<PAGE>
As filed with the Securities and Exchange Commission on February 11, 2000
Registration No. 333-91641
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
AMENDMENT No. 2
to
FORM S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
--------------
ChipPAC International Company Limited
ChipPAC, Inc.
ChipPAC Liquidity Management Hungary Limited Liability Company
ChipPAC Luxembourg S.a.R.L.
ChipPAC Korea Company Ltd.
ChipPAC Limited
ChipPAC (Barbados) Ltd.
(Exact name of registrants as specified in their charters)
British Virgin Islands 3674 66-0573152
California 3674 77-0463-48
Hungary 3674 98-0209814
Luxembourg 3674 98-0209817
Republic of Korea 3674 98-0209695
British Virgin Islands 3674 98-0209699
Barbados 3674 98-0209821
(State or other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Classification Code) Identification No.)
incorporation or
organization) --------------
3151 Coronado Drive, Santa Clara, California 95404
Telephone: (408) 486-5900
(Address, including zip code, and telephone number, including area code of
registrants' principal executive offices)
--------------
Dennis P. McKenna
President & Chief Executive Officer
ChipPAC, Inc.
3151 Coronado Drive, Santa Clara, California 95404
(408) 486-5900
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------
Copies of all communications, including communications sent to agent for
service, should be sent to:
Eva Herbst Davis
Kirkland & Ellis
777 South Figueroa Street
Los Angeles, California 90017
(213) 680-8400
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 being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, 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(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. [_]
--------------
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these notes until the registration statement filed with the +
+Securities and Exchange Commission and any applicable state securities +
+commission becomes effective. This prospectus is not an offer to sell these +
+notes and we are not soliciting offers to buy these notes in any state where +
+the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS
Exchange Offer for $150,000,000
12 3/4% Senior Subordinated Notes Due 2009
of ChipPAC International Company Limited
Guaranteed by ChipPAC, Inc., ChipPAC Liquidity Management Hungary Limited
Liability Company, ChipPAC Luxembourg S.a.R.L., ChipPAC Korea Company Ltd.,
ChipPAC Limited, and ChipPAC (Barbados) Ltd.
-----------
Terms of the Exchange Offer:
. The exchange offer . We will not receive
expires 5:00 p.m., New any proceeds from the
York City time, exchange offer.
, 2000,
unless extended.
. The terms of the notes
to be issued are
identical to the
outstanding notes,
except for the
transfer restrictions
and registration
rights relating to the
outstanding notes.
. You may withdraw your
tender of notes at any
time before the
expiration of the
exchange offer.
. We will exchange all
of the outstanding
notes that you validly
tender and do not
validly withdraw.
. There is no existing
market for the
exchange notes, and we
do not intend to apply
for their listing on
any securities
exchange.
. We believe that the
exchange of the notes
will not be a taxable
exchange for U.S.
federal income tax
purposes.
You should carefully consider the risks described beginning on page 12 before
tendering your notes.
-----------
Neither the Securities and Exchange Commission nor any state securities
commission has approved the notes to be distributed in the exchange offer, nor
have any of these organizations determined that this prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
-----------
The date of this prospectus is , 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary........................................................ 1
Risk Factors.............................................................. 12
Forward-Looking Statements................................................ 21
Industry Data............................................................. 21
Use of Proceeds........................................................... 22
Capitalization............................................................ 23
The Exchange Offer........................................................ 24
Unaudited Pro Forma Condensed Combined Financial Data..................... 32
Selected Historical Financial Data........................................ 36
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 38
Industry.................................................................. 46
Business.................................................................. 48
Management................................................................ 60
Principal Shareholders.................................................... 65
The Recapitalization...................................................... 68
Certain Relationships and Related Transactions............................ 71
Description of Other Financing Arrangements............................... 75
Description of the Exchange Notes......................................... 79
Material Income Tax Consequences.......................................... 122
Plan of Distribution...................................................... 123
Where You Can Find More Information....................................... 124
Legal Matters............................................................. 124
Experts................................................................... 124
Index to Combined Financial Statements.................................... F-1
Index to Unaudited Interim Condensed Consolidated Financial Statements.... F-39
Glossary.................................................................. G-1
</TABLE>
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.
We are not making an offer to sell these securities in any jurisdiction
where the offer or sale is not permitted. You should assume that the
information appearing in this prospectus is accurate as of the date on the
front cover of this prospectus only. Our business, financial condition, results
of operations and prospects may have changed since that date.
i
<PAGE>
PROSPECTUS SUMMARY
This summary highlights selected information from the prospectus. It does
not contain all of the information that is important to you in order to
understand this exchange offer or the terms of the exchange notes. Unless the
context requires otherwise, "ChipPAC," "Company," "we," "our," "ours" and "us"
refer to ChipPAC, Inc. and its subsidiaries. ChipPAC International Company
Limited, the issuer of the notes in the exchange offer, is a wholly owned
subsidiary of ChipPAC, Inc. ChipPAC reports on a calendar year basis. See the
"Glossary" section for a description of other technical terms used in this
prospectus.
Overview of Our Business
We are one of the world's largest providers of packaging and test services
for manufacturers in the semiconductor industry. We offer complete portfolios
of packaging and test solutions and we are one of the largest providers of
high-margin, ball grid array packages, or BGA packages, which is the most
advanced mass-produced type of semiconductor package. A semiconductor package
is a container 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 approximately 70
customers worldwide, including approximately 40 customers in the United States.
Our customers include some of the world's largest and most prominent
semiconductor manufacturers, such as Atmel Corporation, Intel Corporation,
International Business Machines Corporation, LSI Logic Corp., Lucent
Technologies, Inc., Samsung Electronics Co., Ltd. and STMicroelectronics N.V.
Today, most major semiconductor manufacturers use independent packaging and
test service providers for some portion of their packaging and test needs. We
expect this outsourcing trend to continue as semiconductor manufacturers focus
on their core strengths, including chip design and wafer fabrication.
Our executive and sales headquarters are in the United States and our
packaging facilities are in Korea and China. During 1998, we packaged over
792.9 million units and generated $334.1 million in revenues, $63.7 million in
gross profit, $32.3 million in net income and $86.3 million in EBITDA. For the
nine-month period ended September 30, 1999, we packaged over 885.2 million
units and generated $267.7 million in revenues, $39.9 million in gross profit,
$3.2 million in net loss and $58.4 million in EBITDA. For the nine month period
ended September 30, 1999, we incurred one time charges for a change of control
expense and loss from early extinguishment of debt in the amount of $11.8
million and $1.4 million, respectively.
In 1984, our semiconductor packaging business began operating as a separate
division of Hyundai Electronics, one of the world's largest seminconductor
manufacturers and a member of the Hyundai Group, the Korean conglomerate. As of
August 5, 1999, we are no longer majority-owned by Hyundai Electronics as a
result of the recapitalization and other transactions described in this
prospectus.
Operations
We offer our customers a full array of semiconductor packages for both
traditional and advanced semiconductor products. The semiconductor production
process can be broadly divided into three fundamental stages:
.fabricating a wafer;
. slicing the wafer into multiple die and processing those die into
finished devices, which is referred to as "packaging"; and
.testing of finished devices and other back-end processes.
We provide outsourced services for the final two stages of this
semiconductor production process. We offer the following packaging and test
services to our customers:
1
<PAGE>
Substrate, or BGA, packaging, which comprised 61.8% of our 1998
revenues. Substrate packaging, also referred to as BGA packaging, represents
the newest and fastest growing area in the semiconductor packaging industry and
is characterized by a semiconductor die placed directly on a plastic or tape
laminate substrate, which is a mini printed circuit board. We are continuously
developing new BGA packaging services and BGA assembly techniques, including
chip scale BGA packaging, which is characterized by a package size of less than
1.2 times the size of the device. Benefits of BGA packaging over traditional
leaded packaging include:
. smaller size;
. higher pin count, or number of connections to a printed circuit board;
. greater reliability;
. better electrical signal integrity; and
. easier attachment to a printed circuit board.
Leaded packaging, which comprised 35.5% of our 1998 revenues. Traditional
leaded packages are the most widely used packaging type, are found in almost
every electronics application and are characterized by a semiconductor die
encapsulated in a plastic mold compound with metal leads surrounding the
perimeter of the device. In 1998, leaded packaging comprised over half of total
industry packaging volume. Leaded packaging is used in a variety of
applications, including automobiles, household appliances, desktop computers
and telecommunications. We offer a wide range of lead counts and body sizes for
use in many different applications.
Test services, which comprised 2.7% of our 1998 revenues. 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. We provide our customers with
semiconductor test services for a number of device types, including logic,
mixed signal and memory devices.
Competitive Strengths
We believe the following attributes have helped us become one of the world's
largest providers of packaging and test services for semiconductor
manufacturers:
. demonstrated technology leadership;
. growing customer base;
. low-cost infrastructure;
. efficiency and quality leader;
. major investments in packaging facilities; and
. experienced management team.
Business Strategy
Our business strategy focuses on:
. maintaining high-quality customer service;
. increasing share with existing customers;
. expanding customer base through technology leadership; and
. maintaining low-cost structure.
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 from Hyundai Electronics and Hyundai Electronics America
through a series of
2
<PAGE>
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, 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 (a) an aggregate of $385.0 million in cash and (b)
mandatorily redeemable convertible preferred stock payable for up to an
aggregate of $70.0 million.
We collectively refer to these events as the "recapitalization." You should
refer to the information in the section entitled "The Recapitalization" for a
more detailed description of the transactions summarized above.
As part of the recapitalization, we entered into several agreements with
Hyundai Electronics and Hyundai Electronics America by which we received
licenses to use technologies used in our business and also transitional
operational, administrative and utility services. We have also leased certain
facilities from Hyundai Electronics and Hyundai Electronics America. See
"Certain Relationships and Related Transactions" for more information on these
agreements.
In order to finance the recapitalization, we completed the transactions
described in the section entitled "Use of Proceeds."
Our current corporate structure after giving effect to the recapitalization
is as follows:
3
<PAGE>
The Exchange Offer
The exchange offer relates to the exchange of all of ChipPAC International
Company Limited's outstanding 12 3/4% Senior Subordinated Notes due 2009 for an
equal aggregate principal amount of ChipPAC International Company Limited's new
12 3/4% Series B Senior Subordinated Notes due 2009.
Registration Rights You have the right to exchange your outstanding
Agreement................. notes for registered notes with terms that are
identical in all material respects. This
exchange offer is intended to satisfy this
right. After this exchange offer is complete,
you will no longer be entitled to the benefits
of the exchange or registration rights granted
under the registration rights agreement which
we entered into as part of the offering of the
outstanding notes.
The Exchange Offer........ We are offering to exchange $1,000 principal
amount of exchange notes, which have been
registered under the Securities Act, for each
$1,000 principal amount of outstanding notes.
Your outstanding notes must be properly
tendered and accepted to be exchanged. All
outstanding notes that are validly tendered and
not validly withdrawn will be exchanged.
$150,000,000 in aggregate principal amount of
our notes is currently outstanding.
We will issue the registered exchange notes on
or promptly after the expiration of this
exchange offer.
Expiration Date........... This exchange offer will expire at 5:00 p.m.,
New York City time, on , 2000,
unless we decide to extend the expiration date.
Conditions to the We will not complete this exchange offer if it
Exchange Offer............ violates applicable law or staff
interpretations of the Securities and Exchange
Commission. This exchange offer is not
conditioned upon any minimum principal amount
of our outstanding notes being tendered.
Resale of the Exchange
Notes..................... We believe that the exchange notes may be
offered for resale, resold and otherwise
transferred by you without compliance with the
registration and prospectus delivery provisions
of the Securities Act. We have based this
belief on letters issued in connection with
past offerings of this kind in which the staff
of the Securities and Exchange Commission has
interpreted the laws and regulations relating
to the resale of notes to the public without
the requirement of further registration under
the Securities Act. In order for the exchange
notes to be offered for resale, resold or
otherwise transferred:
. you must acquire the exchange notes in the
ordinary course of your business;
. you must not intend to participate, and have no
arrangement or understanding with any person to
participate, in the distribution of the exchange
notes issued to you in this exchange offer;
4
<PAGE>
. you must not be a broker-dealer who purchased
your outstanding notes directly from us for
resale under Rule 144A or any other available
exemption under the Securities Act; and
. you must not be an "affiliate" of ours as defined
in of Rule 405 under the Securities Act.
If you do not meet the above conditions, you
may incur liability under the Securities Act if
you transfer any exchange note without
delivering a prospectus meeting the
requirements of the Securities Act. We will not
indemnify you against this liability.
Each broker-dealer that is issued exchange
notes in this exchange offer for its own
account in exchange for outstanding notes which
were acquired by that broker-dealer as a result
of market-making or other trading activities
must acknowledge that it will deliver a
prospectus meeting the requirements of the
Securities Act in connection with any resale of
the exchange notes.
A broker-dealer may use this prospectus for an
offer to resell, resale or other transfer of
the exchange notes issued to it in this
exchange offer. We have agreed that, for a
period of 180 days after the date this exchange
offer is completed, we will make this
prospectus and any amendment or supplement to
this prospectus available to a broker-dealer
for use in connection with resales.
We are not offering to exchange with you, and
will not accept surrenders for exchange from
you, in any jurisdiction in which this exchange
offer or its acceptance would not comply with
the securities or blue sky laws of that
jurisdiction. Furthermore, if you acquire the
exchange notes, you are responsible for
compliance with securities or blue sky laws
regarding resales. We assume no responsibility
for compliance with these requirements.
Accrued Interest on the
Exchange Notes and the
Outstanding Notes.........
Each exchange note will bear interest from its
issuance date. The holders of outstanding notes
that are accepted for exchange will receive, in
cash, accrued interest on those notes to, but
not including, the issuance date of the
exchange notes. This interest will be paid with
the first interest payment on the exchange
notes. Interest on the outstanding notes
accepted for exchange will cease to accrue upon
issuance of the exchange notes.
Consequently, if you exchange your outstanding
notes for exchange notes you will receive the
same interest payment that you would have
received if you had not accepted this exchange
offer.
Procedures for Tendering
Notes..................... If you wish to tender your notes for exchange,
you must either:
5
<PAGE>
. complete, sign and date the accompanying letter
of transmittal, or a facsimile of that letter and
deliver the documentation, together with your
outstanding notes, to the exchange agent at the
address provided on the cover page of the letter
of transmittal; or
. arrange for the Depositary Trust Company to
transmit the required information to the exchange
agent for this exchange offer in connection with
a book-entry transfer.
In addition, you must deliver to the notes
exchange agent on or before the expiration
date:
. if you are effecting delivery by book-entry
transfer, a timely confirmation of book-entry
transfer of your outstanding notes into the
account of the notes exchange agent at The
Depository Trust Company as required by the
procedures for book-entry transfers described in
this prospectus under the heading "The Exchange
Offer--Procedures for Tendering"; or
. if necessary, the documents required for
compliance with the guaranteed delivery
procedures described in this prospectus under the
heading "The Exchange Offer--Guaranteed Delivery
Procedures."
By executing and delivering the accompanying
letter of transmittal or effecting delivery by
book-entry transfer, you are representing to us
that, among other things:
. you are acquiring the exchange notes in the
exchange offer in the ordinary course of your
business;
. you are not participating, do not intend to
participate, and have no arrangement or
understanding with any person to participate in
the distribution of the exchange notes issued to
you in the exchange offer; and
. you are not an "affiliate" of ours.
Procedures for Beneficial If you are a beneficial owner of outstanding
Owners............... notes that are registered in the name of a
broker, dealer or other nominee and you wish to
tender your notes in this exchange offer, you
should promptly contact the person in whose
name your notes are registered and instruct
that person to tender on your behalf.
Guaranteed Delivery If you wish to tender your outstanding notes
Procedures................ and:
. time will not permit your notes or other required
documents to reach the notes exchange agent by
the expiration date; or
. the procedure for book-entry transfer cannot be
completed on time;
you may tender your notes in compliance with
the guaranteed delivery procedures described in
this prospectus under the heading "The Exchange
Offer--Guaranteed Delivery Procedures."
Withdrawal Rights......... You may withdraw the tender of your outstanding
notes at any time before 5:00 p.m., New York
City time, on , 2000 which is the
expiration date.
6
<PAGE>
Acceptance of Outstanding
Notes and Delivery of
Exchange Notes............
Except under the circumstances described above
under "Conditions to the Exchange Offer," we
will accept for exchange any and all
outstanding notes which are properly tendered
and not validly withdrawn before 5:00 p.m., New
York City time, on the expiration date. The
exchange notes issued in this exchange offer
will be delivered promptly following the
expiration date.
United States Federal Tax
Consequences..............
Based on the advice of our counsel, we believe
the exchange of your outstanding notes for the
exchange notes will not be a taxable exchange
for United States federal income tax purposes.
See "Material Income Tax Considerations."
Exchange Agent............ Firstar Bank of Minnesota, N.A. is serving as
the notes exchange agent in connection with the
exchange offer. The notes exchange agent will
assist us in the exchange offer by performing
various administrative functions on our behalf.
7
<PAGE>
The Exchange Notes
Issuer.................... ChipPAC International Company Limited, a wholly
owned subsidiary of ChipPAC, Inc.
General................... The form and terms of the exchange notes are
identical in all material respects to the form
and terms of the outstanding notes except that:
. the exchange notes will bear a Series B
designation to differentiate them from the
outstanding notes;
. the exchange notes have been registered under the
Securities Act and, therefore, will not bear
legends restricting their transfer; and
. the holders of exchange notes will not be
entitled to rights under the registration rights
agreement.
The exchange notes will evidence the same debt
as the outstanding notes and will be entitled
to the benefits of the same indenture under
which the outstanding notes were issued.
Total Amount of Exchange
Notes Securities Offered..
$150,000,000 aggregate principal amount of 12
3/4% Series B Senior Subordinated Notes Due
2009.
Maturity Date............. August 1, 2009.
Interest Payment Dates.... February 1 and August 1 of each year, beginning
February 1, 2000.
Optional Redemption.......
Until August 1, 2002, we can choose to redeem
the exchange notes in an amount not to exceed
35.0% of the exchange notes with money ChipPAC,
Inc. raises in equity offerings at the price
listed in "Description of the Exchange Notes--
Optional Redemption" section of this
prospectus, plus accrued but unpaid interest to
the date of redemption.
On or after August 1, 2004, we can redeem some
or all of the exchange notes at the redemption
prices listed in the "Description of the
Exchange Notes--Optional Redemption" section of
this prospectus, plus accrued but unpaid
interest to the date of redemption.
Change of Control.........
If a Change of Control of ChipPAC, Inc. occurs,
we may be required to allow holders of the
exchange notes to sell to us their exchange
notes at a purchase price of 101.0% of the
principal amount of the exchange notes, plus
accrued and unpaid interest. The term "Change
of Control" is defined in the "Description of
the Exchange Notes--Change of Control" section
of the prospectus.
Ranking................... The exchange notes will be our senior
subordinated unsecured obligations. They will
rank senior in right of payment with any of our
future Subordinated Indebtedness, equal in
right of payment with any of our existing and
future Senior Subordinated Indebtedness and
8
<PAGE>
subordinated in right of payment to any of our
existing and future Senior Indebtedness. The
exchange notes are effectively subordinated to
indebtedness and other liabilities of ChipPAC,
Inc.'s subsidiaries which are not guarantors.
As of September 30, 1999, we had approximately
$300 million of Senior Indebtedness, and none
of our subsidiaries had any Senior
Indebtedness. The terms "Senior Indebtedness,"
"Senior Subordinated Indebtedness" and
"Subordinated Indebtedness" are defined in the
"Description of the Exchange Notes--Certain
Definitions" section of this prospectus.
Guaranties................ The Issuer's parent, ChipPAC, Inc., and the
following direct, and indirect subsidiaries of
ChipPAC, Inc. are guarantors of the exchange
notes:
. ChipPAC (Barbados) Ltd.,
. ChipPAC Limited,
. ChipPAC Korea Company Ltd.,
. ChipPAC Luxembourg S.a.R.L. and
. ChipPAC Liquidity Management Hungary Limited
Liability Company.
Each guarantor has provided a full and
unconditional, joint and several guarantee of
the payment of the principal, premium and
interest on the exchange notes on a senior
subordinated basis.
The guaranties by the guarantors are
subordinated to all existing and future Senior
Indebtedness of the guarantors.
Basic Covenants of the
Indenture................. The indenture governing the exchange notes
contains covenants that limit our ability and
the ability of some of our subsidiaries to:
. incur or guarantee additional indebtedness;
. pay dividends and make distributions;
. make investments and other restricted
payments;
. permit payment or dividend restrictions on
our subsidiaries;
. transfer or sell assets;
. create liens;
. engage in transactions with affiliates; and
. consolidate or merge.
These restrictions and prohibitions have a
number of important qualifications and
exceptions. See "Description of the Exchange
Notes--Certain Covenants."
Use of Proceeds........... We will not receive any cash proceeds from the
issuance of the exchange notes.
For more complete information about the exchange notes, see "Description of
the Exchange Notes."
Principal Executive Offices
ChipPAC, Inc.'s executive offices are located at 3151 Coronado Drive, Santa
Clara, California 95054 and its telephone number is (408) 486-5900. ChipPAC
International Company Limited's executive offices are located at Craigmuir
Chambers, Road Town, Tortola, British Virgin Islands and its telephone number
is (284) 494-2233.
9
<PAGE>
Summary Historical and Unaudited Pro Forma Combined Financial and Operating
Data
The following summary financial historical data for the four years ended
December 31, 1998 were derived from the audited combined financial statements
of ChipPAC included elsewhere in this prospectus. The summary unaudited pro
forma data for the nine month period ended September 30, 1999, were derived
from our unaudited combined financial statements which, in the opinion of
management, reflect all adjustments necessary for the fair presentation of the
financial condition and results of operations for this period.
The summary unaudited pro forma combined statements of operations and other
operating data for the nine month period ended September 30, 1999 give effect
to the recapitalization as if it had occurred on January 1, 1998. The summary
unaudited pro forma balance sheet data at September 30, 1999 give effect to the
recapitalization as if it had occurred on September 30, 1999. Our historical
information reflected in the Pro Forma Combined Financial Statements represents
the accounts and operations of Hyundai Electronics relating to ChipPAC. During
the period covered by our Combined Financial Statements, its activities were
conducted as part of Hyundai Electronics' overall operations, and separate
financial statements were not prepared. Our Combined Financial Statements were
prepared from the historical accounting records of Hyundai Electronics and
include various allocations for costs and expenses. Therefore, the Combined
Statement of Operations of ChipPAC may not be indicative of the results of
operations that would have resulted if ChipPAC had operated on a stand-alone
basis. All of the allocations and estimates reflected in our Combined Financial
Statements are based on assumptions that we believe are reasonable under the
circumstances and that have been reviewed by Hyundai Electronics America.
"EBITDA" as presented below has been adjusted to exclude some historical
charges and credits. EBITDA is not intended to be a performance measure that
should be regarded as an alternative to, or more meaningful than, either
operating income or net income as an indicator of operating performance or cash
flow as a measure of liquidity, as determined by application of GAAP.
The following summary unaudited pro forma combined 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 the recapitalization 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 Condensed Combined
Financial Data," "Selected Historical Financial Data," "Management's Discussion
and Analysis of Financial Condition and Results of Operations," and the
historical combined financial statements and the related notes included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
Unaudited
Fiscal Year Ended December 31, Pro Forma Nine
------------------------------------------ Month Period Ended
1995 1996 1997 1998 September 30, 1999
-------- -------- -------- -------- ------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue................. $179,234 $191,655 $289,429 $334,081 $267,671
Gross profit............ 20,707 24,990 60,191 63,716 39,879
Selling, general and
administrative,
including management
fees charged to
Hyundai................ 11,943 14,753 19,052 15,595 14,416
Research and
development............ 1,724 2,617 4,052 7,692 8,628
Write-down of impaired
assets (1)............. -- -- 11,569 -- --
-------- -------- -------- -------- --------
Operating income........ $ 7,040 $ 7,620 $ 25,518 $ 40,429 $ 16,835
======== ======== ======== ======== ========
Balance Sheet Data (at September 30, 1999):
Cash and cash equivalents................................... 33,142
Accounts receivable......................................... 34,679
Inventories................................................. 12,420
Total assets................................................ 322,461
Total debt.................................................. 300,000
Total shareholders' deficit................................. 109,749
Cash Flows Data:
Operating activities.... $ 28,260 $ 19,252 $ 43,215 $ 98,747 $ 5,584
Investing activities.... (39,644) (104,119) (110,676) (59,967) (27,799)
Financing activities.... 10,662 84,705 63,572 15,481 (14,655)
Other Financial Data:
Depreciation and
amortization........... $ 27,917 $ 26,632 $ 40,682 $ 45,855 $ 41,850
Capital expenditures,
including capital
leases................. 51,462 118,971 136,594 63,523 29,062
Ratio of earnings to
fixed charges (2)...... 1.4x -- (4) -- (4) 4.3x -- (4)
EBITDA (3).............. $ 34,957 $ 34,252 $ 77,769 $ 86,284 $ 58,436
Total cash interest
expense (4)............ 11,840
Ratio of EBITDA to total
cash interest expense
(5).................... 4.9x
</TABLE>
- --------
Footnotes to table appear on following page.
10
<PAGE>
Footnotes to table on previous page.
(1) 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
certain assets which had been identified as economically impaired, as a
result of management's decision to discontinue some product lines or which
were judged to be in excess of foreseeable requirements.
(2) For purposes of this computation, earnings are defined as income (loss)
before provision for income taxes and fixed charges. Fixed charges are the
sum of (a) interest costs, (b) the portion (approximately one-third) of
operating lease rental expenses that are representative of the interest
factor and (c) the pre-tax effect of preferred stock dividend requirements.
Earnings for 1996 and 1997 and the nine month period ended
September 30, 1999 were inadequate to cover fixed charges by $2.7 million,
$55.8 million, and $6.5 million, respectively. Earnings for the year ended
December 31, 1997 included a non-cash foreign currency loss of $69.7
million and a non-cash asset impairment charge of $11.6 million.
(3) "EBITDA" is defined as operating income plus depreciation, amortization,
and, in 1997, non-cash charges related to write-downs of impaired assets.
EBITDA is presented because we believe it is a widely accepted financial
indicator of a company's ability to service and/or incur indebtedness.
However, EBITDA should not be considered as an alternative to net income as
a measure of operating results or to cash flows as a measure of liquidity
in compliance with generally accepted accounting principles. Because EBITDA
is not calculated identically by all companies, the presentation in this
prospectus may not be comparable to those disclosed by other companies. See
footnote (6) in "Unaudited Pro Forma Condensed Combined Financial Data" for
the reconciliation of net income to EBITDA as defined above.
(4) Total cash interest expense represents the pro forma interest expense less
amortization of deferred debt issuance costs.
(5) For purposes of this computation, EBITDA is defined at (3) and cash
interest expense is defined at (4). For the nine month period ended
September 30, 1999 we generated EBITDA of $58.4 million and incurred cash
interest expense of $11.8 million resulting from interest charges of $12.1
million less debt issuance amortization of $0.3 million.
11
<PAGE>
RISK FACTORS
You should carefully consider the risks described below in addition to the
other information provided in this prospectus before making an investment in
the exchange notes. The realization of any of the risks described below could
limit our ability to pay interest or principal on the exchange notes.
Holders of outstanding notes who fail to exchange them may be unable to resell
them.
We did not register the outstanding notes under the federal or any state
securities laws, nor do we intend to register them following the exchange
offer. As a result, the outstanding notes may only be transferred in limited
circumstances under the securities laws. If the holders of outstanding notes do
not exchange their notes in the exchange offer, they may lose their right to
have their notes registered under the federal securities laws. As a result, a
holder of outstanding notes after the exchange offer may be unable to sell
their notes.
Your notes will not be accepted for exchange if you fail to follow the exchange
offer procedures.
The exchange notes will be issued to you in exchange for your notes only
after timely receipt by the exchange agent of:
. your notes; and
. a properly completed and executed Letter of Transmittal and all of
the required documentation; or
. a book-entry delivery by transmittal of an agent's message through
The Depository Trust Company.
If you want to tender your outstanding notes in exchange for exchange notes,
you should allow sufficient time to ensure timely delivery.
Neither we nor the exchange agent or any of its affiliates are under any
duty to give you notification of defects or irregularities in tenders of
outstanding notes for exchange. Outstanding notes that are not tendered or are
tendered but not accepted will, following the exchange offer, continue to have
restrictions on transfer. In addition, if you tender your notes in the exchange
offer to participate in a distribution of the exchange notes, you will be
required to comply with the registration and prospectus delivery requirements
of the federal securities laws in connection with any resale transaction. For
additional information, please refer to "The Exchange Offer" and "Plan of
Distribution" sections of this prospectus.
Our substantial indebtedness could adversely affect our financial health, make
us vulnerable to adverse economic and industry conditions and prevent us from
fulfilling our obligations under these exchange notes.
To finance the recapitalization, we incurred a significant amount of
indebtedness. The following chart provides important credit information,
assuming we had completed this offering as of the date, or at the beginning of
the periods, specified below and applied the proceeds as intended:
<TABLE>
<CAPTION>
At September 30, 1999
Pro Forma (unaudited)
---------------------
(in thousands)
<S> <C>
Total indebtedness.................................. $300,000
Shareholders' deficit............................... 112,249
</TABLE>
<TABLE>
<CAPTION>
Nine
Months
Ended
September
Years Ended December 31, 30,
-------------------------- ----------
1994 1995 1996 1997 1998 1998 1999
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed
charges......................... 2.0x 1.4x -- -- 4.3x 5.1x --
</TABLE>
The ratios provided above are often used by investors to evaluate a
company's capital structure and its ability to make payments on its debt.
For the years ended December 31, 1996 and 1997 and the nine month period
ended September 30, 1999, earnings were insufficient to cover fixed charges by
$2.7 million, $55.8 million and $6.5 million, respectively.
12
<PAGE>
Our substantial indebtedness could have important consequences to you. For
example, it could:
. make it more difficult for us to satisfy our obligations relating to
the exchange notes;
. increase our vulnerability to general adverse economic and industry
conditions by limiting our flexibility in planning for, or reacting
to, changes in our business and the industry in which we operate;
. require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, thus reducing the
availability of our cash flow to fund working capital, capital
expenditures, research and development efforts and other general
corporate purposes;
. place us at a competitive disadvantage relative to our competitors
that have less debt; and
. limit, along with the financial and other restrictive covenants in
our indebtedness, our ability to borrow additional funds.
Furthermore, failing to comply with those covenants could result in
an event of default which, if not cured or waived, could have a
material adverse effect on our business, financial condition and
results of operations.
For purposes of the computation of pro forma ratio of earnings to fixed
charges in the table above, earnings are defined as income (loss) before
provision for income taxes and fixed charges. Fixed charges are the sum of (a)
interest costs and (b) the portion, which is approximately one-third, of
operating lease rental expenses that are representative of the interest factor.
Despite our current levels of indebtedness, we still may be able to incur
substantially more debt which could increase the risks created by our
substantial indebtedness.
We may be able to incur substantial additional indebtedness in the future.
For example, our senior credit facilities permit us to borrow up to an
additional $70.0 million to finance working capital requirements and capital
expenditures, and for trade letters of credit. All of these borrowings will be
secured by all of our assets and those of some of our subsidiaries. The
addition of new debt to our current debt levels could intensify the debt-
related risks that we now face that are described above.
Your right to receive payments on the exchange notes is junior to ChipPAC
International Company Limited's existing and, possibly future, senior
indebtedness and all of the guarantors' senior indebtedness. It is possible,
therefore, that you may receive no compensation of any kind relating to the
exchange notes if there is a bankruptcy, liquidation or similar proceeding
affecting us.
We may not have sufficient funds to satisfy our obligations relating to the
exchange notes. The exchange notes and the guarantees rank behind all of our
existing indebtedness and all of our future borrowings, except any future
indebtedness that expressly provides that it ranks with, or subordinated in
right of payment to, the exchange notes and the guarantees. As a result, upon
any distribution to our creditors, in a bankruptcy, liquidation or
reorganization or similar proceeding relating to us or our property, we will
have to pay the holders of debt senior to the exchange notes in full before we
can make any payment on the exchange notes.
In addition, all payments on the exchange notes and the guarantees will be
blocked in the event of a payment default on some of our senior debt, including
borrowings under the senior credit facilities, and may be blocked for specified
periods in the event of some non-payment defaults on senior debt.
As a holder of the exchange notes, you will typically have equal rights to
your ratable share, along with all of our suppliers and vendors to which we owe
money, who are commonly referred to as trade creditors, and other holders of
debt of the same class as the exchange notes, of any assets remaining after we
have paid off all of the debt senior to the exchange notes. However, the
indenture requires that amounts otherwise payable to holders of exchange notes
in a bankruptcy, liquidation or similar proceeding be paid to holders of debt
senior to the exchange notes instead. Consequently, holders of the exchange
notes may receive less, ratably, than holders of trade payables or other debt
of the same class in this type of proceeding.
13
<PAGE>
ChipPAC International Company Limited, the issuer of the exchange notes, will
rely on intercompany loans through ChipPAC, Inc.'s direct and indirect
subsidiaries to satisfy obligations of its indebtedness; as a result, if these
subsidiaries are not able to make payments on these intercompany loans, we may
not be able to pay you interest on the exchange notes when due.
ChipPAC International Company Limited has no business operations of its own
and its only assets are intercompany notes and the capital stock of its
subsidiaries, none of which have any substantial assets other than intercompany
loans or conduct any business of their own other than intercompany financing.
Thus, the only source of cash for ChipPAC International Company Limited to pay
interest on the exchange notes will be through payments of interest and
principal on intercompany notes, capital contributions from ChipPAC, Inc. or
dividends or distributions from ChipPAC, Inc.'s subsidiaries, which dividends
or distributions would be funded through payments on intercompany notes. We
will rely principally on funds generated by ChipPAC, Inc.'s operating
subsidiaries to fund payments on the exchange notes and other indebtedness. If
these subsidiaries are unable to make payments on their intercompany loans, we
may not be able to satisfy obligations under our debt instruments, including
payment of interest on the senior credit facilities and the exchange notes.
Our ability to pay our obligations under the exchange notes may be reduced
because ChipPAC's Chinese operating subsidiaries are not guarantors of the
exchange notes.
ChipPAC's Chinese subsidiaries are not guarantors of the exchange notes.
However, the historical combined financial information and the pro forma
combined financial information included in this prospectus are presented on a
combined basis and include the Chinese entities. After giving effect to the
recapitalization, the aggregate revenue and EBITDA for the Chinese entities,
for the year ended December 31, 1998, would have been approximately $13.8
million and a loss of $3.0 million, respectively, and their combined fixed
assets at September 30, 1999 would have been approximately $78.0 million.
Since ChipPAC's Chinese subsidiaries will not guarantee the exchange notes,
holders of the exchange notes will have to rely solely on dividends or
distributions from ChipPAC's Korean and British Virgin Islands subsidiaries to
satisfy their respective obligations under the exchange notes should ChipPAC's
Chinese subsidiaries be unable to make dividends or distributions.
The exchange notes will not be secured by any of our assets. Obligations under
the senior credit facilities are secured by our assets and those of some of our
subsidiaries; thus the senior lenders, and not holders of the exchange notes,
will have a claim to our assets if we become insolvent, are liquidated or if
our senior secured indebtedness is accelerated.
The exchange notes and the guarantees will not be secured by any of our
assets. Our obligations under the senior credit facilities will be secured by a
first priority pledge of all our capital stock, a perfected first priority
security interest in substantially all of our assets and those of our
subsidiaries and a first priority pledge of all intercompany loans among:
. ChipPAC International Company Limited and each of ChipPAC Luxembourg
S.a.R.L., ChipPAC Assembly and Test (Shanghai) Company, Ltd. and
ChipPAC Limited, respectively;
. ChipPAC Luxembourg S.a.R.L. and ChipPAC Liquidity Management Hungary
Limited Liability Company; and
. ChipPAC Liquidity Management Hungary Limited Liability Company and
ChipPAC Korea Company, Ltd.
If we become insolvent or are liquidated, or if payment under the senior
credit facilities or under other secured senior indebtedness is accelerated,
the lenders under the senior credit facilities or holders of other secured
senior indebtedness will be entitled to exercise the remedies available to a
secured lender under applicable law and under documents pertaining to the
senior credit facilities or other senior debt. Accordingly, holders of secured
senior indebtedness will have a prior claim to our assets.
14
<PAGE>
The senior credit facilities and the indenture governing the exchange notes
impose limitations on how we conduct our business; as a result, we may not be
able to pursue strategies that would be in the best interests of holders of the
exchange notes.
The senior credit facilities and the indenture governing the exchange notes
contain restrictions on us that could increase our vulnerability to general
adverse economic and industry conditions by limiting our flexibility in
planning for and reacting to changes in our business and industry.
Specifically, these restrictions limit our ability, to:
. incur additional debt;
. pay dividends and make other distributions;
. prepay subordinated debt;
. make investments and other restricted payments;
. enter into sale and leaseback transactions;
. create liens;
. sell assets; and
. enter into transactions with affiliates.
Federal and state laws allow courts, under specific circumstances, to void the
exchange notes and the subsidiary guarantees and require note holders to return
payments received from us or the subsidiary guarantors.
A significant portion of the net proceeds from the offering of the
outstanding notes was used to pay for our common stock outstanding prior to the
recapitalization and vested options to purchase our common stock. If a
bankruptcy proceeding or a lawsuit is initiated by our unpaid creditors, the
debt which we incurred to finance the recapitalization, including the exchange
notes and the guarantees, may be reviewed under federal bankruptcy laws and
comparable provisions of state fraudulent transfer laws. Under these laws,
indebtedness incurred by us to consummate the recapitalization could be voided,
or claims based on that debt could be subordinated to all other debt if we:
. received less than reasonably equivalent value or fair consideration
for the incurrence of this debt;
. were insolvent or rendered insolvent by reason of the incurrence of
this debt;
. were engaged in a business or transaction for which our remaining
assets constituted unreasonably small capital; or
. intended to incur, or believed that we would incur, debts beyond our
ability to pay these debts as they mature.
In addition, you may be required to return to us, or to a fund for the
benefit of creditors, any payments received from us on the exchange notes.
The measures of insolvency will vary depending upon the fraudulent transfer
law applied in any proceeding to determine whether a prohibited transfer has
occurred. Generally, however, a debtor would be considered insolvent if:
. the sum of its debts, including contingent liabilities, were greater
than the fair saleable value of all of its assets;
. the present fair saleable value of its assets were less than the
amount that would be required to pay its probable liability on
existing debts, including contingent liabilities, as they become
absolute and mature; or
. it could not pay its debts as they become due.
15
<PAGE>
We believe that we received fair market value for the indebtedness we
incurred in connection with the recapitalization. On the basis of historical
financial information, recent operating history and other factors, we believe
that, after giving effect to the recapitalization, we will not be insolvent,
will not have unreasonably small capital for the business in which we are
engaged or will not have incurred debts beyond our ability to pay the
obligations as they mature. We cannot assure you, however, as to what standard
a court would apply in making a determination of this type, or that a court
would agree with our conclusions.
If our relationship with Hyundai, our owner prior to the 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.
The cyclicality of the semiconductor industry and decreases in selling prices
for our services could decrease our gross profits.
Our business is 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, rapid erosion of average selling prices and production overcapacity.
Beginning in 1997 and continuing through the end of 1998, intense competition
and a general slowdown in the semiconductor industry worldwide resulted in
decreases in the average selling prices of many of our packaging services. We
expect that average selling prices for our services will continue to decline in
the future. A decline in average selling prices for these services, if not
offset by reductions in the costs of providing those services or by a shift to
higher margin services, would decrease our gross profits and could make it more
difficult for us to meet our obligations to pay interest and principal on the
exchange notes.
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, we may not be able to meet our obligations to pay interest and
principal on the exchange notes.
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 and maintain advanced packaging
capabilities and equipment could require significant research and development
and capital expenditures in future years. In addition, advances in technology
typically lead to rapid and significant price decreases and lower margins for
older packaging types and may lead to our current services becoming less
competitive. Any failure by us to achieve advances in package design or to
obtain access to advanced package designs developed by others could reduce our
profits which, in turn, could prevent us from paying interest and principal on
the notes.
Our research and development efforts may not yield profitable and commercially
viable services for years; thus, we may have significant short-term research
and development expenses which will not result in increased revenue for years.
Our research and development efforts may not yield commercially viable
packages or test services, if at all, for anywhere from one to two years. The
qualification process is conducted in various stages which may
16
<PAGE>
take up to an additional year 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.
The intensity of competition in our industry could result in downward pressure
on pricing, or loss of our customers, either of which could adversely affect
our revenues and profits.
We face substantial competition from a number of established independent
packaging companies and with the internal capabilities of many of our largest
customers. Each of our primary competitors has significant operational
capacity, financial resources, research and development operations, and
established relationships with many large semiconductor companies which are
current or potential customers of ours. The presence of these competitors may
result in downward price pressure in our industry. 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 the 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
revenue and, thus, may not meet our obligations to pay interest and principal
on the exchange notes.
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 will 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 or any other large customer. Additionally,
we may encounter difficulties in soliciting new customers.
In 1998, sales of packaging and test services to Intel, Atmel Corporation
and LSI Logic accounted for approximately 67.0%, 10.1% and 9.8% of our net
revenues, respectively, and sales to our top five customers in the aggregate
accounted for approximately 89.7% of total net revenues. If any of our main
customers were to purchase significantly less of our services in the future,
these decreased level of purchases could, ultimately, make it more difficult
for us to meet our obligations to pay interest and principal on the exchange
notes.
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 $250,000 to $300,000. If we fail to qualify packages with potential
customers or customers with which we have recently become qualified do not use
our services, then our customer base could become more concentrated with a
limited number of customers accounting for a significant portion of our
revenues. Moreover, we believe that once a semiconductor company has selected a
particular packaging company's services, the former 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 another vendor's packages have been selected by that customer unless there
are compelling reasons to do so.
17
<PAGE>
Economic crisis in the Pacific Rim region where our suppliers are located could
prevent us from securing adequate supplies of materials which could prevent us
from meeting the demands of our customers.
All of our materials suppliers are located in the Pacific Rim. 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 this 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.
We obtain the direct 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 lead frames, laminate substrates 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 costs of materials that we could not pass on to our customers.
If that were to occur, we may not be able to meet our obligations to pay
interest and principal on the exchange notes.
We license critical technology from Hyundai and Motorola. Our net revenues
could be very adversely affected if we cannot extend the BGA sublicense once it
expires on December 31, 2002.
We seek to protect our proprietary information and know-how through the use
of trade secrets, confidentiality agreements and other security measures.
Regarding patents, we cannot assure you that any applications we file for
patent protection will be granted, or, if granted, will offer meaningful
protection. Additionally, we cannot assure you that our competitors will not
develop, patent or gain access to similar know-how and technology, or reverse
engineer our packaging services, or that any confidentiality agreements upon
which we rely to protect our trade secrets and other proprietary information
will be adequate to protect our proprietary technology.
Any patents and utility model, design right and computer program right
registrations obtained relating to technology that we developed prior to the
recapitalization are owned by Hyundai Electronics. In connection with the
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. Motorola may also license these patents to
others, including our competitors. These BGA technologies contributed to 61.8%
of our net revenues in 1998. After expiration of this sublicense on December
31, 2002, we may be unable to utilize these BGA technologies if this sublicense
is not extended or otherwise renewed. Alternatively, in the event that we are
able to renew this arrangement, we cannot assure you that it will be on the
same terms as currently exist. Any failure to extend or renew the sublicense
arrangement relating to Motorola's patented BGA technologies could cause us to
incur substantial liabilities and to suspend the packaging services and
processes that utilize these technologies.
18
<PAGE>
The loss of our skilled personnel or our key executive officers could have a
material adverse effect on our business.
Our competitiveness within our industry will depend in large part upon
whether we can attract and retain skilled technical and marketing personnel and
can retain members of our executive team. Competition for skilled personnel is
intense, and we cannot assure you that we will 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 skilled personnel, we may not be able
to operate successfully in the future.
If we encounter future labor problems, we may fail to deliver our products in a
timely manner.
As of September 30, 1999, 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.
Changes in political and economic conditions in foreign countries, particularly
in Asia, could make it more difficult for us to operate successfully.
For 1996, 1997 and 1998, we generated approximately 38.2%, 17.6% and 7.2% of
total revenues, respectively, from international markets, primarily from
customers in the Pacific Rim. In addition, all of the facilities currently used
to provide our packaging services are located in Korea and China and 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, changes in or new interpretations of
existing laws or regulations or other consequences of doing business outside
the U.S., particularly in Korea and China. If future operations are negatively
affected by such changes, our sales may suffer and we may not be able to meet
our obligations to pay interest and principal on the exchange notes.
Fluctuations in the exchange rate of the U.S. dollar and foreign currencies
could have a material adverse effect on our financial performance and results
of operations.
A portion of our costs and revenues are denominated in other currencies,
like the South Korean Won and the Chinese RMB. 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 results of operations. 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 which could affect our ability to meet our obligations to pay interest
and principal on the exchange notes.
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 the 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.
19
<PAGE>
We are controlled by two principal shareholders and they may require us to take
actions, such as increasing our indebtedness, which may not be in the best
interests of holders of the exchange notes.
ChipPAC International Company Limited, the issuer of the outstanding notes
and the exchange notes, is a wholly owned subsidiary of ChipPAC, Inc.
Affiliates of Bain Capital, Inc. and SXI Group LLC, together with members of
our management, own approximately 90.0% of the issued and outstanding voting
stock of ChipPAC, Inc. Consequently, these owners will have the ability to
control our business and affairs by virtue of their ability to elect a majority
of ChipPAC, Inc.'s board of directors. The directors have the authority to make
decisions affecting ChipPAC, Inc.'s capital structure, including the issuance
of additional indebtedness. In addition, a shareholders agreement that was
signed at the closing of the recapitalization entitles affiliates of Bain
Capital, Inc. and the SXI Group LLC to fill six of eight seats on the board of
directors of ChipPAC, Inc. We cannot assure you that the interests of Bain
Capital, Inc. and SXI Group LLC do not or will not conflict with the interests
of the holders of the outstanding notes or of the exchange notes.
Our failure, or the failure of our customer or suppliers, to address
informational technology issues related to the year 2000 could adversely affect
our operations.
Our inability to remedy unforeseen Year 2000 problems or the failure of
third parties to do so may cause a business interruption or shutdown, financial
loss, regulatory action, reputational harm or result in liability to third
parties. We cannot assure you that the Year 2000 program which we have
implemented or the programs of our customers or suppliers, will be effective.
In addition, we have entered into arrangements with Hyundai Electronics and
Hyundai Electronics America for business support services. We cannot assure you
that Hyundai Electronics and Hyundai Electronics America are Year 2000
compliant. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations of ChipPAC--Year 2000 Compliance."
You may not be able to resell your exchange notes or may have to sell them at a
discount if an active trading market does not develop.
The exchange notes are new securities for which there currently is no
market. We have been informed by the initial purchasers of the outstanding
notes, Credit Suisse First Boston Corporation and Donaldson Lufkin & Jenrette
Securities Corporation, that they intend to make a market in the exchange
notes. However, they are not obligated to do so and may cease their market-
making activities at any time. Accordingly, we cannot make predictions
regarding the development or liquidity of any market for the exchange notes.
The exchange notes are expected to be eligible for trading by qualified buyers
in the PORTAL market. The PORTAL market acts as a facilitator of SEC Rule 144A
and provides regulatory oversight for the clearance and settlement of domestic
and foreign debt and equity securities through designated clearing and
depository organizations. We do not intend to apply for listing of the exchange
notes on any securities exchange or for quotation through The Nasdaq National
Market. In addition, both the liquidity and the market price quoted for the
exchange notes may be adversely affected by changes in the overall market for
high-yield securities and by changes in our financial performance or prospects,
or in the prospects for companies in our industry generally. As a result, we
cannot assure you that an active or stable trading market will develop for the
exchange notes.
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<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements regarding our financial
condition and business strategy. Also, statements that contain the words
"believes," "expects," "anticipates," "intends," "estimated" or similar
expressions are forward-looking statements. We have based these forward-looking
statements on our current expectations and projections about future events.
While we believe that these expectations and projections are reasonable,
forward-looking statements are inherently subject to risks, uncertainties and
assumptions about us, including:
. our dependence on continuous introduction of new services based on
the latest technology;
. our ability to compete in the intensely competitive semiconductor and
personal computer component industries;
. risks associated with our international business activities and with
acquisitions and integration of acquired companies;
. our dependence on proprietary information and technology and key
personnel;
. our fluctuating quarterly results and product liability exposure;
. our response to general economic conditions, including economic
conditions related to the semiconductor and personal computer
industries; and
. those other risks identified in the "Risk Factors" section of this
prospectus.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this prospectus might not occur.
INDUSTRY DATA
In this prospectus, we rely on and refer to information regarding the
semiconductor market and its segments and competitors from Electronic Trends
Publications, International Data Corporation, The McClean Report (1999
edition), 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.
21
<PAGE>
USE OF PROCEEDS
We used the gross proceeds of approximately $417.7 million from the offering
of the outstanding notes, the senior credit facility and the equity investment
made with the recapitalization, together with cash on hand:
. to pay approximately $257.3 million in recapitalization consideration
which may be adjusted after closing based on working capital, capital
expenditures, research and development expenditures and our EBITDA in
each of the four calendar years following the recapitalization.
. to repay approximately $127.7 million of existing Hyundai debt; and
. to pay fees and expenses associated with the merger and related
transactions of approximately $32.7 million.
We will not receive any cash proceeds from the issuance of the exchange
notes in the exchange offer. In consideration for issuing these exchange notes
as contemplated in this prospectus, we will receive outstanding notes in like
principal amount, the terms of which are the same in all material respects to
the exchange notes. The outstanding notes surrendered in exchange for the
exchange notes will be retired, canceled and not reissued. Accordingly, the
issuance of the exchange notes will not result in any increase or decrease in
our debt.
22
<PAGE>
CAPITALIZATION
The following table describes our capitalization as of September 30, 1999.
The information in the following table should be read in conjunction with the
"Unaudited Pro Forma Condensed Combined Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
sections and the historical combined financial statements and the related notes
thereto included elsewhere in this prospectus. As of the date of this
prospectus, the Revolving Credit Facility and the CapEx Facility described
below remain undrawn.
<TABLE>
<CAPTION>
At
September 30,
1999
-------------
Actual
-------------
(in millions)
<S> <C>
Long-term debt (including current portion):
Existing senior credit facility and capital leases................ $ --
Senior Credit Facilities:
Revolving Credit Facility....................................... --
CapEx Facility.................................................. --
Term Loan Facilities............................................ 150.0
Senior Subordinated Notes Due 2009.............................. 150.0
------
Total long-term debt.......................................... 300.0
Hyundai Redeemable Preferred Stock................................ 71.4
Shareholders' equity (deficit).................................... (109.7)
------
Total capitalization.......................................... $261.7
======
</TABLE>
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 levels of
EBITDA as provided in the recapitalization agreement. Also, the Hyundai
Preferred Stock is mandatorily redeemable on the eleventh anniversary of the
closing of the recapitalization, and will accrue dividends from the date of
issuance at a rate of 12.5% per annum over the life of the notes, will not pay
cash dividends during the five years and six months following the
recapitalization.
23
<PAGE>
THE EXCHANGE OFFER
This is a summary of the material provisions of the registration rights
agreement entered into by and among ChipPAC International Company Limited, the
guarantors and the initial purchasers as of July 29, 1999. It does not purport
to be complete and reference is made to the provisions of the registration
rights agreement which has been filed as an exhibit to the registration
statement of which this prospectus forms a part.
General
In connection with the issuance of the outstanding notes under a purchase
agreement dated as of July 22, 1999 by and among ChipPAC International Company
Limited, the guarantors and the initial purchasers, the initial purchasers and
their respective assignees became entitled to the benefits of the registration
rights agreement.
The registration rights agreement requires us to file the registration
statement of which this prospectus is a part for a registered exchange offer
relating to an issue of exchange notes identical in all material respects to
the outstanding notes but containing no restrictive legend. Under the
registration rights agreement, ChipPAC International Company Limited is
required to:
. file a registration statement not later than 150 days following the
date of original issuance of the outstanding notes, which we refer to
here as, the "Issue Date";
. use its reasonable best efforts to cause the registration statement
to become effective no later than 210 days after the Issue Date;
. use its reasonable best efforts to keep the exchange offer effective
for not less than 30 days, or longer if required by applicable law,
after the date that notice of the exchange offer is first mailed to
holders of the outstanding notes; and
. use its reasonable best efforts to consummate the exchange offer on
or prior to the 60th day following the date on which the exchange
offer registration statement is initially declared effective.
The exchange offer being made under this prospectus, if commenced and
consummated within the time periods described above, will satisfy those
requirements under the registration rights agreement.
Upon the terms and conditions described in this prospectus and in the Letter
of Transmittal, we will accept any and all outstanding notes validly tendered
and not validly withdrawn prior to 5:00 p.m., New York City time, on the
expiration date which is , 2000, or a later date and time as to which
the exchange offer has been extended. We will issue $1,000 principal amount of
exchange notes in exchange for each $1,000 principal amount of outstanding
notes accepted in the exchange offer. Holders may tender some or all of their
outstanding notes in the exchange offer. However, outstanding notes may be
tendered only in integral multiples of $1,000.
The form and terms of the exchange notes are substantially the same as the
form and terms of the outstanding notes except that:
. the exchange notes bear an exchange note designation and a different
CUSIP number from the outstanding notes;
. the exchange notes have been registered under the federal securities
laws and will not bear legends restricting their transfer as the
outstanding notes do; and
. the holders of the exchange notes will generally not be entitled to
rights under the registration rights agreement, which rights
generally will be satisfied when the exchange offer is consummated.
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<PAGE>
The exchange notes will evidence the same debt as the tendered outstanding
notes and will be entitled to the benefits of the same indenture under which
the outstanding notes were issued. As of the date of this prospectus,
$150,000,000 aggregate principal amount of outstanding notes were outstanding.
Holders of outstanding notes do not have any appraisal or dissenters' rights
under the laws of the Territory of the British Virgin Islands or the indentures
relating to the exchange notes in connection with the exchange offer. We intend
to conduct the exchange offer in compliance with requirements of the Securities
Exchange Act of 1934, and the related rules and regulations of the SEC.
We will have accepted validly tendered outstanding notes when, as and if we
have given oral or written notice of acceptance to the exchange agent. We will
confirm any oral notice in writing to the exchange agent. The exchange agent
will act as agent for the tendering holders for the purpose of receiving the
exchange notes from our company.
If any tendered outstanding notes are not accepted for exchange because of
an invalid tender, or otherwise, the certificates for any unaccepted
outstanding notes will be returned, without expense, to the tendering holder as
promptly as practicable after the expiration date.
Holders who tender outstanding notes in the exchange offer will not be
required to pay brokerage commissions or fees or, as set forth in the
instructions in the Letter of Transmittal, transfer taxes on the exchange of
outstanding notes in the exchange offer. We will pay all charges and expenses,
other than transfer taxes in some circumstances, in connection with the
exchange offer. For additional information, please refer to the "--Fees and
Expenses" section of this prospectus.
Expiration Date; Extensions; Amendments
The expiration date is 5:00 p.m., New York City time, on , 2000,
unless we extend the exchange offer, in which case the expiration date will be
the latest date and time to which the exchange offer is extended.
In order to extend the exchange offer, we will notify the exchange agent of
any extension by oral or written notice, to the exchange agent. We will confirm
in writing any oral notice with notice if given orally to be confirmed in
writing to the exchange agent and we will issue a press release or other public
announcement, each prior to 9:00 a.m., New York City time, on the next business
day after the previously scheduled expiration date.
We reserve the right:
. to delay accepting any outstanding notes, to extend the exchange
offer or to terminate the exchange offer if any of the conditions
described below under "--Conditions" shall not have been satisfied,
by giving oral or written notice, of a delay, extension or
termination to the exchange agent, or
. to amend the terms of the exchange offer in any manner.
Any delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice to the registered
holders.
Interest on the Exchange Notes
Interest on the outstanding notes is payable semi-annually on each February
1 and August 1, commencing February 1, 2000. Interest on the exchange notes is
payable semi-annually on each February 1 and August 1, commencing February 1,
2000. The exchange notes will bear interest from their date of issuance. On
August 1, 2000, holders of outstanding notes that are accepted for exchange
will receive, in cash, accrued but unpaid interest
25
<PAGE>
on the outstanding notes from February 1, 2000. Interest on the outstanding
notes accepted for exchange will cease to accrue upon issuance of the exchange
notes.
Interest on the exchange notes is payable semi-annually on each February 1
and August 1, commencing on February 1, 2000.
Procedures for Tendering
Only a registered holder of outstanding notes may tender exchange notes in
the exchange offer. To tender in the exchange offer, a holder must complete,
sign and date the Letter of Transmittal, or a facsimile of it, have the
signatures thereon guaranteed if required by the Letter of Transmittal and mail
or otherwise deliver the Letter of Transmittal or a facsimile, together with
the outstanding notes and any other required documents, or cause The Depository
Trust Company to transmit an agent's message as described below in connection
with a book-entry transfer, to the exchange agent prior to the expiration date.
To be tendered effectively, the outstanding notes, the Letter of Transmittal or
agent's message and other required documents must be completed and received by
the exchange agent at the address provided below under "--Exchange Agent" prior
to the expiration date. Delivery of the outstanding notes may be made by book-
entry transfer in compliance with the procedures described below. Confirmation
of a book-entry transfer must be received by the exchange agent prior to the
expiration date.
The term "agent's message" means a message, transmitted by a book-entry
transfer facility to, and received by, the exchange agent forming a part of a
confirmation of a book-entry, which states that a book-entry transfer facility
has received an express acknowledgment from the participant in the book-entry
transfer facility tendering the outstanding notes that a participant has
received and agrees:
. to participate in the Automated Tender Option Program;
. to be bound by the terms of the Letter of Transmittal; and
. that we may enforce the agreement against the participant.
The tender by a holder and the acceptance by us will constitute agreement
between the holder and the company upon the terms and conditions described in
this prospectus and in the Letter of Transmittal or agent's message.
The method of delivery of outstanding notes and the Letter of Transmittal or
agent's message and all other required documents to the exchange agent is at
the election and sole risk of the holder. As an alternative to delivery by
mail, holders may wish to consider overnight or hand delivery service. In all
cases, sufficient time should be allowed to assure delivery to the exchange
agent before the expiration date. No Letter of Transmittal or outstanding notes
should be sent to any of ChipPAC International Company Limited or any of its
affiliates. Holders may request their respective brokers, dealers, commercial
banks, trust companies or nominees to effect the above transactions for
holders.
Any beneficial owner whose outstanding notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct the
registered holder to tender on the beneficial owner's behalf. For additional
information, please refer to the "Instructions to Registered Holder and/or
Book-Entry Transfer Facility Participant from Beneficial Owner" included with
the Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an eligible institution referred to below, unless
the outstanding notes are tendered by a registered holder who has not completed
the box entitled "Special Registration Instructions" or "Special Delivery
Instructions" on the Letter of Transmittal, or for the account of an eligible
institution. In the event that signatures on a Letter of
26
<PAGE>
Transmittal or a notice of withdrawal, as the case may be, are required to be
guaranteed, the guarantee must be by a member firm of the Medallion System,
which we refer to as an "eligible institution."
If the Letter of Transmittal is signed by a person other than the registered
holder of any outstanding notes, the notes must be endorsed or accompanied by a
properly completed bond power, signed by the registered holder as the
registered holder's name appears on the notes with the signature thereon
guaranteed by an eligible institution.
If the Letter of Transmittal or any outstanding notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, they should so indicate when signing, and evidence to our
satisfaction of their authority to so act must be submitted with the Letter of
Transmittal.
We understand that the exchange agent will make a request promptly after the
date of this prospectus to establish accounts relating to the outstanding notes
at the book-entry transfer facility, The Depository Trust Company, which we
refer to as the "book-entry transfer facility," for the purpose of facilitating
the exchange offer, and if established, any financial institution that is a
participant in the book-entry transfer facility's system may make book-entry
delivery of outstanding notes by causing the book-entry transfer facility to
transfer the outstanding notes into the exchange agent's account for the
outstanding notes in compliance with the book-entry transfer facility's
procedures for the transfer. Although delivery of the outstanding notes may be
effected through book-entry transfer into the exchange agent's account at the
book-entry transfer facility, unless an agent's message is transmitted to and
received by the exchange agent in compliance with the Automated Tender Option
Program on or prior to the expiration date, or, if the guaranteed delivery
procedures described below are complied with, within the time period provided
under these procedures, the tender of the notes will not be valid. Delivery of
documents to the book-entry transfer facility does not constitute delivery to
the exchange agent.
All questions as to the validity, form, eligibility, including time of
receipt, acceptance of tendered outstanding notes and withdrawal of tendered
outstanding notes will be determined by ChipPAC International Company Limited,
in its sole discretion, which determination will be final and binding. ChipPAC
International Company Limited reserves the absolute right to reject any and all
outstanding notes not properly tendered or any outstanding notes our acceptance
of which would, in the opinion of ChipPAC International Company Limited's
counsel, be unlawful. ChipPAC International Company Limited also reserves the
right to waive any defects, irregularities or conditions of tender as to
particular outstanding notes. ChipPAC International Company Limited may not
waive any condition to the exchange offer unless that condition is legally
waivable. In the event a waiver by ChipPAC International Company Limited gives
rise to the legal requirement to do so, ChipPAC International Company Limited
will hold the exchange offer open for at least five business days thereafter.
ChipPAC International Company Limited's interpretation of the terms and
conditions of the exchange offer, including the instructions in the Letter of
Transmittal, will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of outstanding notes must
be cured within the time ChipPAC International Company Limited shall determine.
Although ChipPAC International Company Limited intends to notify holders of
defects or irregularities in tenders of outstanding notes, neither ChipPAC
International Company Limited, the exchange agent nor any other person shall
incur any liability for failure to give notification. Tender of outstanding
notes will not be deemed to have been made until the defects or irregularities
have been cured or waived. Any outstanding notes received by the exchange agent
that are not properly tendered and as to which the defects or irregularities
have not been cured or waived will be returned by the exchange agent to the
tendering holders, unless otherwise provided in the Letter of Transmittal, as
soon as practicable following the expiration date.
Guaranteed Delivery Procedures
Holders who wish to tender their outstanding notes and whose outstanding
notes are not immediately available, who cannot deliver their outstanding
notes, the Letter of Transmittal or any other required documents
27
<PAGE>
to the exchange agent, or who cannot complete the procedures for book-entry
transfer, prior to the expiration date, may effect a tender if:
(a) the tender is made through an eligible institution;
(b) prior to the expiration date, the exchange agent receives by
facsimile transmission, mail or hand delivery from an eligible institution
a properly completed and duly executed Notice of Guaranteed Delivery,
setting forth the name and address of the holder, the certificate number(s)
of the outstanding notes and the principal amount of outstanding notes
tendered, stating that the tender is being made by the Notice of Guaranteed
Delivery and guaranteeing that, within three New York Stock Exchange
trading days after the expiration date, the Letter of Transmittal, or
facsimile of it, or, in the case of a book-entry transfer, an agent's
message, together with the certificate(s) representing the outstanding
notes, or a confirmation of book-entry transfer of notes into the exchange
agent's account at the Book-Entry Transfer Facility, and any other
documents required by the Letter of Transmittal will be deposited by the
eligible institution with the exchange agent; and
(c) the certificate(s) representing all tendered outstanding notes in
proper form for transfer, or a confirmation of a book-entry transfer of
outstanding notes into the exchange agent's account at the book entry
transfer facility, together with a Letter of Transmittal, of facsimile of
it, properly completed and duly executed, with any required signature
guarantees, or, in the case of a book-entry transfer, an agent's message,
are received by the exchange agent within three New York Stock Exchange
trading days after the expiration date of the exchange offer.
Withdrawal of Tenders
Except as otherwise provided in this prospectus, tenders of outstanding
notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on
the expiration date of the exchange offer.
To validly withdraw a tender of outstanding notes in the exchange offer, a
telegram, telex, letter or facsimile transmission notice of withdrawal must be
received by the exchange agent at its address provided in this prospectus prior
to 5:00 p.m., New York City time, on the expiration date of the exchange offer.
Any notice of withdrawal must:
. specify the name of the person having deposited exchange notes to be
withdrawn, which we refer to as the "depositor";
. identify the notes to be withdrawn, including the certificate
number(s) and principal amount of the notes, or, in the case of
outstanding notes transferred by book-entry transfer, the name and
number of the account at the book entry transfer facility to be
credited;
. be signed by the holder in the same manner as the original signature
on the Letter of Transmittal by which the notes were tendered,
including any required signature guarantees, or be accompanied by
documents of transfer sufficient to have the trustee for the
outstanding notes register the transfer of notes into the name of the
person withdrawing the tender; and
. specify the name in which any outstanding notes are to be registered,
if different from that of the depositor.
All questions as to the validity, form and eligibility, including time of
receipt, of notices will be determined by us and shall be final and binding on
all parties. Any outstanding notes so withdrawn will be deemed not to have been
validly tendered for purposes of the exchange offer, and no exchange notes will
be issued unless the outstanding notes so withdrawn are validly retendered. Any
outstanding notes which have been tendered but which are not accepted for
exchange will be returned to the holder without cost to the holder as soon as
practicable after withdrawal, rejection of tender or termination of the
exchange offer. Properly withdrawn outstanding notes may be retendered by
following one of the procedures described above under "--Procedures for
Tendering" at any time prior to the expiration date.
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<PAGE>
Conditions
Notwithstanding any other term of the exchange offer, ChipPAC International
Company Limited shall not be required to accept for exchange, or exchange notes
for, any outstanding notes, and may terminate or amend the exchange offer as
provided in this prospectus before the acceptance of the outstanding notes, if:
. any action or proceeding is instituted or threatened in any court or
by or before any governmental agency relating to the exchange offer
which, in ChipPAC International Company Limited's sole judgment,
might materially impair ChipPAC International Company Limited's
ability to proceed with the exchange offer, or any material adverse
development has occurred in any existing action or proceeding
relating to ChipPAC International Company Limited or any of its
subsidiaries; or
. any law, statute, rule, regulation or interpretation by the staff of
the SEC is proposed, adopted or enacted, which, in ChipPAC
International Company Limited's sole judgment, might materially
impair ChipPAC International Company Limited's ability to proceed
with the exchange offer or materially impair the contemplated
benefits of the exchange offer; or
. any governmental approval has not been obtained, which approval
ChipPAC International Company Limited shall, in its sole discretion,
deem necessary for the completion of the exchange offer.
If ChipPAC International Company Limited determines, in its sole discretion,
that any of the conditions are not satisfied, ChipPAC International Company
Limited may:
. refuse to accept any outstanding notes and return all tendered
outstanding notes to the tendering holders;
. extend the exchange offer and retain all outstanding notes tendered
prior to the expiration of the exchange offer, subject, however, to
the rights of holders to withdraw outstanding notes as described in
"--Withdrawal of Tenders" above; and
. waive any unsatisfied conditions relating to the exchange offer and
accept all properly tendered outstanding notes which have not been
withdrawn.
Exchange Agent
Firstar Bank of Minnesota, N.A. has been appointed as exchange agent for the
exchange offer. Questions and requests for assistance, requests for additional
copies of this prospectus or of the Letter of Transmittal and requests for
Notice of Guaranteed Delivery should be directed to the exchange agent
addressed as follows:
By Registered or Certified Mail or By Hand:
Overnight Courier: Firstar Bank of Firstar Bank of Minnesota, N.A. 101
Minnesota, N.A. 101 East Fifth Street East Fifth Street St. Paul, Minnesota
St. Paul, Minnesota 55101-1860 Attn: 55101-1860 Attn: Frank P. Leslie, III
Frank P. Leslie, III
By Facsimile:
(For Eligible Institutions Only)
(651) 229-6415
Confirm by Telephone:
(651) 229-2600
Delivery to an address other than provided above will not constitute a valid
delivery.
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<PAGE>
Fees and Expenses
The expenses of soliciting tenders will be borne by ChipPAC International
Company Limited. The principal solicitation is being made by mail however,
additional solicitation may be made by telegraph, telecopy, telephone or in
person by officers and regular employees of ChipPAC International Company
Limited and its affiliates.
ChipPAC International Company Limited has not retained any dealer-manager in
connection with the exchange offer and will not make any payments to brokers,
dealers, or others soliciting acceptances of the exchange offer. ChipPAC
International Company Limited, however, will pay the exchange agent reasonable
and customary fees for its services and will reimburse it for its reasonable
out-of-pocket expenses in connection therewith.
ChipPAC International Company Limited will pay the cash expenses to be
incurred in connection with the exchange offer. Expenses include fees and
expenses of the exchange agent and trustee, accounting and legal fees and
printing costs.
Accounting Treatment
The exchange notes will be recorded at the same carrying value as the
outstanding notes, which is face value, as reflected in ChipPAC International
Company Limited's accounting records on the date of exchange. Accordingly,
ChipPAC International Company Limited will recognize no gain or loss for
accounting purposes. The expenses of the exchange offer will be capitalized as
deferred financing costs and amortized over the term of the exchange notes.
Consequences of Failure to Exchange
The outstanding notes that are not exchanged for exchange notes in the
exchange offer will remain restricted securities. Accordingly, outstanding
notes may be resold only:
. to ChipPAC International Company Limited, upon redemption of the
notes or otherwise;
. so long as the outstanding notes are eligible for resale under Rule
144A under the Securities Act, to a person inside the United States
whom the seller reasonably believes is a qualified institutional
buyer as defined in Rule 144A in a transaction meeting the
requirements of Rule 144A;
. in compliance with Rule 144 under the Securities Act;
. outside the United States to a foreign person in a transaction
meeting the requirements of Rule 904 under the Securities Act;
. under another exemption from the registration requirements of the
Securities Act, and based upon an opinion of counsel reasonably
acceptable to ChipPAC International Company Limited; or
. under an effective registration statement under the Securities Act,
in each case in compliance with any applicable securities laws of any
state of the United States.
Resale of the Exchange Notes
Based on interpretations by the SEC's staff in no-action letters issued to
other parties, we believe that holders of exchange notes may transfer the
exchange notes without complying with the registration requirements of
Securities Act and without delivering a prospectus that meets the requirements
of Section 10 of the Securities Act if the holders:
. are not affiliates of ours as defined in Rule 405 under the
Securities Act,
. acquired the exchange notes in the ordinary course of their business,
. are not engaged in, and do not intend to engage in, and have no
arrangement or understanding with any person to participate in, a
distribution of the exchange notes,
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<PAGE>
. are not broker-dealers that acquired outstanding notes directly from
us, and
. are not broker-dealers that acquired outstanding notes as a result of
market-making activities or other trading activities.
Each holder of outstanding notes that participates in the exchange offer
will be required to make representations to us in the Letter of Transmittal of
the items listed above.
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<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
The following unaudited pro forma condensed combined statements of
operations for the nine month period ended September 30, 1999 and the year
ended December 31, 1998, which we refer to as the "Pro Forma Financial
Statements," 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 recapitalization
as if it had occurred on January 1, 1998. EBITDA as presented below has been
adjusted to exclude some historical charges and credits as described in Note 6.
The Pro Forma Financial Statements do not purport to represent what our
financial position or results of operations would have actually been had the
recapitalization in fact occurred on the dates, 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 Unaudited Pro Forma Combined Financial and Operating Data,"
"Selected Historical Financial Data," "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.
During the periods covered by our Combined Financial Statements, our
activities were conducted as part of Hyundai Electronics' overall operations,
and separate financial statements were not prepared. Our Combined Financial
Statements were prepared from the historical accounting records of Hyundai
Electronics and include various allocations for costs and expenses. Therefore,
our Combined 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 Combined Financial
Statements are based on assumptions that we believe are reasonable under the
circumstances and that have been reviewed by Hyundai Electronics America.
<TABLE>
<CAPTION>
Nine-Month Period Ended
September 30, 1999
-------------------------------
Pro Forma Pro
Historical Adjustments Forma
---------- ----------- --------
(in thousands)
<S> <C> <C> <C>
Unaudited Pro Forma Condensed Combined
Statement of Operations:
Revenues...................................... $267,671 $ -- $267,671
Costs of revenues............................. 227,792 -- 227,792
-------- ------- --------
Gross profit.................................. 39,879 -- 39,879
Operating expenses:
Selling, general and administrative (1)..... 14,416 -- 14,416
Research and development.................... 8,628 -- 8,628
Change of control expense (2)............... 11,842 (11,842) --
-------- ------- --------
Operating income.............................. 4,993 11,842 16,835
Interest expense (3).......................... 12,089 13,515 25,604
Interest income............................... (2,334) -- (2,334)
Foreign currency (gain) loss.................. (506) -- (506)
Other (income) expense, net................... (566) -- (566)
-------- ------- --------
Income (loss) before provision for income
taxes and extraordinary item................. (3,690) (1,673) (5,363)
Provision (benefit) for income taxes (4)...... (1,823) (859) (2,682)
Extraordinary loss (5)........................ 1,372 (1,372) --
-------- ------- --------
Net income (loss)............................. $ (3,239) $ 558 $ (2,681)
======== ======= ========
Other Data:
EBITDA (6).................................... $ 58,436
Depreciation and amortization (7)............. 41,601
Capital expenditures (including capital
leases)...................................... 29,062
Dividends on Hyundai Preferred Stock (8)...... 6,563
Dividends on Intel Preferred Stock (9)........ 156
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31, 1998
-------------------------------
Pro Forma Pro
Historical Adjustments Forma
---------- ----------- --------
(in thousands)
<S> <C> <C> <C>
Unaudited Pro Forma Condensed Combined
Statement of Operations:
Revenues..................................... $334,081 $ -- $334,081
Costs of revenues............................ 270,365 -- 270,365
-------- -------- --------
Gross profit................................. 63,716 63,716
Operating expenses:
Selling, general and administrative (1).... 15,595 -- 15,595
Research and development................... 7,692 -- 7,692
-------- -------- --------
Operating income............................. 40,429 40,429
Interest expense (3)......................... 13,340 20,798 34,138
Interest income.............................. (1,276) -- (1,276)
Foreign currency (gain) loss................. (24,670) -- (24,670)
Other (income) expense, net.................. 168 -- 168
-------- -------- --------
Income before provision for income taxes..... 52,867 20,798 32,069
Provision (benefit) for income taxes (4)..... 20,564 (14,150) 6,414
-------- -------- --------
Net income (loss)............................ $ 32,303 $ (6,648) $ 25,655
======== ======== ========
Other Data:
EBITDA (6).......................................................... $ 86,284
Depreciation and amortization....................................... 45,855
Capital expenditures (including capital leases)..................... 63,523
Dividends on Hyundai Preferred Stock (8)............................ 8,750
</TABLE>
33
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS
Nine-Month Period Ended September 30, 1999
and Year Ended December 31, 1998
1. In connection with the recapitalization, we entered into advisory
agreements with the Equity Investors by which the Equity Investors will provide
financial, advisory and consulting services. In exchange for these services,
the Equity Investors are 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. There are no minimum levels of
service required to be provided. Commencing with the fiscal quarter ended March
31, 2000, when and if we achieve EBITDA for the preceding twelve-month period
in excess of $81.2 million, the Equity Investors will be entitled to an annual
advisory fee, the amount of which is limited by our senior credit agreements.
As there are no minimum levels of required service and because the annual
advisory fee would not commence until after December 31, 1999 and is dependent
upon achieving a specific EBITDA level, no amounts related to the Equity
Investors' advisory fees have been included in the pro forma operating results.
2. As a result of the recapitalization, the Company was contractually
required to make a one-time change of control payment to its unionized Korean
employees of approximately $11.8 million. The payment was recorded as an
operating expense during the quarter ended September 30, 1999. This amount has
been excluded from the pro forma operating results for the nine-month period
ended September 30, 1999, as it represents a one-time charge directly related
to the recapitalization transaction.
3. The increase to pro forma interest expense as a result of the
recapitalization is summarized as follows:
<TABLE>
<CAPTION>
Nine Month
Period Ended Year Ended
September 30, 1999 December 31, 1998
------------------ -----------------
(in thousands)
<S> <C> <C>
Interest on Term Loan Facilities--
8.86%................................. $ 9,966 $13,288
Interest on Exchange Notes--12.75%..... 14,344 19,125
Interest on Revolving Credit Facility--
8.54%................................. -- --
Interest on CapEx Facility--8.54%...... -- --
Bank commitment fees/Capital leases.... -- --
------- -------
Cash interest expense.................. 24,310 32,413
Amortization of debt issuance costs.... 1,294 1,725
($13.8 million over an 8 year
amortization period)
------- -------
Interest expense from recapitalization
debt requirements..................... 25,604 34,138
Less: historical interest expense...... 12,089 13,340
------- -------
Net increase........................... $13,515 $20,798
======= =======
</TABLE>
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
$141,000 and $187,500 for the nine month period ended September 30, 1999 and
the year ended December 31, 1998 respectively.
4. Under the terms of the recapitalization agreement, Hyundai Electronics
was required to reorganize the ChipPAC entities into a distinct group of
subsidiaries owned by ChipPAC, Inc. If the reorganization had taken place on
January 1, 1998, ChipPac would have had an effective tax rate of approximately
20% for 1998. Based on the expected 1999 results, the expected effective tax
rate for 1999 is approximately 50%. These adjustments reflect the income tax
adjustment required to result in a pro forma income tax provision based on
these effective tax rates and the tax effects of the pro forma adjustments
described in this prospectus.
5. The Company incurred an extraordinary loss of $1.4 million related to the
early retirement of debt upon the recapitalization of the Company. This amount
has been excluded from the pro-forma operating results from the nine-month
period ended September 30, 1999.
34
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED--(Continued)
STATEMENT OF OPERATIONS
Nine Month Period Ended September 30, 1999
and Year Ended December 31, 1998
6. "EBITDA" is defined in this prospectus as operating income, plus
depreciation and amortization and in 1997, non-cash charges related to write-
downs of impaired assets. EBITDA is presented because we believe it is a widely
accepted financial indicator of a company's ability to service and/or incur
indebtedness. However, EBITDA should not be considered as an alternative to net
income as a measure of operating results or to cash flows as a measure of
liquidity in accordance with generally accepted accounting principles. Because
EBITDA is not calculated identically by all companies, the presentation in this
prospectus may not be comparable to those disclosed by other companies. The
following table reconciles net income (loss) with EBITDA for the historical
statements of operations for each of the four years ended December 31, 1998 and
the pro-forma nine month period ended September 30, 1999.
<TABLE>
<CAPTION>
Unaudited Pro
Forma Nine
Month
Period Ended
Year Ended December 31, September 30,
---------------------------------- -------------
1995 1996 1997 1998 1999
------- ------- -------- ------- -------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Net income (loss) as
reported................... $ 98 $(5,625) $(46,118) $32,303 $(2,681)
Provision for (benefit from)
income taxes............... 1,977 2,883 (9,671) 20,564 (2,682)
Non-operating (income)
expense items:
Foreign currency (gains)
losses................... 1,012 5,041 69,669 (24,670) (506)
Interest income........... -- (108) (96) (1,276) (2,334)
Interest expense.......... 3,151 5,780 10,972 13,340 25,604
Other (income) expenses,
net...................... 802 (351) 762 168 (566)
------- ------- -------- ------- -------
Operating income as
reported................... 7,040 7,620 25,518 40,429 16,835
Adjustments to arrive at
EBITDA as defined:
Depreciation and
amortization............. 27,917 26,632 40,682 45,855 41,601
Write-down of impaired
assets................... -- -- 11,569 -- --
------- ------- -------- ------- -------
EBITDA as defined above..... $34,957 $34,252 $ 77,769 $86,284 $58,436
======= ======= ======== ======= =======
</TABLE>
7. Depreciation and amortization for the nine months ended September 30,
1999 exclude $0.3 million of amortization of debt insurance cost. This amount
is included as interest expense.
8. 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:
9. Dividends on the Intel Preferred Stock accrue on a daily basis at a rate
of 10% per annum.
35
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following table presents our selected historical combined statements of
operations, balance sheet, and other data for the periods presented. No
separate financial information for ChipPAC International Company Limited has
been provided in this prospectus because (a) ChipPAC International Company
Limited does not itself conduct any operations but rather all operations of
ChipPAC, Inc. are conducted by ChipPAC, Inc. or by its direct or indirect
subsidiaries; (b) ChipPAC International Company Limited has no material assets;
and (c) ChipPAC, Inc. and some of its subsidiaries are unconditionally, jointly
and severally guaranteeing the exchange notes on an unsecured, senior
subordinated basis. This information should only be read in conjunction with
our audited and unaudited combined financial statements and the related notes,
"Unaudited Pro Forma Condensed Combined Financial Data," and "Management's
Discussion and Analysis of Financial Condition and Results of Operations," all
included elsewhere in this prospectus. The data for each of the four years
ended December 31, 1998 have been derived from ChipPAC's combined financial
statements which have been audited by PricewaterhouseCoopers LLP, whose report
appears elsewhere in this prospectus.
<TABLE>
<CAPTION>
Nine-Month Period
Ended
Year Ended December 31, September 30,
------------------------------------------------------------ ------------------
1994 1995 1996 1997 1998 1998 1999
----------- -------- ----------- ----------- -------- -------- --------
(unaudited) (Dollars in thousands) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue................. $149,310 $179,234 $ 191,655 $ 289,429 $334,081 $237,969 $267,671
Costs and expenses:
Cost of revenue........ 129,068 158,527 166,665 229,238 270,365 186,000 227,792
Selling, general and
administrative
expenses.............. 13,407 11,805 11,431 15,853 15,067 10,396 14,416
Research and
development expenses.. 1,095 1,724 2,617 4,052 7,692 4,895 8,628
Management fees charged
by affiliate.......... -- 138 3,322 3,199 528 528 --
Write-down of impaired
assets (1)............ -- -- -- 11,569 -- -- --
Change in control
expenses (2).......... -- -- -- -- -- -- 11,842
-------- -------- ----------- ----------- -------- -------- --------
Operating income........ 5,740 7,040 7,620 25,518 40,429 36,150 4,993
Interest expense........ 2,423 3,151 5,780 10,972 13,340 10,037 12,089
Interest income......... -- -- (108) (96) (1,276) (491) (2,334)
Foreign currency (gains)
losses (3)............. (562) 1,012 5,041 69,669 (24,670) (20,427) (506)
Other (income) expense,
net.................... -- 802 (351) 762 168 (50) (566)
-------- -------- ----------- ----------- -------- -------- --------
Income (loss) before
income taxes........... 3,879 2,075 (2,742) (55,789) 52,867 47,081 (3,690)
Provision for (benefit
from) income taxes..... 1,492 1,977 2,883 (9,671) 20,564 17,933 (1,823)
Extraordinary item:
Loss from early
extinguishment of
debt, net of related
income tax benefit
(4)................... -- -- -- -- -- -- 1,372
-------- -------- ----------- ----------- -------- -------- --------
Net income (loss)....... $ 2,387 $ 98 $ (5,625) $ (46,118) $ 32,303 $ 29,148 $ (3,239)
======== ======== =========== =========== ======== ======== ========
Balance Sheet Data (at
end of period):
Cash and cash
equivalents............ $ 5,416 $ 2,602 $ 2,323 $ 3,067 $ 68,767 $ 33,013 $ 33,142
Working capital......... (20,240) (29,637) (26,436) 30,097
Total assets............ 98,112 127,984 215,932 233,241 359,472 313,970 322,461
Total long-term debt,
including current
portion................ 21,995 52,468 109,053 152,410 133,715 138,006 300,000
Mandatorily Redeemable
Preferred Stock........ -- -- -- -- -- -- 71,366
Total shareholders'
equity (deficit)....... 34,066 11,559 53,692 9,472 113,191 82,342 (109,749)
Other Financial Data:
Capital expenditures.... 38,635 51,462 118,971 136,594 63,523 52,111 29,062
Ratio of earnings to
fixed charges (5)...... 2.0x 1.4x -- (6) -- (6) 4.3x 5.1x -- (6)
</TABLE>
- --------
Footnotes to table appear on the following page.
36
<PAGE>
Footnotes to table on the previous page
(1) 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, ChipPAC 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 some product lines or which
were judged to be in excess of foreseeable requirements.
(2) The $11.8 million change in control charge in the nine-month period ended
September 30, 1999 was a special bonus paid to employees of ChipPAC's
Korean subsidiary arising from the change in control in the
recapitalization transaction.
(3) The foreign currency gains and losses were primarily the result of U.S.
Dollar denominated debt of ChipPAC's 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
ChipPAC's Combined Statement of Operations.
(4) The extraordinary loss of $1.4 million, net of tax effects, represents
costs related to the early retirement of debt, necessary under the
recapitalization of the company on August 5, 1999.
(5) For purposes of this computation, earnings are defined as income (loss)
before provision for income taxes and fixed charges. Fixed charges are the
sum of (a) interest costs and (b) the portion (approximately one-third) of
operating lease rental expenses that are representative of the interest
factor. Earnings for 1996 and 1997 and for the nine months ended September
30, 1999, were inadequate to cover fixed charges by $2.7 million, $55.8
million and $6.5 million, respectively. Earnings for the year ended
December 31, 1997 included a non-cash foreign currency loss of $69.7
million and a non-cash asset impairment charge of $11.6 million.
37
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and results
of operations covers periods prior to the completion of the recapitalization.
As part of the 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 the recapitalization will not necessarily
be comparable to prior periods. The following discussion should be read in
conjunction with the combined financial statements contained elsewhere in this
prospectus.
Overview
We are one of the world's largest providers of packaging and test services
to the semiconductor industry. We offer complete portfolios of packaging and
test solutions and are one of the largest providers of high-margin, BGA
packages, the most advanced mass-produced semiconductor packages. We provide
packaging and test services to approximately 70 customers worldwide, including
approximately 40 in the United States. Our customers include some of the
world's largest and most prominent semiconductor manufacturers, including Atmel
Corporation, Intel Corporation, International Business Machines Corporation,
LSI Logic Corp., Lucent Technologies, Inc., Samsung Electronics Co., Ltd. and
STMicroelectronics N.V. In 1998, sales of packaging and test services to Intel
Atmel Corporation and LSI Logic accounted for approximately 67.0%, 10.1% and
9.8% of our net revenues respectively and sales to our top five customers in
the aggregate accounted for approximately 89.7% of our total net revenues. We
maintain executive and sales headquarters in the United States and our
packaging and test facilities are located in Korea and China. We maintain sales
offices in Asia, Europe, and the United States. Research and development
activities are conducted in Korea and the United States.
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, ChipPAC, Inc.
was incorporated as a distinct entity and established as the parent of a stand-
alone worldwide business. Following the recapitalization, Hyundai Electronics
continues to own approximately 10.0% of our outstanding common stock and also
holds redeemable preferred stock having an aggregate liquidation preference of
approximately $70.0 million. In addition, 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 the
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, including dividends, of Hyundai
Preferred 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
1998, net revenues increased from $179.2 million to $334.1 million, primarily
from the growth of BGA packaging. We are the second largest provider of
outsourced BGA packaging services worldwide, and one of two main suppliers of
BGA packaging services to Intel, whom we believe represents over 40% of the
independent packaging market today. The capital investments made by Hyundai
Electronics from 1995 to 1997 totaled approximately $300 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 35.5% of our sales in 1998.
The following table describes the composition of revenue by product group
and test services, as a percentage of total revenues:
<TABLE>
<CAPTION>
Fiscal Year Ended Nine Month
December 31, Period Ended
------------------- September 30,
1996 1997 1998 1999
----- ----- ----- -------------
<S> <C> <C> <C> <C>
BGA.......................................... 3.5% 37.7% 61.8% 68.7%
Leaded....................................... 92.2 59.5 35.5 28.8
Testing...................................... 4.3 2.8 2.7 2.5
----- ----- ----- -----
Total...................................... 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
</TABLE>
38
<PAGE>
For the year ended December 31, 1998, over 95% of our revenues were
denominated in U.S. Dollars with the remainder denominated primarily in Korean
Won. Prior to 1999, our purchases of raw materials were made primarily in U.S.
Dollars and Japanese Yen. Since the beginning of 1999, however, almost all
purchases of raw materials have been made in U.S. Dollars. Labor and overhead
costs at our facilities in Korea and China have been incurred in the local
currencies of those countries. Our historical borrowings have been primarily
made in U.S. Dollars. Our monetary assets and liabilities are primarily
denominated in U.S. Dollars.
The historical financial statements of ChipPAC Korea and ChipPAC China have
been translated into U.S. Dollars using the local currency of those respective
countries as the functional currency. The assets and liabilities of these
entities have been translated at the exchange rates in effect on the balance
sheet dates, and the revenues and expenses have been translated using the
weighted average exchange rates for the periods measured.
Historically, our foreign currency gains and losses have arisen primarily
from the holding of monetary assets and liabilities denominated in U.S. Dollars
by ChipPAC Korea and did not have a cash impact. 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 March 31, 1999, ChipPAC
Korea's U.S. Dollar monetary assets exceeded its U.S. Dollar-denominated
liabilities.
Upon completion of the recapitalization, management decided to change the
functional currency of ChipPAC Korea and ChipPAC China from the respective
local currencies to the U.S. Dollar, effective October 1, 1999. The change in
functional currency to the U.S. Dollar reflects significant changes in the
nature of our business including an overall increase in the level of U.S.
Dollar sales, purchasing, and borrowings, as well as the planned change in
ownership from a Korean-based parent company to a U.S.-based parent company.
The use of the U.S. Dollar as the functional currency for ChipPAC Korea and
ChipPAC China will not impact the cash flows of ChipPAC Korea or ChipPAC China
or or us as a whole.
Quarterly Results
The following table describes our unaudited historical quarterly sales,
gross profit and EBITDA in thousands of U.S. Dollars. EBITDA margin represents
EBITDA, as defined in this prospectus, as operating income plus depreciation,
amortization and, in 1997, non cash charges related to write downs of impaired
assets, as a percentage of revenue.
<TABLE>
<CAPTION>
1997 1998 1999
---------------------------------- ---------------------------------- ------------------------
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
------- ------- ------- ------- ------- ------- ------- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $53,130 $67,662 $82,052 $86,585 $77,130 $78,020 $82,818 $96,113 $85,548 80,853 101,270
Intel Revenue .......... 18,854 26,545 41,939 41,770 39,914 48,053 60,562 75,422 65,276 51,190 61,074
% of Total Revenues..... 35.5% 39.2% 51.1% 48.2% 51.7% 61.6% 73.1% 78.5% 76.3% 63.3% 60.3%
Gross profit............ 3,228 13,298 19,308 24,357 23,196 12,862 15,911 11,747 13,417 9,684 16,778
EBITDA.................. 5,795 17,826 24,768 29,380 27,180 18,827 22,423 17,854 19,368 15,273 23,795
Gross margin............ 6.1% 19.7% 23.5% 28.1% 30.1% 16.5% 19.2% 12.2% 15.7% 12.0% 16.6%
EBITDA margin........... 10.9% 26.3% 30.2% 33.9% 35.2% 24.1% 27.1% 18.6% 22.6% 18.9% 23.5%
</TABLE>
The above table illustrates the cyclical and seasonal nature of our
financial performance, although management believes 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.
BGA packaging revenues have risen steadily throughout the period as a result
of increased sales to Intel, our largest customer. The decline in leaded
packaging revenue in 1998 arose from soft market conditions prevalent
throughout the semiconductor industry and from our decision to discontinue some
unprofitable product lines.
39
<PAGE>
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:
<TABLE>
<CAPTION>
Nine-Month
Period
Year Ended December Ended September
31, 30,
--------------------- ----------------
1996 1997 1998 1998 1999
----- ----- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Weighted average exchange rate of Won
per U.S. Dollar...................... 804.7 939.0 1,388.9 1,425.7 1,194.7
===== ===== ======= ======= =======
Historical Statement of Operations
Data:
Revenue............................... 100.0% 100.0% 100.0% 100.0% 100.0%
Gross margin.......................... 13.0 20.8 19.1 21.8 14.9
Selling, general & administrative..... 6.0 5.5 4.5 4.3 5.4
Research & development................ 1.4 1.4 2.3 2.1 3.2
Write down of impaired assets......... -- 4.0 -- -- --
Management fees....................... 1.7 1.1 0.2 0.2 --
Change of control expenses............ -- -- -- -- 4.4
----- ----- ------- ------- -------
Operating income...................... 3.9% 8.8% 12.1% 15.2 % 1.9%
===== ===== ======= ======= =======
Other Financial Data:
Depreciation & amortization........... 13.9% 14.1% 13.7% 13.6% 15.6%
Capital expenditures.................. 62.1 47.2 19.0 21.9 10.9
</TABLE>
Nine-Month Period Ended September 30, 1999 Compared to Nine-Month Period Ended
September 30, 1998
Revenues: Net revenues in the first nine months of 1999 increased 12.5% to
$267.7 million, compared with $238.0 in the first nine months of 1998. This
increase came primarily from sales growth in BGA packaging services, revenues
from which increased by 35.1% from $136.0 million to $183.8 million. This
increase was partially offset by a decline in revenues from leaded packages
services from $94.7 million to $77.1 million. The strong growth in BGA revenues
was driven primarily by higher volumes of BGA packaging services sold to Intel,
ChipPAC's leading customer, partially offset by lower average selling prices.
Additionally, ChipPAC started to ship BGA packages to new customers including
nVIDEA, IBM, Lucent and Level One during the first nine months of 1999. The
decline in leaded product revenues was driven by the continuing soft market
conditions in the semiconductor industry present during the second half of
1998, and has been partially offset by strengthening market conditions during
the first nine months of 1999.
Gross Profit: Gross profit decreased to $39.9 million in the first nine
months of 1999 from $52.0 million resulting in gross margin of 14.9% in the
first nine months of 1999 compared to 21.8% for the same period in 1998. The
gross profit experienced during the first nine months of 1998 was significantly
higher than usual due to the large depreciation of the Korean Won which
averaged 1,425.7 Won per U.S. Dollar during the first nine months of 1998
compared to an average exchange rate of 1,194.7 Won per U.S. Dollar during the
first nine months of 1999. This exchange rate resulted in lower costs for
overhead and labor in 1998.
Selling, General and Administrative: Selling, general and administrative
expenses increased 38.7% to $14.4 million in the first nine months of 1999
compared to $10.4 million during the first nine months of 1998. As a percentage
of sales, these expenses increased from 4.3% to 5.4% of sales during the same
period. This increase was due to the additional expenses associated with hiring
new personnel in the areas of administration, sales and marketing necessary to
strengthen our worldwide infrastructure.
Research and Development: Research and development expenses increased to
$8.6 million in the first nine months of 1999 compared to $4.9 million in the
first nine months of 1998. As a percentage of sales, these expenses increased
to 3.2% of sales in the first nine months of 1999 as compared to 2.1% of sales
in the first nine months of 1998. The increase in the level of research and
development expenses was due to establishment of a prototype development center
in Santa Clara, California at the end of 1998. Expense of the prototype
development center increased by $1.3 million during the nine-months ended
September 30, 1999 over the nine-month period ended September 30, 1998.
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Management fees charged by affiliate: From 1995 to June 30, 1998, Hyundai
charged fees to ChipPAC for the use of technology and technical support for our
facility in China. This agreement was terminated on June 30, 1998. ChipPAC is
fully capable of providing this support today.
Interest Income: For the first nine months of 1999, interest income
increased to $2.3 million from $0.5 million for the first nine months in 1998.
Most of the interest income was earned from cash invested in time deposits.
During the first nine months of 1999, ChipPAC maintained an average cash
balance exceeding $55.8 million. During the first nine months of 1998, ChipPAC
did not have a significant cash balance as substantially all cash was
transferred to Hyundai, the then sole shareholder, at its request. ChipPac was
a wholly-owned subsidiary at the time of the transfer. ChipPAC does not expect
to maintain significant cash balances going forward.
Interest Expense: Interest expense for the first nine months of 1999
increased 20.4% to $12.1 million from $10.0 million for the first nine months
of 1998.
Foreign Currency (Gains) Losses: During the first nine months of 1998,
ChipPAC incurred a net non-cash foreign currency gain of $20.4 million which
arose from ChipPAC Korea's holding of U.S. Dollar-denominated liabilities in
excess of U.S. Dollar monetary assets and from an appreciation in the value of
the Won. During the first nine months of 1999, ChipPAC incurred a non-cash
foreign currency gain of $0.1 million.
Other Income (Expense): Other income increased from $0.1 million in the
first nine months of 1998 to $0.6 million for the first nine months of 1999.
The decline in other income arose principally from a decline in the gains from
the sale of excess production equipment.
Income Taxes: Income tax benefit was $1.8 million in the first nine months
of 1999 compared to $17.9 million expense for the first nine months of 1998.
The estimated effective tax rate is approximately 50% in 1999 versus the
historic effective tax rate of approximately 38.1% in 1998. The effective tax
rates during both periods were adversely affected by losses by ChipPAC's
operations in China, for which no tax benefit was realized.
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 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 $118.5 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 5.9% 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 services sold, 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 5.0% to $15.1 million in 1998 from $15.9 million in 1997. As
a percentage of sales, 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 the
new senior management team.
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Research and Development: Research and development expenses increased to
$7.7 million in 1998 from $4.1 million in 1997. As a percentage of sales, 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 from having a full year's
expenses from the R&D center established at Chandler, Arizona, and from
additional spending for 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: From 1995 to June 30, 1998, Hyundai
charged us fees for the use of technology and technical support for our
facility in China. 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 agreement 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 some equipment as a result of a combination of management's decision
to discontinue some unprofitable product lines and from the identification of
some production equipment judged to be in excess of foreseeable requirements.
There were no assets identified as impaired during 1998.
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 it 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 Korean Won increased from 1,696 Won per
Dollar at December 31, 1997 to 1,196 Won per 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. There were no
significant gains or losses on disposition of equipment during 1998.
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 not meaningful since we incurred 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.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Revenues: Revenues increased 51.0% to $289.4 million in 1997 from $191.7
million in 1996. This increase was due to the mass production of a newly
developed BGA package causing revenues from BGA packaging services to increase
from $6.8 million in 1996 to $109.1 million in 1997. Revenues from leaded
packaging services declined 2.6% to $172.1 million in 1997 from $176.7 million
in 1996. Revenues from test services remained flat at $8.2 million.
Gross Profit: Gross profit increased 140.9% to $60.2 million in 1997 from
$25.0 million in 1996. Gross margin as a percentage of revenue increased to
20.8% in 1997 compared to 13.0% for 1996. Gross profit in 1997 increased from
1996 primarily due to the emergence of BGA packaging services which carried
higher margins and economies of scale arising from the substantially higher
level of sales of BGA packaging services, primarily to Intel.
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Selling, General and Administrative: Selling, general and administrative
expenses increased 38.7% to $15.9 million in 1997 from $11.4 million in 1996.
As a percent of sales, these expenses decreased to 5.5% in 1997 from 6.0% in
1996. The increase in the level of expenses arose from the establishment of a
new corporate management staff based in the United States, from an increase in
the level of customer support costs in Korea, and from an increase in the level
of administrative expense allocated by Hyundai. Of this increase, $2.6 million
is attributable to new corporate management staff, $1.2 million is attributable
to the increase in customer support costs in Korea, and $1.8 million is
attributable to the increase in administrative fees allocated by Hyundai.
Research and Development: Research and development expenses increased 54.8%
to $4.1 million in 1997 from $2.6 million in 1996. As a percent of sales, these
expenses remained level at 1.4% for both 1996 and 1997. The increase in the
level of research and development expenses reflected our efforts to develop
capabilities in BGA packaging services.
Management fees charged by affiliate: Management fees represented fees
charged by Hyundai for technology and technical support for our facility in
China. The fees charged in 1997 which were $3.2 million was approximately the
same as the $3.3 million charged in 1996.
Inventory reserves: The Company reserves for excess and obsolete inventory
in the normal course of business using a consistent methodology. The increase
in the inventory reserve during the year ended December 31, 1997 was primarily
due to significantly higher levels of inventory at the Korean facility at
December 31, 1997, which had risen by approximately 200% in local currency
value over that held at the prior year end, and a significant devaluation of
the Korean Won against the US Dollar over the same period.
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 some equipment as a result of a combination of management's decision
to discontinue some product lines and from the identification of some
production equipment judged to be in excess of foreseeable requirements.
Interest Income: Interest income earned during 1997 and 1996 was
insignificant because, as a division of Hyundai, we did not have any
significant cash balances.
Interest Expense: Interest expense for 1997 increased to $11.0 million from
$5.8 million during 1996. The increase arose from net additional borrowing made
during 1996 and 1997 for capital equipment.
Foreign Currency (Gains) Losses: During 1997, we incurred a non-cash loss of
$69.7 million as the Korean Won devalued from 845 Won per Dollar at December
31, 1996 to 1,696 Won per Dollar at December 31, 1997. During 1996, we incurred
a non-cash loss of $5.0 million as the Korean Won devalued from 775 Won per
Dollar at December 31, 1995 to 845 Won per Dollar at December 31, 1996.
Other Income (Expense): We had net other expense of $0.8 million in 1997
compared to net other income of $0.4 million in 1996. In 1997, the $0.8 million
arose largely from losses taken on the disposition of surplus production
equipment. In 1996, we had $0.4 million of miscellaneous income.
Income Taxes: We recorded a tax benefit of $9.7 million in 1997 compared to
a tax expense of $2.9 million in 1996. In both years, the effective tax is not
meaningful because we incurred pre-tax losses.
Liquidity and Capital Resources
We have a borrowing capacity 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 some 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 reborrowed by us
later. The final maturity for both these facilities will be on August 5, 2005.
We did not draw upon these facilities in connection with the recapitalization.
Our ongoing primary cash needs are for operations and equipment purchases.
Prior to the 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 the recapitalization were repaid
and terminated at the recapitalization date.
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Hyundai Electronics has 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 $54 million in capital expenditures in 2000. We
spent approximately $57.7 million in capital expenditures in 1999, a decline of
9.1% from the $63.5 million spent in capital expenditures in 1998, and a
decline of 57.8% from the $136.6 million spent in 1997. Through 2000, we intend
to spend approximately $10.0 million in capital expenditures to increase
capacity for our micro BGA packaging in order to support our three-year
contract with Hyundai to package an agreed upon amount of their RDRAM devices.
If Hyundai does not provide the agreed upon RDRAM devices, then Hyundai will
reimburse us for the underutilized equipment which will be depreciated over
three years.
At the closing of the recapitalization, our debt consisted of $300.0 million
of borrowings which were comprised of $150.0 million in term loan facilities
and $150.0 million of senior subordinated notes. We also had $70.0 million of
preferred stock and approximately $100.0 million of newly contributed equity.
We believe that our existing cash balances, cash flow from operations,
available equipment lease financing, and the net proceeds from the
recapitalization will be sufficient to meet our projected capital expenditures,
working capital and other cash requirements for the next twelve months. We do
not foresee a need to repatriate dividends from any subsidiary during fiscal
year 2000.
Year 2000 Compliance
We recognize the need to ensure that our operations will not be adversely
impacted by year 2000 computer hardware and software failures and embedded chip
or processor failures. Issues relating to the year 2000 are the result of
computer programs and embedded-chip systems being written or developed using
two digits rather than four to define the applicable year. Any computer
programs or embedded-chip systems that have date-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of our
operations, including, a temporary inability to process transactions, obtain
materials, provide packaging and test services, generate invoices, or engage in
similar normal business activities.
As of September 30, 1999, we had completed a formal review of all of the
computer hardware, software systems, communications equipment and equipment
used in our packaging and test processes. Our review included analysis of all
potentially affected business and process systems. Computer code which was non-
compliant was replaced or corrected, and when this was not possible, the
systems were replaced. Additionally, the systems have been tested for
compliance. We believe that all of our systems and equipment necessary for our
packaging and test process are 100% year 2000 compliant in all material
respects. We have not experienced any Year 2000 related problems to date.
We have completed a survey of the year 2000 readiness of all of the
suppliers which are material to us. As part of the survey, these material
suppliers completed and returned to us a written questionnaire which we had
provided to them. The survey indicated that all of our material suppliers are
fully year 2000 compliant. Therefore, we believe that there will be no material
adverse effect on our business as a result of year 2000 problems or issues
experienced by our suppliers. If any of our suppliers do experience year 2000
problems, our contingency plans include procuring critical supplies from
alternate suppliers, and we have arranged to do so if necessary. To our
knowledge, our suppliers have not experienced Year 2000 related problems which
would have, or have had, a material effect on our business.
We do not have any information concerning the year 2000 compliance status of
our customers. If any significant customers have not achieved Year 2000
compliance, our business or operations could be materially adversely affected.
Approximately $600,000 has been spent on year 2000 compliance issues through
September 30, 1999. While failure of any critical technology components to
operate properly in the year 2000 could adversely affect our operations, we
believe that resolution of the year 2000 issue will not require additional
material costs and will not have a material adverse effect on our results of
operations.
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Year 2000 contingency plans for our information technology operations
include manual procedures for routing accounting, financial and product
information to support on-time delivery and processing of our customers'
products. If we experience interruptions in operations, we are prepared to
correct the problems while sustaining our operations manually. We have not
experienced these problems to date.
While we expect no material adverse affect on our business, financial
condition or results of operations due to future year 2000 issues, our beliefs
and expectations are based on assumptions that ultimately may prove to be
inaccurate. We cannot assure you that if we do experience problems associated
with year 2000 issues or if our material suppliers or customers experience
problems, that it will not have a material adverse effect on us.
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 through the first three quarters of 1999, respectively, from forward
foreign currency contracts.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No.
133 requires us to recognize all derivatives on the balance sheet at fair
value. Derivatives which are not hedges must be adjusted to fair value through
net income. If the derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of derivatives are either offset against the change
in fair value of assets, liabilities, or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair value will
be immediately recognized in earnings. SFAS 133 is effective for years
beginning after June 15, 2000, but companies can adopt it as of the beginning
of any fiscal quarter that begins after June 1998. We are evaluating the
requirements of SFAS 133, but do not expect this pronouncement to materially
impact our financial position or results of operations.
We have adopted SFAS No. 131, Disclosures about Segments of an Enterprise
and Related Information, issued in June 1997. This statement establishes
standards for disclosure about operating segments in annual financial
statements and selected information in interim financial reports. It also
establishes standards for related disclosures about products and services,
geographic area and major customers. This statement supersedes SFAS No. 14,
Financial Reporting for Segments of a Business Enterprise. We operate in one
segment and accordingly, do not report product segment information but will
report geographic and significant customer revenue.
We have adopted Statement of Position ("SOP") 98-1, Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use, issued in March
1998 by the Accounting Standards Executive Committee. SOP 98-1 provides
guidance on when costs related to software developed or obtained for internal
use should be capitalized or expensed. The adoption of this statement has not
had a material effect upon our combined results of operations, financial
position or cash flows.
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 interest rates.
Fluctuations in interest rates would not have a material effect on our
financial position, results of operations and cash flows. 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 not have a
material impact on our financial position, results of operations and cash
flows.
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INDUSTRY
General
The production of a semiconductor is a complex process that requires
increasingly sophisticated expertise. The production process can be broadly
divided 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 back-end processes.
According to International Data Corporation, worldwide semiconductor market
revenues were approximately $125.0 billion during 1998. Since 1993, the global
semiconductor market has expanded at a compound annual growth rate of
approximately 10.4%. The worldwide semiconductor market can be divided into
three segments:
. microcomponents, including microprocessors and microcontrollers,
which process data, such as the Pentium Microprocessor;
. memory devices, which store data, such as Dynamic Random Access
Memory, which is referred to as DRAM; and
. moving and shaping devices, which move and share electronic signals
around a printed circuit board, such as logic, analog, discrete and
power devices and chipsets.
According to International Data Corporation, the semiconductor industry's
revenues are expected to grow at a compound annual growth rate of 13.2% from
1998 to 2003. Semiconductor growth continues to be driven by strong end-user
demand for computers, telecommunications and consumer products, which require
semiconductors characterized by greater functionality, increased speed and
smaller size. In 1998, according to Electronic Trends Publications, total
packaging revenues for the semiconductor industry were $16.1 billion of which
revenues from independent packaging companies, like us, represented $6.1
billion, or 38.0%, of total packaging revenues. Independent packaging revenues
are expected to grow at a compound annual growth rate of 16.2% from 1998 to
2003. Revenues for BGA packaging services, the fastest growing component of the
independent packaging market, are expected to grow at a compound annual growth
rate of 32.6% 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.
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:
. 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 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.
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Moreover, as the cost to build a new wafer fabrication facility has
increased to over $1 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.
. 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 expertise 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. There has been a recent growth of
"fabless" semiconductor companies, which are companies that outsource
all of their manufacturing and all of their packaging and test
service needs. 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 increases in the number of fabless semiconductor companies will
continue to be a significant driver of growth in the independent
semiconductor manufacturing industry.
. 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. As a
result, semiconductor packaging now requires sophisticated expertise
and technological innovation. Independent providers, like us, of
packaging and test services have developed substantial expertise in
packaging and test technology.
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BUSINESS
Company Overview
We are one of the world's largest providers of packaging and test services
for manufacturers in the semiconductor industry. We offer complete portfolios
of packaging and test services and are one of the largest providers of high-
margin, ball grid array, or BGA, packages, which are the most advanced mass-
produced semiconductor packages. A semiconductor package is a container 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 approximately 70 customers worldwide,
including approximately 40 customers in the United States. Our customers
include some of the world's largest and most prominent semiconductor
manufacturers, like:
. Atmel Corporation;
. Intel;
. International Business Machines Corporation;
. LSI Logic Corp.;
. Lucent Technologies, Inc.;
. Samsung Electronics Co., Ltd.; and
. STMicroelectronics N.V.
Today, most major semiconductor manufacturers use independent packaging and
test service providers for at least some of their packaging and test needs. We
expect this outsourcing trend to continue. Our executive and sales headquarters
are in the United States and our packaging facilities are in Korea and China.
During 1998, we packaged over 792.9 million units and generated $334 million in
revenues and $86 million in EBITDA. For the nine-month period ended September
30, 1999, we packaged over 885.2 million units and generated $267.7 million in
revenues and $58.4 million in EBITDA.
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. At that time, we began
providing packaging and test services to third parties. In 1995, we identified
an opportunity to become a leader in providing, advanced substrate packaging
services, like BGA. From 1995 to 1997, Hyundai Electronics invested
approximately $300 million in plant and equipment in order to give us the
capacity necessary to provide advanced packaging and test services. As a result
of this strategic shift to BGA packaging services, we have developed strong
relationships with leading semiconductor companies in the various market
segments of the semiconductor industry and have become a leader in BGA
technology. In 1997, ChipPAC, Inc. was established as a stand-alone, worldwide
business and was incorporated as a distinct entity. Since the year ended
December 31, 1995 through September 30, 1999, our revenues have grown at a
compound annual growth rate of 16.9%, and our EBITDA has grown at a compound
annual growth rate of 13.7%.
Competitive Strengths
Demonstrated technology leadership. We are the world's second largest
provider of outsourced, advanced BGA packaging services. We offer one of the
most complete lines of packaging and test solutions in the industry, with
approximately 61.8% of our revenues in 1998 derived from BGA packaging
services. BGA is currently the industry's most advanced mass produced packaging
technology and outsourced BGA revenues are currently expected to grow at a
compound annual growth rate of 32.6% from 1998 through 2003. We also continue
to invest in research and development of next-generation packaging like flip
chip technology. The recent opening of our state-of-the-art research and
development facilities in Chandler, Arizona and Santa Clara, California
demonstrate our commitment to maintaining a technology leadership position.
These facilities allow us to better service our customers through the
development of new packaging services.
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Growing customer base. We are a leading supplier of packaging services to
many large semiconductor manufacturers, including Intel, LSI Logic and Atmel,
and we are expanding our list of customers. New customers include IBM, Lucent,
nVIDIA, Level One and NEC. These new customers are expected to generate
significant revenues in 1999. Our close relationships with our customers help
to improve our technology and allow us to benefit from the high unit volumes of
these major semiconductor manufacturers. Additionally, to become a qualified
packager, a packaging company must pass a lengthy and rigorous qualification
process that can take up to nine months for each packaging type. As a result,
we believe semiconductor companies are generally reluctant to switch packaging
suppliers once suppliers have been qualified.
Low-cost infrastructure. Our packaging facilities are located in Korea and
China, affording us a highly competitive cost structure. Currently, BGA
packaging services are provided in Korea, while most of our higher volume
leaded packaging services are provided in China.
Efficiency and quality leader. We consistently rank among the top service
providers to our customers. We have received numerous quality awards from our
customers, including supplier of the year recognition from Atmel and LSI Logic
and, most recently, Intel's Preferred Quality Supplier Award. We are one of the
most efficient packagers as measured by yields, cycle time, delivery and
quality. Throughout 1998, we maintained a 99.8% yield on BGA packaging services
which management believes is the highest for BGA packaging services. Our
customers monitor the yield we are achieving on their ICs on a real time basis.
Our strength separates us from our competition for two primary reasons: (a)
management believes no other independent packaging company can ramp up from the
R&D phase to full scale production faster than us; (b) once at full scale
production levels, no other independent packaging company maintains the same
level of yield and cycle time performance as us. This efficiency is due to:
. our engineers' skills in providing our customers with unique,
specialized solutions;
. our operational excellence program, which focuses on quality, cycle
time and continuous improvement; and
. our state-of-the-art facilities and equipment.
Major investments in packaging facilities. Most of our major investments in
plant and capital equipment are already in place. From 1995 to 1997, Hyundai
Electronics invested approximately $300 million in our plant and equipment in
order to give us the necessary capacity to provide advanced packaging and test
services. Investments included the purchase of advanced capital equipment and
the construction of our packaging facility in China, which allows us to move
most of our high-volume leaded packaging services operations to China from
Korea. As a result, we believe that our facilities have sufficient capacity to
allow us to grow without significant capital expenditures in the near future.
Experienced management team. Our management team averages over 23 years of
semiconductor industry experience. Our President and Chief Executive Officer,
Dennis McKenna, has over 26 years of industry experience and has held various
management positions at TRW, Inc., Oki Semiconductor (a division of Oki
America, Inc.) and Hyundai Electronics. Under his tenure, which began in 1995,
we have significantly increased our revenues and earnings and also procured the
Intel account, our largest customer. As a result, we are one of the world's top
two providers of BGA packaging services.
Business Strategy
Maintain high-quality customer service. To achieve the highest possible
customer satisfaction, we employ a high concentration of resources for each
customer through a team approach. Each team is comprised of business
development, technical solutions and order management professionals who are
familiar with a customer's specific organization, product, procedural and
logistical requirements. In addition, we plan to engage in electronic commerce
with many of our customers to transfer documents, collaborate on product design
and development, receive detailed forecasts from our customers, receive
customer orders, track our customers' work-in-process and furnish invoices to
our customers. Also, in late 1997, we established a design and
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materials characterization center to provide BGA and leaded packaging designs,
as well as electrical and thermal modeling services, in order to better assist
our customers in shortening their product development cycles.
Increase share with existing customers. 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, high-quality packaging services, like BGA. Our customers today are
leading semiconductor companies, including AMD, IBM, Intel, LSI Logic, Lucent,
Samsung Electronics and STMicroelectronics, which are leaders in multiple
semiconductor market segments, including flash memory, personal computer
chipsets, memory chips, system ICs, wireless ICs, communications ICs, and mass
storage ICs. According to The McClean Report (1999 edition), these companies
accounted for approximately 38% of worldwide semiconductor revenues in 1998.
All of these customers compete in large segments within the semiconductor
industry and are on the leading edge of the trend to smaller, thinner, lighter
and higher performance packaging.
Expand customer base through technology leadership. We believe that the key
to expanding our customer base will be the development of new packaging
technology. Within the last two years, we have introduced the following six new
packages:
. mBGA(TM), or micro BGA,
. PBGA,
. TBGA,
. M/2/BGA(TM),
. EconoCSP(TM) and
. FBGA-T
Recently, we have either qualified or begun the qualification process for 13
new customers, including nVIDIA Corporation and Broadcom Corporation. In 1999,
we established a U.S. research and development center that allows customers to
validate future packaging options early in the development process. Research
and development spending was approximately 2.3% of revenues during 1998, which
is comparable to that of the independent packaging industry, but is
significantly lower than that of most semiconductor manufacturing companies. We
have 80 engineers dedicated to new packaging development.
Maintain low-cost structure. We believe that a low-cost infrastructure is
critical to our ongoing success in a highly competitive marketplace. As a
result, we have initiated several programs to further increase the efficiency
of our packaging processes, like adopting a standard set of equipment to handle
and process existing and potential packaging types. This equipment set strategy
will reduce our requirements for space, utilities, materials and manpower.
We are also taking steps to streamline our cost structure for existing
processes, including initiating a materials cost reduction program, including
gold wire diameter reduction, process simplification and use of quick cure mold
compound; and adopting new inventory management, materials procurement and
logistics procedures.
Our Services
We offer semiconductor packaging and test services to the semiconductor
industry. During 1998, approximately 97.2% and 2.8% of our revenues were
derived from packaging and test services, respectively. During the nine month
period ended September 30, 1999, approximately 97.5% and 2.5% of our revenues
were derived from packaging and test services, respectively.
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. Our two types of packaging services, leaded and
substrate, or BGA, contributed to approximately 61.8% and 35.5% of revenues,
respectively, for 1998.
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<PAGE>
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 1998 comprised over half of the total industry packaging
volume. Leaded packages are characterized by a semiconductor die encapsulated
in a plastic mold compound with metal leads surrounding the perimeter of the
package. With leaded packages the die is attached to a leadframe, 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 the 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
evolutionary 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 MQFP, 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 TQFP, TSOP, TSSOP and SSOP.
Leaded Package Profile
(LOGO OF LEADED PACKAGE PROFILE])
(LOGO OF ChipPAC)
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 such as wireless technologies, personal digital assistants
and video cameras, and home electronics, 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 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.
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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 utilized in high-
performance applications, like personal computer chipsets, graphic
controllers and microprocessors. A standard BGA package generally has
a high pin count, usually 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.
BGA Package Profile
(LOGO OF BGA PACKAGE PROFILE)
(LOGO OF ChipPAC)
. 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 high pin count semiconductors, which generally
contain fewer than 100 pins, and require dense ball arrays in very
small package sizes, like wireless telephones and personal digital
assistants, video cameras, digital cameras and wireless pagers. We
recently secured a three-year contract with Hyundai Electronics to
package their RDRAM devices using mBGA(TM), or micro BGA, packaging,
a chip scale BGA packaging technology. Although none of our 1998 BGA
revenues were derived from chip scale BGA packaging, we expect that
chip scale packaging will contribute to our future revenues as a
result of the Hyundai Electronics mBGA(TM), or micro BGA, contract
and contracts with other customers requiring the smaller chip scale
BGA package.
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 whereby the silicon die is
directly attached to the substrate using solder rather than wire bonds. This
improves 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," digital signal processors, referred to as
"DSPs," 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 continue to experience long life cycles like many
of our leaded packaging solutions.
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The following chart summarizes the packaging services we offer. The full
names of each packaging type are provided in the "Glossary."
<TABLE>
<CAPTION>
Percentage
of 1998
Packaging
Revenues Packaging Types* Applications Pin Count
---------- ---------------- ------------ ---------
<S> <C> <C> <C> <C>
Leaded 31.8% Traditional: PDIP, PLCC, QFP, Telecommunications, 8-304
MQFP, SOIC, SOJ, automobiles, household
TSOC, LQFP, SSOP appliances, and desktop and
and iQUAD(TM) notebook computers
6.1% Advanced: TQFP, TSOP and TSSOP Personal computers and 32-176
telecommunications
BGA 61.8% Standard BGA: PBGA, Personal computer chipsets, 119-371
M/2/BGA(TM), graphic controllers and
TBGA, EPBGA microprocessors
-- Chip Scale BGA: EconoCSP(TM), 36-280
eBGA(TM), Wireless telephones,
M2CSP(TM) and personal digital assistants,
FBGA-T video cameras and wireless
pagers
0.2% Flip Chip BGA: FlipPAC(TM), 36-1732
RamPAC(TM) and High-end consumer products,
FlashPAC(TM) application specific
integrated circuits, digital
signal processors and memory
packages
</TABLE>
Testing Services
We also provide our customers with semiconductor test services for a number
of device types, including logic, mixed signal and memory 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.
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 some instances, our customers may consign
their test equipment to us. Our test operators place devices to be tested on a
socketed 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. When we provide test services for a
packaging type, we run the test against every device it packages.
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 under extreme conditions.
We expect test services to become an important component of our revenues
during the next several years as customers seek to reduce the time-to-market
for their products by outsourcing both their packaging and test services.
Other Services
We also provide a full range of other related services, including:
. Design and Characterization Services. We offer design and
characterization services at our Chandler, Arizona and Ichon, Korea
facilities. When the selection of a package is critical to the
overall development of a semiconductor device, our design engineers
at these facilities select, design and develop the appropriate
package 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.
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. Tape and Reel Services. Many electronic assembly lines utilize "tape
and reel" methods whereby semiconductors are attached to a tape to
enable faster attachment to the printed circuit board. We offer a
service whereby 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 management costs, we
offer drop shipment services whereby we ship packaged semiconductor
devices directly to those companies that purchase devices from our
customers.
Customers
We provide packaging and test services to over 70 customers worldwide,
including approximately 40 in the United States. Our customers include some of
the world's largest and most prominent semiconductor manufacturers including:
. Atmel Corporation,
. Intel Corporation,
. International Business Machines Corporation,
. LSI Logic Corp.,
. Lucent Technologies, Inc.,
. Samsung Electronics Co., Ltd. and
. STMicroelectronics N.V.
In 1998, approximately 67.0% of our revenues were derived from Intel, and
10.1% and 9.8% of our revenues were derived from Atmel and LSI, respectively.
For the nine month period ended September 30, 1999, approximately 7.2% and 6.2%
of our revenues were derived from Atmel and LSI, 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 International Business Machines, Lucent Technologies
Inc. and nVIDIA Corporation, begin to ship semiconductor devices to us for
packaging. In 1998, we derived approximately 92.8% of our revenues from sales
in the U.S., 5.1% in Asia and 2.1% in 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 up to three months for a typical leaded package and cost
the customer $100,000 to $200,000 or can take more than six months for a
typical BGA package and cost the customer $250,000 to $300,000. Once a primary
packager has been selected, that packager gains insight into its customer's
business operations and an understanding of its products while strengthening
the overall working relationship. These factors, combined with the pressures of
a semiconductor company to meet the time-to-market demands of its customers,
results in high switching costs for semiconductor companies, making them
adverse to changing suppliers 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 a complete line of BGA packaging
services.
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 demand BGA technology
solutions from independent packagers. In 1998, Intel accounted for
approximately 90.0% of the industry's worldwide personal computer chipset
revenues and approximately 80.0% of worldwide personal computer chipset units.
Due to the significant volume of Intel semiconductors sold worldwide, in 1998,
we believe Intel accounted for more than 40.0% of worldwide BGA packaging
consumption. We are currently one of two suppliers of BGA packaging technology
to Intel. In 1999, we were awarded Intel's Preferred Quality Supplier award.
As a result of the Intel account, 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.
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Furthermore, we have developed the expertise to use BGA technology across
almost all Intel business groups, including personal computer chipsets, graphic
controllers, memory, networking and communications. Intel does not currently
outsource packaging services for any of its microprocessors, including the
Pentium and Celeron lines. Both Intel and ChipPAC have resources dedicated to
continuing the support of BGA packaging.
Marketing, Sales and Customer Support
We provide sales support to our customers through an international network
of offices located in:
. United States
. Santa Clara, California (our executive offices)
. San Diego, California
. Chandler, Arizona
. Boston, Massachusetts
. Dallas, Texas
. Kampen, The Netherlands
. Tokyo, Japan
. Shanghai, China
. Ichon, Korea
. Singapore
Our account managers, applications engineers, customer service
representatives and sales support personnel form teams that focus on a specific
customer or geographic region. Our 60 marketing, sales support and customer
service personnel's performance is measured by each team's revenue achievements
and number of design "wins," providing a new service to an existing customer or
signing up a new customer. In 1998, approximately 92.8% of our revenues were
derived from U.S.-based customers. As is industry practice, we have no long-
term customer contracts; rather, 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 its advanced device packaging technologies and an
understanding of its end-user market applications in networking, memory,
storage, graphics and wireless. We emphasize that we are a leader in advanced
packaging and test technology, supplying 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 of all of our customers; we
regularly collect data from different segments of the semiconductor industry,
for example, personal computers, wireless telephony, video and digital cameras,
etc.. 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 its 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
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<PAGE>
molding compound. We purchase materials based on the stated demand forecasts of
our customers. Our customers are responsible for the costs of unique materials
which go unused, 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 availability and timeliness 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. Historically, over half of
our substrate costs were incurred from the purchase of materials from Japan. We
expect that a growing portion of these substrate materials in the next several
years will be supplied by sources in Korea and, to some extent, Taiwan.
Our packaging operations and expansion plans also depend on obtaining
adequate supplies 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.
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 according to customers' specifications. 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 five operating facilities under
contracts entered into by ChipPAC Limited, our British Virgin Islands operating
subsidiary. 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 and Shanghai, China. Our Chungju
facility provides electroplating services on chips 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 following chart summarizes our packaging
and research and development facilities:
<TABLE>
<CAPTION>
Principal Packaging or
Service
Owned/ Provided or Being
Facility Location Leased Sq. Ft. Functions/Services Developed
----------------- ------ ------- -------------------------- --------------------------
<S> <C> <C> <C> <C>
Santa Clara, California. Leased 40,000 Executive offices, Flip Chip BGA and Quick-
Research and Turn BGA Development
Development, Sales and
Marketing
Chandler, Arizona....... Leased 5,000 Research and Development, Design and
Sales and Marketing Characterization Services
Shanghai, China......... Owned 442,000 Packaging and Test Traditional Leaded BGA
Services Packaging and Test
Services
Ichon, Korea............ Leased 474,000 Packaging and Test Advanced Leaded and BGA
Services; Research and Packaging and Test
Development Services
Chungju, Korea.......... Leased 129,000 Electroplating chips from --
Ichon, Korea
</TABLE>
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<PAGE>
Competition
The packaging and test industry is highly fragmented. Our primary
competitors and their locations are as follows:
. Advanced Semiconductor Engineering, Inc. -- Taiwan
. ASE Test Limited -- Taiwan and Malaysia
. Amkor Technology, Inc. -- USA
. ASAT, Ltd. -- Hong Kong
. Hana Microelectronics Public Co., Ltd. -- Hong Kong and Thailand
. Siliconware Precision Industries Co., Ltd. -- Taiwan
. Shinko Electric Industries Co., Ltd. -- Japan
. 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 been operating for some time. 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 test 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 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 a distinct advantage in this area. Within
the last two years, we have introduced the following six new packages:
. mBGA(TM),
. PBGA,
. TBGA,
. M/2/BGA(TM),
. EconoCSP(TM) and
. FBGA-T.
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 by giving customers direct access to flip chip materials,
equipment and our engineering expertise.
As of September 30, 1999, we employed approximately 70 full-time research
and development personnel. Since we partner with the semiconductor
manufacturers that are our customers, research and development costs have not
historically represented a material percentage of our revenues. During 1998, we
spent approximately $7.7 million on research and development.
Employees
As of September 30, 1999, we employed 3,795 full-time employees, of whom
approximately 80 were employed in research and development, 3,575 in packaging
and test services and 236 in marketing, sales, customer service and
administration.
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Approximately 1,806 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 believe that we have good relationships with our
employees and unions.
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 ChipPAC Limited entered into with Hyundai
Electronics, which we refer to as the Hyundai Electronics License, in
connection with the recapitalization, 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 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.
ChipPAC Limited has 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 some 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. The expiration of the Tessera will not occur until
sometime after February, 2018 which is the first expiration date of a patent we
license under the Tessera license.
Further, in connection with the recapitalization, ChipPAC Limited obtained a
non-exclusive, royalty-free sub license from Hyundai Electronics under patents
owned by Motorola for use in connection with our BGA packaging process. The
initial term of our sub license 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 ChipPAC Limited a sublicense on the same terms and conditions as those
of any extended or renewed license.
Our primary trademark and trade name is "ChipPAC." We own or are licensed to
use other secondary trademarks, but none of these trademarks are considered of
primary importance to our business.
Environmental Matters
We are subject to liabilities and compliance obligations arising under
environmental, health and safety laws. These laws impose various controls on
the quality of our air and water discharges 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
58
<PAGE>
environmental capital expenditures in fiscal years 1999 and 2000. 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.
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<PAGE>
MANAGEMENT
Directors and Executive Officers
The following table provides information about the persons who are the
directors and executive officers of ChipPAC, Inc.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Dennis P. McKenna 50 President, Chief Executive Officer and Director,
ChipPAC, Inc.
Robert Krakauer 33 Senior Vice President and Chief Financial Officer,
ChipPAC, Inc.
Gregory S. 43 Vice President, Worldwide Sales, ChipPAC, Inc.
Bronzovic
Marcos Karnezos 55 Vice President, Technology, ChipPAC, Inc.
(Peter) Phang Guk 51 President, ChipPAC Assembly
Bing and Test (Shanghai) Company Ltd.
S. N. Lee 55 President and Chief Executive Officer, ChipPAC
Korea Company, Ltd.
David Dominik 43 Director, ChipPAC, Inc.
Edward Conard 42 Director, ChipPAC, Inc.
Prescott Ashe 32 Director, ChipPAC, Inc.
Michael A. 45 Director, ChipPAC, Inc.
Delaney
Paul C. Schorr IV 32 Director, ChipPAC, Inc.
Joseph Martin 51 Director, ChipPAC, Inc.
Chong Sup Park 51 Director, ChipPAC, Inc.
</TABLE>
Dennis P. McKenna has been President and Chief Executive Officer of ChipPAC,
Inc. since October 1997; he was appointed to these positions when ChipPAC, Inc.
was incorporated as a separate United States corporation. From October 1995 to
January 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 26 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,
ChipPAC, Inc. 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 ChipPAC, Inc. in April 1998 and has served as
Vice President North American Sales, ChipPAC, Inc. since that time. From
September 1998 to the present he has also served as Vice President, Worldwide
Sales, ChipPAC, Inc. 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.
Marcos Karnezos has been Vice President, Technology of ChipPAC, Inc. 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 October 1992 to December 1996.
(Peter) Phang Guk Bing was appointed as President, ChipPAC Assembly and Test
(Shanghai) Company Ltd. in November 1999. He was also recently appointed as
President, Chief Executive Officer and Chief Financial Officer of ChipPAC
International Company Limited, ChipPAC (Barbados) Ltd and ChipPAC Limited. 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.
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<PAGE>
S. N. Lee has been President and Chief Executive Officer, ChipPAC Korea
Company, Ltd. since July 1998. Mr. Lee served as Senior Vice President from
April 1986 through December 1995, and as Executive Vice President from October
1996 through June 1998 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.
David Dominik joined Bain Capital in 1990 as a Managing Director. Prior to
joining Bain Capital, Mr. Dominik was a general partner of Zero Stage Capital,
a venture capital firm focused on early-stage companies. Previously, Mr.
Dominik was a venture capital investor and assistant to the Chairman of Genzyme
Corporation, a biotechnology firm. From 1982 to 1984, Mr. Dominik was a
management consultant at Bain & Company. Mr. Dominik serves on the board of
directors of Therma-Wave, Inc., Dynamic Details, Incorporated and OneSource
Information Services, Inc.
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.
Prescott Ashe joined Bain Capital in 1991 and has been a Principal of Bain
Capital since 1998. Prior to Bain Capital, Mr. Ashe was a management consultant
at Bain & Company. Mr. Ashe currently serves on the board of directors of
Dynamic Details, Incorporated.
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 GVC Holding, JAC Holdings, CORT Business Services, Inc., Palomar
Technologies, Inc., SC Processing, Inc., Triumph Group, Inc., CLARK Material
Handling Inc., MSX International, Delco Remy International, Inc., International
Knife and Saw, Inc., Fabri-Steel Products, Inc., Aetna Inc., AmeriSource Health
Corporation and Allied Digital Technologies Inc.
Paul C. Schorr IV has been Vice President, Equity Investments for Citicorp
Venture Capital Ltd., an investor in the SXI Group LLC, since June 1996. Prior
to that, Mr. Schorr was Engagement Manager in Management Consulting at McKinsey
& Company. Mr. Schorr serves on the board of directors of KEMET Corporation,
Sybron Chemicals and Fairchild Semiconductor Corporation.
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 has been Chairman of
Hyundai Electronics America since November 1999. From February 1995 to October
1999, he served as President and Chief Executive Officer of Hyundai Electronics
America and Maxtor Corporation. Mr. Park is also a director of Maxtor
Corporation, Dot Hill Systems Corporation, and Viador, Inc.
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 Mr. Martin and Dr. Park compensation that is
commensurate with arrangements offered to directors of companies that are
similar to ChipPAC, Inc. for their services as directors.
We have entered into agreements with Mr. Martin and Dr. Park for the grant
of stock options to purchase shares of our Class A common stock. The options
granted pursant to these agreements will begin vesting in August 2000.
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<PAGE>
Executive Compensation
Summary Compensation Table
The following table provides, for the year ended December 31, 1998, the
compensation paid to the Chief Executive Officer and the four next most highly
compensated executive officers of ChipPAC whose total annual salary and bonus
was in excess of $100,000 for fiscal year 1998. 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."
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation(2)
---------------------------------- ----------------
Securities All Other
Name and Principal Year Other Annual Underlying Compensation
Position Ended Salary Bonus Compensation (1) Options/SARS (#) (3)
- ------------------ ----- ------ -------- ---------------- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Dennis P. McKenna....... 1998 $325,012 $165,925 $7,200 300,000 $6,565
President and Chief
Executive Officer,
ChipPAC, Inc.
Tony Lin................ 1998 175,805 50,925 6,000 100,000 6,059
Former Chief Financial
Officer, ChipPAC, Inc.
Richard L. Groover(4)... 1998 167,205 32,886 6,000 75,000 5,767
Vice President,
Engineering, ChipPAC,
Inc.
Gary J. Breton(4)....... 1998 167,967 44,686 45,073(5) 75,000 3,659
Vice President,
China Operations,
ChipPAC, Inc.
Gregory S. Bronzovic.... 1998 136,210 42,137 4,500 75,000 2,850
Vice President,
Worldwide Sales,
ChipPAC, Inc.
</TABLE>
- --------
(1) Includes a car allowance but 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 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.
(3) Includes amounts contributed (a) under our 401(k) plan for 1998 as follow:
Mr. McKenna--$4,999; Mr. Lin--$4,317; Mr. Groover--$4,126; Mr. Bronzovic--
$2,388; and Mr. Breton--$2,009 and (b) for premiums for a life insurance
policy as follow: Mr. McKenna--$1,566; Mr. Lin--$1,742; Mr. Groover--$1641;
Mr. Bronzovic--$462; and Mr. Breton--$1,650.
(4) Mr. Groover and Mr. Breton are no longer employed by us.
(5) Includes an overseas allowance of $22,800 and relocation reimbursement of
$22,273.
Employment Agreements
Mr. McKenna
Mr. McKenna is employed under an employment agreement with us. The agreement
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 its 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
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<PAGE>
to 80% of his base salary upon attainment by us of financial performance
targets described in the agreement. Mr. McKenna will receive a pro rated bonus
for the remainder of 1999. 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 control of ChipPAC,
the provisions of the employment agreement shall remain in force and effect
following the change of control.
Mr. Lin, Mr. Bronzovic, Mr. Krakauer and Mr. Phang
Mr. Lin, Mr. Bronzovic, Mr. Krakauer and Mr. Phang are employed under letter
agreements with us. Mr. Lin's and Mr. Bronzovic's letter agreements provide
that Mr. Lin and Mr. Bronzovic are employees-at-will and that either party has
the right to terminate the employment relationship at anytime with or without
cause.
Mr. Lin's letter agreement provides that he serves as Chief Financial
Officer, a position that he no longer holds. Mr. Lin's current base salary is
$185,224. 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 ChipPAC and
personal performance goals.
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. 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 the company 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. 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 4
years 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 ChipPAC terminates for reasons other
than cause. If ChipPAC terminates for reasons other than cause, ChipPAC will
pay for Mr. Phang's relocation back to Singapore, and any unvested options held
by Mr. Phang would immediately vest upon this termination.
Mr. Lin's, Mr. Bronzovic's, Mr. Krakauer's and Mr. Phang's letter agreements
provides for perquisites, like automobile allowances, and customary personal
benefits.
Other Compensation
Following the recapitalization, we paid cash to the named executive officers
in return for the vested options held by each of these officers. The amount of
those cash payments was $40,500, $15,750, $11,813, $11,813 and $8,438 in the
case of Messrs. McKenna, Lin, Groover, Breton and Bronzovic, respectively.
Mr. McKenna and Mr. Lin also received special bonuses of $100,000 and
$50,000, respectively, in connection with the closing of the recapitalization.
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<PAGE>
Option Grants
Under the recapitalization agreement, each option to purchase our common
stock that was outstanding prior to the recapitalization was, in the case of
unvested options, canceled, and in the case of vested options, converted into
the right to receive cash from ChipPAC, Inc. immediately prior to the
recapitalization.
1999 Stock Purchase and Option Plan
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 a
quantity, at such price, on terms and 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 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 September 30, 1999, no shares of Class A common stock or Class L common
stock or options to purchase stock were outstanding under the 1999 Stock Plan.
Qualified 401(k) and Profit Sharing Plan
We maintain a qualified 401(k) and profit sharing plan. Employees are
permitted to contribute up to 15.0% of their annual compensation to our 401(k)
plan, not to exceed $10,000 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 $119,000 in
1998, $49,000 in 1997 and $11,000 in 1996.
Pension Plans and Deferred Compensation Plans
We do not maintain any pension plans or deferred compensation plans other
than the 401(k) and profit sharing plan described above. In connection with the
recapitalization, some members of management may receive deferred compensation
arrangements. The terms of these arrangements have not yet been finalized.
Management Equity Sale
Under the 1999 Stock Plan, we intend to enter into purchased stock
agreements, which we refer to as purchase agreements, with some of our senior
employees, including Mr. McKenna, Mr. Krakauer, Mr. Karnezos, Mr. Lin and Mr.
Bronzovic. Under these purchase agreements, some of our senior-level employees
may purchase shares of our Class A common stock and Class L common stock. We
may loan some of these senior-level employees up to 50% of the purchase price
of the common stock purchased under these purchase agreements. These loans will
be represented by promissory notes between the employee and us. The common
stock purchased under the purchase agreements must vest before being issued and
is also subject to repurchase upon termination of the employee's employment
with us.
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<PAGE>
PRINCIPAL SHAREHOLDERS
ChipPAC International Company Limited is a wholly-owned subsidiary of
ChipPAC, Inc. ChipPAC, Inc.'s outstanding equity securities consist of Class A
common stock, Class L common stock, Hyundai Preferred Stock and Intel Preferred
Stock. The shares of Class A common stock entitle the holder to one vote per
share on all other matters to be voted upon by shareholders. The Class L common
stock is identical to the Class A common stock except that the Class L common
stock is nonvoting and is entitled to a preference over the Class A common
stock on any distribution to holders of our capital stock, equal to the
original cost of a share plus an amount which accrues at a rate of 12.5% per
annum, compounded quarterly. The Class L Common Stock is convertible into Class
A Common Stock upon an initial public offering. See "Certain Relationships and
Related Transactions."
Hyundai Electronics and Hyundai Electronics America own all of the issued
and outstanding Hyundai Preferred Stock. Intel owns all of the issued and
outstanding Intel Preferred Stock. Holders of the Hyundai Preferred Stock and
the Intel Preferred Stock have no right to vote on any matters to be voted on
by the stockholders of ChipPAC, Inc.
The following table provides information as of September 30, 1999 regarding
the approximate beneficial ownership of (1) each person known to us to own more
than 5% of the outstanding voting securities of ChipPAC, Inc. and (2) the
voting securities of ChipPAC, Inc. held by each director of ChipPAC, Inc., each
named executive officer and all of the directors and named executive officers
as a group. Unless otherwise noted, to our knowledge, each stockholder has sole
voting and investment power as to the shares shown. Unless otherwise indicated,
the address of each director and named executive officer is 3151 Coronado
Drive, Santa Clara, California 95054.
<TABLE>
<CAPTION>
Class A Common Stock
Shares Beneficially
Owned
------------------------
Number of Percentage
Name and Address Shares of Class
- ---------------- ------------- ----------
<S> <C> <C>
Principal Stockholders:
Bain Capital Funds (1)................................ 40,995,003.17 44.7%
c/o Bain Capital, Inc.
Two Copley Place
Boston, Massachusetts 02116
SXI Group LLC (2)..................................... 40,500,000 44.1%
c/o Citicorp Venture Capital, Ltd. 399 Park Avenue
New York, NY 10043
Hyundai Electronics America........................... 9,000,000 9.8%
3101 North First Street
San Jose, California 95134
Directors and Executive Officers: -- --
Dennis P. McKenna..................................... -- --
Tony Lin.............................................. -- --
Gregory S. Bronzovic.................................. -- --
Marcos Karnezos....................................... -- --
David Dominik (3)..................................... 8,468,975.98 9.2%
Edward Conard (4)..................................... 8,468,975.98 9.2%
Prescott Ashe (5)..................................... 8,468,975.98 9.2%
Michael A. Delaney (6)................................ 40,500,000 44.1%
Paul C. Schorr IV(7).................................. 40,500,000 44.1%
Joseph Martin (8).....................................
Chong Sup Park........................................
All Directors and named executive officers as a group
(11 persons)......................................... 48,968,975.98 53.3%
</TABLE>
65
<PAGE>
- --------
(1) Includes: (a) 31,520,958.49 shares of Class A common stock owned by Bain
Capital Fund VI, L.P. ("Fund VI"), 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) 4,617,715.49 shares of Class A common stock owned by BCIP Associates II
("BCIP II"), whose managing partner is Bain Capital, Inc., a Delaware
corporation wholly owned by W. Mitt Romney; (c) 728,085.59 shares of Class
A common stock owned by BCIP Associates II-B ("BCIP II-B"), whose managing
partner is Bain Capital, Inc., a Delaware corporation wholly owned by W.
Mitt Romney; (d) 1,156,306.49 shares of Class A common stock owned by BCIP
Trust Associates II, L.P. ("BCIP Trust II"), whose general partner is Bain
Capital, Inc., a Delaware corporation wholly owned by W. Mitt Romney; (e)
329,309.41 shares of Class A common stock owned by BCIP Trust Associates
II-B ("BCIP Trust II-B"), whose general partner is Bain Capital, Inc., a
Delaware corporation wholly owned by W. Mitt Romney; (f) 1,637,559 shares
of Class A common stock owned by BCIP Associates II-C ("BCIP II-C"), whose
managing partner is Bain Capital, Inc., a Delaware corporation wholly owned
by W. Mitt Romney; (g) 105,068.70 shares of Class A common stock owned by
PEP Investments Pty, Ltd. ("PEP"), whose controlling persons are Timothy J.
Sims, Richard J. Gardell, Simon D. Pillar and Paul J. McCullagh; and (h)
Sankaty High Yield Asset Partners, L.P. ("Sankaty"), 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) SXI Group LLC is a portfolio concern of Citicorp Venture Capital Ltd.
(3) Includes: (a) 4,617,715.49 shares of Class A common stock owned by BCIP II,
a Delaware general partnership of which Mr. Dominik is a general partner;
(b) 1,156,306.49 shares of Class A common stock owned by BCIP Trust II, a
Delaware limited partnership of which Mr. Dominik is a general partner; (c)
105,068.70 shares of Class A common stock owned by PEP, a New South Wales
limited company for which Mr. Dominik has a power of attorney. Mr. Dominik
disclaims beneficial ownership of any shares in which he does not have a
pecuniary interest. Mr. Dominik's address is c/o Bain Capital, Inc., Two
Copley Place, Boston, Massachusetts 02116.
(4) Includes: (a) 4,617,715.49 shares of Class A common stock owned by BCIP II,
a Delaware general partnership of which Mr. Conard is a general partner,
(b) 1,156,306.49 shares of Class A common stock owned by BCIP Trust II, a
Delaware limited partnership of which Mr. Conard is a general partner; (c)
105,068.70 shares of Class A common stock owned by PEP, a New South Wales
limited company for which Mr. Conard has a power of attorney. Mr. Conard
disclaims beneficial ownership of any shares in which he does not have a
pecuniary interest. Mr. Conard's address is c/o Bain Capital, Inc., Two
Copley Place, Boston, Massachusetts 02116.
(5) Includes: (a) 4,617,715.49 shares of Class A common stock owned by BCIP II,
a Delaware general partnership of which Mr. Ashe is a general partner, (b)
728,085.59 shares of Class A common stock owned by BCIP II-B, a Delaware
limited partnership of which Mr. Ashe is a general partner; (c)
1,156,306.49 shares of Class A common stock owned by BCIP Trust II, a
Delaware limited partnership of which Mr. Ashe is a general partner; and
(d) 329,301.41 shares of Class A common stock owned by BCIP Trust II-B, a
Delaware limited partnership of which Mr. Ashe is a general partner. Mr.
Ashe disclaims beneficial ownership of any shares in which he does not have
a pecuniary interest. Mr. Ashe's address is c/o Bain Capital, Inc., Two
Copley Place, Boston, Massachusetts 02116.
(6) Includes all shares of Class A common stock owned by SXI Group LLC, a
portfolio concern of Citicorp Venture Capital, Ltd. Mr. Delaney is both 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 any shares in which he does
not have a pecuniary interest. Mr. Delaney's address is c/o Citicorp
Venture Capital, Ltd., 399 Park Avenue, New York, New York 10043.
(7) Includes all shares of Class A common stock owned by SXI Group LLC, a
portfolio concern of Citicorp Venture Capital, Ltd. Mr. Schorr is both 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
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<PAGE>
be deemed to beneficially own all shares held by SXI Group LLC. Mr. Schorr
disclaims beneficial ownership of any shares in which he does not have a
pecuniary interest. Mr. Schorr's address is c/o Citicorp Venture Capital,
Ltd., 399 Park Avenue, New York, New York 10043.
(8) Includes all shares of Class A common stock owned by SXI Group LLC, a
portfolio concern of Citicorp Venture Capital, Ltd. 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 any shares in which he does not have a pecuniary interest. Mr.
Martin's address is c/o Fairchild Semiconductor Corporation, 333 Western
Avenue, South Portland, Maine 04106.
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<PAGE>
THE RECAPITALIZATION
Prior to the recapitalization, Hyundai Electronics owned:
. all of the outstanding equity of ChipPAC Korea Company, Ltd., which
we refer to as ChipPAC Korea, and which leases our Ichon, Korea and
Chungju, Korea facilities;
. all of the outstanding equity of Hyundai Electronics (Shanghai)
Company Ltd. which was renamed ChipPAC (Shanghai) Company Limited
after the recapitalization and which we refer to as ChipPAC China I
and which owns ChipPAC's Shanghai, China facility; and
. 82.0% of the outstanding equity of Hyundai Electronics America. The
remaining 18% was owned by another 100% owned Hyundai subsidiary.
Hyundai Electronics directly owns some intellectual property rights
used in our business.
. Hyundai Electronics America, in turn, owned all of the outstanding
stock of ChipPAC, Inc. prior to the recapitalization. ChipPAC, Inc.
owned all of the outstanding equity of ChipPAC Assembly and Test
(Shanghai) Company, Ltd., which we refer to as ChipPAC China II.
The recapitalization and related transactions resulted in:
. the Equity Investors and other parties owning approximately 90.2% of
the outstanding common stock of ChipPAC, Inc. and Hyundai Electronics
and Hyundai Electronics America owning approximately 9.8% of the
outstanding common stock;
. the creation of several new foreign subsidiaries of ChipPAC, Inc.,
including ChipPAC International Company Limited, the issuer of the
exchange notes;
. the organization of the new direct and indirect subsidiaries and the
existing direct and indirect subsidiaries of ChipPAC, Inc. into a
distinct group of operating subsidiaries and a distinct group of
borrowing subsidiaries; and
. the issuance of the preferred stock to Hyundai and the implementation
of the new senior credit facilities described under "Description of
Other Financing Arrangements--Senior Credit Facilities."
Please see the diagram on the following page relating to our structure prior
to August 5, 1999.
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<PAGE>
The following diagram sets forth the corporate structure of ChipPAC, Inc.
and related entities prior to the August 5, 1999 recapitalization:
The steps described below were taken in order to complete the
recapitalization. Please refer to the diagram at the end of this section for
information on our current corporate structure.
. Through a series of restructuring transactions involving entities
controlled by Hyundai Electronics and Hyundai Electronics America,
ChipPAC, Inc. became the indirect owner of all of the outstanding
equity of ChipPAC Korea, ChipPAC China I and ChipPAC China II.
. Hyundai Electronics formed ChipPAC Limited as a new subsidiary and
ChipPAC (Barbados) Ltd. as a new subsidiary of ChipPAC, Inc. ChipPAC
(Barbados) Ltd. is now a wholly-owned subsidiary of ChipPAC, Inc. and
ChipPAC Limited is now a wholly-owned subsidiary of ChipPAC
(Barbados) Ltd. ChipPAC Limited owns all of the outstanding equity of
ChipPAC China I and ChipPAC China II and 99.9% of the outstanding
equity of ChipPAC Korea. ChipPAC (Barbados) Ltd. owns the remaining
0.1% of the outstanding equity of ChipPAC Korea.
. Hyundai sold the rights to substantially all of the intellectual
property used in our business, including rights under our agreements
with Intel Corporation, to ChipPAC Limited.
. Hyundai Electronics formed a subsidiary of ChipPAC, Inc. named
ChipPAC Operating Limited, which owned all of the outstanding equity
of two additional entities formed by Hyundai Electronics, ChipPAC
Luxembourg S.a.R.L. and ChipPAC Liquidity Management.
. The Equity Investors, together with other investors, invested an
aggregate of approximately $92.0 million cash in ChipPAC, Inc.
through the merger of ChipPAC Merger Corp., a newly-formed, wholly-
owned subsidiary of the Equity Investors, in exchange for
approximately 90.2% of the common stock of ChipPAC, Inc. after the
completion of the recapitalization steps.
. ChipPAC International Limited, the issuer of the outstanding notes
and the exchange notes was merged with and into ChipPAC Operating
Limited and renamed ChipPAC International Company Limited.
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. Concurrently with the recapitalization described above, we borrowed
$150 million under the term loan facilities. We used all the proceeds
from the term loan facilities, the issuance of the outstanding notes
and the equity issuance to repay existing third party indebtedness
and to purchase most of Hyundai Electronics and Hyundai Electronics
America's equity interest in us and our subsidiaries and the
intellectual property used in our business and to pay other accounts
in conjunction with the recapitalization.
Our current corporate structure is as follows:
[CORPORATE STRUCTURE CHART APPEARS HERE]
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Because this is a summary, it does not contain all of the information that
maybe 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 Additional Information."
Recapitalization Agreement
On March 13, 1999, ChipPAC, Inc., ChipPAC Merger Corp., Hyundai Electronics
and Hyundai Electronics America entered into the recapitalization agreement, as
amended. Under the recapitalization agreement, the transactions described in
"The Recapitalization" section were consummated. As part of the
recapitalization, we also paid fees and expenses related to the financing of
the recapitalization.
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 ChipPAC 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 some cases
where indemnification obligations are not subject to 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 some 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 its 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 of ChipPAC, Inc. and its subsidiaries in
the recapitalization, Hyundai Electronics and Hyundai Electronics America, or
their affiliates, entered into or amended a number of ancillary agreements with
some of our 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.
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Advisory Agreements
At the time of the recapitalization, we 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 ended 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 received
a one-time fee of 1.0% of the aggregate value of the recapitalization, which
fees are included in the $32.7 million of fees and expenses identified in "Use
of Proceeds." 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.
Shareholders Agreement
At the time of the recapitalization, ChipPAC, Inc., each of the Equity
Investors and all of the other non-management equity holders, including Hyundai
Electronics, Hyundai Electronics America and Intel, entered into a shareholders
agreement that provides for restrictions on the transfer of shares and some
preemptive rights. Also under the shareholders agreement, our board of
directors will be comprised of
. the chief executive officer of ChipPAC, Inc.,
. three representatives designated by Bain Capital,
. three representatives designated by SXI Group LLC and
. one representative designated collectively by Hyundai Electronics and
Hyundai Electronics America.
Registration Agreement
ChipPAC, Inc., the Equity Investors and some of their designees, Hyundai
Electronics, 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 all or part of the shares of our stock, 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 some exceptions,
(a) at any time, the holders of a majority of the registrable
securities held by Hyundia 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, with some exceptions.
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We have agreed to indemnify all holders of registered securities against
some liabilities, including liabilities under the Securities Act.
Transition Services Agreement
We entered into a transition services agreement with Hyundai Electronics and
Hyundai Electronics America whereby Hyundai Electronics and Hyundai Electronics
America 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 Hyundai Electronics and Hyundai
Electronics America 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 bankruptcy or similar event, or if a force majeure
event prevents performance of the agreement.
Services Agreement
We entered into an agreement with Hyundai Electronics for the packaging of
Hyundai Electronics' (mu)BGA, or micro BGA, chips. Under the services
agreement, we must procure sufficient capital equipment to meet Hyundai's
packaging requests. 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 volume of packaging services outsourced to us.
Rebates are estimated 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.
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The Intel Materials Agreement also obligates us to first offer to Intel
rights to use 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 the 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 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 us completing an initial public offering of our common stock.
Given the inherent uncertainty of our ability to complete an initial public
offering, we have assigned a value of $0 to the warrant. See "Description of
Other Financing Arrangements--Intel Preferred Stock; Intel Warrant."
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DESCRIPTION OF OTHER FINANCING ARRANGEMENTS
Senior Credit Facilities
General. On August 5, 1999, as part of the recapitalization, ChipPAC
International Company Limited entered into several senior loan facilities,
which we refer to as the Senior Credit Facilities, with Credit Suisse First
Boston, New York Branch, or CSFB, as administrative agent, and certain other
financial institutions, which we refer to as the senior lenders. The Senior
Credit Facilities Consist of:
. two tranches of term loans, which we refer to as the Term Loan
Facilities, of $70.0 million, which we refer to as "Term Loan A" and
$80.0 million, which we refer to as "Term Loan B";
. a revolving loan, which we refer to as the Revolving Credit Facility,
including letters of credit, of up to $50.0 million; and
. a capital expenditure facility, which we refer to as the Capex
Facility, in an amount of up to $20.0 million.
Purposes. We must use the amounts available under the senior credit
facilities as follows:
. the Term Loan Facilities must be used to pay a portion of the cash
consideration to be paid in the recapitalization and to pay related
fees and expenses;
. the Revolving Credit Facility may be used for our working capital and
general corporate purposes;
. the Capex Facility may be used only for acquiring equipment or making
other specific capital expenditures.
Repayment and Final Maturity. The different senior credit facilities are due
as follows:
. Revolving Credit Facility will mature on July 31, 2005.
. CapEx Facility will mature on July 31, 2005 and will amortize
beginning 25.5 months after the closing of the recapitalization over
approximately four years.
. Term Loan A will amortize in each of the first five years according
to a schedule to be determined with the balance maturing on July 31,
2005.
. Term Loan B will amortize in each of the first six years according to
a schedule to be determined with the balance maturing on July 31,
2006.
We may repay any portion of the Revolving Credit Facility which is
outstanding without premium or penalty from time to time, other than payment of
breakage costs and reimbursement of the senior lenders' actual re-deployment
costs, if applicable.
Also, it is mandatory that we repay any outstanding borrowings under the
Senior Credit Facilities out of a portion of net cash proceeds we receive from
some types of asset sales, insurance recovery and condemnation events, certain
equity issuances and annual excess cash flow.
Availability. The entire amount of the Term Loan Facilities was drawn at the
closing of the recapitalization; any amount of the Term Loan Facilities that we
repay may not be reborrowed by us later. We may borrow under the Revolving
Credit Facility until final maturity and letters of credit will be available
until the fifth business day prior to final maturity of the Revolving Credit
Facility. We may reborrow any amounts of the Revolving Credit Facility that we
repay. We may borrow and repay under the Capex Facility until July 31, 2001.
Amounts of the Capex Facility that we repay after July 31, 2001 may not be
borrowed by us later.
Security; Guaranty. The Senior Credit Facilities provide that all of our
indebtedness be secured as fully as is permitted by applicable law by
substantially all of the assets of ChipPAC, Inc., ChipPAC International Company
Limited, and the assets of each of ChipPAC, Inc.'s present and future direct
and indirect subsidiaries, including without limitation:
. a first priority pledge of all the capital stock of all present and
future subsidiaries; and
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. perfecting a first priority security interest in, and mortgages on,
substantially all tangible and intangible assets, to the extent
permitted by applicable law, of ChipPAC, Inc. and each of its present
and future direct and indirect subsidiaries.
In addition, in order to maximize tax benefits under applicable withholding
tax treaties among several of the jurisdictions in which subsidiaries of ours
are located, we made a series of direct and indirect intercompany loans among
these subsidiaries, which we refer to as the Intercompany Loans. Each of the
Intercompany Loans is evidenced by an intercompany note, which will be pledged
to the senior lenders as part of the assets of each of ChipPAC's subsidiaries,
and each of the borrowers under the Intercompany Loans has executed security
agreements in favor of the lenders of these loans.
Finally, each present and future subsidiary of ours, other than our
subsidiaries in China has, to the extent permitted by applicable law,
guaranteed our obligations under the Senior Credit Facilities by executing a
guaranty in favor of the senior lenders.
Interest. The interest rates under the Senior Credit Facilities are, at our
option, either (a) the base rate, which is the higher of the administrative
agent's prime lending rate and the federal funds effective rate plus 0.5%, plus
a margin or (b) adjusted LIBOR plus a margin.
The margins of the different loans under the senior credit facilities,
except Term Loan B, were set initially as described below. In the future,
however, the margins on Term Loan A, the Revolving Credit Facility and the
Capex Facility will vary according to a pricing grid based upon our
consolidated leverage ratio.
. the initial margin on Term Loan A, the revolving credit facility and
the capex facility are 2.25% over the base rate and 3.25% over
adjusted LIBOR; and
. the margin on Term Loan B is 3.00% over the base rate and 4.00% over
adjusted LIBOR.
Fees. We have agreed to pay fees in connection with the Senior Credit
Facilities, including:
. letter of credit fees;
. agency fees; and
. commitment fees.
Covenants. 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. The
Senior Credit Facilities also contain covenants which restrict our ability to:
. 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;
. engage in mergers, acquisitions, consolidations and asset sales; and
. make capital expenditures.
The Senior Credit Facilities also require that we satisfy customary
affirmative covenants and provide customary indemnifications in favor of the
senior lenders.
Events of Default. The Senior 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.
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Hyundai Preferred Stock
As part of 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 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. 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 exchange notes will be senior in right of payment to 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 the
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.
Intel Preferred Stock
Under the Intel Stock Purchase Agreement, we issued 10,000 shares of Class A
10.0% preferred stock to Intel, which we refer to as the "Intel Preferred
Stock."
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 or 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:
. 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 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, although the purchase price may be adjusted. 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.
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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 of $1,000 per share 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 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 a sale cease to own capital stock of
ChipPAC, Inc. 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 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. In addition, 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, 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 thereon; 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 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 exchange notes are senior in right of payment to 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 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 $0.
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DESCRIPTION OF THE EXCHANGE NOTES
General
You can find the definition of some terms used in this description under the
subheading of "Certain Definitions." In this section of the prospectus, unless
the context requires otherwise, the words "ChipPAC," "Company," "we," "our,"
"ours" and "us" refer only to ChipPAC, Inc. and not to any of its subsidiaries.
The "Issuer" refers to ChipPAC International Company Limited, a wholly owned
subsidiary of ChipPAC, Inc.
ChipPAC International Company Limited will issue the exchange notes under an
indenture dated July 29, 1999 by and among itself, ChipPAC, Inc. and Firstar
Bank of Minnesota, N.A., as trustee. The terms of the exchange notes include
those stated in the indenture and those made part of the indenture by reference
to the Trust Indenture Act of 1939, as amended.
The form and terms of the exchange notes are identical in all material
respects to the form and terms of the outstanding notes except that:
. the exchange notes will bear a Series B designation;
. the exchange notes have been registered under the Securities Act and,
therefore, will not bear legends restricting their transfer; and
. the holders of the exchange notes will not have some of the rights
under the registration rights agreement, including the provision
providing for liquidated damages relating to the timing of this
exchange offer.
The exchange notes will evidence the same debt as the outstanding notes and
will be entitled to the benefits of the indenture. The exchange notes will rank
equally with the outstanding notes if all of the outstanding notes are not
exchanged in this exchange offer.
The following description is only a summary of the material provisions of
the indenture, which is filed as an exhibit to the registration statement of
which this prospectus forms a part. We urge you to read the indenture because
it, and not this description, defines your rights as holders of the exchange
notes. You may request copies of these agreements at our address provided under
"Where You Can Find More Information."
Brief Description of the Exchange Notes and the Guaranties
The Exchange Notes
These exchange notes:
. are unsecured senior subordinated obligations of ChipPAC
International Company Limited;
. rank equally in right of payment with any future senior subordinated
Indebtedness of ChipPAC International Company Limited;
. are subordinated in right of payment to all existing and future
Senior Indebtedness of ChipPAC International Company Limited; and
. are senior in right of payment to any future Subordinated Obligations
of ChipPAC International Company Limited.
The Guaranties
The Company Guaranty and each Subsidiary Guaranty:
. unconditionally guarantee on a joint and several basis the
obligations of ChipPAC International Company Limited under the
exchange notes;
. rank equally in right of payment with any future senior subordinated
Indebtedness of the Guarantor; and
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. are senior subordinated obligations of the Company and the relevant
Subsidiary Guarantor, as the case may be.
Principal, Maturity and Interest
The exchange notes will be limited in aggregate principal amount to $150.0
million. ChipPAC International Company Limited will issue the exchange notes in
denominations of $1,000 and any integral multiple of $1,000. The exchange notes
will mature on August 1, 2009. Contingent upon our compliance with the covenant
described under the caption "--Certain Covenants--Limitation on Indebtedness,"
we are permitted to issue more notes, which we refer to as Additional Notes,
under the indenture in an unlimited principal amount. Any Additional Notes that
are actually issued will be treated as issued and outstanding exchange notes
and as the same class as the outstanding notes for all purposes of the
indenture and this "Description of the Exchange Notes," unless the context
indicates otherwise.
Interest on these exchange notes will accrue at the rate of 12 3/4% per
annum and will be payable semiannually in arrears on August 1 and February 1,
commencing on February 1, 2000. We will make each interest payment to the
holders of record of these exchange notes on the immediately preceding July 15
and January 15. We will pay interest on overdue principal at 1% per annum in
excess of the above rate and will pay interest on overdue installments of
interest at a higher rate to the extent lawful.
Interest on these exchange notes will accrue from the last interest payment
date on which interest was paid on the existing note surrendered for exchange,
or, if no interest has been repaid on an existing note, from the date of the
original issue. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
Optional Redemption
Except as provided below under this section or under the section "Redemption
for Changes in British Virgin Islands Withholding Taxes," we will not be
entitled to redeem the exchange notes at our option prior to August 1, 2004.
On and after August 1, 2004, we will be entitled at our option to redeem all
or a portion of these exchange notes upon not less than 30 nor more than 60
days' notice, at the redemption prices, which are expressed as percentages of
principal amount, provided below plus accrued and unpaid interest thereon, if
any, to the applicable redemption date, if redeemed during the 12-month period
beginning on August 1 in the years indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2004........................................................... 106.375%
2005........................................................... 104.250
2006........................................................... 102.125
2007 and thereafter............................................ 100.000%
</TABLE>
In addition, prior to August 1, 2002, we may at our option on one or more
occasions redeem exchange notes, including Additional Notes, if any, in an
aggregate principal amount not to exceed 35% of the aggregate principal amount
of exchange notes, including Additional Notes, if any, originally issued under
the indenture at a redemption price of 112 3/4% of their principal amount, plus
accrued and unpaid interest, if any, to the redemption date, with the net cash
proceeds from one or more Equity Offerings, provided that if the Equity
Offering is an offering by the Company, a portion of the Net Cash Proceeds
equal to the amount required to redeem any exchange notes is contributed to the
equity capital of ChipPAC International Company Limited, provided, however,
that:
(1) at least 65% of the aggregate principal amount of exchange notes,
which includes Additional Notes, if any, remains outstanding immediately
after the occurrence of each redemption, other than exchange notes held,
directly or indirectly, by the Company or its Affiliates; and
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(2) each redemption occurs within 60 days after the date of the closing
of the related Equity Offering.
Selection and Notice of Redemption
If we are redeeming less than all the exchange notes at any time, the
trustee will select exchange notes on a pro rata basis, by lot or by another
method as the Trustee in its sole discretion shall deem to be fair and
appropriate.
Exchange notes redeemed in part will be redeemed only in principal amounts
of $1,000. We will cause notices of redemption to be mailed by first-class
mail at least 30 but not more than 60 days before the redemption date to each
holder of exchange notes to be redeemed at its registered address.
If any exchange note is to be redeemed in part only, the notice of
redemption that relates to that note shall state the portion of the principal
amount to be redeemed. We will issue a new exchange note in principal amount
equal to the unredeemed portion of the original exchange note in the name of
the holder upon cancellation of the original exchange note. Exchange notes
called for redemption become due on the date fixed for redemption. On and
after the redemption date, interest ceases to accrue on exchange notes or
portions of them called for redemption.
Withholding Taxes
All payments made under the exchange notes or under the Guaranties must be
made free and clear of and without withholding or deduction for or because of
any present or future tax, duty, levy, impost, assessment or other
governmental charge of whatever nature, including penalties, interest and
other related liabilities, imposed or levied by or on behalf of any
jurisdiction from or through which payment is made or in which the payor is
organized, resident or engaged in business for tax purposes or any province or
territory thereof or by any taxing authority, which we refer to as taxes,
unless any of ChipPAC International Company Limited or the guarantors is
required to withhold or deduct Taxes by law. If ChipPAC International Company
Limited or a guarantor is required to withhold or deduct any amount for or on
account of Taxes from any payment made under or with respect to the exchange
notes or under or with respect to a Guaranty, ChipPAC International Company
Limited or guarantor, as the case may be, will pay additional amounts, which
we refer to here as "Additional Amounts" as may be necessary so that the net
amount received by each Holder after withholding or deduction, including any
withholding or deduction on Additional Amounts, will not be less than the
amount the Holder would have received if the Taxes had not been withheld or
deducted; provided, however, that no Additional Amounts will be payable on
payments made to a Holder, which we refer to here as an "Excluded Holder" if
the Holder must pay these Taxes by reason of its being connected with the
British Virgin Islands otherwise than by the mere holding of the exchange
notes or the receipt of payments thereunder or the enforcement of its rights
and obligations under the exchange notes or a Guaranty. ChipPAC International
Company Limited and the guarantors will make a withholding or deduction and
remit the full amount deducted or withheld to the relevant authority as and
when required under applicable law. ChipPAC International Company Limited or
the guarantor will furnish to the Holder, within 30 days after the payment of
any Taxes, certified copies of tax receipts evidencing payment by ChipPAC
International Company Limited or a guarantor. ChipPAC International Company
Limited will upon written request of each Holder, other than an Excluded
Holder, reimburse requesting Holders for the amount of:
. any Taxes (including related penalties, interest and expenses imposed
or levied and paid by the Holder as a result of payments made under or
with respect to the exchange notes or under or with respect to a
Guaranty and
. any Taxes so levied or imposed and paid by the Holder with respect to
any reimbursement under the foregoing clause (1), but excluding any
Taxes on the Holder's net income, so that the net amount received by
the Holder after reimbursement will not be less than the net amount
the Holder would have received if Taxes (other than Taxes on the
Holder's net income) on the reimbursement had not been imposed.
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At least 30 days prior to each date on which payment under the exchange
notes or the Guaranties is due and payable, unless the obligation to pay
Additional Amounts arises shortly before or after the 30th day prior to that
date, in which case promptly thereafter, if any of ChipPAC International
Company Limited or the guarantors is obligated to pay Additional Amounts on the
payment, ChipPAC International Company Limited or the guarantor will deliver to
the trustee an Officers' Certificate stating the fact that the Additional
Amounts will be payable and the amounts so payable and providing other
information as necessary to enable the trustee to pay the Additional Amounts to
Holders of the exchange notes on the payment date.
ChipPAC International Company Limited or the guarantors will pay any present
or future stamp, court or documentary taxes or any other excise or property
taxes, charges or similar levies that arise in any jurisdiction from the
execution, delivery, enforcement or registration of the exchange notes or a
Guaranty, the indenture or any other related document or instrument, or the
receipt of any payments on the exchange notes or a Guaranty, excluding taxes,
charges or similar levies imposed by any jurisdiction other than:
. the British Virgin Islands,
. any other jurisdiction in which any of ChipPAC International Company
Limited or the guarantors is organized, resident or engaged in
business for tax purposes,
. any jurisdiction in which any successor to ChipPAC International
Company Limited or the guarantors is organized, resident or engaged
in business for tax purposes or
. any jurisdiction in which a paying agent is located.
In addition, ChipPAC International Company Limited and the guarantors will
agree to indemnify the Holders, on an after-tax basis, for any taxes paid by
these Holders.
The obligations described under this heading shall survive any termination,
defeasance or discharge of the Indenture.
Redemption for Changes in British Virgin Islands Withholding Taxes
The exchange notes may be redeemed, at the option of ChipPAC International
Company Limited, at any time as a whole, on not less than 30 nor more than 60
days' notice, at 100% of the principal amount thereof, plus accrued and unpaid
interest if any, to the date of redemption, contingent upon the right of a
Holder of record on the relevant record date to receive interest due on the
relevant interest payment date, in the event ChipPAC International Company
Limited has become or will become obligated to pay for reasons outside its
control, and after taking reasonable measures to avoid the obligation, on the
next date on which any amount would be payable on the exchange notes, any
Additional Amounts as a result of a change in or an amendment to the laws,
including any regulations promulgated thereunder, of the British Virgin
Islands, or any of its political subdivisions or taxing authorities, or any
change in or amendment to any official position regarding the application or
interpretation of these laws or regulations, which change or amendment is
announced or becomes effective on or after the Issue Date; provided, however,
that (1) no notice of redemption may be given earlier than 60 days prior to the
earliest date on which Additional Amounts are due and payable on the exchange
notes and (2) at the time any redemption notice is given, the obligation to pay
Additional Amounts remains in effect. Prior to giving any notice of redemption
pursuant to this provision, ChipPAC International Company Limited will deliver
to the applicable trustee (1) an Officers' Certificate stating that it is
entitled to effect the redemption and setting forth a statement of facts
showing that the conditions precedent to its right to so redeem have occurred
and (2) an Opinion of Counsel in the British Virgin Islands to the effect that
ChipPAC International Company Limited has become or will become obligated to
pay the Additional Amounts as a result of the amendment or change.
Guaranties
The Company and each of the Subsidiary Guarantors will jointly and severally
guarantee, on a senior subordinated basis, our obligations under the exchange
notes. Each Subsidiary Guaranty will be limited as
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necessary to prevent a Subsidiary Guaranty from being rendered voidable under
applicable law relating to fraudulent conveyance or fraudulent transfer or
similar laws affecting the rights of creditors generally.
Each Subsidiary Guarantor that makes a payment under its Subsidiary Guaranty
will be entitled to a contribution from each other Subsidiary Guarantor in an
amount equal to the other Subsidiary Guarantor's pro rata portion of the
payment based on the respective net assets of all the Subsidiary Guarantors at
the time of the payment determined consistent with GAAP.
If a Subsidiary Guaranty were to be rendered voidable, it could be
subordinated by a court to all other indebtedness, including guarantees and
other contingent liabilities, of the applicable Subsidiary Guarantor and,
depending on the amount of the indebtedness, a Subsidiary Guarantor's liability
on its Subsidiary Guaranty could be reduced to zero.
Under the indenture, ChipPAC International Company Limited, the Company or a
Subsidiary Guarantor may consolidate with, merge with or into, or transfer all
or substantially all its assets to any other Person to the extent described
below under "--Certain Covenants--Merger and Consolidation;" provided, however,
that if the surviving Person is not ChipPAC International Company Limited, the
Company or the Subsidiary Guarantor, as the case may be, ChipPAC International
Company Limited's obligations under the exchange notes, the Company's
obligations under the Company Guaranty or the Subsidiary Guarantor's
obligations under its Subsidiary Guaranty, as the case may be, must be
expressly assumed by the surviving Person.
A Subsidiary Guarantor will be released and relieved from all its
obligations under its Subsidiary Guaranty:
(1) upon the sale or other disposition (including by way of
consolidation or merger) of all or substantially all the capital stock of
the Subsidiary Guarantor in one or more related transactions; or
(2) upon the sale, assignment, transfer or disposition of all or
substantially all the assets of Subsidiary Guarantor in one or more related
transactions;
in each case other than to ChipPAC International Company Limited or an
Affiliate of ChipPAC International Company Limited and as permitted by the
indenture.
Ranking
Exchange Notes and Guaranties versus Senior Indebtedness.
The indebtedness evidenced by the exchange notes, the Company Guaranty and
the Subsidiary Guaranties will be senior subordinated obligations of ChipPAC
International Company Limited, the Company and the Subsidiary Guarantors, as
the case may be. The payment of the principal of, premium, if any, and interest
on the exchange notes and the payment of the Company Guaranty and any
Subsidiary Guaranty is subordinate in right of payment, as provided in the
indenture, to the prior payment in full in cash when due of all Obligations on
Senior Indebtedness of ChipPAC International Company Limited, the Company or
the relevant Subsidiary Guarantor, as the case may be, whether outstanding on
the Issue Date or thereafter incurred, including the obligations of ChipPAC
International Company Limited, the Company and such Subsidiary Guarantor under
the Credit Agreement.
As of September 30, 1999,
(1) the Senior Indebtedness of ChipPAC International Company Limited is
approximately $150.0 million, all of which is secured indebtedness under
the Credit Agreement;
(2) the Senior Indebtedness of the Company is approximately $150.0
million, consisting of the Company's senior guaranty of ChipPAC
International Company Limited's obligations under the Credit Agreement; and
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(3) the Senior Indebtedness of the Subsidiary Guarantors is
approximately $150.0 million, consisting of the Subsidiary Guarantors'
senior guaranty of ChipPAC International Company Limited's obligations
under the Credit Agreement.
In addition, ChipPAC International Company Limited has additional availability
of $70.0 million for borrowings of Senior Indebtedness under the Credit
Agreement. Although the indenture contains limitations on the amount of
additional Indebtedness that ChipPAC International Company Limited, the Company
and the Subsidiary Guarantors may incur, in some situations the amount of the
Indebtedness is substantial and, in any case, the Indebtedness may be Senior
Indebtedness. See "--Certain Covenants--Limitation on Indebtedness."
Guaranties versus Other Liabilities of Subsidiaries.
All of our operations are conducted through our subsidiaries that are not
subsidiaries of ChipPAC International Company Limited. Our Chinese subsidiaries
are not guaranteeing the exchange notes or ChipPAC International Company
Limited's obligations under the Credit Agreement. Claims of creditors of the
non-guarantor subsidiaries, including trade creditors, secured creditors and
creditors holding indebtedness and guarantees issued by the non-guarantor
subsidiaries, and claims of preferred stockholders, if any, of the non-
guarantor subsidiaries generally will have priority on the assets and earnings
of the non-guarantor subsidiaries over the claims of creditors of ChipPAC
International Company Limited, including holders of the exchange notes, even if
the obligations do not constitute Senior Indebtedness. The exchange notes, the
Company Guaranty and each Subsidiary Guaranty, therefore, will be effectively
subordinated to creditors, including trade creditors, and preferred
stockholders of the non-guarantor subsidiaries of the Company.
As of September 30, 1999, the total liabilities of our non-guarantor
subsidiaries are approximately $69.1 million. Although the indenture limits the
incurrence of Indebtedness and preferred stock of some of our subsidiaries, the
limitation is significantly qualified. Moreover, the indenture does not impose
any limitation on the incurrence by the subsidiaries of liabilities that are
not considered Indebtedness or Preferred Stock under the indenture. See "--
Certain Covenants--Limitation on Indebtedness."
Exchange Notes and Guaranties versus Other Senior Subordinated Indebtedness.
Only Indebtedness of ChipPAC International Company Limited, the Company or a
Subsidiary Guarantor that is Senior Indebtedness will rank senior to the
exchange notes, the Company Guaranty and the relevant Subsidiary Guaranty
consistent with the provisions of the indenture. The exchange notes, the
Company Guaranty and each Subsidiary Guaranty will in all respects rank equally
with all other Senior Subordinated Indebtedness of ChipPAC International
Company Limited, the Company and the relevant Subsidiary Guarantor,
respectively. All Indebtedness of a Subsidiary of ours that is not a Subsidiary
Guarantor will be structurally senior to the exchange notes.
ChipPAC International Company Limited, the Company and each Subsidiary
Guarantor have agreed in the indenture that they will not Incur, directly or
indirectly, any Indebtedness that is subordinate or junior in ranking in right
of payment to its Senior Indebtedness unless the Indebtedness is Senior
Subordinated Indebtedness or is expressly subordinated in right of payment to
Senior Subordinated Indebtedness. Unsecured Indebtedness is not deemed to be
subordinated or junior to Secured Indebtedness merely because it is unsecured.
Payment of Exchange Notes.
We are not permitted to pay principal of, premium, if any, or interest on,
the exchange notes or make any deposit by the provisions described under "--
Defeasance" below and may not repurchase, redeem or otherwise retire any
exchange notes, which we collectively refer to as, "pay the exchange notes", if
either of the following, which we refer to as, a "Payment Default" occurs:
(1) any Obligations under Senior Indebtedness are not paid in full when
due; or
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(2) any other default on Senior Indebtedness occurs and the maturity of
the Senior Indebtedness is accelerated consistent with its terms;
unless, in either case, the Payment Default has been cured or waived and any
acceleration has been rescinded in writing or the Senior Indebtedness has been
paid in full in cash. Regardless of the foregoing, we are permitted to pay the
exchange notes without regard to the foregoing if ChipPAC International Company
Limited and the trustee receive written notice approving the payment from the
Representative of the Senior Indebtedness for which the Payment Default has
occurred and is continuing.
During the continuance of any default, other than a Payment Default,
relating to any Designated Senior Indebtedness by which the maturity may be
accelerated immediately without further notice, except a notice as may be
required to effect an acceleration, or the expiration of any applicable grace
periods, we are not permitted to pay the exchange notes for a period, each a
"Payment Blockage Period", commencing upon the receipt by the trustee of
written notice which we refer to as a "Blockage Notice" of a default from the
Representative of the holders of the Designated Senior Indebtedness specifying
an election to effect a Payment Blockage Period and ending 179 days thereafter.
The Payment Blockage Period will end earlier if the Payment Blockage Period is
terminated:
(1) by written notice to the trustee and ChipPAC International Company
Limited from the Person or Persons who gave the Blockage Notice;
(2) because no defaults continue in existence which would permit the
acceleration of the maturity of any Designated Senior Indebtedness at that
time; or
(3) because the Designated Senior Indebtedness has been repaid in full
in cash.
Notwithstanding the provisions described above, unless the holders of the
Designated Senior Indebtedness or the Representative of the holders have
accelerated the maturity of the Designated Senior Indebtedness, or any Payment
Default otherwise exists, we are permitted to resume payments on the exchange
notes after the end of the Payment Blockage Period. The exchange notes shall
not be subject to more than one Payment Blockage Period in any consecutive 360-
day period, irrespective of the number of defaults on Designated Senior
Indebtedness during the period, except that if any Blockage Notice is delivered
to the trustee by or on behalf of holders of Designated Senior Indebtedness,
other than holders of the Bank Indebtedness, a Representative of holders of
Bank Indebtedness may give another Blockage Notice within the period. However,
in no event may the total number of days during which any Payment Blockage
Period or Periods is in effect exceed 179 days in the aggregate during any 360
consecutive day period, and there must be 181 days during any 360-day
consecutive period during which no Payment Blockage Period is in effect.
Upon any payment or distribution by ChipPAC International Company Limited
upon any liquidation, dissolution, winding up, assignment for the benefit of
creditors or marshaling of assets of ChipPAC International Company Limited or
in a bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to ChipPAC International Company Limited or its property:
(1) the holders of Senior Indebtedness will be entitled to receive
payment in full in cash of all Obligations with respect to the Senior
Indebtedness before the Noteholders are entitled to receive any payment or
distribution; and
(2) until all Obligations under the Senior Indebtedness are paid in full
in cash, any payment or distribution to which Noteholders would be entitled
but for the subordination provisions of the indenture will be made to
holders of the Senior Indebtedness as their interests may appear, except
that holders of exchange notes may receive Capital Stock and subordinated
debt obligations.
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If a distribution is made to Noteholders that, due to the subordination
provisions, should not have been made to them, the Noteholders are required to
hold it in trust for the holders of Senior Indebtedness and pay it over to them
as their interests may appear.
If payment of the exchange notes is accelerated because of an Event of
Default, we or the trustee shall promptly notify the holders of Designated
Senior Indebtedness or the Representative of holders of the acceleration. If
any Designated Senior Indebtedness is outstanding at the time of acceleration,
none of ChipPAC International Company Limited, the Company or any Subsidiary
Guarantor may pay the exchange notes until five Business Days after the
Representatives of all the issues of Designated Senior Indebtedness receive
notice of acceleration and, thereafter, may pay the exchange notes only if the
Indenture otherwise permits payment at that time.
The obligations of the Company under the Company Guaranty and of a
Subsidiary Guarantor under its Subsidiary Guaranty are senior subordinated
obligations. As such, the rights of Noteholders to receive payment by the
Company or by a Subsidiary Guarantor under the Company Guaranty or a Subsidiary
Guaranty will be subordinated in right of payment to the rights of holders of
Senior Indebtedness of the Company or the Subsidiary Guarantor, as the case may
be. The terms of the subordination provisions described above relating to
ChipPAC International Company Limited's obligations under the exchange notes
apply equally to the Company and a Subsidiary Guarantor and the obligations of
the Company and the Subsidiary Guarantor under the Company Guaranty or a
Subsidiary Guaranty, as the case may be.
By reason of the subordination provisions contained in the indenture, in the
event of insolvency, creditors of ChipPAC International Company Limited, the
Company or a Subsidiary Guarantor who are holders of Senior Indebtedness of
ChipPAC International Company Limited, the Company or a Subsidiary Guarantor,
as the case may be, may recover more, ratably, than the Noteholders, and
creditors of ChipPAC International Company Limited who are not holders of
Senior Indebtedness may recover less, ratably, than holders of Senior
Indebtedness and may recover more, ratably, than the Noteholders.
The terms of the subordination provisions described above will not apply to
payments from money or the proceeds of U.S. Government Obligations held in
trust by the trustee for the payment of principal of and interest on the
exchange notes under the provisions described under "--Defeasance," if the
foregoing subordination provisions were not violated at the time the respective
amounts were deposited under the defeasance provisions.
Book-Entry, Delivery and Form
We will initially issue the exchange notes in the form of one or more global
exchange notes, which we refer to as the Global Note. The Global Note will be
deposited with, or on behalf of, the Depository and registered in the name of
the Depository or its nominee. Except as provided below, the Global Note may be
transferred, in whole and not in part, only to the Depository or another
nominee of the Depository. You may hold your beneficial interests in the Global
Note directly through the Depository if you have an account with the Depository
or indirectly through organizations which have accounts with the Depository.
The Depository has advised ChipPAC International Company Limited as follows:
the Depository is a limited-purpose trust company organized under the laws of
the State of New York, a member of the Federal Reserve System, a "clearing
corporation" as defined in the New York Uniform Commercial Code, and "a
clearing agency" registered under the provisions of Section 17A of the Exchange
Act. The Depository was created to hold securities of institutions that have
accounts with the Depository which we refer to as "participants," and to
facilitate the clearance and settlement of securities transactions among its
participants in securities through electronic book-entry changes in accounts of
the participants, eliminating the need for physical movement of securities
certificates. The Depository's participants include securities brokers and
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dealers, which may include the initial purchasers, banks, trust companies,
clearing corporations and certain other organizations. Access to the
Depository's book-entry system is also available to others such as banks,
brokers, dealers and trust companies, which we refer to collectively, as the
"indirect participants", that clear through or maintain a custodial
relationship with a participant, whether directly or indirectly.
ChipPAC International Company Limited expects that under the procedures
established by the Depository, upon the deposit of the Global Note with the
Depository, the Depository will credit, on its book-entry registration and
transfer system, the principal amount of exchange notes represented by the
Global Note to the accounts of participants. The accounts to be credited shall
be designated by the initial purchasers. Ownership of beneficial interests in
the Global Note will be limited to participants or persons that may hold
interests through participants. Ownership of beneficial interests in the Global
Note will be shown on, and the transfer of those ownership interests will be
effected only through, records maintained by the Depository, relating to
participants' interests, the participants and the indirect participants,
relating to the owners of beneficial interests in the Global Note other than
participants. The laws of some jurisdictions may require that some purchasers
of securities take physical delivery of securities in definitive form. These
limits and laws may impair the ability to transfer or pledge beneficial
interests in the Global Note.
So long as the Depository, or its nominee, is the registered holder and
owner of the Global Note, the Depository or the nominee, as the case may be,
will be considered the sole legal owner and holder of any related exchange
notes evidenced by the Global Note for all purposes of exchange notes and the
Indenture. Except as provided below, as an owner of a beneficial interest in
the Global Note, you will not be entitled to have the exchange notes
represented by the Global Note registered in your name, will not receive or be
entitled to receive physical delivery of certificated exchange notes and will
not be considered to be the owner or holder of any exchange notes under the
Global Note. We understand that under existing industry practice, in the event
an owner of a beneficial interest in the Global Note desires to take any action
that the Depository, as the holder of the Global Note, is entitled to take, the
Depository would authorize the participants to take action, and the
participants would authorize beneficial owners owning through participants to
take action or would otherwise act upon the instructions of beneficial owners
owning through them.
We will make payments of principal of, premium, if any, and interest on
exchange notes represented by the Global Note registered in the name of and
held by the Depository or its nominee to the Depository or its nominee, as the
case may be, as the registered owner and holder of the Global Note.
We expect that the Depository or its nominee, upon receipt of any payment of
principal of, premium, if any, or interest on the Global Note will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the Global Note as
shown on the records of the Depository or its nominee. We also expect that
payments by participants or indirect participants to owners of beneficial
interests in the Global Note held through these participants or indirect
participants will be governed by standing instructions and customary practices
and will be the responsibility of these participants or indirect participants.
We will not have any responsibility or liability for any aspect of the records
relating to, or payments made on account of, beneficial ownership interests in
the Global Note for any note or for maintaining, supervising or reviewing any
records relating to beneficial ownership interests or for any other aspect of
the relationship between the Depository and its participants or indirect
participants or the relationship between participants or indirect participants
and the owners of beneficial interests in the Global Note owning through
participants or indirect participants.
Although the Depository has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Note among participants of the
Depository, it is under no obligation to perform or continue to perform these
procedures, and these procedures may be discontinued at any time. Neither the
Trustee nor ChipPAC International Company Limited will have any responsibility
or liability for the performance by the Depository or its participants or
indirect participants of their respective obligations under the rules and
procedures governing their operations.
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Certificated Exchange Notes
Contingent upon some conditions, the exchange notes represented by the
Global Note are exchangeable for certificated exchange notes in definitive form
of like tenor in denominations of $1,000 and integral multiples of $1,000 if:
(1) the Depository notifies ChipPAC International Company Limited that
it is unwilling or unable to continue as Depository for the Global Note or
if at any time the Depository ceases to be a clearing agency registered
under the Exchange Act and, in either case, we are unable to appoint a
qualified successor within 90 days;
(2) we in our discretion at any time determine not to have all the
exchange notes represented by the Global Note; or
(3) a default entitling the holders of the exchange notes to accelerate
their maturity has occurred and is continuing.
Any note that is exchangeable as above is exchangeable for certificated
exchange notes issuable in authorized denominations and registered in those
names as the Depository shall direct. The Global Note is not exchangeable,
except for a Global Note of the same aggregate denomination to be registered in
the name of the Depository or its nominee.
Same-Day Payment
The indenture requires us to make payments on the exchange notes, including
principal, premium, if any, and interest, by wire transfer of immediately
available funds to the accounts specified by the holders or, if no account is
specified, by mailing a check to each holder's registered address.
Change of Control
Upon the occurrence of any of the following events, each of which we refer
to as a "Change of Control", each Holder shall have the right to require that
ChipPAC International Company Limited repurchase the Holder's exchange notes at
a purchase price in cash equal to 101% of their principal amount plus any
accrued and unpaid interest to the date of purchase, subject to the right of
holders of record on the relevant record date to receive interest due on the
relevant interest payment date:
(1) any "person," as the term is used in Sections 13(d) and 14(d) of the
Exchange Act, other than one or more Permitted Holders, is or becomes the
beneficial owner, as defined in Rules 13d-3 and 13d-5 under the Exchange
Act, except that the person shall be deemed to have "beneficial ownership"
of all shares that the person has the right to acquire, whether such right
is exercisable immediately or only after the passage of time, directly or
indirectly, of more than 50% of the total voting power of the Voting Stock
of the Company, for the purposes of this clause (1), the person shall be
deemed to beneficially own any Voting Stock of a Person held by any other
Person (the "parent entity"), if the person is the beneficial owner (as
defined in this clause (1)), directly or indirectly, of more than 50% of
the voting power of the Voting Stock of the parent entity;
(2) individuals who on the Issue Date constituted the Board of
Directors, together with any new directors (A) whose election by the Board
of Directors or whose nomination for election by the stockholders of the
Company was approved by a vote of a majority of the directors of the
Company then still in office who were either directors on the Issue Date or
whose election or nomination for election was previously so approved or (B)
who were elected to the Board of Directors under the Shareholders
Agreement, as amended, modified or supplemented from time to time, cease
for any reason to constitute a majority of the Board of Directors then in
office; or
(3) the merger or consolidation of the Company with or into another
Person or the merger of another Person with or into the Company, or the
sale of all or substantially all the assets of the Company to another
Person, in each case other than a Person that is controlled by the
Permitted Holders, if the
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securities of the Company that are outstanding immediately prior to the
transaction and which represent 100% of the aggregate voting power of the
Voting Stock of the Company are changed into or exchanged for cash,
securities or property, unless under the transaction the securities are
changed into or exchanged for, in addition to any other consideration,
securities of the surviving Person or transferee that represent,
immediately after the transaction, at least a majority of the aggregate
voting power of the Voting Stock of the surviving Person or transferee.
Within 30 days following any Change of Control, but contingent upon
compliance with the immediately succeeding paragraph, ChipPAC International
Company Limited shall mail a notice to each Holder with a copy to the Trustee
stating:
(1) that a Change of Control has occurred and that the Holder has the
right to require ChipPAC International Company Limited to purchase the
Holder's notes at a purchase price in cash equal to 101% of their principal
amount plus any accrued and unpaid interest to the date of purchase,
subject to the right of holders of record on the relevant record date to
receive interest on the relevant interest payment date;
(2) the circumstances and relevant facts regarding a Change of Control;
(3) the repurchase date which shall be no earlier than 30 days nor later
than 60 days from the date the notice is mailed; and
(4) the instructions determined by ChipPAC International Company
Limited, consistent with the covenant described here, that a Holder must
follow in order to have its notes purchased.
If the terms of the Credit Agreement prohibit ChipPAC International Company
Limited from making the foregoing offer upon a Change of Control or from
purchasing any notes, prior to the mailing of the notice to Holders described
in the preceding paragraph, but in any event within 30 days following any
Change of Control, ChipPAC International Company Limited covenants to:
(1) repay in full all indebtedness outstanding under the Credit
Agreement or offer to repay in full that indebtedness and repay the
indebtedness of each lender who has accepted the offer; or
(2) obtain the requisite consent under the Credit Agreement to permit
the purchase of the notes as described above.
ChipPAC International Company Limited must first comply with the covenant
described above before it will be required to purchase notes in the event of a
Change of Control; provided, however, that ChipPAC International Company
Limited's failure to comply with the covenant described in the preceding
sentence or to make a Change of Control offer because of any failure shall
constitute a Default described in clause (4) under "--Defaults" below, and not
under clause (2) of that clause. As a result of the foregoing, a holder of the
notes may not be able to compel ChipPAC International Company Limited to
purchase the notes unless ChipPAC International Company Limited is able at the
time to refinance all indebtedness outstanding under the Credit Agreement or
obtain requisite consents under the Credit Agreement.
ChipPAC International Company Limited shall comply here with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of notes under the covenant
described here. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of the covenant described here,
ChipPAC International Company Limited shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under the covenant described here by virtue thereof.
The Change of Control purchase feature is a result of negotiations between
ChipPAC International Company Limited and the initial purchasers. We have no
present intention to engage in a transaction involving a Change of Control,
although we could decide to do so in the future. With some limits, we could, in
the future, enter into specified types of transactions, including acquisitions,
refinances or other recapitalizations,
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that would not constitute a Change of Control under the indenture, but that
could increase the amount of indebtedness outstanding at that time or otherwise
affect our capital structure or credit ratings. Restrictions on our ability to
incur additional Indebtedness are contained in the covenants described under
"--Certain Covenants--Limitation on Indebtedness." These restrictions can only
be waived with the consent of the holders of a majority in principal amount of
the notes then outstanding. Except for the limitations contained in these
covenants, however, the indenture will not contain any covenants or provisions
that may afford holders of the notes protection in the event of a highly
leveraged transaction.
The Credit Agreement will prohibit us from purchasing any notes, and will
also provide that the occurrence of change of control events relating to the
Company would constitute a default under the Credit Agreement. In the event a
Change of Control occurs at a time when ChipPAC International Company Limited
is prohibited from purchasing notes, ChipPAC International Company Limited
could seek the consent of its lenders to the purchase of notes or could attempt
to refinance the borrowings that contain this prohibition. If ChipPAC
International Company Limited does not obtain a consent or repay such
borrowings, ChipPAC International Company Limited will remain prohibited from
purchasing notes. In that case, ChipPAC International Company Limited's failure
to comply with this covenant would constitute a Default under the Indenture
which would, in turn, constitute a default under the Credit Agreement. In these
circumstances, the subordination provisions in the Indenture would likely
restrict payment to the Holders of notes.
Future indebtedness that we may incur may contain prohibitions on the
occurrence of events that would constitute a Change of Control or require that
this indebtedness be repurchased upon a Change of Control. Moreover, the
exercise by the holders of their right to require us to repurchase the notes
could cause a default under this indebtedness, even if the Change of Control
itself does not, due to the financial effect of the repurchase on us. Finally,
our ability to pay cash to the holders of notes following the occurrence of a
Change of Control may be limited by our then existing financial resources.
There can be no assurance that sufficient funds will be available when
necessary to make any required repurchases. The provisions under the Indenture
relative to our obligation to make an offer to repurchase the notes as a result
of a Change of Control may be waived or modified with the written consent of
the holders of a majority in principal amount of the notes.
Certain Covenants
The Indenture contains covenants which include the following:
Limitation on Indebtedness. (a) We shall not, and shall not permit any
Restricted Subsidiary to, Incur, directly or indirectly, any Indebtedness,
except that ChipPAC and ChipPAC International Company Limited may Incur
Indebtedness if, after giving pro forma effect thereto, the Consolidated
Coverage Ratio exceeds 2.0 to 1.0.
(b) Notwithstanding the foregoing paragraph (a), ChipPAC and its Restricted
Subsidiaries may Incur the following Indebtedness:
(1) Indebtedness of us or any Restricted Subsidiary Incurred pursuant to
any Revolving Credit Facility; provided, however, that, immediately after
giving effect to any such Incurrence, the aggregate principal amount of all
Indebtedness incurred under this clause (1) and then outstanding does not
exceed the greater of (A) $50.0 million and (B) the sum of (x) $20.0
million, (y) 50% of the book value of our inventory and that of our
Restricted Subsidiaries and (z) 80% of the book value of our accounts
receivables and that of our Restricted Subsidiaries; provided, however,
that such Indebtedness may only be Incurred by a Restricted Subsidiary if
such Indebtedness, when added together with the amount of all other
Indebtedness Incurred by Restricted Subsidiaries pursuant to this clause
(1) and then outstanding, does not exceed an amount equal to 50% of the
greater of (x) the amount in clause (A) above and (y) the amount determined
in clause (B) above;
(2) Indebtedness of ChipPAC International Company Limited Incurred
pursuant to any Term Loan Facilities; provided, however, that, after giving
effect to any such Incurrence, the aggregate principal
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amount of all Indebtedness Incurred under this clause (2) and then
outstanding does not exceed $190.0 million less the aggregate sum of all
principal payments actually made from time to time after the Issue Date
with respect to such Indebtedness pursuant to paragraph (a)(3)(A) of the
covenant described under "--Limitation on Sales of Assets and Subsidiary
Stock";
(3) Indebtedness of ChipPAC International Company Limited Incurred prior
to August 5, 2001 pursuant to any Capital Expenditure Facility (and
Refinancing Indebtedness in respect thereof) in an aggregate principal
amount not to exceed $20.0 million;
(4) Indebtedness of us or any Restricted Subsidiary owed to and held by
us or a Restricted Subsidiary; provided, however, that any subsequent
issuance or transfer of any Capital Stock which results in any such
Restricted Subsidiary ceasing to be a Restricted Subsidiary or any
subsequent transfer of such Indebtedness (other than to the Company or
another Restricted Subsidiary) shall be deemed, in each case, to constitute
the Incurrence of such Indebtedness by the issuer thereof;
(5) Indebtedness consisting of the exchange notes (other than Additional
Notes);
(6) Indebtedness outstanding on the Issue Date (other than Indebtedness
described in clause (1), (2), (3), (4) or (5) of this covenant);
(7) Refinancing Indebtedness in respect of Indebtedness Incurred
pursuant to paragraph (a) or pursuant to clause (4), (5), (6), (8) or this
clause (7); provided, however, that to the extent such Refinancing
Indebtedness directly or indirectly Refinances Indebtedness of a Subsidiary
Incurred pursuant to clause (8), such Refinancing Indebtedness shall be
Incurred only by such Subsidiary;
(8) Indebtedness of a Person Incurred and outstanding on or prior to the
date on which such Person was acquired by the Company or a Restricted
Subsidiary (other than Indebtedness Incurred in anticipation of, in
connection with, or to provide all or any portion of the funds or credit
support utilized to consummate, the transaction or series of related
transactions pursuant to which such Person was acquired by the Company or a
Restricted Subsidiary); provided, however, that after giving pro forma
effect thereto, (a) the Consolidated Coverage Ratio increases as a
consequence of such incurrence and related acquisition and (b) the
Consolidated Coverage Ratio is at least 1.5 to 1.0;
(9) Hedging Obligations of ours or any Restricted Subsidiary under or
with respect to Interest Rate Agreements and Currency Agreements entered
into in the ordinary course of business and not for the purpose of
speculation;
(10) Indebtedness of ours or any Restricted Subsidiary in respect of
performance bonds, completion guarantees and surety or appeal bonds entered
into by us and the Restricted Subsidiaries in the ordinary course of their
business;
(11) Indebtedness consisting of the Guaranties and Guarantees of other
Indebtedness otherwise permitted to be Incurred pursuant to the Indenture;
(12) Indebtedness of ours or any Restricted Subsidiary arising from the
honoring by a bank or other financial institution of a check, draft or
similar instrument inadvertently (except in the case of daylight
overdrafts) drawn against insufficient funds in the ordinary course of
business, provided that such Indebtedness is satisfied within five business
days of Incurrence;
(13) Indebtedness (including Capital Lease Obligations) Incurred by us
or any of our Restricted Subsidiaries to finance the purchase, lease or
improvement of property (real or personal) or equipment (whether through
the direct purchase of assets or the Capital Stock of any Person owning
such assets) in an aggregate principal amount which, when added together
with the amount of Indebtedness Incurred pursuant to this clause (13) and
then outstanding, does not exceed the greater of (A) $15.0 million and (B)
5% of Total Assets (in each case including any Refinancing Indebtedness
with respect thereto);
(14) Indebtedness Incurred by us or any of our Restricted Subsidiaries
constituting reimbursement obligations with respect to letters of credit
issued in the ordinary course of business including, without limitation,
letters of credit to procure raw materials, or in respect of workers'
compensation claims or self-insurance, or other Indebtedness with respect
to reimbursement type obligations regarding workers' compensation claims;
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(15) Indebtedness of ours issued to any of our directors, employees,
officers or consultants or a Restricted Subsidiary in connection with the
redemption or purchase of Capital Stock that, by its terms, is subordinated
to the exchange notes, is not secured by any of our assets or our
Restricted Subsidiaries and does not require cash payments prior to the
Stated Maturity of the exchange notes and Refinancing Indebtedness in
respect thereof, in an aggregate principal amount which, when added
together with the amount of Indebtedness Incurred pursuant to this clause
(15) and then outstanding, does not exceed $5.0 million;
(16) Indebtedness arising from agreements of our or a Restricted
Subsidiary providing for indemnification, adjustment of purchase price,
earn out or other similar obligations, in each case, incurred or assumed in
connection with the disposition of any business, assets or a Restricted
Subsidiary of ours, other than guarantees of Indebtedness incurred by any
Person acquiring all or any portion of such business, assets or Restricted
Subsidiary for the purpose of financing such acquisition; provided that the
maximum assumable liability in respect of all such Indebtedness shall at no
time exceed the gross proceeds actually received by us and our Restricted
Subsidiaries in connection with such disposition;
(17) Indebtedness arising from the Recapitalization Agreement providing
for indemnification, adjustment of purchase price, earn out or other
similar business obligations; and
(18) Indebtedness of ours or a Restricted Subsidiary in an aggregate
principal amount which, together with all other Indebtedness of ChipPAC and
the Restricted Subsidiaries outstanding on the date of such Incurrence
(other than Indebtedness permitted by clauses (1) through (17) above or
paragraph (a) above) does not exceed $20.0 million.
(c) Notwithstanding the foregoing, we shall not, and shall not permit any
Restricted Subsidiary to, Incur any Refinancing Indebtedness pursuant to the
foregoing paragraph (b) if the proceeds thereof are used, directly or
indirectly, to Refinance any Subordinated Obligations unless such Indebtedness
shall be subordinated to the exchange notes or the relevant Guaranty, as
applicable, to at least the same extent as such Subordinated Obligations.
(d) For purposes of determining compliance with the foregoing covenant, (1)
in the event that an item of Indebtedness meets the criteria of more than one
of the types of Indebtedness described above, ChipPAC International Company
Limited, in its sole discretion, will classify such item of Indebtedness at the
time of its Incurrence and only be required to include the amount and type of
such Indebtedness in one of the above clauses and (2) an item of Indebtedness
may be divided and classified in more than one of the types of Indebtedness
described above.
(e) Notwithstanding paragraphs (a) and (b) above, neither we nor ChipPAC
International Company Limited shall, and we shall not permit any Subsidiary
Guarantor to, Incur (1) any Indebtedness if such Indebtedness is subordinate or
junior in ranking in any respect to any Senior Indebtedness of ChipPAC
International Company Limited, the ChipPAC or such Subsidiary Guarantor, as
applicable, unless such Indebtedness is Senior Subordinated Indebtedness or is
expressly subordinated in right of payment to Senior Subordinated Indebtedness
or (2) any Secured Indebtedness (other than trade payables incurred in the
ordinary course of business) that is not Senior Indebtedness unless
contemporaneously therewith effective provision is made to secure the exchange
notes or the relevant Guaranty, as applicable, equally and ratably with such
Secured Indebtedness for so long as such Secured Indebtedness is secured by a
Lien.
(f) For purposes of determining compliance with any U.S. dollar denominated
restriction on the Incurrence of Indebtedness where the Indebtedness Incurred
is denominated in a different currency, the amount of such Indebtedness will be
the U.S. Dollar Equivalent determined on the date of the Incurrence of such
Indebtedness, provided, however, that if any such Indebtedness denominated in a
different currency is subject to a Currency Agreement with respect to U.S.
dollars, covering all principal, premium, if any, and interest payable on such
Indebtedness, the amount of such Indebtedness expressed in U.S. dollars will be
as provided in such Currency Agreement. The principal amount of any Refinancing
Indebtedness Incurred in the same currency as the Indebtedness being Refinanced
will be the U.S. Dollar Equivalent of the Indebtedness Refinanced, except to
the
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extent that (i) such U.S. Dollar Equivalent was determined based on a Currency
Agreement, in which case the Refinancing Indebtedness will be determined in
accordance with the preceding sentence, and (ii) the principal amount of the
Refinancing Indebtedness exceeds the principal amount of the Indebtedness being
Refinanced, in which case the U.S. Dollar Equivalent of such excess will be
determined on the date such Refinancing Indebtedness is Incurred.
Limitation on Restricted Payments. (a) We shall not, and shall not permit
any Restricted Subsidiary, directly or indirectly, to make a Restricted Payment
if at the time that we or such Restricted Subsidiary makes such Restricted
Payment:
(1) a Default shall have occurred and be continuing (or would result
therefrom);
(2) we are not able to Incur an additional $1.00 of Indebtedness
pursuant to paragraph (a) of the covenant described under "--Limitation on
Indebtedness;" or
(3) the aggregate amount of such Restricted Payment and all other
Restricted Payments since the Issue Date would exceed the sum (without
duplication) of:
(A) 50% of the Consolidated Net Income accrued during the period
(treated as one accounting period) from the beginning of the fiscal
quarter immediately following the fiscal quarter during which the
exchange notes are originally issued to the end of the most recent
fiscal quarter for which internal financial statements are available on
or prior to the date of such Restricted Payment (or, in case such
Consolidated Net Income shall be a deficit, minus 100% of such
deficit);
(B) the aggregate Net Cash Proceeds received by us from the issuance
or sale of, or capital contribution in respect of, its Capital Stock
(other than Disqualified Stock) subsequent to the Issue Date (other
than an issuance or sale to a Subsidiary of ours and other than an
issuance or sale to an employee stock ownership plan or to a trust
established by us or any of our Subsidiaries for the benefit of
employees to the extent that the purchase by such plan or trust is
financed by Indebtedness of such plan or trust to us or any Subsidiary
or Indebtedness Guaranteed by us or any Subsidiary) and the fair market
value (as determined in good faith by resolution of our Board of
Directors) of property (other than cash that would constitute Temporary
Cash Equivalents or a Related Business) received by us or a Restricted
Subsidiary subsequent to the Issue Date as a contribution to its common
equity capital (other than from a Subsidiary or that was financed with
loans from us or any Restricted Subsidiary);
(C) the amount by which Indebtedness of ours or any Restricted
Subsidiary is reduced on our consolidated balance sheet upon the
conversion or exchange (other than by a Subsidiary of ours subsequent
to the Issue Date of any Indebtedness ours or any Restricted Subsidiary
convertible or exchangeable for our Capital Stock (other than
Disqualified Stock) (less the amount of any cash, or the fair value of
any other property, distributed by us or any Restricted Subsidiary upon
such conversion or exchange); and
(D) an amount equal to the sum of (i) the net reduction in
Investments in any Person resulting from dividends, repayments of loans
or advances or other transfers of assets subsequent to the Issue Date,
in each case to us or any Restricted Subsidiary from such Person, and
(ii) the portion (proportionate to our equity interest in such
Subsidiary) of the fair market value of the net assets of an
Unrestricted Subsidiary at the time such Unrestricted Subsidiary is
designated a Restricted Subsidiary; provided, however, that the
foregoing sum shall not exceed, in the case of any Person, the amount
of Investments previously made (and treated as a Restricted Payment) by
us or any Restricted Subsidiary in such Person.
(b) The provisions of the foregoing paragraph (a) shall not prohibit:
(1) any Restricted Payment made by exchange for, or out of the proceeds
of the substantially concurrent sale of, or capital contribution in respect
of, our Capital Stock (other than Disqualified Stock and other than Capital
Stock issued or sold to a Subsidiary of ours or an employee stock ownership
plan
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or to a trust established by us or any of our Subsidiaries for the benefit
of employees to the extent that the purchase by such plan or trust is
financed by Indebtedness of such plan or trust to us or any Subsidiary of
ours or Indebtedness Guaranteed by us or any Subsidiary of ours); provided,
however, that (A) such Restricted Payment shall be excluded in the
calculation of the amount of Restricted Payments and (B) the Net Cash
Proceeds from such sale shall be excluded from the calculation of amounts
under clause (3)(B) of paragraph (a) above;
(2) any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Obligations made by
exchange for, or out of the proceeds of the substantially concurrent sale
of, Indebtedness which is permitted to be Incurred pursuant to the covenant
described under "--Limitation on Indebtedness;" provided, however, that
such purchase, repurchase, redemption, defeasance or other acquisition or
retirement for value shall be excluded in the calculation of the amount of
Restricted Payments;
(3) any purchase or redemption of Disqualified Stock of ChipPAC or a
Restricted Subsidiary made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Disqualified Stock of ChipPAC or a
Restricted Subsidiary which is permitted to be Incurred pursuant to the
covenant described under "--Limitation on Indebtedness;" provided, however,
that such purchase or redemption shall be excluded in the calculation of
the amount of Restricted Payments;
(4) any purchase or redemption of Subordinated Obligations from Net
Available Cash to the extent permitted by the covenant described under
"CLimitation on Sales of Assets and Subsidiary Stock;" provided, however,
that such purchase or redemption shall be excluded in the calculation of
the amount of Restricted Payments;
(5) upon the occurrence of a Change of Control and within 60 days after
the completion of the offer to repurchase the exchange notes pursuant to
the covenant described under "Change of Control" above (including the
purchase of the exchange notes tendered), any purchase or redemption of
Subordinated Obligations required pursuant to the terms thereof as a result
of such Change of Control at a purchase or redemption price not to exceed
the outstanding principal amount thereof, plus any accrued and unpaid
interest; provided, however, that
(A) at the time of such purchase or redemption no Default shall have
occurred and be continuing (or would result therefrom);
(B) we would be able to Incur an additional $1.00 of Indebtedness
pursuant to paragraph (a) of the covenant described under "--Limitation
on Indebtedness" after giving pro forma effect to such Restricted
Payment; and
(C) such purchase or redemption shall be included in the calculation
of the amount of Restricted Payments.
(6) dividends paid within 60 days after the date of declaration thereof
if at such date of declaration such dividend would have complied with this
covenant; provided, however, that such dividend shall be included in the
calculation of the amount of Restricted Payments;
(7) the repurchase or other acquisition of shares of, or options to
purchase shares of, common stock of the Company or any of its Subsidiaries
from employees, former employees, consultants, former consultants,
directors or former directors of the Company or any of its Subsidiaries (or
permitted transferees of such employees, former employees, consultants,
former consultants, directors or former directors), pursuant to the terms
of the agreements (including employment and consulting agreements) or plans
(or amendments thereto) approved by the Board of Directors under which such
individuals purchase or sell or are granted the option to purchase or sell,
shares of such common stock; provided, however, that the aggregate amount
of such repurchases shall not exceed the sum of:
(x) $5.0 million;
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(y) the Net Cash Proceeds from the sale of Capital Stock to members
of management or directors of the Company and its Subsidiaries that
occurs after the Issue Date (to the extent the Net Cash Proceeds from
the sale of such Capital Stock have not otherwise been applied to the
payment of Restricted Payments by virtue of clause (3)(B) of paragraph
(a) above); and
(z) the cash proceeds of any "Key man" life insurance policies that
are used to make such repurchases; provided further, however, that (A)
such repurchases shall be excluded in the calculation of the amount of
Restricted Payments and (B) the Net Cash Proceeds from such sale shall
be excluded from the calculation of amounts under clause (3)(B) of
paragraph (a) above.
(8) payments required pursuant to the terms of the Recapitalization
Agreement to consummate the recapitalization pursuant to the terms of the
Recapitalization Agreement; provided, however, that such payments shall be
excluded in the calculation of the amount of Restricted Payments;
(9) payments in respect of the Hyundai Earn-out pursuant to the terms of
the Recapitalization Agreement as in effect on the Issue Date; provided,
however, that such payments shall be excluded in the calculation of the
amount of Restricted Payments;
(10) payments of in-kind dividends when due or the accrual or cumulation
of dividends on the Hyundai Preferred Stock pursuant to the terms of such
Hyundai Preferred Stock as in effect on the Recapitalization Closing Date;
provided, however, that such payments shall be excluded in the calculation
of the amount of Restricted Payments;
(11) payments of cash dividends when due on and after 5 1/2 years from
the Recapitalization Closing Date on the Hyundai Preferred Stock pursuant
to the terms of such Hyundai Preferred Stock as in effect on the
Recapitalization Closing Date; provided, however, that such payments shall
be included in the calculation of the amount of Restricted Payments;
(12) repurchases of Capital Stock deemed to occur upon the exercise of
stock options if such Capital Stock represents a portion of the exercise
price thereof; provided, however, that such payments shall be excluded in
the calculation of the amount of Restricted Payments;
(13) payments not to exceed $200,000 in the aggregate solely to enable
us to make payments to holders of its Capital Stock in lieu of the issuance
of fractional shares of its Capital Stock; provided, however, that such
payments shall be excluded in the calculation of the amount of Restricted
Payments;
(14) Restricted Payments not to exceed $15.0 million payable on
Capital Stock (including Disqualified Stock) issued to customers, clients,
suppliers or purchasers or sellers of goods or services of ours or a
Restricted Subsidiary in connection with a strategic investment in us or a
Restricted Subsidiary by such customers, clients, suppliers or purchasers
or sellers of goods or services; provided, however, that such payments
shall be included in the calculation of the amount of Restricted Payments;
(15) Restricted Payments not exceeding $15.0 million in the aggregate
for any purchase, repurchase, redemption, defeasance or other acquisition
or retirement for value of Subordinated Obligations; provided, however,
that (A) at the time of such Restricted Payments, no Default shall have
occurred and be continuing (or result therefrom) and (B) such Restricted
Payments shall be included in the calculation of the amount of Restricted
Payments; or
(16) the distribution, as a dividend or otherwise, of shares of Capital
Stock or assets of an Unrestricted Subsidiary provided that the fair market
value (as determined in good faith by our Board of Directors) of such
shares of Capital Stock or assets shall not exceed the amount of the
Investments that were made (and not subsequently reduced pursuant to clause
(3)(D) of paragraph (a) above) by us in such Unrestricted Subsidiary and
were treated as Restricted Payments or were included in the calculation of
the amount of Restricted Payments previously made; provided, however, that
(A) such distributions shall be excluded in the calculation of the amount
of Restricted Payments and (B) any net reduction in Investments in such
Unrestricted Subsidiary resulting from such distribution shall be excluded
from the calculation of amounts under clause (3)(D) of paragraph (a) above;
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(17) Restricted Payments not exceeding $7.5 million in the aggregate;
provided, however, that (A) at the time of such Restricted Payments, no
Default shall have occurred and be continuing (or result therefrom) and (B)
such Restricted Payments shall be included in the calculation of the amount
of Restricted Payments.
Limitation on Restrictions on Distributions from Restricted Subsidiaries. We
shall not, and shall not permit any Restricted Subsidiary to, create or
otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary to (a)
pay dividends or make any other distributions on its Capital Stock to us or any
Restricted Subsidiary or pay any Indebtedness owed to ChipPAC International
Company Limited or us, (b) make any loans or advances to ChipPAC International
Company Limited or us or (c) transfer any of its property or assets to ChipPAC
International Company Limited or us, except:
(1) any encumbrance or restriction pursuant to an agreement in effect at
or entered into on the Issue Date (including the Indenture, the exchange
notes and the Guaranties), or, in the case of the Credit Agreement, as in
effect on the Recapitalization Closing Date;
(2) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness Incurred
by such Restricted Subsidiary on or prior to the date on which such
Restricted Subsidiary was acquired by us (other than Indebtedness Incurred
as consideration in, or to provide all or any portion of the funds or
credit support utilized to consummate, the transaction or series of related
transactions pursuant to which such Restricted Subsidiary became a
Restricted Subsidiary or was acquired by us) and outstanding on such date;
(3) any encumbrance or restriction pursuant to an agreement (A)
evidencing Indebtedness Incurred without violation of the Indenture or (B)
effecting a Refinancing of Indebtedness Incurred pursuant to an agreement
referred to in clause (1) or (2) of this covenant or this clause (3) or
contained in any amendment to an agreement referred to in clause (1) or (2)
of this covenant or this clause (3); provided, however, that in the case of
clauses (A) and (B), the encumbrances and restrictions with respect to such
Restricted Subsidiary contained in any such refinancing agreement or
amendment are, in the good faith judgment of the Board of Directors, no
more restrictive in any material respect than the encumbrances and
restrictions with respect to such Restricted Subsidiary contained in
agreements of such Restricted Subsidiary in effect at, or entered into on,
the Issue Date or the Recapitalization Closing Date;
(4) any such encumbrance or restriction consisting of customary non-
assignment provisions in leases governing leasehold interests to the extent
such provisions restrict the transfer of the lease or the property leased
thereunder or in licenses entered into in the ordinary course of business
to the extent such licenses restrict the transfer of the license or the
property licensed thereunder;
(5) in the case of clause (c) above, restrictions contained in security
agreements or mortgages securing Indebtedness of a Restricted Subsidiary to
the extent such restrictions restrict the transfer of the property subject
to such security agreements or mortgages;
(6) restrictions on the transfer of assets subject to any Lien permitted
under the Indenture imposed by the holder of such Lien;
(7) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions on the property so acquired of
the nature described in clause (c) above;
(8) provisions with respect to the disposition or distribution of assets
or property in joint venture agreements and other similar agreements
entered into in the ordinary course of business;
(9) any restriction with respect to a Restricted Subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of all or
substantially all the Capital Stock or assets of such Restricted Subsidiary
pending the closing of such sale or disposition;
(10) any restriction arising under applicable law, regulation or order;
(11) any agreement or instrument governing Capital Stock (other than
Disqualified Stock) of any Person that is in effect on the date such Person
is acquired by us or a Restricted Subsidiary;
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(12) any restriction on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business;
and
(13) any restriction in any agreement that is not more restrictive than
the restrictions under the terms of the Credit Agreement as in effect on
the Recapitalization Closing Date.
Limitation on Sales of Assets and Subsidiary Stock. (a) We shall not, and
shall not permit any Restricted Subsidiary to, directly or indirectly,
consummate any Asset Disposition unless:
(1) we or such Restricted Subsidiary receives consideration at the time
of such Asset Disposition at least equal to the fair market value
(including as to the value of all non-cash consideration), as determined in
good faith by the Board of Directors, of the shares and assets subject to
such Asset Disposition;
(2) at least 75% of the consideration thereof received by us or such
Restricted Subsidiary is in the form of cash or cash equivalents; and
(3) an amount equal to 100% of the Net Available Cash from such Asset
Disposition is applied by us or such Restricted Subsidiary, as the case may
be, pursuant to one or more of the following:
(A) to the extent we elect (or are required by the terms of any
Indebtedness), to prepay, repay, redeem or purchase Senior Indebtedness
of ChipPAC International Company Limited or Indebtedness (other than
any Disqualified Stock) of ours or another Restricted Subsidiary of
ours (in each case other than Indebtedness owed to the Company or an
Affiliate of the Company) within one year from the later of the closing
date of such Asset Disposition and the receipt of such Net Available
Cash;
(B) to the extent we elect, to acquire Additional Assets within one
year from (or enter into a binding commitment to acquire Additional
Assets, provided that such commitment shall be subject only to
customary conditions (other than financing) and such acquisition shall
be consummated within two years from) the later of the closing date of
such Asset Disposition and the receipt of such Net Available Cash; and
(C) to the extent we elect, or to the extent of the balance of such
Net Available Cash after application in accordance with clauses (A) and
(B), to make an offer to the holders of the exchange notes (and to
holders of other Senior Subordinated Indebtedness of ChipPAC
International Company Limited designated by ChipPAC International
Company Limited) to purchase exchange notes (and such other Senior
Subordinated Indebtedness) pursuant to and subject to the conditions
contained in the Indenture;
provided, however, that in connection with any prepayment, repayment or
purchase of Indebtedness pursuant to clause (A) or (C) above, we or such
Restricted Subsidiary shall permanently retire such Indebtedness and, in the
case of any revolving facility, shall cause the related loan commitment, if
any, to be permanently reduced in an amount equal to the principal amount so
prepaid, repaid or purchased. Notwithstanding the foregoing provisions of this
paragraph, we and the Restricted Subsidiaries shall not be required to apply
any Net Available Cash in accordance with this paragraph except to the extent
that the aggregate Net Available Cash from all Asset Dispositions which are not
applied in accordance with this paragraph exceeds $10.0 million. Pending
application of Net Available Cash pursuant to this covenant, such Net Available
Cash shall be invested in Permitted Investments or used to temporarily reduce
loans outstanding under any revolving credit facility.
For the purposes of this covenant, the following are deemed to be cash or
cash equivalents: (x) the assumption of Indebtedness of ours or any Restricted
Subsidiary and the release of us or such Restricted Subsidiary from all
liability on such Indebtedness in connection with such Asset Disposition,
(y) securities, exchange notes or other obligations received by us or
any Restricted Subsidiary from the transferee that are promptly converted
by us or such Restricted Subsidiary into cash; and
(z) any Additional Assets (so long as such Additional Assets were
acquired for fair market value in connection with the transaction giving
rise to such Asset Disposition, as determined in good faith by the board of
directors of the Company or such Restricted Subsidiary, as applicable),
which Additional Assets shall be deemed to have been acquired pursuant to
clause (A) of the preceding paragraph in connection with such Asset
Disposition.
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(b) In the event of an Asset Disposition that requires the purchase of the
exchange notes (and other Senior Subordinated Indebtedness) pursuant to clause
(a)(3)(C) above, ChipPAC International Company Limited will be required to
purchase exchange notes tendered pursuant to an offer by ChipPAC International
Company Limited for the exchange notes (and other Senior Subordinated
Indebtedness) at a purchase price of 100% of their principal amount (without
premium) plus accrued but unpaid interest (or, in respect of such other Senior
Subordinated Indebtedness, such lesser price, if any, as may be provided for
by the terms of such Senior Subordinated Indebtedness) in accordance with the
procedures (including prorating in the event of oversubscription) set forth in
the Indenture. If the aggregate purchase price of the exchange notes (and any
other Senior Subordinated Indebtedness) tendered exceeds the Net Available
Cash allotted to the purchase thereof, ChipPAC International Company Limited
will select the exchange notes (and any other Senior Subordinated
Indebtedness) to be purchased on a pro rata basis but in denominations of
$1,000 or multiples thereof. ChipPAC International Company Limited shall not
be required to make such an offer to purchase exchange notes (and other Senior
Subordinated Indebtedness) pursuant to this covenant if the Net Available Cash
available therefor is less than $10.0 million (which lesser amount shall be
carried forward for purposes of determining whether such an offer is required
with respect to the Net Available Cash from any subsequent Asset Disposition).
(c) ChipPAC International Company Limited shall comply, to the extent
applicable, with the requirements of Section 14(e) of the Exchange Act and any
other securities laws or regulations in connection with the repurchase of
exchange notes pursuant to this covenant. To the extent that the provisions of
any securities laws or regulations conflict with provisions of this covenant,
ChipPAC International Company Limited shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under this clause by virtue thereof.
Limitation on Affiliate Transactions. (a) We shall not, and shall not
permit any Restricted Subsidiary to, enter into or permit to exist any
transaction (including the purchase, sale, lease or exchange of any property,
employee compensation arrangements or the rendering of any service) with any
Affiliate of ours involving aggregate consideration in excess of $2.5 million
(an "Affiliate Transaction") unless the terms thereof:
(1) are no less favorable to us or such Restricted Subsidiary than those
that could be obtained at the time of such transaction in arm's-length
dealings with a Person who is not such an Affiliate;
(2) have been approved by a majority of the disinterested members of the
Board of Directors; and
(3) if such Affiliate Transaction involves an amount in excess of $10.0
million, have been determined by (A) a nationally recognized investment
banking firm to be fair, from a financial standpoint, to us and our
Restricted Subsidiaries or (B) an accounting or appraisal firm nationally
recognized in making such determinations to be on terms that are not less
favorable to us and our Restricted Subsidiaries than the terms that could
be obtained in an arms-length transaction from a Person that is not an
Affiliate of ours.
(b) The provisions of the foregoing paragraph (a) shall not prohibit;
(1) any Restricted Payment permitted to be paid pursuant to the covenant
described under "--Limitation on Restricted Payments;"
(2) any issuance of securities, or other payments, awards or grants in
cash, securities or otherwise pursuant to, or the funding of, employment
arrangements, stock options and stock ownership plans approved by the Board
of Directors;
(3) the grant of stock options or similar rights to our employees and
directors or those of our Restricted Subsidiaries pursuant to plans or
agreements approved by the Board of Directors;
(4) loans or advances to employees, directors, officers or consultants
(A) in the ordinary course of business or (B) otherwise in an aggregate
amount not to exceed $5.0 million in the aggregate outstanding at any one
time;
(5) reasonable fees, compensation or employee benefit arrangements to
and indemnity provided for the benefit of employees, directors, officers or
consultants of ours or any Subsidiary in the ordinary course of business;
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(6) any transaction exclusively between or among us and our Restricted
Subsidiaries or between or among Restricted Subsidiaries; provided,
however, that such transactions are not otherwise prohibited by the
Indenture;
(7) the payment of management, consulting and advisory fees and related
expenses made pursuant to the Advisory Agreements as in effect on the
Recapitalization Closing Date and the payment of other customary
management, consulting and advisory fees and related expenses to the
Principals and their Affiliates made pursuant to any financial advisory,
financing, underwriting or placement agreement or in respect of other
investment banking activities, including, without limitation, in connection
with acquisitions or divestitures which fees and expenses are made pursuant
to arrangements approved by our board of directors or that of such
Restricted Subsidiary in good faith;
(8) any Affiliate Transaction with Hyundai Electronics and its
Affiliates pursuant to written agreements in effect on the Recapitalization
Closing Date and as amended, renewed or extended from time to time;
provided, however, that any such amendment, renewal or extension shall not
contain terms which are materially less favorable to us and our Restricted
Subsidiaries than those in the agreements in effect on the Recapitalization
Closing Date;
(9) any agreement with us or any Restricted Subsidiary as in effect as
of the Recapitalization Closing Date or any amendment or replacement
thereto or any transaction contemplated thereby (including pursuant to any
amendment or replacement thereto) so long as any such amendment or
replacement agreement is not more disadvantageous to us or such Restricted
Subsidiary in any material respect than the original agreement as in effect
on the Recapitalization Closing Date;
(10) the existence of, or the performance by us or any of our Restricted
Subsidiaries of obligations under the terms of, the Shareholders Agreement
and any similar agreements which it may enter into thereafter; provided,
however, that the existence of, or the performance by us or any of our
Restricted Subsidiaries of obligations under, any future amendment to any
such existing agreement or under any similar agreement entered into after
the Recapitalization Closing Date shall only be permitted by this clause
(10) to the extent that the terms of any such amendment or new agreement
are not more disadvantageous to us or any such Restricted Subsidiary in any
material respect;
(11) 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 the
Indenture which are fair to us and our Restricted Subsidiaries, in the
reasonable determination of the 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; and
(12) the issuance or sale of any of our Capital Stock (other than
Disqualified Stock).
Merger and Consolidation. Neither ChipPAC International Company Limited nor
we shall consolidate with or merge with or into, or convey, transfer or lease,
in one transaction or a series of related transactions, all or substantially
all its assets to, any Person, unless:
(1) the resulting, surviving or transferee Person (the "Successor
Company") shall be a Person organized and existing under the laws of the
British Virgin Islands or of the United States of America, any State
thereof or the District of Columbia and the Successor Company (if not us or
ChipPAC International Company Limited) shall expressly assume, by an
indenture supplemental thereto, executed and delivered to the Trustee, in
form satisfactory to the Trustee, all the obligations of ChipPAC
International Company Limited or us, as applicable, under the Indenture and
the Company Guaranty or the exchange notes, as applicable;
(2) immediately after giving effect to such transaction (and treating
any Indebtedness which becomes an obligation of the Successor Company or
any Subsidiary as a result of such transaction as having been Incurred by
such Successor Company or such Subsidiary at the time of such transaction),
no Default shall have occurred and be continuing;
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(3) immediately after giving effect to such transaction, (A) the
Successor Company would be able to Incur an additional $1.00 of
Indebtedness pursuant to paragraph (a) of the covenant described under "--
Limitation on Indebtedness" or (B) the Consolidated Coverage Ratio for the
Successor Company and its Restricted Subsidiaries would be equal to or
greater than such ratio for us and our Restricted Subsidiaries immediately
prior to such transaction;
(4) ChipPAC International Company Limited or us, as applicable, shall
have delivered to the Trustee an Officers' Certificate and an Opinion of
Counsel, each stating that such consolidation, merger or transfer and any
supplemental indenture comply with the Indenture;
(5) In the event that the merging corporation (i.e., the Company or
ChipPAC International Company Limited, as applicable) is organized and
existing under the laws of the British Virgin Islands and the Successor
Company is organized and existing under the laws of the United States of
America, any State thereof or the District of Columbia or in the event that
the merging corporation is organized and existing under the laws of the
United States of America, any State thereof or the District of Columbia and
the Successor Company is organized and existing under the laws of the
British Virgin Islands (any of the foregoing events are referred to herein
as a "Foreign Jurisdiction Merger"), ChipPAC International Company Limited
or ChipPAC, as applicable, shall have delivered to the Trustee an Opinion
of Counsel to the effect that the Holders will not recognize income, gain
or loss for U.S. Federal income tax purposes as a result of such
transaction and will be subject to U.S. Federal income tax on the same
amounts and at the same times as would have been the case if such
transaction had not occurred; and
(6) In the event of a Foreign Jurisdiction Merger, ChipPAC International
Company Limited or ChipPAC, as applicable, shall have delivered to the
Trustee an Opinion of Counsel in the British Virgin Islands (or other
applicable jurisdiction) to the effect that (A) any payment of interest or
principal under or with respect to the exchange notes or the Guaranties
will, after the consolidation, merger, conveyance, transfer or lease of
assets, be exempt from the Taxes described under "--Withholding Taxes" and
(B) no other taxes on income (including capital gains) will be payable
under the laws of the British Virgin Islands or any other jurisdiction
where the Successor Company is or becomes organized, resident or engaged in
business for tax purposes in respect of the acquisition, ownership or
disposition of the exchange notes, including the receipt of interest or
principal thereon, provided that such Holder does not use or hold, and is
not deemed to use or hold the exchange notes in carrying on a business in
the British Virgin Islands or other jurisdiction where the Successor
Company is or becomes organized, resident or engaged in business for tax
purposes.
provided, however, that clause (3) above shall not apply (x) if, in the good
faith determination of the Board of Directors, whose determination shall be
evidenced by a resolution of the Board of Directors, the principal purpose and
effect of such transaction is to change the jurisdiction of incorporation of
ChipPAC International Company Limited or the Company or (y) in the case of a
merger of ChipPAC International Company Limited or the Company with or into a
Wholly Owned Subsidiary of ours.
The Successor Company shall be the successor to us or ChipPAC International
Company Limited, as the case may be, and shall succeed to, and be substituted
for, and may exercise every right and power of, ChipPAC International Company
Limited or us under the Indenture, and the predecessor Issuer or Company,
except in the case of a lease, shall be automatically released from its
obligations under the Company Guaranty, the exchange notes and the Indenture.
We will not permit any Subsidiary Guarantor to consolidate with or merge
with or into, or convey, transfer or lease, in one transaction or a series of
transactions, all or substantially all of its assets to any Person unless:
(1) the resulting, surviving or transferee Person (if not such
Subsidiary) shall be a Person organized and existing under the laws of the
jurisdiction under which such Subsidiary was organized or under the laws of
the United States of America, or any State thereof or the District of
Columbia, and such Person shall expressly assume, by executing a
supplemental indenture or Guaranty Agreement, as applicable, all the
obligations of such Subsidiary under the Indenture or its Subsidiary
Guaranty and under the exchange notes and the Indenture;
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(2) immediately after giving effect to such transaction or transactions
on a pro forma basis (and treating any Indebtedness which becomes an
obligation of the resulting, surviving or transferee Person as a result of
such transaction as having been issued by such Person at the time of such
transaction), no Default shall have occurred and be continuing; and
(3) we deliver to the Trustee an Officers' Certificate and an Opinion of
Counsel, each stating that such consolidation, merger or transfer and such
supplemental indenture or Guaranty Agreement, if any, complies with the
Indenture.
The provisions of clauses (1) and (2) above shall not apply to any one or
more transactions involving a Subsidiary Guarantor which constitute an Asset
Disposition if we have complied with the applicable provisions of the covenant
described under "--Limitation on Sales of Assets and Subsidiary Stock" above.
Future Guarantors. In the event that, after the Issue Date, we form or
otherwise acquire, directly or indirectly, any Restricted Subsidiary, we shall
cause such Restricted Subsidiary to Guarantee the exchange notes pursuant to a
Subsidiary Guaranty on the terms and conditions set forth in the Indenture and
the Subsidiary Guaranty Agreement; provided, however, in the event we or a
Restricted Subsidiary forms or otherwise acquires, directly or indirectly, a
Restricted Subsidiary organized under the laws of a jurisdiction other than the
United States and such jurisdiction prohibits by law, regulation or order such
Restricted Subsidiary from providing a Guarantee, we shall use all commercially
reasonable efforts (including pursuing required waivers) over a period up to
one year, to provide such Guarantee; provided, however, that we shall not be
required to use such commercially reasonable efforts with respect to such
subsidiaries for more than a one-year period or such shorter period as we shall
determine in good faith that we have used all commercially reasonable efforts.
If we or such Restricted Subsidiary is unable during such period to obtain an
enforceable Guarantee in such jurisdiction, then such Restricted Subsidiary
shall not be required to provide a Guarantee of the exchange notes pursuant to
the Subsidiary Guaranty so long as such Restricted Subsidiary does not
Guarantee any other Indebtedness of ours and our Restricted Subsidiaries.
Limitation on Assets of Non-Subsidiary Guarantors. We shall not permit our
Restricted Subsidiaries that are not Subsidiary Guarantors, excluding ChipPAC
Assembly and Test (Shanghai) Company, Ltd. and ChipPAC (Shanghai) Company Ltd.
or any successors thereto, to collectively hold at any one time more than 33
1/3% of the consolidated assets of ours and our Restricted Subsidiaries.
Limitation on Sale of the Capital Stock of ChipPAC International Company
Limited. For so long as any of the exchange notes are outstanding, ChipPAC
International Company Limited will continue to be, directly or indirectly, a
Wholly Owned Subsidiary of ours.
SEC Reports. Whether or not subject to the reporting requirements of Section
13 or 15(d) of the Exchange Act, we will file with the SEC and provide the
Trustee and Noteholders with such annual reports and such information,
documents and other reports as are specified in Sections 13 and 15(d) of the
Exchange Act and applicable to a U.S. corporation subject to such Sections at
the times specified for such filings under such Sections. However, we will not
be required to file any reports, documents or other information if the SEC will
not accept such a filing.
Defaults
Each of the following is an Event of Default:
(1) a default in the payment of interest or any Additional Amounts on
the exchange notes when due, continued for 30 days;
(2) a default in the payment of principal of any note when due at its
Stated Maturity, upon redemption, upon required repurchase, upon
declaration or otherwise;
(3) the failure by us, ChipPAC International Company Limited or any
Subsidiary Guarantor to comply with its obligations under "--Certain
Covenants--Merger and Consolidation" above;
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(4) the failure by us or any Restricted Subsidiary to comply for 30 days
after notice with any of its obligations in the covenants described above
under "--Change of Control" (other than a failure to purchase the exchange
notes) or under "--Certain Covenants" under "--Limitation on Indebtedness,"
"--Limitation on Restricted Payments," "--Limitation on Restrictions on
Distributions from Restricted Subsidiaries," "--Limitation on Sales of
Assets and Subsidiary Stock" (other than a failure to purchase the exchange
notes), "--Limitation on Affiliate Transactions," "--Future Guarantors,"
"--Limitation on Assets of Non-Subsidiary Guarantors," "--Limitation on
Sale of the Capital Stock of ChipPAC International Company Limited" or "--
SEC Reports;"
(5) the failure by us or any Restricted Subsidiary to comply for 60 days
after notice with its other agreements contained in the Indenture;
(6) Indebtedness of ours, ChipPAC International Company Limited or any
Significant Subsidiary is not paid within any applicable grace period after
final maturity or is accelerated by the holders thereof because of a
default and the total amount of such Indebtedness unpaid or accelerated
exceeds $10.0 million (the "cross acceleration provision");
(7) certain events of bankruptcy, insolvency or reorganization of us,
ChipPAC International Company Limited or a Significant Subsidiary (the
"bankruptcy provisions");
(8) any judgment or decree for the payment of money in excess of $10.0
million is entered against us, ChipPAC International Company Limited or a
Significant Subsidiary, remains outstanding for a period of 60 days
following such judgment and is not discharged, waived or stayed within 10
days after notice (the "judgment default provision"); or
(9) the Company Guaranty or any Subsidiary Guaranty of a Significant
Subsidiary ceases to be in full force and effect (other than in accordance
with the terms of the Company Guaranty or such Subsidiary Guaranty) or the
ChipPAC or any Significant Subsidiary that is a Subsidiary Guarantor denies
or disaffirms its obligations under the Company Guaranty or its Subsidiary
Guaranty, as the case may be.
However, a default under clauses (4), (5) and (8) will not constitute an
Event of Default until the Trustee or the holders of 25% in principal amount of
the outstanding exchange notes notify ChipPAC International Company Limited and
us of the default and ChipPAC International Company Limited or ChipPAC does not
cure such default within the time specified after receipt of such notice.
If an Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in principal amount of the outstanding exchange notes may
declare the principal of and accrued but unpaid interest on all the exchange
notes to be due and payable. Upon such a declaration, such principal and
interest shall be due and payable immediately; provided, however, that if upon
the declaration there are any amounts outstanding under the Credit Agreement
and the amounts thereunder have not been accelerated, the principal and
interest shall be due and payable upon the earlier of the time the amounts are
accelerated or five Business Days after receipt by ChipPAC International
Company Limited and us and the Representative under the Credit Agreement of the
declaration. If an Event of Default relating to specific events of bankruptcy,
insolvency or reorganization of us or ChipPAC International Company Limited
occurs and is continuing, the principal of and interest on all the exchange
notes will ipso facto become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any holders of the
exchange notes. The holders of a majority in principal amount of the
outstanding exchange notes may rescind any acceleration with respect to the
exchange notes and its consequences.
Contingent upon the provisions of the Indenture relating to the duties of
the Trustee, in case an Event of Default occurs and is continuing, the Trustee
will be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the holders of the exchange
notes unless the holders have offered to the Trustee reasonable indemnity or
security against any loss, liability or expense. Except to enforce the right to
receive payment of principal, premium, if any, or interest when due, no holder
of a note may pursue any remedy with respect to the Indenture or the exchange
notes unless:
(1) the holder has previously given the Trustee notice that an Event of
Default is continuing;
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(2) holders of at least 25% in principal amount of the outstanding
exchange notes have requested the Trustee to pursue the remedy;
(3) the holders have offered the Trustee reasonable security or
indemnity against any loss, liability or expense;
(4) the Trustee has not complied with the request within 60 days after
receiving the request and the offer of security or indemnity; and
(5) the holders of a majority in principal amount of the outstanding
exchange notes have not given the Trustee a direction inconsistent with the
request within the 60-day period.
If conditions set forth in the Indenture are met, holders of a majority in
principal amount of the outstanding exchange notes are given the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or of exercising any trust or power conferred on the
Trustee. The Trustee, however, may refuse to follow any direction that
conflicts with law or the Indenture or that the Trustee determines is unduly
prejudicial to the rights of any other holder of a note or that would involve
the Trustee in personal liability.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each holder of the exchange
notes notice of the Default within 90 days after it occurs. Except in the case
of a Default in the payment of principal of or interest on any note, the
Trustee may withhold notice if and so long as a committee of its trust officers
determines that withholding notice is not opposed to the interest of the
holders of the exchange notes. In addition, ChipPAC International Company
Limited is required to deliver to the Trustee, within 120 days after the end of
each fiscal year, a certificate indicating whether its signers know of any
Default that occurred during the previous year. ChipPAC International Company
Limited also is required to deliver to the Trustee, within 30 days, written
notice of any event which would constitute specific types of Defaults, their
status and what action ChipPAC International Company Limited is taking or
proposes to take.
Amendments and Waivers
If conditions set forth in the Indenture are met, Indenture may be amended
with the consent of the holders of a majority in principal amount of the
exchange notes then outstanding, including consents obtained in connection with
a tender offer or exchange for the exchange notes, and any past default or
compliance with any provisions may also be waived with the consent of the
holders of a majority in principal amount of the exchange notes then
outstanding. However, without the consent of each holder of an outstanding note
thus affected, no amendment may:
(1) reduce the amount of exchange notes whose holders must consent to an
amendment;
(2) reduce the rate of or extend the time for payment of interest on any
note;
(3) reduce the principal of or extend the Stated Maturity of any note;
(4) reduce the premium payable upon the redemption of any note or change
the time at which any note may be redeemed as described under "--Optional
Redemption" or "--Redemption for Changes in British Virgin Islands
Withholding Taxes" above;
(5) make any note payable in money other than that stated in the note;
(6) impair the right of any holder of the exchange notes to receive
payment of principal of and interest on the holder's exchange notes on or
after the due dates therefor or to institute suit for the enforcement of
any payment on or with respect to the holder's exchange notes;
(7) make any change in the amendment provisions which require each
holder's consent or in the waiver provisions; or
(8) make any change in the Company Guaranty or any Subsidiary Guaranty
that would adversely affect the Noteholders.
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In addition, any amendment to the subordination provisions of the Indenture
that would adversely affect the Holders of the exchange notes will require the
consent of the Holders of at least 75% in aggregate principal amount of the
exchange notes then outstanding. However, no amendment may be made to the
subordination provisions of the Indenture that adversely affects the rights of
any holder of Senior Indebtedness then outstanding unless the holders of that
Senior Indebtedness, or their Representative, consents to the change.
Without the consent of any holder of the exchange notes, ChipPAC
International Company Limited and Trustee may amend the Indenture to cure any
ambiguity, omission, defect or inconsistency, to provide for the assumption by
a successor corporation of the obligations of ChipPAC International Company
Limited under the Indenture, provided, that ChipPAC International Company
Limited or ChipPAC delivers to the Trustee the Opinions of Counsel described in
clauses five and six of "Certain Covenants--Merger and Consolidation" if such
opinions are required pursuant to the provisions of these clauses, to provide
for uncertificated exchange notes in addition to or in place of certificated
exchange notes (provided that the uncertificated exchange notes are issued in
registered form for purposes of Section 163(f) of the Code, or in a manner such
that the uncertificated exchange notes are described in Section 163(f)(2)(B) of
the Code), to add guarantees with respect to the exchange notes, to release a
Subsidiary Guaranty when permitted by the Indenture, to secure the exchange
notes, to add to our covenants and those of our Restricted Subsidiaries for the
benefit of the holders of the exchange notes or to surrender any right or power
conferred upon us and our Restricted Subsidiaries, to make any change that does
not adversely affect the rights of any holder of the exchange notes or to
comply with any requirement of the SEC in connection with the qualification of
the Indenture under the Trust Indenture Act.
The consent of the holders of the exchange notes is not necessary under the
Indenture to approve the particular form of any proposed amendment. It is
sufficient if the consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, ChipPAC
International Company Limited is required to mail to holders of the exchange
notes a notice briefly describing the amendment. However, the failure to give
notice to all holders of the exchange notes, or any defect in the notice, will
not impair or affect the validity of the amendment.
Transfer
The exchange notes will be issued in registered form and will be
transferable only upon the surrender of the exchange notes being transferred
for registration of transfer. ChipPAC International Company Limited may require
payment of a sum sufficient to cover any tax, assessment or other governmental
charge payable in connection with some types of transfers and exchanges.
Defeasance
ChipPAC International Company Limited and ChipPAC at any time may terminate
all of our obligations under the exchange notes and the Indenture, which we
refer to as "legal defeasance", except for some obligations respecting the
defeasance trust and obligations to register the transfer or exchange of the
exchange notes, to replace mutilated, destroyed, lost or stolen exchange notes
and to maintain a registrar and paying agent for the exchange notes. ChipPAC
International Company Limited or ChipPAC at any time may terminate our
obligations under "--Change of Control" and under the covenants described under
"--Certain Covenants", other than the covenant described under "--Merger and
Consolidation", the operation of the cross acceleration provision, the
bankruptcy provisions with respect to Significant Subsidiaries and the judgment
default provision described under "--Defaults" above and the limitations
contained in clause (3) of the first paragraph under "--Certain Covenants--
Merger and Consolidation" above, which we refer to as "covenant defeasance".
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ChipPAC International Company Limited and ChipPAC may exercise our legal
defeasance option notwithstanding its prior exercise of its covenant defeasance
option. If ChipPAC International Company Limited or ChipPAC exercises our legal
defeasance option, payment of the exchange notes may not be accelerated because
of an Event of Default. If ChipPAC International Company Limited or ChipPAC
exercises our covenant defeasance option, payment of the exchange notes may not
be accelerated because of an Event of Default specified in clause (4), (6), (7)
(with respect only to Significant Subsidiaries) or (8) under "--Defaults" above
or because of the failure of us to comply with clause (3) of the first
paragraph under "--Certain Covenants--Merger and Consolidation" above or the
failure of ChipPAC International Company Limited or any Subsidiary Guarantor to
comply with the limitation under the third paragraph under "--Certain
Covenants--Merger and Consolidation" above. If ChipPAC International Company
Limited or ChipPAC exercises our legal defeasance option or our covenant
defeasance option, we and each Subsidiary Guarantor will be released from all
of its obligations with respect to the Company Guaranty or its Subsidiary
Guaranty, as the case may be.
In order to exercise either defeasance option, ChipPAC International Company
Limited or ChipPAC must irrevocably deposit in trust, which we refer to as the
"defeasance trust", with the Trustee money or U.S. Government Obligations for
the payment of principal and interest on the exchange notes to redemption or
maturity, as the case may be, and must comply with other conditions, including
delivery to the Trustee of (i) an Opinion of Counsel to the effect that Holders
of the exchange notes will not recognize income, gain or loss for U.S. Federal
income tax purposes as a result of the deposit and defeasance and will be
subject to U.S. Federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if the deposit and defeasance had
not occurred, and, in the case of legal defeasance only, the Opinion of Counsel
must be based on a ruling of the Internal Revenue Service or other change in
applicable U.S. Federal income tax law, and (ii) an Opinion of Counsel in each
of the British Virgin Islands and any other jurisdiction in which ChipPAC
International Company Limited or ChipPAC is organized, resident or engaged in
business for tax purposes to the effect that (A) Holders of the exchange notes
will not recognize income gain or loss for purposes of the tax laws of the
jurisdiction as a result of legal defeasance or covenant defeasance, as
applicable, and will be subject for purposes of the tax laws of that
jurisdiction to income tax on the same amounts, in the same manner and at the
same times as would have been the case if legal defeasance or covenant
defeasance had not occurred and (B) payments from the defeasance trust will be
free or exempt from any and all withholding and other taxes of whatever nature
of the jurisdiction or any political subdivision or taxing authority except in
the case of a payment made to a Holder which is subject to the tax by reason of
the Holder's carrying on a business in the British Virgin Islands or other
jurisdiction.
Concerning the Trustee
Firstar Bank of Minnesota, N.A. is to be the Trustee under the Indenture and
has been appointed by us as Registrar and Paying Agent with regard to the
exchange notes.
The Holders of a majority in principal amount of the outstanding exchange
notes will have the right to direct the time, method and place of conducting
any proceeding for exercising any remedy available to the Trustee, with some
exceptions. The Indenture provides that if an Event of Default occurs and is
not cured, the Trustee will be required, in the exercise of its power, to use
the degree of care of a prudent man in the conduct of his own affairs. The
Trustee will be under no obligation to exercise any of its rights or powers
under the Indenture at the request of any Holder of exchange notes, unless the
Holder shall have offered to the Trustee security and indemnity satisfactory to
it against any loss, liability or expense and then only to the extent required
by the terms of the Indenture.
Governing Law
The Indenture provides that it and the exchange notes will be governed by,
and construed under, the laws of the State of New York without giving effect to
conflicts of laws rules to the extent that the application of the law of
another jurisdiction would be required applicable.
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Enforceability of Judgments
Since substantially all the operating assets of ChipPAC International
Company Limited, ChipPAC and their Subsidiaries are outside the United States,
any judgment obtained in the United States against ChipPAC International
Company Limited, ChipPAC or a Subsidiary Guarantor, including judgments with
respect to the payment of principal, interest, Additional Amounts, redemption
price and any purchase price with respect to the exchange notes, may not be
collectible within the United States.
ChipPAC International Company Limited has been informed by its British
Virgin Island counsel, Harney Westwood & Riegels, that in its opinion the
applicable laws of the British Virgin Islands permit an action to be brought in
a court of competent jurisdiction in the British Virgin Islands on a final and
conclusive judgment in personam of a United States federal court or a court of
the State of New York sitting in the Borough of Manhattan in The City of New
York (the "New York Court"), respecting the enforcement of the exchange notes
or the Indenture (including the Company Guaranty and the Subsidiary
Guaranties), that is not impeachable as void or voidable under the laws of the
State of New York and that is for a sum certain in money if:
. the New York Court that rendered the judgment has jurisdiction over the
judgment debtor, as recognized by the courts of the British Virgin
Islands and in compliance with the British Virgin Islands' conflict of
laws rules (and submission by ChipPAC International Company Limited, the
Company and the Subsidiary Guarantors in the Indenture to the
jurisdiction of the New York Court will be sufficient for this purpose);
. the judgment was not obtained by fraud or in a manner contrary to
natural justice and the enforcement thereof would not be inconsistent
with public policy, as that term is understood under the applicable laws
of the British Virgin Islands;
. the enforcement of the judgment does not constitute, directly or
indirectly, the enforcement of foreign revenue, expropriator, public or
penal laws;
. no new admissible evidence relevant to the action is discovered prior to
the rendering of judgment by the British Virgin Islands; and
. the action to enforce the judgment is commenced within six years after
the date of the judgment.
Furthermore, ChipPAC International Company Limited has been advised by its
counsel that they do not know of any reason under present laws of the British
Virgin Islands for avoiding recognition of the judgment of New York Court under
the Indenture (including the Company Guaranty and the Subsidiary Guaranties) or
on the exchange notes based upon a reasonable interpretation of public policy.
Consent to Jurisdiction and Service
The Indenture provides that ChipPAC International Company Limited, ChipPAC
and each Subsidiary Guarantor will appoint CT Corporation System, 1633
Broadway, New York, New York 10019 as its agent for actions brought under
Federal or state securities laws brought in any Federal or state court located
in the Borough of Manhattan in The City of New York and will submit to that
jurisdiction.
Certain Definitions
"Additional Assets" means:
(1) any property or assets (other than Indebtedness and Capital Stock)
in a Related Business,
(2) the Capital Stock of a Person that becomes a Restricted Subsidiary
as a result of the acquisition of such Capital Stock by the Company or
another Restricted Subsidiary or
(3) Capital Stock constituting a minority interest in any Person that at
such time is a Restricted Subsidiary;
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provided, however, that any such Restricted Subsidiary described in clauses
(2) or (3) above is primarily engaged in a Related Business.
"Advisory Agreements" mean each of the advisory agreements by and between
ChipPAC, Inc., ChipPAC Limited, ChipPAC International Company Limited and each
Principal entered into on the Recapitalization Closing Date, as the same may be
amended from time to time in a manner that is not more disadvantageous to us in
any material respect than the original agreement as in effect on the
Recapitalization Closing Date.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the provisions described under "--Certain Covenants--Limitation on
Restricted Payments," "--Certain Covenants--Limitation on Affiliate
Transactions" and "--Certain Covenants--Limitation on Sales of Assets and
Subsidiary Stock" only, "Affiliate" shall also mean any beneficial owner of
Capital Stock representing 10% or more of the total voting power of our Voting
Stock (on a fully diluted basis) or of rights or warrants to purchase such
Capital Stock (whether or not currently exercisable) and any Person who would
be an Affiliate of any such beneficial owner pursuant to the first sentence
hereof.
"Asset Disposition" means any sale, lease (other than operating leases
entered into in the ordinary course of business), transfer or other disposition
(or series of related sales, leases, transfers or dispositions) by us or any
Restricted Subsidiary, including any disposition by means of a merger,
consolidation or similar transaction (each referred to for the purposes of this
definition as a "disposition"), of (1) any shares of Capital Stock of a
Restricted Subsidiary (other than directors' qualifying shares or shares
required by applicable law to be held by a Person other than us or a Restricted
Subsidiary), (2) all or substantially all the assets of any division or line of
business of ours or any Restricted Subsidiary or (3) any other assets of ours
or any Restricted Subsidiary outside of the ordinary course of our business or
that of such Restricted Subsidiary (other than, in the case of (1), (2) and (3)
above, (w) a disposition by a Restricted Subsidiary to us or by us or a
Restricted Subsidiary to a Restricted Subsidiary, (x) for purposes of the
covenant described under "--Certain Covenants--Limitation on Sales of Assets
and Subsidiary Stock" only, a disposition that constitutes a Restricted Payment
permitted by the covenant described under "--Certain Covenants--Limitation on
Restricted Payments," (y) sales or other dispositions of obsolete,
uneconomical, negligible, worn-out or surplus assets in the ordinary course of
business (including but not limited to equipment and intellectual property) and
(z) disposition of assets with a fair market value of less than $1,000,000);
provided, however, that a disposition of all or substantially all of our assets
and our Restricted Subsidiaries taken as a whole will be governed by the
provisions of the Indenture described above under the caption "--Change of
Control" and/or the provisions described above under the caption "--Merger and
Consolidation" and not by the provisions of the "--Limitation on Sales of
Assets and Subsidiary Stock" covenant.
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
borne by the exchange notes, compounded annually) of the total obligations of
the lessee for rental payments during the remaining term of the lease included
in such Sale/Leaseback Transaction (including any period for which such lease
has been extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing:
(1) the sum of the products of the numbers of years from the date of
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determination to the dates of each successive scheduled principal payment of
such Indebtedness or redemption or similar payment with respect to such
Preferred Stock multiplied by the amount of such payment by (2) the sum of all
such payments.
"Bain" means Bain Capital, Inc.
"Banks" has the meaning specified in the Credit Agreement.
"Bank Indebtedness" means all Obligations pursuant to the Credit Agreement.
"Board of Directors" means the Board of Directors of ChipPAC or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means each day other than a Saturday, Sunday or a day on
which commercial banking institutions are authorized or required by law to
close in New York City.
"Capital Expenditure Facility" means the capital expenditure facility
contained in the Credit Agreement.
"Capital Lease Obligations" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented
by such obligation shall be the capitalized amount of such obligation
determined in accordance with GAAP; and the Stated Maturity thereof shall be
the date of the last payment of rent or any other amount due under such lease
prior to the first date upon which such lease may be terminated by the lessee
without payment of a penalty.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any
Preferred Stock, but excluding any debt securities convertible into such
equity.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company Guaranty" means the Guarantee by us of ChipPAC International
Company Limited's obligations with respect to the exchange notes contained in
the Indenture.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (a) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters for which internal financial statements are
available ending on or prior to the date of such determination to (b)
Consolidated Interest Expense for such four fiscal quarters; provided,
however, that:
(1) if ChipPAC or any Restricted Subsidiary has Incurred any
Indebtedness since the beginning of such period that remains outstanding or
if the transaction giving rise to the need to calculate the Consolidated
Coverage Ratio is an Incurrence of Indebtedness, or both, EBITDA and
Consolidated Interest Expense for such period shall be calculated after
giving effect on a pro forma basis to such Indebtedness as if such
Indebtedness had been Incurred on the first day of such period and the
discharge of any other Indebtedness repaid, repurchased, defeased or
otherwise discharged with the proceeds of such new Indebtedness as if such
discharge had occurred on the first day of such period;
(2) if ChipPAC or any Restricted Subsidiary has repaid, repurchased,
defeased or otherwise discharged any Indebtedness since the beginning of
such period or if any Indebtedness is to be repaid, repurchased, defeased
or otherwise discharged (in each case other than Indebtedness Incurred
under any revolving credit facility unless such Indebtedness has been
permanently repaid and has not been replaced) on the date of the
transaction giving rise to the need to calculate the Consolidated Coverage
Ratio, EBITDA and Consolidated Interest Expense for such period shall be
calculated on a pro forma basis as if such discharge had occurred on the
first day of such period and as if ChipPAC or such Restricted
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Subsidiary has not earned the interest income actually earned during such
period in respect of cash or Temporary Cash Investments used to repay,
repurchase, defease or otherwise discharge such Indebtedness;
(3) if since the beginning of such period we or any Restricted
Subsidiary shall have made any Asset Disposition, the EBITDA for such
period shall be reduced by an amount equal to the EBITDA (if positive)
directly attributable to the assets which are the subject of such Asset
Disposition for such period, or increased by an amount equal to the EBITDA
(if negative), directly attributable thereto for such period and
Consolidated Interest Expense for such period shall be reduced by an amount
equal to the Consolidated Interest Expense directly attributable to any
Indebtedness of ours or any Restricted Subsidiary repaid, repurchased,
defeased or otherwise discharged with respect to us and our continuing
Restricted Subsidiaries in connection with such Asset Disposition for such
period (or, if the Capital Stock of any Restricted Subsidiary is sold, the
Consolidated Interest Expense for such period directly attributable to the
Indebtedness of such Restricted Subsidiary to the extent we and our
continuing Restricted Subsidiaries are no longer liable for such
Indebtedness after such sale);
(4) if since the beginning of such period ChipPAC or any Restricted
Subsidiary (by merger or otherwise) shall have made an Investment in any
Restricted Subsidiary (or any person which becomes a Restricted Subsidiary)
or an acquisition of assets, including any acquisition of assets occurring
in connection with a transaction requiring a calculation to be made
hereunder, which constitutes all or substantially all of an operating unit
of a business, EBITDA and Consolidated Interest Expense for such period
shall be calculated after giving pro forma effect thereto (including the
Incurrence of any Indebtedness) as if such Investment or acquisition
occurred on the first day of such period; and
(5) if since the beginning of such period any Person (that subsequently
became a Restricted Subsidiary or was merged with or into us or any
Restricted Subsidiary since the beginning of such period) shall have made
any Asset Disposition, any Investment or acquisition of assets that would
have required an adjustment pursuant to clause (3) or (4) above if made by
us or a Restricted Subsidiary during such period, EBITDA and Consolidated
Interest Expense for such period shall be calculated after giving pro forma
effect thereto as if such Asset Disposition, Investment or acquisition
occurred on the first day of such period.
For purposes of this definition, whenever pro forma effect is to be given to
an acquisition or disposition of assets, the amount of income or earnings
relating thereto and the amount of Consolidated Interest Expense associated
with any Indebtedness Incurred in connection therewith, the pro forma
calculations shall be determined in good faith by a responsible financial or
accounting Officer of ChipPAC (and shall include any applicable Pro Forma Cost
Savings). If any Indebtedness bears a floating rate of interest and is being
given pro forma effect, the interest of such Indebtedness shall be calculated
as if the rate in effect on the date of determination had been the applicable
rate for the entire period (taking into account any Interest Rate Agreement
applicable to such Indebtedness if such Interest Rate Agreement has a remaining
term in excess of 12 months).
"Consolidated Interest Expense" means, for any period, our total interest
expense and that of our consolidated Restricted Subsidiaries determined in
accordance with GAAP, plus, to the extent not included in such total interest
expense, and to the extent incurred by us or our Restricted Subsidiaries,
without duplication:
(1) interest expense attributable to Capital Lease Obligations and the
interest expense attributable to leases constituting part of a
Sale/Leaseback Transaction, in each case, determined in accordance with
GAAP;
(2) amortization of debt discount and debt issuance cost;
(3) capitalized interest;
(4) non-cash interest expenses;
(5) commissions, discounts and other fees and charges owed with respect
to letters of credit and bankers' acceptance financing;
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(6) net costs associated with Hedging Obligations involving any Interest
Rate Agreement (including amortization of fees) determined in accordance
with GAAP;
(7) dividends paid in cash or Disqualified Stock in respect of (A) all
Preferred Stock of Restricted Subsidiaries and (B) all of our Disqualified
Stock, in each case held by Persons other than us or a Wholly Owned
Subsidiary;
(8) interest actually paid by us or a Restricted Subsidiary under any
Guarantee of Indebtedness of any other Person; and
(9) the cash contributions to any employee stock ownership plan or
similar trust to the extent such contributions are used by such plan or
trust to pay interest or fees to any Person (other than us) in connection
with Indebtedness Incurred by such plan or trust;
and less, to the extent included in such total interest expense, (A) the
amortization during such period of capitalized financing costs associated with
the recapitalization and the financing thereof and (B) the amortization during
such period of other capitalized financing costs.
"Consolidated Net Income" means, for any period, the net income of us and
our consolidated Subsidiaries determined in accordance with GAAP; provided,
however, that there shall not be included in such Consolidated Net Income:
(1) any net income of any Person (other than us) if such Person is not a
Restricted Subsidiary, except that (A) subject to the exclusion contained
in clause (4) below, our equity in the net income of any such Person for
such period shall be included in such Consolidated Net Income up to the
aggregate amount of cash actually distributed by such Person during such
period to us or a Restricted Subsidiary as a dividend or other distribution
(subject, in the case of a dividend or other distribution paid to a
Restricted Subsidiary, to the limitations contained in clause (3) below)
and (B) our equity in a net loss of any such Person for such period shall
be included in determining such Consolidated Net Income;
(2) any net income (or loss) of any Person acquired by us or a
Subsidiary in a pooling of interests transaction for any period prior to
the date of such acquisition;
(3) any net income of any Restricted Subsidiary if such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to us, except that (A) subject to the
exclusion contained in clause (4) below, our equity in the net income of
any such Restricted Subsidiary for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash that could have
been distributed by such Restricted Subsidiary consistent with such
restrictions during such period to us or another Restricted Subsidiary as a
dividend or other distribution (subject, in the case of a dividend or other
distribution paid to another Restricted Subsidiary, to the limitation
contained in this clause) and (B) our equity in a net loss of any such
Restricted Subsidiary for such period shall be included in determining such
Consolidated Net Income;
(4) any gain (or loss) realized upon the sale or other disposition of
any of our assets or those of our consolidated Subsidiaries (including
pursuant to any sale-and-leaseback arrangement) which is not sold or
otherwise disposed of in the ordinary course of business and any gain (or
loss) realized upon the sale or other disposition of any Capital Stock of
any Person;
(5) any extraordinary or unusual gains or losses and the related tax
effect in accordance with GAAP;
(6) any translation gains and losses due solely to fluctuations in
currency values and the related tax effect in accordance with GAAP;
(7) any cash charges resulting from the recapitalization to the extent
such cash charges are paid or payable by Hyundai Electronics, Hyundai
Electronics America or any of their Affiliates;
(8) the cumulative effect of a change in accounting principles.
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Notwithstanding the foregoing, for the purposes of the covenant described
under "--Certain Covenants--Limitation on Restricted Payments" only, there
shall be excluded from Consolidated Net Income any dividends, repayments of
loans or advances or other transfers of assets from Unrestricted Subsidiaries
to us or a Restricted Subsidiary to the extent such dividends, repayments or
transfers increase the amount of Restricted Payments permitted under such
covenant pursuant to clause (a)(3)(D) thereof.
"Credit Agreement" means the Credit Agreement entered into by and among
ChipPAC International Company Limited, ChipPAC, certain of its Subsidiaries,
the lenders referred to therein and Credit Suisse First Boston, as
Administrative Agent, together with the related documents thereto (including
without limitation the term loans and revolving loans thereunder, any
guarantees and security documents), as amended, extended, renewed, restated,
supplemented or otherwise modified (in whole or in part, and without limitation
as to amount, terms, conditions, covenants and other provisions) from time to
time, and any agreement (and related document) governing Indebtedness incurred
to refund or refinance, in whole or in part, the borrowings and commitments
then outstanding or permitted to be outstanding under such Credit Agreement or
a successor Credit Agreement, whether by the same or any other lender or group
of lenders.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement to which such
Person is a party or beneficiary.
"CVC" means Citicorp Venture Capital, Ltd.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Indebtedness" with respect to any Person means:
(1) the Bank Indebtedness; provided, however, that Bank Indebtedness
outstanding under any Credit Agreement that is Refinanced in part, but not
in whole, the previously outstanding Bank Indebtedness shall only
constitute Designated Senior Indebtedness if it meets the requirements of
succeeding clause (2); and
(2) any other Senior Indebtedness of such Person which, at the date of
determination, has an aggregate principal amount outstanding of, or under
which, at the date of determination, the holders thereof are committed to
lend up to, at least $10.0 million and is specifically designated by such
Person in the instrument evidencing or governing such Senior Indebtedness
as "Designated Senior Indebtedness" for purposes of the Indenture.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable) or upon the happening of any
event:
(1) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise,
(2) is convertible or exchangeable for Indebtedness or Disqualified
Stock or
(3) is redeemable at the option of the holder thereof, in whole or in
part, in each case on or prior to the first anniversary of the Stated
Maturity of the exchange notes;
provided, however, that any Capital Stock that would not constitute
Disqualified Stock but for provisions thereof giving holders thereof the right
to require such Person to repurchase or redeem such Capital Stock upon the
occurrence of an "asset sale" or "change of control" occurring prior to the
first anniversary of the Stated Maturity of the exchange notes shall not
constitute Disqualified Stock if the "asset sale" or "change of control"
provisions applicable to such Capital Stock are not more favorable to the
holders of such Capital Stock than the provisions described under "--Change of
Control" and under "--Certain Covenants--Limitation on Sales of Assets and
Subsidiary Stock." Notwithstanding the foregoing, the Intel Preferred Stock as
in effect on the date of issuance will be deemed not to constitute Disqualified
Stock.
"EBITDA" for any period means the sum of Consolidated Net Income, plus
Consolidated Interest Expense plus the following to the extent deducted in
calculating such Consolidated Net Income, without duplication:
(1) all income tax expense of ours and our consolidated Restricted
Subsidiaries;
(2) depreciation expense of ours and our consolidated Restricted
Subsidiaries;
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(3) amortization expense of ours and our consolidated Restricted
Subsidiaries (excluding amortization expense (other than the amortization
of capitalized financing costs) attributable to a prepaid cash item that
was paid in a prior period); and
(4) all other non-cash charges of ours and our consolidated Restricted
Subsidiaries (excluding any such non-cash charge to the extent that it
represents an accrual of or reserve for cash expenditures in any future
period);
in each case for such period. Notwithstanding the foregoing, the provision for
taxes based on the income or profits of, and the depreciation and amortization
and non-cash charges of, a Restricted Subsidiary shall be added to Consolidated
Net Income to compute EBITDA only to the extent (and in the same proportion)
that the net income of such Restricted Subsidiary was included in calculating
Consolidated Net Income and only if a corresponding amount would be permitted
at the date of determination to be dividended to us by such Restricted
Subsidiary without prior approval (that has not been obtained), pursuant to the
terms of its charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to such
Restricted Subsidiary or its stockholders.
"Equity Offering" means a primary offering of our Capital Stock (other than
Disqualified Stock).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth in:
(1) the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants,
(2) statements and pronouncements of the Financial Accounting Standards
Board and
(3) such other statements by such other entity as approved by a
significant segment of the accounting profession.
All ratios and computations based on GAAP contained in the Indenture shall
be computed in conformity with GAAP.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any Person and any
obligation, direct or indirect, contingent or otherwise, of such Person:
(1) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or other obligation of such Person (whether
arising by virtue of partnership arrangements, or by agreements to keep-
well, to purchase assets, goods, securities or services, to take-or-pay or
to maintain financial statement conditions or otherwise) or
(2) entered into for the purpose of assuring in any other manner the
obligee of such Indebtedness of the payment thereof or to protect such
obligee against loss in respect thereof (in whole or in part); provided,
however, that the term "Guarantee" shall not include endorsements for
collection or deposit or standard contractual indemnities, in each case in
the ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning.
"Guaranty" means the Company Guaranty and each Subsidiary Guaranty, as
applicable.
"Guaranty Agreement" means a supplemental indenture, in a form reasonably
satisfactory to the Trustee, pursuant to which a Subsidiary Guarantor becomes
subject to the applicable terms and conditions of the Indenture.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
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"Holder" or "Noteholder" means the Person in whose name a note is
registered on the Registrar's books.
"Hyundai Earn-out" means the cash payment to Hyundai Electronics of up to
an additional $55.0 million during the four-year period following January 1,
1999 in the event we exceed certain levels of EBITDA as set forth in the
Recapitalization Agreement; provided, however, 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.
"Hyundai Electronics" means Hyundai Electronics Industries Company Ltd., a
Republic of Korea corporation.
"Hyundai Preferred Stock" means the 12.5% mandatorily redeemable Preferred
Stock issued to Hyundai Electronics and/or Hyundai Electronics America in
connection with the recapitalization.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by
such Subsidiary at the time it becomes a Subsidiary. The term "Incurrence"
when used as a noun shall have a correlative meaning. The accretion of
principal of a non-interest bearing or other discount security, and the
issuance as interest or dividend payments of pay-in-kind securities having
identical terms to the underlying security and which pay-in-kind securities
were contemplated on the issue date of such underlying security, in each case
shall not be deemed the Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication):
(1) the principal of and premium (if any) in respect of (A) indebtedness
of such Person for money borrowed and (B) indebtedness evidenced by
exchange notes, debentures, bonds or other similar instruments for the
payment of which such Person is responsible or liable;
(2) all Capital Lease Obligations of such Person and all Attributable
Debt in respect of Sale/Leaseback Transactions entered into by such Person;
(3) all obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such Person
and all obligations of such Person under any title retention agreement (but
excluding trade accounts and accrued expenses payable arising in the
ordinary course of business);
(4) all obligations of such Person for the reimbursement of any obligor
on any letter of credit, banker's acceptance or similar credit transaction
(other than obligations with respect to letters of credit securing
obligations (other than obligations described in clauses (1) through (3)
above) entered into in the ordinary course of business of such Person to
the extent such letters of credit are not drawn upon or, if and to the
extent drawn upon, such drawing is reimbursed no later than the tenth
Business Day following payment on the letter of credit);
(5) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock or,
with respect to any Subsidiary of such Person, the liquidation preference
with respect to, any Preferred Stock (but excluding, in each case, any
accrued dividends);
(6) all obligations of the type referred to in clauses (1) through (5)
of other Persons and all dividends of other Persons for the payment of
which, in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
Guarantee;
(7) all obligations of the type referred to in clauses (1) through (6)
of other Persons secured by any Lien on any property or asset of such
Person (whether or not such obligation is assumed by such Person), the
amount of such obligation being deemed to be the lesser of the value of
such property or assets or the amount of the obligation so secured; and
(8) to the extent not otherwise included in this definition, Hedging
Obligations of such Person.
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The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and
the maximum liability, upon the occurrence of the contingency giving rise to
the obligation, of any contingent obligations at such date; provided, however,
that the amount outstanding at any time of any Indebtedness issued with
original issue discount shall be deemed to be the face amount of such
Indebtedness less the remaining unamortized portion of the original issue
discount of such indebtedness at such time as determined in accordance with
GAAP.
"Intel" means Intel Corporation.
"Intel Preferred Stock" means the 10.0% convertible Preferred Stock issuable
to Intel pursuant to the Stock Purchase Agreement dated August 5, 1999 by and
between Intel and ChipPAC, Inc.
"Interest Rate Agreement" means in respect of a Person any interest rate
swap agreement, interest rate cap agreement or other financial agreement or
arrangement designed to protect such Person against fluctuations in interest
rates.
"Investment" with respect to any Person means all investments by such person
in other persons in the forms of any direct or indirect advance, loan (other
than (A) advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of the lender and (B)
commission, travel and similar advances to officers and employees made in the
ordinary course of business) or other extensions of credit (including by way of
Guarantee or similar arrangement) or capital contribution to (by means of any
transfer of cash or other property to others or any payment for property or
services for the account or use of others), or any purchase or acquisition of
Capital Stock, Indebtedness or other similar instruments issued by such other
Person. For purposes of the definition of "Unrestricted Subsidiary," the
definition of "Restricted Payment" and the covenant described under "--Certain
Covenants--Limitation on Restricted Payments:"
(1) "Investment" shall include the portion (proportionate to our equity
interest in such Subsidiary) of the fair market value of the net assets of
any Subsidiary of our at the time that such Subsidiary is designated an
Unrestricted Subsidiary; provided, however, that upon a redesignation of
such Subsidiary as a Restricted Subsidiary, we shall be deemed to continue
to have a permanent "Investment" in an Unrestricted Subsidiary equal to an
amount (if positive) equal to (x) our "Investment" in such Subsidiary at
the time of such redesignation less (y) the portion (proportionate to our
equity interest in such Subsidiary) of the fair market value of the net
assets of such Subsidiary at the time of such redesignation; and
(2) any property transferred to or from an Unrestricted Subsidiary shall
be valued at its fair market value at the time of such transfer, in each
case as determined in good faith by the Board of Directors.
"Issue Date" means the date on which the exchange notes are originally
issued.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Net Available Cash" from an Asset Disposition means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise and
proceeds from the sale or other disposition of any securities received as
consideration, but only as and when received, but excluding any other
consideration received in the form of assumption by the acquiring Person of
Indebtedness or other obligations relating to such properties or assets or
received in any other non-cash form), in each case net of:
(1) all legal, title and recording tax expenses, commissions and other
fees and expenses incurred, and all Federal, state, provincial, foreign and
local taxes required to be accrued as a liability under GAAP, as a
consequence of such Asset Disposition;
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(2) all payments made on any Indebtedness which is secured by any assets
subject to such Asset Disposition, in accordance with the terms of any Lien
upon or other security agreement of any kind with respect to such assets,
or which must by its terms, or in order to obtain a necessary consent to
such Asset Disposition, or by applicable law be, repaid out of the proceeds
from such Asset Disposition;
(3) all distributions and other payments required to be made to minority
interest holders in Subsidiaries or joint ventures as a result of such
Asset Disposition; and
(4) the deduction of appropriate amounts provided by the seller as a
reserve, in accordance with GAAP, against any liabilities associated with
the property or other assets disposed in such Asset Disposition and
retained by the Company or any Restricted Subsidiary after such Asset
Disposition.
"Net Cash Proceeds" with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof and any reserve for adjustment in respect of the sale price of
such asset or assets established in accordance with GAAP.
"Obligations" means with respect to any Indebtedness all obligations for
principal, premium, interest, penalties, fees, indemnifications,
reimbursements, and other amounts payable pursuant to the documentation
governing such Indebtedness.
"Permitted Holders" means the Principals and any Related Party thereto and
(2) any group of investors if deemed to be a "person" (as such terms is used in
Section 13(d)(3) of the Exchange Act) by virtue of the Shareholders Agreement,
as the same may be amended, modified or supplemented from time to time,
provided that
(1) a Principal is party to such Shareholders Agreement,
(2) the persons party to the Shareholders Agreement, as so amended,
supplemented or modified from time to time that were not parties and are
not Affiliates of persons who were parties, to the Shareholders Agreement
as of the Recapitalization Closing Date, together with their respective
Affiliates (collectively, the "New Investors"), are not direct or indirect
beneficial owners (determined without reference to the Shareholders
Agreement) of more than 50% of the Voting Stock owned by all parties to the
Stockholders' Agreement as so amended, supplemented or modified, and
(3) the New Investors, individually or in the aggregate, do not,
directly or indirectly, have the right, pursuant to the Shareholders
Agreement (as so amended, supplemented or modified from time to time) or
otherwise to designate more than 50% of the members of our Board of
Directors or any direct or indirect parent entity of ours.
"Permitted Investment" means an Investment by us or any Restricted
Subsidiary in:
(1) a Restricted Subsidiary or a Person that will, upon the making of
such Investment, become a Restricted Subsidiary; provided, however, that
the primary business of such Restricted Subsidiary is a Related Business;
(2) another Person if as a result of such Investment such other Person
is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, us or a Restricted Subsidiary; provided,
however, that such Person's primary business is a Related Business;
(3) Temporary Cash Investments;
(4) receivables owing to us or any Restricted Subsidiary if created or
acquired in the ordinary course of business and payable or dischargeable in
accordance with customary trade terms; provided, however, that such trade
terms may include such concessionaire trade terms as ChipPAC or any such
Restricted Subsidiary deems reasonable under the circumstances;
(5) payroll, travel and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated as expenses
for accounting purposes and that are made in the ordinary course of
business;
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(6) loans or advances to employees, directors, officers or consultants
made in the ordinary course of our business or that of such Restricted
Subsidiary;
(7) stock, obligations or securities received in settlement of debts
created in the ordinary course of business and owing to us or any
Restricted Subsidiary or in satisfaction of judgments;
(8) any Person to the extent such Investment represents the non-cash
portion of the consideration received for an Asset Disposition as permitted
pursuant to the covenant described under "--Certain Covenants--Limitation
on Sales of Assets and Subsidiary Stock;"
(9) Currency Agreements and Interest Rate Agreements entered into in the
ordinary course of our business and otherwise in compliance with the
Indenture; and
(10) so long as no Default shall have occurred and be continuing (or
result therefrom), any Person in an aggregate amount which, when added
together with the amount of all the Investments made pursuant to this
clause (10) which at such time have not been repaid through repayments of
loans or advances or other transfers of assets, does not exceed the greater
of (A) $30.0 million and (B) 7.5% of Total Assets (with the fair market
value of each Investment being measured at the time made and without giving
effect to subsequent changes in value).
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Preferred Stock" as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated) which is preferred
as to the payment of dividends or distributions, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
Person, over shares of Capital Stock of any other class of such Person.
"principal" of a note means the principal of the note plus the premium, if
any, payable on the note which is due or overdue or is to become due at the
relevant time.
"Principal" means Bain and SXI Holders.
"Pro Forma Cost Savings" means, with respect to any period, the reduction in
costs that were
(1) directly attributable to an asset acquisition and calculated on a
basis that is consistent with Regulation S-X under the Securities Act in
effect and applied as of the Issue Date, or
(2) implemented by the business that was the subject of any such asset
acquisition within six months of the date of the asset acquisition and that
are supportable and quantifiable by the underlying accounting records of
such business,
as if, in the case of each of clause (1) and (2), all such reductions in costs
had been effected as of the beginning of such period.
"Recapitalization" means the plan of recapitalization and merger pursuant to
the Agreement and Plan of Recapitalization and Merger dated as of March 13,
1999 as amended on or prior to the Issue Date, among Hyundai Electronics
Industries Co., Ltd., Hyundai Electronics America, ChipPAC, Inc. and ChipPAC
Merger Corp.
"Recapitalization Closing Date" means August 5, 1999.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such indebtedness. "Refinanced"
and "Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of ours or any Restricted Subsidiary existing on the Issue Date or
Incurred in compliance with the Indenture, including Indebtedness that
Refinances Refinancing Indebtedness; provided, however, that
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(1) such Refinancing Indebtedness has a Stated Maturity no earlier than
the Stated Maturity of the Indebtedness being Refinanced,
(2) such Refinancing Indebtedness has an Average Life at the time such
Refinancing Indebtedness is Incurred that is equal to or greater than the
Average Life of the Indebtedness being Refinanced; and
(3) such Refinancing Indebtedness has an aggregate principal amount (or
if Incurred with original issue discount, an aggregate issue price) that is
equal to or less than the aggregate principal amount (or if Incurred with
original issue discount, the aggregate accreted value) then outstanding or
committed (plus fees and expenses, including any premium and defeasance
costs) under the Indebtedness being Refinanced;
provided further, however, that Refinancing Indebtedness shall not include (x)
Indebtedness of a Subsidiary that Refinances Indebtedness of ours or (y)
Indebtedness of ours or a Restricted Subsidiary that Refinances Indebtedness of
an Unrestricted Subsidiary.
"Related Business" means any business related, ancillary or complementary to
our businesses and those of our Restricted Subsidiaries on the Issue Date.
"Related Party" with respect to any Principal means:
(1) any controlling stockholder, or 80% (or more) owned Subsidiary of
such Principal;
(2) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially
holding an 80% or more controlling interest of which consist of such
Principal and/or such other Persons referred to in the immediately
preceding clause (1); or
(3) any Affiliate of any Principal.
"Representative" means any trustee, agent or representative (if any) for an
issue of our Senior Indebtedness; provided, however, that if and for so long as
any Senior Indebtedness lacks such a representative, then the Representative
for such Senior Indebtedness shall at all times be the holders of a majority in
outstanding principal amount of such Senior Indebtedness.
"Restricted Payment" with respect to any Person means:
(1) the declaration or payment of any dividends or any other
distributions of any sort in respect of its Capital Stock (including any
payment in connection with any merger or consolidation involving such
Person) or similar payment to the direct or indirect holders of its Capital
Stock in their capacity as such (other than dividends or distributions
payable solely in its Capital Stock (other than Disqualified Stock) and
dividends or distributions payable solely to us or a Restricted Subsidiary,
and other than pro rata dividends or other distributions made by a
Subsidiary that is not a Wholly Owned Subsidiary to minority stockholders
(or owners of an equivalent interest in the case of a Subsidiary that is an
entity other than a corporation));
(2) the purchase, redemption or other acquisition or retirement for
value of any of our Capital Stock held by any Person or of any Capital
Stock of a Restricted Subsidiary held by any Affiliate of ours (other than
a Restricted Subsidiary), including the exercise of any option to exchange
any Capital Stock (other than into our Capital Stock that is not
Disqualified Stock);
(3) the purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value, prior to scheduled maturity, scheduled
repayment or scheduled sinking fund payment of any Subordinated Obligations
(other than the purchase, repurchase or other acquisition of Subordinated
Obligations purchased in anticipation of satisfying a sinking fund
obligation, principal installment or final maturity, in each case due
within one year of the date of acquisition); or
(4) the making of any Investment in any Person (other than a Permitted
Investment).
In determining the amount of any Restricted Payment made in property other
than cash, such amount shall be the fair market value of such property at the
time of such Restricted Payment, as determined in good faith by the Board of
Directors.
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"Restricted Subsidiary" means any Subsidiary of ours (including ChipPAC
International Company Limited) that is not an Unrestricted Subsidiary.
"Revolving Credit Facility" means the revolving credit facility contained in
the Credit Agreement and any other facility or financing arrangement that
Refinances or replaces, in whole or in part, any such revolving credit
facility.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby ChipPAC or a Restricted Subsidiary
transfers such property to a Person and ChipPAC or a Restricted Subsidiary
leases it from such Person.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of ours secured by a Lien.
"Senior Indebtedness" of any Person means all:
(1) Bank Indebtedness of or guaranteed by such Person, whether
outstanding on the Issue Date or thereafter Incurred, and
(2) Indebtedness of such Person, whether outstanding on the Issue Date
or thereafter Incurred, including interest thereon, in respect of (A)
Indebtedness for money borrowed, (B) Indebtedness evidenced by exchange
notes, debentures, bonds or other similar instruments for the payment of
which such Person is responsible or liable and (C) Hedging Obligations,
unless, in the case of (1) and (2), in the instrument creating or
evidencing the same or pursuant to which the same is outstanding, it is
provided that such obligations are subordinate in right of payment to the
obligations under the exchange notes;
provided, however, that Senior Indebtedness shall not include:
. any obligation of such Person to any subsidiary of such Person,
. any liability for Federal, state, local or other taxes owed or owing by
such Person,
. any accounts payable or other liability to trade creditors arising in the
ordinary course of business (including guarantees thereof or instruments
evidencing such liabilities),
. any Indebtedness of such Person (and any accrued and unpaid interest in
respect thereof) which is subordinate or junior by its terms to any other
Indebtedness or other obligation of such Person or
. that portion of any Indebtedness which at the time of Incurrence is
Incurred in violation of the Indenture (but as to any such Indebtedness
under the Credit Agreement, no such violation shall be deemed to exist if
the Representative of the Lenders thereunder shall have received an
officers' certificate of ChipPAC to the effect that the issuance of such
Indebtedness does not violate such covenant and setting forth in
reasonable detail the reasons therefor).
"Senior Subordinated Indebtedness" means:
(1) with respect to ChipPAC International Company Limited, the exchange
notes and any other Indebtedness of ChipPAC International Company Limited
that specifically provides that such Indebtedness is to rank pari passu
with the exchange notes in right of payment and is not subordinated by its
terms in right of payment to any Indebtedness or other obligation of
ChipPAC International Company Limited which is not Senior Indebtedness of
ChipPAC International Company Limited and
(2) with respect to ChipPAC or a Subsidiary Guarantor, their respective
Guarantees of the exchange notes and any other Indebtedness of such Person
that specifically provides that such Indebtedness ranks pari passu with
such Guaranty in respect of payment and is not subordinated by its terms in
respect of payment to any Indebtedness or other obligation of such Person
which is not Senior Indebtedness of such Person.
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"Shareholders Agreement" means the Shareholders Agreement entered into on
the Recapitalization Closing Date by and among Hyundai Electronics, Hyundai
Electronics America, SXI Group LLC, certain Bain Related Parties and ChipPAC,
Inc.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of ours within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the final payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Subordinated Obligation" means any Indebtedness of ChipPAC International
Company Limited, of us or any Subsidiary Guarantor (whether outstanding on the
Issue Date or thereafter Incurred) which is subordinate or junior in right of
payment to, in the case of ChipPAC International Company Limited, the exchange
notes or, in the case of ChipPAC or such Subsidiary Guarantor, its Guaranty,
pursuant to a written agreement to that effect.
"Subsidiary" means, in respect of any Person, any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of shares of Capital Stock or other interests (including partnership
interests) entitled (without regard to the occurrence 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 (1) such Person, (2) such
Person and one or more Subsidiaries of such Person or (3) one or more
Subsidiaries of such Person.
"Subsidiary Guarantor" means each of ChipPAC (Barbados) Ltd., ChipPAC
Limited, ChipPAC Korea Company Ltd., ChipPAC Luxembourg S.a.R.L. and ChipPAC
Liquidity Management Hungary Limited Liability Company and any other subsidiary
of ours that Guarantees ChipPAC International Company Limited's obligations
with respect to the exchange notes.
"Subsidiary Guaranty" means a Guarantee by a Subsidiary Guarantor of
Issuer's obligations with respect to the exchange notes.
"Subsidiary Guaranty Agreement" means the Subsidiary Guaranty Agreement,
dated the Recapitalization Closing Date between the Subsidiary Guarantors and
ChipPAC International Company Limited.
"SXI Group LLC" means SXI Group LLC, a Delaware limited liability company.
"SXI Holders" means:
(1) CVC,
(2) SXI Group LLC and
(3) any officer, employee or director of CVC or any trust, partnership
or the entity established solely for the benefit of such officers,
employers or directors.
"Temporary Cash Investments" means any of the following:
(1) any evidence of indebtedness, maturing not more than one year after
the date of investment by us, ChipPAC International Company Limited or any
other Restricted Subsidiary, issued by the United States of America or any
instrumentality agency thereof, or by the Republic of Korea or any
instrumentality or agency thereof, or by the Asian Development Bank, the
World Bank or any other supranational organization (collectively,
"Government Entities") and guaranteed or otherwise backed, directly or
indirectly fully as to principal, premium, if any, and interest, by the
Government Entity issuing such indebtedness;
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(2) investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 180 days of the date of acquisition
thereof issued by a bank or trust company which is organized under the laws
of the United States of America, any state thereof or any foreign country
recognized by the United States, and which bank or trust company has
capital, surplus and undivided profits aggregating in excess of $250.0
million (or the foreign currency equivalent thereof) and has outstanding
debt which is rated "A" (or such similar equivalent rating) or higher by at
least one nationally recognized statistical rating organization (as defined
in Rule 436 under the Securities Act) or any money-market fund sponsored by
a registered broker dealer or mutual fund distributor;
(3) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (1) above entered
into with a bank meeting the qualifications described in clause (2) above;
(4) investments in commercial paper, maturing not more than 90 days
after the date of acquisition, issued by a corporation (other than an
Affiliate of ours) organized and in existence under the laws of the United
States of America or any foreign country recognized by the United States of
America with a rating at the time as of which any investment therein is
made of "P-1" (or higher) according to Moody's Investors Service, Inc. or
"A-1" (or higher) according to Standard and Poor's Ratings Group; and
(5) investments in securities with maturities of six months or less from
the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least "A"
by Standard & Poor's Ratings Group or "A" by Moody's Investors Service,
Inc.
"Term Loan Facilities" means the term loan facilities contained in the
Credit Agreement and any other facility or financing arrangement that
Refinances in whole or in part any such term loan facility.
"Total Assets" means our total consolidated assets and those of our
Restricted Subsidiaries, as set forth on our most recent consolidated balance
sheet.
"Unrestricted Subsidiary" means (1) any Subsidiary of ours that at the time
of determination shall be designated an Unrestricted Subsidiary by the Board of
Directors in the manner provided below and (2) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
ours (including any newly acquired or newly formed Subsidiary) to be an
Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns
any Capital Stock or Indebtedness of, or holds any Lien on any property of,
ChipPAC or any other Subsidiary of ChipPAC that is not a Subsidiary of the
Subsidiary to be so designated; provided, however, that either (A) the
Subsidiary to be so designated has total assets of $1,000 or less or (B) if
such Subsidiary has assets greater than $1,000, such designation would be
permitted under the covenant described under "--Certain Covenants--Limitation
on Restricted Payments." The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided, however, that immediately
after giving effect to such designation (x) we could Incur $1.00 of additional
Indebtedness under paragraph (a) of the covenant described under "--Certain
Covenants--Limitation on Indebtedness" and (y) no Default shall have occurred
and be continuing. Any such designation by the Board of Directors shall be
evidenced to the Trustee by promptly filing with the Trustee a copy of the
resolution of the Board of Directors giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing provisions.
"U.S. Dollar Equivalent" means with respect to any monetary amount in a
currency other than U.S. dollars, at any time for determination thereof, the
amount of U.S. dollars obtained by converting such foreign currency involved in
such computation into U.S. dollars at the spot rate for the purchase of U.S.
dollars with the applicable foreign currency as published in The Wall Street
Journal in the "Exchange Rates" column under the heading "Currency Trading" on
the date two Business Days prior to such determination.
Except as described under "--Certain Covenants--Limitation on Indebtedness,"
whenever it is necessary to determine whether we have complied with any
covenant in the Indenture or a Default has occurred and an amount is expressed
in a currency other than U.S. dollars, such amount will be treated as the U.S.
Dollar Equivalent determined as of the date such amount is initially determined
in such currency.
120
<PAGE>
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary the Capital Stock of
which (other than directors' qualifying shares) is at least 95% owned by us or
one or more Wholly Owned Subsidiaries.
121
<PAGE>
MATERIAL INCOME TAX CONSEQUENCES
United States Federal Income Taxation
The following discussion, including the opinion of counsel described below,
is based upon current provisions of the Internal Revenue Code of 1986, as
amended, applicable Treasury regulations, judicial authority and administrative
rulings and practice. The Internal Revenue Service may take a contrary view,
and no ruling from the Service has been or will be sought. Legislative,
judicial or administrative changes or interpretations may be forthcoming that
could alter or modify the following statements and conditions. Any changes or
interpretations may or may not be retroactive and could affect the tax
consequences to holders. Some holders, including insurance companies, tax-
exempt organizations, financial institutions, broker-dealers, foreign
corporations and persons who are not citizens or residents of the United
States, may be covered by special rules not discussed below. We recommend that
each holder consult his own tax advisor as to the particular tax consequences
of exchanging outstanding notes for exchange notes, including the applicability
and effect of any state, local or foreign tax laws.
Kirkland & Ellis, U.S. counsel to ChipPAC International Company Limited, has
advised us that in its opinion, the exchange of the outstanding notes for
exchange notes pursuant to the exchange offer will not be treated as an
"exchange" for federal income tax purposes because the exchange notes will not
be considered to differ materially in kind or extent from the outstanding
notes. Rather, the exchange notes received by a holder will be treated as a
continuation of the outstanding notes in the hands of that holder. As a result,
there will be no federal income tax consequences to holders exchanging
outstanding notes for exchange notes.
British Virgin Islands Taxation
The following discussion is based upon the Income Tax Ordinance (Cap. 206),
as amended, the International Business Companies Act (Cap. 291), as amended,
and related administrative and judicial interpretations all as of the date
hereof and all of which may change, possibly on a retroactive basis.
In general, there is no British Virgin Islands income, corporation or
profits tax, withholding tax, capital gains tax, or capital transfer tax
payable by Holders of the exchange notes other than Holders ordinarily resident
in the British Virgin Islands. No British Virgin Islands stamp or similar duty
applies to the exchange notes and the documents related to their issue,
transfer or redemption.
122
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account pursuant
to the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of exchange notes. This prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with the resale of exchange notes received in exchange for
outstanding notes where outstanding notes were acquired as a result of market-
making activities or other trading activities. We have agreed that for a period
of 180 days from the consummation of the exchange offer, we will make this
prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any resale. In addition, until 90 days after the
commencement of the exchange offer, all dealer effecting transactions in the
exchange notes may be required to delivery a prospectus.
We will not receive any proceeds from any sales of the exchange notes by
broker dealers. Exchange notes received by broker-dealers for their own account
in the exchange offer may be sold from time to time in one or more transactions
in the over-the-counter market, in negotiated transactions, through the writing
of options on the exchange notes or a combination of methods of resale, at
market prices prevailing at the time of resale, at prices related to prevailing
market prices or negotiated prices. Any resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any broker-dealer and/or the
purchasers of any exchange notes. Any broker-dealer that resells the exchange
notes that were received by it for its own account in the exchange offer and
any broker or dealer that participates in a distribution of exchange notes may
be deemed to be an "underwriter" as defined in the Securities Act and any
profit on any resale of exchange notes and any commissions or concessions
received by any persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" as defined in the Securities Act.
For a period of 180 days after the Expiration Date, we will promptly send
additional copies of this prospectus and any amendment or supplement to this
prospectus to any broker-dealer that requests those documents in the Letter of
Transmittal.
123
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-4 under the Securities Act of 1933 relating to the exchange
notes offered in this prospectus. This prospectus, which forms part of the
registration statement, does not contain all of the information that is
included in the registration statement. You will find additional information
about our company, the subsidiary guarantors and the exchange notes in the
registration statement. Any statements made in this prospectus concerning the
provisions of legal documents are not necessarily complete and you should read
the documents that are filed as exhibits to the registration statement for a
more complete understanding of the document or matter.
After the registration statement becomes effective, we will have to comply
with the informational requirements of the Exchange Act of 1934, and will file
periodic reports, registration statements and other information with the SEC.
You may read and copy the registration statement and any of the other documents
we file with the SEC at the public reference facilities maintained by the SEC
at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549
and at the SEC's regional offices located at 7 World Trade Center, New York,
New York 10048 and at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Please call the SEC at 1-800-SEC-0330 for more
information on the public reference rooms. In addition, reports and other
filings are available to the public on the SEC's web site at
http://www.sec.gov.
If for any reason we are not covered by the reporting requirements of the
Securities Exchange Act of 1934 in the future, we will still be required under
the indenture governing the notes to furnish the holders of those notes with
financial and reporting information. See "Description of the Exchange Notes--
Covenants--Reports" for a description of the information we are required to
provide.
LEGAL MATTERS
Legal matters with regard to the validity of the exchange notes will be
passed upon for us by Kirkland & Ellis (a partnership including professional
corporations), Chicago, Illinois. Some 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 the recapitalization. Kirkland &
Ellis has, from time to time, represented, and may continue to represent, Bain
Capital and some of its affiliates (including ChipPAC and its direct and
indirect subsidiaries) in connection with some legal matters.
EXPERTS
The financial statements as of December 31, 1998, 1997, and 1996 and for
each of the four years in the period ended December 31, 1998 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.
124
<PAGE>
Index to Combined Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants........................................ F-2
Combined Balance Sheets.................................................. F-3
Combined Statements of Operations........................................ F-4
Combined Statement of Shareholders' and Divisional Equity................ F-5
Combined Statements of Cash Flows........................................ F-6
Notes to Combined Financial Statements................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Boards of Directors and Shareholders
In our opinion, the accompanying combined balance sheets and the related
combined statements of operations, of shareholders' and divisional equity, and
of cash flows present fairly, in all material respects, the financial position
of ChipPAC at December 31, 1996, 1997, and 1998, and the results of their
operations and their cash flows for each of the years in the four year period
ended December 31, 1998, in conformity with generally accepted accounting
principles. 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 generally accepted auditing standards 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.
As discussed in Note 3 to the financial statements, the Company's ultimate
parent, Hyundai Electronics Industries, Co. Ltd. (HEI) is located in the
Republic of Korea. The Republic of Korea has experienced volatility in its
currency and interest rates which has affected the operations of most Korean
companies, including HEI. HEI has provided certain financial support to the
Company in the past and is a guarantor of the Company's debt.
/s/ PricewaterhouseCoopers LLP
May 17, 1999, except for the
last paragraph of Note 14
as to which the date is
June 11, 1999
San Jose, California
F-2
<PAGE>
ChipPAC
(Direct and Indirect Subsidiaries of Hyundai Electronics Industries Co., Ltd.)
COMBINED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
December 31,
----------------------------
1996 1997 1998
-------- -------- --------
ASSETS
------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents...................... $ 2,323 $ 3,067 $ 68,767
Receivable from shareholder.................... -- -- 4,922
Accounts receivable, less allowance for
doubtful accounts of $85, $375, and $1,162.... 20,694 30,156 37,729
Inventories.................................... 10,896 14,149 10,325
Deferred taxes................................. 696 4,193 803
Prepaid expenses and other current assets...... 1,149 957 2,923
-------- -------- --------
Total current assets......................... 35,758 52,522 125,469
Property, plant and equipment, net............... 172,291 170,226 229,002
Other assets..................................... 7,883 10,493 5,001
-------- -------- --------
Total assets................................. $215,932 $233,241 $359,472
======== ======== ========
<CAPTION>
LIABILITIES AND EQUITY
----------------------
<S> <C> <C> <C>
Current liabilities:
Accounts payable............................... $ 15,190 $ 17,468 $ 61,853
Accrued expenses and other liabilities......... 4,337 5,824 7,677
Short-term debt................................ 12,075 34,479 18,777
Current portion of long-term debt.............. 16,351 13,256 31,954
Current portion of HEI long-term debt.......... 1,597 4,473 2,610
Payables to affiliates......................... 6,448 6,659 22,918
-------- -------- --------
Total current liabilities.................... 55,998 82,159 145,789
-------- -------- --------
Long-term debt, less current portion............. 81,772 116,694 80,943
HEI long-term debt, less current portion......... 9,333 17,987 18,208
Other long-term liabilities...................... 15,137 6,929 1,341
-------- -------- --------
Total liabilities............................ 162,240 223,769 246,281
-------- -------- --------
Commitments and contingencies (Notes 8, 9 and 14)
Shareholders' and divisional equity..............
Divisional equity, preferred stock and paid in
capital....................................... 70,769 97,075 180,091
Shareholder receivable-HEA..................... -- (7,466) (37,626)
Accumulated deficit............................ (16,236) (62,354) (39,752)
Accumulated other comprehensive income (loss).. (841) (17,783) 10,478
-------- -------- --------
Total shareholders' and divisional equity.... 53,692 9,472 113,191
-------- -------- --------
Total liabilities and equity................. $215,932 $233,241 $359,472
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
ChipPAC
(Direct and Indirect Subsidiaries of Hyundai Electronics Industries Co., Ltd.)
COMBINED STATEMENTS OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1995 1996 1997 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue................................ $170,164 $174,119 $275,503 $328,877
Revenue from affiliates................ 9,070 17,536 13,926 5,204
-------- -------- -------- --------
Total revenue.......................... 179,234 191,655 289,429 334,081
Cost of revenue........................ 158,527 166,665 229,238 270,365
-------- -------- -------- --------
Gross profit........................... 20,707 24,990 60,191 63,716
Operating expenses:
Selling, general & administrative.... 11,805 11,431 15,853 15,067
Research & development............... 1,724 2,617 4,052 7,692
Management fees charged by affiliate. 138 3,322 3,199 528
Write down of impaired assets........ -- -- 11,569 --
-------- -------- -------- --------
Total operating expenses........... 13,667 17,370 34,673 23,287
-------- -------- -------- --------
Operating income....................... 7,040 7,620 25,518 40,429
Non-operating income (expenses):
Interest income...................... -- 108 96 1,276
Interest expense..................... (3,151) (5,780) (10,972) (13,340)
Foreign currency gains (losses)...... (1,012) (5,041) (69,669) 24,670
Other income (expenses), net......... (802) 351 (762) (168)
-------- -------- -------- --------
Non-operating income (expenses).... (4,965) (10,362) (81,307) 12,438
-------- -------- -------- --------
Income (loss) before income taxes...... 2,075 (2,742) (55,789) 52,867
Provision for (benefit from) income
taxes................................. 1,977 2,883 (9,671) 20,564
-------- -------- -------- --------
Net income (loss)...................... $ 98 $ (5,625) $(46,118) $ 32,303
======== ======== ======== ========
Other comprehensive income:
Currency translation gain (loss)..... 387 (1,318) (16,942) 28,261
-------- -------- -------- --------
Comprehensive income (loss)............ $ 485 $ (6,943) $(63,060) $ 60,564
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
ChipPAC
(Direct and Indirect Subsidiaries of Hyundai Electronics Industries Co., Ltd.)
COMBINED STATEMENT OF SHAREHOLDERS' AND DIVISIONAL EQUITY
(In thousands)
<TABLE>
<CAPTION>
Divisional
Equity, Accumulated
Preferred Share- Other Com-
Stock and holder prehensive Accum-
Paid-in Receivable Income ulated
Capital HEA (Loss) Deficit Total
---------- ---------- ----------- -------- -------
<S> <C> <C> <C> <C> <C>
Balances at January 1,
1995..................... $44,685 -- $ 90 $(10,709) $34,066
Capital decrease........ (22,992) -- -- -- (22,992)
Currency translation
gain................... -- -- 387 -- 387
Net income.............. -- -- -- 98 98
------- ------- -------- -------- -------
Balances at December 31,
1995..................... 21,693 -- 477 (10,611) 11,559
Capital increase........ 49,076 -- -- -- 49,076
Currency translation
loss................... -- -- (1,318) -- (1,318)
Net loss................ -- -- -- (5,625) (5,625)
------- ------- -------- -------- -------
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
======= ======= ======== ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
ChipPAC
(Direct and Indirect Subsidiaries of Hyundai Electronics Industries Co., Ltd.)
COMBINED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1995 1996 1997 1998
------- -------- -------- -------
<S> <C> <C> <C> <C>
Cash flows provided by operating
activities:
Net income (loss)...................... $ 98 ($ 5,625) ($46,118) $32,303
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization........ 27,917 26,632 40,682 45,855
Write down of impaired assets........ -- -- 11,569 --
Provision for inventory and accounts
receivable.......................... 799 120 3,502 (425)
Foreign currency (gains) losses...... 1,012 5,041 69,669 (24,670)
(Gain) loss on sale of equipment..... 791 (16) 515 26
Changes in assets and liabilities:...
Accounts receivable................ (3,149) (4,025) (10,092) (12,740)
Inventories........................ (2,025) (354) (16,122) 9,089
Prepaid expenses and other assets.. (3,803) (1,077) (16,471) 11,859
Advances (to) from affiliates...... (1,679) 1,933 2,418 4,671
Accounts payable................... (4,876) (908) 5,006 39,979
Accrued expenses and other current
liabilities....................... 7,401 (3,872) (2,569) 126
Other long-term liabilities........ 5,774 1,403 1,226 (7,326)
------- -------- -------- -------
Net cash provided by operating
activities....................... 28,260 19,252 43,215 98,747
------- -------- -------- -------
Cash flows used in investing activities:
Acquisition of property and equipment.. (39,695) (104,359) (110,693) (61,332)
Proceeds from sale of equipment........ 51 240 17 1,635
------- -------- -------- -------
Net cash used in investing
activities....................... (39,644) (104,119) (110,676) (59,697)
------- -------- -------- -------
Cash flows provided by financing
activities:
Advances (to) from HEA................. -- -- (7,466) (30,160)
Proceeds from short-term loans......... 93,942 83,513 86,014 63,391
Repayment of short-term loans.......... (78,990) (90,800) (63,612) (79,093)
Proceeds from term loans............... 20,749 49,396 39,511 10,185
Repayment of long-term debt and capital
leases................................ (2,047) (7,110) (17,181) (31,795)
Dividend paid.......................... -- -- -- --
Contributions to (withdrawals from)
paid in capital....................... (22,992) 49,076 26,306 82,953
------- -------- -------- -------
Net cash provided by financing
activities....................... 10,662 84,075 63,572 15,481
------- -------- -------- -------
Effect on cash from changes in exchange
rates (2,092) 513 4,633 11,169
------- -------- -------- -------
Net increase (decrease) in cash (2,814) (279) 744 65,700
Cash and cash equivalents at beginning
of period.............................. 5,416 2,602 2,323 3,067
------- -------- -------- -------
Cash and cash equivalents at end of
period $ 2,602 $ 2,323 $ 3,067 $68,767
======= ======== ======== =======
Supplemental disclosure of noncash
investing and financing activities
Acquisition of equipment under capital
leases................................ $11,767 $ 14,612 $ 25,901 $ 2,191
======= ======== ======== =======
Dividend declared and accrued as
affiliate payable..................... -- -- -- ($9,701)
======= ======== ======== =======
Supplemental disclosure of cash flow
information
Income taxes paid in cash -- -- -- $ 195
======= ======== ======== =======
Interest paid in cash.................. $ 2,999 $ 5,338 $ 10,364 $12,708
======= ======== ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
ChipPAC
(Direct and Indirect Subsidiaries of Hyundai Electronics Industries Co., Ltd.)
NOTES TO COMBINED FINANCIAL STATEMENTS
Note 1: Business and Basis of Presentation
Business and Organization
ChipPAC (the "Company") is a provider of 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 People's Republic of China ("China").
The Company represents the combination of three business units of Hyundai
Electronics Industries Co., Ltd. ("HEI") which operate 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 September 30, 1997, HEA transferred its Assembly and Test Division into a
separate corporation, known as ChipPAC, Inc. ("CPI"). On June 30, 1998, HEI
transferred its Assembly and Test Division into a separate company known as
ChipPAC Korea Co., Ltd. ("CPK"). These transfers were accounted for at
historical cost and the accompanying financial statements include the accounts
of these business units for all periods presented. In December 1998, CPI formed
a subsidiary in China, known as ChipPAC Assembly and Test Co., Ltd. ("CATS").
CATS and HECS operate as a single business unit and the Company intends to
merge the two subsidiaries into a single legal entity in the future. For
purposes of this report, references to HECS include CATS.
HEI intends to reorganize the ownership of the four legal entities so that
they operate under single ownership by CPI, as the parent company. On March 13,
1999 HEI and HEA entered into an agreement with a U.S. investment group to
recapitalize the Company. See Note 14: Subsequent Events.
Basis of Presentation
The accompanying combined financial statements 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 has 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.
F-7
<PAGE>
ChipPAC
(Direct and Indirect Subsidiaries of Hyundai Electronics Industries Co., Ltd.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
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.
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 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.
During 1996, CPK revised the estimated~ useful lives used in computing
depreciation of equipment acquired on and after July 1, 1996. The effects of
the change are reported prospectively. Had the revised estimated useful lives
been used, depreciation expense would have been approximately $300,000 and $1.2
million less than the amounts presented in the combined financial statements
for the years ended December 31, 1995 and 1996, respectively.
F-8
<PAGE>
ChipPAC
(Direct and Indirect Subsidiaries of Hyundai Electronics Industries Co., Ltd.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
In calculating depreciation, CPK has estimated a residual value of
approximately 10% of the cost of assets acquired on or before December 31,
1994. For assets acquired on or after January 1, 1995, CPK has estimated no
residual values to more accurately reflect annual depreciation. The residual
values of assets acquired on or before December 31, 1994 are depreciated over
three years following the year in which the assets were otherwise fully
depreciated. For each of the years ended December 31, 1995, 1996 and 1997,
depreciation of residual values of $1.2 million was charged to operations.
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for Impairment of Long-Lived Assets and Long- Lived Assets to
be Disposed of" effective January 1, 1996. 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. There was no impact in the year of adoption. 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.
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,
1996, two customers accounted for 32% and 30% of the outstanding trade
receivables, respectively. At December 31, 1997, three customers accounted for
27%, 23%, and 17% of the outstanding trade receivables, respectively. At
December 31, 1998, two customers accounted for 68% and 13% of 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, 1995, two customers accounted for 13% and
12% of the Company's revenue, respectively. During the year ended December 31,
1996, two customers accounted for 24% and 13% of the Company's revenue,
respectively. 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.
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 on its bank cash deposits.
Revenue Recognition
The Company recognizes revenue 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.
F-9
<PAGE>
ChipPAC
(Direct and Indirect Subsidiaries of Hyundai Electronics Industries Co., Ltd.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Accounting for Income Taxes
The accompanying combined financial statements present income taxes as if
each of the combined companies filed its income taxes on a separate return
basis. 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,
1998. At December 31, 1998 the Company had outstanding forward contracts to
purchase Japanese yen totaling $25.5 million.
Foreign Currency Translation
The Company's functional currencies of its foreign operations are the local
currencies. The assets and liabilities, and revenues and expenses of these
foreign combined companies have been translated using the exchange rate at the
balance sheet date and the weighted average exchange rate for the period,
respectively. The net effect of the translation of the accounts of the
Company's foreign combined companies has been included in equity as a
cumulative translation adjustment. The net effect of adjustments that arise
from exchange rate changes on transactions denominated in a currency other than
local currency are reported as foreign currency gains or losses in the
accompanying combined statements of operations.
Stock-Based Compensation
Under the contemplated reorganization plan described below, CPI's current
stock option plan will be terminated at the closing of the reorganization, and
each option holder will receive from the Company, cash compensation for each
vested share in accordance with the reorganization agreement.
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," in accounting for CPI's
employee stock purchase options. Accordingly, compensation for stock purchase
options is measured by the excess of the fair market value of CPI'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
June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No.
133 requires the Company to recognize all derivatives on the balance sheet at
fair value. Derivatives which are not hedges must be adjusted to fair value
through net income. If the derivative is a hedge, depending on the nature of
the hedge, changes in the fair value of derivatives are either offset against
the change in fair value of assets, liabilities, or firm commitments
F-10
<PAGE>
ChipPAC
(Direct and Indirect Subsidiaries of Hyundai Electronics Industries Co., Ltd.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
through earnings or recognized in other comprehensive income until the hedged
item is recognized in earnings. The ineffective portion of a derivative's
change in fair value will be immediately recognized in earnings. SFAS 133 is
effective for years beginning after June 15, 1999, but companies can early
adopt as of the beginning of any fiscal quarter that begins after June 1998.
The Company is evaluating the requirements of SFAS 133, but does not expect
this pronouncement to materially impact the Company's financial position or
results of operations.
The Company has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", issued in June 1997. This statement
establishes standards for disclosure about operating segments in annual
financial statements and selected information in interim financial reports. It
also establishes standards for related disclosures about products and services,
geographic area and major customers. This statement supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise". The Company
operates in one segment and accordingly, does not report product segment
information but will report geographic and significant customer revenue.
The Company has adopted Statement of Position ("SOP") 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use", issued
in March 1998 by the Accounting Standards Executive Committee. SOP 98-1
provides guidance on when costs related to software developed or obtained for
internal use should be capitalized or expensed. The adoption of this statement
has not had a material effect upon the Company's combined results of
operations, financial position or cash flows.
Note 3: Risks and Uncertainties
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
67% of revenue for the year ended December 31, 1998. As a result, any de-
commitment from major customers 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. Also, a significant portion of the Company's debt is
guaranteed by HEI and its Chairman, and the Company has relied upon the these
guarantees. It is reasonably possible that further deterioration in the Korean
economy and a decline in the value of the Korean currency could have an adverse
effect on the ability of the ultimate parent and its Chairman to continue to
guarantee the debt of and otherwise provide support for the Company.
The Korean government has recently announced restructuring plans directed at
rationalizing certain industries. Based on such a government directive, HEI has
recently announced plans to acquire LG Semicon Company, a leading competitor of
HEI. ChipPAC, Inc. is not a party to this transaction.
F-11
<PAGE>
ChipPAC
(Direct and Indirect Subsidiaries of Hyundai Electronics Industries Co., Ltd.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
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
municipal government. It is reasonably possible that additional business
licensure requirements may be applied by the National government that would
pertain to HECS.
Liquidity
At December 31, 1998, the Company had current liabilities in excess of
current assets amounting to $20.3 million. Additionally, the Company has
experienced significant currency devaluations in South Korea which has
increased its cost to procure materials manufactured outside South Korea and
increased its cost to service obligations payable in United States dollars. HEI
has provided certain financial support to the Company in the past and is a
guarantor of the Company's debt.
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):
<TABLE>
<CAPTION>
December 31,
-----------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Inventories
Raw materials................................... $ 6,652 $10,420 $ 6,002
Work in process................................. 1,785 2,015 2,159
Finished goods.................................. 2,459 1,714 2,164
------- ------- -------
$10,896 $14,149 $10,325
======= ======= =======
</TABLE>
F-12
<PAGE>
ChipPAC
(Direct and Indirect Subsidiaries of Hyundai Electronics Industries Co., Ltd.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Property, plant and equipment are comprised of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
------------------------------
1996 1997 1998
--------- -------- ---------
<S> <C> <C> <C>
Property, Plant and Equipment
Land use rights........................ $ 3,915 $ 4,041 $ 4,041
Buildings and improvements............. 39,108 44,911 51,720
Equipment.............................. 233,464 199,079 319,382
--------- -------- ---------
276,487 248,031 375,143
Less accumulated depreciation and
amortization.......................... (104,196) (77,805) (146,141)
--------- -------- ---------
$ 172,291 $170,226 $ 229,002
========= ======== =========
</TABLE>
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.
Interest costs of $152,000, $510,000, and $1.1 million were capitalized as
part of the cost of buildings and improvements in 1995, 1996, and 1997
respectively. No interest costs were capitalized in 1998.
As discussed in Notes 6, 7 and 8, certain equipment is pledged or encumbered
under borrowing arrangements of the Company or HEI.
Property, plan and equipment under capital leases (see Notes 7 and 8) are as
follows (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------------
1996 1997 1998
------- ------- --------
<S> <C> <C> <C>
Property, Plant and Equipment under capital
leases
Cost..................................... $31,082 $32,369 $ 44,501
Less accumulated amortization............ (8,758) (9,533) (20,970)
------- ------- --------
$22,324 $22,836 $ 23,531
======= ======= ========
</TABLE>
Capital lease assets include equipment with a cost of $19.6 million, which
the leasing companies have not granted to HEI the right to transfer such
equipment to the Company. (See Note 8.)
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 obsolesence, 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.
F-13
<PAGE>
ChipPAC
(Direct and Indirect Subsidiaries of Hyundai Electronics Industries Co., Ltd.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Other assets are comprised of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------------
1996 1997 1998
------ ------- ------
<S> <C> <C> <C>
Other Assets
Deposits for severance benefits.................. $5,909 $ 3,123 $1,618
Long-term employee loans......................... 1,971 1,252 1,478
Deferred taxes................................... -- 6,115 1,889
Other............................................ 3 3 16
------ ------- ------
$7,883 $10,493 $5,001
====== ======= ======
</TABLE>
Accrued expenses and other liabilities are comprised of the following (in
thousands):
<TABLE>
<CAPTION>
December 31,
--------------------
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Accrued Expenses & Other Liabilities
Accrued personnel expenses........................ $3,609 $2,606 $3,645
Accrued interest payable.......................... 290 318 950
Other accrued expenses............................ 438 2,900 3,082
------ ------ ------
$4,337 $5,824 $7,677
====== ====== ======
</TABLE>
Intercompany Trading Balances comprised the following (in thousands):
<TABLE>
<CAPTION>
December 31,
----------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Intercompany Trading Balances
Intercompany Trading Balances, beginning
balance................................. 13,664 27,611 73,244
Intercompany purchases................... 114,327 244,273 316,219
Intercompany payments.................... (100,380) (198,640) (269,838)
-------- -------- --------
Intercompany Trading Balances, ending
balance................................. 27,611 73,244 119,625
======== ======== ========
</TABLE>
F-14
<PAGE>
ChipPAC
(Direct and Indirect Subsidiaries of Hyundai Electronics Industries Co., Ltd.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Note 5: Segments and Geographic Information
The Company is engaged in one industry segment, the packaging and testing of
integrated circuits. Finanical data, summarized by geographic area, is as
follows (in thousands):
<TABLE>
<CAPTION>
United
States Korea China Eliminations Combined
-------- -------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1995
Revenue from unaffiliated
customers............... $ 67,230 $102,934 -- -- $170,164
Revenue from affiliates.. 78 71,488 -- $ (62,496) 9,070
-------- -------- -------- --------- --------
Total revenue.......... $ 67,308 $174,422 -- $ (62,496) $179,234
======== ======== ======== ========= ========
Interest expense......... $ 20 $ 3,131 -- -- $ 3,151
Depreciation and
amortization expense.... 3 27,848 $ 66 -- 27,917
Income tax expense....... 1,053 924 -- -- 1,977
Income (loss) from
operations.............. 2,585 5,403 (948) -- 7,040
Acquisition of equipment
under capital leases.... -- 11,767 -- -- 11,767
Identifiable assets...... $ 10,174 $ 95,370 $ 36,104 $ (13,664) $127,984
======== ======== ======== ========= ========
Year ended December 31,
1996
Revenue from unaffiliated
customers............... $110,943 $ 63,176 -- -- $174,119
Revenue from affiliates.. 2,277 122,704 $ 6,889 $(114,334) 17,536
-------- -------- -------- --------- --------
Total revenue.......... $113,220 $185,880 $ 6,889 $(114,334) $191,655
======== ======== ======== ========= ========
Interest expense......... $ 8 $ 5,268 $ 504 -- $ 5,780
Depreciation and
amortization expense.... 4 24,039 2,589 -- 26,632
Income tax expense....... 1,401 1,482 -- -- 2,883
Income (loss) from
operations.............. 3,421 12,597 (8,398) -- 7,620
Acquisition of equipment
under capital leases.... -- 14,612 -- -- 14,612
Identifiable assets...... $ 17,237 $163,908 $ 62,398 $ (27,611) $215,932
======== ======== ======== ========= ========
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
======== ======== ======== ========= ========
</TABLE>
F-15
<PAGE>
ChipPAC
(Direct and Indirect Subsidiaries of Hyundai Electronics Industries Co., Ltd.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
United
States Korea China Eliminations Combined
-------- -------- ------- ------------ --------
<S> <C> <C> <C> <C> <C>
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
======== ======== ======= ========= ========
</TABLE>
Revenue from unaffiliated and affiliated customers is based on the origin of
the sale. 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 6: Short-Term Debt and Credit Facilities
Korea
CPK maintains credit facilities with two Korean banks that provide a total
of $45 million of short-term credit against export invoices. The credit
facilities allow CPK to borrow money at an interest rate of LIBOR plus 3.2%,
against specific export invoices presented on the basis of document against
acceptance ("D/A"). There were no outstanding borrowings under these facilities
at December 31, 1998. The credit facility with one of the banks, which provides
$30 million of credit, is guaranteed personally by the chairman of HEI.
CPK has a $2.5 million overdraft facility with a Korean bank, collateralized
by the personal guarantee of the chairman of HEI. Interest is charged against
amounts borrowed at the rate of 12.8%. No amounts were outstanding under this
facility at December 31, 1998.
CPK has a credit facility of $17.7 million with a Korean bank for the
issuance of sight letters of credit. A total of $11.7 million of this facility
is restricted to letters of credit issued to Korean suppliers. The use of this
credit facility is limited to providing guarantees to CPK's vendors for
payment. It does not provide for the lending of money. At December 31, 1998,
the portion allocated to Korean suppliers was overdrawn by $2.6 million. The
amount outstanding under the portion allocated to foreign suppliers was
$300,000 at December 31, 1998. This credit facility is personally guaranteed by
the chairman of HEI and collateralized by CPK's bank deposits of $10 million.
CPK also maintains credit facilities with two Korean banks that provide a
total of $25 million of short-term credit, available for the issuance of
bankers' usance and shippers' usance letters of credit. In both cases, the
banks extend credit by making payment to the vendors upon document acceptance
and by providing payment terms to CPK ranging from 30 to 120 days from document
acceptance.
F-16
<PAGE>
ChipPAC
(Direct and Indirect Subsidiaries of Hyundai Electronics Industries Co., Ltd.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Under the bankers' usance letters of credit, interest is paid by CPK. Under
the shippers' usance letters of credit, interest is paid by CPK's vendors.
Amounts outstanding under the shippers' usance letters of credit are recorded
as accounts payable as they represent money borrowed by the vendors. Amounts
outstanding under bankers' usance are recorded as short-term debt of the
Company.
At December 31, 1998, CPK also had shippers' usance and bankers' usance
letters of credit outstanding against credit facilities of HEI. The following
table summarizes the bankers' and shippers' usance outstanding at December 31,
1998 (in thousands):
<TABLE>
<CAPTION>
Under CPK
Credit Under HEI
Line Credit Line Total
--------- ----------- -------
<S> <C> <C> <C>
Shippers' usance recorded as accounts
payable.................................. $25,136 $7,413 $32,549
Bankers' usance recorded as short-term
debt..................................... 2,360 714 3,074
------- ------ -------
$27,496 $8,127 $35,623
======= ====== =======
</TABLE>
The $3.1 million of the Company's short-term debt consisted of borrowings
under bankers' usance letters of credit, carrying an interest rate of LIBOR
plus 5.0% to 6.0%.
The credit facility provided by one of the banks, which totals $10 million,
has been personally guaranteed by the chairman of HEI.
United States
CPI has a short-term credit facility of $10 million from an American bank.
The credit facility allows the bank to take a security interest in CPI's
accounts receivable upon notification from CPI of its intent to utilize the
credit facility. The credit facility provides for borrowing at the rate of the
bank's prime rate plus 0.5%. As CPI has not notified the bank of its intent to
utilize this facility as of December 31, 1998, no security interest in any of
CPI's assets has been granted. The credit facility has certain covenants based
on financial measurements. CPI was in compliance with the covenants at December
31, 1998; however, the plan of recapitalization as described below, may result
in a violation of the covenants of this facility.
China
At December 31, 1998, HECS had a $9.7 million loan due a Korean bank, which
bears interest at the six month LIBOR rate plus 0.43%. This loan was due in
January 1999 and is guaranteed by HEI. In January 1999, this loan was renewed
for another year. At December 31, 1998, HECS also had loans totaling $6 million
due to a Korean bank, which bears interest at 6%. These loans are guaranteed by
Hyundai Electronics Co. (Dalian), a Hyundai affiliate company. A total of $3
million is due in March 1999, and the balance is due in April 1999.
F-17
<PAGE>
ChipPAC
(Direct and Indirect Subsidiaries of Hyundai Electronics Industries Co., Ltd.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Note 7: Long-Term Debt and Capital Lease Obligations
The following is a summary of the Company's long-term debt and capital
lease obligations (in thousands):
<TABLE>
<CAPTION>
December 31,
----------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
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.. $ 54,307 $ 76,009 $ 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........................... 14,400 12,342 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......................................... 9,000 20,000 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.. 13,323 17,064 10,945
Less current maturities...................... (16,351) (13,256) (31,954)
-------- -------- --------
$ 81,772 $116,694 $ 80,943
======== ======== ========
</TABLE>
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................ 7,093 4,535 4,361
The debt repayment is guaranteed by HEI and certain Hyundai affiliated
companies. Substantially all property, plant and equipment are pledged as
collateral for the above loans. HEI has not yet received permission to
transfer certain of the capital lease obligations included above to CPK. While
HEI is endeavoring to transfer such leases, there is no assurance that the
lessors will authorize transfer of these leases.
Future maturities of long-term debt outstanding, excluding capital lease
obligations, at December 31, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1999............................. $23,792
2000............................. 34,172
2001............................. 18,068
2002............................. 9,515
2003............................. 7,684
2004............................. 4,360
</TABLE>
F-18
<PAGE>
ChipPAC
(Direct and Indirect Subsidiaries of Hyundai Electronics Industries Co., Ltd.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
The Company has entered into lease agreements with several leasing companies
which are recorded as capital leases. Future annual payments under capital
lease obligations as of December 31, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1999............................. $ 8,852
2000............................. 5,601
2001............................. 2,033
2002............................. 45
-------
16,531
Less amounts representing
interest........................ (1,225)
-------
$15,306
=======
</TABLE>
Note 8: Term Loans and 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 qualify as
capital lease obligations. HEI assumed all obligations under these leases and
no amounts will be serviced by CPK; however, title to these assets used by CPK
is held by the leasing companies under these agreements. Total capital lease
obligations at December 31, 1996, 1997 and 1998, were $4.0 million, $16.7
million and $16.1 million, respectively. The lessors have not authorized HEI to
transfer the leases to CPK, and a change of ownership of CPK without prior
written consent may cause a technical default under the terms of the
agreements. The assets and the related obligations have been reflected in the
accompanying combined financial statements. The Company has recorded lease
payments made by HEI as a reduction of the Company's capital lease obligations
and a corresponding increase in capital amounting to $3.4 million, $7.2
million, and $10.0 million for the years ended December 31, 1996, 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 has not transferred the debt
obligations to CPK and remains the named borrower. Since the assets used by CPK
are pledged as collateral for the related loan obligations, the Company has
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 has 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 9: Commitments and Contingencies
During the periods through June 30, 1998, HEI transferred to CPK certain
machinery and equipment acquired by HEI and which had been originally financed
through dollar denominated loan agreements between HEI and Korean banks. HEI is
named as the borrower under the loan agreements and the debt has not been
transferred to CPK or reflected in the accompanying combined financial
statements. As of December 31, 1998, approximately $38.0 million is outstanding
under these loans. The loan agreements provide that the banks may request a
collateral security interest in the assets transferred to CPK; however, as of
December 31, 1998, no security agreements have been executed or requested with
respect to the outstanding borrowings. Management believes that the lenders
would be required to seek assets other than those held by CPK if they wish to
assert a security interest. Also, HEI has represented to CPK that it has the
ability and the intention to service repayment
F-19
<PAGE>
ChipPAC
(Direct and Indirect Subsidiaries of Hyundai Electronics Industries Co., Ltd.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
of the borrowings from assets other than those transferred to CPK.
Notwithstanding, it is reasonably possible that the banks may attempt to exert
a security interest in the assets transferred to CPK. In the event that the
lenders establish such a collateral security interest in CPK's assets, the
Company will reflect such borrowings in its financial statements as a reduction
of contributed capital.
The Company's executive offices in the United States and its facilities in
Korea are leased from HEA and HEI respectively, under noncancelable operating
lease arrangements through 2001. Rent expense for the years ended December 31,
1995, 1996, 1997, and 1998 was $5.2 million, $5.0 million, $4.3 million and
$7.6 million, respectively. Future annual minimum lease payments under
operating leases that have initial or remaining noncancelable lease terms in
excess of one year at December 31, 1998 are as follows (in thousands):
<TABLE>
<S> <C>
1999............................. $ 4,683
2000............................. $ 4,859
2001............................. $ 2,427
-------
$11,969
=======
</TABLE>
Note 10: Related Party Transactions
The Company has sold packaging and testing services to HEI and to a
subsidiary of HEA. The Company recorded sales of $9.0, $15.2, $9.7, and $2.9
million to HEI for the years ended December 31, 1995, 1996, 1997, and 1998
respectively. The Company recorded sales of $2.3, $4.2, and $2.3 million to a
subsidiary of HEA for the years ended December 31, 1996, 1997, and 1998
respectively.
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 1995, 1996, 1997, and 1998 the Company recognized $6.8 million,
$5.4 million, $8.5 million, and $6.2 million from HEI as reimbursement for
plating services, respectively. These amounts exceeded actual costs by
$623,000, $519,000, $832,000, and $57,000 for the years ended December 31,
1995, 1996, 1997, and 1998, respectively. The total amount receivable from HEI
for plating services and from the sale of packaging services was $4.7 million
at December 31, 1998, and additionally CPK had a receivable balance of $202,000
at December 31, 1998 for advances made to HEI.
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 consist
primarily of general, selling and administrative expenses. During the years
ended December 31, 1995, 1996, 1997 and the six months ended June 30, 1998, HEI
allocated $5.6 million, $5.3 million, $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, $4.9 million, $4.8 million, and $4.3
million and $1.7 million for facilities and utilities costs during fiscal years
ended December 31, 1995, 1996, 1997, and the six-month period ended June 30,
1998, respectively. CPK 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.
F-20
<PAGE>
ChipPAC
(Direct and Indirect Subsidiaries of Hyundai Electronics Industries Co., Ltd.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
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. Through December 31, 1998, no payments had
been made under this agreement.
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 were due to HEC at December 31, 1997.
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.
The following table summarized the payables to affiliates at December 31,
1996, 1997, and 1998 (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------------
1996 1997 1998
------ ------ -------
<S> <C> <C> <C>
Payables to Affiliates
Dividend payable to HEI by CPK................... -- -- $ 9,701
Management fee due HEI........................... $4,241 $6,659 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... 2,207 -- 1,157
------ ------ -------
$6,448 $6,659 $22,918
====== ====== =======
</TABLE>
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, HEA
charged $467,000 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 are non-
interest bearing and have no fixed repayment date. These advances have been
classified as deductions from shareholders' equity in these financial
statements. Amounts advanced between CPI and HEA prior to 1997 were not
material.
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. 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 year
ended December 31, 1998, CPI incurred charges of $700,000 from HIT.
F-21
<PAGE>
ChipPAC
(Direct and Indirect Subsidiaries of Hyundai Electronics Industries Co., Ltd.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Note 11: Shareholders' and Divisional Equity
The Company's equity includes the preferred stock, and for earlier periods
the divisional equity, of CPI, paid-in-capital of HECS, and the common stock or
divisional equity of CPK.
Preferred Stock
CPI is authorized to issue up to 45,500,000 shares of no par value preferred
stock. The Company issued 33,333,333 shares of Series A Preferred Stock to HEA
upon inception on September 30, 1997. As of June 30, 1998, 33,333,333 shares of
Series A Preferred Stock were issued and outstanding.
The holders of Series A Preferred Stock are entitled to receive a dividend
as and when declared of $0.05 per share per year, before any distribution is
paid on common stock or any other class of capital stock that is junior in
right or priority of payment of dividends. Additionally, the holders of Series
A Preferred Stock are entitled to receive dividends equal to those dividends
paid on common or any other class of capital stock. Such dividend rights are
not cumulative. No dividends have been declared.
The Series A Preferred Stock is convertible, at the option of the holder,
into such whole number of common stock as is determined by dividing $0.30 plus
all declared but unpaid dividends on each share of Series A Preferred Stock by
the Series A conversion price, in effect at the time of the conversion. The
Series A conversion price will be adjusted for stock dividends, stock splits,
capital reorganization or reclassification and in situations where the Company
issues additional stock at a price less than $0.30, subject to the terms of an
adjustment formula. Preferred stockholders vote with common stockholders on an
as if converted basis. The Series A Preferred Stock has a liquidation
preference equal to $0.30 per share plus any declared but unpaid dividends.
In the event of a public offering in which the gross proceeds exceed $7.5
million and in which the offering price exceeds $5.00 per share, all Series A
Preferred Stock will automatically convert into fully paid nonassessable shares
of common stock.
Common Stock
CPI is authorized to issue up to 40,000,000 shares of no par value Common
Stock. As of December 31, 1997 and December 31, 1998, no shares of Common Stock
were issued or outstanding. CPI has authorized the issuance of up to 2,508,960
shares of Common Stock through the exercise of stock options under CPI's 1997
Stock Option Plan (the "Plan"). CPI is required to reserve and keep available
out of authorized but unissued common stock, that number necessary to affect
the conversion of Preferred Stock.
CPK is authorized to issue up to 80,000,000 shares of U.S. dollar equivalent
$3.64 par value Common Stock. As of December 31, 1998, CPK issued 40,000,000
shares of Common Stock.
Pursuant to Chinese commercial practices, no capital shares are issued by
HECS. The registered capital invested in HECS amounted to approximately $53.3
million as of December 31, 1998.
Stock Options
In November 1997, CPI's Board of Directors adopted a stock purchase plan,
which provides for the grant of incentive stock purchase options, and non-
qualified stock purchase options. In March 1999, HEI and HEA entered into an
agreement to reorganize the Company and to terminate the CPI stock purchase
plan. Under the
F-22
<PAGE>
ChipPAC
(Direct and Indirect Subsidiaries of Hyundai Electronics Industries Co., Ltd.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
reorganization, option holders will receive $0.36 for each vested share. At
December 31, 1998, options for 1,467,750 shares were outstanding, of which
160,239 options were vested.
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation". Had compensation cost been
determined based on the fair value at the grant date, the impact on net
operations as reported for the year ended December 31, 1997 and 1998 would have
been $0 and $9,000, respectively.
The following table summarizes stock option activity of CPI through December
31, 1998:
<TABLE>
<CAPTION>
Weighted
Options Average
Available Options Exercise Aggregate
for Grant Outstanding Price Value
--------- ----------- -------- ---------
<S> <C> <C> <C> <C>
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
========= ========= ===== ========
</TABLE>
As of December 31, 1998, options for 160,239 shares were vested. No options
were vested at December 31, 1997. The weighted average contractual life is
approximately 9.7 years.
Note 12: Income Taxes
The provision for (benefit from) income taxes is comprised of the following
(in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------
1995 1996 1997 1998
------ ------ -------- -------
<S> <C> <C> <C> <C>
Current
Federal................................ $ 813 $1,082 $ 1,768 $ 1,099
State.................................. 239 317 519 279
Foreign................................ -- 574 4,817 3,012
Deferred
Federal................................ -- -- -- (358)
State.................................. -- -- -- (62)
Foreign................................ 925 910 (16,775) 16,594
------ ------ -------- -------
Tax expense............................ $1,977 $2,883 $ (9,671) $20,564
====== ====== ======== =======
</TABLE>
Income (loss) before taxes is comprised of the following (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------
1995 1996 1997 1998
------ ------- -------- -------
<S> <C> <C> <C> <C>
Domestic............................... $2,565 $ 3,413 $ 5,579 $ 2,165
Foreign................................ (490) (6,155) (61,368) 50,702
------ ------- -------- -------
$2,075 $(2,742) $(55,789) $52,867
====== ======= ======== =======
</TABLE>
F-23
<PAGE>
ChipPAC
(Direct and Indirect Subsidiaries of Hyundai Electronics Industries Co., Ltd.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
A summary of the composition of net deferred income tax assets
(liabilities) is as follows (in thousands):
<TABLE>
<CAPTION>
At December 31,
-------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Assets:
Foreign currency transaction losses.......... $ 12 $13,356 $ 388
Foreign lease obligations.................... -- 1,806 1,366
Impaired loss................................ -- 1,355 1,484
Provision for slow moving inventory.......... 688 1,027 657
Capitalized interest......................... -- 1,242 2,427
Accrued expenses -- -- 420
------- ------- -------
700 18,786 6,742
------- ------- -------
Less liabilities:
Foreign currency transaction gains........... (3) (3,614) (3,182)
Foreign lease obligations.................... (651) -- --
Reserves deducted for tax, not for books..... (1,262) (4,864) (868)
Depreciation................................. (630) -- --
------- ------- -------
(2,546) (8,478) (4,050)
------- ------- -------
$(1,846) $10,308 $ 2,692
======= ======= =======
</TABLE>
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:
<TABLE>
<CAPTION>
Years Ended December
31,
---------------------------
1995 1996 1997 1998
---- ----- ----- ----
<S> <C> <C> <C> <C>
Federal statutory tax rate................. 35.0% (35.0)% (35.0)% 35.0%
State tax, net of Federal benefit.......... 7.5% 7.5% 0.6% 0.3%
Losses not benefitted, China............... 60.7% 128.8% 12.5% 11.4%
Korean operations rate difference.......... (7.9)% 3.8% 4.6% (7.8)%
---- ----- ----- ----
95.3% 105.1% (17.3)% 38.9%
==== ===== ===== ====
</TABLE>
Since inception on September 30, 1997, 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.
F-24
<PAGE>
ChipPAC
(Direct and Indirect Subsidiaries of Hyundai Electronics Industries Co., Ltd.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
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 13: 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 and 1998 were approximately $11,300, $49,100 and
$118,600 respectively. No amounts were contributed during 1995. All amounts
contributed by participants and related earnings are fully vested at all times.
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:
<TABLE>
<S> <C>
Pension fund........................................................ 25.5%
Welfare fund........................................................ 5.5%
Housing fund........................................................ 6.0%
Unemployment insurance fund......................................... 2.0%
</TABLE>
Employee welfare and social insurance expense for the years ended December
31, 1995, 1996, 1997 and 1998 amounted to approximately $13,300, $32,800,
$449,100 and $820,900 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 provision for
severance
F-25
<PAGE>
ChipPAC
(Direct and Indirect Subsidiaries of Hyundai Electronics Industries Co., Ltd.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
benefits for the years ended December 31, 1995, 1996, 1997 and 1998 amounted to
approximately $5.0 million, $2.4 million, $3.0 million, and $2.9 million,
respectively.
Severance benefits are funded approximately 44%, 41% and 79% at December 31,
1996, 1997, and 1998, respectively through deposits to a group severance
insurance plan with several life insurance companies. The amounts funded under
this insurance plan are classified as long-term severance deposits. CPK may
fund subsequent accruals at its discretion.
Included in other long-term liabilities are accrued severance benefits of
$12.5 million, $7.0 million, and $1.3 million at December 31, 1996, 1997 and
1998, respectively. All accrued severance benefits totaling $8.8 million were
paid at June 30, 1998 in conjunction with the initiation of CPK as the legal
employer of the former employees of the HEI Assembly and Test Division.
Note 14: Subsequent Events
In January 1999, HEI made an additional equity investment of $20.0 million
in HECS.
On March 13, 1999, HEI and HEA (collectively "Hyundai") entered into an
agreement and plan of recapitalization and merger (the "Recapitalization
Agreement") with an outside investor group (the "Equity Investors"). The
following steps are contemplated by the Recapitalization Agreement in order to
consummate the recapitalization:
. Under a series of planned transactions under common control Hyundai
restructures the Company, such that ChipPAC, Inc. indirectly owns all of
the outstanding equity of CPK, HECS, and CATS.
. Hyundai forms ChipPAC (Barbados) Ltd. and ChipPAC Limited. ChipPAC
(Barbados) Ltd. is to be wholly owned by ChipPAC, Inc. and is to own all
of the outstanding equity of ChipPAC Limited, which is to own all the
outstanding equity of CPK, HECS, and CATS.
. Hyundai forms ChipPAC Operating Limited, which is to be wholly owned by
ChipPAC, Inc. ChipPAC Operating Limited is to own all of the outstanding
equity of two additional entities formed by Hyundai, ChipPAC Luxembourg
S.a.R.L. and ChipPAC Liquidity Management.
. The ChipPAC Operating Limited borrows approximately $320 million through
certain term loan facilities and the issuance of senior subordinated
notes and, in connection with the equity investment discussed below,
purchases from Hyundai 90% of the outstanding equity of the ~Company and
repays previously existing indebtedness.
. The Equity Investors invest an aggregate $90 million in cash in ChipPAC,
Inc. in exchange for 90% of the common equity. Hyundai receives 10% of
the common equity of ChipPAC, Inc. and redeemable preferred stock.
The Company and HEI negotiated the terms of a special one-time change of
control bonus and a compensation payment with the CPK labor union totaling
approximately $12 million. According to the recapitalization agreement, certain
termination payments will be paid by HEI, or if directly paid by CPK will be
reimbursed to the Company by HEI, and therefore to the extent such payments are
reimbursed, it is expected that there will be no net cash impact to the
Company. The charges for these payments will be reflected as an operating
expense of the Company.
F-26
<PAGE>
ChipPAC
(Direct and Indirect Subsidiaries of Hyundai Electronics Industries Co., Ltd.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Note 15: Supplemental Financial Statements of Guarantor/Non-Guarantor Entities
In connection with the recapitalization, the Company anticipates that
ChipPAC International Company Limited will issue senior subordinated debt
securities which will be fully and unconditionally guaranteed, jointly and
severally, on a senior subordinated basis, by ChipPAC, Inc. (CPI), 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 combining financial information for
CPI, CPK, HECS and CATS, 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 are
wholly-owned direct or indirect subsidiaries of ChipPAC, Inc. which 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
International Company Limited has not been presented as this entity has no
historical financial results and future transactions and balances will
primarily relate to issuance of debt, payment of principal and interest, and
inter-company transactions. 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-27
<PAGE>
ChipPAC
SUPPLEMENTAL COMBINING CONDENSED STATEMENTS OF OPERATIONS
Year Ended December 31, 1995
(In thousands)
<TABLE>
<CAPTION>
Non-
Guarantors Guarantor
----------------- ---------
CPI CPK HECS Eliminations Combined
------- -------- --------- ------------ --------
<S> <C> <C> <C> <C> <C>
Revenue
Intercompany revenue..... $ -- $ 62,496 $ -- $(62,496) $ --
Customer revenue......... 67,308 111,926 -- -- 179,234
------- -------- ------- -------- --------
Revenue.................. 67,308 174,422 -- (62,496) 179,234
Cost of revenue............ 62,566 157,647 810 (62,496) 158,527
------- -------- ------- -------- --------
Gross profit............... 4,742 16,775 (810) -- 20,707
Operating expenses:
Selling, general &
administrative.......... 2,157 9,648 -- -- 11,805
Research & development... -- 1,724 -- -- 1,724
Management fees charged
by affiliate............ -- -- 138 -- 138
Writedown of impaired
assets.................. -- -- -- -- --
------- -------- ------- -------- --------
Total operating
expenses.............. 2,157 11,372 138 -- 13,667
------- -------- ------- -------- --------
Operating income........... 2,585 5,403 (948) -- 7,040
Non-operating income
(Expense)
Interest income.......... -- -- -- -- --
Interest expense......... (20) (3,131) -- (3,151)
Foreign currency gains
(losses)................ -- (980) (32) (1,012)
Other income (expenses),
net..................... -- 1,814 (2,616) -- (802)
------- -------- ------- -------- --------
Non-operating income
(expenses).............. (20) (2,297) (2,648) -- (4,965)
------- -------- ------- -------- --------
Income (loss) before income
taxes..................... 2,565 3,106 (3,596) -- 2,075
Provision for (benefit
from) income taxes........ 1,053 924 -- -- 1,977
------- -------- ------- -------- --------
Net Income (loss)...... $ 1,512 $ 2,182 $(3,596) $ -- $ 98
======= ======== ======= ======== ========
</TABLE>
F-28
<PAGE>
ChipPAC
SUPPLEMENTAL COMBINING CONDENSED STATEMENTS OF CASH FLOWS
Year Ended December 31, 1995
(In thousands)
<TABLE>
<CAPTION>
Guarantors Non-Guarantor
----------------- -------------
CPI CPK HECS Eliminations Combined
------- -------- ------------- ------------ --------
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net Income........... $ 1,512 $ 2,182 $ (3,596) $ -- $ 98
Adjustments to recon-
cile net income
(loss) to net cash
provided by operat-
ing activities:
Depreciation and
amortization...... 3 27,848 66 -- 27,917
Write down of
impaired assets... -- -- -- -- --
Provision for
inventory and
receivables....... -- 799 -- -- 799
Foreign currency
(gains) losses.... -- 1,012 -- -- 1,012
(Gain) loss on
intercompany sales
of equipment...... -- (2,603) -- 2,603 --
(Gain) loss on
external sales of
equipment......... -- 791 -- -- 791
Changes in assets and
liabilities:
Intercompany
accounts
receivable........ -- (9,934) -- 9,934 --
Accounts
receivable........ (3,187) 38 -- -- (3,149)
Inventories........ -- (1,426) (599) -- (2,025)
Prepaid expenses
and other assets.. 1,053 (4,700) (156) -- (3,803)
Advances (to) from
affiliates........ (1,817) -- 138 -- (1,679)
Intercompany
accounts payable.. 2,326 -- 7,608 (9,934) --
Accounts payable... 103 (4,979) -- -- (4,876)
Accrued expenses &
other liabilities. 8 658 6,735 -- 7,401
Other long-term
liabilities....... -- 5,774 -- -- 5,774
------- -------- -------- ------- --------
Net cash provided
by operating
activities...... 1 15,460 10,196 2,603 28,260
------- -------- -------- ------- --------
Cash flows used in
investing activities:
Acquisition of
property and
equipment........... (1) (17,998) (28,542) 6,846 (39,695)
Proceeds,
intercompany equip-
ment sales.......... -- 9,449 -- (9,449) --
Proceeds, external
equipment sales..... -- 51 -- -- 51
------- -------- -------- ------- --------
Net cash used in
investing
activities...... (1) (8,498) (28,542) (2,603) (39,644)
------- -------- -------- ------- --------
Cash flows provided by
financing activities:
Advances to HEA...... -- -- -- -- --
Proceeds from short-
term loans.......... -- 93,942 -- -- 93,942
Repayment of short-
term loans.......... -- (78,990) -- -- (78,990)
Proceeds from term
loans............... -- 7,049 13,700 -- 20,749
Repayment, term loans
and capital leases.. -- (2,047) -- -- (2,047)
Contributions (with-
drawals) of capital. -- (24,792) 1,800 -- (22,992)
------- -------- -------- ------- --------
Net cash provided
by financing
activities...... -- (4,838) 15,500 -- 10,662
------- -------- -------- ------- --------
Effect from changes in
exchange rates........ -- (2,124) 32 -- (2,092)
------- -------- -------- ------- --------
Net increase (decrease)
in cash............... -- -- (2,814) -- (2,814)
Cash and equivalents at
beginning of period... -- -- 5,416 -- 5,416
------- -------- -------- ------- --------
Cash and equivalents at
end of period......... $ -- $ -- $ 2,602 $ -- $ 2,602
======= ======== ======== ======= ========
</TABLE>
F-29
<PAGE>
ChipPAC
SUPPLEMENTAL COMBINING CONDENSED BALANCE SHEETS
December 31, 1996
(In thousands)
<TABLE>
<CAPTION>
Guarantors Non-Guarantor
----------------- -------------
CPI CPK HECS Eliminations Combined
------- -------- ------------- ------------ --------
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash
equivalents........ $ -- $ 31 $ 2,292 $ -- $ 2,323
Receivable from
shareholder........ -- -- -- -- --
Intercompany
accounts
receivable......... -- 21,790 5,821 (27,611) --
Accounts receivable
from customers..... 17,175 3,519 -- -- 20,694
Inventories......... -- 9,767 1,129 -- 10,896
Deferred taxes...... -- 696 -- -- 696
Prepaid expenses &
other current
assets............. 30 209 910 -- 1,149
------- -------- ------- -------- --------
Total current
assets........... 17,205 36,012 10,152 (27,611) 35,758
Property, plant and
equipment, net....... 28 120,017 52,246 -- 172,291
Other assets.......... 4 7,879 -- -- 7,883
------- -------- ------- -------- --------
Total assets...... $17,237 $163,908 $62,398 $(27,611) $215,932
======= ======== ======= ======== ========
Liabilities and Equity
Current liabilities:
Intercompany
accounts payable... $10,895 $ 5,821 $10,895 $(27,611) $ --
Accounts payable.... 301 14,889 -- -- 15,190
Accrued expenses and
other liabilities.. 114 3,344 879 -- 4,337
Short-term debt..... -- 10,267 1,808 -- 12,075
Current portion of
long-term debt..... -- 14,293 2,058 -- 16,351
Current portion of
HEI long-term debt. -- 1,597 -- -- 1,597
Payables to
affiliates......... 781 -- 5,667 -- 6,448
------- -------- ------- -------- --------
Total current
liabilities...... 12,091 50,211 21,307 (27,611) 55,998
Long-term debt, less
current portion.... -- 60,429 21,343 -- 81,772
HEI long-term debt,
less current
portion............ -- 9,333 -- -- 9,333
Other long-term
liabilities........ -- 15,137 -- -- 15,137
------- -------- ------- -------- --------
Total liabilities. 12,091 135,110 42,650 (27,611) 162,240
------- -------- ------- -------- --------
Shareholders' and
divisional equity:
Preferred stock and
paid in capital...... 13,382 24,094 33,293 -- 70,769
Shareholder
receivable-HEA....... -- -- -- -- --
Accumulated earnings
(deficit)............ (8,236) 5,983 (13,983) -- (16,236)
Accumulated other
comprehensive income
(loss)............... -- (1,279) 438 -- (841)
------- -------- ------- -------- --------
Shareholders' and
divisional
equity........... 5,146 28,798 19,748 -- 53,692
------- -------- ------- -------- --------
Total liabilities
and equity....... $17,237 $163,908 $62,398 $(27,611) $215,932
======= ======== ======= ======== ========
</TABLE>
F-30
<PAGE>
ChipPAC
SUPPLEMENTAL COMBINING CONDENSED STATEMENTS OF OPERATIONS
Year Ended December 31, 1996
(In thousands)
<TABLE>
<CAPTION>
Non-
Guarantors Guarantor
------------------ ---------
CPI CPK HECS Eliminations Combined
-------- -------- --------- ------------ --------
<S> <C> <C> <C> <C> <C>
Revenue
Intercompany revenue.... $ -- $107,445 $ 6,889 $(114,334) $ --
Customer revenue........ 113,220 78,435 -- -- 191,655
-------- -------- -------- --------- --------
Revenue................. 113,220 185,880 6,889 (114,334) 191,655
Cost of revenue........... 107,471 161,563 11,965 (114,334) 166,665
-------- -------- -------- --------- --------
Gross profit.............. 5,749 24,317 (5,076) -- 24,990
Operating expenses:
Selling, general &
administrative......... 2,328 9,103 -- -- 11,431
Research & development.. -- 2,617 -- -- 2,617
Management fees charged
by affiliate........... -- -- 3,322 -- 3,322
Writedown of impaired
assets................. -- -- -- -- --
-------- -------- -------- --------- --------
Total operating
expenses............. 2,328 11,720 3,322 -- 17,370
-------- -------- -------- --------- --------
Operating income.......... 3,421 12,597 (8,398) -- 7,620
Non-operating Income
(Expense)
Interest income......... 1 1 106 -- 108
Interest expense........ (8) (5,268) (504) -- (5,780)
Foreign currency gains
(losses)............... -- (5,005) (36) -- (5,041)
Other income (expenses),
net.................... -- 1,606 (1,255) -- 351
-------- -------- -------- --------- --------
Non-operating income
(expenses)............. (7) (8,666) (1,689) -- (10,362)
-------- -------- -------- --------- --------
Income (loss) before
income taxes............. 3,414 3,931 (10,087) -- (2,742)
Provision for (benefit
from) income taxes....... 1,401 1,482 -- -- 2,883
-------- -------- -------- --------- --------
Net Income (loss)..... $ 2,013 $ 2,449 $(10,087) $ -- $ (5,625)
======== ======== ======== ========= ========
</TABLE>
F-31
<PAGE>
ChipPAC
SUPPLEMENTAL COMBINING CONDENSED STATEMENTS OF CASH FLOWS
Year Ended December 31, 1996
(In thousands)
<TABLE>
<CAPTION>
Non-
Guarantors Guarantor
----------------- ---------
CPI CPK HECS Eliminations Combined
------- -------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net Income.............. $ 2,013 $ 2,449 $(10,087) $ -- $ (5,625)
Adjustments to reconcile
net income
Depreciation and
amortization......... 4 24,039 2,589 -- 26,632
Write down of impaired
assets............... -- -- -- -- --
Provision for
inventory and
receivables.......... 1,401 (1,281) -- -- 120
Foreign currency
(gains) losses....... -- 5,041 -- -- 5,041
(Gain) loss on
intercompany sales of
equipment............ -- (1,283) -- 1,283 --
(Gain) loss on
external sales of
equipment............ -- (16) -- -- (16)
Changes in assets and
liabilities:
Intercompany accounts
receivable........... -- (8,113) (5,809) 13,922 --
Accounts receivable... (7,047) 3,022 -- -- (4,025)
Inventories........... -- 172 (526) -- (354)
Prepaid expenses and
other assets......... -- (363) (714) (1,077)
Advances (to) from
affiliates........... (1,389) -- 3,322 -- 1,933
Intercompany accounts
payable.............. 4,859 5,821 3,242 (13,922) --
Accounts payable...... 132 (1,040) -- -- (908)
Accrued expenses &
other liabilities.... 47 (233) (3,686) -- (3,872)
Other long-term
liabilities.......... -- 1,403 -- -- 1,403
------- -------- -------- -------- ---------
Net cash provided by
operating
activities......... 20 29,618 (11,669) 1,283 19,252
------- -------- -------- -------- ---------
Cash flows used in
investing activities:
Acquisition of property
and equipment.......... (20) (86,666) (22,011) 4,338 (104,359)
Proceeds, intercompany
equipment sales........ -- 5,621 -- (5,621) --
Proceeds, external
equipment sales........ -- 240 -- -- 240
------- -------- -------- -------- ---------
Net cash used in
investing
activities......... (20) (80,805) (22,011) (1,283) (104,119)
------- -------- -------- -------- ---------
Cash flows provided by
financing activities:
Advances to HEA......... -- -- -- -- --
Proceeds from short-term
loans.................. -- 81,709 1,804 -- 83,513
Repayment of short-term
loans.................. -- (90,800) -- -- (90,800)
Proceeds from term
loans.................. -- 39,696 9,700 -- 49,396
Repayment, term loans
and capital leases..... -- (7,111) 1 -- (7,110)
Contributions
(withdrawals) of
capital................ -- 27,176 21,900 -- 49,076
------- -------- -------- -------- ---------
Net cash provided by
financing
activities......... -- 50,670 33,405 -- 84,075
------- -------- -------- -------- ---------
Effect from changes in
exchange rates........... -- 548 (35) -- 513
------- -------- -------- -------- ---------
Net increase (decrease) in
cash..................... -- 31 (310) -- (279)
Cash and equivalents at
beginning of period...... -- -- 2,602 -- 2,602
------- -------- -------- -------- ---------
Cash and equivalents at
end of period............ $ -- $ 31 $ 2,292 $ -- $ 2,323
======= ======== ======== ======== =========
</TABLE>
F-32
<PAGE>
ChipPAC
SUPPLEMENTAL COMBINING CONDENSED BALANCE SHEETS
December 31, 1997
(In thousands)
<TABLE>
<CAPTION>
Non-
Guarantors Guarantor
----------------- ---------
CPI CPK HECS Eliminations Combined
------- -------- --------- ------------ --------
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash
equivalents........... $ 973 $ 1,091 $ 1,003 $ -- $ 3,067
Receivable from
shareholder........... -- -- -- -- --
Intercompany accounts
receivable............ -- 67,775 5,523 (73,298) --
Accounts receivable
from customers........ 26,822 3,334 -- -- 30,156
Inventories............ -- 11,902 2,247 -- 14,149
Deferred taxes......... -- 4,193 -- -- 4,193
Prepaid expenses &
other current assets.. 24 69 864 -- 957
------- -------- -------- -------- --------
Total current assets. 27,819 88,364 9,637 (73,298) 52,522
Property, plant and
equipment, net.......... 790 91,965 77,471 -- 170,226
Other assets............. 4 10,489 -- -- 10,493
------- -------- -------- -------- --------
Total assets......... $28,613 $190,818 $ 87,108 $(73,298) $233,241
======= ======== ======== ======== ========
Liabilities and Equity
Current liabilities:
Intercompany accounts
payable............... $24,360 $ 5,521 $ 43,417 $(73,298) $ --
Accounts payable....... 506 16,962 -- -- 17,468
Accrued expenses and
other liabilities..... 488 3,479 1,857 -- 5,824
Short-term debt........ -- 31,478 3,001 -- 34,479
Current portion of
long-term debt........ -- 11,199 2,057 -- 13,256
Current portion of HEI
long-term debt........ -- 4,473 -- -- 4,473
Payables to affiliates. -- -- 6,659 -- 6,659
------- -------- -------- -------- --------
Total current
liabilities......... 25,354 73,112 56,991 (73,298) 82,159
Long-term debt, less
current portion....... -- 86,408 30,286 -- 116,694
HEI long-term debt,
less current portion.. -- 17,987 -- -- 17,987
Other long-term
liabilities........... -- 6,929 -- -- 6,929
------- -------- -------- -------- --------
Total liabilities.... 25,354 184,436 87,277 (73,298) 223,769
------- -------- -------- -------- --------
Shareholders' and
divisional equity
Preferred stock and paid
in capital.............. 15,672 48,110 33,293 -- 97,075
Shareholder receivable-
HEA..................... (7,466) -- -- -- (7,466)
Accumulated earnings
(deficit)............... (4,947) (23,469) (33,938) -- (62,354)
Accumulated other
comprehensive income
(loss).................. -- (18,259) 476 -- (17,783)
------- -------- -------- -------- --------
Shareholders' and
divisional equity... 3,259 6,382 (169) -- 9,472
------- -------- -------- -------- --------
Total liabilities and
equity.............. $28,613 $190,818 $ 87,108 $(73,298) $233,241
======= ======== ======== ======== ========
</TABLE>
F-33
<PAGE>
ChipPAC
SUPPLEMENTAL COMBINING CONDENSED STATEMENTS OF OPERATIONS
Year Ended December 31, 1997
(In thousands)
<TABLE>
<CAPTION>
Guarantors Non-Guarantor
----------------- -------------
CPI CPK HECS Eliminations Combined
-------- -------- ------------- ------------ --------
<S> <C> <C> <C> <C> <C>
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)
======== ======== ======== ========= ========
</TABLE>
F-34
<PAGE>
ChipPAC
SUPPLEMENTAL COMBINING CONDENSED STATEMENTS OF CASH FLOWS
Year Ended December 31, 1997
(In thousands)
<TABLE>
<CAPTION>
Guarantors Non-Guarantor
------------------ -------------
CPI CPK HECS Eliminations Combined
------- --------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
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
======= ========= ======== ======== =========
</TABLE>
F-35
<PAGE>
ChipPAC
SUPPLEMENTAL COMBINING CONDENSED BALANCE SHEETS
December 31, 1998
(In thousands)
<TABLE>
<CAPTION>
Guarantors Non-Guarantor
------------------ -------------
CPI CPK HECS Eliminations Combined
-------- -------- ------------- ------------ --------
<S> <C> <C> <C> <C> <C>
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
======== ======== ======== ========= ========
</TABLE>
F-36
<PAGE>
ChipPAC
SUPPLEMENTAL COMBINING CONDENSED STATEMENTS OF OPERATIONS
Year Ended December 31, 1998
(In thousands)
<TABLE>
<CAPTION>
Guarantors Non-Guarantor
----------------- -------------
CPI CPK HECS Eliminations Combined
-------- -------- ------------- ------------ --------
<S> <C> <C> <C> <C> <C>
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
======== ======== ======== ========= ========
</TABLE>
F-37
<PAGE>
ChipPAC
SUPPLEMENTAL COMBINING CONDENSED STATEMENTS OF CASH FLOWS
Year Ended December 31, 1998
(In thousands)
<TABLE>
<CAPTION>
Non-
Guarantors Guarantor
------------------ ---------
CPI CPK HECS Eliminations Combined
-------- -------- --------- ------------ --------
<S> <C> <C> <C> <C> <C>
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 &
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
======== ======== ======== ======== ========
</TABLE>
F-38
<PAGE>
UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Condensed Consolidated Balance Sheets.................................... F-40
Condensed Consolidated Statements of Operations.......................... F-41
Condensed Consolidated Statement of Shareholders Equity.................. F-42
Condensed Consolidated Statements of Cash Flows.......................... F-43
Notes to Condensed Consolidated Financial Statements..................... F-44
</TABLE>
F-39
<PAGE>
ChipPAC Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents....................... $ 68,767 $ 33,142
Accounts receivable, less allowance for doubtful
accounts of $1,001 and $1,162.................. 42,651 34,679
Inventories..................................... 10,325 12,420
Deferred taxes.................................. 803 2,107
Prepaid expenses and other current assets....... 2,923 8,141
-------- ---------
Total current assets.......................... 125,469 90,489
Property, plant and equipment, net................ 229,002 213,269
Other assets...................................... 5,001 18,703
-------- ---------
Total assets.................................. $359,472 $ 322,461
======== =========
Liabilities and Equity
Current liabilities:
Accounts payable................................ $ 61,853 $ 39,985
Accrued expenses and other liabilities.......... 7,677 17,778
Short-term debt................................. 18,777 --
Current portion of long-term debt............... 31,954 2,600
Current portion of HEI long-term debt........... 2,610 --
Payable~s to affiliates......................... 22,918 --
-------- ---------
Total current liabilities..................... 145,789 60,363
-------- ---------
Long-term debt, less current portion............ 80,943 297,400
HEI long-term debt, less current portion........ 18,208 --
Other long-term liabilities..................... 1,341 3,052
-------- ---------
Total liabilities............................. 246,281 360,815
-------- ---------
Commitments and contingencies
Mandatorily redeemable preferred stock.............. -- 71,366
Shareholders' and divisional equity (deficit)
Divisional equity and paid in capital, net of
capital redemption............................... 180,091 (167,977)
Common stock...................................... -- 1,020
Preferred stock................................... -- 1
Additional paid in capital........................ -- 92,550
Shareholder receivable--HEA....................... (37,626) --
Accumulated deficit............................... (39,752) (44,482)
Accumulated other comprehensive income............ 10,478 9,168
-------- ---------
Total shareholders' and divisional equity
(deficit).................................... 113,191 (109,720)
-------- ---------
Total liabilities and equity.................. $359,472 $ 322,461
======== =========
</TABLE>
The accompanying notes form an integral part of these condensed consolidated
financial statements.
F-40
<PAGE>
ChipPAC Inc.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months
Ended September Nine Months Ended
30, September 30,
----------------- ------------------
1998 1999 1998 1999
------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue............................ $82,818 $101,270 $237,969 $267,671
Cost of revenue.................... 66,907 84,492 186,000 227,792
------- -------- -------- --------
Gross profit....................... 15,911 16,778 51,969 39,879
Operating expenses:
Selling, general &
administrative.................. 3,803 5,083 10,396 14,416
Research & development........... 1,923 2,640 4,895 8,628
Management fees charged by
affiliate....................... -- -- 528 --
Change of control expense........ -- 11,842 -- 11,842
------- -------- -------- --------
Total operating expenses....... 5,726 19,565 15,819 34,886
------- -------- -------- --------
Operating income................... 10,185 (2,787) 36,150 4,993
Non-operating income (expenses)
Interest income.................. 345 595 491 2,334
Interest expense................. (3,265) (6,295) (10,037) (12,089)
Foreign currency~ gains (losses). 972 (869) 20,427 506
Other income (expenses), net..... (80) 384 50 566
------- -------- -------- --------
Non-operating income
(expenses).................... (2,028) (6,185) 10,931 (8,683)
------- -------- -------- --------
Income (loss) before income taxes,
and extraordinary item............ 8,157 (8,972) 47,081 (3,690)
Provision for (benefit from) income
taxes............................. 3,529 (4,771) 17,933 (1,823)
------- -------- -------- --------
Income before extraordinary item... 4,628 (4,201) 29,148 (1,867)
Extraordinary item:
Loss from early extinguishment of
debt, net of related income tax
benefit......................... -- 1,372 -- 1,372
------- -------- -------- --------
Net income (loss).................. $ 4,628 $ (5,573) $ 29,148 $ (3,239)
======= ======== ======== ========
Other comprehensive income:
Currency translation gain (loss)... (2,741) (5,978) (2,741) (5,978)
------- -------- -------- --------
Comprehensive income (loss)........ $ 1,887 $(11,551) $ 26,407 $ (9,217)
======= ======== ======== ========
</TABLE>
The accompanying notes form an integral part of these condensed consolidated
financial statements.
F-41
<PAGE>
ChipPAC Inc.
Condensed Consolidated Statement of Shareholders' Equity
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Additional Divisional
Paid-in Equity,
Capital, and Paid-in Share- Accumulated
Common and Capital, Net holder Other Com- Accum-
Preferred Common Preferred of Capital Receivable prehensive ulated
Stock Stock Stock Redemption HEA Income (Loss) Deficit Total
--------- ------ ---------- ------------ ---------- ------------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31,
1998................... -- -- -- $ 180,091 $(37,626) $10,477 $(39,751) $ 113,191
Capital contributions. -- -- $ 2,500 20,488 475 -- -- 23,463
Net proceeds from
common stock
issuance............. -- $1,020 79,895 (10,000) -- -- -- 70,915
Net proceeds from pre-
ferred stock issu-
ance................. 1 -- 9,999 -- -- -- -- 10,000
Conversion of
divisional equity to
redeemable preferred
stock................ -- -- -- (30,000) -- -- -- (30,000)
Distribution of HEA
Receivable........... -- -- -- (37,151) 37,151 -- -- --
Capital redemption at
closing.............. -- -- -- $(291,405) -- -- -- (291,405)
Dividend accretion on
redeemable preferred
stock................ -- -- 156 -- -- -- (1,522) (1,366)
Currency translation
loss................. -- -- -- -- -- (1,309) -- (1,309)
Net loss.............. -- -- -- -- -- -- (3,209) (3,209)
--- ------ ------- --------- -------- ------- -------- ---------
Balances at September
30, 1999 (Unaudited)... $ 1 $1,020 $92,550 $(167,977) $ 0 $ 9,168 $(44,482) $(109,720)
=== ====== ======= ========= ======== ======= ======== =========
</TABLE>
F-42
<PAGE>
ChipPAC Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
---------------------
1998 1999
--------- ----------
<S> <C> <C>
Cash flows provided by operating activities:
Net income (loss)..................................... $ 29,148 $ (3,239)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization....................... 32,280 41,850
Provision for inventory and accounts receivable..... (407) (427)
Loss from early debt retirement..................... -- 1,372
Foreign currency gains ............................. (20,427) (506)
(Gain) loss on sale of equipment.................... 74 (241)
Changes in assets and liabilities:
Accounts receivable................................. (8,651) 9,843
Inventories......................................... 7,843 (1,889)
Prepaid expenses and other assets................... 3,772 (20,780)
Advances (to) from affiliates....................... 4,593 (6,190)
Accounts payable.................................... 27,522 (22,193)
Accrued expenses and other current liabilities...... 5,599 7,040
Other long-term liabilities......................... (7,807) 2,617
--------- ----------
Net cash provided by operating activities......... 73,539 7,257
--------- ----------
Cash flows used in investing activities:
Acquisition of property and equipment................. (52,211) (29,062)
Proceeds from sale of equipment....................... 122 1,263
--------- ----------
Net cash used in investing activities............. (52,089) (27,799)
--------- ----------
Cash flows provided by financing activities:
Advances (to) from affiliates ........................ (30,514) (4,430)
Proceeds from short-term loans........................ 37,585 1,169
Repayment of short-term loans......................... (50,745) (19,469)
Proceeds from term loans.............................. 10,185 300,000
Repayment of long-term debt and capital leases........ (26,039) (134,987)
Dividend paid......................................... -- (9,435)
Proceeds from stock issuance.......................... -- 123,415
Contributions to (withdrawals from) paid in capital... 68,546 (270,918)
--------- ----------
Net cash provided by (used in) financing
activities....................................... 9,018 (14,655)
--------- ----------
Effect on cash from changes in exchange rates........... (522) (428)
--------- ----------
Net increase (decrease) in cash......................... 29,946 (35,625)
Cash and cash equivalents at beginning of period........ 3,067 68,767
--------- ----------
Cash and cash equivalents at end of period.............. $ 33,013 $ 33,142
========= ==========
Supplemental disclosure of noncash investing and
financing activities
Acquisition of equipment under capital leases......... $ 724 $ --
========= ==========
</TABLE>
The accompanying notes form an integral part of these condensed consolidated
financial statements.
F-43
<PAGE>
ChipPAC, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Business and Basis of Presentation
Business and Organization
ChipPAC Inc. and its subsidiaries (the "Company") provide 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 People's Republic of China
("China").
Interim Statements
In 1999, under a series of planned transactions under common control, the
ChipPAC entities were restructured such that ChipPAC, Inc. directly or
indirectly owned all the outstanding equity of the issuer, guarantor and non-
guarantor subsidiaries. Accordingly, the interim financial statements for the
interim period ended September 30, 1999 have been prepared on a consolidated
basis. All significant intercompany balances have been eliminated on
consolidation.
For the comparative disclosures for the interim period ended September 30,
1998 and the balance sheet 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. These four corporations are
ChipPAC, Inc., ChipPAC Korea Co., Ltd, ChipPAC Assembly and Test Co., Ltd and
Hyundai Electronics Co. (Shanghai) Ltd. Accordingly the interim financial
statements for the interim period ended September 30, 1998 and the balance
sheet at December 31, 1998 are prepared on a combined basis.
In the opinion of management of the Company, 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. The Company 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 the related notes thereto for the years
ended December 31, 1996, 1997, and 1998. The results of operations for the
three month and nine month periods ended September 30, 1999 are not necessarily
indicative of the results to be expected for the full year.
The Company has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", issued in June 1997. This statement
establishes standards for disclosure about operating segments in annual
financial statements and selected information in interim financial reports. It
also establishes standards for related disclosures about products and services,
geographic area and major customers. This statement supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise". The Company
operates in one segment and accordingly, does not report product segment
information but will report geographic and significant customer revenue in its
annual financial report.
Note 2: Inventories
The components of inventories are as follows (in thousands):
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
(unaudited)
<S> <C> <C>
Inventories
Raw materials................................ $ 6,002 $ 9,148
Work in process.............................. 2,159 2,515
Finished goods............................... 2,164 757
------- -------
$10,325 $12,420
======= =======
</TABLE>
F-44
<PAGE>
ChipPAC, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 3: 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 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, management 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 $385.0 million in cash and (ii)
mandatorily redeemable convertible preferred stock payable for up to an
aggregate of $70.0 million.
As a result of the Recapitalization, the Company was contractually required
to make a one-time change of control payment to its unionized Korean employees
of approximately $11.8 million. The payment was recorded as an operating
expense during the quarter ended September 30, 1999.
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 totalled approximately $170,000 and
was charged as additional employee compensation in the nine months ended
September 30, 1999.
Note 4: New Debt
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. At September 30, 1999 our debt consisted of $300.0
million of borrowings which were comprised of $150.0 million in term loan
facilities and $150.0 million of senior subordinated notes. The term loans bear
interest at base rate plus 2.25% to 3.0% and the senior subordinated notes bear
interest at 12.75% per annum. An amount of $70.0 million of the term loans
matures on July 31, 2005, the remainder matures on July 21, 2006. The senior
subordinated notes mature on July 21, 2009.
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. We
have not drawn on these facilities at September 30, 1999.
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
F-45
<PAGE>
ChipPAC, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
board of directors, in each case until there is no longer any such 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. 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 exchange notes
will be senior in right of payment to 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 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
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.
Accretion of dividends is required and the total dividend accreted at
September 30, 1999 is $1,366,000. This amount has been added to the Preferred
Stock at September 30, 1999.
Intel Preferred Stock
Pursuant to the Intel Stock Purchase Agreement, we issued 10,000 shares of
Class A 10.0% preferred stock to Intel, which we refer to as the Intel
Preferred Stock.
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
September 30, 1999 is $156,000. This amount has been added to the Preferred
Stock at September 30, 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
F-46
<PAGE>
ChipPAC, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the face value ($1,000 per share) 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
. 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. In addition, 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, 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 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 exchange notes are senior in right of payment to the Intel Preferred
Stock.
Note 5: 1999 Stock Purchase and Option Plan
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
F-47
<PAGE>
ChipPAC, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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. As of September 30, 1999, no shares of
Class A common stock or Class L common stock or options to purchase such stock
were outstanding under the 1999 Stock Plan.
Note 6: 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 the semiconductor packaging needs. In return, we will provide Intel
with rebates based upon the volume of packaging services outsourced to us.
Rebates are estimated 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.
Note 7: Supplemental Financial Statements of Guarantor/Non-Guarantor Entities
In connection with the recapitalization, ChipPAC International Company
Limited ("CP Int'l") has issued senior subordinated debt securities which are
fully and unconditionally guaranteed, jointly and severally, on a senior
subordinated basis, by ChipPAC Inc. (CPI), ChipPAC (Barbados) Ltd., ChipPAC
Limited, ChipPAC Korea Company, Ltd, ("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. ChipPAC Shanghai Co. Ltd. ("CPS") and ChipPAC
Assembly and Test (Shanghai) Co. Ltd, ("CATS"), (collectively the Chinese
entities), will not provide guarantees (the "Non-Guarantor Subsidiaries"). The
following is consolidated financial information for CPI and its subsidiaries,
segregated between the issuer, the Guarantor and Non-Guarantor Subsidiaries.
The following CPS financial statements in the condensed consolidated financial
statements include the accounts of CATS. ChipPAC (Barbados) Ltd., ChipPAC
Limited, ChipPAC Luxembourg S.a.R.L. and ChipPAC Liquidity Management are
wholly owned direct or indirect subsidiaries of ChipPAC, Inc. which were formed
by Hyundai in 1999 and have no historical operating results or balances for the
interim period ended September 30, 1998. As a result, it is not possible to
include these entities in the supplemental financial statements for this
period. Financial information related to these subsidiaries has been included
in the supplemental financial statements for the interim period ended September
30, 1999 and has been included in the column headed "CPI" along with the
financial information for ChipPAC Inc.
F-48
<PAGE>
ChipPAC, Inc.
SUPPLEMENTAL COMBINED CONDENSED BALANCE SHEETS
September 30, 1998
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Guarantors Non-Guarantor
------------------ -------------
CPI CPK CPS Eliminations Combined
-------- -------- ------------- ------------ --------
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash
equivalents........ $ 11,604 $ 19,615 $ 1,791 -- $ 33,010
Intercompany
accounts
receivable......... 8,237 106,676 1,909 $(116,822) --
Accounts receivable
from customers..... 35,056 8,870 -- -- 43,926
Inventories......... -- 9,423 389 -- 9,812
Deferred taxes...... 281 1,026 -- -- 1,307
Prepaid expenses &
other current
assets............. 975 2,225 353 -- 3,553
-------- -------- -------- --------- --------
Total current
assets........... 56,153 147,835 4,442 (116,822) 91,608
Property, plant and
equipment, net....... 2,684 127,932 82,990 -- 213,606
Other assets.......... 195 7,411 -- -- 7,606
-------- -------- -------- --------- --------
Total assets...... $ 59,032 $283,178 $ 87,432 $(116,822) $312,820
======== ======== ======== ========= ========
Liabilities and Equity
Current liabilities:
Intercompany
accounts payable... $ 82,996 $ 1,908 $ 31,918 $(116,822) --
Accounts payable.... 1,165 44,230 24 -- $ 45,419
Accrued expenses and
other liabilities.. 710 6,458 1,934 -- 9,102
Short-term debt..... -- 2,541 18,778 -- 21,319
Current portion of
long-term debt..... -- 15,574 7,449 -- 23,023
Current portion of
HEI long-term debt. -- 3,076 -- -- 3,076
Payables to
affiliates......... -- 1 17,276 -- 17,277
-------- -------- -------- --------- --------
Total current
liabilities...... 84,871 73,788 77,379 (116,822) 119,216
Long-term debt, less
current portion.... -- 73,304 20,449 -- 93,753
HEI long-term debt,
less current
portion............ -- 18,153 -- -- 18,153
Other long-term
liabilities........ -- 687 -- -- 687
-------- -------- -------- --------- --------
Total liabilities. 84,871 165,932 97,828 (116,822) 231,809
-------- -------- -------- --------- --------
Mandatorily redeemable
preferred stock........ -- -- -- -- --
Shareholders' and
divisional equity
Preferred stock and
paid in capital...... 16,729 110,489 33,292 -- 160,510
Shareholder
receivable--HEA...... (37,981) -- -- -- (37,981)
Accumulated earnings
(deficit)............ (4,587) 15,545 (44,165) -- (33,207)
Accumulated other
comprehensive income
(loss)............... -- (8,788) 477 -- (8,311)
-------- -------- -------- --------- --------
Shareholders' and
divisional equity
(deficit)........ (25,839) 117,246 (10,396) -- 81,011
-------- -------- -------- --------- --------
Total liabilities
and equity....... $ 59,032 $283,178 $ 87,432 $(116,822) $312,820
======== ======== ======== ========= ========
</TABLE>
F-49
<PAGE>
ChipPAC, Inc.
SUPPLEMENTAL COMBINED CONDENSED STATEMENTS OF OPERATIONS
Nine Months Ended September 30, 1998
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Guarantors Non-Guarantor
------------------ -------------
CPI CPK CPS Eliminations Combined
-------- -------- ------------- ------------ --------
<S> <C> <C> <C> <C> <C>
Revenue:
Intercompany revenue.. -- $215,755 $ 11,168 $(226,923) --
Customer revenue...... $226,916 11,053 -- -- $237,969
-------- -------- -------- --------- --------
Revenue............... 226,916 226,808 11,168 (226,923) 237,969
Cost of revenue......... 216,537 178,516 17,870 (226,923) 186,000
-------- -------- -------- --------- --------
Gross profit............ 10,379 48,292 (6,702) -- 51,969
Operating expenses:
Selling, general &
administrative....... 7,273 3,123 -- -- 10,396
Research &
development.......... 2,434 2,461 -- -- 4,895
Management fees
charged by affiliate. -- -- 528 -- 528
Change of control
expenses............. -- -- -- -- --
-------- -------- -------- --------- --------
Total operating
expenses........... 9,707 5,584 528 -- 15,819
-------- -------- -------- --------- --------
Operating income........ 672 42,708 (7,230) -- 36,150
Non-operating income
(expense):
Interest income....... 171 295 25 -- 491
Interest expense...... -- (7,676) (2,361) -- (10,037)
Foreign currency gains
(losses)............. -- 20,427 -- -- 20,427
Other income
(expenses), net...... (4) 715 (661) -- 50
-------- -------- -------- --------- --------
Non-operating income
(expenses)......... 167 13,761 (2,997) -- 10,931
-------- -------- -------- --------- --------
Income (loss) before
income taxes........... 839 56,469 (10,227) -- 47,081
Provision for (benefit
from) income taxes..... 479 17,454 -- -- 17,933
-------- -------- -------- --------- --------
Net income (loss)....... $ 360 $ 39,015 $(10,227) $ -- $ 29,148
======== ======== ======== ========= ========
</TABLE>
F-50
<PAGE>
ChipPAC, Inc.
SUPPLEMENTAL COMBINED CONDENSED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1998
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Guarantors Non-Guarantor
------------------ -------------
CPI CPK CPS Eliminations Combined
-------- -------- ------------- ------------ --------
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net Income........... $ 360 $ 39,015 $(10,227) -- $ 29,148
Adjustments to
reconcile net
income:
Depreciation and
amortization...... 292 25,693 6,295 -- 32,280
Provision for
inventory and
receivables....... 374 (781) -- -- (407)
Foreign currency
(gains) losses.... -- (20,427) -- -- (20,427)
(Gain) loss on
external sales of
equipment......... -- 74 -- -- 74
Changes in assets and
liabilities:
Intercompany
accounts
receivable........ (8,238) (38,904) 3,614 43,528 --
Accounts
receivable........ (9,156) 505 -- -- (8,651)
Inventories........ -- 5,986 1,857 -- 7,843
Prepaid expenses
and other assets.. (1,426) 4,688 510 -- 3,772
Advances (to) from
affiliates........ -- (5,493) 10,086 -- 4,593
Intercompany
accounts payable.. 59,187 (1,951) (13,708) (43,528) --
Accounts payable... 659 26,839 24 -- 27,522
Accrued expenses &
other liabilities. 221 2,558 2,820 -- 5,599
Other long-term
liabilities....... -- (7,807) -- -- (7,807)
-------- -------- -------- -------- --------
Net cash provided
by operating
activities...... 42,273 29,995 1,271 -- 73,539
-------- -------- -------- -------- --------
Cash flows used in
investing activities:
Acquisition of
property and
equipment........... (2,121) (38,273) (11,817) -- (52,211)
Proceeds, equipment
sales............... -- 122 -- -- 122
-------- -------- -------- -------- --------
Net cash used in
investing
activities...... (2,121) (38,151) (11,817) -- (52,089)
-------- -------- -------- -------- --------
Cash flows provided by
financing activities:
Advances to HEA...... (30,514) -- -- -- (30,514)
Proceeds from short-
term loans.......... -- 21,929 15,656 -- 37,585
Repayment of short-
term loans.......... -- (50,867) 122 -- (50,745)
Proceeds from term
loans............... -- 185 10,000 -- 10,185
Repayment, term loans
and capital leases.. -- (11,595) (14,444) -- (26,039)
Contributions
(withdrawals) of
capital............. 993 67,553 -- -- 68,546
-------- -------- -------- -------- --------
Net cash provided
by financing
activities...... (29,521) 27,205 11,334 -- 9,018
-------- -------- -------- -------- --------
Effect from changes in
exchange rates........ -- (525) -- -- (525)
-------- -------- -------- -------- --------
Net increase (decrease)
in cash............... 10,631 18,524 788 -- 29,943
Cash and equivalents at
beginning of period... 973 1,091 1,003 -- 3,067
-------- -------- -------- -------- --------
Cash and equivalents at
end of period......... $ 11,604 $ 19,615 $ 1,791 -- $ 33,010
======== ======== ======== ======== ========
</TABLE>
F-51
<PAGE>
ChipPAC, Inc.
SUPPLEMENTAL CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 1999
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Non-
Guarantors Guarantor
------------------------------- ---------
CP Int'l CPI CPK CPS Eliminations Combined
--------- --------- --------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash
equivalents........ $ 1 $ 10,622 $ 12,822 $ 9,697 -- $ 33,142
Intercompany
accounts
receivable......... 3,416 30,088 77,162 4,830 (115,496) --
Accounts receivab~le
from customers..... -- 23,084 11,595 -- -- 34,679
Inventories......... -- 5 12,102 313 -- 12,420
Deferred taxes...... -- 420 1,687 -- -- 2,107
Prepaid expenses &
other current
assets............. -- 416 7,344 381 -- 8,141
--------- --------- --------- ------- ---------- ---------
Total current
assets........... 3,417 64,635 122,712 15,221 (115,496) 90,489
Property, plant and
equipment, net....... 6,168 129,133 77,968 -- 213,269
Intercompany loans
receivable........... 271,000 145,000 -- -- (416,000) --
Other assets.......... 42,307 5,087 5,139 -- (33,830) 18,703
--------- --------- --------- ------- ---------- ---------
Total assets...... $ 316,724 $ 220,890 $ 261,210 $93,189 $ (565,326) $ 322,461
========= ========= ========= ======= ========== =========
Liabilities and Equity
Current liabilities:
Intercompany
accounts payable... -- $ 77,162 $ 8,148 $30,186 $ (115,496) --
Accounts payable.... $ 40 2,580 36,284 1,081 -- $ 39,985
Accrued expenses and
other liabilities.. 3,861 7,115 3,014 3,817 -- 17,807
Short-term debt..... -- -- -- -- -- --
Current portion of
long-term debt..... 2,600 -- -- -- -- 2,600
--------- --------- --------- ------- ---------- ---------
Total current
liabilities...... 6,501 86,852 47,446 35,084 (115,496) 60,392
Long-term debt, less
current portion.... 297,400 -- -- -- 297,400
Intercompany loans
payable............ -- 237,000 145,000 34,000 (416,000) --
Other long-term
liabilities........ -- -- 3,052 -- -- 3,052
--------- --------- --------- ------- ---------- ---------
Total liabilities. 303,901 323,857 195,498 69,084 (531,496) 360,844
--------- --------- --------- ------- ---------- ---------
Mandatorily redeemable
preferred stock........ -- 71,366 -- -- -- 71,366
Shareholders' and
divisional equity
Preferred stock and
paid in capital...... 13,399 (169,040) 29,627 85,283 (33,830) (74,561)
Accumulated earnings
(deficit)............ (576) (5,293) 23,154 (61,642) -- (44,357)
Accumulated other
comprehensive income
(loss)............... -- -- 8,705 464 -- 9,169
--------- --------- --------- ------- ---------- ---------
Shareholders' and
divisional
equity........... 12,823 (174,333) 61,486 24,105 (33,830) (109,749)
--------- --------- --------- ------- ---------- ---------
Total liabilities
and equity....... $ 316,724 $ 220,890 $ 261,210 $93,189 $ (565,326) $ 322,461
========= ========= ========= ======= ========== =========
</TABLE>
F-52
<PAGE>
ChipPAC, Inc.
SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended September 30, 1999
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Non-
Guarantors Guarantor
---------------------------- ---------
CP Int'l CPI CPK CPS Eliminations Combined
-------- -------- -------- --------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Revenue
Intercompany revenue.. -- -- $231,903 $ 11,057 $ (242,960) --
Customer revenue...... -- $247,535 20,004 132 -- $267,671
------- -------- -------- -------- ---------- --------
Revenue............... -- 247,535 251,907 11,189 (242,960) 267,671
Cost of revenue......... -- 231,794 219,230 19,728 (242,960) 227,792
------- -------- -------- -------- ---------- --------
Gross profit............ -- 15,741 32,677 (8,539) -- 39,879
Operating expenses:
Selling, general &
administrative....... -- 10,019 4,397 -- -- 14,416
Research &
development.......... -- 4,278 4,350 -- -- 8,628
Change of control
expenses............. -- 180 11,662 -- -- 11,842
------- -------- -------- -------- ---------- --------
Total operating
expenses........... -- 14,477 20,409 -- -- 34,886
------- -------- -------- -------- ---------- --------
Operating income........ -- 1,264 12,268 (8,539) -- 4,993
Non-operating Income
(Expense)
Interest income....... $ 119 588 1,275 352 -- 2,334
Interest (expense).... (5,330) (1) (4,914) (1,844) -- (12,089)
Intercompany interest
income (expense)..... 4,685 (1,522) (2,625) (538) -- --
------- -------- -------- -------- ---------- --------
Interest expense...... (645) (1,523) (7,538) (2,382) -- (12,088)
Foreign currency gains
(losses)............. -- -- 516 (10) -- 506
Other income
(expenses), net...... -- (568) 1,031 103 -- 566
------- -------- -------- -------- ---------- --------
Non-operating income
(expenses)......... (526) (1,503) (4,716) (1,937) -- (8,683)
------- -------- -------- -------- ---------- --------
Income (loss) before
income taxes........... (526) (239) 7,550 (10,476) -- (3,690)
Provision for (benefit
from) income taxes..... 50 (47) (1,827) -- -- (1,823)
------- -------- -------- -------- ---------- --------
Income before
extraordinary item..... (576) (192) 9,377 (10,476) -- (1,867)
Extraordinary item:
Loss from early
extinguishment of
debt, net of related
income tax benefit... -- -- 1,372 -- -- 1,372
------- -------- -------- -------- ---------- --------
Net Income (loss)....... $ (576) $ (192) $ 8,005 $(10,476) -- $ (3,239)
======= ======== ======== ======== ========== ========
</TABLE>
F-53
<PAGE>
ChipPAC, Inc.
SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1999
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Non-
Guarantors Guarantor
---------------------------- ---------
CP Int'l CPI CPK CPS Eliminations Combined
-------- -------- -------- --------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income........... $ (576) $ (192) $ 8,005 $ (10,476) -- $ (3,239)
Adjustments to
reconcile net income
Depreciation and
amortization...... 250 1,070 32,726 7,804 -- 41,850
Provision for
inventory and
receivables....... -- (110) (317) -- -- (427)
Non-operating early
debt
extinguishment
loss.............. -- -- 1,372 -- -- 1,372
Foreign currency
(gains) losses.... -- -- (516) 10 -- (506)
(Gain) loss on
external sales of
equipment......... -- -- (241) -- -- (241)
Changes in assets and
liabilities:
Intercompany
accounts
receivable........ (3,416) (19,243) 21,638 (2,882) 3,903 --
Accounts
receivable........ -- 13,881 (4,038) -- -- 9,843
Inventories........ -- (5) (1,785) (99) -- (1,889)
Prepaid expenses
and other assets.. (11,027) (5,522) (4,195) (36) -- (20,780)
Advances (to) from
affiliates........ -- 791 (6,981) -- -- (6,190)
Intercompany
accounts payable.. -- (6,563) 14,401 (3,935) (3,903) --
Accounts payable... 40 296 (21,803) (726) -- (22,193)
Accrued expenses &
other liabilities. 3,911 2,756 (399) 772 -- 7,040
Other long-term
liabilities....... -- -- 2,617 -- -- 2,617
-------- -------- -------- --------- ------ --------
Net cash
provided/(used)
by operating
activities...... (10,818) (12,841) 40,484 (9,568) -- 7,257
-------- -------- -------- --------- ------ --------
Cash flows used in
investing activities:
Acquisition of
property and
equipment........... -- (1,430) (26,990) (6,651) 6,009 (29,062)
Proceeds, external
equipment sales..... -- -- 5,447 1,825 (6,009) 1,263
Investment in
subsidiaries........ (29,030) 29,030 -- -- -- --
-------- -------- -------- --------- ------ --------
Net cash used in
investing
activities...... (29,030) 27,600 (21,543) (4,826) -- (27,799)
-------- -------- -------- --------- ------ --------
Cash flows provided by
financing activities:
Loans & advances with
affiliates.......... -- (178,900) 144,900 29,570 -- (4,430)
Proceeds from short-
term loans.......... -- 476 693 -- -- 1,169
Repayment of short-
term loans.......... -- -- (3,769) (15,700) -- (19,469)
Proceeds from term
loans............... 300,000 -- -- -- -- 300,000
Repayment, term loans
and capital leases.. -- -- (105,387) (28,228) -- (133,615)
Intercompany loan
(advances) payments. (271,000) 271,000 -- -- -- --
Payments made to
extinguish debt
early............... -- -- (1,372) -- -- (1,372)
Dividend paid........ -- -- (9,435) -- -- (9,435)
Issuance of stock.... 10,849 110,066 2,500 -- -- 123,415
Contributions
(withdrawals) of
capital............. -- (217,606) (78,114) 24,802 -- (270,918)
-------- -------- -------- --------- ------ --------
Net cash provided
by financing
activities...... 39,849 (14,964) (49,984) 10,444 -- (14,655)
-------- -------- -------- --------- ------ --------
Effect from changes in
exchange rat~es....... -- -- (428) -- -- (428)
-------- -------- -------- --------- ------ --------
Net increase (decrease)
in cash............... 1 (205) (31,471) (3,950) -- (35,625)
Cash and equivalents at
beginning of period... -- 10,827 44,293 13,647 -- 68,767
-------- -------- -------- --------- ------ --------
Cash and equivalents at
end of period......... $ 1 $ 10,622 $ 12,822 $ 9,697 -- $ 33,142
======== ======== ======== ========= ====== ========
</TABLE>
F-54
<PAGE>
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.
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 dice 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.
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.
G-1
<PAGE>
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.
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 FlipChip
interconnect intended for Flash.
FlipChip................... 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 FlipChip
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.
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.
G-2
<PAGE>
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 typically
Micron..................... 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.
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.
G-3
<PAGE>
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 FlipChip interconnect intended
for DRAM.
SIP........................ Single In-line Package. See "Business--Our
Services."
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 Packages. See "Business--Our
Services."
TSOC....................... Thin Small Outline IC packages. See "Business--
Our Services."
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-4
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$150,000,000
[ChipPAC International Company Limited Logo]
ChipPAC International
Company Limited
Offer to Exchange
$150,000,000 Series B 12 3/4% Senior Subordinated Notes due 2009
for any and all outstanding
12 3/4% Senior Subordinated Notes due 2009
-----------------------
PROSPECTUS
-----------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
ChipPAC International Company Limited
As in most United States jurisdictions, the board of directors of a British
Virgin Islands company is charged with the management and affairs of the
company, and subject to any limitations to the contrary in the Memorandum of
Association of a company, the Board of Directors is entrusted with the power to
manage the business and affairs of the company (hereinafter, the "Issuer"). In
most United States jurisdictions, directors owe a fiduciary duty to a company
and its shareholders, including a duty of care, pursuant to which directors
must properly apprise themselves of all reasonably available information, and a
duty of loyalty, pursuant to which they must protect the interests of the
company and refrain from conduct that injures the company or its shareholders
or that deprives the company or its shareholders of any profit or advantage.
Many United States jurisdictions have enacted various statutory provisions
which permit the monetary liability of directors to be eliminated or limited.
Under British Virgin Islands law, liability of a director or officer of a
company director is, for the most part, limited to cases of willful malfeasance
in the performance of duties or to cases where such director or officer, as
applicable, has not acted honestly, in good faith and with a view to the
company's best interests.
Under its Memorandum of Association, the Issuer is authorized to indemnify
any person who is made or threatened to be made a party to a legal or
administrative proceeding by virtue of being a director, officer or liquidator
of the Issuer, provided such person acted honestly and in good faith and with a
view to the best interests of the Issuer and, in the case of a criminal
proceeding, such person had no reasonable cause to believe that his conduct was
unlawful. The Issuer's Memorandum of Association also permits it to indemnify
any director, officer or liquidator of the Issuer who was successful in any
proceeding against expenses and judgments, fines and amounts paid in settlement
and reasonably incurred in connection with the proceeding, where such person
met the standard of conduct described in the preceding sentence. The Issuer has
provisions in its Memorandum of Association that insure or indemnify, to the
full extent allowed by the laws of the Territory of the British Virgin Islands,
directors, officers, employees, agents or persons serving in similar capacities
in other enterprises at the request of the Issuer. The Issuer may obtain a
directors' and officers' insurance policy.
ChipPAC, Inc.
ChipPAC, Inc. ("ChipPAC") is incorporated under the laws of the State of
California. Section 317 of the General Corporation Law of the State of
California provides that a California corporation may indemnify any person who
is, or is threatened to be made, party to any proceeding (other than an action
by or in the right of the corporation to procure a judgment in its favor) by
reason of the fact that the person is or was an agent of the corporation,
against expenses, judgments, fines, settlements, and other amounts actually and
reasonably incurred in connection with the proceeding if that person acted in
good faith and in a manner the person reasonably believed to be in the best
interests of the corporation and, in the case of a criminal proceeding, had no
reasonable cause to believe the conduct of the person was unlawful. A
corporation has power to 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 the corporation to procure a judgment in its favor by
reason of the fact that the person is or was an agent of the corporation,
against expenses actually and reasonably incurred by that person in connection
with the defense or settlement of the action if the person acted in good faith,
in a manner the person believed to be in the best interests of the corporation
and its shareholders.
Under Article V of ChipPAC's Amended and Restated By-Laws, ChipPAC will
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
ChipPAC, against expenses,
II-1
<PAGE>
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 ChipPAC
and, in the case of a criminal proceeding, if that person had no reasonable
cause to believe his conduct was unlawful. Such right of indemnification will
be a contract right and will not be exclusive of any other right which such
directors, officers or representatives may have or hereafter acquire under any
contract or otherwise. For purposes of the foregoing discussion, "agent" means
any person who is or was a director, officer, employee or other agent of
ChipPAC, or is or was serving at the request of ChipPAC 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 ChipPAC or of another enterprise at the
request of such predecessor corporation
In addition, Section 204 of the General Corporation Law of the State of
California allows a corporation to eliminate the personal liability of a
director of a corporation to the corporation or to any of its stockholders for
monetary damages for a breach of fiduciary duty as a director, provided,
however, that:
(A) such a provision may not eliminate or limit the liability of
directors:
(1) for acts or omissions that involve intentional misconduct or a
knowing and culpable violation of law;
(2) for acts or omissions that a director believes to be contrary to
the best interests of the corporation or its shareholders or that
involve the absence of good faith on the part of the director;
(3) for any transaction from which a director derived an improper
personal benefit;
(4) for acts or omissions that show a reckless disregard for the
director's duty to the corporation or its shareholders in circumstances
in which the director was aware, or should have been aware, in the
ordinary course of performing a director's duties, of a risk of serious
injury to the corporation or its shareholders;
(5) for acts or omissions that constitute an unexcused pattern of
inattention that amounts to an abdication of the director's duty to the
corporation or its shareholders;
(6) under Section 310; or
(7) under Section 316;
(B) no such provision will eliminate or limit the liability of a
director for any act or omission occurring prior to the date when the
provision becomes effective; and
(C) no such provision will eliminate or limit the liability of an
officer for any act or omission as an officer, notwithstanding that the
officer is also a director or that his or her actions, if negligent or
improper, have been ratified by the directors.
Article IV of ChipPAC's Amended and Restated Articles of Incorporation
includes a provision which eliminates directors' personal liability to the full
extent permitted under the General Corporation Law of the State of California.
ChipPAC maintains a policy of directors and officers liability insurance
covering certain liabilities incurred by its directors and officers in
connection with the performance of their duties.
ChipPAC (Barbados) Ltd.
Paragraph 10 of ChipPAC (Barbados) Ltd.'s ("ChipPAC Barbados") By-Laws
provides for the indemnification of its officers and directors (and such
persons' executors and administrators) against any and all judgments, fines,
amounts paid in settlement and reasonable expenses, including attorneys' fees,
incurred by such person in connection with any claim, action, suit or
proceeding, whether civil, criminal, administrative or investigative by reason
of the fact that such person is or was a director or officer of ChipPAC
Barbados, or is or
II-2
<PAGE>
was serving at the request of ChipPAC Barbados as a director or officer, of any
other corporation, partnership, joint venture, trust, enterprise or
organization, except with respect to any matter for which indemnification would
be void pursuant to the Companies Act, 1982 of Barbados (the "Companies Act").
Under the Companies Act, indemnification of the officers and directors of
ChipPAC Barbados against any liability which would attach by reason of any
contract entered into or act or thing done or omitted to be done by them in
performance of their office or in any way in the discharge of their duties, if
the same happens through their not acting in good faith and in the best
interest of ChipPAC Barbados is void.
ChipPAC Limited
As in most United States jurisdictions, the board of directors of a British
Virgin Islands company is charged with the management and affairs of the
company, and subject to any limitations to the contrary in the Memorandum of
Association of a company, its Board of Directors is entrusted with the power to
manage the company's business and affairs. In most United States jurisdictions,
directors owe a fiduciary duty to the company and its shareholders, including a
duty of care, pursuant to which directors must properly apprise themselves of
all reasonably available information, and a duty of loyalty, pursuant to which
they must protect the interests of the company and refrain from conduct that
injures the company or its shareholders or that deprives the company or its
shareholders of any profit or advantage. Many United States jurisdictions have
enacted various statutory provisions which permit the monetary liability of
directors to be eliminated or limited. Under British Virgin Islands law,
liability of a director or officer of a company is basically limited to cases
of willful malfeasance in the performance of his duties or to cases where the
director has not acted honestly and in good faith and with a view to the best
interests of the company.
Under its Memorandum of Association, ChipPAC Limited is authorized to
indemnify any person who is made or threatened to be made a party to a legal or
administrative proceeding by virtue of being a director, officer or liquidator
of ChipPAC Limited, provided such person acted honestly and in good faith and
with a view to the best interests of ChipPAC Limited and, in the case of a
criminal proceeding, such person had no reasonable cause to believe that his
conduct was unlawful. ChipPAC Limited's Memorandum of Association also permits
it to indemnify any director, officer or liquidator who was successful in any
proceeding against expenses and judgments, fines and amounts paid in settlement
and reasonably incurred in connection with the proceeding, where such person
met the standard of conduct described in the preceding sentence. ChipPAC
Limited has provisions in its Memorandum of Association that insure or
indemnify, to the full extent allowed by the laws of the Territory of the
British Virgin Islands, directors, officers, employees, agents or persons
serving in similar capacities in other enterprises at the request of ChipPAC
Limited. ChipPAC Limited may obtain a directors' and officers' insurance
policy.
ChipPAC Korea Company Ltd.
The Republic of Korea Commercial Act (the "Commercial Act") governs the
liability relationship between companies and their officers and directors in
both joint stock companies (chusik hoesa) and limited liability companies
(yuhan hoesa). Articles 399 and 400 of the Commercial Act describe the
circumstances in which officers and directors may be held liable to the
company, while Article 401 of the Commercial Act outlines the circumstances in
which officers and directors may be held liable to third parties. The latter
provides that third parties which are harmed by a wilful act or gross
negligence of an officer or director may have recourse against both the
applicable officer or director and the company. In the event that third parties
are harmed through the mere negligence of an officer or director, such third
party may only have recourse against the company. In the event the company
incurs damages as a result of the negligence of its directors and officers, it
may the seek indemnification from the negligent party.
The organizational documents of ChipPAC Korea Company Ltd. ("ChipPAC Korea")
are silent as to the issue of indemnification of officers and directors. In
addition, ChipPAC Korea, like many Korean companies, does not carry directors
and officers liability insurance.
II-3
<PAGE>
ChipPAC Luxembourg S.a.R.L.
Under Luxembourg law, civil liability of directors both to ChipPAC
Luxembourg S.a.R.L. ("ChipPAC Luxembourg") and to third parties is generally
considered to be a matter of public policy. It is possible that Luxembourg
courts would declare void an explicit or even implicit contractual limitation
on directors' liability to ChipPAC Luxembourg. ChipPAC Luxembourg, however,
can validly agree to indemnify its directors against the consequences of
liability actions brought by third parties (including shareholders if such
shareholders have personally suffered a damage which is independent of and
distinct from the damage caused to the company).
Under Luxembourg law, an employee of ChipPAC Luxembourg can only be liable
to ChipPAC Luxembourg for damages brought about by his or her willful acts or
gross negligence. Any arrangement providing for the indemnification of
officers against claims of ChipPAC Luxembourg would be contrary to public
policy. Employees are liable to third parties under general tort law and may
enter into arrangements with ChipPAC Luxembourg providing for indemnification
against third party claims.
Under Luxembourg law, an indemnification agreement can never cover a
willful act or gross negligence.
ChipPAC Luxembourg's Articles of Incorporation are silent as to the issue
of indemnification of its officers and directors.
ChipPAC Liquidity Management Hungary Limited Liability Company
The organizational documents of ChipPAC Liquidity Management Hungary
Limited Liability Company ("ChipPAC Hungary") are silent as to the issue of
indemnification of the managing director. ChipPAC Hungary has no other
officers or directors. Therefore, in the event any case arises which involves
the liability of a managing director, such case must be settled in accordance
with the applicable provisions of the Hungarian Companies Act (the "Companies
Act") and the Hungarian Civil Code (the "Civil Code").
Under the Companies Act, a managing director must conduct himself in
respect of the management of a company with "increased care," as opposed to
the standard of "general care" which is prescribed by the Civil Code. A
managing director may be held liable in the event of a culpable breach of any
provision of the Companies Act, a company's Deed of Foundation or any validly
enacted resolutions of the company's Founder. If the aforementioned duty of
care is breached, a managing director may be held liable under the rules of
the Civil Code for any damages to the company where such managing director's
actions were (i) in contravention of Hungarian law, (ii) caused damage to the
company and (iii) were not undertaken with the requisite degree of care
specified in the Companies Act.
Enforcement of liability claims against a managing director is in the sole
discretion of the Founder. A Founder may exercise his or her rights against a
managing director within one year of the company's deletion from the Company
Registry. A managing director is only obliged to compensate the company for
damages, and is not liable to third parties for acts that are within the scope
of his or her role or responsibility as a managing director. Third parties may
only seek damages from the company. Should the company be required to pay
damages to a third party for acts of the managing director, however, it may
have recourse against the managing director for damages incurred as a result
of third party claims.
II-4
<PAGE>
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit
No. Description
------- ----------- ---
<C> <S> <C>
2.1 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.*
2.2 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.*
2.3 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 Amended and Restated Articles of Incorporation of ChipPAC,
Inc.*
3.2 Amended and Restated By-Laws of ChipPAC, Inc.*
3.3 Memorandum of Association of ChipPAC International Company
Limited (formerly known as ChipPAC Finance Limited).*
3.4 Articles of Association of ChipPAC International Company
Limited (formerly known as ChipPAC Finance Limited).*
3.5 Articles of Incorporation of ChipPAC (Barbados) Ltd.*
3.6 By-Law No. 1 of ChipPAC (Barbados) Ltd.*
3.7 Memorandum of Association of ChipPAC Limited.*
3.8 Articles of Association of ChipPAC Limited.*
3.9 Articles of Incorporation of ChipPAC Luxembourg S.a.R.L.*
3.10 Deed of Foundation of ChipPAC Liquidity Management Hungary
Limited Liability Company.*
3.11 Policy and Operating Guidelines of ChipPAC Liquidity
Management Hungary Limited Liability Company (abbreviated as
ChipPAC Ltd.)*
3.12 Articles of Incorporation of ChipPAC Korea Company Ltd.*
4.1 Purchase Agreement, dated as of July 22, 1999, by and among
ChipPAC International Limited, ChipPAC Merger Corp., Credit
Suisse First Boston Corporation and Donaldson, Lufkin &
Jenrette Securities Corporation (executed in counterpart on
August 5, 1999 by ChipPAC (Barbados) Ltd., ChipPAC Limited,
ChipPAC Korea Company Ltd., ChipPAC Luxembourg S.a.R.L. and
ChipPAC Liquidity Management Hungary Limited Liability
Company).*
4.2 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.*
4.3 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.*
4.4 12 3/4% Senior Subordinated Notes Due 2009.*
4.5 Form of Series B 12 3/4% Senior Subordinated Notes Due
2009.*
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- ----------- ---
<C> <S> <C>
4.6 Registration Rights Agreement, dated as of July 29, 1999,
by and among ChipPAC International Limited, ChipPAC Merger
Corp., and Credit Suisse First Boston Corporation and
Donaldson, Lufkin & Jenrette Securities Corporation, as
Initial Purchasers.*
5.1 Opinion of Kirkland & Ellis.*
8.1 Opinion of Kirkland & Ellis.*
10.1 Credit Agreement, dated as of August 5, 1999, 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 Shareholders 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
Shareholders (as defined therein), the Bain Shareholders
(as defined therein), the SXI Shareholders (as defined
therein), Intel Corporation, ChipPAC Equity Investors LLC,
and Sankaty High Yield Asset Partners, L.P.*
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 Electronics 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.*
10.9 Service Agreement, dated as of August 5, 1999, by and
between Hyundai Electronics Industries Co. Ltd. and
ChipPAC Limited.+*
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S> <C>
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 Form of Key Employee Purchased Stock Agreement.*
10.22 Form of Key Employee Purchased Stock Agreement (with Loan).*
10.23 Form of Directors Tranche I Stock Option Agreement.*
10.24 Form of Employees Tranche I Stock Option Agreement.*
10.25 Form of Tranche II Stock Option Agreement.*
12.1 Statement Regarding Computation of Ratio of Earnings to
Fixed Charges.*
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 Kirkland & Ellis (included in Exhibit 5.1).*
24.1 Powers of Attorney (included in Part II to the Registration
Statement).*
25.1 Statement of Eligibility on Form T-1 of Firstar Bank of
Minnesota, N.A., as trustee, under the Indenture.*
27.1 Financial Data Schedule.*
99.1 Form of Letter of Transmittal.*
99.2 Form of Notice of Guaranteed Delivery.*
99.3 Form of Tender Instructions.*
</TABLE>
- --------
*Previously filed.
+Confidential treatment requested.
II-7
<PAGE>
(b) Financial Statement Schedules.
The following financial statement schedules for the three years ended
December 31, 1998 are included in this registration statement.
Schedule II--Valuation and Qualifying Accounts and Reserves--Allowance for
Doubtful Accounts
(in thousands)
<TABLE>
<CAPTION>
Additions charged
Year Ended Balance at to Costs and Deductions and Balance at End of
December 31 beginning of year Expenses Write-offs Period
- ----------- ----------------- ----------------- -------------- -----------------
<S> <C> <C> <C> <C>
1998.................... 375 787 -- 1,162
1997.................... 85 404 (114) 375
1996.................... 74 16 (5) 85
</TABLE>
Item 22. Undertakings.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrants pursuant to the provisions described under Item 20 or otherwise,
the registrants have been advised that in the opinion of the Securities and
Exchange Commission 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 registrants of expenses incurred or paid by a director, officer or
controlling person of the registrants 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 registrants will,
unless in the opinion of their 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 registrants hereby undertake:
(1) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
(2) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(a) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933.
(b) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in the volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
II-8
<PAGE>
(3) That, for the purpose of determining liability under the Securities
Act of 1933, each such post-effective amendment 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.
(4) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the exchange offer.
(5) To file a post-effective amendment to the registration statement to
include any financial statements required by Section 210.3-19 at the start
of any delayed offering or throughout a continuous offering.
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, ChipPAC
International Company Limited has duly caused this Pre-Effective Amendment No.
2 to the Registration Statement on Form S-4 to be signed on its behalf by the
undersigned, thereunto duly authorized, in Tortola, British Virgin Islands, on
February 11, 2000.
ChipPAC International Company
Limited
/s/ Jane Zhang
By: _________________________________
Jane Zhang
President, Chief Executive
Officer and Chief Financial
Officer
* * * *
Pursuant to the requirements of the Securities Act of 1933, this Pre-
Effective Amendment No. 2 to the Registration Statement on Form S-4 has been
signed by the following persons in the indicated capacities on February 11,
2000:
<TABLE>
<CAPTION>
Signatures Capacity
---------- --------
<C> <S>
/s/ Jane Zhang President, Chief Executive Officer, Chief
____________________________________ Financial Officer and Director
Jane Zhang (Principal Executive, Financial and
Accounting Officer)
* Director
____________________________________
Curt Mason
* Director
____________________________________
Richard Parsons
* Director
____________________________________
P.J. Kim
Authorized Representative in
the
United States:
/s/ Dennis P. McKenna
____________________________________
Dennis P. McKenna
President and Chief Executive
Officer, ChipPAC, Inc.
</TABLE>
* The undersigned, by signing his name hereto, does hereby sign and execute
this Pre-Effective Amendment No. 2 to the Registration Statement on Form S-4 on
behalf of the above named officers and directors of ChipPAC International
Company Limited pursuant to the Power of Attorney executed by such officer
and/or director and previously filed with the SEC.
/s/ Dennis P. McKenna
By: ____________________________
Dennis P. McKenna
Attorney-in-Fact
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, ChipPAC, Inc.
has duly caused this Pre-Effective Amendment No. 2 to the Registration
Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Santa Clara, State of California, on February
11, 2000.
ChipPac, Inc.
/s/ Dennis P. McKenna
By: _________________________________
Dennis P. McKenna
President and Chief Executive
Officer
* * * *
Pursuant to the requirements of the Securities Act of 1933, this Pre-
Effective Amendment No. 2 to the Registration Statement on Form S-4 has been
signed by the following persons in the capacities indicated on February 11,
2000:
<TABLE>
<CAPTION>
Signatures Capacity
---------- --------
<S> <C>
/s/ Dennis P. McKenna President, Chief Executive
____________________________________ Officer and Director
Dennis P. McKenna (Principal Executive
Officer)
* Chief Financial Officer
____________________________________ (Principal Financial
Tony Lin Officer)
* Vice President of Finance
____________________________________ and Corporate Controller
Curt Mason (Principal Accounting
Officer)
* Director
____________________________________
David Dominik
* Director
____________________________________
Edward Conard
</TABLE>
II-11
<PAGE>
<TABLE>
<CAPTION>
Signatures Capacity
---------- --------
<S> <C>
* Director
____________________________________
Prescott Ashe
* Director
____________________________________
Michael A. Delaney
* Director
____________________________________
Paul C. Schorr IV
* Director
____________________________________
Joseph Martin
* Director
____________________________________
Chong Sup Park
</TABLE>
* The undersigned, by signing his name hereto, does hereby sign and execute
this Pre-Effective Amendment No. 2 to the Registration Statement on Form S-4 on
behalf of the above named officers and directors of ChipPAC, Inc. pursuant to
the Power of Attorney executed by such officer and/or director and previously
filed with the SEC.
/s/ Dennis P. McKenna
By______________________________
Dennis P. McKenna
Attorney-in-Fact
II-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, ChipPAC Korea
Company Ltd. has duly caused this Pre-Effective Amendment No. 2 to the
Registration Statement on Form S-4 to be signed on its behalf by the
undersigned, thereunto duly authorized, in Ichon-Shi, Kyungai-Do, Korea, on
February 11, 2000.
ChipPAC Korea Company Ltd.
/s/ Soo Nam Lee
By: _________________________________
Soo Nam Lee
President and Managing Director
* * * *
Pursuant to the requirements of the Securities Act of 1933, this Pre-
Effective Amendment No. 2 to the Registration Statement on Form S-4 has been
signed by the following persons in the indicated capacities on February 11,
2000:
<TABLE>
<CAPTION>
Signatures Capacity
---------- --------
<S> <C>
/s/ Soo Nam Lee Director, President and Managing Director
____________________________________ (Principal Executive Officer)
Soo Nam Lee
* Chief Financial Officer (Principal Financial
____________________________________ and Accounting Officer)
Dong Woo Lee
/s/ Dennis P. McKenna Director
____________________________________
Dennis P. McKenna
Authorized Representative in the United States:
/s/ Dennis P. McKenna
____________________________________
Dennis P. McKenna
President and Chief Executive
Officer, ChipPAC, Inc.
</TABLE>
* The undersigned, by signing his name hereto, does hereby sign and execute
this Pre-Effective Amendment No. 2 to the Registration Statement on Form S-4 on
behalf of the above named officers and directors of ChipPAC Korea Company Ltd.
pursuant to the Power of Attorney executed by such officer and/or director and
previously filed with the SEC.
/s/ Dennis P. McKenna
By______________________________
Dennis P. McKenna
Attorney-in-Fact
II-13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the ChipPAC
(Barbados) Ltd. has duly caused this Pre-Effective Amendment No. 2 to the
Registration Statement on Form S-4 to be signed on its behalf by the
undersigned, thereunto duly authorized, in Barbados, West Indies, on February
11, 2000.
ChipPAC (Barbados) Ltd.
/s/ Jane Zhang
By: _________________________________
Jane Zhang
President, Chief Executive Officer
and Chief Financial Officer
* * * *
Pursuant to the requirements of the Securities Act of 1933, this Pre-
Effective Amendment No. 2 to the Registration Statement on Form S-4 has been
signed by the following persons in the indicated capacities and on February 11,
2000.
<TABLE>
<CAPTION>
Signatures Capacity
---------- --------
<C> <S>
/s/ Jane Zhang President, Chief Executive Officer and
____________________________________ Chief Financial Officer (Principal
Jane Zhang Executive,
Financial and Accounting Officer)
* Director
____________________________________
Eulalie Greenaway
* Director
____________________________________
Trevor Carmichael
* Director
____________________________________
</TABLE> Curt Mason
Authorized Representative in the United States
/s/ Dennis P. McKenna
- --------------------------------
Dennis P. McKenna
President and Chief Executive
Officer, ChipPAC, Inc.
* The undersigned, by signing his name hereto, does hereby sign and execute
this Pre-Effective Amendment No. 2 to the Registration Statement on Form S-4 on
behalf of the above named officers and directors of ChipPAC (Barbados) Ltd.
pursuant to the Power of Attorney executed by such officer and/or director and
previously filed with the SEC.
/s/ Dennis P. McKenna
By:_______________________
Dennis P. McKenna
Attorney-in-Fact
II-14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, ChipPAC
Luxembourg S.a.R.L. has duly caused this Pre-Effective Amendment No. 2 to the
Registration Statement on Form S-4 to be signed on its behalf by the
undersigned, thereunto duly authorized, in Luxembourg, on February 11, 2000.
ChipPAC Luxembourg S.a.R.L.
/s/ Michele Musty
By: _________________________________
Michele Musty
Corporate Manager
* * * *
Pursuant to the requirements of the Securities Act of 1933, this Pre-
Effective Amendment No. 2 to the Registration Statement on Form S-4 has been
signed by the following persons in the indicated capacities and on February 11,
2000:
<TABLE>
<CAPTION>
Signatures Capacity
---------- --------
<C> <S>
/s/ Michele Musty Corporate Manager
____________________________________ (Co-Principal Executive, Financial and Accounting Officer
Michele Musty and Director)
* Corporate Manager
____________________________________ (Co-Principal Executive, Financial and Accounting Officer
Eric Vanderkerken and Director)
* Corporate Manager
____________________________________ (Co-Principal Executive, Financial and Accounting Officer
ChipPAC International Company and Director)
Limited by: (Peter) Phang Guk Bing
President and Chief Executive
Officer
</TABLE>
Authorized Representative in the United States:
/s/ Dennis P. McKenna
- --------------------------------
Dennis P. McKenna
President and Chief Executive
Officer, ChipPAC, Inc.
* The undersigned, by signing his name hereto, does hereby sign and execute
this Pre-Effective Amendment No. 2 to the Registration Statement on Form S-4 on
behalf of the above named officers and directors of ChipPAC Luxembourg S.a.R.L.
pursuant to the Power of Attorney executed by such officer and/or director and
previously filed with the SEC.
/s/ Dennis P. McKenna
By:_______________________
Dennis P. McKenna
Attorney-in-Fact
II-15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, ChipPAC
Liquidity Management Hungary Limited Liability Company has duly caused this
Pre-Effective Amendment No. 2 to the Registration Statement on Form S-4 to be
signed on its behalf by the undersigned, thereunto duly authorized, in
Budapest, Hungary on February 11, 2000.
ChipPAC Liquidity Management Hungary
Limited Liability Company
/s/ Jozsef Veress
By: _________________________________
Jozsef Veress
Managing Director
* * * *
Pursuant to the requirements of the Securities Act of 1933, this Pre-
Effective Amendment No. 2 to the Registration Statement on Form S-4 has been
signed by the following persons in the indicated capacities on February 11,
2000:
<TABLE>
<CAPTION>
Signatures Capacity
---------- --------
<C> <S>
/s/ Jozsef Veress Managing Director (Principal Executive,
____________________________________ Financial and Accounting Officer
Jozsef Veress and Sole Director)
Authorized Representative in the United States:
/s/ Dennis P. McKenna
____________________________________
Dennis P. McKenna
President and Chief Executive
Officer, ChipPAC, Inc.
</TABLE>
II-16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, ChipPAC Limited
has duly caused this Pre-Effective Amendment No. 2 to the Registration
Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto
duly authorized, in Tortola, British Virgin Islands, on February 11, 2000.
ChipPAC Limited
/s/ Jane Zhang
By: _________________________________
Jane Zhang
President, Chief Executive
Officer and Chief Financial
Officer
* * * *
Pursuant to the requirements of the Securities Act of 1933, this Pre-
Effective Amendment No. 2 to the Registration Statement on Form S-4 has been
signed by the following persons in the indicated capacities on February 11,
2000:
<TABLE>
<CAPTION>
Signatures Capacity
---------- --------
<C> <S>
/s/ Jane Zhang President, Chief Executive
____________________________________ Officer, Chief Financial
Jane Zhang Officer and
Director
(Principal Executive, Financial
and Accounting Officer)
* Director
____________________________________
Curt Mason
* Director
____________________________________
P.J. Kim
* Director
____________________________________
Richard Parsons
Authorized Representative in the United States:
/s/ Dennis P. McKenna
____________________________________
Dennis P. McKenna
President and Chief Executive
Officer, ChipPAC, Inc.
</TABLE>
* 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-4 on
behalf of the above named officers and directors of ChipPAC Limited pursuant to
the Power of Attorney executed by such officer and/or director and previously
filed with the SEC.
/s/ Dennis P. McKenna
By:_______________________
Dennis P. McKenna
Attorney-in-Fact
II-17
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on form S-4 of
ChipPAC International Company Limited, ChipPAC, Inc., ChipPAC Liquidity
Management Hungary Limited Liability Company, ChipPAC Luxembourg S.a.R.L.,
ChipPAC Korea Company Limited, ChipPAC Limited and ChipPAC (Barbados) Ltd. of
our report dated May 17, 1999 relating to the combined financial statements of
ChipPAC, which appears in such Registration Statement. We also consent to the
reference to us under the heading "Experts" in such Registration Statement.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
San Jose, California
February 11, 2000
