 Class L common stock............................. 10,200 10,200 10,211 -------- -------- -------- Common Stock..................................... 102,009 102,009 102,211 -------- -------- -------- Basic and diluted earnings per share............. $ (0.45) $ 0.32 $ (0.11) ======== ======== ========
Note 3: Risks and Uncertainties Industry Industry The Company's business involves certain risks and uncertainties. Factors that could affect the Company's future operating results and cause actual results to vary materially from expectations include, but are not limited to, dependence on a cyclical industry that is characterized by rapid technological changes, fluctuations in end-user demands, evolving industry standards, competitive pricing and declines in average selling prices, risks associated with foreign currencies, and enforcement of intellectual property rights. Additionally, the market in which the Company operates is very competitive. As a result of these industry and market characteristics, key elements of competition in the independent semiconductor packaging market include breadth of packaging offerings, time-to-market, technical competence, design services, quality, production yields, reliability customer service and price. The Company's customer base is highly concentrated with one customer accounting for 62% of revenue for the year ended December 31, 1999. As a result, any de- commitment from our major customer for products could have an adverse impact on the Company's financial position, results of operations and cash flows. Korea The Korean economy suffered a period of economic turmoil beginning in 1997 which has resulted in the devaluation of the Korean currency and volatility in interest rates. A significant portion of the Company's assets and operations are located in Korea. The Korean government has announced restructuring plans directed at rationalizing certain industries. Based on such a government directive, HEI has recently acquired LG Semicon Company, a leading competitor of HEI. ChipPAC, Inc. was not a party to this transaction. The majority of CPK's employees are represented by an organized labor union and are subject to a collective bargaining agreement. China A significant portion of the Company's assets and operations are owned by HECS and are located in China. HECS is subject to the laws and regulations of China including regulations governing the maintenance of business permits and operating licenses. HECS operates under a business license granted by the local F-12 ChipPAC, Inc. NOTES TO FINANCIAL STATEMENTS--(Continued) municipal government. It is reasonably possible that additional business licensure requirements may be applied by the National government that would pertain to HECS. Other Korean and Chinese foreign currency exchange regulations place restrictions on the flow of foreign funds into and out of those countries. The Company is required to comply with these regulations when entering into transactions in foreign currencies in Korea and China. ChipPAC, through CPK, procures materials from local vendors in the ordinary course of business. Three vendors in South Korea supply approximately 40% of the Company's component parts used in performing packaging services. Management believes that they have sufficient suppliers such that the loss of these concentrated suppliers would not have a material impact on the Company's combined financial position, results of operations or cash flows. Note 4: Selected Balance Sheet Accounts The components of inventories are as follows (in thousands):
December 31, --------------- 1998 1999 ------- ------- Inventories Raw materials................................................ $ 6,002 $12,274 Work in process.............................................. 2,159 3,003 Finished goods............................................... 2,164 2,220 ------- ------- $10,325 $17,497 ======= =======
Property, plant and equipment are comprised of the following (in thousands):
December 31, -------------------- 1998 1999 --------- --------- Property, Plant and Equipment Land use rights........................................ $ 4,041 $ 4,041 Buildings and improvements............................. 51,720 49,688 Equipment.............................................. 319,382 369,212 --------- --------- 375,143 422,941 Less accumulated depreciation and amortization......... (146,141) (196,010) --------- --------- $ 229,002 $ 226,931 ========= =========
Land use rights represents payments made to secure on a fully paid up basis the use of the property where the Company's facilities are located in Shanghai, China for a period of 50 years. As discussed in Note 7, all assets except those held by ChipPAC China are encumbered under the Credit Agreement entered into as part of the recapitalization. F-13 ChipPAC, Inc. NOTES TO FINANCIAL STATEMENTS--(Continued) Property, plant and equipment under capital leases (see Note 7) are as follows (in thousands):
December 31, -------------- 1998 1999 -------- ---- Property, Plant and Equipment under capital leases Cost......................................................... $ 44,501 -- Less accumulated amortization................................ (20,970) -- -------- ---- $ 23,531 $ ======== ====
Management reviews fixed assets for impairment in accordance with SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of". Effective December 31, 1997, and based on management changes and deteriorating economic conditions in Asia, the Company undertook a detailed asset impairment analysis. The analysis covered all assets and considered discontinuance of products, technological obsolescence, poor quality of product and changes in demand for products. Based on this analysis the Company recorded a charge of $11.6 million to recognize the impairment of certain production equipment in the Company's facilities in China and Korea. The impairment arose from a combination of management's decision to discontinue certain product lines which were projected to have limited future growth potential, and from the write down of production equipment judged to be in excess of foreseeable requirements. After recognition of the impairment write- down, the carrying value of the impaired assets was effectively reduced to $650,000 at December 31, 1997. No assets were held for sale and for those assets still in use, the carrying amount is being depreciated over the remaining useful life, which on average is one year. Other assets are comprised of the following (in thousands):
December 31, -------------- 1998 1999 ------ ------- Other Assets Deposits for severance benefits.............................. $1,618 $ 2,027 Long-term employee loans..................................... 1,478 1,216 Deferred taxes............................................... 1,889 5,207 Debt issuance costs, net of amortization of $774............. -- 13,594 Other........................................................ 16 14 ------ ------- $5,001 $22,058 ====== =======
The debt issuance costs of $14,368 were incurred in raising $300 million of debt in connection with the recapitalization. Accrued expenses and other liabilities are comprised of the following (in thousands):
December 31, -------------- 1998 1999 ------ ------- Accrued Expenses & Other Liabilities Accrued personnel expenses................................... $3,645 $ 4,673 Accrued interest payable..................................... 950 8,781 Accrued customer rebate...................................... -- 4,127 Accrued taxes................................................ 1,897 4,685 Accrued warranty and other expenses.......................... 1,185 4,942 ------ ------- $7,677 $27,208 ====== =======
F-14 ChipPAC, Inc. NOTES TO FINANCIAL STATEMENTS--(Continued) Note 5: Dividends Accreted
1997 1998 1999 ---- ---- ------ Preferred Stock, class A ("Intel Preferred Stock")........ -- -- $ 406 Preferred Stock, class B ("Hyundai Preferred Stock")...... -- -- 3,554 --- --- ------ -- -- $3,960 === === ======
Dividends on the Hyundai Preferred Stock accrue on a daily basis at a rate of 12.5% per annum. Until February 5, 2005, dividends will not be paid in cash, but will be capitalized as accumulated and unpaid dividends as part of Mandatorily Redeemable Preferred Stock. Dividends on the Intel Preferred Stock accrue on a daily basis at a rate of 10% per annum. Dividends are paid annually on August 1, and accumulated and unpaid dividends as at the balance sheet date are capitalized as part of Mandatorily Redeemable Preferred Stock. Note 6: Segments and Geographic Information The Company is engaged in one industry segment, the packaging and testing of integrated circuits. Financial data, summarized by geographic area, is as follows (in thousands):
United States Korea China Eliminations Combined -------- -------- -------- ------------ -------- Year ended December 31, 1997 Revenue from unaffiliated customers................ $231,615 $ 43,888 -- -- $275,503 Revenue from affiliates... 4,206 232,381 $ 21,611 $(244,272) 13,926 -------- -------- -------- --------- -------- Total revenue........... $235,821 $276,269 $ 21,611 $(244,272) $289,429 ======== ======== ======== ========= ======== Interest expense.......... -- $ 9,858 $ 1,114 -- $ 10,972 Depreciation, amortization, and asset impairment expense....... $ 75 40,515 11,661 -- 52,251 Income tax expense (benefit)................ 2,290 (11,961) -- -- (9,671) Income (loss) from operations............... 5,538 33,639 (13,659) -- 25,518 Acquisition of equipment under capital leases..... -- 25,901 -- -- 25,901 Identifiable assets....... $ 28,613 $190,818 $ 87,108 $ (73,298) $233,241 ======== ======== ======== ========= ======== Year ended December 31, 1998 Revenue from unaffiliated customers................ $317,348 $ 11,529 -- -- $328,877 Revenue from affiliates... 2,330 305,334 $ 13,759 $(316,219) 5,204 -------- -------- -------- --------- -------- Total revenue........... $319,678 $316,863 $ 13,759 $(316,219) $334,081 ======== ======== ======== ========= ======== Interest expense.......... -- $ 9,973 $ 3,367 -- $ 13,340 Depreciation and amortization expense..... $ 489 35,584 9,782 -- 45,855 Income tax expense (benefit)................ 954 19,610 -- -- 20,564 Income (loss) from operations............... 1,885 51,334 (12,790) -- 40,429 Acquisition of equipment under capital leases..... -- 2,191 -- -- 2,191 Identifiable assets....... $ 62,724 $316,288 $ 97,085 $(116,625) $359,472 ======== ======== ======== ========= ======== Year ended December 31, 1999 Revenue from unaffiliated customers................ $347,349 $ 17,231 $ 151 -- $364,731 Revenue from affiliates... -- 330,137 16,863 $(336,201) 10,799 -------- -------- -------- --------- -------- Total revenue........... $347,349 $347,368 $ 17,014 $(336,201) $375,530 ======== ======== ======== ========= ======== Interest expense.......... 14,484 4,913 1,844 -- 21,241 ======== ======== ======== ========= ======== Depreciation and amortization expense..... 2,528 44,489 10,458 -- 57,475 Income tax expense........ 1,166 772 -- -- 1,938 Income (loss) from operations............... 4,307 18,295 (9,983) -- 12,619 Extraordinary item, net of related income tax benefit.................. -- 1,373 -- -- 1,373 Acquisition of equipment under capital leases..... -- -- -- -- -- Identifiable assets....... $286,673 $278,505 $ 92,577 $(314,326) $343,429 ======== ======== ======== ========= ========
F-15 ChipPAC, Inc. NOTES TO FINANCIAL STATEMENTS--(Continued) Revenue from unaffiliated and affiliated customers is based on the geographic location of each customer's principal place of business. Identifiable assets are those assets that can be directly associated with a particular geographic area. In determining each geographic location's income (loss) from operations and identifiable assets, the expenses and assets relating to general corporate activities are included in the amounts for the geographical area where they were incurred, acquired or utilized. Note 7: Term Debt, Credit Facilities, and Capital Lease Obligation Under the terms of the recapitalization and merger in 1999 all short and long term debt, loans and leases and other credit facilities existing prior to the recapitalization were terminated at the recapitalization date. To finance part of the recapitalization, the Company borrowed $300.0 million of new debt, comprising $150.0 million of term loans and $150.0 million of senior subordinated notes (the Exchange Notes). The term loans bear interest at base rate (8.50% at December 31, 1999) plus 2.25% to 3.0% and the senior subordinated notes bear interest at 12.75% per annum. The senior subordinated notes mature on July 21, 2009. If a change of control of ChipPAC, Inc. occurs, we may be required to allow holders of the senior subordinated notes to sell us their notes at a purchase price of 101.0% of the principal amount of the notes, plus accrued and unpaid interest. We have a borrowing facility of $50.0 million for working capital and general corporate purposes under the revolving credit facility. In addition, borrowings of up to $20.0 million are available for acquiring equipment and making certain other capital expenditures under the capex facility. We may borrow and repay under the capex facility until August 5, 2001. Amounts that we repay under the capex facility after August 5, 2001 may not be borrowed by us later. The final maturity of these facilities will be on August 5, 2005. No amounts were outstanding under either the revolving credit facility or the capex facility at December 31, 1999. Future maturities of term debt outstanding, at December 31, 1999 are as follows (in thousands):
Year Ending December 31, ------------------------ 2000.......................................................... $ 4,800 2001.......................................................... 11,800 2002.......................................................... 12,800 2003.......................................................... 14,300 2004.......................................................... 19,300 2005.......................................................... 11,800 2006.......................................................... 75,200 2007.......................................................... -- 2008.......................................................... -- 2009.......................................................... 150,000 -------- $300,000 ========
The term loans and the revolving and capital expenditure lines (the Senior Credit Facilities) require that we meet specified financial tests, including, without limitation, a maximum leverage ratio, a minimum interest coverage ratio and minimum fixed charge coverage ratio. These facilities also contain covenants which restrict the Company's ability to: . make capital expenditures; . incur liens or engage in sale-leaseback transactions; . transact with affiliates; . incur indebtedness and contingent obligations; F-16 ChipPAC, Inc. NOTES TO FINANCIAL STATEMENTS--(Continued) . declare dividends or redeem or repurchase capital stock; . prepay, redeem or repurchase indebtedness; . change the business being conducted; . make loans and investments; and . engage in mergers, acquisitions, consolidations and asset sales. The Senior Credit Facilities also require that we satisfy customary affirmative covenants and provide customary indemnifications in favor of the senior lenders. These credit facilities contain customary events of default, including, without limitation, payment defaults, breaches of representations and warranties in all material respects, covenant defaults, some events of bankruptcy and insolvency, ERISA violations, judgment defaults, cross-defaults to other indebtedness and a change in control. There were no violations of these loan covenants through December 31, 1999. Substantially all assets of the ChipPAC consolidated group, with the exception of the two Chinese non-grantor entities (CATS and HECS), have been pledged as collateral under the term debt and revolving credit facilities agreement put in place on August 5, 1999. On early retirement of certain of the debt upon recapitalization, the Company incurred termination penalties and recorded an extraordinary loss of $1.4 million, net of related tax benefit. The following is a summary of the Company's long-term debt and capital lease obligations which were in existence prior to, and terminated on the recapitalization (in thousands):
December 31, -------------- 1998 1999 -------- ---- Notes payable to a Korean bank, principal maturing at various dates from December 9, 1998 to June 18, 2005, payable in aggregate monthly or quarterly installments together with interest at rates ranging from LIBOR (5.72% at December 31, 1998) plus 0.12% to 1.5% per annum, collateralized by certain machinery and equipment, guaranteed by HEI.................... $ 69,363 $ -- Notes payable to a Japanese bank, principal payable in aggregate semi-annual installments beginning March 28, 1999, maturing September 28, 2000, together with interest at the 6-month LIBOR rate (5.5% at December 31, 1998) plus 0.4% per annum guaranteed by HEI....................................... 8,228 -- Note payable to a Korean bank, principal payable in aggregate semi-annual installments beginning May 22, 1999 maturing November 22, 2001 together with interest at the 3-month LIBOR rate (5.08% at December 31, 1998) plus 3% per annum, guaranteed by HEI............................................. 20,000 -- Capital lease obligations to institutions with interest at rates ranging from LIBOR (5.72% at December 31, 1998) plus .58% to 2.2% per annum, collateralized by certain machinery and equipment, guaranteed by HEI.............................. 10,945 -- Capital lease obligations in Korean Won to institutions with interest at rates ranging from 11% per annum to 14.58% per annum, collateralized by certain machinery and equipment, guaranteed by HEI............................................. 4,361 -- Less current maturities........................................ (31,954) -- -------- ---- $ 80,943 $ -- ======== ====
F-17 ChipPAC, Inc. NOTES TO FINANCIAL STATEMENTS--(Continued) HEI Capital Leases During the periods through June 30, 1998, HEI transferred certain machinery and equipment that it leased, amounting to $17.0 million at cost, with related accumulated depreciation of $6.8 million, to CPK; these leases qualified as capital lease obligations. HEI assumed all obligations under these leases and no amounts were to be serviced by CPK; however, title to these assets used by CPK was held by the leasing companies under these agreements. Total capital lease obligations at December 31, 1997 and 1998, were $16.7 million and $16.1 million, respectively. The assets and the related obligations have been reflected in the accompanying combined financial statements. The Company recorded lease payments made by HEI as a reduction of the Company's capital lease obligations and a corresponding increase in capital amounting to $7.2 million, and $10.0 million for the years ended December 31, 1997 and 1998, respectively. During the periods through June 30, 1998, HEI also transferred to CPK certain machinery and equipment which are pledged as collateral under dollar denominated loan agreements with banks. HEI did not transfer the debt obligation to CPK and remained the named borrower. Since the assets used by CPK were pledged as collateral for the related loan obligations, the Company recorded these loan obligations as a liability due to HEI in the accompanying financial statements. At December 31, 1998 the outstanding balance on these loans amounted to $4.7 million. The Company recorded payments made by HEI on these loans as a reduction of the liability to HEI and a corresponding increase in capital amounting to $1.2 million for the year ended December 31, 1998. Note 8: Mandatorily Redeemable Preferred Stock Hyundai Preferred Stock In connection with the recapitalization, we issued to Hyundai Electronics and Hyundai Electronics America 70,000 shares of Class B preferred stock, which we refer to as the Hyundai Preferred Stock, which has an initial aggregate liquidation preference of $70.0 million. Dividends on the Hyundai Preferred Stock accrue on a daily basis from August 5, 1999 at a rate of 12.5% per annum. Until February 5, 2005, dividends will not be paid in cash, but will be capitalized as accumulated and unpaid dividends. All dividends accruing on the Hyundai Preferred Stock from and after such period will be paid in cash, semiannually, beginning after February 5, 2005. In the event we fail to pay any such dividend when due, the dividend rate on the Hyundai Preferred Stock will immediately increase by 2.5% per annum and the holders of a majority of the outstanding Hyundai Preferred Stock will have the exclusive right to nominate and elect one additional member of our board of directors, in each case until there is no longer any such default. The Hyundai Preferred Stock is mandatorily redeemable on August 5, 2010 and is otherwise redeemable by us at any time at our sole discretion. All of the shares of Hyundai Preferred Stock will be held by either Hyundai Electronics or Hyundai Electronics America. The prior written consent of the holders of a majority of the outstanding Hyundai Preferred Stock are required to amend, modify or waive the terms of the Hyundai Preferred Stock. The senior credit facilities and the senior subordinated notes are senior in right of payment to the Hyundai Preferred Stock. The Class B preferred shares are non-voting shares. In the event of any liquidation, dissolution or winding up of ChipPAC, Inc., holders of the class B preferred stock shall be entitled to receive an amount equal to the face value of the class B preferred stock plus all accrued and unpaid dividends thereon after payment to the holders of the class A preferred stock and prior to any distribution to the common stockholders. In addition, Hyundai Electronics may receive up to an additional $55.0 million in cash during the four year period beginning January 1, 1999 if we exceed certain levels of EBITDA as set forth in the recapitalization agreement. Hyundai Electronics is entitled to receive 33.3% of the amount by which our F-18 ChipPAC, Inc. NOTES TO FINANCIAL STATEMENTS--(Continued) EBITDA (defined in the recapitalization agreement as net income before interest, taxes, depreciation, amortization, extraordinary items and advisory fees) exceeds $116.5 million, $171.3 million, $198.5 million and $231.8 million, respectively, in each of the first four years following the recapitalization. In the event the final $20.0 million of such $55.0 million in cash is required to be paid to Hyundai Electronics, it shall be paid by the mandatory redemption of an equal amount of Hyundai Preferred Stock. During the year ended December 31, 1999, the Company's EBITDA did not exceed the level in the agreement and no amount is due. Accretion of dividends is required and the total dividend accreted at December 31, 1999 is $3,554,000. This amount has been added to the Mandatorily Redeemable Preferred Stock at December 31, 1999. Intel Preferred Stock Pursuant to the Intel Stock Purchase Agreement, we issued 10,000 shares of Class A 10.0% preferred stock and the Intel warrant to Intel, which we refer to as the Intel Preferred Stock, for $10 million in cash. Dividends on the Intel Preferred Stock accrue on a daily basis from the date of issuance at a rate of 10.0% per annum, payable when and as declared by the board of directors; provided, however, that dividends will be paid prior to the payment of any dividends with respect to any of our capital stock or equity securities which we refer to as junior securities, other than the Hyundai Preferred Stock. Dividends on each share of Intel Preferred Stock will accrue from the date of issuance of the Intel Preferred Stock to the first to occur of: (1) the date upon which the face value ($1,000 per share) of such share of Intel Preferred Stock plus all accrued but unpaid dividends is paid; (2) the date upon which such share of Intel Preferred Stock is converted into common stock (as described below); or (3) the date upon which such share of Intel Preferred Stock is acquired by us. Accretion of dividends is required and the total dividend accreted at December 31, 1999 is $406,000. This amount has been added to the Mandatorily Redeemable Preferred Stock at December 31, 1999. At any time, and from time to time, holders of the Intel Preferred Stock may convert all or any portion of such Intel Preferred Stock into shares of common stock at an initial conversion price equal to 150.0% of the weighted average price per share of common stock paid by the Equity Investors in connection with the recapitalization, with the purchase price subject to certain adjustments. The Intel Preferred Stock is convertible into not less than 6.25% of our Class L common stock and Class A common stock, before taking into account any shares of our common stock issued or issuable to employees, officers or directors of ChipPAC, Inc. or our subsidiaries or financing sources. In the event of any liquidation, dissolution or winding up of ChipPAC, Inc., holders of the Intel Preferred Stock will be entitled to receive, prior to any distribution to the holders of junior securities, an amount equal to the face value ($1,000 per share an aggregate liquidation preference of $10 million) of the Intel Preferred Stock plus all accrued and unpaid dividends thereon. In addition, each of the following will be deemed a liquidation, dissolution or winding up of ChipPAC, Inc.: . any sale by us of all or substantially all of its assets; . any consolidation or merger of ChipPAC, Inc. as a result of which holders of our common stock possessing the voting power to elect a majority of the board of directors immediately prior to such consolidation or merger cease to own capital stock of the surviving corporation possessing the voting power to elect a majority of the surviving corporation's board of directors; or F-19 ChipPAC, Inc. NOTES TO FINANCIAL STATEMENTS--(Continued) . any issuance, sale or transfer to any third party of our capital stock as a result of which holders of our outstanding capital stock possessing the voting power to elect a majority of the board of directors immediately prior to such sale cease to own capital stock of ChipPAC, Inc. possessing the voting power to elect a majority of the board of directors (each of the foregoing, a "Liquidation Event"). At any time, and from time to time, after August 1, 2005, we have the right to redeem all or any portion of the Intel Preferred Stock then outstanding at a redemption price per share equal to the greater of (i) its fair market value and (ii) its face value ($1,000 per share) plus all accrued and unpaid dividends thereon plus a redemption premium of 10.0%. The premium shall decrease ratably from year to year and shall be zero on or after August 1, 2010. The stock is mandatorily redeemable in the event that we do not complete an underwritten initial public offering of shares of our common stock with gross proceeds in excess of $50.0 million on or prior to August 1, 2001, and holders of not less than a majority of the Intel Preferred Stock require us to redeem all or a portion of the Intel Preferred Stock at a price per share equal to such stock's face value ($1,000 per share) plus all accrued and unpaid dividends thereon; provided, however, that any such redemption will be subject to all restrictions of applicable law and our debt and equity financing arrangements. Each share of Intel Preferred Stock has that number of votes equal to the number of shares of voting common stock then issuable upon the conversion of that share of Intel Preferred Stock. Except as required by law or as provided in the following sentence, holders of the Intel Preferred Stock are entitled to vote on all matters submitted to the stockholders for a vote and will vote together with holders of our common stock as a single class. The prior written consent of the holders of at least 66.7% of the outstanding Intel Preferred Stock is required for: . any amendment or change of the rights, preferences, privileges or powers of, or the restrictions provided for the benefits of, the Intel Preferred Stock; . any action that authorized, created or issued any new shares of any class of stock having preferences superior to the Intel Preferred Stock, other than any issuance of the Hyundai Preferred Stock; or . any action that reclassifies any outstanding shares of capital stock into shares having preferences or priority as to dividends or assets senior to the preference of the Intel Preferred Stock. The senior credit facilities and the senior subordinated notes are senior in right of payment to the Intel Preferred Stock. Intel Warrant Under the Intel Stock Purchase Agreement, we also issued to Intel the Intel Warrant, which entitles Intel to purchase $5.0 million of our common stock at a 20.0% discount to the initial public offering price, when and if we complete an initial public offering of our common stock. Accordingly, we have valued the Intel warrant at $1.25 million and this amount has been recorded as equity. The Intel Preferred Stock has been recorded net of this amount and is being accreted to redemption value over the period to August 1, 2001, the first date at which the Intel Preferred Stock becomes redeemable. Note 9: Commitments and Contingencies Intel Materials Agreement On August 5, 1999, ChipPAC Limited and Intel entered into the Intel Materials Agreement pursuant to which Intel will outsource to ChipPAC Limited a portion of its semiconductor packaging needs. In return, we will provide Intel with rebates based upon the volume of packaging services outsourced to us. Rebates are F-20 ChipPAC, Inc. NOTES TO FINANCIAL STATEMENTS--(Continued) deducted from revenue and accrued as current liabilities when the sale is made. The rebate percentage applied in computing the accrual is based on projected total sales and the relevant rebate percentages for the periods stated in the agreement. The Intel Materials Agreement covers semiconductor packaging services for which Intel has an ongoing purchasing requirement and for which we are a qualified source and where costs, yields and quality are equal to that of the same services provided by other semiconductor packaging companies. The Intel Materials Agreement also provides that Intel will not enter into other agreements for packaging services that contain provisions relating to competitive pricing and volume guarantees similar to those contained in the Intel Materials Agreement. This restriction only applies to agreements with semiconductor packaging companies that (i) are qualified to provide packaging services to Intel and (ii) provide the same type of packaging services provided by us. The Intel Materials Agreement also obligates us to first offer to Intel rights to use intellectual property related to certain new packaging services technology developed by us. Following the expiration of its initial term on December 31, 2001, the Intel Materials Agreement may be extended upon the mutual consent of ChipPAC Limited and Intel. The Company's executive offices in the United States and its facilities in Korea are leased from HEA and HEI respectively, under noncancellable operating lease arrangements through 2001. Rent expense for the years ended December 31, 1996, 1997 1998, and 1999 was $5.0 million, $4.3 million, $7.6 million and $4.9 million respectively. Future annual minimum lease payments under operating leases that have initial or remaining noncancellable lease terms in excess of one year at December 31, 1999 are as follows (in thousands): 2000.............................................................. $5,012 2001.............................................................. 2,940 ------ $7,952 ======
Note 10: Related Party Transactions The Company has sold packaging and testing services to HEI and to Symbios, Inc. (a subsidiary of HEA). The Company recorded sales of $9.7 million , $2.9 million and $10.8 million to HEI for the years ended December 31, 1997, 1998 and 1999 respectively. The Company recorded sales of $4.2 million and $2.3 million to Symbios, Inc. for the years ended December 31, 1997 and 1998, respectively. Symbios, Inc. was not a subsidiary of HEA during 1999. During the periods prior to June 30, 1998, HEI reimbursed CPK for the use of a metal plating facility. After June 30, 1998, HEI entered into an agreement with CPK, whereby CPK charged for plating services on a per piece basis. During fiscal years 1997, 1998 and 1999 the Company recognized $8.5 million, $6.2 million and $8.1 million from HEI as reimbursement for plating services, respectively. These amounts exceeded actual costs by $832,000, $57,000 and $2,734,000 for the years ended December 31, 1997, 1998 and 1999 respectively. The total amount receivable from HEI for plating services and from the sale of packaging services was $11.7 million at December 31, 1999. HEI has provided certain support functions for CPK, including sales, administration, finance and treasury management. In connection with these functions, HEI incurred certain expenses on behalf of CPK, which consisted primarily of general, selling and administrative expenses. During the years ended December 31, 1997 and the six months ended June 30, 1998, HEI allocated $4.0 million and $1.2 million, respectively, which are included as an operating expense by the Company. No allocation of operating expenses was made after June 30, 1998, as CPK established its own administration functions. In addition, HEI allocated to CPK, $4.3 million and $1.7 million for facilities and utilities costs during fiscal years ended December 31, 1997, and the six-month period ended June 30, 1998, respectively. CPK F-21 ChipPAC, Inc. NOTES TO FINANCIAL STATEMENTS--(Continued) expenses which were paid by HEI during the periods prior to June 30, 1998, are recorded as capital contributions. For the six month period from June 30, 1998 to December 31, 1998, CPK paid HEI a total of $5.5 million for facilities, utilities, and employee welfare. During the periods prior to June 30, 1998, a portion of these costs was included in the operating expenses allocated to CPK. In December 1998, CPK declared a dividend payable of $9.7 million to HEI, which was paid in February 1999. HEI entered into an agreement with the Company to provide technical services and manufacturing support for the Company's facility in China. This agreement was terminated on June 30, 1998. Under this agreement, the Company owed HEI approximately, $4.2 million, $6.7 million and $7.2 million at December 31, 1996, 1997 and 1998, respectively. Payment was made under this agreement at the recapitalization date. During 1995 through 1998, HECS contracted with Hyundai Engineering and Construction Co. Ltd. ("HEC"), a Hyundai affiliated company, to construct the Company's packaging and testing facilities in Shanghai, China. From inception through December 31, 1998, charges from HEC amounted to approximately $43.7 million. Amounts payable to HEC, included in the accompanying balance sheets, were $2.2 million and $1.2 million at December 31, 1996 and December 31, 1998 respectively. No amounts are payable or due to HEC at December 31, 1999. At December 31, 1998, HECS had a payable of $4.4 million due HEI for the cost of certain equipment which had been transferred to HECS. This amount is included as a current liability in payables to affiliates at December 31, 1998. No amount is payable or due at December 31, 1999. The following table summarized the payables to affiliates at December 31, 1998 and 1999 (in thousands):
December 31 ------------ 1998 1999 ------- ---- Payables to Affiliates Dividend payable to HEI by CPK................................. $ 9,701 $ -- Management fee due HEI......................................... 7,187 -- Payable to HEI from HECS for equipment purchases............... 4,430 -- Payable to HEA from CPI for current tax obligations............ 443 -- Payable to HEC from HECS for construction work................. 1,157 -- ------- ---- $22,918 $ -- ======= ====
Intercompany Trading Balances comprised the following (in thousands):
December 31 -------------------- 1998 1999 --------- --------- Intercompany Trading Balances Intercompany Trading Balances, beginning balance........ $ 73,244 $ 119,625 Intercompany purchases.................................. 316,219 337,481 Intercompany payments................................... (269,838) (326,427) --------- --------- Intercompany Trading Balances, ending balance......... $ 119,625 $ 130,679 ========= =========
F-22 ChipPAC, Inc. NOTES TO FINANCIAL STATEMENTS--(Continued) Since May 1998, CPI's primary office facility has been located on premises which it has subleased from HEA. During the year ended December 31, 1998 and 1999, HEA charged $467,000 and $789,000 to CPI for rent and building related taxes, insurance, and maintenance. At December 31, 1997 and 1998, the Company had advances receivable of $7.5 million and $37.6 million, respectively, due from HEA. These advances were non- interest bearing and had no fixed repayment date. These advances have been classified as deductions from shareholders' equity in these financial statements. No amounts are receivable from HEA at December 31, 1999. At June 30, 1998, Hyundai Information Technology ("HIT") entered into a three year agreement with CPK to provide information technology services. Substantially all of CPK's major information technology services are provided by HIT. HIT also entered into a six month agreement at October 1998 to provide CPK with services for Year 2000 remediation. For the six month period from June 30, 1998 to December 31, 1998, HIT charged CPK $1.0 million. For the year ended December 31, 1999, HIT charged CPK $2,265,000. Prior to June 30, 1998, while HIT provided substantially all of CPK's information technology services, such charges were included with the general allocation of general, selling and administrative operating expenses made by HEI. During 1998, CPI entered into an agreement with HIT for the installation of a significant portion of a modular software system. The installation of this portion of the software system was completed in February 1999. For the years ended December 31, 1998 and 1999, CPI incurred charges of $1,198,000 and $2,265,000 from HIT, respectively. Management Advisory Agreements At the time of the recapitalization, the Company entered into advisory agreements with the Equity Investors. Under these agreements, Equity Investors may provide financial, advisory and consulting services to us. In exchange for these services, the Equity Investors will be entitled to receive fees billed at the Equity Investors' customary rates for actual time spent performing these services plus reimbursement for out-of-pocket expenses; provided that, commencing with the quarter ending March 31, 2000, when and if we achieve EBITDA, as calculated through the twelve-month period ended March 31, 2000, in excess of $81.2 million, the Equity Investors will each be entitled to an annual advisory fee, the amount of which will be limited by our senior credit agreements, for the remaining term of the advisory agreement. There are no minimum levels of service required to be provided under the advisory agreements. At the time of the recapitalization, the Equity Investors each received a one-time fee of 1.0% of the aggregate value of the recapitalization, which fees totaled $10 million. In addition, the Equity Investors will each receive a fee not to exceed 1.0% of the aggregate value of any acquisition, divestiture or financing transaction of ChipPAC, Inc. in which the Equity Investors are involved. Each advisory agreement will remain in effect for an initial term of ten years, but they may be terminated by the Equity Investors or us upon written notice 90 days prior to the expiration of the initial term or any extension. Each advisory agreement includes customary indemnification provisions in favor of each of the Equity Investors. Note 11: Common Stock and Shareholders' and Divisional Equity The Company's equity for earlier periods includes the divisional equity of CPI, paid-in-capital of HECS, and the common stock and divisional equity of CPK. This divisional equity was either redeemed or converted in accordance with the terms of the recapitalization agreement. F-23 ChipPAC, Inc. NOTES TO FINANCIAL STATEMENTS--(Continued) Common Stock The Company currently has authorized class A, B, and L common stock. There are 180,000,000, $0.01 par value, shares authorized of each class A and class B common stock. At December 31, 1999 there were 96,254,000 shares of class A common stock issued and outstanding and there were no shares of class B common issued or outstanding. There are 20,000,000 shares of $0.01 par value Class L common stock, authorized of which 10,456,000 shares were issued and outstanding at December 31, 1999. Only Class A common shares have voting rights. In the event of liquidation, the Class L common shares have certain distribution preferences over the Class A and B shares, once the senior liquidation rights of the mandatorily redeemable preferred stock have first been satisfied. To the extent available a liquidating distribution equal to the original share cost, plus an amount equal to 12.0% per annum calculated on a compound basis, shall be made to the holders of the Class L common shares before any distribution is made to the Class A and B shareholders. Class A and B common shareholders may convert their shares at the ratio of one to one into the shares of the other class. Note 12: 1999 Stock Purchase and Option Plan As a result of the March 1999 HEI and HEA agreement to re-organize the Company, the 1997 stock purchase plan was terminated. Cash paid to holders of vested options upon termination of the plan totaled approximately $170,000 and was charged as additional employee compensation. Our board of directors has adopted the ChipPAC, Inc. 1999 Stock Purchase and Option Plan, or the "1999 Stock Plan," which authorizes the granting of stock options and the sale of Class A common stock or Class L common stock to current or future employees, directors, consultants or advisors of ChipPAC, Inc. or its subsidiaries. Under the 1999 Stock Plan, a committee of the board of directors is authorized to sell or otherwise issue Class A common stock or Class L common stock at any time prior to the termination of the 1999 Stock Plan in such quantity, at such price, on such terms and subject to such conditions as established by the committee up to an aggregate of 15,500,000 shares of Class A common stock and 500,000 shares of Class L common stock, including shares of common stock with respect to which options may be granted, subject to adjustment upon the occurrence of specified events to prevent any dilution or expansion of the rights of participants that might otherwise result from the occurrence of such events. F-24 ChipPAC, Inc. NOTES TO FINANCIAL STATEMENTS--(Continued) The following table summarizes stock option activity under the 1997 Option Plan of ChipPAC through December 31, 1999:
Weighted Options Average Available Options Exercise Aggregate for Grant Outstanding Price Value ---------- ----------- -------- --------- Balances at October 1, 1997................... -- -- -- -- Options reserved........ 2,508,960 -- -- -- Options granted......... (952,750) 952,750 $0.30 $ 285,825 ---------- ---------- ----- --------- Balances at December 31, 1997................... 1,556,210 952,750 $0.30 285,825 Options granted......... (793,500) 793,500 $0.30 238,050 Options canceled........ 278,500 (278,500) $0.30 (83,550) ---------- ---------- ----- --------- Balances at December 31, 1998................... 1,041,210 1,467,750 $0.30 $ 440,325 ========== ========== ===== ========= Options granted......... (102,500) 102,500 $0.30 30,750 Options canceled........ 1,076,200 (1,076,200) $0.30 (322,860) Options repurchased..... 494,050 (494,050) $0.30 (148,215) Termination of plan..... (2,508,960) -- -- -- ---------- ---------- ----- --------- Balances at December 31, 1999................... -- -- -- $ -- ========== ========== ===== =========
As of December 31, 1998, options for 160,239 shares were vested. No options were vested at December 31, 1997. The following table summarizes stock option activity under the 1999 Option Plan of ChipPAC through December 31, 1999:
Weighted Options Average Available Options Exercise Aggregate for Grant Outstanding Price Value ---------- ----------- -------- ---------- Balances at January 1, 1999 Options reserved........ 7,500,000 -- -- $ -- Options granted......... (5,935,500) 5,935,500 $0.88 5,223,240 Options canceled........ 85,000 (85,000) $0.88 (74,800) ---------- --------- ----- ---------- Balances at December 31, 1999................... 1,649,500 5,850,500 $0.88 $5,148,440 ========== ========= ===== ==========
As of December 31, 1999, no options share were vested. The weighted average contractual life is approximately 9.7 years. The Company calculated the value of each option grant on the date of grant using the Black-Scholes option pricing model with the following assumptions:
1997 1998 1999 ------- ------- ------- Risk free interest rate.............................. 4-5% 4-5% 6% Expected lives....................................... 4 years 4 years 4 years Dividend yield....................................... -- -- -- Expected volatility.................................. -- -- --
F-25 ChipPAC, Inc. NOTES TO FINANCIAL STATEMENTS--(Continued) Note 13: Income Taxes The provision for (benefit from) income taxes is comprised of the following (in thousands):
Years Ended December 31, -------------------------- 1997 1998 1999 -------- ------- ------- Current Federal.......................................... $ 1,768 $ 1,099 $ 209 State............................................ 519 279 98 Foreign.......................................... 4,817 3,012 4,680 Deferred Federal.......................................... -- (358) 566 State............................................ -- (62) 95 Foreign.......................................... (16,775) 16,594 (3,710) -------- ------- ------- Tax expense.................................... $ (9,671) $20,564 $ 1,938 ======== ======= =======
Income (loss) before taxes is comprised of the following (in thousands):
Years Ended December 31, ------------------------- 1997 1998 1999 -------- ------- ------- Domestic.......................................... $ 5,579 $ 2,165 $(1,498) Foreign........................................... (61,368) 50,702 (2,499) -------- ------- ------- $(55,789) $52,867 $(3,997) ======== ======= =======
A summary of the composition of net deferred income tax assets (liabilities) is as follows (in thousands):
At December 31, -------------- 1998 1999 ------ ------ Assets: Foreign currency transaction losses.......................... $ 388 -- Foreign lease obligations.................................... 1,366 $ 887 Impaired loss................................................ 1,484 787 Provision for slow moving inventory.......................... 657 971 Capitalized interest......................................... 2,427 1,591 Accrued expenses and other................................... 420 2,343 ------ ------ 6,742 6,579 ------ ------ Less liabilities: Foreign currency transaction gains........................... (3,182) (259) Foreign lease obligations.................................... -- -- Reserves deducted for tax, not for books..................... (868) (579) ------ ------ (4,050) (838) ------ ------ $2,692 $5,741 ====== ======
F-26 ChipPAC, Inc. NOTES TO FINANCIAL STATEMENTS--(Continued) The differences between provision for (benefit from) income taxes at the statutory Federal income tax rate and income taxes reported in the combined statements of operations are as follows:
Years Ended December 31, -------------------- 1997 1998 1999 ----- ---- ----- Federal statutory tax rate................... (35.0)% 35.0 % (35.0)% State tax, net of Federal benefit........ 0.6 % 0.3 % 0.5 % Losses not benefitted, China.................. 12.5 % 11.4 % 14.5 % Foreign operations rate difference............. 4.6 % (7.8)% 44.2 % Other................... -- -- 5.4 % ----- ---- ----- (17.3)% 38.9 % 29.6 % ===== ==== =====
Since inception on September 30, 1997, until August 5, 1999 CPI has been a party to a tax sharing agreement with its parent company HEA with which it has filed a consolidated US Federal income tax return, and various consolidated and separate state income tax returns. Under the tax sharing agreement CPI will remit to HEA its tax liability calculated on a separate company basis. For the year ended December 31, 1998, CPI recorded an income tax provision of $954,000, of which $443,000 was recorded as a current liability due to HEA. The balance of prior tax charges was accounted for as a reduction of shareholder receivable--HEA, and included in shareholders' and divisional equity. HECS operates under a business license in China whereby a tax holiday is granted to the Company. The tax holiday entitles the Company to a two year tax exemption followed by three years of reduced statutory tax rates being applied to taxable income generated in the five year period commencing from the first year HECS generates taxable income, after utilization of operating losses carried forward. Operating losses may be carried over for five years. HECS has been loss making to date. No benefit for income taxes has been reflected in the accompanying combined financial statements for losses incurred by HECS, thereby increasing the effective tax rate. Under Korean tax law, CPK is allowed certain income tax deductions for the appropriation of retained earnings and the Company has established a deferred tax liability for such appropriations. In addition, CPK incurred certain unrealized foreign currency translation gains and losses, included in operations, which must be deferred for tax reporting purposes. The accompanying combined financial statements reflect the provision or benefit for such gains and losses and are reflected as deferred income tax assets and liabilities. Included in contributions to capital is approximately $4.2 million comprised primarily of income tax liability assumed by the Company's parent through December 31, 1998. Note 14: Employee Benefit Plans Retirement and Deferred Savings Plan--United States CPI has maintained a retirement and deferred savings plan for its employees (the "401(k) Plan") through its immediate parent company, HEA. The 401(k) Plan is intended to qualify as a tax qualified plan under the Internal Revenue Code. The 401(k) Plan provides that each participant may contribute up to 15% of tax gross compensation (up to a statutory limit). Under the 401(k) Plan, the Company is required to make contributions based on contributions made by employees. The Company's contributions to the 401(k) Plan for the years ended December 31, 1996, 1997, 1998 and 1999 were approximately $11,000, $49,000, $119,000 and $175,000 respectively. All amounts contributed by participants and related earnings are fully vested at all times. F-27 ChipPAC, Inc. NOTES TO FINANCIAL STATEMENTS--(Continued) Employee Welfare and Social Insurance Plan--China In accordance with the National and Shanghai Municipal Regulations on labor administration, HECS is required to provide a certain percentage of total employee salaries as a welfare and social insurance reserve. The rates of provision are as follows: Pension.............................................................. 25.5% Welfare fund......................................................... 5.5% Housing fund......................................................... 6.0% Unemployment insurance fund.......................................... 2.0%
Employee welfare and social insurance expense for the years ended December 31, 1997, 1998 and 1999 amounted to approximately $449,100, $820,900, and $1,230,000 respectively. The Company is under a statutory requirement in China to establish and maintain a general reserve fund and an enterprise expansion fund by way of appropriations from net income. The board of directors determines the amount of the appropriations. There were no amounts appropriated for these funds during the periods presented. Severance Benefits--Korea Employees and directors with more than one year of service are entitled to receive a lump-sum payment upon termination of their employment with CPK, based on their length of service and rate of pay at the time of termination. Accrued severance benefits are adjusted annually for all eligible employees based on their employment as of the balance sheet date. In accordance with the National Pension Act, a certain portion of severance benefits is required to be remitted to the National Pension Fund and deducted from accrued severance benefits. The amounts contributed will be refunded to employees from the National Pension Fund upon retirement. The expense for severance benefits for the years ended December 31, 1997, 1998 and 1999 amounted to approximately $3.0 million, $2.9 million and $0.6 million, respectively. F-28 ChipPAC SUPPLEMENTAL COMBINING CONDENSED STATEMENTS OF OPERATIONS Year Ended December 31, 1997 (In thousands)
Guarantors Non-Guarantor ----------------- ------------- CPI CPK HECS Eliminations Combined -------- -------- ------------- ------------ -------- Revenue: Intercompany revenue.. $ -- $222,661 $ 21,611 $(244,272) $ -- Customer revenue...... 235,821 53,608 -- -- 289,429 -------- -------- -------- --------- -------- Revenue............. 235,821 276,269 21,611 (244,272) 289,429 Cost of revenue......... 222,628 227,041 23,841 (244,272) 229,238 -------- -------- -------- --------- -------- Gross profit............ 13,193 49,228 (2,230) -- 60,191 Operating expenses: Selling, general & administrative....... 6,814 9,039 -- -- 15,853 Research & development.......... 841 3,211 -- -- 4,052 Management fees charged by affiliate............ -- -- 3,199 -- 3,199 Writedown of impaired assets............... -- 3,339 8,230 -- 11,569 -------- -------- -------- --------- -------- Total operating expenses........... 7,655 15,589 11,429 -- 34,673 -------- -------- -------- --------- -------- Operating income........ 5,538 33,639 (13,659) -- 25,518 Non-operating income (Expense) -------- -------- -------- --------- -------- Interest income....... 41 -- 55 -- 96 -------- -------- -------- --------- -------- Interest expense...... -- (9,858) (1,114) -- (10,972) Foreign currency gains (losses)............. -- (69,691) 22 -- (69,669) Other income (expenses), net...... -- 4,497 (5,259) -- (762) Non-operating income (expenses)......... 41 (75,052) (6,296) -- (81,307) Income (loss) before income taxes........... 5,579 (41,413) (19,955) -- (55,789) Provision for (benefit from) income taxes..... 2,290 (11,961) -- -- (9,671) -------- -------- -------- --------- -------- Net Income (loss)... $ 3,289 $(29,452) $(19,955) $ -- $(46,118) ======== ======== ======== ========= ========
The accompanying notes are an integral part of these financial statements. F-29 ChipPAC SUPPLEMENTAL COMBINING CONDENSED STATEMENTS OF CASH FLOWS Year Ended December 31, 1997 (In thousands)
Non- Guarantors Guarantor ------------------ --------- CPI CPK HECS Eliminations Combined ------- --------- --------- ------------ --------- Cash flows from operating activities: Net Income.............. $ 3,289 $ (29,452) $(19,955) $ -- $ (46,118) Adjustments to reconcile net income: Depreciation and amortization........... 75 37,176 3,431 -- 40,682 Write down of impaired assets............... -- 3,339 8,230 -- 11,569 Provision for inventory and receivables.......... -- 3,502 -- -- 3,502 Foreign currency (gains) losses....... -- 69,669 -- -- 69,669 (Gain) loss on intercompany sales of equipment............ -- (4,709) -- 4,709 -- (Gain) loss on external sales of equipment............ -- 515 -- -- 515 Changes in assets and liabilities: Intercompany accounts receivable........... -- (45,898) 308 45,590 -- Accounts receivable... (9,647) (445) -- -- (10,092) Inventories........... -- (15,006) (1,116) -- (16,122) Prepaid expenses and other assets......... 6 (16,526) 49 -- (16,471) Advances (to) from affiliates........... (781) -- 3,199 -- 2,418 Intercompany accounts payable.............. 13,465 (300) 32,425 (45,590) -- Accounts payable...... 205 4,801 -- -- 5,006 Accrued expenses & other liabilities.... 2,665 (4,053) (1,181) -- (2,569) Other long-term liabilities.......... -- 1,226 -- -- 1,226 ------- --------- -------- -------- --------- Net cash provided by operating activities......... 9,277 3,839 25,390 4,709 43,215 ------- --------- -------- -------- --------- Cash flows used in investing activities: Acquisition of property and equipment.......... (838) (101,747) (36,749) 28,641 (110,693) Proceeds, intercompany equipment sales........ -- 33,350 -- (33,350) -- Proceeds, external equipment sales........ -- 17 -- 17 ------- --------- -------- -------- --------- Net cash used in investing activities......... (838) (68,380) (36,749) (4,709) (110,676) ------- --------- -------- -------- --------- Cash flows provided by financing activities: Advances to HEA......... (7,466) -- -- -- (7,466) Proceeds from short-term loans.................. -- 83,014 3,000 -- 86,014 Repayment of short-term loans.................. -- (61,804) (1,808) -- (63,612) Proceeds from term loans.................. -- 28,511 11,000 -- 39,511 Repayment, term loans and capital leases..... -- (15,124) (2,057) -- (17,181) Contributions (withdrawals) of capital................ -- 26,306 -- -- 26,306 ------- --------- -------- -------- --------- Net cash provided by financing activities......... (7,466) 60,903 10,135 -- 63,572 ------- --------- -------- -------- --------- Effect from changes in exchange rates......... -- 4,698 (65) -- 4,633 ------- --------- -------- -------- --------- Net increase (decrease) in cash................ 973 1,060 (1,289) -- 744 Cash and equivalents at beginning of period.... -- 31 2,292 -- 2,323 ------- --------- -------- -------- --------- Cash and equivalents at end of period.......... $ 973 $ 1,091 $ 1,003 $ -- $ 3,067 ======= ========= ======== ======== =========
The accompanying notes are an integral part of these financial statements. F-30 ChipPAC SUPPLEMENTAL COMBINING CONDENSED BALANCE SHEETS December 31, 1998 (In thousands)
Guarantors Non-Guarantor ------------------ ------------- CPI CPK HECS Eliminations Combined -------- -------- ------------- ------------ -------- ASSETS Current assets: Cash and cash equivalents.......... $ 10,827 $ 44,292 $ 13,648 $ -- $ 68,767 Receivable from shareholder.......... -- 4,922 -- -- 4,922 Intercompany accounts receivable........... 10,845 103,833 1,947 (116,625) -- Accounts receivable from customers....... 34,741 2,988 -- -- 37,729 Inventories........... -- 10,110 215 -- 10,325 Deferred taxes........ 420 383 -- -- 803 Prepaid expenses & other current assets............... 74 2,504 345 -- 2,923 -------- -------- -------- --------- -------- Total current assets............. 56,907 169,032 16,155 (116,625) 125,469 Property, plant and equipment, net....... 5,807 142,265 80,930 -- 229,002 Other assets.......... 10 4,991 -- -- 5,001 -------- -------- -------- --------- -------- Total assets........ $ 62,724 $316,288 $ 97,085 $(116,625) $359,472 ======== ======== ======== ========= ======== LIABILITIES AND EQUITY Current liabilities: Intercompany accounts payable.............. $ 83,556 $ (1,052) $ 34,121 $(116,625) -- Accounts payable...... 2,284 57,761 1,808 -- $ 61,853 Accrued expenses and other liabilities.... 1,128 3,537 3,012 -- 7,677 Short-term debt....... -- 3,077 15,700 -- 18,777 Current portion of long-term debt....... -- 21,173 10,781 -- 31,954 Current portion of HEI long-term debt....... -- 2,610 -- -- 2,610 Payables to affiliates........... 443 10,858 11,617 -- 22,918 -------- -------- -------- --------- -------- Total current liabilities........ 87,411 97,964 77,039 (116,625) 145,789 Long-term debt, less current portion...... -- 63,495 17,448 -- 80,943 HEI long-term debt, less current portion.............. -- 18,208 -- -- 18,208 Other long-term liabilities.......... -- 1,341 -- -- 1,341 -------- -------- -------- --------- -------- Total liabilities... 87,411 181,008 94,487 (116,625) 246,281 -------- -------- -------- --------- -------- Shareholders' and divisional equity: Preferred stock and paid in capital...... 16,674 110,124 53,293 -- 180,091 Shareholder receivable-HEA....... (37,626) -- -- -- (37,626) Accumulated earnings (deficit)............ (3,735) 15,149 (51,166) -- (39,752) Accumulated other comprehensive income (loss)............... -- 10,007 471 -- 10,478 -------- -------- -------- --------- -------- Shareholders' and divisional equity.. (24,687) 135,280 2,598 -- 113,191 -------- -------- -------- --------- -------- Total liabilities and equity......... $ 62,724 $316,288 $ 97,085 $(116,625) $359,472 ======== ======== ======== ========= ========
The accompanying notes are an integral part of these financial statements. F-31 ChipPAC SUPPLEMENTAL COMBINING CONDENSED STATEMENTS OF OPERATIONS Year Ended December 31, 1998 (In thousands)
Guarantors Non-Guarantor ----------------- ------------- CPI CPK HECS Eliminations Combined -------- -------- ------------- ------------ -------- Revenue: Intercompany revenue.. $ -- $302,460 $ 13,759 $(316,219) $ -- Customer revenue...... 319,678 14,403 -- -- 334,081 -------- -------- -------- --------- -------- Revenue............. 319,678 316,863 13,759 (316,219) 334,081 Cost of revenue......... 303,937 256,626 26,021 (316,219) 270,365 -------- -------- -------- --------- -------- Gross profit............ 15,741 60,237 (12,262) -- 63,716 Operating expenses: Selling, general & administrative....... 10,252 4,815 -- -- 15,067 Research & development.......... 3,604 4,088 -- -- 7,692 Management fees charged by affiliate............ -- -- 528 -- 528 Writedown of impaired assets............... -- -- -- -- -- -------- -------- -------- --------- -------- Total operating expenses........... 13,856 8,903 528 -- 23,287 -------- -------- -------- --------- -------- Operating income........ 1,885 51,334 (12,790) -- 40,429 Non-operating Income (Expense): Interest income....... 265 967 44 -- 1,276 Interest expense...... -- (9,973) (3,367) -- (13,340) Foreign currency gains (losses)............. -- 24,699 (29) -- 24,670 Other income (expenses), net...... 15 903 (1,086) -- (168) -------- -------- -------- --------- -------- Non-operating income (expenses)......... 280 16,596 (4,438) -- 12,438 -------- -------- -------- --------- -------- Income (loss) before income taxes........... 2,165 67,930 (17,228) -- 52,867 Provision for (benefit from) income taxes..... 954 19,610 -- -- 20,564 -------- -------- -------- --------- -------- Net Income (loss)... $ 1,211 $ 48,320 $(17,228) $ -- $ 32,303 ======== ======== ======== ========= ========
The accompanying notes are an integral part of these financial statements. F-32 ChipPAC SUPPLEMENTAL COMBINING CONDENSED STATEMENTS OF CASH FLOWS Year Ended December 31, 1998 (In thousands)
Guarantors Non-Guarantor ------------------ ------------- CPI CPK HECS Eliminations Combined -------- -------- ------------- ------------ -------- Cash flows from operating activities: Net Income.............. $ 1,211 $ 48,320 $(17,228) $ -- $ 32,303 Adjustments to reconcile net income Depreciation and amortization......... 489 35,584 9,782 -- 45,855 Write down of impaired assets............... -- -- -- -- -- Provision for inventory and receivables.......... 448 (873) -- -- (425) Foreign currency (gains) losses....... -- (24,670) -- -- (24,670) (Gain) loss on intercompany sales of equipment............ -- (686) -- 686 -- (Gain) loss on external sales of equipment............ -- 26 -- -- 26 Changes in assets and liabilities............ -- Intercompany accounts receivable............. (10,845) (39,058) 3,576 46,327 -- Accounts receivable..... (8,367) (4,373) -- -- (12,740) Inventories............. -- 7,056 2,033 -- 9,089 Prepaid expenses and other assets........... (475) 11,761 519 54 11,859 Advances (to) from affiliates............. 443 (730) 4,958 -- 4,671 Intercompany accounts payable................ 59,196 (3,573) (9,242) (46,381) -- Accounts payable........ 1,777 36,395 1,807 -- 39,979 Accrued expenses and other liabilities...... 642 (1,615) 1,099 -- 126 Other long-term liabilities............ -- (7,326) -- -- (7,326) -------- -------- -------- -------- -------- Net cash provided by operating activities......... 44,519 56,238 (2,696) 686 98,747 -------- -------- -------- -------- -------- Cash flows used in investing activities: Acquisition of property and equipment.......... (5,443) (52,514) (13,240) 9,865 (61,332) Proceeds, intercompany equipment sales........ -- 10,551 -- (10,551) -- Proceeds, external equipment sales........ -- 1,635 -- -- 1,635 -------- -------- -------- -------- -------- Net cash used in investing activities......... (5,443) (40,328) (13,240) (686) (59,697) -------- -------- -------- -------- -------- Cash flows provided by financing activities: Advances to HEA......... (30,160) -- -- -- (30,160) Proceeds from short-term loans.................. -- 50,735 12,656 -- 63,391 Repayment of short-term loans.................. -- (79,136) 43 -- (79,093) Proceeds from term loans.................. -- 185 10,000 -- 10,185 Repayment, term loans and capital leases..... -- (17,681) (14,114) -- (31,795) Contributions (withdrawals) of capital................ 938 62,014 20,001 -- 82,953 -------- -------- -------- -------- -------- Net cash provided by financing activities......... (29,222) 16,117 28,586 -- 15,481 -------- -------- -------- -------- -------- Effect from changes in exchange rates......... -- 11,174 (5) -- 11,169 -------- -------- -------- -------- -------- Net increase (decrease) in cash................ 9,854 43,201 12,645 -- 65,700 Cash and equivalents at beginning of period.... 973 1,091 1,003 -- 3,067 -------- -------- -------- -------- -------- Cash and equivalents at end of period.......... $ 10,827 $ 44,292 $ 13,648 $ -- $ 68,767 ======== ======== ======== ======== ========
The accompanying notes are an integral part of these financial statements. F-33 ChipPAC, Inc. SUPPLEMENTAL CONDENSED CONSOLIDATED BALANCE SHEETS Year Ended December 31, 1999 (In thousands)
Parent Guarantor Issuer Non-Guarantor --------- -------- Other ------------- CPI CP Int'l Guarantors HECS Eliminations Consolidated --------- -------- ---------- ------------- ------------ ------------ ASSETS Current assets: Cash and cash equivalents.......... $ 1,006 $ 3,474 $ 22,275 $ 5,362 -- $ 32,117 Intercompany accounts receivable........... 6,778 4,053 128,078 8,799 $(147,708) -- Accounts receivable from customers....... (28) -- 41,673 20 -- 41,665 Inventories........... -- -- 17,331 166 -- 17,497 Deferred taxes........ -- -- 775 -- -- 775 Prepaid expenses & other current assets............... 230 -- 1,884 272 -- 2,386 -------- -------- -------- ------- --------- --------- Total current assets.............. 7,986 7,527 212,016 14,619 147,708) 94,440 -------- -------- -------- ------- --------- --------- Property, plant and equipment, net......... 6,293 0 142,680 77,958 0 226,931 Intercompany loans receivable............. -- 271,000 -- -- (271,000) -- Investment in subsidiaries........... 82,866 30,532 283,366 -- (396,764) -- Other assets............ 27 13,595 8,436 -- -- 22,058 -------- -------- -------- ------- --------- --------- Total assets......... $ 97,172 $322,654 $646,498 $92,577 $(815,472) $ 343,429 ======== ======== ======== ======= ========= ========= LIABILITIES AND EQUITY Current liabilities: Intercompany accounts payable.............. $ (29) $ -- $116,150 $31,586 $(147,707) -- Accounts payable...... 1,251 40 49,265 1,652 -- $ 52,208 Accrued expenses and other liabilities.... 4,467 9,044 9,992 3,705 -- 27,208 Deferred taxes........ -- -- -- -- -- -- Short-term debt....... -- -- -- -- -- -- Current portion of long-term debt....... -- 4,800 -- -- -- 4,800 -------- -------- -------- ------- --------- --------- Total current liabilities......... 5,689 13,884 175,407 36,943 (147,707) 84,216 ======== ======== ======== ======= ========= ========= Long-term debt, less current portion...... -- 295,200 -- -- -- 295,200 Intercompany loans payable.............. -- -- 237,000 34,000 (271,000) -- Other long-term liabilities.......... 240 -- 3,689 -- -- 3,929 -------- -------- -------- ------- --------- --------- Total liabilities.... 5,929 309,084 416,096 70,943 (418,707) 383,345 ======== ======== ======== ======= ========= ========= Mandatorily redeemable preferred stock........ 82,970 -- -- -- -- 82,970 Shareholders' and divisional equity: Common stock.......... 1,067 -- -- -- -- 1,067 Warrants--common stock A.................... 1,250 -- -- -- -- 1,250 Additional paid in capital.............. 85,750 -- -- -- -- 85,750 Receivable from shareholder.......... (1,128) -- -- -- -- (1,128) Divisional equity, net of capital distributions........ (63,403) 14,191 205,655 85,281 (409,438) (167,714) Accumulated earnings (deficit)............ (15,263) (621) 16,043 (64,112) 12,673 (51,280) Accumulated other comprehensive income (loss)............... -- -- 8,704 465 -- 9,169 -------- -------- -------- ------- --------- --------- Shareholders' and divisional equity... 8,273 13,570 230,402 21,634 (396,765) (122,886) -------- -------- -------- ------- --------- --------- Total liabilities and equity.............. $ 97,172 $322,654 $646,498 $92,577 $(815,472) $ 343,429 ======== ======== ======== ======= ========= =========
The accompanying notes are an integral part of these financial statements. F-34 ChipPAC, Inc. SUPPLEMENTAL COMBINING CONDENSED STATEMENTS OF OPERATIONS Year Ended December 31, 1999 (In thousands)
Parent Guarantor Issuer Non-Guarantor --------- -------- Other ------------- CPI CP Int'l Guarantors HECS Eliminations Consolidated --------- -------- ---------- ------------- ------------ ------------ Revenue Intercompany revenue.. $ 10,772 $ -- $320,618 $ 16,863 $(348,253) $ -- Customer revenue...... 191,897 -- 183,482 151 -- 375,530 -------- ------- -------- -------- --------- -------- Revenue............. 202,669 -- 504,100 17,014 (348,253) 375,530 Cost of revenue......... 183,633 -- 444,339 26,997 (337,481) 317,488 -------- ------- -------- -------- --------- -------- Gross profit............ 19,036 -- 59,761 (9,983) (10,772) 58,042 Operating expenses: Selling, general & administrative....... 15,113 -- 16,878 -- (10,772) 21,219 Research & development.......... 5,928 -- 6,434 -- -- 12,362 Change of control expenses............. 180 -- 11,662 -- -- 11,842 -------- ------- -------- -------- --------- -------- Total operating expenses........... 21,221 -- 34,974 -- (10,772) 45,423 -------- ------- -------- -------- --------- -------- Operating Income........ (2,185) -- 24,787 (9,983) -- 12,619 Non-operating Income (Expense) Interest income....... 625 12,491 14,101 441 (24,907) 2,751 Interest expense...... -- (14,481) (28,416) (3,251) 24,907 (21,241) Foreign currency gains (losses)............. -- -- 1,253 (29) -- 1,224 Income (loss) from investment in subsidiaries......... (4,848) 1,502 (9,327) -- 12,673 -- Other income (expenses), net...... 61 -- 713 (124) -- 650 -------- ------- -------- -------- --------- -------- Non-operating income (expenses)......... (4,162) (488) (21,676) (2,963) 12,673 (16,616) -------- ------- -------- -------- --------- -------- Income (loss) before income taxes........... (6,347) (488) 3,111 (12,946) 12,673 (3,997) Provision for (benefit from) income taxes..... 961 132 845 -- -- 1,938 -------- ------- -------- -------- --------- -------- Income before extraordinary item..... (7,308) (620) 2,266 (12,946) 12,673 (5,935) Extraordinary item: Loss from early extinguishment of debt, net of related income tax benefit... -- -- (1,373) -- -- 1,373 -------- ------- -------- -------- --------- -------- Net Income (loss)... $ (7,308) $ (620) $ 893 $(12,946) $ 12,673 $ (7,308) ======== ======= ======== ======== ========= ========
The accompanying notes are an integral part of these financial statements. F-35 ChipPAC, Inc. SUPPLEMENTAL COMBINING CONDENSED STATEMENTS OF CASH FLOWS Year Ended December 31, 1999 (In thousands)
Parent Guarantor Issuer Non-Guarantor --------- --------- Other ------------- CPI CP Int'l Guarantors HECS Eliminations Consolidated --------- --------- ---------- ------------- ------------ ------------ Cash flows from operating activities: Net Income............. $ (7,308) $ (620) $ 893 $(12,946) $ 12,673 $ (7,308) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization......... 1,753 774 44,490 10,458 -- 57,475 Provision for inventory and receivables.......... (110) -- (950) -- -- (1,060) Non-operating early debt extinguishment loss................. -- -- 1,373 -- -- 1,373 Foreign currency (gains) losses....... -- -- (1,224) -- -- (1,224) (Gain) loss on external sales of equipment............ -- -- (283) 1 -- (282) Equity income from investment in subsidiaries......... 4,848 (1,502) 9,327 -- (12,673) -- Changes in assets and liabilities: Intercompany accounts receivable........... 4,067 (4,053) (21,244) (6,852) 28,082 -- Accounts receivable... 34,879 -- (34,109) (20) -- 750 Inventories........... -- -- (5,464) 49 -- (5,415) Prepaid expenses and other assets......... 247 -- (3,198) 73 -- (2,878) Advances (to) from affiliates........... (443) -- (6,981) -- -- (7,424) Intercompany accounts payable.............. (83,585) -- 114,203 (2,536) (28,082) -- Accounts payable...... (1,035) 40 (10,465) (155) -- (11,615) Accrued expenses & other liabilities.... 4,000 9,045 6,283 693 -- 20,021 Other long-term liabilities.......... -- -- 3,519 -- -- 3,519 -------- --------- --------- -------- --------- --------- Net cash provided by operating activities......... (42,687) 3,684 96,170 (11,235) -- 45,932 -------- --------- --------- -------- --------- --------- Cash flows used in investing activities: Acquisition of property and equipment......... (2,239) -- (52,792) (9,926) 7,101 (57,856) Proceeds, external equipment sales....... -- -- 6,017 2,431 (7,101) 1,347 Investment in subsidiaries.......... (90,637) (29,030) (184,970) -- 304,637 -- -------- --------- --------- -------- --------- --------- Net cash used in investing activities......... (92,876) (29,030) (231,745) (7,495) 304,637 (56,509) -------- --------- --------- -------- --------- --------- Cash flows provided by financing activities: Loans & advances with affiliates............ -- -- -- (4,430) -- (4,430) Proceeds from short- term loans............ -- -- 1,169 -- -- 1,169 Repayment of short-term loans................. -- -- (3,769) (15,700) -- (19,469) Net proceeds from long- term loans............ -- 285,631 -- -- -- 285,631 Repayment, term loans and capital leases.... -- -- (105,387) (28,228) -- (133,615) Intercompany loan (advances) payments... -- (271,000) 237,000 34,000 -- -- Capital redemption at recap................. -- -- (311,220) -- -- (311,220) Capital contributions at recap.............. -- -- 19,816 -- -- 19,816 Intercompany capital contributions......... -- 14,215 290,422 -- (304,637) -- Payments made to extinguish debt early................. -- -- (1,373) -- -- (1,373) Dividend paid.......... -- -- (9,435) -- -- (9,435) Net proceeds from common stock issuance.............. 74,071 (26) (27) -- -- 74,018 Net proceeds from mandatorily redeemable preferred stock....... 50,000 -- -- -- -- 50,000 Net proceeds from sale of stock to management............ 1,671 -- -- -- -- 1,671 Contributions (withdrawals) of capital............... -- -- (4,052) 24,802 -- 20,750 -------- --------- --------- -------- --------- --------- Net cash provided by financing activities......... 125,742 28,820 113,144 10,444 (304,637) (26,487) -------- --------- --------- -------- --------- --------- Effect from changes in exchange rates........ -- -- 414 -- -- 414 -------- --------- --------- -------- --------- --------- Net increase (decrease) in cash............... (9,821) 3,474 (22,017) (8,286) -- (36,650) Cash and equivalents at beginning of period... 10,827 -- 44,292 13,648 -- 68,767 -------- --------- --------- -------- --------- --------- Cash and equivalents at end of period......... $ 1,006 $ 3,474 $ 22,275 $ 5,362 $ -- $ 32,117 ======== ========= ========= ======== ========= =========
The accompanying notes are an integral part of these financial statements. F-36 ChipPAC, Inc. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited)
December 31, March 31, 1999 2000 ------------ --------- ASSETS ------ Current assets: Cash and cash equivalents............................ $ 32,117 $ 19,538 Accounts receivable, less allowance for doubtful accounts of $1,203 and $1,196....................... 30,003 35,535 Receivable from shareholder.......................... 11,662 -- Inventories.......................................... 17,497 14,941 Deferred taxes....................................... 775 716 Prepaid expenses and other current assets............ 2,386 7,799 --------- --------- Total current assets............................... 94,440 78,529 Property and equipment, net............................ 226,931 229,430 Other assets........................................... 22,058 20,995 --------- --------- Total assets....................................... $ 343,429 $ 328,954 ========= ========= LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND EQUITY - ------------------------------------------------------- Current liabilities: Bank borrowings...................................... $ -- $ 7,500 Accounts payable..................................... 52,208 35,723 Accrued expenses and other liabilities............... 27,208 18,727 Current portions of long-term debt................... 4,800 7,300 --------- --------- Total current liabilities.......................... 84,216 69,250 --------- --------- Long-term debt, less current portion................... 295,200 292,700 Other long-term liabilities............................ 3,929 4,512 --------- --------- Total liabilities.................................. 383,345 366,462 --------- --------- Commitments and contingencies Mandatorily redeemable preferred stock................. 82,970 85,685 Shareholders' and divisional equity: Common stock--class A................................ 963 974 Common stock--class B................................ -- -- Common stock--class L................................ 104 104 Warrants--common stock A............................. 1,250 1,250 Additional paid in capital--common stock............. 85,750 86,336 Divisional equity, net of capital redemption......... (167,714) (167,714) Receivable from shareholders......................... (1,128) (1,478) Accumulated deficit.................................. (51,280) (51,834) Accumulated other comprehensive income............... 9,169 9,169 --------- --------- Total shareholders' and divisional equity.......... (122,886) (123,193) --------- --------- Total liabilities, mandatorily redeemable preferred stock and equity.................................. $ 343,429 $ 328,954 ========= =========
The accompanying notes form an integral part of these condensed consolidated financial statements. F-37 ChipPAC, Inc. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands) (Unaudited)
Three Months Ended March 31, ---------------- 1999 2000 ------- ------- Revenue..................................................... $85,548 $97,469 Cost of revenue............................................. 72,131 77,044 ------- ------- Gross profit................................................ 13,417 20,425 Operating expenses: Selling, general and administrative....................... 4,511 7,099 Research and development.................................. 3,003 2,631 ------- ------- Total operating expenses................................ 7,514 9,730 ------- ------- Operating income............................................ 5,903 10,695 Non-operating income (expenses): Interest income........................................... 950 238 Interest expense.......................................... (3,007) (8,764) Foreign currency gains (losses)........................... 946 399 Other income (expenses), net.............................. 127 134 ------- ------- Non-operating income (expenses)......................... (984) (7,993) ------- ------- Income before income taxes.................................. 4,919 2,702 Provision for income taxes.................................. 3,115 542 ------- ------- Net income.................................................. $ 1,804 $ 2,160 ======= ======= Accretion of dividends on mandatorily redeemable preferred stock...................................................... -- (2,559) Accretion of recorded value of the Intel warrant............ -- (156) ------- ------- Net income (loss) available to common shareholders...... $ 1,804 $ (555) ======= ======= Comprehensive income: Net income (loss)......................................... 1,804 2,160 Currency translation loss................................. (3,526) -- ------- ------- Comprehensive income (loss)............................. $(1,722) $ 2,160 ======= =======
The accompanying notes form an integral part of these condensed consolidated financial statements. F-38 ChipPAC, Inc. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Three Months Ended March 31, -------------------- 1999 2000 --------- --------- Cash flows from operating activities: Net income (loss)....................................... $ 1,804 $ 2,160 Adjustments to reconcile net income (loss) to net cash provided by (use in) operating activities: Depreciation and amortization......................... 13,465 8,891 Provision for inventory and accounts receivable....... (517) (151) Non-operating early debt extinguishments loss......... -- -- Foreign currency (gains) losses....................... (946) (399) (Gain) loss on sale of equipment...................... (98) (132) Change in assets and liabilities: Accounts receivable................................. 12,451 6,461 Inventories......................................... (3,283) 2,347 Prepaid expenses and other assets................... 1,204 (4,338) Advances (to) from affiliates....................... (4,224) -- Accounts payable.................................... (23,095) (16,989) Accrued expenses and other current liabilities...... 2,617 (8,652) Other long-term liabilities......................... 1,486 1,020 --------- --------- Net cash provided by (used in) operating activities....................................... 864 (9,782) --------- --------- Cash flows used in investing activities: Acquisition of property and equipment................... (4,343) (11,042) Proceeds from sale of equipment......................... 119 154 --------- --------- Net cash used in investing activities............. (4,224) (10,888) --------- --------- Cash flows provided by financing activities: Advances (to) from affiliates........................... 186 (350) Proceeds from short-term loans.......................... 693 13,500 Repayment of short-term loans........................... (4,653) (6,000) Repayments of long-term debt and capital leases ........ (5,043) -- Dividend paid........................................... (9,435) -- Proceeds from stock issuance............................ -- 599 Contributions to (withdrawals from) paid in capital..... 20,989 -- --------- --------- Net cash provided by (used in) financing activities....................................... 2,737 7,749 --------- --------- Effect on cash from changes in exchange rates........... (1,379) 342 Net increases (decrease) in cash........................ (2,002) (12,579) Cash and cash equivalents at beginning of period........ 68,767 32,117 --------- --------- Cash and cash equivalents at end of period.............. $ 66,865 $ 19,538 ========= =========
The accompanying notes form an integral part of these condensed consolidated financial statements. F-39 ChipPAC, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the Quarter Ended April 2, 2000 (Unaudited) Note 1: Interim Statements In the opinion of management of ChipPAC, Inc. ("ChipPAC"), the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the financial information included therein. ChipPAC believes that the disclosures are adequate to make the information not misleading. However, it is suggested that this financial data be read in conjunction with the audited consolidated financial statements and related notes thereto for the year ended December 31, 1999 included in ChipPAC's 1999 Registration on Form S-4 (Registration No. 333-91641) as declared effective by the Securities and Exchange Commission on April 28, 2000. The results of operations for interim periods are not necessarily indicative of the results of operations that may be expected for any other period or the fiscal year which ends on December 31, 2000. Basis of Presentation Prior to August 5, 1999 the Company represented the combination of three business units of Hyundai Electronics Industries Co., Ltd. ("HEI") which operated collectively as HEI's worldwide packaging and testing operations. These three business units historically consisted of the Assembly and Test Division of HEI, Hyundai ELectronics Co. (Shanghai) Ltd. ("HECS"), and the Assembly and Test Division of Hyundai Electronics America ("HEA"), a majority owned subsidiary of HEI. Sales and marketing services were primarily performed by the Assembly and Test Division of HEA, and packaging and testing services were performed by HECS and the Assembly and Test Division of HEI. On August 5, 1999, affiliates of Bain Capital, Inc. and SXI Group LLC, a portfolio concern of Citicorp Venture Capital Ltd., which we refer to collectively as the "Equity Investors," and management acquired a controlling interest in the Company from Hyundai Electronics and Hyundai Electronics America, the prior stockholders, through a series of transactions, including a merger into ChipPAC, Inc. of a special purpose corporation organized by the Equity Investors. The merger was structured to be accounted for as a recapitalization. Specifically: . the Equity Investors and other parties, including members of our management, invested $92.0 million to acquire common stock of ChipPAC, Inc. which represented approximately 90.2% of its common stock outstanding immediately following the recapitalization; . the prior stockholders of ChipPAC, Inc. retained a portion of their common stock in ChipPAC, Inc. equal to $10.0 million, or approximately 9.8% of ChipPAC, Inc.'s common stock outstanding immediately following the recapitalization; and . the prior stockholders received as consideration for the remainder of their common stock (i) an aggregate of $384.0 million in cash and (ii) mandatorily redeemable convertible preferred stock payable for up to an aggregate of $70.0 million. Net payment to Hyundai of $384 million, included capital redemption of $311 million and debt retirement of $133 million, offset by Hyundai investment of $40 million in mandatorily redeemable preferred stock, and a capital contribution of $20 million. The financial statements for the period subsequent to the recapitalization and as at December 31, 1999 and March 31, 2000 have been prepared on a consolidated basis. The consolidated financial statements include the accounts of ChipPAC, Inc. and its majority controlled and owned subsidiaries. All significant intercompany balances have been eliminated on consolidation. F-40 ChipPAC, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) For the comparative disclosures for the three months ended March 31, 1999, the Company represents the combination of four corporations then owned by Hyundai Electronics Industries Co., Ltd (HEI) and Hyundai Electronics America (HEA). These four corporations are ChipPAC, Inc. (CPI), ChipPAC Korea Co., Ltd (CPK), ChipPAC Assembly and Test Co. Ltd. (CATS) and Hyundai Electronics Co. (Shanghai) Ltd., (HECS). Accordingly the financial statements for the comparative period is prepared on a combined basis. These comparative financial statements are prepared on a combined basis include the accounts of CPI, CPK, HECS and CATS, or the divisional accounts of the predecessor Assembly and Test Divisions for periods prior to the business transfers referred to above, and reflect the combined financial position, results of operations, and cash flows of these entities. All inter-company or inter-divisional transactions have been eliminated in the combination. Foreign Currency Translation Upon completion of the recapitalization on August 5, 1999, management decided to change the functional currency of its foreign operations to the US Dollar effective October 1999. Previously, the Company's functional currencies of its foreign operations were the respective local currencies and the net of the effect of the translation of the accounts of the foreign operation was included in equity as a cumulative translation adjustment. Note 2: Property, Plant and Equipment Effective January 1, 2000 we re-evaluated the estimated useful lives of our property, plant and equipment. Based on an independent appraisal to evaluate the useful lives of such equipment and our internal assessment, we changed the estimated useful lives of assembly and test product equipment, and furniture and fixtures from five years to eight years. Previously, such equipment was depreciated on a straight line basis over and an estimated useful life of five 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 such assets were originally placed in service. This change resulted in depreciation expense being $6.7 million lower than would have been recorded using five year lives. Note 3: Inventories
March 31, December 31, 2000 1999 --------- ------------ (In thousands) Raw materials......................................... $10,422 $12,274 Work-in-process....................................... 3,068 3,003 Finished goods........................................ 1,451 2,220 ------- ------- Total............................................... $14,941 $17,497 ======= =======
Note 4: Comprehensive Income In fiscal 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income". Comprehensive income refers to the change in the equity of a company during a period from transactions except those resulting from investments by owners and distributions to owners. ChipPAC adopted this statement as of the first quarter of 1998. Accumulated other comprehensive income at December 31, 1999 and March 31, 2000 comprised cumulative gains and losses prior to the change of functional currency to the U.S. dollar for the overseas operations on October 1, 1999. F-41 ChipPAC, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Note 5: Segment Reporting The Company is engaged in one industry segment, the packaging and testing of integrated circuits. Note 6: Recent Accounting Pronouncements In December 1999, the staff of the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 ("SAB 101") "Views on Selected Revenue Recognition Issues" which provides the staff's views in applying generally accepted accounting principles to selected revenue recognition issues. Adoption of SAB 101 is required by the second quarter of fiscal 2000. Management is currently evaluating SAB 101 and its effects on company revenue recognition policies and practices. At this time, management believes that there is no significant effect on the revenue recognition policies currently in place. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes a new model for accounting for derivatives and hedging activities and supercedes and amends a number of existing accounting standards. SFAS 133 requires that all derivatives be recognized in the balance sheet at their fair market value. In addition, corresponding derivative gains and losses should be either reported in the statement of operations and stockholders equity, depending on the type of hedging relationship that exists with respect to such derivatives. Adopting the provisions of SFAS 133, which will be effective in fiscal year 2001, are not expected to have a material effect on ChipPAC's consolidated financial statements. In April 2000, the Financial Accounting Standards Board issued FASB interpretation of No. 44, Accounting for Certain Transactions Involving Stock Compensation, an interpretation of APB Opinion No. 25 ("FIN44"). Among other issues, FIN 44 clarifies (a) the definition of employees for purposes of applying Opinion No. 25, (b) the criteria for determining whether a plan qualifies as a non-compensatory plan, (c) the accounting consequence of various modifications to the terms of a previously fixed stock option or award, and (d) the accounting for an exchange of stock compensation awards in a business combination. FIN 44 is effective July 1, 2000, but certain conclusions in the interpretation cover specific events that occur after either December 15, 1998 or January 12, 2000. To the extent that this interpretation covers events occurring during the period after December 15, 1998, or January 12, 2000, but before the effective date of July 1, 2000, the effect of applying this interpretation are recognized on a prospective basis from July 1, 2000. The Company is currently reviewing stock grants to determine the impact, if any, that may arise from implementation of FIN 44, although management does not expect the impact, if any, to be material to the financial statements. Note 7: Supplemental Financial Statements of Guarantor/Non-Guarantor Entities In connection with the recapitalization, ChipPAC International Company Limited (CP Int'l) issued senior subordinated debt securities which are fully and unconditionally guaranteed, jointly and severally, on a senior subordinated basis, by the parent company, ChipPAC, Inc. (CPI) and by ChipPAC (Barbados) Ltd., ChipPAC Limited, ChipPAC Korea Company Limited (CPK), ChipPAC Luxembourg S.a.R.L., and ChipPAC Liquidity Management Hungary Limited Liability Company (the "Guarantor Subsidiaries"). All guarantor subsidiaries are wholly-owned direct or indirect subsidiaries of ChipPAC, Inc. Hyundai Electronics Co. (Shanghai) Ltd. (HECS) and ChipPAC Assembly & Test Co. Ltd. (CATS) (collectively the Chinese entities), will not provide guarantees (the "Non- Guarantor Subsidiaries"). The following is consolidated and combining financial information for CP Int'l CPI, and CPK, HECS, CATS, ChipPAC (Barbados) Ltd., ChipPAC Limited, ChipPAC Luxembourg S.a.R.L., and ChipPAC Liquidity Management Hungary Limited Liability Company, segregated between the Guarantor and Non- Guarantor Subsidiaries. ChipPAC (Barbados) Ltd., ChipPAC Limited, ChipPAC Luxembourg S.a.R.L. and ChipPAC Liquidity Management Hungary Limited Liability Company F-42 ChipPAC, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) were formed by Hyundai in 1999 and have no historical operating results or balances for the four years ended December 31, 1998. As a result, it is not possible to include these entities in the supplemental financial statements for these periods. Separate financial statements and other disclosures concerning the Guarantor Subsidiaries are not presented herein because management has determined that they are not material to investors. Financial information for ChipPAC (Barbados) Ltd., ChipPAC Limited, ChipPAC Luxembourg S.a.R.L. and ChipPAC Liquidity Management has not been presented as these entities have no historical financial results and future transactions will primarily consist of inter-company transactions. The following HECS financial statements in the condensed combining financial statements include the accounts of CATS. F-43 ChipPAC SUPPLEMENTAL COMBINING CONDENSED BALANCE SHEETS March 31, 1999 (in thousands) (Unaudited)
Non- Guarantors Guarantor ------------------ --------- CPI CPK HECS Eliminations Combined -------- -------- --------- ------------ -------- ASSETS ------ Current assets: Cash and cash equivalents............. $ 11,824 $ 37,588 $ 17,353 $ -- $ 66,765 Receivable from shareholder............. -- 4,114 -- -- 4,114 Intercompany accounts receivable.............. 11,162 95,434 1,947 (108,543) -- Accounts receivable from customers............... 24,563 1,566 1 -- 26,130 Inventories.............. 20 13,293 174 -- 13,487 Deferred taxes........... 420 527 -- -- 947 Prepaid expenses & other current assets.......... 108 2,628 527 -- 3,263 -------- -------- -------- --------- -------- Total current assets... 48,097 155,150 20,002 (108,543) 114,706 Property, plant and equipment, net............ 6,180 131,051 79,358 -- 216,589 Other assets............... 4,813 3,107 -- (4,800) 3,120 -------- -------- -------- --------- -------- Total assets........... $ 59,090 $289,308 $ 99,360 $(113,343) $334,415 ======== ======== ======== ========= ======== LIABILITIES AND EQUITY ---------------------- Current liabilities: Intercompany accounts payable................. $ 80,010 $ 1,947 $ 26,586 $(108,543) $ -- Accounts payable......... 2,201 36,165 503 -- 38,869 Accrued expenses and other liabilities....... 906 5,935 3,177 -- 10,018 Short-term debt.......... -- 2,117 12,700 -- 14,817 Long-term debt, current portion................. -- 21,164 10,781 -- 31,945 HEI long-term debt....... -- 3,053 -- -- 3,053 Payables to affiliates... 443 -- 7,247 -- 7,690 -------- -------- -------- --------- -------- Total current liabilities........... 83,560 70,381 60,994 (108,543) 106,392 Long-term debt, less current portion........... -- 60,900 15,390 -- 76,290 HEI long-term debt, less current portion........... -- 17,384 -- -- 17,384 Other long-term liabilities............... -- 1,705 -- -- 1,705 -------- -------- -------- --------- -------- Total liabilities...... 83,560 150,370 76,384 (108,543) 201,771 -------- -------- -------- --------- -------- Shareholders' and divisional equity Preferred stock and paid in capital.............. 16,674 111,110 78,096 (4,800) 201,080 Shareholder receivable- HEA..................... (37,440) -- -- -- (37,440) Accumulated earnings (deficit)............... (3,704) 21,341 (55,585) -- (37,948) Accumulated other comprehensive income (loss).................. -- 6,487 465 -- 6,952 -------- -------- -------- --------- -------- Shareholders' and divisional equity (deficit)............. (24,470) 138,938 22,976 (4,800) 132,644 -------- -------- -------- --------- -------- Total liabilities and equity................ $ 59,090 $289,308 $ 99,360 $(113,343) $334,415 ======== ======== ======== ========= ========
The accompanying notes are an integral part of these financial statements. F-44 ChipPAC SUPPLEMENTAL COMBINING CONDENSED STATEMENTS OF OPERATIONS Three Months Ended March 31, 1999 (in thousands) (Unaudited)
Guarantors Non-Guarantor ---------------- ------------- CPI CPK HECS Eliminations Combined ------- ------- ------------- ------------ -------- Revenue: Intercompany revenue... $ -- $77,416 $ 1,723 $(79,139) $ -- Customer revenue....... 81,828 3,720 -- -- 85,548 ------- ------- ------- -------- ------- Revenue.............. 81,828 81,136 1,723 (79,139) 85,548 Cost of revenue.......... 77,613 68,203 5,454 (79,139) 72,131 ------- ------- ------- -------- ------- Gross profit............. 4,215 12,933 (3,731) -- 13,417 Operating expenses: Selling, general & administrative........ 2,838 1,673 -- -- 4,511 Research & development........... 1,475 1,528 -- -- 3,003 ------- ------- ------- -------- ------- Total operating expenses............ 4,313 3,201 -- -- 7,514 ------- ------- ------- -------- ------- Operating income......... (98) 9,732 (3,731) -- 5,903 Non-operating income (expense) Interest income........ 127 693 130 -- 950 Interest expense....... -- (2,196) (811) -- (3,007) Foreign currency gains (losses).............. -- 965 (19) -- 946 Other income (expenses), net....... 2 114 11 -- 127 ------- ------- ------- -------- ------- Non-operating income (expenses).......... 129 (424) (689) -- (984) ------- ------- ------- -------- ------- Income (loss) before income taxes............ 31 9,308 (4,420) -- 4,919 Provision for income taxes................... -- 3,115 -- -- 3,115 ------- ------- ------- -------- ------- Net income (loss)...... $ 31 $ 6,193 $(4,420) $ -- $ 1,804 ======= ======= ======= ======== =======
The accompanying notes are an integral part of these financial statements. F-45 ChipPAC SUPPLEMENTAL COMBINING CONDENSED STATEMENTS OF CASH FLOWS Three Months Ended March 31, 1999 (in thousands) (Unaudited)
Non- Guarantors Guarantor ----------------- --------- CPI CPK HECS Eliminations Combined ------- -------- --------- ------------ -------- Cash flows from operating activities: Net income (loss)........ $ 31 $ 6,193 $ (4,420) $ -- $ 1,804 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization.......... 273 10,808 2,384 -- 13,465 Provision for inventory and receivables....... (33) (484) -- -- (517) Foreign currency gains................. -- (946) -- -- (946) (Gain) loss on intercompany sales of equipment............. -- -- -- -- -- Gain on external sales of equipment.......... -- (98) -- -- (98) Changes in assets and liabilities: Intercompany accounts receivable............ (317) 11,399 -- (11,082) -- Accounts receivable.... 10,211 2,240 -- -- 12,451 Inventories............ (20) (3,304) 41 -- (3,283) Prepaid expenses and other assets.......... (4,840) 1,426 (182) 4,800 1,204 Advances (to) from affiliates............ -- (4,224) -- -- (4,224) Intercompany accounts payable............... (3,546) (1) (7,535) 11,082 -- Accounts payable....... (83) (21,768) (1,244) -- (23,095) Accrued expenses & other liabilities..... (220) 2,672 165 -- 2,617 Other long-term liabilities........... -- 1,486 -- -- 1,486 ------- -------- -------- -------- -------- Net cash provided by (used in) operating activities.......... 1,456 5,399 (10,791) 4,800 864 ------- -------- -------- -------- -------- Cash flows used in investing activities: Acquisition of property and equipment........... (646) (2,868) (829) -- (4,343) Proceeds, intercompany equipment sales......... -- (37) 37 -- -- Proceeds, external equipment sales......... -- 119 -- -- 119 ------- -------- -------- -------- -------- Net cash used in investing activities.......... (646) (2,786) (792) -- (4,224) ------- -------- -------- -------- -------- Cash flows from financing activities: Advances to HEA.......... 187 4,429 (4,430) -- 186 Proceeds from short-term loans................... -- 693 -- -- 693 Repayment of short-term loans................... -- (1,653) (3,000) -- (4,653) Proceeds from term loans................... -- -- -- -- -- Repayment, term loans and capital leases...... -- (2,987) (2,056) -- (5,043) Dividend paid............ -- (9,435) -- -- (9,435) Contributions (withdrawals) of capital................. -- 987 24,802 (4,800) 20,989 ------- -------- -------- -------- -------- Net cash provided by (used in) financing activities.......... 187 (7,966) 15,316 (4,800) 2,737 ------- -------- -------- -------- -------- Effect from changes in exchange rates........... -- (1,351) (28) -- (1,379) ------- -------- -------- -------- -------- Net increase (decrease) in cash..................... 997 (6,704) 3,705 -- (2,002) Cash and equivalents at beginning of period...... 10,827 44,292 13,648 -- 68,767 ------- -------- -------- -------- -------- Cash and equivalents at end of period............ $11,824 $ 37,588 $ 17,353 $ -- $ 66,765 ======= ======== ======== ======== ========
The accompanying notes are an integral part of these financial statements. F-46 ChipPAC, Inc. SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEETS March 31, 2000 (In thousands)
Parent Non- Guarantor Issuer Guarantor --------- -------- Other --------- CPI CP Int'l Guarantors CPS Eliminations Consolidated --------- -------- ---------- --------- ------------ ------------ ASSETS ------ Current assets: Cash and cash equivalents.......... $ 2,530 $ 1,423 $ 11,905 $ 3,680 $ -- $ 19,538 Intercompany accounts receivable........... 8,058 7,109 33,782 8,136 (57,085) -- Accounts receivable from customers....... 355 -- 35,157 23 -- 35,535 Inventories........... -- -- 12,615 2,326 -- 14,941 Deferred taxes........ -- -- 716 -- -- 716 Prepaid expenses & other current assets............... 122 -- 7,493 184 -- 7,799 -------- -------- -------- ------- --------- -------- Total current assets.............. 11,065 8,532 101,668 14,349 (57,085) 78,529 Property, plant and equipment, net........ 6,904 -- 143,868 78,658 -- 229,430 Intercompany loans receivable............ -- 271,000 -- (34,000) (237,000) -- Investment in subsidiaries.......... 79,216 31,424 185,790 -- (296,430) -- Other assets........... 135 13,663 107,197 -- (100,000) 20,995 -------- -------- -------- ------- --------- -------- Total assets......... $ 97,320 $324,619 $538,523 $59,007 $(690,515) $328,954 ======== ======== ======== ======= ========= ======== LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND EQUITY ------------------------ Current liabilities: Short term bank borrowings............ $ -- $ 7,500 $ -- $ -- $ -- $ 7,500 Intercompany accounts payable.............. 4,201 -- 26,374 26,501 (57,076) -- Accounts payable...... 866 40 31,387 3,430 -- 35,723 Accrued expenses and other liabilities.... 3,909 3,348 8,877 4,521 (1,928) 18,727 Deferred taxes........ -- -- -- -- -- -- Short-term debt....... -- -- -- -- -- -- Current portion of long-term debt....... -- 7,300 -- -- -- 7,300 -------- -------- -------- ------- --------- -------- Total current liabilities......... 8,976 18,188 66,638 34,452 (59,004) 69,250 Long-term debt, less current portion...... -- 292,700 -- -- -- 292,700 Intercompany loans payable.............. -- -- 237,000 -- (237,000) -- Other long-term liabilities.......... 240 -- 4,272 -- -- 4,512 -------- -------- -------- ------- --------- -------- Total liabilities.... 9,216 311,888 307,910 34,452 (296,004) 366,462 Mandatorily redeemable preferred stock........ 85,685 -- -- -- -- 85,685 Shareholders' and divisional equity: Common stock.......... 1,078 -- -- -- -- 1,078 Common stock of subsidiaries......... 210,790 14,544 171,315 -- (396,649) -- Warrants-common stock A.................... 1,250 -- -- -- -- 1,250 Additional paid in capital.............. 86,336 -- -- -- -- 86,336 Receivable from shareholder.......... (1,478) -- -- -- -- (1,478) Divisional equity, net of capital distributions........ (277,818) -- 29,623 88,282 (7,801) (167,714) Accumulated earnings (deficit)............ (17,739) (813) 20,972 (64,193) 9,939 (51,834) Accumulated other comprehensive income (loss)............... -- -- 8,703 466 -- 9,169 -------- -------- -------- ------- --------- -------- Shareholders' and divisional equity (deficit)............ 2,419 13,731 230,613 24,555 (394,511) (123,193) -------- -------- -------- ------- --------- -------- Total liabilities and equity.............. $ 97,320 $324,619 $538,523 $59,007 $(690,515) $328,954 ======== ======== ======== ======= ========= ========
The accompanying notes are an integral part of these financial statements. F-47 ChipPAC, Inc. SUPPLEMENTAL COMBINING CONDENSED STATEMENTS OF OPERATIONS Quarter Ended March 31, 2000 (In thousands)
Parent Non- Guarantor Issuer Guarantor --------- -------- Other --------- CPI CP Int'l Guarantors CPS Eliminations Consolidated --------- -------- ---------- --------- ------------ ------------ Revenue: Intercompany revenue.. $ 7,263 -- $ 1 $8,306 $(15,570) -- Customer revenue...... 376 -- 97,090 3 -- $97,469 -------- ------- -------- ------ -------- ------- Revenue............... 7,639 -- 97,091 8,309 (15,570) 97,469 Cost of revenue......... 123 -- 77,663 7,565 (8,307) 77,044 -------- ------- -------- ------ -------- ------- Gross profit............ 7,516 -- 19,428 744 (7,263) 20,425 Operating expenses: Selling, general & administrative....... 5,390 $ 8 8,964 -- (7,263) 7,099 Research & development.......... 1,242 -- 1,389 -- -- 2,631 -------- ------- -------- ------ -------- ------- Total operating expenses............. 6,632 8 10,353 -- (7,263) 9,730 -------- ------- -------- ------ -------- ------- Operating income........ 884 (8) 9,075 744 -- 10,695 Non-operating Income (Expense): Interest income....... (10,373) 7,762 8,079 20 (5,250) 238 Interest expense...... 10,383 (8,757) (14,780) (860) 5,250 (8,764) Foreign currency gains (losses)............. -- -- 406 (7) -- 399 Income (loss) from investment in subsidiaries......... (461) 892 4,224 -- (4,655) -- Other income (expenses), net...... (2) -- 114 22 -- 134 -------- ------- -------- ------ -------- ------- Non-operating income (expenses)........... (453) (103) (1,957) (825) (4,655) (7,993) -------- ------- -------- ------ -------- ------- Income (loss) before income taxes........... 431 (111) 7,118 (81) (4,655) 2,702 Provision for (benefit from) income taxes..... (194) 81 2,190 -- (1,923) 542 -------- ------- -------- ------ -------- ------- Net Income (loss)....... $ 237 $ (192) $ 4,928 $ (81) $ (2,732) $ 2,160 ======== ======= ======== ====== ======== =======
The accompanying notes are an integral part of these financial statements. F-48 ChipPAC, Inc. SUPPLEMENTAL COMBINING CONDENSED STATEMENTS OF CASH FLOWS Quarter Ended March 31, 2000 (In thousands)
Parent Non- Guarantor Issuer Guarantor --------- -------- Other --------- CPI CP Int'l Guarantors CPS Eliminations Consolidated --------- -------- ---------- --------- ------------ ------------ Cash flows from operating activities: Net Income............. $ 237 $ (192) $ 4,928 $ (81) $(2,732) $ 2,160 Adjustments to reconcile net income (loss) to net cash provided by operating activities Depreciation and amortization......... 450 376 6,374 1,691 -- 8,891 Provision for inventory and receivables.......... -- -- (151) -- -- (151) Foreign currency (gains) losses....... -- -- (399) -- -- (399) (Gain) loss on external sales of equipment............ -- -- (132) -- -- (132) Equity income from investment in subsidiaries......... 461 (892) (4,224) -- 4,655 -- Changes in assets and liabilities:.......... -- -- -- -- -- -- Intercompany accounts receivable........... 2,091 (3,056) 7,863 663 (7,561) -- Accounts receivable... (7) -- 6,470 (2) -- 6,461 Inventories........... -- -- 4,507 (2,160) -- 2,347 Prepaid expenses and other assets......... (376) 58 (4,108) 88 -- (4,338) Advances (to) from affiliates........... -- -- -- -- -- -- Intercompany accounts payable.............. 858 -- (3,331) (5,088) 7,561 -- Accounts payable...... (382) -- (18,388) 1,781 -- (16,989) Accrued expenses & other liabilities.... (559) (5,697) (1,289) 816 (1,923) (8,652) Other long-term liabilities.......... -- -- 1,020 -- -- 1,020 ------- ------- ------- ------ ------- ------- Net cash provided by operating activities........... 2,773 (9,403) (860) (2,292) -- (9,782) ------- ------- ------- ------ ------- ------- Cash flows used in investing activities: Acquisition of property and equipment............ (1,061) -- (7,383) (2,598) -- (11,042) Proceeds, external equipment sales...... -- -- (48) 202 -- 154 Investment in subsidiaries......... (438) -- (3,000) -- 3,438 -- ------- ------- ------- ------ ------- ------- Net cash used in investing activities........... (1,499) -- (10,431) (2,396) 3,438 (10,888) ------- ------- ------- ------ ------- ------- Cash flows provided by financing activities: Loans & advances with affiliates........... (350) -- -- -- -- (350) Proceeds from short- term loans........... -- 13,500 -- -- -- 13,500 Repayment of short- term loans........... -- (6,000) -- -- -- (6,000) Net proceeds from long-term loans...... -- (502) 502 -- -- -- Repayment, term loans and capital leases... -- -- -- -- -- -- Intercompany loan (advances) payments.. -- -- -- -- -- -- Capital redemption at recap................ -- -- -- -- -- -- Capital contributions at recap............. -- -- -- -- -- -- Intercompany capital contributions........ -- 354 84 -- (438) -- Payments made to extinguish debt early................ -- -- -- -- -- -- Dividend paid......... -- -- -- -- -- -- Net proceeds from common stock issuance............. 599 -- -- -- (599) -- Net proceeds from mandatorily redeemable preferred stock................ -- -- -- -- -- -- Net proceeds from sale of stock to management........... -- -- -- -- 599 599 Contributions (withdrawals) of capital.............. -- -- -- 3,000 (3,000) -- ------- ------- ------- ------ ------- ------- Net cash provided by financing activities........... 249 7,352 586 3,000 (3,438) 7,749 ------- ------- ------- ------ ------- ------- Effect from changes in exchange rates......... -- -- 337 5 -- 342 ------- ------- ------- ------ ------- ------- Net increase (decrease) in cash................ 1,523 (2,051) (10,368) (1,683) -- (12,579) Cash and equivalents at beginning of period.... 1,007 3,474 22,273 5,363 -- 32,117 ------- ------- ------- ------ ------- ------- Cash and equivalents at end of period.......... $ 2,530 $ 1,423 $11,905 $3,680 $ -- $19,538 ======= ======= ======= ====== ======= =======
The accompanying notes are an integral part of these financial statements. F-49 Independent Certified Public Accountants' Report Board of Directors Intersil Holding Corporation We have audited the accompanying balance sheets of Intersil Technology Sdn. Bhd. (the "Company"), which is wholly-owned by Intersil Holding Corporation ("Intersil"), as of July 2, 1999 and July 3, 1998 and the related statements of income and cash flows for each of the three fiscal years in the period ended July 2, 1999. These financial statements are the responsibility of Intersil's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. The accompanying consolidated financial statements were prepared on the basis of presentation as described in Note A. The results of operations are not necessarily indicative of the results of operations that would be recorded by the Company on a stand-alone basis. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company at July 2, 1999 and July 3, 1998 and the results of its operations and its cash flows for each of the three fiscal years in the period ended July 2, 1999, on the basis described in Note A, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP May 16, 2000 Jacksonville, Florida F-50 Intersil Technology Sdn. Bhd. BALANCE SHEET (In thousands)
July 3, July 2, 1998 1999 -------- -------- ASSETS ------ Current assets: Cash....................................................... $ 131 $ 802 Short-term investments..................................... 651 2,952 Inventories................................................ 5,886 6,528 Prepaid expenses and other current assets.................. 656 847 Due from parent............................................ 125,139 45,502 Deferred income taxes...................................... 674 -- -------- -------- Total current assets..................................... 133,137 56,631 Plant and equipment, net..................................... 116,795 118,619 Deferred income taxes........................................ 732 275 -------- -------- Total assets............................................. $250,664 $175,525 ======== ======== LIABILITIES AND STOCKHOLDER'S EQUITY ------------------------------------ Current liabilities: Trade accounts payable..................................... $ 7,691 $ 7,310 Accrued compensation....................................... 1,803 2,060 Other accrued items........................................ 3,611 765 Deferred income taxes...................................... -- 51 -------- -------- Total current liabilities................................ 13,105 10,186 Stockholder's Equity: Common stock............................................... 81,092 81,092 Additional paid-in capital................................. 5,923 5,923 Retained earnings.......................................... 150,544 78,324 -------- -------- 237,559 165,339 -------- -------- Total liabilities and stockholder's equity............... $250,664 $175,525 ======== ========
See notes to financial statements. F-51 Intersil Technology Sdn. Bhd. STATEMENT OF INCOME (In thousands)
Fiscal Year Ended -------------------------- June 27, July 3, July 2, 1997 1998 1999 ------- ------- -------- Revenue: Intercompany sales................................ $83,674 $80,376 $110,504 Costs and expenses: Cost of intercompany sales........................ 69,073 70,110 94,426 Interest income................................... (160) (139) (134) Other............................................. 95 57 69 ------- ------- -------- Income before income taxes.......................... 14,666 10,348 16,143 Pro forma income tax expense/(benefit).............. 3,060 (5,911) 1,182 ------- ------- -------- Net income.......................................... $11,606 $16,259 $ 14,961 ======= ======= ========
See notes to financial statements. F-52 Intersil Technology Sdn. Bhd. STATEMENT OF CASH FLOWS (In thousands)
June 27, July 3, July 2, 1997 1998 1999 -------- -------- -------- Operating Activities: Net income...................................... $ 11,606 $ 16,259 $ 14,961 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization................. 12,308 14,823 18,289 Deferred income taxes......................... 2,300 (5,950) 1,182 Changes in assets and liabilities Inventories................................. 6,757 353 (642) Prepaid expenses and other current assets... 18 102 (191) Due from parent............................. 16,077 16,758 79,636 Due from affiliates......................... 3,672 -- -- Trade payables and accrued liabilities...... 3,391 1,392 (2,969) -------- -------- -------- Net cash provided by operating activities............................... 56,129 43,737 110,266 Investing Activities: Purchases of short-term investments, net........ (27) (624) (2,301) Purchases of plant and equipment................ (37,016) (38,798) (20,113) -------- -------- -------- Net cash used in investing activities..... (37,043) (39,422) (22,414) Financing Activities: Dividends paid to parent........................ (17,036) -- (91,877) Net cash transfers and billings from (to) parent......................................... (1,583) (6,146) 4,696 -------- -------- -------- Net cash used in financing activities..... (18,619) (6,146) (87,181) Net increase (decrease) in cash................. 467 (1,831) 671 Cash at beginning of period..................... 1,495 1,962 131 -------- -------- -------- Cash at end of period........................... $ 1,962 $ 131 $ 802 ======== ======== ========
See notes to financial statements. F-53 Intersil Technology Sdn. Bhd. NOTES TO FINANCIAL STATEMENTS July 2, 1999 NOTE A--ORGANIZATION AND BASIS OF PRESENTATION Intersil Technology Sdn. Bhd. (the "Company"), a Malaysian corporation located in Kuala Lumpur, Malaysia, is a wholly-owned subsidiary of Intersil Corporation ("Intersil"), which is a wholly-owned subsidiary of Intersil Holding Corporation ("Intersil Holding"). The Company's principal activities include the assembly and testing of integrated circuits for Intersil. All revenue transactions are intercompany. Intersil Holding was formed on August 13, 1999 through a series of transactions, in which Intersil Holding acquired the Semiconductor Business of Harris Corporation ("Harris"), which included Harris Advanced Technology Sdn. Bhd., the predecessor of the Company. On May 5, 2000, Intersil Holding announced that it entered into a Letter of Intent to sell 100% of the issued and outstanding capital stock of the Company to ChipPAC, Inc. ("ChipPAC") and will enter into an outsourcing agreement with ChipPAC for its assembly and testing requirements. The Letter of Intent does not include finished goods inventory and all die and wafer inventory which will be retained by Intersil. Accordingly, the accompanying financial statements include the assets, liabilities and results of operations for the assembly and testing operations of the Company that are to be sold as part of the Letter of Intent. Interest expense of Intersil has not been allocated to the Company. NOTE B--SIGNIFICANT ACCOUNTING POLICIES Fiscal Year The 1997 fiscal year includes the 52 weeks ended June 27, 1997; fiscal year 1998 includes the 53 weeks ended July 3, 1998; and fiscal year 1999 includes the 52 weeks ended July 2, 1999. Short-Term Investments Short-term investments consist of certificates of deposit which are due in one year or less. Certificates of deposit are readily convertible to cash and are stated at cost. Inventories Inventories are carried at the lower of standard cost, which approximates actual cost, determined by the First-In-First-Out (FIFO) method, or market. Inventories represent raw materials and supplies (exclusive of die stock received from Intersil), labor and overhead held for or incurred in the course of performing contract manufacturing activities on behalf of Intersil. Plant and Equipment Plant and equipment are carried on the basis of cost. The estimated useful lives of buildings range between 8 and 45 years. The estimated useful lives of machinery and equipment range between 5 and 8 years. Leasehold improvements are amortized over the life of the lease. Depreciation of buildings and machinery and equipment is computed by straight-line and accelerated methods. Revenue Recognition All revenue transactions are with Intersil. The Company records revenue upon shipment to Intersil based upon cost plus a fixed mark-up, pursuant to an agreement with Intersil. Revenues and cost of intercompany sales exclude costs of die stock received from Intersil to be subject to the Company's processing activities. F-54 Intersil Technology Sdn. Bhd. NOTES TO FINANCIAL STATEMENTS--(Continued) Income Taxes Income taxes have been provided on a pro forma basis related to the operations of the Company presented as described in footnote A "Organization and Basis of Presentation". The Company follows the liability method of accounting for income taxes. Deferred income taxes are provided for temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities. Financial Instruments The carrying values of short-term investments and accounts payable approximate their fair values. Asset Impairment The Company accounts for long-lived asset impairment under Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets to Be Disposed Of. The Company recognizes impairment losses on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amounts. The impairment loss is measured by comparing the fair value of the asset to its carrying amount. Fair value is estimated based on discounted future cash flows. Long-lived assets to be disposed of are recorded at the lower of their carrying amount or estimated fair value less cost to sell. Foreign Currency Translation The functional currency of the Company is the U.S. dollar. Remeasurement gains and losses, resulting from the process of remeasuring non-U.S. dollar transactions and assets and liabilities into U.S. dollars, are included in cost of intercompany sales. Use of Estimates These statements have been prepared in conformity with generally accepted accounting principles and require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTE C--ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued FAS No. 133, Accounting for Derivative Instruments and Hedging Activities. The statement establishes standards for recording derivative financial instruments and the recognition of gains or losses resulting from changes in the fair values of those instruments. The Company plans to adopt the new standard no later than the first quarter of fiscal 2001. However, the Company has not determined the anticipated impact of FAS No. 133. NOTE D--INVENTORIES Inventories are summarized below:
July 3, July 2, 1998 1999 ------- ------- (In thousands) Work in process.............................................. $1,382 $3,384 Raw materials and supplies................................... 4,504 3,144 ------ ------ $5,886 $6,528 ====== ======
F-55 Intersil Technology Sdn. Bhd. NOTES TO FINANCIAL STATEMENTS--(Continued) At July 2, 1999, the Company was committed to purchase $12.9 million of inventory from suppliers. Management believes the cost of this inventory approximates current market value. NOTE E--PLANT AND EQUIPMENT Plant and equipment are summarized below:
July 3, July 2, 1998 1999 -------- -------- (In thousands) Leasehold improvements................................... $ 784 $ 784 Buildings................................................ 36,544 38,614 Machinery and equipment.................................. 242,552 239,361 -------- -------- 279,880 278,759 Less allowances for depreciation......................... 163,085 160,140 -------- -------- $116,795 $118,619 ======== ========
NOTE F--STOCKHOLDER'S EQUITY Changes in the stockholder's equity are as follows:
Additional Common Paid-in Retained Stock Capital Earnings ------- ---------- -------- (In thousands) Balance at July 1, 1996... $81,092 $5,923 $147,444 Net income.............. -- -- 11,606 Dividends paid to parent................. -- -- (17,036) Net cash transfers and billings to Intersil... -- -- (1,583) ------- ------ -------- Balance at June 27, 1997.. 81,092 5,923 140,431 Net income.............. -- -- 16,259 Dividends paid to parent................. -- -- -- Net cash transfers and billings to Intersil... -- -- (6,146) ------- ------ -------- Balance at July 3, 1998... 81,092 5,923 150,544 Net income.............. -- -- 14,961 Dividends paid to parent................. -- -- (91,877) Net cash transfers and billings to Intersil... -- -- 4,696 ------- ------ -------- Balance at July 2, 1999... $81,092 $5,923 $ 78,324 ======= ====== ========
NOTE G--INCOME TAXES (PRO FORMA) The Company incurs and pays tax exclusively in Malaysia. Pro forma income tax expense/(benefit) is summarized below:
June 27, July 3, July 2, 1997 1998 1999 -------- ------- ------- (In thousands) Current............................................ $ 760 $ 39 $ -- Deferred........................................... 2,300 (5,950) 1,182 ------ ------- ------ $3,060 $(5,911) $1,182 ====== ======= ======
F-56 Intersil Technology Sdn. Bhd. NOTES TO FINANCIAL STATEMENTS--(Continued) In the year 2000, the Malaysian taxing authority will convert its income tax system to a self-assessment system. The new self-assessment system will require Malaysian corporate taxpayers to begin making estimated tax payments in the year 2000 based on year 2000 estimated taxable income. Currently, Malaysian corporate taxpayers submit tax payments following the year of assessment. In 1999, the Company made Malaysian taxing payments based on 1998's taxable income. As a result of the change in the Malaysian taxing system, the Company will not be required to make tax payments on its 1999 Malaysian taxable income and, therefore, has not provided a current tax provision for Malaysian taxes in 1999, which would have amounted to approximately $.9 million. The components of deferred income tax assets (liabilities) are as follows:
July 3, 1998 July 2, 1999 ------------------- ------------------- Current Non-Current Current Non-Current ------- ----------- ------- ----------- (In thousands) Depreciation....................... $-- $(6,373) $-- $(8,881) Reinvestment allowance carryforward...................... -- 7,105 -- 9,156 All other--net..................... 674 -- (51) -- ---- ------- ---- ------- $674 $ 732 $(51) $ 275 ==== ======= ==== =======
Income taxes paid were $8.3 million in 1997, $.1 million in 1998, and $0 in 1999. NOTE H--LEASE COMMITTMENTS The Company leases land for its assembly and test facilities under leases that expire from 2072 to 2081. Total rental expense for the leased land amounted to $.05 million in 1997, $.03 million in 1998 and $.03 million in 1999. Future minimum rental commitments under the land leases amounted to approximately $2.95 million at July 2, 1999. The commitments for the years following 1999 are: 2000--$.03 million, 2001--$.03 million, 2002--$.03 million, 2003--$.03 million, 2004--$.03 million and $2.80 million thereafter. F-57 Intersil Technology Sdn. Bhd. CONDENSED BALANCE SHEETS (In thousands)
Predecessor Successor July 2, March 31, 1999 2000 ----------- ----------- (Unaudited) ASSETS ------ Current assets: Cash, cash equivalents and restricted cash............ $ 802 $ 2,082 Short-term investments................................ 2,952 -- Inventories........................................... 6,528 5,612 Prepaids and other current assets..................... 847 373 Due from parent....................................... 45,502 -- -------- -------- Total current assets................................ 56,631 8,067 Property and equipment, net............................. 118,619 83,983 Deferred income taxes................................... 275 -- -------- -------- Total assets........................................ $175,525 $ 92,050 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Trade accounts payable................................ $ 7,310 $ 7,369 Accrued compensation.................................. 2,060 1,932 Other accrued items................................... 765 994 Due to parent......................................... -- 14,934 Deferred income taxes................................. 51 -- -------- -------- Total current liabilities........................... 10,186 25,229 Deferred income taxes................................... -- 4,622 -------- -------- Total liabilities..................................... 10,186 29,851 Stockholders' equity: Common stock.......................................... 81,092 81,092 Additional paid in capital............................ 5,923 5,923 Retained earnings..................................... 78,324 (24,816) -------- -------- Total stockholders' equity ........................... 165,339 62,199 -------- -------- Total liabilities and stockholders' equity ......... $175,525 $ 92,050 ======== ========
See accompanying notes to Intersil's condensed financial statements. F-58 Intersil Technology Sdn. Bhd. CONDENSED STATEMENTS OF INCOME (In thousands) (Unaudited)
Nine Months Ended --------------------- Successor Predecessor Combined April 2, March 31, 1999 2000 ----------- --------- Revenues Intercompany sales...................................... $77,837 $68,473 Costs and expenses Cost of intercompany sales.............................. 66,712 58,566 Interest income........................................... (106) (49) Other..................................................... 55 40 ------- ------- Income before income taxes................................ 11,176 9,916 Pro forma income tax expense/(benefit).................... (1,180) 6,528 ------- ------- Net income ............................................... $12,356 $ 3,388 ======= =======
See accompanying notes to Intersil's condensed financial statements. F-59 Intersil Technology Sdn. Bhd. CONDENSED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Nine Months Ended --------------------- Successor Predecessor Combined April 2, March 31, 1999 2000 ----------- --------- Operating Activities: Net income ............................................. $12,356 $ 3,388 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization......................... 13,646 11,771 Deferred income taxes................................. (1,180) 4,846 Changes in assets and liabilities: Inventories......................................... (3,047) 916 Prepaid expenses and other assets................... (496) 475 Due from parent..................................... 8,787 60,437 Trade payables and accrued liabilities ............. (4,882) 159 ------- ------- Net cash provided by operating activities......... 25,184 81,992 Investing Activities: Sale of short-term investments, net..................... 651 2,952 Purchases of plant and equipment........................ (14,836) (3,896) ------- ------- Net cash used for investing activities............ (14,185) (944) Financing Activities: Dividends paid to parent................................ -- (85,411) Net cash transfer and billings from (to) parent......... (8,446) 5,643 ------- ------- Net cash used for financing activities............ (8,446) (79,768) Net increase in cash and cash equivalents............... 2,553 1,280 Cash and cash equivalents at beginning of period........ 131 802 ------- ------- Cash and cash equivalents at end of period.............. $ 2,684 $ 2,082 ======= =======
See accompanying notes to Intersil's condensed financial statements. F-60 Intersil Technology Sdn. Bhd. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the Quarter Ended March 31, 2000 (Unaudited) Note A--Organization and Basis of Presentation Intersil Technology Sdn. Bhd. (the "Company or "Successor"), a Malaysian corporation located in Kuala Lumpur, Malaysia, is a wholly-owned subsidiary of Intersil Corporation ("Intersil"), which is a wholly-owned subsidiary of Intersil Holding Corporation ("Intersil Holding"). The Company's principal activities include the assembly and testing of integrated circuits for Intersil. All revenue transactions are intercompany. Intersil Holding was formed on August 13, 1999 through a series of transactions, in which Intersil Holding acquired the Semiconductor Business of Harris Corporation ("Harris"), which included Harris Advanced Technology Sdn. Bhd. (Predecessor), the predecessor of the Company. The unaudited condensed consolidated balance sheet as of July 2, 1999 and the unaudited condensed consolidated statements of operations and cash flows for the nine months ended March 31, 1999, include the accounts of the Predecessor company. The unaudited combined condensed consolidated statements of operations and cash flows for the nine months ended March 31, 1999, include the accounts of the Predecessor company from July 3, 1999 to August 13, 1999. On May 5, 2000, Intersil Holding announced that it entered into a Letter of Intent to sell 100% of the issued and outstanding capital stock of the Company to ChipPAC Inc. ("ChipPAC") and will enter into an outsourcing agreement with ChipPAC for its assembly and testing requirements. The Letter of Intent does not include finished goods inventory and all die and wafer inventory, which will be retained by Intersil. Accordingly, the accompanying unaudited condensed financial statements include the assets, liabilities and results of operations for the assembly and testing operations of the Company that are to be sold as part of the Letter of Intent. Interest expense of Intersil has not been allocated to the Company. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, all of which are of a normal recurring nature, necessary for a fair presentation of the results for these interim periods and are not necessarily indicative of full year results. This financial information should be read in conjunction with the audited financial statements and notes thereto for the year ended July 2, 1999. Note B--Inventories
Successor Predecessor Combined July 2, March 31, 1999 2000 ----------- --------- (In thousands) Raw materials.......................................... $3,144 $2,055 Work-in-process........................................ 3,384 3,557 ------ ------ Total................................................ $6,528 $5,612 ====== ======
F-61 Intersil Technology Sdn. Bhd. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Note C--Recent Accounting Pronouncements In December 1999, the staff of the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 ("SAB 101") "Views on Selected Revenue Recognition Issues" which provides the staff's views in applying generally accepted accounting principles to selected revenue recognition issues. Adoption of SAB 101 is required by the second quarter of fiscal 2000. Management is currently evaluating SAB 101 and its effects on company revenue recognition policies and practices. At this time, management believes that there is no significant effect on the revenue recognition policies currently in place. In June 1998, the Financial Accounting Standards Board issued FAS No. 133, Accounting for Derivative Instruments and Hedging Activities. The statement establishes standards for recording derivative financial instruments and the recognition of gains or losses resulting from changes in the fair values of those instruments. The Company plans to adopt the new standard no later than the first quarter of fiscal 2001. However, the Company has not determined the anticipated impact of FAS No. 133. F-62 GLOSSARY Array........................ A group of items such as elements, leads, bonding pads, and circuits arranged in rows and columns. ASIC......................... Application Specific Integrated Circuit. A custom-designed integrated circuit that performs specific functions which would otherwise require a number of standardized integrated circuits to perform. The use of an ASIC in place of a conventional integrated circuit reduces product size and cost and also improves reliability. Back-End Processing.......... The packaging and testing portion of the semiconductor manufacturing process. BGA.......................... Ball grid array. A semiconductor package consisting of an encapsulated die mounted on top of a substrate. The bottom of the package has a matrix of solder balls; this matrix is attached to a printed circuit board by solder reflow. Its advantages over leaded packages include smaller size, greater assembly yield and better electrical performance. See "Business--Our Services." Bonding...................... The process of attaching the chip, or die, to a package substrate is called die bonding, or die attach. The next step is to attach the bonding pads of the die to a lead frame, using wire bonding or tape automated bonding techniques. Bonding Wire................. Fine wires, usually aluminum or gold, connecting the metal bonding pads on an integrated circuit to the internal terminations of the leads of the package. Burn-In...................... Pretest operation of semiconductor devices, frequently at high temperatures, which stabilizes product characteristics and identifies early failures. CDMA......................... Code Division Multiple Access. Chip......................... Usually refers to a single integrated circuit die, but also used as a generic term for semiconductor devices. Chipset...................... Two or more chips designed to perform as a unit for one or more functions. Chip-Scale Packages (CSP).... Any semiconductor package in which the package is no more than 1.2 times the size of the bare semiconductor die. Die.......................... Individual integrated circuits, transistors, or diodes, separated from the original whole silicon wafer but not yet packaged. They vary in size from 20 mils on a side to larger than 250 mils on a side. The number of die on a wafer may vary from tens to thousands. Also called a chip. Refers to a semiconductor that has not yet been packaged. Die Attachment............... A step in the packaging process of an integrated circuit in which the individual chip or die is mounted in a package in preparation for wire bonding. This step is usually accomplished using either an epoxy resin or a welding process to attach the chip to the substrate. G-1 DRAM......................... Dynamic Random Access Memory. A type of volatile memory product that is used in electronic systems to store data and program instructions. It is the most common type of RAM and must be refreshed with electricity thousands of times per send or else it will fade away. DSP.......................... Digital Signal Processor. A type of integrated circuit that processes and manipulates digital information after it has been converted from an analog source. EconoCSP(TM)................. A low cost version of CSP with construction similar to that of PBGA. Eeprom....................... Electical Erasable Programmable Read Only Memory. Fab.......................... Short for wafer fabrication. Fabless Semiconductor A new class of semiconductor companies that Companies.................... design, test and sell ICs, but subcontract wafer manufacturing by forming alliances with silicon wafer manufacturers. FBGAT........................ Fine Pitch Ball Grid Array--Tape. A version of a BGA package, mounted on tape substrate, that has a solder ball pitch of less than 1.0mm. Flash........................ A type of non-volatile memory product that is used in electronic systems to store data and program instructions. FlashPAC(TM)................. A version of CSP where the silicon die is attached to the package using Flip-Chip interconnect intended for Flash. Flip-Chip.................... Package type where silicon die is attached to the packaging substrate using solder balls instead of wires. See "Business--Our Services." FlipPAC(TM).................. A version of a BGA package where the silicon die is attached to the package using a Flip- Chip interconnect. IC........................... Integrated circuit. A combination of two or more transistors on a base material, usually silicon. All semiconductor chips, including memory chips and logic chips, are very complicated ICs with thousands of transistors. IDMs......................... Integrated Device Manufacturers. A semiconductor device manufacturer that has its own manufacturing facilities. I/O.......................... A connector which interconnects the chip to the package or one package level to the next level in the hierarchy. Also referred to as pin out connections or terminals. iQUAD(TM).................... Package type with superior thermal performance to that of the conventional Plastic Quad Flat Package. ISDN......................... Integrated Services Digital Network. An international telecommunications standard for transmitting voice, video and data over digital lines running at 64 Kbps. LAN.......................... Local area network. G-2 Leadframe.................... A metal frame, connected to the bonding pads of the die by leads, that provides electrical connection to the outside world. Logic Device................. A device that contains digital integrated circuits that process, rather than store, information. LQFP......................... A thinner version of the Quad Flat Package. See "Business--Our Services." M/2/BGA(TM).................. Molded Multi Die Ball Grid Array. A version of a BGA package that contains 2 or more silicon die. M/2/CSP(TM).................. Molded Multi Die Chip Scale Package. A version of a CSP that contains 2 or more silicon die. BGA(TM)...................... Micro Ball Grid Array. A version of a BGA package that is adapted to chip scale size. This is a proprietary package trademarked by the Tessera Corporation. See "Business--Our Services." 1/25,000 of an inch. Circuitry on an IC Micron....................... typically follows lines that are less than one micron wide. Microprocessor (MPU)......... A standard circuit design that provides, in one or more chips, functions equivalent to those contained in the central processing unit of a computer. A microprocessor interprets and executes instructions and usually incorporates arithmetic capabilities. The CPU of a personal computer along with main memory and other components, typically contained on a single board. MOS.......................... A device which consists of three layers--metal, oxide and semiconductors--and operates as a transistor. MQFP......................... Metric Quad Flat Package. See "Business--Our Services." Package...................... The protective container for an electronic component that connects it to the printed circuit board. The most common IC package is a DIP, or dual-in-line package--a rectangular plastic or ceramic package in which the leads run along the two longer edges. Packaging.................... A process whereby a wafer is diced into individual die which are then separated from the wafer and attached to a substrate via an epoxy adhesive. Leads on the substrate are then connected by extremely fine gold wires to the input/output, or "I/O" terminals on the chips through the use of automated machines known as "wire bonders". Each die is then encapsulated in a plastic molding compound, thus forming the package. Semiconductor packaging serves to protect the chip, facilitate integration into electronic systems, and enable the dissipation of heat from the devices. PBGA......................... Plastic Ball Grid Array. See "Business--Our Services." Personal Computer Board...... See "Glossary--Printed Circuit Board." PDA.......................... Personal Digital Assistant. G-3 PDIP......................... Plastic Dual In-Line Packages. A semiconductor package with leads on two sides, bent vertically, so that the leads can be inserted into holes drilled through the printed circuit board. See "Business--Our Services." PGA.......................... Pin Grid Array. An IC package that has multiple rows of pins on the bottom. Pitch........................ The center-to-center distance between adjacent leads on a package. PLCC......................... Plastic Leaded Chip Carrier. See "Business--Our Services." PLD.......................... A logic chip that is programmed at the customer's site. PQFP......................... Plastic Quad Flat Packages. See "Business--Our Services." Printed Circuit Board........ A laminate sheet into which integrated circuits are soldered. Wires in the board connect the circuits with each other, forming a larger functional unit. Printed circuit boards generally contain a subsystem of a larger electronic system, e.g., one board might hold the semiconductor memory of a computer. QFP.......................... Quad Flat Pack. A semiconductor package with leads on all four sides and which is attached to a printed circuit board by surface mounting. RamPAC(TM)................... A version of a CSP where the die is attached to the package using Flip-Chip interconnect intended for DRAM. RDRAM........................ Rambus Dynamic Random Access Memory. RF........................... Radio frequency. SIP.......................... Single In-line Package. See "Business--Our Services." SOC.......................... System on a chip. SOIC......................... Small Outline IC packages. See "Business--Our Services." SOJ.......................... An SOIC package with J-leads for high density memory. SRAM......................... Static Random Access Memory. A type of volatile memory product that is used in electronic systems to store data and program instructions. Unlike the more common DRAM, it does not need to be refreshed. SSOP......................... Shrink Small Outline Packages. See "Business-- Our Services." Substrate.................... The underlying material upon which a device, circuit, or epitaxial layer is fabricated, normally a silicon wafer. Surface Mount Technology..... A circuit board packaging technique in which the leads or pins on the chips and components are soldered on top of the board. TBGA......................... Thermally Enhanced Ball Grid Array. A version of a BGA package with superior thermal properties compared to that of the conventional PBGA. TQFP......................... Thin Quad Flat Package. See "Business--Our Services." TSOC......................... Thin Small Outline IC packages. See "Business-- Our Services." G-4 TSOP......................... Thin Small Outline Packages. See "Business--Our Services." TSSOP........................ Thin Shrink Small Outline Packages. See "Business--Our Services." Wafer........................ Thin, round, flat piece of silicon that is the base of most integrated circuits. Wafer Fabrication............ The sequence of oxidation, diffusion, deposition and photolithographic process steps by which semiconductor devices are batch fabricated on wafers. Wire Bonding................. The method used to attach very fine wire to semiconductor components in order to provide electrical continuity between the semiconductor die and a terminal. G-5 [ChipPAC LOGO] PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 13. Other Expenses of Issuance and Distribution. The following table sets forth the estimated expenses to be incurred in connection with the issuance and distribution of the securities being registered, other than underwriting discounts and commissions, to be paid by the Registrant. SEC registration fee........................................... $ 103,528 National Association of Securities Dealers, Inc. filing fee.... 30,500 Nasdaq National Market listing fee............................. 95,000 Printing and engraving fees.................................... 300,000 Legal fees and expenses........................................ 350,000 Accounting fees and expenses................................... 500,000 Blue Sky fees and expenses..................................... 1,000 Transfer agent and register fees............................... 7,000 Directors' and officers' insurance............................. 465,000 Miscellaneous.................................................. 7,972 ---------- Total........................................................ $1,860,000 ==========
- --------------------- * To be included by amendment Item 14. Indemnification of Directors and Officers. Registrant 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 amounts 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 or settlement of such action or suit, 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, provided that no indemnification is permitted without judicial approval if the officer, director, employee or agent is adjudged to be liable to the corporation. Where an officer, director, employee or agent is successful on the merits or otherwise in 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. II-1 Registrant'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. Registrant 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. Item 15. Recent Sales of Unregistered Securities. The Registrant was incorporated in Delaware in 2000 in order to effect the reincorporation of ChipPAC, Inc., a California corporation ("ChipPAC California") through a merger of ChipPAC California into the Registrant. On June 13, 2000 the Registrant entered into an Agreement and Plan of Merger (the "Merger Agreement") with ChipPAC California. Pursuant to the Merger Agreement, which is filed as Exhibit 2.1 to the Registration Statement, the ChipPAC California will merge with and into the Registrant (the "Merger"), as a result of which ChipPAC California will cease to exist and the Registrant will operate business as ChipPAC, Inc. The Merger is to occur immediately prior to the effectiveness of this Registration Statement. Such transactions will be exempt from registration by virtue of Sections 3(a)(11) or 4(2) of the Securities Act. In the Merger the following issuances will take place: . each outstanding share of ChipPAC California Class A common stock, par value $0.01, will be converted into and become one share of Class A common stock of the Registrant ("Registrant Class A Common Stock"); . each outstanding share of ChipPAC California Class B common stock, par value $0.01, will be converted into and become one share of Class B common stock of the Registrant ("Registrant Class B Common Stock"); . each outstanding share of ChipPAC California Class L common stock, par value $0.01 will be converted into and become one share of Registrant Class A Common Stock plus an additional number of shares of Registrant Class A Common Stock determined by dividing a preferential distribution, based in part on the original cost of such share plus an amount which accrues daily at a rate of 12% per annum, compounded quarterly, by the per share price of the Registrant Class A Common Stock in the offering to which this Registration Statement relates; . each share of outstanding ChipPAC California Class A Convertible preferred stock, $0.01 par value, will be converted into one share of Registrant Class A Convertible preferred stock, par value $0.01; . each share of outstanding ChipPAC California Class B preferred stock, par value $0.01, will be converted into one share of Registrant Class B preferred stock, par value $0.01; and . each share of outstanding ChipPAC California Class C preferred stock, par value $0.01, will be converted into one share of Registrant Class C preferred stock, par value $0.01. ChipPAC California completed a recapitalization on August 5, 1999. In connection with the recapitalization, ChipPAC California issued: . 4,500,000 shares of Class L common stock, par value $0.01, and 40,500,000 shares of Class A common stock, par value $0.01, to Bain Capital Fund VI, L.P. and its affiliates for a total of $45,000,000; . 4,500,000 shares of Class L common stock, par value $0.01, and 40,500,000 shares of Class A common stock, par value $0.01, to SXI Group LLC and its affiliates for a total of $45,000,000; . 1,000,000 shares of Class L common stock, par value $0.01, 9,000,000 shares of Class A common stock, par value $0.01 and 30,000 shares of Class B Preferred Stock, par value $0.01, to Hyundai Electronics America in exchange for all of the previously outstanding capital stock of ChipPAC California held by Hyundai Electronics America; II-2 . 100,000 shares of Class L common stock, par value $0.01, and 900,000 shares of Class A common stock, par value $0.01, to each of ChipPAC Equity Investors LLC and Sankaty High Yield Asset Partners, L.P. for a total of $2,000,000; . 40,000 shares of Class B preferred stock, par value $0.01, to Hyundai Electronics America for $40,000,000; and . 10,000 shares of Class A Convertible preferred stock, par value $0.01, to Intel Corporation for $10,000,000. The sales and issuances above were deemed exempt from registration under the Securities Act of 1933, as amended, by virtue of Section 4(2), 3(a)(9) or 3(a)(11). In October 1999, pursuant to its 1999 Stock Purchase and Option Plan, ChipPAC California authorized to a group of 213 employees: (i) the sale of 303,500 shares of Class L common stock, par value $0.01, at a price of $9.00 per share, and the sale of 2,731,500 shares of Class A common stock, par value $0.01, at a price of $0.1111 per share, for an aggregate purchase price of $3,035,000, (ii) the sale of 2,470,000 shares Class A common stock, par value $0.01 per share, at a price of $0.1111 per share, which shares vest over time, (iii) the grant of options to purchase an aggregate of 1,051,750 shares of Class A common stock at a price of $0.1111 per share and (iv) the grant of options to purchase an aggregate of 2,285,500 shares of Class A common stock at a price of $2.10 per share. The options are not transferable, and neither the options nor the employees' rights to the time vesting stock vest prior to August 2000. In January 2000, pursuant to its 1999 Stock Purchase and Option Plan, ChipPAC California authorized to a group of 27 employees: (i) the sale of 20,000 shares of Class L common stock, par value $0.01, at a price of $9.00 per share, and the sale of 180,000 shares of Class A common stock, par value $0.01, at a price of $0.1111 per share, for an aggregate purchase price of $200,000, (ii) the sale of 75,000 shares of Class A common stock, par value $0.01 per share, at a price of $0.1111 per share, which shares vest over time, (iii) the grant of options to purchase an aggregate of 130,750 shares of Class A common stock at a price of $0.1111 per share and (iv) the grant of options to purchase an aggregate of 108,000 shares of Class A common stock at a price of $2.10 per share. The options are not transferable, and neither the options nor the employees' rights to the time vesting stock vest prior to January 2001. In April 2000, pursuant to its 1999 Stock Purchase and Option Plan, ChipPAC California authorized to a group of 11 employees: (i) the grant of options to purchase an aggregate of 57,500 shares of Class A common stock at a price of $0.1111 per share and (ii) the grant of options to purchase an aggregate of 5,000 shares of Class A common stock at a price of $2.10 per share. The options are not transferable, and the options do not vest prior to April 2001. On June 30, 2000, ChipPAC California issued 17,500 shares of Class C preferred stock, par value $0.01, to Intersil Corporation ("Intersil") in connection with and as partial consideration for ChipPAC California's acquisition of Intersil's Malaysian business. The sales and issuances above were deemed exempt from registration under the Securites Act of 1933, as amended, by virtue of Section 4(2) and Rule 701 of the Securities Act. Item 16. Exhibits and Financial Statement Schedules. (a) Exhibits. 1.1 Form of Underwriting Agreement.** 2.1 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.*
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Exhibit No. Description ----------- ----------- 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.* 3.1 Certificate of Incorporation of ChipPAC, Inc. 3.2 By-Laws of ChipPAC, Inc. 4.1 Specimen certificate for ChipPAC, Inc. 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. 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.* 10.3 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.* 10.4 Amended and Restated Stockholders Agreement, dated as of August 5, 1999, by and among ChipPAC, Inc. the Hyundai Group (as defined therein), the Bain Group (as defined therein), the SXI Group (as defined therein), Intel Corporation, ChipPAC Equity Investors LLC, and Sankaty High Yield Asset Partners, L.P.* 10.5 Amended and Restated Registration Agreement, dated as of August 5, 1999, by and among ChipPAC, Inc., the Hyundai Stockholders (as defined therein), the Bain Stockholders (as defined therein), the SXI Stockholders (as defined therein), Intel Corporation, ChipPAC Equity Investors LLC, and Sankaty High Yield Asset Partners, L.P.* 10.5.1 Amendment No. 1 to Amended and Restated Registration Agreement, dated as of June 30, 2000, by and among ChipPAC, Inc., Sapphire Worldwide Investments, Inc., the Bain Stockholders (as defined therein) and SXI Group LLC. 10.5.2 Form of Amendment No. 2 to Amended and Restated Registration Agreement, dated as of July 13, 2000, by and among ChipPAC, Inc., Qualcomm Incorporated, SXI Group LLC and the Bain Shareholders (as defined therein). 10.6 Transition Services Agreement, dated as of August 5, 1999, by and among Hyundai Electronics Industries Co., Ltd., Hyundai Electronics America, ChipPAC, Inc., ChipPac Korea Company Ltd., Hyundai Electronis Company (Shanghai) Ltd., ChipPAC Assembly and Test (Shanghai) Company Ltd., ChipPAC Barbados LImited and ChipPAC Limited.* 10.7 Lease Agreement, dated as of June 30, 1998, by and between Hyundai Electronics Industries Co., Ltd. and ChipPAC Korea Ltd.* 10.7.1 Amendment Agreement, dated September 30, 1998, to Lease Agreement, dated June 30, 1998, by and between Hyundai Electronics Industries Co., Ltd. and ChipPAC Korea Ltd.* 10.7.2 Amendment Agreement 2, dated September 30, 1999, to Lease Agreement, dated June 30, 1998, by and between Hyundai Electronics Industries Co., Ltd. and ChipPAC Korea Ltd.* 10.8 Agreement Concerning Supply of Utilities, Use of Welfare Facilities and Management Services for Real Estate, dated as of June 30, 1998, by and between Hyundai Electronics Industries Co., Ltd. and ChipPAC Korea Ltd.*
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Exhibit No. Description ----------- ----------- 10.9 Service Agreement, dated as of August 5, 1999, by and between Hyundai Electronics Industries Co., Ltd. and ChipPAC Limited.+* 10.10 Sublease Agreement, dated as of May 1, 1998, by and between Hyundai Electronics America and ChipPAC, Inc.* 10.11 Patent Sublicense Agreement, dated as of August 5, 1999, by and between Hyundai Electronics Industries Co., Ltd. and ChipPAC Limited.* 10.12 TCC License Agreement, dated December 22, 1998, between Tessera Inc., the Tessera Affiliates (as defined therein), ChipPAC, Inc. and the Licensee Affiliates (as defined therein).+* 10.12.1 Letter Agreement, dated July 15, 1999, by and among ChipPAC, Inc., Hyundai Electronics America, ChipPAC Limited and Tessera, Inc.* 10.13 Materials Agreement, dated as of July 1, 1999, by and between ChipPAC Limited and Intel Corporation.+* 10.14 Assembly Services Agreement, dated as of August 5, 1999, by and between Intel Corporation and ChipPAC Limited.+* 10.15 Stock Purchase Agreement, dated as of August 5, 1999, by and between ChipPAC, Inc. and Intel Corporation.* 10.16 Warrant to Purchase Class B Common Stock of ChipPAC, Inc., dated as of August 5, 1999, issued to Intel Corporation.* 10.17 Advisory Agreement, dated as of August 5, 1999, by and among ChipPAC, Inc., ChipPAC Limited, ChipPAC Operating Limited and Bain Capital, Inc.* 10.18 Advisory Agreement, dated as of August 5, 1999, by and among ChipPAC, Inc., ChipPAC Limited, ChipPAC Operating Limited and SXI Group LLC.* 10.19 Employment Agreement, dated as of October 1, 1999, between ChipPAC, Inc. and Dennis McKenna.* 10.20 ChipPAC, Inc. 1999 Stock Purchase and Option Plan.* 10.21 ChipPAC, Inc. 2000 Equity Incentive Plan. 10.22 ChipPAC, Inc. 2000 Employee Stock Purchase Plan. 10.23.1 Form of Key Employee Purchased Stock Agreement.* 10.23.2 Form of Key Employee Purchased Stock Agreement (with Loan).* 10.24 Form of Employee Restricted Stock Agreement.* 10.25 Form of Directors Tranche I Stock Option Agreement.* 10.26 Form of Employees Tranche I Stock Option Agreement.* 10.27 Form of Tranche II Stock Option Agreement.* 10.28 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.* 10.29 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.* 10.30 12 3/4% Senior Subordinated Notes Due 2009.* 10.31 Form of Series B 12 3/4% Senior Subordinated Notes Due 2009.* 10.32 Intellectual Property Rights Agreement, entered into as of June 30, 2000, by and between Intersil Corporation and ChipPAC Limited. 10.33 Supply Agreement, entered into as of June 30, 2000, by and between Intersil Corporation and ChipPAC Limited.
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Exhibit No. Description ----------- ----------- 10.34 Shareholders Agreement, dated as of June 30, 2000, by and among ChipPAC, Inc., the Bain Group (as defined therein), the SXI Group (as defined therein) and Sapphire Worldwide Investments, Inc. 10.35 Class A Common Stock Purchase Agreement, dated as of July 13, 2000, by and between ChipPAC, Inc. and Qualcomm Incorporated. 21.1 Subsidiaries of ChipPAC, Inc., ChipPAC International Company Limited, ChipPAC (Barbados) Ltd., ChipPAC Limited, ChipPAC Liquidity Management Limited Liability Company, ChipPAC Luxembourg S.a.R.L. and ChipPAC Korea Company Ltd.* 23.1 Consent of PricewaterhouseCoopers LLP. 23.2 Consent of Ernst & Young LLP. 23.3 Consent of Kirkland & Ellis (included in Exhibit 5.1). 24.1 Powers of Attorney.*** 27.1 Financial Data Schedule.***
- --------------------- * Incorporated by reference to the Registrant's Form S-4 (No. 333-91641). ** To be filed by amendment. *** Previously filed. + Confidential treatment has been granted as to certain portions of these exhibits, which are incorporated by reference. (b) Financial Statement Schedules. The following financial statement schedules for the three years ended December 31, 1999 are included in this registration statement. Schedule II--Valuation and Qualifying Accounts and Reserves--Allowance for Doubtful Accounts (in thousands)
Additions charged Deductions Balance Balance at to Costs and and at End Year Ended December 31 beginning of year Expenses Write-offs of Period - ---------------------- ----------------- ----------------- ---------- --------- 1999.................. 1,162 144 (110) 1,196 1998.................. 375 787 -- 1,162 1997.................. 85 404 (114) 375
II-6 Item 17. Undertakings. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to provisions described in Item 14 above, or otherwise, the Registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities 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 Securities 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, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in the 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, each post-effective amendment that contains a form of prospectus 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. The undersigned Registrant hereby undertakes to provide to the underwriters at the closing specified in the Underwriting Agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. II-7 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Pre-Effective Amendment No. 1 to the Registration Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Santa Clara, State of California, on July 14, 2000. ChipPAC, Inc. By: /s/ Dennis P. McKenna ----------------------------------- Name: Dennis P. McKenna Title: President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, as amended, this Pre-Effective Amendment No. 1 to the Registration Statement on Form S-1 has been signed by the following persons in the capacity and on the date indicated. POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Dennis P. McKenna, Robert Krakauer and Curt Mason, and each of them, his/her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him/her and in his/her name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this Registration Statement (and any registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, for the offering which this Registration Statement relates), and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he/she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his/her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Signature Title Date --------- ----- ---- /s/ Dennis P. McKenna President and Chief July 14, 2000 ____________________________________ Executive Officer Dennis P. McKenna (Principal Executive Officer) and Director /s/ Robert Krakauer Chief Financial Officer July 14, 2000 ____________________________________ (Principal Financial Robert Krakauer Officer) * Vice President of Finance July 14, 2000 ____________________________________ and Corporate Controller Curt Mason (Principal Accounting Officer) * Director July 14, 2000 ____________________________________ David Dominik
II-8
Signature Title Date --------- ----- ---- * Director July 14, 2000 ____________________________________ Edward Conard * Director July 14, 2000 ____________________________________ Marshall Haines * Director July 14, 2000 ____________________________________ Michael A. Delaney * Director July 14, 2000 ____________________________________ Paul C. Schorr, IV * Director July 14, 2000 ____________________________________ Joseph Martin * Director July 14, 2000 ____________________________________ Chong Sup Park
* The undersigned, by signing his name hereto, does hereby sign and execute this Pre-Effective Amendment No. 1 to the Registration Statement on Form S-1 on behalf of the above named officer and directors of the Registrant pursuant to the Power of Attorney executed by such officer and/or director and previously filed with the Securities and Exchange Commission. /s/ Robert Krakauer *By: _____________________ Robert Krakauer Attorney-in-Fact II-9 Exhibit Index
Exhibit No. Description ----------- ----------- 1.1 Form of Underwriting Agreement.** 2.1 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.* 3.1 Certificate of Incorporation of ChipPAC, Inc. 3.2 By-Laws of ChipPAC, Inc. 4.1 Specimen certificate for ChipPAC, Inc. 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. 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.* 10.3 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.* 10.4 Amended and Restated Stockholders Agreement, dated as of August 5, 1999, by and among ChipPAC, Inc. the Hyundai Group (as defined therein), the Bain Group (as defined therein), the SXI Group (as defined therein), Intel Corporation, ChipPAC Equity Investors LLC, and Sankaty High Yield Asset Partners, L.P.* 10.5 Amended and Restated Registration Agreement, dated as of August 5, 1999, by and among ChipPAC, Inc., the Hyundai Stockholders (as defined therein), the Bain Stockholders (as defined therein), the SXI Stockholders (as defined therein), Intel Corporation, ChipPAC Equity Investors LLC, and Sankaty High Yield Asset Partners, L.P.* 10.5.1 Amendment No. 1 to Amended and Restated Registration Agreement, dated as of June 30, 2000, by and among ChipPAC, Inc., Sapphire Worldwide Investments, Inc., the Bain Stockholders (as defined therein) and SXI Group LLC. 10.5.2 Form of Amendment No. 2 to Amended and Restated Registration Agreement, dated as of July 13, 2000, by and among ChipPAC, Inc., Qualcomm Incorporated, SXI Group LLC and the Bain Shareholders (as defined therein). 10.6 Transition Services Agreement, dated as of August 5, 1999, by and among Hyundai Electronics Industries Co., Ltd., Hyundai Electronics America, ChipPAC, Inc., ChipPac Korea Company Ltd., Hyundai Electronis Company (Shanghai) Ltd., ChipPAC Assembly and Test (Shanghai) Company Ltd., ChipPAC Barbados LImited and ChipPAC Limited.* 10.7 Lease Agreement, dated as of June 30, 1998, by and between Hyundai Electronics Industries Co., Ltd. and ChipPAC Korea Ltd.*
Exhibit No. Description ----------- ----------- 10.7.1 Amendment Agreement, dated September 30, 1998, to Lease Agreement, dated June 30, 1998, by and between Hyundai Electronics Industries Co., Ltd. and ChipPAC Korea Ltd.* 10.7.2 Amendment Agreement 2, dated September 30, 1999, to Lease Agreement, dated June 30, 1998, by and between Hyundai Electronics Industries Co., Ltd. and ChipPAC Korea Ltd.* 10.8 Agreement Concerning Supply of Utilities, Use of Welfare Facilities and Management Services for Real Estate, dated as of June 30, 1998, by and between Hyundai Electronics Industries Co., Ltd. and ChipPAC Korea Ltd.* 10.9 Service Agreement, dated as of August 5, 1999, by and between Hyundai Electronics Industries Co., Ltd. and ChipPAC Limited.+* 10.10 Sublease Agreement, dated as of May 1, 1998, by and between Hyundai Electronics America and ChipPAC, Inc.* 10.11 Patent Sublicense Agreement, dated as of August 5, 1999, by and between Hyundai Electronics Industries Co., Ltd. and ChipPAC Limited.* 10.12 TCC License Agreement, dated December 22, 1998, between Tessera Inc., the Tessera Affiliates (as defined therein), ChipPAC, Inc. and the Licensee Affiliates (as defined therein).+* 10.12.1 Letter Agreement, dated July 15, 1999, by and among ChipPAC, Inc., Hyundai Electronics America, ChipPAC Limited and Tessera, Inc.* 10.13 Materials Agreement, dated as of July 1, 1999, by and between ChipPAC Limited and Intel Corporation.+* 10.14 Assembly Services Agreement, dated as of August 5, 1999, by and between Intel Corporation and ChipPAC Limited.+* 10.15 Stock Purchase Agreement, dated as of August 5, 1999, by and between ChipPAC, Inc. and Intel Corporation.* 10.16 Warrant to Purchase Class B Common Stock of ChipPAC, Inc., dated as of August 5, 1999, issued to Intel Corporation.* 10.17 Advisory Agreement, dated as of August 5, 1999, by and among ChipPAC, Inc., ChipPAC Limited, ChipPAC Operating Limited and Bain Capital, Inc.* 10.18 Advisory Agreement, dated as of August 5, 1999, by and among ChipPAC, Inc., ChipPAC Limited, ChipPAC Operating Limited and SXI Group LLC.* 10.19 Employment Agreement, dated as of October 1, 1999, between ChipPAC, Inc. and Dennis McKenna.* 10.20 ChipPAC, Inc. 1999 Stock Purchase and Option Plan.* 10.21 ChipPAC, Inc. 2000 Equity Incentive Plan. 10.22 ChipPAC, Inc. 2000 Employee Stock Purchase Plan. 10.23.1 Form of Key Employee Purchased Stock Agreement.* 10.23.2 Form of Key Employee Purchased Stock Agreement (with Loan).* 10.24 Form of Employee Restricted Stock Agreement.* 10.25 Form of Directors Tranche I Stock Option Agreement.* 10.26 Form of Employees Tranche I Stock Option Agreement.* 10.27 Form of Tranche II Stock Option Agreement.* 10.28 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.* 10.29 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.* 10.30 12 3/4% Senior Subordinated Notes Due 2009.* 10.31 Form of Series B 12 3/4% Senior Subordinated Notes Due 2009.*
Exhibit No. Description ----------- ----------- 10.32 Intellectual Property Rights Agreement, entered into as of June 30, 2000, by and between Intersil Corporation and ChipPAC Limited. 10.33 Supply Agreement, entered into as of June 30, 2000, by and between Intersil Corporation and ChipPAC Limited. 10.34 Shareholders Agreement, dated as of June 30, 2000, by and among ChipPAC, Inc., the Bain Group (as defined therein), the SXI Group (as defined therein) and Sapphire Worldwide Investments, Inc. 10.35 Class A Common Stock Purchase Agreement, dated as of July 13, 2000, by and between ChipPAC, Inc. and Qualcomm Incorporated. 21.1 Subsidiaries of ChipPAC, Inc., ChipPAC International Company Limited, ChipPAC (Barbados) Ltd., ChipPAC Limited, ChipPAC Liquidity Management Limited Liability Company, ChipPAC Luxembourg S.a.R.L. and ChipPAC Korea Company Ltd.* 23.1 Consent of PricewaterhouseCoopers LLP. 23.2 Consent of Ernst & Young LLP. 23.3 Consent of Kirkland & Ellis (included in Exhibit 5.1). 24.1 Powers of Attorney.*** 27.1 Financial Data Schedule.***
- --------------------- * Incorporated by reference to the Registrant's Form S-4 (No. 333-91641). ** To be filed by amendment. *** Previously filed. + Confidential treatment has been granted as to certain portions of these exhibits, which are incorporated by reference. EX-2.1 2 0002.txt AGREEMENT AND PLAN OF MERGER OF CHIPPAC,INC. Exhibit 2.1 AGREEMENT AND PLAN OF MERGER OF CHIPPAC, INC. A CALIFORNIA CORPORATION AND CHIPPAC, INC. A DELAWARE CORPORATION THIS AGREEMENT AND PLAN OF MERGER dated as of June 13, 2000 (the "Agreement") is between ChipPAC, Inc., a California corporation ("ChipPAC --------- ------- California"), and ChipPAC, Inc., a Delaware corporation ("ChipPAC Delaware"). - ---------- ---------------- ChipPAC California and ChipPAC Delaware are sometimes referred to herein as the "Constituent Corporations." ------------------------ RECITALS A. ChipPAC California is a corporation duly organized and existing under the laws of the State of California and has an authorized capital of 180,000,000 shares of Class A Common Stock (the "Class A Common Stock"), 180,000,000 shares -------------------- of Class B Common Stock (the "Class B Common Stock"), 20,000,000 shares of Class -------------------- L Common Stock (the "Class L Common Stock"), 10,000 shares of Class A -------------------- Convertible Preferred Stock (the "Class A Preferred Stock"), 105,000 shares of ----------------------- Class B Preferred Stock (the "Class B Preferred Stock"). ChipPAC California ----------------------- intends to authorize and issue shares of Class C Preferred Stock (the "Class C ------- Preferred Stock") to Intersil Corporation. Certain individuals and entities - --------------- (the "Optionees") own in the aggregate options to purchase 6,013,500 shares of --------- Class A Common Stock ("Options"). The Class A Common Stock, Class B Common ------- Stock, Class L Common Stock, Class A Preferred Stock and the Class B Preferred Stock, the Class C Preferred Stock and Options are collectively referred to herein as the "Equity Interests." ---------------- B. ChipPAC Delaware is a corporation duly organized and existing under the laws of the State of Delaware and is a wholly-owned subsidiary of ChipPAC California. C. The Board of Directors of ChipPAC California and ChipPAC Delaware have determined that, for the purpose of effecting the plan of reorganization, it is advisable and in the best interests of ChipPAC California, its stockholders, and ChipPAC Delaware that ChipPAC California merge with and into ChipPAC Delaware upon the terms and conditions herein provided. D. The respective Boards of Directors of ChipPAC California and ChipPAC Delaware have approved this Agreement. E. The terms of this Agreement were approved by the vote of a number of shares of each class of stock of ChipPAC California which equaled or exceeded the vote required. F. The terms of this Agreement were approved by the sole stockholder of ChipPAC Delaware. NOW, THEREFORE, in consideration of the mutual agreements and covenants set forth herein, ChipPAC California and ChipPAC Delaware hereby agree, subject to the terms and conditions hereinafter set forth as follows: I MERGER 1.1 Merger. In accordance with the provisions of this Agreement, the ------ Delaware General Corporation Law and the California General Corporation Law, ChipPAC California shall be merged with and into ChipPAC Delaware (the "Merger"), the separate existence of ChipPAC California shall cease and ChipPAC ------ Delaware shall survive the Merger and shall continue to be governed by the laws of the State of Delaware, and ChipPAC Delaware shall be, and is herein sometimes referred to as, the "Surviving Corporation," and the name of the Surviving --------------------- Corporation shall be ChipPAC, Inc. 1.2 Filing and Effectiveness. The Merger shall become effective ------------------------ immediately prior to the effectiveness of ChipPAC-Delaware's registration statement on Form S-1 (Reg. No. 333-39428); provided, however, that the Merger shall not become effective until an executed Certificate of Merger or an executed, acknowledged and certified counterpart of this Agreement meeting the requirements of the Delaware General Corporation Law and the California General Corporation Law shall have been filed with the Secretary of State of the State of Delaware. The date and time when the Merger shall become effective, as aforesaid, is herein called the "Effective Date of the Merger." ---------------------------- 1.3 Effect of the Merger. Upon the Effective Date of the Merger, the -------------------- separate existence of ChipPAC California shall cease and ChipPAC Delaware, as the Surviving Corporation, (i) shall continue to possess all of its assets, rights, powers and property as constituted immediately prior to the Effective Date of the Merger, (ii) shall be subject to all actions previously taken by its and ChipPAC California's Boards of Directors, (iii) shall succeed, without other transfer, to all of the assets, rights, powers and property of ChipPAC California in the manner as more fully set forth in Section 259 of the Delaware General Corporation Law, (iv) shall continue to be subject to all of its debts, liabilities and obligations as constituted immediately prior to the Effective Date of the Merger, and (v) shall succeed, without other transfer, to all of the debts, liabilities and obligations of ChipPAC California in the same manner as if ChipPAC Delaware had itself incurred them, all as more fully provided under the applicable provisions of the Delaware General Corporation Law. 2 II CHARTER DOCUMENTS, DIRECTORS AND OFFICERS 2.1 Certificate of Incorporation. The Amended and Restated Certificate of ---------------------------- Incorporation of ChipPAC Delaware (the "Certificate of Incorporation") ---------------------------- substantially in the form of Exhibit A attached hereto shall be the Certificate --------- of Incorporation of the Surviving Corporation until duly amended in accordance with the provisions thereof and applicable law. 2.2 Bylaws. The Amended and Restated Bylaws of ChipPAC Delaware ------ substantially in the form of Exhibit B attached hereto shall be the Bylaws of --------- the Surviving Corporation until duly amended in accordance with the provisions thereof and applicable law. 2.3 Directors and Officers. The directors and officers of ChipPAC ---------------------- Delaware immediately prior to the Effective Date of the Merger shall be the directors and officers of the Surviving Corporation until their respective successors shall have been duly elected and qualified or until as otherwise provided by law, or the Certificate of Incorporation of the Surviving Corporation or the Bylaws of the Surviving Corporation. III MANNER OF CONVERSION OF STOCK 3.1 Class A Common Stock. Upon the Effective Date of the Merger, each -------------------- share of Class A Common Stock of ChipPAC California issued and outstanding immediately prior thereto shall, by virtue of the Merger and without any action by the Constituent Corporations, the holder of such shares or any other person, be changed and converted into and exchanged for one fully paid and nonassessable share of Class A Common Stock, $0.01 par value, of the Surviving Corporation ("ChipPAC Delaware Class A Common Stock"). ------------------------------------- 3.2 Class B Common Stock. Upon the Effective Date of the Merger, each -------------------- share of Class B Common Stock of ChipPAC California issued and outstanding immediately prior thereto shall, by virtue of the Merger and without any action by the Constituent Corporations, the holder of such shares or any other person, be changed and converted into and exchanged for one fully paid and nonassessable share of ChipPAC Delaware Class B Common Stock (the "ChipPAC Delaware Class B ------------------------ Common Stock," and together with the ChipPAC Delaware Class A Common Stock, the - ------------ "ChipPAC Delaware Common Stock"). ----------------------------- 3.3 Class L Common Stock. Upon the Effective Date of the Merger, each -------------------- share of Class L Common Stock of ChipPAC California issued and outstanding immediately prior thereto shall, by virtue of the Merger and without any action by the Constituent Corporations, the holder of such shares or any other person, be changed and converted into and exchanged for a number of fully paid and nonassessable shares of ChipPAC Delaware Class A Common Stock, $0.01 par value equal to the product of (A) [insert pre-IPO stock split number] multiplied by (B) the sum of (i) one plus (ii) the quotient of (x) the Unreturned Original Cost plus Unpaid Yield of such share of Class L 3 Common Stock divided by (y) the price per share of the ChipPAC Delaware Common Stock paid by investors in the Public Offering. For purposes of this Section 3.3, the following terms shall have the following meanings: "Distribution" means each distribution made by ChipPAC California to ------------ holders of capital stock, whether in cash, property, or securities of ChipPAC California and whether by dividend, liquidating distributions or otherwise; provided that neither of the following shall be a Distribution: (a) any redemption or repurchase by ChipPAC California of any capital stock held by an employee, director or former employee of ChipPAC California or any of its subsidiaries or (b) any recapitalization or exchange of any capital stock, or any subdivision (by stock split, stock dividend or otherwise) or any combination (by stock split, stock dividend or otherwise) of any outstanding capital stock. "Original Cost" of each share of Class L Common Stock shall be equal to ------------- $9.00 per share (as proportionally adjusted for all stock splits, stock dividends and other recapitalizations affecting the Class L Common Stock). "Public Offering" means ChipPAC-Delaware's initial public offering of --------------- common stock pursuant to a registration statement on Form S-1 (Reg. No. 333- 39428). "Unpaid Yield" of any share of Class L Common Stock means an amount equal ------------ to the excess, if any, of (a) the aggregate Yield accrued on such share, over (b) the aggregate amount of Distributions made by ChipPAC California that constitute payment of Yield on such share. "Unreturned Original Cost" of any share of Class L Common Stock means an ------------------------ amount equal to the excess, if any, of (a) the Original Cost of such share, over (b) the aggregate amount of Distributions made by ChipPAC California that constitute a return of the Original Cost of such share. "Yield" means, with respect to each outstanding share of Class L Common ----- Stock for each calendar quarter, the amount accruing on such share each day during such quarter at the rate of 12% per annum of the sum of (a) such share's Unreturned Original Cost, plus (b) Unpaid Yield thereon for all prior quarters. In calculating the amount of any Distribution to be made during a calendar quarter, the portion of a Class L Common Stock share's Yield for such portion of such quarter elapsing before such Distribution is made shall be taken into account. 3.4 Class A Preferred Stock. Upon the Effective Date of the Merger, each ----------------------- share of Class A Preferred Stock issued and outstanding immediately prior thereto shall, by virtue of the Merger and without any action by the Constituent Corporations, the holder of such shares or any other person, be changed and converted into and exchanged for one fully paid and nonassessable share of Class A Preferred Stock, $0.01 par value, of the Surviving Corporation ("ChipPAC ------- Delaware Class A Preferred Stock"). - -------------------------------- 4 3.5 Class B Preferred Stock. Upon the Effective Date of the Merger, each ----------------------- share of Class B Preferred Stock issued and outstanding immediately prior thereto shall, by virtue of the Merger and without any action by the Constituent Corporations, the holder of such shares or any other person, be changed and converted into and exchanged for one fully paid and nonassessable share of Class B Preferred Stock, $0.01 par value, of the Surviving Corporation ("ChipPAC ------- Delaware Class B Preferred Stock"). - -------------------------------- 3.6 Class C Preferred Stock. Upon the Effective Date of the Merger, each ----------------------- share of Class C Preferred Stock issued and outstanding immediately prior thereto shall, by virtue of the Merger and without any action by the Constituent Corporations, the holder of such shares or any other person, be changed and converted into and exchanged for one fully paid and nonassessable share of Class C Preferred Stock, $0.01 par value, of the Surviving Corporation ("ChipPAC ------- Delaware Class C Preferred Stock"). - -------------------------------- 3.7 Options. ------- (2) Upon the Effective Date of the Merger, the Surviving Corporation shall assume each Option and all employee benefit plans of ChipPAC California. Each outstanding and unexercised option or other right to purchase or security convertible into ChipPAC California Class A Common Stock shall become a like option or right to purchase or a security convertible into ChipPAC Delaware Common Stock on the basis of one share of ChipPAC Delaware Common Stock for each share of ChipPAC California Class A Common Stock issuable pursuant to any such option, stock purchase right or convertible security, on the same terms and conditions and at the exercise price per share equal to the exercise price applicable to any such ChipPAC California option, stock purchase right or convertible security at the Effective Date of the Merger. (3) A number of shares of ChipPAC Delaware Class A Common Stock shall be reserved for issuance upon the exercise of options, stock purchase rights or convertible securities equal to the number of shares of ChipPAC California Class A Common Stock so reserved immediately prior to the Effective Date of the Merger. 3.7 ChipPAC Delaware Common Stock. Upon the Effective Date of the Merger, ----------------------------- each share of common stock, $0.01 par value, of ChipPAC Delaware issued and outstanding immediately prior thereto shall, by virtue of the Merger and without any action by ChipPAC Delaware, the holder of such shares or any other person, be canceled and returned to the status of authorized but unissued shares. 3.8 Exchange of Certificates. ------------------------ 5 (4) After the Effective Date of the Merger, each holder of an outstanding certificate representing shares of Class A Common Stock, Class B Common Stock or Class L Common Stock may, at such stockholder's option, surrender the same for cancellation to a transfer agent to be designated by ChipPAC Delaware as exchange agent (the "Exchange Agent"), and each such -------------- holder shall be entitled to receive in exchange therefor a certificate or certificates representing the number of shares of ChipPAC Delaware Class A or Class B Common Stock into which such holders' shares of Class A Common Stock, Class B Common Stock or Class L Common Stock were converted as herein provided. Unless and until so surrendered, each outstanding certificate theretofore representing shares of Class A Common Stock, Class B Common Stock or Class L Common Stock shall be deemed for all purposes to represent the number of whole shares of ChipPAC Delaware Class A or Class B Common Stock in to which such shares of Class A Common Stock, Class B Common Stock or Class L Common Stock were converted in the Merger. (5) After the Effective Date of the Merger, each holder of an outstanding certificate representing shares of Class A Preferred Stock, Class B Preferred Stock or Class C Preferred Stock may, at such stockholder's option, surrender the same for cancellation to ChipPAC Delaware, and each such holder shall be entitled to receive in exchange therefor a certificate or certificates representing the number of shares of ChipPAC Delaware Class A Preferred Stock, ChipPAC Delaware Class B Preferred Stock or ChipPAC Delaware Class C Preferred Stock into which such holders' shares of Class A Preferred Stock, Class B Preferred Stock, or Class C Preferred Stock respectively, were converted as herein provided. Unless and until so surrendered, each outstanding certificate theretofore representing shares of Class A Preferred Stock or Class B Preferred Stock or Class C Preferred Stock shall be deemed for all purposes to represent the number of whole shares of ChipPAC Delaware Class A Preferred Stock, ChipPAC Delaware Class B Preferred Stock or ChipPAC Delaware Class C Preferred Stock in to which such shares of Class A Preferred Stock, Class B Preferred Stock or Class C Preferred Stock were converted in the Merger. (6) The registered owner on the books and records of the Surviving Corporation or the Exchange Agent of any shares of stock represented by such outstanding certificate shall, until such certificate shall have been surrendered for transfer or conversion or otherwise accounted for to the Surviving Corporation or the Exchange Agent, have and be entitled to exercise any voting and other rights with respect to and to receive dividends and other distributions upon the shares of ChipPAC Delaware Common Stock represented by such outstanding certificate as provided above. (7) Each certificate representing ChipPAC Delaware Common Stock ChipPAC Delaware Class A Preferred Stock, ChipPAC Delaware Class B Preferred Stock or ChipPAC Delaware Class C Preferred Stock so issued in the Merger shall bear the same legends, if any, with respect to the restrictions on transferability as the certificates of ChipPAC California so converted and given in exchange therefor, unless otherwise determined by the Board of Directors of the Surviving Corporation in compliance with applicable laws. 6 (8) If any certificate for shares of ChipPAC Delaware stock is to be issued in the name other than that in which the certificate surrendered in exchange therefor is registered, it shall be a condition of issuance thereof that the certificate so surrendered shall be properly endorsed and otherwise in proper form for transfer, that such transfer otherwise be proper and that the person requesting such transfer pay to ChipPAC Delaware or the Exchange Agent any transfer or other taxes payable by reason of the issuance of such new certificate in the name other than that of the registered holder of the certificate surrendered or establish to the satisfaction of ChipPAC Delaware that such tax has been paid or is not payable. IV GENERAL 4.1 Further Assurances. From time to time, as and when required by ------------------ ChipPAC Delaware or by its successors or assigns, there shall be executed and delivered on behalf of ChipPAC California such deeds and other instruments and there shall be taken or caused to be taken by ChipPAC Delaware and ChipPAC California such further and other actions, as shall be appropriate or necessary in order to vest or perfect in or conform of record or otherwise by ChipPAC Delaware the title to and possession of all the property, interests, assets, rights, privileges, immunities, powers, franchises and authority of ChipPAC California and otherwise to carry out the purposes of this Agreement, and the officers and directors of ChipPAC Delaware are fully authorized in the name and on behalf of ChipPAC California or otherwise to take any and all such action and to execute and deliver any and all such deeds and other instruments. 4.2 Abandonment. At any time before the filing of this Agreement with the ----------- Secretary of State of the State of Delaware, this Agreement may be terminated and the Merger may be abandoned for any reason whatsoever by the Board of Directors of either ChipPAC California or ChipPAC Delaware, or both, notwithstanding the approval of this Agreement by the shareholders of ChipPAC California or by the sole stockholder of ChipPAC Delaware, or by both. 4.3 Amendment. The Boards of Directors of the Constituent Corporations --------- may amend this Agreement at any time prior to the filing of this Agreement (or certificate in lieu thereof) with the Secretary of State of Delaware, provided that an amendment made subsequent to the adoption of this Agreement by the stockholders of either Constituent Corporation shall not: (1) alter or change the amount or kind of shares, securities, cash, property and/or rights to be received in exchange for or on conversion of all or any of the shares of any class or series thereof of such Constituent Corporation (except for any alterations or changes relating to the authorization, adoption, issuance or conversion of the Class C Preferred Stock of ChipPAC Delaware or ChipPAC California), (2) alter or change any term of the Certificate of Incorporation of the Surviving Corporation to be effected by the Merger (except for any alterations or changes relating to the authorization, adoption, issuance or conversion of the Class C Preferred Stock of ChipPAC Delaware or ChipPAC California), or (3) alter or change any of the terms and conditions of this Agreement if such alteration or change would adversely affect the holders of any class of shares or series thereof of such Constituent Corporation. 7 4.4 Registered Office. The registered office of the Surviving Corporation ----------------- in the State of Delaware is located at The Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware, County of New Castle, 19805, and The Corporation Trust Company is the registered agent of the Surviving Corporation at such address. 4.5 Agreement. Executed copies of this Agreement will be on file at the --------- principal place of business of the Surviving Corporation at 3151 Coronado Drive, Santa Clara, California 95054 and copies thereof will be furnished to any shareholder of either constituent Corporation, upon request and without cost. 4.6 Governing Law. This Agreement shall in all respects be construed, ------------- interpreted and enforced in accordance with and governed by the laws of the State of Delaware. 4.7 Counterparts. In order to facilitate the filing and recording of this ------------ Agreement, the same may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall constitute one an the same instrument. * * * 8 IN WITNESS WHEREOF, this Agreement and Plan of Merger, having first been approved by resolutions of the Boards of Directors of ChipPAC Delaware and ChipPAC California, is hereby executed on behalf of each of such two corporations and attested by their respective officers thereunto duly authorized. CHIPPAC, INC. a California corporation By: /s/ Dennis McKenna -------------------------- Its: President and Chief Executive Officer ATTEST: /s/ Robert Krakauer - -------------------------- Secretary CHIPPAC, INC. a Delaware corporation By: /s/ Dennis McKenna --------------------------- Its: President and Chief Executive Officer ATTEST: /s/ Robert Krakauer - -------------------------- Secretary S-1 EX-3.1 3 0003.txt CERTIFICATE OF INCORPORATION OF CHIPPAC, INC. EXHIBIT 3.1 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF CHIPPAC, INC. ChipPAC, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of Delaware (the "Corporation"), does hereby certify as follows: FIRST: The original Certificate of Incorporation of the Corporation was filed under the name of "ChipPAC, Inc." with the Secretary of State of the State of Delaware on June 9, 2000. SECOND: This Amended and Restated Certificate of Incorporation has been duly adopted in accordance with the provisions of Sections 242 and 245 of the General Corporation Law of the Sate of Delaware by the Board of Directors of the Corporation. THIRD: This Amended and Restated Certificate of Incorporation was approved by written consent of the stockholders pursuant to Section 228 of the General Corporation Law of the State of Delaware. FOURTH: The Restated Certificate of Incorporation, of this Corporation is amended and restated in its entirety to read as follows: ARTICLE ONE The name of the Corporation is ChipPAC, Inc. ARTICLE TWO The address of the Corporation's registered office in the State of Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle, 19801. The name of its registered agent at such address is The Corporation Trust Company. ARTICLE THREE The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. ARTICLE FOUR A. AUTHORIZED SHARES ----------------- The total number of shares of capital stock which the Corporation has authority to issue is 510,000,000 shares, consisting of: (1) 10,000,000 shares of Preferred Stock, par value $.01 per share ("Preferred Stock"); ---------------- (2) 250,000,000 shares of Class A Common Stock, par value $.01 per share ("Class A Common Stock"); and -------------------- (3) 250,000,000 shares of Class B Common Stock, par value $.01 per share ("Class B Common Stock"). -------------------- The Class A Common Stock and the Class B Common Stock are referred to collectively as the "Common Stock." The Preferred Stock and the Common Stock ------------ shall have the rights, preferences and limitations set forth below. Capitalized terms used but not otherwise defined in Part A, Part B, Part C, Part D, Part E or Part F of this Article IV are defined in Part G. B. PREFERRED STOCK --------------- The Preferred Stock may be issued from time to time and in one or more series. The Board of Directors of the Corporation is authorized to determine or alter the powers, preferences and rights, and the qualifications, limitations and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock, and within the limitations or restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series of Preferred Stock, to increase or decrease (but not below the number of shares of any such series of Preferred Stock then outstanding) the number of shares of any such series of Preferred Stock, and to fix the number of shares of any series of Preferred Stock. In the event that the number of shares of any series of Preferred Stock shall be so decreased, the shares constituting such decrease shall resume the status which such shares had prior to the adoption of the resolution originally fixing the number of shares of such series of Preferred Stock subject to the requirements of applicable law. C. CLASS A PREFERRED STOCK ----------------------- 10,000 shares of the Corporation's Preferred Stock shall be designated as Class A Convertible Preferred Stock, par value $.01 per share (the "Class A ------- Preferred Stock"). - --------------- -2- The Class A Preferred Stock shall have the following rights, preferences and privileges, subject to the following restrictions, limitations and qualifications. The Class A Preferred Stock shall be junior to the Senior Preferred Stock and senior to the Common Stock as to dividends and liquidation rights and liquidation preferences and shall have the other rights, preferences and limitations set forth in this Part C. Section 1. Dividends. --------- 1.1 General Obligation. When and as declared by the Corporation's Board ------------------ of Directors (the "Board") and to the extent permitted under the General ----- Corporation Law of Delaware, the Corporation shall pay preferential dividends in cash to the holders of the Class A Preferred Stock as provided in this Section 1. Dividends on each share of the Class A Preferred Stock (a "Share" for ----- purposes of this Part C, Article Four) shall accrue on a daily basis at the rate of 10% per annum of the sum of the Liquidation Value thereof plus all accumulated and unpaid dividends thereon from and including the date of issuance of such Share to and including the first to occur of (i) the date on which the Liquidation Value of such Share (plus all accrued and unpaid dividends thereon) is paid to the holder thereof in connection with the liquidation of the Corporation or the redemption of such Share is effected by the Corporation, (ii) the date on which such Share is converted into shares of Common Stock hereunder or (iii) the date on which such Share is otherwise acquired by the Corporation. Such dividends shall accrue whether or not they have been declared and whether or not there are profits, surplus or other funds of the Corporation legally available for the payment of dividends, and such dividends shall be cumulative. The date on which the Corporation initially issues any Share shall be deemed to be its "date of issuance" regardless of the number of times transfer of such Share is made on the stock records maintained by or for the Corporation and regardless of the number of certificates which may be issued to evidence such Share. 1.2 Dividend Reference Dates. To the extent not paid on August 1 of each ------------------------ year, beginning August 1, 2000 (the "Dividend Reference Date"), all dividends ----------------------- which have accrued on each Share outstanding during the twelve-month period (or other period in the case of the initial Dividend Reference Date) ending upon each such Dividend Reference Date shall be accumulated and shall remain accumulated dividends with respect to such Share until paid to the holder thereof. 1.3 Distribution of Partial Dividend Payments. Except as otherwise ----------------------------------------- provided herein, if at any time the Corporation pays less than the total amount of dividends then accrued with respect to the Class A Preferred Stock, such payment shall be distributed pro rata among the holders thereof based upon the aggregate accrued but unpaid dividends on the Shares held by each such holder. 1.4 Participation in Non-Cash Dividends. In addition to the dividends ----------------------------------- accruing on the Class A Preferred Stock under Section 1.1 above, if the Corporation declares or pays any dividends upon the Common Stock other than cash dividends or dividends payable solely in shares of Common Stock, the Corporation shall also declare and pay to the holders of the Class A Preferred Stock at the same time that it declares and pays such dividends to the holders of the Common Stock, the dividends which would have been declared and paid with respect to the Common Stock issuable -3- upon conversion of the Class A Preferred Stock had all of the outstanding Class A Preferred Stock been converted immediately prior to the record date for such dividend, or if no record date is fixed, the date as of which the record holders of Common Stock entitled to such dividends are to be determined. Section 2. Liquidation. Upon any liquidation, dissolution or winding ----------- up of the Corporation (whether voluntary or involuntary), each holder of Class A Preferred Stock shall be entitled to be paid, before any distribution or payment is made upon any Junior Securities, an amount in cash equal to the aggregate Liquidation Value of all Shares held by such holder (plus all accrued and unpaid dividends thereon), and the holders of Class A Preferred Stock shall not be entitled to any further payment. If upon any such liquidation, dissolution or winding up of the Corporation the Corporation's assets to be distributed among the holders of the Class A Preferred Stock hereunder are insufficient to permit payment to such holders of the aggregate amount which they are entitled to be paid upon any liquidation, dissolution or winding up of the Corporation, then the entire assets available to be distributed to the Corporation's stockholders shall be distributed pro rata among such holders based upon the aggregate Liquidation Value (plus all accrued and unpaid dividends) of the Class A Preferred Stock held by each such holder. Prior to the liquidation, dissolution or winding up of the Corporation, the Corporation shall declare for payment all accrued and unpaid dividends with respect to the Class A Preferred Stock, but only to the extent of funds of the Corporation legally available for the payment of dividends. Not less than 30 days prior to the payment date stated therein, the Corporation shall mail written notice of any such liquidation, dissolution or winding up to each record holder of Class A Preferred Stock, setting forth in reasonable detail the amount of proceeds to be paid with respect to each Share and each share of Common Stock in connection with such liquidation, dissolution or winding up. Any (i) sale or transfer by the Corporation of all or substantially all (as defined in the Revised Model Business Corporation Act) of its assets on a consolidated basis, (ii) consolidation, merger or reorganization of the Corporation with or into any other entity or entities as a result of which the holders of the Corporation's outstanding capital stock possessing the voting power (under ordinary circumstances) to elect a majority of the Board immediately prior to such consolidation, merger or reorganization cease to own the outstanding capital stock of the surviving corporation possessing the voting power (under ordinary circumstances) to elect a majority of the surviving corporation's board of directors (any such transaction described in clause (i) or (ii), a "Fundamental Change") or (iii) issuance by the Corporation or sale or ------------------ transfer to any third party of shares of the Corporation's capital stock by the holders thereof as a result of which the holders of the Corporation's outstanding capital stock possessing the voting power (under ordinary circumstances) to elect a majority of the Board immediately prior to such sale or transfer cease to own the outstanding capital stock of the Corporation possessing the voting power (under ordinary circumstances) to elect a majority of the Board (any such transaction in this clause (iii), a "Change in Control") ----------------- shall be deemed to be a liquidation, dissolution or winding up of the Corporation within the meaning of this Section 2, and the holders of the Class A Preferred Stock shall be entitled to receive payment from the Corporation of the amounts payable with respect to the Class A Preferred Stock upon a liquidation, dissolution or winding up of the Corporation under this Section 2 in cancellation of their Shares upon the consummation of any such transaction. -4- Section 3. Priority of Class A Preferred Stock on Dividends and ---------------------------------------------------- Redemptions. So long as any Class A Preferred Stock remains outstanding, - ----------- without the prior written consent of the holders of at least a majority of the outstanding Shares, the Corporation shall not, nor shall it permit any Subsidiary to, redeem, purchase or otherwise acquire directly or indirectly any Junior Securities, nor shall the Corporation directly or indirectly pay or declare any dividend or make any distribution upon any Junior Securities, if at the time of or immediately after any such redemption, purchase, acquisition, dividend or distribution the Corporation has failed to pay the full amount of dividends accrued on the Class A Preferred Stock or the Corporation has failed to make any redemption of the Class A Preferred Stock required hereunder; provided that (i) the Corporation may redeem or repurchase any capital stock held by an employee, director or former employee or director of the Corporation or any of its Subsidiaries, (ii) any recapitalization or exchange of any capital stock, or any subdivision (by stock split, stock dividend or otherwise) or any combination (by stock split, stock dividend or otherwise) of any outstanding shares of the Corporation's capital stock shall not be deemed a redemption, purchase, acquisition, dividend or distribution within the meaning of this Section 3 and (iii) the Corporation may redeem, purchase or otherwise acquire Common Stock for cash or pay or declare dividends or distributions on the Common Stock in cash in an aggregate amount not to exceed $25 million (provided that the aggregate amount of such redemptions, purchases, acquisitions, dividends or distributions paid or payable in any one calendar year shall not exceed the amount of dividends paid on the Class A Preferred Stock in such year multiplied by a fraction, the numerator of which shall be equal to the total number of shares of Common Stock then outstanding immediately prior to any such redemption, purchase, acquisition, dividend or distribution and the denominator of which shall be equal to the total number of shares of Common Stock issuable upon conversion of all of the Shares of Class A Preferred Stock immediately prior to any such redemption, purchase, acquisition, dividend or distribution). Section 4. Redemptions. ----------- 4.1 Optional Redemptions. The Corporation may at any time and from time -------------------- to time after August 1, 2005 redeem all or any portion of the Shares of Class A Preferred Stock then outstanding. Upon any such redemption, the Corporation shall pay a price per Share equal to the greater of (i) the Market Price thereof and (ii) the Liquidation Value thereof (plus all accrued and unpaid dividends thereon) and a premium equal to the following percentage of the Liquidation Value: ---------------------------------------------------------- Redemption Occurs on or After But Prior to % Premium ------------------ ------------ --------- ---------------------------------------------------------- August 1, 2005 August 1, 2006 10% ---------------------------------------------------------- August 1, 2006 August 1, 2007 8% ---------------------------------------------------------- August 1, 2007 August 1, 2008 6% ---------------------------------------------------------- August 1, 2008 August 1, 2009 4% ---------------------------------------------------------- August 1, 2009 August 1, 2010 2% ---------------------------------------------------------- -5- ---------------------------------------------------------- August 1, 2010 0% ---------------------------------------------------------- 4.2 Redemption upon Request. If the Corporation does not consummate a ----------------------- Qualifying IPO on or prior to August 1, 2001, the holders of not less than a majority of the then outstanding Class A Preferred Stock may request redemption of all of their Shares of Class A Preferred Stock by delivering written notice of such request to the Corporation. Within five days after receipt of such request, the Corporation shall give written notice of such request to all other holders of Class A Preferred Stock, and such other holders may request redemption of their Shares of Class A Preferred Stock by delivering written notice to the Corporation within ten days after receipt of the Corporation's notice. The Corporation shall be required to redeem all Shares with respect to which such redemption requests have been made at a price per Share equal to the Liquidation Value thereof (plus all accrued and unpaid dividends thereon) within 30 days after receipt of the initial redemption request. The provisions of this Section 4.2 shall terminate automatically and be of no further force and effect upon the consummation of a Qualifying IPO. 4.3 Redemption Payments. For each Share which is to be redeemed ------------------- hereunder, the Corporation shall be obligated on the Redemption Date to pay to the holder thereof (upon surrender by such holder at the Corporation's principal office of the certificate representing such Share) an amount in cash determined in accordance with Section 4.1 or Section 4.2, as the case may be. Notwithstanding anything to the contrary contained herein, all redemptions pursuant to this Section 4 will be subject to applicable restrictions contained in the General Corporation Law of Delaware and in the Corporation's and its Subsidiaries' debt and equity financing agreements. If, due to any of the aforementioned restrictions, the funds of the Corporation available for redemption of Shares on any Redemption Date are insufficient to redeem the total number of Shares to be redeemed on such date, those funds which are available free of such restrictions shall be used to redeem the maximum possible number of Shares pro rata among the holders of the Shares to be redeemed based upon the aggregate Liquidation Value of such Shares held by each such holder (plus all accrued and unpaid dividends thereon). At any time thereafter when additional funds of the Corporation are available free of such restrictions for the redemption of Shares, such funds shall immediately be used to redeem the balance of the Shares which the Corporation has become obligated to redeem on any Redemption Date but which it has not redeemed. Prior to any redemption of Class A Preferred Stock, the Corporation shall declare for payment all accrued and unpaid dividends with respect to the Shares which are to be redeemed, but only to the extent of funds of the Corporation available free of such restrictions for the payment of dividends. 4.4 Notice of Redemption. Except as otherwise provided herein, the -------------------- Corporation shall mail written notice of each redemption of any Class A Preferred Stock (other than a redemption at the request of a holder or holders of Class A Preferred Stock) to each record holder thereof not more than 60 nor less than 30 days prior to the date on which such redemption is to be made. In case fewer than the total number of Shares represented by any certificate are redeemed, a new certificate representing the number of unredeemed Shares shall be issued to the holder thereof without cost to such holder within five business days after surrender of the certificate representing the redeemed Shares. -6- 4.5 Determination of the Number of Each Holder's Shares to be Redeemed. ------------------------------------------------------------------ Except as otherwise provided herein, the number of Shares of Class A Preferred Stock to be redeemed from each holder thereof in redemptions hereunder shall be the number of Shares determined by multiplying the total number of Shares to be redeemed times a fraction, the numerator of which shall be the total number of Shares then held by such holder and the denominator of which shall be the total number of Shares then outstanding. 4.6 Dividends After Redemption Date. No Share shall be entitled to any ------------------------------- dividends accruing after the date on which the Liquidation Value of such Share (plus all accrued and unpaid dividends thereon) is paid to the holder of such Share. On such date, all rights of the holder of such Share shall cease, and such Share shall no longer be deemed to be issued and outstanding. Section 5. Voting Rights. The holders of the Class A Preferred Stock ------------- shall be entitled to notice of all stockholders meetings in accordance with the Corporation's bylaws, and the holders of the Class A Preferred Stock shall be entitled to vote on all matters submitted to the stockholders for a vote together with the holders of the Class A Common Stock, voting together as a single class, with each share of Class A Common Stock entitled to one vote per share and each Share of Class A Preferred Stock entitled to one vote for each share of Class A Common Stock issuable upon conversion of the Class A Preferred Stock as of the record date for such vote or, if no record date is specified, as of the date of such vote. Section 6. Conversion. ---------- 6.1 Conversion Procedure. -------------------- (i) At any time and from time to time, any holder of Class A Preferred Stock may convert any Share of Class A Preferred Stock held by such holder into a number of shares of Class A Common Stock equal to: ------------------------------------------------------------- $1,000 ------------ x 90% + (10% x Class L Conversion Price [ ] [ Number) ] ------------------------------------------------------------- (ii) Except as otherwise provided herein, each conversion of Class A Preferred Stock shall be deemed to have been effected as of the close of business on the date on which the certificate or certificates representing the Class A Preferred Stock to be converted have been surrendered for conversion at the principal office of the Corporation. At the time any such conversion has been effected, the rights of the holder of the Shares converted as a holder of Class A Preferred Stock shall cease and the Person or Persons in whose name or names any certificate or certificates for shares of Common Stock are to be issued upon such conversion shall be deemed to have become the holder or holders of record of the shares of Common Stock represented thereby. -7- (iii) The conversion rights of any Share subject to redemption hereunder shall terminate on the Redemption Date for such Share unless the Corporation has failed to pay to the holder thereof all amounts due to such holder in connection with any such redemption. (iv) Notwithstanding any other provision hereof, if a conversion of Class A Preferred Stock is to be made in connection with an Initial Public Offering or other transaction affecting the Corporation, the conversion of any Shares of Class A Preferred Stock may, at the election of the holder thereof, be conditioned upon the consummation of such transaction, in which case such conversion shall not be deemed to be effective until such transaction has been consummated. (v) As soon as possible after a conversion has been effected (but in any event within five business days in the case of subparagraph (a) below), the Corporation shall deliver to the converting holder: (a) a certificate or certificates representing the number of shares of Common Stock issuable by reason of such conversion in such name or names and such denomination or denominations as the converting holder has specified; (b) payment in an amount equal to all accrued dividends with respect to each Share converted which have not been paid prior thereto, plus the amount payable under subparagraph (x) below with respect to such conversion; and (c) a certificate representing any Shares of Class A Preferred Stock which were represented by the certificate or certificates delivered to the Corporation in connection with such conversion but which were not converted. (vi) The Corporation shall declare the payment of all dividends payable under Subsection 6.1(v)(b) above. If the Corporation is not permitted under applicable law or any restriction contained in the Corporation's and its Subsidiaries' debt and equity financing agreements to pay any portion of the accrued and unpaid dividends on the Class A Preferred Stock being converted, the Corporation shall pay such dividends to the converting holder as soon thereafter as funds of the Corporation are available free of any such restrictions or prohibition of applicable law for such payment. (vii) The issuance of certificates for shares of Common Stock upon conversion of Class A Preferred Stock shall be made without charge to the holders of such Class A Preferred Stock for any issuance tax in respect thereof or other cost incurred by the Corporation in connection with such conversion and the related issuance of shares of Common Stock. Upon conversion of each Share of Class A Preferred Stock, the Corporation shall take all such actions as are necessary in order to insure that the Common Stock issuable with respect to such conversion shall be validly issued, fully paid and nonassessable, free and clear of all taxes, liens, charges and encumbrances with respect to the issuance thereof. -8- (viii) Corporation shall not close its books against the transfer of Class A Preferred Stock or of Common Stock issued or issuable upon conversion of Class A Preferred Stock in any manner which interferes with the timely conversion of Class A Preferred Stock. (ix) The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of issuance upon the conversion of the Class A Preferred Stock, such number of shares of Common Stock issuable upon the conversion of all outstanding Class A Preferred Stock. All shares of Common Stock which are so issuable shall, when issued, be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges. The Corporation shall not take any action which would cause the number of authorized but unissued shares of Common Stock to be less than the number of such shares required to be reserved hereunder for issuance upon conversion of the Class A Preferred Stock. (x) If any fractional interest in a share of Common Stock would, except for the provisions of this subparagraph, be delivered upon any conversion of the Class A Preferred Stock, the Corporation, in lieu of delivering the fractional share therefor, shall pay an amount to the holder thereof equal to the Market Price of such fractional interest as of the date of conversion. (xi) If the shares of Common Stock issuable by reason of conversion of Class A Preferred Stock are convertible into or exchangeable for any other stock or securities of the Corporation, the Corporation shall, at the converting holder's option, upon surrender of the Shares to be converted by such holder as provided herein together with any notice, statement or payment required to effect such conversion or exchange of Common Stock, deliver to such holder or as otherwise specified by such holder a certificate or certificates representing the stock or securities into which the shares of Common Stock issuable by reason of such conversion are so convertible or exchangeable, registered in such name or names and in such denomination or denominations as such holder has specified. 6.2 Adjustment to Conversion Price. ------------------------------ (i) In order to prevent dilution of the conversion rights granted under this Section 6, the Conversion Price shall be subject to adjustment from time to time pursuant to this Section 6.2. (ii) If and whenever on or after the original date of issuance of the Class A Preferred Stock the Corporation issues or sells, or in accordance with Section 6.3 is deemed to have issued or sold, any shares of its Common Stock for a consideration per share less than the Conversion Price in effect immediately prior to the time of such issue or sale, then immediately upon such issue or sale or deemed issue or sale the Conversion Price shall be reduced to the Conversion Price determined by dividing (a) the sum of (1) the product derived by multiplying the Conversion Price in effect immediately prior to such issue or sale by the number of shares of Common Stock Deemed Outstanding immediately prior to such issue or sale, plus (2) the consideration, if any, -9- received by the Corporation upon such issue or sale, by (b) the number of shares of Common Stock Deemed Outstanding immediately after such issue or sale. (iii) Notwithstanding the foregoing, there shall be no adjustment in the Conversion Price as a result of any issue or sale (or deemed issue or sale) of any shares of Common Stock to (A) employees, officers or directors of the Corporation and its Subsidiaries pursuant to stock option plans, stock ownership plans or agreements or other incentive stock arrangements approved by the Board or (B) unaffiliated third party financing sources, so long as such issuances or sales (or deemed issuances or sales) to unaffiliated third party financing sources for a consideration per share less than the Conversion Price does not exceed 10% of the Corporation's Common Stock. 6.3 Effect on Conversion Price of Certain Events. For purposes of -------------------------------------------- determining the adjusted Conversion Price under Section 6.2, the following shall be applicable: (i) Issuance of Rights or Options. If the Corporation in any manner ----------------------------- grants or sells any Options and the price per share for which Common Stock is issuable upon the exercise of such Options, or upon conversion or exchange of any Convertible Securities issuable upon exercise of such Options, is less than the Conversion Price in effect immediately prior to the time of the granting or sale of such Options, then the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon conversion or exchange of the total maximum amount of such Convertible Securities issuable upon the exercise of such Options shall be deemed to be outstanding and to have been issued and sold by the Corporation at the time of the granting or sale of such Options for such price per share. For purposes of this paragraph, the "price per share for which Common Stock is issuable" shall be determined by dividing (A) the total amount, if any, received or receivable by the Corporation as consideration for the granting or sale of such Options, plus the minimum aggregate amount of additional consideration payable to the Corporation upon exercise of all such Options, plus in the case of such Options which relate to Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the issuance or sale of such Convertible Securities and the conversion or exchange thereof, by (B) the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon the conversion or exchange of all such Convertible Securities issuable upon the exercise of such Options. No further adjustment of the Conversion Price shall be made when Convertible Securities are actually issued upon the exercise of such Options or when Common Stock is actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities. (ii) Issuance of Convertible Securities. If the Corporation in any ---------------------------------- manner issues or sells any Convertible Securities and the price per share for which Common Stock is issuable upon conversion or exchange thereof is less than the Conversion Price in effect immediately prior to the time of such issue or sale, then the maximum number of shares of Common Stock issuable upon conversion or exchange of such Convertible Securities shall be deemed to be outstanding and to have been issued and sold by the Corporation at the time of the issuance or sale of such Convertible Securities for such price per share. For the purposes of this paragraph, the "price per share for which -10- Common Stock is issuable" shall be determined by dividing (A) the total amount received or receivable by the Corporation as consideration for the issue or sale of such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the conversion or exchange thereof, by (B) the total maximum number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities. No further adjustment of the Conversion Price shall be made when Common Stock is actually issued upon the conversion or exchange of such Convertible Securities, and if any such issue or sale of such Convertible Securities is made upon exercise of any Options for which adjustments of the Conversion Price had been or are to be made pursuant to other provisions of this Section 6, no further adjustment of the Conversion Price shall be made by reason of such issue or sale. (iii) Change in Option Price or Conversion Rate. If the purchase ----------------------------------------- price provided for in any Options, the additional consideration, if any, payable upon the conversion or exchange of any Convertible Securities or the rate at which any Convertible Securities are convertible into or exchangeable for Common Stock changes at any time, the Conversion Price in effect at the time of such change shall be immediately adjusted to the Conversion Price which would have been in effect at such time had such Options or Convertible Securities still outstanding provided for such changed purchase price, additional consideration or conversion rate, as the case may be, at the time initially granted, issued or sold. For purposes of Section 6.3, if the terms of any Option or Convertible Security which was outstanding as of the date of issuance of the Class A Preferred Stock are changed in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such change. (iv) Treatment of Expired Options and Unexercised Convertible -------------------------------------------------------- Securities. Upon the expiration of any Option or the termination of any right - ---------- to convert or exchange any Convertible Security without the exercise of any such Option or right, the Conversion Price then in effect hereunder shall be adjusted immediately to the Conversion Price which would have been in effect at the time of such expiration or termination had such Option or Convertible Security, to the extent outstanding immediately prior to such expiration or termination, never been issued. For purposes of Section 6.3, the expiration or termination of any Option or Convertible Security which was outstanding as of the date of issuance of the Class A Preferred Stock shall not cause the Conversion Price hereunder to be adjusted unless, and only to the extent that, a change in the terms of such Option or Convertible Security caused it to be deemed to have been issued after the date of issuance of the Class A Preferred Stock. (v) Calculation of Consideration Received. If any Common Stock, ------------------------------------- Option or Convertible Security is issued or sold or deemed to have been issued or sold for cash, the consideration received therefor shall be deemed to be the amount received by the Corporation therefor (net of discounts, commissions and related expenses). If any Common Stock, Option or Convertible Security is issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Corporation shall be the fair value of such consideration, except where such consideration consists of securities, in which case the amount of consideration received by the Corporation shall be the Market Price thereof as of the date of receipt. -11- If any Common Stock, Option or Convertible Security is issued to the owners of the non-surviving entity in connection with any merger in which the Corporation is the surviving corporation, the amount of consideration therefor shall be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such Common Stock, Option or Convertible Security, as the case may be. The fair value of any consideration other than cash and securities shall be determined by the Board in its reasonable good faith judgment. (vi) Integrated Transactions. In case any Option is issued in ----------------------- connection with the issue or sale of other securities of the Corporation, together comprising one integrated transaction in which no specific consideration is allocated to such Option by the parties thereto, the Option shall be deemed to have been issued for a consideration of $0.01. (vii) Treasury Shares. The number of shares of Common Stock --------------- outstanding at any given time shall not include shares owned or held by or for the account of the Corporation or any Subsidiary, and the disposition of any shares so owned or held shall be considered an issue or sale of Common Stock. (viii) Record Date. If the Corporation takes a record of the ----------- holders of Common Stock for the purpose of entitling them (a) to receive a dividend or other distribution payable in Common Stock, Options or in Convertible Securities or (b) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or upon the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. 6.4 Subdivision or Combination of Common Stock. If the Corporation at any ------------------------------------------ time subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision shall be proportionately reduced, and if the Corporation at any time combines (by reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior to such combination shall be proportionately increased. 6.5 Notices. Immediately upon any adjustment of the Conversion Price, the ------- Corporation shall give written notice thereof to all holders of Class A Preferred Stock, setting forth in reasonable detail and certifying the calculation of such adjustment. 6.6 Mandatory Conversion. Upon the consummation of a Qualifying IPO, all -------------------- of the then outstanding Shares of Class A Preferred Stock shall be automatically converted into Common Stock at the then effective Conversion Price. Any such automatic conversion shall only be effected at the time of and subject to the closing of such Qualifying IPO and upon written notice of such automatic conversion delivered to all holders of Class A Preferred Stock at least seven days prior to such closing. -12- Section 7. Protective Provisions. As long as any Shares of Class A --------------------- Preferred Stock are outstanding, the Corporation shall not without first obtaining the written consent of the holders of at least 66 2/3% of the then outstanding Shares of Class A Preferred Stock: (1) amend or change the rights, preferences, privileges or powers of, or the restrictions provided for the benefit of, the Class A Preferred Stock; (2) authorize, create or issue any new shares of any class of capital stock or any security convertible into or exercisable for any such class of capital stock having a preference superior to the Class A Preferred Stock with respect to dividends or liquidation rights or liquidation preferences, other than the issuance of any shares of the Corporation's Senior Preferred Stock, par value $.01 per share; or (3) reclassify any outstanding shares of capital stock into any class of capital stock or any security convertible into or exercisable for any such class of capital stock having a preference superior to the Class A Preferred Stock with respect to dividends or liquidation rights or liquidation preferences. Section 8. Registration of Transfer. The Corporation shall keep at ------------------------ its principal office a register for the registration of Class A Preferred Stock. Upon the surrender of any certificate representing Class A Preferred Stock at such place, the Corporation shall, at the request of the record holder of such certificate, execute and deliver (at the Corporation's expense) a new certificate or certificates in exchange therefor representing in the aggregate the number of Shares represented by the surrendered certificate. Each such new certificate shall be registered in such name and shall represent such number of Shares as is requested by the holder of the surrendered certificate and shall be substantially identical in form to the surrendered certificate, and dividends shall accrue on the Class A Preferred Stock represented by such new certificate from the date to which dividends have been fully paid on such Class A Preferred Stock represented by the surrendered certificate. Section 9. Replacement. Upon receipt of evidence reasonably ----------- satisfactory to the Corporation (an affidavit of the registered holder shall be satisfactory) of the ownership and the loss, theft, destruction or mutilation of any certificate evidencing Shares of Class A Preferred Stock, and in the case of any such loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to the Corporation, or, in the case of any such mutilation upon surrender of such certificate, the Corporation shall (at its expense) execute and deliver in lieu of such certificate a new certificate of like kind representing the number of Shares of such class represented by such lost, stolen, destroyed or mutilated certificate and dated the date of such lost, stolen, destroyed or mutilated certificate, and dividends shall accrue on the Class A Preferred Stock represented by such new certificate from the date to which dividends have been fully paid on such lost, stolen, destroyed or mutilated certificate. Section 10. Amendment and Waiver. No amendment, modification or waiver -------------------- shall be binding or effective with respect to any provision of this Part C to Article IV hereof without the prior -13- written consent of the holders of at least 66-2/3% of the Class A Preferred Stock outstanding at the time such action is taken. Section 11. Notices. Except as otherwise expressly provided hereunder, ------- all notices referred to herein shall be in writing and shall be delivered by registered or certified mail, return receipt requested and postage prepaid, or by reputable overnight courier service, charges prepaid, and shall be deemed to have been given when so mailed or sent (i) to the Corporation, at its principal executive offices and (ii) to any stockholder, at such holder's address as it appears in the stock records of the Corporation (unless otherwise indicated by any such holder). D. SENIOR PREFERRED STOCK ---------------------- 105,000 shares of the Corporation's Preferred Stock shall be designated as Class B Preferred Stock, par value $0.01 per share (the "Senior Preferred ---------------- Stock"). The Senior Preferred Stock shall have the following rights, preferences and privileges, subject to the following restrictions, limitations and qualifications. Section 1. Voting Rights. Except as otherwise provided in this Part D ------------- or as otherwise required by applicable law, the holders of Senior Preferred Stock shall have no right to vote on any matters to be voted on by the stockholders of the Corporation. Section 2. Dividends. --------- 2.1 General Obligation. When and as declared by the Corporation's Board ------------------ of Directors and to the extent permitted under the General Corporation Law of Delaware, the Corporation shall pay preferential dividends to the holders of the Senior Preferred Stock as provided in this Section 2. Dividends on each share of the Senior Preferred Stock (a "Share" for purposes of this Part D of Article ----- Four) shall accrue on a daily basis at the rate of 12.5% per annum of the sum of the Stated Value thereof plus all accumulated and unpaid dividends thereon from and including the date of issuance of such Share to and including the first to occur of (i) the date on which the Stated Value of such Share (plus all accrued and unpaid dividends thereon) is paid to the holder thereof in connection with the liquidation of the Corporation or the redemption of such Share by the Corporation or (ii) the date on which such Share is otherwise acquired by the Corporation. Such dividends shall accrue whether or not they have been declared and whether or not there are profits, surplus or other funds of the Corporation legally available for the payment of dividends. The date on which the Corporation initially issues any Share shall be deemed to be its "date of issuance" regardless of the number of times transfer of such Share is made on the stock records maintained by or for the Corporation and regardless of the number of certificates which may be issued to evidence such Share. 2.2 Accumulation of Dividends; Dividend Payment Dates. All dividends ------------------------------------------------- which have accrued on each Share of Senior Preferred Stock outstanding during each six-month period ending February 1 and August 1, commencing February 1, 2000 and on or prior to August 1, 2004 will not -14- be paid in cash, but will be capitalized as accumulated and unpaid dividends on the Senior Preferred Stock with respect to each Share until paid to the holder thereof. All dividends accruing on each Share of Senior Preferred Stock from and after August 1, 2004, shall be paid in cash, semi-annually on February 1 and August 1, beginning February 1, 2005. 2.3 Distribution of Partial Dividend Payments. Except as otherwise ----------------------------------------- provided herein, if at any time the Corporation pays less than the total amount of dividends then accrued with respect to the Senior Preferred Stock, such payment shall be distributed pro rata among the holders thereof based upon the aggregate accrued but unpaid dividends on the Shares held by each such holder. 2.4 In Event of Default. In the event the Corporation fails, either in ------------------- whole or in part, to pay, when due, any dividend or other amount required by this Certificate of Incorporation to be paid with respect to the Senior Preferred Stock (an "Event of Default"), then from and after the due date of ---------------- such dividend or other payment until such dividend or other payment has been paid in full: (i) the dividend rate on the Senior Preferred Stock shall increase immediately by an increment of two and one-half percent (2.5%) per annum (the "Default Rate") and (ii) the holders of a majority of the Senior Preferred Stock ------------ then outstanding shall have the sole and exclusive right to nominate, and the holders of the Senior Preferred Stock voting as a separate class will have the sole and exclusive right to elect, one member of the Corporation's Board of Directors, which right shall be in addition to any other rights of the holders of the Senior Preferred Stock in any other capacity to nominate, elect or vote with respect to the election of the directors of the Corporation pursuant to this Certificate of Incorporation or any agreement with the Corporation and/or its shareholders. Dividends shall accrue at the Default Rate, and the director so nominated and elected by the holders of the Senior Preferred Stock shall serve, until such time as there is no longer any Event of Default in existence, at which time the special right of the holders of the Senior Preferred Stock to nominate and elect one member of the Corporation's Board of Directors shall terminate subject to revesting upon the occurrence and continuation of any Event of Default which gives rise to such special right hereunder. Section 3. Liquidating Distributions. At the time of each Liquidating ------------------------- Distribution, the holders of the Senior Preferred Stock shall be entitled to receive all or a portion of such Liquidating Distribution (ratably among such holders based upon the number of Shares of Senior Preferred Stock held by each such holder as of the time of such Liquidating Distribution) equal to the aggregate Liquidation Preference on the outstanding Shares of Senior Preferred Stock as of the time of such Liquidating Distribution, and no Liquidating Distribution or any portion thereof shall be made with respect to the Class A Preferred Stock or the Common Stock until the entire amount of the Liquidation Preference on the outstanding Shares of Senior Preferred Stock as of the time of such Liquidating Distribution has been paid in full. The Liquidating Distributions made pursuant to this Section 3 to the holders of the Senior Preferred Stock shall constitute a payment of Liquidation Preference on Senior Preferred Stock. Section 4. Non-Liquidating Distributions. At the time of each Non- ----------------------------- Liquidating Distribution, the holders of the Senior Preferred Stock shall be entitled to receive all or a portion of such Non-Liquidating Distribution (ratably among such holders based upon the number of Shares of Senior Preferred Stock held by each such holder as of the time of such Non-Liquidating -15- Distribution) equal to the aggregate amount of accrued but unpaid cash dividends required to be paid pursuant to the last sentence of Section 2.2 of this Part D of this Article Four on the outstanding Shares of Senior Preferred Stock as of the time of such Non-Liquidating Distribution, and no Non-Liquidating Distribution or any portion thereof shall be paid with respect to the Class A Preferred Stock or the Common Stock until the entire amount of the accrued but unpaid cash dividends required to be paid pursuant to the last sentence of Section 2.2 of this Part D of this Article Four on the outstanding Shares of Senior Preferred Stock as of the time of such Non-Liquidating Distribution has been paid in full. The Non-Liquidating Distributions made pursuant to this Section 4 to the holders of the Senior Preferred Stock shall constitute a payment of dividends on Senior Preferred Stock. Notwithstanding any other provision in this Certificate of Incorporation to the contrary, prior to the date on which the Stated Value of each Share of Senior Preferred Stock, plus all accrued and unpaid dividends thereon, is paid in full to the holder thereof in connection with the redemption of such Share or otherwise or such Share is otherwise acquired by the Corporation, the Corporation shall not make Non-Liquidating Distributions which would result in cash, property or securities of the Corporation in excess of $25 million being distributed to the holders of Common Stock. Section 5. Redemption. ---------- 5.1 Optional Redemption. The Corporation shall have the right to redeem ------------------- all or any portion of the Shares of Senior Preferred Stock then outstanding from the holders thereof by notice to such holders at a redemption price per Share, to be paid in cash, equal to the Liquidation Preference. 5.2 Mandatory Redemption. On August 1, 2010 (the "Mandatory Redemption -------------------- -------------------- Date"), the Corporation shall redeem all of the Senior Preferred Stock then - ---- outstanding from the holders thereof, at a redemption price per Share, to be paid in cash, equal to the Liquidation Preference. 5.3 Redemption Procedures. In the event of a redemption pursuant to --------------------- Section 5.1 or Section 5.2, the Corporation shall deliver notice of such redemption to each holder of record of the Senior Preferred Stock to be redeemed (determined as of the close of business on the business day next preceding the day on which such notice is given), at the address shown on the records of the Corporation for such holder or given by such holder to this Corporation for notice purposes, or if no such address appears or is given, at the address of the Corporation's principal executive offices. Such notice (i) shall notify such holder of the redemption to be effected, specify the number of Shares to be redeemed from such holder, the date of the redemption (which date shall be not less than thirty (30) nor more than sixty (60) days after the date the notice is given) (the "Senior Preferred Stock Redemption Date"), and the manner in which -------------------------------------- payment may be obtained, and (ii) shall call upon such holder to surrender to the Corporation, at the Corporation's principal executive offices, in the manner designated, the certificate or certificates representing the Shares of Senior Preferred Stock to be redeemed (the "Redemption Notice"). On or after the ----------------- Senior Preferred Stock Redemption Date, (x) each holder of Senior Preferred Stock to be redeemed shall surrender to the Corporation the certificate or certificates representing such Shares in the manner and at the place designated in the -16- Redemption Notice, (y) the applicable redemption price shall forthwith be paid to the order of the person whose name appears on such certificate or certificates as the owner thereof, either by wire transfer of immediately available funds to such account as the holder may direct or by delivery of a check (drawn on the New York City or San Francisco, California branch of a bank chartered under the laws of the United States of America or any state thereof) to the holder in the manner prescribed for notices in this Article Four and (z) each certificate so surrendered shall be canceled. In the event that fewer than all of the Shares represented by any certificate surrendered pursuant to clause (x) of this Section 5.3 are redeemed, a new certificate representing the unredeemed Shares shall forthwith be issued and delivered to the holder in the manner prescribed for notices in this Article Four. 5.4 Insufficient Funds. If the funds of the Corporation legally available ------------------ for redemption of the Senior Preferred Stock on the Mandatory Redemption Date are insufficient to redeem the total number of Shares of Senior Preferred Stock to be redeemed on such date, those funds which are legally available will be used to redeem the maximum possible number of such Shares ratably among the holders of such Shares to be redeemed. The Shares of Senior Preferred Stock not redeemed shall remain outstanding and shall be entitled to dividends at the Default Rate and shall otherwise be entitled to all the rights and preferences provided in this Certificate. At any time thereafter when additional funds of the Corporation are legally available for the redemption of the previously unredeemed Shares of Senior Preferred Stock, such funds will immediately be used to redeem the balance of the Shares which the Corporation has become obligated to redeem on the Mandatory Redemption Date but which it has not redeemed. For purposes of Section 2.4 of Part D of Article Four, the failure to redeem all of the Shares of Senior Preferred Stock to be redeemed at the Mandatory Redemption Date and to pay in full the Liquidation Preference for such Shares of Senior Preferred Stock on such date shall be treated as an Event of Default entitling the holders of the Senior Preferred Stock to the rights set forth therein until such Shares have been redeemed, and the Liquidation Preference has been paid in full. 5.5 Status of Redeemed Stock. In the event that any Shares of Senior ------------------------ Preferred Stock are redeemed pursuant to this Section 5, the Shares so redeemed shall be canceled. No Share of Senior Preferred Stock is entitled to any Distributions accruing after the date on which the Liquidation Preference is paid to the holder thereof. On such date all rights of the holder of such Share of Senior Preferred Stock shall cease, and such Share of Senior Preferred Stock shall not be deemed to be outstanding. Section 6. Protective Provisions. As long as any Shares of Senior --------------------- Preferred Stock are outstanding, the Corporation shall not without first obtaining the written consent of the holders of at least a majority of the then outstanding Shares of Senior Preferred Stock: (1) alter or change the rights, preferences or privileges of any shares of Senior Preferred Stock; (2) except as may be required pursuant to Section 2.5 of that certain Recapitalization Agreement dated as of March 13, 1999, as the same be amended from time to time, by and among the Corporation, Hyundai -17- Electronics Industries Co., Ltd., Hyundai Electronics America and ChipPAC Merger Corp., increase the total number of authorized shares of Senior Preferred Stock or issue or authorize the issuance of any additional Shares of Senior Preferred Stock; or (3) authorize or issue, or obligate itself to issue, any other equity security (including any other security convertible into or exercisable for any equity security) having a preference over or being on a parity with the Senior Preferred Stock with respect to dividends or liquidation rights or liquidation preferences. Section 7. No Impairment. The Corporation shall not, by amendment of ------------- its Certificate of Incorporation or Bylaws or through any reorganization, recapitalization, transfer of assets, consolidation, merger or other business combination transaction, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed under Part D of this Article Four by the Corporation, but will at all times in good faith assist in the carrying out of all provisions of Part D of Article Four and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holders of the Senior Preferred Stock under this Certificate against impairment. Section 8. Registration of Transfer. The Corporation shall keep at its ------------------------ principal office (or such other place as the Corporation reasonably designates) a register for the registration of the Senior Preferred Stock. Upon the surrender of any certificate representing shares of Senior Preferred Stock at such place, the Corporation shall, at the request of the registered holder of such certificate, execute and deliver a new certificate or certificates in exchange therefor representing in the aggregate the number of shares represented by the surrendered certificate and the Corporation forthwith shall cancel such surrendered certificate. Each such new certificate will be registered in such name and will represent such number of shares as is requested by the holder of the surrendered certificate and shall be substantially identical in form to the surrendered certificate. The issuance of new certificates shall be made without charge to the holders of the surrendered certificates for any issuance tax in respect thereof or other cost incurred by the Corporation in connection with such issuance. Section 9. Replacement. Upon receipt of evidence reasonably ----------- satisfactory to the Corporation (an affidavit of the registered holder will be satisfactory) of the ownership and the loss, theft, destruction or mutilation of any certificate evidencing one or more shares of any class of Senior Preferred Stock, and in the case of any such loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to the Corporation, or, in the case of any such mutilation upon surrender of such certificate, the Corporation shall (at its expense) execute and deliver in lieu of such certificate a new certificate of like kind representing the number of shares of Senior Preferred Stock represented by such lost, stolen, destroyed or mutilated certificate and dated the date of such lost, stolen, destroyed or mutilated certificate. Section 10. Notices. All notices referred to herein shall be in ------- writing, shall be delivered personally or by first class mail, postage prepaid, and shall be deemed to have been given when so delivered or mailed to the Corporation at its principal executive offices and to any stockholder at -18- such holder's address as it appears in the stock records of the Corporation (unless otherwise specified in a written notice to the Corporation by such holder). Section 11. Amendment and Waiver. No amendment as to any terms or -------------------- provisions of, or for the benefit of, the Senior Preferred Stock that adversely affects the powers, preferences or special rights of the Senior Preferred Stock shall be effective without the prior consent of the holders of a majority of the then outstanding shares of Senior Preferred Stock, voting as a single class. E. CLASS C PREFERRED STOCK ----------------------- 8,750 shares of the Corporation's Preferred Stock shall be designated as Class C-1 Convertible Preferred Stock, par value $.01 per share (the "Class ----- C-1 Preferred Stock") and 8,750 shares of the Corporation's Preferred Stock - ------------------- shall be designated as Class C-2 Convertible Preferred Stock, par value $.01 per share (the "Class C-2 Preferred Stock" and together with the Class C-1 Preferred ------------------------- Stock, the "Class C Preferred Stock"). ----------------------- The Class C Preferred Stock shall have the following rights, preferences and privileges, subject to the following restrictions, limitations and qualifications. Section 1. Dividends. --------- 1.1 General Obligation. When and as declared by the Corporation's ------------------ Board of Directors and to the extent permitted under the General Corporation Law of California, the Corporation shall pay preferential dividends in cash to the holders of the Class C Preferred Stock as provided in this Section 1. Dividends on each share of the Class C Preferred Stock (a "Share" for purposes of this ----- Part E of Article Four) shall accrue on a daily basis at the rate of 5% per annum of the sum of the Liquidation Value thereof plus all accumulated and unpaid dividends thereon from and including the date of issuance of such Share to and including the first to occur of (i) the date on which the Liquidation Value of such Share (plus all accrued and unpaid dividends thereon) is paid to the holder thereof in connection with the liquidation of the Corporation or the redemption of such Share is effected by the Corporation, (ii) the date on which such Share is converted into shares of Conversion Stock hereunder or (iii) the date on which such Share is otherwise acquired by the Corporation. Such dividends shall accrue whether or not they have been declared and whether or not there are profits, surplus or other funds of the Corporation legally available for the payment of dividends, and such dividends shall be cumulative. The date on which the Corporation initially issues any Share shall be deemed to be its "date of issuance" regardless of the number of times transfer of such Share is made on the stock records maintained by or for the Corporation and regardless of the number of certificates which may be issued to evidence such Share. 1.2 Dividend Reference Dates. To the extent not paid on June 30 of ------------------------ each year, beginning June 30, 2001 (the "Class C Preferred Stock Dividend -------------------------------- Reference Date"), all dividends which have accrued on each Share outstanding - -------------- during the twelve-month period (or other period in the case of the initial Class C Preferred Stock Dividend Reference Date) ending upon each such Class C Preferred Stock -19- Dividend Reference Date shall be accumulated and shall remain accumulated dividends with respect to such Share until paid to the holder thereof. 1.3 Distribution of Partial Dividend Payments. Except as otherwise ----------------------------------------- provided herein, if at any time the Corporation pays less than the total amount of dividends then accrued with respect to the Class C Preferred Stock, such payment shall be distributed pro rata among the holders thereof based upon the aggregate accrued but unpaid dividends on the Shares held by each such holder. Section 2. Liquidation. ----------- Upon any liquidation, dissolution or winding up of the Corporation (whether voluntary or involuntary), each holder of Class C Preferred Stock shall be entitled to be paid, before any distribution or payment is made upon any Junior Securities, an amount in cash equal to the aggregate Liquidation Value of all Shares held by such holder (plus all accrued and unpaid dividends thereon), and the holders of Class C Preferred Stock shall not be entitled to any further payment. If upon any such liquidation, dissolution or winding up of the Corporation the Corporation's assets to be distributed among the holders of the Class C Preferred Stock hereunder are insufficient to permit payment to such holders of the aggregate amount which they are entitled to be paid upon any liquidation, dissolution or winding up of the Corporation, then the entire assets available to be distributed to the Corporation's stockholders shall be distributed pro rata among such holders based upon the aggregate Liquidation Value (plus all accrued and unpaid dividends) of the Class C Preferred Stock held by each such holder. Prior to the liquidation, dissolution or winding up of the Corporation, the Corporation shall declare for payment all accrued and unpaid dividends with respect to the Class C Preferred Stock, but only to the extent of funds of the Corporation legally available for the payment of dividends. Not less than 30 days prior to the payment date stated therein, the Corporation shall mail written notice of any such liquidation, dissolution or winding up to each record holder of Class C Preferred Stock, setting forth in reasonable detail the amount of proceeds to be paid with respect to each Share and each share of Common Stock in connection with such liquidation, dissolution or winding up. At the election of the Corporation, any (i) sale or transfer by the Corporation of all or substantially all (as defined in the Revised Model Business Corporation Act) of its assets on a consolidated basis, (ii) consolidation, merger or reorganization of the Corporation with or into any other entity or entities as a result of which the holders of the Corporation's outstanding capital stock possessing the voting power (under ordinary circumstances) to elect a majority of the Corporation's board of directors immediately prior to such consolidation, merger or reorganization cease to own the outstanding capital stock of the surviving corporation possessing the voting power (under ordinary circumstances) to elect a majority of the surviving corporation's board of directors or (iii) issuance by the Corporation or sale or transfer to any third party of shares of the Corporation's capital stock by the holders thereof as a result of which the holders of the Corporation's outstanding capital stock possessing the voting power (under ordinary circumstances) to elect a majority of the Corporation's board of directors immediately prior to such sale or transfer cease to own the outstanding capital stock of the Corporation possessing the voting power (under ordinary circumstances) to elect a majority of the Corporation's board of directors shall be deemed to be a liquidation, dissolution or winding up of the Corporation within the meaning of -20- this Section 2, and the holders of the Class C Preferred Stock shall be entitled to receive payment from the Corporation of the amounts payable with respect to the Class C Preferred Stock upon a liquidation, dissolution or winding up of the Corporation under this Section 2 in cancellation of their Shares upon the consummation of any such transaction. Section 3. Priority of Class C Preferred Stock on Dividends and ---------------------------------------------------- Redemptions. - ----------- So long as any Class C Preferred Stock remains outstanding, without the prior written consent of the holders of at least a majority of the outstanding Shares, the Corporation shall not, nor shall it permit any Subsidiary to, redeem, purchase or otherwise acquire directly or indirectly any Junior Securities, nor shall the Corporation directly or indirectly pay or declare any dividend or make any distribution upon any Junior Securities; provided that (i) the Corporation may redeem or repurchase any capital stock held by an employee or director of the Corporation or its Subsidiaries following such person's termination of service with the Corporation or any of its Subsidiaries and (ii) any recapitalization or exchange of any capital stock, or any subdivision (by stock split, stock dividend or otherwise) or any combination (by stock split, stock dividend or otherwise) of any outstanding shares of the Corporation's capital stock pursuant to which holders of Junior Securities receive solely Junior Securities shall not be deemed a redemption, purchase, acquisition, dividend or distribution within the meaning of this Section 3. Section 4. Redemptions. ----------- 4.1 Redemption upon Request. If the Corporation does not consummate ----------------------- an Initial Public Offering on or prior to June 30, 2003, the holders of not less than a majority of the then outstanding Class C Preferred Stock may request redemption of all of their Shares by delivering written notice of such request to the Corporation. Within five days after receipt of such request, the Corporation shall give written notice of such request to all other holders of Class C Preferred Stock, and such other holders may request redemption of their Shares by delivering written notice to the Corporation within ten days after receipt of the Corporation's notice. The Corporation shall be required to redeem all Shares with respect to which such redemption requests have been made at a price per Share equal to the Liquidation Value thereof (plus all accrued and unpaid dividends thereon) within 30 days after receipt of the initial redemption request. The provisions of this Section 4.1 shall terminate automatically and be of no further force and effect upon the consummation of an Initial Public Offering. 4.2 Redemption Payments. For each Share which is to be redeemed ------------------- hereunder, the Corporation shall be obligated on the Redemption Date to pay to the holder thereof (upon surrender by such holder at the Corporation's principal office of the certificate representing such Share) an amount in cash determined in accordance with Section 4.1. Notwithstanding anything to the contrary contained herein, all redemptions pursuant to this Section 4 will be subject to applicable restrictions contained in the General Corporation Law of California and in the Corporation's and its Subsidiaries' debt financing agreements. If, due to any of the aforementioned restrictions, the funds of the Corporation available for redemption of Shares on any Redemption Date are insufficient to redeem the total number of Shares to be redeemed on such date, those funds which are available free -21- of such restrictions shall be used to redeem the maximum possible number of Shares pro rata among the holders of the Shares to be redeemed based upon the aggregate Liquidation Value of such Shares held by each such holder (plus all accrued and unpaid dividends thereon). At any time thereafter when additional funds of the Corporation are available free of such restrictions for the redemption of Shares, such funds shall immediately be used to redeem the balance of the Shares which the Corporation has become obligated to redeem on any Redemption Date but which it has not redeemed. Prior to any redemption of Class C Preferred Stock, the Corporation shall declare for payment all accrued and unpaid dividends with respect to the Shares which are to be redeemed, but only to the extent of funds of the Corporation available free of such restrictions for the payment of dividends. 4.3 Notice of Redemption. Except as otherwise provided herein, the -------------------- Corporation shall mail written notice of each redemption of any Class C Preferred Stock to each record holder thereof not more than 60 nor less than 30 days prior to the date on which such redemption is to be made. In case fewer than the total number of Shares represented by any certificate are redeemed, a new certificate representing the number of unredeemed Shares shall be issued to the holder thereof without cost to such holder within five business days after surrender of the certificate representing the redeemed Shares. 4.4 Determination of the Number of Each Holder's Shares to be --------------------------------------------------------- Redeemed. Except as otherwise provided herein, the number of Shares to be - -------- redeemed from each holder thereof in redemptions hereunder shall be the number of Shares determined by multiplying the total number of Shares to be redeemed times a fraction, the numerator of which shall be the total number of Shares then held by such holder and the denominator of which shall be the total number of Shares then outstanding. 4.5 Dividends After Redemption Date. No Share shall be entitled to ------------------------------- any dividends accruing after the date on which the Liquidation Value of such Share (plus all accrued and unpaid dividends thereon) is paid to the holder of such Share. On such date, all rights of the holder of such Share shall cease, and such Share shall no longer be deemed to be issued and outstanding. If the Corporation is not permitted under applicable law or any restriction contained in the Corporation's or its Subsidiaries' debt financing agreements to pay any portion of the accrued and unpaid dividends on the Class C Preferred Stock being redeemed, the Corporation shall pay such dividends to the holder as soon thereafter as funds of the Corporation are available free of any such restrictions or prohibition of applicable law for such payment. Section 5. Voting Rights. ------------- Except as otherwise provided in this Certificate of Incorporation (the "Certificate") and as otherwise required by applicable law, the Class C ----------- Preferred Stock shall have no voting rights; provided that each holder of Class C Preferred Stock shall be entitled to notice of all shareholders meetings and to receive copies of all materials provided to shareholders in connection with such meetings at the same time and in the same manner as notice is given to all shareholders entitled to such meetings and shall be entitled to attend such meetings. -22- Section 6. Conversion. ---------- 6.1 Conversion Procedure. -------------------- (i) Concurrently with the consummation of an Initial Public Offering, each Share shall automatically be converted into a number of shares of Conversion Stock determined by (A) in the case of each share of Class C-1 Preferred Stock, by dividing the sum of $1,000.00 plus the amount of accrued and unpaid dividends per share through the date of conversion, whether or not declared and whether or not there are profits, surplus or other funds of the Corporation legally available for the payment of dividends, by the IPO Price and (B) in the case of each share of Class C-2 Preferred Stock, by dividing the sum of $1,000.00 plus the amount of accrued and unpaid dividends per share through the date of conversion, whether or not declared and whether or not there are profits, surplus or other funds of the Corporation legally available for the payment of dividends, by 90% of the IPO Price. Any such automatic conversion shall only be effected at the time of and subject to the closing of the Initial Public Offering. The conversion rights set forth in this Section 6A(i) with respect to each Share shall terminate upon the date upon which such share is redeemed by the Corporation unless the Corporation has failed to pay to the holder thereof all amounts due to such holder in connection with any such redemption. (ii) Each conversion of Class C Preferred Stock shall be deemed to have been effected as of the consummation of an Initial Public Offering. At the time any such conversion has been effected, the rights of the holder of the Shares converted as a holder of Class C Preferred Stock shall cease and the Person or Persons in whose name or names any certificate or certificates for shares of Conversion Stock are to be issued upon such conversion shall be deemed to have become the holder or holders of record of the shares of Conversion Stock represented thereby. (iii) As soon as possible after a conversion has been effected (but in any event within five business days), the Corporation shall deliver to the converting holder a certificate or certificates representing the number of shares of Conversion Stock issuable by reason of such conversion in such name or names and such denomination or denominations as the converting holder has specified. (iv) The issuance of certificates for shares of Conversion Stock upon conversion of Class C Preferred Stock shall be made without charge to the holders of such Class C Preferred Stock for any issuance tax in respect thereof or other cost incurred by the Corporation in connection with such conversion and the related issuance of shares of Conversion Stock. Upon conversion of each Share, the Corporation shall take all such actions as are necessary in order to insure that the Conversion Stock issuable with respect to such conversion shall be validly issued, fully paid and nonassessable, free and clear of all taxes, liens, charges and encumbrances with respect to the issuance thereof. (v) The Corporation shall not close its books against the transfer of Class C Preferred Stock or of Conversion Stock issued or issuable upon conversion of Class C -23- Preferred Stock in any manner which interferes with the timely conversion of Class C Preferred Stock. (vi) The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Conversion Stock, solely for the purpose of issuance upon the conversion of the Class C Preferred Stock, such number of shares of Conversion Stock issuable upon the conversion of all outstanding Class C Preferred Stock. All shares of Conversion Stock which are so issuable shall, when issued, be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges. The Corporation shall not take any action which would cause the number of authorized but unissued shares of Conversion Stock to be less than the number of such shares required to be reserved hereunder for issuance upon conversion of the Class C Preferred Stock. (vii) If any fractional interest in a share of Conversion Stock would, except for the provisions of this subsection, be delivered upon any conversion of the Class C Preferred Stock, the Corporation, in lieu of delivering the fractional share therefor, shall pay an amount to the holder thereof equal to the IPO Price of such fractional interest as of the date of conversion. Section 7. Protective Provisions. --------------------- As long as any Shares are outstanding, the Corporation shall not without first obtaining the written consent of the holders of at least 66 2/3% of the then outstanding Shares: (a) amend or change the rights, preferences, privileges or powers of, or the restrictions provided for the benefit of, the Class C Preferred Stock; (b) authorize, create or issue any new shares of any class of capital stock or any security convertible into or exercisable for any such class of capital stock having a preference superior to the Class C Preferred Stock with respect to dividends or liquidation rights or liquidation preferences, other than the issuance of not more than 10,000 shares of the Corporation's Class A Preferred Stock, par value $.01 per share or not more than 105,000 shares of the Corporation's Senior Preferred Stock, par value $.01 per share (in each case, as the number of such shares may be proportionately adjusted from time to time for all stock splits, stock dividends and other recapitalizations affecting such shares); or (c) reclassify any outstanding shares of capital stock into any class of capital stock or any security convertible into or exercisable for any such class of capital stock having a preference superior to the Class C Preferred Stock with respect to dividends or liquidation rights or liquidation preferences. -24- Section 8. Registration of Transfer. ------------------------ The Corporation shall keep at its principal office a register for the registration of Class C Preferred Stock. Upon the surrender of any certificate representing Class C Preferred Stock at such place, the Corporation shall, at the request of the record holder of such certificate, execute and deliver (at the Corporation's expense) a new certificate or certificates in exchange therefor representing in the aggregate the number of Shares represented by the surrendered certificate. Each such new certificate shall be registered in such name and shall represent such number of Shares as is requested by the holder of the surrendered certificate and shall be substantially identical in form to the surrendered certificate, and dividends shall accrue on the Class C Preferred Stock represented by such new certificates from the date to which dividends have been fully paid on such Class C Preferred Stock represented by the surrendered certificate. Section 9. Replacement. ----------- Upon receipt of evidence reasonably satisfactory to the Corporation (an affidavit of the registered holder shall be satisfactory) of the ownership and the loss, theft, destruction or mutilation of any certificate evidencing Shares, and in the case of any such loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to the Corporation, or, in the case of any such mutilation upon surrender of such certificate, the Corporation shall (at its expense) execute and deliver in lieu of such certificate a new certificate of like kind representing the number of Shares of such class represented by such lost, stolen, destroyed or mutilated certificate and dated the date of such lost, stolen, destroyed or mutilated certificate, and dividends shall accrue on the Class C Preferred Stock represented by such new certificate from the date to which dividends have been fully paid on such lost, stolen, destroyed or mutilated certificate. Section 10. Amendment and Waiver. -------------------- No amendment, modification or waiver shall be binding or effective with respect to any provision of this Part E to Article IV hereof without the prior written consent of the holders of at least 66_% of the Class C Preferred Stock outstanding at the time such action is taken. Section 11. Notices. ------- Except as otherwise expressly provided hereunder, all notices referred to herein shall be in writing and shall be delivered by registered or certified mail, return receipt requested and postage prepaid, or by reputable overnight courier service, charges prepaid, and shall be deemed to have been given when so mailed or sent (i) to the Corporation, at its principal executive offices and (ii) to any stockholder, at such holder's address as it appears in the stock records of the Corporation (unless otherwise indicated by any such holder). F. COMMON STOCK ------------ -25- Section 1. Dividends. Except as otherwise provided by the Delaware --------- General Corporation Law or this Certificate, the holders of Common Stock: (i) subject to the rights of holders any series of Preferred Stock, shall share ratably in all dividends payable in cash, stock or otherwise and other distributions, whether in respect of liquidation or dissolution (voluntary or involuntary) or otherwise and (ii) are subject to all the powers, rights, privileges, preferences and priorities of any series of Preferred Stock as provided herein or in any resolution or resolutions adopted by the Board of Directors pursuant to authority expressly vested in it by the provisions of Parts B, C or D of this Article Four. Section 2. Preemptive Rights. No holder of Common Stock shall have any ----------------- preemptive, subscription, redemption, conversion or sinking fund rights with respect to the Common Stock, or to any obligations convertible (directly or indirectly) into stock of the Corporation whether now or hereafter authorized. Section 3. Voting Rights. Except as otherwise provided by the Delaware ------------- General Corporation Law or this Certificate and subject to the rights of holders of any series of Preferred Stock, all of the voting power of the stockholders of the Corporation shall be vested in the holders of the Class A Common Stock, and each holder of Class A Common Stock shall have one vote for each share held by such holder on all matters voted upon by the stockholders of the Corporation, and the holders of Class B Common Stock shall have no right to vote on any matters to be voted on by the stockholders of the Corporation. Section 4. Stock Splits and Stock Dividends. The Corporation shall not -------------------------------- in any manner subdivide (by stock split, stock dividend or otherwise) or combine (by stock split, stock dividend or otherwise) the outstanding shares of one class of Common Stock unless the outstanding shares of Common Stock of the other class shall be proportionately subdivided or combined. All such subdivisions and combinations shall be payable only in shares of Class A Common Stock to the holders of Class A Common Stock and in shares of Class B Common Stock to the holders of Class B Common Stock. Section 5. Conversion Right. Each record holder of Class A Common ---------------- Stock will be entitled to convert any or all of such holder's Class A Common Stock into the same number of shares of Class B Common Stock and each record holder of Class B Common Stock will be entitled to convert any or all of the shares of such holder's Class B Common Stock into the same number of shares of Class A Common Stock; provided that at the time of conversion of shares of Class B Common Stock into shares of Class A Common Stock such holder would be permitted, pursuant to applicable law, to hold the total number of shares of Class A Common Stock which such holder would hold after giving effect to such conversion; and provided further that the determination of a holder of Class B Common Stock that such holder is permitted pursuant to applicable law to convert Class B Common Stock into Class A Common Stock pursuant to this Section 5 shall be final and binding upon the Corporation. Each conversion of shares of one class of Common Stock into shares of another class of Common Stock will be effected by the surrender of the certificate or certificates representing the shares to be converted at the principal executive office of the Corporation or at the office of its -26- transfer agent at any time during normal business hours, together with a written notice by the holder of such shares stating the number of shares that any such holder desires to convert into the other class of Common Stock. Such conversion will be deemed to have been effected as of the close of business on the date on which such certificate or certificates have been surrendered and such notice has been received by the Corporation or its transfer agent, and at such time the rights of any such holder with respect to the converted class of Common Stock will cease and the person or persons in whose name or names the certificate or certificates for shares of the other class of Common Stock are to be issued upon such conversion will be deemed to have become the holder or holders of record of the shares of such other class of Common Stock represented thereby. So long as any shares of any class of Common Stock are outstanding, the Corporation will at all times reserve and keep available out of its authorized but unissued shares of Class A Common Stock and Class B Common Stock (or any shares of Class A Common Stock or Class B Common Stock which are held as treasury shares), the number of shares sufficient for issuance upon conversion. Section 6. Registration of Transfer. The Corporation shall keep at its ------------------------ principal office (or such other place as the Corporation reasonably designates) a register for the registration of Common Stock. Upon the surrender of any certificate representing shares of any class of Common Stock at such place, the Corporation shall, at the request of the registered holder of such certificate, execute and deliver a new certificate or certificates in exchange therefor (either of the same class, or as directed by the holder in connection with a conversion from one class to another) representing in the aggregate the number of shares of such class represented by the surrendered certificate, and the Corporation forthwith shall cancel such surrendered certificate. Each such new certificate will be registered in such name and will represent such number of shares of such class as is requested by the holder of the surrendered certificate and shall be substantially identical in form to the surrendered certificate. The issuance of new certificates shall be made without charge to the holders of the surrendered certificates for any issuance tax in respect thereof or other cost incurred by the Corporation in connection with such issuance. The Corporation will not close its books against the transfer of any share of Common Stock, or of any share of Common Stock issued or issuable upon conversion of shares of another class of Common Stock, in any manner that would interfere with the timely conversion of such shares of Common Stock. Section 7. Replacement. Upon receipt of evidence reasonably ----------- satisfactory to the Corporation (an affidavit of the registered holder will be satisfactory) of the ownership and the loss, theft, destruction or mutilation of any certificate evidencing one or more shares of any class of Common Stock, and in the case of any such loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to the Corporation (provided that if the holder is a financial institution or other institutional investor or an original party to the Recapitalization Agreement (or stockholder of any such original party), its own agreement will be satisfactory), or, in the case of any such mutilation, upon surrender of such certificate, the Corporation shall (at its expense) execute and deliver in lieu of such certificate a new certificate of like kind representing the number of shares of such class represented by such lost, stolen, destroyed or mutilated certificate and dated the date of such lost, stolen, destroyed or mutilated certificate. -27- Section 8. Notices. All notices referred to herein shall be in ------- writing, shall be delivered personally or by first class mail, postage prepaid, and shall be deemed to have been given when so delivered or mailed to the Corporation at its principal executive offices and to any stockholder at such holder's address as it appears in the stock records of the Corporation (unless otherwise specified in a written notice to the Corporation by such holder). Section 9. Fractional Shares. In no event will holders of fractional ----------------- shares be required to accept any consideration in exchange for such shares other than consideration which all holders of Common Stock are required to accept. G. DEFINITIONS ----------- "Agreement and Plan of Merger" means that certain Agreement and Plan of ---------------------------- Merger, as the same may be amended from time to time, between the Corporation and ChipPAC-California. "Bain Group" means Bain Capital, Inc., Randolph Street Partners and any ---------- investment funds, co-investment partnerships or other co-investment vehicles managed by Bain Capital, Inc. "Board" shall have the meaning set forth in Section 1.1, Part C, Article ----- Four. "Certificate" shall have the meaning set forth in Section 5, Part E, ----------- Article Four. "Change in Control" shall have the meaning set forth in Section 2, Part C, ----------------- Article Four. "ChipPAC-California" means ChipPAC, Inc., a California corporation. ------------------ "Class A Common Stock" shall have the meaning set forth in Part A, Article -------------------- Four. "Class A Preferred Stock" shall have the meaning set forth in Part C, ----------------------- Article Four. "Class B Common Stock" shall have the meaning set forth in Part A, Article -------------------- Four. "Class C Preferred Stock" shall have the meaning set forth in Part E, ----------------------- Article Four. "Class C-1 Preferred Stock" shall have the meaning set forth in Part E, ------------------------- Article Four. "Class C-2 Preferred Stock" shall have the meaning set forth in Part E, ------------------------- Article Four. "Class C Preferred Stock Dividend Reference Date" shall have the meaning ----------------------------------------------- set forth in Section 1.2, Part E, Article Four. -28- "Class L Common Stock" means the Class L Common Stock of ChipPAC-California -------------------- that, pursuant to the Agreement and Plan of Merger, will convert into and be exchanged for shares of Class A Common Stock. "Class L Number" means, with respect to any share of Class L Common Stock -------------- which would have been issuable upon the conversion of the Class A Preferred Stock pursuant to the terms and conditions of the Articles of Incorporation of ChipPAC-California, the sum of (i) one plus (ii) the quotient of (x) the Unreturned Original Cost plus Unpaid Yield of such share of Class L Common Stock divided by (y) the price per share of the Common Stock to be paid by investors in the Public Offering. "Common Stock" shall have the meaning set forth in Part A, Article Four. ------------ "Common Stock Deemed Outstanding" means, at any given time, the number of ------------------------------- shares of Common Stock actually outstanding at such time, plus the number of shares of Common Stock issuable upon the exercise or conversion of any Options or Convertible Securities, including, without limitation, the Class A Preferred Stock (whether or not, in the case of any Options or Convertible Securities, any such Options or Convertible Securities are actually exercisable at such time). "Conversion Price" means $3.937134875 as the same may be adjusted in ---------------- accordance with Section 6, Part C, Article Four. "Conversion Stock" means shares of the Corporation's Common Stock; ---------------- provided that if there is a change in the type or class of securities so issuable, then the term "Conversion Stock" shall mean one share of the security issuable upon conversion of the Class C Preferred Stock if such security is issuable in shares, or shall mean the smallest unit in which such security is issuable if such security is not issuable in shares. "Convertible Securities" means any stock or securities directly or ---------------------- indirectly convertible into or exchangeable for Common Stock. "Default Rate" shall have the meaning set forth in Section 2.4, Part D, ------------ Article Four. "Distribution" means each distribution made by the Corporation to holders ------------ of capital stock, whether in cash, property, or securities of the Corporation and whether by dividend, liquidating distributions or otherwise; provided that neither of the following shall be a Distribution: (a) any redemption or repurchase by the Corporation of any capital stock held by an employee, director or former employee or director of the Corporation or any of its Subsidiaries or (b) any recapitalization or exchange of any capital stock, or any subdivision (by stock split, stock dividend or otherwise) or any combination (by stock split, stock dividend or otherwise) of any outstanding capital stock. "Dividend Reference Date" shall have the meaning set forth in Section 1.2, ----------------------- Part C, Article Four. "Event of Default" shall have the meaning set forth in Section 2.4, Part D, ---------------- Article Four. -29- "Existing Shareholder Group" means the Bain Group and the SXI Group. -------------------------- "Fundamental Change" shall have the meaning set forth in Section 2, Part C, ------------------ Article Four. "General Corporation Law" means the General Corporation Law of the State of ----------------------- Delaware, as amended from time to time. "Initial Public Offering" means a public offering and sale of the Common ----------------------- Stock pursuant to an effective registration statement under the Securities Act of 1933, if immediately thereafter the Corporation has publicly held Common Stock listed on a national securities exchange or the National Association of Securities Dealers, Inc. automated quotation system. "IPO Price" shall mean the price to the public, before deducting for --------- underwriting commissions, stated on the cover page of the final prospectus filed with the Securities and Exchange Commission in connection with an Initial Public Offering. "Junior Securities" means any capital stock or other equity securities of ----------------- the Corporation, except for the Class C Preferred Stock and the Corporation's Class A Preferred Stock, par value $.01 per share and the Corporation's Senior Preferred Stock, par value $.01 per share (together, in each case, with all accumulated dividends thereon). "Liquidating Distribution" mean any Distribution made upon a Liquidation ------------------------ Event. "Liquidation Event" means (i) any liquidation, dissolution or winding up of ----------------- the Corporation, whether voluntary or involuntary, (ii) any sale or transfer by the Corporation of all or substantially all (as defined in the Revised Model Business Corporation Act) of its assets on a consolidated basis, (iii) any consolidation, merger or reorganization of the Corporation with or into any other entity or entities as a result of which the holders of the Corporation's outstanding capital stock possessing the voting power (under ordinary circumstances) to elect a majority of the Corporation's Board of Directors immediately prior to such consolidation, merger or reorganization cease to own the outstanding capital stock of the surviving corporation possessing the voting power (under ordinary circumstances) to elect a majority of the surviving corporation's board of directors or (iv) any sale or transfer to any third party of shares of the Corporation's capital stock by the holders thereof as a result of which the holders of the Corporation's outstanding capital stock possessing the voting power (under ordinary circumstances) to elect a majority of the Corporation's Board of Directors immediately prior to such sale or transfer cease to own the outstanding capital stock of the Corporation possessing the voting power (under ordinary circumstances) to elect a majority of the Corporation's board of directors. "Liquidation Preference" means an amount per share of Senior Preferred ---------------------- Stock equal to the sum of (A) the Stated Value plus (B) the amount of all accrued but unpaid dividends on such share of Senior Preferred Stock as provided in Section 2, Part D, Article Four. -30- "Liquidation Value" of any share of Class A Preferred Stock or Class C ----------------- Preferred Stock as of any particular date shall be equal to $1,000.00 (as proportionately adjusted for all stock splits, stock dividends and other recapitalizations affecting such share of Class A Preferred Stock or Class C Preferred Stock). "Mandatory Redemption Date" shall have the meaning set forth in Section ------------------------- 5.2, Part D, Article Four. "Market Price" of any security means the average of the closing prices of ------------ such security's sales on all securities exchanges on which such security may at the time be listed, or, if there has been no sales on any such exchange on any day, the average of the highest bid and lowest asked prices on all such exchanges at the end of such day, or, if on any day such security is not so listed, the average of the representative bid and asked prices quoted in the NASDAQ System as of 4:00 P.M., New York time, or, if on any day such security is not quoted in the NASDAQ System, the average of the highest bid and lowest asked prices on such day in the domestic over-the-counter market as reported by the National Quotation Bureau, Incorporated, or any similar successor organization, in each such case averaged over a period of 21 days consisting of the day as of which "Market Price" is being determined and the 20 consecutive business days prior to such day. If at any time such security is not listed on any securities exchange or quoted in the NASDAQ System or the over-the-counter market, the "Market Price" shall be the fair value thereof determined by the Board and the holders of not less than a majority of the Class A Preferred Stock, each in the exercise of their good faith judgment; provided that if the Board and such holders cannot agree on such value, such value shall be determined by an independent valuation firm experienced in valuing businesses such as the Corporation and jointly selected by the Board and such holders. The fees and expenses of the valuation firm shall be borne by the Corporation and the holders of the Class A Preferred Stock. "Non-Liquidating Distribution" means each Distribution other than a ---------------------------- Liquidating Distribution. "Options" means any rights, warrants or options to subscribe for or ------- purchase Common Stock or Convertible Securities. "Original Cost" of each share of Class L Common Stock shall be equal to ------------- $9.00 per share. "Person" means an individual, a partnership, a corporation, a limited ------ liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof. "Preferred Stock" shall have the meaning set forth in Part A, Article Four. --------------- "Public Offering" means the Corporation's initial public offering of common --------------- stock pursuant to a registration statement on Form S-1 (Reg. No. 333-39428). -31- "Qualifying IPO" means an Initial Public Offering in which the gross -------------- proceeds to the Corporation exceed $50 million. "Recapitalization Agreement" means that certain Agreement and Plan of -------------------------- Recapitalization and Merger, dated as of March 13, 1999, as amended, by and among Hyundai Electronics Industries Co., Ltd., Hyundai Electronics America, ChipPAC-California and ChipPAC Merger Corp. "Redemption Date" as to any share of Class A Preferred Stock or Class C --------------- Preferred Stock means the date specified in the notice of any redemption at the Corporation's option or the applicable date specified in this Certificate in the case of any other redemption; provided that no such date shall be a Redemption Date unless the redemption payment required to be made pursuant to Section 4, Part C of Article Four if the redemption is of any share of Class A Preferred Stock or pursuant to Section 4, Part E, if the redemption is of any share of Class C Preferred Stock is actually paid in full on such date, and if not so paid in full, the Redemption Date shall be the date on which such amount is fully paid. "Redemption Notice" shall have the meaning set forth in Section 5.3, Part ----------------- D, Article Four. "Senior Preferred Stock" shall have the meaning set forth in Part D, ---------------------- Article Four. "Senior Preferred Stock Redemption Date" shall have the meaning set forth -------------------------------------- in Section 5.3, Part D, Article Four. "Stated Value" of each share of Senior Preferred Stock shall be equal to ------------ $1,000 (as proportionally adjusted for all stock splits, stock dividends and other recapitalizations affecting the Senior Preferred Stock). "Subsidiary" means any corporation of which a majority of the shares of ---------- outstanding capital stock possessing the voting power (under ordinary circumstances) in electing the board of directors are, at the time as of which any determination is being made, owned by the Corporation either directly or indirectly through Subsidiaries. "SXI Group" means SXI Group LLC, Citicorp Venture Capital, Ltd. and any --------- investment funds, co-investment partnerships or co-investment vehicles managed by Citicorp Venture Capital, Ltd. "Unpaid Yield" of any share of Class L Common Stock means an amount equal ------------ to the excess, if any, of (a) the aggregate Yield accrued on such share, over (b) the aggregate amount of Distributions made by the Corporation that constitute payment of Yield on such share. "Unreturned Original Cost" of any share of Class L Common Stock means an ------------------------ amount equal to the excess, if any, of (a) the Original Cost of such share, over (b) the aggregate amount of Distributions made by the Corporation that constitute a return of the Original Cost of such share. -32- "Yield" means, with respect to each outstanding share of Class L Common ----- Stock for each calendar quarter, the amount accruing on such share each day during such quarter at the rate of 12% per annum of the sum of (a) such share's Unreturned Original Cost, plus (b) Unpaid Yield thereon for all prior quarters. In calculating the amount of any Distribution to be made during a calendar quarter, the portion of a Class L Common Stock share's Yield for such portion of such quarter elapsing before such Distribution is made shall be taken into account. ARTICLE FIVE The Corporation is to have perpetual existence. ARTICLE SIX Elections of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide. ARTICLE SEVEN In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, alter, amend or repeal the Bylaws of the Corporation. ARTICLE EIGHT (a) To the fullest extent permitted by the Delaware General Corporation Law as the same exists or as it may hereafter be amended, no director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. (b) The corporation may indemnify to the fullest extent permitted by law any person made or threatened to be made a party to an action or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that he, his testator or intestate is or was a director, officer or employee of the Corporation or any predecessor of the Corporation or serves or served at any other enterprise as a director, officer or employee at the request of the Corporation or any predecessor to the Corporation. (c) Neither any amendment nor repeal of this Article, nor the adoption of any provision of this Certificate inconsistent with this Article, shall eliminate or reduce the effect of this Article in respect of any matter occurring, or any cause of action, proceeding, suit or claim accruing or arising, or that, but for this Article, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision. -33- ARTICLE NINE Vacancies occurring on the Board of Directors for any reason may be filled by vote of a majority of the remaining members of the Board of Directors, although less than a quorum, at any meeting of the Board of Directors. A person so elected by the Board of Directors to fill a vacancy shall hold office until the next succeeding annual meeting of stockholders of the Corporation and until his or her successor shall have been duly elected and qualified. ARTICLE TEN Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws may provide. The books of the Corporation may be kept (subject to any provision contained in the statutes) outside of the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation. ARTICLE ELEVEN Beginning immediately following the consummation of the Corporation's Initial Public offering: (i) the stockholders of the Corporation may not take any action by written consent in lieu of a meeting, and must take any actions at a duly called annual or special meeting of stockholders and the power of stockholders to consent in writing without a meeting is specifically denied and (ii) special meetings of stockholders of the Corporation may be called only by either the Board of Directors pursuant to a resolution adopted by the affirmative vote of the majority of the total number of directors then in office or by the chief executive officer of the Corporation. ARTICLE TWELVE The Corporation shall not be governed by the provisions of Section 203 of the Delaware General Corporate Law. ARTICLE THIRTEEN Notwithstanding any other provisions of this Certificate or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of the capital stock required by law or this Certificate, the affirmative vote of the holders of at least two-thirds (2/3) of the combined voting power of all of the then outstanding shares of the Corporation eligible to be cast in the election of directors shall be required to alter, amend or repeal Articles Nine or Eleven hereof, or this Article Thirteen, or any provision thereof or hereof, unless such amendment shall be approved by a majority of the directors of the Corporation not affiliated or associated with any person or entity holding (or which has announced an intention to obtain) twenty percent (20%) or more of the voting power of the Corporation's outstanding capital stock (other than the Existing Shareholder Group). ARTICLE FOURTEEN -34- The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. -35- EX-3.2 4 0004.txt BY-LAWS OF CHIPPAC, INC. EXHIBIT 3.2 BY-LAWS OF CHIPPAC, INC. A Delaware corporation ARTICLE I OFFICES ------- Section 1. Principal Office. The board of directors shall fix the --------- ---------------- location of the principal office of the corporation. Section 2. Other Offices. The corporation may also have offices at such --------- ------------- other places, both within and without the State of California, as the board of directors may from time to time determine or the business of the corporation may require. ARTICLE II MEETINGS OF SHAREHOLDERS ------------------------ Section 1. Place of Meetings. Meeting of the shareholders shall be held --------- ----------------- at any place within or outside the State of California designated by the board of directors. In the absence of any such designation, shareholders meetings shall be held at the corporation's principal executive office. Section 2. Annual Meeting. The annual meeting of shareholders shall be --------- -------------- held on the second Friday of the month of May of each year, or at any other time designated by the board of directors provided that the annual meeting in any year shall be held not longer than 15 months after the preceding annual meeting. At each annual meeting, directors shall be elected and any other proper business may be transacted which it is within the power of the shareholders to conduct. Section 3. Special Meetings. Special meetings of shareholders may be --------- ---------------- called for any purpose and may be held at such time and place, within or without the State of California, as shall be stated in a notice of meeting or in a duly executed waiver of notice thereof. Such meetings may be called at any time by the board of directors or the chief executive officer and shall be called by the chief executive officer upon the written request of holders of shares entitled to cast not less than twenty five percent (25%) of the votes at the meeting. Such written request shall state the purpose or purposes of the meeting and shall be delivered to the chief executive officer. Upon receipt of such written request, the chief executive officer shall fix a date and time for such meeting within two days of the date requested for such meeting in such written request. Section 4. Notice. Whenever shareholders are required or permitted to --------- ------ take action at a meeting, written or printed notice stating the place, date, time, and, in the case of special meetings, the purpose or purposes, of such meeting, shall be given to each shareholder entitled to vote at such meeting not less than ten (10) nor more than sixty (60) days before the date of the meeting. All such notices shall be delivered, either personally or by mail, by or at the direction of the board of directors, the chief executive officer or the secretary, and if mailed, such notice shall be deemed to be delivered when deposited in the United States mail, postage prepaid, addressed to the shareholder at his, her or its address as the same appears on the records of the corporation. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Section 5. Shareholders List. The officer having charge of the stock --------- ----------------- ledger of the corporation shall make, at least ten (10) days before every meeting of the shareholders, a complete list of the shareholders entitled to vote at such meeting arranged in alphabetical order, showing the address of each shareholder and the number of shares registered in the name of each shareholder. Such list shall be open to the examination of any shareholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days nor more than sixty (60) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any shareholder who is present. Section 6. Quorum. The holders of a majority of the outstanding shares of --------- ------ capital stock entitled to vote, present in person or represented by proxy, shall constitute a quorum at all meetings of the shareholders, except as otherwise provided by statute or by the articles of incorporation. If a quorum is not present, the holders of a majority of the shares present in person or represented by proxy at the meeting, and entitled to vote at the meeting, may adjourn the meeting to another time and/or place. Section 7. Adjourned Meetings. When a meeting is adjourned to another --------- ------------------ time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than forty- five (45) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the 2 adjourned meeting shall be given to each shareholder of record entitled to vote at the meeting. Section 8. Vote Required. When a quorum is present, the affirmative vote --------- ------------- of the majority of shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the shareholders, unless the question is one upon which by express provisions of an applicable law, the Shareholders Agreement, dated as of August 5, 1999, by and among the corporation and certain of its shareholders (the "Shareholders ------------ Agreement"), or the articles of incorporation a different vote is required, in - --------- which case such express provision shall govern and control the decision of such question. Section 9. Voting Rights. Except as otherwise provided by the --------- ------------- Corporations Code of the State of California or by the articles of incorporation of the corporation or any amendments thereto and subject to Section 3 of Article VI hereof, every shareholder shall at every meeting of the shareholders be entitled to one (1) vote in person or by proxy for each share of common stock held by such shareholder. Section 10. Proxies. Each shareholder entitled to vote at a meeting of ---------- ------- shareholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him or her by proxy, but no such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the corporation generally. Any proxy is suspended when the person executing the proxy is present at a meeting of shareholders and elects to vote, except that when such proxy is coupled with an interest and the fact of the interest appears on the face of the proxy, the agent named in the proxy shall have all voting and other rights referred to in the proxy, notwithstanding the presence of the person executing the proxy. At each meeting of the shareholders, and before any voting commences, all proxies filed at or before the meeting shall be submitted to and examined by the secretary or a person designated by the secretary, and no shares may be represented or voted under a proxy that has been found to be invalid or irregular. Section 11. Action by Written Consent. Unless otherwise provided in the ---------- ------------------------- articles of incorporation, any action required to be taken at any annual or special meeting of shareholders of the corporation, or any action which may be taken at any annual or special meeting of such shareholders, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken and bearing the dates of the signature of the shareholders who signed the consent or consents, shall be signed by the holders of outstanding stock having not less than the 3 minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the corporation by delivery to its principal executive office, or an officer or agent of the corporation having custody of the book or books in which proceedings of meetings of the shareholders are recorded. All consents properly delivered in accordance with this section shall be deemed to be recorded when so delivered. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those shareholders who have not consented in writing. Any action taken pursuant to such written consent or consents of the shareholders shall have the same force and effect as if taken by the shareholders at a meeting thereof. If the consents of all shareholders entitled to vote have not been solicited in writing or if the unanimous written consents of all such shareholders have not been received, the secretary shall give prompt notice of the corporate action approved by the shareholders without a meeting. Such notice shall be given in the manner specified in Section 4 of this Article II. ARTICLE III DIRECTORS --------- Section 1. General Powers. The business and affairs of the corporation --------- -------------- shall be managed by or under the direction of the board of directors. Section 2. Number, Election and Term of Office. The number of directors --------- ----------------------------------- which shall constitute the board shall be established from time to time in accordance with the provisions of the Shareholders Agreement. Except as otherwise provided in the corporation's articles of incorporation, the directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote in the election of directors. The directors shall be elected in this manner at the annual meeting of the shareholders, except as provided in Section 4 of this Article III or in the Shareholders Agreement. Each director elected shall hold office until a successor is duly elected and qualified or until his or her earlier death, resignation or removal as hereinafter provided. Section 3. Removal and Resignation. Any director or the entire board of --------- ----------------------- directors shall be removed in accordance with the provisions of the Shareholders Agreement. Any director may resign at any time upon written notice to the corporation. Section 4. Vacancies. Vacancies and newly created directorships resulting --------- --------- from any increase in the authorized number of directors shall be filled in accordance with the provisions of the Shareholders Agreement. Each director so chosen shall hold office until a successor is duly elected and qualified or until his or her earlier death, resignation or 4 removal as herein provided. Section 5. Annual Meetings. The annual meeting of each newly elected --------- --------------- board of directors shall be held without other notice than this by-law immediately after, and at the same place as, the annual meeting of shareholders. Section 6. Other Meetings and Notice. Regular meetings, other than the --------- ------------------------- annual meeting, of the board of directors may be held without notice at such time and at such place as shall from time to time be determined by resolution of the board. Special meetings of the board of directors may be called by or at the request of the chief executive officer or two directors on at least twenty- four (24) hours notice to each director, either personally, by telephone, by mail, by telegraph or by facsimile. A notice, or waiver of notice, need not specify the purpose of any regular or special meeting of the board. Section 7. Quorum. A majority of the total number of directors shall --------- ------ constitute a quorum for the transaction of business, except to adjourn as provided in Section 9 of this Article III. Every act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present shall be regarded as the act of the board of directors. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors if any action taken is approved by at least a majority of the required quorum for that meeting. Notwithstanding the foregoing, no action shall be taken without the affirmative vote of a majority of the Bain Directors and a majority of the SXI Directors (as each such term is defined in the Shareholders Agreement) with respect to: (A) any merger of the corporation into any other corporation or merger of any other corporation into the corporation, or any consolidation of the corporation with any other corporation (other than the merger of a wholly- owned subsidiary into the corporation), the liquidation or dissolution of the corporation, or the sale, assignment, lease, transfer or other disposition of all or substantially all of the assets of the corporation as, or substantially as, an entirety to any other corporation or other entity or person; (B) the amendment or repeal of any provision of, or the addition of any provision to the corporation's Articles of Incorporation or the corporation's Bylaws; (C) the expenditure by the corporation of an amount of funds in excess of $5,000,000 for a purpose which is not within the then current strategic and operating plan referred to in clause (H) hereof; (D) any declaration or payment of any dividend on, or other distribution 5 in respect of, the corporation's capital stock, or any payment in cash of interest on indebtedness that by its terms may be paid in kind or accrued; (E) any issuance, redemption, repurchase or other transaction involving the capital stock of the corporation (other than in connection with the exercise of stock options granted pursuant to any plan or arrangement approved under clause (N) hereof, or the issuance of no more than $3,000,000 in shares of the corporation's common stock (determined for this purpose by the price allocated to shares of common stock acquired pursuant to the Recapitalization Agreement (as such term is defined in the Shareholders Agreement)) issued to members of the corporation's management within 120 days after the date hereof); (F) any borrowings (or guarantees thereof) in excess of $5,000,000 from any bank or other person or entity, other than drawings on borrowings or lines of credit existing as of the date hereof (or any extensions, renewals or refinancings thereof) or as previously approved as provided herein; (G) any loans to any persons or entities by the corporation, other than advances to employees of the corporation or its subsidiaries for ordinary and necessary business expenses consistent with past practice or to purchase the corporation's common stock described in the parenthetical in clause (E) above; (H) the annual strategic and operating plan of the corporation, which shall be prepared by the officers of the corporation and shall include a summary of expected capital expenditures and expenditures in respect of acquisitions, and any material departures from such plan; (I) any sale or encumbrance of assets in excess of $5,000,000; (J) any business acquisition by the corporation, by purchase of assets, capital stock, merger or otherwise, for purchase consideration exceeding $5,000,000; (K) the selection of commercial or investment bankers for the corporation; (L) the selection of the public accountants for the corporation; (M) the selection of the Chief Executive Officer of the corporation; (N) the approval of compensation payable to the corporate officers of the corporation, including executive bonus and incentive plans and arrangements of such officers; or 6 (O) the approval of any action by a subsidiary of the corporation in respect of any matter of the nature set forth in this Section 7 with respect to such subsidiary. Section 8. Waiver of Notice. The transactions of any meeting of the board --------- ---------------- of directors, however called and noticed or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice if a quorum is present and if, either before or after the meeting, each of the directors not present signs a written waiver of notice, a consent to holding the meeting or an approval of the minutes. The waiver of notice or consent need not specify the purpose of the meeting. All such waivers, consents, and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Notice of a meeting shall also be deemed given to any director who attends the meeting without protesting, before or at its commencement, the lack of notice to that director. Section 9. Adjournment. A majority of the directors present, whether or --------- ----------- not constituting a quorum, may adjourn any meeting to another time and place. Section 10. Notice of Adjournment. Notice of the time and place of holding ---------- --------------------- an adjourned meeting need not be given, unless the meeting is adjourned for more than twenty-four hours, in which case notice of the time and place shall be given before the time of the adjourned meeting, in the manner specified in Section 6 of this Article III, to the directors who were not present at the time of adjournment. Section 11. Action without Meeting. Any action required or permitted to be ---------- ---------------------- taken at any meeting of the board of directors, or of any committee thereof, may be taken without a meeting if all members of the board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the board or committee. Section 12. Committees. The board of directors may, by resolution passed ---------- ---------- by a majority of the whole board, designate one or more committees, each committee to consist of one or more of the directors of the corporation, which to the extent provided in such resolution or these by-laws shall have and may exercise the powers of the board of directors in the management and affairs of the corporation except as otherwise limited by law. The board of directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the board of directors. Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required. 7 Section 13. Committee Rules. Each committee of the board of directors may ---------- --------------- fix its own rules of procedure and shall hold its meetings as provided by such rules, except as may otherwise be provided by a resolution of the board of directors designating such committee. Unless otherwise provided in such a resolution, the presence of at least a majority of the members of the committee shall be necessary to constitute a quorum. In the event that a member and that member's alternate, if alternates are designated by the board of directors as provided in Section 12 of this Article III, of such committee is or are absent or disqualified, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in place of any such absent or disqualified member. Section 14. Communications Equipment. Members of the board of directors ---------- ------------------------ or any committee thereof may participate in and act at any meeting of such board or committee through the use of a conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in the meeting pursuant to this section shall constitute presence in person at the meeting. Section 15. Waiver of Notice and Presumption of Assent. Any member of the ---------- ------------------------------------------ board of directors or any committee thereof who is present at a meeting shall be conclusively presumed to have waived notice of such meeting except when such member attends for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Such member shall be conclusively presumed to have assented to any action taken unless his or her dissent shall be entered in the minutes of the meeting or unless his or her written dissent to such action shall be filed with the person acting as the secretary of the meeting before the adjournment thereof or shall be forwarded by registered mail to the secretary of the corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to any member who voted in favor of such action. ARTICLE IV OFFICERS -------- Section 1. Number. The officers of the corporation shall be elected by --------- ------ the board of directors and shall consist of a chairman of the board, chief executive officer, president, chief financial officer, one or more vice- presidents, secretary, a treasurer, and such other officers and assistant officers as may be deemed necessary or desirable by the board of directors. Any number of offices may be held by the same person. In its discretion, the board of directors may choose not to fill any office for any period as it may deem advisable, except that the offices of chief executive officer and secretary shall be filled as expeditiously as possible. 8 Section 2. Election and Term of Office. The officers of the corporation --------- --------------------------- shall be elected annually by the board of directors at its first meeting held after each annual meeting of shareholders or as soon thereafter as conveniently may be. The chief executive officer shall be elected annually by the board of directors at the first meeting of the board of directors held after each annual meeting of shareholders or as soon thereafter as conveniently may be. The chief executive officer shall appoint other officers to serve for such terms as he or she deems desirable. Vacancies may be filled or new offices created and filled at any meeting of the board of directors. Each officer shall hold office until a successor is duly elected and qualified or until his or her earlier death, resignation or removal as hereinafter provided. Section 3. Removal. Any officer or agent elected by the board of --------- ------- directors may be removed by the board of directors whenever in its judgment the best interests of the corporation would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Section 4. Vacancies. Any vacancy occurring in any office because of --------- --------- death, resignation, removal, disqualification or otherwise, may be filled by the board of directors for the unexpired portion of the term by the board of directors then in office. Section 5. Compensation. Compensation of all officers shall be fixed by --------- ------------ the board of directors, and no officer shall be prevented from receiving such compensation by virtue of his or her also being a director of the corporation. Section 6. Chairman of the Board. The chairman of the board, if such an --------- --------------------- officer is elected, shall, if present, preside at meetings of the board of directors and exercise and perform such other powers and duties as may be from time to time assigned to him or her by the board of directors or prescribed by the by-laws. If there is no chief executive officer, the chairman of the board shall in addition be the chief executive officer of the corporation and shall have the powers and duties prescribed in Section 7 of this Article IV. Section 7. The Chief Executive Officer. The chief executive officer shall --------- --------------------------- be the chief executive officer of the corporation and shall have the powers and perform the duties incident to that position. Subject to the powers and direction of the board of directors, the chief executive officer shall have general charge of the business, affairs and property of the corporation, shall have control over the corporation's officers, agents and employees and shall be its chief policy making officer. Except as set forth in Section 6 of this Article IV, the chief executive officer shall preside at all meetings of the shareholders and board of directors at which he is present and shall have such other powers and perform such other duties as may be prescribed by the board of directors or as may be provided in these by-laws. 9 Section 8. The President. The president shall, subject to the powers and --------- ------------- direction of the Board and the chief executive officer, be in the general and active charge of all day-to-day activities and affairs of the corporation and shall be responsible for implementing the policies of the board of directors and the chief executive officer. The president shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the board of directors or the chief executive officer to some other officer or agent of the corporation. The president shall have such other powers and perform such other duties as may be prescribed by the board of directors, chairman of the board, the chief executive officer or as may be provided in these by-laws. The president shall, in the absence or disability of the chief executive officer, act with all of the powers and be subject to all of the restrictions of the chief executive officer. Section 9. Chief Financial Officer. The chief financial officer shall --------- ----------------------- keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings, and shares. The chief financial officer shall deposit all moneys and other valuables in the name and to the credit of the corporation with such depositories as may be designated by the board of directors. The chief financial officer shall disburse the funds of the corporation as may be ordered by the board of directors, shall render to the chief executive officer and directors, whenever they request it, an account of all his transactions as chief financial officer and of the financial condition of the corporation, and shall have other powers and perform such other duties as may be prescribed by the board of directors, the chief executive officer or the by-laws. Unless the board of directors has elected a separate treasurer, the chief financial officer shall be deemed to be the treasurer for purposes of giving any reports or executing any certificates or other documents. Section 10. Vice-presidents. The vice-president, or if there shall be ---------- --------------- more than one, the vice-presidents in the order determined by the board of directors or by the chief executive officer, shall, in the absence or disability of the president, act with all of the powers and be subject to all the restrictions of the president. The vice-presidents shall also perform such other duties and have such other powers as the board of directors, chief executive officer, the president or these by-laws may, from time to time, prescribe. Section 11. The Secretary and Assistant Secretaries. The secretary shall ---------- --------------------------------------- attend all meetings of the board of directors, all meetings of the committees thereof and all meetings of the shareholders and record all the proceedings of the meetings in a book or 10 books to be kept for that purpose. Under the president's supervision, the secretary shall give, or cause to be given, all notices required to be given by these by-laws or by law; shall have such powers and perform such duties as the board of directors, the chief executive officer, the president or these by-laws may, from time to time, prescribe; and shall have custody of the corporate seal of the corporation. The secretary, or an assistant secretary, shall have authority to affix the corporate seal to any instrument requiring it and when so affixed, it may be attested by his signature or by the signature of such assistant secretary. The board of directors may give general authority to any other officer to affix the seal of the corporation and to attest the affixing by his signature. The assistant secretary, or if there be more than one, the assistant secretaries in the order determined by the board of directors, shall, in the absence or disability of the secretary, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the board of directors, the chief executive officer, the president, or secretary may, from time to time, prescribe. Section 12. The Treasurer and Assistant Treasurer. The treasurer shall ---------- ------------------------------------- have the custody of the corporate funds and securities; shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation; shall deposit all monies and other valuable effects in the name and to the credit of the corporation as may be ordered by the board of directors; shall cause the funds of the corporation to be disbursed when such disbursements have been duly authorized, taking proper vouchers for such disbursements; and shall render to the chief executive officer and the board of directors, at its regular meeting or when the board of directors so requires, an account of the corporation; shall have such powers and perform such duties as the board of directors, the chief executive officer or these by-laws may, from time to time, prescribe. If required by the board of directors, the treasurer shall give the corporation a bond (which shall be rendered every six (6) years) in such sums and with such surety or sureties as shall be satisfactory to the board of directors for the faithful performance of the duties of the office of treasurer and for the restoration to the corporation, in case of death, resignation, retirement, or removal from office, of all books, papers, vouchers, money, and other property of whatever kind in the possession or under the control of the treasurer belonging to the corporation. The assistant treasurer, or if there shall be more than one, the assistant treasurers in the order determined by the board of directors, shall in the absence or disability of the treasurer, perform the duties and exercise the powers of the treasurer. The assistant treasurers shall perform such other duties and have such other powers as the board of directors, the chief executive officer, the president or treasurer may, from time to time, prescribe. Section 13. Other Officers, Assistant Officers and Agents. Officers, ---------- --------------------------------------------- assistant officers and agents, if any, other than those whose duties are provided for in these by-laws, shall have such authority and perform such duties as may from time to time be prescribed by resolution of the board of directors. 11 Section 14. Absence or Disability of Officers. In the case of the absence ---------- --------------------------------- or disability of any officer of the corporation and of any person hereby authorized to act in such officer's place during such officer's absence or disability, the board of directors may by resolution delegate the powers and duties of such officer to any other officer or to any director, or to any other person whom it may select. ARTICLE V INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS ------------------------------------------------- Section 1. Agents, Proceedings, and Expenses. For the purposes of this --------- --------------------------------- Article, "agent" means any person who is or was a director, officer, employee or other agent of this corporation, or is or was serving at the request of this corporation as a director, officer, employee, or agent of another foreign or domestic corporation, limited liability company, partnership, joint venture, trust or other enterprise, or was a director, officer, employee or agent of a foreign or domestic corporation which was a predecessor corporation of this corporation or of another enterprise at the request of such predecessor corporation; "proceeding" means any threatened, pending or completed action or proceeding, whether civil, criminal, administrative, or investigative; and "expenses" include, without limitation, attorneys' fees and any expenses of establishing a right to indemnification under Section 4 or Section 5(c) of this Article V. Section 2. Actions Other Than by the Corporation. This corporation shall --------- ------------------------------------- indemnify any person who was or is a party, or is threatened to be made a party, to any proceeding (other than an action by or in the right of this corporation) by reason of the fact that such person is or was an agent of this corporation, against expenses, judgments, fines, settlements or other amounts actually and reasonably incurred in connection with such proceeding if that person acted in good faith and in a manner that person reasonably believed to be in the best interests of this corporation and, in the case of a criminal proceeding, if that person had no reasonable cause to believe his conduct was unlawful. The termination of any proceeding by judgment, order, settlement, conviction, or plea of nolo contendere or its equivalent shall not, of itself, create a presumption that the person did not act in good faith and in a manner which the person reasonably believed to be in the best interests of this corporation or that the person had reasonable cause to believe that his conduct was unlawful. Section 3. Actions by the Corporation. This corporation shall indemnify --------- -------------------------- any person who was or is a party, or is threatened to be made a party, to any threatened, pending or completed action by or in the right of this corporation to procure a judgment in its favor by reason of the fact that that person is or was an agent of this corporation, against expenses actually and reasonably incurred by that person in connection with the defense or settlement of that action if that person acted in good faith, in a manner that that person believed to be in the best interests of this corporation, and with such care, 12 including reasonably inquiry, as a reasonable person would exercise under similar circumstances. No indemnification shall be made under this Section 3: (a) in respect of any claim, issue or matter as to which that person shall have been adjudged to be liable to this corporation in the performance of that person's duty to this corporation, unless and only to the extent that the court in which that action was brought shall determine upon application that, in view of all the circumstances of the case, that person is fairly and reasonably entitled to indemnity for the expenses which the court shall determine; (b) of amounts paid in settling or otherwise disposing of a threatened or pending action, with or without court approval; or (c) of expenses incurred in defending a threatened or pending action which is settled or otherwise disposed of without court approval. Section 4. Successful Defense by Agent. To the extent that an agent of --------- --------------------------- this corporation has been successful on the merits in defense of any proceeding referred to in Sections 2 or 3 of this Article, or in defense of any claim, issue, or matter therein, the agent shall be indemnified against expenses actually and reasonably incurred by the agent in connection therewith. Section 5. Required Approval. Except as provided in Section 4 of this --------- ----------------- Article, any indemnification under this Article shall be made by this corporation only if authorized in the specific case on a determination that indemnification of the agent is proper in the circumstances because the agent has met the applicable standard of conduct set forth in Sections 2 or 3 of this Article, by: (a) a majority vote of a quorum consisting of directors who are not parties to the proceeding; (b) approval by the affirmative vote of a majority of the shares of this corporation entitled to vote represented at a duly held meeting at which a quorum is present or by the written consent of holders of a majority of the outstanding shares entitled to vote. For this purpose, the shares owned by the person to be indemnified shall not be considered outstanding or entitled to vote thereon; or (c) the court in which the proceeding is or was pending, on application made by this corporation or the agent or the attorney or other person rendering services in connection with the defense, whether or not such application by the agent, attorney, or other person is opposed by this corporation. 13 Section 6. Advance of Expenses. Expenses incurred in defending any --------- ------------------- proceeding may be advanced by this corporation before the final disposition of the proceeding on receipt of an undertaking by or on behalf of the agent to repay the amount of the advance unless it shall be determined ultimately that the agent is entitled to be indemnified as authorized in this Article. Section 7. Other Contractual Rights. Nothing contained in this Article --------- ------------------------ shall affect any right to indemnification to which persons other than directors and officers of this corporation or any subsidiary hereof may be entitled by contract or otherwise. Section 8. Limitations. No indemnification or advance shall be made under --------- ----------- this Article, except as provided in Section 4 or Section 5(c), in any circumstance where it appears: (a) that it would be inconsistent with a provision of the articles, a resolution of the shareholders, or an agreement in effect at the time of the accrual of the alleged cause of action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or (b) that it would be inconsistent with any condition expressly imposed by a court in approving a settlement. Section 9. Insurance. Upon and in the event of a determination by the --------- --------- board of directors of this corporation to purchase such insurance, this corporation shall purchase and maintain insurance on behalf of any agent of the corporation against any liability asserted against or incurred by the agent in such capacity or arising out of the agent's status as such whether or not this corporation would have the power to indemnify the agent against that liability under the provisions of this section. Section 10. Fiduciaries of Corporate Employee Benefit Plan. This Article ---------- ---------------------------------------------- does not apply to any proceeding against any trustee, investment manager, or other fiduciary of an employee benefit plan in that person's capacity as such even though that person may also be an agent of the corporation as defined in Section 1 of this Article. Nothing contained in this Article shall limit any right to indemnification to which such a trustee, investment manager or other fiduciary may be entitled by contract or otherwise, which shall be enforceable to the extent permitted by applicable law other than this Article. 14 ARTICLE VI CERTIFICATES OF STOCK --------------------- Section 1. Form. Every holder of stock in the corporation shall be --------- ---- entitled to have a certificate, signed by, or in the name of the corporation by the chairman of the board, chief executive officer, president, chief financial officer, or a vice-president and the secretary or an assistant secretary of the corporation, certifying the number of shares of a specific class or series owned by such holder in the corporation. If such a certificate is countersigned (1) by a transfer agent or an assistant transfer agent other than the corporation or its employee or (2) by a registrar other than the corporation or its employee, the signature of any such chairman of the board, chief executive officer, president, chief financial officer, vice-president, secretary, or assistant secretary may be facsimiles. In case any officer or officers who have signed, or whose facsimile signature or signatures have been used on, any such certificate or certificates shall cease to be such officer or officers of the corporation whether because of death, resignation or otherwise before such certificate or certificates have been delivered by the corporation, such certificate or certificates may nevertheless be issued and delivered as though the person or persons who signed such certificate or certificates or whose facsimile signature or signatures have been used thereon had not ceased to be such officer or officers of the corporation. All certificates for shares shall be consecutively numbered or otherwise identified. The name of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered on the books of the corporation. Shares of stock of the corporation shall only be transferred on the books of the corporation by the holder of record thereof or by such holder's attorney duly authorized in writing, upon surrender to the corporation of the certificate or certificates for such shares endorsed by the appropriate person or persons, with such evidence of the authenticity of such endorsement, transfer, authorization, and other matters as the corporation may reasonably require, and accompanied by all necessary stock transfer stamps. In that event, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate or certificates, and record the transaction on its books. The board of directors may appoint a bank or trust company organized under the laws of the United States or any state thereof to act as its transfer agent or registrar, or both in connection with the transfer of any class or series of securities of the corporation. Section 2. Lost Certificates. The board of directors may direct a new --------- ----------------- certificate or certificates to be issued in place of any certificate or certificates previously issued by the corporation alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen, or destroyed. When authorizing such issue of a new certificate or certificates, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen, or destroyed certificate or certificates, or his or her 15 legal representative, to give the corporation a bond sufficient to indemnify the corporation against any claim that may be made against the corporation on account of the loss, theft or destruction of any such certificate or the issuance of such new certificate. Section 3. Fixing a Record Date for Shareholder Meetings. In order that --------- --------------------------------------------- the corporation may determine the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors, and which record date shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If no record date is fixed by the board of directors, the record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be the close of business on the next day preceding the day on which notice is given, or if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. Section 4. Fixing a Record Date for Action by Written Consent. In order --------- -------------------------------------------------- that the corporation may determine the shareholders entitled to consent to corporate action in writing without a meeting, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors, and which date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the board of directors. If no record date has been fixed by the board of directors, the record date for determining shareholders entitled to consent to corporate action in writing without a meeting, when no prior action by the board of directors is required by statute, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation by delivery to its registered office in the State of California, its principal place of business, or an officer or agent of the corporation having custody of the book in which proceedings of meetings of shareholders are recorded. Delivery made to the corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the board of directors and prior action by the board of directors is required by statute, the record date for determining shareholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the board of directors adopts the resolution taking such prior action. Section 5. Fixing a Record Date for Other Purposes. In order that the --------- --------------------------------------- corporation may determine the shareholders entitled to receive payment of any dividend or other distribution or allotment or any rights or the shareholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purposes of any other lawful action, the board of directors may fix a record date, which record date shall not 16 precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty (60) days prior to such action. If no record date is fixed, the record date for determining shareholders for any such purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating thereto. Section 6. Registered Shareholders. Prior to the surrender to the --------- ----------------------- corporation of the certificate or certificates for a share or shares of stock with a request to record the transfer of such share or shares, the corporation may treat the registered owner as the person entitled to receive dividends, to vote, to receive notifications, and otherwise to exercise all the rights and powers of an owner. The corporation shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof. Section 7. Subscriptions for Stock. Unless otherwise provided for in the --------- ----------------------- subscription agreement, subscriptions for shares shall be paid in full at such time, or in such installments and at such times, as shall be determined by the board of directors. Any call made by the board of directors for payment on subscriptions shall be uniform as to all shares of the same class or as to all shares of the same series. In case of default in the payment of any installment or call when such payment is due, the corporation may proceed to collect the amount due in the same manner as any debt due the corporation. ARTICLE VII GENERAL PROVISIONS ------------------ Section 1. Checks, Drafts or Orders. All checks, drafts, or other orders --------- ------------------------ for the payment of money by or to the corporation and all notes and other evidences of indebtedness issued in the name of the corporation shall be signed by such officer or officers, agent or agents of the corporation, and in such manner, as shall be determined by resolution of the board of directors or a duly authorized committee thereof. Section 2. Contracts. The board of directors may authorize any officer or --------- --------- officers, or any agent or agents, of the corporation to enter into any contract or to execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances. Section 3. Loans. The corporation may lend money to, or guarantee any --------- ----- obligation of, or otherwise assist any officer or other employee of the corporation or of its subsidiary, including any officer or employee who is a director of the corporation or its subsidiary, whenever, in the judgment of the directors, such loan, guaranty or assistance may reasonably be expected to benefit the corporation. The loan, guaranty or other assistance may be with or without interest, and may be unsecured, or secured in such 17 manner as the board of directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing in this section contained shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute. Section 4. Fiscal Year. The fiscal year of the corporation shall be fixed --------- ----------- by resolution of the board of directors. Section 5. Corporate Seal. The board of directors shall provide a --------- -------------- corporate seal which shall be in the form of a circle and shall have inscribed thereon the name of the corporation and the words "Corporate Seal, California". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. Section 6. Voting Securities Owned By Corporation. Voting securities in --------- -------------------------------------- any other corporation held by the corporation shall be voted by the chief executive officer, unless the board of directors specifically confers authority to vote with respect thereto, which authority may be general or confined to specific instances, upon some other person or officer. Any person authorized to vote securities shall have the power to appoint proxies, with general power of substitution. Section 7. Inspection of Books and Records. Any shareholder of record, in --------- ------------------------------- person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its shareholders, and its other books and records, and to make copies or extracts therefrom. A proper purpose shall mean any purpose reasonably related to such person's interest as a shareholder. In every instance where an attorney or other agent shall be the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing which authorizes the attorney or other agent to so act on behalf of the shareholder. The demand under oath shall be directed to the corporation at its registered office in the State of California or at its principal place of business. Section 8. Section Headings. Section headings in these by-laws are for --------- ---------------- convenience of reference only and shall not be given any substantive effect in limiting or otherwise construing any provision herein. Section 10. Inconsistent Provisions. In the event that any provision of ---------- ----------------------- these by-laws is or becomes inconsistent with any provision of the Shareholders Agreement, the articles of incorporation, the Corporations Code of the State of California or any other applicable law, the provision of these by-laws shall not be given any effect to the extent of such inconsistency but shall otherwise be given full force and effect. 18 ARTICLE VIII AMENDMENTS ---------- These by-laws may be amended, altered, or repealed and new by-laws adopted at any meeting of the board of directors by a majority vote. The fact that the power to adopt, amend, alter, or repeal the by-laws has been conferred upon the board of directors shall not divest the shareholders of the same powers. 19 EX-5.1 5 0005.txt OPINION OF KIRKLAND & ELLIS EXHIBIT 5.1 KIRKLAND & ELLIS PARTNERSHIPS INCLUDING PROFESSIONAL CORPORATIONS 777 South Figueroa Street Los Angeles, CA 90017 (213) 680-8400 Facsimile: (213) 680-8500 July 12, 2000 ChipPAC, Inc. 3151 Coronado Drive Santa Clara, California 95059 Re: ChipPAC, Inc. Registration Statement on Form S-1 Registration No. 333-39428 Ladies and Gentlemen: We are acting as special counsel to ChipPAC, Inc., a Delaware corporation (the "Company"), in connection with the proposed registration by the Company of 15,500,000 shares of its Class A common stock, par value $.01 per share (the "Common Stock"), plus up to an additional 2,325,000 shares of Common Stock (all such shares, together with any additional shares registered pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the "Act"), the "Shares") of its Common Stock to cover over-allotments, if any, pursuant to a Registration Statement on Form S-1 (Registration No. 333-39428), filed with the Securities and Exchange Commission (the "Commission") under the Act (such Registration Statement, as amended or supplemented, is hereinafter referred to as the "Registration Statement"). The Shares are to be sold pursuant to an underwriting agreement (the "Underwriting Agreement") between the Company and Credit Suisse First Boston Corporation, Merril Lynch, Pierce, Fenner & Smith Incorporated, Deutsche Bank Securities Inc., FleetBoston Robertson Stephens Inc. and Thomas Weisel Partners LLC as representatives of the several Underwriters. In connection with the proposed registration of the Common Stock, we have examined such corporate proceedings, documents, records and matters of law as we have deemed necessary to enable us to render this opinion. For purposes of this opinion, we have assumed the authenticity of all documents submitted to us as originals, the conformity to the originals of all documents submitted to us as copies and the authenticity of the originals of all documents submitted to us as copies. We have also assumed the legal capacity of all natural persons, the genuineness of the signatures of persons signing all the documents in connection with which this opinion is rendered, the authority of such persons KIRKLAND & ELLIS ChipPAC, Inc. July 12, 2000 Page 2 signing on behalf of the parties thereto other than the Company and the due authorization, execution and delivery of all documents by the parties thereto other than the Company. As to any facts material to the opinions expressed herein, we have relied upon the statements and representations of officers and other representations of the Company and others. Our opinion expressed below is subject to the qualifications that we express no opinion as to the applicability of, compliance with, or effect of any laws except the internal laws of the State of New York, the General Corporation Law of the State of Delaware (the "DGCL") and the federal law of the United States of America. Based upon and subject to the foregoing qualifications, assumptions and limitations and the further limitations set forth below, we hereby advise you that, in our opinion, upon the effectiveness of the Amended and Restated Certificate of Incorporation of the Company, the Shares will be duly authorized for issuance, and, when (i) the Registration Statement becomes effective under the Act, (ii) the Board of Directors of the Company has taken all necessary action to approve the issuance and sale of the Shares, (iii) the Shares have been duly executed and delivered on behalf of the Company and countersigned by the Company's transfer agent/registrar and (iv) the Shares are issued in accordance with the terms of the Underwriting Agreement upon receipt of the consideration to be paid therefor, the Shares will be validly issued, fully paid and nonassessable. We hereby consent to the filing of this opinion with the Commission as Exhibit 5.1 to the Registration Statement. We also consent to the reference to our firm under the heading "Legal Matters" in the Registration Statement. In giving this consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Act or the rules and regulations of the Commission. This opinion and consent may be incorporated by reference in a subsequent registration statement on Form S-1 filed pursuant to Rule 462(b) under the Act with respect to the registration of additional securities for sale in the offering contemplated by the Registration Statement. We do not find it necessary for the purposes of this opinion, and accordingly we do not purport to cover herein, the application of the securities or "Blue Sky" laws of the various states to the issuance and sale of the Shares. This opinion is limited to the specific issues addressed herein, and no opinion may be inferred or implied beyond that expressly stated herein. We assume no obligation to revise or 2 KIRKLAND & ELLIS ChipPAC, Inc. July 12, 2000 Page 2 supplement this opinion should the present laws of the State of New York, the DGCL or the federal law of the United States be changed by legislative action, judicial decision or otherwise. This opinion is furnished to you pursuant to the applicable rules and regulations promulgated under the Act in connection with the filing of the Registration Statement. Very truly yours, /s/ Kirkland & Ellis KIRKLAND & ELLIS 3 EX-10.1 6 0006.txt CREDIT AGREEMENT, DATED AS OF AUGUST 5, 1999 Exhibit 10.1 CREDIT AGREEMENT DATED AS OF AUGUST 5, 1999 as Amended and Restated as of June 30, 2000 AMONG CHIPPAC INTERNATIONAL COMPANY LIMITED, CHIPPAC, INC., THE LENDERS LISTED HEREIN, as Lenders, AND CREDIT SUISSE FIRST BOSTON, as Administrative Agent, Sole Lead Arranger and Collateral Agent ================================================================================
TABLE OF CONTENTS Page SECTION 1. DEFINITIONS.......................................... 2 1.1 Certain Defined Terms....................................................................... 2 --------------------- 1.2 Accounting Terms; Utilization of GAAP for Purposes of Calculations Under Agreement....... 49 ------------------------------------------------------------------ --------------- 1.3 Other Definitional Provisions............................................................... 49 ----------------------------- SECTION 2. AMOUNTS AND TERMS OF COMMITMENTS AND LOANS....................... 49 2.1 Commitments; Loans.......................................................................... 49 ------------------ 2.2 Interest on the Loans....................................................................... 59 --------------------- 2.3 Fees........................................................................................ 63 ---- 2.4 Repayments, Prepayments and Reductions in Commitments; General Provisions Regarding ----------------------------------------------------------------------------------- Payments.................................................................................... 64 -------- 2.5 Use of Proceeds............................................................................. 76 --------------- 2.6 Special Provisions Governing Eurodollar Rate Loans.......................................... 77 -------------------------------------------------- 2.7 Increased Costs; Taxes; Capital Adequacy.................................................... 79 ---------------------------------------- 2.8 Obligation of Lenders and Issuing Bank to Mitigate.......................................... 84 -------------------------------------------------- 2.9 Increase in Revolving Credit Commitments.................................................... 85 ---------------------------------------- SECTION 3. LETTERS OF CREDIT.................................... 87 3.1 Issuance of Letters of Credit and Lenders' Purchase of Participations Therein............... 87 ----------------------------------------------------------------------------- 3.2 Letter of Credit Fees....................................................................... 89 --------------------- 3.3 Drawings and Payments and Reimbursement of Amounts Drawn or Paid Under Letters of Credit.... 90 ---------------------------------------------------------------------------------------- 3.4 Obligations Absolute........................................................................ 93 -------------------- 3.5 Indemnification; Nature of Issuing Bank's Duties............................................ 94 ------------------------------------------------ 3.6 Increased Costs and Taxes Relating to Letters of Credit..................................... 95 ------------------------------------------------------- SECTION 4. CONDITIONS TO LOANS AND LETTERS OF CREDIT........................ 96 4.1 Conditions to Term C Loans to be Made on the Restatement Effective Date..................... 97 ----------------------------------------------------------------------- 4.2 Conditions to All Loans..................................................................... 102 ----------------------- 4.3 Conditions to Letters of Credit............................................................. 103 ------------------------------- SECTION 5. REPRESENTATIONS AND WARRANTIES............................. 103 5.1 Organization, Powers, Qualification, Good Standing, Business and Subsidiaries............... 104 ----------------------------------------------------------------------------- 5.2 Authorization of Borrowing, etc............................................................. 104 --------------------------------
Page 5.3 Financial Condition; Projections............................................................ 106 -------------------------------- 5.4 No Material Adverse Change.................................................................. 107 -------------------------- 5.5 Title to Properties; Liens; Real Property; Intellectual Property............................ 107 ---------------------------------------------------------------- 5.6 Litigation; Adverse Facts................................................................... 108 ------------------------- 5.7 Payment of Taxes............................................................................ 109 ---------------- 5.8 Performance of Agreements................................................................... 109 ------------------------- 5.9 Governmental Regulation..................................................................... 109 ----------------------- 5.10 Securities Activities....................................................................... 109 --------------------- 5.11 Employee Benefit Plans...................................................................... 109 ---------------------- 5.12 Certain Fees................................................................................ 110 ------------ 5.13 Environmental Matters....................................................................... 110 --------------------- 5.14 Employee Matters............................................................................ 111 ---------------- 5.15 Solvency.................................................................................... 111 -------- 5.16 Disclosure.................................................................................. 112 ---------- 5.17 Year 2000 Matters........................................................................... 112 ----------------- SECTION 6. AFFIRMATIVE COVENANTS.................................. 112 6.1 Financial Statements and Other Reports...................................................... 112 -------------------------------------- 6.2 Corporate Existence......................................................................... 118 ------------------- 6.3 Payment of Taxes and Claims; Tax Consolidation.............................................. 118 ---------------------------------------------- 6.4 Maintenance of Properties; Insurance........................................................ 118 ------------------------------------ 6.5 Inspection; Lender Meeting.................................................................. 119 -------------------------- 6.6 Compliance with Laws, etc................................................................... 119 -------------------------- 6.7 Environmental Disclosure and Inspection..................................................... 120 --------------------------------------- 6.8 ChipPAC's Remedial Action Regarding Hazardous Materials..................................... 121 ------------------------------------------------------- 6.9 Execution of Guaranty and Collateral Documents by Future Subsidiaries....................... 121 --------------------------------------------------------------------- 6.10 [Intentionally Omitted]..................................................................... 122 6.11 Further Assurances.......................................................................... 122 ------------------ SECTION 7. NEGATIVE COVENANTS................................... 123 7.1 Indebtedness................................................................................ 123 ------------ 7.2 Liens and Related Matters................................................................... 126 ------------------------- 7.3 Investments; Joint Ventures................................................................. 128 --------------------------- 7.4 Contingent Obligations...................................................................... 130 ---------------------- 7.5 Restricted Payments......................................................................... 132 ------------------- 7.6 Financial Covenants......................................................................... 133 ------------------- 7.7 Restriction on Fundamental Changes; Asset Sales............................................. 137 ----------------------------------------------- 7.8 Sales and Lease-Backs....................................................................... 138 --------------------- 7.9 Transactions with Shareholders and Affiliates............................................... 138 --------------------------------------------- 7.10 Ownership of Subsidiary Stock............................................................... 139 ----------------------------- 7.11 Amendments or Waivers of Certain Agreements................................................. 140 ------------------------------------------- 7.12 Fiscal Year................................................................................. 141 ----------- 7.13 Conduct of Business......................................................................... 141 -------------------
Page SECTION 8. EVENTS OF DEFAULT.................................... 141 8.1 Failure to Make Payments When Due........................................................... 141 --------------------------------- 8.2 Default in Other Agreements................................................................. 142 --------------------------- 8.3 Breach of Certain Covenants................................................................. 142 --------------------------- 8.4 Breach of Warranty.......................................................................... 142 ------------------ 8.5 Other Defaults Under Loan Documents......................................................... 143 ----------------------------------- 8.6 Involuntary Bankruptcy; Appointment of Receiver, etc........................................ 143 ----------------------------------------------------- 8.7 Voluntary Bankruptcy; Appointment of Receiver, etc.......................................... 143 --------------------------------------------------- 8.8 Judgments and Attachments................................................................... 144 ------------------------- 8.9 Dissolution................................................................................. 144 ----------- 8.10 Employee Benefit Plans...................................................................... 144 ---------------------- 8.11 Change in Control........................................................................... 144 ----------------- 8.12 Invalidity of Guaranties.................................................................... 145 ------------------------ 8.13 Failure of Security......................................................................... 145 ------------------- SECTION 9. AGENTS......................................... 146 9.1 Appointment................................................................................. 146 ----------- 9.2 Powers; General Immunity.................................................................... 148 ------------------------ 9.3 Representations and Warranties; No Responsibility for Appraisal of Creditworthiness......... 149 ----------------------------------------------------------------------------------- 9.4 Right to Indemnity.......................................................................... 150 ------------------ 9.5 Successor Administrative Agent and Swing Line Lender........................................ 150 ---------------------------------------------------- 9.6 Collateral Documents; Successor Collateral Agent............................................ 151 ------------------------------------------------- SECTION 10. MISCELLANEOUS..................................... 152 10.1 Assignments and Participations in Loans and Letters of Credit............................... 152 ------------------------------------------------------------- 10.2 Expenses.................................................................................... 155 -------- 10.3 Indemnity................................................................................... 156 --------- 10.4 Set-Off; Security Interest in Deposit Accounts.............................................. 157 ---------------------------------------------- 10.5 Ratable Sharing............................................................................. 157 --------------- 10.6 Amendments and Waivers...................................................................... 158 ---------------------- 10.7 Independence of Covenants................................................................... 160 ------------------------- 10.8 Notices..................................................................................... 160 ------- 10.9 Survival of Representations, Warranties and Agreements...................................... 160 ------------------------------------------------------ 10.10 Failure or Indulgence Not Waiver; Remedies Cumulative....................................... 161 ----------------------------------------------------- 10.11 Marshalling; Payments Set Aside............................................................. 161 ------------------------------- 10.12 Severability................................................................................ 161 ------------ 10.13 Obligations Several; Independent Nature of the Lenders' Rights.............................. 161 -------------------------------------------------------------- 10.14 Maximum Amount.............................................................................. 162 -------------- 10.15 Headings.................................................................................... 163 -------- 10.16 Applicable Law.............................................................................. 163 -------------- 10.17 Successors and Assigns...................................................................... 163 ---------------------- 10.18 Consent to Jurisdiction and Service of Process.............................................. 163 ----------------------------------------------
Page 10.19 Waiver of Jury Trial........................................................................ 164 -------------------- 10.20 Judgment Currency........................................................................... 165 ----------------- 10.21 Confidentiality............................................................................. 165 --------------- 10.22 Counterparts; Effectiveness................................................................. 166 ---------------------------
CHIPPAC INTERNATIONAL COMPANY LIMITED CREDIT AGREEMENT This CREDIT AGREEMENT is dated as of August 5, 1999, as amended and restated as of June 30, 2000, and entered into by and among CHIPPAC INTERNATIONAL COMPANY LIMITED, a British Virgin Islands company ("Company"), ------- CHIPPAC, INC., a California corporation ("ChipPAC"), THE BANKS, FINANCIAL ------- INSTITUTIONS AND OTHER ENTITIES LISTED ON THE SIGNATURE PAGES HEREOF (each individually referred to herein as a "Lender" and collectively as "Lenders"), ------ ------- and CREDIT SUISSE FIRST BOSTON ("CSFB"), as administrative agent for the Lenders ---- (in such capacity, the "Administrative Agent"), as sole lead arranger (in such -------------------- capacity, the "Sole Lead Arranger"), and as collateral agent for the ------------------ Administrative Agent and the Lenders (in such capacity, the "Collateral Agent"). ---------------- R E C I T A L S --------------- WHEREAS, Bain (capitalized terms used herein having the meanings assigned to those terms in subsection 1.1), the SXI Holders and the Existing Investors engaged in a series of Recapitalization Transactions, whereby ChipPAC was recapitalized on the Closing Date; WHEREAS, ChipPAC and Company requested Lenders to extend, and Lenders agreed to extend, certain credit facilities in an aggregate principal amount of up to $220,000,000 to Company, the proceeds of which were used, together with proceeds from the Equity Contribution and $150,000,000 in gross cash proceeds from the issuance and sale of Subordinated Debt, to consummate the Recapitalization Transactions, to pay related fees and expenses, and to provide financing for working capital and other general corporate purposes of the Operating Subsidiaries; WHEREAS, ChipPAC Limited intends (i) to acquire (the "Purchase"), -------- directly or indirectly, all the capital stock of Intersil Technology Sdn. Bhd., a company organized under the laws of Malaysia (the "Malaysian Subsidiary") from -------------------- Intersil Corporation (the "Seller") for aggregate consideration of approximately ------ $70,000,000, including approximately $52,500,000 in cash and approximately $17,500,000 of junior convertible preferred stock of ChipPAC (the "Seller ------ Preferred Stock"), (ii) in connection therewith, to enter into a supply - --------------- agreement (the "Supply Agreement") with the Seller pursuant to which ChipPAC ---------------- Limited shall provide the Seller with packaging, test and distribution services and (iii) to pay the Purchase Transactions Costs (the Purchase, the entry into the Supply Agreement, the payment of the Purchase Transaction Costs and the performance by ChipPAC, Company and the Subsidiaries of their respective obligations thereunder are collectively referred to herein as the "Purchase Transactions"); -------- ------------ WHEREAS, ChipPAC and Company have requested that the Original Credit Agreement be amended and restated to, among other things, (i) permit the Purchase Transactions; (ii) reflect the terms and provisions of the Term C Loans and the use of the proceeds thereof; (iii) allow for a future increase in the Revolving Loan Commitments; and (iv) expand the permitted use of the proceeds of the Term Delayed Draw Loans to include the acquisition of testing equipment; and WHEREAS, the Lenders are willing to amend and restate the Original Credit Agreement upon and subject to the terms and conditions contained herein. NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, the parties hereto hereby agree as follows: SECTION 1. DEFINITIONS 1.1 Certain Defined Terms. --------------------- The following terms used in this Agreement shall have the following meanings: "Acquired Business" has the meaning assigned to such term in the ----------------- definition of the term "Acquired Capital Expenditures". "Acquired Capital Expenditures" means, on the date of any Permitted ----------------------------- Acquisition and with respect to the Person or business (the "Acquired -------- Business") acquired in such Permitted Acquisition, an amount equal to the -------- greater of (i) 8% of the net sales of such Acquired Business for the twelve-month period most recently ended and (ii) the average historical capital expenditures made with respect to such Acquired Business for the last two fiscal years applicable to such Acquired Business ending prior to the consummation of such Permitted Acquisition. "Acquired Capital Expenditures Percentage" means, with respect to any ---------------------------------------- Acquired Business on the date of the related Permitted Acquisition, the quotient (expressed as a percentage) obtained by dividing the Acquired Capital Expenditures of such Acquired Business by the Maximum Consolidated Capital 2 Expenditures Amount (without giving effect to any previous increase to such amount as a result of previous Permitted Acquisitions or by application of the Carryforward) for the Fiscal Year in which such Permitted Acquisition occurs. "Additional Subordinated Debt" means subordinated, unsecured ---------------------------- Indebtedness of Company the proceeds of which are used solely to finance one or more Permitted Acquisitions and to pay related expenses; provided -------- that (i) such Indebtedness does not require any scheduled payment of principal prior to the maturity date of the Subordinated Debt issued on or prior to the Closing Date and (ii) the subordination provisions and other non-pricing terms and conditions thereof are no less favorable to ChipPAC and its Subsidiaries and the Lenders than the analogous provisions of the Subordinated Debt Documents executed on or prior to the Closing Date. "Administrative Agent" has the meaning assigned to that term in the -------------------- Preamble to this Agreement and shall include any successor Administrative Agent appointed pursuant to subsection 9.5. "Affected Class" has the meaning assigned to that term in subsection -------------- 10.6A. "Affected Lender" has the meaning assigned to that term in subsection --------------- 2.6C. "Affected Loans" has the meaning assigned to that term in subsection -------------- 2.6C. "Affiliate" means, as applied to any Person, any other Person directly --------- or indirectly controlling, controlled by, or under common control with that Person. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities or by contract or otherwise. "Agents" means, collectively, the Administrative Agent, the Collateral ------ Agent and the Sole Lead Arranger. "Agreement" means this Amended and Restated Credit Agreement dated as --------- of June 30, 2000, as it may be further amended, restated, supplemented or otherwise modified from time to time. 3 "Applicable Base Rate Margin" means (i) with respect to Term C Loans, --------------------------- 3.00% per annum, (ii) with respect to Term B Loans, 3.00% per annum, and (iii) with respect to Term A Loans, Term Delayed Draw Loans and Revolving Loans, a percentage per annum determined by reference to the Applicable Leverage Ratio as set forth below: ============================================================= Applicable Base Rate Margin Applicable for Term A Loans, Term Leverage Ratio Delayed Draw Loans and Revolving Loans ***3.5:1.0 2.25% ---------------------------------------------------------- **3.5:1.0 2.00% ---------------------------------------------------------- **3.0:1.0 1.75% *2.5:1.0 1.50% ========================================================== ; provided, however, that the Applicable Base Rate Margin shall be 2.25% in -------- ------- the case of Term A Loans, Term Delayed Draw Loans and Revolving Loans, in each case for so long (but only for so long) as an Event of Default has occurred and is continuing or Company has not submitted to the Administrative Agent the information as and when required under subsection 6.1(ii) or (iii), as applicable. "Applicable Eurodollar Rate Margin" means (i) with respect to Term C --------------------------------- Loans, 4.00% per annum, (ii) with respect to Term B Loans, 4.00% per annum, and (iii) with respect to Term A Loans, Term Delayed Draw Loans and Revolving Loans, a percentage per annum determined by reference to the Applicable Leverage Ratio as set forth below: ============================================================ Applicable Applicable Eurodollar Leverage Ratio Rate Margin for Term A Loans, Term Delayed Draw Loans and Revolving Loans ***3.5:1.0 3.25% ------------------------------------------------------------- **3.5:1.0 3.00% ------------------------------------------------------------- **3.0:1.0 2.75% *2.5:1.0 2.50% ============================================================= * means less than ** means greater or equal to *** means greater than 4 ; provided, however, that the Applicable Eurodollar Rate Margin shall be -------- ------- 3.25% in the case of Term A Loans, Term Delayed Draw Loans and Revolving Loans, in each case for so long (but only for so long) as an Event of Default has occurred and is continuing or Company has not submitted to the Administrative Agent the information as and when required under subsection 6.1(ii) or (iii), as applicable. "Applicable Laws" means, collectively, all statutes, laws, rules, --------------- regulations, ordinances, decisions, writs, judgments, decrees, and injunctions of any Governmental Authority affecting ChipPAC or any of its Subsidiaries or any Collateral or any of their other assets, whether now or hereafter enacted and in force, and all Governmental Authorizations relating thereto. "Applicable Leverage Ratio" means, with respect to any date of ------------------------- determination, the Leverage Ratio set forth in the Pricing Certificate (as defined below) in effect for the Pricing Period (as defined below) in which such date of determination occurs. For purposes of this definition, (i) "Pricing Certificate" means an Officer's Certificate of ChipPAC certifying ------------------- as to the Leverage Ratio as of the last day of any Fiscal Quarter and setting forth the calculation of such Leverage Ratio in reasonable detail, which Officer's Certificate may be delivered to Administrative Agent at any time on or after the date of delivery by ChipPAC of the Compliance Certificate (the "Related Compliance Certificate") with respect to the ------------------------------ period ending on the last day of such Fiscal Quarter pursuant to subsection 6.1(iv), and (ii) "Pricing Period" means each period commencing on the -------------- first Business Day after the delivery to Administrative Agent of a Pricing Certificate and ending on the first Business Day after the next Pricing Certificate is delivered to Administrative Agent; provided that, anything -------- contained in this definition to the contrary notwithstanding, in the event that (X) ChipPAC fails to deliver a Pricing Certificate to Administrative Agent setting forth the Leverage Ratio as of the last day of any Fiscal Quarter on or before the last day on which ChipPAC is required to deliver the Related Compliance Certificate (such last day being the "Cutoff Date") ----------- and (Y) Administrative Agent determines (each such determination being an "Agent Determination") on or after the Cutoff Date (on the basis of the ------------------- Related Compliance Certificate or a Pricing Certificate delivered after the Cutoff Date) that the Applicable Leverage Ratio that would have been in effect if ChipPAC had delivered a Pricing Certificate on the Cutoff Date is greater than the Leverage Ratio set forth in the most recent Pricing Certificate actually delivered by ChipPAC, then (1) the Applicable Leverage Ratio in effect for purposes of making the relevant calculation referred to above for the period from the Cutoff Date to the date of delivery by ChipPAC of the next Pricing Certificate (or, if earlier, the next date on which an Agent Determination is made) shall be the Leverage Ratio determined pursuant to the Agent Determination and (2) on the 5 first Business Day after Administrative Agent delivers written notice to ChipPAC and Company of any Agent Determination, Company shall pay to Administrative Agent, for distribution (as appropriate) to Lenders, an aggregate amount equal to the additional interest and letter of credit fees Company would have been required to pay in respect of all applicable Loans and Letters of Credit in respect of which any interest or fees have been paid by Company during the period from the Cutoff Date to the date such notice is given by Administrative Agent to ChipPAC and Company if the amount of such interest and fees had been calculated using the Applicable Leverage Ratio based on such Agent Determination. "Approved Fund" with respect to any Lender that is a fund that invests ------------- in bank loans, any other fund or trust or entity that invests in bank loans and is advised or managed by the same investment advisor as such Lender or by an Affiliate of such investment advisor property. "Asian Letters of Credit" means Commercial Letters of Credit, in an ----------------------- aggregate face amount outstanding at any time not to exceed $50,000,000, issued by one or more local banks for the account of the Operating Subsidiaries. "Asset Sale" means the sale, lease, sale and leaseback, assignment, ---------- conveyance, transfer or other disposition by ChipPAC or any of its Subsidiaries to any Person (other than ChipPAC or any of its wholly owned Subsidiaries) of any right or interest in or to property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible, including, without limitation, Capital Stock (including, without limitation, of any of ChipPAC's Subsidiaries), but excluding (a) sales of assets in a single transaction or a series of related transactions equal to $2,000,000 or less, (b) sales or other disposals of obsolete, uneconomical, negligible, worn out or surplus equipment or other assets, and (c) sales and other disposals of assets in the ordinary course of business, including sales or discounts of accounts receivable in connection with the collection or compromise thereof, the sale or exchange of equipment or other personal property, including intellectual property, for the functional equivalent thereof, and leasing or licensing of real or personal property (including intellectual property). "Assignment Agreement" means an assignment agreement in substantially -------------------- the form of Exhibit IX annexed hereto or in such other form as may be ---------- approved by the Administrative Agent. "Augmenting Lender" has the meaning assigned to that term in ----------------- subsection 2.9. "Bain" means Bain Capital, Inc. and/or one or more of its Affiliates. ---- 6 "Bankruptcy Law" means Title 11 of the United States Code entitled -------------- "Bankruptcy", as now and hereafter in effect, or any successor statute, or any similar state or foreign law for the relief of debtors. "Base Rate" means, at any time, the higher of (x) the Prime Rate and --------- (y) the rate which is 1/2 of 1% in excess of the Federal Funds Effective Rate. "Base Rate Loans" means Loans bearing interest at rates determined by --------------- reference to the Base Rate as provided in subsection 2.2A. "Business Day" means a day other than a Saturday, Sunday or other day ------------ on which commercial banks in New York City are authorized or required by law to close; provided that, with respect to matters relating to Eurodollar -------- Rate Loans, the term "Business Day" shall mean a day other than a Saturday, ------------ Sunday or other day on which commercial banks in New York City or London, England, are authorized or required by law to close. "Calculation Date" has the meaning assigned to that term in subsection ---------------- 7.6B. "Calculation Period" has the meaning assigned to that term in ------------------ subsection 7.6A. "Capital Lease" means, as applied to any Person, any lease of any ------------- property (whether real, personal or mixed) by that Person as lessee that, in conformity with GAAP, is or should be accounted for as a capital lease on the balance sheet of that Person. "Capital Stock" means any and all shares, interests, participations or ------------- other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation), including, without limitation, partnership interests and membership interests, and any and all warrants, rights or options to purchase or other arrangements or rights to acquire any of the foregoing. "Carryforward" has the meaning assigned to that term in subsection ------------ 7.6C. "Cash" means money, currency or a credit balance in a Deposit Account. ---- 7 "Cash Equivalents" means (i) marketable securities issued or directly ---------------- and unconditionally guaranteed by the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition thereof; (ii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition, having the highest rating obtainable from either S&P or Moody's; (iii) commercial paper maturing no more than one year from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv) certificates of deposit or bankers' acceptances maturing within one year from the date of acquisition thereof and, at the time of acquisition, having a rating of at least A-1 from S&P or at least P-1 from Moody's, issued by any Lender or any commercial bank organized under the laws of the United States of America or any state thereof or the District of Columbia, any member of the European Economic Community, Korea, Malaysia, the People's Republic of China and Hong Kong or any U.S. branch of a foreign bank having combined capital and surplus of not less than $250,000,000 (each Lender and each such commercial bank being herein called a "Cash Equivalent Bank"); (v) Eurodollar time deposits -------------------- having a maturity of less than one year purchased directly from any Cash Equivalent Bank (provided such deposit is with such Cash Equivalent Bank or any other Cash Equivalent Bank); (vi) repurchase obligations for underlying securities of the types described in clauses (i) through (v); (vii) investments in money market funds which invest their assets in the types of Cash Equivalents described in clauses (i) through (v) above; and (viii) other short-term investments utilized by foreign Subsidiaries in accordance with normal investment practices for cash management in investments of a type and with financial institutions analogous to the foregoing. "Cash Proceeds" means, with respect to any Asset Sale, Cash payments ------------- (including any Cash received by way of deferred payment pursuant to, or monetization of, a note receivable or otherwise (other than the portion of such deferred payment constituting interest), but only as and when so received) received from such Asset Sale. "Chinese Agreements" means, the agreements related to the ChipPAC ------------------ Shanghai I Loan, the Chinese Security Agreements and the Chinese Pledge Agreements. "Chinese Pledge Agreements" means, collectively, the ChipPAC Shanghai ------------------------- I pledge agreement and the ChipPAC Shanghai II pledge agreement, entered into as required by the Original Credit Agreement, attached as 8 Exhibits XII-A and XII-B annexed hereto, as such Chinese Pledge Agreements ------------------------ may hereafter be amended, restated, supplemented or otherwise modified from time to time. "Chinese Security Agreements" means, collectively, the receivables --------------------------- security agreement and the land use right and building mortgage agreement, entered into as required by the Original Credit Agreement, attached as Exhibits XIII-A and XIII-B annexed hereto, as such Chinese Security -------------------------- Agreements may hereafter be amended, restated, supplemented or otherwise modified from time to time. "ChipPAC" has the meaning assigned to that term in the Preamble to ------- this Agreement. "ChipPAC Barbados" means ChipPAC (Barbados) Ltd., a corporation ---------------- organized under the laws of Barbados. "ChipPAC Hungary" means ChipPAC Liquidity Management Hungary Limited --------------- Liability Company, a limited liability company organized under the laws of Hungary. "ChipPAC Hungary Capital Contribution" means the $29,000,000 capital ------------------------------------ contribution made by Company to ChipPAC Hungary on or prior to the Closing Date. "ChipPAC Hungary Loan" means the $116,000,000 loan made by ChipPAC -------------------- Luxembourg to ChipPAC Hungary on the Closing Date. "ChipPAC Korea" means ChipPAC Korea Company Ltd., a corporation ------------- organized under the laws of the Republic of Korea. "ChipPAC Korea Loan" means the $145,000,000 loan made by ChipPAC ------------------ Hungary to ChipPAC Korea on the Closing Date. "ChipPAC Limited" means ChipPAC Limited, a corporation organized --------------- under the laws of the British Virgin Islands. "ChipPAC Limited Loan" means the $121,000,000 loan made by Company to -------------------- ChipPAC Limited on the Closing Date. "ChipPAC Luxembourg" means ChipPAC Luxembourg S.a.r.l., a corporation ------------------ organized under the laws of Luxembourg. 9 "ChipPAC Luxembourg Loan" means the $116,000,000 loan made by Company ----------------------- to ChipPAC Luxembourg on the Closing Date. "ChipPAC Shanghai I" means ChipPAC (Shanghai) Company Limited, a ------------------ limited liability company established and organized under the laws of the People's Republic of China. "ChipPAC Shanghai I Loan" means the $34,000,000 loan made by Company ----------------------- to ChipPAC Shanghai I on the Closing Date. "ChipPAC Shanghai II" means ChipPAC Assembly & Test (Shanghai) Co., ------------------- Ltd., a limited liability company established and organized under the laws of the People's Republic of China. "Class" means each of the following classes of the Lenders: (i) the ----- Lenders having Term A Loan Exposure, (ii) the Lenders having Term B Loan Exposure, (iii) the Lenders having Term C Loan Exposure, (iv) the Lenders having Term Delayed Draw Loan Exposure and (v) the Lenders having Revolving Loan Exposure. "Cleanup" means all actions required to: (1) clean up, remove, treat ------- or remediate Hazardous Materials in the indoor or outdoor environment; (2) prevent the Release of Hazardous Materials so that they do not migrate, endanger or threaten to endanger public health or welfare or the indoor or outdoor environment; or (3) perform pre-remedial studies and investigations and post-remedial monitoring and care. "Closing Date" means August 5, 1999, the date on which the Term Loans ------------ (other than the Term Delayed Draw Loans and the Term C Loans) were made. "Collateral" means all of the properties and assets (including Capital ---------- Stock) in which Liens are purported to be granted by the Collateral Documents as security for the Obligations. "Collateral Account" has the meaning assigned to that term in the ------------------ Collateral Account Agreement. "Collateral Account Agreement" means the Collateral Account Agreement ---------------------------- executed and delivered by Company, ChipPAC and the Collateral Agent in connection with the Original Credit Agreement and attached as 10 Exhibit X, as such Collateral Account Agreement may be amended, restated, --------- supplemented or otherwise modified from time to time. "Collateral Agent" means CSFB, in its capacity as collateral agent ---------------- hereunder and under the Collateral Documents, and any successor in such capacity. "Collateral Documents" means (i) the Intercompany Security Documents -------------------- and (ii) the Pledge Agreements, the Security Agreements, the Collateral Account Agreement, and any other documents, instruments or agreements delivered by any Loan Party pursuant to this Agreement or any of the other Loan Documents in order to grant to Collateral Agent, on behalf of the Lenders, Liens and to perfect such Liens on any assets of such Loan Party as security for all or any of the Obligations. "Commercial Letter of Credit" means any letter of credit or similar --------------------------- instrument issued for the purpose of providing the primary payment mechanism in connection with the purchase of any materials, goods or services by ChipPAC or any Operating Subsidiary in the ordinary course of its business. "Commitments" means the commitments of the Lenders to make Loans as ----------- set forth in subsection 2.1A of this Agreement. "Company" has the meaning assigned to that term in the Preamble to ------- this Agreement. "Compliance Certificate" means a certificate substantially in the form ---------------------- of Exhibit VII annexed hereto delivered to the Administrative Agent by ----------- ChipPAC pursuant to subsection 6.1(iv). "Condemnation Proceeds" has the meaning assigned to that term in --------------------- subsection 2.4B(iii)(d). "Consolidated Adjusted EBITDA" means, for any period, without ---------------------------- duplication, the sum of the amounts for such period (as determined for ChipPAC and its Subsidiaries on a consolidated basis) of (i) Consolidated Net Income, (ii) Consolidated Interest Expense (excluding the cash portion of any payments made pursuant to subsection 2.3 to the Agent or Lenders on or before the Closing Date, but including the non-cash amortization of such amounts after the Closing Date), (iii) provisions for taxes based on income (including, without duplication, foreign withholding taxes and any state single business, unitary or similar taxes), (iv) total depreciation expense, (v) total amortization expense, (vi) to the extent deducted in determining Consolidated Net Income, those items described in subdivision A of 11 Schedule 1.1(i) annexed hereto, and (vii) other non-cash items reducing --------------- Consolidated Net Income (excluding accruals of expenses and establishment of reserves in the ordinary course of business) to the extent reflected as a charge or otherwise deducted from the determination of Consolidated Net Income, less non-cash items increasing Consolidated Net Income (other than ---- accruals of revenue or reversals of reserves), all of the foregoing (except as otherwise provided in the definition of any term used herein) as determined on a consolidated basis in conformity with GAAP; provided that, for purposes of determining Consolidated Adjusted EBITDA for any period (or portion thereof) that includes the Fiscal Quarter ended June 30, 2000, Consolidated Adjusted EBITDA shall be determined pursuant to the methodology set forth in subdivision B of Schedule 1.1(i). "Consolidated Capital Expenditures" means, for any period, the --------------------------------- aggregate of all expenditures (whether paid in cash or other consideration or accrued as a liability (including that portion of Capital Leases which is capitalized on a consolidated balance sheet in accordance with GAAP), by ChipPAC and its Subsidiaries during that period that, in conformity with GAAP, are or should be included in "purchases of property, plant or equipment" or comparable items reflected in the consolidated statement of cash flows of ChipPAC and its Subsidiaries; provided, however, that the -------- ------- following shall in any event be excluded from the definition of Consolidated Capital Expenditures: (a) any such expenditures made with, or subsequently reimbursed out of, the proceeds of insurance, condemnation awards (or payments in lieu thereof), indemnity payments or payments in respect of judgments or settlements received from third parties for (purposes of replacing or repairing the assets in respect of which such proceeds, awards or payments were received, so long as such expenditures are commenced (or are contractually committed to commence) within 365 days of the later of the occurrence of the damage to or loss of the assets being replaced or repaired and the receipt of such proceeds, awards or payments in respect thereof, (b) any such expenditures constituting the reinvestment of proceeds from the sales of assets in equipment or other productive assets of ChipPAC and its Subsidiaries, so long as such expenditures are commenced (or are contractually committed to commence) within 365 days of the receipt of such proceeds, and (c) any such expenditures made with the proceeds of the HEI Unspent Amount, the Intersil Unspent Amount and/or the Intel Preferred Stock and identified as such on an Officer's Certificate pursuant to Section 6.1(iv); and provided further, however, that -------- ------- ------- Consolidated Capital Expenditures shall not include any expenditures made by ChipPAC or any of its Subsidiaries to acquire in a Permitted Acquisition the business, property or assets of any Person, or the stock or other evidence of beneficial ownership of any Person that, as a result of such acquisition, becomes a Subsidiary of ChipPAC. 12 "Consolidated Current Assets" means, as at any date of determination, --------------------------- the total assets of ChipPAC and its Subsidiaries on a consolidated basis which may properly be classified as current assets in conformity with GAAP, excluding Cash, Cash Equivalents and deferred income taxes to the extent otherwise included in current assets. "Consolidated Current Liabilities" means, as at any date of -------------------------------- determination, the total liabilities of ChipPAC and its Subsidiaries on a consolidated basis which may properly be classified as current liabilities in conformity with GAAP, other than (i) any liabilities that are the current portion of Indebtedness (including Capital Lease obligations) classified as long term liabilities in conformity with GAAP (including accrued but unpaid interest) and (ii) deferred income taxes to the extent otherwise included in current liabilities. "Consolidated Excess Cash Flow" means, for any period, an amount (if ----------------------------- positive) equal to (i) the sum, without duplication, of the amounts for such period of (a) Consolidated Adjusted EBITDA, and (b) the Consolidated Working Capital Adjustment (which may be a negative number) minus (ii) the ----- sum, without duplication, of the amounts for such period of (a) voluntary and scheduled cash principal repayments made in respect of Consolidated Total Debt (excluding repayments of Revolving Loans or loans under similar revolving lines of credit except to the extent the Revolving Loan Commitments or similar commitments to lend, respectively, are permanently reduced in connection with such repayments), (b) Consolidated Capital Expenditures (net of any proceeds of any related financings with respect to such Capital Expenditures and net of any portion of the HEI Unspent Amount or the Intersil Unspent Amount used to finance such Capital Expenditures) plus (or minus, if negative) the Carryforward for such period to be carried ---- ----- forward to the next period less the Carryforward (if any) for the preceding ---- period carried forward to the current period, (c) Consolidated Interest Expense paid in cash during such period, (d) the provision for taxes (including, without duplication, foreign withholding taxes and any single business, unitary or similar taxes) based on income of ChipPAC and its Subsidiaries and paid in cash with respect to such period (including taxes payable in cash within 90 days following such period), (e) any cash payments made during such period with respect to items set forth in subdivision A of Schedule 1.1(i) annexed hereto, (f) non-cash charges added --------------- in calculating Consolidated Adjusted EBITDA in a prior period to the extent such non-cash charges are or will be paid in cash in the current period, (g) to the extent not otherwise deducted in determining Consolidated Net Income, fees and expenses associated with any exchange of Subordinated Debt contemplated under the terms of the Subordinated Debt Documents, (h) to the extent not otherwise deducted in determining 13 Consolidated Excess Cash Flow, cash payments made during such period with respect to non-current liabilities and cash payments made during such period with respect to restructuring reserves and expenditures with respect to Permitted Acquisitions and (i) to the extent not otherwise deducted in determining Consolidated Net Income, Restricted Payments and Investments made pursuant to subsection 7.3 or 7.5 made during such period (including any payments made related to the Earnout, the Contingent Incentive Payments, the Seller Preferred Stock and the Intel Preferred Stock). "Consolidated Interest Expense" means, for any period (as determined ----------------------------- for ChipPAC and its Subsidiaries on a consolidated basis), total cash or non-cash interest expense (including that portion attributable to capital leases in accordance with GAAP), including, without limitation, all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing and net costs under Interest Rate Agreements and other Hedge Agreements, commitment fees accrued under subsection 2.3A and any Administrative Agent's fees payable to Administrative Agent, provided that Consolidated Interest Expense for any period (or portion thereof) that includes the Fiscal Quarters ended December 31, 1999, March 31, 2000 and June 30, 2000 shall be determined in accordance with subdivision B of Schedule 1.1(i). --------------- "Consolidated Net Income" means, for any period, the net income (or ----------------------- loss) of ChipPAC and its Subsidiaries on a consolidated basis for such period taken as a single accounting period determined in conformity with GAAP; provided that there shall be excluded therefrom (i) the income (or -------- loss) of any Person other than a Subsidiary of ChipPAC in which any other person (other than ChipPAC or any of its Subsidiaries) has a joint interest, except to the extent of the amount of dividends or other distributions actually paid to ChipPAC or any Subsidiary of ChipPAC by such Person during such period, (ii) the income (or loss) of any Person accrued prior to the date it becomes a Subsidiary of ChipPAC or is merged into or consolidated with ChipPAC or any Subsidiary of ChipPAC or that Person's assets are acquired by ChipPAC or any Subsidiary of ChipPAC, (iii) the amount of income of any Subsidiary of ChipPAC only to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of such amount of income is not at the time permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary, (iv) any after-tax gains or losses attributable to Asset Sales, (v) Transaction Costs, (vi) Purchase Transactions Costs, and (vii) to the extent not included in clauses (i) through (vi) above, any net extraordinary unusual or nonrecurring gains or net unusual or nonrecurring extraordinary losses and any write-offs of deferred financing costs 14 associated with Indebtedness of ChipPAC or any Subsidiary of ChipPAC repaid on the Closing Date. "Consolidated Total Debt" means, as at any date of determination, the ----------------------- aggregate amount, without duplication, of all outstanding Indebtedness of, and Contingent Obligations consisting of the guarantee of Indebtedness by ChipPAC and its Subsidiaries on a consolidated basis; provided that the -------- term "Consolidated Total Debt" shall exclude any Indebtedness with respect to outstanding Permitted Seller Paper so long as the terms and conditions of such Permitted Seller Paper do not require any cash payments to be made to the holder of such Permitted Seller Paper prior to the payment in full of all Obligations. "Consolidated Working Capital" means, as at any date of determination, ---------------------------- the excess of Consolidated Current Assets over Consolidated Current Liabilities. "Consolidated Working Capital Adjustment" means, for any period on a --------------------------------------- consolidated basis, the amount (which may be a negative number) by which Consolidated Working Capital as of the beginning of such period exceeds (or is less than) Consolidated Working Capital as of the end of such period. "Contingent Incentive Payments" means amounts payable to the Seller, ----------------------------- in cash, during the three year period following the closing of the Purchase if Seller achieves the transfer of certain subcontracted business as set forth in the Purchase Agreement. "Contingent Obligation" means, as applied to any Person, any direct or --------------------- indirect liability, contingent or otherwise, of that Person (i) with respect to any Indebtedness, lease, dividend or other obligation of another if the primary purpose or intent thereof by the Person incurring the Contingent Obligation is to provide assurance to the obligee of such obligation of another that such obligation of another will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such obligation will be protected (in whole or in part) against loss in respect thereof, (ii) with respect to any letter of credit issued for the account of that Person or as to which that Person is otherwise liable for reimbursement of drawings, or (iii) under Interest Rate Agreements or other Hedge Agreements. Contingent Obligations shall include, without limitation, (a) the direct or indirect guaranty, endorsement (otherwise than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of the obligation of another, (b) the obligation to make take-or-pay or similar payments if required regardless of non- performance by any other party or parties to an agreement, and (c) any liability of 15 such Person for the obligation of another through any agreement (contingent or otherwise) (X) to purchase, repurchase or otherwise acquire such obligation or any security therefor, or to provide funds for the payment or discharge of such obligation (whether in the form of loans, advances, stock purchases, capital contributions or otherwise) or (Y) to maintain the solvency or any balance sheet item, level of income or financial condition of another if, in the case of any agreement described under subclause (X) or (Y) of this sentence, the primary purpose or intent thereof is as described in the preceding sentence. The amount of any Contingent Obligation shall be equal to (A) the amount of the obligation so guaranteed or otherwise supported or, if less, the amount to which such Contingent Obligation is specifically limited (including netting of Interest Rate Agreements of Hedge Agreements) or (B) if neither amount in clause (A) is stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform) as determined by such Person in good faith. Contingent Obligations shall not include standard contractual indemnities entered into in the ordinary course of business, endorsements of instruments for deposit or collection in the ordinary course of business or any product warranties in the ordinary course of business. "Continuing Director" shall mean, as of any date of determination, any ------------------- member of the Board of Directors of ChipPAC who (i) was a member of such Board of Directors on the Restatement Effective Date or (ii) was nominated for election or elected to such Board of Directors with the affirmative vote (directly or indirectly) of Bain and the SXI Holders. "Contractual Obligation" means, as applied to any Person, any ---------------------- provision of any material indenture, mortgage, deed of trust, contract, undertaking or other material agreement or instrument to which such Person is a party or to which such Person or any of its assets is subject. "CSFB" means Credit Suisse First Boston. ---- "Default" means a condition or event that, after notice or after any ------- applicable grace period has lapsed, or both, would constitute an Event of Default. "Defaulting Lender" means any Lender with respect to which a Lender ----------------- Default is in effect. "Deposit Account" means a demand, time, savings, passbook or like --------------- account with a bank, savings and loan association, credit union or like 16 organization, other than an account evidenced by a negotiable certificate of deposit. "Dollars" and the sign "$" mean the lawful money of the United States ------- - of America. "Earnout" means amounts payable to HEI, either through a redemption of ------- a portion of the HEI Preferred Stock, direct cash payments or a combination thereof, during the four-and-one-half year period following the closing of the Recapitalization Transactions if ChipPAC and its Subsidiaries attain certain financial performance objectives as set forth in the Recapitalization Agreement. "Eligible Assignee" means (A) (i) a commercial bank organized under ----------------- the laws of the United States or any state thereof; (ii) a commercial bank organized under the laws of any other country or a political subdivision thereof; provided that (x) such bank is acting through a branch or agency -------- located in the United States or (y) such bank is organized under the laws of a country that is a member of the Organization for Economic Cooperation and Development or a political subdivision of such country; and (iii) any other financial institution or entity which is an "accredited investor" (as defined in Regulation D under the Securities Act) which extends credit or buys loans as one of its businesses including, but not limited to, insurance companies, mutual funds, investment funds and lease financing companies; (B) any Lender and any Affiliate of any Lender; provided that -------- neither Company nor any Affiliate of Company shall be an Eligible Assignee (other than by assignment within 30 days of the Closing Date to an investment fund controlled by or under common control with Bain or, in the case of the Term C Loans, other than by assignment during the Initial Period to an investment fund controlled or under common control with Bain) and (C) an Approved Fund. "Employee Benefit Plan" means "employee benefit plan" as defined in --------------------- Section 3(3) of ERISA which is subject to ERISA and which is maintained or contributed to by Company or any of its ERISA Affiliates. "Environmental Claim" means any written claim, action, or notice by ------------------- any Person alleging potential liability (including, without limitation, potential liability for investigatory costs, Cleanup costs, governmental response costs, natural resources damages, property damages, personal injuries, or penalties) arising out of, based on or resulting from (a) the presence or Release of any Hazardous Materials at any location, whether or not owned, leased or operated by Company or any of its Subsidiaries, or (b) any violation, or alleged violation, of any Environmental Law. 17 "Environmental Laws" means all present and future treaties, ------------------ international conventions and federal, state, local, and foreign laws, regulations, Governmental Authorizations, codes, ordinances, orders, decrees, judgments and binding agreements issued, promulgated or entered into by or with any Governmental Authority relating to pollution or protection of the environment, including, without limitation, laws relating to Releases or threatened Releases of Hazardous Materials or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, Release, disposal, transport or handling of Hazardous Materials, laws and regulations with regard to record keeping, notification, disclosure and reporting requirements respecting Hazardous Materials and laws relating to the management or use of natural resources. "Environmental Liabilities" means all liabilities, obligations to ------------------------- conduct Cleanup, and all Environmental Claims against any Loan Party or its Subsidiaries or against any Person whose liability for any Environmental Claim any Loan Party or its Subsidiaries may have retained or assumed contractually or by operation of law arising from (a) the presence, Release or threatened Release of Hazardous Materials at any location, owned, leased, occupied or operated by Company or its Subsidiaries, or (b) any violation, or alleged violation, of any Environmental Law. "Equity Contribution" means, collectively, (i) the contribution by the ------------------- Sponsors to ChipPAC Merger Corp. of approximately $87,000,000 in cash in exchange for all of the outstanding common stock of ChipPAC Merger Corp. and (ii) approximately $10,000,000 of rollover equity contribution by the Existing Investors, all as contemplated by the Recapitalization Transactions. "Equity Proceeds" means the cash proceeds (net of underwriting --------------- discounts and commissions and other costs and expenses (including legal costs) associated therewith) from the issuance of any Capital Stock or other equity Securities of, or the making of any capital contribution to, ChipPAC or any of its Subsidiaries after the Closing Date. "ERISA" means the Employee Retirement Income Security Act of 1974, as ----- amended from time to time, and any successor statute, and the regulations promulgated and rulings issued thereunder. "ERISA Affiliate" means, as applied to any Person, (i) any corporation --------------- which is a member of a controlled group of corporations within the meaning of Section 414(b) of the Internal Revenue Code of which that Person is a member; (ii) any trade or business (whether or not incorporated) which is a member of a 18 group of trades or businesses under common control within the meaning of Section 414(c) of the Internal Revenue Code of which that Person is a member; and (iii) solely for purposes of obligations under Section 412 of the Internal Revenue Code or under the applicable sections set forth in Section 414(t)(2) of the Internal Revenue Code, any member of an affiliated service group within the meaning of Section 414(m) or (o) of the Internal Revenue Code of which that Person, any corporation described in clause (i) above or any trade or business described in clause (ii) above is a member. "ERISA Event" means (i) a "reportable event" within the meaning of ----------- Section 4043(c) of ERISA and the regulations issued thereunder with respect to any Pension Plan (excluding those for which the provision for 30-day notice to the PBGC has been waived by regulation or with respect to which no penalty will be assessed by the PBGC for failure to satisfy such notice requirements); (ii) the failure to meet the minimum funding standard of Section 412 of the Internal Revenue Code with respect to any Pension Plan (whether or not waived in accordance with Section 412(d) of the Internal Revenue Code) or the failure to make by its due date a required installment under Section 412(m) of the Internal Revenue Code with respect to any Pension Plan or the failure to make any required contribution to a Multiemployer Plan; (iii) the provision by the administrator of any Pension Plan pursuant to Section 4041(a)(2) of ERISA of a notice of intent to terminate such plan in a distress termination described in Section 4041(c) of ERISA; (iv) the withdrawal by Company or any of its ERISA Affiliates from any Pension Plan with two or more contributing sponsors or the termination of any such Pension Plan resulting, in either case, in liability pursuant to Section 4063 or 4064 of ERISA, respectively; (v) the institution by the PBGC of proceedings to terminate any Pension Plan pursuant to Section 4042 of ERISA; (vi) the imposition of liability on Company or any of its ERISA Affiliates pursuant to Section 4062(e) or 4069 of ERISA or by reason of the application of Section 4212(c) of ERISA; (vii) the withdrawal by Company or any of its ERISA Affiliates in a complete or partial withdrawal (within the meaning of Sections 4203 and 4205 of ERISA) from any Multiemployer Plan resulting in withdrawal liability pursuant to Section 4201 of ERISA, or the receipt by Company or any of its ERISA Affiliates of written notice from any Multiemployer Plan that it is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA, or that it intends to terminate or has terminated under Section 4042 of ERISA or under Section 4041A of ERISA if such termination would result in liability to Company or any of its ERISA Affiliates; (viii) the imposition on Company or any of its ERISA Affiliates of fines, penalties or taxes under Chapter 43 of the Internal Revenue Code or under Section 409 or 502(c), (i) or (l) or 4071 of ERISA in respect of any Employee Benefit Plan; (ix) the disqualification by the Internal Revenue Service of any Pension Plan (or any other Employee Benefit Plan 19 intended to be qualified under Section 401(a) of the Internal Revenue Code) under Section 401(a) of the Internal Revenue Code, or the determination by the Internal Revenue Service that any trust forming part of any Pension Plan fails to qualify for exemption from taxation under Section 501(a) of the Internal Revenue Code; or (x) the imposition of a Lien pursuant to Section 401(a)(29) or 412(n) of the Internal Revenue Code or pursuant to ERISA with respect to any Pension Plan. "Eurocurrency Reserve Requirements" means, for each Interest Period --------------------------------- for each Eurodollar Rate Loan, the highest reserve percentage applicable to any Lender during such Interest Period under regulations issued from time to time by the Board of Governors of the Federal Reserve System or any successor for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement), with respect to liabilities or assets consisting of or including Eurocurrency liabilities having a term equal to such Interest Period. "Eurodollar Base Rate" means the rate per annum determined by the -------------------- Administrative Agent at approximately 11:00 A.M. (London time) on the date which is two Business Days prior to the beginning of the relevant Interest Period (as specified in the applicable Notice of Borrowing) by reference to the British Bankers' Association Interest Settlement Rates for deposits in Dollars (as set forth by any service selected by the Administrative Agent which has been nominated by the British Bankers' Association as an authorized information vendor for the purpose of displaying such rates) for a period equal to such Interest Period; provided that, to the extent that -------- an interest rate is not ascertainable pursuant to the foregoing provisions of this definition, the "Eurodollar Base Rate" shall be the interest rate per annum determined by the Administrative Agent to be the average of the rates per annum at which deposits in Dollars are offered for such relevant Interest Period to major banks in the London interbank market in London, England by the Reference Lenders at approximately 11:00 A.M. (London time) on the date which is two Business Days prior to the beginning of such Interest Period. If any of the Reference Lenders shall be unable or shall otherwise fail to supply such rates to the Administrative Agent upon its request, the rate of interest shall be determined on the basis of the quotations of the remaining Reference Lender. "Eurodollar Rate Loans" means Loans bearing interest at rates --------------------- determined by reference to the Reserve Adjusted Eurodollar Rate as provided in subsection 2.2A. "Event of Default" means each of the events set forth in Section 8. ---------------- 20 "Excess Proceeds Amount" means, as of the Closing Date, $0, which ---------------------- amount shall be (i) increased (a) on the date of delivery in any Fiscal --------- Year subsequent to the Closing Date of an Officer's Certificate setting forth the calculation of Consolidated Excess Cash Flow for the preceding Fiscal Year pursuant to subsection 2.4B(iii)(e) (each such date being an "Excess Cash Payment Date"), so long as any prepayment required pursuant to ------------------------ subsection 2.4B(iii)(e) has been made, by an amount equal to the amount of such Consolidated Excess Cash Flow which is not so prepaid, and (b) on the date of the receipt by ChipPAC or any Subsidiary of ChipPAC of any Equity Proceeds, so long as any prepayment required pursuant to subsection 2.4B(iii)(c) has been made, by an amount equal to such Equity Proceeds and such other proceeds which are not so prepaid, and (ii) reduced (a) on each ------- Excess Cash Payment Date where Consolidated Excess Cash Flow for the immediately preceding Fiscal Year is a negative number, by such amount, (b) at the time any Consolidated Capital Expenditures are made pursuant to subsection 7.6D(iii), by the amount of such Consolidated Capital Expenditures, (c) at the time any Permitted Acquisition is funded pursuant to subsection 7.7(v)(z) with an amount attributable to the Excess Proceeds Amount, by the portion of the purchase price paid with the Excess Proceeds Amount and (d) at the time Investments are made pursuant to subsection 7.3(xii), by the amount of such Investments in excess of $20,000,000 it being understood that the Excess Proceeds Amount may be reduced to an amount below $0 after giving effect to the reductions enumerated in clause (ii)(a) above. "Exchange Act" means the Securities Exchange Act of 1934, as amended ------------ from time to time, and any successor statute. "Existing Investors" means HEA and HEI. ------------------ "Facilities" means any and all real property (including, without ---------- limitation, all buildings, fixtures or other improvements located thereon) now, hereafter or (for purposes of Sections 5.13 and 10.3 only) heretofore owned, leased, operated or used by ChipPAC or any of its Subsidiaries (but only as to portions thereof actually owned, leased, operated or used) or any of their respective predecessors or any of their respective Affiliates that are directly or indirectly controlled by ChipPAC. "Federal Funds Effective Rate" means, for any period, a fluctuating ---------------------------- interest rate equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any 21 day which is a Business Day, the average of the quotations for such day on such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by the Administrative Agent. "First Priority" means, with respect to any Lien purported to be -------------- created in any Collateral pursuant to any Collateral Document, that such Lien is the most senior Lien (other than Permitted Encumbrances and other Liens permitted pursuant to subsection 7.2A to the extent not perfected by filing of any UCC financing statements) to which such Collateral is subject. "Fiscal Quarter" means a fiscal quarter of a Fiscal Year. -------------- "Fiscal Year" means the fiscal year of ChipPAC and its Subsidiaries ----------- ending on December 31 of each calendar year. For purposes of this Agreement, any particular Fiscal Year shall be designated by reference to the calendar year in which such Fiscal Year ends. "Fixed Charge Coverage Ratio" has the meaning assigned to that term in --------------------------- subsection 7.6E. "Foreign Benefit Event" means with respect to any Foreign Pension --------------------- Plan, (a) the existence of unfunded liabilities in excess of the amount permitted under any applicable law, or in excess of the amount that would be permitted absent a waiver from a Governmental Authority, (b) the failure to make the required contributions or payments, under any applicable law, on or before the due date for such contributions or payments, (c) the receipt of a notice by a Governmental Authority relating to the intention to terminate any such Foreign Pension Plan or to appoint a trustee or similar official to administer any such Foreign Pension Plan, or alleging the insolvency of any such Foreign Pension Plan and (d) the incurrence of any liability in excess of $5,000,000 which is unfunded or for which a reserve has not been established in the financial statements of ChipPAC and its Subsidiaries (or the Dollar equivalent thereof in another currency) by Company or any of its Subsidiaries under applicable law on account of the complete or partial termination of such Foreign Pension Plan or the complete or partial withdrawal of any participating employer therein, or (e) the occurrence of any transaction that is prohibited under any applicable law and could reasonably be expected to result in the incurrence of any liability by Company or any of its Subsidiaries, or the imposition on Company or any of its Subsidiaries of any fine, excise tax or penalty resulting from any noncompliance with any applicable law, in each case in excess of $5,000,000 (or the Dollar equivalent thereof in another currency). 22 "Foreign Pension Plan" shall mean any plan, fund (including any -------------------- superannuation fund) or other similar program established or maintained outside the United States by ChipPAC or any one or more of its Subsidiaries primarily for the benefit of employees of ChipPAC or such Subsidiaries residing outside the United States, which plan, fund or other similar program provides, or results in, retirement income, a deferral of income in contemplation of retirement or payments to be made upon termination of employment, and which plan is not subject to ERISA or the Code. "Funding and Payment Office" means the office of the Administrative -------------------------- Agent located at 11 Madison Avenue, New York, NY 10010 (or such office of the Administrative Agent or any successor Administrative Agent specified by the Administrative Agent or such successor Administrative Agent in a written notice to the Loan Parties and the Lenders). "Funding Date" means the date of the funding of a Loan, which, in the ------------ case of the Term A Loans and Term B Loans, was the Closing Date, and in the case of the Term C Loans, the Restatement Effective Date. "GAAP" means, subject to the limitations on the application thereof ---- set forth in subsection 1.2, generally accepted accounting principles set forth in opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession, in each case as the same are applicable to the circumstances as of the date of determination and specifically, terms used herein applicable to Company and its Subsidiaries defined by reference to GAAP shall give effect to the subtraction of minority interests. "Governmental Acts" has the meaning assigned to that term in ----------------- subsection 3.5A. "Governmental Authority" means any nation or government, any state or ---------------------- any political subdivision of any of the foregoing and any entity exercising executive, legislative, judicial or regulatory functions of or pertaining to government. "Governmental Authorization" means any permit, license, authorization, -------------------------- plan, directive, consent order or consent decree of or from any Governmental Authority. 23 "Granting Bank" has the meaning assigned to that term in subsection ------------- 10.1F. "Guaranty" means, individually, the Guaranty executed and delivered by -------- ChipPAC and the Subsidiary Guarantors in connection with the Original Credit Agreement and attached as Exhibit IV hereto, or by any additional Subsidiary Guarantor from time to time thereafter pursuant to subsection 6.9, as such Guaranty may heretofore have been or hereafter may be amended, restated, supplemented or otherwise modified from time to time, or any other guaranty of the Obligations, and "Guaranties" means, collectively, ---------- the Guaranty and each other guaranty of the Obligations. "Guarantor" means, individually, ChipPAC, the Subsidiary Guarantors or --------- any other guarantor of the Obligations, and "Guarantors" means, ---------- collectively, ChipPAC, the Subsidiary Guarantors and each other guarantor of the Obligations. "Hazardous Materials" means all substances defined as Hazardous ------------------- Substances, Oils, Pollutants or Contaminants in the National Oil and Hazardous Substances Pollution Contingency Plan, 40 C.F.R. (S) 300.5, or defined as such by, or regulated as such under, any Environmental Law. "HEA" means Hyundai Electronics America, a California corporation. --- "Hedge Agreements" means all swaps, caps or collar agreements or ---------------- similar arrangements entered into by ChipPAC or any of its Subsidiaries providing for protection against fluctuations in currency exchange rates or the exchange of nominal interest obligations, either generally or under specific contingencies. "HEI" means Hyundai Electronics Industries Co., Ltd., a corporation --- incorporated under the laws of the Republic of Korea. "HEI Preferred Stock" means a series of senior pay-in-kind preferred ------------------- stock of ChipPAC issued to HEI in connection with the Recapitalization Transactions having an initial liquidation preference of $70,000,000 and the other terms and conditions set forth in Exhibit XIV annexed hereto. ----------- "HEI Unspent Amount" means $12,295,000, which is the amount by which ------------------ the cash consideration payable to HEI pursuant to the Recapitalization Agreement is reduced as a result of ChipPAC's actual capital expenditures for the period from January 1, 1999, through the Closing Date being less than budgeted capital expenditures for such period. 24 "Hungarian Pledge Agreement" means the Quota Lien Agreement by and -------------------------- between the Company and the Collateral Agent entered into in connection with the Original Credit Agreement and attached as Exhibit XV hereto, as ---------- such Hungarian Pledge Agreement may hereafter be amended, restated, supplemented or otherwise modified from time to time. "Immaterial Subsidiaries" means one or more Subsidiaries of ChipPAC, ----------------------- designated in writing to the Administrative Agent from time to time; provided that (x) the assets of all such designated Subsidiaries -------- constitute, in the aggregate, less than or equal to 5% of the total assets of ChipPAC and its Subsidiaries on a consolidated basis and (y) all such designated Subsidiaries contribute, individually or in the aggregate, less than or equal to 5% of Consolidated Adjusted EBITDA. "Increase Effective Date" has the meaning assigned to that term in ----------------------- subsection 2.9. "Increasing Lender" has the meaning assigned to that term in ----------------- subsection 2.9. "Incremental Revolving Loan Amount" means $25,000,000. --------------------------------- "Indebtedness" means, as applied to any Person, (i) all indebtedness ------------ for borrowed money, (ii) that portion of obligations with respect to Capital Leases that is properly classified as a liability on a balance sheet in conformity with GAAP, (iii) notes payable and drafts accepted representing extensions of credit whether or not representing obligations for borrowed money (other than current accounts payable incurred in the ordinary course of business and accrued expenses incurred in the ordinary course of business), (iv) any obligation owed for all or any part of the deferred purchase price of property or services (excluding the Earnout, the Contingent Incentive Payments, any such obligations incurred under ERISA or any Foreign Pension Plan, any obligation under employment or consulting agreements of ChipPAC or its Subsidiaries and current trade payables incurred in the ordinary course of business) which obligation in accordance with GAAP would be shown as a liability on the balance sheet of such Person, (v) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to any property or assets acquired by such Person (unless the rights and remedies of the seller or the lender under such agreement in the event of default are limited to repossession or sale of such property or assets), (vi) all obligations, contingent or otherwise, as an account party under any Letter of Credit or under acceptance, letter of credit or similar facilities to the extent not reflected as trade liabilities on the balance sheet of such Person in accordance with 25 GAAP, and (vii) all indebtedness secured by any Lien on any property or asset owned or held by that Person regardless of whether the indebtedness secured thereby shall have been assumed by that Person or is nonrecourse to the credit of that Person. The amount of Indebtedness which is non-recourse to the obligor thereunder or to any other obligor and for which recourse is limited to an identified asset or assets shall be equal to the lesser of (1) the stated amount of such obligation and (2) the fair market value of such asset or assets. Obligations under Interest Rate Agreements and Hedge Agreements constitute (X) in the case of Hedge Agreements, Contingent Obligations, and (Y) in all other cases, Investments, and in neither case constitute Indebtedness. "Indemnitee" has the meaning assigned to that term in subsection 10.3. ---------- "Information Memorandum" means the Confidential Information Memorandum ---------------------- dated July 1999, that was used in connection with the syndication of the credit facilities set forth herein. "Initial Period" means the period commencing on and including the -------------- Restatement Effective Date and ending on the earlier of (i) the date on which the Sole Lead Arranger notifies Company that it has concluded its primary syndication of the Term C Loans, and (ii) ninety (90) days after the Restatement Effective Date. "Initial Revolving Loans" has the meaning assigned to that term in ----------------------- subsection 2.9B. "Insurance Proceeds" has the meaning assigned to that term in ------------------ subsection 2.4B(iii)(d). "Intel" means Intel Corporation, a Delaware corporation. ----- "Intel Preferred Stock" means the 10% convertible preferred stock of --------------------- ChipPAC issued to Intel in connection with the Recapitalization Transactions having an initial liquidation preference of $10,000,000 and on the other terms and conditions set forth in Exhibit XVIII annexed hereto. ------------- "Intellectual Property" has the meaning assigned to that term in --------------------- subsection 5.5C. "Intercompany Note" means any note evidencing Indebtedness of ChipPAC ----------------- or any Subsidiary of ChipPAC to ChipPAC or any other Subsidiary of ChipPAC (including the Recapitalization Notes, the Malaysian Acquisition Note 26 and the Malaysian Intercompany Notes) set forth on Schedule 1.1(ii) annexed ---------------- hereto, and "Intercompany Notes" means, collectively, all such notes. ------------------ "Intercompany Security Documents" means the Recapitalization Security ------------------------------- Agreements, the Recapitalization Notes, the Malaysian Intercompany Notes, the Malaysian Acquisition Note and the Malaysian Security Agreements. "Interest Coverage Ratio" has the meaning assigned to that term in ----------------------- subsection 7.6A. "Interest Payment Date" means (i) with respect to any Base Rate Loan, --------------------- the last Business Day in each of March, June, September and December of each year, commencing September 1999, and (ii) with respect to any Eurodollar Rate Loan, the last day of each Interest Period applicable to such Loan; provided that in the case of each Interest Period of longer than -------- three months, "Interest Payment Date" shall also include the date that is three months or integral multiple thereof after the commencement of such Interest Period. "Interest Period" has the meaning assigned to that term in subsection --------------- 2.2B. "Interest Rate Agreement" means any interest rate swap agreement, ----------------------- interest rate cap agreement, interest rate collar agreement or other similar agreement or arrangement designed to hedge ChipPAC or any of its Subsidiaries against fluctuations in interest rates. "Interest Rate Determination Date" means each date for calculating the -------------------------------- Reserve Adjusted Eurodollar Rate, for purposes of determining the interest rate in respect of an Interest Period. The Interest Rate Determination Date for purposes of calculating the Reserve Adjusted Eurodollar Rate shall be the second Business Day prior to the first day of the related Interest Period. "Internal Revenue Code" means the Internal Revenue Code of 1986, as --------------------- amended to the date hereof and from time to time hereafter and any successor statute and the regulations promulgated by the Internal Revenue Service thereunder. "Intersil Unspent Amount" means the lesser of (i) the amount ----------------------- determined pursuant to Section 2.3 of the Purchase Agreement, which is the amount by which the cash consideration payable to the Seller pursuant to the Purchase Agreement is reduced as a result of the Malaysian Subsidiary's actual capital expenditures for the period from July 3, 1999 through the Restatement 27 Effective Date being less than the budgeted capital expenditures for such period and (ii) $5,000,000. "Investment" means (i) any direct or indirect purchase or other ---------- acquisition by ChipPAC or any of its Subsidiaries of, or of a beneficial interest in, stock or other Securities of any other Person, (ii) any direct or indirect loan, advance (other than advances to employees for moving, entertainment and travel expenses, drawing accounts and similar expenditures in the ordinary course of business) or capital contribution by ChipPAC or any of its Subsidiaries to any other Person, including all indebtedness and accounts receivable acquired from that other Person that are not current assets or did not arise from sales to that other Person in the ordinary course of business or (iii) Interest Rate Agreements; provided, however, that the term "Investment" shall not include (a) current -------- ------- trade and customer accounts receivable for goods furnished or services rendered in the ordinary course of business and payable in accordance with customary trade terms, (b) advances and prepayments to suppliers for goods and services in the ordinary course of business, (c) stock or other securities acquired in connection with the satisfaction or enforcement of Indebtedness or claims due or owing to ChipPAC or any of its Subsidiaries (whether in bankruptcy of customers or suppliers or otherwise) or as security for any such Indebtedness or claims, (d) Cash, and (e) deposits to secure the performance of leases. The amount of any Investment shall be the original cost of such Investment plus the cost of all additions thereto, without any adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment "Investors" means Bain, the SXI Holders and the Existing Investors. --------- "Issuing Bank" means, with respect to any Letter of Credit, CSFB, in ------------ its capacity as issuer of Letters of Credit, and, any other Lender, reasonably acceptable to Company and the Administrative Agent, having a Letter of Credit Subfacility Commitment. "Judgment Currency" has the meaning assigned to that term in ----------------- subsection 10.20. "Judgment Currency Conversion Date" has the meaning assigned to that --------------------------------- term in subsection 10.20. "Korean Pledge Agreement" means that certain Pledge (Jil-Kwon) ----------------------- Agreement entered into by and between ChipPAC Korea and ChipPAC Hungary in connection with the Original Credit Agreement, attached as Exhibit XVI ----------- hereto, as such Korean Pledge Agreement may hereafter be amended, restated, 28 supplemented or otherwise modified from time to time with the consent of the Requisite Lenders. "Korean Security Agreement" means that certain Yangdo Dambo Agreement ------------------------- entered into by and between ChipPAC Korea and the Collateral Agent in connection with the Original Credit Agreement, attached as Exhibit XVII ------------ hereto, as such Korean Security Agreement may hereafter be amended, restated, supplemented or otherwise modified from time to time. "Lender" and "Lenders" means the Persons identified as "Lenders" and ------ ------- listed on the signature pages of this Agreement, together with their successors and permitted assigns pursuant to subsection 10.1, and the term "Lenders" shall include the Swing Line Lender unless the context otherwise requires; provided that the term "Lenders", when used in the context of a -------- particular Commitment, shall mean the Lenders having that Commitment. "Lender Default" means (i) the refusal (which has not been retracted) -------------- of a Lender to make available its portion of any Loans (including any Revolving Loans made to pay Refunded Swing Line Loans or to reimburse drawings under Letters of Credit) in accordance with subsection 2.1A or its portion of any unreimbursed drawing or payment under a Letter of Credit in accordance with subsection 3.3C or (ii) a Lender having notified Company and/or the Administrative Agent in writing that it does not intend to comply with its obligations under subsection 2.1 or subsection 3.1C, 3.3B or 3.3C. "Lending Office" means, as to any Lender, the office or offices of -------------- such Lender specified as the "Lending Office" in Schedule 2.1, or such ------------ other office or offices as such Lender may from time to time notify Company and the Administrative Agent. "Letter of Credit" or "Letters of Credit" means Commercial Letters of ---------------- ----------------- Credit and Standby Letters of Credit issued or to be issued by the Issuing Bank pursuant to subsection 3.1. "Letter of Credit Issuing Office" means, as to any Issuing Bank, the ------------------------------- address from time to time specified by such Issuing Bank to Company and the Administrative Agent as its letter of credit issuing office. The initial "Letter of Credit Issuing Office" for CSFB shall be 5 World Trade Center, 8/th/ Floor, New York, New York, 10048. "Letter of Credit Subfacility Commitment" means, with respect to any --------------------------------------- Issuing Bank at any time, the commitment of such Issuing Bank to issue Letters 29 of Credit pursuant to subsection 3.1A; provided that the aggregate amount -------- of the Letter Credit Subfacility Commitments shall in no event exceed $10,000,000; provided, further, that any reduction in the Revolving Loan -------- ------- Commitments to a level that is below the then aggregate amount of the Letter of Credit Subfacility Commitments shall result in the pro rata reduction of the aggregate Letter of Credit Subfacility Commitments pro rata to each Issuing Bank. "Letter of Credit Usage" means, as at any date of determination, the ---------------------- sum of (i) the maximum aggregate amount which is or at any time thereafter may become available for drawing under all Letters of Credit then outstanding plus (ii) the aggregate amount of all drawings under Letters of ---- Credit honored by the Issuing Bank and not theretofore reimbursed by Company (including any such reimbursement out of the proceeds of Revolving Loans pursuant to subsection 3.3B). "Leverage Ratio" has the meaning assigned to that term in subsection -------------- 7.6. "Lien" means any lien, mortgage, pledge, assignment, security ---- interest, fixed or floating charge or encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, and any agreement to give any security interest) and any option, trust or deposit or other preferential arrangement having the practical effect of any of the foregoing. "Loan" or "Loans" means, as the context requires, one or more of the ---- ----- Term Loans, Revolving Loans, Swing Line Loans or any combination thereof. "Loan Documents" means this Agreement, any notes issued pursuant to -------------- subsection 2.1E(ii), the Letters of Credit (and any applications for, or reimbursement agreements or other documents or certificates executed by ChipPAC or Company in favor of the Issuing Bank relating to, the Letters of Credit), the Guaranties and the Collateral Documents. "Loan Parties" means Company, ChipPAC Shanghai I, ChipPAC Shanghai II, ------------ the Malaysian Subsidiary and each Guarantor. "Local Lines of Credit" means (a) the lines of credit in an aggregate --------------------- principal amount outstanding at any time not to exceed $25,000,000 (or the equivalent), to provide working capital financing for the Operating Subsidiaries and (b) additional lines of credit in an aggregate principal amount outstanding at any time not to exceed $5,000,000 (or the equivalent), to provide working capital 30 financing for the Operating Subsidiaries in connection with a Permitted Acquisition. "Malaysian Acquisition Loan" means the $55,000,000 loan to be made by -------------------------- the Company to ChipPAC Limited in connection with the Purchase Transactions. "Malaysian Acquisition Note" means the senior secured intercompany -------------------------- promissory note in an aggregate principal amount of $55,000,000 to be made by ChipPAC Limited in favor of the Company in connection with the Purchase Transactions and pledged to the Collateral Agent to secure the Obligations "Malaysian Intercompany Notes" mean (i) the senior secured ---------------------------- intercompany promissory note in an aggregate principal amount of up to $50,000,000 to be made (after all necessary Malaysian approvals have been obtained) by the Malaysian Subsidiary in favor of ChipPAC Limited and pledged to the Collateral Agent to secure the Obligations pursuant to the Principal Pledge Agreement; (ii) the senior secured intercompany promissory note in an aggregate principal amount of up to $50,000,000 to be made by ChipPAC Limited in favor of the Company and pledged to the Collateral Agent to secure the Obligations. "Malaysian Security Agreements" means, the Malaysian security ----------------------------- agreements substantially in the form of Exhibit XX annexed hereto, as such Malaysian Security Agreements may hereafter be amended, restated, supplemented or otherwise modified from time to time and a supplement to the Principal Pledge Agreement relating to the Malaysian Subsidiary. "Malaysian Subsidiary" has the meaning assigned to that term in the -------------------- Recitals to this Agreement. "Margin Stock" has the meaning assigned to that term in Regulation U ------------ of the Board of Governors of the Federal Reserve System as in effect from time to time. "Material Adverse Effect" means a material adverse effect upon (i) the ----------------------- business, results of operations, financial condition or prospects of ChipPAC and its Subsidiaries, taken as a whole, or (ii) the validity or enforceability of any of the Transaction Documents (to the extent adverse to ChipPAC or its Subsidiaries) or the Loan Documents against the Loan Parties (other than Immaterial Subsidiaries, except to the extent any such invalidity or unenforceability would adversely affect the Collateral Agent's ability to realize upon any Collateral) or the rights, remedies and benefits available to the parties thereunder. 31 "Material Contracts" means any indenture, mortgage, deed of trust, ------------------ contract, undertaking, agreement or other instrument to which ChipPAC or any of its Subsidiaries is a party for which breach, nonperformance, cancellation or failure to renew would constitute an Event of Default or could reasonably be expected to have a Material Adverse Effect. "Maximum Consolidated Capital Expenditures Amount" has the meaning ------------------------------------------------ assigned to that term in subsection 7.6C(i). "Merger Corp" means ChipPAC Merger Corp., a Delaware corporation. ----------- "Micro BGA Capital Expenditures" means expenditures that would ------------------------------ constitute Consolidated Capital Expenditures (but for clause (c) in the proviso to the definition of such term) made with respect to the provision of Micro BGA packaging services pursuant to the Services Agreement dated as of the Closing Date by and between HEI and ChipPAC Limited. "Moody's" means Moody's Investors Service, Inc. ------- "Multiemployer Plan" means a "multiemployer plan", as defined in ------------------ Section 4001(a)(3) of ERISA which is subject to Title IV of ERISA, to which Company or any of its ERISA Affiliates is contributing or to which Company or any of its ERISA Affiliates has an obligation to contribute. "Net Cash Proceeds" means, with respect to any Asset Sale, Cash ----------------- Proceeds of such Asset Sale net of costs of sale including, without limitation, (i) income taxes estimated to be payable as a result of such Asset Sale within two years of the date of receipt of such Cash Proceeds, (ii) transfer, sales, use and other taxes payable in connection with such Asset Sale, (iii) payment of the outstanding principal amount of, premium or penalty, if any, and interest on any Indebtedness (other than the Loans) that is secured by a Lien on the stock or assets in question and that is required to be repaid under the terms thereof as a result of such Asset Sale, and (iv) financial advisor's commissions and fees and expenses of counsel and other advisors in connection with such Asset Sale. "Non-Defaulting Lender" means and includes each Lender other than a --------------------- Defaulting Lender. "Non-Increasing Lender" has the meaning assigned to that term in --------------------- subsection 2.9. 32 "Notice of Borrowing" means a notice in the form of Exhibit I annexed ------------------- --------- hereto delivered by Company to the Administrative Agent pursuant to subsection 2.1B with respect to a proposed borrowing. "Notice of Conversion/Continuation" means a notice substantially in --------------------------------- the form of Exhibit II annexed hereto delivered by Company to the ---------- Administrative Agent pursuant to subsection 2.2D with respect to a proposed conversion or continuation of the applicable basis for determining the interest rate with respect to the Loans specified therein. "Notice of Issuance of Letter of Credit" means a notice in the form of -------------------------------------- Exhibit III annexed hereto delivered by Company to the Administrative Agent ----------- pursuant to subsection 3.1B(i) with respect to the proposed issuance of a Letter of Credit. "Obligations" means all obligations of every nature of each Loan Party ----------- from time to time owed to the Agents, the Lenders or any of them or their respective Affiliates under the Loan Documents, whether for principal, interest, reimbursement of amounts drawn under Letters of Credit or payments for early termination of Interest Rate Agreements, fees, expenses, indemnification or otherwise. "Obligation Currency" has the meaning assigned to that term in ------------------- subsection 10.20. "Officer's Certificate" means, with respect to any Person, a --------------------- certificate executed on behalf of such Person (x) if such Person is a partnership or limited liability company, by its chairman of the Board (if an officer) or chief executive officer or by the chief financial officer, vice president, treasurer or a principal financial officer of its general partner or managing member or other Person authorized to do so by its Organizational Documents, (y) if such Person is a corporation, on behalf of such corporation by its chairman of the board (if an officer) or chief executive officer or its chief financial officer, vice president, treasurer or a principal financial officer and (z) if such person is ChipPAC or a Subsidiary of ChipPAC, a Responsible Officer; provided that every Officer's -------- Certificate with respect to the compliance with a condition precedent to the making of any Loans hereunder shall include (i) a statement that the officer or officers making or giving such Officer's Certificate have read such condition and any definitions or other provisions contained in this Agreement relating thereto, (ii) a statement that, in the opinion of the signer or signers, they have made or have caused to be made such examination or investigation as is necessary to enable them to express an informed opinion as to whether or not such condition 33 has been complied with, and (iii) a statement as to whether, in the opinion of the signer or signers, such condition has been complied with. "Operating Lease" means, as applied to any Person, any lease --------------- (including, without limitation, leases that may be terminated by the lessee at any time) of any property (whether real, personal or mixed) that is not a Capital Lease other than any such lease under which that Person is the lessor. "Operating Subsidiaries" means ChipPAC Limited, ChipPAC Korea, ChipPAC ---------------------- Shanghai I, ChipPAC Shanghai II, the Malaysian Subsidiary and each other Subsidiary of ChipPAC (other than Company, ChipPAC Barbados, ChipPAC Luxembourg and ChipPAC Hungary) that conducts packaging and testing services, sales or distribution functions. "Original Credit Agreement" means the Credit Agreement dated as of ------------------------- August 5, 1999, among the Company, ChipPAC, the Lenders party thereto, and CSFB as administrative agent, sole lead arranger and collateral agent. "Organizational Authorizations" means, with respect to any Person, ----------------------------- resolutions of its Board of Directors, general partners or members of such Person, and such other Persons, groups or committees (including, without limitation, managers and managing committees), if any, required by the Organizational Certificate or Organization Documents of such Person to authorize or approve the taking of any action or the entering into of any transaction. "Organizational Certificate" means, with respect to any Person, the -------------------------- certificate or articles of incorporation, partnership or limited liability company or any other similar or equivalent organizational, charter or constitutional certificate or document filed with the applicable Governmental Authority in the jurisdiction of its incorporation, organization or formation. "Organizational Documents" means, with respect to any Person, the by- ------------------------ laws, partnership agreement, limited liability company agreement, operating agreement, management agreement or other similar or equivalent organizational, charter or constitutional agreement or arrangement. "PBGC" means the Pension Benefit Guaranty Corporation established ---- pursuant to Section 4002 of ERISA (or any successor thereto). "Pension Plan" means any Employee Benefit Plan, other than a ------------ Multiemployer Plan, which is subject to Section 412 of the Internal Revenue Code or Section 302 of ERISA. 34 "Permitted Acquisitions" means (i) the Purchase and (ii) any other ---------------------- acquisition made pursuant to subsection 7.7(v). "Permitted Encumbrances" means the following types of Liens: ---------------------- (i) Liens for taxes, assessments or governmental charges or claims the payment of which is not, at the time, required by subsection 6.3; (ii) statutory or contractual Liens of landlords, statutory Liens of banks and rights of setoff, statutory Liens of carriers, warehousemen, mechanics and materialmen and other Liens imposed by law (other than any such Lien imposed pursuant to Section 401(a)(29) or 412(n) of the Internal Revenue Code or by ERISA) incurred in the ordinary course of business for sums not yet delinquent or being contested in good faith pursuant to appropriate proceedings, if such reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made therefor; (iii) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, trade contracts, performance and return-of-money bonds and other similar obligations (exclusive, in each case, of obligations for the payment of borrowed money or other Indebtedness); (iv) any attachment or judgment Lien not constituting an Event of Default under subsection 8.8; (v) leases or subleases granted to others (in the ordinary course of business consistent with past practices) not interfering in any material respect with the ordinary conduct of the business or operations of ChipPAC or any of its Subsidiaries; (vi) easements, rights-of-way, restrictions, defects, encroachments or irregularities in title and other similar charges or encumbrances not interfering in any material respect with the ordinary conduct of the business of Company or any of its Subsidiaries and encumbrances set forth on the title reports delivered to the Administrative Agent; 35 (vii) any (a) interest or title of a lessor or sublessor under any Capital Lease permitted by subsection 7.1(v) or any operating lease not prohibited by this Agreement, (b) restriction or encumbrance that the interest or title of such lessor or sublessor may be subject to, or (c) subordination of the interest of the lessee or sublessee under such lease to any restriction or encumbrance referred to in the preceding clause (b); (viii) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; (ix) Liens arising from filing UCC financing statements relating solely to leases permitted by this Agreement; (x) deposits in the ordinary course of business to secure liabilities to insurance carriers, lessors, utilities and other service providers; (xi) bankers' liens and rights of setoff with respect to customary depository arrangements entered into in the ordinary course of business; (xii) any zoning or similar law or right reserved to or vested in any governmental office or agency to control or regulate the use of any real property; and (xiii) licenses of patents, trademarks and other intellectual property rights granted by ChipPAC or any of its Subsidiaries in the ordinary course of business and not interfering in any material respect with the ordinary conduct of the business of ChipPAC or such Subsidiary. "Permitted Seller Paper" means any unsecured Indebtedness of ChipPAC ---------------------- or its Subsidiaries that is not guaranteed by any Subsidiary of ChipPAC and that is incurred in connection with any acquisition consummated in accordance with the provisions of subsection 7.7(v) and payable to the seller in connection therewith and containing the subordination provisions set forth on Exhibit XI hereto. ----------------- "Person" means and includes natural persons, corporations, limited ------ partnerships, limited liability companies, general partnerships, joint stock companies, joint ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts or other organizations, whether or not legal entities, 36 and governments and agencies and political subdivisions thereof and any other entities of whatever nature. "Pledge Agreements" means, collectively, the Principal Pledge ----------------- Agreement, the Korean Pledge Agreement, the Hungarian Pledge Agreement and the Chinese Pledge Agreements. "Prime Rate" means the rate of interest per annum publicly announced ---------- from time to time by CSFB as its prime commercial lending rate in effect at its principal office in New York City. The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. CSFB or any other Lender may make commercial loans or other loans at rates of interest at, above or below the Prime Rate. "Principal Pledge Agreement" means that certain Pledge Agreement -------------------------- entered into by and among ChipPAC, certain of the Guarantors and the Collateral Agent in connection with the Original Credit Agreement, or pursuant to subsection 6.9, attached as Exhibit V hereto, as such Principal --------- Pledge Agreement may hereafter be amended, restated, supplemented or otherwise modified from time to time. "Principal Security Agreement" means the Security Agreement entered ---------------------------- into by and among ChipPAC, certain of the Guarantors and the Collateral Agent in connection with the Original Credit Agreement, or pursuant to subsection 6.9, attached as Exhibit VI hereto, as such Security Agreement ---------- may hereafter be amended, restated, supplemented or otherwise modified from time to time. "Pro Forma Basis" means, with respect to compliance with any test or --------------- covenant hereunder, compliance with such covenant or test after giving effect to any proposed acquisition or other action (including cost reduction actions taken as a result thereof) which requires compliance on a pro forma basis (including pro forma adjustments arising out of events which are directly attributable to a specific transaction, are factually supportable and are expected to have a continuing impact, in each case determined on a basis consistent with Article 11 of Regulation S-X of the Securities Act and as interpreted by the Staff of the Securities and Exchange Commission which (to the extent consistent therewith) may include cost savings resulting from head count reductions, closure of facilities and similar restructuring charges or integration activities or other adjustments certified by a financial officer of ChipPAC, together with such other pro forma adjustments certified by a financial officer of ChipPAC as being reasonable and having been made in good faith as may be reasonably acceptable to the Administrative Agent) using, for purposes of determining such compliance, the historical financial statements of all entities or assets so acquired or to be 37 acquired and the consolidated financial statements of ChipPAC and its Subsidiaries which shall be reformulated as if such acquisition or other action, and any other acquisitions which have been consummated during the period, and any Indebtedness or other liabilities incurred in connection with any such acquisition had been consummated at the beginning of such period and assuming that such Indebtedness bears interest during any portion of the applicable measurement period prior to the relevant acquisition at the weighted average of the interest rates applicable to outstanding Loans during such period. "Pro Forma Compliance" means, at any date of determination, ChipPAC -------------------- shall be in pro forma compliance with the covenants set forth in --- ----- subsections 7.6A, B, C and D as of the last day of the most recent Fiscal Quarter end (computed on the basis of (i) balance sheet amounts as of the most recently completed Fiscal Quarter, and (ii) income statement amounts for the most recently completed period of four consecutive Fiscal Quarters, in each case, for which financial statements shall have been delivered to the Administrative Agent and calculated on a Pro Forma Basis in respect of the event giving rise to such determination). "Pro Rata Share" means (i) with respect to all payments, computations -------------- and other matters relating to the Term A Loan Commitment or the Term A Loans of any Lender, the percentage obtained by dividing (x) the Term A -------- Loan Exposure of that Lender by (y) the aggregate Term A Loan Exposure of -- all the Lenders; (ii) with respect to all payments, computations and other matters relating to the Term B Loan Commitment or the Term B Loans of any Lender, the percentage obtained by dividing (x) the Term B Loan Exposure of -------- that Lender by (y) the aggregate Term B Loan Exposure of all the Lenders; -- (iii) with respect to all payments, computations and other matters relating to the Term C Loan Commitment or the Term C Loans of any Lender, the percentage obtained by dividing (x) the Term C Loan Exposure of that Lender -------- by (y) the aggregate Term C Loan Exposure of all the Lenders; (iv) with -- respect to all payments, computations and other matters relating to the Term Delayed Draw Loan Commitment or the Term Delayed Draw Loans of any Lender, the percentage obtained by dividing (x) the Term Delayed Draw Loan -------- Exposure of that Lender by (y) the aggregate Term Delayed Draw Loan -- Exposure of all the Lenders; (v) with respect to all payments, computations and other matters relating to the Revolving Loan Commitment or the Revolving Loans of any Lender or any Letters of Credit issued by any Lender or any participations purchased by any Lender therein or in any Swing Line Loans, the percentage obtained by dividing (x) the Revolving Loan Exposure -------- of that Lender by (y) the aggregate Revolving Loan Exposure of all the -- Lenders; and (vi) for all other purposes with respect to each Lender, the percentage obtained by dividing (x) the sum of the Term Loan 38 Exposure of that Lender and the Revolving Loan Exposure of that Lender by -- (y) the sum of the aggregate Term Loan Exposure of all the Lenders and the aggregate Revolving Loan Exposure of all the Lenders; in any such case as the applicable percentage may be adjusted by assignments permitted pursuant to subsection 10.1. The initial Pro Rata Share of each Lender for purposes of each of clauses (i), (ii), (iii), (iv) and (v) of the preceding sentence is set forth opposite the name of that Lender in Schedule 2.1 annexed ------------ hereto. "Projections" has the meaning assigned to that term in subsection ----------- 5.3B. "Purchase" has the meaning assigned to that term in the Recitals of -------- this Agreement. "Purchase Agreement" means the Purchase Agreement dated as of June 30, ------------------ 2000, entered into by and among ChipPAC, ChipPAC Limited, Seller and Sapphire Worldwide Investments, Inc., a subsidiary of Seller, as the same may thereafter be amended, restated, supplemented or otherwise modified from time to time to the extent permitted under subsection 7.11A. "Purchase Transactions" has the meaning assigned to that term in the --------------------- Recitals of this Agreement. "Purchase Transactions Costs" means the fees, costs and expenses --------------------------- payable by ChipPAC and its Subsidiaries in connection with the Purchase Transactions, including, without limitation, amounts payable to the Agents and Lenders. "Purchase Transactions Documents" means, collectively (i) the Purchase ------------------------------- Agreement, (ii) the Supply Agreement, (iii) the Seller Preferred Stock, and (iv) any and all other documents, agreements, instruments and arrangements related to or in connection with the Purchase Transactions. "Qualified Public Equity Offering" means an underwritten public -------------------------------- offering of common stock of, and by, ChipPAC pursuant to a registration statement filed with the Securities and Exchange Commission in accordance with the Securities Act. "Recapitalization Agreement" means the Agreement and Plan of -------------------------- Recapitalization and Merger dated as of March 13, 1999, as amended to date, entered into by HEI, HEA, ChipPAC and Merger Corp, as the same may thereafter be amended, restated, supplemented or otherwise modified from time to time to the extent permitted under subsection 7.11A. 39 "Recapitalization Loans" means, collectively, the ChipPAC Luxembourg ---------------------- Loan, the ChipPAC Limited Loan, the ChipPAC Hungary Loan, the ChipPAC Korea Loan and the ChipPAC Shanghai I Loan. "Recapitalization Note" means a note evidencing a Recapitalization --------------------- Loan, and "Recapitalization Notes" means, collectively, all such notes. ---------------------- "Recapitalization Security Agreement" means the Chinese Security ----------------------------------- Agreements, the Korean Pledge Agreement and each other pledge or security agreement entered into by a Subsidiary to secure a Recapitalization Loan, and "Recapitalization Security Agreements" means, collectively, all such ------------------------------------ agreements. The Recapitalization Security Agreements, other than the Chinese Pledge and Security and the Korean Pledge and Security Agreements, are attached as Exhibit XIX hereto. ----------- "Recapitalization Transactions" means the transactions contemplated by ----------------------------- the Recapitalization Agreement (including the Recapitalization Loans) and the payment of Transaction Costs, in each case occurring on or about the Closing Date. "Recovery Event" has the meaning assigned to that term in subsection -------------- 2.4B(iii)(d). "Reference Lenders" means (i) CSFB and (ii) another Lender determined ----------------- by the Administrative Agent with the consent of Company. "Refunded Swing Line Loans" has the meaning assigned to that term in ------------------------- subsection 2.1A(v). "Register" has the meaning assigned to that term in subsection 2.1D. -------- "Regulation D" means Regulation D of the Board of Governors of the ------------ Federal Reserve System, as in effect from time to time. "Reimbursement Date" has the meaning assigned to that term in ------------------ subsection 3.3B. "Reinvestment Assets" means, in the case of any Reinvestment Event, ------------------- any assets which are either (i) in replacement of the assets subject to the Reinvestment Event, or (ii) long term assets (including Capital Stock) useful in the business of ChipPAC or its Subsidiary whose assets were subject to the Reinvestment Event. 40 "Reinvestment Deferred Amount" means, with respect to any Reinvestment ---------------------------- Event, the aggregate Net Cash Proceeds, Insurance Proceeds or Condemnation Proceeds, as the case may be, received by ChipPAC or any of its Subsidiaries in connection therewith which are not applied to prepay the Loans (and/or reduce the Revolving Loan Commitments) in accordance with subsection 2.4B(iii)(a) or (d) as a result of the delivery of a Reinvestment Notice. "Reinvestment Event" means any Asset Sale or Recovery Event in respect ------------------ of which ChipPAC has delivered a Reinvestment Notice. "Reinvestment Notice" means a written notice executed by a Responsible ------------------- Officer stating that no Default or Event of Default has occurred and is continuing and that ChipPAC (directly or indirectly through a Subsidiary) intends and expects to use all or a specified portion of the Net Cash Proceeds, Insurance Proceeds or Condemnation Proceeds, as the case may be, of an Asset Sale or Recovery Event to acquire Reinvestment Assets within 365 days of the receipt of such Net Cash Proceeds, Insurance Proceeds or Condemnation Proceeds, as the case may be. "Reinvestment Prepayment Amount" means, with respect to any ------------------------------ Reinvestment Event, the Reinvestment Deferred Amount, if any, relating thereto less any amount expended prior to the relevant Reinvestment Prepayment Date to acquire Reinvestment Assets. "Reinvestment Prepayment Date" means, with respect to any Reinvestment ---------------------------- Event, the earlier of (a) the date occurring 365 days after such Reinvestment Event and (b) the date on which ChipPAC shall have determined not to, or shall have otherwise ceased to, acquire Reinvestment Assets with all or any portion of the relevant Reinvestment Deferred Amount. "Release" means any release, spill, emission, leaking, pumping, ------- pouring, injection, escaping, deposit, disposal, discharge, dispersal, dumping, leaching or migration of Hazardous Materials into the environment. "Requisite Class Lenders" means, at any time of determination (i) for ----------------------- the Class of the Lenders having Term A Loan Exposure, Non-Defaulting Lenders having or holding more than 50% of the aggregate Term A Loan Exposure of all Non-Defaulting Lenders, (ii) for the Class of Lenders having Term B Loan Exposure, Non-Defaulting Lenders having or holding more than 50% of the aggregate Term B Loan Exposure of all Non-Defaulting Lenders, (iii) for the Class of Lenders having Term C Loan Exposure, Non- Defaulting Lenders having or holding more than 50% of the aggregate Term C Loan Exposure of all Non-Defaulting Lenders, (iv) for the Class of Lenders having Term Delayed Draw Loan Exposure, Non-Defaulting Lenders having 41 or holding more than 50% of the aggregate Term Delayed Draw Loan Exposure of all Non-Defaulting Lenders, and (v) for the Class of Lenders having Revolving Loan Exposure, Non-Defaulting Lenders having or holding more than 50% of the aggregate Revolving Loan Exposure of all Non-Defaulting Lenders. "Requisite Lenders" means Non-Defaulting Lenders having or holding ----------------- more than 50% of the sum of the aggregate Term Loan Exposure of all Non- Defaulting Lenders and the aggregate Revolving Loan Exposure of all Non- Defaulting Lenders. "Reserve Adjusted Eurodollar Rate" means, with respect to each day -------------------------------- during each Interest Period pertaining to a Eurodollar Rate Loan, a rate per annum determined for such day in accordance with the following formula: Eurodollar Base Rate ---------------------------------------- 1.00 - Eurocurrency Reserve Requirements "Responsible Officer" means the chairman of the board of directors (if ------------------- an officer), chief executive officer, president, executive vice president, general counsel, chief financial officer, assistant treasurer, assistant secretary, principal financial or accounting officer or the secretary of ChipPAC, or as applicable, a Subsidiary of ChipPAC or another officer designated by the board of ChipPAC or any of its Subsidiaries but, in any event, with respect to financial reporting matters, the chief executive officer, chief financial officer or treasurer of ChipPAC. "Restatement Effective Date" means the date on which the conditions -------------------------- specified in Section 4.1 are satisfied (or waived in accordance with Section 10.6). "Restricted Payment" means (i) any dividend or other distribution, ------------------ direct or indirect, on account of any shares of any class of stock (or of any other Capital Stock) of ChipPAC or any of its Subsidiaries now or hereafter outstanding, except a dividend payable solely in shares of that class of stock to the holders of that class, (ii) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of stock (or of any other Capital Stock) of ChipPAC or any of its Subsidiaries now or hereafter outstanding, (iii) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of stock (or of any other Capital Stock) of ChipPAC or any of its Subsidiaries 42 now or hereafter outstanding, and (iv) any payment or prepayment of principal of, premium, if any, or interest on, or redemption, purchase, retirement, defeasance (including in substance or legal defeasance), sinking fund or similar payment with respect to, Subordinated Debt. "Revolving Loan Commitment" means the commitment of a Lender to make ------------------------- Revolving Loans to Company pursuant to subsection 2.1A(v), and "Revolving --------- Loan Commitments" means such commitments of all Lenders in the aggregate. ---------------- "Revolving Loan Commitment Termination Date" means July 31, 2005. ------------------------------------------ "Revolving Loan Exposure" means, with respect to any Lender as of any ----------------------- date of determination (i) prior to the termination of the Revolving Loan Commitments, that Lender's Revolving Loan Commitment and (ii) after the termination of the Revolving Loan Commitments, the sum of (a) the aggregate outstanding principal amount of the Revolving Loans of that Lender plus (b) ---- in the event that Lender is an Issuing Bank, the aggregate Letter of Credit Usage in respect of all Letters of Credit issued by that Lender (net of any participations purchased by other Lenders in such Letters of Credit) plus ---- (c) the aggregate amount of all participations purchased by that Lender in any outstanding Letters of Credit or any unreimbursed drawings under any Letters of Credit plus (d) the aggregate amount of all participations ---- purchased by that Lender in any outstanding Swing Line Loans plus (e) in ---- the case of the Swing Line Lender, the sum of the aggregate outstanding principal amount of all Swing Line Loans (in each case net of any participations therein purchased by other Lenders). "Revolving Loans" means the Loans made by the Lenders to Company --------------- pursuant to subsection 2.1A(v). "S&P" means Standard & Poor's Ratings Services. --- "Securities" means any stock, shares, partnership interests, voting ---------- trust certificates, certificates of interest or participation in any profit-sharing agreement or arrangement, options, warrants, bonds, debentures, notes, or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or in general any instruments commonly known as "securities" or any certificates of interest, shares or participations in temporary or interim certificates for the purchase or acquisition of, or any right to subscribe to, purchase or acquire, any of the foregoing. 43 "Securities Act" means the Securities Act of 1933, as amended from -------------- time to time, and any successor statute. "Security Agreements" means, collectively, the Principal Security ------------------- Agreement, the Korean Security Agreement, the Chinese Security Agreements and the Recapitalization Security Agreements. "Seller" has the meaning assigned to such term in the Recitals of this ------ Agreement. "Seller Preferred Stock" has the meaning assigned to that term in the ---------------------- Recitals to this Agreement. "Shareholders Agreement" means that certain Shareholders Agreement ---------------------- entered into in connection with the Original Credit Agreement by and among ChipPAC and certain shareholders of ChipPAC, as such Shareholders Agreement may hereafter be amended, restated, supplemented or otherwise modified from time to time to the extent permitted under subsection 7.11A. "Sole Lead Arranger" has the meaning assigned to that term in the ------------------ Preamble to this Agreement. "Solvent" means, with respect to any Person, that as of the date of ------- determination both (i) (a) the then fair saleable value of the property sold as a going concern of such Person is (y) greater than the total amount of liabilities (including contingent liabilities but excluding amounts payable under intercompany promissory notes) of such Person and (z) not less than the amount that will be required to pay the probable liabilities on such Person's then existing debts as they become absolute and matured considering all financing alternatives and potential asset sales reasonably available to such Person; (b) such Person's capital is not unreasonably small in relation to its business or any contemplated or undertaken transaction; and (c) such Person does not intend to incur, or believe that it will incur, debts beyond its ability to pay such debts as they become due; and (ii) such Person is "solvent" within the meaning given that term and similar terms under applicable laws relating to fraudulent transfers and conveyances. For purposes of this definition, the amount of any contingent liability at any time shall be computed as the amount that, in light of all of the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. "SPC" has the meaning assigned to that term in subsection 10.1F. --- 44 "Sponsor Advisory Services Agreements" means each of the Advisory ------------------------------------ Services Agreements by and between ChipPAC and each of the Sponsors, entered into in connection with the Original Credit Agreement, as the same may be amended, restated, supplemented or otherwise modified from time to time to the extent permitted under subsection 7.11A. "Sponsor Management Fees" means the fees (including one-time fees ----------------------- payable in connection with acquisitions, divestitures and financings) and expenses payable to the Sponsors pursuant to the Sponsor Advisory Services Agreements. "Sponsors" means Bain and the SXI Holders. -------- "Standby Letter of Credit" means any standby letter of credit or ------------------------ similar instrument, issued for the purpose of supporting obligations of ChipPAC and its Subsidiaries incurred or arising in the ordinary course of business; provided that Standby Letters of Credit may not be issued for the -------- purpose of supporting trade payables. "Subordinated Debt" means (i) subordinated, unsecured Indebtedness of ----------------- Company evidenced by the Subordinated Debt Documents and issued on or prior to the Closing Date (and any Indebtedness issued in exchange for such Indebtedness as contemplated by the Subordinated Debt Documents) in an initial aggregate principal amount of $150,000,000 and (ii) any Additional Subordinated Debt. "Subordinated Debt Documents" means the documents pursuant to which --------------------------- the Subordinated Debt is issued (or exchanged) in the form delivered to Administrative Agent on or prior to the Closing Date, as such documents may be amended, restated, supplemented or otherwise modified from time to time to the extent permitted under Subsection 7.11A. "Subsequent Revolving Loans" has the meaning assigned to that term in -------------------------- subsection 2.9B. "Subsidiary" means, with respect to any Person, any corporation, ---------- partnership, association, joint venture or other business entity of which more than 50% of the total voting power of shares of stock or other ownership interests entitled (without regard to the occurrence of any contingency) to vote in the election of the Person or Persons (whether directors, managers, trustees or other Persons performing similar functions) having the power to direct or cause the direction of the management and policies thereof is at the time owned or 45 controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof. "Subsidiary Guarantor" means any Subsidiary of ChipPAC that is a party -------------------- to the Guaranty on the Restatement Effective Date (which shall be each such Subsidiary (other than Company, ChipPAC Shanghai I, ChipPAC Shanghai II and the Malaysian Subsidiary) existing as of the Restatement Effective Date) or at any time after the Restatement Effective Date pursuant to subsection 6.9. "Supply Agreement" has the meaning assigned to that term in the ---------------- Recitals of this Agreement. "Swing Line Lender" means CSFB, or any Person serving as a successor ----------------- Administrative Agent hereunder, in its capacity as Swing Line Lender hereunder. "Swing Line Loan Commitment" means the commitment of the Swing Line -------------------------- Lender to make Swing Line Loans to Company pursuant to subsection 2.1A(vi). "Swing Line Loans" means the Loans made by the Swing Line Lender ---------------- pursuant to subsection 2.1A(vi). "SXI Holders" means (a) Citicorp Venture Capital, Ltd., (b) any ----------- officers, employees or directors of the foregoing or any trust partnership or entity established solely for the benefit or such officers, employees or directors and (c) any Affiliates (including SXI Group LLC) of the foregoing. "Systems" has the meaning assigned to that term in the definition of ------- Year 2000 Problems. "Tax" or "Taxes" means any present or future tax, levy, impost, duty, --- ----- charge, fee, deduction or withholding of any nature and whatever called, by whomsoever, on whomsoever and wherever imposed, levied, collected, withheld or assessed; provided that "Tax on the overall net income" of a Person -------- ----------------------------- shall be construed as a reference to a tax on all or part of the net income, profits or gains of that Person (whether worldwide, or only insofar as such income, profits or gains are considered to arise in or to relate to a particular jurisdiction, or otherwise) including a franchise tax imposed in lieu of a net income tax. "Term A Loan Commitment" means the commitment of a Lender to make a ---------------------- Term A Loan to Company pursuant to subsection 2.1A(i) of the Original 46 Credit Agreement, and "Term A Loan Commitments" means such commitments of ----------------------- all Lenders in the aggregate. "Term A Loan Exposure" means, with respect to any Lender, as of any -------------------- date of determination, the outstanding principal amount of the Term A Loans of that Lender. "Term A Loans" means the Loans made by the Lenders pursuant to ------------ subsection 2.1A(i) of the Original Credit Agreement. "Term B Loan Commitment" means the commitment of a Lender to make a ---------------------- Term B Loan to Company pursuant to subsection 2.1A(ii) of the Original Credit Agreement, and "Term B Loan Commitments" means such commitments of ----------------------- all Lenders in the aggregate. "Term B Loan Exposure" means, with respect to any Lender, as of any -------------------- date of determination, the outstanding principal amount of the Term B Loans of that Lender. "Term B Loans" means the Loans made by the Lenders pursuant to ------------ subsection 2.1A(ii) of the Original Credit Agreement. "Term C Loan Commitment" means the commitment of a Lender to make a ---------------------- Term C Loan to Company pursuant to subsection 2.1A(iii) of this Agreement, and "Term C Loan Commitments" means such commitments of all Lenders in the ----------------------- aggregate. "Term C Loan Exposure" means, with respect to any Lender, as of any -------------------- date of determination (i) prior to the funding of the Term C Loans, that Lender's Term C Loan Commitment and (ii) after the funding of the Term C Loans, the outstanding principal amount of the Term C Loans of that Lender. "Term C Loans" means the Loans made by the Lenders pursuant to ------------ subsection 2.1A(iii). "Term Delayed Draw Loan Commitment" means the commitment of a Lender --------------------------------- to make a Term Delayed Draw Loan to Company pursuant to subsection 2.1A(iv), and "Term Delayed Draw Loan Commitments" means such commitments ---------------------------------- of all Lenders in the aggregate. "Term Delayed Draw Loan Commitment Termination Date" means July 31, -------------------------------------------------- 2001. 47 "Term Delayed Draw Loan Exposure" means, with respect to any Lender, ------------------------------- as of any date of determination, (i) prior to the Term Delayed Draw Loan Commitment Termination Date, that Lender's Term Delayed Draw Loan Commitment and (ii) after the Term Delayed Draw Loan Commitment Termination Date, the outstanding principal amount of the Term Delayed Draw Loans of that Lender. "Term Delayed Draw Loans" means the Loans made by the Lenders pursuant ----------------------- to subsection 2.1A(iv). "Term Loan Commitment" means the Term A Loan Commitment, the Term B -------------------- Loan Commitment, the Term C Loan Commitment or the Term Delayed Draw Loan Commitment of a Lender, and "Term Loan Commitments" means such commitments --------------------- of all Lenders in the aggregate. "Term Loan Exposure" means, with respect to any Lender as of any date ------------------ of determination, the aggregate Term A Loan Exposure, Term B Loan Exposure, Term C Loan Exposure and Term Delayed Draw Loan Exposure of that Lender. "Term Loans" means, collectively, the Term A Loans, the Term B Loans, ---------- the Term C Loans and the Term Delayed Draw Loans. "Total Utilization of Revolving Loan Commitments" means, as at any ----------------------------------------------- date of determination, the sum of (i) the aggregate principal amount of all outstanding Revolving Loans (other than Revolving Loans made for the purpose of repaying any Refunded Swing Line Loans or reimbursing the applicable Issuing Bank for any amount drawn under any Letter of Credit but not yet so applied) plus (ii) the aggregate principal amount of all ---- outstanding Swing Line Loans plus (iii) the Letter of Credit Usage. ---- "Transaction Costs" means the fees, costs and expenses payable by ----------------- ChipPAC and its Subsidiaries in connection with the transactions contemplated by the Transaction Documents including, without limitation, amounts payable to the Agents and the Lenders. "Transaction Documents" means, collectively, (i) any documentation --------------------- related to the Equity Contribution, (ii) the Recapitalization Agreement, (iii) the Shareholders Agreement, (iv) the Sponsor Advisory Services Agreements, (v) the Subordinated Debt Documents, (vi) the Subordinated Debt, and (vii) any and all other documents, agreements, instruments and arrangements related to or in connection with the Recapitalization Transactions. 48 "Year 2000 Problems" means limitations in the capacity or readiness to ------------------ handle date information (including, without limitation, calculations based on date information) for the Year 1999 or years beginning January 1, 2000 of any of the hardware, firmware or software systems ("Systems") associated ------- with information processing and delivery, operations or services (e.g., security and alarms, elevators, communications, and HVAC), including, without limitation, equipment containing embedded microchips, in each case necessary to the business or operations of ChipPAC and its Subsidiaries taken as a whole. 1.2 Accounting Terms; Utilization of GAAP for Purposes of Calculations Under ------------------------------------------------------------------------ Agreement. ---------- Except as otherwise expressly provided in this Agreement, (a) all accounting terms not otherwise defined herein shall have the meanings assigned to them in conformity with GAAP; and (b) financial statements and other information required to be delivered by ChipPAC to the Lenders pursuant to clauses (i), (ii), (iii) and (xiii) of subsection 6.1 shall be prepared in accordance with GAAP without giving effect to Accounting Principles Board Opinions 16 and 17 with respect to any Permitted Acquisition. In the event that a change in GAAP or other accounting principles and policies after the date hereof affects in any material respect the calculations of the compliance by ChipPAC and its Subsidiaries with the covenants contained herein, the Lenders and ChipPAC agree to negotiate in good faith to amend the affected covenants (and related definitions) to compensate for the effect of such changes so that the restrictions, limitations and performance standards effectively imposed by such covenants, as so amended, are substantially identical to the restrictions, limitations and performance standards imposed by such covenants as in effect on the date hereof; provided that if the Requisite Lenders and ChipPAC fail to -------- reach agreement with respect to such amendment within a reasonable period of time following the date of effectiveness of any such change, calculation of compliance by ChipPAC and its Subsidiaries with the covenants contained herein shall be determined in accordance with GAAP as in effect immediately prior to such change. 1.3 Other Definitional Provisions. ----------------------------- References to "Sections" and "subsections" shall be to Sections and subsections, respectively, of this Agreement unless otherwise specifically provided. Any of the terms defined in subsection 1.1 may, unless the context otherwise requires, be used in the singular or the plural, depending on the reference. The words "includes," "including" and similar forms used in any Loan Document shall be construed as if followed by the words "without limitation." 49 SECTION 2. AMOUNTS AND TERMS OF COMMITMENTS AND LOANS 2.1 Commitments; Loans. ------------------ A. Commitments. Subject to the terms and conditions of this Agreement and in reliance upon the representations and warranties of Loan Parties set forth herein and in the other Loan Documents, each Lender hereby severally agrees to make the Loans described in subsections 2.1A(iii), 2.1A(iv) and 2.1A(v) and the Swing Line Lender hereby agrees to make the Swing Line Loans as described in subsection 2.1A(vi). All Term A Loans, Term B Loans, Term Delayed Draw Loans, Revolving Loans and Swing Line Loans outstanding under the Original Credit Agreement on the Restatement Effective Date shall remain outstanding hereunder on the terms set forth herein. The parties hereto acknowledge that the Term A Loan Commitments and the Term B Loan Commitments have terminated. (i) Term A Loans. The amount of each Lender's Term A Loan Exposure ------------ is set forth opposite its name in Schedule 2.1 annexed hereto; provided ------------ -------- that the Term A Loan Exposure of the Lenders shall be adjusted to give effect to any assignments of the Term A Loans pursuant to subsection 10.1B. The aggregate original principal amount of the Term A Loan Commitments at the time of the Initial Closing was $70,000,000. Amounts borrowed under subsection 2.1A(i) of the Original Credit Agreement and subsequently repaid or prepaid may not be reborrowed. (ii) Term B Loans. The amount of each Lender's Term B Loan Exposure ------------ is set forth opposite its name in Schedule 2.1 annexed hereto; provided ------------ -------- that the Term B Loan Exposure of the Lenders shall be adjusted to give effect to any assignments of the Term B Loans pursuant to subsection 10.1B. The aggregate original principal amount of the Term B Loan Commitments was $80,000,000 at the time of the Initial Closing. Amounts borrowed under subsection 2.1A(ii) of the Original Credit Agreement and subsequently repaid or prepaid may not be reborrowed. (iii) Term C Loans. Each Lender severally agrees to make Loans to ------------ Company on the Restatement Effective Date in an aggregate amount not exceeding its Pro Rata Share of the aggregate amount of the Term C Loan Commitments, to be used for the purposes identified in subsection 2.5A. The amount of each Lender's Term C Loan Commitment is set forth opposite its name in Schedule 2.1 annexed hereto; provided that the Term C Loan Commitments of the Lenders shall be adjusted to give effect to any assignments of the Term C Loan Commitments pursuant to subsection 10.1B. The aggregate original 50 principal amount of the Term C Loan Commitments is $55,000,000. Each Lender's Term C Loan Commitment shall expire immediately and without further action on July 14, 2000 if the Term C Loans are not made on or before that date. Company may make only one borrowing under the Term C Loan Commitments. Amounts borrowed under this subsection 2.1A(iii) and subsequently repaid or prepaid may not be reborrowed. (iv) Term Delayed Draw Loans. Each Lender severally agrees, subject ----------------------- to the limitations set forth below with respect to the maximum amount of Term Delayed Draw Loans, to lend to Company from time to time during the period from the Closing Date to but excluding the Term Delayed Draw Loan Commitment Termination Date an aggregate amount not exceeding its Pro Rata Share of the aggregate amount of the Term Delayed Draw Loan Commitments, to be used for the purposes identified in subsection 2.5B. The amount of each Lender's Term Delayed Draw Loan Commitment is set forth opposite its name in Schedule 2.1 annexed hereto and the aggregate amount of the Term Delayed ------------ Draw Loan Commitments is $20,000,000; provided that the Term Delayed Draw -------- Loan Commitments of the Lenders shall be adjusted to give effect to any assignments of the Term Delayed Draw Loan Commitments pursuant to subsection 10.1B; provided further that the amount of the Term Delayed Draw -------- ------- Loan Commitments shall be reduced from time to time by the amount of any reductions thereto made pursuant to subsection 2.4B. Each Lender's Term Delayed Draw Loan Commitment shall expire on the Term Delayed Draw Loan Commitment Termination Date to the extent that Term Delayed Draw Loans have not been made on or before that date. Amounts borrowed under this subsection 2.1A(iv) may be repaid and reborrowed, subject to the limitations and conditions set forth herein, to but excluding the Term Delayed Draw Loan Commitment Termination Date. (v) Revolving Loans. Each Lender severally agrees, subject to the --------------- limitations set forth below with respect to the maximum amount of Revolving Loans permitted to be outstanding from time to time, to lend to Company from time to time during the period from the Closing Date to but excluding the Revolving Loan Commitment Termination Date, Revolving Loans, to be used for the purposes identified in subsection 2.5C, provided that after giving effect to such Loans its Revolving Loan Exposure shall not exceed its Pro Rata Share of the aggregate amount of the Revolving Loan Commitments. The amount of each Lender's Revolving Loan Commitment on the Restatement Effective Date is set forth opposite its name in Schedule 2.1 annexed ------------ hereto and the aggregate amount of the Revolving Loan Commitments on the Restatement Effective Date is $50,000,000 less the aggregate amount of the Local Lines of Credit; provided that the Revolving Loan Commitments of the -------- Lenders shall be adjusted to give effect 51 to any assignments of the Revolving Loan Commitments pursuant to subsection 10.1B; provided further that the amount of the Revolving Loan Commitments -------- ------- shall be reduced from time to time by the amount of any reductions thereto made pursuant to subsection 2.4C; and provided further that the amount of -------- ------- the Revolving Loan Commitments may be adjusted in accordance with subsection 2.9. Each Lender's Revolving Loan Commitment shall expire on the Revolving Loan Commitment Termination Date and all Revolving Loans and all other amounts owed hereunder with respect to the Revolving Loans and the Revolving Loan Commitments shall be paid in full no later than that date. Amounts borrowed under this subsection 2.1A(v) may be repaid and reborrowed, subject to the limitations and conditions set forth herein, to but excluding the Revolving Loan Commitment Termination Date. Notwithstanding anything contained herein to the contrary, in no event shall the Total Utilization of Revolving Loan Commitments at any time exceed the Revolving Loan Commitments then in effect. (vi) Swing Line Loans. The Swing Line Lender hereby agrees, subject ---------------- to the limitations set forth below with respect to the maximum aggregate amount of all Swing Line Loans outstanding from time to time, to make a portion of the Revolving Loan Commitments available to Company from time to time during the period from the Closing Date to but excluding the Revolving Loan Commitment Termination Date by making Base Rate Loans as Swing Line Loans to Company in an aggregate amount not to exceed the amount of the Swing Line Loan Commitment, to be used for the purposes identified in subsection 2.5C, notwithstanding the fact that such Swing Line Loans, when aggregated with the sum of the Swing Line Lender's outstanding Revolving Loans and the Swing Line Lender's Pro Rata Share of the Letter of Credit Usage then in effect, may exceed the Swing Line Lender's Revolving Loan Commitment. The amount of the Swing Line Loan Commitment is $10,000,000; provided that the amounts of the Swing Line Loan Commitment are subject to -------- reduction as provided in clause (b) of the next paragraph. The Swing Line Loan Commitment shall expire on the Revolving Loan Commitment Termination Date and all Swing Line Loans and all other amounts owed hereunder with respect to the Swing Line Loans shall be paid in full no later than that date. Amounts borrowed under this subsection 2.1A(vi) may be repaid and reborrowed to but excluding the Revolving Loan Commitment Termination Date. 52 Notwithstanding anything contained herein to the contrary, the Swing Line Loans and the Swing Line Loan Commitment shall be subject to the following limitations: (a) in no event shall the Total Utilization of Revolving Loan Commitments at any time exceed the Revolving Loan Commitments then in effect; and (b) any reduction of the Revolving Loan Commitments made pursuant to subsection 2.4B which reduces the aggregate Revolving Loan Commitments to an amount less than the then current amount of the Swing Line Loan Commitment shall result in an automatic corresponding reduction of the Swing Line Loan Commitment such that the amount thereof equals the amount of the Revolving Loan Commitments, as so reduced, without any further action on the part of Company, the Administrative Agent or the Swing Line Lender. With respect to any Swing Line Loans which have not been voluntarily prepaid by Company pursuant to subsection 2.4B(i), the Swing Line Lender may, at any time in its sole and absolute discretion, deliver to the Administrative Agent (with a copy to Company), no later than 11:00 a.m. (New York time) at least one (1) Business Day in advance of the proposed Funding Date, a notice (which shall be deemed to be a Notice of Borrowing given by Company) requesting the Lenders to make Revolving Loans that are Base Rate Loans to Company on such Funding Date in an amount equal to the amount of such Swing Line Loans (the "Refunded Swing Line Loans") ------------------------- outstanding on the date such notice is given which the Swing Line Lender requests the Lenders to prepay. Anything contained in this Agreement to the contrary notwithstanding, (i) the proceeds of such Revolving Loans made by the Lenders other than the Swing Line Lender shall be immediately delivered by the Administrative Agent to the Swing Line Lender (and not to Company) and applied to repay a corresponding portion of the Refunded Swing Line Loans and (ii) on the day such Revolving Loans are made, the Swing Line Lender's Pro Rata Share of the Refunded Swing Line Loans shall be deemed to be paid with the proceeds of a Revolving Loan made by the Swing Line Lender to Company, and such portion of the Swing Line Loans deemed to be so paid shall no longer be outstanding as Swing Line Loans but shall instead constitute part of the Swing Line Lender's outstanding Revolving Loans to Company. Company hereby authorizes the Administrative Agent and the Swing Line Lender to charge Company's accounts with the Administrative Agent and the Swing Line Lender (up to the amount available in each such account) in order to immediately pay the Swing Line Lender the amount of the Refunded Swing Line Loans to the extent the proceeds of such Revolving Loans made by the Lenders, 53 including the Revolving Loan deemed to be made by the Swing Line Lender, are not sufficient to repay in full the Refunded Swing Line Loans. If any portion of any such amount paid (or deemed to be paid) to the Swing Line Lender should be recovered by or on behalf of Company from the Swing Line Lender in bankruptcy, by assignment for the benefit of creditors or otherwise, the loss of the amount so recovered shall be ratably shared among all Lenders in the manner contemplated by subsection 10.5. If for any reason Revolving Loans are not made pursuant to this subsection 2.1A(vi) in an amount sufficient to repay any amounts owed to the Swing Line Lender in respect of any outstanding Swing Line Loans on or before the third Business Day after demand for payment thereof by the Swing Line Lender, each Lender shall be deemed to, and hereby agrees to, have purchased a participation in such outstanding Swing Line Loans, and in an amount equal to its Pro Rata Share of the applicable unpaid amount together with accrued interest thereon. Upon one (1) Business Day's notice from the Swing Line Lender, each Lender shall deliver to the Swing Line Lender an amount equal to its respective participation in the applicable unpaid amount in same day funds at the office of the Swing Line Lender located at the Funding and Payment Office. In order to evidence such participation each Lender agrees to enter into a participation agreement at the request of the Swing Line Lender in form and substance satisfactory to the Swing Line Lender. In the event any Lender fails to make available to the Swing Line Lender the amount of such Lender's participation as provided in this paragraph, the Swing Line Lender shall be entitled to recover such amount on demand from such Lender together with interest thereon at the rate customarily used by the Swing Line Lender for the correction of errors among banks for three Business Days and thereafter at the Base Rate, as applicable. Notwithstanding anything contained herein to the contrary, (i) each Lender's obligation to make Revolving Loans for the purpose of repaying any Refunded Swing Line Loans pursuant to the second preceding paragraph and each Lender's obligation to purchase a participation in any unpaid Swing Line Loans pursuant to the immediately preceding paragraph shall be absolute and unconditional and shall not be affected by any circumstance, including without limitation (a) any setoff, counterclaim, recoupment, defense or other right which such Lender may have against the Swing Line Lender, Company or any other Person for any reason whatsoever; (b) the occurrence or continuation of a Default or Event of Default; (c) any adverse change in the business, operations, properties, assets, condition (financial or otherwise) or prospects of Company or any of its Subsidiaries; (d) any breach of this Agreement or any other Loan Document by any party thereto; or (e) any other circumstance, happening or event whatsoever, 54 whether or not similar to any of the foregoing; provided that such -------- obligations of each Lender are subject to the condition that the Swing Line Lender believed in good faith that all conditions under Section 4 to the making of the applicable Refunded Swing Line Loans or other unpaid Swing Line Loans, were satisfied at the time such Refunded Swing Line Loans or unpaid Swing Line Loans were made, or the satisfaction of any such condition not satisfied had been waived by Requisite Lenders prior to or at the time such Refunded Swing Line Loans or other unpaid Swing Line Loans were made; and (ii) the Swing Line Lender shall not be obligated to make any Swing Line Loans if it has elected not to do so after the occurrence and during the continuation of a Default or Event of Default. B. Borrowing Mechanics. Term Loans or Revolving Loans (including any such Loans made as Eurodollar Rate Loans with a particular Interest Period) made on any Funding Date (other than Revolving Loans made pursuant to a request by the Swing Line Lender pursuant to subsection 2.1A(vi) for the purpose of repaying any Refunded Swing Line Loans and Revolving Loans made pursuant to subsection 3.3B for the purpose of reimbursing the Issuing Bank for the amount of a drawing or payment under a Letter of Credit issued by it) shall be in an aggregate minimum amount of $500,000 and integral multiples of $100,000 in excess of that amount; provided that any Eurodollar Rate Loan shall be in a minimum amount of -------- $1,000,000 and integral multiples of $100,000 in excess of that amount. Swing Line Loans made on any Funding Date shall be in an aggregate minimum amount of $100,000 and integral multiples of $50,000 in excess of that amount. Whenever Company desires that the Lenders make Term Loans or Revolving Loans it shall deliver to the Administrative Agent a Notice of Borrowing no later than 1:00 p.m. (New York time), at least three (3) Business Days in advance of the proposed Funding Date in the case of a Eurodollar Rate Loan, or at least one (1) Business Day in advance of the proposed Funding Date in the case of a Base Rate Loan. Whenever Company desires that the Swing Line Lender make a Swing Line Loan, it shall deliver to Administrative Agent a Notice of Borrowing no later than 1:00 p.m. (New York time) on the proposed Funding Date. The Notice of Borrowing shall specify (i) the proposed Funding Date (which shall be a Business Day), (ii) the amount and type of Loans requested, (iii) in the case of Swing Line Loans, that such Loans shall be Base Rate Loans, (iv) in the case of any Loans other than Swing Line Loans, whether such Loans shall be Base Rate Loans or Eurodollar Rate Loans, and (v) in the case of any Loans requested to be made as Eurodollar Rate Loans, the initial Interest Period requested therefor. Term Loans and Revolving Loans may be continued as or converted into Base Rate Loans and Eurodollar Rate Loans in the manner provided in subsection 2.2D. In lieu of delivering the above-described Notice of Borrowing, Company may give the Administrative Agent telephonic notice by the required time of any proposed borrowing under this subsection 2.1B; provided that such notice shall be -------- promptly confirmed in writing by delivery of a Notice of Borrowing to the Administrative Agent on or before the applicable Funding Date. 55 Neither the Administrative Agent nor any Lender shall incur any liability to Company in acting upon any telephonic notice referred to above that the Administrative Agent believes in good faith to have been given by a duly authorized officer authorized to borrow on behalf of Company or for otherwise acting in good faith under this subsection 2.1B, and upon funding of Loans by the Lenders in accordance with this Agreement pursuant to any such telephonic notice, Company shall have effected Loans hereunder. Company shall notify the Administrative Agent prior to the funding of any Loans in the event that any of the matters to which Company is required to certify in the applicable Notice of Borrowing are no longer true and correct (with such materiality qualifications as is set forth in a particular matter to which Company is required to certify) as of the applicable Funding Date, and the acceptance by Company of the proceeds of any Loans shall constitute a re- certification by Company, as of the applicable Funding Date, as to the matters to which Company is required to certify in the applicable Notice of Borrowing. Except as otherwise provided in subsections 2.6B, 2.6C and 2.6G, a Notice of Borrowing for a Eurodollar Rate Loan (or telephonic notice in lieu thereof) shall be irrevocable on and after the related Interest Rate Determination Date, and Company shall be bound to make a borrowing in accordance therewith. C. Disbursement of Funds. All Term Loans and all Revolving Loans under this Agreement shall be made by the Lenders simultaneously and proportionately to their respective Pro Rata Shares, it being understood that no Lender shall be responsible for any default by any other Lender in that other Lender's obligation to make a Loan requested hereunder nor shall the Commitment of any Lender to make the particular type of Loan requested be increased or decreased as a result of a default by any other Lender in that other Lender's obligation to make a Loan requested hereunder. Promptly after receipt by the Administrative Agent of a Notice of Borrowing pursuant to subsection 2.1B (or telephonic notice in lieu thereof), the Administrative Agent shall notify each Lender or the Swing Line Lender, as the case may be, of the proposed borrowing and of the amount of such Lender's Pro Rata Share of the applicable Loans. Each Lender shall make the amount of its Loan available to the Administrative Agent not later than 1:00 P.M. (New York time) on the applicable Funding Date and the Swing Line Lender shall make the amount of its Swing Line Loan available to the Administrative Agent not later than 2:00 P.M. (New York time) on the applicable Funding Date, in each case in same day funds, at the Funding and Payment Office. Except as provided in subsection 2.1A(vi) or subsection 3.3B with respect to Revolving Loans used to repay Refunded Swing Line Loans or to reimburse the Issuing Bank for the amount of an honored drawing or payment under a Letter of Credit issued by it, upon 56 satisfaction or waiver of the conditions precedent specified in subsections 4.1 (in the case of Loans made on the Restatement Effective Date) and 4.2 (in the case of all Loans), the Administrative Agent shall make the proceeds of such Loans available to Company on the applicable Funding Date by causing an amount of same day funds equal to the proceeds of all such Loans received by the Administrative Agent from the Lenders or the Swing Line Lender, as the case may be, to be credited to the account of Company at the Funding and Payment Office. Unless the Administrative Agent shall have been notified by any Lender prior to the Funding Date for any Loans that such Lender does not intend to make available to the Administrative Agent the amount of such Lender's Loan requested on such Funding Date, the Administrative Agent may assume that such Lender has made such amount available to the Administrative Agent on such Funding Date and the Administrative Agent may, in its sole discretion, but shall not be obligated to, make available to Company a corresponding amount on such Funding Date. If such corresponding amount is not in fact made available to the Administrative Agent by such Lender, the Administrative Agent shall be entitled to recover such corresponding amount on demand from such Lender together with interest thereon, for each day from such Funding Date until the date such amount is paid to the Administrative Agent, at the customary rate set by the Administrative Agent for the correction of errors among banks for three Business Days and thereafter at the Base Rate. If such Lender does not pay such corresponding amount forthwith upon the Administrative Agent's demand therefor, the Administrative Agent shall promptly notify Company and Company shall immediately pay such corresponding amount to the Administrative Agent, together with interest thereon for each day from such Funding Date until the date such amount is paid to the Administrative Agent at the rate applicable to such Loan. Nothing in this subsection 2.1C shall be deemed to relieve any Lender from its obligation to fulfill its Commitments hereunder or to prejudice any rights that Company may have against any Lender as a result of any default by such Lender hereunder. D. The Register. (i) The Administrative Agent shall maintain, at its address referred to in subsection 10.8, a register for the recordation of the names and addresses of the Lenders and the Commitments and Loans of each Lender from time to time (the "Register"). The Register shall be available for -------- inspection by Company or any Lender at any reasonable time and from time to time upon reasonable prior notice. (ii) The Administrative Agent shall record in the Register the Commitments and the outstanding Loans from time to time of each Lender and each repayment or prepayment in respect of the principal amount of the outstanding Loans of each Lender. Any such recordation shall be conclusive and 57 binding on Company and each Lender, absent manifest error; provided that failure to make any such recordation, or any error in such recordation, shall not affect Company's Obligations in respect of the applicable Loans. (iii) Each Lender shall record on its internal records the amount of each Loan made by it and each payment in respect thereof. Any such recordation shall be conclusive and binding on Company, absent manifest error; provided that failure to make any such recordation, or any error in -------- such recordation, shall not affect Company's Obligations in respect of the applicable Loans; and provided, further, that in the event of any -------- ------- inconsistency between the Register and any Lender's records, the recordations in the Register shall govern absent manifest error with respect to the Register. (iv) Company, the Administrative Agent and the Lenders shall deem and treat the Persons listed as the Lenders in the Register as the holders and owners of the corresponding Commitments and Loans listed therein for all purposes hereof, and no assignment or transfer of any Commitment or Loan shall be effective, in each case unless and until an Assignment Agreement effecting the assignment or transfer thereof shall have been accepted by the Administrative Agent and recorded in the Register as provided in subsection 10.1B(ii). Prior to such recordation, all amounts owed with respect to the applicable Commitment or Loan shall be owed to the Lender listed in the Register as the owner thereof, and any request, authority or consent of any Person who, at the time of making such request or giving such authority or consent, is listed in the Register as a Lender shall be conclusive and binding on any subsequent holder, assignee or transferee of the corresponding Commitments or Loans. (v) Company hereby designates CSFB and any financial institution serving as a successor Administrative Agent to serve as Company's agent solely for purposes of maintaining the Register as provided in this subsection 2.1D, and Company hereby agrees that, to the extent CSFB serves in such capacity, CSFB and its officers, directors, employees, agents and affiliates shall constitute Indemnitees for all purposes under subsection 10.3. 58 E. Evidence of Debt; Repayment of Loans. (i) Company hereby unconditionally promises to pay to the Administrative Agent (a) for the account of the Swingline Lender, the then unpaid principal amount of each Swingline Loan, on the date of each borrowing of a Revolving Loan or, if earlier, on the Revolving Loan Commitment Termination Date, (b) for the account of each Lender holding Term Loans, the principal amount of each Term Loan of such Lender as provided in subsection 2.4A and (c) for the account of each Lender holding Revolving Loans, the then unpaid principal amount of each Revolving Loan of such Lender on the Revolving Loan Commitment Termination Date. (ii) Any Lender may request that the Loans made by it hereunder be evidenced by a promissory note. In such event, Company shall execute and deliver to such Lender a promissory note payable to such Lender and its registered assigns and in a form and substance reasonably acceptable to the Administrative Agent and Company. Notwithstanding any other provision of this Agreement, in the event any Lender shall request and receive such a promissory note, the interests represented by such note shall at all times (including after any assignment of all or part of such interests pursuant to subsection 10.1) be represented by one or more promissory notes payable to the payee named therein or its registered assigns. 2.2 Interest on the Loans. --------------------- A. Rate of Interest. Subject to the provisions of subsections 2.6 and 2.7, each Term Loan and each Revolving Loan shall bear interest on the unpaid principal amount thereof from the date made to maturity (whether by acceleration or otherwise) at a rate determined by reference to the Base Rate or the Reserve Adjusted Eurodollar Rate, as the case may be. Subject to the provisions of subsection 2.7, each Swing Line Loan shall bear interest on the unpaid principal amount thereof from the date made to maturity (whether by acceleration or otherwise) at a rate determined by reference to the Base Rate. The applicable basis for determining the rate of interest with respect to any Loan shall be selected by Company initially at the time a telephonic notice or Notice of Borrowing is given with respect to such Loan pursuant to subsection 2.1B (so long as Company delivers to Administrative Agent a Notice of Borrowing within one Business Day prior thereto). The basis for determining the interest rate with respect to any Term Loan or any Revolving Loan may be changed from time to time pursuant to subsection 2.2D. If on any day any Term Loan or Revolving Loan is outstanding with respect to which notice has not been delivered to the Administrative Agent in accordance with the terms of this Agreement specifying the applicable basis for determining the rate of interest, then for that day that Loan shall bear interest determined by reference to the Base Rate. Subject 59 to the provisions of subsections 2.2E and 2.7, the Term Loans and the Revolving Loans shall bear interest through maturity as follows: (i) if a Base Rate Loan, then at the sum of the Base Rate plus ---- the Applicable Base Rate Margin; or (ii) if a Eurodollar Rate Loan, then at the sum of the Reserve Adjusted Eurodollar Rate plus the Applicable Eurodollar Rate Margin. ---- Subject to the provisions of subsections 2.2E and 2.7, the Swing Line Loans shall bear interest to maturity at the sum of the Base Rate plus the Applicable ---- Base Rate Margin for Revolving Loans less 0.50% per annum. B. Interest Periods. In connection with each Eurodollar Rate Loan, Company may, pursuant to the applicable Notice of Borrowing or Notice of Conversion/Continuation, as the case may be, on behalf of Company select an interest period (each an "Interest Period") to be applicable to such Loan, which --------------- Interest Period shall be, at Company's option, either a one, two, three or six month period (or, provided that any such interest period is available from all the Lenders in a particular tranche for which an Interest Period is being selected, a two- week, nine- month, twelve- month or other period as requested by Company); provided that: -------- (i) the initial Interest Period for any Eurodollar Rate Loan shall commence on the Funding Date in respect of such Loan, in the case of a Loan initially made as a Eurodollar Rate Loan, or on the date specified in the applicable Notice of Conversion/Continuation, in the case of a Loan converted to a Eurodollar Rate Loan; (ii) in the case of immediately successive Interest Periods applicable to a Eurodollar Rate Loan continued as such pursuant to a Notice of Conversion/Continuation, each successive Interest Period shall commence on the day on which the next preceding Interest Period expires; (iii) if an Interest Period would otherwise expire on a day that is not a Business Day, such Interest Period shall expire on the next succeeding Business Day; provided that, if any Interest Period would -------- otherwise expire on a day that is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the next preceding Business Day; (iv) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day 60 in the calendar month at the end of such Interest Period) shall, subject to clause (v) of this subsection 2.2B, end on the last Business Day of a calendar month; (v) no Interest Period with respect to any portion of the Term A Loans or Term Delayed Draw Loans shall extend beyond July 31, 2005, no Interest Period with respect to any portion of the Term B Loans shall extend beyond July 31, 2006, no Interest Period with respect to any portion of the Term C Loans shall extend beyond July 31, 2007 and no Interest Period with respect to any portion of the Revolving Loans shall extend beyond the Revolving Loan Commitment Termination Date; (vi) no Interest Period with respect to any portion of the Term Loans shall extend beyond a date on which Company is required to make a scheduled payment of principal of the Term A Loans, the Term B Loans, the Term C Loans or the Term Delayed Draw Loans, as the case may be, unless the aggregate principal amount of Term A Loans, Term B Loans, Term C Loans or Term Delayed Draw Loans, as the case may be, that are Base Rate Loans plus ---- the aggregate principal amount of Term A Loans, Term B Loans, Term C Loans or Term Delayed Draw Loans, as the case may be, that are Eurodollar Rate Loans with Interest Periods expiring on or before such date equals or exceeds the principal amount required to be paid on the Term A Loans, Term B Loans, Term C Loans or Term Delayed Draw Loans, as the case may be, on such date; (vii) Company may only select Interest Periods with respect to Term C Loans of one month or two months prior to the end of the Initial Period; (viii) with respect to the Term C Loans, there shall be no more than one Interest Period outstanding at any time during the Initial Period and, with respect to all Loans, no more than twenty Interest Periods shall be outstanding at any time; and (ix) in the event Company fails to specify an Interest Period for any Eurodollar Rate Loan in the applicable Notice of Borrowing or Notice of Conversion/Continuation, Company shall be deemed to have selected an Interest Period of one month. C. Interest Payments. Subject to the provisions of subsection 2.2E, interest on each Loan shall be payable in arrears on and to each Interest Payment Date applicable to that Loan, upon any prepayment of that Loan (to the extent accrued on the amount being prepaid) and at maturity (including final maturity, by acceleration or otherwise); provided that in the event that any -------- Swing Line Loans, Revolving Loans or any Term Loans that are Base Rate Loans are prepaid pursuant to subsection 2.4B(i), interest 61 accrued on such Loans through the date of such prepayment shall be payable on the next succeeding Interest Payment Date applicable to Base Rate Loans (or, if earlier, at final maturity). D. Conversion or Continuation. Subject to the provisions of subsection 2.6, Company shall have the option (i) to convert at any time all or any part of its outstanding Term Loans or Revolving Loans equal to $500,000 and integral multiples of $100,000 in excess of that amount from Loans bearing interest at a rate determined by reference to one basis to Loans bearing interest at a rate determined by reference to an alternative basis (provided that any Loan being converted to a Eurodollar Rate Loan shall be in a minimum amount of $1,000,000 and integral multiples of $100,000 in excess of such amount) or (ii) upon the expiration of any Interest Period applicable to a Eurodollar Rate Loan, to continue all or any portion of such Loan equal to $1,000,000 and integral multiples of $100,000 in excess of that amount as a Eurodollar Rate Loan; provided, however, that a Eurodollar Rate Loan may only be converted into a Base - -------- ------- Rate Loan on the expiration date of an Interest Period applicable thereto. Company shall deliver a Notice of Conversion/Continuation to the Administrative Agent no later than 12:00 Noon at least one Business Day in advance of the proposed conversion date (in the case of a conversion to a Base Rate Loan), and at least three Business Days in advance of the proposed conversion/continuation date (in the case of a conversion to, or a continuation of, a Eurodollar Rate Loan). A Notice of Conversion/Continuation shall specify (i) the proposed conversion/continuation date (which shall be a Business Day), (ii) the amount and type of the Loan to be converted/continued, (iii) the nature of the proposed conversion/continuation, (iv) in the case of a conversion to, or a continuation of, a Eurodollar Rate Loan, the requested Interest Period, and (v) in the case of a conversion to, or a continuation of, a Eurodollar Rate Loan, that no Default or Event of Default has occurred and is continuing. In lieu of delivering the above-described Notice of Conversion/Continuation, Company may give the Administrative Agent telephonic notice by the required time of any proposed conversion/continuation under this subsection 2.2D; provided -------- that such notice shall be promptly confirmed in writing by delivery of a Notice of Conversion/Continuation to the Administrative Agent within one Business Day prior to the proposed conversion/continuation date. Neither the Administrative Agent nor any Lender shall incur any liability to Company in acting upon any telephonic notice referred to above that the Administrative Agent believes in good faith to have been given by a duly authorized officer authorized to act on behalf of Company or for otherwise acting in good faith under this subsection 2.2D, and upon conversion or continuation of the applicable basis for determining the interest rate with respect to any Loans in accordance with this Agreement 62 pursuant to any such telephonic notice Company shall have effected a conversion or continuation, as the case may be, hereunder. Except as otherwise provided in subsections 2.6B, 2.6C and 2.6G, a Notice of Conversion/Continuation for conversion to, or continuation of, a Eurodollar Rate Loan (or telephonic notice in lieu thereof) shall be irrevocable on and after the related Interest Rate Determination Date, and Company shall be bound to effect a conversion or continuation in accordance therewith. E. Post-Default Interest. The outstanding principal amount of Loans not paid when due and, to the extent permitted by applicable law, any interest payments thereon not paid when due, and any fees and other amounts then due and payable hereunder and not paid, shall thereafter bear interest (including post- petition interest in any proceeding under any Bankruptcy Law) payable upon demand at a rate that is 2% per annum in excess of the interest rate otherwise payable under this Agreement with respect to the applicable Loans (or, in the case of any such fees and other amounts, at a rate which is 2% per annum in excess of the interest rate otherwise payable under this Agreement for Revolving Loans that are Base Rate Loans); provided that, in the case of Eurodollar Rate -------- Loans, upon the expiration of the Interest Period in effect at the time any such increase in interest rate is effective such Eurodollar Rate Loans shall thereupon become Base Rate Loans and shall thereafter bear interest payable upon demand at a rate equal to 2% per annum in excess of the interest rates otherwise payable under this Agreement for Base Rate Loans that are Term A Loans, Term B Loans, Term C Loans, Term Delayed Draw Loans or Revolving Loans, as applicable. Payment or acceptance of the increased rates of interest provided for in this subsection 2.2E is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of the Administrative Agent or any Lender. F. Computation of Interest. Interest on Loans shall be computed on the basis of a 360-day year (or a 365- or 366-day year, as applicable, in the case of Base Rate Loans based on the Prime Rate) and for the actual number of days elapsed in the period during which it accrues. In computing interest on any Loan, the date of the making of such Loan or the first day of an Interest Period applicable to such Loan or, with respect to a Base Rate Loan being converted from a Eurodollar Rate Loan, the date of conversion of such Eurodollar Rate Loan to such Base Rate Loan, as the case may be, shall be included, and the date of payment of such Loan or the expiration date of an Interest Period applicable to such Loan or, with respect to a Base Rate Loan being converted to a Eurodollar Rate Loan, the date of conversion of such Base Rate Loan to such Eurodollar Rate Loan, as the case may be, shall be excluded; provided that if a Loan is repaid -------- on the same day on which it is made, one day's interest shall be paid on that Loan. 63 2.3 Fees. ---- A. Commitment Fees. (i) Revolving Loan Commitments. Company agrees to pay to the -------------------------- Administrative Agent, for distribution to each Lender in proportion to that Lender's Pro Rata Share of the Revolving Loan Commitments, commitment fees for the period from and including the Closing Date to and excluding the Revolving Loan Commitment Termination Date equal to the sum of (x) the average of the daily excess of the Revolving Loan Commitments over the sum of the aggregate principal amount of Revolving Loans outstanding (but not any Swing Line Loans outstanding) plus (y) the Letter of Credit Usage ---- multiplied by 0.50% per annum. ------------- (ii) Term Delayed Draw Loan Commitments. Company agrees to pay to ---------------------------------- the Administrative Agent, for distribution to each Lender in proportion to that Lender's Pro Rata Share of the Term Delayed Draw Loan Commitments, commitment fees for the period from and including the Closing Date to and excluding the Term Delayed Draw Loan Commitment Termination Date equal to the daily Term Delayed Draw Loan Commitments multiplied by 1.00% per annum. ------------- (iii) Calculation and Payment. All of the foregoing commitment fees ----------------------- shall be calculated on the basis of a 360-day year and the actual number of days elapsed and shall be payable quarterly in arrears on the last Business Day in each of March, June, September and December of each year, commencing in September 1999, and on the Revolving Loan Commitment Termination Date and the Term Delayed Draw Loan Commitment Termination Date. B. Other Fees. Company agrees to pay to Sole Lead Arranger and Administrative Agent such fees in the amounts and at the times separately agreed upon between Company, Sole Lead Arranger and Administrative Agent. 2.4 Repayments, Prepayments and Reductions in Commitments; General Provisions ------------------------------------------------------------------------- Regarding Payments. ------------------ A. Scheduled Payments of Term Loans. 64 (i) Scheduled Payments of Term A Loans. Company shall make ---------------------------------- principal payments on the Term A Loans in installments on the dates set forth below, each such installment to be in an amount equal to the corresponding amount set forth below: ==================================================================== SCHEDULED REPAYMENT DATE OF TERM A LOANS ==================================================================== June 30, 2000 $1,000,000 September 30, 2000 $1,000,000 December 31, 2000 $2,000,000 March 31, 2001 $2,500,000 -------------------------------------------------------------------- June 30, 2001 $2,500,000 September 30, 2001 $3,000,000 December 31, 2001 $3,000,000 March 31, 2002 $3,000,000 -------------------------------------------------------------------- June 30, 2002 $3,000,000 September 30, 2002 $3,000,000 December 31, 2002 $3,000,000 March 31, 2003 $3,000,000 -------------------------------------------------------------------- June 30, 2003 $3,000,000 September 30, 2003 $3,750,000 December 31, 2003 $3,750,000 March 31, 2004 $3,750,000 -------------------------------------------------------------------- June 30, 2004 $3,750,000 September 30, 2004 $5,500,000 December 31, 2004 $5,500,000 March 31, 2005 $5,500,000 July 31, 2005 $5,500,000 ==================================================================== ; provided that the scheduled installments of principal of the Term A -------- Loans forth above shall be reduced in connection with any voluntary or mandatory prepayments of the Term A Loans in accordance with subsection 2.4C; and provided, further, that the final installment -------- ------- specified above for repayment by Company of the Term A Loans shall be in an amount, if such amount is different from that specified above, sufficient to repay all amounts owing by Company under this Agreement with respect to the Term A Loans. 65 (ii) Scheduled Payments of Term B Loans. Company shall make ---------------------------------- principal payments on the Term B Loans in 25 consecutive installments on the last Business Day of March, June, September and December of each year, commencing on the last Business Day of March 2000; provided, however, that Company shall make the final installment -------- ------- payment on July 31, 2006. Each such installment shall be in an amount equal to $200,000, with the balance due and payable on the July 31, 2006; provided that the scheduled installments of principal of the -------- Term B Loans set forth above shall be reduced in connection with any voluntary or mandatory prepayments of the Term B Loans in accordance with subsection 2.4C. (iii) Scheduled Payments of Term Delayed Draw Loans. Company --------------------------------------------- shall make principal payments on the Term Delayed Draw Loans in installments on the dates set forth below, each such installment to be in an amount equal to the corresponding percentages set forth below of the principal amount of the Term Delayed Draw Loans outstanding on the Term Delayed Draw Loan Commitment Termination Date: ==================================================================== SCHEDULED REPAYMENT DATE OF TERM DELAYED DRAW LOANS ==================================================================== September 30, 2001 3.75% December 31, 2001 3.75% March 31, 2002 3.75% June 30, 2002 3.75% -------------------------------------------------------------------- September 30, 2002 5.63% December 31, 2002 5.63% March 31, 2003 5.63% June 30, 2003 5.63% -------------------------------------------------------------------- September 30, 2003 6.25% December 31, 2003 6.25% March 31, 2004 6.25% June 30, 2004 6.25% -------------------------------------------------------------------- September 30, 2004 9.38% December 31, 2004 9.38% March 31, 2005 9.38% July 31, 2005 9.38% ==================================================================== 66 ; provided that the scheduled installments of principal of the Term Delayed -------- Draw Loans set forth above shall be reduced in connection with any voluntary or mandatory prepayments of the Term Delayed Draw Loans in accordance with subsection 2.4C; and provided, further, that the final -------- ------- installment specified above for the repayment by Company of the Term Delayed Draw Loans shall be in an amount, if such amount is different from that specified above, sufficient to repay all amounts owing by Company under this Agreement with respect to the Term Delayed Draw Loans. (iv) Scheduled Payments of Term C Loans. Company shall make principal --------------------------------- payments on the Term C Loans in 28 consecutive installments on the last Business Day of March, June, September and December of each year, commencing on the last Business Day of September 2000; provided, however, that Company shall make the final installment payment on July 31, 2007. Each such installment shall be in an amount equal to $137,500, with the balance due and payable on July 31, 2007; provided that the scheduled installments of principal of the Term C Loans set forth above shall be reduced in connection with any voluntary or mandatory prepayments of the Term C Loans in accordance with subsection 2.4C. 67 B. Prepayments and Reductions in Commitments. (i) Voluntary Prepayments. Company may, upon written or telephonic --------------------- notice to the Administrative Agent on or prior to 1:00 P.M. (New York time) on the date of prepayment, which notice, if telephonic, shall be promptly confirmed in writing, at any time and from time to time prepay, without premium or penalty, any Swing Line Loan on any Business Day in whole or in part in an aggregate minimum amount of $100,000 and integral multiples of $50,000 in excess of that amount. In addition, Company may, upon not less than one (1) Business Day's, in the case of Base Rate Loans, and upon not less than three (3) Business Days', in the case of Eurodollar Rate Loans, prior written or telephonic notice, promptly confirmed in writing to the Administrative Agent (which notice the Administrative Agent will promptly transmit by facsimile or telephone to each Lender), at any time and from time to time prepay, without premium or penalty, the Loans (other than Swing Line Loans) on any Business Day in whole or in part in an aggregate minimum amount of $500,000 and integral multiples of $100,000 in excess of that amount; provided, however, that in the event Company shall prepay a -------- ------- Eurodollar Rate Loan other than on the expiration of the Interest Period applicable thereto, Company shall, at the time of such prepayment, also pay any amounts payable under subsection 2.6D hereof. Notice of prepayment having been given as aforesaid, the Loans shall become due and payable on the prepayment date specified in such notice and in the aggregate principal amount specified therein. Any voluntary prepayments pursuant to this subsection 2.4B(i) shall be applied as specified in subsection 2.4C. (ii) Voluntary Reductions of Commitments. Company may, upon not less ----------------------------------- than three (3) Business Days' prior written or telephonic notice, promptly confirmed in writing to the Administrative Agent (which notice the Administrative Agent will promptly transmit by facsimile or telephone to each Lender), at any time and from time to time terminate in whole or permanently reduce in part, without premium or penalty, (x) the Revolving Loan Commitments in an amount up to the amount by which the Revolving Loan Commitments exceed the Total Utilization of Revolving Loan Commitments at the time of such proposed termination or reduction or (y) the Term Delayed Draw Loan Commitments; provided that any such partial reduction of the -------- Revolving Loan Commitments or the Term Delayed Draw Loan Commitments shall be in an aggregate minimum amount of $1,000,000 and integral multiples of $100,000 in excess of that amount. Company's notice to the Administrative Agent shall designate the date (which shall be a Business Day) of such termination or reduction and the amount of any partial reduction, and such termination or reduction of the Revolving Loan Commitments or the Term Delayed Draw Loan Commitments shall be effective on the date specified in such notice and shall 68 reduce the Revolving Loan Commitment or the Term Delayed Draw Loan Commitment, respectively, of each Lender proportionately to its respective Pro Rata Share. Any such voluntary reduction of the Revolving Loan Commitment or the Term Delayed Draw Loan Commitments shall be applied as specified in subsection 2.4C. (iii) Mandatory Prepayments and Mandatory Reductions of Commitments. ------------------------------------------------------------- The Loans shall be prepaid and/or the Revolving Loan Commitments and Term Delayed Draw Loan Commitments shall be reduced in the manner provided in subsection 2.4C upon the occurrence of the following circumstances: 69 (a) Asset Sales. No later than the fifth (5/th/) Business Day ----------- following the date of receipt by ChipPAC or any of its Subsidiaries of Cash Proceeds of any Asset Sale, Company shall prepay the Loans (and/or the Revolving Loan Commitments or Term Delayed Draw Loan Commitments shall be reduced) in an amount equal to the Net Cash Proceeds received with respect thereto; provided that, if ChipPAC -------- shall have delivered a Reinvestment Notice to the Administrative Agent no later than the fifth (5/th/) Business Day following the consummation of such Asset Sale, Company shall not be required to make any prepayment with the proceeds of such Asset Sale to the extent that any of such proceeds are reinvested (or as to which a contract has been entered into to reinvest) in Reinvestment Assets within 365 days from the date of receipt of such proceeds; provided further that the -------- ------- aggregate amount of Net Cash Proceeds that may be reinvested pursuant to the immediately preceding proviso shall not exceed $15,000,000 in any Fiscal Year (or $30,000,000 in any Fiscal Year at any time the Leverage Ratio, determined on a Pro Forma Basis after giving effect to such Asset Sale, is less than 3.50:1.00); and provided still further -------- ----- ------- that, on each Reinvestment Prepayment Date, an amount equal to the Reinvestment Prepayment Amount with respect to the relevant Reinvestment Event shall be applied to prepay the Loans (and/or the Revolving Loan Commitments or Term Delayed Draw Loan Commitments shall be reduced). Concurrently with any prepayment of Loans (and/or any reduction in the Revolving Loan Commitments or Term Delayed Draw Loan Commitments) pursuant to this subsection 2.4B(iii)(a), ChipPAC shall deliver to the Administrative Agent an Officer's Certificate demonstrating in detail reasonably satisfactory to the Administrative Agent the derivation of the Net Cash Proceeds of the correlative Asset Sale from the gross sales price thereof. In addition, in the event that ChipPAC shall, at any time after receipt of proceeds of any Reinvestment Event requiring a prepayment (and/or a reduction in the Revolving Loan Commitments) pursuant to this subsection 2.4B(iii)(a), determine that the prepayments (and/or a reduction in the Revolving Loan Commitments) previously made in respect of such Reinvestment Event were in an aggregate amount less than that required by the terms of this subsection 2.4B(iii)(a), Company shall promptly cause to be made an additional prepayment of the Loans (and/or reduction in the Revolving Loan Commitments) in an amount equal to the amount of any such deficit, and ChipPAC shall concurrently therewith deliver to the Administrative Agent an Officer's Certificate demonstrating the derivation of the additional proceeds resulting in such deficit. If Company is otherwise required to apply any portion of Net Cash Proceeds to prepay Indebtedness evidenced by the Subordinated Debt then, notwithstanding anything 70 contained in this Agreement to the contrary, ChipPAC shall cause such Net Cash Proceeds to be applied to the prepayment of the Loans so as to eliminate or minimize any obligation to be applied to prepay the Subordinated Debt. (b) Issuances of Debt. On or prior to the first (1st) Business ----------------- Day after receipt by ChipPAC or any of its Subsidiaries of any proceeds (net of any payment of underwriting discounts, commission and other costs and expenses associated therewith (including legal costs and expenses)) of any Indebtedness (other than the Loans, the Subordinated Debt and any other Indebtedness permitted by this Agreement), Company shall prepay the Loans (and/or the Revolving Loan Commitments or Term Delayed Draw Loan Commitments shall be reduced) in an amount equal to the amount of such proceeds; provided that payment -------- or acceptance of the amounts provided for in this subsection 2.4B(iii)(b) shall not constitute a waiver of any Event of Default resulting from the incurrence of such Indebtedness or otherwise prejudice any rights or remedies of the Administrative Agent or any Lender. If Company is otherwise required to apply any portion of such proceeds to prepay Indebtedness evidenced by the Subordinated Debt then, notwithstanding anything contained in this Agreement to the contrary, ChipPAC shall cause such proceeds to be applied to the prepayment of the Loans so as to eliminate or minimize any obligation to prepay the Subordinated Debt. (c) Issuances of Equity Securities. On or prior to the first ------------------------------ (1st) Business Day after receipt by ChipPAC or any of its Subsidiaries of any Equity Proceeds (net of any payment of underwriting discounts, commission and other costs and expenses associated therewith (including legal costs and expenses)) other than (w) capital contributions made by ChipPAC or any of its Subsidiaries, (x) Equity Proceeds received by ChipPAC as payment for any shares of Capital Stock purchased by, or of the exercise price under any option for any shares of Capital Stock of ChipPAC held by, any officer, director, employee or consultant of ChipPAC or any of its Subsidiaries, (y) Equity Proceeds received from the Investors or their respective Affiliates or customers or suppliers of ChipPAC or its Subsidiaries, and (z) Equity Proceeds received by ChipPAC or any of its Subsidiaries solely to the extent that such Equity Proceeds are used to finance a Permitted Acquisition, Company shall prepay the Loans (and/or the Revolving Loan Commitments or Term Delayed Draw Loan Commitments shall be reduced) in an amount equal to (i) 75% of all such Equity Proceeds, if at such time the Leverage Ratio, on a Pro Forma basis, is greater than or equal to 3.50:1.00 or (ii) 50% of all 71 such Equity Proceeds, if at such time the Leverage Ratio, on a Pro Forma Basis, is less than 3.50:1.00; provided, however, that notwithstanding the foregoing, ChipPAC may use the first $50,000,000 of Equity Proceeds of a Qualified Public Equity Offering, at its option, (i) to redeem HEI Preferred Stock, (ii) to redeem Intel Preferred Stock and/or (iii) to repurchase Subordinated Debt. If Company is otherwise required to apply any portion of such Equity Proceeds to prepay Indebtedness evidenced by the Subordinated Debt then, notwithstanding anything contained in this Agreement to the contrary, ChipPAC shall cause such Equity Proceeds to be applied to the prepayment of the Loans so as to eliminate or minimize any obligation to repurchase the Subordinated Debt. (d) Insurance and Condemnation Proceeds. No later than the fifth ----------------------------------- (5/th/) Business Day following the date of receipt by ChipPAC or any of its Subsidiaries of any cash payments under any insurance policy as a result of any damage to or loss of all or any portion of the Collateral or any other tangible asset (net of actual costs incurred and any taxes paid or payable by ChipPAC or any of its Subsidiaries in connection with adjustment and settlement thereof, "Insurance --------- Proceeds") or any proceeds resulting from the taking of assets by the power of eminent domain, condemnation or otherwise (net of actual costs incurred and any taxes paid or payable by ChipPAC or any of its Subsidiaries in connection with adjustment and settlement thereof, "Condemnation Proceeds") (any such event resulting in the recovery of ---------------------- Insurance Proceeds or Condemnation Proceeds, a "Recovery Event"), -------------- Company shall prepay the Loans (and/or the Revolving Loan Commitments or Term Delayed Draw Loan Commitments shall be reduced) in an amount equal to the Insurance Proceeds or Condemnation Proceeds, as the case may be, received; provided that, if ChipPAC shall have delivered a -------- Reinvestment Notice to the Administrative Agent no later than five (5) Business Days prior to the consummation of such Recovery Event and no Event of Default exists at the time of such consummation and the time of delivery of such notice, Company shall not be required to make any prepayment (and/or reduction in the Revolving Loan Commitments or Term Delayed Draw Loan Commitments) with the proceeds of such Recovery Event to the extent that (x) all or any portion of such proceeds are reinvested (or a contract has been entered into to reinvest) in Reinvestment Assets within 365 days from the date of receipt of such proceeds, and (y) after giving effect thereto, the aggregate amount of proceeds not used to make mandatory prepayments of Loans (and/or reduce the Revolving Loan Commitments or Term Delayed Draw Loan Commitments) pursuant to this proviso does not exceed $10,000,000 during any Fiscal Year; 72 provided, further, that, on each Reinvestment Prepayment Date, an -------- ------- amount equal to the Reinvestment Prepayment Amount with respect to the relevant Reinvestment Event shall be applied to prepay the Loans (and/or the Revolving Loan Commitments or Term Delayed Draw Loan Commitments shall be reduced). In addition, in the event that ChipPAC shall, at any time after receipt of proceeds of any Reinvestment Event requiring a prepayment (and/or reduction in the Revolving Loan Commitments or Term Delayed Draw Loan Commitments) pursuant to this subsection 2.4B(iii)(d), determine that the prepayments (and/or reduction in the Revolving Loan Commitments or Term Delayed Draw Loan Commitments) previously made in respect of such Reinvestment Event were in an aggregate amount less than that required by the terms of this subsection 2.4B(iii)(d), Company shall promptly cause to be made an additional prepayment of the Loans (and/or reduce the Revolving Loan Commitments or Term Delayed Draw Loan Commitments) in an amount equal to the amount of any such deficit, and ChipPAC shall concurrently therewith deliver to the Administrative Agent an Officer's Certificate demonstrating the derivation of the additional proceeds resulting in such deficit. If Company is otherwise required to apply any portion of such proceeds to prepay Indebtedness evidenced by the Subordinated Debt then, notwithstanding anything contained in this Agreement to the contrary, ChipPAC shall cause such Insurance Proceeds and Condemnation Proceeds to be applied to the prepayment of the Loans so as to eliminate or minimize any obligation to prepay the Subordinated Debt. (e) Consolidated Excess Cash Flow. In the event that there shall ----------------------------- be Consolidated Excess Cash Flow for any Fiscal Year (commencing with the Fiscal Year ending December 31, 2000), Company shall, no later than ninety-five (95) days after the end of such Fiscal Year, prepay the Loans (and/or the Revolving Loan Commitments or Term Delayed Draw Loan Commitments shall be reduced) in an aggregate amount equal to (i) 75% of such Consolidated Excess Cash Flow if the Leverage Ratio at the end of such Fiscal Year was greater than or equal to 3.50:1.00 or (ii) 50% of such Consolidated Excess Cash Flow if the Leverage Ratio at the end of such Fiscal Year was less than 3.50:1.00; provided, however, -------- ------- that no such payment shall be required if the Leverage Ratio at the end of such Fiscal Year was less than or equal to 2.75:1.00. (f) Reductions or Restrictions of Revolving Loan Commitments. -------------------------------------------------------- Company shall prepay the Swing Line Loans and/or Revolving Loans from time to time to the extent necessary so that (1) the Total Utilization of Revolving Loan Commitments shall not at any time exceed the Revolving Loan Commitments then in effect, and (2) the 73 aggregate principal amount of all outstanding Swing Line Loans shall not at any time exceed the Swing Line Loan Commitment then in effect. All Swing Line Loans shall be prepaid in full prior to the prepayment of any Revolving Loans pursuant to this subsection 2.4B(iii)(f). If at any time that there are no Revolving Loans and Swing Line Loans outstanding (whether after giving effect to any prepayment thereof pursuant to this subclause (f) or otherwise) the Total Utilization of Revolving Loan Commitments exceeds the Revolving Loan Commitment, Company shall deposit into the Collateral Account such amounts as are necessary so that, after giving effect thereto, the amount on deposit in the Collateral Account pursuant to this subclause (f) is at least equal to such excess. C. Application of Prepayments and Unscheduled Reductions of Commitments. (i) Application of Prepayments by Type of Loans. Any voluntary ------------------------------------------- prepayments pursuant to subsection 2.4B(i) shall be applied as specified by Company in the applicable notice of prepayment; provided that in the event -------- Company fails to specify the Loans to which any such prepayment shall be applied, such prepayment shall be applied first to repay outstanding Swing ----- Line Loans to the full extent thereof, second to repay outstanding ------ Revolving Loans to the full extent thereof, and third to repay outstanding ----- Term Loans to the full extent thereof. Any amount required to be applied as a prepayment of Loans or Revolving Loan Commitment or Term Delayed Draw Loan Commitment reduction pursuant to any of subsections 2.4B(iii)(a) through (e) or this subsection 2.4C(i) shall be applied first to repay Term ----- Loans as selected by Company in an amount not in excess of an amount equal to the scheduled amortization payments on such Term Loans selected for the immediately succeeding twelve-month period, second to further prepay the ------ Term Loans ratably to the full extent thereof, third to prepay Swing Line ----- Loans to the full extent thereof and to permanently reduce the Revolving Loan Commitments by the amount of such prepayment, fourth to prepay ------ Revolving Loans to the full extent thereof and to further permanently reduce the Revolving Loan Commitments by the amount of such prepayment, fifth to prepay outstanding reimbursement obligations with respect to ----- Letters of Credit, sixth to cash collateralize Letters of Credit as ----- provided in the Collateral Account Agreement, seventh to reduce the Term ------- Delayed Draw Loan Commitment and eighth, to the extent of any remaining ------ amount, to further reduce the Revolving Loan Commitments. Anything contained herein to the contrary notwithstanding, (i) prepayment of Term Loans required by subsection 2.4B(iii)(c) shall be allocated first to the prepayment of the Term C Loans and applied ratably to the remaining amortization in respect of the Term C Loans until the Term C Loans are paid in full and (ii) so long as any Term A 74 Loans or Term Delayed Draw Loans are outstanding, in the case of any voluntary or mandatory prepayments of Term Loans pursuant to subsection 2.4A or 2.4B or this subsection 2.4C, (a) Company shall use reasonable efforts to notify the Lenders of such prepayment in advance of payment to the Administrative Agent of such amount, (b) upon receipt of such payment, the Administrative Agent shall notify the Lenders of such payment, (c) in the event any Lender with Term B Loans or, except in the case of a prepayment pursuant to subsection 2.4B(iii)(c), Term C Loans elects to waive such Lender's right to receive such prepayment in respect of any such Loans, such Lender shall so advise the Administrative Agent in writing no later than the close of business on the date it receives such notice from the Administrative Agent and (d) upon receipt of such written advice from such Lender, the Administrative Agent shall apply the amount waived by such Lender to prepay Term A Loans and Term Delayed Draw Loans. (ii) Application of Prepayments of Term Loans to Installments. The -------------------------------------------------------- amount of any prepayments of Term A Loans, Term B Loans, Term C Loans or Term Delayed Draw Loans, as applicable, shall be applied first to reduce ----- each scheduled installment thereof set forth in subsection 2.4A(i), 2.4A(ii), 2.4A(iii) or 2.4A(iv), as applicable, that is unpaid and due within the next twelve months of the date of such prepayment in the order that such installments are scheduled to occur, and second to ratably reduce ------ each scheduled installment of principal thereof set forth in subsection 2.4A(i), 2.4A(ii), 2.4A(iii) or 2.4A(iv), as applicable. (iii) Application of Prepayments of Loans to Base Rate Loans and ---------------------------------------------------------- Eurodollar Rate Loans. Considering Loans constituting Term A Loans, Term B --------------------- Loans, Term C Loans, Term Delayed Draw Loans and Revolving Loans being prepaid separately, any prepayment thereof shall be applied first to Base Rate Loans to the full extent thereof before application to Eurodollar Rate Loans, in each case in a manner which minimizes the amount of any payments required to be made by Company pursuant to subsection 2.6D. D. Application of Proceeds of Collateral and Payments Under Guaranties. (i) Application of Proceeds of Collateral. All proceeds received by ------------------------------------- the Administrative Agent or the Collateral Agent, as the case may be, in respect of any sale of, collection from, or other realization upon all or any part of the Collateral under any Collateral Document may, in the discretion of the Collateral Agent, be held by the Collateral Agent as Collateral for, and applied in full by the Administrative Agent against, the applicable Secured Obligations (as defined in such Collateral Document) in the following order of priority: 75 (a) to the payment of all costs and expenses of such sale, collection or other realization, including all other reasonable expenses, liabilities and advances made or incurred by such Agents in connection therewith, and all amounts for which such Agents are entitled to indemnification under such Collateral Document and all advances made by the Collateral Agent thereunder for the account of the applicable Loan Party, and to the payment of all reasonable costs and expenses paid or incurred by the Collateral Agent in connection with the exercise of any right or remedy under such Collateral Document, all in accordance with the terms of this Agreement and such Collateral Document; (b) thereafter, to the extent of any excess proceeds, to the payment of all other such Secured Obligations for the ratable benefit of the holders thereof; and (c) thereafter, to the extent of any excess proceeds, to the payment to or upon the order of such Loan Party or to whosoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct. (ii) Application of Payments Under Guaranties. All payments received ---------------------------------------- by the Administrative Agent under any Guaranty shall be applied promptly from time to time by the Administrative Agent in the following order of priority: (a) to the payment of the reasonable costs and expenses of any collection or other realization under such Guaranty, including all reasonable expenses, liabilities and advances made or incurred by the Administrative Agent in connection therewith, all in accordance with the terms of this Agreement and such Guaranty; (b) thereafter, to the extent of any excess such payments, to the payment of all other Obligations (as defined in such Guaranty) for the ratable benefit of the holders thereof; and (c) thereafter, to the extent of any excess such payments, to the payment to the applicable Guarantor or to whosoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct. 76 E. General Provisions Regarding Payments. (i) Manner and Time of Payment. All payments by Company of -------------------------- principal, interest, fees and other Obligations hereunder shall be made in same day funds and without defense, setoff or counterclaim, free of any restriction or condition, and delivered to the Administrative Agent not later than 12:00 Noon (New York time) on the date due at the Funding and Payment Office for the account of the Lenders; funds received by the Administrative Agent after that time on such due date shall be deemed to have been paid by Company on the next succeeding Business Day. Company hereby authorizes the Administrative Agent to charge its accounts with the Administrative Agent in order to cause timely payment to be made to the Administrative Agent of all principal, interest, fees and expenses due hereunder (subject to sufficient funds being available in its accounts for that purpose). (ii) Application of Payments to Principal and Interest. Except as ------------------------------------------------- provided in subsection 2.2C, all payments in respect of the principal amount of any Loan shall include payment of accrued interest, on the principal amount being repaid or prepaid, and all such payments (and in any event any payments made in respect of any Loan on a date when interest is due and payable with respect to such Loan) shall be applied to the payment of interest before application to principal. (iii) Apportionment of Payments. Aggregate principal and interest ------------------------- payments shall be apportioned among all outstanding Loans to which such payments relate, in each case proportionately to the Lenders' respective Pro Rata Shares. The Administrative Agent shall promptly distribute to each Lender, at its applicable Lending Office specified in Schedule 2.1 or ------------ at such other address as such Lender may request, its Pro Rata Share of all such payments received by the Administrative Agent and the commitment fees of such Lender when received by the Administrative Agent pursuant to subsection 2.3. Notwithstanding the foregoing provisions of this subsection 2.4E(iii) if, pursuant to the provisions of subsection 2.6C, any Notice of Conversion/Continuation is withdrawn as to any Affected Lender or if any Affected Lender makes Base Rate Loans in lieu of its Pro Rata Share of any Eurodollar Rate Loans, the Administrative Agent shall give effect thereto in apportioning payments received thereafter. (iv) Payments on Business Days. Except if expressly provided ------------------------- otherwise, whenever any payment to be made hereunder shall be stated to be due on a day that is not a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall be included in the 77 computation of the payment of interest hereunder or of the commitment fees hereunder, as the case may be. 2.5 Use of Proceeds. --------------- A. Term Loans Made on the Restatement Effective Date. The proceeds of the Term C Loans to be made to Company on the Restatement Effective Date shall be applied, together with the Seller Preferred Stock, to fund the Purchase and to pay related fees and expenses. B. Term Delayed Draw Loans. The proceeds of any Term Delayed Draw Loans shall be applied by Company only for the purpose of acquiring testing equipment or making other capital expenditures required in connection with the performance by the Operating Subsidiaries with respect to Micro BGA Capital Expenditures. C. Revolving Loans; Swing Line Loans. The proceeds of any Revolving Loans and any Swing Line Loans shall be applied for working capital and general corporate purposes of the Operating Subsidiaries. D. Margin Regulations. No portion of the proceeds of any borrowing under this Agreement shall be used by Company or any of its Subsidiaries in any manner that might cause the borrowing or the application of such proceeds to violate Regulation U, Regulation T or Regulation X of the Board of Governors of the Federal Reserve System or any other regulation of such Board or to violate the Exchange Act, in each case as in effect on the date or dates of such borrowing and such use of proceeds. 2.6 Special Provisions Governing Eurodollar Rate Loans. -------------------------------------------------- Notwithstanding any other provision of this Agreement to the contrary, the following provisions shall govern with respect to Eurodollar Rate Loans as to the matters covered: A. Determination of Applicable Interest Rate. As soon as practicable after 11:00 A.M. (New York time) on each Interest Rate Determination Date, the Administrative Agent shall determine (which determination shall, absent manifest error, be final, conclusive and binding upon all parties) the interest rate that shall apply to the Eurodollar Rate Loans for which an interest rate is then being determined for the applicable Interest Period and shall promptly give notice thereof (in writing or by telephone confirmed in writing) to Company and each Lender. 78 B. Inability to Determine Applicable Interest Rate. In the event that the Administrative Agent shall have reasonably determined (which determination shall be final and conclusive and binding upon all parties hereto), on any Interest Rate Determination Date with respect to any Eurodollar Rate Loans, that by reason of circumstances arising after the date of this Agreement affecting the London interbank market, adequate and fair means do not exist for ascertaining the interest rate applicable to such Loans on the basis provided for in the definition of Reserve Adjusted Eurodollar Rate the Administrative Agent shall on such date give notice (by telecopy or by telephone confirmed in writing) to Company and each Lender of such determination, whereupon (i) no Loans may be made or continued as, or converted to, Eurodollar Rate Loans, until such time as the Administrative Agent notifies Company and the Lenders that the circumstances giving rise to such notice no longer exist (such notification not to be unreasonably withheld or delayed) and (ii) any Notice of Borrowing or Notice of Conversion/Continuation given by Company with respect to the Loans in respect of which such determination was made shall be deemed to be rescinded by Company. C. Illegality or Impracticability of Eurodollar Rate Loans. In the event that on any date any Lender shall have reasonably determined (which determination shall be final and conclusive and binding upon all parties hereto but shall be made only after consultation with Company and the Administrative Agent) that the making, maintaining or continuation of its Eurodollar Rate Loans (i) has become unlawful as a result of compliance by such Lender in good faith with any law, treaty, governmental rule, regulation, guideline or order (or would conflict with any such treaty, governmental rule, regulation, guideline or order not having the force of law even though the failure to comply therewith would not be unlawful) or (ii) has become impracticable, or would cause such Lender material hardship, as a result of contingencies occurring after the date of this Agreement which materially and adversely affect the London interbank market, then, and in any such event, such Lender shall be an "Affected Lender" --------------- and it shall on that day give notice (by telecopy or by telephone confirmed in writing) to Company and the Administrative Agent of such determination (which notice the Administrative Agent shall promptly transmit to each other Lender). Thereafter (a) the obligation of the Affected Lender to make Loans as, or to convert Loans to, Eurodollar Rate Loans, shall be suspended until such notice shall be withdrawn by the Affected Lender, (b) to the extent such determination by the Affected Lender relates to a Eurodollar Rate Loan then being requested by Company pursuant to a Notice of Borrowing or a Notice of Conversion/Continuation, the Affected Lender shall make such Loan as (or convert such Loan to, as the case may be) a Base Rate Loan, (c) the Affected Lender's obligation to maintain its outstanding Eurodollar Rate Loans, as the case may be (the "Affected Loans"), shall be terminated at the earlier to occur of the -------------- expiration of the Interest Period then in effect with respect to the Affected Loans or when required by law, and (d) the Affected Loans shall automatically convert into Base Rate Loans on the date of such termination. Notwithstanding the foregoing, to the extent a determination by an Affected 79 Lender as described above relates to a Eurodollar Rate Loan then being requested by Company pursuant to a Notice of Borrowing or a Notice of Conversion/Continuation, Company shall have the option, subject to the provisions of subsection 2.6D, to rescind such Notice of Borrowing or Notice of Conversion/Continuation as to all Lenders by giving notice (by telecopy or by telephone confirmed in writing) to the Administrative Agent of such rescission on the date on which the Affected Lender gives notice of its determination as described above (which notice of rescission the Administrative Agent shall promptly transmit to each other Lender). Except as provided in the immediately preceding sentence, nothing in this subsection 2.6C shall affect the obligation of any Lender other than an Affected Lender to make or maintain Loans as, or to convert Loans to, Eurodollar Rate Loans in accordance with the terms of this Agreement. D. Compensation for Breakage or Non-Commencement of Interest Periods. Company shall compensate each Lender, upon written request by that Lender (which request shall set forth the basis for requesting such amounts), for all reasonable losses, expenses and liabilities (including, without limitation, any interest paid by that Lender to the lenders of funds borrowed by it to make or carry its Eurodollar Rate Loans and any loss, expense or liability sustained by that Lender in connection with the liquidation or re-employment of such funds) which that Lender may sustain: (i) if for any reason (other than a default by that Lender) a borrowing of any Eurodollar Rate Loan does not occur on a date specified therefor in a Notice of Borrowing or a telephonic request for borrowing, or a conversion to or continuation of any Eurodollar Rate Loan does not occur on a date specified therefor in a Notice of Conversion/Continuation or a telephonic request for conversion or continuation, (ii) if any prepayment (including any prepayment pursuant to subsection 2.4B) or conversion of any of its Eurodollar Rate Loans occurs on a date that is not the last day of an Interest Period applicable to that Loan, (iii) if any prepayment of any of its Eurodollar Rate Loans is not made on any date specified in a notice of prepayment given by Company, or (iv) as a consequence of any other default by Company in the repayment of its Eurodollar Rate Loans when required by the terms of this Agreement. E. Booking of Eurodollar Rate Loans. Subject to its obligations under subsection 2.8, any Lender may make, carry or transfer Eurodollar Rate Loans at, to, or for the account of any of its branch offices or the office of an Affiliate of that Lender. F. Assumptions Concerning Funding of Eurodollar Rate Loans. Calculation of all amounts payable to a Lender under this subsection 2.6 and under subsection 2.7A shall be made as though that Lender had actually funded each of its relevant Eurodollar Rate Loans through the purchase of a Eurodollar deposit bearing interest at the rate obtained pursuant to clause (i) of the definition of Reserve Adjusted Eurodollar Rate in an amount equal to the amount of such Eurodollar Rate Loan and having a maturity comparable to the relevant Interest Period and, through the transfer of 80 such Eurodollar deposit from an offshore office of that Lender to a domestic office of that Lender in the United States of America; provided, however, that -------- ------- each Lender may fund each of its Eurodollar Rate Loans in any manner it sees fit and the foregoing assumptions shall be utilized only for the purposes of calculating amounts payable under this subsection 2.6 and under subsection 2.7A. G. Eurodollar Rate Loans After Default. After the occurrence of and during the continuation of an Event of Default, unless the Requisite Lenders otherwise consent, (i) Company may not elect to have a Loan be made or maintained as, or converted to, a Eurodollar Rate Loan after the expiration of any Interest Period then in effect for that Loan and (ii) subject to the provisions of subsection 2.6D, any Notice of Borrowing or Notice of Conversion/Continuation given by Company with respect to a requested borrowing or conversion/continuation that has not yet occurred shall be deemed to be rescinded by Company. 2.7 Increased Costs; Taxes; Capital Adequacy. ---------------------------------------- A. Compensation for Increased Costs and Taxes. Subject to the provisions of subsection 2.7B (which shall be controlling with respect to the matters covered thereby), in the event that any Lender shall determine (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto) that any law, treaty or governmental rule, regulation or order, or any change therein or in the interpretation, administration or application thereof (including the introduction of any new law, treaty or governmental rule, regulation or order), or any determination of a court or governmental authority, in each case that becomes effective after the Closing Date, or compliance by such Lender with any guideline, request or directive issued or made after the date hereof by any central bank or other governmental or quasi-governmental authority (whether or not having the force of law): (i) results in a change in the basis of taxation of such Lender (or its applicable lending office) (other than a change with respect to any Tax on the overall net income of such Lender or franchise tax in lieu thereof) with respect to this Agreement or any of its obligations hereunder or any payments to such Lender (or its applicable lending office) of principal, interest, fees or any other amount payable hereunder; (ii) imposes, modifies or holds applicable any reserve (including without limitation any marginal, emergency, supplemental, special or other reserve), special deposit, compulsory loan, FDIC insurance or similar requirement against assets held by, or deposits or other liabilities in or for the account of, or advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of such Lender (other than any such reserve or other 81 requirements with respect to Eurodollar Rate Loans that are reflected in the definition of Reserve Adjusted Eurodollar Rate); or (iii) imposes any other condition (other than with respect to a Tax matter) on or affecting such Lender (or its applicable lending office) or its obligations hereunder, or the London interbank market; and the result of any of the foregoing is to increase the cost to such Lender of agreeing to make, making or maintaining Eurodollar Rate Loans hereunder or to reduce any amount received or receivable by such Lender (or its applicable lending office) with respect thereto; then, in any such case, the Lender shall promptly notify Company and the Administrative Agent thereof and Company shall promptly pay to such Lender, upon receipt of the statement referred to in the next sentence, such additional amount or amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Lender shall reasonably determine) as may be necessary to compensate such Lender for any such increased cost or reduction in amounts received or receivable hereunder, provided that notwithstanding anything to the contrary contained in -------- this subsection 2.7A, unless a Lender gives notice to Company that it is obligated to pay an amount under this subsection within six months after the later of (x) the date such Lender incurs such increased cost or suffers such reduction in amounts received or receivable and (y) the date such Lender has actual knowledge of such costs or reduction in amounts received or receivable, then such Lender shall only be entitled to be compensated for such amount to the extent of the increased cost or reduction in amounts received or receivable that is incurred or suffered on or after the date which occurs six months prior to such Lender giving notice to Company that it is obligated to repay the respective amounts pursuant to this subsection 2.7A. Such Lender shall deliver to Company (with a copy to the Administrative Agent) a written statement, setting forth in reasonable detail the basis for calculating the additional amounts owed to such Lender under this subsection 2.7A, which statement shall be conclusive and binding upon all parties hereto absent manifest error. B. Withholding of Taxes. (i) Payments to Be Free and Clear. All sums payable by Company under ----------------------------- this Agreement and the other Loan Documents shall (except to the extent required by law) be paid free and clear of, and without any deduction or withholding on account of, any Tax (other than a Tax on the overall net income of the Administrative Agent or any Lender) imposed, levied, collected or assessed by any jurisdiction from or through which a payment is made by or on behalf of Company. (ii) Withholding of Taxes. If Company or any other Person is required -------------------- by law to make any deduction or withholding on account of any Tax (other than a 82 Tax on the overall net income of the Administrative Agent or any Lender) from any sum paid or payable by Company to the Administrative Agent or any Lender under any of the Loan Documents: (a) Company shall notify the Administrative Agent of any such requirement or any change in any such requirement as soon as practicable; (b) Company shall pay any such Tax before the date on which penalties attach thereto, such payment to be made (if the liability to pay is imposed on Company) for its own account or (if that liability is imposed on the Administrative Agent or such Lender, as the case may be) on behalf of and in the name of the Administrative Agent or such Lender; (c) the sum payable by Company in respect of which the relevant deduction, withholding or payment is required shall be increased to the extent necessary to ensure that, after the making of that deduction, withholding or payment (including deduction, withholding or payment with respect to additional sums payable under this subsection 2.7B(ii)), the Administrative Agent or such Lender, as the case may be, receives on the due date a net sum equal to what it would have received had no such deduction, withholding or payment of such tax been required or made; provided that no such additional amount shall be required to be paid to any Lender under this clause (c) except to the extent that any change after the Closing Date or after the date of the Assignment Agreement pursuant to which such Lender became a Lender (in the case of each other Lender) in any such requirement for a deduction, withholding or payment shall result in the imposition, or an increase in the rate, of such deduction, withholding or payment in respect of payments to such Lender. Notwithstanding the preceding clause, additional sums shall be required to be paid to any Lender to the extent that such Lender (or its assignor) was entitled, at the time of designation of a new lending office (or assignment), to receive additional amounts from Company in respect of payments to such Lender (or its assignor); (d) within 30 days after paying any sum from which it is required by law to make any deduction or withholding, and within 30 days after the due date of payment of any Tax which it is required by clause (b) above to pay, Company shall deliver to the Administrative Agent evidence satisfactory to the other affected parties of such deduction, withholding or payment and of the remittance thereof to the relevant taxing or other authority; and 83 (e) Company shall indemnify the Administrative Agent or any Lender for the full amount of any such Tax paid by the Administrative Agent or any Lender on or with respect to any payment on account of any obligation of Company under this subsection 2.7B(ii) and any penalties, interest and reasonable expenses with respect thereto, whether or not such Tax was legally imposed or asserted by the relevant governmental authority, within 15 Business Days after written request for such indemnification. A certificate as to the amount of such payment or liability delivered to Company by the Administrative Agent or any Lender shall be conclusive absent manifest error. (iii) Other Taxes. Company shall also pay any and all present or ----------- future recording, stamp, documentary, excise, transfer, sales, property or similar Taxes arising from any payment made hereunder or from the execution, delivery or enforcement or registration of, or otherwise with respect to, this Agreement and the other Loan Documents. In the case of any such payments made by the Administrative Agent or any Lender, Company shall reimburse the Administrative Agent or such Lender for the full amount of such Taxes paid by the Administrative Agent or any Lender within 15 Business Days following receipt by Company of a written statement or invoice setting forth in reasonable detail the basis for such reimbursement request. C. Tax Refunds. If any Lender receives a refund or otherwise would have received a refund but for the offset of the amount of such refund against such Lender's Taxes (a "Tax Refund"), which in the good faith judgment of such Lender ---------- is allocable to Company, it shall promptly pay such refund net of all out-of- pocket expenses of the Lender and without interest (other than any interest paid by the relevant jurisdiction with respect to such refund) to Company; provided, -------- however, that Company agrees to promptly return such Tax Refund (plus any - ------- penalties, interest or other charges imposed by the relevant jurisdiction) to the applicable Lender if it receives notice from such Lender that such Lender is required to repay such Tax Refund. Nothing contained in this subsection 2.7C shall require any Lender to make available its Tax returns (or any other information relating to its Taxes which it deems confidential) to Company or any other Person. D. Capital Adequacy Adjustment. If any Lender shall have determined that the adoption, effectiveness, phase-in or applicability after the Closing Date of any law, rule or regulation (or any provision thereof) regarding capital adequacy, or any change therein or in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender (or its applicable lending office) with any guideline, request or directive regarding capital adequacy (whether or not having the 84 force of law) of any such governmental authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on the capital of such Lender or any corporation controlling such Lender as a consequence of, or with reference to, such Lender's Loans or Commitments or Letters of Credit or participations therein or other obligations hereunder with respect to the Loans or the Letters of Credit to a level below that which such Lender reasonably determines such Lender or such controlling corporation could have achieved but for such adoption, effectiveness, phase-in, applicability, change or compliance (taking into consideration the policies of such Lender or such controlling corporation with regard to capital adequacy), then, within fifteen Business Days after receipt by Company from such Lender of the statement referred to in the next sentence, Company shall pay to such Lender such additional amount or amounts as will compensate such Lender or such controlling corporation on an after-tax basis for such reduction. Such Lender shall deliver to Company (with a copy to the Administrative Agent) a written statement, setting forth in reasonable detail the basis of the calculation of such additional amounts, which statement shall be conclusive and binding upon all parties hereto absent manifest error. E. Substitute Lenders. In the event (i) Company is required under the provisions of this subsection 2.7 or subsection 3.6 to make payments to any Lender or in the event any Lender fails to lend to Company in accordance with this Agreement, or (ii) any Lender fails to consent to a proposed change, waiver, discharge or termination under the Loan Documents otherwise approved by Requisite Lenders, then, in either case, Company may elect to terminate such Lender as a party to this Agreement; provided that, concurrently with such -------- termination, (i) Company shall pay that Lender all principal, interest and fees and other amounts (including without limitation amounts, if any, owed under this subsection 2.7) due to be paid to such Lender with respect to all periods through such date of termination, (ii) another financial institution satisfactory to Company and the Administrative Agent (or, in the event the Administrative Agent is also the Lender to be terminated, the successor Administrative Agent) shall agree, as of such date, to become a Lender for all purposes under this Agreement (whether by assignment or amendment) and to assume all obligations of the Lender to be terminated as of such date, and (iii) all documents and supporting materials necessary, in the reasonable judgment of the Administrative Agent (or, in the event the Administrative Agent is also the Lender to be terminated, the successor Administrative Agent) to evidence the substitution of such Lender shall have been received and approved by the Administrative Agent as of such date. 85 2.8 Obligation of Lenders and Issuing Bank to Mitigate. -------------------------------------------------- Each of the Lender and the Issuing Bank agrees that, as promptly as practicable after the officer of such Lender or the Issuing Bank responsible for administering the Loans or Letters of Credit of such Lender or the Issuing Bank, as the case may be, becomes aware of the occurrence of an event or the existence of a condition that would cause such Lender to become an Affected Lender or that would entitle such Lender or the Issuing Bank to receive payments under subsection 2.7 or subsection 3.6, it will, to the extent not inconsistent with the internal policies of such Lender or the Issuing Bank and any applicable legal or regulatory restrictions, use reasonable efforts to (i) make, issue, fund or maintain the Commitments of such Lender or the affected Loans or Letters of Credit of such Lender or the Issuing Bank through another lending or letter of credit office of such Lender or the Issuing Bank, or (ii) take such other measures as such Lender or the Issuing Bank may deem reasonable, if as a result thereof the circumstances which would cause such Lender to be an Affected Lender would cease to exist or the additional amounts which would otherwise be required to be paid to such Lender or the Issuing Bank pursuant to subsection 2.7 or subsection 3.6 would be reduced and if, as determined by such Lender or the Issuing Bank in its reasonable discretion, the making, issuing, funding or maintaining of such Commitments or Loans or Letters of Credit through such other lending or letter of credit office or in accordance with such other measures, as the case may be, would not otherwise materially adversely affect such Commitments or Loans or Letters of Credit or the interests of such Lender or the Issuing Bank; provided that such Lender or the Issuing Bank will not be -------- obligated to utilize such other lending or letter of credit office pursuant to this subsection 2.8 unless Company agrees to pay all incremental expenses incurred by such Lender or the Issuing Bank as a result of utilizing such other lending or letter of credit office. A certificate as to the amount of any such expenses payable by Company pursuant to this subsection 2.8 (setting forth in reasonable detail the basis for requesting such amount) submitted by such Lender or the Issuing Bank to Company (with a copy to the Administrative Agent) shall be conclusive absent manifest error. 2.9 Increase in Revolving Credit Commitments. ---------------------------------------- 86 A. Company may, by written notice to the Administrative Agent from time to time, request that the Revolving Loan Commitments be increased by an amount not to exceed (in the aggregate for all such increases) the Incremental Revolving Loan Amount. Upon the receipt of such request by the Administrative Agent, the Administrative Agent shall deliver a copy thereof to each Lender. Such notice shall set forth the amount of the requested increase in the Revolving Loan Commitments (which shall be in an aggregate minimum amount of $10,000,000 and integral multiples of $1,000,000 in excess of that amount or equal to the remaining Incremental Revolving Loan Amount) and the date on which such increase is requested to become effective (which shall be not less than 10 Business Days nor more than 60 days after the date of such notice), and shall offer each Lender with a Revolving Loan Commitment the opportunity to increase its Revolving Loan Commitment by its Pro Rata Share of the proposed increased amount. Each such Lender shall, by notice to Company and the Administrative Agent given not more than 10 days after the date of the Administrative Agent's notice, either agree to increase its Revolving Loan Commitment by all or a portion of the offered amount (each Lender so agreeing being an "Increasing ---------- Lender") or decline to increase its Revolving Loan Commitment (and any Lender - ------ that does not deliver such a notice within such period of 10 days shall be deemed to have declined to increase its Revolving Loan Commitment) (each Lender so declining or being deemed to have declined being a "Non-Increasing Lender"). --------------------- In the event that, on the 10th day after the Administrative Agent shall have delivered a notice pursuant to the second sentence of this paragraph, the Lenders shall have agreed pursuant to the preceding sentence to increase their Revolving Loan Commitments by an aggregate amount less than the increase in the Revolving Loan Commitment requested by Company, Company may arrange for one or more banks or other financial institutions (any such bank or other financial institution referred to in this subsection 2.9A being called an "Augmenting ---------- Lender"), which may include any Lender, to extend Revolving Loan Commitments or - ------ increase their existing Revolving Loan Commitments in an aggregate amount equal to all or any portion of the unsubscribed amount; provided that each Augmenting -------- Lender, if not already a Lender hereunder, shall be subject to the approval of the Administrative Agent (which approval shall not be unreasonably withheld) and Company and each Augmenting Lender shall execute all such documentation as the Administrative Agent shall reasonably specify to evidence its Revolving Loan Commitment and/or its status as a Lender hereunder. Any increase in the Revolving Loan Commitments may be made in an amount which is less than the increase requested by Company if Company is unable to arrange for, or chooses not to arrange for, Augmenting Lenders. B. On the effective date (the "Increase Effective Date") of any increase ----------------------- in the Revolving Loan Commitments pursuant to this subsection 2.9 (the "Commitment Increase"), (i) the aggregate principal amount of the Revolving ------------------- Loans outstanding (the "Initial Revolving Loans") immediately prior to giving ----------------------- effect to the Commitment Increase on the Increase Effective Date shall be deemed to be paid, (ii) each Increasing 87 Lender and each Augmenting Lender that shall have been a Lender prior to the Commitment Increase shall pay to the Administrative Agent in same day funds an amount equal to the difference between (A) the product of (1) such Lender's Pro Rata Share (calculated after giving effect to the Commitment Increase) multiplied by (2) the amount of the Subsequent Revolving Loans (as hereinafter defined) and (B) the product of (1) such Lender's Pro Rata Share (calculated without giving effect to the Commitment Increase) multiplied by (2) the amount of the Initial Revolving Loans, (iii) each Augmenting Lender that shall not have been a Lender prior to the Commitment Increase shall pay to Administrative Agent in same day funds an amount equal to the product of (1) such Augmenting Lender's Pro Rata Share (calculated after giving effect to the Commitment Increase) multiplied by (2) the amount of the Subsequent Revolving Loans, (iv) after the Administrative Agent receives the funds specified in clauses (ii) and (iii) above, the Administrative Agent shall pay to each Non-Increasing Lender the portion of such funds that is equal to the difference between (A) the product of (1) such Non-Increasing Lender's Pro Rata Share (calculated without giving effect to the Commitment Increase) multiplied by (2) the amount of the Initial Revolving Loans, and (B) the product of (1) such Non-Increasing Lender's Pro Rata Share (calculated after giving effect to the Commitment Increase) multiplied by (2) the amount of the Subsequent Revolving Loans, (v) after the effectiveness of the Commitment Increase, Company shall be deemed to have outstanding new Revolving Loans (the "Subsequent Revolving Loans") in an -------------------------- in an aggregate principal amount equal to the aggregate principal amount of the Initial Revolving Loans and of the Types and for the Interest Periods specified in a Notice of Borrowing delivered to the Administrative Agent in accordance with subsection 2.1B, (vi) each Non-Increasing Lender, each Increasing Lender and each Augmenting Lender shall be deemed to hold its Pro Rata Share of the Subsequent Revolving Loans (calculated after giving effect to the Commitment Increase) and (vii) Company shall pay each Increasing Lender and each Non- Increasing Lender any and all accrued but unpaid interest on the Initial Revolving Loans. The deemed payments made pursuant to clause (i) above in respect of each Eurodollar Rate Loan shall be subject to indemnification by Company pursuant to the provisions of subsection 2.6D if the Increase Effective Date occurs other than on the last day of the Interest Period relating thereto. C. Notwithstanding the foregoing, no increase in the Revolving Loan Commitments (or in the Revolving Loan Commitment of any Lender) or addition of a new Lender shall become effective under this subsection 2.9 unless, (i) on the date of such increase, the conditions set forth in subsection 4.2B shall be satisfied and the Administrative Agent shall have received a certificate to that effect dated such date and executed by a Responsible Officer of Company, and (ii) the Administrative Agent shall have received documents consistent with those delivered on the Restatement Effective Date under subsections 4.1A(iii) and 4.1B(iii). Any increase in the Revolving Loan Commitments contemplated by this subsection 2.9 shall not require the approval or 88 consent of any Lender other than any Lender whose Revolving Loan Commitment will be increased hereby. SECTION 3. LETTERS OF CREDIT 3.1 Issuance of Letters of Credit and Lenders' Purchase of Participations --------------------------------------------------------------------- Therein. ------- A. Letters of Credit. In addition to Company requesting that Lenders make Revolving Loans pursuant to subsection 2.1A(v) and that the Swing Line Lender make Swing Line Loans pursuant to subsection 2.1A(vi), Company may request, in accordance with the provisions of this subsection 3.1, from time to time during the period from the Closing Date to but excluding the date which is five (5) Business Days before the Revolving Loan Commitment Termination Date, that the Issuing Bank issue Letters of Credit for the account of ChipPAC or any of its Subsidiaries to the extent and for the purposes specified in the definitions of Commercial Letters of Credit and Standby Letters of Credit. Subject to and upon the terms and conditions of this Agreement and in reliance upon the representations and warranties of Loan Parties herein set forth, the Issuing Bank agrees to issue such Letters of Credit in accordance with the provisions of this subsection 3.1; provided that Company shall not request that the Issuing -------- Bank issue (and the Issuing Bank shall not issue): (i) any Letter of Credit if, after giving effect to such issuance, the Total Utilization of Revolving Loan Commitments would exceed the Revolving Loan Commitments then in effect; (ii) any Letter of Credit if, after giving effect to such issuance, the Letter of Credit Usage would exceed the Letter of Credit Subfacility Commitment; (iii) any Standby Letter of Credit having an expiration date later than the earlier of (a) five (5) Business Days prior to the Revolving Loan Commitment Termination Date and (b) the date which is one year from the date of issuance of such Standby Letter of Credit; provided that the -------- immediately preceding clause (b) shall not prevent the Issuing Bank from agreeing that a Standby Letter of Credit will automatically be extended for one or more successive periods absent a Default or Event of Default, subject to the immediately preceding clause (a), not to exceed one year each unless the Issuing Bank elects not to extend for any such additional period; provided, further, that, unless the Requisite Lenders otherwise -------- ------- consent, the Issuing Bank shall give notice that it will not extend such Standby Letter of Credit if it has knowledge that a Default or Event of Default has 89 occurred and is continuing (and has not been waived in accordance with subsection 10.6) on the last day on which such Issuing Bank may give notice to the beneficiary that it will not extend such Standby Letter of Credit; or (iv) any Commercial Letter of Credit (a) having an expiration date later than the earlier of (x) thirty (30) days prior to the Revolving Loan Commitment Termination Date and (y) the date which is one hundred eighty (180) days from the date of issuance of such Commercial Letter of Credit or (b) that is otherwise unacceptable to the Issuing Bank in its reasonable discretion. B. Mechanics of Issuance. (i) Notice of Issuance. Whenever Company desires the issuance of a ------------------ Letter of Credit, it shall deliver to the Issuing Bank, at the Letter of Credit Issuing Office, and the Administrative Agent, at the Funding and Payment Office, a Notice of Issuance of Letter of Credit no later than 12:00 Noon (New York time) at least three (3) Business Days (in the case of Standby Letters of Credit) and five (5) Business Days (in the case of Commercial Letters of Credit), or such shorter period as may be agreed to by the Issuing Bank in any particular instance, in advance of the proposed date of issuance. The Notice of Issuance of Letter of Credit shall specify (a) the proposed date of issuance (which shall be a Business Day), (b) the face amount of or maximum aggregate liability under, as applicable, the Letter of Credit, (c) the expiration date of the Letter of Credit, (d) the name and address of the account party and beneficiary, and (e) either the verbatim text of the proposed Letter of Credit or the proposed terms and conditions thereof, including a precise description of any documents and the verbatim text of any certificates to be presented by the beneficiary which, if presented by the beneficiary prior to the expiration date of the Letter of Credit, would require the Issuing Bank to make payment thereunder; and provided that the Issuing Bank, in its reasonable -------- discretion, may require changes in the text of the proposed Letter of Credit or any such documents or certificates; provided further that no -------- ------- Letter of Credit shall require payment against a conforming draft or other request for payment to be made thereunder on the same business day (under the laws of the jurisdiction in which the office of the Issuing Bank to which such draft or other request for payment is required to be presented is located) that such draft or other request for payment is presented if such presentation is made after 10:00 A.M. (in the time zone of such office of the Issuing Bank) on such Business Day. Company shall notify the Issuing Bank (and the Administrative Agent, if not such Issuing Bank) prior to the issuance of any Letter of Credit in the event that any of the matters to which Company is required to certify in the applicable Notice of Issuance of Letter of Credit is no longer true and correct as of the 90 proposed date of issuance of such Letter of Credit, and upon the issuance of any Letter of Credit, Company shall be deemed to have re-certified, as of the date of such issuance, as to the matters to which Company is required to certify in the applicable Notice of Issuance of Letter of Credit. (ii) Issuance of Letter of Credit. Upon satisfaction or waiver (in ----------------------------- accordance with subsection 10.6) of the conditions set forth in subsection 4.3, the Issuing Bank shall issue the requested Letter of Credit in accordance with the Issuing Bank's standard procedures, and upon its issuance of such Letter of Credit the Issuing Bank shall promptly notify the Administrative Agent and each Lender of such issuance, which notice shall be accompanied by a copy of such Letter of Credit. (iii) Reports to Lenders. Within thirty (30) days after the end of ------------------ each calendar quarter ending after the Closing Date, so long as any Letter of Credit shall have been outstanding during such calendar quarter, the Issuing Bank shall deliver to the Administrative Agent and the Administrative Agent shall deliver to each Lender a report setting forth for such calendar quarter the daily maximum amount available to be drawn under the Letters of Credit that were outstanding during such calendar quarter. C. Lenders' Purchase of Participations in Letters of Credit. Immediately upon the issuance of each Letter of Credit, each Lender shall be deemed to, and hereby agrees to, have irrevocably purchased from the Issuing Bank a participation in such Letter of Credit and any drawings honored or payments made thereunder in an amount equal to such Lender's Pro Rata Share (with respect to the Revolving Loan Commitments) of the maximum amount which is or at any time may become available to be drawn or required to be paid thereunder. 3.2 Letter of Credit Fees. --------------------- Company agrees to pay the following amounts to the Issuing Bank with respect to Letters of Credit issued by it for the account of Company: (i) with respect to each Letter of Credit, (a) a fronting fee equal to 0.250% per annum of the daily maximum amount available to be drawn under such Letter of Credit and (b) a Letter of Credit fee equal to the product of (x) the then Applicable Eurodollar Rate Margin with respect to Revolving Loans and (y) the daily maximum amount available to be drawn under such Letter of Credit, in each case payable in arrears on and to the last Business Day in each of March, June, September and December of each year, commencing September 1999, and 91 on the Revolving Loan Commitment Termination Date and computed on the basis of a 360-day year for the actual number of days elapsed; and (ii) with respect to the issuance, amendment or transfer of each Letter of Credit (without duplication of the fees payable under clause (i) above), documentary and processing charges in accordance with such Issuing Bank's standard schedule for such charges in effect at the time of such issuance, amendment or transfer, as the case may be. Promptly upon receipt by such Issuing Bank of any amount described in clause (i)(b) of this subsection 3.2, such Issuing Bank shall distribute to each other Lender having Revolving Loan Exposure its Pro Rata Share of such amount. 3.3 Drawings and Payments and Reimbursement of Amounts Drawn or Paid Under ---------------------------------------------------------------------- Letters of Credit. ----------------- A. Responsibility of Issuing Bank With Respect to Requests for Drawings and Payments. In determining whether to honor any drawing or request for payment under any Letter of Credit by the beneficiary thereof, the Issuing Bank shall be responsible only to determine that the documents and certificates required to be delivered under such Letter of Credit have been delivered and to use reasonable care so that they comply on their face with the requirements of such Letter of Credit. B. Reimbursement by Company of Amounts Drawn or Paid Under Letters of Credit. In the event an Issuing Bank has determined to honor a drawing or request for payment under a Letter of Credit issued by it, the Issuing Bank shall immediately notify Company and the Administrative Agent, and Company shall reimburse such Issuing Bank on or before the Business Day immediately following the date on which such drawing is honored or such payment is made (the applicable "Reimbursement Date") in an amount in same day funds equal to the ------------------ amount of such honored drawing; provided that, anything contained in this -------- Agreement to the contrary notwithstanding, (i) unless Company shall have notified the Administrative Agent and the Issuing Bank prior to 12:00 Noon (New York time) on the date immediately following the date of such honored drawing or request for payment that Company intends to reimburse such Issuing Bank for the amount of such honored drawing or payment with funds other than the proceeds of Revolving Loans, Company shall be deemed to have given a timely Notice of Borrowing to the Administrative Agent requesting the Lenders to make Revolving Loans which are Base Rate Loans on the applicable Reimbursement Date in an amount equal to the amount of such honored drawing or payment and (ii) subject to satisfaction or waiver of the conditions specified in subsection 4.2B, the Lenders shall, on the applicable Reimbursement Date, make Revolving Loans in the amount of such honored drawing or payment, the proceeds of which shall be applied 92 directly by the Administrative Agent to reimburse the Issuing Bank for the amount of such honored drawing or payment; provided further that if for any -------- ------- reason proceeds of Revolving Loans are not received by the Issuing Bank on the applicable Reimbursement Date in an amount equal to the amount of such honored drawing or payment, Company shall reimburse the Issuing Bank, on demand, in an amount in same day funds equal to the excess of the amount of such honored drawing or payment over the aggregate amount of such Revolving Loans, if any, which are so received. Nothing in this subsection 3.3B shall be deemed to relieve any Lender from its obligation to make Revolving Loans on the terms and conditions set forth in this Agreement, and Company shall retain any and all rights it may have against any Lender resulting from the failure of such Lender to make such Revolving Loans under this subsection 3.3B. C. Payment by Lenders of Unreimbursed Drawings or Payments Under Letters of Credit. (i) Payment by Lenders. In the event that Company shall fail for any ------------------ reason to reimburse any Issuing Bank as provided in subsection 3.3B in an amount equal to the amount of any honored drawing or payment made by such Issuing Bank under a Letter of Credit issued by it, such Issuing Bank shall promptly notify each other Lender of the unreimbursed amount of such honored drawing or payment and of such other Lender's respective participation therein based on such Lender's Pro Rata Share of the Revolving Loan Commitments. Each Lender shall make available to such Issuing Bank an amount equal to its respective participation, in same day funds, at the office of such Issuing Bank specified in such notice, not later than 2:00 P.M. (New York time) on the first business day (under the laws of the jurisdiction in which such office of such Issuing Bank is located) after the date notified by such Issuing Bank. In the event that any Lender fails to make available to such Issuing Bank on such business day the amount of such Lender's participation in such Letter of Credit as provided in this subsection 3.3C, such Issuing Bank shall be entitled to recover such amount on demand from such Lender together with interest thereon at the rate customarily used by such Issuing Bank for the correction of errors among banks for three Business Days and thereafter at the Base Rate. Nothing in this subsection 3.3C shall be deemed to prejudice the right of any Lender to recover from any Issuing Bank any amounts made available by such Lender to such Issuing Bank pursuant to this subsection 3.3C in the event that it is determined by the final judgment of a court of competent jurisdiction that the payment with respect to a Letter of Credit by such Issuing Bank in respect of which payment was made by such Lender constituted gross negligence or willful misconduct on the part of such Issuing Bank. 93 (ii) Distribution to Lenders of Reimbursements Received From Company. --------------------------------------------------------------- In the event any Issuing Bank shall have been reimbursed by other Lenders pursuant to subsection 3.3C(i) for all or any portion of any honored drawing or payment made by such Issuing Bank under a Letter of Credit issued by it, such Issuing Bank shall distribute to each other Lender which has paid all amounts payable by it under subsection 3.3C(i) with respect to such honored drawing or payment such other Lender's Pro Rata Share of all payments subsequently received by such Issuing Bank from Company in reimbursement of such honored drawing or payment when such payments are received. Any such distribution shall be made to a Lender at its primary address set forth below its name on the appropriate signature page hereof or at such other address as such Lender may request. D. Interest on Amounts Drawn or Paid Under Letters of Credit. (i) Payment of Interest by Company. Company agrees to pay to each ------------------------------ Issuing Bank, with respect to drawings or payments made under any Letters of Credit issued by it, interest on the amount paid by such Issuing Bank in respect of each such drawing or payment from the date such drawing is honored or payment is made to but excluding the date such amount is reimbursed by Company (including any such reimbursement out of the proceeds of Revolving Loans pursuant to subsection 3.3B) at a rate equal to (a) for the period from the date such drawing is honored or payment is made to but excluding the applicable Reimbursement Date, the Base Rate plus the ---- Applicable Base Rate Margin with respect to Revolving Loans, and (b) thereafter, a rate which is 2% per annum in excess of the rate of interest described in the foregoing clause (a). Interest payable pursuant to this subsection 3.3D(i) shall be computed on the basis of a 360-day year for the actual number of days elapsed in the period during which it accrues and shall be payable on demand or, if no demand is made, on the date on which the related drawing or payment under a Letter of Credit is reimbursed in full. (ii) Distribution of Interest Payments by Issuing Bank. Promptly upon ------------------------------------------------- receipt by any Issuing Bank of any payment of interest pursuant to subsection 3.3D(i), (a) such Issuing Bank shall distribute to each other Lender, out of the interest received by such Issuing Bank in respect of the period from the date of the applicable honored drawing or payment under a Letter of Credit issued by such Issuing Bank to but excluding the date on which such Issuing Bank is reimbursed for the amount of such drawing or payment (including any such reimbursement out of the proceeds of Revolving Loans pursuant to subsection 3.3B), the amount that such other Lender would have been entitled to receive in respect of the Letter of Credit fee that would have been payable in 94 respect of such Letter of Credit for such period pursuant to subsection 3.2 if no drawing had been honored or payment had been made under such Letter of Credit, and (b) in the event such Issuing Bank shall have been reimbursed by other Lenders pursuant to subsection 3.3C(i) for all or any portion of such drawing or payment, such Issuing Bank shall distribute to each other Lender which has paid all amounts payable by it under subsection 3.3C(i) with respect to such drawing or payment such other Lender's Pro Rata Share of any interest received by such Issuing Bank in respect of that portion of such drawing or payment so reimbursed by other Lenders for the period from the date on which such Issuing Bank was so reimbursed by other Lenders to and including the date on which such portion of such drawing or payment is reimbursed by Company. Any such distribution shall be made to a Lender at its Lending Office set forth in Schedule 2.1 or at such other ------------ address as such Lender may request. 3.4 Obligations Absolute. -------------------- The obligation of Company to reimburse each Issuing Bank for drawings honored or payments made under the Letters of Credit issued by it and to repay any Revolving Loans made by the Lenders pursuant to subsection 3.3B and the obligations of the Lenders under subsection 3.3C(i) shall be unconditional and irrevocable and shall be paid strictly in accordance with the terms of this Agreement under all circumstances including, without limitation, the following circumstances: (i) any lack of validity or enforceability of any Letter of Credit; (ii) the existence of any claim, setoff, defense or other right which Company or any Lender may have at any time against a beneficiary or any transferee of any Letter of Credit (or any Persons for whom any such transferee may be acting), any Issuing Bank or other Lender or any other Person or, in the case of a Lender, against Company whether in connection with this Agreement, the transactions contemplated herein or any unrelated transaction (including any underlying transaction between ChipPAC or one of its Subsidiaries and the beneficiary for which any Letter of Credit was procured); (iii) any draft, demand, certificate or other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (iv) payment by the applicable Issuing Bank under any Letter of Credit against presentation of a demand, draft or certificate or other document which appears to substantially comply with the terms of such Letter of Credit; 95 (v) any adverse change in the business, operations, properties, assets, condition (financial or otherwise) or prospects of ChipPAC or any of its Subsidiaries; (vi) any breach of this Agreement or any other Loan Document by any party thereto; (vii) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing; or (viii) the fact that Default or Event of Default shall have occurred and be continuing; provided, in each case, that payment by the applicable Issuing Bank under the - -------- applicable Letter of Credit shall not have constituted bad faith, gross negligence or willful misconduct of such Issuing Bank under the circumstances in question. 3.5 Indemnification; Nature of Issuing Bank's Duties. ------------------------------------------------ A. Indemnification. In addition to amounts payable as provided in subsection 3.6, Company hereby agrees to protect, indemnify, pay and save harmless each Issuing Bank from and against any and all claims, demands, liabilities, damages, losses, costs, charges and expenses (including reasonable fees, expenses and disbursements of counsel and allocated costs of internal counsel) which such Issuing Bank may incur or be subject to as a consequence, direct or indirect, of (i) the issuance of any Letter of Credit by such Issuing Bank, other than as a result of (a) the bad faith, gross negligence or willful misconduct of such Issuing Bank or (b) subject to the following clause (ii), the wrongful dishonor by such Issuing Bank of a proper demand for payment made under any Letter of Credit issued by it or (ii) the failure of such Issuing Bank to honor a drawing or other request for payment under any such Letter of Credit as a result of any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or governmental authority (all such acts or omissions herein called "Governmental Acts"). ----------------- B. Nature of Issuing Bank's Duties. As between Company and any Issuing Bank, Company assumes all risks of the acts and omissions of, or misuse of the Letters of Credit issued by such Issuing Bank by, the respective beneficiaries of such Letters of Credit. In furtherance and not in limitation of the foregoing, such Issuing Bank shall not be responsible for: (i) the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any party in connection with the application for and issuance of any such Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) the validity or 96 sufficiency of any instrument transferring or assigning or purporting to transfer or assign any such Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (iii) failure of the beneficiary of any such Letter of Credit to comply fully with any conditions required in order to draw upon such Letter of Credit; (iv) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher; (v) errors in interpretation of technical terms; (vi) any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any such Letter of Credit or of the proceeds thereof; (vii) the misapplication by the beneficiary of any such Letter of Credit of the proceeds of any drawing or payment under such Letter of Credit; or (viii) any consequences arising from causes beyond the control of such Issuing Bank, including without limitation any Governmental Acts, and none of the above shall affect or impair, or prevent the vesting of, any of such Issuing Bank's rights or powers hereunder. In furtherance and extension and not in limitation of the specific provisions set forth in the first paragraph of this subsection 3.5B, any action taken or omitted by any Issuing Bank under or in connection with the Letters of Credit issued by it or any documents and certificates delivered thereunder, if taken or omitted in good faith, shall not put such Issuing Bank under any resulting liability to Company. Notwithstanding anything to the contrary contained in this subsection 3.5, Company shall retain any and all rights it may have against any Issuing Bank for any liability arising out of the bad faith, gross negligence or willful misconduct of such Issuing Bank. *_*3.6 Increased Costs and Taxes Relating to Letters of Credit. ------------------------------------------------------- Subject to the provisions of subsection 2.7B (which shall be controlling with respect to matters covered thereby), in the event that any Issuing Bank or any Lender shall determine (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto) that any law, treaty or governmental rule, regulation or order, or any change therein or in the interpretation, administration or application thereof (including the introduction of any new law, treaty or governmental rule, regulation or order), or any determination of a court or governmental authority, in each case that becomes effective after the Closing Date, or compliance by any Issuing Bank or Lender with any guideline, request or directive issued or made after the Closing Date by any central bank or other governmental or quasi-governmental authority (whether or not having the force of law): (i) subjects to any additional Tax such Issuing Bank or any Lender (or its applicable lending or letter of credit office) (other than a change with respect to 97 any Tax on the overall net income of such Issuing Bank or Lender) with respect to the issuing or maintaining of any Letters of Credit or the purchasing or maintaining of any participations therein or any other obligations under this Section 3, whether directly or by such being imposed on or suffered by any particular Issuing Bank; (ii) imposes, modifies or holds applicable any reserve (including without limitation any marginal, emergency, supplemental, special or other reserve), special deposit, compulsory loan, FDIC insurance or similar requirement in respect of any Letters of Credit issued by any Issuing Bank or participations therein purchased by any Lender; or (iii) imposes any other condition (other than with respect to a Tax matter) on or affecting such Issuing Bank or Lender (or its applicable lending or letter of credit office) regarding this Section 3 or any Letter of Credit or any participation therein; and the result of any of the foregoing is to increase the cost to such Issuing Bank or Lender of agreeing to issue, issuing or maintaining any Letter of Credit or agreeing to purchase, purchasing or maintaining any participation therein or to reduce any amount received or receivable by such Issuing Bank or Lender (or its applicable lending or letter of credit office) with respect thereto; then, in any case, Company shall promptly pay to such Issuing Bank or Lender, upon receipt of the statement referred to in the next sentence, such additional amount or amounts (reasonably determined by such Issuing Bank or Lender) as may be necessary to compensate such Issuing Bank or Lender for any such increased cost or reduction in amounts received or receivable hereunder. Such Issuing Bank or Lender shall deliver to Company a written statement, setting forth in reasonable detail the basis for calculating the additional amounts owed to such Issuing Bank or Lender under this subsection 3.6, which statement shall be conclusive and binding upon all parties hereto absent manifest error. SECTION 4. CONDITIONS TO LOANS AND LETTERS OF CREDIT The amendment and restatement of the Original Credit Agreement effected hereby and the obligations of the Lenders to make Term C Loans hereunder are subject to the satisfaction (or waiver) of the following conditions. 98 4.1 Conditions to Term C Loans to be Made on the Restatement Effective Date. ----------------------------------------------------------------------- The obligations of the Lenders to make the Loans to be made on the Restatement Effective Date are, in addition to the conditions precedent specified in subsection 4.2, subject to prior or concurrent satisfaction (or waiver) of the following conditions: A. Company Documents. On or before the Restatement Effective Date, each of ChipPAC and Company shall deliver to the Administrative Agent the following, each, unless otherwise noted, dated the Restatement Effective Date: (i) Certified copies of its Organizational Certificate, together with a good standing certificate from the Secretary of State of the State of California or the appropriate Governmental Authority of the British Virgin Islands, as applicable, and each other jurisdiction in which it is qualified as a foreign corporation to do business (except any such jurisdiction in which failure to be qualified could not reasonably be expected to have a Material Adverse Effect), each dated a recent date prior to the Restatement Effective Date; (ii) Copies of its Organizational Documents, certified as of the Restatement Effective Date by its corporate secretary or an assistant secretary; (iii) Resolutions of its Board of Directors approving and authorizing the execution, delivery and performance of this Agreement and the other Loan Documents and the Purchase Transactions Documents to which it is a party, certified as of the Restatement Effective Date by its corporate secretary or an assistant secretary as being in full force and effect without modification or amendment; (iv) Incumbency certificates of its officers executing this Agreement and the other Loan Documents to which it is a party as of the Restatement Effective Date; (v) Executed originals of this Agreement and all other Loan Documents to be executed on the Restatement Effective Date to which it is a party; (vi) Certified copies of each of the Purchase Transactions Documents to which it is a party; and (vii) Such other documents as the Administrative Agent may reasonably request. 99 B. Subsidiary Documents. On or before the Restatement Effective Date, ChipPAC shall deliver or cause to be delivered to the Administrative Agent for the Lenders the following for each of its Subsidiaries other than Company, including the Malaysian Subsidiary (which may be waived by the Agents for any Subsidiaries of ChipPAC with respect to the items described in clause (i) below), each, unless otherwise noted, dated the Restatement Effective Date: (i) Certified copies of the Organizational Certificate, together with a good standing certificate (to the extent such a certificate is applicable and available in the relevant jurisdiction) from the applicable Governmental Authority of its jurisdiction of incorporation, organization or formation and each other jurisdiction in which it is qualified as a foreign corporation or other entity to do business (except any such state in which failure to be qualified could not reasonably be expected to have a Material Adverse Effect), each dated a recent date prior to the Restatement Effective Date; (ii) Copies of the Organizational Documents of such Subsidiary, certified as of the Restatement Effective Date by its corporate secretary or an assistant secretary; (iii) Copies of the Organizational Authorizations of such Subsidiary approving and authorizing the execution, delivery and performance of all the Loan Documents to be executed on the Restatement Effective Date and the Purchase Transactions Documents to which such Subsidiary is party, certified as of the Restatement Effective Date by its corporate secretary or an assistant secretary as being in full force and effect without modification or amendment; (iv) Incumbency certificates of its officers executing the Loan Documents to which such Subsidiary will become a party on the Restatement Closing Date; (v) Executed originals of all the Loan Documents to be executed on the Restatement Effective Date to which such Subsidiary is party; and (vi) Such other documents as the Administrative Agent may reasonably request. 100 C. Consummation of the Purchase Transactions. (i) (a) Each of the material terms and conditions of the Purchase Transactions Documents shall be in form and substance reasonably satisfactory to the Administrative Agent and each such Purchase Transactions Document shall be in full force and effect and (b) all conditions to the Purchase Transactions set forth in the Purchase Transactions Documents shall have been satisfied or the fulfillment of any such conditions shall have been waived with the reasonable consent of the Requisite Lenders (such consent not to be unreasonably withheld); and (ii) on or before the Restatement Effective Date, the Purchase Transactions shall have been consummated in accordance with the Purchase Transactions Documents and the Administrative Agent shall have received evidence reasonably satisfactory to it of the foregoing. D. Loan Documents. Each of the Loan Documents shall have been duly executed by the parties thereto, shall have been delivered to the Administrative Agent and shall be in full force and effect. E. Necessary Consents. ChipPAC shall have obtained all consents of Governmental Authorities and other Persons necessary in connection with the Purchase Transactions and in connection with the incurrence or increase in the Obligations of any Loan Party hereunder, and each of the foregoing shall be in full force and effect and in form and substance reasonably satisfactory to the Administrative Agent (other than any such consents, the failure to obtain which, either individually or in the aggregate, is not reasonably likely to have a Material Adverse Effect). All applicable waiting periods shall have expired without any action being taken or threatened by any competent authority which would restrain, prevent or otherwise impose adverse conditions on the Purchase Transactions or the financing thereof and no action, request for stay, petition for review or rehearing, reconsideration or appeal shall be pending and any time for agency action to set aside its consent on its own motion has expired. F. Indebtedness. After giving effect to the Recapitalization Transactions and the other transactions contemplated hereby, on the Restatement Effective Date, neither ChipPAC nor any of its Subsidiaries shall have outstanding any Indebtedness or preferred stock other than (i) the Loans and extensions of credit hereunder, (ii) the Subordinated Debt, (iii) the Preferred Stock, (iv) the Intercompany Notes, (v) the Local Lines of Credit, (vi) the Asian Letters of Credit, (vii) the Seller Preferred Stock and (viii) Indebtedness listed in Schedule 7.1. - ------------ 101 G. Perfection of Security Interests. Except with respect to such actions set forth on Schedule 4.1G, which shall be taken as promptly as practicable ------------- following the Restatement Effective Date, ChipPAC shall have taken or caused to be taken such actions in such a manner so that the Collateral Agent upon filing and recording has a valid and perfected First Priority security interest in the entire personal property (both tangible and intangible) constituting Collateral. Such actions shall include, without limitation: (i) the delivery pursuant to the applicable Collateral Documents of (a) such certificates or other instruments (each of which shall be registered in the name of the Collateral Agent or properly endorsed in blank for transfer or accompanied by irrevocable undated stock or equivalent powers duly endorsed in blank, all in form and substance reasonably satisfactory to the Collateral Agent) representing all of the shares or other interests of Capital Stock required to be pledged pursuant to the Collateral Documents and (b) all promissory notes or other instruments (duly endorsed, where appropriate, in a manner reasonably satisfactory to the Collateral Agent) evidencing any Collateral; (ii) the delivery to the Collateral Agent of the results of a recent search, by a Person reasonably satisfactory to the Collateral Agent, of all effective UCC financing statements and fixture filings and all judgment and tax lien filings which may have been made with respect to any personal or mixed property of any Loan Party, together with copies of all such filings disclosed by such search; (iii) the delivery to the Collateral Agent of Uniform Commercial Code financing statements executed by the applicable Loan Parties as to all such Collateral granted by such Loan Parties for all jurisdictions as may be reasonably necessary to perfect the Administrative Agent's security interest in such Collateral; (iv) the delivery to the Collateral Agent of evidence reasonably satisfactory to the Collateral Agent that all other filings (including, without limitation, Uniform Commercial Code termination statements and releases), recordings and other actions the Collateral Agent deems reasonably necessary to establish, preserve and perfect the First Priority Liens granted to the Collateral Agent in personal (both tangible and intangible) and mixed property shall have been made; and (v) such other filings, registrations, recordings and other actions the Collateral Agent deems reasonably necessary to establish, preserve and perfect the First Priority Liens granted to the Collateral Agent in any Collateral, which by the nature, location or pledgor thereof, should be made or taken in or with respect to any foreign jurisdiction. H. Opinions of Loan Parties' Counsel. The Agent and its counsel shall have received originally executed copies for each Agent and Lenders of one or more favorable written opinions of (i) Kirkland & Ellis, special New York counsel for the Loan Parties, (ii) Kim, Shin & Yu, special Korean counsel to the Loan Parties, (iii) Harney Westwood & Riegels, special British Virgin Islands counsel to the Loan Parties, (iv) Azim, Tunku, Farik & Wong, special Malaysian counsel to the Loan Parties and (v) such other opinions of counsel as the Administrative Agent shall reasonably request, setting forth substantially the opinions designated in Exhibit VIII annexed hereto and otherwise in form and ------------ substance reasonably satisfactory to the Administrative Agent. 102 I. Opinions of Counsel in the Purchase Transactions. The Administrative Agent and its counsel shall have received copies of each legal opinion, if any, delivered by any counsel for any Loan Party pursuant to the Purchase Transactions Documents, together with a letter from counsel rendering each such opinion authorizing the Agents and the Lenders to rely upon the applicable opinion to the same extent as though it were addressed to the Agents and the Lenders. J. Fees and Expenses. (i) Company shall have paid to the Administrative Agent, for distribution (as appropriate) to the Agents and the Lenders, the fees payable on the Restatement Effective Date referred to in subsection 2.3 and all reasonable expenses owing to any such Person by Company as of the Restatement Effective Date for which invoices have been presented prior to the Restatement Effective Date. (ii) The Company shall have paid to the Administrative Agent, for distribution to each Lender that executes and delivers to the Administrative Agent or its counsel a signature page to this amendment and restatement on or prior to June 30, 2000, an amendment fee equal to 0.125% of the sum of (a) the aggregate Revolving Loan Commitment of such Lender (whether used or unused), (b) the unused Term Delayed Draw Loan Commitment of such Lender and (c) the aggregate principal amount of the outstanding Term Loans of such Lender as in effect immediately prior to the Restatement Effective Date. K. Evidence of Insurance. The Administrative Agent shall have received satisfactory certificates of insurance with respect to those insurance policies required pursuant to subsection 6.4 to be maintained by or on behalf of the Malaysian Subsidiary, and the Administrative Agent shall be reasonably satisfied with the nature and scope of these insurance policies. L. No Material Adverse Effect. Since December 31, 1999, no Material Adverse Effect shall have occurred. M. Corporate and Capital Structure, Ownership, Management, Etc. (i) Corporate Structure. The corporate organizational structure of ------------------- ChipPAC and its Subsidiaries, both before and after giving effect to the Purchase Transactions, shall be as set forth in Schedule 4.1M annexed ------------- hereto. 103 (ii) Capital Structure and Ownership. The capital structure and ------------------------------- ownership of ChipPAC after giving effect to the Purchase Transactions, shall be as set forth in Schedule 4.1M annexed hereto. ------------- N. Representations and Warranties. Each of ChipPAC and Company shall have delivered to the Administrative Agent (with a sufficient number of originally executed counterparts for the Lenders) an Officer's Certificate, in form and substance reasonably satisfactory to the Administrative Agent, to the effect that (i) the representations and warranties in Section 5 hereof are true and correct in all material respects on and as of the Restatement Effective Date, and both before and after giving effect to the Purchase Transactions, to the same extent as though made on and as of that date and (ii) no Default or Event of Default has occurred and is continuing. O. Completion of Proceedings. All corporate and other proceedings taken or to be taken in connection with the transactions contemplated hereby and all documents incidental thereto shall be reasonably satisfactory in form and substance to the Administrative Agent and its counsel, and the Administrative Agent and such counsel shall have received all such counterpart originals or certified copies of such documents, instruments and legal opinions as the Administrative Agent may reasonably request. 4.2 Conditions to All Loans. ----------------------- The obligations of the Lenders to make Loans on each Funding Date are subject to the following further conditions precedent: A. The Administrative Agent shall have received before that Funding Date, in accordance with the provisions of subsection 2.1B, an originally executed Notice of Borrowing, in each case signed by a Responsible Officer on behalf of Company and delivered to the Administrative Agent. B. As of that Funding Date: (i) The representations and warranties contained herein and in the other Loan Documents shall be true and correct in all material respects on and as of that Funding Date to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case such representations and warranties shall have been true and correct in all material respects on and as of such earlier date; (ii) No event shall have occurred and be continuing or would result from the consummation of the borrowing contemplated by such Notice of Borrowing that would constitute a Default or Event of Default; 104 (iii) No order, judgment or decree of any court, arbitrator or governmental authority shall purport to enjoin or restrain any Lender from making the Loans to be made by it, on that Funding Date; (iv) The making of the Loans requested on such Funding Date shall not violate any law including, without limitation, Regulation T, Regulation U or Regulation X of the Board of Governors of the Federal Reserve System; and (v) After giving effect to the Loans contemplated to be made on such Funding Date, the incurrence of Indebtedness, as defined in the Subordinated Debt Documents, will not result in a breach, violation or default under the Subordinated Debt Documents. 4.3 Conditions to Letters of Credit. ------------------------------- The issuance of any Letter of Credit hereunder (whether or not the applicable Issuing Bank is obligated to issue such Letter of Credit) is subject to the following additional conditions precedent: A. On or before the date of issuance of such Letter of Credit, the Issuing Bank and the Administrative Agent shall have received, in accordance with the provisions of subsection 3.1B(i), an originally executed Notice of Issuance of Letter of Credit, signed by a Responsible Officer of Company on behalf of Company and delivered to the Administrative Agent, together with all other information specified in subsection 3.1B(i) and such other documents or information as the applicable Issuing Bank may reasonably require in connection with the issuance of such Letter of Credit. B. On the date of issuance of such Letter of Credit, all conditions precedent described in subsection 4.2B shall be satisfied to the same extent as if the issuance of such Letter of Credit were the making of a Loan and the date of issuance of such Letter of Credit were a Funding Date. 105 SECTION 5. REPRESENTATIONS AND WARRANTIES In order to induce the Lenders to enter into this Agreement and to make the Loans, to induce the Issuing Bank to issue Letters of Credit and to induce the other Lenders to purchase participations therein, each of ChipPAC and Company represents and warrants to each Lender and the Issuing Bank, on the date of this Agreement, on the Restatement Effective Date, on each Funding Date, and on the date of issuance of each Letter of Credit, that the following statements are true and correct. 5.1 Organization, Powers, Qualification, Good Standing, Business and ---------------------------------------------------------------- Subsidiaries. - ------------ A. Organization and Powers. Each Loan Party which is a corporation is organized, existing and in good standing (to the extent such concept is relevant in the jurisdiction of organization of such Loan Party) under the laws of its respective jurisdiction of organization. Each Subsidiary Guarantor which is a partnership or limited liability company is a duly organized and validly existing limited partnership or limited liability company under the laws of its jurisdiction of formation and is in good standing in such jurisdiction. ChipPAC, Company and each Subsidiary has all requisite corporate, partnership or limited liability company (as applicable) power and authority to own and operate their respective properties, to carry on their respective business as now conducted and as proposed to be conducted, to enter into or to remain a party to, as applicable, the Loan Documents, to carry out the transactions contemplated thereby and, in the case of Company, to borrow hereunder. B. Qualification and Good Standing. ChipPAC, Company and each Loan Party is qualified or authorized to do business and in good standing (to the extent such concept is relevant in such jurisdiction) in every jurisdiction where their respective assets are located and wherever necessary to carry out their respective businesses and operations, except in jurisdictions where the failure to be so qualified or in good standing has not had and would not reasonably be expected to have a Material Adverse Effect. C. Conduct of Business. ChipPAC and its Subsidiaries are engaged only in the businesses permitted to be engaged in pursuant to subsection 7.13. D. ChipPAC and Subsidiaries. All of the Subsidiaries of ChipPAC as of the Restatement Effective Date (after giving effect to the Purchase Transactions) are identified in Schedule 5.1 annexed hereto, as it may be supplemented from ------------ time to time in accordance with the provisions of subsection 6.9. The Capital Stock or other equity interests of ChipPAC and each of the Subsidiaries identified in Schedule 5.1 annexed hereto is duly authorized, validly issued, ------------ fully paid and nonassessable (except in the case 106 of any limited liability company or partnership interests) and none of such Capital Stock or other equity interests constitutes Margin Stock. Schedule 5.1 ------------ annexed hereto correctly sets forth the direct or indirect ownership interest of ChipPAC in each of its Subsidiaries identified therein. 5.2 Authorization of Borrowing, etc. -------------------------------- A. Authorization of Borrowing. The execution, delivery and performance of the Loan Documents have been duly authorized by all necessary corporate and/or partnership (as applicable) action on the part of each of the Loan Parties party thereto. B. No Conflict. After giving effect to the consummation of the transactions contemplated hereby to occur on the Restatement Effective Date, the execution, delivery and performance by each of the applicable Loan Parties of the Loan Documents contemplated to be entered into or amended on the Restatement Effective Date, and the consummation of the transactions contemplated by such Loan Documents, do not and will not (i) violate any provision of any law or any governmental rule or regulation applicable to any Loan Party, the Organizational Certificate or any other Organizational Documents of any Loan Party or any order, judgment or decree of any court or other agency of government binding on any Loan Party, which violation would reasonably be expected to have a Material Adverse Effect, (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any Contractual Obligation of any Loan Party, (iii) result in or require the creation or imposition of any Lien upon any of the properties or assets of any Loan Party (other than any Liens created under any of the Loan Documents), or (iv) require any approval of shareholders, partners or members or any approval or consent of any Person under any Contractual Obligation of any Loan Party, except for such approvals or consents which will be obtained on or before the Restatement Effective Date, approvals or consents with respect to the Malaysian Security Agreements, the Malaysian Intercompany Notes or where failure to obtain or make the foregoing would not reasonably be expected to have a Material Adverse Effect. C. Governmental Consents. The execution, delivery and performance by the Loan Parties of the Loan Documents contemplated to be entered into on the Restatement Effective Date and the consummation of the transactions contemplated by such Loan Documents and the Purchase Transactions Documents do not require any registration with, consent or approval of, or notice to, or other action to, with or by, any federal, state or other governmental authority or regulatory body except to the extent obtained on or before the Restatement Effective Date (except for certain filings to be made with respect to the Malaysian Security Agreements and the Malaysian Intercompany Notes) or where the failure to obtain or make the foregoing would not reasonably be expected to have a Material Adverse Effect. 107 D. Binding Obligation. Each of the Loan Documents has been duly executed and delivered by each of the Loan Parties party thereto and is the legally valid and binding obligation of each such Loan Party, enforceable against such Loan Party in accordance with its respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. E. Valid Issuance of the Subordinated Debt. The Subordinated Debt is a legally valid and binding obligation of Company, enforceable against Company in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. The Subordinated Debt will at all times either (a) have been registered or qualified under applicable federal and state securities laws or (b) be exempt therefrom. 5.3 Financial Condition; Projections. -------------------------------- A. Financial Statements. ChipPAC has heretofore delivered to the Administrative Agent, the following financial statements and information: (i) pro forma consolidated balance sheet of ChipPAC and its Subsidiaries as at (a) March 31, 2000, together with the related pro forma consolidated statements of income for the twelve-month period then ended, and (b) the three-month period ended March 31, 2000, and the year ended December 31, 1999, in each case reflecting pro forma adjustments that give effect to the consummation of the Purchase Transactions; and (ii) (a) unaudited consolidated balance sheet of ChipPAC and its Subsidiaries as at March 31, 2000, together with the related consolidated statements of income for the three-month period then ended, and (b) audited consolidated balance sheets for ChipPAC and its Subsidiaries as at December 31, 1997, December 31, 1998 and December 31, 1999, together with the related audited consolidated statements of operations and cash flows for each Fiscal Year then ended. All such statements in clause (ii) hereof were prepared in conformity with GAAP and fairly present, in all material respects, the financial position (on a consolidated basis) of the entities described in such financial statements as at the respective dates thereof and the results of operations and cash flows (on a consolidated basis) of the entities described therein for each of the periods then ended, subject, in the case of any such unaudited financial statements, to changes resulting from audit and normal year-end adjustments 108 and the absence of footnote disclosure required in accordance with GAAP. On the Restatement Effective Date and after giving effect to the transactions contemplated by the Loan Documents and the Purchase Transactions Documents to occur on such date, neither ChipPAC nor any of its Subsidiaries has any Contingent Obligation, contingent liability or liability for taxes, long-term lease or unusual forward or long-term commitment that is not reflected in the financial statements referred to in the preceding clauses of this subsection (except for the one-time charges related to HEI's union change in control in Korea), or the notes thereto and which in any such case is material in relation to the business, results of operations or financial condition of ChipPAC and its Subsidiaries taken as a whole. B. Projections. On and as of the Restatement Effective Date, the projections of ChipPAC and its Subsidiaries for the period from the Restatement Effective Date through the seventh anniversary of the Restatement Effective Date previously delivered to the Lenders (the "Projections") are based on good faith ----------- estimates and assumptions made by the management of ChipPAC, and on the Restatement Effective Date are reasonable, it being recognized, however, that projections as to future events are not to be viewed as facts and that the actual results during the period or periods covered by the Projections may differ from the projected results and that the differences may be material. 5.4 No Material Adverse Change. -------------------------- Since December 31, 1999, there shall not have occurred or become known to the Collateral Agent any event or events, adverse condition or change in or affecting ChipPAC that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. 5.5 Title to Properties; Liens; Real Property; Intellectual Property. ---------------------------------------------------------------- A. Title to Properties; Liens. After giving effect to the transactions contemplated by the Loan Documents and the Purchase Transactions Documents to occur on the Restatement Effective Date, ChipPAC and its Subsidiaries have good title to or a valid leasehold interest in or license in all of their respective material properties and assets reflected in the financial statements referred to in subsection 5.3 or in the most recent financial statements delivered pursuant to subsection 6.1, in each case subject to Permitted Encumbrances and Liens permitted under subsection 7.2, except for assets disposed of since the date of such financial statements or as otherwise permitted under subsection 7.7 and except for such defects that neither individually nor in the aggregate could reasonably be expected to have a Material Adverse Effect. Except as permitted by this Agreement, all such properties and assets are free and clear of Liens. 109 B. Real Property. As of the Restatement Effective Date, Schedule 5.5B ------------- annexed hereto contains a true, accurate and complete list of all fee interests and leasehold properties of any Loan Party. Except as specified in Schedule -------- 5.5B annexed hereto, each lease or sublease, as applicable, for each such - ---- Leasehold Property is in full force and effect and neither ChipPAC nor Company has knowledge of any material default by any party thereto that has occurred and is continuing thereunder (except where the consequences of any such default would not reasonably be expected to have a Material Adverse Effect), and each such agreement constitutes the legally valid and binding obligation of each applicable Loan Party, enforceable against such Loan Party in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles. C. Intellectual Property. ChipPAC and its Subsidiaries own or have the valid right to use all trademarks and service marks, tradenames, patents, copyrights, trade secrets and technology used in or necessary to conduct ChipPAC's and its Subsidiaries' business (collectively, the "Intellectual ------------ Property"), free and clear of any and all Liens other than Permitted - -------- Encumbrances except where the failure to so own or have the right to use could not reasonably be expected to have a Material Adverse Effect. All currently existing registrations of Intellectual Property owned by ChipPAC or any of its Subsidiaries are in full force and effect and, to the best of ChipPAC's and its Subsidiaries' knowledge, are valid and enforceable. The conduct of ChipPAC's and its Subsidiaries' business as currently conducted, including, but not limited to, all processes or services, provided, offered or sold by ChipPAC and its Subsidiaries, does not infringe upon, violate, misappropriate or dilute any intellectual property of any third party which infringement, violation, misappropriation or dilution could reasonably be expected to have a Material Adverse Effect. To the best of ChipPAC's and its Subsidiaries' knowledge, no third party is infringing upon the Intellectual Property in any material respect. Except as set forth in Schedule 5.5C, on the Restatement Effective ------------- Date, there is no pending or, to the best of ChipPAC's and its Subsidiaries' knowledge, threatened claim or litigation contesting ChipPAC's or any Subsidiary of ChipPAC's right to own or use any material Intellectual Property or the validity or enforceability thereof. 110 5.6 Litigation; Adverse Facts. ------------------------- There is no action, suit, proceeding, arbitration or governmental investigation (whether or not purportedly on behalf of ChipPAC or any of its Subsidiaries) at law or in equity or before or by any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, pending or, to the knowledge of ChipPAC or any of its Subsidiaries (after due inquiry), threatened against or affecting ChipPAC or any of ChipPAC's Subsidiaries or any property of ChipPAC or any of ChipPAC's Subsidiaries that, individually or in the aggregate, could reasonably be expected to result in, a Material Adverse Effect. Neither ChipPAC nor any of ChipPAC's Subsidiaries is (i) in violation of any applicable law that has had, or could reasonably be expected to result in, a Material Adverse Effect or (ii) subject to or in default with respect to any final judgment, writ, injunction, decree, rule or regulation of any court or any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, that has had, or could reasonably be expected to result in, a Material Adverse Effect. 5.7 Payment of Taxes. ---------------- Except to the extent permitted by subsection 6.3, all material tax returns and reports of ChipPAC and its Subsidiaries required to be filed by any of them have been timely filed and all material taxes, assessments, fees and other governmental charges upon ChipPAC and its Subsidiaries and upon their respective properties, assets, income, businesses and franchises which are due and payable have been paid when due and payable. Neither ChipPAC nor any of its Subsidiaries knows of any proposed material tax assessment against ChipPAC or any of its Subsidiaries other than those which are being actively contested by ChipPAC or such Subsidiary in good faith and by appropriate proceedings and for which reserves or other appropriate provisions, if any, as may be required in conformity with GAAP shall have been made or provided therefor. 5.8 Performance of Agreements. ------------------------- Neither ChipPAC nor any of its Subsidiaries is in default in the performance, observance or fulfillment of any of the material obligations, covenants or conditions contained in any of its Contractual Obligations, and no condition exists that, with the giving of notice or the lapse of time or both, would constitute such a material default, except, in each case, individually or in the aggregate, where the consequences, direct or indirect, of such default or defaults, if any, would not have a Material Adverse Effect. 111 5.9 Governmental Regulation. ----------------------- Neither ChipPAC nor any of its Subsidiaries is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act or the Investment Company Act of 1940 or under any other federal, state or local statute or regulation which may limit its ability to incur the Indebtedness to be incurred by it in connection with the Recapitalization Transactions or the Purchase Transactions or which may otherwise render all or any portion of the Obligations unenforceable. 5.10 Securities Activities. --------------------- Neither Company nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any Margin Stock. 5.11 Employee Benefit Plans. ---------------------- A. Company and each of its ERISA Affiliates are in material compliance with all applicable provisions and requirements of ERISA with respect to each Employee Benefit Plan, and have performed in all material respects all their obligations under each Employee Benefit Plan, except to the extent that any non- compliance with ERISA or any such failure to perform would not have a Material Adverse Effect on Company or any of its ERISA Affiliates. ChipPAC and each of its Subsidiaries are in material compliance with all requirements of law with respect to each Foreign Pension Plan, and have performed in all material respects all their obligations under each Foreign Pension Plan, except to the extent that any noncompliance with any requirements of law applicable to such Foreign Pension Plans would not have a Material Adverse Effect on ChipPAC or any of its Subsidiaries. B. No ERISA Event or Foreign Benefit Event has occurred which has resulted or to the knowledge of ChipPAC or its Subsidiaries is reasonably expected to occur which has or would reasonably be expected to have a Material Adverse Effect. C. Except to the extent required under Section 4980B of the Internal Revenue Code and/or Section 601 of ERISA, neither ChipPAC nor any of its Subsidiaries maintains or contributes to any employee welfare benefit plan (as defined in Section 3(1) of ERISA) that provides health or welfare benefits (through the purchase of insurance or otherwise) for any retired or former employees of ChipPAC or any of its Subsidiaries that would be reasonably expected to have a Material Adverse Effect. 112 5.12 Certain Fees. ------------ Except as set forth in Schedule 5.12, no broker's or finder's fee or ------------- commission will be payable with respect to this Agreement or any of the transactions contemplated hereby, and ChipPAC and Company hereby jointly and severally indemnify the Lenders against, and agree that they will hold the Lenders harmless from, any claim, demand or liability for any such broker's or finder's fees alleged to have been incurred in connection herewith or therewith and any expenses (including reasonable fees, expenses and disbursements of counsel) arising in connection with any such claim, demand or liability. 5.13 Environmental Matters. --------------------- (i) ChipPAC, each of its Subsidiaries (including without limitation, all operations and conditions at or in the Facilities presently owned and operated by ChipPAC or its Subsidiaries), and, to the knowledge of ChipPAC and its Subsidiaries, each of the tenants under any leases or occupancy agreements governing any portion of any Facilities presently owned or operated by ChipPAC or its Subsidiaries, are in compliance with all applicable Environmental Laws (which compliance includes, but is not limited to, the possession by ChipPAC, each of its Subsidiaries and each of such tenants of all permits and other Governmental Authorizations required under applicable Environmental Laws, and compliance with the terms and conditions thereof), except where failure to be in compliance would not reasonably be expected to have a Material Adverse Effect. (ii) There is no Environmental Claim pending or, to ChipPAC's and its Subsidiaries' knowledge, threatened against ChipPAC or any of its Subsidiaries or, to the best knowledge of ChipPAC and its Subsidiaries, against any Person whose liability for any Environmental Claim ChipPAC or any of its Subsidiaries has retained or assumed contractually or by operation of law in each such case which, individually or in the aggregate, would have a Material Adverse Effect. (iii) There are no past or present (or to the best knowledge of ChipPAC and its Subsidiaries, future) actions, activities, circumstances, conditions, events or incidents, including, without limitation, the Release or presence of any Hazardous Material at, from, under or onto any Facility or any other location, which could reasonably be expected to form the basis of any Environmental Claim against ChipPAC or any of its Subsidiaries, or to the best knowledge of ChipPAC and its Subsidiaries, against any Person whose liability for any Environmental Claim ChipPAC or any of its Subsidiaries has retained or assumed contractually or by operation of law in each such case which would have a Material Adverse Effect. 113 (iv) Except as would not reasonably be expected to have a Material Adverse Effect, none of the Facilities contain any: underground storage tanks; asbestos; polychlorinated biphenyls ("PCBs"); underground injection ---- wells; radioactive materials; or septic tanks or waste disposal pits in which process wastewater or any Hazardous Materials have been discharged or disposed. 5.14 Employee Matters. ---------------- There is no strike or work stoppage in existence or threatened involving ChipPAC or any of its Subsidiaries that could reasonably be expected to have a Material Adverse Effect. 5.15 Solvency. -------- ChipPAC and its Subsidiaries, taken as a whole, are, and, upon the incurrence of any Obligations by any Loan Party (including, without limitation, the making of the Loans, the delivery of the Guaranties and the Liens created by the Collateral Documents) on any date on which this representation is made, and after giving effect to the Recapitalization Transactions, the Purchase Transactions and the incurrence of Indebtedness in connection therewith, will be, Solvent. 114 5.16 Disclosure. ---------- The representations and warranties of ChipPAC and its Subsidiaries contained in the Loan Documents and the information contained in the other documents, certificates and written statements furnished to any of the Agents or the Lenders (including, without limitation, the Information Memorandum, as supplemented by additional information provided to the Lenders prior to the Restatement Effective Date) by or on behalf of ChipPAC or any of its Subsidiaries for use in connection with the transactions contemplated by this Agreement or any other Loan Document, when taken together, do not contain any untrue statement of a material fact or omit to state a material fact (known to ChipPAC or the applicable Subsidiary, in the case of any document not furnished by it) necessary in order to make the statements contained herein or therein not misleading in light of the circumstances in which the same were made. Any projections and pro forma financial information contained in such materials are based upon good faith estimates and assumptions believed by ChipPAC to be reasonable at the time made, it being recognized by the Agents and the Lenders that such projections as to future events are not to be viewed as facts and that actual results during the period or periods covered by any such projections may differ from the projected results and that the differences may be material. There is no fact known to ChipPAC or any of its Subsidiaries (other than matters of a general economic nature) that has had, or could reasonably be expected to result in, a Material Adverse Effect and that has not been disclosed herein or in such other documents, certificates and statements furnished to the Lenders for use in connection with the transactions contemplated hereby. 5.17 Year 2000 Matters. ----------------- ChipPAC reasonably believes that, as relating to ChipPAC and its Subsidiaries, taken as a whole, (x) a Material Adverse Effect has not occurred and will not occur as a result of any Year 2000 Problem, and (y) the aggregate costs and expenses incurred and reasonably expected to be incurred in connection with the assessment and correction of Year 2000 Problems, including, without limitation, a plan of correction ("Plan of Correction"), with respect to any ------------------ Year 2000 Problems, and the testing and monitoring of all Systems and the correction of Year 2000 Problems, has not had and could not reasonably be expected to have a Material Adverse Effect. 115 SECTION 6. AFFIRMATIVE COVENANTS Each of ChipPAC and Company covenants and agrees that, so long as any of the Commitments hereunder shall remain in effect and until payment in full of all of the Loans and other Obligations (other than indemnification obligations not due and payable), and the cancellation or expiration of all Letters of Credit, unless the Requisite Lenders shall otherwise give prior written consent, ChipPAC and Company shall perform, and shall cause each of its Subsidiaries to perform, all covenants in this Section 6. 6.1 Financial Statements and Other Reports. -------------------------------------- ChipPAC will maintain, and cause each of its Subsidiaries to maintain, a system of accounting established and administered in accordance with sound business practices to permit preparation of financial statements in conformity with GAAP. ChipPAC will deliver to the Administrative Agent (and the Administrative Agent shall deliver to each Lender): (i) Monthly Financials: as soon as available and in any event ------------------ within thirty (30) days after the end of each month, commencing July 31, 2000 (but not, in any case, for any month in which a Fiscal Quarter ends), the consolidated balance sheet of ChipPAC and its Subsidiaries as at the end of such month and the related consolidated statements of income, stockholders' equity and cash flows of ChipPAC for such month and for the period from the beginning of the then current Fiscal Year to the end of such month, all in reasonable detail and certified by a principal financial officer of ChipPAC that they fairly present, in all material respects, the financial condition of ChipPAC and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated, subject to changes resulting from audit and normal year- end adjustments and the absence of footnotes; (ii) Quarterly Financials: as soon as available and in any event -------------------- within forty-five (45) days after the end of each Fiscal Quarter commencing with the Fiscal Quarter ending June 30, 2000, (a) the consolidated balance sheets of ChipPAC and its Subsidiaries as at the end of such Fiscal Quarter and the related consolidated statements of income and consolidated statement of cash flows of ChipPAC and its Subsidiaries for such Fiscal Quarter and for the period from the beginning of the then current Fiscal Year to the end of such Fiscal Quarter, setting forth, in the case of statements of income only, in comparative form the corresponding figures for the corresponding periods of the previous Fiscal Year (except to the extent such comparative information is not available for the one-year period prior to the Closing Date) and the corresponding figures from the 116 consolidated plan and financial forecast for the current Fiscal Year delivered pursuant to subsection 6.1(xiii), all prepared in accordance with the GAAP and in reasonable detail and certified by the chief executive officer or chief financial officer of ChipPAC that they fairly present, in all material respects, the financial condition of ChipPAC and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated, subject to changes resulting from audit and normal year-end adjustments and the absence of footnotes; and (b) a narrative report; (iii) Year-End Financials: as soon as available and in any event ------------------- within ninety (90) days after the end of each Fiscal Year, (a) the consolidated balance sheets of ChipPAC and its Subsidiaries as at the end of such Fiscal Year and the related consolidated statements of income and consolidated statement of cash flows of ChipPAC and its Subsidiaries for such Fiscal Year, setting forth, in the case of statements of income only, in comparative form the corresponding figures for the previous Fiscal Year (except to the extent such comparative information is not available for the one-year period prior to the Closing Date) and the corresponding figures from the consolidated plan and financial forecast delivered pursuant to subsection 6.1(xiii) for the Fiscal Year covered by such financial statements, all prepared in accordance with the GAAP and in reasonable detail and certified by the chief executive officer or chief financial officer of ChipPAC that they fairly present, in all material respects, the financial condition of ChipPAC and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated; (b) a narrative report describing the operations of ChipPAC and its Subsidiaries in the form prepared for presentation to senior management for such Fiscal Year; provided, however, that ChipPAC may -------- ------- deliver to Administrative Agent in lieu of such narrative report, copies of the report filed by ChipPAC with the Securities and Exchange Commission on Form 10-K in respect of such Fiscal Year; and (c) in the case of such consolidated financial statements, a report thereon of independent certified public accountants of recognized national standing selected by ChipPAC and reasonably satisfactory to the Administrative Agent, which report shall be unqualified as to going concern and scope of audit, and shall state that such consolidated financial statements fairly present, in all material respects, the consolidated financial position of ChipPAC and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated in conformity with GAAP applied on a basis consistent with prior years (except as otherwise disclosed in such financial statements) and that the audit by such accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards; 117 (iv) Officer's and Compliance Certificates: together with each ------------------------------------- delivery of financial statements of ChipPAC and its Subsidiaries pursuant to subdivisions (ii) and (iii) above, (a) an Officer's Certificate of ChipPAC stating that the signer has reviewed the terms of this Agreement and has made, or caused to be made under his or her supervision, a review in reasonable detail of the transactions and condition of ChipPAC and its Subsidiaries during the accounting period covered by such financial statements and that such review has not disclosed the existence during or at the end of such accounting period, and that the signer did not have knowledge of the existence as at the date of such Officer's Certificate of any condition or event that constitutes a Default or Event of Default, or, if any such condition or event existed or exists, specifying the nature and period of existence thereof and what action ChipPAC has taken, is taking and proposes to take with respect thereto; (b) a Compliance Certificate (which may be delivered after the applicable Fiscal Quarter or Fiscal Year end but prior to the date of delivery of such financial statements for purposes of determining the Applicable Leverage Ratio) demonstrating in reasonable detail compliance during and at the end of the applicable accounting periods with the restrictions contained in Section 7 (but only to the extent compliance with such restrictions is required to be tested at the end of the applicable accounting period); provided, that ChipPAC shall -------- deliver to Administrative Agent a Compliance Certificate and an Officer's Certificate upon and together with the delivery of a Pricing Certificate; and (c) if any portion of the proceeds of the Intel Preferred Stock or the HEI Unspent Amount or the Intersil Unspent Amount was used during the preceding Fiscal Quarter, an Officer's Certificate of ChipPAC to such effect, showing the amount so used and the amount that may be used in subsequent periods; (v) [Intentionally Omitted]; (vi) Accountants' Certification: together with each delivery of -------------------------- consolidated financial statements of ChipPAC and its Subsidiaries pursuant to subdivision (iii) above, a written statement by the independent certified public accountants giving the report thereon (a) stating that their audit has included a reading of the terms of this Agreement and the other Loan Documents as they relate to the covenants set forth in subsection 7.6 and accounting matters, and (b) stating whether, in connection with their audit examination, any condition or event, insofar as such condition or event relates to the covenants set forth in subsection 7.6 or accounting matters, that constitutes a Default or Event of Default has come to their attention and, if such a condition or event has come to their attention, specifying the nature and period of existence thereof; provided that such accountants shall not be liable by reason of any failure -------- to obtain knowledge of any such Default or Event of Default that would not be disclosed in the course of their audit examination; 118 (vii) Accountants' Reports: promptly upon receipt thereof (unless -------------------- restricted by applicable professional standards), copies of all reports submitted to ChipPAC by national independent certified public accountants in connection with each annual, interim or special audit of the financial statements of ChipPAC and its Subsidiaries made by such accountants, including, without limitation, any comment letter submitted by such accountants to management in connection with their annual audit; (viii) SEC Filings and Press Releases: promptly upon their becoming ------------------------------ available, copies of (a) all financial statements, reports, notices and proxy statements sent or made available generally by ChipPAC to its security holders (but only in their capacity as security holders), (b) all regular and periodic reports and all registration statements (other than on Form S-8 or a similar form) and prospectuses, if any, filed by ChipPAC or any of its Subsidiaries with any securities exchange or with the Securities and Exchange Commission or any governmental or private regulatory authority, and (c) all press releases and other statements made available generally by ChipPAC or any of its Subsidiaries to the public concerning material developments in the business of ChipPAC or any of its Subsidiaries; (ix) Events of Default, etc.: promptly upon any Responsible Officer ----------------------- of ChipPAC or Company obtaining knowledge (a) of any condition or event that constitutes a Default or an Event of Default, or becoming aware that any Lender has given any notice (other than to the Administrative Agent) or taken any other action with respect to a claimed Default or Event of Default, (b) that any Person has given any notice to ChipPAC or any of its Subsidiaries or taken any other action with respect to a claimed default or event or condition of the type referred to in subsection 8.2, or (c) of the occurrence of any event or change that has caused or evidences or could be reasonably expected to cause, either in any case or in the aggregate, a Material Adverse Effect, an Officer's Certificate specifying the nature and period of existence of such condition, event or change, or specifying the notice given or action taken by any such Person and the nature of such claimed Default, Event of Default, default, event or condition, and what action ChipPAC (or applicable Subsidiary) has taken, is taking and proposes to take with respect thereto; (x) Litigation or Other Proceedings: promptly upon any Responsible ------------------------------- Officer of ChipPAC or Company obtaining knowledge of (x) the institution of, or nonfrivolous threat of, any material action, suit, proceeding (whether administrative, judicial or otherwise), Environmental Claim, governmental investigation or arbitration against or affecting ChipPAC or any of its Subsidiaries or any property of ChipPAC or any of its Subsidiaries (collectively, 119 "Proceedings") not previously disclosed in writing by Company to the ----------- Administrative Agent or (y) any material development in any Proceeding that, in any case: (a) could reasonably be expected to have a Material Adverse Effect; or (b) seeks to enjoin or otherwise prevent the consummation of, or to recover any damages or obtain relief as a result of, the transactions contemplated hereby; written notice thereof together with such other information as may be reasonably available to ChipPAC to enable the Lenders and their counsel to evaluate such matters; (xi) ERISA Events and Foreign Benefit Events: promptly upon ChipPAC --------------------------------------- or Company becoming aware of the occurrence of any ERISA Event or Foreign Benefit Event that would reasonably be expected to result in a material liability of ChipPAC or any of its Subsidiaries, a written notice specifying the nature thereof, what action ChipPAC or any of its Subsidiaries has taken, is taking or proposes to take with respect thereto and, when known, any action taken or threatened by the Internal Revenue Service, the Department of Labor, the PBGC or any comparable Governmental Authority with respect thereto; (xii) ERISA and Foreign Benefit Notices: with reasonable promptness, --------------------------------- copies of (a) all written notices received by ChipPAC or any of its Subsidiaries from a Multiemployer Plan or Foreign Benefit Plan sponsor concerning an ERISA Event or a Foreign Benefit Event which would reasonably be expected to result in a material liability; and (b) such other documents or governmental reports or filings relating to any Multiemployer Plan or Foreign Benefit Plan as the Administrative Agent shall reasonably request; (xiii) Financial Plans: as soon as practicable and in any event no --------------- later than 45 days after the beginning of each Fiscal Year, a consolidated plan and financial forecast for the next succeeding Fiscal Year, including without limitation (a) a forecasted consolidated balance sheet and forecasted consolidated statements of income and consolidated statement of cash flows of ChipPAC and its Subsidiaries for such Fiscal Year, together with a pro forma Compliance Certificate for such Fiscal Year and an --- ----- explanation of the assumptions on which such forecasts are based, and (b) such other information and projections as the Administrative Agent may reasonably request: 120 (xiv) Insurance: as soon as practicable and in any event by the last --------- day of each Fiscal Year, a report in form and substance reasonably satisfactory to the Administrative Agent outlining all material changes made to insurance coverage maintained as of the date of such report by ChipPAC and its Subsidiaries; and (xv) Other Information: with reasonable promptness, such other ----------------- information and data with respect to ChipPAC or any of ChipPAC's Subsidiaries as from time to time may be reasonably requested by the Administrative Agent or the Requisite Lenders. 6.2 Corporate Existence ------------------- Except as otherwise permitted under subsection 7.7, ChipPAC will, and will cause each of its Subsidiaries to, at all times preserve and keep in full force and effect its corporate existence and all rights and franchises material to the business of ChipPAC and its Subsidiaries (on a consolidated basis) or the Loan Parties, taken as a whole; provided, however that neither ChipPAC nor any of its -------- ------- Subsidiaries shall be required to preserve any such right or franchise if the Board of Directors of ChipPAC or such Subsidiary shall determine that the preservation thereof is no longer desirable in the conduct of business of such entity. 6.3 Payment of Taxes and Claims; Tax Consolidation. ---------------------------------------------- A. Company will, and will cause each of its Subsidiaries to, pay all material taxes, assessments and other governmental charges imposed upon it or any of its properties or assets or in respect of any of its income, businesses or franchises before any material penalty accrues thereon, and all claims (including, without limitation, claims for labor, services, materials and supplies) for sums that have become due and payable which, if unpaid, might become a Lien (other than a Permitted Encumbrance) upon any of its properties or assets, prior to the time when any penalty or fine shall be incurred with respect thereto; provided that no such tax, charge or claim need be paid if -------- being contested in good faith by appropriate proceedings promptly instituted and diligently conducted and if such reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made therefor. B. ChipPAC will not, nor will it permit any of its Subsidiaries to, file or consent to the filing of any consolidated income tax return with any Person (other than ChipPAC and Subsidiaries of ChipPAC). 121 6.4 Maintenance of Properties; Insurance. ------------------------------------ ChipPAC will, and will cause each of its Subsidiaries to, maintain or cause to be maintained in good repair, working order and condition, ordinary wear and tear and damage by casualty or condemnation excepted, all material properties used or useful in the business of ChipPAC and its Subsidiaries and from time to time will make or cause to be made all appropriate repairs, renewals and replacements thereof. ChipPAC will maintain or cause to be maintained, with financially sound and reputable insurers, insurance with respect to its properties and business and the properties and businesses of its Subsidiaries against loss or damage of the kinds and with respect to liability customarily carried or maintained under similar circumstances by corporations of established reputation engaged in similar businesses. Each such policy of casualty insurance covering damage to or loss of property shall name the Collateral Agent for the benefit of the Lenders as additional insured and as the loss payee thereunder for all losses, subject to application of proceeds as required by subsection 2.4B(iii)(d), each such policy of liability insurance coverage shall name the Collateral Agent for the benefit of the Lenders as additional insured, and all such policies of insurance shall provide for at least thirty (30) days' prior written notice to the Collateral Agent of any modification or cancellation of such policy. 6.5 Inspection; Lender Meeting. -------------------------- ChipPAC shall, and shall cause each of its Subsidiaries to, permit the Administrative Agent and any authorized representatives designated by any Lender to visit and inspect any of the properties of ChipPAC or any of ChipPAC's Subsidiaries, including its and their financial and accounting records, and to make copies and take extracts therefrom, and to discuss its and their affairs, finances and accounts with its and their officers and independent public accountants, provided ChipPAC may be present at these discussions upon reasonable advance notice and at such reasonable times during normal business hours and as often as may be reasonably requested; provided, further, that each -------- ------- Lender shall coordinate with the Administrative Agent the frequency and timing of any such visits, inspections and discussions so as to reasonably minimize the burden imposed on ChipPAC and its Subsidiaries; provided still further that, -------- ----- ------- unless an Event of Default has occurred, no single Lender shall be entitled to more than one inspection during any twelve month period. Without in any way limiting the foregoing, ChipPAC will, upon the reasonable request of the Administrative Agent, participate in a meeting of the Administrative Agent and the Lenders once during each Fiscal Year to be held at ChipPAC's corporate offices (or such other location as may be agreed to by ChipPAC and the Administrative Agent) at such time as may be agreed to by ChipPAC and the Administrative Agent. 122 6.6 Compliance with Laws, etc. -------------------------- ChipPAC shall, and shall cause each of its Subsidiaries to, comply with the requirements of all applicable laws, rules, regulations and orders of any governmental authority, noncompliance with which, individually or in the aggregate with other non-compliances, could reasonably be expected to cause a Material Adverse Effect. 6.7 Environmental Disclosure and Inspection. --------------------------------------- A. ChipPAC agrees that the Administrative Agent may retain, at ChipPAC's expense, an independent professional consultant reasonably acceptable to ChipPAC to review any report relating to Hazardous Materials prepared by or for ChipPAC and to conduct its own investigation (reasonable in scope under the circumstances) of any Facility currently owned, leased, operated or used by ChipPAC or any of its Subsidiaries, if (x) a Default or an Event of Default related to environmental matters shall have occurred and be continuing, or (y) the Administrative Agent reasonably believes that a violation of an Environmental Law on or around such Facility has occurred or is likely to occur, which could, in either such case, reasonably be expected to result in a Material Adverse Effect. In the event that the conditions specified in (x) or (y) above exist, ChipPAC shall use its commercially reasonable efforts to obtain for the Administrative Agent and its agents, employees, consultants and contractors the right, upon reasonable notice to ChipPAC, to enter into or on to the Facilities currently owned, leased, operated or used by ChipPAC or any of its Subsidiaries to perform such tests on such property as are reasonably necessary to conduct a review and/or investigation of the matters giving rise to the request. Any such investigation of any Facility shall be conducted, unless otherwise agreed to by ChipPAC and the Administrative Agent, during normal business hours, and shall be conducted so as not to interfere with the ongoing operations at any such Facility or to cause any damage or loss to any property at such Facility. ChipPAC and the Administrative Agent hereby acknowledge and agree that any report of any investigation conducted at the request of the Administrative Agent pursuant to this subsection 6.7A will be obtained and shall be used by the Administrative Agent and the Lenders for the purposes of the Lenders' internal credit decisions, to monitor and police the Loans and to protect the Lenders' security interests, if any, created by the Loan Documents. The Administrative Agent agrees, upon request by ChipPAC, to deliver a copy of any such report to Company with the understanding that ChipPAC acknowledges and agrees that (i) consistent with the terms of subsection 10.3 hereof, it will indemnify and hold harmless the Administrative Agent and each Lender from any costs, losses or liabilities relating to ChipPAC's use of or reliance on such report, (ii) neither Agent nor any Lender makes any representation or warranty with respect to such report, and (iii) by delivering such report to ChipPAC, neither the Administrative Agent nor any Lender is requiring or recommending the implementation of any suggestions or recommendations contained in such report. 123 B. ChipPAC shall promptly notify the Administrative Agent of (i) any proposed acquisition of stock, assets, or property by ChipPAC or any of its Subsidiaries that could reasonably be expected to expose ChipPAC or any of its Subsidiaries to, or result in, Environmental Liability that could have a Material Adverse Effect and (ii) any proposed action to be taken by ChipPAC or any of its Subsidiaries to modify current operations in a manner that could reasonably be expected to subject ChipPAC or any of its Subsidiaries to material additional obligations under Environmental Laws where such obligations would reasonably be expected to have a Material Adverse Effect. C. ChipPAC shall, at its own expense, provide copies of such documents or information as the Administrative Agent may reasonably request in relation to any matters disclosed pursuant to this subsection 6.7. 6.8 ChipPAC's Remedial Action Regarding Hazardous Materials. ------------------------------------------------------- ChipPAC shall promptly take, and shall cause each of its Subsidiaries promptly to take, any and all necessary remedial action in connection with the presence, handling, storage, use, disposal, transportation or Release or threatened Release of any Hazardous Materials on, under or affecting any Facility in order to comply with all applicable Environmental Laws and Governmental Authorizations unless the failure to so comply could not reasonably be expected to have a Material Adverse Effect. In the event ChipPAC or any of its Subsidiaries undertakes any Cleanup action with respect to the presence, Release or threatened Release of any Hazardous Materials on or affecting any Facility, Company or such Subsidiary shall conduct and complete such Cleanup action in compliance with all applicable Environmental Laws where failure to do so would reasonably be expected to have a Material Adverse Effect. 6.9 Execution of Guaranty and Collateral Documents by Future Subsidiaries. --------------------------------------------------------------------- 124 In the event that any Person becomes a Subsidiary of ChipPAC (including any Subsidiary created in accordance with subsection 7.7(vi)), ChipPAC will promptly notify the Administrative Agent of that fact and cause such Subsidiary to execute and deliver to the Administrative Agent and the Collateral Agent a counterpart of the Guaranty and such of the Pledge Agreements and the Security Agreements (except to the extent that any such guarantee, pledge or security arrangements are not permissible under the applicable law of such Subsidiary's jurisdiction of organization or incorporation) as the Collateral Agent may request, and to take all such further action and execute all such further documents and instruments as may be required to grant and perfect in favor of the Collateral Agent, for the benefit of the Lenders, a First Priority Lien in all (subject to exceptions for assets in which a security interest cannot be granted) of the real, mixed and personal property assets of such Subsidiary. In addition, ChipPAC shall pledge (if it is the direct owner of Capital Stock of such Subsidiary) or shall cause each of its applicable Subsidiaries to pledge (if any of such other Subsidiaries is the direct owner of Capital Stock of such Subsidiary, each such owner, whether Company or any of its other Subsidiaries, the "Pledging Parent") all of the Capital Stock of such Subsidiary to the --------------- Collateral Agent pursuant to the applicable Collateral Documents and to take all such further action and execute all such further documents and instruments as may be reasonably required to grant and perfect in favor of the Collateral Agent, for the benefit of the Lenders, a First Priority security interest in such Capital Stock. ChipPAC shall deliver to the Administrative Agent, together with such Loan Documents, in the case of each such Subsidiary that is required to be a party to any Loan Document: (i) (a) certified copies of such Subsidiary's Organizational Certificate together, if applicable, with a good standing certificate from the jurisdiction of its incorporation, formation or organization, as applicable, each to be dated a recent date prior to their delivery to the Administrative Agent to the extent such concept is relevant in such jurisdiction, (b) a copy of such Subsidiary's Organizational Documents, certified by its secretary or an assistant corporate secretary (or Person holding an equivalent title or having equivalent duties and responsibilities) as of a recent date prior to their delivery to the Administrative Agent, (c) a certificate executed by the secretary or an assistant secretary of such Subsidiary as to (x) the incumbency and signatures of the officers of such Subsidiary executing such Guaranty, the Collateral Documents and the other Loan Documents to which such Subsidiary is a party and (y) the fact that the attached Organizational Authorizations of such Subsidiary authorizing the execution, delivery and performance of such Guaranty, such Collateral Documents and such other Loan Documents are in full force and effect and have not been modified or rescinded, and (ii) to the extent reasonably requested by the Administrative Agent, an opinion of counsel to such Subsidiary, that is reasonably satisfactory to the Administrative Agent and its counsel, as to (a) the due organization and good standing of such Subsidiary to the extent such concept in relevant is such jurisdiction, (b) the due authorization, execution and delivery by such Subsidiary of such Guaranty, the Collateral Documents and any other Loan Documents to which it is a party and (c) the enforceability of such Guaranty and such Collateral Documents against such 125 Subsidiary, (d) the validity and perfection of the security interests granted by such Subsidiary (and by the Pledging Parent of such Subsidiary in respect of the Capital Stock of such Subsidiary) in favor of the Collateral Agent pursuant to the Collateral Documents, and (e) such other matters as any Agent may reasonably request, all of the foregoing to be reasonably satisfactory in form and substance to the Administrative Agent and its counsel. 6.10 [Intentionally Omitted.] 6.11 Further Assurances. ------------------ At any time or from time to time upon the reasonable request of the Administrative Agent or the Collateral Agent, ChipPAC will, at its expense, promptly execute, acknowledge and deliver such further documents and do such other acts and things as the Administrative Agent or the Collateral Agent may reasonably request in order to effect fully the purposes of the Loan Documents and to provide for payment of the Obligations in accordance with the terms of this Agreement and the other Loan Documents. In furtherance and not in limitation of the foregoing, ChipPAC shall take, and cause each of its Subsidiaries to take, such actions as the Administrative Agent or the Collateral Agent may reasonably request from time to time (including the execution and delivery (where permitted by applicable law) of guaranties, security agreements and pledge agreements, mortgages and deeds of trust with respect to real property with a fair market value of at least $5,000,000, landlord's consents and estoppels for leased properties with an annual rent of at least $500,000, or stock powers, financing statements and other documents, the filing or recording of any of the foregoing, title insurance with respect to any of the foregoing that relates to an interest in real property, and the delivery of stock certificates and other collateral with respect to which perfection is obtained by possession) to ensure that the Obligations are guarantied by the Guarantors and are secured, directly or indirectly, by substantially all of the assets of ChipPAC and its Subsidiaries and all of the outstanding Capital Stock of the Subsidiaries of ChipPAC. In addition to the foregoing, ChipPAC will use commercially reasonable efforts to obtain, as promptly as practicable after the Closing Date, all necessary approvals for the Malaysian Security Agreements and Malaysian Intercompany Notes and shall cause the Liens to be created thereunder to be granted and to become effective. Promptly upon obtaining such approvals and causing all such Liens and security interests to be effective, ChipPAC shall provide written notice thereof to the Administrative Agent, together with certified copies of such approvals (if such approvals are issued in writing) and the Malaysian Security Agreements and Malaysian Intercompany Notes. 126 SECTION 7. NEGATIVE COVENANTS Each of ChipPAC and Company covenants and agrees that, so long as any of the Commitments hereunder shall remain in effect and until payment in full of all of the Loans and other Obligations (other than indemnification obligations not due and payable) and the cancellation or expiration of all Letters of Credit, unless the Requisite Lenders shall otherwise give prior written consent, each of ChipPAC and Company shall perform, and shall cause each of its Subsidiaries to perform, all covenants in this Section 7. 7.1 Indebtedness. ------------ ChipPAC shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or guaranty, or otherwise become or remain directly or indirectly liable with respect to, any Indebtedness except: (i) Each of the Loan Parties may become and remain liable with respect to its respective Obligations; (ii) Company may become and remain liable with respect to Indebtedness evidenced by, and with respect to guaranties of, the Subordinated Debt; (iii) ChipPAC and the Operating Subsidiaries may remain liable with respect to Indebtedness described in Schedule 7.1 annexed hereto, and any ------------ refinancing, modification, replacement or renewal thereof that does not increase the principal amount thereof; (iv) ChipPAC and the Operating Subsidiaries may become and remain liable with respect to Contingent Obligations permitted by subsection 7.4 and, upon any matured obligations actually arising pursuant thereto, the Indebtedness corresponding to the Contingent Obligations so extinguished; (v) ChipPAC and the Operating Subsidiaries may become and remain liable with respect to (i) Indebtedness under Capital Leases, (ii) Indebtedness to customers and suppliers that enables the Operating Subsidiaries to acquire assets from, or to be used to provide services to, such customers and suppliers, and (iii) other Indebtedness secured by Liens permitted under subsection 7.2A(iii); provided, that the aggregate amount -------- of all Indebtedness outstanding under this clause (v) at any time shall not exceed $20,000,000; 127 (vi) ChipPAC may become and remain liable with respect to Indebtedness owed to (on an intercompany basis) any of its Subsidiaries, and any Subsidiary may become and remain liable with respect to Indebtedness to (on an intercompany basis) ChipPAC or any other Subsidiary; provided that, in each case, (a) all intercompany Indebtedness shall be -------- evidenced by promissory notes or loan agreements which shall have been pledged to the Collateral Agent pursuant to the Collateral Documents, (b) all intercompany Indebtedness owed by ChipPAC or Company to any of its respective Subsidiaries shall be unsecured and subordinated in right of payment to the payment in full of the Obligations pursuant to the terms of the applicable promissory notes or an intercompany subordination agreement that in any such case are reasonably satisfactory to the Administrative Agent, and (c) any payment by any Subsidiary of ChipPAC under any Guaranty shall result in a pro tanto reduction of the amount of any intercompany --- ----- Indebtedness owed by such Subsidiary to ChipPAC or to any of its Subsidiaries for whose benefit such payment is made; (vii) ChipPAC and its Subsidiaries may become and remain liable with respect to Permitted Seller Paper with respect to any Permitted Acquisition; provided that any cash payments individually or in the -------- aggregate of principal, interest or other amounts with respect thereto required to be made prior to the payment in full of the Obligations shall not exceed $20,000,000; (viii) The Operating Subsidiaries may become and remain liable with respect to Indebtedness under the Local Lines of Credit; (ix) Any Subsidiary of ChipPAC acquired pursuant to a Permitted Acquisition may become and remain liable with respect to Indebtedness existing at the time of consummation of the Permitted Acquisition; provided -------- that (a) such Indebtedness was not incurred in connection with or in anticipation of such Permitted Acquisition, (b) such Indebtedness does not constitute debt for borrowed money (other than debt for borrowed money incurred in connection with industrial revenue or industrial development bond or similar financings), it being understood and agreed that Capital Lease obligations shall not constitute debt for borrowed money for purposes of this clause (ix), and (c) at the time of such Permitted Acquisition such Indebtedness does not exceed 50% of the total purchase price paid (including, for purposes of determining the total purchase price paid, Indebtedness assumed in connection with such Permitted Acquisition) with respect to the assets acquired in the related Permitted Acquisition; (x) ChipPAC and its Subsidiaries may become and remain liable with respect to Indebtedness consisting of the financing in the ordinary course of 128 business of insurance premiums with respect to coverage required to be maintained under subsection 6.4; (xi) Subsidiaries of ChipPAC may become and remain liable with respect to Indebtedness consisting of a converted equity Investment by ChipPAC or another Subsidiary of ChipPAC in such Subsidiaries; provided -------- that the underlying equity Investment was permitted hereunder at the time of such conversion; (xii) ChipPAC and the Operating Subsidiaries may become and remain liable with respect to other Indebtedness in an aggregate principal amount not to exceed at any time outstanding $20,000,000; and (xii) ChipPAC and its Subsidiaries may become and remain liable with respect to Indebtedness in respect of performance bonds, completion guarantees and surety and appeal bonds entered into by ChipPAC and its Subsidiaries in the ordinary course of business. 7.2 Liens and Related Matters. ------------------------- A. Prohibition on Liens. ChipPAC shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or permit to exist any Lien on or with respect to any property or asset of any kind (including any document or instrument in respect of goods or accounts receivable) of ChipPAC or any of its Subsidiaries, whether now owned or hereafter acquired, or any income or profits therefrom, or file or permit the filing of, or permit to remain in effect, any financing statement, or other similar notice of any Lien with respect to any such property, asset, income or profits under the Uniform Commercial Code of any state or under any similar recording or notice statute, domestic or foreign, except: (i) Permitted Encumbrances; (ii) Liens described in Schedule 7.2A annexed hereto; ------------- (iii) Purchase money security interests (including mortgages, conditional sales, Capital Leases and any other title retention, deferred purchase devices or consignments) in real or tangible personal property of ChipPAC or any Operating Subsidiary acquired after the Closing Date and existing or created at the time of acquisition thereof or within one hundred eighty (180) days thereafter, and the renewal, extension and refunding of any such security interest in an amount not exceeding the amount thereof remaining unpaid immediately prior to such renewal, extension or refunding; provided, that the Indebtedness secured by such -------- 129 Lien is permitted by subsection 7.1(v); provided, further, that such Liens -------- ------- do not at any time (including, without limitation, in connection with any renewal, extension and refunding) cover or encumber any assets or property other than the assets or property financed by such Indebtedness; (iv) Liens on the working capital assets and equipment of ChipPAC Korea, ChipPAC Shanghai I, ChipPAC Shanghai II or the Malaysian Subsidiary that secure only the Indebtedness permitted pursuant to Section 7.1(viii); (v) Liens on assets of the Operating Subsidiaries not otherwise permitted under this subsection 7.2A, to the extent attaching to properties and assets with an aggregate fair market value not in excess of, and securing liabilities not in excess of, an aggregate amount not to exceed $7,500,000 at any time outstanding; (vi) Liens securing any Indebtedness permitted pursuant to Section 7.1(ix); provided that such Liens only encumber the assets acquired in the -------- related Permitted Acquisition; and provided further that such Liens were -------- ------- not granted in contemplation of the related Permitted Acquisition; and (vii) Liens in favor of the Collateral Agent granted pursuant to the Collateral Documents or granted in favor of any Agent or Lender pursuant to subsection 10.4 hereof. B. No Further Negative Pledges. Except with respect to specific property encumbered by a Lien permitted under this Agreement or to secure payment of particular Indebtedness or to be sold pursuant to an executed agreement with respect to an Asset Sale or the sale of all or substantially all of the stock (or assets) of a Subsidiary permitted under this Agreement, neither ChipPAC nor any of its Subsidiaries shall enter into any agreement (other than any documents of a type described in subdivisions (c) through (f) of subsection 7.2C, the Loan Documents and the Subordinated Debt Documents) prohibiting the creation or assumption of any Lien upon any of its properties or assets, whether now owned or hereafter acquired. C. No Restrictions on Subsidiary Distributions to ChipPAC or Other Subsidiaries. Except as otherwise provided herein, ChipPAC will not, and will not permit any of its Subsidiaries to, create or otherwise cause or suffer to exist or become effective any consensual encumbrance, limitation or restriction of any kind on the ability of any such Subsidiary to (i) pay dividends or make any other distributions on any of such Subsidiary's Capital Stock owned by ChipPAC or any other Subsidiary of ChipPAC, (ii) repay or prepay any Indebtedness owed by such Subsidiary to ChipPAC or any other Subsidiary of ChipPAC, (iii) make loans or advances to ChipPAC or any other 130 Subsidiary of ChipPAC, or (iv) transfer any of its property or assets to ChipPAC or any other Subsidiary of ChipPAC, except for such encumbrances or restrictions existing under or by reason of (a) applicable law, (b) this Agreement and the other Loan Documents, (c) customary provisions restricting subletting or assignment of any lease governing a leasehold interest of ChipPAC or any of its Subsidiaries, (d) customary provisions restricting assignment of any licensing agreement entered into by ChipPAC or any of its Subsidiaries in the ordinary course of business, (e) customary provisions restricting the transfer of assets subject to Liens permitted under subsection 7.2A(iii) or (iv), (f) joint ventures entered into pursuant to subsection 7.3, and (g) the Subordinated Debt Documents. 7.3 Investments; Joint Ventures. --------------------------- ChipPAC shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, make or own any Investment except: (i) ChipPAC and its Subsidiaries may (x) continue to own the Investments owned by them as of the Restatement Effective Date in any Subsidiaries of ChipPAC, and (y) make and own additional Investments in any Loan Party; (ii) ChipPAC and its Subsidiaries may make and own intercompany loans to the extent permitted by subsection 7.1(vi); (iii) ChipPAC and its Subsidiaries may make and own Investments in Cash Equivalents; (iv) ChipPAC and its Subsidiaries may make and own Consolidated Capital Expenditures permitted by subsection 7.6D; (v) ChipPAC and its Subsidiaries may make and own Investments consisting of notes received in connection with any Asset Sale permitted under subsection 7.7(iv); (vi) ChipPAC and its Subsidiaries may make loans to officers, employees, directors, executives or consultants of ChipPAC and its Subsidiaries (a) in the ordinary course of business for travel, moving, entertainment or similar expenses, or (b) otherwise in an aggregate amount not to exceed $2,000,000 outstanding at any time; (vii) ChipPAC and its Subsidiaries may make and own Permitted Acquisitions; 131 (viii) ChipPAC and its Subsidiaries may continue to own the Investments described in Schedule 7.3 annexed hereto; ------------ (ix) ChipPAC and its Subsidiaries may make loans and advances to employees, officers, executives or consultants to Company and its Subsidiaries in the ordinary course of business of ChipPAC and its Subsidiaries as presently conducted for the purpose of purchasing capital stock of ChipPAC so long as the proceeds of such loans or advances are used in their entirety to purchase such capital stock; (x) ChipPAC and its Subsidiaries may make and own Investments in Subsidiaries pursuant to subsection 7.7(vi) or Permitted Acquisitions under subsection 7.7(v) and other Investments owned by entities acquired pursuant to such Permitted Acquisitions to the extent owned as at the time of consummation of such Permitted Acquisitions; (xi) ChipPAC and its Subsidiaries may make and own Investments in wholly owned Subsidiaries of ChipPAC consisting of intercompany Indebtedness (other than the Recapitalization Notes, the Malaysian Intercompany Notes and the Malaysian Acquisition Note) of such Subsidiaries converted to equity Investments; provided that (a) the underlying -------- intercompany Indebtedness was permitted hereunder at the time of such conversion and (b) up to $7,000,000 aggregate principal amount of the ChipPAC Shanghai I Loan may be converted to equity at the time and to the extent required by applicable law so long as (x) Company gives prior notice thereof to the Administrative Agent, (y) at the time of such conversion no Default or Event of Default shall have occurred and be continuing and (z) Company complies with the applicable provisions of Section 6.11 with respect to the resulting equity interest; (xii) ChipPAC and its Subsidiaries may make and own Investments not otherwise permitted under this subsection 7.3 in an aggregate amount not in excess of $20,000,000, plus the Excess Proceeds Amount; ---- (xiii) ChipPAC and its Subsidiaries may consummate the Purchase Transactions; and (xiv) ChipPAC and its Subsidiaries may enter into Interest Rate Agreements entered into pursuant to this Agreement or otherwise in the ordinary course of its business, and not for speculative purposes. 132 7.4 Contingent Obligations. ---------------------- ChipPAC shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create or become or remain liable with respect to any Contingent Obligation, except: (i) ChipPAC and its Subsidiaries may become and remain liable with respect to Contingent Obligations in respect of Letters of Credit; the Subsidiary Guarantors may become and remain liable with respect to Contingent Obligations arising under the Guaranties; and ChipPAC Korea, ChipPAC Shanghai I, ChipPAC Shanghai II and the Malaysian Subsidiary may become and remain liable with respect to Asian Letters of Credit; (ii) ChipPAC and the Subsidiary Guarantors may become and remain liable with respect to Contingent Obligations arising under their guaranties of the Subordinated Debt as are required under the Subordinated Debt Documents; (iii) ChipPAC and the Operating Subsidiaries may become and remain liable with respect to Contingent Obligations in respect of customary indemnification and purchase price adjustment obligations of any such Person incurred in connection with Asset Sales or other sales of assets; (iv) ChipPAC and the Operating Subsidiaries may become and remain liable with respect to Contingent Obligations under guarantees in the ordinary course of business of the obligations of suppliers, landlords, customers, franchisees, workers' compensation providers and licensees of ChipPAC and its Subsidiaries; (v) ChipPAC and the Operating Subsidiaries, as applicable, may remain liable with respect to Contingent Obligations described in Schedule -------- 7.4 annexed hereto and any modifications, extensions or renewal of such --- Contingent Obligations; (vi) ChipPAC and the Operating Subsidiaries may become and remain liable with respect to other Contingent Obligations; provided, that the -------- maximum aggregate liability, contingent or otherwise, of ChipPAC and its Subsidiaries in respect of all such Contingent Obligations shall at no time exceed $7,500,000; (vii) ChipPAC and the Operating Subsidiaries may become and remain liable with respect to Hedge Agreements entered into pursuant to this Agreement or otherwise in the ordinary course of business, and not for speculative purposes; 133 (viii) ChipPAC and the Operating Subsidiaries may become and remain liable with respect to guaranties of Indebtedness assumed in connection with a Permitted Acquisition pursuant to subsection 7.1(ix); provided, -------- that, such guaranties were existing at the time of consummation of the Permitted Acquisition and not incurred in connection with, or in an anticipation of, such Permitted Acquisition; (ix) ChipPAC and the Operating Subsidiaries may become and remain liable with respect to Contingent Obligations arising out of the indemnity obligations under the Recapitalization Agreement and the Purchase Transactions Documents; and (x) ChipPAC and the Operating Subsidiaries may become and remain liable with respect to Contingent Obligations arising out of any guaranties of Indebtedness of any Subsidiary permitted under this Agreement; provided -------- that if such indebtedness is subordinated to the Obligations, any such guaranties shall be subordinated to the same extent. 7.5 Restricted Payments. ------------------- ChipPAC shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, declare, order, pay, make or set apart any sum for any Restricted Payment; provided that ChipPAC and its Subsidiaries may make the -------- following the Restricted Payments: (i) any Subsidiary of ChipPAC or its Subsidiaries may pay dividends to ChipPAC or a Subsidiary of ChipPAC; (ii) Company may make regularly scheduled payments of principal and interest in respect of the Subordinated Debt in accordance with the terms of, and subject to the subordination provision contained in, the Subordinated Debt Documents; (iii) ChipPAC or any Subsidiary may make regularly scheduled principal and interest payments in respect of Permitted Seller Paper, to the extent permitted under subsection 7.1(vii) in accordance with the terms of, and subject to the subordination provisions contained in, such Permitted Seller Paper; (iv) so long as no Default or Event of Default shall have occurred and be continuing or would result therefrom, then ChipPAC and its Subsidiaries, collectively, may make cash Restricted Payments in an aggregate amount not to exceed $2,500,000 in any Fiscal Year, plus an ---- amount equal to any cash 134 Restricted Payments permitted to be made during one or more preceding Fiscal Years under this clause (iv) but not made during such preceding Fiscal Year(s) in an aggregate amount not in excess of $10,000,000; (v) ChipPAC and its Subsidiaries, collectively, may make cash Restricted Payments in any Fiscal Year to the extent necessary to make repurchases of Securities (and options or warrants to purchase such Securities) of ChipPAC from employees, officers or directors upon termination (including by reason of death, disability or retirement) of such employees, officers or directors in an aggregate amount not to exceed $5,000,000 plus cash proceeds of any "key man" life insurance policies used to make such repurchases and the proceeds from any resales of such stock; (vi) ChipPAC may make Restricted Payments in connection with repurchases of equity Securities, including Capital Stock, deemed to occur upon the exercise of stock options if such Securities represent a portion of the exercise price thereof; (vii) ChipPAC may make Restricted Payments (other than payments in cash in respect of the HEI Preferred Stock, the Intel Preferred Stock and the Seller Preferred Stock, in each case except to the extent expressly permitted hereby) contemplated by the Recapitalization Transactions and the Purchase Transactions, including, without limitation, the Contingent Incentive Payments; (viii) So long as no Default or Event of Default has occurred and is continuing, ChipPAC may make Restricted Payments in respect of the Earnout; (ix) So long as no Default or Event of Default has occurred and is continuing, ChipPAC may make Restricted Payments in connection with payments of cash dividends when due on and after five and one-half years from the closing of the Recapitalization Transactions on the HEI Preferred Stock pursuant to the terms thereof; (x) So long as (a) no Default or Event of Default has occurred and is continuing and (b) the Leverage Ratio is less than or equal to 2.00:1.00, ChipPAC may make Restricted Payments in connection with (i) any mandatory or voluntary redemption of the Intel Preferred Stock or the Seller Preferred Stock and (ii) any required payment of accrued and unpaid dividends on the Intel Preferred Stock or the Seller Preferred Stock at any time such stock is converted into Capital Stock of ChipPAC, in each case pursuant to the terms of such preferred stock; 135 (xi) ChipPAC may redeem the HEI Preferred Stock and/or the Intel Preferred Stock, and may make prepayments of principal and interest with respect to the Subordinated Debt (a) as permitted by subsection 2.4B(iii)(c) and (b) with the remaining 25% or 50%, as applicable, of Equity Proceeds not otherwise required to be used to prepay Loans in accordance with subsection 2.4B(iii)(c); and (xii) The Seller Preferred Stock and the Intel Preferred Stock may be converted into common stock of ChipPAC in accordance with the terms thereof. 7.6 Financial Covenants. ------------------- A. Minimum Interest Coverage Ratio. The ratio (the "Interest Coverage ----------------- Ratio") of (i) Consolidated Adjusted EBITDA to (ii) Consolidated Interest - ----- Expense payable in cash (excluding, to the extent otherwise included in Consolidated Interest Expense, (i) fees paid to the Administrative Agent on and after the Closing Date in connection with the Original Credit Agreement and this Agreement; (ii) cash payments made under consulting agreements; and (iii) cash payments made under Hedge Agreements or Interest Rate Agreements) for (y) the eleven month period ending June 30, 2000 or (z) any four-Fiscal Quarter period thereafter ending during or at the end of any of the periods set forth below (each applicable period being a "Calculation Period") shall not be less than the ------------------ correlative ratio indicated below: ====================================================================== Period During Which Minimum Interest Calculation Period Ends Coverage Ratio December 31, 1999 through September 30, 2000 2.00:1.00 ====================================================================== December 31, 2000 through September 30, 2001 2.25:1.00 ====================================================================== Thereafter 2.50:1.00 ====================================================================== B. Maximum Leverage Ratio. The ratio (the "Leverage Ratio") of (i) --------------- Consolidated Total Debt as of the last day (any such day being a "Calculation ----------- Date") of any Fiscal Quarter ending during any of the periods set forth below, - ---- to (ii) Consolidated Adjusted EBITDA for (y) the eleven month period ending June 30, 2000 or (z) any four-Fiscal Quarter period thereafter ending on such Calculation Date shall not exceed the correlative ratio indicated below: ==================================================================== Period During Which Maximum Calculation Date Occurs Leverage Ratio 136 ==================================================================== Period During Which Maximum Calculation Date Occurs Leverage Ratio -------------------------------------------------------------------- December 31, 1999 through June 30, 2000 4.75:1.0 -------------------------------------------------------------------- September 30, 2000 4.50:1.0 -------------------------------------------------------------------- December 31, 2000 4.25:1.0 -------------------------------------------------------------------- March 31, 2001 through September 30, 2001 4.00:1.0 -------------------------------------------------------------------- December 31, 2001 through September 30, 2002 3.50:1.0 -------------------------------------------------------------------- December 31, 2002 through September 30, 2003 3.00:1.0 -------------------------------------------------------------------- Thereafter 2.50:1.0 ==================================================================== C. Consolidated Capital Expenditures. (i) Except as provided below, Company shall not, and shall not permit its Subsidiaries to, make or incur Consolidated Capital Expenditures in any Fiscal Year (or specified portion thereof) in an aggregate amount in excess of the corresponding amount (the "Maximum Consolidated Capital Expenditures ----------------------------------------- Amount") set forth below opposite such Fiscal Year (or such portion ------ thereof) as indicated below; provided, that (a) the Maximum Consolidated -------- Capital Expenditures Amount for any Fiscal Year shall be increased by an amount equal to the excess, if any, of (x) the Maximum Consolidated Capital Expenditures Amount for the previous Fiscal Year (excluding, and without giving effect to, any increases thereto from any prior carryover of amounts pursuant to this clause for the previous Fiscal Year (or specified portion thereof) but including any increases thereto as a result of the application of the further proviso to this clause (i)) over (y) the actual amount of Consolidated Capital Expenditures for such previous Fiscal Year (or specified portion thereof) (the amount of such increase described in this proviso being the "Carryforward" from such preceding Fiscal Year) and (b) ------------ Capital Expenditures made by the Malaysian Subsidiary prior to the Restatement Effective Date shall not be included for purposes of calculating the Maximum Consolidated Capital Expenditures Amount: Fiscal Year Maximum Consolidated (or Portion Thereof) Capital Expenditures Amount =============================================================================== Fiscal Year 2000 $110,000,000 - ------------------------------------------------------------------------------- 137 =============================================================================== Fiscal Year Maximum Consolidated (or Portion Thereof) Capital Expenditures Amount =============================================================================== Fiscal Year 2001 $110,000,000 - ------------------------------------------------------------------------------- Fiscal Year 2002 $135,000,000 - ------------------------------------------------------------------------------- Fiscal Year 2003 $145,000,000 - ------------------------------------------------------------------------------- Fiscal Year 2004 $165,000,000 - ------------------------------------------------------------------------------- Fiscal Year 2005 and thereafter $185,000,000 =============================================================================== ; provided further that, the Maximum Consolidated Capital Expenditure -------- ------- Amount for each period during or after a Permitted Acquisition (other than the Purchase) occurs shall be increased by an amount equal to the Acquired Capital Expenditures Percentage of such Maximum Capital Expenditure Amount for such period. (ii) In addition to the Consolidated Capital Expenditures made pursuant to the foregoing clause (i) of the subsection 7.6C, ChipPAC and its Subsidiaries may make additional Consolidated Capital Expenditures not in excess of the Excess Proceeds Amount. D. Minimum Fixed Charge Coverage Ratio. The ratio (the "Fixed Charge ------------ Coverage Ratio") of (i) Consolidated Adjusted EBITDA to (ii) the sum, -------------- without duplication, of (a) Consolidated Interest Expense payable in cash (excluding, to the extent otherwise included in Consolidated Interest Expense, (i) fees paid to the Administrative Agent after the Closing Date in connection with the Original Credit Agreement and this Agreement; (ii) cash payments made under consulting agreements; and (iii) cash payments made under Hedge Agreements or Interest Rate Agreements), plus (b) ---- Consolidated Capital Expenditures (excluding, to the extent otherwise included therein, Consolidated Capital Expenditures made to acquire testing equipment and Micro BGA Capital Expenditures (x) during any four-Fiscal Quarter period through September 30, 2001 not to exceed $40,000,000 and (y) during any four-Fiscal Quarter period through December 31, 2001 not to exceed $25,000,000), plus (c) the provision for taxes (including, without ---- duplication, foreign withholding taxes and any single business, unitary or similar taxes) based on income of ChipPAC and its Subsidiaries and paid or payable in cash, plus (d) the principal amount of all Indebtedness ---- scheduled to be paid during such period (calculated as of the first day of such period), plus (e) Cash dividends and distributions paid by ChipPAC, ---- plus (f) Contingent Incentive Payments, in each case for (1) the eleven month 138 period ending June 30, 2000 or (2) any four-Fiscal Quarter period thereafter ending during or at the end of any of the periods set forth below (each applicable four-Fiscal Quarter period being a "Calculation ----------- Period") (all amounts in the preceding lettered clauses (a) through (f) ------ referred to collectively as the "Fixed Charges") shall not be less than the ------------- correlative ratio indicated below: ============================================================================== Period During Which Minimum Fixed Charge Calculation Period Ends Coverage Ratio ============================================================================== June 30, 2000, through June 30, 2001 1.00:1.00 - ------------------------------------------------------------------------------ September 30, 2001 through December 31, 2002 1.05:1.00 - ------------------------------------------------------------------------------ Thereafter 1.10:1.00 ============================================================================== E. Certain Calculations. With respect to any period during which any Permitted Acquisition occurs or any business of any other Person is acquired by ChipPAC or any of its Subsidiaries as permitted pursuant to the terms hereof, for purposes of determining compliance or Pro Forma Compliance with the financial covenants set forth in this subsection 7.6, Consolidated Adjusted EBITDA, Consolidated Interest Expense and Fixed Charges shall be calculated with respect to such periods and such Permitted Acquisition or business on a Pro Forma Basis. 7.7 Restriction on Fundamental Changes; Asset Sales. ----------------------------------------------- ChipPAC shall not, and shall not permit any of its Subsidiaries to, alter the corporate, capital or legal structure of ChipPAC or any of its Subsidiaries or enter into any transaction of merger or consolidation, or liquidate, wind-up or dissolve itself (or suffer any liquidation or dissolution), or convey, sell, lease, sub-lease, transfer or otherwise dispose of all or any portion of its business or assets, whether now owned or hereafter acquired, or acquire by purchase or otherwise all or a substantial part of the business or assets of, or Capital Stock or other evidence of beneficial ownership of, any Person or any unit or division thereof, except: (i) Any Subsidiary of ChipPAC (other than Company) may be merged with or into ChipPAC or any wholly owned Subsidiary, or be liquidated, wound up or dissolved, or all or any part of its business, property or assets may be conveyed, sold, leased, transferred or otherwise disposed of, in one transaction or 139 a series of transactions, to ChipPAC or any wholly owned Subsidiary; provided that, in the case of such a merger involving ChipPAC, ChipPAC -------- shall be the continuing or surviving corporation (or, if the purpose of such merger is to reincorporate ChipPAC in the State of Delaware, such Subsidiary may be the surviving corporation of such merger so long as it assumes all the obligations of ChipPAC hereunder and under the other Loan Documents in a writing in form and substance reasonably satisfactory to the Administrative Agent) and in the case of any other merger involving a Loan Party, a Loan Party shall be the continuing or surviving corporation; (ii) ChipPAC and its Subsidiaries may acquire inventory, equipment and other assets in the ordinary course of business; (iii) ChipPAC and its Subsidiaries may sell or otherwise dispose of assets in transactions that do not constitute Asset Sales; provided that -------- the consideration received for such assets shall be in an amount at least equal to the fair market value thereof (determined in good faith by the board of directors of ChipPAC or its Subsidiaries, as the case may be); (iv) ChipPAC and its Subsidiaries may make Asset Sales of assets having a fair market value (determined in good faith by the board of directors of ChipPAC or its Subsidiaries, as the case may be) not in excess of $15,000,000 (or $30,000,000 if, after giving effect to such Asset Sale, the Leverage Ratio determined on a Pro Forma Basis is less than 3.50:1.00) for any Fiscal Year; provided that, in each such case, (x) the -------- consideration received for such assets shall be in an amount at least equal to the fair market value thereof (determined in good faith by the board of directors of ChipPAC); and (y) the proceeds of such Asset Sales shall be applied as required by subsection 2.4B(iii)(a); (v) ChipPAC and its Subsidiaries may acquire the stock or other equity Securities of any Person that, as a result of such acquisition, becomes a wholly owned Subsidiary of ChipPAC or any of its Subsidiaries or is merged into ChipPAC or its Subsidiaries, or may acquire the business, property or assets of any Person; provided, that (x) on a Pro Forma Basis, -------- ChipPAC shall be in compliance with each of the covenants set forth in subsection 7.6, (y) no Default or Event of Default shall have occurred and be continuing or result therefrom and (z) after giving effect to such Acquisition, if the Leverage Ratio determined on a Pro Forma Basis shall exceed 2.75:1.00, then the aggregate consideration paid or assumed in respect of all Permitted Acquisitions under this Agreement shall not exceed the sum of $50,000,000 and the Excess Proceeds Amount; 140 (vi) ChipPAC or its Subsidiaries may create or, if permitted by clause (v) above, acquire new Subsidiaries; provided that, (a) promptly -------- after the formation or acquisition of each such Subsidiary, ChipPAC or such Subsidiary, as applicable, shall deliver or cause to be delivered each of the items and execute each of the documents, if any, required pursuant to subsection 6.9; and (vii) ChipPAC may consummate the Purchase Transactions. 7.8 Sales and Lease-Backs. --------------------- Except for the transactions described in Schedule 7.8, ChipPAC shall not, ------------ and shall not permit any of its Subsidiaries to, directly or indirectly, become or remain liable as lessee or as a guarantor or other surety with respect to any lease, whether an Operating Lease or a Capital Lease, of any property (whether real, personal or mixed), whether now owned or hereafter acquired, (i) which ChipPAC or any of its Subsidiaries has sold or transferred or is to sell or transfer to any other Person (other than ChipPAC or any of its Subsidiaries) or (ii) which ChipPAC or any of its Subsidiaries intends to use for substantially the same purpose as any other property which has been or is to be sold or transferred by ChipPAC or any of its Subsidiaries to any Person (other than ChipPAC or any of its Subsidiaries) in connection with such lease. 7.9 Transactions with Shareholders and Affiliates. --------------------------------------------- 141 ChipPAC shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, enter into or permit to exist any transaction (including, without limitation, the purchase, sale, lease or exchange of any property or the rendering of any service) with any holder of 5% or more of any class of equity Securities of ChipPAC or such Subsidiary or with any Affiliate of ChipPAC or of any such Subsidiary or holder involving consideration in excess of $1,500,000, on terms that are less favorable to ChipPAC or that Subsidiary, as the case may be, than those that might be obtained at the time from Persons who are not such a holder or Affiliate; provided that the foregoing restriction -------- shall not apply to (i) transactions between ChipPAC and any Subsidiary or between Subsidiaries; (ii) reasonable and customary fees paid to members of the boards of directors of ChipPAC and its Subsidiaries; (iii) management and one- time transaction (acquisitions, divestitures and financings) fees paid by ChipPAC pursuant to the Sponsor Advisory Services Agreements, plus reasonable ---- out-of-pocket expenses related thereto; provided, in no event shall any -------- management fees be paid (but may accrue) under the Sponsor Advisory Services Agreements at any time an Event of Default under any of subsection 8.1, 8.6, or 8.7 has occurred and is continuing; (iv) loans and advances permitted to be made under subsections 7.3(vi) or (ix); (v) Restricted Payments permitted to be made under subsection 7.5; (vi) issuance of capital stock and/or grants of stock options to any Affiliates, including employees and consultants of ChipPAC pursuant to employment or consulting arrangements; (vii) employment and consulting arrangements entered into in the ordinary course of business; (viii) the Recapitalization Transactions (including performance under the terms of the Transaction Documents); (ix) the Purchase (including performance under the terms of the Purchase Transactions Documents); (x) any agreement with ChipPAC or any Subsidiary as in effect on the Restatement Effective Date or any amendment or replacement thereto or any transaction contemplated thereby (including pursuant to any amendment or replacement thereto) so long as any amendment or replacement agreement is not more disadvantageous to ChipPAC or such Subsidiary in any material respect than the original agreement as in effect on the Restatement Effective Date; and (xi) transactions with customers, clients, suppliers, joint venture partners or purchasers or sellers of goods or services, in each case in the ordinary course of business (including, without limitation, pursuant to joint venture agreements) and otherwise in compliance with the terms of this Agreement which are fair to ChipPAC and its Subsidiaries, in the reasonable determination of the applicable board of directors or the senior management thereof, or are on terms at least as favorable as might reasonably have been obtained at such time from an unaffiliated party. 142 7.10 Ownership of Subsidiary Stock. ----------------------------- ChipPAC shall not: (i) directly or indirectly sell, assign, pledge or otherwise encumber or dispose of any shares of Capital Stock or other equity Securities of any of its Subsidiaries, except as permitted or required under this Agreement and the Collateral Documents or to qualify directors or for nominee holders if required by applicable law; or (ii) except as a result of a sale permitted hereby of all of the outstanding Capital Stock of a Loan Party to a third party, permit any Capital Stock of any Loan Party to be directly or indirectly owned by any person other than ChipPAC, Company or a Subsidiary Guarantor; (iii) permit any of its Subsidiaries directly or indirectly to sell, assign, pledge or otherwise encumber or dispose of any shares of Capital Stock or other equity Securities of any of its Subsidiaries (including such Subsidiary), except as permitted or required under this Agreement and the Collateral Documents, to ChipPAC or another Subsidiary of ChipPAC or to qualify directors or for nominee holders, if required by applicable law. 7.11 Amendments or Waivers of Certain Agreements. ------------------------------------------- A. Amendments or Waivers of Transaction Documents. None of ChipPAC nor any of its Subsidiaries shall terminate or agree to any amendment, restatement, supplement or other modification to, or waive any of its rights under, any Transaction Document (other than any document relating to the Subordinated Debt) or any Purchase Transactions Document if such termination, amendment, restatement, supplement, modification or waiver would reasonably be expected to be materially adverse to the Lenders without obtaining the prior written consent of the Requisite Lenders to such amendment or waiver. B. Amendments of Documents Relating to Subordinated Debt. ChipPAC shall not, and shall not permit any of its Subsidiaries to, amend or otherwise change the terms of any Subordinated Debt, or make any payment consistent with an amendment thereof or change thereto, if the effect of such amendment or change is (i) to increase the interest rate on such Subordinated Debt, (ii) change (to earlier dates) any dates upon which payments of principal or interest are due thereon, (iii) change any event of default or condition to an event of default with respect thereto (other than to eliminate any such event of default or increase any grace period related thereto), (iv) change the redemption, prepayment or defeasance provisions thereof, (v) change the subordination provisions of 143 such Subordinated Debt or any guaranty of any Subordinated Debt, or (vi) if the effect of such amendment or change, together with all other amendments or changes made, is to increase materially the obligations of the obligor thereunder or to confer any additional rights on the holders of such Subordinated Debt (or a trustee or other representative on their behalf) which would reasonably be expected to be materially adverse to the Lenders without obtaining the prior written consent of the Requisite Lenders to such amendment or waiver. C. Amendments or Waivers of Certain Intercompany Documents. ChipPAC shall not, and shall not permit any of its Subsidiaries to, terminate or agree to any amendment, restatement, supplement or other modification to, or waiver of any of its rights under, the Korean Pledge Agreement, any Intercompany Note or any other intercompany document pursuant to which any property, assets or rights of a Subsidiary are pledged to ChipPAC or another Subsidiary and further pledged by such latter Person to the Collateral Agent to secure the Obligations if such termination, amendment, restatement, supplement, modification or waiver would reasonably be expected to be adverse to the Lenders without obtaining the prior written consent of the Requisite Lenders to such amendment or waiver. 7.12 Fiscal Year. ----------- Neither ChipPAC nor any of its Subsidiaries shall change its Fiscal Year- end from December 31 of each calendar year. 7.13 Conduct of Business. ------------------- ChipPAC shall not, nor shall it permit any of its Subsidiaries to, engage in any business or activities other than of the type engaged in as of the Restatement Effective Date or as contemplated by the Purchase Transactions or similar, related or supportive businesses or those consented to by the Requisite Lenders, including the performance of its obligations hereunder, under the other Loan Documents, under the Transaction Documents and under the Purchase Transactions Documents. SECTION 8. EVENTS OF DEFAULT If any of the following conditions or events ("Events of Default") shall ----------------- occur: 8.1 Failure to Make Payments When Due. --------------------------------- 144 Failure by Company to pay any installment of principal of any Loan when due, whether at stated maturity, by acceleration, by notice of prepayment or otherwise; failure by Company to pay when due any amount payable to an Issuing Bank in reimbursement of any drawing honored or payment made under a Letter of Credit; or failure by Company to pay any interest on any Loan or any fee or any other amount due under this Agreement or any other Loan Document within five (5) Business Days after the date due; or 8.2 Default in Other Agreements. --------------------------- (i) Failure of ChipPAC or any of its Subsidiaries to pay when due (a) any principal of or interest on any Indebtedness (other than Indebtedness referred to in subsection 8.1) in an individual principal amount of $2,500,000 or more or any items of Indebtedness with an aggregate principal amount of $7,500,000 or more, in each case beyond the end of any grace period provided therefor; or (b) any Contingent Obligation in an individual principal amount of $2,500,000 or more or any Contingent Obligations with an aggregate principal amount of $7,500,000 or more, in each case beyond the end of any grace period provided therefor; or (ii) breach or default by ChipPAC or any of its Subsidiaries with respect to any other material term of (a) any evidence of any Indebtedness in an individual principal amount of $2,500,000 or more or any items of Indebtedness with an aggregate principal amount of $7,500,000 or more or any Contingent Obligation in an individual principal amount of $2,500,000 or more or any Contingent Obligations with an aggregate principal amount of $7,500,000 or more, in each case beyond the end of any grace period provided thereof; or (b) any loan agreement, mortgage, indenture or other agreement relating to such Indebtedness or Contingent Obligation(s), or the occurrence of any other event, condition or circumstance in respect of any such Indebtedness or Contingent Obligations if in any case under this clause (ii) the effect of such breach or default or event, condition or circumstance is to cause, or to permit the holder or holders of that Indebtedness or Contingent Obligation(s) (or a trustee on behalf of such holder or holders) to cause, that Indebtedness or Contingent Obligation(s) to become or be declared due and payable (or redeemable) prior to its stated maturity or the stated maturity of any underlying obligation, as the case may be (upon the giving or receiving of notice, lapse of time, both, or otherwise); or 8.3 Breach of Certain Covenants. --------------------------- Failure of any Loan Party to perform or comply with any term or condition contained in subsection 2.5, 6.2, or Section 7 of this Agreement; provided, -------- however, that such failure with respect to the covenants contained in - ------- subsections 7.1 through 7.5 shall not constitute an Event of Default for ten (10) days after such failure so long as such Loan Party is diligently pursuing the cure of such failure; or 145 8.4 Breach of Warranty. ------------------ Any representation, warranty, certification or other statement made by ChipPAC or any of its Subsidiaries in any Loan Document or in any statement or certificate at any time given by ChipPAC or any of its Subsidiaries in writing pursuant hereto or thereto or in connection herewith or therewith shall be false in any material respect on the date as of which made; or 8.5 Other Defaults Under Loan Documents. ----------------------------------- Any Loan Party shall default in the performance of or compliance with any term contained in this Agreement or any of the other Loan Documents, other than any such term referred to in any other subsection of this Section 8, and such default shall not have been remedied or waived within thirty (30) days after the earlier of (i) a Responsible Officer of ChipPAC or Company becoming aware of the occurrence of such default or (ii) receipt by ChipPAC or Company of notice from the Administrative Agent of such default; or 8.6 Involuntary Bankruptcy; Appointment of Receiver, etc. ----------------------------------------------------- (i) A court having jurisdiction in the premises shall enter a decree or order for relief in respect of ChipPAC or any of its Subsidiaries (other than Immaterial Subsidiaries) in an involuntary case under any Bankruptcy Law, which decree or order is not stayed; or any other similar relief shall be granted under any applicable Bankruptcy Law; or (ii) an involuntary case shall be commenced against ChipPAC or any of its Subsidiaries (other than Immaterial Subsidiaries) under any Bankruptcy Law; or a decree or order of a court having jurisdiction in the premises for the appointment of a receiver, liquidator, sequestrator, trustee, custodian or other officer having similar powers over ChipPAC or any of its Subsidiaries (other than Immaterial Subsidiaries), or over all or a substantial part of its property, shall have been entered; or there shall have occurred the involuntary appointment of an interim receiver, trustee or other custodian of ChipPAC or any of its Subsidiaries (other than Immaterial Subsidiaries) for all or a substantial part of its property; or a warrant of attachment, execution or similar process shall have been issued against any substantial part of the property of ChipPAC or any of its Subsidiaries (other than Immaterial Subsidiaries), and any such event described in this clause (ii) shall continue for sixty (60) days unless dismissed, bonded or discharged; or 8.7 Voluntary Bankruptcy; Appointment of Receiver, etc. --------------------------------------------------- (i) ChipPAC or any of its Subsidiaries (other than Immaterial Subsidiaries) shall have an order for relief entered with respect to it or commence a voluntary case under any Bankruptcy Law now or hereafter in effect, or shall consent to the entry of an order for 146 relief in an involuntary case, or to the conversion of an involuntary case to a voluntary case, under any such law, or shall consent to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of its property; or ChipPAC or any of its Subsidiaries (other than Immaterial Subsidiaries) shall make any assignment for the benefit of creditors; or (ii) ChipPAC or any of its Subsidiaries (other than Immaterial Subsidiaries) shall be unable, or shall fail generally, or shall admit in writing its inability, to pay its debts as such debts become due; or the Board of Directors of ChipPAC or any of its Subsidiaries (other than Immaterial Subsidiaries) (or any committee thereof) shall adopt any resolution or otherwise authorize any action to approve any of the actions referred to in clause (i) above or this clause (ii); or 8.8 Judgments and Attachments. ------------------------- Any money judgment, writ or warrant of attachment or similar process involving (i) in any individual case an amount in excess of $2,500,000 or (ii) in the aggregate at any time an amount in excess of $7,500,000 (in either case not adequately covered by insurance) shall be entered or filed against ChipPAC or any of its Subsidiaries or any of their respective assets and shall remain undischarged, unvacated, unbonded or unstayed for a period of sixty (60) days (or in any event later than five days prior to the date of any proposed sale thereunder); or 8.9 Dissolution. ----------- Any order, judgment or decree shall be entered against ChipPAC or any of its Subsidiaries decreeing the dissolution or split-up of ChipPAC or that Subsidiary and such order shall remain undischarged or unstayed for a period in excess of thirty (30) days; or 8.10 Employee Benefit Plans. ---------------------- (i) Company or one of its ERISA Affiliates shall have engaged in a transaction which is prohibited under Section 4975 of the Internal Revenue Code or Section 406 of ERISA which results in the imposition of a liability which has a material adverse effect on Company or any of its Subsidiaries; or (ii) there shall occur any Foreign Benefit Events which, individually or in the aggregate, results in the imposition of a liability which has a Material Adverse Effect on ChipPAC or any of its Subsidiaries; or 147 8.11 Change in Control. ----------------- (i) The Sponsors shall beneficially own less than, in the aggregate, any other Person or "group" (within meaning of 13d-3 or 13d-5 of the Exchange Act) of all issued and outstanding equity securities of ChipPAC representing economic and voting interests in ChipPAC; (ii) the Sponsors shall cease to beneficially own less than, in the aggregate, 51% of the outstanding equity securities of ChipPAC (excluding equity securities issued to management pursuant to management stock option plans or similar arrangements) representing economic interests in ChipPAC; (iii) a majority of the members of the Board of Directors of ChipPAC shall not be Continuing Directors; (iv) Company or any Operating Subsidiary shall cease to be a wholly owned Subsidiary of ChipPAC or (v) any "Change of Control" shall occur under the Subordinated Debt Documents; or 8.12 Invalidity of Guaranties. ------------------------ At any time after the execution and delivery thereof, any Guaranty of the Obligations of Company for any reason, other than the satisfaction in full of all Obligations (other than indemnification obligations not due and payable), ceases to be in full force and effect (other than in accordance with its terms) or is declared to be null and void, or any Loan Party denies in writing that it has any further liability, including without limitation with respect to future advances by the Lenders, under any Loan Document to which it is a party; or 8.13 Failure of Security. ------------------- Any Collateral Document shall, at any time, cease to be in full force and effect (other than by reason of a release of Collateral thereunder in accordance with the terms hereof or thereof, the satisfaction in full of the Obligations (other than indemnification obligations not due and payable) or any other termination of such Collateral Document in accordance with the terms hereof or thereof) or shall be declared null and void, or the validity or enforceability thereof shall be contested in writing by any Loan Party, or the Collateral Agent shall not have or shall cease to have a valid security interest in any Collateral purported to be covered thereby having a fair market value exceeding $1,000,000, perfected and with the priority required by the relevant Collateral Document, for any reason other than the failure of the Collateral Agent, the Administrative Agent or any Lender to take any action within its control, subject only to Liens permitted under the applicable Collateral Documents; THEN (i) upon the occurrence of any Event of Default described in subsection 8.6 or 8.7, each of (a) the unpaid principal amount of and accrued interest on the Loans, (b) an amount equal to the maximum amount that may at any time be drawn under all Letters of Credit then outstanding (whether or not any beneficiary under any such Letter of Credit 148 shall have presented, or shall be entitled at such time to present, the drafts or other documents or certificates required to draw under such Letter of Credit) and (c) all other Obligations, shall automatically become immediately due and payable, without presentment, demand, protest or other requirements of any kind, all of which are hereby expressly waived by ChipPAC and Company, and the obligation of each Lender to make any Loan and the obligation of the Issuing Bank to issue any Letter of Credit shall thereupon terminate, and (ii) upon the occurrence and during the continuation of any other Event of Default, the Administrative Agent shall, upon the written request of the Requisite Lenders, by written notice to Company, declare all or any portion of the amounts described in clauses (a) through (c) above to be, and the same shall forthwith become, immediately due and payable, and the obligation of each Lender to make any Loan and the obligation of the Issuing Bank to issue any Letter of Credit shall thereupon terminate; provided that the foregoing shall not affect in any -------- way the obligations of the Lenders under subsection 3.3C(i). Notwithstanding anything contained in the preceding paragraph, if at any time within sixty (60) days after an acceleration of the Loans pursuant to such paragraph Company shall pay all arrears of interest and all payments on account of principal which shall have become due otherwise than as a result of such acceleration (with interest on principal and, to the extent permitted by law, on overdue interest, at the rates specified in this Agreement) and all Defaults and Events of Default (other than non-payment of the principal of and accrued interest on the Loans, in each case which is due and payable solely by virtue of acceleration) shall be remedied or waived pursuant to subsection 10.6, then the Requisite Lenders, by written notice to Company, may at their option rescind and annul such acceleration and its consequences; but such action shall not affect any subsequent Default or Event of Default or impair any right consequent thereon. The provisions of this paragraph are intended merely to bind the Lenders to a decision which may be made at the election of the Requisite Lenders and are not intended to benefit Company and do not grant Company the right to require the Lenders to rescind or annul any acceleration hereunder or preclude the Agents or the Lenders from exercising any of the rights or remedies available to them under any of the Loan Documents, even if the conditions set forth in this paragraph are met. 149 SECTION 9. AGENTS 9.1 Appointment. ----------- A. CSFB is hereby appointed the Administrative Agent and Sole Lead Arranger hereunder and under the other Loan Documents. CSFB is also hereby appointed the Collateral Agent hereunder and under the Collateral Documents. Each Lender hereby authorizes each Agent to act as its agent in accordance with the terms of this Agreement and the other Loan Documents. Each Agent agrees to act upon the express conditions contained in this Agreement and the other Loan Documents, as applicable. The provisions of this Section 9 are solely for the benefit of the Agents and the Lenders and neither ChipPAC nor Company shall have any rights as a third party beneficiary of any of the provisions thereof. In performing its functions and duties under this Agreement, each Agent shall act solely as an agent of the Lenders and does not assume and shall not be deemed to have assumed any obligation towards or relationship of agency or trust with or for ChipPAC or any of its Subsidiaries. Upon the conclusion of the Initial Period, all obligations of the Sole Lead Arranger hereunder shall terminate and thereafter the Sole Lead Arranger shall have no obligations or liabilities under any of the Loan Documents. B. Appointment of Supplemental Collateral Agents. It is the purpose of this Agreement and the other Loan Documents that there shall be no violation of any law of any jurisdiction denying or restricting the right of banking corporations or associations to transact business as agent or trustee in such jurisdiction. It is recognized that in case of litigation under this Agreement or any of the other Loan Documents, and in particular in case of the enforcement of any of the Loan Documents, or in case the Administrative Agent or the Collateral Agent deems that by reason of any present or future law of any jurisdiction the Administrative Agent or the Collateral Agent may not exercise any of the rights, powers or remedies granted herein or in any of the other Loan Documents or take any other action which may be desirable or necessary in connection therewith, it may be necessary that the Administrative Agent or the Collateral Agent appoint an additional individual or institution as a separate trustee, co-trustee, collateral agent or collateral co-agent (any such additional individual or institution being referred to herein individually as a "Supplemental Collateral Agent" and collectively as "Supplemental Collateral ----------------------------- ----------------------- Agents"). - ------ In the event that the Administrative Agent or the Collateral Agent appoints a Supplemental Collateral Agent with respect to any Collateral, (i) each and every right, power, privilege or duty expressed or intended by this Agreement or any of the other Loan Documents to be exercised by or vested in or conveyed to the Administrative Agent or the Collateral Agent with respect to such Collateral shall be exercisable by and vest in such Supplemental Collateral Agent to the extent, and only to the extent, necessary to 150 enable such Supplemental Collateral Agent to exercise such rights, powers and privileges with respect to such Collateral and to perform such duties with respect to such Collateral, and every covenant and obligation contained in the Loan Documents and necessary to the exercise or performance thereof by such Supplemental Collateral Agent shall run to and be enforceable by either the Administrative Agent or the Collateral Agent or such Supplemental Collateral Agent, and (ii) the provisions of this Section 9 and of subsections 10.2 and 10.3 that refer to the Administrative Agent or the Collateral Agent shall inure to the benefit of such Supplemental Collateral Agent and all references therein to the Administrative Agent or the Collateral Agent shall be deemed to be references to the Administrative Agent or the Collateral Agent and/or such Supplemental Collateral Agent, as the context may require. Should any instrument in writing from ChipPAC, Company or any other Loan Party be required by any Supplemental Collateral Agent so appointed by the Administrative Agent or the Collateral Agent for more fully and certainly vesting in and confirming to him or it such rights, powers, privileges and duties, ChipPAC shall, or shall cause such Loan Party to, execute, acknowledge and deliver any and all such instruments promptly upon request by the Administrative Agent or the Collateral Agent. In case any Supplemental Collateral Agent, or a successor thereto, shall die, become incapable of acting, resign or be removed, all the rights, powers, privileges and duties of such Supplemental Collateral Agent, to the extent permitted by law, shall vest in and be exercised by the Administrative Agent or the Collateral Agent until the appointment of a new Supplemental Collateral Agent. 9.2 Powers; General Immunity. ------------------------ A. Duties Specified. Each Lender irrevocably authorizes each Agent to take such action on such Lender's behalf and to exercise such powers hereunder and under the other Loan Documents as are specifically delegated to such Agent by the terms hereof and thereof, together with such powers as are reasonably incidental thereto. Each Agent shall have only those duties and responsibilities that are expressly specified in this Agreement and the other Loan Documents and it may perform such duties by or through its agents or employees. No Agent shall have, by reason of this Agreement or any of the other Loan Documents, a fiduciary relationship in respect of any Lender, and nothing in this Agreement or any of the other Loan Documents, expressed or implied, is intended to or shall be so construed as to impose upon any Agent any obligations in respect of this Agreement or any of the other Loan Documents except as expressly set forth herein or therein. B. No Responsibility for Certain Matters. No Agent shall be responsible to any Lender for the execution, effectiveness, genuineness, validity, enforceability, collectibility or sufficiency of this Agreement or any other Loan Document or for any 151 representations, warranties, recitals or statements made herein or therein or made in any written or oral statement or in any financial or other statements, instruments, reports or certificates or any other documents furnished by any Agent to the Lenders or by or on behalf of ChipPAC and/or its Subsidiaries to any Agent or any Lender in connection with the Loan Documents and the transactions contemplated thereby or for the financial condition or business affairs of ChipPAC, Company or any other Person liable for the payment of any Obligations, nor shall any Agent be required to ascertain or inquire as to the performance or observance of any of the terms, conditions, provisions, covenants or agreements contained in any of the Loan Documents or as to the use of the proceeds of the Loans or the use of the Letters of Credit or as to the existence or possible existence of any Default or Event of Default. Anything contained in this Agreement to the contrary notwithstanding, the Administrative Agent shall not have any liability arising from confirmations of the amount of outstanding Loans or the Total Utilization of Revolving Loan Commitments or the component amounts thereof. C. Exculpatory Provisions. Neither any Agent nor any of such Agent's respective officers, directors, employees or agents shall be liable to the Lenders for any action taken or omitted by such Agent under or in connection with any of the Loan Documents except to the extent caused by such Agent's gross negligence or willful misconduct. If any Agent shall request instructions from the Lenders with respect to any act or action (including the failure to take an action) in connection with this Agreement or any of the other Loan Documents, such Agent shall be entitled to refrain from such act or taking such action unless and until such Agent shall have received instructions from the Requisite Lenders (or such other Lenders as may be required to give such instructions under subsection 10.6). Without prejudice to the generality of the foregoing, (i) such Agent shall be entitled to rely, and shall be fully protected in relying, upon any communication, instrument or document believed by it to be genuine and correct and to have been signed or sent by the proper person or persons, and shall be entitled to rely and shall be protected in relying on opinions and judgments of attorneys (who may be attorneys for ChipPAC and its Subsidiaries), accountants, experts and other professional advisors selected by it; and (ii) no Lender shall have any right of action whatsoever against such Agent as a result of such Agent acting or (where so instructed) refraining from acting under this Agreement or any of the other Loan Documents in accordance with the instructions of the Requisite Lenders (or such other Lenders as may be required to give such instructions under subsection 10.6). Such Agent shall be entitled to refrain from exercising any power, discretion or authority vested in it under this Agreement or any of the other Loan Documents unless and until it has obtained the instructions of the Requisite Lenders (or such other Lenders as may be required to give such instructions under subsection 10.6). D. Agents Entitled to Act as the Lender. The agency hereby created shall in no way impair or affect any of the rights and powers of, or impose any duties or 152 obligations upon, any Agent in its individual capacity as a Lender hereunder. With respect to its participation in the Loans and the Letters of Credit, each Agent shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not performing the duties and functions delegated to it hereunder, and the term "Lender" or "Lenders" or any similar term shall, unless the context clearly otherwise indicates, include such Agent in its individual capacity. Each Agent and its Affiliates may accept deposits from, lend money to and generally engage in any kind of banking, trust, financial advisory or other business with ChipPAC or any of its Affiliates as if it were not performing the duties specified herein, and may accept fees and other consideration from ChipPAC and/or its Subsidiaries for services in connection with this Agreement and otherwise without having to account for the same to the Lenders. 9.3 Representations and Warranties; No Responsibility for Appraisal of ------------------------------------------------------------------ Creditworthiness. ---------------- Each Lender represents and warrants that it has made its own independent investigation of the financial condition and affairs of ChipPAC and its Subsidiaries in connection with the making of the Loans and the issuance of Letters of Credit hereunder and that it has made and shall continue to make its own appraisal of the creditworthiness of ChipPAC and its Subsidiaries. No Agent shall have any duty or responsibility, either initially or on a continuing basis, to make any such investigation or any such appraisal on behalf of the Lenders or, except as expressly provided elsewhere in this Agreement, to provide any Lender with any credit or other information with respect thereto (except as provided in Section 4 or subsection 6.1), whether coming into its possession before the making of the Loans or at any time or times thereafter, and no Agent shall have any responsibility with respect to the accuracy of or the completeness of any information provided to the Lenders. 9.4 Right to Indemnity. ------------------ Each Lender, in proportion to its Pro Rata Share, severally agrees to indemnify each Agent, to the extent that such Agent shall not have been reimbursed by Company, for and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including, without limitation, reasonable counsel fees and disbursements) or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against such Agent in performing its duties hereunder or under the other Loan Documents or otherwise in its capacity as such Agent in any way relating to or arising out of this Agreement or the other Loan Documents; provided that no Lender shall be liable for any portion of such liabilities, - -------- obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from such Agent's gross negligence or willful misconduct. If any indemnity furnished to any Agent for any purpose shall, in the opinion of such Agent, be insufficient or become impaired, 153 such Agent may call for additional indemnity and cease, or not commence, to do the acts indemnified against until such additional indemnity is furnished. 9.5 Successor Administrative Agent and Swing Line Lender. ---------------------------------------------------- A. Successor Administrative Agent. The Administrative Agent may resign at any time by giving thirty (30) days' prior written notice thereof to the Lenders, ChipPAC and Company. Upon any such notice of resignation, the Requisite Lenders shall have the right, upon five (5) Business Days' notice to ChipPAC and Company, to appoint a successor Administrative Agent with the consent of ChipPAC and Company. Upon the acceptance of any appointment as the Administrative Agent hereunder by a successor Administrative Agent, that successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent and the retiring Administrative Agent shall be discharged from its duties and obligations under this Agreement. After any retiring Administrative Agent's resignation hereunder as the Administrative Agent, the provisions of this Section 9 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Administrative Agent under this Agreement. B. Successor Swing Line Lender. Any resignation of the Administrative Agent pursuant to subsection 9.5A shall also constitute the resignation of CSFB or its successor as the Swing Line Lender, and any successor Administrative Agent appointed pursuant to subsection 9.5A shall, upon its acceptance of such appointment, become the successor Swing Line Lender for all purposes hereunder. In such event any outstanding Swing Line Loans made by the retiring Administrative Agent in its capacity as Swing Line Lender shall be transferred to the successor Swing Line Lender. 154 9.6 Collateral Documents; Successor Collateral Agent. ------------------------------------------------- Each Lender hereby further authorizes the Collateral Agent to enter into each Collateral Document as secured party on behalf of and for the benefit of the Lenders and the other beneficiaries named therein and agrees to be bound by the terms of each Collateral Document; provided that the Collateral Agent shall -------- not enter into or consent to any material amendment, modification, termination or waiver of any provision contained in any Collateral Document without the prior consent of the Requisite Lenders (or, if required pursuant to subsection 10.6, all the Lenders); provided further, however, that, without further written -------- ------- ------- consent or authorization from any Lender, the Collateral Agent may execute any documents or instruments necessary to effect the release of any asset constituting Collateral from the Lien of the applicable Collateral Document in the event that such asset is sold in a transaction to which the Requisite Lenders have consented or otherwise disposed of in a transaction permitted by this Agreement, or to the extent otherwise permitted or required by any Collateral Document. Anything contained in any of the Loan Documents to the contrary notwithstanding, each Lender agrees that no Lender shall have any right individually to realize upon any of the Collateral under any Collateral Document (including without limitation through the exercise of a right of set-off against call deposits of such Lender in which any funds on deposit in the Collateral Account may from time to time be invested), it being understood and agreed that all rights and remedies under the Collateral Documents may be exercised solely by the Collateral Agent for the benefit of the Lenders and the other beneficiaries named therein in accordance with the terms thereof. The Collateral Agent may resign at any time, and a successor Collateral Agent may be appointed, in accordance with subsection 9.5 as if such subsection 9.5 applied to the Collateral Agent in lieu of the Administrative Agent. SECTION 10. MISCELLANEOUS 10.1 Assignments and Participations in Loans and Letters of Credit. ------------------------------------------------------------- A. General. Subject to subsection 10.1B or 10.1C, as applicable, each Lender shall have the right at any time to (i) sell, assign, transfer or negotiate to any Eligible Assignee, or (ii) sell participations to any Person in, all or any part of its Commitments (together with its Letters of Credit or participations therein made or arising pursuant to its Revolving Loan Commitment) or any Loan or Loans made by it or any other interest herein or in any other Obligations owed to it; provided that no such sale, assignment, -------- transfer or participation shall, without the consent of ChipPAC or Company, require Company to file a registration statement with the Securities and Exchange Commission or apply to qualify such sale, assignment, transfer or participation under the securities laws of any state; provided further that no -------- ------- such sale, assignment or transfer 155 described in clause (i) above shall be effective unless and until an Assignment Agreement effecting such sale, assignment or transfer shall have been accepted by the Administrative Agent and recorded in the Register as provided in subsection 10.1B(ii); provided, further that no such sale, assignment, transfer -------- ------- or participation of any Letter of Credit or any participation therein may be made separately from a sale, assignment, transfer or participation of a corresponding interest in the Revolving Loan Commitment and the Revolving Loans of the Lender effecting such sale, assignment, transfer or participation. Except as otherwise provided in this subsection 10.1, no Lender shall, as between Company and such Lender, be relieved of any of its obligations hereunder as a result of any sale, assignment, transfer or negotiation of, or any granting of participations in, all or any part of its Commitments or the Loans, the Letters of Credit or participations therein or the other Obligations owed to such Lender. B. Assignments. (i) Amounts and Terms of Assignments. Each Commitment, Loan, Letter -------------------------------- of Credit, or participation therein or other Obligation may (a) be assigned in any amount to another Lender who is a Non-Defaulting Lender, or to an Approved Fund or an Affiliate of the assigning Lender or another Lender who, in either such case, is a Non-Defaulting Lender, with the giving of notice to Company and the Administrative Agent or (b) be assigned in an aggregate amount of not less than $5,000,000 (or, in the case of the Term C Loans, $2,500,000) (or, in each case, such lesser amount (1) as shall constitute the aggregate amount of the Commitments, Loans, Letters of Credit, and participations therein and other Obligations of the assigning Lender, or (2) as may be agreed to by Company and the Administrative Agent) to any other Eligible Assignee with the consent of the Administrative Agent (such consent not to be unreasonably withheld) and so long as no Event of Default shall have occurred and be continuing with the consent of Company (such consent not to be unreasonably withheld). To the extent of any such assignment in accordance with either clause (a) or (b) above, the assigning Lender shall be relieved of its obligations with respect to its Commitments, Loans, Letters of Credit, or participations therein or other Obligations or the portion thereof so assigned. The parties to each such assignment shall execute and deliver to the Administrative Agent, for its acceptance and recording in the Register, an Assignment Agreement, together with a processing fee of $3,500 payable by the assigning Lender, and, if requested by the Administrative Agent, a completed administrative questionnaire in the Administrative Agent's customary form with respect to the assignee under such Assignment Agreement. Upon such execution, delivery, acceptance and recordation, from and after the effective date specified in such Assignment Agreement, (y) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment Agreement, shall have the rights and 156 obligations of a Lender hereunder and (z) the assigning Lender thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment Agreement, relinquish its rights and be released from its obligations under this Agreement (and, in the case of an Assignment Agreement covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto); provided that, anything contained in any -------- of the Loan Documents to the contrary notwithstanding, if such Lender is the Issuing Bank such Lender shall continue to have all rights and obligations of the Issuing Bank with respect to outstanding Letters of Credit until the cancellation or expiration of such Letters of Credit and the reimbursement of any amounts drawn thereunder. The Commitments hereunder shall be modified to reflect the Commitments of such assignee and any remaining Commitments of such assigning Lender. (ii) Acceptance by the Administrative Agent; Recordation in Register. --------------------------------------------------------------- Upon its receipt of an Assignment Agreement executed by an assigning Lender and an assignee representing that it is an Eligible Assignee, together with the processing fee referred to in subsection 10.1B(i), the Administrative Agent shall, if such Assignment Agreement has been completed and is in substantially the form of Exhibit IX hereto and if the Administrative Agent ---------- has consented to the assignment evidenced thereby (to the extent such consent is required pursuant to subsection 10.1B(i)), (a) accept such Assignment Agreement by executing a counterpart thereof as provided therein (which acceptance shall evidence any required consent of the Administrative Agent to such assignment), (b) record the information contained therein in the Register, and (c) give prompt notice thereof to Company. The Administrative Agent shall maintain a copy of each Assignment Agreement delivered to and accepted by it as provided in this subsection 10.1B(ii). C. Participations. The holder of any participation, other than an Affiliate of the Lender granting such participation, shall not be entitled to require such Lender to take or omit to take any action hereunder except action (i) effecting the extension of the final maturity of the Loan allocated to such participation or (ii) effecting a reduction of the principal amount of or affecting the rate of interest payable on any Loan or any fee allocated to such participation. ChipPAC, Company and each Lender hereby acknowledge and agree that, solely for purposes of subsections 2.6D, 2.7, 3.6, 10.2, 10.3, 10.4 and 10.5, (a) any participation will give rise to a direct obligation of ChipPAC and Company to the participant and (b) the participant shall be considered to be a "Lender". D. Assignments to Federal Reserve Banks. In addition to the assignments and participations permitted under the foregoing provisions of this subsection 10.1, any Lender may assign and pledge all or any portion of its Loans and the other Obligations 157 owed to such Lender to any Federal Reserve Bank as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any operating circular issued by such Federal Reserve Bank; and any Lender which is an investment fund may pledge all or any portion of its Loans to its trustee in support of its obligations to such trustee; provided that (i) no Lender shall, -------- as between Company and such Lender, be relieved of any of its obligations hereunder as a result of any such assignment and pledge and (ii) in no event shall such Federal Reserve Bank be considered to be a "Lender" or be entitled to require the assigning Lender to take or omit to take any action hereunder. E. Information. Each Lender may furnish any information concerning ChipPAC and its Subsidiaries in the possession of that Lender from time to time to assignees and participants (including prospective assignees and participants), subject to subsection 10.21. F. Special Purpose Funding Vehicle. Notwithstanding anything to the contrary contained herein, any Lender (a "Granting Bank") may grant to a special ------------- purpose funding vehicle (a "SPC"), identified as such in writing from time to --- time by the Granting Bank to the Administrative Agent, ChipPAC and Company, the option to provide to Company all or any part of any Loan that such Granting Bank would otherwise be obligated to make to Company pursuant to this Agreement; provided that (i) nothing herein shall constitute a commitment by any SPC to - -------- make any Loan, and (ii) if an SPC elects not to exercise such option or otherwise fails to provide all or any part of such Loan, the Granting Bank shall be obligated to make such Loan pursuant to the terms hereof. The making of a Loan by an SPC hereunder shall utilize the Commitment of the Granting Bank to the same extent, and as if, such Loan were made by such Granting Bank. Each party hereto hereby agrees that no SPC shall be liable for any indemnity or similar payment obligation under this Agreement (all liability for which shall remain with the Granting Bank). In furtherance of the foregoing, each party hereto hereby agrees (which agreement shall survive the termination of this Agreement) that, prior to the date that is one year and one day after the payment in full of all outstanding commercial paper or other senior indebtedness of any SPC, it will not institute against, or join any other person in instituting against, such SPC any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings under the laws of the United States or any State thereof. In addition, notwithstanding anything to the contrary contained in this subsection 10.1F, any SPC may (i) with notice to, but without the prior written consent of, Company, ChipPAC and the Administrative Agent and without paying any processing fee therefor, assign all or a portion of its interests in any Loans to the Granting Bank or to any financial institutions (consented to by Company, ChipPAC and the Administrative Agent) providing liquidity and/or credit support to or for the account of such SPC to support the funding or maintenance of Loans and (ii) disclose on a confidential basis any non-public information relating to its Loans to any rating agency, commercial paper 158 dealer or provider of any surety, guarantee or credit or liquidity enhancement to such SPC. This section may not be amended without the written consent of the SPC. G. Limitation. No assignee, participant or other transferee of any Lender's rights shall be entitled to receive any greater payment under subsection 2.7 than such Lender would have been entitled to receive with respect to the rights transferred, unless such transfer is made with Company's prior written consent or at a time when the circumstances giving rise to such greater payment did not exist. 10.2 Expenses. -------- ChipPAC and Company agree, jointly and severally, to pay promptly (i) all the actual and reasonable costs and out-of-pocket expenses of the Agents in connection with the preparation of the Loan Documents; (ii) all costs of furnishing all opinions by counsel for ChipPAC and its Subsidiaries (including without limitation any opinions requested by the Lenders or Agents as to any legal matters arising hereunder) and of each of ChipPAC's and Company's performance of and compliance with all agreements and conditions on its part to be performed or complied with under this Agreement and the other Loan Documents including, without limitation, with respect to confirming compliance with environmental and insurance requirements; (iii) the reasonable fees, expenses and disbursements of counsel to the Agents (including allocated costs of internal counsel) in connection with the negotiation, preparation, execution and administration of the Loan Documents and the Loans and any consents, amendments, waivers or other modifications hereto or thereto, in each case, requested by or for the benefit of ChipPAC or Company and any other documents or matters requested by Company; (iv) all other reasonable costs and expenses incurred by the Agents in connection with the negotiation, preparation and execution of the Loan Documents and the transactions contemplated hereby and thereby and the syndication of the Loans and Commitments; and (v) after the occurrence of a Default or Event of Default, all the respective reasonable costs and expenses, including reasonable attorneys' fees (including allocated costs of internal counsel) and costs of settlement, incurred by the Agents and the Lenders in enforcing any Obligations of or in collecting any payments due from ChipPAC or Company hereunder or under the other Loan Documents by reason of such Default or Event of Default or in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement in the nature of a "work-out" or pursuant to any insolvency or bankruptcy proceedings. 10.3 Indemnity. --------- 159 In addition to the payment of expenses pursuant to subsection 10.2, whether or not the transactions contemplated hereby shall be consummated, ChipPAC and Company agree, jointly and severally, to defend (subject to Indemnitees' selection of counsel), indemnify, pay and hold harmless on an after-tax basis the Agents and the Lenders, and the officers, directors, employees, agents, attorneys and affiliates of the Agents and the Lenders (collectively called the "Indemnitees") from and against any and all other ----------- liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature whatsoever (including without limitation the reasonable fees and disbursements of counsel for such Indemnitees, and all such fees and disbursements, as well as other costs and expenses, incurred by Indemnitees in connection with any investigative, administrative or judicial proceeding commenced or threatened by any Person, whether or not any such Indemnitee shall be designated as a party or a potential party thereto), whether direct, indirect or consequential and whether based on any federal, state or foreign laws, statutes, rules or regulations (including without limitation securities and commercial laws, statutes, rules or regulations and Environmental Laws), on common law or equitable cause or on contract or otherwise, that may be imposed on, incurred by, or asserted against any such Indemnitee, in any manner relating to or arising out of this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby (including without limitation the Lenders' agreement to make the Loans hereunder or the use or intended use of the proceeds of any of the Loans or the issuance of Letters of Credit hereunder or the use or intended use of any of the Letters of Credit) or any Environmental Liabilities that arise from or relate to the management, use, control, ownership, occupancy or operation of any Facility or assets of any Loan Party or its Subsidiaries (including without limitation, all on-site and off-site activities involving Hazardous Materials), or the Release or threatened Release of any Hazardous Materials (or allegations of the same) on or from any of the Facilities or on or from any other property where Hazardous Materials are or were (or are or were alleged to be) Released or threatened to be Released in connection with any of the Facilities or the business of any of the Loan Parties, their Subsidiaries, or any predecessor in interest to the Loan Parties or their Subsidiaries (collectively called the "Indemnified Liabilities"); provided that neither ----------------------- -------- ChipPAC nor Company shall have any obligation to any Indemnitee hereunder with respect to any Indemnified Liabilities to the extent that such Indemnified Liabilities arose from the bad faith, gross negligence or willful misconduct of that Indemnitee. To the extent that the undertaking to defend, indemnify, pay and hold harmless set forth in the preceding sentence may be unenforceable because it is violative of any law or public policy, each of ChipPAC and Company shall contribute the maximum portion that it is permitted to pay and satisfy under applicable law to the payment and satisfaction of all Indemnified Liabilities incurred by the Indemnitees or any of them. 10.4 Set-Off; Security Interest in Deposit Accounts. ---------------------------------------------- 160 In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence and during the continuance of any Event of Default, each Lender is hereby authorized by each of ChipPAC and Company at any time or from time to time, without notice to ChipPAC or Company or to any other Person, any such notice being hereby expressly waived, to set off and to appropriate and to apply any and all deposits (general or special, including, but not limited to, Indebtedness evidenced by certificates of deposit, whether matured or unmatured, but not including trust accounts) and any other Indebtedness at any time held or owing by that Lender (at any office of that Lender wherever located) to or for the credit or the account of ChipPAC or Company against and on account of the obligations and liabilities of ChipPAC or Company to that Lender under this Agreement, the Letters of Credit and participations therein, including, but not limited to, all claims of any nature or description arising out of or connected with this Agreement, the Letters of Credit and participations therein or any other Loan Document, irrespective of whether or not (i) that Lender shall have made any demand hereunder or (ii) the principal of or the interest on the Loans or any amounts in respect of the Letters of Credit or any other amounts due hereunder shall have become due and payable pursuant to Section 8 and although said obligations and liabilities, or any of them, may be contingent or unmatured. Each of ChipPAC and Company hereby further grants to the Administrative Agent and each Lender a security interest in all deposits and accounts maintained with the Administrative Agent or such Lender as security for the Obligations. 10.5 Ratable Sharing. --------------- 161 The Lenders hereby agree among themselves that if any of them shall, whether by voluntary payment (other than a voluntary prepayment of Loans made and applied in accordance with the terms of this Agreement), by realization upon security, through the exercise of any right of set-off or banker's lien, by counterclaim or cross action or by the enforcement of any right under the Loan Documents or otherwise, or as adequate protection of a deposit treated as cash collateral under any Bankruptcy Law, receive payment or reduction of a proportion of the aggregate amount of principal, interest, amounts payable in respect of Letters of Credit, fees and other amounts then due and owing to that Lender hereunder or under the other Loan Documents (collectively, the "Aggregate --------- Amounts Due" to such Lender) which is greater than the proportion received by - ----------- any other Lender in respect of the Aggregate Amounts Due to such other Lender, then the Lender receiving such proportionately greater payment shall (i) notify the Administrative Agent and each other Lender of the receipt of such payment and (ii) apply a portion of such payment to purchase participations (which it shall be deemed to have purchased from each seller of a participation simultaneously upon the receipt by such seller of its portion of such payment) in the Aggregate Amounts Due to the other Lenders so that all such recoveries of Aggregate Amounts Due shall be shared by all the Lenders in proportion to the Aggregate Amounts Due to them; provided that if all or part of such -------- proportionately greater payment received by such purchasing Lender is thereafter recovered from such Lender upon the bankruptcy, reorganization or insolvency proceeding of ChipPAC or Company or otherwise, those purchases shall be rescinded and the purchase prices paid for such participations shall be returned to such purchasing Lender ratably to the extent of such recovery, but without interest. Each of ChipPAC and Company expressly consents to the foregoing arrangement and agrees that any holder of a participation so purchased may exercise any and all rights of banker's lien, set-off or counterclaim with respect to any and all monies owing by ChipPAC or Company to that holder with respect thereto as fully as if that holder were owed the amount of the participation held by that holder. 10.6 Amendments and Waivers. ---------------------- A. No amendment, modification, termination or waiver of any provision of this Agreement, or consent to any departure by ChipPAC, Company or any other Loan Party therefrom, shall in any event be effective without the written consent of the Requisite Lenders; provided that any such amendment, -------- modification, termination, waiver or consent which: (a) reduces the principal amount of any of the Loans; (b) changes in any manner any provision of this Agreement which, by its terms, expressly requires the approval or consent of all the Lenders; (c) postpones the scheduled final maturity date of any of the Loans; (d) reduces the percentage specified in the definition of the "Requisite Lenders" (it being understood that, with the consent of the Requisite Lenders, additional extensions of credit pursuant to this Agreement may be included in the definition of the "Requisite Lenders" on substantially the same basis as the Term A Loans, Term A Loan 162 Commitments, Term B Loans, Term B Loan Commitments, Term Delayed Draw Loans, Term Delayed Draw Loan Commitments, Revolving Loans and Revolving Loan Commitments are included on the Closing Date); (e) postpones the date or reduces the amount of any scheduled payment (but not prepayment) of principal of any of the Loans or of any scheduled reduction of the Revolving Credit Commitments or Term Delayed Draw Loan Commitments; (f) postpones the date on which any interest or any fees are payable; (g) decreases the interest rate borne by any of the Loans (other than any waiver of any increase in the interest rate applicable to any of the Loans pursuant to subsection 2.2E) or the amount of any fees payable hereunder; (h) releases all or substantially all of the Collateral; (i) except as permitted by this Agreement (subsection 7.7) or any Guaranty, releases any of the Guarantors from their obligations under the Guaranties; (j) reduces the amount or postpones the due date of any amount payable in respect of, or extends the required expiration date of, any Letter of Credit; or (k) changes in any manner the provisions contained in this subsection 10.6, shall be effective only if evidenced by a writing signed by or on behalf of all the Lenders to whom Obligations are owed or who have Commitments outstanding being directly affected by such amendment, modification, termination, waiver or consent. In addition, (i) any amendment, modification, termination or waiver of any of the provisions contained in Section 4 shall be effective only if evidenced by a writing signed by or on behalf of the Administrative Agent, (ii) no increase in the Commitments of any Lender over the amount thereof then in effect shall be effective without the written concurrence of that Lender, it being understood and agreed that in no event shall waivers or modifications of conditions precedent, covenants, Defaults, Events of Default or of a mandatory prepayment or a reduction of any or all of the Commitments be deemed to constitute an increase of the Commitment of any Lender and that an increase in the available portion of any Commitment of any Lender shall not be deemed to constitute an increase in the Commitment of such Lender, (iii) no amendment, modification, termination or waiver of any provision of subsection 2.1A(vi) or any other provision of this Agreement relating to the Swing Line Loan Commitment or the Swing Line Loans shall be effective without the written concurrence of the Swing Line Lender, (iv) no amendment, modification, termination or waiver of any provision of Section 3 relating to the rights or obligations of the Issuing Bank shall be effective without the written concurrence of the Issuing Bank with respect to any Letter of Credit then outstanding, and (v) no amendment, modification, termination or waiver of any provision of Section 9 or of any other provision of this Agreement which, by its terms, expressly requires the approval or concurrence of any Agent shall be effective without the written concurrence of such Agent. The Administrative Agent may, but shall have no obligation to, with the concurrence of any Lender, execute amendments, modifications, waivers or consents on behalf of that Lender and no amendment, modification, termination or waiver of any provision of subsection 2.4 which has the effect of changing any voluntary or mandatory prepayments or Commitment reductions applicable to any Class (the "Affected Class") in a manner that disproportionately disadvantages such -------------- Class relative to any other Class 163 shall be effective without the written concurrence of the Requisite Class Lenders of the Affected Class (it being understood and agreed that any amendment, modification, termination or waiver of any such provision which only postpones or reduces any voluntary or mandatory prepayment or Commitment reduction from those set forth in subsection 2.4 with respect to one Class but not the other Classes shall be deemed to disproportionately disadvantage such one Class but not to disproportionately disadvantage such other Classes for purposes of this clause). Any waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. No notice to or demand on ChipPAC or Company in any case shall entitle ChipPAC or Company to any other or further notice or demand in similar or other circumstances. Any amendment, modification, termination, waiver or consent effected in accordance with this subsection 10.6 shall be binding upon each Lender at the time outstanding, each future Lender and, if signed by ChipPAC or Company, on ChipPAC or Company. 10.7 Independence of Covenants. ------------------------- All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or would otherwise be within the limitations of, another such covenant shall not avoid the occurrence of an Default or Event of Default if such action is taken or condition exists. 10.8 Notices. ------- Unless otherwise specifically provided herein, any notice or other communication herein required or permitted to be given shall be in writing and may be personally served, telecopied, telexed or sent by United States mail or courier service and shall be deemed to have been given when delivered in person or by courier service, upon receipt of telecopy or telex, or four Business Days after depositing it in the United States mail, registered or certified, with postage prepaid and properly addressed. For the purposes hereof, the address of each party hereto shall be as set forth on the signature pages hereof attached hereto, or such other address as shall be designated by such party in a written notice delivered to the Administrative Agent, ChipPAC and Company. 10.9 Survival of Representations, Warranties and Agreements. ------------------------------------------------------ A. All representations, warranties and agreements made herein shall survive the execution and delivery of this Agreement and the making of the Loans and the issuance of the Letters of Credit hereunder. 164 B. Notwithstanding anything in this Agreement or implied by law to the contrary, the respective agreements of ChipPAC and Company set forth in subsections 2.6D, 2.7, 3.5A, 3.6, 10.2, 10.3 and 10.4, as applicable and the agreements of the Lenders set forth in subsections 9.2C, 9.4, 10.4, 10.5 and 10.21 shall survive the payment of the Loans, the cancellation or expiration of the Letters of Credit and the reimbursement of any amounts drawn or paid thereunder, and the termination of this Agreement. 10.10 Failure or Indulgence Not Waiver; Remedies Cumulative. ----------------------------------------------------- No failure or delay on the part of any Agent or any Lender in the exercise of any power, right or privilege hereunder or under any other Loan Document shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other power, right or privilege. All rights and remedies existing under this Agreement and the other Loan Documents are cumulative to, and not exclusive of, any rights or remedies otherwise available. 10.11 Marshalling; Payments Set Aside. ------------------------------- Neither any Agent nor any Lender shall be under any obligation to marshal any assets in favor of ChipPAC, Company or any other party or against or in payment of any or all of the Obligations. To the extent that ChipPAC or Company makes a payment or payments to the Administrative Agent or the Lenders (or to the Administrative Agent or Collateral Agent for the benefit of the Lenders), or any Agent or the Lenders enforce any security interests or exercise their rights of setoff, and such payment or payments or the proceeds of such enforcement or setoff or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, any other state or federal law, common law or any equitable cause, then, to the extent of such recovery, the obligation or part thereof originally intended to be satisfied, and all Liens, rights and remedies therefor or related thereto, shall be revived and continued in full force and effect as if such payment or payments had not been made or such enforcement or setoff had not occurred. 10.12 Severability. ------------ In case any provision in or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. 165 10.13 Obligations Several; Independent Nature of the Lenders' Rights. -------------------------------------------------------------- The obligations of the Lenders hereunder are several and no Lender shall be responsible for the obligations or Commitments of any other Lender hereunder. Nothing contained herein or in any other Loan Document, and no action taken by the Lenders pursuant hereto or thereto, shall be deemed to constitute the Lenders as a partnership, an association, a joint venture or any other kind of entity. The amounts payable at any time hereunder to each Lender shall be a separate and independent debt, and each Lender shall be entitled to protect and enforce its rights arising out of this Agreement and it shall not be necessary for any other Lender to be joined as an additional party in any proceeding for such purpose. 10.14 Maximum Amount. -------------- A. It is the intention of ChipPAC, Company and the Lenders to conform strictly to the usury and similar laws relating to interest from time to time in force, and all agreements between the Loan Parties and their respective Subsidiaries and the Lenders, whether now existing or hereafter arising and whether oral or written, are hereby expressly limited so that in no contingency or event whatsoever, whether by acceleration of maturity hereof or otherwise, shall the amount paid or agreed to be paid in the aggregate to the Lenders as interest (whether or not designated as interest, and including any amount otherwise designated but deemed to constitute interest by a court of competent jurisdiction) hereunder or under the other Loan Documents or in any other agreement given to secure the Indebtedness or obligations of ChipPAC or Company to the Lenders, or in any other document evidencing, securing or pertaining to the Indebtedness evidenced hereby, exceed the maximum amount permissible under applicable usury or such other laws (the "Maximum Amount"). If under any -------------- circumstances whatsoever fulfillment of any provision hereof, or any of the other Loan Documents, at the time performance of such provision shall be due, shall involve exceeding the Maximum Amount, then, ipso facto, the obligation to be fulfilled shall be reduced to the Maximum Amount. For the purposes of calculating the actual amount of interest paid and/or payable hereunder in respect of laws pertaining to usury or such other laws, all sums paid or agreed to be paid to the holder hereof for the use, forbearance or detention of the Indebtedness of ChipPAC or Company evidenced hereby, outstanding from time to time shall, to the extent permitted by Applicable Law, be amortized, pro-rated, allocated and spread from the date of disbursement of the proceeds of the Loans until payment in full of all of such Indebtedness, so that the actual rate of interest on account of such Indebtedness is uniform through the term hereof. The terms and provisions of this subsection shall control and supersede every other provision of all agreements between ChipPAC, Company and the Lenders. 166 B. If under any circumstances any Lender shall ever receive an amount which would exceed the Maximum Amount, such amount shall be deemed a payment in reduction of the principal amount of the Loans and shall be treated as a voluntary prepayment under subsection 2.4B(i) and shall be so applied in accordance with subsection 2.4 hereof or, if such excessive interest exceeds the unpaid balance of the Loans and any other Indebtedness of ChipPAC or Company in favor of such Lender, the excess shall be deemed to have been a payment made by mistake and shall be refunded to ChipPAC or Company, as applicable. 10.15 Headings. -------- Section and subsection headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or be given any substantive effect. 10.16 Applicable Law. -------------- THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. 10.17 Successors and Assigns. ---------------------- This Agreement shall be binding upon the parties hereto and their respective successors and assigns and shall inure to the benefit of the parties hereto and the successors and assigns of the Lenders (it being understood that the Lenders' rights of assignment are subject to subsection 10.1). Neither ChipPAC's or Company's respective rights or obligations hereunder nor any interest therein may be assigned or delegated by ChipPAC or Company without the prior written consent of all Lenders. 10.18 Consent to Jurisdiction and Service of Process. ---------------------------------------------- ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST CHIPPAC OR COMPANY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY OBLIGATIONS THEREUNDER, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY EXECUTING AND DELIVERING THIS AGREEMENT, COMPANY FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY (I) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS; 167 (II) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS; (III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO COMPANY AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SUBSECTION 10.8; (IV) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER COMPANY IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT; (V) AGREES THAT LENDERS RETAIN THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST COMPANY IN THE COURTS OF ANY OTHER JURISDICTION; AND (VI) AGREES THAT THE PROVISIONS OF THIS SUBSECTION 10.18 RELATING TO JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1402 OR OTHERWISE. 10.19 Waiver of Jury Trial. -------------------- EACH OF THE PARTIES TO THIS AGREEMENT HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION OR THE LENDER/BORROWER RELATIONSHIP OR OTHER RELATIONSHIP THAT IS BEING ESTABLISHED. The scope of this waiver is intended to be all-encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of this transaction, including, without limitation, contract claims, tort claims, breach of duty claims and all other common law and statutory claims. Each party hereto acknowledges that this waiver is a material inducement to enter into a business relationship, that each has already relied on this waiver in entering into this Agreement, and that each will continue to rely on this waiver in their related future dealings. Each party hereto further warrants and represents that it 168 has reviewed this waiver with its legal counsel and that it knowingly and voluntarily waives its jury trial rights following consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SUBSECTION 10.19 AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS MADE HEREUNDER. In the event of litigation, this Agreement may be filed as a written consent to a trial by the court. 10.20 Judgment Currency. ----------------- A. The obligations of Company and the other Loan Parties hereunder and under the other Loan Documents to make payments in dollars (the "Obligation ---------- Currency") shall not be discharged or satisfied by any tender or recovery - -------- pursuant to any judgment expressed in or converted into any currency other than the Obligation Currency, except to the extent that such tender or recovery results in the effective receipt by the Administrative Agent or a Lender or the Issuing Bank of the full amount of the Obligation Currency expressed to be payable to the Administrative Agent or such Lender or the Issuing Bank under this Agreement or the other Loan Documents. If, for the purpose of obtaining or enforcing judgment against Company or any other Loan Party or in any court or in any jurisdiction, it becomes necessary to convert into or from any currency other than the Obligation Currency (such other currency being hereinafter referred to as the "Judgment Currency") an amount due in the Obligation ----------------- Currency, the conversion shall be made at the rate of exchange (as quoted by the Administrative Agent or if the Administrative Agent does not quote a rate of exchange on such currency, by a known dealer in such currency designated by the Administrative Agent) determined, in each case, as of the date immediately preceding the day on which the judgment is given (such Business Day being hereinafter referred to as the "Judgment Currency Conversion Date"). --------------------------------- B. If there is a change in the rate of exchange prevailing between the Judgment Currency Conversion Date and the date of actual payment of the amount due, Company covenants and agrees to pay, or cause to be paid, as a separate obligation and notwithstanding any judgment, such additional amounts, if any (but in any event not a lesser amount), as may be necessary to ensure that the amount paid in the Judgment Currency, when converted at the rate of exchange prevailing on the date of payment, will produce the amount of the Obligation Currency which could have been purchased with the amount of Judgment Currency stipulated in the judgment or judicial award at the rate of exchange prevailing on the Judgment Currency Conversion Date. 169 C. For purposes of determining the rate of exchange for this Section, such amounts shall include any premium and costs payable in connection with the purchase of the Obligation Currency. 10.21 Confidentiality. --------------- Each Lender shall hold all non-public information obtained pursuant to the requirements of this Agreement in accordance with such Lender's customary procedures for handling confidential information of this nature and in accordance with safe and sound banking and investing practices, it being understood and agreed by ChipPAC and Company that in any event a Lender may make disclosures reasonably required by any bona fide assignee, transferee or participant in connection with the contemplated assignment or transfer by such Lender of any Loans or any participation therein or as required or requested by any governmental agency or representative thereof or pursuant to legal process; provided that nothing herein shall prevent any Agent or any Lender from - -------- disclosing any such information (i) to the Administrative Agent or any other Lender, (ii) any of its employees, directors, officers, agents or affiliates who need to know such information in accordance with customary safe and sound banking or commercial lending practices who receive such information having been made aware of the confidential nature thereof, (iii) upon the request or demand of any Governmental Authority having jurisdiction over it, (iv) in response to any order of any court or other Governmental Authority or as may otherwise be required pursuant to any Applicable Laws, (v) if required to do so in connection with any litigation or similar proceeding, (vi) which has been publicly disclosed other than in breach of this subsection 10.21 or (vii) to the National Association of Insurance Commissioners or any securities exchange or any similar organization, or any nationally recognized rating agency that requires access to information about a Lender's investment portfolio in connection with ratings issued with respect to such Lender. In the event that any Lender discloses any information pursuant to clauses (iv) or (v) of the preceding sentence, such Lender will, before such disclosure, give notice thereof to ChipPAC and Company if such Lender is lawfully permitted to do so; and provided, further that in no -------- ------- event shall any Lender be obligated or required to return any materials furnished by ChipPAC or any of its Subsidiaries unless requested by ChipPAC or any of its Subsidiaries to do so. 170 10.22 Counterparts; Effectiveness. --------------------------- A. This Agreement and any amendments, waivers, consents or supplements hereto or in connection herewith may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. B. This Agreement shall become effective when it shall have been executed by ChipPAC, Company, each Subsidiary Guarantor (in connection with its agreement in Section 10.24) and the Administrative Agent, and when the Administrative Agent shall have received counterparts hereof which, when taken together, bear the signatures of (i) each Lender with a Term C Loan Commitment, and (ii) the Requisite Class Lenders for each Class of Loans and/or Commitments hereunder. 10.23. No Novation. ----------- The execution, delivery and effectiveness of this Agreement shall not extinguish the obligations for the payment of money outstanding under the Original Credit Agreement or discharge or release the Lien or priority of any Collateral Document or any other security therefor. Nothing herein contained shall be construed as a substitution or novation of the obligations outstanding under the Original Credit Agreement or instruments securing the same, which shall remain in full force and effect, except as modified hereby or by instruments executed concurrently herewith. Nothing expressed or implied in this Agreement or any other document contemplated hereby shall be construed as a release or other discharge of Company under the Original Credit Agreement or any Guarantor under any Loan Document from any of its obligations and liabilities thereunder. Each of the Original Credit Agreement and the other Loan Documents shall remain in full force and effect, until and except as modified hereby in connection herewith. 10.24. Consent of Subsidiary Guarantors. -------------------------------- Each Subsidiary Guarantor, by its signature below, (i) acknowledges notice of, and consents to the terms of, this Agreement and the additional extensions of credit contemplated hereby (including with respect to the Incremental Revolving Loan Amount, if any) and (ii) affirms its Guaranty of the Obligations (as the same may be increased as contemplated hereby) and (to the extent applicable) the pledge of its assets as Collateral to secure such Obligations, all as provided in the Loan Documents as originally executed, and acknowledges and agrees that such Guaranty and, if applicable, pledge continue in 171 full force and effect in respect of, and to secure, the Obligations (as the same may be increased as contemplated hereby). [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 172 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above. CHIPPAC INTERNATIONAL COMPANY LIMITED By: /s/ Sharon St. Clair-Douglas --------------------------------------- Name: Sharon St. Clair-Douglas Title: Power of Attorney Notice Address: c/o HWR Services Limited Craigmuir Chambers, P.O. Box 71 Road Town, Tortola British Virgin Islands and ChipPAC, Inc. 3151 Coronado Drive Santa Clara, CA 95054 Attn: Chief Financial Officer Telephone: (408) 486-5900 Facsimile: (408) 486-5911 with a copy to: Bain Capital, Inc. Two Copley Place Boston, MA 02116 Attn: Edward Conard and Marshall Haines Telephone: (617) 572-3000 Facsimile: (617) 572-3274 and Kirkland & Ellis 200 East Randolph Drive Chicago, IL 60601 Attn: Linda Myers Telephone: (312) 861-2000 Facsimile: (312) 861-2200 and Citicorp Venture Capital, Ltd. 399 Park Avenue New York, NY 10043 Attn: Paul C. Schorr IV Telephone: (212) 559-2056 Facsimile: (212) 888-2940 and Dechert Price & Rhoads 4000 Bell Atlantic Tower 1717 Arch Street Philadelphia, PA 19103 Attn: G. Daniel O'Donnell Telephone: (215) 994-4000 Facsimile: (215) 994-2222 CHIPPAC, INC. By: /s/ Sharon St. Claire-Douglas --------------------------------------- Name: Sharon St. Claire-Douglas Title: Power of Attorney Notice Address: 3151 Coronado Drive Santa Clara, CA 95054 Attn: Chief Financial Officer Telephone: (408) 486-5900 Facsimile: (408) 486-5911 with a copy to: Bain Capital, Inc. Two Copley Place Boston, MA 02116 Attn: Edward Conard and Marshall Haines Telephone: (617) 572-3000 Facsimile: (617) 572-3274 and Kirkland & Ellis 200 East Randolph Drive Chicago, IL 60601 Attn: Linda Myers Telephone: (312) 861-2000 Facsimile: (312) 861-2200 and Citicorp Venture Capital, Ltd. 399 Park Avenue New York, NY 10043 Attn: Paul C. Schorr IV Telephone: (212) 559-2056 Facsimile: (212) 888-2940 and Dechert Price & Rhoads 4000 Bell Atlantic Tower 1717 Arch Street Philadelphia, PA 19103 Attn: G. Daniel O'Donnell Telephone: (215) 994-4000 Facsimile: (215) 994-2222 CHIPPAC (BARBADOS) LTD. By: /s/ Sharon St. Clair-Douglas ------------------------------------ Name: Sharon St. Clair-Douglas Title: Power of Attorney CHIPPAC LIMITED By: /s/ Sharon St. Clair-Douglas ------------------------------------ Name: Sharon St. Clair-Douglas Title: Power of Attorney CHIPPAC LUXEMBOURG S.A.R.L. By: /s/ Sharon St. Clair-Douglas ----------------------------------- Name: Sharon St. Clair-Douglas Title: Power of Attorney CHIPPAC LIQUIDITY MANAGEMENT HUNGARY LIMITED LIABILITY COMPANY By: /s/ Sharon St. Clair-Douglas ------------------------------------ Name: Sharon St. Clair-Douglas Title: Power of Attorney CHIPPAC KOREA COMPANY LTD. By: /s/ Sharon St. Clair-Douglas ------------------------------------ Name: Sharon St. Clair-Douglas Title: Power of Attorney AGENTS AND LENDERS: CREDIT SUISSE FIRST BOSTON, individually and as the Administrative Agent, Sole Lead Arranger and the Collateral Agent By: /s/ Robert Hetu ------------------------------------ Name: Robert Hetu Title: Vice President By: /s/ Vitaly G. Butenko ------------------------------------ Name: Vitaly G. Butenko Title: Assistant Vice President SCHEDULE 1.1(i) Certain Adjustments to EBITDA/Consolidated Interest Expense ---------------------------------------------------------- 1. Without duplication and to the extent otherwise deducted in determining Consolidated Net Income: (i) items classified as unusual or nonrecurring gains and losses (including restructuring costs, severance and relocation costs, any one-time expenses related to (or resulting from) any merger, recapitalization or Permitted Acquisition); (ii) one-time compensation charges, including any arising from any recapitalization of Company's bonus program or existing stock options, performance share or restricted stock plans resulting from any merger or recapitalization transaction or expended in any period prior to the consummation of the transactions contemplated by the Transaction Documents or the Purchase Transactions Documents, as the case may be; (iii) non-recurring cash charges and transaction expenses incurred in connection with the transactions contemplated by the Transaction Documents and the Purchase Transactions Documents to the extent deducted in determining Consolidated Net Income; (iv) non-recurring cash charges and transaction expenses incurred in connection with Permitted Acquisitions to the extent deducted in determining Consolidated Net Income; (v) any translation gains and losses due solely to fluctuations in currency values and the related tax effect in accordance with GAAP; (vi) one-time charges related to HEI's union change in control in Korea, to the extent paid by HEI; (vii) non-cash charges associated with Intel's warrant to purchase $5,000,000 of ChipPAC's common stock at a 20.0% discount to the initial public offering price; and (viii) the payment of management, consulting and advisory fees and related expenses made pursuant to the Sponsor Advisory Services Agreements. 2. For purposes of calculating the Interest Coverage Ratio, the Leverage Ratio and the Fixed Charge Coverage Ratio at or for the period ended June 30, 2000, Consolidated Adjusted EBITDA and Consolidated Interest Expense shall be deemed to be Consolidated Adjusted EBITDA and Consolidated Interest Expense, respectively, for the period from July 31, 1999 to June 30, 2000, multiplied by 12/11. EXHIBITS I FORM OF NOTICE OF BORROWING II FORM OF NOTICE OF CONVERSION/CONTINUATION III FORM OF NOTICE OF ISSUANCE OF LETTER OF CREDIT IV FORM OF GUARANTY V FORM OF PRINCIPAL PLEDGE AGREEMENT VI FORM OF PRINCIPAL SECURITY AGREEMENT VII FORM OF COMPLIANCE CERTIFICATE VIII FORMS OF OPINIONS OF COUNSEL TO LOAN PARTIES IX FORM OF ASSIGNMENT AGREEMENT X FORM OF COLLATERAL ACCOUNT AGREEMENT XI FORM OF PERMITTED SELLER PAPER SUBORDINATION PROVISIONS XII-A CHINESE PLEDGE AGREEMENT (SHANGHAI I) XII-B CHINESE PLEDGE AGREEMENT (SHANGHAI II) XIII-A CHINESE SECURITY AGREEMENT (RECEIVABLES) XIII-B CHINESE SECURITY AGREEMENT (LAND USE AND BUILDING) XIV HEI PREFERRED STOCK XV HUNGARIAN PLEDGE AGREEMENT XVI KOREAN PLEDGE AGREEMENT XVII KOREAN SECURITY AGREEMENT XVIII INTEL PREFERRED STOCK XIX OTHER RECAPITALIZATION SECURITY AGREEMENTS XX FORMS OF MALAYSIAN SECURITY AGREEMENTS SCHEDULES 1.1(i) CERTAIN ADJUSTMENTS TO EBITDA/CONSOLIDATED INTEREST EXPENSE 1.1(ii) INTERCOMPANY NOTES 2.1 LENDERS' COMMITMENTS AND PRO RATA SHARES 4.1G PERFECTION OF SECURITY INTERESTS 4.1L CORPORATE STRUCTURE; CAPITAL STRUCTURE; OWNERSHIP 5.1 SUBSIDIARIES OF CHIPPAC 5.5B CERTAIN REAL PROPERTY MATTERS 5.5C CERTAIN INTELLECTUAL PROPERTY MATTERS 5.12 CERTAIN FEES 7.1 CERTAIN EXISTING INDEBTEDNESS 7.2A CERTAIN EXISTING LIENS 7.3 CERTAIN EXISTING INVESTMENTS 7.4 CERTAIN EXISTING CONTINGENT OBLIGATIONS 7.8 CERTAIN SALES AND LEASE-BACKS EX-10.5.1 7 0007.txt AMENDMENT NO. 1 TO AMENDED AND RESTATED Exhibit 10.5.1 AMENDMENT NO. 1 TO AMENDED AND ------------------------------ RESTATED REGISTRATION AGREEMENT ------------------------------- THIS AMENDMENT NO. 1 TO AMENDED AND RESTATED REGISTRATION AGREEMENT (this "Amendment") is made and entered into as of June 30, 2000, by and --------- among ChipPAC, Inc., a California corporation (the "Company"), Sapphire ------- Worldwide Investments, Inc., a British Virgin Islands corporation ("Sapphire") -------- and each of the other persons and entities listed on the signature pages hereto, which persons and entities are, effective as of the date hereof, holders of not less than a majority of the Company's Registrable Securities (as defined in the Original Agreement described in this Amendment). This Amendment amends that certain Amended and Restated Registration Agreement dated as of August 5, 1999, by and among the Company and each of the other shareholders of the Company listed therein (the "Original Agreement"). Unless otherwise provided in this ------------------ Agreement, capitalized terms used herein shall have the meanings set forth in the Original Agreement. WHEREAS, the Company, Sapphire, Intersil Corporation and ChipPAC Limited, the Company's wholly-owned indirect subsidiary, are parties to that certain Stock Purchase Agreement dated as of June 30, 2000 (the "Purchase -------- Agreement"); and - --------- WHEREAS, the execution and delivery of this Agreement is a condition to the closing of the transactions contemplated by the Purchase Agreement. NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties, and intending to be legally bound hereby, the parties hereby agree as follows: 1. The second sentence of the first introductory paragraph of the Original Agreement is hereby amended and restated in its entirety to read as follows: The Hyundai Shareholders, the Bain Shareholders, the SXI Shareholders, Intel, CSFB, Sankaty and Sapphire are collectively referred to herein as the "Shareholders," and each as a "Shareholder." ------------ ----------- 2. Section 9 of the Original Agreement is hereby amended by adding the following definitions: "Class C Preferred" means the Company's Class C Preferred Stock, par ----------------- value $.01 per share. "Sapphire Registrable Securities" means (i) any shares of Common Stock ------------------------------- issued upon conversion of the Class C Preferred issued pursuant to the Purchase Agreement, (ii) any equity securities issued or issuable directly or indirectly with respect to the securities referred to in clause (i) by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization, including a recapitalization or exchange and (iii) any other shares of Common Stock held by Persons holding securities described in clause (i) or (ii) above; provided that in the event that pursuant to such recapitalization or exchange, Non- Participating Securities are issued, such Non-Participating Securities will not be Registrable Securities. Notwithstanding anything in this Agreement to the contrary, shares of Common Stock or other equity securities of the Company that would otherwise constitute Sapphire Registrable Securities shall not be considered Sapphire Registrable Securities (and thus, not Registrable Securities) if the holder thereof can sell, in any three (3) month period, all of such holder's shares or securities, as applicable, without registration pursuant to Rule 144 under the Securities Act. As to any particular shares constituting Sapphire Registrable Securities, such shares will cease to be Sapphire Registrable Securities when they have been (x) effectively registered under the Securities Act and disposed of in accordance with the registration statement covering them or (y) sold to the public through a broker, dealer or market maker pursuant to Rule 144 (or by similar provision then in force) under the Securities Act. 3. The definition of "Registrable Securities" set forth in Section 9 of the Original Agreement is hereby amended and restated in its entirety to read as follows: "Registrable Securities" means collectively the Hyundai Registrable ---------------------- Securities, the Intel Registrable Securities, the Bain Registrable Securities, the SXI Registrable Securities, the Financing Source Registrable Securities and the Sapphire Registrable Securities. For purposes of this Agreement, a Person will be deemed to be a holder of Registrable Securities whenever such Person has the right to acquire such Registrable Securities (upon conversion or exercise in connection with a transfer of securities or otherwise, but disregarding any restrictions or limitations upon the exercise of such right), whether or not such acquisition has actually been effected. 4. Effectiveness. From and after the date of this Agreement, the ------------- holders of Sapphire Registrable Securities shall be a party to the Original Agreement, as amended hereby, and shall have all of the rights and be subject to all of the duties as a holder of Sapphire Registrable Securities. Except as otherwise set forth in this Amendment, the terms of the Original Agreement shall remain in full force and effect and shall remain unchanged. 5. Holdback Agreement. In addition to the holdback agreement set ------------------ forth in the Original Agreement, each holder of Sapphire Registrable Securities agrees not to effect any sale or distribution (including sales pursuant to Rule 144) of equity securities of the Company, or any securities, options or rights convertible into or exchangeable or exercisable for such securities, during the seven days prior to and the 365-day period beginning on the effective date of the Company's Initial Public Offering (the "Sapphire Holdback Period"); provided ------------------------ that upon any sale or distribution (including sales pursuant to Rule 144) of Registrable Securities by any Bain Shareholder or any SXI Shareholder subsequent to the effective date of the Company's Initial Public Offering and prior to the expiration of the Sapphire Holdback Period, the additional restrictions contained in this Section 5 shall immediately terminate with respect to a number of Sapphire Registrable Securities equal to the product of (A) the greater of (i) the quotient determined by dividing the number of Registrable Securities sold or distributed by the transferring Bain Shareholder(s) in such sale, if any, by the aggregate number of Registrable Securities (prior to giving effect to such sale or distribution) owned by all Bain Shareholders or (ii) the quotient determined by -2- dividing the number of Registrable Securities sold or distributed by any transferring SXI Shareholder(s) in such sale, if any, by the aggregate number of Registrable Securities (prior to giving effect to such sale or distribution) owned by all SXI Shareholders and (B) the aggregate number of Sapphire Registrable Securities as of the time of such sale or distribution. Notwithstanding the foregoing, each holder of Sapphire Registrable Securities shall continue to be bound by the holdback agreement set forth in the Original Agreement. 6. Integration. Any reference in the Original Agreement to the term ----------- "Agreement" is deemed to refer to both the Original Agreement as well as the Original Agreement, as amended by this Amendment. 7. Miscellaneous. ------------- (a) Amendments and Waivers. Except as otherwise provided herein, the ---------------------- provisions of this Amendment may be amended or waived only upon the prior written consent of the Company and holders of a majority of the Registrable Securities; but if such amendment or waiver would treat a holder or group of holders of Registrable Securities in a manner different from any other holders of Registrable Securities, then such amendment or waiver will require the consent of such holder or the holders of a majority of the Registrable Securities of such group adversely treated. (b) Successors and Assigns. This Amendment will be binding upon and ---------------------- inure to the benefit of and be enforceable by the parties hereto and their respective successors and assigns. In addition, and whether or not any express assignment has been made, the provisions of this Amendment that are for the benefit of the holders of Registrable Securities (or any portion thereof) as such will be for the benefit of and enforceable by any subsequent holder of any Registrable Securities (or of such portion thereof), subject to the provisions respecting the minimum numbers or percentages of shares of Registrable Securities (or of such portion thereof) required in order to be entitled to certain rights, or take certain actions, contained herein. (c) Severability. Whenever possible, each provision of this Amendment ------------ will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Amendment is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or the effectiveness or validity of any provision in any other jurisdiction, and this Amendment will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. (d) Counterparts. This Amendment may be executed simultaneously in ------------ two or more counterparts, any one of which need not contain the signatures of more than one party, but all such counterparts taken together will constitute one and the same agreement. (e) Descriptive Headings. The descriptive headings of this Amendment -------------------- are inserted for convenience only and do not constitute a part of this Amendment. (f) Governing Law. All issues concerning the enforceability, validity ------------- and binding effect of this Amendment will be governed by and construed in accordance with the laws of the State -3- of California, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of California or any other jurisdiction) that would cause the application of the law of any jurisdiction other than the State of California. (g) Notices. All notices, demands or other communications to be given ------- or delivered under or by reason of the provisions of this Amendment will be in writing and will be deemed to have been given when personally delivered or received by certified mail, return receipt requested, or sent by guaranteed overnight courier service. Such notices, demands and other communications shall be sent to the addresses listed in the Original Agreement, the addresses indicated below or, if no address is so indicated for any particular Shareholder, at the address listed in the Company's records: If to Sapphire: -------------- Sapphire Worldwide Investments, Inc. c/o Intersil Corporation 7585 Irvine Center Drive, Suite 100 Irvine, California 92618 Attention: Gregory L. Williams Facsimile No.: (949) 341-7053 With a copy to: -------------- Intersil Corporation 7585 Irvine Center Drive, Suite 100 Irvine, California 92618 Attention: Steven M. Moran, Esq. Facsimile No.: (949) 341-7053 or to such other address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party. * * * * * -4- IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 to Amended and Restated Registration Agreement on the day and year first above written. CHIPPAC, INC. By: /s/ Sharon St. Clair-Douglas _________________________________ Its: Power of Attorney ________________________________ SAPPHIRE: SAPPHIRE WORLDWIDE INVESTMENTS, INC. By: /s/ Howard Rothman _________________________________ Its: Assistant Secretary ________________________________ THE BAIN SHAREHOLDERS: BAIN CAPITAL FUND VI, L.P. By: Bain Capital Partners VI, L.P. Its: General Partner By: Bain Capital Investors, Inc. Its: General Partner By: /s/ Edward Conrad _________________________________ A Managing Director BCIP ASSOCIATES II By: /s/ Edward Conrad _________________________________ A General Partner BCIP ASSOCIATES II-B By: /s/ Edward Conrad _________________________________ A General Partner BCIP ASSOCIATES II-C By: /s/ Edward Conrad _________________________________ A General Partner BCIP TRUST ASSOCIATES II By: Bain Capital, Inc. Its: General Partner By: /s/ Edward Conrad _________________________________ A Managing Director BCIP TRUST ASSOCIATES II-B By: Bain Capital, Inc. Its: General Partner By: /s/ Edward Conrad _________________________________ A Managing Director PEP INVESTMENTS PTY., LTD. By: /s/ Edward Conrad _________________________________ Its: General Partner ________________________________ RANDOLPH STREET PARTNERS II By: /s/ Gary Holihan _________________________________ A General Partner SXI GROUP LLC By: /s/ Paul C. Schorr, IV _________________________________ Its: Member ________________________________ EX-10.5.2 8 0008.txt AGREEEMENT WITH QUALCOM EXHIBIT 10.5.2 FORM OF ------- AMENDMENT NO. 2 TO AMENDED AND ------------------------------ RESTATED REGISTRATION AGREEMENT ------------------------------- THIS AMENDMENT NO. 2 TO AMENDED AND RESTATED REGISTRATION AGREEMENT (this "Amendment") is made and entered into as of July 13, 2000, by and among - ---------- ChipPAC, Inc., a Delaware corporation and successor by merger to ChipPAC, Inc., a California corporation (the "Company"), QUALCOMM Incorporated, a Delaware ------- corporation ("QUALCOMM") and each of the other persons and entities listed on -------- the signature pages hereto, which persons and entities are, effective as of the date hereof, holders of not less than a majority of the Company's Registrable Securities (as defined in the Original Agreement described in this Amendment). This Amendment amends that certain Amended and Restated Registration Agreement dated as of August 5, 1999, as amended by Amendment No. 1 thereto dated June 30, 2000, by and among the Company and each of the other shareholders of the Company listed therein (collectively, the "Original Agreement"). Unless otherwise ------------------ provided in this Agreement, capitalized terms used herein shall have the meanings set forth in the Original Agreement. WHEREAS, the Company and QUALCOMM are parties to that certain Class A Common Stock Purchase Agreement dated as of July 13, 2000 (the "QUALCOMM -------- Purchase Agreement"); and - ------------------ WHEREAS, the execution and delivery of this Agreement is a condition to the closing of the transactions contemplated by the QUALCOMM Purchase Agreement. NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties, and intending to be legally bound hereby, the parties hereby agree as follows: 1. The second sentence of the first introductory paragraph of the Original Agreement is hereby amended and restated in its entirety to read as follows: The Hyundai Shareholders, the Bain Shareholders, the SXI Shareholders, Intel, CSFB, Sankaty, Sapphire and QUALCOMM are collectively referred to herein as the "Shareholders," and each as a "Shareholder." ------------ ----------- 2. Section 1(a) of the Original Agreement is hereby amended by adding the following sentence at the end of Section 1(a). "The holders of a majority of the QUALCOMM Registrable Securities may request registration under the Securities Act of all or part of the QUALCOMM Registrable Securities pursuant to a Long-Form Registration or a Short-Form Registration under the circumstances and as set forth in paragraph 1(j) below." 3. The Original Agreement is hereby amended by adding the following Section 1(j). "(j) QUALCOMM Demand Registration Rights. At any time after the ----------------------------------- Company's Common Stock is publicly traded on any national securities exchange or quoted as a NASDAQ "National Market Security" and prior to the seventh anniversary of the closing of the transactions contemplated by the QUALCOMM Purchase Agreement, the holders of a majority of the QUALCOMM Registrable Securities will be entitled to request one Long-Form Registration in which the Company will pay all Registration Expenses (the "QUALCOMM Demand Registration"); provided ---------------------------- -------- that the Company will not be obligated to effect such QUALCOMM Demand Registration unless the holders of the QUALCOMM Registrable Securities request to include at least 50% of the QUALCOMM Registrable Securities. The QUALCOMM Demand Registration will be a Short-Form Registration if the Company is permitted to use any applicable short form. A registration shall not count as QUALCOMM's one permitted QUALCOMM Demand Registration until it has become effective (unless such registration has not become effective due solely to the fault of the holders requesting such registration) and unless the holders of QUALCOMM Registrable Securities are able to register and sell at least 75% of the QUALCOMM Registrable Securities requested to be included in such registration; provided, however, that the holders of QUALCOMM -------- ------- Registrable Securities shall not be entitled to request more than one such registration in any six month period even if the previous registration did not count as QUALCOMM's one permitted QUALCOMM Demand Registration. Nevertheless, the Company shall pay all Registration Expenses in connection with any registration that was initiated as a QUALCOMM Demand Registration whether or not it has become effective and whether or not such registration has counted as QUALCOMM's one permitted QUALCOMM Demand Registration." 4. Section 1(f) of the Original Agreement is hereby amended and restated as follows: "(f) Priority on Demand Registrations. The Company will not -------------------------------- include in any Demand Registration any securities which are not Registrable Securities without the prior written consent of (i) the holders of a majority of the Registrable Securities included in such registration, in the case of any Demand Registration other than a Hyundai Demand Registration, an Intel Demand Registration or a QUALCOMM Demand Registration, (ii) the holders of a majority of the Hyundai Registrable Securities in the case of a Hyundai Demand Registration, (iii) the holders of a majority of the Intel Registrable Securities in the case of an Intel Demand Registration and (iv) the holders of a majority of the QUALCOMM Registrable Securities in the case of a QUALCOMM Demand Registration. If a Demand Registration is an underwritten offering and the managing underwriters advise the Company in writing that in their opinion the number of Registrable Securities and, if permitted hereunder, other securities requested to be included in such offering exceeds the number of Registrable Securities and other securities, if -2- any, which can be sold therein without adversely affecting the marketability of the offering, (i) in the case of any Demand Registration other than a Hyundai Demand Registration, an Intel Demand Registration or a QUALCOMM Demand Registration, the Company will include in such registration prior to the inclusion of any securities which are not Registrable Securities the number of Registrable Securities requested to be included which in the opinion of such underwriters can be sold without adversely affecting the marketability of the offering, pro rata among the respective holders thereof on the basis of the number of shares of Registrable Securities owned by each such holder, (ii) in the case of a Hyundai Demand Registration, the Company will include in such registration (A) first, the securities the holders of the Hyundai Registrable Securities propose to sell, pro rata among the respective holders thereof on the basis of the number of shares of Registrable Securities owned by each such holder, (B) second, the Registrable Securities requested to be included in such registration by the other holders of Registrable Securities, pro rata among such other holders on the basis of the number of shares of Registrable Securities owned by each such holder and (C) third, other securities requested to be included in such registration, (iii) in the case of an Intel Demand Registration, the Company will include in such registration (A) first, the securities the holders of the Intel Registrable Securities propose to sell, pro rata among the respective holders thereof on the basis of the number of shares of Registrable Securities owned by each such holder, (B) second, the Registrable Securities requested to be included in such registration by the other holders of Registrable Securities, pro rata among such other holders on the basis of the number of shares of Registrable Securities owned by each such holder and (C) third, other securities requested to be included in such registration and (iv) in the case of a QUALCOMM Demand Registration, the Company will include in such registration (A) first, the securities the holders of the QUALCOMM Registrable Securities propose to sell, pro rata among the respective holders thereof on the basis of the number of shares of Registrable Securities owned by each such holder, (B) second, the Registrable Securities requested to be included in such registration by the other holders of Registrable Securities, pro rata among such other holders on the basis of the number of shares of Registrable Securities owned by each such holder and (C) third, other securities requested to be included in such registration." 5. Section 1(h) of the Original Agreement is hereby amended and restated as follows: "(h) Selection of Underwriters. The holders of a majority of the ------------------------- Bain Registrable Securities and the holders of a majority of the SXI Registrable Securities included in any Demand Registration (other than a Hyundai Demand Registration, an Intel Demand Registration or a QUALCOMM Demand Registration) will have the right to select the investment banker(s) and manager(s) to administer the offering, subject to the Company's approval, which will not be unreasonably withheld. The Company will have the right to select the investment banker(s) and manager(s) to administer any Hyundai Demand Registration, -3- subject to the approval of a majority of the Hyundai Registrable Securities included in any Hyundai Demand Registration, which will not be unreasonably withheld. The Company will have the right to select the investment banker(s) and manager(s) to administer any Intel Demand Registration, subject to the approval of a majority of the Intel Registrable Securities included in any Intel Demand Registration, which will not be unreasonably withheld. The Company will have the right to select the investment banker(s) and manager(s) to administer any QUALCOMM Demand Registration, subject to the approval of a majority of the QUALCOMM Registrable Securities included in any QUALCOMM Demand Registration, which will not be unreasonably withheld." 6. The following clause is added to the end of the only sentence of Section 3(a) of the Original Agreement (immediately before the period): "; provided that with respect to QUALCOMM, the agreement contained in this Section 3(a) shall only apply with respect to the Company's Initial Public Offering" 7. Section 9 of the Original Agreement is hereby amended by adding the following definitions: "QUALCOMM Registrable Securities" means (i) any shares of Common Stock ------------------------------- issued to QUALCOMM pursuant to the QUALCOMM Purchase Agreement, (ii) any equity securities issued or issuable directly or indirectly with respect to the securities referred to in clause (i) by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization, including a recapitalization or exchange and (iii) any other shares of Common Stock held by Persons holding securities described in clause (i) or (ii) above; provided that in the event that pursuant to such recapitalization or exchange, Non-Participating Securities are issued, such Non-Participating Securities will not be Registrable Securities. Notwithstanding anything in this Agreement to the contrary, shares of Common Stock or other equity securities of the Company that would otherwise constitute QUALCOMM Registrable Securities shall not be considered QUALCOMM Registrable Securities (and thus, not Registrable Securities) if the holder thereof can sell, in any three (3) month period, all of such holder's shares or securities, as applicable, without registration pursuant to Rule 144 under the Securities Act. As to any particular shares constituting QUALCOMM Registrable Securities, such shares will cease to be QUALCOMM Registrable Securities when they have been (x) effectively registered under the Securities Act and disposed of in accordance with the registration statement covering them or (y) sold to the public through a broker, dealer or market maker pursuant to Rule 144 (or by similar provision then in force) under the Securities Act. 8. The definition of "Registrable Securities" set forth in Section 9 of the Original Agreement is hereby amended and restated in its entirety to read as follows: "Registrable Securities" means collectively the Hyundai Registrable ---------------------- Securities, the Intel Registrable Securities, the Bain Registrable Securities, the SXI Registrable Securities, -4- the Financing Source Registrable Securities, the Sapphire Registrable Securities and the QUALCOMM Registrable Securities. For purposes of this Agreement, a Person will be deemed to be a holder of Registrable Securities whenever such Person has the right to acquire such Registrable Securities (upon conversion or exercise in connection with a transfer of securities or otherwise, but disregarding any restrictions or limitations upon the exercise of such right), whether or not such acquisition has actually been effected. 9. Effectiveness. From and after the date of this Agreement, the ------------- holders of QUALCOMM Registrable Securities shall be a party to the Original Agreement, as amended hereby, and shall have all of the rights and be subject to all of the duties as a holder of QUALCOMM Registrable Securities. Except as otherwise set forth in this Amendment, the terms of the Original Agreement shall remain in full force and effect and shall remain unchanged. 10. Integration. Any reference in the Original Agreement to the ----------- term "Agreement" is deemed to refer to both the Original Agreement as well as the Original Agreement, as amended by this Amendment. 11. Miscellaneous. ------------- (a) No Inconsistent Agreements. The Company will not hereafter -------------------------- enter into any agreement with respect to its securities which is inconsistent with or violates the rights granted to the holders of Registrable Securities in this Agreement. (b) Adjustments Affecting Registrable Securities. The Company will -------------------------------------------- not take any action, or permit any change to occur, with respect to its securities which would materially and adversely affect the ability of the holders of Registrable Securities to include such Registrable Securities in a registration undertaken pursuant to this Agreement or which would adversely affect the marketability of such Registrable Securities in any such registration (including, without limitation, effecting a stock split or a combination of shares). (c) Remedies. The parties hereto agree and acknowledge that money -------- damages may not be an adequate remedy for any breach of the provisions of this Agreement and that any party hereto will have the right to injunctive relief, in addition to all of its other rights and remedies at law or in equity, to enforce the provisions of this Agreement. (d) Amendments and Waivers. Except as otherwise provided herein, ---------------------- the provisions of this Amendment may be amended or waived only upon the prior written consent of the Company and holders of a majority of the Registrable Securities; but if such amendment or waiver would treat a holder or group of holders of Registrable Securities in a manner different from any other holders of Registrable Securities, then such amendment or waiver will require the consent of such holder or the holders of a majority of the Registrable Securities of such group adversely treated. (e) Successors and Assigns. This Amendment will be binding upon ---------------------- and inure to the benefit of and be enforceable by the parties hereto and their respective successors and assigns. In addition, and whether or not any express assignment has been made, the provisions -5- of this Amendment that are for the benefit of the holders of Registrable Securities (or any portion thereof) as such will be for the benefit of and enforceable by any subsequent holder of any Registrable Securities (or of such portion thereof), subject to the provisions respecting the minimum numbers or percentages of shares of Registrable Securities (or of such portion thereof) required in order to be entitled to certain rights, or take certain actions, contained herein. (f) Severability. Whenever possible, each provision of this ------------ Amendment will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Amendment is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or the effectiveness or validity of any provision in any other jurisdiction, and this Amendment will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. (g) Counterparts. This Amendment may be executed simultaneously in ------------ two or more counterparts, any one of which need not contain the signatures of more than one party, but all such counterparts taken together will constitute one and the same agreement. (h) Descriptive Headings. The descriptive headings of this -------------------- Amendment are inserted for convenience only and do not constitute a part of this Amendment. (i) Governing Law. All issues concerning the enforceability, ------------- validity and binding effect of this Amendment will be governed by and construed in accordance with the laws of the State of California, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of California or any other jurisdiction) that would cause the application of the law of any jurisdiction other than the State of California. (j) Notices. All notices, demands or other communications to be ------- given or delivered under or by reason of the provisions of this Amendment will be in writing and will be deemed to have been given when personally delivered or received by certified mail, return receipt requested, or sent by guaranteed overnight courier service. Such notices, demands and other communications shall be sent to the addresses listed in the Original Agreement, the addresses indicated below or, if no address is so indicated for any particular Shareholder, at the address listed in the Company's records: If to QUALCOMM: -------------- QUALCOMM Incorporated 5775 Morehouse Drive San Diego, CA 92121 Attn: General Counsel With a copy to: -------------- Cooley Godward LLP 4365 Executive Drive, Suite 1100 -6- San Diego, CA 92121-2128 Attn: Thomas A. Coll or to such other address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party. * * * * * -7- IN WITNESS WHEREOF, the parties have executed this Amendment No. 2 to Amended and Restated Registration Agreement on the day and year first above written. CHIPPAC, INC. By:____ Its:___ QUALCOMM: QUALCOMM INCORPORATED By:____ Its:___ THE BAIN SHAREHOLDERS: BAIN CAPITAL FUND VI, L.P. By: Bain Capital Partners VI, L.P. Its: General Partner By: Bain Capital Investors, Inc. Its: General Partner By:___ A Managing Director BCIP ASSOCIATES II By:___ A General Partner BCIP ASSOCIATES II-B By:___ A General Partner BCIP ASSOCIATES II-C By:___ A General Partner BCIP TRUST ASSOCIATES II By: Bain Capital, Inc. Its: General Partner By:___ A Managing Director BCIP TRUST ASSOCIATES II-B By: Bain Capital, Inc. Its: General Partner By:___ A Managing Director PEP INVESTMENTS PTY., LTD. By:____ Its:___ RANDOLPH STREET PARTNERS II By:___ A General Partner SXI GROUP LLC By:____ Its:___ EX-10.21 9 0009.txt CHIPPAC, INC. 2000 EQUITY INCENTIVE PLAN Exhibit 10.21 CHIPPAC, INC. 2000 EQUITY INCENTIVE PLAN 1. Purposes of the Plan. -------------------- The purposes of this Equity Incentive Plan are: . to attract and retain the best available personnel for positions of substantial responsibility, . to provide additional incentive to Employees, Directors and Consultants, and . to promote the success of the Company's business. Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options, as determined by the Administrator at the time of grant. 2. Definitions. ----------- As used herein, the following definitions shall apply: (1) "Administrator" means the Board or any of its Committees as shall ------------- be administering the Plan, in accordance with Section 4 of the Plan. (2) "Applicable Laws" means the requirements relating to the --------------- administration of stock option plans under U. S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any foreign country or jurisdiction where Options are, or will be, granted under the Plan. (3) "Board" means the Board of Directors of the Company. ----- (4) "Change in Control" means the occurrence of any of the following: ----------------- (1) When any "person" as defined in Section 3(a)(9) of the Exchange Act and as used in Sections 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d) of the Exchange Act but excluding the Company and any Subsidiary and any employee benefit plan sponsored or maintained by the Company or any Subsidiary (including any trustee of such plan acting as trustee), directly or indirectly, becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act, as amended from time to time), after the effective date of the Plan, of securities of the Company representing 50 percent or more of the combined voting power of the Company's then outstanding securities; (2) When, during any period of 24 consecutive months during the existence of the Plan, the individuals who, at the beginning of such period, constitute the Board (the "Incumbent Directors") cease for any reason other than ------------------- death to constitute at least a majority thereof, provided, however, that a director who was not a director at the beginning of such 24-month period shall be deemed to have satisfied such 24-month requirement (and be an Incumbent Director) if such director was elected by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors either actually (because they were directors at the beginning of such 24-month period) or by prior operation of this provision; or (3) The approval by the stockholders of the Company of a transaction involving the acquisition of the Company by an entity other than the Company or a Subsidiary through purchase of assets, by merger, or otherwise. (5) "Code" means the Internal Revenue Code of 1986, as amended. ---- (6) "Committee" means a committee of Directors appointed by the Board --------- in accordance with Section 4 of the Plan. (7) "Common Stock" means the Class A common stock, par value $0.01 ------------ per share, of the Company, and the Class B common stock, par value $0.01 per share, of the Company. (8) "Company" means ChipPAC, Inc., a Delaware corporation, or any ------- successor thereto. (9) "Consultant" means any person, including an advisor, engaged by ---------- the Company or a Parent or Subsidiary to render services to such entity. (10) "Director" means a member of the Board. -------- (11) "Disability" means total and permanent disability as defined in ---------- Section 22(e)(3) of the Code. (12) "Employee" means any person, including Officers and Directors, -------- employed by the Company or any Parent or Subsidiary of the Company. A Service Provider shall not cease to be an Employee in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor. For purposes of Incentive Stock Options, no such leave may exceed ninety days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, on the 181st day of such leave any Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option. Neither service as a Director nor payment of a Director's fee by the Company shall be sufficient to constitute "employment" by the Company. (13) "Exchange Act" means the Securities Exchange Act of 1934, as ------------ amended. (14) "Existing Plans" shall have the meaning set forth in Section 3. -------------- (15) "Fair Market Value" means, as of any date, the value of Common ----------------- Stock determined as follows: (1) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the time of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; (2) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share of Common Stock shall be the mean between the high bid and low asked prices for the Common Stock on the last market trading day prior to the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or (3) In the absence of an established market for the Common Stock, the Fair Market Value shall be determined in good faith by the Administrator. (16) "Incentive Stock Option" means an Option intended to qualify as ---------------------- an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder. (17) "Incumbent Directors" shall have the meaning set forth in Section ------------------- 2(d)(ii). (18) "Nonstatutory Stock Option" means an Option not intended to ------------------------- qualify as an Incentive Stock Option. (19) "Notice of Grant" means a written or electronic notice evidencing --------------- certain terms and conditions of an individual Option. The Notice of Grant is part of the Option Agreement. (20) "Officer" means a person who is an officer of the Company within ------- the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (21) "Option" means a stock option granted pursuant to the Plan. ------ (22) "Option Agreement" means an agreement between the Company and an ---------------- Optionee evidencing the terms and conditions of an individual Option grant. The Option Agreement is subject to the terms and conditions of the Plan. (23) "Option Exchange Program" means a program whereby outstanding ----------------------- Options are surrendered in exchange for Options with a lower exercise price. 3 (24) "Optioned Stock" means the Common Stock subject to an Option. -------------- (25) "Optionee" means the holder of an outstanding Option granted -------- under the Plan. (26) "Parent" means a "parent corporation," whether now or hereafter ------ existing, as defined in Section 424(e) of the Code. (27) "Plan" means this 2000 Equity Incentive Plan. ---- (28) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any ---------- successor to Rule 16b-3, as in effect when discretion is being exercised with respect to the Plan. (29) "Section 16(b)" means Section 16(b) of the Exchange Act. ------------- (30) "Service Provider" means an Employee, Director or Consultant. ---------------- (31) "Share" means a share of the Common Stock, as adjusted in ----- accordance with Section 12 of the Plan. (32) "Subsidiary" means a "subsidiary corporation," whether now or ---------- hereafter existing, as defined in Section 424(f) of the Code. 3. Shares Subject to the Plan. -------------------------- Subject to the provisions of Section 12 of the Plan, the maximum aggregate number of Shares which may be optioned and sold under the Plan is (a) 3,000,000 Shares, plus (b) any Shares returned to the Company's existing stock option plans (the "Existing Plans") as a result of termination of options under the -------------- Existing Plans, plus (c) an annual increase to be added on the date of each annual meeting of the stockholders of the Company, beginning with the 2001 annual meeting of the stockholders, equal to one percent (1.0%) of the outstanding Shares on such date or such lesser amount determined by the Board. The Shares may be authorized, but unissued, or reacquired Common Stock. If an Option expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an Option Exchange Program, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated); provided, however, that Shares that have actually been issued under the Plan, whether upon exercise of an Option shall not be returned to the Plan and shall not become available for future distribution under the Plan. 4. Administration of the Plan. -------------------------- (1) Procedure. --------- 4 (1) Multiple Administrative Bodies. The Plan may be administered ------------------------------ by different Committees with respect to different groups of Service Providers. (2) Section 162(m). To the extent that the Administrator -------------- determines it to be desirable to qualify Options granted hereunder as "performance-based compensation" within the meaning of Section 162(m) of the Code, the Plan shall be administered by a Committee of two or more "outside directors" within the meaning of Section 162(m) of the Code. (3) Rule 16b-3. To the extent desirable to qualify transactions ---------- hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder shall be structured to satisfy the requirements for exemption under Rule 16b-3. (4) Other Administration. Other than as provided above, the -------------------- Plan shall be administered by (A) the Board or (B) a Committee, which committee shall be constituted to satisfy Applicable Laws. (2) Powers of the Administrator. Subject to the provisions of the --------------------------- Plan, and in the case of a Committee, subject to the specific duties delegated by the Board to such Committee, the Administrator shall have the authority, in its discretion: (1) to determine the Fair Market Value; (2) to select the Service Providers to whom Options may be granted hereunder; (3) to determine the number of shares of Common Stock to be covered by each Option granted hereunder; (4) to approve forms of agreement for use under the Plan; (5) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Option granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when Options may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Option or the shares of Common Stock relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine; (6) to reduce the exercise price of any Option to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option shall have declined since the date the Option was granted; (7) to institute an Option Exchange Program; (8) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan; 5 (9) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of qualifying for preferred tax treatment under foreign tax laws; (10) to modify or amend each Option (subject to Section 14(c) of the Plan), including the discretionary authority to extend the post-termination exercisability period of Options longer than is otherwise provided for in the Plan; (11) to allow Optionees to satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issued upon exercise of an Option that number of Shares having a Fair Market Value equal to the amount required to be withheld. The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined. All elections by an Optionee to have Shares withheld for this purpose shall be made in such form and under such conditions as the Administrator may deem necessary or advisable; (12) to authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Option previously granted by the Administrator; and (13) to make all other determinations deemed necessary or advisable for administering the Plan. (3) Effect of Administrator's Decision. The Administrator's ---------------------------------- decisions, determinations and interpretations shall be final and binding on all Optionees and any other holders of Options. 1. Eligibility. ------------ Nonstatutory Stock Options and may be granted to Service Providers. Incentive Stock Options may be granted only to Employees. 5. Limitations. ----------- (1) Each Option shall be designated in the Option Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Optionee during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 6(a), Incentive Stock Options shall be taken into account in the order in which they were granted. The Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted. (2) Neither the Plan nor any Option shall confer upon an Optionee any right with respect to continuing the Optionee's relationship as a Service Provider with the Company, nor shall 6 they interfere in any way with the Optionee's right or the Company's right to terminate such relationship at any time, with or without cause. (3) The following limitations shall apply to grants of Options: (1) No Service Provider shall be granted, in any fiscal year of the Company, Options to purchase more than 700,000 Shares. (2) In connection with his or her initial service, a Service Provider may be granted Options to purchase up to an additional 700,000 Shares which shall not count against the limit set forth in subsection (i) above. (3) The foregoing limitations shall be adjusted proportionately in connection with any change in the Company's capitalization as described in Section 12. (4) If an Option is cancelled in the same fiscal year of the Company in which it was granted (other than in connection with a transaction described in Section 12), the canceled Option will be counted against the limits set forth in subsections (i) and (ii) above. For this purpose, if the exercise price of an Option is reduced, the transaction will be treated as a cancellation of the Option and the grant of a new Option. 6. Term of Plan. ------------ Subject to Section 18 of the Plan, the Plan shall become effective upon its adoption by the Board. It shall continue in effect for a term of ten (10) years unless terminated earlier under Section 14 of the Plan. 7. Term of Option. -------------- The term of each Option shall be stated in the Option Agreement. In the case of an Incentive Stock Option, the term shall be ten (10) years from the date of grant or such shorter term as may be provided in the Option Agreement. Moreover, in the case of an Incentive Stock Option granted to an Optionee who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Incentive Stock Option shall be five (5) years from the date of grant or such shorter term as may be provided in the Option Agreement. 2. Option Exercise Price and Consideration. --------------------------------------- (1) Exercise Price. The per share exercise price for the Shares to be -------------- issued pursuant to exercise of an Option shall be determined by the Administrator, subject to the following: (1) In the case of an Incentive Stock Option 7 (1) granted to an Employee who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant. (2) granted to any Employee other than an Employee described in paragraph (A) immediately above, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant. (2) In the case of a Nonstatutory Stock Option, the per Share exercise price shall be determined by the Administrator. In the case of a Nonstatutory Stock Option intended to qualify as "performance-based compensation" within the meaning of Section 162(m) of the Code, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant. (3) Notwithstanding the foregoing, Options may be granted with a per Share exercise price of less than 100% of the Fair Market Value per Share on the date of grant pursuant to a merger or other corporate transaction. (2) Waiting Period and Exercise Dates. At the time an Option is --------------------------------- granted, the Administrator shall fix the period within which the Option may be exercised and shall determine any conditions which must be satisfied before the Option may be exercised. (3) Form of Consideration. The Administrator shall determine the --------------------- acceptable form of consideration for exercising an Option, including the method of payment. In the case of an Incentive Stock Option, the Administrator shall determine the acceptable form of consideration at the time of grant. Such consideration may consist entirely of: (1) cash; (2) check; (3) promissory note; (4) other Shares which (A) in the case of Shares acquired upon exercise of an option, have been owned by the Optionee for more than six months on the date of surrender, and (B) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised; (5) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan; (6) a reduction in the amount of any Company liability to the Optionee, including any liability attributable to the Optionee's participation in any Company-sponsored deferred compensation program or arrangement; 8 (7) any combination of the foregoing methods of payment; or (8) such other consideration and method of payment for the issuance of Shares to the extent permitted by Applicable Laws. 8. Exercise of Option. ------------------ (1) Procedure for Exercise; Rights as a Stockholder. Any Option ----------------------------------------------- granted hereunder shall be exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Administrator and set forth in the Option Agreement. Unless the Administrator provides otherwise, vesting of Options granted hereunder shall be tolled during any unpaid leave of absence. An Option may not be exercised for a fraction of a Share. An Option shall be deemed exercised when the Company receives: (i) written or electronic notice of exercise (in accordance with the Option Agreement) from the person entitled to exercise the Option, and (ii) full payment for the Shares with respect to which the Option is exercised. Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Option Agreement and the Plan. Shares issued upon exercise of an Option shall be issued in the name of the Optionee or, if requested by the Optionee, in the name of the Optionee and his or her spouse. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 13 of the Plan. Exercising an Option in any manner shall decrease the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (2) Termination of Relationship as a Service Provider. If an Optionee ------------------------------------------------- ceases to be a Service Provider, other than upon the Optionee's death, Disability or retirement, the Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement to the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for 30 days following the Optionee's termination (unless the Administrator determines a different length of time). If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified by the Administrator, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. 9 (3) Disability of Optionee. If an Optionee ceases to be a Service ---------------------- Provider as a result of the Optionee's Disability, the Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement to the extent the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for six months following the Optionee's termination (unless the Administrator determines a different length of time). If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (4) Death of Optionee. If an Optionee dies while a Service Provider, ----------------- the Option may be exercised within such period of time as is specified in the Option Agreement (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant), by the Optionee's estate or by a person who acquires the right to exercise the Option by bequest or inheritance, but only to the extent that the Option is vested on the date of death. In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for six months following the Optionee's termination (unless the Administrator determines a different length of time). If, at the time of death, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall immediately revert to the Plan. The Option may be exercised by the executor or administrator of the Optionee's estate or, if none, by the person(s) entitled to exercise the Option under the Optionee's will or the laws of descent or distribution. If the Option is not so exercised within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (5) Retirement of Optionee. If an Optionee ceases to be a Service ---------------------- Provider as a result of the Optionee's voluntary retirement, the Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement to the extent the Option is vested on the date of retirement (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for 30 days following the Optionee's retirement (unless the Administrator determines a different length of time). If, on the date of retirement, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after retirement, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. This Section 10(e) shall only apply to an Optionee who voluntarily retires from the Company or a Subsidiary on or after the date on which such Optionee has attained the age of 59 1/2. Notwithstanding anything in this Section 10(e) or an Option Agreement to the contrary, if the Administrator determines in the good faith exercise of its judgment that any Optionee who has retired engages in any conduct detrimental to the Company, upon such determination by the Administrator, such Option shall immediately and without further action on the part of the Company, expire and become unexercisable. No notice of such determination need to be given to any Optionee in such circumstance. 10 (6) Change in Control. In the event of a Change in Control, only if ----------------- provided in the Option Agreement, any Option awarded under this Plan to the extent not previously exercisable shall immediately become fully exercisable. The Administrator in its sole discretion may direct the Company to cash out all outstanding Options as of the date a Change in Control occurs or such other date as the Administrator may determine prior to the Change in Control. (7) Buyout Provisions. The Administrator may at any time offer to buy ----------------- out for a payment in cash or Shares an Option previously granted based on such terms and conditions as the Administrator shall establish and communicate to the Optionee at the time that such offer is made. 9. Non-Transferability of Options. ------------------------------ Unless determined otherwise by the Administrator, an Option may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of decent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. If the Administrator makes an Option transferable, such Option shall contain such additional terms and conditions as the Administrator deems appropriate. 10. Adjustments Upon Changes in Capitalization, Dissolution, Merger or ------------------------------------------------------------------ Asset Sale. - ---------- (1) Changes in Capitalization. Subject to any required action by the ------------------------- stockholders of the Company, the number of shares of Common Stock covered by each outstanding Option, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per share of Common Stock covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option. (2) Dissolution or Liquidation. In the event of the proposed -------------------------- dissolution or liquidation of the Company, the Administrator shall notify each Optionee as soon as practicable prior to the effective date of such proposed transaction. The Administrator in its discretion may provide for an Optionee to have the right to exercise his or her Option until ten (10) days prior to such transaction as to all of the Optioned Stock covered thereby, including Shares as to which the Option would not otherwise be exercisable. In addition, the Administrator may provide that any Company repurchase option applicable to any Shares purchased upon exercise of an Option shall lapse as to all such Shares, provided the proposed dissolution or liquidation takes place at the time and in the 11 manner contemplated. To the extent it has not been previously exercised, an Option will terminate immediately prior to the consummation of such proposed action. (3) Merger or Asset Sale. In the event of a merger of the Company -------------------- with or into another corporation, or the sale of substantially all of the assets of the Company, each outstanding Option and shall be assumed or an equivalent option or right substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the Option, the Optionee shall fully vest in and have the right to exercise the Option as to all of the Optioned Stock, including Shares as to which it would not otherwise be vested or exercisable. If an Option becomes fully vested and exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Administrator shall notify the Optionee in writing or electronically that the Option shall be fully vested and exercisable for a period of fifteen (15) days from the date of such notice, and the Option shall terminate upon the expiration of such period. For the purposes of this paragraph, the Option shall be considered assumed if, following the merger or sale of assets, the option or right confers the right to purchase or receive, for each Share of Optioned Stock subject to the Option immediately prior to the merger or sale of assets, the consideration (whether stock, cash, or other securities or property) received in the merger or sale of assets by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or sale of assets is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option, for each Share of Optioned Stock subject to the Option, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or sale of assets. 11. Date of Grant. ------------- The date of grant of an Option shall be, for all purposes, the date on which the Administrator makes the determination granting such Option, or such other later date as is determined by the Administrator. Notice of the determination shall be provided to each Optionee within a reasonable time after the date of such grant. 12. Amendment and Termination of the Plan. ------------------------------------- (1) Amendment and Termination. The Board may at any time amend, ------------------------- alter, suspend or terminate the Plan. (2) Stockholder Approval. The Company shall obtain stockholder -------------------- approval of any Plan amendment to the extent necessary and desirable to comply with Applicable Laws. (3) Effect of Amendment or Termination. No amendment, alteration, ---------------------------------- suspension or termination of the Plan shall impair the rights of any Optionee, unless mutually agreed otherwise between the Optionee and the Administrator, which agreement must be in writing and signed by the 12 Optionee and the Company. Termination of the Plan shall not affect the Administrator's ability to exercise the powers granted to it hereunder with respect to Options granted under the Plan prior to the date of such termination. 13. Conditions Upon Issuance of Shares. ---------------------------------- (1) Legal Compliance. Shares shall not be issued pursuant to the ---------------- exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares shall comply with Applicable Laws and shall be further subject to the approval of counsel for the Company with respect to such compliance. (2) Investment Representations. As a condition to the exercise of an -------------------------- Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required. 14. Inability to Obtain Authority. ----------------------------- The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 15. Reservation of Shares. --------------------- The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. 16. Stockholder Approval. -------------------- The Plan shall be subject to approval by the stockholders of the Company within twelve (12) months after the date the Plan is adopted by the Board. Such stockholder approval shall be obtained in the manner and to the degree required under Applicable Laws. The Plan shall terminate in the event that it is not approved by the stockholders of the Company within the time period set forth herein. In addition, all of the Options granted under this Plan prior to its approval by the stockholders of the Company shall be granted subject to, and conditioned upon, such approval and shall automatically terminate in the event that the Plan has not been approved by the stockholders within the time period set forth herein. 17. Governing Law. ------------- 13 The validity, construction, interpretation, administration and effect of the Plan shall be determined in accordance with the internal law, and not the law of conflicts, of the State of California. 14 EXHIBIT A 2000 Equity Incentive Plan EXERCISE NOTICE ChipPAC, Inc. 3151 Coronado Drive Santa Clara, California 95054 Attention: Chief Financial Officer 18. Exercise of Option. Effective as of today, ________________, _____, the ------------------ undersigned ("Purchaser") hereby elects to purchase ______________ shares (the "Shares") of the Common Stock of ChipPAC, Inc. (the "Company") under and pursuant to the 2000 Equity Incentive Plan (the "Plan") and the Stock Option Agreement dated _____________, _____ (the "Option Agreement"). The purchase price for the Shares shall be $_____________, as required by the Option Agreement. 19. Delivery of Payment. Purchaser herewith delivers to the Company the full ------------------- purchase price for the Shares. 20. Representations of Purchaser. Purchaser acknowledges that Purchaser has ---------------------------- received, read and understood the Plan and the Option Agreement and agrees to abide by and be bound by their terms and conditions. 21. Rights as Stockholder. Until the issuance (as evidenced by the appropriate --------------------- entry on the books of the Company or of a duly authorized transfer agent of the Company) of the Shares, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Shares so acquired shall be issued to the Optionee as soon as practicable after exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date of issuance, except as provided in Section 13 of the Plan. 22. Tax Consultation. Purchaser understands that Purchaser may suffer adverse ---------------- tax consequences as a result of Purchaser's purchase or disposition of the Shares. Purchaser represents that Purchaser has consulted with any tax consultants Purchaser deems advisable in connection with the purchase or disposition of the Shares and that Purchaser is not relying on the Company for any tax advice. 23. Entire Agreement; Governing Law. The Plan and Option Agreement are ------------------------------- incorporated herein by reference. This agreement, the Plan and the Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Purchaser with respect to the subject matter hereof, and may not be modified adversely to the Purchaser's interest except by means of a writing signed by the Company and Purchaser. This agreement is governed by the internal substantive laws, but not the choice of law rules, of California. Submitted by: Accepted by: PURCHASER: CHIPPAC, INC. __________________________________ Signature By __________________________________ Print Name Its Address: Address: 3151 Coronado Drive Santa Clara, California 95054 Date Received EX-10.22 10 0010.txt CHIPPAC, INC. 2000 EMPLOYEE STOCK PURCHASE PLAN Exhibit 10.22 CHIPPAC, INC. 2000 EMPLOYEE STOCK PURCHASE PLAN The following constitute the provisions of the 2000 Employee Stock Purchase Plan of ChipPAC, Inc. 1. Purpose. ------- The purpose of the Plan is to provide employees of the Company and its Designated Subsidiaries with an opportunity to purchase Common Stock of the Company. It is the intention of the Company to use reasonable efforts to have the Plan qualify as an "Employee Stock Purchase Plan" under Section 423 of the Code. However, the Company does not undertake or represent that the Plan complies or will continue to comply with Section 423 of the Code. In addition, this Plan authorizes the grant of options and issuances of Common Stock which do not qualify under section 423 of the Code pursuant to sub-plans adopted by the Committee designed to achieve desired tax or other objectives in particular locations outside the United States. 2. Definitions. ----------- (1) "Additional Shares" shall have the meaning set forth in Section ----------------- 2(r). (2) "Approval Date Fair Market" shall have the meaning set forth in ------------------------- Section 2(r). (3) "Board" means the Board of Directors of the Company. ----- (4) "Code" means the Internal Revenue Code of 1986, as amended. ---- (5) "Committee" means the compensation committee of the Board, unless --------- there is no such committee, in which case it means the Board. (6) "Common Stock" means the Company's Class A common stock, par ------------ value $0.01 per share, and the Company's Class B common stock, par value $0.01 per share. (7) "Company" means ChipPAC, Inc., a Delaware corporation, or any ------- successor thereto. (8) "Compensation" means all cash compensation including regular ------------ straight time gross earnings, commissions, payments for overtime, shift premium, incentive compensation, incentive payments, bonuses and any other compensation approved by the Committee, but excluding proceeds from the sale of the company's stock and all cash allowances including, but not limited to, vehicle, housing and cost of living allowances. (9) "Continuous Status as an Employee" means the absence of any -------------------------------- interruption or termination of service as an Employee. Continuous Status as an Employee shall not be considered interrupted in the case of (i) sick leave; (ii) military leave; (iii) any other leave of absence approved by the Administrator, provided that such leave is for a period of not more than 90 days, unless reemployment upon the expiration of such leave is guaranteed by contract or statute, or unless provided otherwise pursuant to Company policy adopted from time to time; or (iv) in the case of transfers between locations of the Company or between the Company and its Designated Subsidiaries. (10) "Contributions" means all amounts credited to the account of a ------------- participant pursuant to the Plan. (11) "Corporate Transaction" means a sale of all or substantially all --------------------- of the Company's assets, or a merger, consolidation or other capital reorganization of the Company with or into another corporation. (12) "Designated Subsidiaries" means the Subsidiaries which have been ----------------------- designated by the Board from time to time in its sole discretion as eligible to participate in the Plan; provided however that the Board shall only have the discretion to designate Subsidiaries if the issuance of options to such Subsidiary's Employees pursuant to the Plan would not cause the Company to incur adverse accounting charges. (13) "Employee" means any person, including an Officer, who is -------- customarily employed for at least thirty-five (35) hours per week and more than five (5) months in a calendar year by the Company or one of its Designated Subsidiaries, unless otherwise required by law. (14) "Exchange Act" means the Securities Exchange Act of 1934, as ------------ amended. (15) "Fair Market Value" shall have the meaning set forth in Section ----------------- 7(b). (16) "IPO Date" shall have the meaning set forth in Section 4(a) -------- (17) "New Purchase Date" shall have the meaning set forth in Section ----------------- 19(b). (18) "Offering Date" means the first business day of each Purchase ------------- Period of the Plan. (19) "Officer" means a person who is an officer of the Company within ------- the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (20) "Plan" means this Employee Stock Purchase Plan. ---- (21) "Purchase Date" means the last day of each Purchase Period of the ------------- Plan. (22) "Purchase Period" means a period of six (6) months commencing on --------------- February 1 and August 1 of each year except for the first Purchase Period which may commence on a different date or extend for a different length of time as set forth in Section 4(b). (23) "Purchase Price" means with respect to a Purchase Period an -------------- amount equal to 85% of the Fair Market Value (as defined in Section 7(b) below) of a Share of Common Stock on the Offering Date or on the Purchase Date, whichever is lower; provided, however, that in the event (i) of any increase in the number of Shares available for issuance under the Plan as a result of a stockholder-approved amendment to the Plan, and (ii) all or a portion of such additional Shares are to be issued with respect to a Purchase Period that is underway at the time of such increase ("Additional Shares"), and (iii) the Fair ----------------- Market Value of a Share of Common Stock on the date of such increase (the "Approval Date Fair Market Value") is higher than the Fair Market Value on the - ------------- ------------------ Offering Date for any such Purchase Period, then in such instance the Purchase Price with respect to Additional Shares shall be 85% of the Approval Date Fair Market Value or the Fair Market Value of a Share of Common Stock on the Purchase Date, whichever is lower. (24) "Reserves" shall have the meaning set forth in Section 19(a). -------- (25) "Securities Act" means the Securities Act of 1933, as amended. -------------- (26) "Share" means a share of Common Stock, as adjusted in accordance ----- with Section 19 of the Plan. 2 (27) "Subsidiary" means a corporation in an unbroken chain of ---------- corporations beginning with the Company if, at the time of the granting of the option, each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50 percent or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. 3. Eligibility. ----------- (1) Any person who is an Employee as of the Offering Date of a given Purchase Period shall be eligible to participate in such Purchase Period under the Plan, subject to the requirements of Section 5(a) and the limitations imposed by Section 423(b) of the Code. (2) Any provisions of the Plan to the contrary notwithstanding, no Employee shall be granted an option under the Plan (i) if, immediately after the grant, such Employee (or any other person whose stock would be attributed to such Employee pursuant to Section 424(d) of the Code) would own capital stock of the Company and/or hold outstanding options to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or of any subsidiary of the Company, or (ii) if such option would permit his or her rights to purchase stock under all employee stock purchase plans (described in Section 423 of the Code) of the Company and its Subsidiaries to accrue at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) of the Fair Market Value (as defined in Section 7(b) below) of such stock (determined at the time such option is granted) for each calendar year in which such option is outstanding at any time. (3) All Employees who participate in the Plan shall have the same rights and privileges under the Plan except for differences which may be mandated by local law and which are consistent with Code section 423(b)(5); provided, however, that Employees participating in a sub-plan adopted pursuant to Section 24 hereof which is not designed to qualify under Code section 423 need not have the same rights and privileges as Employees participating in the Code section 423 Plan. The Board may impose restrictions on eligibility and participation of Employees who are officers and directors to facilitate compliance with federal or state securities laws or foreign laws. 4. Purchase Periods. ---------------- (1) Purchase Periods. The Plan shall be implemented by a series of ---------------- Purchase Periods of six (6) months duration, with new Purchase Periods commencing on or about February 1 and August 1 of each year (or at such other time or times as may be determined by the Committee). The last day of each Purchase Period shall be the "Purchase Date" for such Purchase Period. The ------------- first Purchase Period shall commence on the beginning of the effective date of the Registration Statement on Form S-1 for the initial public offering of the Company's Common Stock (the "IPO Date") and continue until January 31, 2001 or -------- such later date as may be determined by the Committee prior to the initial public offering. The Plan shall continue until terminated in accordance with Section 20 hereof. The Committee shall have the power to change the duration and/or the frequency of Purchase Periods with respect to future offerings without stockholder approval if such change is announced at least five (5) days prior to the scheduled beginning of the first Purchase Period to be affected. 5. Participation. ------------- (1) An eligible Employee may become a participant in the Plan by completing a subscription agreement on the form provided by the Company and filing it with the Company's payroll office (a) prior to the applicable Offering Date, unless a later time for filing the subscription agreement is set by the Committee for all eligible Employees with respect to a given Purchase Period, or (b) within four weeks of the commencement of the applicable Purchase Period for any Employee hired during the four-week period prior to the commencement of the applicable Offering Date. The subscription agreement shall set forth the percentage of the participant's Compensation (subject to Section 6(a) below) to be paid as Contributions pursuant to the Plan. The eligible Employee may choose one of the following methods of payment for the 3 Shares to be acquired on his or her behalf during the Purchase Period: (i) periodic payroll deduction; or (ii) lump sum cash payment; provided, however, that the Committee may, for any Purchase Period, prohibit lump sum cash payments. (2) If periodic payroll deductions are selected, payroll deductions shall commence on the first payroll following the Offering Date and shall end on the last payroll paid on or prior to the Purchase Date of the Purchase Period to which the subscription agreement is applicable, unless sooner terminated by the participant as provided in Section 10. (c) If the lump sum cash payment alternative is selected, the lump sum payment must be paid by the participant within the first fifteen (15) days of the Purchase Date of the Purchase Period to which the subscription agreement is applicable, unless sooner terminated by the participant as provided in Section 10. 6. Method of Payment of Contributions. ---------------------------------- (1) A participant shall elect to have payroll deductions made on each payday during the Purchase Period in an amount not less than one percent (1%) and not more than fifteen percent (15%) (or such greater percentage as the Committee may establish from time to time before an Offering Date) of such participant's Compensation on each payday during the Purchase Period; provided, however, that, in the event the participant chooses the lump sum payment alternative, such payment may not exceed 15% of the Compensation paid to such participant. All payroll deductions made by a participant shall be credited to his or her account under the Plan. A participant may not make any additional payments into such account. (2) A participant may discontinue his or her participation in the Plan as provided in Section 10, or, on one occasion only during a Purchase Period may increase and on one occasion only during a Purchase Period may decrease the rate of his or her Contributions with respect to the Purchase Period by completing and filing with the Company a new subscription agreement authorizing a change in the payroll deduction rate or lump sum payment, as applicable. The change shall be effective as of the beginning of the next payroll period following the date of filing of the new subscription agreement, if the agreement is filed at least ten (10) business days prior to such date and, if not, as of the beginning of the next succeeding payroll period. (3) Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's payroll deductions or lump sum payment, as applicable, may be decreased by the Company to 0% at any time during a Purchase Period. Payroll deductions or lump sum payments shall re-commence at the rate provided in such participant's subscription agreement at the beginning of the first Purchase Period which is scheduled to end in the following calendar year, unless terminated by the participant as provided in Section 10. 7. Grant of Option. --------------- (1) On the Offering Date of each Purchase Period, each eligible Employee participating in such Purchase Period shall be granted an option to purchase on each Purchase Date a number of Shares of the Company's Common Stock determined by dividing such Employee's Contributions accumulated prior to such Purchase Date and retained in the participant's account as of the Purchase Date by the applicable Purchase Price; provided however that such purchase shall be subject to the limitations set forth in Sections 3(b) and 13. (2) The fair market value of the Company's Common Stock on a given date (the "Fair Market Value") shall be determined by the Committee in its ----------------- discretion based on the closing sales price of the Common Stock for such date (or, in the event that the Common Stock is not traded on such date, on the 4 immediately preceding trading date), as reported by the National Association of Securities Dealers Automated Quotation (Nasdaq) National Market or, if such price is not reported, the mean of the bid and asked prices per share of the Common Stock as reported by Nasdaq or, in the event the Common Stock is listed on a stock exchange, the Fair Market Value per share shall be the closing sales price on such exchange on such date (or, in the event that the Common Stock is not traded on such date, on the immediately preceding trading date), as reported in The Wall Street Journal. For purposes of the Offering Date under the first Purchase Period under the Plan, the Fair Market Value of a share of the Common Stock of the Company shall be the Price to Public as set forth in the final prospectus filed with the Securities and Exchange Commission pursuant to Rule 424 under the Securities Act of 1933, as amended. 8. Exercise of Option. ------------------ (1) Unless a participant withdraws from the Plan as provided in Section 10, his or her option for the purchase of Shares will be exercised automatically on each Purchase Date of each successive Purchase Period, and the maximum number of Shares subject to the option will be purchased at the applicable Purchase Price with the accumulated Contributions in his or her account. The Shares purchased upon exercise of an option hereunder shall be deemed to be transferred to the participant on the Purchase Date. During his or her lifetime, a participant's option to purchase Shares hereunder is exercisable only by him or her. (2) No fractional shares shall be issued except as authorized by the Committee. Any payroll deductions accumulated in a participant's account which are not sufficient to purchase a full Share and which are not authorized by the Committee to be issued as a fractional Share, shall be retained in the participant's account for the subsequent Purchase Period, subject to earlier withdrawal by the participant as provided in Section 10 below. Any other amounts left over in a participant's account after a Purchase Date shall be returned to the participant. 9. Delivery. -------- As promptly as practicable after the Purchase Date of each Purchase Period, the Company shall arrange the delivery to each participant, as appropriate, the Shares purchased upon exercise of his or her option. Such delivery may be in the form of physical stock certificates or electronic book-entry transfers into a brokerage account in the Employee's name. 10. Voluntary Withdrawal; Termination of Employment. ----------------------------------------------- (1) A participant may withdraw all but not less than all the Contributions credited to his or her account under the Plan at any time prior to each Purchase Date by giving written notice to the Company. All of the participant's Contributions credited to his or her account will be paid to him or her promptly after receipt of his or her notice of withdrawal and his or her option for the current period will be automatically terminated, and no further Contributions for the purchase of Shares will be made during the Purchase Period. (2) Upon termination of the participant's Continuous Status as an Employee prior to the Purchase Date of a Purchase Period for any reason, including retirement or death, the Contributions credited to his or her account will be returned to him or her or, in the case of his or her death, to the person or persons entitled thereto under Section 14, and his or her option will be automatically terminated. (3) In the event an Employee fails to remain in Continuous Status as an Employee of the Company for at least thirty-five (35) hours per week during the Purchase Period in which the employee is a participant, he or she will be deemed to have elected to withdraw from the Plan and the Contributions credited to his or her account will be returned to him or her and his or her option terminated. (4) A participant's withdrawal from an offering will not have any effect upon his or her eligibility to participate in a succeeding offering or in any similar plan which may hereafter be adopted by the Company. 5 11. Interest. -------- No interest shall accrue on the Contributions of a participant in the Plan unless otherwise required by law. 12. Stock. ----- (1) Subject to adjustment as provided in Section 19, the maximum number of Shares which shall be made available for sale under the Plan shall be 3,000,000 Shares or such lesser number of Shares as is determined by the Board. If the Committee determines that, on a given Purchase Date, the number of shares with respect to which options are to be exercised may exceed (i) the number of shares of Common Stock that were available for sale under the Plan on the Offering Date of the applicable Purchase Period, or (ii) the number of shares available for sale under the Plan on such Purchase Date, the Committee may in its sole discretion provide (x) that the Company shall make a pro rata allocation of the Shares of Common Stock available for purchase on such Offering Date or Purchase Date, as applicable, in as uniform a manner as shall be practicable and as it shall determine in its sole discretion to be equitable among all participants exercising options to purchase Common Stock on such Purchase Date, and continue any Purchase Period then in effect, or (y) that the Company shall make a pro rata allocation of the shares available for purchase on such Offering Date or Purchase Date, as applicable, in as uniform a manner as shall be practicable and as it shall determine in its sole discretion to be equitable among all participants exercising options to purchase Common Stock on such Purchase Date, and terminate any Purchase Period then in effect pursuant to Section 20 below. The Company may make pro rata allocation of the Shares available on the Offering Date of any applicable Purchase Period pursuant to the preceding sentence, notwithstanding any authorization of additional Shares for issuance under the Plan by the Company's stockholders subsequent to such Offering Date. (2) The participant shall have no interest or voting right in Shares covered by his or her option until such option has been exercised. (3) Shares to be delivered to a participant under the Plan will be registered in the name of the participant or deposited into a brokerage account in the name of the participant. 13. Administration. -------------- The Committee shall supervise and administer the Plan and shall have full power to adopt, amend and rescind any rules deemed desirable and appropriate for the administration of the Plan and not inconsistent with the Plan, to construe and interpret the Plan, and to make all other determinations necessary or advisable for the administration of the Plan. 14. Death of Participant. -------------------- In the event of the death of a participant prior to the Purchase Date of a Purchase Period or subsequent to the end of a Purchase Period but prior to the delivery to him or her of any Shares and cash from the participant's account, the Company shall deliver such Shares and/or cash to the executor or administrator of the estate of the participant. 15. Transferability. --------------- Neither Contributions credited to a participant's account nor any rights with regard to the exercise of an option or to receive Shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution, or as provided in Section 15) by the participant. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw funds in accordance with Section 10. 6 16. Use of Funds. ------------ All Contributions received or held by the Company under the Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such Contributions. 17. Reports. ------- Individual accounts will be maintained for each participant in the Plan. Statements of account will be given to participating Employees at least annually, which statements will set forth the amounts of Contributions, the per Share Purchase Price, the number of Shares purchased and the remaining cash balance, if any. 18. Adjustments upon Changes in Capitalization; Corporate Transactions. ------------------------------------------------------------------ (1) Adjustment. Subject to any required action by the stockholders of ---------- the Company, the number of Shares covered by each option under the Plan which has not yet been exercised and the number of Shares which have been authorized for issuance under the Plan but have not yet been placed under option (collectively, the "Reserves"), as well as the maximum number of shares of -------- Common Stock which may be purchased by a participant in a Purchase Period, the number of shares of Common Stock set forth in Section 13(a) above, and the price per Share of Common Stock covered by each option under the Plan which has not yet been exercised, shall be proportionately adjusted for any increase or decrease in the number of issued Shares resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock (including any such change in the number of Shares of Common Stock effected in connection with a change in domicile of the Company), or any other increase or decrease in the number of Shares effected without receipt of consideration by the Company; provided however that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares subject to an option. (2) Corporate Transactions. In the event of a dissolution or ---------------------- liquidation of the Company, any Purchase Period then in progress will terminate immediately prior to the consummation of such action, unless otherwise provided by the Board. In the event of a Corporate Transaction, each option outstanding under the Plan shall be assumed or an equivalent option shall be substituted by the successor corporation or a parent or Subsidiary of such successor corporation. In the event that the successor corporation refuses to assume or substitute for outstanding options, each Purchase Period then in progress shall be shortened and a new Purchase Date shall be set (the "New Purchase Date"), as ----------------- of which date any Purchase Period then in progress will terminate. The New Purchase Date shall be on or before the date of consummation of the transaction and the Committee shall notify each participant in writing, at least ten (10) days prior to the New Purchase Date, that the Purchase Date for his or her option has been changed to the New Purchase Date and that his or her option will be exercised automatically on the New Purchase Date, unless prior to such date he or she has withdrawn from the Purchase Period as provided in Section 10. For purposes of this Section 19, an option granted under the Plan shall be deemed to be assumed, without limitation, if, at the time of issuance of the stock or other consideration upon a Corporate Transaction, each holder of an option under the Plan would be entitled to receive upon exercise of the option the same number and kind of shares of stock or the same amount of property, cash or securities as such holder would have been entitled to receive upon the occurrence of the transaction if the holder had been, immediately prior to the transaction, the holder of the number of Shares of Common Stock covered by the option at such time (after giving effect to any adjustments in the number of Shares covered by the option as provided for in this Section 19); provided however that if the consideration received in the transaction is not solely common stock of the successor corporation or its parent (as defined in Section 424(e) of the Code), the Board may, with the consent of the successor corporation, provide for the consideration to be received upon exercise of the option to be solely common stock of the successor corporation or its parent equal in Fair Market Value to the per Share consideration received by holders of Common Stock in the transaction. 7 The Board may, if it so determines in the exercise of its sole discretion, also make provision for adjusting the Reserves, as well as the price per Share of Common Stock covered by each outstanding option, in the event that the Company effects one or more reorganizations, recapitalizations, rights offerings or other increases or reductions of Shares of its outstanding Common Stock, and in the event of the Company's being consolidated with or merged into any other corporation. 19. Amendment or Termination. ------------------------ (1) The Board may at any time and for any reason terminate or amend the Plan. Except as provided in Section 19, no such termination of the Plan may affect options previously granted, provided that the Plan or a Purchase Period may be terminated by the Board on a Purchase Date or by the Board's setting a new Purchase Date with respect to a Purchase Period then in progress if the Board determines that termination of the Plan and/or the Purchase Period is in the best interests of the Company and the stockholders or if continuation of the Plan and/or the Purchase Period would cause the Company to incur adverse accounting charges as a result of a change after the effective date of the Plan in the generally accepted accounting rules applicable to the Plan. Except as provided in Section 19 and in this Section 20, no amendment to the Plan shall make any change in any option previously granted which adversely affects the rights of any participant. In addition, to the extent necessary to comply with Rule 16b-3 under the Exchange Act, or under Section 423 of the Code (or any successor rule or provision or any applicable law or regulation), the Company shall obtain stockholder approval in such a manner and to such a degree as so required. (2) Without stockholder consent and without regard to whether any participant rights may be considered to have been adversely affected, the Board or the Committee shall be entitled to change the Purchase Periods, limit the frequency and/or number of changes in the amount withheld during a Purchase Period, establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars, permit payroll withholding in excess of the amount designated by a participant in order to adjust for delays or mistakes in the Company's processing of properly completed withholding elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each participant properly correspond with amounts withheld from the participant's Compensation, and establish such other limitations or procedures as the Board or the Committee determines in its sole discretion advisable which are consistent with the Plan. 20. Notices. ------- All notices or other communications by a participant to the Company under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof. 21. Conditions upon Issuance of Shares. ---------------------------------- Shares shall not be issued with respect to an option unless the exercise of such option and the issuance and delivery of such Shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act, the Exchange Act, the rules and regulations promulgated thereunder, applicable state securities laws and the requirements of any stock exchange upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an option, the Company may require the person exercising such option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned applicable provisions of law. 22. Term of Plan; Effective Date. ---------------------------- 8 The Plan shall become effective upon the IPO Date. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 20. 23. Additional Restrictions of Rule 16b-3. ------------------------------------- The Company shall use reasonable efforts to ensure that the terms and conditions of options granted hereunder to, and the purchase of Shares by, persons subject to Section 16 of the Exchange Act shall comply with the applicable provisions of Rule 16b-3. This Plan shall be deemed to contain, and such options shall contain, and the Shares issued upon exercise thereof shall be subject to, such additional conditions and restrictions as may be required by Rule 16b-3 to qualify for the maximum exemption from Section 16 of the Exchange Act with respect to Plan transactions. 24. Committee Rules for Foreign Jurisdictions. ----------------------------------------- The Committee may adopt rules or procedures relating to the operation and administration of the Plan to accommodate the specific requirements of local laws and procedures. Without limiting the generality of the foregoing, the Committee is specifically authorized to adopt rules and procedures regarding handling of payroll deductions, payment of interest, conversion of local currency, payroll tax, withholding procedures and handling of stock certificates which vary with local requirements. The Committee may also adopt sub-plans applicable to particular Subsidiaries or locations, which sub-plans may be designed to be outside the scope of Code section 423. The rules of such sub-plans may take precedence over other provisions of this Plan, with the exception of Section 5.1, but unless otherwise superseded by the terms of such sub-plan, the provisions of this Plan shall govern the operation of such sub-plan. * * * 9 CHIPPAC, INC. 2000 EMPLOYEE STOCK PURCHASE PLAN FORM OF SUBSCRIPTION AGREEMENT New Election ______ Change of Election______ 1. I, ________________________, hereby elect to participate in the ChipPAC, Inc. 2000 Employee Stock Purchase Plan (the "Plan") for the Purchase Period ---- ______________, ____ to _______________, ____, and subscribe to purchase shares of the Company's Common Stock in accordance with this Subscription Agreement and the Plan. 2. I elect to have Contributions in the amount of ____% of my Compensation, as those terms are defined in the Plan, applied to this purchase. I understand that this amount must not be less than 1% and not more than 15% of my Compensation during the Purchase Period. (Please note that no fractional percentages are permitted). 3. I elect to have these Contributions made through (choose one): ____ Payroll Deduction or ____ Lump Sum Payment. 4. In the event the payroll deduction option was selected, I hereby authorize payroll deductions from each paycheck during the Purchase Period at the rate stated in Item 2 of this Subscription Agreement. I understand that all payroll deductions made by me shall be credited to my account under the Plan and that I may not make any additional payments into such account. 5. I understand that all payments made by me shall be accumulated for the purchase of shares of Common Stock at the applicable purchase price determined in accordance with the Plan. I further understand that, except as otherwise set forth in the Plan, shares will be purchased for me automatically on the Purchase Date of each Purchase Period unless I otherwise withdraw from the Plan by giving written notice to the Company for such purpose. 6. I understand that I may discontinue at any time prior to the Purchase Date of a Purchase Period my participation in the Plan as provided in Section 10 of the Plan. I also understand that I can increase or decrease the rate of my Contributions on one occasion only with respect to any increase and one occasion only with respect to any decrease during any Purchase Period by completing and filing a new Subscription Agreement with [the Human Resources Manager/Employee Benefits Manager of my local payroll office] such increase or decrease taking effect as of the beginning of the calendar month following the date of filing of the new Subscription Agreement, if filed at least ten (10) business days prior to the beginning of such month. Further, I may change the rate of my Contributions for future Purchase Periods by filing a new Subscription Agreement, and any such change will be effective as of the beginning of the next Purchase Period. In addition, I acknowledge that, unless I discontinue my participation in the Plan as provided in Section 10 of the Plan, my election will continue to be effective for each successive Purchase Period. 7. I have received a copy of the complete "ChipPAC, Inc. 2000 Employee Stock Purchase Plan." I understand that my participation in the Plan is in all respects subject to the terms of the Plan. 8. Shares purchased for me under the Plan should be issued in my name or deposited into the following brokerage account in my name: 9. I understand that for United States income tax purposes if I dispose of any shares received by me pursuant to the Plan within 2 years after the Offering Date (the first day of the Purchase Period during which I purchased such shares) I will be treated as having received ordinary compensation income at the time of such disposition in an amount equal to the excess of the fair market value of the shares on the Purchase Date over the price which I paid for the shares, regardless of whether I disposed of the shares at a price less than their fair market value at the Purchase Date. The remainder of the gain or loss, if any, recognized on such disposition will be treated as capital gain or loss. I hereby agree to notify the Company in writing within 30 days after the date of any such disposition, and I will make adequate provision for United States federal, state or other tax withholding obligations, if any, which arise upon the disposition of the Common Stock. The Company may, but will not be obligated to, withhold from my compensation the amount necessary to meet any applicable withholding obligation including any withholding necessary to make available to the Company any tax deductions or benefits attributable to the sale or early disposition of Common Stock by me. 10. If I dispose of such shares at any time after expiration of the 2-year holding period, I understand that I will be treated for United States income tax purposes as having received compensation income only to the extent of an amount equal to the lesser of (1) the excess of the fair market value of the shares at the time of such disposition over the purchase price which I paid for the shares under the option, or (2) 15% of the fair market value of the shares on the Offering Date. The remainder of the gain or loss, if any, recognized on such disposition will be treated as capital gain or loss. I understand that this tax summary is only a summary of United States tax laws and is subject to change. I further understand that I should consult a tax advisor concerning the tax implications of the purchase and sale of stock under the Plan. 11. By completing this Subscription Agreement and participating in the Plan, I acknowledge that (i) the Plan is discretionary in nature and may be amended, suspended or terminated by the Company at any time; (ii) the grant of the right to purchase stock does not create any contractual or other right to receive future grants of purchase rights, or benefits in lieu of purchase rights; (iii) all determinations with respect to any such future purchase rights and stock purchases, including, but not limited to, the times when rights shall be granted, the purchase price, and the time or times when each right shall be exercisable, will be at the sole discretion of the Company; (iv) my participation in the Plan shall not create a right to further employment with my employer and shall not interfere with the ability of my employer to terminate my employment relationship at any time with or without cause; (v) my participation in the Plan is voluntary; (vi) the value of the purchase right is an extraordinary item of compensation which is outside the scope of my employment contract, if any; (vii) the purchase right is not part of normal or expected compensation for purposes of calculating any termination, severance, resignation, redundancy, end-of- service payments, bonuses, long-service awards, pension or retirement benefits or similar payments; (viii) the right to purchase stock ceases upon termination of employment for any reason except as may otherwise be explicitly provided in the Plan; (ix) the future value of the underlying shares purchased is unknown and cannot be predicted with certainty; and (x) the purchase right has been granted to me in my status as an employee of my employer, and can in no event be understood or interpreted to mean the Company is my employer or that I have an employment relationship with the Company. 12. The Company will assess its requirements regarding tax, social insurance and any other payroll tax ("tax-related items") withholding and reporting in connection with my purchase rights, including the grant of purchase rights, purchase of shares or sale of shares acquired under the Plan. These requirements may change from time to time as laws or interpretations change. Regardless of the Company's actions in this regard, I hereby acknowledge and agree that the ultimate liability for any and all tax- related items is and remains my responsibility and liability and that the Company (i) makes no representations nor undertakings regarding treatment of any tax-related items in connection with any aspect of my participation in the Plan, including the grant of purchase rights, purchase of shares, and the subsequent sale of shares; and (ii) does not commit to structure the terms of my grant or any aspect of my Plan participation to reduce or eliminate my liability regarding tax-related items. 13. As a condition of participating in the Plan, I consent to the collection, use, processing and transfer of personal data as described in this paragraph. I understand that the Company and its subsidiaries hold certain personal information about me, including my name, home address and telephone number, date of birth, social security number or other employee identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of all purchase rights or any other entitlement to shares of stock awarded, canceled, exercised, vested, unvested or outstanding in my favor, for the purpose of managing and administering the Plan ("Data"). I further understand that the Company and/or its ---- subsidiaries will transfer Data amongst themselves as necessary for the purpose of implementation, administration and management of my participation in the Plan, and that the Company and/or any of its subsidiaries may each further transfer Data to any third parties assisting the Company in the implementation, administration and management of the Plan. I understand that these recipients may be located in the European Economic Area or elsewhere, such as in the United States. I authorize them to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing my participation in the Plan, including any requisite transfer of such Data as may be required for the administration of the Plan and/or the subsequent holding of shares of stock on my behalf, to a broker or other third party with whom I may elect to deposit any shares of stock purchased under the Plan. I understand that I may, at any time, review Data, require any necessary amendments to it or withdraw the consent herein in writing by contracting my local human resources representative. Withdrawal of consent may, however, affect my ability to purchase shares or realize benefits from participating in the Plan. 14. I hereby agree to be bound by the terms of the Plan and this Subscription Agreement. The effectiveness of this Subscription Agreement is dependent upon my eligibility to participate in the Plan. SIGNATURE:______________________________________________________________________ SOCIAL SECURITY #:______________________________________________________________ DATE: __________________________________________________________________________ 13 CHIPPAC, INC. 2000 EMPLOYEE STOCK PURCHASE PLAN NOTICE OF WITHDRAWAL I, __________________________, hereby elect to withdraw my participation in the ChipPAC, Inc. 2000 Employee Stock Purchase Plan (the "Plan") for the Purchase Period that began on _________ ___, _____. This withdrawal covers all Contributions credited to my account and is effective on the date designated below. I understand that all Contributions credited to my account will be paid to me within ten (10) business days of receipt by the Company of this Notice of Withdrawal and that my option for the current period will automatically terminate, and that no further Contributions for the purchase of shares can be made by me during the Purchase Period. The undersigned further understands and agrees that he or she shall be eligible to participate in succeeding Purchase Periods only by delivering to the Company a new Subscription Agreement. Dated: ________________________ _________________________________________ Signature of Employee _____________________________ Social Security Number EX-10.32 11 0011.txt INTELECTUAL PROPERTY RIGHTS AGREEMENT, ENTERED Exhibit 10.32 INTELLECTUAL PROPERTY RIGHTS AGREEMENT -------------------------------------- This Intellectual Property Rights Agreement (this "Agreement") is made and --------- entered into as of June 30, 2000 ("Effective Date"), between Intersil -------------- Corporation, a corporation organized under the laws of Delaware ("Parent") and ------ ChipPAC Limited, a corporation organized under the laws of the British Virgin Islands ("Buyer") (the Parent and Buyer are herein referred to collectively as ----- the "Parties" and individually as a "Party"). ------- ----- WHEREAS, Buyer, Parent, ChipPAC, Inc. and Sapphire World Investments, Inc., a wholly-owned indirect subsidiary of Parent ("Sapphire"), have entered into -------- that certain Stock Purchase Agreement, dated as of June 30, 2000 (the "Purchase -------- Agreement"), providing for the sale by Sapphire to Buyer of all of the issued - --------- and outstanding capital stock of Intersil Technology Sdn. Bhd. (the "Company"); ------- and WHEREAS, it is a condition to the consummation of the transactions contemplated by the Purchase Agreement that Parent and Buyer enter into this Agreement pursuant to which Parent shall license, sublicense or assign to Buyer rights in certain intellectual property in accordance with the terms and conditions of this Agreement, and Buyer shall license back to Parent rights in certain intellectual property in accordance with the terms and conditions of this Agreement; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties hereby agree as follows: 1. Definitions. As used in this Agreement, capitalized terms not defined in ------------ this Agreement shall have the meanings ascribed to them in the Purchase Agreement. As used herein the following terms shall have the following meanings: 1.1 "Affiliate" of any particular Person shall mean any other Person --------- directly or indirectly controlling, controlled by or under direct or indirect common control with such Person. For purposes of this definition, a Person shall be deemed to be in "control" if such Person possesses, directly or indirectly, the power to direct or cause the direction of the management or policies of the Person in question, whether through the ownership of voting securities, by contract or otherwise. 1.2 "Assigned Intellectual Property" means the Intellectual Property ------------------------------ Rights assigned to Buyer in accordance with Sections 2 and 4 of this Agreement. ---------------- 1.3 "Intellectual Property Rights" shall mean any or all of the following ---------------------------- and all rights in, arising out of, or associated therewith: (i) all United States and foreign patents and utility models and applications therefor and all reissues, divisions, renewals, reexaminations, extensions, provisionals, continuations and continuations-in-part thereof, and equivalent or similar rights anywhere in the world in inventions, disclosures, and discoveries, whether or not patentable, and whether or not reduced to practice ("Patents"); ------- (ii) all trade secrets, know-how, proprietary information, technical data, improvements, technology, computer programs (in source code and executable code form, and whether embodied in software, firmware or otherwise), documentation (including software documentation), drawings, designs, flow charts, specifications, logic diagrams, programmer notes, protocols, files, records, databases, formulae, compositions, processes, manufacturing and production processes and techniques, research and development information, improvements, proposals, and technical data ("Technical Information"); (iii) all --------------------- copyrights, works of authorship, copyright registrations and applications therefor and all other rights corresponding thereto throughout the world ("Copyrights"), excluding maskworks; (iv) all industrial designs and any ---------- registrations and applications therefor throughout the world; (v) any similar, corresponding or equivalent rights to any of the foregoing anywhere in the world, including but not limited to computer program rights and registrations and applications therefor; and (vi) all copies and tangible embodiments of the foregoing (in whatever form or media). Intellectual Property Rights shall exclude any and all rights uniquely related to the Products (as defined in the Supply Agreement) and used by the Company in providing Services (as defined in the Supply Agreement) to Intersil under the Supply Agreement, including but not limited to bonding diagrams, test programs, maskworks, trademarks and test boards owned or licensed by Intersil or one of its Affiliates. 1.4 "Licensed Intellectual Property" means the Intellectual Property ------------------------------ Rights licensed or sublicensed to Buyer in accordance with Section 5 of this --------- Agreement. 1.5 "Person" means any individual, sole proprietorship, partnership, joint ------ venture, trust, unincorporated association, corporation, entity or governmental entity (whether federal, state, county, city or otherwise and including, without limitation, any instrumentality, division, agency or department thereof). 1.6 "Services Agreement" means that certain Services Agreement dated as ------------------ of the date hereof between Buyer and Parent, as the same may be amended or modified from time to time. 1.7 "Supply Agreement" means that certain Supply Agreement dated as of ---------------- the date hereof between Buyer and Parent, as the same may be amended or modified from time to time. 2. Assignment of Intellectual Property Rights. Parent hereby assigns and ------------------------------------------ transfers, and shall cause each of its Affiliates (as necessary) to assign and transfer, to Buyer the entire right, title and interest in and to those Intellectual Property Rights used exclusively in or associated exclusively with the Company's business as listed in Schedule 2 (which consists of Subschedules ---------- ------------ 2(a), 2(b), and 2(c)), in each case together with all income, royalties, damages - -------------------- or payments due or payable as of the Effective Date or thereafter, including, without limitation, all claims for damages by reason of past, present or future infringement or other unauthorized use of such Intellectual Property Rights, with the right to sue for and collect the same for Buyer's own use and enjoyment, and for the use and enjoyment of its successors, assigns or other legal representatives. 2.1 License Back. Notwithstanding anything in Section 2 to the contrary, ------------ --------- Buyer hereby grants back to Parent, with the right to grant sublicenses to its Affiliates, a non-exclusive, worldwide, perpetual, irrevocable, royalty-free license and right to use those patents listed on Subschedule ----------- -2- 2(a). - ---- 3. Prosecution; Assignment Recordal. From and after the Effective Date, Buyer -------------------------------- shall be responsible, in its discretion, for the prosecution and maintenance of the Intellectual Property Rights listed in Subschedules 2(a), 2(b) and 2(c) and -------------------------------- for filing applications on any inventions contained in the Technical Information described in Subschedule 2(c). Parent shall cooperate with Buyer and sign all ---------------- documents necessary and proper to prosecute all such applications, to assign the Intellectual Property Rights listed in Schedule 2 to Buyer and to register those ---------- assignments in the patent, trademark and copyright offices of the relevant countries. Buyer shall be responsible for preparing and filing any such assignment documents. Consistent with Buyer's responsibilities and ownership of the Intellectual Property Rights listed in Schedule 2, the Parties will execute, ---------- at Closing, a power of attorney revoking the power of attorney of Parent's counsel and appointing Buyer's counsel to receive correspondence and prosecute such Intellectual Property Rights. 4. Assignment of Licenses. Parent hereby assigns and transfers, and shall cause ---------------------- cause each of its Affiliates (as necessary) to assign and transfer, to Buyer and Buyer hereby accepts assignment of, all of Parent's and its Affiliates' rights and obligations under those license agreements listed in Schedule 4. ---------- 5. Licensed Intellectual Property Rights. ------------------------------------- 5.1 Grant of License. Parent hereby grants, and shall cause each of its ---------------- Affiliates (as necessary) to grant, to Buyer a non-exclusive, worldwide, perpetual, irrevocable, royalty-free license and right to use, with the right to grant sublicenses to Affiliates, all the Intellectual Property Rights used in or related to the operation of the Company's business and not assigned to Buyer under Sections 2 or 4 hereof or sublicensed to Buyer under Section 5.2 hereof, --------------- ----------- as specifically set forth in Subschedules 5(a), 5(b) and 5(c). ------------------- 5.2 Grant of Sublicense. Parent hereby grants, and shall cause each of ------------------- its Affiliates (as necessary) to grant, to Buyer a sublicense and right to use, with the right to grant further sublicenses to Buyer's Affiliates, all Intellectual Property Rights used in or related to the operation of the Company's business and not assigned to Buyer under Sections 2 or 4 hereof or licensed to Buyer under Section 5.1 hereof, as specifically set forth in Subschedule 5(d), which sublicense shall be identical in scope to the license - ---------------- granted to Parent by such third party and subject to all obligations imposed on the licensee in any such license agreement. 5.3 Reservation of Rights. This Agreement contains no grants to Buyer --------------------- under any other Intellectual Property Rights of Parent except as provided in Sections 2, 4, 5.1 and 5.2. - -------------------------- 5.4 Maintenance of Licensed Intellectual Property. In the event that --------------------------------------------- Parent determines not to pay any or all of the maintenance or renewal fees or annuities applicable to the Licensed Intellectual Property (including the Intellectual Property Rights sublicensed to Buyer pursuant to Section 5.2, to ----------- the extent Parent or any applicable Affiliate has the right to pay such fees or annuities), Parent shall use its commercially reasonable efforts to notify Buyer of Parent's decision prior to the deadline for filing such fees or annuities. If Buyer elects to pay any such fee, Parent -3- shall assign, or shall cause its appropriate Affiliate to assign, at no cost, such Licensed Intellectual Property to Buyer (including the Intellectual Property Rights sublicensed to Buyer, to the extent Parent or its appropriate Affiliate has the right to do so). 5.5 Software License Transfers. The assignment of and the grant of the -------------------------- rights described in Section 4 and Section 5.2 are subject, in all respects, to --------- ----------- the Parties obtaining any required approval of the third parties to any relevant license agreement. Buyer will pay for any necessary software license transfer fees required to be paid to any third party software licensor as a result of the transfer and sublicense contemplated in Section 4 and Section 5.2, respectively. --------- ----------- Each of the Parties shall use commercially reasonable efforts to (i) obtain any consent required in connection with the assignment of and the grant of the rights specified in Section 4 and Section 5.2 (and the Parties shall jointly --------- ----------- develop and execute a mutually agreeable plan to seek and obtain any such required consents) and (ii) minimize the cost of any software license transfer fees required to be paid pursuant to this Section 5.5. 5.6 Use Limitations. The software licenses and software sublicenses --------------- granted pursuant to Section 5.1 and Section 5.2, respectively, are subject to the restrictions on maintenance set forth in the Services Agreement, it being agreed that if the Services Agreement expires or terminates and such software is no longer integrated into Parent's systems, all such restrictions shall terminate and be of no further force and effect. 6. Protection and Enforcement. -------------------------- 6.1 Notice. Each of the Parties shall promptly notify the other in ------ writing if it: (i) receives any notice or becomes aware of any information that in any way affects the other Party's rights under this Agreement; or (ii) becomes aware of any actual or suspected infringement, misappropriation or misuse by a third party of the Assigned Intellectual Property or the Licensed Intellectual Property. 6.2 Enforcement. Neither Party shall be obligated to enforce its ----------- Intellectual Property Rights against actual or suspected infringers, provided however, that in the event Buyer reasonably determines the actual or suspected infringement of Licensed Intellectual Property is detrimental to Buyer, the Parties agree to negotiate in good faith a course of action to challenge the actual or suspected infringement, which shall include the right for Buyer to take action, at its own expense, against such actual or suspected infringer and retain any and all recoveries therefrom in the event Parent chooses not to take any such action. 7. Term and Termination. This Agreement shall commence on the Effective Date -------------------- and shall continue thereafter in perpetuity unless and until this Agreement is terminated, in whole or in part, by Buyer on thirty (30) days prior written notice to Parent. Upon termination by Buyer hereunder, all licenses granted to Buyer herein shall terminate immediately, and all obligations imposed herein on Parent shall terminate immediately; provided, however, that the license granted by Buyer to Parent pursuant to Section 2.1 shall continue in full force and ----------- effect. 8. Remedies for Material Breach. In the event of a material breach of this ---------------------------- Agreement by either -4- Party, the other Party may pursue all available equitable and legal remedies (including without limitation injunctive relief and monetary damages) but in no event shall either Party have the right to terminate this Agreement or the licenses granted herein as a result of the other Party's breach. 9. Confidentiality. It is anticipated that at least some of the information --------------- in the Licensed Intellectual Property and the Assigned Intellectual Property will be considered confidential by the Parties. Buyer and Parent agree to treat any such confidential information in accordance with Article 11 of the Supply ---------- Agreement. 10. Further Assurances. Each of the Parties agrees to execute and deliver such ------------------ other documents and to take all such actions as the other Party, its successors, assigns or other legal representatives may reasonably request to effect the terms of this Agreement, including the execution and delivery of any and all affidavits, testimonies, declarations, oaths, samples, exhibits, specimens and other documentation as may be reasonably required. 11. Additional Transfers to Buyer. If it is determined after the Effective ----------------------------- Date that any of the Intellectual Property Rights intended to be transferred pursuant to this Agreement were not transferred, as the sole remedy for such failure to transfer, Parent agrees to make such transfer, to the extent Parent had the right to do so as of the Effective Date, upon discovery of such non- transfer by Parent or upon the written request of Buyer. 12. Reassignment or Return to Parent; Correction of Errors on Schedules. Buyer -------------------------------------------------------------------- agrees that, upon Parent's reasonable request, and at Parent's reasonable expense, Buyer and its Affiliates shall reassign or return, as the case may be and to the extent practicable, to Parent any Intellectual Property Rights that may reside in the transferred facilities as of the Effective Date but are not, pursuant to this Agreement, the Purchase Agreement or any of the other Ancillary Agreements transferred, assigned, licensed or sublicensed to Buyer, or that may have been inadvertently transferred or delivered by Parent to Buyer but should not have been so transferred or delivered in accordance with the terms of this Agreement, the Purchase Agreement or any of the other Ancillary Agreements. Each of the Parties acknowledges and agrees that they have used their best efforts to properly identify software owned or used by the Company and describe such software on the proper schedules to this Agreement in accordance with the principles that (i) software owned or licensed exclusively for the use of the Company was intended to be identified on Schedule 2(c) or Schedule 4 to this ------------- ---------- Agreement and (ii) software used both by the Company and other Intersil business operations was intended to be identified on Schedule 5(c) or Schedule 5(d) to ------------- ------------- this Agreement. To the extent following the Effective Date, that any Party discovers that errors have been made in the preparation of said schedules, the Parties agree that they shall correct any such errors and prepare revised schedules to this Agreement correcting any such errors in accordance with the requirements set forth in the preceding sentence. 13. Notice. All notices, demands and other communications to be given or ------ delivered to any Party to this Agreement under or by reason of the provisions of this Agreement will be in writing and will be deemed to have been given when personally delivered, sent by reputable overnight courier or transmitted by facsimile or telecopy, to the addresses and/or telecopy number indicated below -5- (unless another address is so specified in writing): If to Parent, to: ---------------- Intersil Corporation 7585 Irvine Center Drive Suite 100 Irvine, California 92618 Attention: Gregory L. Williams Facsimile No.: (949) 341-7053 -6- with a copy to: -------------- Intersil Corporation Irvine, California 92618 Attention: Steven M. Moran, Esq. Facsimile No.: (949) 341-7053 If to the Buyer, to: ------------------- ChipPAC Limited Craigmuir Chambers Road Town, Tortola -7- British Virgin Islands Attention: Richard Parsons -- Resident Director Facsimile No.: (284) 494-7906 with a copy to: -------------- ChipPAC, Inc. 3151 Coronado Drive Santa Clara, California 95404 Attention: Robert Krakauer Facsimile No.: (408) 486-5914 and to: ------ Kirkland & Ellis 200 East Randolph Drive Chicago, Illinois 60601 Attention: Jeffrey C. Hammes, P.C. Gary M. Holihan Facsimile No.: (312) 861-2200 14. Assignment. Except as otherwise permitted hereunder and except for any ---------- subsequent assignment of any Assigned Intellectual Property, neither this Agreement nor any rights, benefits or obligations set forth herein may be assigned by any Party hereto without the consent of the other Party. Notwithstanding the foregoing, Buyer shall be permitted to assign its rights and obligations under the Agreement (i) to any of its Affiliates, (ii) to any entity that acquires all or substantially all of its parent company's assets, capital stock or the business to which this Agreement relates or (iii) for collateral security purposes to any lender providing financing to Buyer or its parent company. For clarification, a public offering of the common stock of Buyer or its parent company shall not constitute an assignment for the purposes of this Section 14. - ---------- 15. No Waiver. Failure of any Party hereto to insist upon strict compliance --------- with any of the terms, covenants and conditions hereof shall not be deemed a waiver or relinquishment of any similar right or power hereunder at any subsequent time. 16. Entireties. This Agreement contains the entire agreement of the Parties. ---------- It may not be changed except by an agreement in writing signed by the Party against whom enforcement of any waiver, change, modification, extension or discharge is sought. 17. Severability. The invalidity or unenforceability of any particular ------------ provision of this Agreement shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if such invalid or unenforceable provision were omitted. 18. Dispute Resolution. ------------------ 18.1 Each of the Parties hereto agrees that they will attempt to settle any dispute, claim or controversy arising out of this Agreement through good faith negotiations in the spirit of mutual -8- cooperation between senior business executives with authority to resolve the controversy. 18.2 Any dispute, claim or controversy that cannot be resolved by the Parties through good faith negotiations within thirty (30) days of the notification to the other Party of the commencement of the dispute resolution procedures of this Section 18 will then, upon the written request of any Party ---------- hereto, be resolved by binding arbitration conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association by a sole arbitrator. Such arbitrator shall be mutually agreeable to the Parties. If the Parties cannot mutually agree upon the selection of an arbitrator, the arbitrator shall be selected in accordance with the rules of the then effective Commercial Arbitration Rules of the American Arbitration Association. To the extent not governed by such rules, such arbitrator shall be directed by the Parties to set a schedule for determination of such dispute, claim or controversy that is reasonable under the circumstances. Such arbitrator shall be directed by the Parties to determine the dispute in accordance with this Agreement and the substantive rules of law (but not the rules of procedure or evidence) that would be applied by a federal court required to apply the internal law (and not the law of conflicts) of the State of New York. The arbitration will be conducted in the English language in New York, New York. Judgment upon the award rendered by the arbitrator may be entered by any court having jurisdiction. 18.3 Nothing contained in this Section 18 shall prevent any Party hereto ---------- from resorting to judicial process if injunctive or other equitable relief from a court is necessary to prevent injury to such Party or its Affiliates. The use of arbitration procedures will not be construed under the doctrine of laches, waiver or estoppel to adversely affect the rights of any Party hereto to assert any claim or defense. 18.4 Each Party shall bear its own expenses incurred in any arbitration or litigation, but any expenses related to the compensation and the costs of any arbitrator shall be borne equally by the Parties. 18.5 The Parties, their representatives, other participants and the arbitrator shall hold the existence, content and result of arbitration in confidence. 19. Governing Law. This Agreement shall be governed by and construed in ------------- accordance with the laws of the State of New York, without regard to its conflict of laws principles. 20. Counterparts. This Agreement may be executed in counterparts, each of which ------------ shall constitute an original and all of which together shall constitute one and the same instrument. * * * * * -9- IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written. INTERSIL CORPORATION By: /s/ Tim Muth _____________________________ Name: Tim Muth Title: Vice President CHIPPAC LIMITED By: /s/ Sharon St. Clair-Douglas _____________________________ Name: Sharon St. Clair-Douglas Title: Power of Attorney SUBSCHEDULE 2(a) PATENTS ASSIGNED TO BUYER ------------------------- Although not specifically referenced on this Schedule 2(a), the patents listed below include their associated foreign counterparts. TITLE - ----- 4534105 Method for Grounding a Pellet Support Pad in an Integrated Circuit Device Associated Foreign Patents: France, #2550661 Germany, #3428881 Great Britain, #2144910 Japan, #1781060 Italy, #1174170 Sweden, #8403978-3 Taiwan, #NI-22380 5049973 Heat Sink and Multi Mount Pad Lead Frame Package and Method for Electrically Isolating Semiconductor Die(s) 4538170 Power Chip Package Associated Foreign Patents: Germany #3380380.3 France #0115000 U.K. #0115000 Ireland #55369 Japan #1544016 Netherlands #0115000 Sweden #0115000 INVENTION DISCLOSURE ASSIGNED TO BUYER: Docket # Title - -------- ----- SE-1502-TD Nickel Gold Preplated Lead Frame for Plastic Package Integrated Circuits 1 SUBSCHEDULE 2(b) COPYRIGHTS ASSIGNED TO BUYER ---------------------------- Parent hereby assigns to Buyer its entire ownership, right, title and interest in and to all copyrighted materials used exclusively in the Company's business other than copyrighted materials uniquely related to Parent's products. 2 SUBSCHEDULE 2(c) TECHNICAL INFORMATION ASSIGNED TO BUYER --------------------------------------- Except with respect to software (which is assigned as set forth below), Parent hereby assigns to Buyer its entire ownership, right, title and interest in and to all technical information (including, without limitation, general packaging and assembly process flows, bonding diagrams and bills of materials) and know- how used exclusively in the Company's business, except for technical data uniquely defining Parent's products and the packaging and test of Parent's products, such as bonding diagrams, bills of materials and test programs unique to Parent's products. The following software is assigned pursuant to the terms and conditions of this Agreement: - --------------------------------------------------------------------- Product Vendor - ------- ------ - --------------------------------------------------------------------- Acrobat writer 3.01 Adobe system - --------------------------------------------------------------------- Active Voice Reparte Dancom - --------------------------------------------------------------------- Alchmey InfoConnect Sdn Bhd - --------------------------------------------------------------------- Autocad-2000 Auto-Desk - --------------------------------------------------------------------- Easy Pay - --------------------------------------------------------------------- Ebert - --------------------------------------------------------------------- ET-Win Elid - --------------------------------------------------------------------- Front Page 98 Microsoft - --------------------------------------------------------------------- HRPAYROLL Rad - --------------------------------------------------------------------- Ingres II (to the extent owned by the Computer Associates Company) - --------------------------------------------------------------------- Jetforms central (VAX) Jetforms - --------------------------------------------------------------------- Visio - --------------------------------------------------------------------- Powerbuilder Sybase - --------------------------------------------------------------------- ABC Flow chart - --------------------------------------------------------------------- AcPAC - --------------------------------------------------------------------- Inform Designer - --------------------------------------------------------------------- Inform Filler - --------------------------------------------------------------------- Simca P Umetri ===================================================================== 3 - --------------------------------------------------------------------- Stagraphic - --------------------------------------------------------------------- TFT2000 EYE-t Technology - --------------------------------------------------------------------- 4 SCHEDULE 4 LICENSE AGREEMENTS ASSIGNED TO BUYER ------------------------------------ The following software is assigned pursuant to the terms and conditions of this Agreement, including receipt of any required third party consents: - ------------------------------------------------------------- Product Vendor - ------- ------ - ------------------------------------------------------------- Backup Exec Enterprise Seagate - ------------------------------------------------------------- Bud Tool I-Guard - ------------------------------------------------------------- ConnX Solutions IQ - ------------------------------------------------------------- DiskKeeper Executive SW - ------------------------------------------------------------- JSS ICAM - ------------------------------------------------------------- Multinet Process SW - ------------------------------------------------------------- Robomon Heroix - ------------------------------------------------------------- Solaris Sun Systems - ------------------------------------------------------------- Solaris for Server - ------------------------------------------------------------- SQL BACKTRACK BMC - ------------------------------------------------------------- TS/X Ontime Manugistics - ------------------------------------------------------------- Paradox Novell - ------------------------------------------------------------- MOVE Optum - ------------------------------------------------------------- 5 SUBSCHEDULE 5(a) PATENTS LICENSED TO BUYER ------------------------- Although not specifically referenced on this Schedule 5(a), the patents listed below include their associated foreign counterparts. U.S. PATENT NO. TITLE - --------------- ----- 4355115 Borosilicate Glass Frit with MGO and BAO Partially Devitrified Porcelain Composition Crystalline Phases Obtained from Alkali Metal Free Divalent Metal Oxide Borosilicate Glass 4328614 Method for the Manufacture of Porcelain Coated Metal Boards 4393438 Method for the Manufacture of Porcelain Coated Metal Boards Having Interconnections Between the Top and Bottom Surfaces 4369254 Crossover Dielectric Inks 4369220 Crossover Dielectric Inks Used in Forming a Multilayer Electrical Circuit 4380750 Indium Oxide Resistor Inks 4376725 Conductor Inks 4399320 Conductor Inks 4377642 Overglaze Inks 4401709 Overglaze Inks 4379195 Low Value Resistor Inks 4415624 Air-Fireable Thick Film Inks 4467009 Indium Oxide Resistor Inks 4452844 Low Value Resistor Inks 6 SUBSCHEDULE 5(a) continued PATENTS LICENSED TO BUYER ------------------------- U.S. PATENT NO. TITLE - --------------- ----- 4586375 Reusable Centrifuge Fixture and Methods of Making and Using Same 5581444 Device and Method for Enhancing Thermal and High Frequency Performance of Integrated Circuit Packages 4684055 Method of Selectively Soldering the Underside of a Substrate Having Leads 4703566 Conveyor for Vapor Phase Reflow System 4801065 Chip Carrier Soldering Pallet 5038248 Automatic ESD Protection Device for Semiconductor Packages 5117282 Stacked Configuration for Integrated Circuit Devices 5228192 Method of Manufacturing a Multi-Layered IC Packaging Assembly 5434357 Reduced Semiconductor Size Package 5279850 Gas Phase Chemical Reduction of Metallic Branding Layer of Electronic Circuit Package for Deposition of Branding Ink 5669599 Magnetic Boats 5570407 Distortionless X-ray Inspection 5423889 Process for Manufacturing a Multi-Port Adhesive Dispensing Tool 5833758 Method for Cleaning Semiconductor Wafers to Improve Die to Substrate Solderability 4901135 Hermetically Sealed Housing with Welding Seal 7 SUBSCHEDULE 5(a) continued PATENTS LICENSED TO BUYER ------------------------- U.S. PATENT NO. TITLE - --------------- ----- 4695489 Electroless Nickel Plating Composition and Method 4746375 Activation of Refractory Metal Surfaces for Electroless Plating 4635092 Tape Automated Manufacture of Power Semiconductor Devices 4498924 Method for Producing Eutectics as Thin Films Using a Line Heater 4498923 Method for Producing Eutectics as Thin Films Using a Quartz Lamp as a Heat Source in a Line Heater 4498925 Method for Producing Eutectics as Thin Films Using an Arc Lamp as a Heat Source in a Line Heater 4498926 Method for Producing Eutectics as Thin Films Using a Laser Device as a Heat Source 4492739 Eutectic Fine Wire Arrays 4716124 Tape Automated Manufacture of Power Semiconductor Devices 4809135 Chip Carrier and Method of Fabrication 4914812 Method of Self-Packaging an IC Chip 4737217 Method of Fabricating a Substrate for a Semiconductor Chip Package 5184206 Direct Thermocompression Bonding for Thin Electronic Power Chips 5206186 Method for Forming Semiconductor Electrical Contacts Using Metal Foil and Thermocompression Bonding 8 SUBSCHEDULE 5(a) continued PATENTS LICENSED TO BUYER ------------------------- U.S. PATENT NO. TITLE - --------------- ----- 5304847 Direct Thermocompression Bonding for Thin Electronic Power Chips 5139972 Batch Assembly of High Density Hermetic Packages for Power Semiconductor Chips 5100740 4457976 Method for Mounting a Sapphire Chip on a Metal Base and Article Produced Thereby 4733039 Method of Laser Soldering 4620366 Automatic Pin Extraction Apparatus for Integrated Circuit Tube 4528504 Pulsed Linear Integrated Circuit Tester 4616178 Pulsed Linear Integrated Circuit Tester (divisional of 4528504) 5085084 Method and Apparatus for Testing Lead Bonds and Detecting Failure 5451263 Plasma Cleaning Method for Improved Ink Brand Permanency on IC Packages with Metallic Parts 5882423 Plasma Cleaning Method for Improved Ink Brand Permanency on IC Packages with Metallic Parts (continuation of 5451263) 9 SUBSCHEDULE 5(a) continued PATENTS LICENSED TO BUYER ------------------------- Patent Applications: U.S. PATENT APPLICATION NO. TITLE - --------------------------- ----- 09/129321 A Low Power Discrete Semiconductor Surface Mount Packaging Design Note: a Divisional is being filed on the device claims of this application, and any resulting patent is included herein. 09/343845 Method of Manufacturing a Plated Electronic Termination 10 SUBSCHEDULE 5(b) COPYRIGHTS LICENSED TO BUYER ---------------------------- Parent hereby grants to Buyer, in accordance with the terms and conditions of this Agreement, a license to all copyrighted material used in or related to the operation of the Company's business and not assigned to Buyer pursuant to Sections 2 or 4 of this Agreement (the use of which shall be limited to providing services to Parent pursuant to the Supply Agreement), other than copyrighted materials uniquely related to Parent's products. 11 SUBSCHEDULE 5(c) TECHNICAL INFORMATION LICENSED TO BUYER --------------------------------------- Except with respect to software (which is licensed as set forth below), Parent hereby grants to Buyer, in accordance with the terms and conditions of this Agreement, a license to all technical information used in or related to the operation of the Company's business and not assigned to Buyer pursuant to Sections 2 or 4 of this Agreement, other than technical data uniquely defining Parent's products and the packaging and test of Parent's products, such as bonding diagrams, bills of materials and test programs unique to Parent's products (which shall be made available to Buyer pursuant to Section 8.1 of the Supply Agreement, but only for the purpose of performing services for Parent pursuant to the Supply Agreement). The following software is licensed pursuant to the terms and conditions of this Agreement, including without limitation, obtaining any required third party consents:
-------------------------------------------------------------------------------------------------------------------------------- Area Application or Service Primary Use -------------------------------------------------------------------------------------------------------------------------------- Factory Control Mid-Pack Barcode Label Generates barcode labels for finished goods inventory as it is packed to Systems Generation System be transferred into the KL PDC. -------------------------------------------------------------------------------------------------------------------------------- Cost & Inv ABC Cost System Used to generate activity based cost rates. Brings together production (Worldwide) - activities and overhead spending. This is used to calculated activity "ACCURATE" standard and variable rates. -------------------------------------------------------------------------------------------------------------------------------- Cost & Inv ABC Cost System Builds the cost systems' bill of material and brings together all critical (Worldwide) - "Costream" pieces of data needed to cost WIP products. Interfaces heavily with manufacturing systems: BOM, factory control system, planning system, purchasing system. -------------------------------------------------------------------------------------------------------------------------------- Cost & Inv ABC Cost System Generates std ABC costs, std ylds, material costs for all part and (Worldwide) - "Front to operations in WIP and FG. Provides reporting that shows complete flow Back" of any given part from start to finish for all activities. -------------------------------------------------------------------------------------------------------------------------------- Cost & Inv Cost of Production Plan Used to produce budgets and AOP reports using data from the ImPReSS planning system and costs from the Costing systems -------------------------------------------------------------------------------------------------------------------------------- Cost & Inv Inventory Valuation Determines WIP inventory values, yld variances, mtl variances, added (worldwide) value (earned recovery) etc. for all mfg parts for all locations. This is capture at the operation level and can be rolled up in numerous ways. -------------------------------------------------------------------------------------------------------------------------------- Design Systems Failure Analysis Used to inspect IC designs for when failures are returned to FA. Current system, while not heavily used, could display schematics, layouts, and correlate the two. Total cost is mostly a share of Cadence fixed-fee agreement, but there must be Sun maintenance, too. --------------------------------------------------------------------------------------------------------------------------------
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-------------------------------------------------------------------------------------------------------------------------------- Area Application or Service Primary Use -------------------------------------------------------------------------------------------------------------------------------- Quality Customer Notification Reporting capability in support of required product change and product Systems System withdrawal notifications. -------------------------------------------------------------------------------------------------------------------------------- Quality MIDAS (Manufacturing Intersil's primary engineering data analysis system. MIDAS is comprised Systems Interactive Data Analysis of three basic parts: a relational database which stores the date, an system) associated graphical user interface, and a set of statistical data analysis tools. -------------------------------------------------------------------------------------------------------------------------------- Quality Product & Test Web-based access to yield reports, delinquent delivery reports, online Systems Engineering Web Site forms, product engineering assignments, etc... -------------------------------------------------------------------------------------------------------------------------------- Factory Control CAM_MOVES System The CAM_Moves System contains the history of every WorkStream lot Systems movement - worldwide. It also contains various product-level summaries of the same data. It is used to investigate lot processing problems, and is a data source for the QuickTrace and MIDAS systems. -------------------------------------------------------------------------------------------------------------------------------- Factory Control Export/Pack System Creates and prints internal packaging lists and the export invoice Systems documents that accompany products shipped between Intersil sites. -------------------------------------------------------------------------------------------------------------------------------- Factory Control FCS ConnX Provides users with the ability to use PC Standard Client reporting tools Systems against WorkStream and other production data resident on the VAX. -------------------------------------------------------------------------------------------------------------------------------- Factory Control WorkStream Used to electronically model, track and control production operations. Systems Includes: WIP, Inventory & Equipment Tracking; Engineering Data Collection & Statistical Process Control; Rules-Based Dispatching and Activity Planning; Automated Batch Updates; & Shop Floor Communications -------------------------------------------------------------------------------------------------------------------------------- Factory Control WorkStream-ABC Provides Cost Systems with weekly transmittals that contain complete Systems (Activity Based Costing) WorkStream product flow data in order to perform cost build-ups. For Interface consistency, the product flow information passed to ABC is the same that is passed to IMPReSS - with the additional information required by Accounting merely appended to the files. -------------------------------------------------------------------------------------------------------------------------------- Factory Control WorkStream-HUB Transfers 21 different extract files from the HUB system to the Systems Interface various VAX Clusters. These extract files are used by other FCS applications to validate product structure and build information. They are also used by the manufacturing personnel to look up HUB data in areas that only have VT terminals -------------------------------------------------------------------------------------------------------------------------------- Factory Control WorkStream-IBS (Inter- Captures daily WorkStream lot shipments between Intersil sites and Systems Company Billing) Interface combines them into a single period-to-date file which is sent to the IBS system on the IBM mainframe -------------------------------------------------------------------------------------------------------------------------------- Factory Control WorkStream-IMPReSS Extracts and validates product routing structure, inventory status, and Systems Interface planning yield & cycle time data from within WorkStream and models it for use by the IMPReSS global planning system --------------------------------------------------------------------------------------------------------------------------------
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-------------------------------------------------------------------------------------------------------------------------------- Area Application or Service Primary Use -------------------------------------------------------------------------------------------------------------------------------- Factory Control WorkStream-IVBO Supplies Cost Accounting with weekly period-to-date transmittals that Systems (Inventory Value By contain every WorkStream lot and inventory transaction and a Operation) Interface breakdown of unit losses. -------------------------------------------------------------------------------------------------------------------------------- Factory Control WorkStream-MOVE WorkStream-MOVE interface passes lot information from Systems Interface (a.k.a. ASN - WorkStream to the MOVE Warehouse Management System as the lots Advanced Ship Notice) become finished goods inventory and ship out of WorkStream. -------------------------------------------------------------------------------------------------------------------------------- Factory Control WorkStream-QuickTrace Extracts all WorkStream lot genealogy transactions that either create, Systems Interface split, merge or terminate lots - or move them from one facility to -------------------------------------------------------------------------------------------------------------------------------- Factory Control WorkStream-Ts/X Extracts lot information from WorkStream and FTP's the data to the Systems OnTime Interface OnTime application used for lot dispatching -------------------------------------------------------------------------------------------------------------------------------- General Accounts Receivable Typical AR system. Accounting (Worldwide) -------------------------------------------------------------------------------------------------------------------------------- General Budgeting (Worldwide) - Used to develop budgets for HSS. Costed Production system projects Accounting "Costed Production Plan" & annual yld variance, earned recovery, EOH inventory valuation, and "FIRE" material variance. for input into the budget. -------------------------------------------------------------------------------------------------------------------------------- General Capital Budget Tracking Tracks capital budgets. Accounting -------------------------------------------------------------------------------------------------------------------------------- General Consolidations Used to consolidate all WW ledgers into M1 send to Corporate. Allows Accounting (Worldwide) - "FIRE" for 2.5 day close. -------------------------------------------------------------------------------------------------------------------------------- General Financial Reporting Provides ad hoc and std reporting against all aspects of ledger. Accounting (Worldwide) - "FIRE" Produces plant spending and plant variance reports. -------------------------------------------------------------------------------------------------------------------------------- Product Data PDM (Product Data Used to electronically manage product structure, product attributes and Management Management) engineering/manufacturing specifications for all Intersil products. It (a.k.a HUB - Harris Unified facilitates the organizations ability to share information accurately Bill of material) through a common relational database of product build information. -------------------------------------------------------------------------------------------------------------------------------- Supply Chain Business - to - Business World wide business- to -business (Ramping up interfaces between KL (EDI) and 3rd party shipping provider) --------------------------------------------------------------------------------------------------------------------------------
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-------------------------------------------------------------------------------------------------------------------------------- Area Application or Service Primary Use -------------------------------------------------------------------------------------------------------------------------------- Supply Chain Capacity planning "Herbie Capacity Planning -------------------------------------------------------------------------------------------------------------------------------- Supply Chain Move Warehouse This system is used by the PDC staff to manage finished goods Management Systems inventory and pick, pack and ship product against orders fed to it by SOAR -------------------------------------------------------------------------------------------------------------------------------- Supply Chain SOAR Packslipping and This system prints Packslips in KL several times daily for Orders which Shipping are due to ship. The PDC uses the packslips and online SOAR transactions to pick, pack, and ship the product. -------------------------------------------------------------------------------------------------------------------------------- Supply Chain Order Management Order management 1. Customer profile 2. Product master file 3. Order "SOAR" entry/Change 4. Pricing Management 5. Quote Management 6. Product master file -------------------------------------------------------------------------------------------------------------------------------- Supply Chain Planning "IMPReSS" Optimized World wide factory planning, Capacity planning -------------------------------------------------------------------------------------------------------------------------------- Supply Chain Prioritized Demand Prioritize demand stream for optimization -------------------------------------------------------------------------------------------------------------------------------- Supply Chain Purchasing data warehouse Purchasing data reporting (MIMS Data warehouse) -------------------------------------------------------------------------------------------------------------------------------- Supply Chain Purchasing System Product procurement "MIMS" -------------------------------------------------------------------------------------------------------------------------------- Supply Chain Sales and marketing data Create sales and Marketing reporting warehouse (MARS & FOCUS) -------------------------------------------------------------------------------------------------------------------------------- Supply Chain TestR Test Capacity and analysis --------------------------------------------------------------------------------------------------------------------------------
15 SUBSCHEDULE 5(d) TECHNICAL INFORMATION SUBLICENSED TO BUYER ------------------------------------------ The following software is sublicensed pursuant to the terms and conditions of this Agreement, including without limitation, obtaining any required third party consents (it being agreed that if such consents cannot be obtained, Buyer may be required to purchase its own license to any such software): - ---------------------------------------------------------------------------- Product Vendor - ------- ------ - ---------------------------------------------------------------------------- Autosys Computer Associates - ---------------------------------------------------------------------------- Barr RJE Barr Corp - ---------------------------------------------------------------------------- CDD Oracle Corp - ---------------------------------------------------------------------------- Cobol Compaq - ---------------------------------------------------------------------------- Datatrieve Compaq - ---------------------------------------------------------------------------- DBMS (RT &DEV) Oracle Corp - ---------------------------------------------------------------------------- Dec PS-DC Compaq - ---------------------------------------------------------------------------- Dec PS-PA Compaq - ---------------------------------------------------------------------------- Decnet Compaq - ---------------------------------------------------------------------------- Demand Forecast Logility - ---------------------------------------------------------------------------- eXceed HummingBird - ---------------------------------------------------------------------------- Exchange Microsoft - ---------------------------------------------------------------------------- FMS (RT and Dev) Compaq - ---------------------------------------------------------------------------- Focus IBI - ---------------------------------------------------------------------------- Ghost Norton - ---------------------------------------------------------------------------- Ingress II (to the extent not owned by the Computer Associates Company) - ---------------------------------------------------------------------------- Internet Explorer Microsoft - ---------------------------------------------------------------------------- Jetform Ver 4.1 Designer Jetforms - ---------------------------------------------------------------------------- Jetform Filler Jetforms - ---------------------------------------------------------------------------- Jetform NT personal Jetforms - ---------------------------------------------------------------------------- Linxnet LTX - ---------------------------------------------------------------------------- McAfee Antivirus Network Associates - ---------------------------------------------------------------------------- McAfee group Shield Network Associates - ---------------------------------------------------------------------------- Microsoft Windows NT workstations 4.0 Microsoft - ---------------------------------------------------------------------------- Millennium GL, FA, AP GEAC - ---------------------------------------------------------------------------- Network Access Suite 3.0 FTP Software ============================================================================ 16 - ---------------------------------------------------------------------------- Product Vendor - ------- ------ - ---------------------------------------------------------------------------- NT Operating System-Server Microsoft - ---------------------------------------------------------------------------- Office 97 Suite/Outlook 98 Microsoft - ---------------------------------------------------------------------------- Onnet Host Suite 4.0 Onnet - ---------------------------------------------------------------------------- Open VMS Compaq - ---------------------------------------------------------------------------- Oracle RDB Oracle Corp - ---------------------------------------------------------------------------- Oracle v 7.3 Oracle Corp - ---------------------------------------------------------------------------- Oracle V 8 Oracle Corp - ---------------------------------------------------------------------------- PC Anywhere - ---------------------------------------------------------------------------- Remotely Possible Computer Associates - ---------------------------------------------------------------------------- S+ v.3.4 Math Soft - ---------------------------------------------------------------------------- Sherpa DMS/PIMS SDRC - ---------------------------------------------------------------------------- SLS Compaq - ---------------------------------------------------------------------------- SMS client Microsoft - ---------------------------------------------------------------------------- Solaris for linxnet - ---------------------------------------------------------------------------- Systems Management Server Microsoft - ---------------------------------------------------------------------------- VaxMail Compaq - ---------------------------------------------------------------------------- Volume Shadow Compaq - ---------------------------------------------------------------------------- Vtam Printer Support Levi, Ray & Shoup, Inc - ---------------------------------------------------------------------------- Watcher Symark - ---------------------------------------------------------------------------- Winframe client Microsoft - ---------------------------------------------------------------------------- Winframe Enterprise version 1.7 Citrix - ---------------------------------------------------------------------------- WinZip 6.3 NicoMak Computing - ---------------------------------------------------------------------------- Workstream/DFS Applied Materials (Consilium) - ---------------------------------------------------------------------------- XPTR-MVS Systemware - ---------------------------------------------------------------------------- KEA! version 4.31 Attachmate Corporation - ---------------------------------------------------------------------------- Sniffer software - ---------------------------------------------------------------------------- RS1 Brooks - ---------------------------------------------------------------------------- Sunlink DNI(DECnet) Sun Systems - ---------------------------------------------------------------------------- Cadence DFII, etc Cadence - ---------------------------------------------------------------------------- Statistica StatSoft Inc - ---------------------------------------------------------------------------- 17 EX-10.33 12 0012.txt SUPPLY AGREEMENT, ENTERED INTO AS OF JUNE 30, 2000 Intersil/ChipPAC Confidential Exhibit 10.33 SUPPLY AGREEMENT This Supply Agreement (this "Agreement") is entered into as of June 30, 2000 (the "Effective Date"), by and between ChipPAC Limited, a British Virgin Islands corporation, having its principal place of business at Craigmuir Chambers, Road Town, Tortola, British Virgin Islands on behalf of itself and each of its current and future Subsidiaries, including, without limitation, its Subsidiaries which own and operate facilities in Korea, China and Malaysia (hereinafter individually or collectively "ChipPAC") and Intersil Corporation, a Delaware corporation, having its principal place of business at 7585 Irvine Drive, Suite 100, Irvine, California 92618 on behalf of Intersil Holding Corporation and each of Intersil Holding Corporation's current and future controlled Affiliates (hereinafter collectively or individually "Intersil"). ChipPAC and Intersil are sometimes referred to as a "Party" and collectively referred to as the "Parties." RECITALS WHEREAS, Sapphire Worldwide Investments, Inc. ("Sapphire"), a wholly-owned indirect subsidiary of Intersil Corporation, has sold to ChipPAC Limited, and ChipPAC Limited has purchased, the capital stock of Intersil Technology Sdn. Bhd. (name to be changed to ChipPAC Malaysia Sdn. Bhd.), a Sendirian Berhad (the "Company") on the terms and conditions set forth in that certain Stock Purchase Agreement dated as of June 30, 2000 (the "Stock Purchase Agreement"), by and among ChipPAC Limited, Intersil Corporation, Sapphire and ChipPAC, Inc., a California corporation; WHEREAS, the Parties desire to enter into this Agreement pursuant to which (i) ChipPAC agrees to provide to Intersil, and Intersil agrees to purchase from ChipPAC, Intersil's requirements of packaging and test services for its semiconductor products in accordance with the terms and conditions of this Agreement and (ii) ChipPAC will have the exclusive right to provide PDC Services (as defined herein) for all semiconductor products which are packaged or tested by ChipPAC and shipped from ChipPAC facilities; and WHEREAS, the Parties are party to a separate Supply Agreement Letter Agreement dated as of the date hereof (the "Letter Agreement"). NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is acknowledged, the Parties agree as follows: 1. DEFINITIONS As used in this Agreement, the following capitalized terms have the meanings provided below. Other terms may be defined as they appear throughout the Agreement. 1.1 "Affiliate" of any particular Person means any other Person directly or indirectly controlling, controlled by or under direct or indirect common control with such Person. For purposes of this definition, a Person shall be deemed to be in "control" if such Person possesses, directly or indirectly, the power to direct or cause the direction of the management or policies of the Person in question, whether through the ownership of voting securities, by contract or otherwise. Intersil/ChipPAC Confidential 1.2 "Bare Die/Wafer Preparation Services" are services, with respect to Intersil products, required to provide (i) 100% visually inspected die or sawed wafers in the following configurations depending upon Intersil customer requirements: probed and sawed wafer on frame, tested die in waffle pack, tested die in tape and reel or tested die in reconfigured wafer on frame and (ii) reasonable customer support in die preparation on these Products. 1.3 "Base Unit Cost" shall have the meaning set forth in Section 5.1. ----------- 1.4 "Die" means individual, un-packaged, semiconductor devices. 1.5 "Existing Packages" means Intersil's semiconductor package configurations for which packaging and test services are provided at the Facility as of the Effective Date, each as more specifically set forth in the Letter Agreement. 1.6 "Facility" shall mean the Company's semiconductor packaging and test facility located at 73 Lorong Enggang, ULU Klang Free Trade Zone, 54200 Kuala Lumpur, Malaysia. 1.7 "Fiscal Year" shall mean the period from July 1 in any calendar year to June 30 of the succeeding calendar year. 1.8 "Meet Competitive Pricing" shall mean the lesser of (i) a competitive price (including NRE and tooling charges) offered by another qualified supplier for like product, at like volumes and at like performance standards to those required in the Letter Agreement, excluding any equity incentive compensation provided by such supplier (hereafter referred to as the "Competitive Price") or (ii) the most favored customer net price (including NRE and tooling charges) for like product, at like volumes and at like performance standards to those required in the Letter Agreement made available by ChipPAC to any of its customers, taking into account all special terms, including allowances, discounts, rebates, payment terms (excluding, in the case of Intel, any discount for prompt payment terms) or any such similar incentives, but excluding any equity incentive compensation provided to any customer (hereafter referred to as the "Most Favored Customer Price"). Whenever ChipPAC is required to provide Meet Competitive Pricing, such prices shall be obligated to be provided as of July 1/st/ of any Fiscal Year in question (or the first date during the Term which ChipPAC begins to provide any such Services, in the case of New Packages), and thereafter, shall not be reset until each January 1/st/ and July 1/st/ during the Term following the initial establishment of such Meet Competitive Pricing. For purposes of this Agreement, "a competitive bid offered by another qualified supplier" shall mean a certified bid provided by a subcontractor that has the capability to perform on such bid in accordance with industry standards for like product (i.e., an equivalent part), at like volumes and at like performance standards to those described in the Letter Agreement. 1.9 "New Packages" shall mean Intersil's package configurations that are not of the type for which packaging and/or test services are provided at the Facility or any other facility (including any third party facility) as of the Effective Date and which are not Subcontract Packages. For -2- Intersil/ChipPAC Confidential purposes of this Agreement, the combination of package outline dimensions, package lead finish and internal leadframe or substrate design shall constitute a package configuration. For avoidance of doubt, a package configuration shall be deemed to be a New Package if any of the package outline dimensions, package lead finish or internal leadframe or substrate design are different from an Existing Package, including, without limitation, if (i) the package outline dimensions are different by more than typical variations in tolerances, (ii) lead finish is of an entirely different metallurgy than an existing version (as opposed to mere variations on composition percentage) or (iii) the internal leadframe design is different (or in the case of a substrate based package, if the internal design, number of layers or cavity size is different) because it is deemed necessary for proper packaging or function of a particular semiconductor device (as opposed to substitution of a different leadframe or substrate design for convenience or simply due to materials availability). 1.10 "Package(s)" shall mean New Packages (for which ChipPAC exercises its Right of First Refusal to provide Services pursuant to Section 3.2 hereof), ----------- Existing Packages and Subcontract Packages transferred to ChipPAC. 1.11 "Packaging Services" means packaging services for the Products. 1.12 "Packaging and Test Services" means, collectively, Packaging Services and Test Services. 1.13 "PDC Services" are those services, with respect to those Intersil products for which ChipPAC provides Packaging Services or Test Services as well as for any other Intersil products that Intersil requests ChipPAC to provide such services, required to manage and perform the finished goods warehouse, order processing and fulfillment functions, from both a systems and material handling standpoint, including receipt of Products into inventory, Product storage, order processing, pick/pack operations, palletization and shipping/invoice operations, together with support for expedited shipments, all as detailed in the Letter Agreement. 1.14 "Person" shall mean any individual, sole proprietorship, partnership, joint venture, trust, unincorporated association, corporation, entity or government entity (whether federal, state, county, city or otherwise and including, without limitation, any instrumentality, division, agency or department thereof). 1.15 "Product and Test Engineering Services" are those services, with respect to those Intersil products for which ChipPAC provides Packaging Services or Test Services, described in the Letter Agreement. 1.16 "Production Planning and Control Services" are those services, with respect to those Intersil products for which ChipPAC provides Packaging Services, Test Services or PDC Services, associated with material planning, scheduling, controlling and implementing production operations at the Facility, all as detailed in the Letter Agreement. -3- Intersil/ChipPAC Confidential 1.17 "Products" means Intersil's finished semiconductor devices. 1.18 "Quality Reliability Assurance Services" are those services, with respect to those Intersil products for which ChipPAC provides Packaging Services or Test Services, required to assure the quality and reliability of packaged and tested Products, including qualifications of process and material changes, change notification, reliability monitors, lot acceptance testing, failure analysis and retest and restocking of returns, all as detailed in the Letter Agreement. 1.19 "Services" means collectively, Packaging and Test Services, Production Planning and Control Services, Quality Reliability Assurance Services, PDC Services, Product and Test Engineering Services and Bare Die/Wafer Preparation Services. 1.20 "Subcontract Packages" means Intersil's semiconductor package configurations for which packaging services are provided by a third party packaging manufacturer as of the Effective Date. The SOT-223 is a Subcontract Package which is also tested by a third party manufacturer. A listing of Subcontract Packages is set forth in the Letter Agreement. 1.21 "Subsidiary" shall mean, with respect to any Person, any corporation, ---------- partnership, association or other business entity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (irrespective of whether, at the time, stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof or (ii) if a partnership, association or other business entity, a majority of the partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by any Person or one or more Subsidiaries of that Person or a combination thereof. 1.22 "Term" shall mean the Initial Term and any Renewal Terms as each such term is defined in Section 13.1. ------------ 1.23 "Test Services" means probe and test services for the Products. 1.24 "Wafer" shall mean those substrate materials having electronic circuits, comprising individual Die corresponding to an unfinished Product, provided by Intersil to ChipPAC pursuant to this Agreement to be used by ChipPAC in providing Packaging and Test Services and Bare Die/Wafer Preparation Services. The Wafers are to comply with those specifications set forth in the Letter Agreement. 1.25 "Year One" shall mean the period from the Effective Date until June 30, 2001. 1.26 "Year Two" shall mean the period from July 1, 2001 to June 30, 2002. -4- Intersil/ChipPAC Confidential 1.27 "Year Three" shall mean the period from July 1, 2002 to June 30, 2003. 1.28 "Year Four" shall mean the period from July 1, 2003 to June 30, 2004. 1.29 "Year Five" shall mean the period from July 1, 2004 to June 30, 2005. 2. SCOPE 2.1 Scope. ChipPAC agrees to provide Services for the Products, and ----- Intersil agrees to purchase such Services, in accordance with the terms and conditions set forth herein. In the event there is a conflict or inconsistency between this Agreement, the Letter Agreement and any Intersil purchase order, the terms and conditions of this Agreement and the Letter Agreement shall govern. 2.2 Packaging and Test Services. ChipPAC shall provide the facilities --------------------------- (which may include the Facility, or any other facility owned or operated by ChipPAC or any of its Affiliates), equipment (other than Intersil Consigned Equipment (as defined in Section 6.3)), materials (other than Die and Wafers) ----------- and manpower and technical expertise to perform the Packaging and Test Services for the Products in accordance with the specifications therefor set forth in the Letter Agreement and purchase specifications set forth in the Letter Agreement. 2.3 Consignment of Wafers and Die. In accordance with specifications set ------------------------------- forth in the Letter Agreement, Intersil shall supply on consignment to ChipPAC sufficient semiconductor Wafers and Die (FOB at the Facility or any other facility owned or operated by ChipPAC at which the Services are to be performed), in the appropriate product mix to permit ChipPAC to perform the Services in accordance with Intersil's Weekly Production Plan pursuant to Section 4.2. - ----------- All semiconductor devices and parts consigned by Intersil shall be and remain the sole property of Intersil, and shall be used by ChipPAC for performing Services for Intersil products only, and all such Intersil products derived in whole or in part therefrom shall at all times be maintained as Intersil property, appropriately labeled to distinguish it from any articles and work in process for others in ChipPAC's custody or possession. 3. PURCHASE QUANTITY 3.1 Minimum Quantity Requirements. ----------------------------- Years 1, 2 and 3. Intersil shall source one hundred percent (100%) ---------------- of its requirements for both Packaging and Test Services and PDC Services for both Existing Packages (excluding hermetic Packages, which shall be provided pursuant to Section 7.9 of this Agreement) and New Packages (in accordance with the right of first refusal to provide such Services for New Packages set forth in Section 3.2) from ChipPAC during Year One, Year Two and Year Three. ----------- -5- Intersil/ChipPAC Confidential Years 4 and 5. During Year Four, Intersil shall source from ChipPAC a ------------- minimum of ninety percent (90%) of its requirements for Packaging and Test Services and for PDC Services (determined by reference to Intersil's aggregate purchases of all packaging and test services and of all product distribution center services related to such packaging and test services from all Persons during Year Four) for both Existing Packages (excluding hermetic Packages, which shall be provided pursuant to Section 7.9 of this Agreement) and New Packages (in accordance with the right of first refusal to provide such Services for New Packages set forth in Section 3.2). During Year Five, Intersil shall source ----------- from ChipPAC a minimum of eighty percent (80%) of its requirements for Packaging and Test Services and for PDC Services (determined by reference to Intersil's aggregate purchases of all packaging and test services and of all product distribution center services related to such packaging and test services from all Persons during Year Five) for both Existing Packages (excluding hermetic Packages, which shall be provided pursuant to Section 7.9 of this Agreement) and New Packages (in accordance with the right of first refusal to provide such Services for New Packages set forth in Section 3.2). ----------- Other Services. Services other than Packaging and Test Services and -------------- PDC Services (i) shall only be provided at Intersil's request for such Services and (ii) shall not be included for purposes of determining whether Intersil has met it minimum quantity requirements set forth in this Section 3.1. ----------- Exclusion from Minimum Quantity Requirements. Notwithstanding the -------------------------------------------- foregoing, the minimum quantity requirements for Packaging and Test Services and PDC Services for Products to which the following conditions apply shall be excluded from the calculations of minimum requirements set forth in this Section ------- 3.1: - --- (i) if ChipPAC does not offer Packaging and Test Services for any applicable New Package at the Facility, or at any other facility owned or operated by ChipPAC or any of its Affiliates, at the time such services are initially required by Intersil; it being agreed that if ChipPAC begins to offer Packaging and Test Services for one or more of such New Packages at any time during the Term, and ChipPAC exercises its right of first refusal, if any, on such New Packages in accordance with Section 3.2 (i.e., in the event Intersil ----------- has not entered into a long term third party supply agreement of the type described in Section 3.2 or ChipPAC has a right of first refusal on secondary ----------- source Packages), any such New Packages shall be subject to the minimum quantity requirements set forth in this Section 3.1 during the remainder of the Term; (ii) if ChipPAC declines to provide Packaging and Test Services for an applicable New Package (whether by expressly declining in writing to provide such Packaging and Test Services or by mutual determination thereof by the Parties within a reasonable time after Intersil's request for such Packaging and Test Services); (iii) if ChipPAC does not provide sufficient capacity on a reasonably timely basis to satisfy Intersil's end customers' requirements; -6- Intersil/ChipPAC Confidential (iv) if Intersil is required by market conditions or Intersil customer delivery requirements to provide to the customer quick turn packaging or test of prototypes or design verification units or other exceptions mutually agreed to by the Parties (e.g., a mutually agreeable pilot program) before ramping to production quantities and ChipPAC cannot provide such services on a reasonably timely basis, it being agreed that production quantities of any such Products shall be subject to the minimum quantity requirements set forth in this Section 3.1 and the right of first refusal set forth in Section 3.2; (v) back-end packaging or test services provided by any Acquired Business (as defined below) for the internal use of such Acquired Business (as opposed to providing such services to third parties or to all or any part of Intersil's business, except for the Acquired Business), it being agreed that in the event Intersil Holding Corporation or any of its controlled Affiliates consummate the acquisition of an Acquired Business, the Parties shall confer and explore mutually beneficial opportunities to transfer such business from Intersil to ChipPAC (whether by purchase and sale of the relevant packaging or test business, by supply arrangements or otherwise) (for purposes of this Section 3.1, "Acquired Business" shall mean any business acquired by Intersil Holding Corporation or any of its controlled Affiliates, a portion of which may consist of the business of providing back-end packaging or test services only for the internal use of such business being acquired); or (vi) any services that ChipPAC elects not to provide to Intersil or any services that ChipPAC is not capable of providing to Intersil. Notwithstanding anything to the contrary in this Section 3.1, if Intersil is required by its end customer to establish and maintain a second source of supply (which the Parties shall use best efforts to establish on a timely basis by sourcing any such Product to any one or more of ChipPAC's other available facilities), the Parties shall meet and develop a mutually agreeable solution to any such second source requirement which cannot be satisfied by using another qualified ChipPAC facility (including, without limitation, resolution of the impact of any such second source requirement on Intersil's obligations pursuant to this Section 3.1). 3.2 Right of First Refusal. During the Term of this Agreement, ChipPAC ---------------------- shall have a right of first refusal to provide Packaging and Test Services and PDC Services on all of Intersil's New Packages. Intersil will provide ChipPAC with timely notice of the type of package, the required date, the capacity required, the lead time for production deliveries and any other limitations on the New Packages imposed on Intersil by its customers. If ChipPAC can substantially meet each of Intersil's requirements, including, but not limited to, technical specifications, availability, capacity and qualification time, Intersil shall place such business with ChipPAC, it being agreed that each of the Parties shall work cooperatively and mutually assist the other Party to enable each Party to fulfill their respective obligations on a timely basis and any requirements with respect to any New Packages subject to this right of first refusal (including, without limitation, by jointly planning and communicating with respect to all such New Packages). The pricing on any such New Package shall be at Meet Competitive Pricing. If ChipPAC is unable to meet such requirements or declines to provide such New Package, Intersil may enter into a long-term purchase agreement (which -7- Intersil/ChipPAC Confidential agreement shall prohibit such third party from publicly announcing that such business has been sourced through such third party, unless required by law) for the supply of such New Package and the test thereof with a third party who meets the requirements delivered to ChipPAC (including, but not limited to, technical specifications, availability, capacity and qualification time). In the event Intersil enters into such an agreement with a third party, Intersil shall be under no obligation to transfer the business for such New Package to ChipPAC. Notwithstanding the foregoing, in the event Intersil decides to establish a second source for any such New Package, Intersil shall be required to provide ChipPAC with a right of first refusal with respect to such secondary source Packages in compliance with this Section 3.2. ----------- 3.3 Package Development. ChipPAC shall be Intersil's preferred supplier ------------------- of new package development services; provided that ChipPAC is able to offer price and performance standards for any such new packages that are at least comparable to the price and performance standards offered by third parties. In addition, ChipPAC's development time for new packages must be consistent with Intersil's new product introduction schedules. ChipPAC and Intersil shall conduct quarterly roadmap reviews of future package configurations throughout the Term of this Agreement. 3.4 Location for Packaging and Test Services. ChipPAC shall have the ---------------------------------------- right to provide Services for Intersil pursuant to this Agreement at the Facility and/or at any other facility owned or operated by ChipPAC or any of its Affiliates. Any Packaging and Test Service moves are subject to reasonable qualification requirements of the facility in which the Packaging and Test Services will be performed. No qualification shall be considered complete until, where required, Intersil's customer qualification is complete and customer approval has been received. Until such time as Intersil may consent (such consent not to be unreasonably withheld or delayed), all Test Services shall be provided at the Facility. 3.5 Subcontract Packages. ChipPAC shall have the exclusive right to -------------------- provide Packaging and Test Services and PDC Services for all Subcontract Packages which are transferred to ChipPAC pursuant to the terms and conditions of Section 3.1 of the Stock Purchase Agreement and Schedule 3.1 thereto. ------------ 3.6 Capacity Availability. Subject to adjustment from time to time --------------------- pursuant to the following sentence, ChipPAC shall ensure that Intersil is allocated 100% of the utilized capacity which was in place immediately prior to the Effective Date, although such utilized capacity may be made available in any ChipPAC facility that has been qualified to package and/or test Products, as applicable. Intersil shall provide ChipPAC with the Weekly Production Plan (as defined in Section 4.2) to support the continued allocation of such utilized capacity to Intersil. 4. PURCHASE AND SALE 4.1 Purchase Orders. Intersil shall place orders for Packaging and Test --------------- Services and PDC Services by furnishing ChipPAC with documented blanket purchase orders which will be used for billing purposes only and are not authorization from Intersil to commit material resources into -8- Intersil/ChipPAC Confidential production. Authorization for production will be communicated from Intersil to ChipPAC via the Firm Release Window (as defined in Section 4.2) in the Weekly Production Plan (as defined in Section 4.2). In addition, Intersil shall provide ChipPAC with blanket purchase orders for each of the other Services which will be used for billing purposes only and are not authorization to commit resources for such other Services. Authorization to commit resources to such other Services will be communicated from Intersil to ChipPAC via the Firm Release Window in the Weekly Production Plan or by separate Intersil request. 4.2 Production Plans and Firm Demand. Intersil shall provide ChipPAC with -------------------------------- the following two types of production plans: (i) the aggregate production plan, which shall provide a high level long range forecast which correlates to capital expenditure lead times as the same may be adjusted from time to time, to be provided on a quarterly basis or upon more frequent intervals as Intersil determines to be consistent with any significant change in its capacity needs (the "Aggregate Production Plan") and (ii) the weekly production plan, which will provide a minimum 26 week rolling forecast of Intersil Product demand, by part number, to be provided on a weekly basis or upon more frequent intervals as Intersil may desire, which will also contain the "start date" (as required to be calculated below) and Intersil's desired shipment date from the product distribution center (the "Weekly Production Plan"). The Weekly Production Plan shall be used both for (i) material planning purposes, it being agreed that materials shall be ordered on the basis of the Weekly Production Plan, based on material ordering lead times as the same may be adjusted from time to time (which currently run approximately 60 days for the longest material lead time item, leadframes) and (ii) scheduling of Packaging and Test Services, it being agreed that ChipPAC shall only be authorized to release consigned Intersil Wafers and Die into production and commence Packaging and Test Services on such items on the "start date" listed in the Weekly Production Plan. The "start date" means the last possible date on which services may be commenced on the relevant Intersil Product, based upon the cycle time of the relevant Intersil Product (as the same may be adjusted from time to time) plus seven (7) days, in order to place such Product in the product distribution center in time to satisfy Intersil's desired shipment date from the product distribution center. Current average cycle times based on Products packaged and tested at the Facility are twelve (12) days for IC packaging and test and five (5) days for Power packaging and test. Packaging and Test Services commenced on or after the "start date" shall be within the "Firm Release Window." Only quantities of Product within the Firm Release Window will be considered firm demand. 4.2.1 Production Plan Transmission and Method. The Aggregate --------------------------------------- Production Plan will be provided quarterly in the quarterly reviews described in Section 9 of this Agreement (or on a more frequent basis, consistent with any significant changes in Intersil's forecasted capacity needs). The Weekly Production Plan will be sent to ChipPAC on a weekly basis (or in more frequent intervals as Intersil may desire) in one of the following formats, as determined jointly by the Parties: . Impress Planning System (or a functional equivalent). . Fax or e-mail (should be used as a temporary option only). . Electronic Data Interchange (EDI) via a third party network service provider. . Electronic Data Interchange via the Internet. -9- Intersil/ChipPAC Confidential Impress (or its functional equivalent) is Intersil's current preferred option. Intersil believes that EDI is a future productivity and performance enhancing option. 4.2.2 Weekly Production Plan Visibility. Intersil shall provide --------------------------------- ChipPAC with Intersil's best commercially reasonable visibility of Product demand. The actual horizon of production plan information sent to ChipPAC is dependent on the visibility received from Intersil's customers, and may be limited by systems or process constraints. 4.2.3 Firm Demand/ Planned Demand. Requirements of Intersil Product --------------------------- in the Weekly Production Plan that fall within the Firm Release Window will be designated as "Firm Demand" and requirements of Intersil Product that fall outside the Firm Release Window will be designated as "Planned Demand." The intent of the Planned Demand and the Firm Demand is to allow changes in the demand to be managed within the Weekly Production Plan, and to release requirements for Product into production only within the Firm Release Window. 4.2.4 Upside Sprint Capacity. ChipPAC agrees to use its best ---------------------- efforts, consistent with available capacity, resources and materials availability (but without any requirement to acquire additional equipment capacity), to plan production to support an upside sprint capacity against the immediately succeeding 16 weeks set forth in Intersil's Weekly Production Plan from time to time (the "Upside"). Intersil's target Upside percentage of the total quantity for the immediately succeeding 16 weeks in the Weekly Production Plan from time to time is set forth in the Letter Agreement. The Upside quantity available to Intersil is therefore determined by adding up the total quantity forecast for the immediately succeeding 16 weeks in the Weekly Production Plan from time to time and multiplying by the Upside percentage set forth in the Letter Agreement. The target is to have the Upside available to Intersil within the Firm Release Window, except to the extent that ChipPAC has notified Intersil otherwise pursuant to Section 4.2.5. 4.2.5 Notification. ChipPAC shall notify Intersil of its firm ------------ commitment to Intersil's forecasted capacity for any month during the Term on or about the 15/th/ day of the preceding month during the Term. ChipPAC is responsible for notifying Intersil if ChipPAC is unable to support forecast requirements inside the Weekly Production Plan. Intersil will assume that ChipPAC can support one hundred percent (100%) of the requirements for the Weekly Production Plan unless notified otherwise. Due to the short time windows in the Firm Release Window, ChipPAC will notify Intersil no later than three business days of receiving the Weekly Production Plan (with a target of notifying Intersil no later than one business day of receiving the Weekly Production Plan) if ChipPAC is unable to meet Firm Demand requirements. For Planned Demand requirements, ChipPAC will notify Intersil within seven business days of receiving the Weekly Production Plan if ChipPAC is unable to meet Planned Demand requirements. 4.2.6 Liability of Forecast. The intent of this Agreement is for the --------------------- Parties to jointly define and optimize opportunities to reduce both risk and the liability of building requirements within the Weekly Production Plan. Except as otherwise provided herein, Intersil shall be responsible for (i) all materials and component products ordered on the basis of the Weekly -10- Intersil/ChipPAC Confidential Production Plan (based on the lesser of (A) 60 days and (B) material ordering lead times as adjusted from time to time), (ii) all Packaging and Test Services provided within the Firm Release Window and (iii) all Packaging and Test Services provided in a shorter time frame than the Firm Release Window, to the extent the same were requested by Intersil and (iv) all Packaging and Test Services provided outside the Firm Release Window, to the extent Intersil subsequently ships such Intersil Products from the product distribution center. Notwithstanding the foregoing, if Intersil's requirements are subsequently reduced, ChipPAC will use commercially reasonable efforts to mitigate Intersil's liability through alternative use or sale of raw materials or component products or other appropriate means, it being understood that (i) Intersil will at all times be responsible for materials, work-in-process and finished Products within the Firm Release Window and (ii) immediate billing for such Services will be rendered upon completion of the relevant Services. For standard raw materials and standard component parts (i.e., raw materials and standard component parts which ChipPAC can use to provide packaging and/or test services for other ChipPAC customers), Intersil's maximum liability will only include the quantity released as Firm Demand within the Firm Release Window. Intersil's liability for non-standard or unique raw materials or component parts (i.e., raw materials and component parts which ChipPAC cannot use to provide packaging and/or test services for other ChipPAC customers) shall be based upon the material ordering lead times for such raw materials and component parts, as adjusted from time to time (ordered on the basis of the Weekly Production Plan). 4.2.7 Liabilities of ChipPAC. In the event any delivery of Product ---------------------- is or will be delayed as a result of ChipPAC not meeting its committed delivery date confirmed in writing (or by electronic notification) by ChipPAC to Intersil because of any action or inaction on the part of ChipPAC (other than any action or inaction taken by ChipPAC at Intersil's direction or suggestion or due to any Force Majeure event (as described in Section 14.4)) and such delay will adversely impact Intersil's customer's delivery date, ChipPAC will pay for any commercially reasonable expedite charges, including, without limitation, any such special freight charges in order to reduce such delay. 4.3 Title Passage and Logistics Providers. Subject to Section 2.3, title ------------------------------------- to the Products and risk of loss shall pass to Intersil upon completion of the relevant Services (i.e, title and risk of loss shall pass to Intersil upon completion of the Packaging Services and, separately, title and risk of loss shall pass to Intersil upon completion of the Test Services). Any carrier used to serve Intersil's needs shall be selected by Intersil, consistent with the smooth operation of the product distribution center in accordance with past practices, it being agreed that ChipPAC's expertise, manpower and cooperation will be required to maintain a smooth shipment flow of Products. Subject to the foregoing, ChipPAC will be obliged to follow Intersil's choice of logistic providers and shipping/routing directives. Any delays incurred due to carrier responsiveness (e.g., inadequate staffing by the carrier selected by Intersil) shall be borne solely by Intersil. 4.4 Freight and Duty. The shipping locations of ChipPAC will utilize ---------------- Intersil designated contract carriers for the shipping of Intersil's Product. Shipping costs, documentation, insurance -11- Intersil/ChipPAC Confidential costs, customs duties and other taxes shall be borne by Intersil. During Year One, if ChipPAC elects to provide Packaging and Test Services for Existing Packages or Subcontract Packages at a ChipPAC facility other than the Facility, Intersil shall be charged for freight and duty for such Products as if such Products had been shipped from the Facility, regardless of actual point of shipment. With respect to New Packages, and with respect to any Existing Packages or Subcontract Packages at any time after Year One, Intersil shall be charged for freight and duty for such Products from the facility from which such Product is shipped. 5. PRICE 5.1 Pricing of Existing Packages. The pricing (whether or not such ---------------------------- Services are provided at the Facility or any other facility owned or operated by ChipPAC) for Packaging Services for all Existing Packages and for Test Services for the Products described in the Letter Agreement shall be (except as otherwise provided in the Letter Agreement with respect to such Test Services) (i) at Base Unit Cost during Year One, Year Two and Year Three and (ii) at Meet Competitive Pricing during Year Four and Year Five. The first such adjustment to Meet Competitive Pricing (i.e., commencing at the beginning of Year Four) shall not exceed 110% of the Base Unit Cost less discounts in effect with respect to such Services (immediately prior to the transition to Meet Competitive Pricing), it being agreed that if the aforementioned cap upon price increases would result in ChipPAC providing Services at or below its total cost to provide such Services (a "Loss Situation"), the Parties shall confer and work out a mutually satisfactory arrangement to compensate ChipPAC for any such Loss Situation. "Base Unit Cost" means the base unit costs of the Facility in effect as of the Effective Date, estimates of which are set forth in the Letter Agreement; provided that within 60 days of the Effective Date, such estimated Base Units Costs shall be increased or decreased to reflect the Company's actual units costs as of the Effective Date, as determined by reference to the Company's books and records and verified by an independent accountant selected by ChipPAC and reasonably acceptable to Intersil. Once actual Base Unit Costs are determined, the Letter Agreement shall be updated to reflect such actual Base Unit Costs. 5.2 Pricing of Subcontract Packages. The initial pricing for Packaging ------------------------------- Services for all Subcontract Packages transferred to ChipPAC shall be the prices set forth in the Letter Agreement. Such prices shall remain in effect during the remainder of the Fiscal Year in which the Subcontract Package is transferred to ChipPAC. On July 1, 2001 and each anniversary thereof during the Term, the prices for Packaging Services of Subcontract Packages shall be reset at the lesser of (i) the then-effective unit price therefor or (ii) the Most Favored Customer Price therefor. 5.3 Test Pricing. Except as otherwise provided herein, pricing for Test ------------ Services for Existing Packages and for Subcontract Packages will be charged on a test second of CPU time basis. The Parties shall confer and develop a mutually agreeable schedule of test pricing no later than 30 days after the Effective Date, which schedule shall be added to the Letter Agreement. Pricing for Test Services for New Packages will be charged at Meet Competitive Pricing. Test time reductions initiated and implemented by Intersil will accrue solely to the benefit of Intersil. Intersil and ChipPAC will annually review test costs to ensure they remain competitive. Intersil shall bear the -12- Intersil/ChipPAC Confidential cost of any device interface boards necessary to provide Test Services to Intersil (it being agreed that ChipPAC shall procure such boards and charge back the cost thereof to Intersil). 5.4 PDC Services; Restock Services. ChipPAC shall charge Intersil a unit ------------------------------ price adder for each unit of Product shipped. The unit price adder for PDC Services shall be developed by the Company no later than 30 days after the Effective Date and attached to the Letter Agreement. Such unit price adder for PDC Services will consist of a combination of variable cost per unit of Product plus fixed costs related to PDC Services, based on the Company's actual unit costs to provide such services during the period from July 2, 1999 through and including the Effective Date, as determined in accordance with United States generally accepted accounting principles, consistently applied, by reference to the Company's books and records and verified by both Parties and verified by an independent accountant selected by ChipPAC (which independent accountant shall be reasonably acceptable to Intersil). ChipPAC shall charge Intersil a unit price adder for each unit of Product returned by Intersil's customer and restocked into the product distribution center (including the related reinspection work). The unit price adder for such restock services shall be developed by the Company no later than 30 days after the Effective Date and attached to the Letter Agreement. Such unit price adder for restock services will consist of a combination of variable cost per unit of restocked Product plus fixed costs related thereto, based on the Company's actual unit costs to provide such services during the period from July 2, 1999 through and including the Effective Date, as determined in accordance with United States generally accepted accounting principles, consistently applied, by reference to the Company's books and records and verified by both Parties and verified by an independent accountant selected by ChipPAC (which independent accountant shall be reasonably acceptable to Intersil). During Year One, such charges shall be made to Intersil on a product line reporting basis, it being agreed that ChipPAC shall issue Intersil an equivalent credit for billing purposes (i.e., there will be no net charge to Intersil for restock services during Year One). The Parties agree that restock services shall be minimized during Year One to commercially reasonable industry standards. Commencing in Year Two, and throughout the remainder of the Term, ChipPAC shall charge Intersil for such restocking services (without an equivalent credit), it being agreed that commencing in Year Two, the Base Unit Costs of the relevant Intersil products shall be adjusted to eliminate the costs attributable to such restock services during the period from July 2, 1999 through and including the Effective Date (as determined elsewhere in this second paragraph of this Section 5.4). 5.5 Unit Price Adders, Lot Charges and Fast Track Charges. Intersil shall ----------------------------------------------------- pay the Unit Price Adders, Lot Charges and Fast Track Charges set forth in the Letter Agreement, upon Intersil's request for such services. The Parties agree that services for Lot Charges and Fast Track Charges shall be minimized during Year One to commercially reasonable industry standards. The Letter Agreement separately details Lot Charges and Fast Track Charges for "Products Currently Assembled At KL Facility." During Year One, such Lot Charges and Fast Track Charges for such "Products Currently Assembled At KL Facility" shall be made to Intersil on a product line reporting basis, it being agreed that ChipPAC shall issue Intersil an equivalent credit for billing purposes (i.e., -13- Intersil/ChipPAC Confidential there will be no net charge to Intersil for Lot Charges and Fast Track Charges for "Products Currently Assembled At KL Facility" during Year One). 5.6 Exchange Rate Fluctuations. For purposes of this Section 5.6, the -------------------------- Parties' agreed upon pegged exchange rate is 3.80RM/US$ ("Agreed Upon Rate"). In order to allocate the risks and benefits of fluctuations from the Agreed Upon Rate, the Parties agree that (i) ChipPAC will absorb any exchange rate fluctuations from the Agreed Upon Rate down to 3.42RM/US$ and from the Agreed Upon Rate up to 4.18RM/US$ (the "ChipPAC Band"), (ii) Intersil will absorb (A) any incremental downward fluctuations in the exchange rate between 3.42RM/US$ and 3.04RM/US$ and (B) any incremental upward fluctuations in the exchange rate between 4.18RM/US$ and 4.56RM/US$ (collectively, the "Intersil Band") and (iii) the Parties shall each share 50% of (A) any further incremental downward fluctuations in the exchange rate below 3.04RM/US$ and (B) any further incremental upward fluctuations in the exchange rate above 4.56RM/US$ (the "Shared Band"). For the purpose of calculating the dollar amount of the exchange rate fluctuation to be absorbed by each Party, a current exchange rate ("Current Rate") will be established which will be the average of the RM/US$ exchange rate, as published in the Wall Street Journal, for the last business day of each month of the quarter. The Current Rate will then be applied, on a retroactive basis, to the Ringgit based costs incurred for the preceding quarter and, if applicable, an invoice issued or credit issued to Intersil, as the case may be. If the Current Rate is less than the Agreed Upon Rate, ChipPAC shall issue an invoice for Intersil's portion of the exchange rate adjustment, if any, promptly after the close of the relevant quarter. If the Current Rate is greater than the Agreed Upon Rate, ChipPAC shall issue a credit for Intersil's portion of the exchange rate adjustment, if any, promptly after the close of the relevant quarter. The exchange rate invoice or credit, if any, shall be determined by comparing the sum of all Ringgit based costs incurred by ChipPAC during the relevant quarter at the Current Rate to the sum of all Ringgit based costs incurred by ChipPAC during the relevant quarter at the Agreed Upon Rate, and then apportioning the total dollar amount of such exchange rate fluctuations between the Parties pursuant to the principles set forth in the preceding paragraph. Example A. ChipPAC incurs Ringgit based costs of RM100 during the --------- third calendar quarter of 2000. The Current Rate for such quarter is RM3.65/US$, which is inside the ChipPAC Band. All such exchange rate fluctuations shall be absorbed by ChipPAC. Example B. ChipPAC incurs Ringgit based costs of RM100 during the --------- third calendar quarter of 2000. The Current Rate for such quarter is RM3.20/US$, which is inside the Intersil Band. The total exchange rate fluctuations are $4.93 (RM100 @ 3.20/US$ minus RM100 @ 3.80/US$). ChipPAC shall absorb the first $2.92 of such exchange rate fluctuation (RM100 @ 3.42/US$ minus RM100 @ 3.80/US$). Intersil shall absorb the next $2.01 of such exchange rate fluctuation (RM100 @ 3.20/US$ minus RM100 @ 3.42/US$). Example C. ChipPAC incurs Ringgit based costs of RM100 during the --------- third calendar quarter of 2000. The Current Rate for such quarter is RM3.00/US$, which is inside the Shared Band. -14- Intersil/ChipPAC Confidential The total exchange rate fluctuations are $7.01 (RM100 @ 3.00/US$ minus RM100 @ 3.80/US$). ChipPAC shall absorb the first $2.92 of such exchange rate fluctuation (RM100 @ 3.42/US$ minus RM100 @ 3.80/US$). Intersil shall absorb the next $3.65 of such exchange rate fluctuation (RM100 @ 3.04/US$ minus RM100 @ 3.42/US$). The Parties shall each absorb 50% of the remaining portion of the total exchange rate fluctuation of $0.44 (RM100 @ 3.00/US$ minus RM100 @ 3.04/US$). Example D. ChipPAC incurs Ringgit based costs of RM100 during the --------- third calendar quarter of 2000. The Current Rate for such quarter is RM4.00/US$, which is inside the ChipPAC Band. All such exchange rate fluctuations shall be absorbed by ChipPAC. Example E. ChipPAC incurs Ringgit based costs of RM100 during the --------- third calendar quarter of 2000. The Current Rate for such quarter is RM4.20/US$, which is inside the Intersil Band. The total exchange rate fluctuations are $2.51 (RM100 @ 3.80/US$ minus RM100 @ 4.20/US$). ChipPAC shall absorb the first $2.40 of such exchange rate fluctuation (RM100 @ 3.80/US$ minus RM100 @ 4.18/US$). Intersil shall absorb the next $0.11 of such exchange rate fluctuation (RM100 @ 4.18/US$ minus RM100 @ 4.20/US$). Example F. ChipPAC incurs Ringgit based costs of RM100 during the --------- third calendar quarter of 2000. The Current Rate for such quarter is RM4.60/US$, which is inside the Shared Band. The total exchange rate fluctuations are $4.58 (RM100 @ 3.80/US$ minus RM100 @ 4.60/US$). ChipPAC shall absorb the first $2.40 of such exchange rate fluctuation (RM100 @ 3.80/US$ minus RM100 @ 4.18/US$). Intersil shall absorb the next $1.99 of such exchange rate fluctuation (RM100 @ 4.18/US$ minus RM100 @ 4.56/US$). The Parties shall each absorb 50% of the remaining portion of the total exchange rate fluctuation of $0.19 (RM100 @ 4.56/US$ minus RM100 @ 4.60/US$). The provisions of this Section 5.6 shall only apply to Services provided during the period from the Effective Date until June 30, 2003. The parties agree that either Party may, from time to time, request changes to the Agreed Upon Rate, subject to the other Party's approval. 5.7 Pricing Discounts. ----------------- 5.7.1 Target Revenues; Discounts. The annual target revenues to be -------------------------- received by ChipPAC from Intersil pursuant to this Agreement for "Qualifying Services" (as defined below) during Year One, Year Two and Year Three are set forth in the Letter Agreement (the "Annual Revenue Targets"). Actual revenues received by ChipPAC for Qualifying Services will be measured and compared to the aforementioned Annual Revenue Targets, and, with respect to the pricing of Discount Eligible Services (as defined below), Intersil shall be eligible to receive discounts in Year Two and Year Three corresponding to the attainment of the relevant percentages of the Annual Revenue Targets set forth in the Letter Agreement (and such discounts shall be applied and paid as -15- Intersil/ChipPAC Confidential described therein). "Qualifying Services" means any of the Services described in the Letter Agreement as such. "Discount Eligible Services" means any of the Services described in the Letter Agreement as such. Services which are not eligible for the discounts described herein shall be charged at the prices indicated elsewhere in this Agreement, without regard to any discounts. In no event will Qualifying Services include any reimbursements or pass-through charges (e.g., ChipPAC's procurement and charge back of device interface boards to Intersil). 5.8 Cumulation of Discounts. The discounts described in Section 5.7 are ----------------------- cumulative. Accordingly, for purposes of computing net prices: (i) in Year Two, Discount Eligible Services shall be priced at the scheduled Base Unit Cost, less the presumed discount in Year Two (assuming Intersil attains greater than 100% but less than 110% of the Annual Revenue Target), as adjusted after the end of Year Two based on the comparison of actual revenues received from Qualifying Services to the Year Two Annual Revenue Target and (ii) in Year Three, Discount Eligible Services shall be priced at Base Unit Cost, less the actual discount earned for Year Two (as finally determined pursuant to clause (i) above), less the presumed discount in Year Three (assuming Intersil attains greater than 100% but less than 110% of the Annual Revenue Target), as adjusted after the end of Year Three based on the comparison of actual revenues received from Qualifying Services to the Year Three Annual Revenue Target. 5.9 Payment Terms. Intersil shall pay ChipPAC the price due for Services ------------- provided to Intersil pursuant to this Agreement in accordance with the Letter Agreement. Billings for Services rendered shall be made by ChipPAC Limited to Intersil Corporation. 5.10 Increase in Prices of Materials. In the event that the cost of ------------------------------- providing the Services pursuant to this Agreement increases as a result of any significant increase in the material costs required to provide such Services (e.g., significant increase in gold costs), the Parties shall negotiate in good faith a mutually agreeable mechanism to compensate ChipPAC for any such significant increase in such material costs. 5.11 Pricing for Other Services. The pricing for specified Quality -------------------------- Reliability Assurance Services shall be as set forth in the Letter Agreement. The pricing for specified Bare Die/Wafer Preparation Services shall be developed and mutually agreed upon by the Parties as soon as practicable following the Effective Date and thereafter attached to the Letter Agreement, and shall be based upon a combination of variable costs and the fixed costs to be incurred to provide such services. Intersil shall consign to ChipPAC any and all equipment necessary in order for ChipPAC to perform the Bare Die/Wafer Preparation Services. Upon ChipPAC's request, Intersil shall provide ChipPAC with the Engineering/QAR/Analytical Services specified in the Letter Agreement for the prices specified therein. 6. CAPITAL EXPENDITURES; EQUIPMENT 6.1 Post-Closing CAPEX. From time to time subsequent to the Effective ------------------ Date, Intersil shall provide ChipPAC with appropriate documentary support of Intersil's business justification for -16- Intersil/ChipPAC Confidential any additional packaging equipment, power test equipment or IC test equipment (which the Parties envision shall be accomplished on a periodic basis by (i) Intersil providing ChipPAC with the Weekly Production Plan specifying Intersil's projected needs under this Agreement and (ii) at least quarterly formal operations reviews to review additional capacity needs for Intersil business, including review of the Aggregate Production Plan) which Intersil believes is necessary to support Intersil's packaging and test requirements. Upon review of any such business justification, ChipPAC shall have a right of first refusal (which will be exercised or declined in accordance with the CAPEX Review Procedures set forth in the Letter Agreement) to provide additional capacity to support Intersil's growth in Products, it being acknowledged and agreed that, in any event, ChipPAC will not be required to make further capital expenditures for test equipment (whether pursuant to Section 6.1 or Section 6.2) unless ChipPAC is also providing Packaging Services for the relevant Products. If ChipPAC chooses not to provide such additional capacity, Intersil shall have the right to obtain packaging and test services from a third party provider for any additional capacity that is above and beyond ChipPAC's available capacity. 6.2 IC Test Equipment. With respect to any additional purchase of IC ----------------- test equipment, from and after the Effective Date, Intersil shall purchase and consign the first such tester (including handlers) to ChipPAC and ChipPAC shall purchase the next such tester, such that each Party purchases one such tester before the other Party shall be obligated to purchase another such tester. ChipPAC understands Intersil's desire to avoid ownership of test equipment and ChipPAC will entertain consideration of purchasing consigned testers upon Intersil developing a track record of full use thereof. The test pricing described in Section 5.3 shall be reduced upon Intersil's purchase and ----------- consignment to ChipPAC of test equipment (and an updated Schedule reflecting such reduced test pricing shall be mutually agreed upon by the Parties and attached to the Letter Agreement) to eliminate depreciation charges with respect to such consigned test equipment. 6.3 Unabsorbed CAPEX Commitments. If (i) ChipPAC intends to make capital ---------------------------- expenditures to be governed by this Section 6.3 (i.e., the Parties shall have executed a separate writing indicating that particular capital expenditures are to be governed by this Section 6.3), (ii) ChipPAC does in fact makes such capital expenditures and (iii) Intersil fails to use all or a portion of such equipped capacity, Intersil shall reimburse ChipPAC for the depreciation for unused equipment capacity acquired by ChipPAC pursuant to this Section 6.3 plus interest on the acquisition of such equipment at ChipPAC's weighted average internal cost of capital. Any charge for unabsorbed depreciation and the related cost of capital will be reduced by any such capacity used for other ChipPAC customers. ChipPAC will use commercially reasonable efforts to find customers to use such unused capacity. 6.4 Property of Intersil. Any equipment consigned to ChipPAC by Intersil -------------------- ("Intersil Consigned Equipment") shall at all times be the sole property of Intersil, and ChipPAC shall have no property rights therein, but only the right to use the Intersil Consigned Equipment upon the terms and conditions of this Agreement. The Intersil Consigned Equipment shall be conspicuously marked as being the property of Intersil. ChipPAC shall identify the Intersil Consigned Equipment as being the property of Intersil in all of ChipPAC's internal records. ChipPAC shall keep the Intersil -17- Intersil/ChipPAC Confidential Consigned Equipment free of levies, charges, liens and encumbrances and shall protect such Intersil Consigned Equipment against ChipPAC's creditor claims, if any, during the Term of this Agreement. Any Intersil Consigned Equipment shall be consigned to ChipPAC in accordance with the terms and conditions of ChipPAC's standard consigned equipment agreement, a copy of which is attached to the Letter Agreement. The Parties acknowledge and agree that, all Intersil Consigned Equipment, together with any other equipment consigned to ChipPAC by any of its other customers, will be used by ChipPAC in the exercise of its good faith judgment in order to provide the best available service to Intersil and to each of ChipPAC's other customers and to otherwise maximize the efficiency of ChipPAC's facilities, including, without limitation, in order to make available to Intersil the upside sprint capacity described in Section 4.2.4 of this Agreement. 6.5 Risk of Loss. Intersil shall bear all risks of loss or damage to the ------------ Intersil Consigned Equipment and with respect to any other property of Intersil which is located on ChipPAC's premises or otherwise in ChipPAC's control (whether inventory, device interface boards or other property), whether by fire, theft, accident or other cause. Each of the Parties shall procure and maintain in effect standard liability insurance covering risks due to fire, theft, accident or other cause and personal injury in amounts customarily maintained by each of the Parties to insure such risks. With respect to Intersil Product, Intersil shall be responsible at all times for insuring the Die and Wafer component of such product, and after title thereof has passed to Intersil, the value added component of any Services provided by ChipPAC to Intersil pursuant to this Agreement. Prior to such passage of title to Intersil, ChipPAC shall be responsible to insure the value added component of such Services. 6.6 Operation in Accordance with Laws; Repairs. ChipPAC shall use ------------------------------------------ commercially reasonable efforts to use, operate and maintain the Intersil Consigned Equipment in accordance with all applicable laws and regulations. All replacements, repairs or accessories (including all third party maintenance and spare part charges) made to or placed in or upon the Intersil Consigned Equipment shall be borne by Intersil and shall be deemed a component part of the Intersil Consigned Equipment and title thereto shall be vested in Intersil, it being agreed that in order to avoid any duplication of charges with respect to any such replacements, repairs or accessories, such charges shall be separately invoiced to Intersil. ChipPAC shall not move, transfer, modify or alter the Intersil Consigned Equipment without the consent of Intersil, except to the extent necessary to comply with all applicable laws and regulations, including but not limited to safety regulations. 7. COVENANTS; PERFORMANCE GOALS 7.1 Good Faith Efforts. ChipPAC shall use good faith efforts to provide ------------------ competitive technology, quality, responsiveness and on-time delivery to Intersil and to otherwise achieve the competitive performance standards described in the Letter Agreement, including, without limitation, by making sufficient sales and technical personnel available to achieve such standards. Intersil shall cooperate in good faith with ChipPAC and support ChipPAC in its efforts to achieve such standards. -18- Intersil/ChipPAC Confidential 7.2 Performance. ChipPAC will use commercially reasonable efforts to ----------- provide competitive technology, quality, responsiveness and on-time delivery to Intersil. Intersil and ChipPAC will mutually establish competitive performance standards with respect to the aforementioned goals (and incorporate such standards into the Letter Agreement, it being agreed that the Parties will confer and establish the definitive performance standards contemplated by this Section 7.2 in accordance with the procedures set forth in the following sentence) and monitor progress against these standards. The schedule of definitive performance standards to be developed and appended to the Letter Agreement shall be completed and mutually agreed upon no later than August 1, 2000. ChipPAC and Intersil shall review and update these performance standards semiannually on or about each January 1st and July 1st during the Term. Intersil will work cooperatively to support ChipPAC and enable the competitive performance required by such performance standards. In the event either Party fails to fulfill its obligations with respect to such performance standards, after exhaustion of mutually agreed upon notice and cure mechanisms described in Section 13 and the Corrective Action Program described in Section 7.3, the other Party may seek the remedies described in Section 13. ChipPAC will use its discretion in changing processes and materials to improve cost performance, consistent with Intersil's specifications (including customer location approvals). 7.3 Corrective Action. If Intersil Product fails to consistently meet the ----------------- performance standards established in accordance with Section 7.2, the Parties ----------- agree that the senior management of each of the Parties, within two (2) business days after written notice of such situation is given by Intersil to ChipPAC, will commence discussions regarding the problem. The Parties will cooperate fully and share all relevant information in attempting to resolve the situation. If the Parties do not mutually agree after such discussions that the problems have been resolved, Intersil may seek any of the remedies specified in Section 13 of this Agreement. 7.4 Failure Analysis. ChipPAC shall provide Intersil with failure ---------------- analysis reports of packaging failures within the same time frame as such reports are currently provided by the Facility. For automotive and telecommunications Products, line down conditions at Intersil's customer, and other mutually agreed upon situations, ChipPAC shall provide failure analysis reports on an expedited basis consistent with the time frame such reports are currently provided by the Facility. Failure analysis reports shall be in the 8- D format (or functional equivalent) unless otherwise mutually agreed upon by the Parties. The Quality Reliability Assurance Services described in this Section 7.4 shall be charged in accordance with the Letter Agreement. 7.5 Quality. ChipPAC shall take necessary steps to maintain the ------- Facility's QS-9000, ISO-9000, and ISO-14000 certifications, or any certifications generally accepted by the semiconductor industry as a substitute for such certifications. ChipPAC shall also take necessary steps to maintain the Facility's military certification MIL-PRF-19500 and the Facility's compliance with MIL PRF-38352, to the extent required to perform Services for Intersil's Products. Any of ChipPAC's facilities other than the Facility which provide Services for the Products shall also be certified to QS-9000, ISO-9000, and ISO- 14000, or equivalent. There shall be no charge to Intersil for any of ChipPAC's obligations or services set forth in this Section 7.5. -19- Intersil/ChipPAC Confidential 7.6 Burn-in. ChipPAC shall be responsible for supervising all burn-in ------- activities conducted by third parties on behalf of the Facility (consistent with the level of such supervision as of the Effective Date and which shall not require ChipPAC to incur any capital expenditures with respect to any burn-in ovens), it being agreed that Intersil shall issue any purchase orders required to be delivered to any third party for such burn-in activities. The burn-in ovens which were previously on the books of the Company prior to the Effective Date were transferred to Parent or its designee in accordance with the terms and conditions of the Stock Purchase Agreement. All burn-in boards (including, without limitation, any Product specific burn-in boards or universal burn-in boards) will be purchased and owned by Intersil. All third party costs incurred by ChipPAC in support of burn-in will be billed to Intersil. Except as provided in the immediately preceding sentence, there shall be no charge to Intersil for any of ChipPAC's obligations or services set forth in this Section 7.6. 7.7 Product and Test Engineering Services. ChipPAC shall provide Intersil ------------------------------------- with the Product and Test Engineering Services specified in the Letter Agreement. Except as otherwise noted in the Letter Agreement, there shall be no additional charge for the Product and Test Engineering Services. The Product and Test Engineering Services shall be provided during the Term of this Agreement, unless designated with the notation "ISIL Subcon Team" in the Letter Agreement (in which event such services shall be provided during the periods specified in the Letter Agreement). It is Intersil's intent to assume the functions designated to be performed by the "ISIL Subcon Team" effective as of July 1, 2000, it being agreed that in order to achieve the Parties' mutual goal of protecting Intersil customers during Intersil's transition to a typical subcontractor-customer relationship, ChipPAC will extend the time period for the transitional Product and Test Engineering Services described in the Letter Agreement for up to three (3) additional months, if required. 7.8 Production Planning and Control Services. ChipPAC shall provide ---------------------------------------- Intersil with the Production Planning and Control Services specified in the Letter Agreement. There shall be no additional charge for the Production Planning and Control Services. The Production Planning and Control Services shall be provided during the transitional periods specified in the Letter Agreement (which shall in no event exceed the nine (9) month period immediately following the Effective Date), it being agreed that the Parties shall work cooperatively to speed the transition of the Production Planning and Control Services to Intersil personnel as soon as reasonably practicable. In furtherance of the Parties' goal of transitioning these services to Intersil as soon as reasonably practicable, each Party shall assign an appropriate Project Manager to supervise such transition for such Party, and Intersil shall assemble and maintain a Subcontract Product Team to supervise and carry out such services as soon as reasonably practicable. 7.9 Hermetic Packaging. ChipPAC shall provide Packaging and Test Services ------------------ for Intersil for hermetic Products during the period from the Effective Date until October 1, 2000, and thereafter shall not be required to provide such Services, it being agreed that to the extent ChipPAC agrees to provide any such services after October 1, 2000, such services shall be separately quoted business after October 1, 2000. Intersil will be required, and will use its commercially reasonable efforts, to transfer the hermetic Products to another third party packaging contractor as soon as practicable -20- Intersil/ChipPAC Confidential following the Effective Date, it being agreed that ChipPAC shall work cooperatively with Intersil to assist Intersil in the transfer of such hermetic Products to another third party packaging contractor. 7.10 Qualification Requirement. The transfer of any Packages between ------------------------- ChipPAC facilities shall be subject to a complete qualification of the packaging and/or test process as provided in the purchase specifications to the Letter Agreement. No qualification shall be considered complete until, where required, Intersil's customer qualification is complete and customer approval received. 7.11 Operational Information. ChipPAC shall provide Intersil, at no ----------------------- additional charge, with the various operational information the Company provided to Intersil prior to Effective Date in the same manner (or equivalent), in the same frequency and to the same level of detail for a transitional period to be mutually agreed, moving to industry standard reporting protocols thereafter. This information shall include, but is not limited to, engineering, manufacturing and WIP tools for tracking and analysis. Management information services data will include the following types of data: 7.11.1 parametric and bin data collected during package testing, and lot-operation in and out quantities used to determine package test yields; 7.11.2 lot-operation transactions that include such items as in and out quantities, shipments, trace codes, date codes, splits, merges and adjustments; 7.11.3 inventory and lot-operation transactions and product-route- operation associations; and 7.11.4 ChipPAC shall provide sign-on access to Intersil (screened to firewall confidential information of ChipPAC or its other customers) to any system required to support Intersil's data service needs. Both Parties will work together in good faith to define and provide operational data appropriate for Intersil's transition of its Packaging and Test Services from a captive relationship to that of a subcontractor. In furtherance of the foregoing, the Parties acknowledge and agree that they intend to transition Intersil's requirements for operational data to an industry standard system such as ChipPAC's "Customer Care System" as soon as reasonably practicable following the Effective Date. 7.12 TO-39 Military and Other Military Can Product. Intersil will use --------------------------------------------- commercially reasonable efforts to transfer all TO-39 Military and other Military Can Product to another third party packaging contractor as soon as practicable following the Effective Date. In the event Intersil is unable to transfer such TO-39 Military and other Military Can Product, ChipPAC shall provide Packaging and Test Services for Intersil for such Product during the Term at the prices specified in the Letter Agreement. -21- Intersil/ChipPAC Confidential 7.13 MOV Radial Product. Intersil is party to a contract with Littlefuse ------------------ pursuant to which Intersil is obligated to provide packaging and test services to Littlefuse for MOV Radial Product until August 13, 2001. Intersil shall not transfer or otherwise assign such Littlefuse contract to ChipPAC; provided that ChipPAC shall provide Packaging and Test Services for MOV Radial Product during the remainder of the term of such Littlefuse contract (as in effect as of the date hereof), and such services shall be provided to Intersil at the prices specified therefor in the Letter Agreement. Intersil will encourage Littlefuse to transfer all MOV Radial Product to another third party packaging contractor as soon as practicable following the Effective Date, it being acknowledged that Littlefuse will not be contractually obligated to do so prior to August 13, 2001. 7.14 GE Fanuc Product. Intersil is party to a contract with General ---------------- Electric pursuant to which Intersil is obligated to provide packaging and test services for GE Fanuc Product. ChipPAC shall provide Packaging and Test Services for GE Fanuc Product during the Term, and such services shall be provided to Intersil at the prices specified therefor in the Letter Agreement. 8. INTELLECTUAL PROPERTY RIGHTS 8.1 Grant of License in Intellectual Property Rights. During the Term, ------------------------------------------------ Intersil hereby grants, and shall cause any of its applicable Affiliates to grant, to ChipPAC a royalty-free, non-exclusive license to use, with the right to sublicense to ChipPAC's Affiliates, all intellectual property rights in the bonding diagrams, Intersil unique bills of material, test programs and test boards owned or licensed by Intersil or an Intersil Affiliate, and not included among the intellectual property rights assigned or licensed to ChipPAC pursuant to the Intellectual Property Rights Agreement executed on even date herewith, which are necessary or desirable for ChipPAC to perform the Services for Products in accordance with the terms and conditions of this Agreement. This license grant is limited to use by ChipPAC and its Affiliates solely to perform the Services for Intersil under this Agreement. 8.2 Grant of Trademark License. During the Term, Intersil hereby grants, -------------------------- and shall cause any of its applicable Affiliates to grant, to ChipPAC a royalty- free, non-exclusive license to use, with the right to sublicense to ChipPAC's Affiliates, the Intersil trademarks listed in the Letter Agreement, for the limited purpose of branding the Products and in connection with the packaging and labeling of the Products. The branding of each Product shall be in accordance with a Product specific branding diagram to be supplied by Intersil. 8.3 ChipPAC Inventions. All inventions and discoveries, whether or not ------------------ patentable, made by employee(s) of ChipPAC or its Affiliates in the course of performance of this Agreement not using the Confidential Information (as defined in Section 11.1) of Intersil (other than Residuals (as defined in Section ------------ ------- 11.5)), and all intellectual property rights resulting therefrom, shall be the - ---- sole and exclusive property of ChipPAC, and ChipPAC shall retain any and all rights to file at its sole discretion any patent application thereon. -22- Intersil/ChipPAC Confidential 8.4 Intersil Inventions. All inventions and discoveries, whether or not ------------------- patentable, made by Intersil employee(s) in the course of performance of this Agreement not using the Confidential Information of ChipPAC (other than Residuals), and all intellectual property rights resulting therefrom, shall be the sole and exclusive property of Intersil, and Intersil shall retain any and all rights to file at its sole discretion any patent application thereon. 8.5 Joint Inventions. In the event ChipPAC and Intersil jointly make ---------------- inventions or discoveries, whether or not patentable, not using the Confidential Information of either ChipPAC or Intersil (other than Residuals) in the course of performance of this Agreement, then such joint invention shall be jointly owned by ChipPAC and Intersil with each Party having the right to exploit and grant licenses in respect to such inventions and any patents arising therefrom, without the consent of or accounting to the other Party. In the event of a joint invention, the Parties shall mutually agree which Party shall have the responsibility for preparing and filing any patent application on the invention and the Parties agree to execute documents required for, and equitably share in the expenses associated with, obtaining and maintaining such patents. In the event one Party elects not to seek or maintain patent protection for any joint invention in any particular country or not to share equitably in the expenses thereof with the other Party, that other Party shall have the right to apply for or maintain such patent protection at its own expense in such country and shall have full control over the protection and maintenance therefor, even though title and rights to any patent resulting therefrom shall be jointly owned. 9. QUARTERLY REVIEWS 9.1 ChipPAC shall participate with Intersil in regularly scheduled meetings to discuss capacity, Intersil test and packaging roadmaps and research and development packaging development, Intersil capital needs, performance goals, ChipPAC technology and equipment roadmaps, and other matters, and to analyze, recommend, establish and implement action plans to help Intersil and ChipPAC achieve their goals of continuous process improvements. ChipPAC shall advise Intersil of planned cost reduction initiatives and/or process improvement initiatives that materially impact Intersil, and Intersil will timely approve any such cost reduction initiatives and/or process improvement initiatives which comply with Intersil's Product specifications set forth in this Agreement and the Letter Agreement. ChipPAC and Intersil agree to implement in a timely fashion, any mutually agreed process improvements or cost reduction initiatives. 9.2 Quarterly reviews shall be held during the third week of the first month of each quarter, and shall alternate between Intersil and ChipPAC locations. Each Party shall be responsible for the expenses incurred by their employees in attending the quarterly reviews. 10. AUDIT 10.1 Intersil Audit Rights. During the Term, ChipPAC will maintain complete --------------------- and accurate records of the performance of its obligations under this Agreement. Upon thirty (30) days written notice and not more often than once per calendar year commencing July 1, 2001, Intersil may -23- Intersil/ChipPAC Confidential audit ChipPAC's books and records to ensure ChipPAC's compliance with the terms and conditions of this Agreement. At Intersil's option or upon ChipPAC's written demand, such audit will be performed by an independent third party at Intersil's expense; provided, however, if any audit reveals that ChipPAC is not materially complying with the terms of this Agreement, ChipPAC shall pay the costs of such audit. The auditor shall keep the results of such audit confidential, and, if conducted by a third party, any failure by ChipPAC to abide by the obligations of this Agreement shall be reported to Intersil. At the end of the Term, Intersil shall have the option of conducting a final end-of-term audit; if Intersil does not avail itself of this option within thirty (30) days of the end of the Term, such option shall expire. 10.2 ChipPAC Audit Rights. During the Term, Intersil will maintain complete -------------------- and accurate records of the performance of its obligations under this Agreement. Upon thirty (30) days written notice and not more often than once per calendar year commencing July 1, 2001, ChipPAC may audit Intersil's books and records to ensure Intersil's compliance with the terms and conditions of this Agreement. At ChipPAC's option or upon Intersil's written demand, such audit will be performed by an independent third party at ChipPAC's expense; provided, however, if any audit reveals that Intersil is not materially complying with the terms of this Agreement, Intersil shall pay the costs of such audit. The auditor shall keep the results of such audit confidential, and, if conducted by a third party, any failure by Intersil to abide by the obligations of this Agreement shall be reported to ChipPAC. At the end of the Term, ChipPAC shall have the option of conducting a final end-of-term audit; if ChipPAC does not avail itself of this option within thirty (30) days of the end of the Term, such option shall expire. 11. CONFIDENTIALITY 11.1 Confidential Information. Confidential Information is any information ------------------------- disclosed by one Party to the other in connection with this Agreement or the Letter Agreement, which the disclosing Party believes to include confidential information, is designated with an appropriate legend such as "CONFIDENTIAL" (or other label indicating its confidential nature or status) at the time of disclosure if in documentary or other tangible form, and if such disclosure is initially oral or visual and not reduced to written or documentary form at the time of disclosure, is identified as confidential at the time of disclosure, summarized or identified in a written document that is marked with an appropriate legend indicating its confidential status, and provided to the other Party within twenty (20) days following such oral or visual disclosure. For each item of Confidential Information, the Party disclosing the item shall be called the "Disclosing Party," and the Party receiving the item shall be called the "Receiving Party." Notwithstanding the foregoing, all Product bonding diagrams, Product specific bills of materials, Intersil product specific test hardware designs, custom contactor designs, Intersil RF test technology methods and designs, and test programs owned by Intersil will be considered Confidential Information, whether or not so marked. 11.2 Confidentiality Obligation. The Receiving Party shall hold all --------------------------- Confidential Information of the Disclosing Party in trust and confidence, and protect it as the Receiving Party would protect its own confidential information (which, in any event, shall not be less than reasonable -24- Intersil/ChipPAC Confidential protection) and shall not use such Confidential Information for any purpose other than that contemplated by this Agreement and the Letter Agreement. Unless agreed by the Disclosing Party in writing, the Receiving Party shall not disclose any Confidential Information of the Disclosing Party, by publication or otherwise, to any person other than employees, officers or directors who (i) are bound to written confidentiality obligations consistent with and at least as restrictive as those set forth herein and (ii) have a need to know such Confidential Information for purposes of enabling a Party to exercise its rights and perform its obligations pursuant to this Agreement or the Letter Agreement. Confidential Information shall remain confidential information until such time as it qualifies for non-confidential treatment pursuant to any exception set forth in Section 11.3. ------------ 11.3 Exception. The obligations specified in Section 11.2 shall not apply ---------- ------------ to any Confidential Information to the extent that the Receiving Party can demonstrate that such Confidential Information: (a) is already known to the Receiving Party without restriction prior to the time of disclosure by the Disclosing Party; (b) is acquired by the Receiving Party from a third party without confidentiality restriction and does not originate with the Disclosing Party; (c) is independently developed or acquired by the Receiving Party by employees or contractors without access to such Confidential Information; (d) is approved for release by written authorization of the Disclosing Party; (e) is in the public domain at the time it is disclosed or subsequently falls within the public domain through no wrongful action of the Receiving Party; or (f) is furnished to a third party by the Disclosing Party without a similar restriction on that third party's right of disclosure. Notwithstanding the fact that Intersil Product specifications, Product bonding diagrams, test programs or bills of materials may come within one of the above exceptions, such information will remain Confidential Information. In addition, the obligations specified in Section 11.2 shall not prohibit either Party from disclosing or filing this - ------------ Agreement or the Letter Agreement if required by applicable statute or in connection with any required filing with the SEC; it being agreed that with respect to the Letter Agreement, if either Party concludes that it is required by applicable statute or by requirement of the SEC to file or disclose the Letter Agreement, such Party shall use best efforts to obtain confidential treatment for all information included therein. 11.4 Compelled Disclosure. Notwithstanding the foregoing (but subject to -------------------- each Party's obligations to use best efforts for confidential treatment of the information included in the Letter Agreement), a Receiving Party may disclose Confidential Information if it is disclosed pursuant to the requirement of a governmental agency or disclosure is required by operation of law, provided that the Receiving Party use its best efforts to notify the Disclosing Party in advance of such disclosure and seeks confidential treatment for such Confidential Information. 11.5 Residual Information. The restrictions regarding Confidential -------------------- Information shall not apply to one Party's use of the Residuals from the other Party's Confidential Information. The term "Residuals" as used in this Section --------- shall mean the Confidential Information in intangible form (i.e., not in written or other documentary form, including tape or diskette) which may be retained by those employees of ChipPAC or Intersil who have had access to the other's Confidential Information in the ordinary performance of their work responsibilities, including ideas, concepts, know-how, or techniques contained therein. Neither Party shall have any obligation to limit or restrict the -25- Intersil/ChipPAC Confidential assignment of such employees or to pay royalties for any work resulting from the use of such Residuals. Residuals shall not include any individual's knowledge obtained solely for the purpose of reducing written information (or oral or visual information summarized or identified in a written document pursuant to Section 11.1) disclosed as confidential information to an intangible form. - ------------ 11.6 Subcontractor Confidential Information. ChipPAC acknowledges that the --------------------------------------- employees of the Company were entrusted with Confidential Information of Intersil's subcontractors and are required by their employment agreement with the Company to maintain such information confidential. ChipPAC agrees to assist said employees in performing their contractual obligations and maintaining said information confidential by not requesting any such employee to disclose such information, even though such information might be classified as a Residual. 12. WARRANTIES AND INDEMNIFICATION 12.1 Mutual Warranties. Each Party hereby represents and warrants to the ----------------- other that: (i) all corporate action on the part of such Party, its officers, directors and shareholders necessary for the authorization of this Agreement and the Letter Agreement and the performance of all obligations of such Party hereunder and thereunder has been taken; (ii) this Agreement and the Letter Agreement, when executed and delivered, will be a valid and binding obligation of such Party enforceable in accordance with its terms; (iii) this Agreement, the Letter Agreement and such Party's performance hereunder and thereunder does not and will not violate any agreement existing between such Party and any third party; and (iv) any information provided by either Party to the other in this Agreement and the Letter Agreement is true and correct. 12.2 Warranties of ChipPAC. ChipPAC warrants to Intersil only that, for a --------------------- period of twelve (12) months following shipment thereof, ChipPAC will remedy, in accordance with the provisions hereof, any defect in material or workmanship in, or failure to conform to the agreed upon specifications of, the Services or, at ChipPAC's option, provide a credit therefor. Intersil shall not issue any warranties or guarantees with respect to the Products to any person or party which in any way obligates or purports to obligate ChipPAC to any person or party. In the event that Intersil is able to submit proof of the existence of defects in material or workmanship in, or nonconformance to the agreed upon specifications of, any Services, Intersil shall as a condition to ChipPAC's obligations hereunder, promptly, but in no event more than thirty (30) days after discovery thereof, submit to ChipPAC for ChipPAC's inspection, the affected Products along with such proof, at ChipPAC's expense, F.O.B. point of shipment. In the event that ChipPAC shall confirm that defects in, or nonconformance to the agreed upon specifications of, any of the Services covered by the foregoing warranty have occurred within the applicable warranty period, ChipPAC shall provide replacement Services equal to the purchase price of the defective or nonconforming Services or, at ChipPAC's option, provide a credit therefor. Notwithstanding anything to the contrary in this Section 12.2, ChipPAC ------------ shall have no obligation for any defects in, or nonconformances of, Products that have been caused: (a) by Intersil's shipment or storage thereof; (b) by articles, services and/or information not supplied by ChipPAC; (c) by articles, services and/or -26- Intersil/ChipPAC Confidential information supplied at Intersil's request outside the scope of this Agreement; or (d) by accident, misuse, neglect, abuse, mishandling, misapplication, modification, alteration, acts of God or improper installation by any party other than ChipPAC. 12.3 Disclaimer. THE WARRANTIES SET FORTH IN SECTIONS 12.1 AND 12.2 ARE ---------- ------------- ---- EXCLUSIVE AND ARE IN LIEU OF ALL OTHER WARRANTIES, WHETHER ORAL OR WRITTEN, EXPRESS OR IMPLIED, INCLUDING THE WARRANTIES OF MERCHANTABILITY AND OF FITNESS FOR A PARTICULAR PURPOSE, ALL OF WHICH ARE HEREBY DISCLAIMED BY CHIPPAC. The employees and agents of ChipPAC are not authorized to make modifications to such warranties, or additional warranties binding on ChipPAC; accordingly, additional statements, whether oral or written, do not constitute warranties and should not be relied upon by Intersil. 12.4 Limitation of Liability. ChipPAC's liability under the warranty set ----------------------- forth in Section 12.2 shall be limited solely to the cost of any replacements of ------------ the defective Services (excluding, for avoidance of doubt, the cost of the Die and Wafer with respect to any affected Products), and ChipPAC assumes no risk of, and shall not in any case be liable for, any other damages, including, without limitation, any special, incidental, consequential or punitive damages, arising from breach of warranty or contract, negligence or any other legal theory, including, without limitation, loss of goodwill, profits or revenue, loss of use of the Products or any associated equipment, cost of capital, cost of any substitute equipment, facilities or services, downtime costs, or claims of any party against Intersil for such damages. 12.5 Time Limitation. No suit shall be brought on an alleged breach of --------------- the warranty set forth in Section 12.2 more than one (1) year following ------------ expiration of the applicable warranty period. 12.6 Risk Allocation. The warranty set forth in Section 12.2 allocates --------------- ------------ the risks of Product failure between the Parties hereto, as authorized by the Uniform Commercial Code and other applicable law. ChipPAC's pricing of the Services reflects this allocation of risk and the limitations of liability contained in this Agreement. 12.7 Indemnification by Intersil. Intersil shall indemnify and hold --------------------------- harmless ChipPAC and its officers, directors and Affiliates against any damages incurred as a result of Intersil's marketing, use or sale of the Products, including without limitation any claims for infringement or misappropriation of intellectual property rights due to any such marketing, use or sale, except to the extent resulting from ChipPAC's packaging and test methods. 12.8 Indemnification by ChipPAC. ChipPAC shall indemnify and hold -------------------------- harmless Intersil and its officers, directors and Affiliates against any damages incurred as a result of any claims for infringement or misappropriation of intellectual property rights due to ChipPAC's packaging and test methods. 13. TERM AND TERMINATION -27- Intersil/ChipPAC Confidential 13.1 Term. This Agreement and the Letter Agreement shall commence on the ---- Effective Date and shall continue for an initial term ending June 30, 2005 (the "Initial Term"). This Agreement and the Letter Agreement shall automatically renew for additional one (1) year terms on the terms and conditions then in effect immediately prior to the commencement of any such renewal term (each a "Renewal Term") unless either party provides written notice to the other party of its intention not to renew the Agreement and the Letter Agreement at least 180 days prior to the end of the Initial Term or any subsequent Renewal Term. 13.2 Termination. Either Party shall have the right to terminate this ----------- Agreement and the Letter Agreement under the following conditions: (a) mutual agreement between the Parties; and (b) subject to Sections 13.3 through 13.6, ------------- ---- upon material breach of this Agreement or the Letter Agreement by the other Party. Either Party shall have the right to terminate this Agreement and the Letter Agreement upon written notice to the other Party in the event the notified Party ceases to carry on business, becomes or is declared insolvent, files or has filed against it a petition in bankruptcy (which has not been dismissed within 60 days of filing), has a receiver appointed over its assets, or takes or has taken against it any similar act as a result of debt. 13.3 Resolution of Disputes. It is the intent of the Parties that any ---------------------- breach of this Agreement or the Letter Agreement be resolved in an amicable manner, to the fullest extent possible, and that any such resolution be reasonable in light of the rights and obligations of the Parties. If any breach should arise which cannot be resolved by the personnel of each Party directly involved, the following procedures of Sections 13.4 through 13.6 shall apply in ------------- ---- each of the circumstances described below. 13.4 Cure. Subject at all times to the Corrective Action Program ---- described in Section 7.3 (which the Parties acknowledge and agree shall be the preferred option for resolving and rectifying time sensitive and other critical path items), if either Party shall at any time materially breach this Agreement or the Letter Agreement, without material causative fault on the part of the other Party, by failing to perform or otherwise abide by any material provision of this Agreement or the Letter Agreement, the non-breaching Party may advise of its intention to terminate this Agreement and the Letter Agreement by providing written notice to the breaching Party specifying the breach. The Agreement and the Letter Agreement will not be terminated if (i) the material breach specified in the notice is remedied within the sixty (60) day period following receipt of the notice by the breaching Party or (ii) if the breach reasonably requires more than sixty (60) days to cure, the breaching Party has, within thirty (30) days from receipt of the notice of breach, begun substantial corrective action to cure the breach and submitted a written remediation plan to the non-breaching Party providing a detailed explanation of the steps to be taken to cure the breach as quickly as practicable, the breaching Party diligently pursues such corrective action, and such breach is actually cured within ninety (90) days following receipt of the notice of breach. If any breach is not cured within the time permitted (and not resolved pursuant to the Conciliation Process), the non- breaching Party shall have the right to terminate this Agreement and the Letter Agreement at any time thereafter by giving written notice of termination to the other Party, and upon the giving of such notice, this Agreement and the Letter Agreement shall terminate immediately or, if Intersil is the -28- Intersil/ChipPAC Confidential non-breaching Party, Intersil shall have the right to purchase packaging and test services from a third party with respect to any Packaging or Test Services that are the subject of the breach notice until such time as ChipPAC is able to cure its breach with respect to such Services. In the event of any breach, the non-breaching Party shall have the right to suspend further implementation or effectuation of that portion of its obligations under this Agreement and the Letter Agreement related to any such breach, and shall not be obligated to resume such activities until such breach has been cured. This Section 13.4 ------------ shall run concurrently with the Conciliation Process set forth in Section 13.5 ------------ below. 13.5 Conciliation Process. At any time during the Term, upon the -------------------- occurrence of one or more breaches under this Agreement or the Letter Agreement, the non-breaching Party shall promptly deliver written notification to the alleged breaching Party setting out in reasonable detail and in clear and concise language the good faith basis for and the specifics of such breach. If the breaching Party has not cured such breach within sixty (60) days after delivery of such written notification, a Coordinating Committee consisting of Project Coordinators of each Party shall be established and shall convene a meeting within ten (10) days thereafter for the purpose of, among other things: (i) assessing the good faith basis for the claimed breach, (ii) defining, assessing and prioritizing the alternatives reasonably available to cure such breach or to correct the circumstances or situations that gave rise to such breach so as to make its reoccurrence unlikely and (iii) adopting by unanimous vote, one or more curative or corrective courses of action (the "Proposed Resolution"). Either the breaching Party or the non-breaching Party shall be entitled to make reasonable requests for information ("Information Requests") pertaining to the breach (provided such requests are not unduly burdensome and can be accomplished within three (3) days) and present its views to the Coordinating Committee with respect to the breach through its appropriate officer ("Presentation"). If within five (5) days of its first meeting, the Coordinating Committee shall be unable to resolve the breach by unanimous vote, then the matter shall immediately be referred to an advisory committee consisting of the President of each of the Parties and two additional personnel of their choice, one each from ChipPAC and Intersil (the "Advisory Committee") for further attempts at resolution. Within ten (10) days of such referral, the Advisory Committee shall convene a meeting for the purpose of attempting to resolve the breach. The procedures described above concerning Information Requests and Presentation shall also apply to the Advisory Committee. The process described in this Section 13.5 is referred to as the "Conciliation ------------ Process." 13.6 Remedies. Subject to Sections 13.3 through 13.6, upon the failure to -------- cure a material breach of this Agreement or the Letter Agreement by either Party, the non-breaching Party shall have the right to pursue all available remedies at law or in equity that it may elect, including but not limited to specific performance or injunctive relief, in order to obtain the benefits it has been provided pursuant to this Agreement and the Letter Agreement or to obtain adequate recourse or compensation in the event the same are not so provided. 13.7 Return of Documents and Materials. Upon expiration or termination of --------------------------------- this Agreement and the Letter Agreement, each Party shall, at its own expense, return to the other Party -29- Intersil/ChipPAC Confidential all documents or materials comprising or containing the other Party's Confidential Information and thereafter shall not use any of such Confidential Information. 13.8 Return of Intersil Consigned Equipment and Property. Upon expiration --------------------------------------------------- or termination of this Agreement and the Letter Agreement, ChipPAC shall deliver the Intersil Consigned Equipment and all other Intersil property and inventory, at Intersil's expense, to a destination specified by Intersil, complete and in good condition, reasonable wear excepted. Notwithstanding the foregoing, upon termination or expiration of this Agreement and the Letter Agreement, Intersil is hereby authorized to enter upon any premises where the Intersil Consigned Equipment may be found and take possession of and remove such Intersil Consigned Equipment. 13.9 Continued Effectiveness. Termination of this Agreement and the ----------------------- Letter Agreement shall be without prejudice to any rights or liabilities of any Party accrued at the date of termination and shall not affect the continued effectiveness of Sections 5.7, 5.9, 8.3, 8.4, 8.5, 10.1, 10.2, 11, 12.2, 12.3, ------------ --- --- --- --- ---- ---- -- ---- ---- 12.4, 12.5, 12.6, 12.7, 13.3, 13.4, 13.5, 13.6, 13.7, 13.8, 13.10, 13.11 and - ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----- ----- 14.2 hereof. - ---- 13.10 Amounts Owed at Termination. Upon termination of this Agreement and --------------------------- the Letter Agreement, all sums owing shall be immediately due and payable. 13.11 No Liability for Loss of Anticipated Business Upon Expiration. ------------------------------------------------------------- Neither Party shall be liable to the other Party by reason of the expiration of this Agreement and the Letter Agreement (as opposed to the termination of this Agreement and the Letter Agreement) in accordance with its terms because of loss of anticipated business or because of investments related to the business or goodwill of the Parties. Termination in accordance with this Agreement and the Letter Agreement shall be without prejudice to any of the rights or liabilities of any Party accrued at the date of termination. 14. MISCELLANEOUS 14.1 Merger, Modification, Waiver. This Agreement and the Letter ---------------------------- Agreement contain the entire understanding between Intersil and ChipPAC with respect to the subject matter hereof, and merges and supersedes all prior and contemporaneous agreements, dealings and negotiations. No modification, alteration or amendment of this Agreement or the Letter Agreement shall be effective unless made in writing, dated and signed by duly authorized representatives of both Parties. No waiver of any breach of this Agreement or the Letter Agreement shall be held to be a waiver of any other or subsequent breach. 14.2 Jurisdiction and Choice of Law. Any claim arising under or relating ------------------------------ to this Agreement or the Letter Agreement shall be governed by the internal substantive laws of the State of New York or federal courts located in New York, without regard to principles of conflict of laws. Each Party hereby submits to the co-exclusive jurisdiction of the United States District Court located in the City of New York, Borough of Manhattan and any state court located therein for all disputes and litigation under or relating to this Agreement or the Letter Agreement and waives any objection -30- Intersil/ChipPAC Confidential based on venue or forum non conveniens with respect to any action instituted therein. Each Party hereby waives the necessity for personal service of any and all process upon it and consents that all such service of process may be made by registered or certified mail (return receipt requested), with a copy also being sent by facsimile (with receipt confirmed), in each case directed to such Party at its address set forth in, and with copies sent as required by, Section 14.6 of this Agreement, and service so made shall be deemed to be completed on the date of actual receipt. Each Party hereby consents to service of process as aforesaid. Nothing in this Section 14.2 will prohibit personal service in lieu of the service by mail contemplated herein. 14.3 Relationship of the Parties. Neither this Agreement nor the Letter --------------------------- Agreement is intended to be, nor shall they be construed as an association, partnership, franchise or other form of business relationship. Neither Party shall have nor hold itself out as having any right or power or authority to assume, create, or incur any expense, liability or obligation, expressed or implied, on behalf of the other Party, except as expressly provided in this Agreement or the Letter Agreement. Except as expressly agreed, each Party shall bear its own costs and expenses incurred under or in conjunction with its performance of its obligations contained in this Agreement and the Letter Agreement. 14.4 Force Majeure. Any failure or omission by a Party in the performance ------------- of any obligation under this Agreement or the Letter Agreement shall not create any liability under this Agreement or the Letter Agreement, if the same arises from any cause or causes beyond the control of such Party, including, but not limited to, the following, which, for purposes of this Agreement and the Letter Agreement shall be regarded as beyond the control of each of the Parties hereto: acts of God, fire, storm, flood, earthquake, governmental regulation or direction, acts of the public enemy, war, rebellion, insurrection, riot, invasion, strike or lockout; provided that such Party shall resume the performance whenever such causes are removed. 14.5 Assignment. Except as set forth below, neither this Agreement, the ---------- Letter Agreement nor any Party's rights or obligations set forth in this Agreement or the Letter Agreement may be assigned, delegated or otherwise transferred to any third party without the prior written consent of the other Party. Notwithstanding the foregoing, (i) either Party may assign any of its rights or obligations under this Agreement (and such Party's corresponding rights and obligations under the Letter Agreement) to any of its Affiliates or for collateral security purposes to a lender providing financing to such Party or its Affiliates and (ii) each Party must assign that portion of its rights and obligations under this Agreement (and such Party's corresponding rights and obligations under the Letter Agreement) to any third party that acquires all or any portion of its assets, capital stock or business to which this Agreement and the Letter Agreement relates, it being agreed that no assignment shall relieve either of the Parties from any of its obligations under this Agreement or the Letter Agreement. 14.6 Notices. All notices, demands, consents or other communications ------- required or permitted under this Agreement or the Letter Agreement shall be in writing and shall be deemed to have been given when personally delivered, sent by reputable overnight courier or transmitted by -31- Intersil/ChipPAC Confidential facsimile or telecopy, to the addresses indicated below (unless another address is specified in writing): If to Intersil, to: ------------------ Intersil Corporation 7585 Irvine Center Drive, Suite 100 Irvine, California 92618 Attention: Gregory L. Williams Facsimile No.: (949) 341-7053 with a copy to: -------------- Intersil Corporation 7585 Irvine Center Drive, Suite 100 Irvine, California 92618 Attention: Steven M. Moran, Esq. Facsimile No.: (949) 341-7053 If to ChipPAC, to: ----------------- ChipPAC Limited Craigmuir Chambers Road Town, Tortola British Virgin Islands Attention: Richard Parsons -- Resident Director Facsimile No.: (284) 494-7906 with a copy to: -------------- ChipPAC, Inc. 3151 Coronado Drive Santa Clara, California 95404 Attention: Robert Krakauer Facsimile No.: (408) 486-5914 -32- Intersil/ChipPAC Confidential and to: ------ Kirkland & Ellis 200 East Randolph Drive Chicago, Illinois 60601 Attention: Jeffrey C. Hammes, P.C. Gary M. Holihan Facsimile No.: (312) 861-2200 14.7 Severability. The provisions of this Agreement and the Letter ------------ Agreement are severable and if any one or more such provisions shall be determined to be invalid, illegal or unenforceable, in whole or in part, the validity, legality and enforceability of any of the remaining provisions or portions thereof shall not in any way be affected or impaired thereby and shall nonetheless be binding between the Parties hereto. 14.8 Titles and Headings. Titles and headings to Sections herein are ------------------- inserted for convenience of reference only and are not intended to affect the meaning or interpretation of this Agreement. 14.9 Non-Solicitation. During the Term of this Agreement and for one year ----------------- thereafter each Party agrees not to solicit or hire any employee of the other Party who came to the attention of the non-employer Party through the performance of this Agreement or the sale of the Facility by Intersil to ChipPAC without the employing Party's written consent (including, in the case of Intersil, soliciting or hiring any such employee of the Company without ChipPAC's consent). Nothing in this Agreement shall impair Intersil's right to hire any of the employees listed on the Transferred Employees Schedule to the ------------------------------ Stock Purchase Agreement or, with the prior written consent of ChipPAC (which may be withheld in its absolute discretion), any other employee of the Company to establish a team for Intersil to manage its subcontracted product functions. 14.10 Counterparts. Each of this Agreement and the Letter Agreement may ------------ be executed in multiple counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument (any one or more of which may be executed and delivered by facsimile transmission). * * * * * -33- Intersil/ChipPAC Confidential IN WITNESS WHEREOF, the Parties have caused this Supply Agreement to be executed by duly authorized officers or representatives to be effective as of the Effective Date. Intersil Corporation ChipPAC Limited By: /s/ Tim Muth By: /s/ Sharon St. Clair-Douglas _______________________________ _______________________________ Name: Tim Muth Name: Sharon St. Clair-Douglas Title: Vice President Title: Power of Attorney EX-10.34 13 0013.txt SHAREHOLDERS AGREEMENT, DATED AS OF JUNE 30, 2000 Exhibit 10.34 SHAREHOLDERS AGREEMENT ---------------------- THIS SHAREHOLDERS AGREEMENT (this "Agreement") is made as of June 30, --------- 2000, by and among ChipPAC, Inc., a California corporation (the "Company"), ------- the Persons listed on Schedule I attached hereto (the "Bain Group"), the SXI ---------- ---------- Group (as defined in Section 5 hereof) and Sapphire Worldwide Investments, Inc., a British Virgin Islands corporation ("Sapphire"). The Bain Group, the SXI Group -------- and Sapphire are collectively referred to herein as the "Shareholders"; each of ------------ the Bain Group and the SXI Group is sometimes referred to as a "Group"; and each ----- member of each such Group and Sapphire as a "Shareholder." Except as otherwise ----------- indicated herein, capitalized terms used herein are defined in Section 5 hereof. WHEREAS, the parties hereto desire to restrict the sale, assignment, transfer, encumbrance or other disposition of the Capital Stock and to provide for certain rights and obligations in respect thereto as hereinafter provided. NOW, THEREFORE, the parties to this Agreement hereby agree as follows: 1. Restrictions on Transfer of Sapphire Shares. ------------------------------------------- (a) Transfer of Sapphire Shares. No holder of Sapphire Shares shall --------------------------- sell, transfer, assign, pledge or otherwise dispose of (whether directly or indirectly, whether with or without consideration and whether voluntarily or involuntarily or by operation of law) any interest in any Sapphire Shares (a "Transfer"), except Transfers pursuant to and in accordance with the provisions -------- of Section 1(b), 1(c), 1(d) or 2 of this Agreement. (b) Participation Rights. -------------------- (i) Except as otherwise specifically set forth in this Agreement, at least thirty (30) days prior to any Transfer of shares of any class of Capital Stock by any member of the Bain Group or the SXI Group (the "Transferring ------------ Shareholder") (other than a Transfer among the members of the Bain Group or - ----------- their Affiliates, among the members of the SXI Group or their Affiliates or to an employee or director of the Company or its Subsidiaries), the Transferring Shareholder will deliver a written notice (the "Sale Notice") to the Company and ----------- the other Shareholders (the "Other Shareholders"), specifying in reasonable ------------------ detail the identity of the prospective transferee(s) and the terms and conditions of the Transfer. Notwithstanding the restrictions contained in this Section 1, any or all of the Other Shareholders may elect to participate in the contemplated Transfer by delivering written notice to the Transferring Shareholder within ten (10) days after delivery of the Sale Notice. If any Other Shareholder has elected to participate in such Transfer (each such Other Shareholder, a "Participating Shareholder"), each of the Transferring ------------------------- Shareholder and the Participating Shareholders will be entitled to sell in the contemplated Transfer, at the same price and on the same terms, a number of shares of such class of Capital Stock equal to the product of (A) the quotient determined by dividing the number of shares of such class of Capital Stock owned by such Participating Shareholder by the aggregate number of shares of such class of Capital Stock owned by the Transferring Shareholder and all Participating Shareholders and (B) the number of shares of such class of Capital Stock to be sold in the contemplated Transfer. Notwithstanding the foregoing, in the event that the Transferring Shareholder intends to Transfer shares of more than one class of Capital Stock, the Participating Shareholders shall be required to sell in the contemplated Transfer a pro rata portion of shares of all such classes of Capital Stock (to the extent the Participating Shareholders own any shares of such other classes of Capital Stock), which portion shall be determined in the manner set forth in the immediately preceding sentence. For example (by way of illustration only), if the Sale ----------------------------------------- Notice contemplated a sale of 100 shares of Class A Common by the Transferring Shareholder, and if the Transferring Shareholder at such time owns 30% of the Class A Common and if one Participating Shareholder elects to participate and owns 20% of the Class A Common (and all other Shareholders choose not to participate), then the Transferring Shareholder would be entitled to sell 60 shares (30% / 50% x 100 shares) and the Participating Shareholder would be entitled to sell 40 shares (20% / 50% x 100 shares). (ii) The Transferring Shareholder will use reasonable best efforts to obtain the agreement of the prospective transferee(s) to the participation of the Participating Shareholders in any contemplated Transfer, and the Transferring Shareholder will not effect any Transfer of any of its shares of Capital Stock to the prospective transferee(s) unless (A) simultaneously with such Transfer, the prospective transferee or transferees purchase from each Participating Shareholder the shares of Capital Stock which such Participating Shareholder is entitled to sell to such prospective transferee(s) pursuant to Section 1(b)(i) above or (B) simultaneously with such Transfer, the Transferring Shareholder purchases (on the same terms and conditions on which such shares were sold to the transferee(s)) the number of shares of such class of Capital Stock from each Participating Shareholder which such Participating Shareholder would have been entitled to sell pursuant to Section 1(b)(i) above. (c) Regulatory First Offer Right. ---------------------------- 2 (i) In the event that it becomes necessary or desirable for Sapphire to make a Transfer of Sapphire Shares in order to comply with any applicable law or any rule or regulation of any governmental or regulatory authority or in the event the Company fails to make any redemption of any Class C Preferred Stock, par value $.01 per share, held by Sapphire required pursuant to Section 4 of Part E to Article III of the Company's Articles of Incorporation (irrespective of any legal or contractual restrictions prohibiting any such redemption), Sapphire shall have the right to Transfer all or any portion of the Sapphire Shares to any third Person other than a Packaging Competitor (as defined below) in accordance with this Section 1(c). For purposes of this Section 1(c), the term "Packaging Competitor" means any Person that, directly or indirectly, -------------------- either for itself or for any other Person, participates to a significant extent in the semiconductor merchant assembly or test business anywhere in the world (i.e., 40% or more of its annual revenues are derived from such business). For purposes of this Section 1(c), the term "participates" includes any direct or indirect interest in any enterprise, whether as an officer, director, employee, partner, sole proprietor, agent, representative, independent contractor, consultant, owner or otherwise; provided that neither (i) the passive ownership of 10% or less of the outstanding stock of any publicly traded corporation nor (ii) being a customer or supplier of any person or entity shall constitute "participation" in any such business. (ii) At least 20 business days prior to making any such Transfer of Sapphire Shares pursuant to this Section 1(c), Sapphire shall deliver a written notice (the "Sapphire Offer Notice") to the Bain Group and the SXI Group (the --------------------- "Recipient Shareholders") and the Company. The Sapphire Offer Notice shall ---------------------- disclose in reasonable detail the proposed number of Sapphire Shares to be transferred and the proposed sale price, terms and conditions of the Transfer. First, each Recipient Shareholder may elect to purchase all or any portion of such holder's Pro Rata Share of the Sapphire Shares specified in the Sapphire Offer Notice at the price and on the other terms specified therein by delivering written notice of such election to Sapphire and the Company within ten (10) business days after receipt of the Sapphire Offer Notice by the Company. For purposes of Section 1(c), each Recipient Shareholder's "Pro Rata Share" shall be -------------- based upon such Shareholder's proportionate ownership of all Shareholder Shares owned by all Recipient Shareholders. Any Sapphire Shares not elected to be purchased by the end of such ten (10) business day period shall be reoffered during the five business day period immediately following the expiration of the aforementioned ten (10) business day period by Sapphire on a pro rata basis to the Recipient Shareholders who have elected to purchase their Pro Rata Share. If the Recipient Shareholders have not elected to purchase all of the Sapphire Shares specified in the Sapphire Offer Notice within such fifteen (15) business day period (i.e., the sum of the previously aforementioned ten (10) and five (5) business day periods), the Company may elect to purchase all or any portion of the remaining Sapphire Shares specified in the Sapphire Offer Notice at the price and on the other terms specified therein by delivering written notice of such election to Sapphire within 20 business days after receipt of the Sapphire Offer Notice by the Company, it being understood that Sapphire shall not be obligated to sell such Sapphire Shares to the Company and the Recipient Shareholders unless the Company and the Recipient Shareholders, in the aggregate, have elected to purchase all of the Sapphire Shares specified in such Sapphire Offer Notice. If the Company or any Recipient Shareholders have elected to purchase Sapphire Shares from Sapphire, the transfer of such shares shall be consummated as soon as practical after the delivery of the election notice(s) to Sapphire, but 3 in any event within 30 business days after receipt of the Sapphire Offer Notice by the Company (or such longer period of time as may be required pursuant to applicable law). If the Company and the Recipient Shareholders do not elect within the aforementioned 20 business day period to purchase all of the Sapphire Shares being offered, Sapphire may, within 60 days after the Company's receipt of the Sapphire Offer Notice, transfer such Sapphire Shares to one or more third Persons (other than a Packaging Competitor) at a price no less than 95% of the price per share specified in the Sapphire Offer Notice and on other terms no more favorable to the transferees thereof than offered to the Company and the Recipient Shareholders in the Sapphire Offer Notice. Any Sapphire Shares not transferred within such 60-day period shall be reoffered to the Recipient Shareholders and the Company in accordance with this Section 1(c) prior to any subsequent Transfer. (d) Certain Permitted Sapphire Transfers. The restrictions contained ------------------------------------ in Section 1(a) will not apply to any Transfer of Sapphire Shares by any Shareholder (i) among its Affiliates, (ii) pursuant to an Approved Sale or (iii) pursuant to Section 1(b) or 1(c) hereof; provided that the restrictions -------- contained in this Agreement will continue to apply to the Shareholder Shares after any Transfer pursuant to clause (i) or (iii) above and each transferee of such Shareholder Shares shall agree in writing, prior to and as a condition to the effectiveness of such Transfer, to be bound by the provisions of this Agreement, without modification or condition, subject only to the consummation of the Transfer. Upon the Transfer of Shareholder Shares pursuant to this Section 1(d), the transferor will deliver a written notice to the Company and the other parties to this Agreement, which notice will disclose in reasonable detail the identity of such transferee(s) and shall include an original counterpart of the agreement of such transferee(s) to be bound by this Agreement. (e) Termination of Restrictions. The restrictions set forth in this --------------------------- Section 1 shall continue with respect to each Shareholder Share until the earlier of (i) the consummation of an Approved Sale (as defined in Section 2) or (ii) the consummation of an Initial Public Offering in which net proceeds to the Company exceed $25 million (a "Qualifying IPO"). -------------- 2. Sale of the Company. ------------------- 4 (a) If the holders of at least a majority of the Bain Shares and the holders of at least a majority of the SXI Shares (the "Requisite Holders") ----------------- approve (and, in the case of any sale or other fundamental change or extraordinary transaction which requires the approval of the board of directors of a California corporation pursuant to the California Corporations Code, the Board shall have approved such sale) a sale of all or substantially all (as defined in the Revised Model Business Corporation Act) of the Company's assets determined on a consolidated basis or a sale of all or substantially all of the Company's outstanding capital stock (whether by merger, recapitalization, consolidation, reorganization, combination or otherwise) to any Independent Third Party or group of Independent Third Parties, and the Board shall have received a written opinion of an internationally recognized investment banking firm (which firm shall have been selected by the Board), acting as an independent financial advisor to the Board, to the effect that the consideration to be received by the Company or its shareholders (as the case may be) in such transaction is fair to the Company or its shareholders (as the case may be), from a financial point of view (collectively an "Approved Sale"), each holder of ------------- Shareholder Shares will consent to and raise no objections against such Approved Sale. If the Approved Sale is structured as (i) a merger or consolidation, each holder of Shareholder Shares will waive any dissenter's rights, appraisal rights or similar rights in connection with such merger or consolidation or (ii) a sale of stock, each holder of Shareholder Shares will agree to sell all of its Shareholder Shares and rights to acquire Shareholder Shares on the terms and conditions approved by the Board and the Requisite Holders; it being understood and agreed that in the event one of the terms of such sale provides for joint and several liability for post-closing indemnification obligations, the Bain Group and the SXI Group shall enter into a contribution agreement with Sapphire, the Hyundai Group and Intel (as each such term is defined in that certain Amended and Restated Shareholders Agreement, dated as of August 5, 1999, by and among the Company and certain of its shareholders) which provides that each party to such contribution agreement shall bear any such indemnification obligations pro rata according to each such party's percentage interest in the proceeds of such Approved Sale. Each holder of Shareholder Shares will take all necessary or desirable actions in connection with the consummation of the Approved Sale as requested by the Requisite Holders and the Company. (b) The obligations of the holders of Capital Stock with respect to an Approved Sale are subject to the satisfaction of the following conditions: (i) upon the consummation of the Approved Sale, each holder of Capital Stock will receive the same form of consideration and the same portion of the aggregate consideration that such holders of Capital Stock would have received if such aggregate consideration had been distributed by the Company in complete liquidation pursuant to the rights and preferences set forth in the Company's Articles of Incorporation as in effect immediately prior to such Approved Sale, (ii) if any holder of a class of Capital Stock is given an option as to the form and amount of consideration to be received, each holder of such class of Capital Stock will be given the same option; (iii) each holder of then currently exercisable rights to acquire shares of a class of Capital Stock will be given an opportunity to exercise such rights prior to the consummation of the Approved Sale and participate in such sale as holders of such class of Capital Stock; (iv) Sapphire shall not be obligated to make any general representations and warranties concerning the business and affairs of the Company (but each shall bear a portion of the indemnification obligations with respect thereto, subject to the other terms and conditions of this Section 2), it being understood that Sapphire would be expected to make customary representations 5 and warranties with respect to its ownership of its Shareholder Shares (e.g., title to stock, authorization, etc.); (v) Sapphire's indemnification obligations in connection with an Approved Sale shall not exceed its distributable proceeds in connection with such transaction; and (vi) Sapphire shall not be obligated to amend or take any other actions with respect to its then existing contractual relationships with the Company or the purchaser of the Company. (c) If the Company or the holders of the Company's securities enter into any negotiation or transaction for which Rule 506 (or any similar rule then in effect) promulgated by the Securities and Exchange Commission may be available with respect to such negotiation or transaction (including a merger, consolidation or other reorganization), the holders of Shareholder Shares will, at the request of the Company, appoint a purchaser representative (as such term is defined in Rule 501 promulgated by the Securities and Exchange Commission) reasonably acceptable to the Company. If any holder of Shareholder Shares appoints a purchaser representative designated by the Company, the Company will pay the fees of such purchaser representative, but if any holder of Shareholder Shares declines to appoint the purchaser representative designated by the Company, such holder will appoint another purchaser representative, and such holder will be responsible for the fees of the purchaser representative so appointed. (d) Each holder of Shareholder Shares will bear a pro-rata share of the costs paid to any third party in connection with any sale of Shareholder Shares pursuant to an Approved Sale to the extent such costs are incurred for the benefit of all holders of Capital Stock and are not otherwise paid by the Company or the acquiring party. Costs incurred by holders of Shareholder Shares on their own behalf will not be considered costs of the transaction hereunder. (e) The provisions of this Section 2 shall terminate upon the consummation of a Qualifying IPO. 3. Legend; Securities Law Matters. ------------------------------ (a) Each certificate evidencing Shareholder Shares and each certificate issued in exchange for or upon the Transfer of any Shareholder Shares (if such shares remain Shareholder Shares as defined herein after such Transfer) shall be stamped or otherwise imprinted with a legend in substantially the following form (which legend shall be removed and new unlegended certificates issued in the event that the shares represented thereby have been registered pursuant to an effective registration statement filed under the Securities Act): "THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED ON ______ __, ____ AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN TRANSFER AND VOTING RESTRICTIONS PURSUANT TO A SHAREHOLDERS AGREEMENT, DATED AS OF _______ __, 2000, AMONG THE ISSUER OF SUCH SECURITIES (THE 6 "COMPANY") AND CERTAIN OF THE COMPANY'S SHAREHOLDERS. A COPY OF SUCH SHAREHOLDERS AGREEMENT WILL BE FURNISHED WITHOUT CHARGE BY THE COMPANY TO THE HOLDER HEREOF UPON WRITTEN REQUEST." The Company shall imprint such legend on certificates evidencing Shareholder Shares outstanding prior to the date hereof. The legend set forth above shall be removed from the certificates evidencing any shares which cease to be Shareholder Shares in accordance with Section 5 hereof. (b) In connection with the Transfer of any Shareholder Shares, the holder thereof shall deliver written notice to the Company describing in reasonable detail the Transfer or proposed Transfer, together with, if so requested by the Company, an opinion of counsel which (to the Company's reasonable satisfaction) is knowledgeable in securities law matters to the effect that such Transfer of Shareholder Shares may be effected without registration of such Shareholder Shares under the Securities Act. In addition, if the holder of the Shareholder Shares delivers to the Company an opinion of such counsel that no subsequent Transfer of such Shareholder Shares shall require registration under the Securities Act, the Company shall promptly upon such contemplated Transfer deliver new certificates for such securities which do not bear the Securities Act legend set forth in subparagraph (a). If the Company is not required to deliver new certificates for such Shareholder Shares not bearing such legend, the holder thereof shall not effect any Transfer of the same until the prospective transferee has confirmed to the Company in writing its agreement to be bound by the conditions contained in this subparagraph and subparagraph (a). (c) Upon the request of any Shareholder, the Company shall promptly supply to such Shareholder or its prospective transferees all information regarding the Company required to be delivered in connection with a Transfer pursuant to Rule 144A of the Securities and Exchange Commission. (d) If any Shareholder Shares become eligible for sale pursuant to Rule 144(k) of the Securities and Exchange Commission or no longer constitute "restricted securities" (as defined under Rule 144(a) of the Securities and Exchange Commission), the Company shall, upon the request of the holder of such Shareholder Shares, remove the legend set forth in subparagraph (a) from the certificates for such securities. 4. Transfer. Prior to Transferring any Shareholder Shares (other -------- than in a Public Sale permitted pursuant to the terms and conditions of this Agreement or in an Approved Sale) to any Person, the transferring Shareholder shall cause the prospective transferee to execute and deliver to the Company and the other Shareholders a counterpart of this Agreement and thereafter all references to the transferring Shareholder shall be deemed to refer to the transferee and all references to the transferring Shareholder's Group shall be deemed to include the transferee, except that the rights of Sapphire set forth in Section 1(c) shall only inure to the benefit of Sapphire and its Affiliates and shall not be transferable or otherwise assignable. 7 5. Definitions. ----------- "Affiliate" of a Shareholder means any other Person, entity or --------- investment fund controlling, controlled by or under common control with the Shareholder and, in the case of a Shareholder which is a partnership or a limited liability company, any partner or member, respectively, of the Shareholder. "Articles of Incorporation" means the Company's Articles of ------------------------- Incorporation in effect at the time as of which any determination is being made. "Bain Shares" means (i) any Capital Stock acquired by to the Bain ----------- Group and (ii) any equity securities issued or issuable directly or indirectly with respect to the Capital Stock referred to in clause (i) by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization, or, in each case, any comparable transaction. "Board" means the Company's Board of Directors. ----- "Capital Stock" means each class of the Company's capital stock. ------------- "Common Stock" means the Company's Class L Common Stock, par value ------------ $.01 per share, Class A Common Stock, par value $.01 per share, Class B Common Stock, par value $.01 per share and/or any other class or series of common stock hereafter created by the Company, as the context may require. "Family Group" means a Shareholder's spouse and descendants (whether ------------ or not adopted) and any trust solely for the benefit of the Shareholder and/or the Shareholder's spouse and/or the Shareholder's descendants (by birth or adoption), parents or dependents, any charitable trust the grantor of which is a Shareholder and/or member of a Shareholder's Family Group, or any corporation or partnership in which the direct and beneficial owner of all of the equity interest is such Shareholder and/or a member of such Shareholder's Family Group. "GAAP" means U.S. generally accepted accounting principles, ---- consistently applied. "Independent Third Party" means any Person who (together with its ----------------------- Affiliates), immediately prior to the contemplated transaction, does not own in excess of ten percent (10%) of the Common Stock on a fully-diluted basis (a "10% --- Owner"), who is not controlling, controlled by or under common control with any - ----- such 10% Owner and who is not the spouse, descendant (by birth or adoption), parent or dependent of any such 10% Owner or a trust for the benefit of such 10% Owner and/or such other Persons. "Initial Public Offering" means a public offering and sale of the ----------------------- Common Stock pursuant to an effective registration statement under the Securities Act of 1933, if immediately thereafter the Company has publicly held Common Stock listed on a national securities exchange or the NASD automated quotation system. 8 "Person" means an individual, a partnership, a corporation, a limited ------ liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization or other entity, or a government or any branch, department, agency, political subdivision or official thereof. "Public Sale" means any sale of Shareholder Shares to the public ----------- pursuant to an offering registered under the Securities Act or to the public through a broker, dealer or market maker pursuant to the provisions of Rule 144 (other than Rule 144(k)), adopted under the Securities Act. "Qualifying IPO" has the meaning assigned in Section 1(e). -------------- "Sapphire Shares" means (i) any Capital Stock issued to Sapphire --------------- pursuant to the Stock Purchase Agreement, (ii) any shares of Capital Stock otherwise acquired by Sapphire and (iii) any equity securities issued or issuable directly or indirectly with respect to the Capital Stock referred to in clauses (i) or (ii) by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization, or, in each case, any comparable transaction. "Securities Act" means the Securities Act of 1933, as amended from -------------- time to time. "Shareholder Shares" means the Bain Shares, the SXI Shares and the ------------------ Sapphire Shares. For purposes of this Agreement, each Shareholder who holds options or warrants to acquire shares of Capital Stock shall be deemed to be the holder of all Shareholder Shares issuable (at the time of such determination) upon the exercise of such options or warrants. As to any particular shares constituting Shareholder Shares, such shares will cease to be Shareholder Shares when they have been (x) effectively registered under the Securities Act and disposed of in accordance with the registration statement covering them or (y) sold to the public through a broker, dealer or market maker pursuant to Rule 144 (or by any similar provision then in force) under the Securities Act, in each case in conformity with the terms and conditions of this Agreement. "Stock Purchase Agreement" means that certain Stock Purchase ------------------------ Agreement, dated as of June __, 2000, by and among the Company, Sapphire, Intersil Corporation and ChipPAC Limited, a wholly-owned indirect Subsidiary of the Company. "Subsidiary" means with respect to any Person, any corporation, ---------- partnership, limited liability company, association or other business entity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof or (ii) if a partnership, association, limited liability company or other business entity, a majority of the partnership, membership or other similar ownership interests thereof is at the time owned or controlled, directly or indirectly, by any Person or one or more Subsidiaries of that Person or a combination thereof. For purposes hereof, a Person or Persons shall be deemed to have a majority 9 ownership interest in a partnership, association or other business entity if such Person or Persons shall be allocated a majority of partnership, association or other business entity gains or losses or shall be or control the managing director or general partner of such partnership, association or business entity. "SXI" means SXI Group LLC, a Delaware limited liability company. --- "SXI Group" means SXI; Billig Family Limited Partnership; Frederick K. --------- Minturn; Citicorp Venture Capital, Ltd.; their respective Affiliates; their co- investment partnerships; in connection with a co-investment, their respective employees, directors, and internal, full-time consultants, any member of any of their respective Family Groups, and any trust or partnership of which their respective employees, directors, and internal, full-time consultants are the sole beneficiaries in connection with a co-investment (any such trust or partnership, a "Co-Investment Vehicle"), and the partners and beneficiaries of --------------------- such Co-Investment Vehicle as a distribution in-kind; any transferee of any of the foregoing in order to resolve a Regulatory Problem if, (x) after taking commercially reasonable actions with the cooperation of the Company, such person is unable to restructure its ownership of Shareholder Shares in a manner that avoids a Regulatory Problem and in a manner which is not adverse to such person, and (y) giving notice to the Company, such person has determined that such Regulatory Problem may not be avoided; and any other transferee of any of the foregoing so long as the aggregate SXI Shares held by all such transferees pursuant to this clause do not exceed 10% of the SXI Shares. "Regulatory ---------- Problem" means, with respect to any person, any set of facts or circumstances - ------- wherein it has been asserted by any governmental authority (or such person or any of its Affiliates believes in good faith that there is a substantial risk of such assertion) that such person is not entitled to hold, or exercise any significant right, with respect to, the Shareholder Shares held by such person because of such person's regulatory status. "SXI Shares" means (i) any Capital Stock acquired by the SXI Group and ---------- (ii) any equity securities issued or issuable directly or indirectly with respect to the Capital Stock referred to in clause (i) by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization, or, in each case, any comparable transaction. 6. Financial Statements and Other Information. The Company will ------------------------------------------ deliver to Sapphire at any time prior to an Initial Public Offering: (a) no later than forty-five (45) days after the end of each quarterly accounting period of the Company in each fiscal year, unaudited consolidated statements of income and cash flows of the Company and its Subsidiaries for such quarterly period and for the period from the beginning of the fiscal year to the end of such quarter, and unaudited consolidated balance sheets of the Company and its Subsidiaries as of the end of such quarterly period, setting forth in each case comparisons to the Company's annual budget, and to the corresponding period in the preceding fiscal year (all of which statements shall be 10 prepared in accordance with GAAP, except for the absence of footnotes and subject to year end adjustments); and (b) no later than one hundred twenty (120) days after the end of each fiscal year of the Company, consolidated statements of income and cash flows of the Company for such fiscal year, and consolidated balance sheets of the Company as of the end of such fiscal year, setting forth in each case comparisons to the Company's annual budget, and to the preceding fiscal year, all prepared in accordance with GAAP, and accompanied by an unqualified opinion of PriceWaterhouseCoopers or such other independent accounting firm of recognized national standing approved by the Board. 7. Inspection Rights. The Company shall permit any representatives ----------------- designated by any holder of Shareholder Shares, upon reasonable notice and during normal business hours, to examine all Board minutes of the Company and its Subsidiaries (including all minutes of all Board committees of the Board of Directors of the Company and its Subsidiaries), shareholder meeting minutes and stock ledgers of the Company and its Subsidiaries. This right shall terminate on the consummation of the first to occur of (i) an Approved Sale and (ii) a Qualifying IPO. 8. Transfers in Violation of Agreement. Any Transfer or attempted ----------------------------------- Transfer of any Shareholder Shares in violation of any provision of this Agreement shall be void, and the Company shall not record such Transfer on its books or treat any purported transferee of such Shareholder Shares as the owner of such shares for any purpose. 9. Funding Obligations. No provision of this Agreement shall require ------------------- any Shareholder or Group or any of their respective Affiliates to provide any future funding or any other financial support to the Company or any of its Subsidiaries. 10. Amendment and Waiver. Except as otherwise provided herein, the -------------------- provisions of this Agreement may be amended or waived only upon the prior written consent of the Company and (i) the holders of a majority of the Bain Shares, (ii) the holders of a majority of the SXI Shares and (iii) the holders of a majority of Sapphire Shares; provided that in the event that such amendment or waiver would adversely treat a Shareholder or Group in a manner different from any other holders of Shareholder Shares, then such amendment or waiver will require the consent of such adversely treated holder or the holders of a majority of the Shareholders Shares of such adversely treated Group. The failure of any party to enforce any of the provisions of this Agreement shall in no way be construed as a waiver of such provisions and shall not affect the right of such party thereafter to enforce each and every provision of this Agreement in accordance with its terms. 11. Severability. Whenever possible, each provision of this Agreement ------------ shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or the effectiveness or validity of any provision in any other jurisdiction, and this 11 Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. 12. Entire Agreement. Except as otherwise expressly set forth herein, ---------------- this Agreement embodies the complete agreement and understanding among the parties hereto with respect to the subject matter hereof and supersedes and preempts any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way. 13. Successors and Assigns. Except as otherwise provided herein, this ---------------------- Agreement shall bind and inure to the benefit of and be enforceable by the Company and its successors and assigns and the Shareholders and any subsequent holders of Shareholder Shares and the respective successors and assigns of each of them, so long as they hold Shareholder Shares. If a party hereto ceases to own any Shareholder Shares, such party will no longer be deemed to be a Shareholder for purposes of this Agreement. 14. Counterparts. This Agreement may be executed in one or more ------------ counterparts each of which shall be an original and all of which taken together shall constitute one and the same agreement. 15. Remedies. The parties hereto agree and acknowledge that money -------- damages may not be an adequate remedy for any breach of the provisions of this Agreement and that the Company and any Shareholder shall have the right to injunctive relief, in addition to all of its rights and remedies at law or in equity, to enforce the provisions of this Agreement. Nothing contained in this Agreement shall be construed to confer upon any Person who is not a signatory hereto or any successor or assign of a signatory hereto any rights or benefits, as a third party beneficiary or otherwise. 16. Notices. All notices, demands and other communications to be ------- given or delivered under or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been given when personally delivered, sent by telecopy (with receipt confirmed) on a business day during regular business hours of the recipient (or, if not, on the next succeeding business day) or three business days after sent by reputable overnight express courier (charges prepaid), at the address listed below or at any address listed in the Company's records in case of any Shareholder not so listed herein. If to the Company: ChipPAC, Inc. 3151 Coronado Drive Santa Clara, California 95054 U.S.A. Attention: CEO Facsimile: (408) 486-5914 12 If to Sapphire: Sapphire Worldwide Investments, Inc, c/o Intersil Corporation 7875 Irvine Center Drive, Suite 100 Irvine, California 92618 U.S.A. Attention: Gregory L. Williams Facsimile No.: (949) 341-7053 With a copy to: Intersil Corporation 7875 Irvine Center Drive, Suite 100 Irvine, California 92618 U.S.A. Attention: Steven M. Moran, Esq. Facsimile No.: (949) 341-7053 If to any member of the Bain Group: c/o Bain Capital, Inc. Two Copley Place Boston, Massachusetts 02116 U.S.A. Attention: Edward Conard Marshall Haines Facsimile: (617) 572-3274 With a copy to: Kirkland & Ellis 200 East Randolph Drive Chicago, Illinois 60601 U.S.A. Attention: Jeffrey C. Hammes, P.C. Gary M. Holihan Facsimile: (312) 861-2200 13 If to any member of the SXI Group: c/o Citicorp Venture Capital, Ltd. 399 Park Avenue New York, New York 10043 U.S.A. Attention: Michael A. Delaney Paul C. Schorr Facsimile: (212) 888-2940 With a copy to: Dechert Price & Rhoads 4000 Bell Atlantic Tower 1717 Arch Street Philadelphia, Pennsylvania 19103 U.S.A. Attention: G. Daniel O'Donnell Geraldine A. Sinatra Facsimile: (215) 994-2222 14 17. GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE. THE CORPORATE ------------------------------------------------ LAW OF THE STATE OF CALIFORNIA WILL GOVERN ALL ISSUES CONCERNING THE RELATIVE RIGHTS OF THE COMPANY AND ITS SHAREHOLDERS. ALL OTHER ISSUES CONCERNING THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF CALIFORNIA OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAW OF ANY JURISDICTION OTHER THAN THE STATE OF CALIFORNIA. EACH PARTY HERETO HEREBY SUBMITS TO THE CO- EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA, AND OF ANY CALIFORNIA STATE COURT SITTING IN SAN FRANCISCO, CALIFORNIA OVER ANY LAWSUIT UNDER THIS AGREEMENT AND WAIVES ANY OBJECTION BASED ON VENUE OR FORUM NON CONVENIENS WITH RESPECT TO ANY ACTION INSTITUTED THEREIN. EACH PARTY HERETO HEREBY WAIVES THE NECESSITY FOR PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL (RETURN RECEIPT REQUESTED), WITH A COPY ALSO BEING SENT BY FACSIMILE (WITH RECEIPT CONFIRMED), IN EACH CASE DIRECTED TO SUCH PARTY AT ITS ADDRESS SET FORTH IN, AND WITH COPIES SENT AS REQUIRED BY, SECTION 16 ABOVE, AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED ON THE DATE OF ACTUAL RECEIPT. EACH PARTY HERETO HEREBY CONSENTS TO SERVICE OF PROCESS AS AFORESAID. NOTHING IN THIS SECTION 17 WILL PROHIBIT PERSONAL SERVICE IN LIEU OF THE SERVICE BY MAIL CONTEMPLATED HEREIN. 18. Delivery by Facsimile. This Agreement and any signed agreement --------------------- or instrument entered into in connection herewith or contemplated hereby, and any amendments hereto or thereto, to the extent signed and delivered by means of a facsimile machine, shall be treated in all manner and respects as an original agreement or instrument and shall be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person. At the request of any party hereto or to any such agreement or instrument, each other party hereto or thereto shall re-execute original forms thereof and deliver them to all other parties. No party hereto or to any such agreement or instrument shall raise the use of a facsimile machine to deliver a signature or the fact that any signature or agreement or instrument was transmitted or communicated through the use of a facsimile machine as a defense to the formation of a contract and each such party forever waives any such defense. 19. Arbitration Procedure. --------------------- (a) The parties agree that they will attempt to settle any claim or controversy arising out of this Agreement through good faith negotiations in the spirit of mutual cooperation between senior business executives with authority to resolve the controversy. 15 (b) Any dispute that cannot be resolved by the parties through good faith negotiations within 30 days of the commencement of the controversy will then, upon the written request of any party, be resolved by binding arbitration conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association by a sole arbitrator who is a retired federal judge resident in the State of California. To the extent not governed by such rules, such arbitrator shall be directed by the parties to set a schedule for determination of such dispute that is reasonable under the circumstances. Such arbitrator shall be directed by the parties to determine the dispute in accordance with this Agreement and the substantive rules of law (but not the rules of procedure or evidence) that would be applied by a federal court. The arbitration will be conducted in the English language in San Francisco, California. Judgment upon the award rendered by the arbitrator may be entered by any court having jurisdiction. (c) Nothing contained in this Section 19 shall prevent any party from resorting to judicial process if injunctive or other equitable relief from a court is available to prevent irreparable injury to one party or to others or to the extent no adequate remedy is available at law. The use of arbitration procedures will not be construed under the doctrine of laches, waiver or estoppel to affect adversely any party's right to assert any claim or defense. 20. Descriptive Headings. The descriptive headings of this Agreement -------------------- are inserted for convenience only and do not constitute a part of this Agreement. 21. No Strict Construction. The parties hereto have participated ---------------------- jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement. [the rest of this page is intentionally left blank] 16 IN WITNESS WHEREOF, the parties hereto have executed this Shareholders Agreement on the day and year first above written. CHIPPAC, INC. By: /s/ Sharon St. Claire-Douglas ------------------------------------ Its: Power of Attorney ----------------------------------- SAPPHIRE: SAPPHIRE WORLDWIDE INVESTMENTS, INC. By: /s/ Howard Rothman ------------------------------------ Its: Assistant Secretary ----------------------------------- THE BAIN GROUP: BAIN CAPITAL FUND VI, L.P. By: Bain Capital Partners VI, L.P. Its: General Partner By: Bain Capital Investors, Inc. Its: General Partner By: /s/ Edward Conrad ------------------------------------ A Managing Director BCIP ASSOCIATES II By: /s/ Edward Conrad ------------------------------------ A General Partner BCIP ASSOCIATES II-B By: /s/ Edward Conrad ------------------------------------ A General Partner BCIP ASSOCIATES II-C By: /s/ Edward Conrad ------------------------------------ A General Partner BCIP TRUST ASSOCIATES II By: Bain Capital, Inc. Its: General Partner By: /s/ Edward Conrad ------------------------------------ A Managing Director BCIP TRUST ASSOCIATES II-B By: Bain Capital, Inc. Its: General Partner By: /s/ Edward Conrad ------------------------------------ A Managing Director PEP INVESTMENTS PTY. LTD By: /s/ Edward Conrad ------------------------------------ Its: General Partner RANDOLPH STREET PARTNERS II By: /s/ Gary Holihan ------------------------------------- A General Partner THE SXI GROUP: SXI GROUP LLC By: /s/ Paul C. Schorr, IV -------------------------------------- Its: Member ------------------------------------- SCHEDULE I The Bain Group -------------- Bain Capital Fund VI, L.P. BCIP Associates II BCIP Associates II-B BCIP Trust Associates II-C BCIP Trust Associates II BCIP Trust Associates II-B PEP Investments Pty., Ltd. Randolph Street Partners II EX-10.35 14 0014.txt STOCK PURCHASE AGREEMENT EXHIBIT 10.35 CHIPPAC, INC. CLASS A COMMON STOCK PURCHASE AGREEMENT This Class A Common Stock Purchase Agreement (this "Agreement") is made and entered into as of July 13, 2000, by and between Chippac, Inc., a Delaware corporation ("ChipPAC Delaware") and QUALCOMM Incorporated, a Delaware corporation (the "Purchaser"). RECITALS WHEREAS, pursuant to an Agreement and Plan of Merger dated as of June 13, 2000, by and between ChipPAC Delaware and ChipPAC, Inc., a California corporation ("ChipPAC California"), ChipPAC California will be merged with and into ChipPAC Delaware (the "Merger"). The Merger will become effective immediately prior to the effectiveness of ChipPAC Delaware's registration statement on Form S-1 (Reg. No. 333-39428), as filed with the SEC on June 16, 2000 (the "Registration Statement") with respect to the initial public offering ("IPO") of its shares of Class A common stock, par value $.01 per share (the "Class A Common"). When used herein, all references to the "Company" shall mean ChipPAC California prior to the effectiveness of the Merger, and shall mean ChipPAC Delaware after the effectiveness of the Merger. WHEREAS, Purchaser has executed and delivered to the Company and the underwriters named therein, a Lock-Up Agreement for the benefit of the Company and such underwriters restricting the right of Purchaser to transfer the Shares (as defined below) as specified in such Lock-Up Agreement. WHEREAS, ChipPAC Delaware has authorized the sale and issuance to Purchaser of a number of shares of its Class A Common equal to $25 million divided by a purchase price per share of Class A Common equal to 95% of the price per share of Class A Common paid by the public (i.e., the price paid by the public, before deducting for underwriting discounts, as stated on the cover page of the final prospectus filed with the Securities and Exchange Commission in connection with the IPO) (the "Shares"). WHEREAS, Purchaser desires to purchase the Shares on the terms and conditions set forth herein. WHEREAS, ChipPAC Delaware desires to issue and sell the Shares to Purchaser on the terms and conditions set forth herein. AGREEMENT Now, THEREFORE, in consideration of the foregoing recitals and the mutual promises, representations, warranties, and covenants hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Agreement To Sell And Purchase. 1.1 Authorization of Shares. On or prior to the Closing (as defined in Section 2 below), ChipPAC Delaware shall have authorized the sale and issuance to Purchaser of the Shares. 1.2 Sale and Purchase. Subject to the terms and conditions hereof, at the Closing (as hereinafter defined), ChipPAC Delaware hereby agrees to issue and sell to Purchaser, and Purchaser agrees to purchase from ChipPAC Delaware, the Shares, for an aggregate purchase price of $25 million. 2. Closing, Delivery And Payment. 2.1 Closing. The closing of the sale and purchase of the Shares under this Agreement (the "Closing") shall take place at 9:00 a.m. on the date ChipPAC Delaware sells its shares of Class A Common to an underwriting group led by CS First Boston Corporation in connection with its IPO, at the offices of Cooley Godward LLP, 4365 Executive Drive, Suite 1100, San Diego, CA 92121, or at such other time or place as the Company and Purchaser may mutually agree (such date is hereinafter referred to as the "Closing Date"). 2.2 Delivery. At the Closing, subject to the terms and conditions hereof, ChipPAC Delaware will deliver to Purchaser a certificate representing the number of Shares to be purchased at the Closing by Purchaser, against payment of the purchase price therefor by wire transfer of immediately available funds. 3. Representations And Warranties Of the Company. Reference is hereby made to the Underwriting Agreement to be entered into in connection with the consummation of the IPO between the Company and its underwriting group led by CS First Boston Corporation (the "Underwriting Agreement"). Each of the representations and warranties to be made by the Company in the Underwriting Agreement are hereby incorporated by reference herein as if fully set forth in this Agreement, and each such representation and warranty is hereby made by the Company to Purchaser as of the date such representations and warranties are made pursuant to the Underwriting Agreement. 4. Representations And Warranties Of The Purchaser. Purchaser hereby represents and warrants to the Company as follows (such representations and warranties do not lessen or obviate the representations and warranties of the Company set forth in this Agreement): 4.1 Requisite Power and Authority. Purchaser has all necessary power and authority under all applicable provisions of law to execute and deliver this Agreement and to carry out its provisions. All action on Purchaser's part required for the lawful execution and delivery of this Agreement have been or will be effectively taken prior to the Closing. Upon its execution and delivery, this Agreement will be a valid and binding obligation of Purchaser, enforceable in accordance with its terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors' rights and (b) as limited by general principles of equity that restrict the availability of equitable remedies. 2 4.2 Investment Representations. Purchaser understands that the Shares have not been registered under the Securities Act. Purchaser also understands that the Shares are being offered and sold pursuant to an exemption from registration contained in the Securities Act based in part upon Purchaser's representations contained in the Agreement. Purchaser hereby represents and warrants as follows: (a) Purchaser Bears Economic Risk. Purchaser has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Company so that it is capable of evaluating the merits and risks of its investment in the Company and has the capacity to protect its own interests. Purchaser must bear the economic risk of this investment indefinitely unless the Shares are registered pursuant to the Securities Act, or an exemption from registration is available. (b) Acquisition for Own Account. Purchaser is acquiring the Shares for Purchaser's own account for investment only, and not with a view towards their distribution. (c) Purchaser Can Protect Its Interest. Purchaser represents that by reason of its, or of its management's, business or financial experience, Purchaser has the capacity to protect its own interests in connection with the transactions contemplated in this Agreement. (d) Accredited Investor. Purchaser represents that it is an accredited investor within the meaning of Regulation D under the Securities Act. (e) Company Information. Purchaser has received and read the Registration Statement and has had an opportunity to discuss the Company's business, management and financial affairs with directors, officers and management of the Company and has had the opportunity to review the Company's operations and facilities. Purchaser has also had the opportunity to ask questions of and receive answers from, the Company and its management regarding the terms and conditions of this investment. (f) HSR Filing. Purchaser has no intention of participating in the formulation, determination or the direction of the Company's basic business decisions, and therefore, Purchaser's acquisition of the Shares is exempt from reporting pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, by reason of the exemption provided pursuant to the Federal Trade Commission's Premerger Notification Rules for the acquisition of voting stock representing 10% or less of a target company's voting power being held by the acquiring person, so long as the acquiring person acquired such voting stock solely for purposes of investment. 5. Conditions To Closing. 5.1 Conditions to Purchaser's Obligations at the Closing. Purchaser's obligations to purchase the Shares at the Closing are subject to the satisfaction, at or prior to the Closing Date, of the following conditions: 3 (a) Representations and Warranties True; Performance of Obligations. The representations and warranties made by the Company in Section 3 hereof shall be true and correct in all material respects (except for any such representation or warranty which is already limited by "materiality" or words of similar import, which shall be true and correct in all respects) as of the Closing Date with the same force and effect as if they had been made as of the Closing Date, and the Company shall have performed in all material respects (except for any such obligation or condition which is already limited by "materiality" or words of similar import, which shall have been complied with in all respects) all obligations and conditions herein required to be performed or observed by it on or prior to the Closing. The Company shall have caused each of its officers, directors and 2% shareholders (before giving effect to the IPO) to have entered into a lock-up agreement substantially similar to the one delivered by Purchaser as of the date hereof. The IPO shall have been consummated on or prior to September 30, 2000. (b) Legal Investment. On the Closing Date, the sale and issuance of the Shares shall be legally permitted by all laws and regulations to which Purchaser and the Company are subject. (c) Consents, Permits, and Waivers. The Company shall have obtained any and all consents, permits and waivers necessary or appropriate for consummation of the transactions contemplated by the Agreement (except for such as may be properly obtained subsequent to the Closing). (d) Corporate Documents. The Company shall have delivered to Purchaser or its counsel, copies of all corporate documents of the Company as Purchaser shall reasonably request. (e) Compliance Certificate. The Company shall have delivered to Purchaser a Compliance Certificate, executed by the Chief Executive Officer or Chief Financial Officer of the Company, dated the Closing Date, to the effect that the conditions specified in subsection (a) and (c) of this Section 5.1 have been satisfied. (f) Secretary's Certificate. The Purchaser shall have received from the Company's Secretary, a certificate having attached thereto (i) the Company's Certificate of Incorporation as in effect at the time of the Closing, (ii) the Company's Bylaws as in effect at the time of the Closing, (iii) resolutions approved by the Board of Directors authorizing the transactions contemplated hereby and (iv) a good standing certificate from the Secretary of State of Delaware with respect to the Company, dated a recent date before the Closing. (g) Legal Opinion. The Purchaser shall have received from Kirkland & Ellis, legal counsel to the Company, a copy of the legal opinion delivered to the underwriting group leading the Company's IPO upon the consummation of the IPO, together with a letter from Kirkland & Ellis, addressed to Purchaser, stating that Purchaser may rely on such opinion as if such opinion was addressed to Purchaser. (h) Amendment to Registration Agreement. The Company and certain of its shareholders shall have executed and delivered Amendment No. 2 to the Company's Registration Agreement, in the form attached hereto as Exhibit A, --------- granting Purchaser the registration rights specified therein. (i) Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated at the Closing hereby and all documents and instruments incident to such transactions shall be reasonably satisfactory in substance and form to the Purchaser and its counsel, and the Purchaser and its counsel shall have received all such counterpart originals or certified or other copies of such documents as they may reasonably request. 5.2 Conditions to Obligations of the Company. The Company's obligation to issue and sell the Shares at the Closing is subject to the satisfaction, on or prior to such Closing, of the following conditions: (a) Representations and Warranties True. The representations and warranties in Section 4 made by Purchaser shall be true and correct in all material respects (except for any such representation or warranty which is already limited by "materiality" or words of similar import, which shall be true and correct in all respects) at the date of the Closing, with the same force and effect as if they had been made on and as of said date. The Purchaser shall have performed and complied in all material respects (except for any such agreement or condition which is already limited by "materiality" or words of similar import, which shall have been complied with in all respects) with all agreements and conditions herein required to be performed or complied with by Purchaser on or before the Closing. The IPO shall have been consummated on or prior to September 30, 2000. (b) Legal Investment. On the Closing Date, the sale and issuance of the Shares shall be legally permitted by all laws and regulations to which Purchaser and the Company are subject. (c) Consents, Permits, and Waivers. The Company shall have obtained any and all consents, permits and waivers necessary or appropriate for consummation of the transactions contemplated by the Agreement (except for such as may be properly obtained subsequent to the Closing). (d) Amendment to Registration Agreement. Purchaser shall have executed and delivered Amendment No. 2 to the Company's Registration Agreement, in the form attached hereto as Exhibit A. --------- 6. Additional Agreements. 6.1 Confidentiality. Each party hereto agrees that, except with the prior written consent of the other party, it shall at all times keep confidential and not divulge, furnish or make accessible to anyone any confidential information, knowledge or data concerning or relating to the business or financial affairs of the other parties to which such party has been or shall become privy by reason of this Agreement, discussions or negotiations relating to this Agreement, the performance of its obligations hereunder or the ownership of the Shares purchased hereunder; provided, that the parties may make any disclosure or announcement of information (i) to consultants, advisors, lenders, accountants and similar advisors the extent necessary to facilitate its reasonable business relationships and (ii) to the extent that it is so obligated pursuant to applicable law or regulation, including any applicable law or regulation of the Nasdaq or any national securities exchange. Notwithstanding any provision contained in this Agreement to the contrary, the Company shall be permitted to disclose to the public in any registration statement or prospectus prepared by the Company and filed with the SEC (or any road show or similar investors' presentation made in connection with any such registration statement or prospectus) that each of the parties hereto have entered into this Agreement and any other agreement executed contemporaneously between the parties or their respective affiliates. 6.2 Restricted Securities. "Restricted Securities" means (i) the Class A Common issued hereunder and (ii) any securities issued with respect to the securities referred to in clause (i) above by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization. As to any particular Restricted Securities, such securities shall cease to be Restricted Securities when they have (a) been effectively registered under the Securities Act and disposed of in accordance with the registration statement covering them, (b) been distributed to the public through a broker, dealer or market maker pursuant to Rule 144 under the Securities Act or become eligible for sale pursuant to Rule 144 under the Securities Act or (c) been otherwise transferred and new certificates for them not bearing the Securities Act legend set forth in this Section 6.2 have been delivered by the Company in accordance with this Section 6.2. Whenever any particular securities cease to be Restricted Securities, the holder thereof shall be entitled to receive from the Company, without expense, new securities of like tenor not bearing a Securities Act legend of the character set forth in this Section 6.2. Restricted Securities are transferable only pursuant to (a) public offerings registered under the Securities Act, (b) Rule 144 of the Securities and Exchange Commission if such rule is available and (c) subject to the conditions specified in this Section 6.2, any other legally available means of transfer. In connection with the transfer of any Restricted Securities (other than a transfer described in clause (a) or (b) of the preceding sentence), the holder thereof shall deliver written notice to Company describing in reasonable detail the transfer or proposed transfer, together with an opinion of counsel which (to Company's reasonable satisfaction) is knowledgeable in securities law matters to the effect that such transfer of Restricted Securities may be effected without registration of such Restricted Securities under the Securities Act. In addition, if the holder of the Restricted Securities delivers to Company an opinion of such counsel that no subsequent transfer of such Restricted Securities shall require registration under the Securities Act, Company shall promptly upon such contemplated transfer deliver new certificates for such Restricted Securities which do not bear the Securities Act legend set forth in this Section 6.2. If Company is not required to deliver new certificates for such Restricted Securities not bearing such legend, the holder thereof shall not transfer the same until the prospective transferee has confirmed to Company in writing its agreement to be bound by the conditions contained in this Section 6.2. Each certificate or instrument representing Restricted Securities shall be imprinted with a legend in substantially the following form: "The securities represented by this certificate were originally issued on ____ __, 2000, and have not been registered under the Securities Act of 1933, as amended. The transfer of the securities represented by this certificate is subject to the conditions specified in the Class A Common Stock Purchase Agreement, dated as of July 13, 2000, as amended and modified from time to time, between the issuer (the "Company") and the purchaser of such securities, and the Company reserves the right to refuse the transfer of such securities until such conditions have been fulfilled with respect to such transfer. A copy of such conditions shall be furnished by the Company to the holder hereof upon written request and without charge." 7. Miscellaneous. 7.1 Governing Law. This Agreement shall be governed in all respects by the laws of the State of California as such laws are applied to agreements between California residents entered into and performed entirely in California. 7.2 Survival. The representations, warranties, covenants and agreements made herein shall survive any investigation made by any Purchaser and the closing of the transactions contemplated hereby for a period of one (1) year following the Closing. All statements as to factual matters contained in any certificate or other instrument delivered by or on behalf of the Company pursuant hereto in connection with the transactions contemplated hereby shall be deemed to be representations and warranties by the Company hereunder solely as of the date of such certificate or instrument. 7.3 Successors and Assigns. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto and shall inure to the benefit of and be enforceable by each person who shall be a holder of the Shares from time to time. 7.4 Entire Agreement. This Agreement, the exhibits and schedules hereto, and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and no party shall be liable or bound to any other in any manner by any representations, warranties, covenants and agreements except as specifically set forth herein and therein. 7.5 Severability. In case any provision of the Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 7.6 Amendment and Waiver. The obligations of the Company and the rights of the Purchaser under this Agreement may be waived only with the written consent of Purchaser. 7.7 Delays or Omissions. It is agreed that no delay or omission to exercise any right, power or remedy accruing to any party, upon any breach, default or noncompliance by another party under this Agreement shall impair any such right, power or remedy, nor shall it be construed to be a waiver of any such breach, default or noncompliance, or any acquiescence therein, or of or in any similar breach, default or noncompliance thereafter occurring. It is further agreed that any waiver, permit, consent or approval of any kind or character on Purchaser's part of any breach, default or noncompliance under this Agreement or any waiver on Purchaser's part of any provisions or conditions of the Agreement must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or otherwise afforded to any party, shall be cumulative and not alternative. 7.8 Notices. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed telex or facsimile if sent during normal business hours of the recipient, if not, then on the next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent in each case to the respective address specified below: If to Purchaser, to: QUALCOMM Incorporated 5775 Morehouse Drive San Diego, CA 92121 Attn: General Counsel With a copy to: Cooley Godward LLP 4365 Executive Drive, Suite 1100 San Diego, CA 92121-2128 Attn: Thomas A. Coll If to the Company, to: ChipPAC, Inc. 3151 Coronado Drive Santa Clara, CA 95404 Attn: CEO With a copy to: Kirkland & Ellis 200 East Randolph Drive Chicago, IL 60601 Attn: Gary Holihan or, in each case, at such other address as the Company or Purchaser may designate by ten (10) days advance written notice to the other party. 7.9 Expenses. Each party shall pay all costs and expenses that it incurs with respect to the negotiation, execution, delivery and performance of the Agreement; provided, however, that the Company shall, at the Closing, reimburse the reasonable fees and expenses of Cooley Godward LLP as special counsel to the Purchaser in an amount not to exceed $20,000 incurred in connection with the negotiation, execution, delivery and performance of this Agreement. 7.10 Titles and Subtitles. The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. 7.11 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument (any one or more of which may be by facsimile). 7.12 Broker's Fees. Each party hereto represents and warrants that no agent, broker, investment banker, person or firm acting on behalf of or under the authority of such party hereto is or will be entitled to any broker's or finder's fee or any other commission directly or indirectly in connection with the transactions contemplated herein. Each party hereto further agrees to indemnify each other party for any claims, losses or expenses incurred by such other party as a result of the representation in this Section being untrue. 7.13 Pronouns. All pronouns contained herein, and any variations thereof, shall be deemed to refer to the masculine, feminine or neutral, singular or plural, as to the identity of the parties hereto may require. 7.14 Corporate Securities Law. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION OR IN THE ABSENCE OF AN EXEMPTION FROM SUCH QUALIFICATION IS UNLAWFUL. PRIOR TO ACCEPTANCE OF SUCH CONSIDERATION BY THE COMPANY, THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED OR AN EXEMPTION FROM SUCH QUALIFICATION BEING AVAILABLE. In Witness Whereof, the parties hereto have executed this Class A Common Stock Purchase Agreement as of the date set forth in the first paragraph hereof. COMPANY: PURCHASER: ChipPAC, Inc. QUALCOMM Incorporated Signature: /s/ Robert Krakauer Signature: /s/ Anthony S. Thornley Print Name: Robert Krakauer Print Name: Anthony S. Thornley Title: Senior Vice President Title: Executive Vice President and Chief Financial and Chief Financial Officer Officer EX-23.1 15 0015.txt CONSENT OF PRICEWATERHOUSECOOPERS LLP EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in this Registration Statement on Form S-1 of our report dated February 29, 2000 relating to the financial statements of ChipPAC, Inc., which appear in such Registration Statement. We also consent to the reference to us under the heading "Experts" in such Registration Statement. PricewaterhouseCoopers LLP San Jose, California July 12, 2000 EX-23.2 16 0016.txt CONSENT OF ERNST & YOUNG LLP EXHIBIT 23.2 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We consent to the references to our firm under the captions "Experts" and "Selected Historical Financial Data of Malaysian Business" and to the use of our report dated May 16, 2000, with respect to the financial statements of Intersil Technology Sdn. Bhd. included in Amendment No.1 to the Registration Statement (Form S-1 No. 333-39428) and related Prospectus of ChipPAC, Inc. for the registration of its Class A Common Stock. Ernst & Young LLP Jacksonville, Florida July 10, 2000 -----END PRIVACY-ENHANCED MESSAGE-----