<PAGE>
As filed with the Securities and Exchange Commission on August 7, 2000
Registration No. 333-39428
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
AMENDMENT No. 3 to
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
-----------
CHIPPAC, INC.
(Exact Name of Registrant as Specified in its Charter)
-----------
<TABLE>
<C> <C> <S>
Delaware 3674 77-0463-48
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
3151 Coronado Drive
Santa Clara, California 95054
Telephone: (408) 486-5900
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
-----------
Dennis P. McKenna
President and Chief Executive Officer
3151 Coronado Drive
Santa Clara, California 95054
Telephone: (408) 486-5900
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
<TABLE>
<S> <C>
Eva Herbst Davis, Esq. Stephen L. Burns, Esq.
Kirkland & Ellis Cravath, Swaine & Moore
777 South Figueroa Street Worldwide Plaza
Los Angeles, California 90017 825 Eighth Avenue
Telephone: (213) 680-8400 New York, New York 10019-7475
Telephone: (212) 474-1000
</TABLE>
-----------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 (the "Securities Act"), check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act Registration Statement number of the earlier
effective Registration Statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier effective Registration Statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier effective Registration Statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Proposed Maximum
Proposed Maximum Aggregate Amount of
Title of Each Class of Amount to be Offering Price Offering Registration
Securities to be Registered Registered(1) Per Share Price(2) Fee(3)
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Common Stock,
par value $0.01 per share...... 11,500,000 shares $15.00 $172,500,000 $45,540
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</TABLE>
(1) Includes 1,500,000 shares that the underwriters have the option to
purchase from ChipPAC, Inc. to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to paragraph (a) of Rule 457 of the Securities Act.
(3) Fee was paid with the previous filings of the Registration Statement.
-----------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act or until this Registration Statement shall
become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities, and it is not soliciting an offer to buy +
+these securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED AUGUST 7, 2000
10,000,000 Shares
[ChipPAC LOGO]
Class A Common Stock
--------
Prior to this offering, there has been no public market for our Class A
common stock. The initial public offering price of our Class A common stock is
expected to be between $13.00 and $15.00 per share. Our Class A common stock
has been approved for listing on The Nasdaq Stock Market's National Market
under the symbol "CHPC".
The underwriters have an option to purchase a maximum of 1,500,000 additional
shares to cover over-allotments of shares.
Investing in our Class A common stock involves risks. See "Risk Factors" on
page 11.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions ChipPAC, Inc.
------------ ------------- -------------
<S> <C> <C> <C>
Per Share.................................. $ $ $
Total...................................... $ $ $
</TABLE>
Delivery of the shares of Class A common stock will be made on or about
, 2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Credit Suisse First Boston
Deutsche Banc Alex. Brown
Merrill Lynch & Co.
Robertson Stephens
Thomas Weisel Partners LLC
The date of this prospectus is , 2000.
<PAGE>
[cover art]
<PAGE>
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 11
Cautionary Note Regarding Forward-Looking Statements..................... 19
Use of Proceeds.......................................................... 20
Dividend Policy.......................................................... 21
Capitalization........................................................... 22
The Reclassification..................................................... 24
Dilution................................................................. 26
Unaudited Pro Forma Combined Condensed Financial Data.................... 28
Selected Historical Financial Data of Chippac, Inc. ..................... 38
Selected Historical Financial Data of Malaysian Business................. 40
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 41
Industry................................................................. 50
Business................................................................. 52
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Management................................................................ 63
Principal Stockholders.................................................... 73
Qualcomm Private Placement................................................ 76
Significant Relationships and Related Transactions........................ 76
Description of Capital Stock.............................................. 83
Description of Financing Arrangements..................................... 86
Shares Eligible for Future Sale........................................... 91
Material United States Tax Considerations for Non-United States Holders... 93
Underwriting.............................................................. 96
Notice to Canadian Residents.............................................. 99
Legal Matters............................................................. 100
Experts................................................................... 100
Where You Can Find More Information....................................... 100
Index to Financial Statements............................................. F-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.
Dealer Prospectus Delivery Obligation
Until , 2000 (25 days after the commencement of this offering), all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This
delivery requirement is in addition to the dealer's obligation to deliver a
prospectus when acting as an underwriter and with respect to its allotments or
subscriptions.
i
<PAGE>
PROSPECTUS SUMMARY
This summary may not contain all of the information that may be important to
you. You should read this entire prospectus, including the financial data and
related notes, before making an investment decision. On June 30, 2000, we
consummated the acquisition of Intersil Technology Sdn. Bhd., a former wholly-
owned subsidiary of Intersil Corporation with semiconductor packaging and test
operations in Kuala Lumpur, Malaysia, which is referred to in this prospectus
as the Malaysian business. See the "Glossary" section for a description of
other technical terms used in this prospectus.
ChipPAC
ChipPAC is one of the world's largest providers of semiconductor packaging
and test services. We provide one of the broadest portfolios of packaging and
test services available in the industry. We are a leader in providing high end
packaging solutions, including ball grid array packages, or BGA packages, the
most advanced mass produced type of package. We also provide advanced packaging
products that address the needs of semiconductors used in wireless and wireline
communications applications, including flip-chip, chip-scale and stacked die
technologies. Outsourcing of packaging and test services to independent
packagers like ChipPAC is expanding rapidly due to several factors, including
cost reduction, resource allocation, equipment utilization, time-to-market
pressures, the increased technological complexity of packaging and the growth
of "fabless" semiconductor manufacturers. Our headquarters are located in Santa
Clara, California and our facilities are strategically located in Arizona,
South Korea, China and Malaysia to address the needs of our customers who are
typically high growth integrated device manufacturers, or IDMs. We believe the
following business strengths further differentiate us from our competitors:
. High End Technology Expertise--We are one of the world's largest
providers of outsourced BGA packages, which accounted for more than 50%
of our packaging revenues during the twelve months ended March 31, 2000
pro forma for the acquisition of the Malaysian business. Our BGA
packages are used for most high end applications. For example, our
BGA packages provide non-microprocessor packaging solutions for
computing and communications devices including Qualcomm Incorporated's
CDMA chipsets. Our advanced package portfolio also includes next
generation flip-chip technology for system on a chip, or SOC, which is
used in Internet servers and telecom switching devices, as well as
multi-die packaging for digital signal processors, or DSPs, and other
wireless chipsets. In addition, our recently completed acquisition of
the Malaysian business expands our mixed-signal testing platforms and
provides us with critical expertise for testing radio frequency, or RF,
devices. We believe that our advanced technology expertise and our
commitment to research and development will enable us to continue to
lead the development of solutions for next generation semiconductor
packages.
. Focus on Communications End Markets--In order to address the small
footprint needs of wireless networks, Internet appliances and handheld
computing devices, we have developed smaller, more efficient products
that improve the size and electrical and thermal performance of our
customers' devices. As a result, we provide packaging and test services
for most of the flash memory manufacturers including Atmel Corporation,
Intel Corporation, STMicroelectronics N.V., Advanced Micro Devices and
Hyundai Electronics Industries Co., Ltd., which we refer to as Hyundai
Electronics. Additionally because of our design win focus, our new
customer growth has been significant. Many of these new customers
service the communications end markets and include Lucent Technologies
Inc., Virata Semiconductor, Qualcomm, Intersil and Level One
Communications, Inc. In addition, we provide packaging and test services
for the fast growing digital multi-media end markets served by C-Cube
Microsystems Inc. and NVIDIA Corporation.
1
<PAGE>
. Long-term Partnerships with Key Customers--Pro forma for the acquisition
of the Malaysian business, over half of our 1999 revenues were covered
by long term agreements. One of our agreements is a five-year supply
agreement with Intersil to assemble and test its PRISM(R) wireless LAN
chipsets as well as its other analog, mixed signal and power
semiconductors. We also have a two and one-half year supply agreement
with Intel to package its chipsets as well as its other non-
microprocessor devices. We are well positioned to benefit from the
potential growth of Rambus Dynamic Random Access Memory, known as RDRAM,
through our three and one-half year agreement with Hyundai Electronics
to provide our chip-scale packaging and test services for Hyundai
Electronics' outsourced RDRAM packaging needs. Qualcomm has agreed to
enter into a three-year supply agreement with us under which we will
provide packaging and test services for integrated circuit devices for
Qualcomm. Each of Intel, Hyundai Electronics America and Intersil is,
and upon completion of a private placement concurrent with the closing
of this offering, Qualcomm will be, a stockholder of our company.
. Geographic Diversification that Enhances Growth--We are strategically
located to take advantage of industry outsourcing trends. Cahners In-
Stat predicts that within the next ten years, China will be the second
largest market in the world for semiconductors. Our Shanghai facility
makes us the largest packaging and test provider in China, and we plan
to be the first independent provider of chip-scale packages in that
country. In addition, we expect to become an important source of local
content for products sold into the Chinese market, including cellular
telephones and portable devices. Local content requirements are being
driven by the Chinese government. Our principal packaging site for BGA
packages is in Ichon, Korea which is strategically located near the
large Korean semiconductor companies including Hyundai Electronics and
Samsung Semiconductor, Inc., who are aggressively expanding into non-
memory products and selling semiconductor foundry capacity. The
Malaysian facility in Kuala Lumpur is less than 200 miles from Singapore
and positions us to benefit from the growth in fabless manufacturing
taking place in Southeast Asia. Our headquarters in Silicon Valley and
state-of-the-art research and development facilities in California,
Arizona and Korea are located near our customers and provide us with the
distinct ability to work closely with our customers in the design
process and in supply chain management.
. High Growth Opportunities in Test Services--Through our long-term
partnerships and existing customer base, we are well positioned to
capitalize on the rapid growth of outsourced testing by semiconductor
producers. According to Semiconductor Business News, spending on
outsourced test services is growing by more than 40.0% per year and it
is expected to reach $2.0 billion by 2001. We have invested
significantly in testing equipment and have the capability to test
mixed-signal, digital logic, memory, power and RF devices. Through
increased emphasis on and additional capacity of our test business, we
have seen a significant acceleration in our test revenues over the most
recent four quarters, and we expect the growth to continue.
Our core customer base includes some of the world's largest and most
prominent semiconductor manufacturers, including Atmel, Hyundai Electronics,
Intel, International Business Machines Corporation, LSI Logic Corp., Samsung
and STMicroelectronics. In addition, we consistently rank among the top
packaging and test providers to our customers and in recent years have received
numerous quality awards, including supplier of the year recognition from Atmel,
QuickLogic Corporation and LSI Logic, Intel's 1999 Preferred Quality Supplier
Award and Intel's 2000 e-business supply chain award. Pro forma for the
acquisition of the Malaysian business, in 1999 we packaged over one billion
units and believe that we achieved one of the most efficient assembly yields in
advanced substrate packaging.
2
<PAGE>
Business Strategy
Our business strategy is to utilize our core strengths in manufacturing and
our leadership in technology to take advantage of our outsourcing relationships
with IDMs and fabless semiconductor manufacturers. To achieve these goals, we
will:
. continue to implement long term partnership agreements to further
strengthen our technology partnerships with key customers and to expand
our customer base;
. expand our testing business to capitalize on the growing trend for
mixed-signal testing for communications semiconductors;
. utilize our product breadth, technology and geographic locations to
secure relationships with new and existing semiconductor foundries that
are servicing the fabless semiconductor manufacturers;
. pursue strategic acquisitions in the fragmented packaging and test
industry, including acquisitions of facilities owned by IDMs; and
. develop new packaging technology that will attract new customers and
allow us to become early stage partners with our customers in new
semiconductor designs.
Recent Transactions
The Acquisition of Intersil's Malaysian Business
On June 30, 2000, we consummated our acquisition of Intersil's packaging and
test operations located in Kuala Lumpur, Malaysia along with related
intellectual property for approximately $70.0 million in cash and preferred
stock. In connection with the acquisition, we entered into a five-year supply
agreement with Intersil to provide assembly and test services on an exclusive
basis. The Malaysian business increases our exposure to high growth advanced
communications products, provides a presence in Malaysia and enhances our
intellectual property in key areas. In addition, the Malaysian business expands
our mixed-signal testing capabilities and provides us with critical expertise
in RF testing. For its fiscal year ended July 2, 1999, the Malaysian business
had revenues of $110.5 million.
The Qualcomm Private Placement
On July 13, 2000, Qualcomm agreed to enter into a three-year supply
agreement with us under which we will provide packaging and test services for
integrated circuit devices for Qualcomm and to purchase from us $25.0 million
of our Class A common stock at a purchase price per share equal to 95% of the
initial public offering price in this offering in a private placement that will
occur concurrently with the closing of this offering. Based on an assumed
initial public offering price of $14.00, the midpoint of the range set forth on
the cover page of this prospectus, Qualcomm will purchase 1,879,700 shares of
our Class A common stock in this concurrent private placement. The share
numbers in this prospectus have assumed a purchase by Qualcomm of our Class A
common stock based on an assumed initial public offering price of $14.00 per
share.
3
<PAGE>
Recent Operating Results
For the three months ended June 30, 2000, our revenues were $109.0 million,
an increase of 34.8% over the prior year period. This increase was primarily
due to the strong demand from the communications and multi-application end
markets. Revenue grew 124.0% and 35.3% over the prior year period in the
communications and multi-applications end markets, respectively. Our revenues
from the computing end market for the three months ended June 30, 2000 declined
by 5.9% from the prior year period.
For the three months ended June 30, 2000, test revenues continued to grow
dramatically increasing 247.8% over the prior year period. Leaded product
assembly revenue increased 39.9% over the prior year period. Laminate product
assembly revenue increased 23.4% over the prior year period primarily due to
chip-scale BGA packaging revenues increasing by $16.2 million or 1,311.1% from
the prior year period.
Our total packaging unit volume was 412.4 million for the three months ended
June 30, 2000, an increase of 61.0% over the prior year period. Leaded product
assembly unit volume increased by 53.9% over the prior year period. Laminate
product assembly unit volume increased by 137.7% over the prior year period.
Our gross margin doubled to 24.0% during the three months ended June 30,
2000 from 12.0% during the prior year period. This margin improvement was
primarily attributable to reductions in material costs and increased efficiency
in the utilization of our production capacity and labor resources and lower
depreciation expenses resulting primarily from the change in useful lives in
production equipment. Our gross profit increased to $26.1 million during the
three months ended June 30, 2000, an increase of 169.9% from our gross profit
of $9.7 million during the prior year period.
Our operating income for the three months ended June 30, 2000 was $16.4
million, more than seven times greater than the prior year period and an
increase of 53.0% over the prior quarter. Our operating margin for the three
months ended June 30, 2000 was 15.0%, an increase of 4.0% over the prior
quarter.
For the three months ended June 30, 2000, our net income was $5.6 million,
after taking into effect income taxes at our estimated effective worldwide tax
rate of 20.0% for 2000. This net income was 5.2% of our revenues for the three
months ended June 30, 2000. Net income increased by $5.1 million from the prior
year period.
Because our acquisition of the Malaysian business was not consummated until
June 30, 2000, the results of operations sets forth above does not include the
operations of the Malaysian business.
The Recapitalization
On August 5, 1999, affiliates of Bain Capital, Inc. and SXI Group LLC, a
portfolio concern of Citicorp Venture Capital Ltd., which we refer to
collectively as the "Equity Investors," and management acquired a controlling
interest in ChipPAC, Inc. from Hyundai Electronics and Hyundai Electronics
America, which we collectively refer to as Hyundai, through a series of
transactions, including a merger into ChipPAC, Inc. of a special purpose
corporation organized by the Equity Investors. The merger was structured and
accounted for as a recapitalization. We refer to this transaction as the
recapitalization. On August 4, 2000, SXI Group LLC distributed its shares of
our capital stock to its various members. As a result of the distribution,
Citicorp Venture Capital Ltd. and its affiliates received 19,972,862 shares of
our outstanding common stock.
4
<PAGE>
Additional Information
ChipPAC, Inc. was incorporated in Delaware in June 2000 for the purpose of
reincorporating ChipPAC, Inc., a California corporation, under the laws of the
state of Delaware in the reclassification that is described elsewhere in this
prospectus. We refer to the Delaware corporation as ChipPAC Delaware and to the
California corporation as ChipPAC California. Unless specifically indicated in
this prospectus or the context otherwise requires:
. the terms "we," "us," "our," "ChipPAC" and the "company" refer to
ChipPAC California prior to the reclassification and to ChipPAC
Delaware, the issuer of the shares offered by this prospectus, after
giving effect to the reclassification;
. the term "offering" refers to the offering of Class A common stock of
ChipPAC Delaware made under this prospectus; and
. the information in this prospectus gives effect to the reclassification,
including the reincorporation of ChipPAC California under the laws of
the state of Delaware.
Our principal executive office is located at 3151 Coronado Drive, Santa
Clara, California 95054, and our telephone number is (408) 486-5900. We
maintain a website on the Internet at www.chippac.com. Our website and the
information it contains is not a part of this prospectus.
Industry Data
In this prospectus, we rely on and refer to information regarding the
semiconductor market and its segments and competitors from Cahners In-Stat,
Dataquest, Electronic Trends Publications, Fabless Semiconductor Association,
Semiconductor Business News and Worldwide Semiconductor Trade Statistics,
market research reports, analyst reports and other publicly available
information. Although we believe that this information is reliable, we cannot
guarantee the accuracy and completeness of the information and have not
independently verified it. None of the sources that we rely on for information
about the semiconductor market has consented to the disclosure and use of their
information in this prospectus.
5
<PAGE>
The Offering
<TABLE>
<C> <S>
Class A common stock offered.................... 10,000,000 shares by ChipPAC, Inc.
Class A common stock issued in the Qualcomm
private placement.............................. 1,879,700 shares by Qualcomm
Common stock to be outstanding after this
offering and concurrent private placements..... 65,266,250 shares of Class A
common stock
0 shares of Class B
common stock
65,266,250 total shares of
common stock
Voting rights................................... Holders of Class A common
stock are entitled to one
vote per share on all matters
submitted to a vote of the
stockholders. Holders of
Class B common stock will
have no voting rights, other
than as required by law. Each
share of Class A common stock
is exchangeable on a share-
for-share basis into Class B
common stock at the option of
the holder. Each share of
Class B common stock is
exchangeable on a share-for-
share basis into Class A
common stock at the option of
the holder.
Use of proceeds................................. We intend to use the net
proceeds of this offering and
the Qualcomm private
placement:
. to redeem the outstanding
shares of our Class B
preferred stock issued to
Hyundai;
. to repay a portion of our
outstanding indebtedness
under our senior credit
facilities; and
. to pay fees and expenses
of this offering and the
concurrent private
placement.
Proposed Nasdaq National Market Symbol.......... CHPC
</TABLE>
Immediately prior to the closing of this offering, we will effect the
reclassification of our capital stock, which is further described under "The
Reclassification." Some of the terms of the reclassification, the concurrent
private placements and the conversion of the Class A convertible preferred
stock and Class C preferred stock will depend on the initial public offering
price and/or the effective date of the registration statement of which this
prospectus forms a part. The share numbers in this prospectus assume an initial
public offering price of $14.00, the midpoint of the range set forth on the
cover page of this prospectus, a registration statement effective date of
August 7, 2000, and an issuance of an aggregate of 12,193,986 shares in this
offering, the Qualcomm private placement and another concurrent private
placement to the Equity Investors described under "Significant Relationships
and Related Transactions."
Unless we indicate otherwise, the information in this prospectus reflects:
. the reclassification of our capital stock;
6
<PAGE>
. the automatic conversion of all outstanding shares of our Class A
convertible preferred stock held by Intel into an aggregate of 2,798,356
shares of our Class A common stock upon the closing of this offering;
. the automatic conversion of all outstanding shares of Class C preferred
stock held by Intersil into an aggregate of 1,327,016 shares of our
Class A common stock upon the closing of this offering; and
. a 0.38098771 for 1 reverse stock split of our common stock to be
effected prior to the closing of this offering, other than the
historical and pro forma financial data which do not give effect to this
reverse stock split.
The common stock to be outstanding after this offering does not include:
. 1,748,362 shares of Class A common stock issuable upon the exercise of
options outstanding, at a weighted average exercise price of $2.99 per
share, 193,980 shares of which will be exercisable immediately after the
offering;
. 2,285,926 additional shares of Class A common stock reserved for future
grants, awards or sale under the 2000 Equity Incentive Plan or sale
under the 2000 Employee Stock Purchase Plan;
. 446,428 shares of Class B common stock issuable upon the exercise of a
warrant held by Intel; and
. the exercise by the underwriters of their option to purchase up to
1,500,000 additional shares of Class A common stock from us to cover
over-allotments.
The estimated fully-diluted number of shares expected to be outstanding
after this offering and the concurrent private placements, including the shares
of Class A common stock issuable upon the exercise of options outstanding and
the shares of Class B common stock issuable upon the exercise of a warrant held
by Intel, is 67,087,431 shares.
See "The Reclassification," "Management--Option Grants," "--Employee Stock
Purchase Plan" and "Description of Financing Arrangements--Intel Warrant."
7
<PAGE>
Summary Historical and Pro Forma As Adjusted Financial and Operating Data
The following summary financial historical data for ChipPAC as of and for
each of the years in the three-year period ended December 31, 1999 were derived
from our audited financial statements and as of and for the three months ended
March 31, 2000 were derived from our unaudited financial statements, all of
which are included elsewhere in this prospectus. The following summary
historical financial data for the Malaysian business as of and for the fiscal
years ended June 27, 1997, July 3, 1998 and July 2, 1999 were derived from the
audited financial statements of the Malaysian business and as of and for the
nine months ended April 2, 1999 and March 31, 2000 were derived from the
unaudited financial statements of the Malaysian business, all of which are
included elsewhere in this prospectus.
The summary pro forma as adjusted statements of operations and other
operating data for the year ended December 31, 1999 and the three months ended
March 31, 1999 and 2000 give effect to our recapitalization, the acquisition of
the Malaysian business, the reclassification, this offering and the application
of the net proceeds from this offering, as if they had occurred on January 1,
1999. The pro forma as adjusted balance sheet as of March 31, 2000 gives effect
to the acquisition of the Malaysian business, the reclassification, this
offering and the concurrent private placements and the applications of the net
proceeds from this offering and the Qualcomm private placement, as if they had
occurred at that date.
The following summary pro forma as adjusted financial data are intended for
informational purposes and should not be considered indicative of either the
future results of operations or the results that might have occurred if our
recapitalization, the acquisition of the Malaysian business, the
reclassification, this offering and the concurrent private placements and the
application of the net proceeds from this offering and the Qualcomm private
placement had been consummated on the indicated date or had been in effect for
the period presented. The following table should be read in conjunction with
"Capitalization," "Unaudited Pro Forma Combined Condensed Financial Data,"
"Selected Historical Financial Data of ChipPAC, Inc.," "Selected Historical
Financial Data of Malaysian Business," "The Reclassification," "Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
historical financial statements, the unaudited interim financial data and the
related notes included elsewhere in this prospectus.
8
<PAGE>
ChipPAC, Inc.
<TABLE>
<CAPTION>
Historical Pro Forma As Adjusted
--------------------------- -----------------------------------
Year Ended Year Ended Three Months Ended
December 31, December 31, March 31,
--------------------------- ------------ ----------------------
1997 1998 1999 1999 1999 2000
-------- -------- -------- ------------ --------- -----------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:(1)
Revenue................. $289,429 $334,081 $375,530 $477,394 $ 109,195 $120,392
Gross profit............ 60,191 63,716 58,042 72,169 16,710 22,717
Selling, general and
administrative,
including management
fees charged by
Hyundai................ 19,052 15,595 21,219 21,219 4,511 7,099
Research and
development............ 4,052 7,692 12,362 12,362 3,003 2,631
Write-down of impaired
assets(2).............. 11,569 -- -- -- -- --
Change of control
expense(3)............. -- -- 11,842 -- -- --
-------- -------- -------- -------- --------- --------
Operating income........ $ 25,518 $ 40,429 $ 12,619 $ 38,588 $ 9,196 $ 12,987
======== ======== ======== ======== ========= ========
Net income (loss)....... $(46,118) $ 32,303 $ (7,308) $ 8,355 $ 2,429 $ 4,317
======== ======== ======== ======== ========= ========
Net income (loss)
available to common
stockholders(4)........ $(46,118) $ 32,303 $(11,528) $ 8,095 $ 2,429 $ 4,161
======== ======== ======== ======== ========= ========
Earnings (loss) per
common share:
Basic................... $ 0.15 $ 0.05 $ 0.07
Diluted................. 0.15 0.05 0.07
Weighted average common
shares outstanding:
Basic................... 53,469 52,371 56,970
Diluted(5).............. 54,062 52,371 59,509
Other Financial Data:
Depreciation............ $ 40,682 $ 45,855 $ 56,701 $ 74,457 $ 17,699 $ 11,661
Amortization............ -- -- 774 774 -- 375
Capital expenditures,
including capital
leases................. 136,594 63,523 57,856 69,744 15,167 12,749
<CAPTION>
As of March 31, 2000
----------------------
Pro Forma
Actual As Adjusted
--------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents....................................... $ 19,538 $ 21,620
Working capital................................................. 9,279 (647)
Total assets.................................................... 328,954 422,169
Total liabilities and preferred stock........................... 452,147 373,109
Total stockholders' equity (deficit)............................ (123,193) 49,060
</TABLE>
--------------------
(1) For fiscal years 1997 and 1998 and the portion of fiscal 1999 prior to the
recapitalization, statement of operations data includes the expense of the
ChipPAC business of Hyundai and allocated expenses from Hyundai. These
amounts may not be comparable to the historical and pro forma data for
fiscal year 1999.
(2) At December 1997, in compliance with SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of, we recorded a charge of $11.6 million to write down the value of those
assets which had been identified as economically impaired as a result of
management's decision to discontinue particular product lines or which were
judged to be in excess of foreseeable requirements.
(3) As a result of our recapitalization, we were contractually required to make
a one-time change of control payment to our unionized Korean employees of
approximately $11.8 million, which resulted in a corresponding reduction in
the recapitalization consideration paid to Hyundai.
(4) Net income (loss) available to common stockholders represents net income
(loss) from continuing operations less dividends accreted on preferred
stock, the accretion of the recorded value on the Intel warrant and, for
the pro forma year ended December 31, 1999, the extraordinary loss on
retirement of some of the debt in connection with the recapitalization.
(5) The estimated fully-diluted number of shares expected to be outstanding
after this offering and the concurrent private placements, including the
shares of Class A common stock issuable upon the exercise of options
outstanding and the shares of Class B common stock issuable upon the
exercise of a warrant held by Intel, is 67,087,431 shares.
9
<PAGE>
Malaysian Business
<TABLE>
<CAPTION>
Fiscal Year Ended Nine Months Ended
------------------------- ---------------------
Successor
Predecessor Predecessor Combined
------------------------- ----------- ---------
June 27, July 3, July 2, April 2, March 31,
1997 1998 1999 1999 2000
-------- ------- -------- ----------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue....................... $83,674 $80,376 $110,504 $77,837 $68,473
Gross profit and operating
income....................... $14,601 $10,266 $ 16,078 $11,125 $ 9,907
======= ======= ======== ======= =======
Other Financial Data:
Depreciation(1) .............. $12,308 $14,823 $ 18,289 $13,646 $11,771
Capital expenditures,
including capital leases..... 37,016 38,798 20,113 14,836 3,896
</TABLE>
<TABLE>
<S> <C>
Balance Sheet Data (at period end):
Cash and cash equivalents............................................. $ 2,082
Working capital....................................................... (17,162)
Total assets.......................................................... 92,050
Total liabilities..................................................... 29,851
Total stockholders' equity............................................ 62,199
</TABLE>
--------------------
(1) There was no amortization associated with the Malaysian business.
10
<PAGE>
RISK FACTORS
You should carefully consider the following factors in addition to the other
information set forth in this prospectus in analyzing an investment in our
Class A common stock. The risks and uncertainties described below are not the
only ones facing us. Additional risks and uncertainties that we do not
presently know about or that we currently believe are immaterial may also
impact our business operations. If any of the following risks actually occur,
our business, financial condition or results of operations will likely suffer.
In that case, the trading price of our Class A common stock could fall, and you
may lose all or part of the money you paid to buy our Class A common stock.
Risks Related to Our Business
The cyclicality of the semiconductor industry could adversely affect our
operating results.
Our operations are substantially affected by market conditions in the
semiconductor industry, which is highly cyclical and, at various times, has
experienced significant economic downturns characterized by reduced product
demand and production overcapacity which can result in rapid erosion of average
selling prices. Beginning in 1997 and continuing through the beginning of 1999,
we experienced particularly intense competition and a general slowdown in the
semiconductor industry.
In addition, we increase our level of operating expenses and investment in
packaging services capacity based on customer demand forecast(s) and
anticipated revenue growth. If our revenues do not grow as anticipated or the
forecasts upon which we rely are inaccurate, and we are unable to decrease
these expenses, our operating income would decrease.
Our profitability is affected by average selling prices which tend to decline.
Decreases in the average selling prices of our packaging and test services
can have a material adverse effect on our profitability. The average selling
prices of packaging and test services have declined historically, with
packaging services in particular experiencing severe pricing pressure. This
pricing pressure for packaging and test services is likely to continue. Our
ability to maintain or increase our profitability will continue to be
dependent, in large part, upon our ability to offset decreases in average
selling prices by improving production efficiency, increasing unit volumes
packaged or tested, or by shifting to higher margin packaging and test
services. If we are unable to do so, our business, financial condition and
results of operations could be materially and adversely affected.
If we are unable to develop and market new technologies, we may not remain
competitive within the semiconductor packaging industry.
The semiconductor packaging and test industry is characterized by rapid
increases in the diversity and complexity of packaging services. As a result,
we expect that we will need to continually introduce more advanced package
designs in order to respond to competitive industry conditions and customer
requirements. The requirement to develop, license and maintain advanced
packaging capabilities and equipment could require significant research and
development and capital expenditures in future years. Any failure by us to
achieve advances in package design or to obtain access to advanced package
designs developed by others could reduce our growth prospects and operating
income.
The intensity of competition in our industry could result in the loss of our
customers, which could adversely affect our revenues and profits.
We face substantial competition from a number of established independent
packaging companies and with the internal capabilities of many of our largest
customers. Each of our primary competitors has significant operational
capacity, financial resources, research and development operations, and
established relationships
11
<PAGE>
with many large semiconductor companies which are current or potential
customers of ours. Furthermore, our competitors may in the future capture our
existing or potential customers through superior responsiveness, service
quality, product design, technical competence or other factors which we view as
principal elements of competition in our industry. In addition, our primary
customers may, in the future, shift more of their packaging and test service
demand internally. As a result, we may have reduced revenues and profits.
If our relationship with Hyundai, our owner prior to our recapitalization,
deteriorates, our business operations could be interrupted.
Our facilities in Ichon, Korea occupy a portion of a building located on
property owned by Hyundai, our former owner. In addition, our operations at
this site are dependent upon various service and support personnel employed by
Hyundai. An unfavorable change in our relations with Hyundai could prevent us
from gaining access to and effectively managing this facility and its
operations, which would interrupt our business operations.
Our research and development efforts may not yield profitable and commercially
viable services; thus, we may have significant short-term research and
development expenses which will not necessarily result in increases in revenue.
Our research and development efforts may not yield commercially viable
packages or test services. The qualification process for new customers is
conducted in various stages which may take one or more years to complete, and
during each stage there is a substantial risk that we will have to abandon a
potential package or test service which is no longer marketable and in which we
have invested significant resources. In the event we are able to qualify new
packages, a significant amount of time will have elapsed between our investment
in new packages and the receipt of any related revenues.
We could lose customers, and thus revenue, if we cannot maintain the quality of
our services.
The semiconductor packaging process is complex and involves a number of
precise steps. Defective packaging can result from a number of factors,
including the level of contaminants in the operational environment, human
error, equipment malfunction, use of defective materials and plating services
and inadequate sample testing. From time to time, we expect to experience lower
than anticipated yields as a result of these factors, particularly in
connection with any expansion of capacity or change in processing steps. In
addition, our yield on new packaging could be lower during the period necessary
for us to develop the requisite expertise and experience with these processes.
Any failure by us to maintain high quality standards or acceptable yields, if
significant and sustained, could result in the loss of customers, delays in
shipments, increased costs and cancellation of orders.
Our business may be adversely affected by the loss of, or reduced purchases by,
Intel, Atmel Corporation, LSI Logic, Intersil or any other large customer.
Additionally, we may encounter difficulties in soliciting new customers.
Pro forma for the Malaysian business, in 1999, sales of packaging and test
services to Intel, Intersil, Atmel Corporation and LSI Logic accounted for
approximately 48.7%, 21.3%, 6.0% and 5.1% of our net revenues, respectively,
and sales to our top five customers in the aggregate accounted for
approximately 84.4% of total net revenues. If any of our main customers were to
purchase significantly less of our services in the future, these decreased
levels of purchases could, ultimately, harm our operating results.
Semiconductor packaging companies must pass a lengthy and rigorous
qualification process that can take up to six months at a cost to the customer
of approximately $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
12
<PAGE>
has selected a particular packaging and test foundry company's services, the
semiconductor company generally relies on that vendor's packages for specific
applications and, to the extent possible, subsequent generations of that
vendor's packages. Accordingly, it may be difficult to achieve significant
sales to a particular or potential customer once it selects another vendor's
packaging services.
Economic crisis in Asia where most of our suppliers are located could prevent
us from securing adequate supplies of materials which could, in turn, prevent
us from meeting the requirements of our customers and result in a decrease in
our revenues.
Most of our materials suppliers are located in Asia. Historically, over half
of our substrate costs were incurred from the purchase of materials from
Japanese suppliers. In the future, we expect that a growing portion of these
materials will be supplied by sources in Korea and Taiwan. Several countries in
this region have experienced currency devaluation and/or difficulties in
financing short-term obligations. We cannot assure you that the effect of an
economic crisis on our suppliers will not impact operations, or that the effect
on our customers in that region will not adversely affect both the demand for
our services and the collectibility of receivables.
The failure of our vendors to supply sufficient quantities of materials on a
timely basis could prevent us from fulfilling our customers' orders. In
addition, we may not be able to pass on any unexpected increase in the cost of
these materials to our customers.
We obtain materials to fill orders for our packaging and test services
directly from vendors. To maintain competitive packaging operations, we must
obtain from our vendors, in a timely manner, sufficient quantities of
acceptable materials at expected prices. We source most of our materials,
including critical materials like laminate substrates, lead frames, mold
compounds and gold wires, from a limited group of suppliers. We purchase all of
our materials on a purchase order basis and have no long-term contracts with
any suppliers. From time to time, vendors have extended lead times or limited
the supply of required materials to us because of vendor capacity constraints
and, consequently, we have experienced difficulty in obtaining acceptable
materials on a timely basis. Our business and results could be negatively
impacted if our ability to obtain sufficient quantities of materials and other
supplies in a timely manner were substantially diminished or if there were
significant increases in the cost of materials that we could not pass on to our
customers.
If we are unable to obtain capital equipment in a timely manner, we may be
unable to meet the increased demands of our customers which could result in a
decrease in our revenues.
Our facilities currently have sufficient packaging and test services
capacity to meet the current and expected demands of our customers.
Nonetheless, in the event there are significant increases in overall
semiconductor demand or demand for some of our products and services, we may
not be able to meet those increased demands of our customers. Moreover, because
the semiconductor packaging and test services business requires investment in
expensive capital equipment and is characterized, from time to time, by intense
demand, limited supply and long delivery cycles, we may not be able to readily
increase our operating capacity. This would lead to a loss of sales of our
packaging and test services, could ultimately lead to a loss in market share
and have a negative impact on our results of operations.
We depend upon intellectual property and license critical technology from
Hyundai, Motorola, Inc., Tessera, Inc., LSI Logic and Intersil. To the extent
these licenses are not perpetual and irrevocable, our net revenues could be
materially adversely affected if our rights under these licenses expire or are
terminated.
We seek to protect our proprietary information and know-how through the use
of trade secrets, confidentiality agreements and other security measures. We
may not obtain patent protection for the patent applications that we file, or
if we are granted patents, those patents may not offer meaningful protection.
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
13
<PAGE>
upon which we rely to protect our trade secrets and other proprietary
information will be adequate to protect our proprietary technology.
Any patents and utility model, design right and computer program right
registrations obtained relating to technology that we developed prior to our
recapitalization are owned by Hyundai Electronics. In connection with our
recapitalization, we entered into a patent and technology license agreement by
which Hyundai Electronics granted us a license to use specific intellectual
property rights in our semiconductor packaging and test activities. We expect
to seek patents and utility model, design right and computer program right
registrations, as applicable, on new packaging process and package design
technologies that we develop as a means of protecting technology and market
position.
We have a non-exclusive sublicense from Hyundai to use patented BGA
technologies owned by Motorola, which expires on December 31, 2002. Motorola
licenses these patents to others, including our competitors. Pro forma for the
Malaysian business, these BGA technologies contributed to 51.3% of our net
revenues in 1999.
We have a worldwide, royalty-bearing, non-exclusive license under specified
Tessera patents, technical information and trademarks relating to Tessera's
proprietary IC packages. This license will expire sometime after February 2018.
We also have two separate license agreements with LSI Logic under which we
have worldwide, royalty-bearing, non-exclusive licenses to use LSI packaging
technology and technical information to manufacture, use and sell flip-chip
semiconductor devices having at least 200 solder balls and semiconductor device
assemblies having an overall height of less than 1.2 millimeters, respectively.
The LSI Logic license relating to flip-chip semiconductor devices becomes
perpetual and irrevocable upon our payment of fees or January 1, 2004,
whichever occurs first. The other LSI Logic license is perpetual but may be
terminated by LSI Logic in the event of our uncured breach or bankruptcy.
In addition, we have a worldwide, royalty-free, non-exclusive license under
Intersil patents, copyrights and technical information which are used in or
related to the operation of the Malaysian business. This Intersil license is
perpetual and irrevocable. Any intellectual property rights in the bonding
diagrams, test programs, maskworks and test boards uniquely related to the
Intersil products for which we provide packaging and test services are licensed
to us only for use in providing those services.
To the extent these licenses are not perpetual and irrevocable, we may be
unable to utilize the technologies under these licenses if they are not
extended or otherwise renewed or if any of these licenses are terminated by the
licensor due to our uncured breach or bankruptcy. Alternatively, if we are able
to renew these arrangements, we cannot assure you that they will be on the same
terms as currently exist. Any failure to extend or renew these license
arrangements could cause us to incur substantial liabilities and to suspend the
packaging services and processes that utilized these technologies.
The loss of our skilled technical, marketing and sales personnel or our key
executive officers could have a material adverse effect on our research and
development, marketing and sales efforts.
Our competitiveness will depend in large part upon whether we can attract
and retain skilled technical, marketing and sales personnel and can retain
members of our executive team. Competition for skilled personnel is intense,
and we may not be successful in attracting and retaining the technical
personnel or executive managers we require to develop new and enhanced
packaging and test services and to continue to grow and operate profitably. If
we cannot attract or retain skilled personnel, we may not be able to operate
successfully in the future.
14
<PAGE>
If we encounter future labor problems, we may fail to deliver our products in a
timely manner which could adversely affect our revenues and profitability.
As of March 31, 2000, over half of our employees were represented by the
ChipPAC Korea Labor Union. In addition, one of our Chinese subsidiaries
experienced labor protests and a two-day work stoppage in July 1998 in
connection with proposed work force reductions. We cannot assure you that
issues with the labor union or other employees will be resolved favorably for
us in the future, that we will not experience significant work stoppages in
future years or that we will not record significant charges related to those
work stoppages. In addition, potential efficiency enhancement efforts,
including personnel reductions, following our recent acquisition of the
Malaysian business may create the risk of labor problems in Malaysia or at
other facilities.
New laws and regulations, currency devaluation and political instability in
foreign countries, particularly in Korea, China and Malaysia, could make it
more difficult for us to operate successfully.
For 1996, 1997, 1998 and 1999, we generated approximately 38.2%, 17.6%, 7.2%
and 16.3% of total revenues, respectively, from international markets,
primarily from customers in Korea and Japan. In addition, all of the facilities
currently used to provide our packaging services are located in Korea, China
and Malaysia. Moreover, many of our customers' operations are located in
countries outside of the United States. We cannot determine if our future
operations and earnings will be affected by new laws, new regulations, a
volatile political climate, changes in or new interpretations of existing laws
or regulations or other consequences of doing business outside the U.S.,
particularly in Korea, China and Malaysia. If future operations are negatively
affected by these changes, our sales or profits may suffer.
Fluctuations in the exchange rate of the U.S. dollar and foreign currencies
could have a material adverse effect on our financial performance and
profitability.
A portion of our costs are denominated in foreign currencies, like the South
Korean Won, the Chinese Renminbi or RMB and the Malaysian Ringgit. As a result,
changes in the exchange rates of these currencies or any other applicable
currencies to the U.S. dollar will affect our costs of goods sold and operating
margins and could result in exchange losses. We cannot fully predict the impact
of future exchange rate fluctuations on our profitability. From time to time,
we have engaged in, and may continue to engage in, exchange rate hedging
activities in an effort to mitigate the impact of exchange rate fluctuations.
However, we cannot assure you that any hedging technique we may implement will
be effective. If it is not effective, we may experience reduced operating
margins.
We could suffer adverse tax and other financial consequences if U.S. or foreign
taxing authorities do not agree with our interpretation of applicable tax laws.
Our corporate structure is based, in part, on assumptions about the various
tax laws, including withholding tax, and other relevant laws of applicable non-
U.S. jurisdictions. We cannot assure you that foreign taxing authorities will
agree with our interpretations or that they will reach the same conclusions.
Our interpretations are not binding on any taxing authority and, if these
foreign jurisdictions were to change or to modify the relevant laws, we could
suffer adverse tax and other financial consequences or have the anticipated
benefits of our corporate structure materially impaired.
Because the Malaysian business previously operated as a subsidiary of Intersil,
our future financial results may be significantly different from those
experienced historically.
Prior to our recent acquisition of the Malaysian business, it was operated
as a subsidiary of Intersil. All the historical revenues of the Malaysian
business represent intercompany sales to Intersil on terms determined by
Intersil. Although we expect to retain this business pursuant to a five-year
supply agreement with Intersil, volume, product mix and pricing may change in
the future, and we cannot assure you that Intersil will perform under our
supply agreement. The operation of the Malaysian business as an independent
entity may result in
15
<PAGE>
our incurring operating costs and expenses significantly greater than we
anticipated prior to our acquisition of the Malaysian business. During 1999,
the Malaysian business incurred costs for customer support and general and
administrative activities. These costs represented expenses incurred directly
by the Malaysian business and charges allocated to it by Intersil. The
Malaysian business will now obtain many of these services on an arm's length
basis. However, to obtain these services after our acquisition of the Malaysian
business, we entered into a three-year services agreement with Intersil under
which the Malaysian business will continue to obtain a number of these services
from Intersil. We cannot assure you that Intersil will perform under the
services agreement or that upon termination of the agreement, we will be able
to obtain similar services on comparable terms. The pro forma data contained in
this prospectus are based on the historical intercompany revenues of the
Malaysian business. We cannot assure you that future revenues will be
consistent with these historical revenues.
We entered into supply contracts with Intersil in connection with our recent
acquisition of the Malaysian business, and any decrease in the purchase
requirements of Intersil or the inability of Intersil to meet its contractual
obligations could substantially reduce the financial performance of our
Malaysian subsidiary.
Historically, the Malaysian business generated all of its revenues from the
sale of products and services to affiliated Intersil companies. As a result of
our acquisition of the Malaysian business, we have numerous arrangements with
Intersil, including arrangements relating to packaging and test services as a
vendor to affiliated Intersil companies and other services. Any material
adverse change in the purchase requirements of Intersil or in its ability to
fulfill its other contractual obligations could have a material adverse effect
on our Malaysian subsidiary. Moreover, we may be unable to sell any products
and services to affiliated Intersil companies beyond the term of our five-year
supply agreement with Intersil.
We may not be able to successfully integrate the Malaysian business into our
operations.
On June 30, 2000, we consummated the acquisition of the Malaysian business.
The acquisition could result in our incurring unanticipated expenses and losses
and there can be no guarantee that we will realize any anticipated benefits
from the acquisition. Moreover, the process of integrating the acquired
operations into our existing operations may result in unforeseen operating
difficulties and may require significant financial resources that would
otherwise be available for the ongoing development or expansion of our existing
operations. In addition, although we expect that Intersil will assist us in
integrating the operations of the Malaysian business into our operations under
the three-year services agreement, we may encounter unforeseen obstacles or
costs in that integration.
We may not be able to consummate future acquisitions, and consequences of those
acquisitions which we do complete may adversely affect us.
We plan to continue to pursue additional acquisitions of related businesses.
The expense incurred in consummating the future acquisition of related
businesses, or our failure to integrate those businesses successfully into our
existing business, could result in our incurring unanticipated expenses and
losses. We plan to continue to pursue additional acquisitions of related
businesses in the future. We may be unable to identify or finance additional
acquisitions or realize any anticipated benefits from those acquisitions.
Should we successfully acquire another business, the process of integrating
acquired operations into our existing operations may result in unforeseen
operating difficulties and may require significant financial resources that
would otherwise be available for the ongoing development or expansion of our
existing operations. Possible future acquisitions could result in the
incurrence of contingent liabilities and amortization expenses related to
goodwill and other intangible assets, all of which could have a material
adverse effect on our financial condition and operating results.
In addition, we may finance future acquisitions with additional
indebtedness. Following the offering, we will continue to have a substantial
amount of outstanding indebtedness and will, subject to compliance with our
debt instruments, have the ability to incur additional indebtedness. We will be
required to generate cash flow from operations to service that indebtedness and
there can be no assurance that we will generate sufficient cash flow to service
that indebtedness. We may be required to refinance our indebtedness upon its
maturity, and we cannot assure you that we will be able to refinance our
indebtedness at all or on terms acceptable to us.
16
<PAGE>
Risks Related to This Offering
A limited number of persons indirectly control us and may exercise their
control in a manner adverse to your interests.
Upon completion of this offering and the concurrent private placements,
Citicorp Venture Capital Ltd. and its affiliates and funds affiliated with Bain
Capital, Inc. will own 40,625,851 shares, or approximately 62.2%, of our
outstanding common stock. By virtue of this stock ownership, they have the
power to direct our affairs and will be able to determine the outcome of all
matters required to be submitted to stockholders for approval, including the
election of a majority of our directors, any merger, consolidation or sale of
all or substantially all of our assets and amendment of our certificate of
incorporation. Because a limited number of persons control us, transactions
could be difficult or impossible to complete without the support of those
persons. It is possible that these persons will exercise control over us in a
manner adverse to your interests. See "Principal Stockholders."
Provisions of our charter documents could discourage potential acquisition
proposals and could delay, deter or prevent a change in control.
Provisions of our certificate of incorporation and by-laws may inhibit
changes in control of our company not approved by our board of directors and
would limit the circumstances in which a premium may be paid for the Class A
common stock in proposed transactions, or a proxy contest for control of the
board may be initiated. These provisions provide for:
. a prohibition on stockholder action through written consents;
. a requirement that special meetings of stockholders be called only by
our chief executive officer or the board of directors;
. advance notice requirements for stockholder proposals and nominations;
. limitations on the ability of stockholders to amend, alter or repeal the
by-laws; and
. the authority of the board to issue, without stockholder approval,
preferred stock with terms as the board may determine.
Some of our existing stockholders have the right to require us to register the
public sale of their shares; all of our total outstanding shares of common
stock may be sold into the market in the near future; future sales of those
shares could depress the market price of our Class A common stock.
Immediately after this offering and the concurrent private placements, the
public market for our common stock will include only the 10,000,000 shares of
Class A common stock that we are selling in this offering, assuming the over-
allotment option is not exercised. At that time, there will be 55,266,250
additional shares of our common stock outstanding. Substantially all shares
held by our existing stockholders and all shares acquired in the concurrent
private placements by Qualcomm and the Equity Investors, are subject to "lock-
up" agreements that prohibit them from selling shares of our common stock for
180 days after the date of this prospectus. When the 180-day "lock-up" period
expires, or if Credit Suisse First Boston Corporation consents, in its sole
discretion, to an earlier sale, our existing stockholders will be able to sell
their shares in the public market, subject to legal restrictions on transfer.
Some of our existing stockholders are parties to agreements with us that
provide for "demand" registration rights to cause us to register under the
Securities Act of 1933 all or part of their shares of our common stock, as well
as "piggyback" registration rights. Registration of the sale of these shares of
our common stock would permit their sale into the market immediately. If our
existing stockholders sell a large number of shares, the market price of our
Class A common stock could decline, as these sales may be viewed by the public
as an indication of an upcoming or recently occurring shortfall in the
financial performance of our company. Moreover, the perception in the public
market that these stockholders might sell shares of our common stock could
depress the market price of the Class A common stock. See "Shares Eligible for
Future Sale."
17
<PAGE>
Our Class A common stock has never been publicly traded so we cannot predict
the extent to which a trading market will develop for our Class A common stock.
There has not been a public market for our Class A common stock. We cannot
predict the extent to which a trading market will develop or how liquid that
market might become. The initial public offering price will be determined by
negotiations between representatives of the underwriters and us, and may not be
indicative of prices that will prevail in the trading market.
Because you will pay more for your shares than existing stockholders, the value
of your investment in our Class A common stock will be diluted.
If you purchase our Class A common stock in this offering, you will pay more
for your shares than the amount paid by existing stockholders or individuals or
companies which acquired shares by exercising options granted or warrants
issued before this offering. As a result, the value of your investment based on
the value of our net tangible assets, as recorded on our books, will be less
than the amount you pay for shares of our Class A common stock in this
offering. In addition, the total amount of our capital will be less than what
it would have been had you and all of the existing stockholders, optionees and
warrant holders paid the same amount per share of our common stock as you will
pay in this offering. You may experience further dilution to the extent that
additional shares of our common stock are issued upon the exercise of stock
options or warrants. See "Dilution."
18
<PAGE>
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements contained in this prospectus contain forward-looking
information. They include statements concerning:
. our business;
. our growth strategy;
. our expanding new customer base, including expectations regarding the
contribution to our total revenues in 2000 from new customers;
. our growing test business, including expected increases in revenues
attributable to this business;
. our dependence on continuous introduction of new services based on the
latest technology;
. our ability to compete in the intensely competitive semiconductor
packaging and test foundry industry;
. our strategy of pursuing long term partnership agreements and strategic
acquisitions;
. risks associated with our international business activities and with
acquisition and integration of acquired companies;
. our dependence on proprietary information and technology and key
personnel;
. conditions in the semiconductor packaging and test foundry industry;
. our response to general economic conditions, including economic
conditions related to the semiconductor packaging and test foundry
industry;
. our fluctuating quarterly results;
. liquidity and capital expenditures; and
. our future financial position and sources of revenue.
You can identify these statements by forward-looking words including
"believe," "expect," "anticipate," "intend" and other similar expressions.
Potential investors are cautioned not to place undue reliance on these forward-
looking statements, which speak only as of their dates. These forward-looking
statements are based largely on our current expectations and are subject to a
number of risks and uncertainties, including those identified under the "Risk
Factors" section and elsewhere in this prospectus and other risks and
uncertainties indicated from time to time in our filings with the SEC. Actual
results could differ materially from these forward-looking statements. In
addition, important factors to consider in evaluating these forward-looking
statements include changes in external market factors, changes in our business
or growth strategy or an inability to execute our strategy due to changes in
our industry or the economy generally, the emergence of new or growing
competitors and various other competitive factors. In light of these risks and
uncertainties, there can be no assurance that the matters referred to in the
forward-looking statements contained in this prospectus will in fact occur.
We do not undertake to update our forward-looking statements or risk factors
to reflect future events or circumstances.
19
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of 10,000,000 shares of Class A common stock
in this offering, after deducting underwriting discounts and commissions and
estimated offering expenses, based on an assumed initial public offering price
of $14.00 per share, the midpoint of the range set forth on the cover page of
this prospectus, are estimated to be approximately $125.5 million. In addition,
we estimate that our net proceeds from the Qualcomm private placement will be
approximately $25.0 million. The gross proceeds from this offering and the
Qualcomm private placement will be used as set forth below. The following table
sets forth the estimated sources and uses of funds as of March 31, 2000, the
latest date for which financial information is available:
<TABLE>
<CAPTION>
Amount Amount
------ ------
(in millions) (in millions)
<C> <C> <S> <C>
Sources: Uses:
Gross public offering proceeds.... $140.0 Redeem Class B
preferred stock(1)..... $ 75.9
Gross private placement proceeds.. 25.0 Repay senior credit
facilities in
part(2).............. 74.6
Fees and expenses(3).. 14.5
------ ------
Total sources................. $165.0 Total uses.......... $165.0
====== ======
</TABLE>
---------------------
(1) The 70,000 outstanding shares of our Class B preferred stock issued to
Hyundai Electronics and Hyundai Electronics America have an initial
aggregate liquidation preference of $70.0 million plus accumulated and
unpaid dividends. Dividends on these shares accrete on a daily basis at a
rate of 12.5% per annum.
(2) Our senior credit facilities currently provide for a term A loan for $70.0
million, a term B loan for $80.0 million, a term C loan for $55.0 million,
revolving loans of up to $50.0 million and capital expenditure loans of up
to $20.0 million. As of March 31, 2000, after giving effect to our recent
acquisition of the Malaysian business, we owed $212.5 million under our
senior credit facilities. As of July 10, 2000, the interest rates for
outstanding indebtedness under our senior credit facilities were 9.88%,
10.63%, 10.63% and 11.75% for the term A, term B, term C and revolving
loans, respectively. The actual amount repaid will be reduced by
approximately $44,000 per day, the accrued interest on our senior
subordinated notes and accreted dividends on our Class B preferred stock,
until the closing of this offering.
(3) Includes underwriting discounts, commissions and a one-time cash payment of
$3.6 million to terminate advisory agreements with the Equity Investors
upon the closing of this offering.
20
<PAGE>
DIVIDEND POLICY
We have not in the past paid, and do not expect for the foreseeable future
to pay, dividends on our common stock. Instead, we anticipate that all of our
earnings, if any, in the foreseeable future will be used for working capital
and other general corporate purposes. The payment of dividends by us to holders
of our common stock is prohibited by our senior credit facility and is
restricted by the indenture relating to our senior subordinated notes. Any
future determination to pay dividends will be at the discretion of our board of
directors and will depend upon, among other factors, our results of operations,
financial condition, capital requirements and contractual restrictions.
21
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization at March 31, 2000:
. on an actual basis;
. on a pro forma basis to reflect: (1) the acquisition of the Malaysian
business; (2) the incurrence of $55.0 million of debt under the term C
loan; and (3) the issuance of 17,500 shares of our Class C preferred
stock.
. on a pro forma basis as adjusted for: (1) the sale by us of 10,000,000
shares of Class A common stock in this offering and the receipt of the
estimated net proceeds from this offering, after deducting estimated
underwriting discounts and commissions and estimated offering expenses;
(2) the sale by us of 1,879,700 shares of Class A common stock in the
Qualcomm private placement and the receipt of the estimated net proceeds
from this concurrent private placement; (3) the issuance by us of
314,286 shares of Class A common stock in the concurrent private
placement to the Equity Investors; (4) the conversion of our Class A
convertible preferred stock outstanding as of March 31, 2000 into
2,767,984 shares of Class A common stock upon the closing of this
offering; (5) the conversion of our Class C preferred stock issued in
connection with the acquisition of the Malaysian business into 1,319,445
shares of Class A common stock upon the closing of this offering; (6)
the repayment of $74.6 million of debt plus accrued interest; (7) the
redemption of Class B preferred stock plus accreted dividends; and (8)
the reclassification.
<TABLE>
<CAPTION>
As of March 31, 2000
---------------------------------
Pro Forma
Actual Pro Forma As Adjusted
--------- --------- -----------
(in thousands, except per share
data)
<S> <C> <C> <C>
Cash and cash equivalents.................... $ 19,538 $ 21,620 $ 21,620
========= ========= =========
Long term debt (including current portion):
Revolving loans(1).......................... $ 7,500 $ 7,500 $ 7,500
Term loans under senior credit
facilities(2).............................. 150,000 205,000 130,400
12.75% Senior subordinated notes due 2009... 150,000 150,000 150,000
--------- --------- ---------
Total long term debt (including current
portion)................................... 307,500 362,500 287,900
--------- --------- ---------
Mandatorily redeemable preferred stock:
10.0% cumulative convertible preferred
stock, class A held by Intel--par value
$0.01 per share; 10,000 shares authorized,
issued and outstanding at March 31, 2000,
actual and pro forma; no shares issued and
outstanding, pro forma as adjusted......... 9,832 9,832 --
12.5% cumulative preferred stock, class B
held by Hyundai--par value $0.01 per share;
105,000 shares authorized and 70,000 shares
issued and outstanding at March 31, 2000,
actual and pro forma; no shares issued and
outstanding, pro forma as adjusted......... 75,853 75,853 --
5% cumulative preferred stock, class C held
by Intersil--par value $0.01 per share;
17,500 shares authorized, no shares issued
and outstanding at March 31, 2000, actual;
17,500 shares issued and outstanding, pro
forma; no shares issued and outstanding,
pro forma as adjusted...................... -- 15,786 --
--------- --------- ---------
Total mandatorily redeemable preferred
stock...................................... 85,685 101,471 --
Stockholders' equity (deficit):
Common stock, class A--par value $0.01 per
share; 180,000,000 shares authorized and
96,254,000 shares issued and outstanding at
March 31, 2000, actual and pro forma
(250,000,000 shares authorized and
65,580,981 issued, pro forma as adjusted).. 974 974 656
Common stock, class B--par value $0.01 per
share; 180,000,000 shares authorized and no
shares issued or outstanding at March 31,
2000, actual and pro forma (250,000,000
shares authorized and no shares issued, pro
forma as adjusted)......................... -- -- --
Common stock, class L--par value $0.01 per
share; 20,000,000 shares authorized and
10,456,000 shares issued and outstanding at
March 31, 2000, actual and pro forma (no
shares authorized or issued, pro forma as
adjusted).................................. 104 104 --
Warrants, Class B Common Stock (the Intel
Warrant)................................... 1,250 1,250 1,250
Additional paid-in-capital.................. 86,336 86,336 269,158
Divisional equity, net of capital
redemption................................. (167,714) (167,714) (167,714)
Receivable from stockholders................ (1,478) (1,478) (1,478)
Accumulated deficit......................... (51,834) (51,834) (61,981)
Accumulated other comprehensive income
(loss)..................................... 9,169 9,169 9,169
--------- --------- ---------
Total stockholders' equity (deficit)........ (123,193) (123,193) 49,060
--------- --------- ---------
Total capitalization....................... $ 269,992 $ 340,778 $ 336,960
========= ========= =========
</TABLE>
Footnotes to table appear on following page.
22
<PAGE>
Footnotes to table from previous page.
---------------------
(1) Borrowings of up to $50.0 million under the revolving lines under our
senior credit facilities are available for working capital and general
corporate purposes.
(2) Our senior credit facilities currently provide for a term A loan for $70.0
million, a term B loan for $80.0 million, a term C loan for $55.0 million,
revolving loans of up to $50.0 million and capital expenditure loans of up
to $20.0 million. The term A loan, term B loan and term C loan amortize
quarterly with the balance of the term A loan due July 31, 2005, the term B
loan due July 31, 2006 and the term C loan due July 31, 2007. As of March
31, 2000, after giving effect to the acquisition of the Malaysian business,
we owed $212.5 million under our senior credit facilities. As of July 10,
2000, the interest rates for outstanding indebtedness under our senior
credit facilities were 9.88%, 10.63%, 10.63% and 11.75% for the term A,
term B, term C and revolving loans, respectively. The actual amount repaid
will be reduced by approximately $44,000 per day, the accrued interest on
our senior subordinated notes and accreted dividends on our Class B
preferred stock, until the closing of this offering.
This capitalization table excludes the following shares as of March 31,
2000:
. 1,300,677 shares of Class A common stock at a weighted average exercise
price of $3.99 per share that were subject to outstanding options as of
March 31, 2000; and
. 446,428 shares of Class B common stock issuable upon the exercise of the
Intel warrant at an exercise price of $11.20, assuming an initial public
offering price of $14.00, less a 20% discount.
23
<PAGE>
THE RECLASSIFICATION
A reclassification will be effected immediately prior to the effectiveness
of the registration statement of which this prospectus forms a part. The
reclassification will be effected pursuant to a merger whereby ChipPAC
California will merge with and into ChipPAC Delaware, the newly formed, wholly
owned subsidiary of ChipPAC California that is incorporated under the laws of
the state of Delaware and that will issue the Class A common stock in this
offering. The merger will have the effect of reincorporating our company under
the laws of the state of Delaware. In connection with the merger:
. each share of Class A common stock of ChipPAC California will become one
share of Class A common stock of ChipPAC Delaware;
. each share of Class B common stock of ChipPAC California will become one
share of Class B common stock of ChipPAC Delaware;
. each share of Class L common stock of ChipPAC California will become one
share of Class A common stock of ChipPAC Delaware, plus an additional
number of shares of Class A common stock of ChipPAC Delaware, rounded to
the nearest whole share, determined by dividing the Preference Amount
described below by the value of a share of Class A common stock of
ChipPAC Delaware based on the initial public offering price;
. each share of Class A convertible preferred stock of ChipPAC California
will become one share of Class A convertible preferred stock of ChipPAC
Delaware;
. each share of Class B preferred stock of ChipPAC California will become
one share of Class B preferred stock of ChipPAC Delaware;
. each share of Class C preferred stock of ChipPAC California will become
one share of Class C preferred stock of ChipPAC Delaware; and
. each outstanding option and warrant for the purchase of Class A common
stock of ChipPAC California will become an option and warrant for the
purchase of Class A common stock of ChipPAC Delaware.
The foregoing is referred to throughout this prospectus as the
reclassification. As a result of the reclassification, stockholders of ChipPAC
California will become stockholders of ChipPAC Delaware.
Immediately prior to the reclassification, this offering and the concurrent
private placements, ChipPAC California has three classes of common stock,
designated as Class A common stock, Class B common stock and Class L common
stock. The Class A common stock and Class B common stock are identical, except
that the Class B common stock is non-voting and is convertible on a share-for-
share basis into Class A common stock at any time. The Class A common stock is
convertible at any time on a share-for-share basis into Class B common stock.
The Class L common stock is identical to the Class B common stock, except that
the Class L common stock is not convertible and each share of Class L common
stock is entitled to a preferential payment upon any distribution by ChipPAC
California to holders of Class A common stock and Class B common stock, whether
by dividend, liquidating distribution or otherwise, equal to the original cost
of the share of the Class L common stock ($9.00 per share) plus an amount which
accrues on a daily basis at a rate of 12.0% per annum, compounded quarterly.
This preferential amount is referred to in this prospectus as the Preference
Amount. As of March 31, 2000, the weighted average Preference Amount was $9.10
per share of Class L common stock. On August 7, 2000, the weighted average
Preference Amount is $9.46 per share of Class L common stock.
As discussed above, the number of shares of Class A common stock of ChipPAC
Delaware issuable upon the conversion of the Class L common stock of ChipPAC
California depends on both the timing of that conversion and the initial public
offering price in this offering. The share numbers in this prospectus have
assumed a Class L common stock conversion date of August 7, 2000 and an initial
public offering price of
24
<PAGE>
$14.00 per share, the midpoint of the range set forth on the cover page of this
prospectus. The Class L common stock of ChipPAC California will convert into
Class A common stock of ChipPac Delaware as part of the reclassification, which
is currently expected to occur immediately prior to the effectiveness of the
registration statement of which this prospectus forms a part. Accordingly, if
the effective date is prior to or after August 7, 2000 and/or if the initial
public offering price is greater or less than $14.00 per share, then:
. a smaller or greater number of shares of Class A common stock of ChipPAC
Delaware will be issued upon the conversion of the Class L common stock
of ChipPAC California;
. a smaller or greater number of shares of Class A common stock of ChipPAC
Delaware will be outstanding upon the closing of this offering; and
. the shares of Class A common stock of ChipPAC Delaware issued in this
offering will represent a greater or lesser percentage of our
outstanding common stock.
In connection with the closing of this offering, all outstanding shares of
Class A convertible preferred stock and Class C preferred stock of ChipPAC
Delaware will automatically convert into an aggregate of 4,125,372 shares of
Class A common stock of ChipPAC Delaware based on the assumptions described
below. The actual number of shares of Class A common stock of ChipPAC Delaware
issuable upon the conversion of the Class A convertible preferred stock and
Class C preferred stock of ChipPAC Delaware depends on the initial public
offering price in this offering. The share numbers in this prospectus have
assumed conversion based on an initial public offering price of $14.00 per
share, the midpoint of the range set forth on the cover page of this
prospectus. Accordingly, if the initial public offering price is greater or
less than $14.00 per share, then:
. a smaller or greater number of shares of Class A common stock of ChipPAC
Delaware will be issued upon the conversion of the Class A convertible
preferred stock and the Class C preferred stock of ChipPAC California;
. a smaller or greater number of shares of Class A common stock of ChipPAC
Delaware will be outstanding upon the closing of this offering; and
. the shares of Class A common stock of ChipPAC Delaware issued in this
offering will represent a greater or lesser percentage of our
outstanding common stock.
25
<PAGE>
DILUTION
Purchasers of our Class A common stock offered by this prospectus will
suffer an immediate and substantial dilution in the net tangible book value per
share. Dilution is the amount by which the price paid by the purchasers of the
shares of our Class A common stock will exceed the net tangible book value per
share of Class A common stock after the offering and the concurrent private
placements.
As of March 31, 2000, our pro forma tangible net capital deficiency was
$34.2 million, or $0.52 per share of common stock. Pro forma tangible net
capital deficiency per share is determined by dividing our tangible net capital
deficiency by the aggregate number of shares of common stock outstanding,
assuming the reclassification had taken place on March 31, 2000 and an assumed
initial public offering price of $14.00 per share, the midpoint of the range
set forth on the cover page of this prospectus. For these purposes, we
calculated our net capital deficiency by subtracting our intangible assets and
total liabilities from our total assets. After giving effect to (1) the sale of
the shares of Class A common stock in this offering, at an assumed initial
public offering price of $14.00 per share, the midpoint of the range set forth
on the cover page of this prospectus, (2) the concurrent private placements,
(3) the receipt and application of the net proceeds of this offering as
described in "Use of Proceeds", (4) the conversion of our Class L common stock
into shares of Class A common stock as of March 31, 2000, (5) the conversion of
our Class A convertible preferred stock into shares of Class A common stock as
of March 31, 2000 and (6) the conversion of our Class C preferred stock into
shares of Class A common stock as of March 31, 2000, pro forma net tangible
book value as of March 31, 2000, would have been approximately $36.6 million,
or $0.56 per share. This represents an immediate increase in pro forma net
tangible book value of $1.08 per share to the current stockholders and an
immediate dilution in pro forma net tangible book value of $13.44 per share to
purchasers of Class A common stock in this offering. The following table
illustrates this per share dilution:
<TABLE>
<CAPTION>
Per Share
--------------
<S> <C> <C>
Initial public offering price................................ $14.00
Pro forma net tangible book value before this offering .... $(0.52)
Increase in pro forma net tangible book value attributable
to new investors (including the concurrent private
placements)............................................... 1.08
------
Pro forma net tangible book value after this offering and the
concurrent private placements............................... 0.56
------
Dilution to new investors.................................... $13.44
======
</TABLE>
The following table summarizes, on a pro forma basis, as of March 31, 2000,
the number of shares purchased, the total consideration paid (or to be paid)
and the average price per share paid (or to be paid) by (1) the existing common
stockholders, (2) stockholders who are having their Class A convertible
preferred stock and Class C preferred stock converted into shares of Class A
common stock, (3) the purchasers of Class A common stock in this offering, at
an assumed initial public offering price of $14.00 per share, the midpoint of
the range set forth on the cover page of this prospectus, before deducting the
estimated offering expenses and underwriting discounts and commissions, (4)
Qualcomm in the concurrent private placement at a purchase price per share
equal to 95% of the assumed initial public offering price and (5) the Equity
Investors in the other concurrent private placement at a price per share equal
to the initial public offering price:
<TABLE>
<CAPTION>
Shares of Common
Stock Purchased
or Converted Total Consideration
------------------ --------------------- Average
(in millions) Price
Number Percent Amount Percent Per Share
---------- ------- ------------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing common
stockholders........... 49,299,566 75.2% $105.6 35.1% $ 2.14
Converted preferred
stockholders........... 4,087,429 6.2 25.8 8.6 6.31
Investors in this
offering............... 10,000,000 15.2 140.0 46.5 14.00
Qualcomm................ 1,879,700 2.9 25.0 8.3 13.30
Equity Investors........ 314,286 0.5 4.4 1.5 14.00
---------- ----- ------ -----
Total................. 65,580,981 100.0% $300.8 100.0%
========== ===== ====== =====
</TABLE>
26
<PAGE>
If the underwriters exercise their over-allotment option in full, the
following will occur:
. the number of shares of Class A common stock held by existing
stockholders and converted preferred stockholders will represent
approximately 80.1% of the total number of shares of Class A common
stock outstanding; and
. the number of shares of Class A common stock held by new public
investors and Qualcomm after the offering and the Qualcomm private
placement will be increased to 13,379,700, or approximately 19.9% of the
total number of shares of our Class A common stock outstanding after
this offering and the concurrent private placements.
As of March 31, 2000, there were an aggregate of: (1) 1,300,677 shares of
Class A common stock issuable upon the exercise of outstanding options granted
under our stock plans, of which none were then exercisable, at exercise prices
ranging from $0.29 to $5.51 per share; (2) 2,336,164 additional shares of
Class A common stock expected to be reserved for grants, awards or sale under
the 2000 Equity Incentive Plan or sale under the 2000 Employee Stock Purchase
Plan; and (3) 446,428 shares of Class A common stock issuable upon the exercise
of the Intel Warrant. Immediately after this offering and the concurrent
private placements, 1,748,362 shares of Class A common stock are issuable upon
the exercise of options outstanding or expected to be issued prior to the
closing of this offering, at the weighted average exercise price of $2.99 per
share, 193,980 shares of which will be exercisable immediately after this
offering and the concurrent private placements. See "Management--Option
Grants," "--Employee Stock Purchase Plan" and "Description of Financing
Arrangements--Intel Warrant." To the extent these options and warrants are
exercised, there may be further dilution to new investors.
27
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
The following unaudited pro forma combined condensed statements of
operations for the year ended December 31, 1999 and the three month periods
ended March 31, 1999 and March 31, 2000, and the unaudited pro forma balance
sheet as of March 31, 2000, have been derived by the application of pro forma
adjustments to our combined results included elsewhere in this prospectus.
The pro forma statements of operations give effect to the following, as if
they had occurred on January 1, 1999: (1) the recapitalization and (2) the
acquisition of the Malaysian business. The pro forma as adjusted statements of
operations give effect to the items in (1) and (2) and to the reclassification,
this offering and the concurrent private placements and the application of
proceeds from this offering and the Qualcomm private placement, as if they had
occurred on January 1, 1999.
The unaudited pro forma balance sheet as of March 31, 2000 gives effect to
the acquisition of the Malaysian business, as if it had occurred as of March
31, 2000. The unaudited pro forma as adjusted balance sheet as of March 31,
2000 gives effect to the acquisition of the Malaysian business, the
reclassification, this offering and the concurrent private placements and the
application of proceeds from this offering and the Qualcomm private placement,
as if they had occurred as of March 31, 2000.
The estimated pro forma adjustments arising from the acquisition of the
Malaysian business are derived from the purchase price paid and estimated fair
values of the assets acquired and liabilities assumed. The final determination
of fair value and resulting goodwill may differ significantly from that
reflected in these pro forma statements of operations and other data.
The unaudited pro forma financial statements do not purport to represent
what our financial position or results of operations would have actually been
had our recapitalization, the acquisition of the Malaysian business, the
reclassification, this offering and the concurrent private placements and the
application of the net proceeds of this offering and the Qualcomm private
placement in fact occurred on the dates assumed, or to project results of
operations for any future period. The pro forma financial statements should be
read in conjunction with the "Capitalization," "Prospectus Summary--Summary
Historical and Pro Forma Financial and Operating Data," "Selected Historical
Financial Data of ChipPAC, Inc.," "Selected Historical Financial Data of
Malaysian Business" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" sections and the historical combined
financial statements and the related notes included elsewhere in this
prospectus.
Prior to the recapitalization, our activities were conducted as part of
Hyundai Electronics' overall operations, and separate financial statements were
not prepared. Our financial statements as of and for the year ended December
31, 1999 were prepared in part, and for the three months ended March 31, 1999
were prepared entirely from the historical accounting records of Hyundai
Electronics and include various allocations for costs and expenses. Therefore,
our statement of operations may not be indicative of the results of operations
that would have resulted if we had operated on a stand-alone basis. All of the
allocations and estimates reflected in our financial statements are based on
assumptions that we believe are reasonable under the circumstances and that
have been reviewed by Hyundai Electronics America.
During the periods covered by the financial statements of the Malaysian
business, the activities of the Malaysian business were conducted as part of
Intersil's overall operations, and separate financial statements were not
prepared. The Malaysian business' financial statements were prepared from the
historical accounting records of Intersil and include various allocations for
costs and expenses. Therefore, the statement of operations for the Malaysian
business may not be indicative of the results of operations that would have
resulted if the Malaysian business had operated on a stand-alone basis. All of
the allocations and estimates reflected in the financial statements of the
Malaysian business are based on assumptions that we believe are reasonable
under the circumstances.
The fiscal year end of the Malaysian business was July 2, 1999. The pro
forma statement of operations for the twelve months ended December 31, 1999
includes the third and fourth quarters of the fiscal year ended July 2, 1999
and the first and second quarters of the fiscal year ending June 30, 2000 of
the Malaysian business.
28
<PAGE>
Unaudited Pro Forma Combined Condensed Statement of Operations
Year Ended December 31, 1999
<TABLE>
<CAPTION>
ChipPAC, Inc.
Recapitalization Malaysian Acquisition Pro Forma ChipPAC, Inc.
ChipPAC, Inc. Pro Forma Business Pro Forma Before Offering Pro Forma
Historical Adjustments Historical Adjustments Offering Adjustments As Adjusted
------------- ---------------- ---------- ----------- ------------- ----------- -------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Pro Forma Combined
Condensed Statements of
Operations:
Revenues................ $375,530 $ -- $101,864 $ -- $477,394 $ -- $477,394
Costs of revenues....... 317,488 -- 85,952 1,785 (3) 405,225 -- 405,225
-------- ------- -------- ------- -------- ------- --------
Gross profit............ 58,042 -- 15,912 (1,785) 72,169 -- 72,169
Operating expenses:
Selling, general and
administrative........ 21,219 -- -- -- 21,219 -- 21,219
Research and
development........... 12,362 -- -- -- 12,362 -- 12,362
Change of control
expense............... 11,842 (11,842)(1) -- -- -- -- --
-------- ------- -------- ------- -------- ------- --------
Operating income........ 12,619 11,842 15,912 (1,785) 38,588 -- 38,588
Interest expense........ 21,241 12,976 (2) -- 5,844 (4) 40,061 (7,309)(6) 32,752
Interest income......... (2,751) -- (86) -- (2,837) -- (2,837)
Foreign currency gain... (1,224) -- -- -- (1,224) -- (1,224)
Other income............ (650) -- 102 -- (548) -- (548)
-------- ------- -------- ------- -------- ------- --------
Income (loss) before
provision for income
taxes.................. (3,997) (1,134) 15,896 (7,629) 3,136 7,309 10,445
Provision (benefit) for
income taxes........... 1,938 (227) 7,745 (9,056)(5) 627 1,462 (5) 2,089
-------- ------- -------- ------- -------- ------- --------
Net income (loss) from
continuing
operations............ $ (5,935) $ (907) $ 8,151 $ 1,427 $ 2,509 $ 5,847 $ 8,355
======== ======= ======== ======= ======== ======= ========
Net income (loss)
available to common
stockholders(7)....... $(11,528) $(6,103) $ 8,151 $ 552 $ (7,782) $15,878 $ 8,095
======== ======= ======== ======= ======== ======= ========
Earnings per common
share:
Basic................... $ 0.15
Diluted................. 0.15
Weighted average common
shares outstanding:
Basic .................. 53,469
Diluted(8) ............. 54,062
Other Data:
Dividends accreted on
Class B preferred
stock(9)............... 3,554 5,196 -- -- 8,750 (8,750) --
Dividends accreted on
Class A convertible
preferred stock(10).... 406 -- -- -- 406 (406) --
Dividends accreted on
Class C preferred
stock(11).............. -- -- -- 875 875 (875) --
Accretion of recorded
value of the Intel
warrant................ 260 -- -- -- 260 -- 260
</TABLE>
-------------------
See Notes to Unaudited Pro Forma Combined Condensed Statement of Operations.
29
<PAGE>
Unaudited Pro Forma Combined Condensed Statement of Operations
Three Months Ended March 31, 1999
<TABLE>
<CAPTION>
ChipPAC, Inc.
Recapitalization Malaysian Acquisition Pro Forma ChipPAC, Inc.
ChipPAC, Inc. Pro Forma Business Pro Forma Before Offering Pro Forma
Historical Adjustments Historical Adjustments Offering Adjustments As Adjusted
------------- ---------------- ---------- ----------- ------------- ----------- -------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Pro Forma Combined
Condensed Statements of
Operations:
Revenues................ $85,548 $ -- $23,647 $ -- $109,195 $ -- $109,195
Costs of revenues....... 72,131 -- 19,908 446 (3) 92,485 -- 92,485
------- ------- ------- ------- -------- ------ --------
Gross profit............ 13,417 -- 3,739 (446) 16,710 -- 16,710
Operating expenses:
Selling, general and
administrative........ 4,511 -- -- -- 4,511 -- 4,511
Research and
development........... 3,003 -- -- -- 3,003 -- 3,003
------- ------- ------- ------- -------- ------ --------
Operating income........ 5,903 -- 3,739 (446) 9,196 9,196
Interest expense........ 3,007 5,547 (2) -- 1,461 (4) 10,015 (1,827)(6) 8,188
Interest income......... (950) -- (20) -- (970) -- (970)
Foreign currency gain... (946) -- -- -- (946) -- (946)
Other income............ (127) -- 15 -- (112) -- (112)
------- ------- ------- ------- -------- ------ --------
Income (loss) before
provision for income
taxes.................. 4,919 (5,547) 3,744 (1,907) 1,209 1,827 3,036
Provision (benefit) for
income taxes........... 3,115 (1,109)(5) -- (1,759)(5) 242 365 (5) 607
------- ------- ------- ------- -------- ------ --------
Net income (loss)...... $ 1,804 $(4,438) $ 3,744 $ (148) $ 967 $1,462 $ 2,429
======= ======= ======= ======= ======== ====== ========
Net income (loss)
available to common
stockholders(7)....... $ 1,804 $(6,626) $ 3,744 $ (367) $ (1,440) $3,869 $ 2,429
======= ======= ======= ======= ======== ====== ========
Earnings per common
shares:
Basic................... $ 0.05
Diluted................. $ 0.05
Weighted average common
shares outstanding:
Basic................... 52,371
Diluted(8).............. 52,371
Other Data:
Dividends accreted on
Class B preferred
stock(9)............... -- 2,188 -- -- 2,188 (2,188) --
Dividends accreted on
Class A convertible
preferred stock(10).... -- -- -- -- -- -- --
Dividends accreted on
Class C preferred
stock(11).............. -- -- -- 219 219 (219) --
</TABLE>
-------------------
See Notes to Unaudited Pro Forma Combined Condensed Statement of Operations.
30
<PAGE>
Unaudited Pro Forma Combined Condensed Statement of Operations
Three Months Ended March 31, 2000
<TABLE>
<CAPTION>
ChipPAC, Inc.
Malaysian Acquisition Pro Forma ChipPAC Pro
ChipPAC, Inc. Business Pro Forma Before Offering Forma
Historical Historical Adjustments Offering Adjustments As Adjusted
------------- ---------- ----------- ------------- ----------- -----------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Pro Forma Combined
Condensed Statements of
Operations:
Revenues................ $97,469 $22,923 $ -- $120,392 $ -- $120,392
Costs of revenues....... 77,044 20,185 446 (3) 97,675 -- 97,675
------- ------- ------- -------- ------ --------
Gross profit............ 20,425 2,738 (446) 22,717 -- 22,717
Operating expenses:
Selling, general and
administrative........ 7,099 -- -- 7,099 -- 7,099
Research and
development........... 2,631 -- -- 2,631 -- 2,631
------- ------- ------- -------- ------ --------
Operating income........ 10,695 2,738 (446) 12,987 -- 12,987
Interest expense........ 8,764 -- 1,461 (4) 10,225 (1,872)(6) 8,353
Interest income......... (238) (10) -- (248) -- (248)
Foreign currency gain... (399) -- -- (399) -- (399)
Other income............ (134) 18 -- (116) -- (116)
------- ------- ------- -------- ------ --------
Income (loss) before
provision for income
taxes.................. 2,702 2,730 (1,907) 3,525 1,872 5,397
Provision (benefit) for
income taxes........... 542 3,165 (3,001)(5) 705 374 (5) 1,080
------- ------- ------- -------- ------ --------
Net income (loss)...... $ 2,160 $ (435) $ 1,094 $ 2,820 $1,497 $ 4,317
======= ======= ======= ======== ====== ========
Net income (loss)
available to common
stockholders(7)....... $ (545) $ (435) $ 875 $ (104) $4,265 $ 4,161
======= ======= ======= ======== ====== ========
Earnings per common
share:
Basic................... $ 0.07
Diluted................. 0.07
Weighted average common
shares outstanding:
Basic................... 56,970
Diluted(8).............. 59,509
Other Data:
Dividends accreted on
Class B preferred
stock(9)............... 2,299 -- -- 2,299 (2,299) --
Dividends accreted on
Class A convertible
preferred stock(10).... 250 -- -- 250 (250) --
Dividends accreted on
Class C preferred
stock(11).............. -- -- 219 219 (219) --
Accretion of recorded
value of the Intel
Warrant................ 156 -- -- 156 -- 156
</TABLE>
-------------------
See Notes to Unaudited Pro Forma Combined Condensed Statement of Operations.
31
<PAGE>
Notes to Unaudited Pro Forma Combined Condensed Statement of Operations
Year Ended December 31, 1999 and Three Months Ended March 31, 1999 and 2000
(1) As a result of our recapitalization, we were contractually required to
make a one-time change of control payment to our unionized Korean employees of
approximately $11.8 million, which resulted in a corresponding reduction to the
recapitalization consideration paid to Hyundai. The payment was recorded as an
operating expense during the three months ended September 30, 1999. This amount
has been excluded from the pro forma operating results for the year ended
December 31, 1999, as it represents a one-time charge directly related to our
recapitalization.
(2) The increase to pro forma interest expense as a result of our
recapitalization is summarized as follows:
<TABLE>
<CAPTION>
Three Months
Year Ended Ended
December 31, March 31,
1999 1999
------------ ------------
(in millions)
<S> <C> <C>
Interest on term loans--8.86%.................... $ 13.3 $ 3.3
Interest on senior subordinated notes due 2009--
12.75%.......................................... 19.1 4.8
Amortization of debt issuance costs ($14.4
million over 8 years) .......................... 1.8 0.5
------ -----
Interest expense from recapitalization debt
requirements.................................... 34.2 8.6
Less: historical interest expense................ (21.2) (3.0)
------ -----
Net increase................................... $ 13.0 $ 5.5
====== =====
</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
$187,500 for the year ended December 31, 1999.
(3) As part of cost of revenues, we expect to include amortization expense
based on the fair value of acquired intangibles over a period of seven years.
The pro forma expense for the year ended December 31, 1999 is $1.7 million and
the pro forma expense for the three months ended March 31, 1999 and 2000 is
$0.4 million. Acquired intangibles comprise the estimated fair value of
intellectual property, primarily trade secrets and patents.
(4) The increase to pro forma interest as a result of the acquisition of the
Malaysian business is summarized as follows:
<TABLE>
<CAPTION>
Three Months Three Months
Year Ended Ended Ended
December 31, 1999 March 31, 1999 March 31, 2000
----------------- -------------- --------------
(in millions)
<S> <C> <C> <C>
Interest on term C loan--
10.62625%................ $5.8 $1.5 $1.5
==== ==== ====
</TABLE>
(5) As a result of the recapitalization, we believe our effective tax rate
will be 20% on an ongoing basis. We believe that the acquisition of the
Malaysian business did not change our effective 20% tax rate. Accordingly, the
pro forma adjustments reflect the income tax required to result in a pro forma
income tax provision based on a 20% effective tax rate.
32
<PAGE>
Notes to Unaudited Pro Forma Combined Condensed
Statement of Operations--(Continued)
(6) A portion of the proceeds of the offering will be used to repay a
portion of amounts outstanding under our senior credit facilities, resulting in
lower debt after the offering and lower interest expense. The estimated pro
forma reductions to interest expense for the pro forma year ended December 31,
1999 and the three months ended March 31, 1999 and 2000 are set forth below:
<TABLE>
<CAPTION>
Three Months Three Months
Year Ended Ended Ended
December 31, 1999 March 31, 1999 March 31, 2000
----------------- -------------- --------------
(in millions)
<S> <C> <C> <C>
Senior credit facilities:
term A loan--9.3825% in
2000, 8.86% in 1999..... 0.8 0.2 0.2
term B loan--10.1325% in
2000, 8.86% in 1999..... 0.9 0.2 0.3
term C loan--10.1325%.... 5.6 1.4 1.4
---- ---- ----
$7.3 $1.8 $1.9
==== ==== ====
</TABLE>
(7) Net income (loss) available to common stockholders represents net income
(loss) from continuing operations less dividends accreted on preferred stock,
the accretion of the recorded value on the Intel warrant and, for the pro forma
year ended December 31, 1999, the extraordinary loss on retirement of a portion
of the debt in connection with recapitalization. The following table sets forth
the computation of net income (loss) per share of common stock:
<TABLE>
<CAPTION>
Pro Forma As Adjusted
--------------------------------
Three Months Ended
Year Ended December 31, Year Ended March 31,
---------------------------- December 31, -------------------
1997 1998 1999 1999 1999 2000
--------- -------- -------- ------------ --------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Net income (loss)....... $ (46,118) $ 32,303 $ (5,935) $ 8,355 $ 2,429 $ 4,317
Extraordinary item(a).. -- -- (1,373) -- -- --
Mandatorily redeemable
preferred stock
dividends(b).......... -- -- (3,960) -- -- --
Accretion of the
recorded value of the
Intel warrant......... -- -- (260) (260) -- (156)
--------- -------- -------- ------- --------- ---------
Net income (loss)
available to common
stockholders........... $(46,118) $ 32,303 $(11,528) $ 8,095 $ 2,429 $ 4,161
========= ======== ======== ======= ========= =========
Weighted average shares
outstanding used for
basic and diluted
income (loss) per
share:
Class A common stock.... 53,469 52,371 56,970
------- --------- ---------
Basic earnings per
share.................. $ 0.15 $ 0.05 $ 0.07
======= ========= =========
Fully diluted shares
outstanding............ 54,062 52,371 59,509
Diluted earnings per
share.................. $ 0.15 $ 0.05 $ 0.07
======= ========= =========
</TABLE>
---------------------
(a) On early retirement of some of the debt upon recapitalization, we incurred
termination penalties and recorded an extraordinary loss of $1.4 million,
net of related tax benefit.
(b) A portion of the proceeds of the offering will be used to redeem the Class
B preferred stock.
(8) The estimated fully-diluted number of shares expected to be outstanding
after this offering and the concurrent private placements, including the shares
of Class A common stock issuable upon the exercise of options outstanding and
the shares of Class B common stock issuable upon the exercise of a warrant held
by Intel, is 67,087,431 shares.
33
<PAGE>
Notes to Unaudited Pro Forma Combined Condensed
Statement of Operations--(Continued)
(9) Dividends on our Class B preferred stock accrete on a daily basis at a
rate of 12.5% per annum. Until February 5, 2005, dividends will not be paid in
cash, but will be capitalized as accumulated and unpaid dividends as part of
mandatorily redeemable preferred stock.
(10) Dividends on our Class A convertible preferred stock accrete on a daily
basis at a rate of 10% per annum. Accumulated and unpaid dividends as of the
balance sheet date are capitalized as part of mandatorily redeemable preferred
stock.
(11) Dividends on our Class C preferred stock accrete on a daily basis at a
rate of 5% per annum. Accumulated and unpaid dividends as of the balance sheet
date are capitalized as part of mandatorily redeemable preferred stock. The
Class C preferred stock has been valued at $15.8 million and has a liquidation
value of $17.5 million, with the difference being accreted over a three-year
period to the redemption date.
34
<PAGE>
UNAUDITED PRO FORMA
BALANCE SHEET AS OF MARCH 31, 2000
(In thousands)
<TABLE>
<CAPTION>
Pro Forma
Malaysian Acquisition Pro Forma as Adjusted
ChipPAC, Inc. Business Pro Forma Before Offering for the
Historical Historical Adjustments Offering Adjustments Offering
------------- ---------- ----------- --------- ----------- -----------
ASSETS
------
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash
equivalents........... $ 19,538 $ 2,082 $ -- $ 21,620 $ -- $ 21,620
Accounts receivable,
less allowance for
doubtful accounts..... 35,535 -- -- 35,535 -- 35,535
Inventories............ 14,941 5,612 -- 20,553 -- 20,553
Deferred taxes......... 716 -- -- 716 -- 716
Prepaid expenses and
other current assets
...................... 7,799 373 1,800 (1) 9,972 -- 9,972
--------- -------- -------- --------- -------- ---------
Total current
assets.............. 78,529 8,067 1,800 88,396 -- 88,396
Property, plant and
equipment, net......... 229,430 83,983 (12,553)(2) 300,860 -- 300,860
Intangibles ............ -- -- 12,498 (3) 12,498 -- 12,498
Other assets............ 20,995 -- 1,238 (4) 22,233 (1,818) (9) 20,415
--------- -------- -------- --------- -------- ---------
Total assets......... $ 328,954 $ 92,050 $ 2,983 $ 423,987 $ (1,818) $ 422,169
========= ======== ======== ========= ======== =========
LIABILITIES, MANDATORILY
REDEEMABLE PREFERRED
STOCK AND EQUITY
------------------------
Current liabilities:
Revolving loans........ $ 7,500 $ -- $ -- $ 7,500 $ -- $ 7,500
Accounts payable....... 35,723 7,369 -- 43,092 -- 43,092
Accrued expenses and
other liabilities .... 18,725 2,926 7,500 (5) 29,151 2,000(11) 31,151
Current portion of
long-term debt........ 7,300 -- -- 7,300 -- 7,300
Payable to parent ..... -- 14,934 (14,934) (6) -- -- --
--------- -------- -------- --------- -------- ---------
Total current
liabilities......... 69,248 25,229 (7,434) 87,043 2,000 89,043
--------- -------- -------- --------- -------- ---------
Long-term debt, less
current portion........ 292,700 -- 55,000 347,700 (74,600)(10) 273,100
Deferred taxes.......... -- 4,622 1,830 6,452 -- 6,452
Other long-term
liabilities............ 4,514 -- -- 4,514 -- 4,514
--------- -------- -------- --------- -------- ---------
Total liabilities.... 366,462 29,851 49,396 445,709 (72,600) 373,109
--------- -------- -------- --------- -------- ---------
Commitments and
contingencies
Mandatorily redeemable
preferred stock:
10.0% cumulative
convertible preferred
stock, class A held
by Intel--par value
$0.01 per share:
10,000 shares
authorized, issued
and outstanding at
March 31, 2000,
actual and pro forma;
no shares issued and
outstanding, pro
forma as adjusted..... 9,832 -- -- 9,832 (9,832)(10) --
12.5% cumulative
preferred stock,
class B held by
Hyundai--par value
$0.01 per share:
105,000 shares
authorized and 70,000
shares issued and
outstanding at March
31, 2000, actual and
pro forma; no shares
issued and
outstanding, pro
forma as adjusted..... 75,853 -- -- 75,853 (75,853)(10) --
5% cumulative
convertible preferred
stock, class C held
by Intersil--par
value $0.01 per
share; 17,500 shares
authorized, no shares
issued and
outstanding at March
31, 2000, actual;
17,500 shares issued
and outstanding, pro
forma; no shares
issued and
outstanding, pro
forma as adjusted .... -- -- 15,786 (7) 15,786 (15,786)(10) --
Stockholders' equity
(deficit):
Common stock, class
A--par value $0.01
per share;
180,000,000 shares
authorized,
96,254,000 shares
issued and
outstanding at March
31, 2000, actual and
pro forma
(250,000,000 shares
authorized and
65,580,981 issued,
pro forma as
adjusted)............. 974 81,092 (81,092)(8) 974 (318)(10) 656
Common stock, class
B--par value $0.01
per share;
180,000,000 shares
authorized, no shares
issued or outstanding
at March 31, 2000,
actual and pro forma
(250,000,000 shares
authorized and no
shares issued pro
forma as adjusted).... -- -- -- -- -- --
Common stock, class
L--par value $0.01
per share; 20,000,000
shares authorized,
10,456,000 shares
issued and
outstanding at
March 31, 2000,
actual and pro forma
(no shares authorized
or issued, pro forma
as adjusted).......... 104 -- -- 104 (104)(10) --
Warrants, class B
Common Stock (the
Intel Warrant)........ 1,250 -- -- 1,250 -- 1,250
Additional paid-in-
capital............... 86,336 5,923 (5,923)(8) 86,336 182,822 (10) 269,158
Divisional equity, net
of capital
redemption............ (167,714) -- (167,714) -- (167,714)
Receivable from
shareholders.......... (1,478) -- -- (1,478) -- (1,478)
Accumulated deficit ... (51,834) (24,816) (24,816)(8) (51,834) (10,147)(11) (61,981)
Accumulated other
comprehensive income
(loss)................ 9,169 -- -- 9,169 -- 9,169
--------- -------- -------- --------- -------- ---------
Total stockholders'
equity (deficit).... (123,193) 62,199 (46,413) (123,193) 172,253 49,060
--------- -------- -------- --------- -------- ---------
Total liabilities,
mandatorily
redeemable preferred
stock and equity.... $ 328,954 $ 92,050 $ 2,983 $ 423,987 $ (1,818) $ 422,169
========= ======== ======== ========= ======== =========
</TABLE>
-------------------
See Notes to Unaudited Pro Forma Balance Sheet.
35
<PAGE>
Notes to Unaudited Pro Forma Balance Sheet
On June 30, 2000, we consummated the acquisition of Intersil's Malaysian
business. The acquisition is being accounted for using purchase accounting.
Under purchase accounting, the total purchase price of the Malaysian business
is being allocated to the acquired assets and liabilities based on their
relative fair values as of the closing date of the acquisition. We are
undertaking a study which will be finalized to determine the allocation of the
total purchase price to the various assets acquired and the liabilities
assumed. Accordingly, the final allocations could be different from the amounts
reflected below, and these differences may be significant. The purchase price
of $70.0 million represents the total of the cash consideration and the stated
value of the Class C preferred stock exchanged for the whole of the issued
shares of the Malaysian business and certain intellectual property. The amount
and components of the estimated purchase price along with the allocation of the
estimated purchase price to assets purchased and liabilities assumed as though
the Malaysian business acquisition had occurred on March 31, 2000 are as
follows:
<TABLE>
<CAPTION>
(in millions)
<S> <C>
Purchase Price:
Cash consideration............................................... $52.5
Estimated fair value of Class C preferred stock.................. 15.8
Estimated expenses............................................... 3.5
Less: payment due from Intersil................................... (1.8)
-----
$70.0
=====
Allocation of Purchase Price:
Estimated fair value of
Buildings....................................................... $16.7
Plant and equipment............................................. 54.7
Intellectual property........................................... 12.5
Restructuring accrual........................................... (7.5)
Deferred taxes.................................................. (6.9)
Net other assets and liabilities................................ 0.5
-----
$70.0
=====
</TABLE>
There is no goodwill arising from the acquisition of the Malaysian business.
The estimated fair value of total assets and liabilities exceeded the purchase
price, resulting in negative goodwill of $59.0 million. The negative goodwill
has been allocated in full to non-current assets as summarized below:
<TABLE>
<CAPTION>
Estimated Negative
Fair Goodwill Adjusted
Non-current asset Value Allocated Fair Value
----------------- --------- --------- ----------
(in millions)
<S> <C> <C> <C>
Buildings..................................... $ 29.0 $(12.3) $16.7
Plant and equipment........................... 93.0 (38.3) 54.7
Intellectual property......................... 20.9 (8.4) 12.5
------ ------ -----
$142.9 $(59.0) $83.9
====== ====== =====
</TABLE>
The terms of the acquisition of the Malaysian business require, for the
period from the closing of the acquisition to June 30, 2003, the payment of
additional contingent incentive payments to the seller based on the achievement
of milestones with respect to the transfer of the seller's packaging business,
currently subcontracted by the seller to a third party, to us. These contingent
payments will be recorded as additional purchase price if and when earned and
paid on a quarterly basis.
36
<PAGE>
Notes to Unaudited Pro Forma Balance Sheet--(Continued)
(1) The terms of the transaction require Intersil to pay $1.8 million to us
on October 1, 2000. This payment for expenses expected to be incurred by us
after the acquisition is completed has been recorded as a receivable and a
reduction in purchase price.
(2) The acquisition pro forma adjustment to property, plant and equipment
has been computed as set out below:
<TABLE>
<CAPTION>
As of
March 31, 2000
----------------
(in millions)
<S> <C> <C>
Malaysian business historical basis........................ $ 84.0
Fair value adjustments..................................... $ 38.0
Allocation of negative goodwill............................ (48.6) (10.6)
------- -------
Pro forma basis............................................ $ 73.4
=======
</TABLE>
(3) Intangibles comprise the estimated fair value of intellectual property
acquired, primarily consisting of trade secrets and patents. The pro forma
adjustment is a result of the purchase price allocation.
(4) Represents the issuance costs of the term C loan.
(5) An accrual of $7.5 million has been established for expected costs of
restructuring the Malaysian business. These one time non-recurring costs are
expected to be incurred in connection with factory reorganization, product
discontinuance and employee related costs.
(6) Reflects the elimination of the liability payable to the parent entity
in accordance with the terms of the purchase agreement for the Malaysian
business.
(7) The Class C preferred stock has been independently valued at $15.8
million and has a liquidation value of $17.5 million.
(8) Reflects the elimination of the Malaysian business' historical equity
as a result of purchase accounting.
(9) Reflects the write off debt issuance costs related to the term debt
repaid.
(10) The offering and the Qualcomm private placement contemplate using the
estimated net proceeds of $150.5 million for the repayment of term loans of
$74.6 million. The offering also contemplates the conversion of Class A
convertible preferred stock and Class C preferred stock into shares of our
Class A common stock and the redemption of Class B preferred stock.
(11) Pro forma adjustments to accumulated deficit arising from the
offering are set forth below:
<TABLE>
<CAPTION>
(in millions)
<S> <C>
Write off debt issuance costs.................................. $ 1.8
Advisory agreement termination payment, net of tax............. 6.4
Accretion to liquidation value:
Class A convertible preferred stock.......................... 0.1
Class B preferred stock...................................... 0.1
Class C preferred stock...................................... 1.7
-----
$10.1
=====
</TABLE>
37
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF CHIPPAC, INC.
The following table presents our selected historical statements of
operations, balance sheet and other data for the periods presented. This
information should only be read in conjunction with our audited and unaudited
combined financial statements and the related notes, "Unaudited Pro Forma
Combined Condensed Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations," all included elsewhere in this
prospectus. The statement of operations data for each of the years in the two
year period ended December 31, 1996 and the balance sheet data as of December
31, 1995, 1996 and 1997 have been derived from audited financial statements not
included in this prospectus. The statement of operations data for each of the
years in the three year period ended December 31, 1999 and the balance sheet
data as of December 31, 1998 and 1999 have been derived from our audited
financial statements included elsewhere in this prospectus. The historical
consolidated financial data as of and for the three months ended March 31, 1999
and 2000 have been derived from our unaudited financial statements that are
included elsewhere in this prospectus. We believe that such unaudited financial
statements include all adjustments necessary for the fair presentation of our
financial condition and the results of operations for these periods and as of
these dates. This information should be read in conjunction with our financial
statements included elsewhere in this prospectus and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
------------------------------------------------ -------------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- --------- -------- ---------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data(1):
Revenue................. $179,234 $191,655 $289,429 $334,081 $ 375,530 $ 85,548 $ 97,469
Costs and expenses:
Cost of revenue........ 158,527 166,665 229,238 270,365 317,488 72,131 77,044
Selling, general and
administrative
expenses.............. 11,805 11,431 15,853 15,067 21,219 4,511 7,099
Research and
development
expenses.............. 1,724 2,617 4,052 7,692 12,362 3,003 2,631
Management fees
charged by
affiliate............. 138 3,322 3,199 528 -- -- --
Write-down of impaired
assets(2)............. -- -- 11,569 -- -- -- --
Change in control
expenses(3)........... -- -- -- -- 11,842 -- --
-------- -------- -------- -------- --------- -------- ---------
Operating income..... 7,040 7,620 25,518 40,429 12,619 5,903 10,695
Interest expense........ 3,151 5,780 10,972 13,340 21,241 3,007 8,764
Interest income......... -- (108) (96) (1,276) (2,751) (950) (238)
Foreign currency (gains)
losses(4).............. 1,012 5,041 69,669 (24,670) (1,224) (946) (399)
Other (income) expense,
net.................... 802 (351) 762 168 (650) (127) (134)
-------- -------- -------- -------- --------- -------- ---------
Income (loss) before
income taxes........ 2,075 (2,742) (55,789) 52,867 (3,997) 4,919 2,702
Provision for (benefit
from) income taxes..... 1,977 2,883 (9,671) 20,564 1,938 3,115 542
Extraordinary item:
Loss from early
extinguishment of
debt, net of related
income tax
benefit(5)............ -- -- -- -- 1,373 -- --
-------- -------- -------- -------- --------- -------- ---------
Net income (loss).... 98 (5,625) (46,118) 32,303 (7,308) 1,804 2,160
Accretion of dividends
on mandatorily
redeemable preferred
stock.................. -- -- -- -- (3,960) -- (2,549)
Accretion of recorded
value of the Intel
Warrants............... -- -- -- -- (260) -- (156)
-------- -------- -------- -------- --------- -------- ---------
Net income (loss)
available to common
stockholders........ $ 98 $ (5,625) $(46,118) $ 32,303 $ (11,528) $ 1,804 $ (545)
======== ======== ======== ======== ========= ======== =========
Earnings per common
share:
Basic................... $ 0.00 $ (0.06) $ (0.45) $ 0.32 $ (0.11) $ 0.02 $ (0.01)
Diluted................. 0.00 (0.06) (0.45) 0.32 (0.11) 0.02 (0.01)
Weighted average common
shares outstanding:
Basic................... 102,000 102,000 102,000 102,000 102,194 102,000 107,286
Diluted................. 102,000 102,000 102,000 102,000 102,194 102,000 107,286
Other Financial Data:
Depreciation............ 27,917 26,632 40,682 45,855 56,701 13,465 8,515
Amortization............ -- -- -- -- 774 -- 375
Capital expenditures.... 51,462 118,971 136,594 63,523 57,856 4,343 11,044
Balance Sheet Data (at
period end):
Cash and cash
equivalents............ $ 2,602 $ 2,323 $ 3,067 $ 68,767 $ 32,117 $ 66,765 $ 19,538
Accounts receivable..... 20,694 30,156 37,729 30,003 26,130 35,535
Working capital......... 20,240 29,637 20,320 10,224 8,314 9,279
Total assets............ 127,984 215,932 233,241 359,472 343,429 334,415 328,954
Total long-term debt,
including current
portion................ 52,468 109,053 152,410 133,715 300,000 128,672 300,000
Mandatorily redeemable
preferred stock........ -- -- -- -- 82,970 -- 85,685
Total stockholders'
equity (deficit)....... 11,559 53,692 9,472 113,191 (122,886) 132,644 (123,193)
</TABLE>
Footnotes to table appear on the following page.
38
<PAGE>
Footnotes to table from previous page.
---------------------
(1) For fiscal years 1997 and 1998 and the portion of fiscal 1999 prior to the
recapitalization, statement of operations data includes the expense of the
ChipPAC business of Hyundai and allocated expenses from Hyundai. These
amounts may not be comparable to the historical and pro forma data for
fiscal year 1999.
(2) At December 1997, consistent with SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of, we recorded a charge of $11.6 million to write down the value of those
assets which had been identified as economically impaired, as a result of
management's decision to discontinue particular product lines or which were
judged to be in excess of foreseeable requirements.
(3) The $11.8 million change in control charge was a special bonus paid to
employees of our Korean subsidiary arising from the change in control in
our recapitalization transaction, which resulted in a corresponding
reduction to the recapitalization consideration paid to Hyundai.
(4) The foreign currency gains and losses were primarily the result of U.S.
Dollar-denominated debt of our Korean subsidiary. Consistent with U.S.
GAAP, as the U.S. Dollar/South Korean Won exchange rates change, resulting
foreign currency exchange gains/(losses) are recorded in our Combined
Statement of Operations.
(5) The extraordinary loss of $1.4 million, net of tax effects, represents
costs related to the early retirement of debt, in connection with the
recapitalization of the company on August 5, 1999.
39
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF MALAYSIAN BUSINESS
The following table presents the selected historical statements of
operations, balance sheet and other data of the Malaysian business for the
periods presented. This information should only be read in conjunction with
audited and unaudited combined financial statements and the related notes of
the Malaysian business, "Unaudited Pro Forma Combined Condensed Financial Data"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations," all included elsewhere in this prospectus. The Malaysian business,
which was formed on August 13, 1999, includes the operations of its
predecessor, Harris Advanced Technology Sdn. Bhd ("Predecessor"), prior to
August 13, 1999. The statement of operations data for the fiscal years ended
June 27, 1997, July 3, 1998 and July 2, 1999 and the balance sheet data as of
July 3, 1998 and July 2, 1999 are derived from the financial statements of the
Malaysian business which include the accounts of the Predecessor company and
have been audited by Ernst & Young LLP, Intersil's independent certified public
accountant. The selected historical financial data as of and for the nine
months ended April 2, 1999 and March 31, 2000 have been derived from unaudited
financial statements of the Malaysian business that are included elsewhere in
this prospectus. The unaudited condensed consolidated balance sheet as of July
2, 1999 and the unaudited condensed consolidated statements of operations for
the nine months ended March 31, 1999, include the accounts of the Predecessor
company. The unaudited combined condensed consolidated statements of operations
for the nine months ended March 31, 1999, include the accounts of the
Predecessor company from July 3, 1999 to August 13, 1999. We believe that such
unaudited financial statements included all adjustments necessary for the fair
presentation of the financial condition and the results of operations of the
Malaysian business for these periods and as of these dates.
During the periods covered by the financial statements of the Malaysian
business, the activities of the Malaysian business were conducted as part of
Intersil's overall operations, and separate financial statements were not
prepared. The Malaysian business' financial statements were prepared from the
historical accounting records of Intersil and include various allocations for
costs and expenses. Therefore, the statements of operations for the Malaysian
business may not be indicative of the results of operations that would have
resulted if the Malaysian business had operated on a stand-alone basis. All of
the allocations and estimates reflected in the financial statements of the
Malaysian business are based on assumptions that we believe are reasonable
under the circumstances.
<TABLE>
<CAPTION>
Fiscal Year Ended Nine Months Ended
--------------------------- ---------------------
Successor
Predecessor Predecessor Combined
--------------------------- ----------- ---------
June 27, July 3, July 2, April 2, March 31,
1997 1998 1999 1999 2000
-------- ------- -------- ----------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue.................... $83,674 $80,376 $110,504 $77,837 $68,473
Costs and expenses:
Cost of revenue........... 69,073 70,110 94,426 66,712 58,566
------- ------- -------- ------- -------
Operating income........ 14,601 10,266 16,078 11,125 9,907
Interest income............ (160) (139) (134) (106) (49)
Other (income) expense,
net....................... 95 57 69 55 40
------- ------- -------- ------- -------
Income before income
taxes..................... 14,666 10,348 16,143 11,176 9,916
Pro forma provision for
(benefit from) income
taxes..................... 3,060 (5,911) 1,182 (1,180) 6,528
------- ------- -------- ------- -------
Net income................. $11,606 $16,259 $ 14,961 $12,356 $ 3,388
======= ======= ======== ======= =======
Other Financial Data:
Depreciation............... 12,308 14,823 18,289 13,646 11,771
Capital expenditures....... 37,016 38,798 20,113 14,836 3,896
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Balance Sheet Data (at period end):
Cash and cash equivalents.............. $ 131 $ 802 $ 2,684 $ 2,082
Working capital (deficit).............. 120,032 46,445 122,307 (17,162)
Total assets........................... 250,664 175,525 249,692 92,050
Total stockholders' equity............. 237,559 165,339 241,470 62,199
</TABLE>
40
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results
of operations covers periods prior to the completion of our recapitalization.
As part of our recapitalization, we entered into financing arrangements and, as
a result, we have a different capital structure. Accordingly, the results of
operations for periods subsequent to our recapitalization are not necessarily
comparable to prior periods. The following discussion should be read in
conjunction with the combined financial statements and unaudited combined
condensed pro forma financial statements contained elsewhere in this
prospectus.
Overview
In 1984, our packaging business began operating as a separate division of
Hyundai Electronics, one of the world's largest semiconductor manufacturers and
a member of the Hyundai Group, the Korean conglomerate. In 1997, we were
incorporated as a distinct entity and established as the parent of a stand-
alone worldwide business. In 1999, as part of our recapitalization, the Equity
Investors obtained control of our company and Hyundai Electronics America
retained approximately 10.0% of our outstanding common stock.
Our revenues consist of fees charged to our customers for the packaging and
testing of their integrated circuits, which we refer to as ICs. From 1995 to
1999, net revenues increased from $179.2 million to $375.5 million, primarily
from the growth of BGA packaging. We are one of the largest providers of
outsourced BGA packaging services worldwide and the main supplier of BGA
packaging services to Intel, whom we believe is the largest consumer of these
products and represented over 40% of the BGA independent packaging market in
1999. The capital investments made by Hyundai Electronics from 1995 to 1997
totaled $307.0 million and provided us with the capacity necessary to support
this growth in advanced packaging services, along with providing capacity to
support future growth. By 1998, we possessed the scale required to provide our
services to other customers who required BGA packaging services. We also have a
significant business in leaded packaging, which accounted for 29.1% and 34.8%
of our sales in 1999 and during the three months ended March 31, 2000,
respectively.
The following table describes the composition of revenue by product group
and test services, as a percentage of total revenues:
<TABLE>
<CAPTION>
Three
Months
Fiscal Year Ended Ended March
December 31, 31,
------------------- ------------
1997 1998 1999 1999 2000
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
BGA....................................... 37.7% 61.8% 68.1% 73.0% 59.5%
Leaded.................................... 59.5 35.5 29.1 25.5 34.8
Test...................................... 2.8 2.7 2.8 1.5 5.7
----- ----- ----- ----- -----
Total................................... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
Historically, our foreign currency gains and losses have arisen primarily
from the holding of monetary assets and liabilities denominated in U.S. Dollars
by our Korean subsidiary, which we refer to throughout this prospectus as
ChipPAC Korea. ChipPAC Korea's U.S. Dollar-denominated liabilities consist
primarily of long- and short-term debt, and accounts payable, while its U.S.
Dollar monetary assets consist primarily of intercompany receivables from other
ChipPAC entities. From 1995 until December 31, 1998, ChipPAC Korea's U.S.
Dollar-denominated liabilities exceeded its U.S. Dollar monetary assets. From
December 31, 1998 through July 31, 1999 ChipPAC Korea's U.S. Dollar monetary
assets exceeded its U.S. Dollar-denominated liabilities. From August 1, 1999
until December 31, 1999, ChipPAC Korea's U.S. Dollar-denominated liabilities
exceeded its U.S. Dollar monetary assets.
We changed the functional currency of ChipPAC Korea and our Chinese
subsidiaries, which we refer to throughout this prospectus as ChipPAC China,
from the respective local currencies to the U.S. Dollar, effective
41
<PAGE>
October 1, 1999. The consolidated effect of this change was to reduce net
income for the year ended December 31, 1999, by $4.8 million and to reduce both
total assets and stockholders' equity as at December 31, 1999, by $9.5 million.
This change had no effect on cash flows from operations or net cash flows for
the year ended December 31, 1999.
Recent Operating Results
For the three months ended June 30, 2000, our revenues were $109.0 million,
an increase of 34.8% over the prior year period. This increase was primarily
due to the strong demand from the communications and multi-application end
markets. Revenue grew 124.0% and 35.3% over the prior year period in the
communications and multi-applications end markets, respectively. Our revenues
from the computing end market for the three months ended June 30, 2000 declined
by 5.9% from the prior year period.
For the three months ended June 30, 2000, test revenues continued to grow
dramatically increasing 247.8% over the prior year period. Leaded product
assembly revenue increased 39.9% over the prior year period. Laminate product
assembly revenue increased 23.4% over the prior year period primarily due to
chip-scale BGA packaging revenues increasing by $16.2 million or 1311.1% from
the prior year period.
Our total packaging unit volume was 412.4 million for the three months ended
June 30, 2000, an increase of 61.0% over the prior year period. Leaded product
assembly unit volume increased by 53.9% over the prior year period. Laminate
product assembly unit volume increased by 137.7% over the prior year period.
Our gross margin doubled to 24.0% during the three months ended June 30,
2000 from 12.0% during the prior year period. This margin improvement was
primarily attributable to reductions in material costs and increased efficiency
in the utilization of our production capacity and labor resources and lower
depreciation expenses resulting primarily from the change in useful lives in
production equipment. Our gross profit increased to $26.1 million during the
three months ended June 30, 2000, an increase of 169.9% from our gross profit
of $9.7 million during the prior year period.
Our operating income for the three months ended June 30, 2000 was $16.4
million, more than seven times greater than the prior year period and an
increase of 53.0% over the prior quarter. Our operating margin for the three
months ended June 30, 2000 was 15.0%, an increase of 4.0% over the prior
quarter.
For the three months ended June 30, 2000, our net income was $5.6 million,
after taking into effect income taxes at our estimated effective worldwide tax
rate of 20.0% for 2000. This net income was 5.2% of our revenues for the three
months ended June 30, 2000. Net income increased by $5.1 million from the prior
year period.
Because our acquisition of the Malaysian business was not consummated until
June 30, 2000, the results of operations sets forth above does not include the
operations of the Malaysian business.
Quarterly Results (Unaudited)
The following table describes our unaudited historical quarterly sales and
gross profit in thousands of U.S. Dollars.
<TABLE>
<CAPTION>
1997 1998 1999
---------------------------------- ---------------------------------- ------------------------------------
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------- --------
<S> <C> <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 $107,859
Gross profit.... 3,228 13,298 19,308 24,357 23,196 12,862 15,911 11,747 13,417 9,684 16,791 18,150
Gross margin.... 6.1% 19.7% 23.5% 28.1% 30.1% 16.5% 19.2% 12.2% 15.7% 12.0% 16.6% 16.8%
<CAPTION>
2000
--------
Q1
--------
<S> <C>
Revenues........ $97,469
Gross profit.... 20,425
Gross margin.... 21.0%
</TABLE>
The above table illustrates the cyclical and seasonal nature of our
financial performance, although we believe that as a provider of packaging and
test services, we are less susceptible to cyclical fluctuations than the
semiconductor industry as a whole. We have historically experienced steadily
rising revenue levels during the course of the year, peaking in the fourth
quarter, due to a peak in demand from the personal computer industry in the
fourth quarter of the year.
42
<PAGE>
Malaysian Business
On June 30, 2000, we consummated the acquisition of the Malaysian business
and intellectual property related to this business, in exchange for
approximately $70.0 million in cash and preferred stock. In connection with the
acquisition, we entered into a five-year supply agreement with Intersil to
provide assembly and test services on an exclusive basis. The Malaysian
business increases our exposure to high growth advanced communications
products, provides a presence in Malaysia and enhances our intellectual
property in key areas. In addition, the Malaysian business expands our mixed-
signal testing capabilities and provides us with critical expertise in RF
testing.
The Malaysian business had revenues of $83.7 million, $80.4 million and
$110.5 million for the fiscal years ended June 27, 1997, July 3, 1998 and July
2, 1999, respectively. All of these revenues represented intercompany sales to
Intersil. Pro forma for the acquisition of the Malaysian business, all of the
revenues of the Malaysian business and 21.3% of our consolidated revenues in
1999 would have been from sales to Intersil.
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>
Year Ended December Three Months Ended
31, March 31,
----------------------- --------------------
1997 1998 1999 1999 2000
----- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
Weighted average exchange rate
of Won per U.S. Dollar........ 939.0 1,388.9 1,189.3 1,198.2 1,125.5
===== ======= ======= ========= =========
Historical Statement of
Operations Data:
Revenue........................ 100.0% 100.0% 100.0% 100.0% 100.0%
Gross margin................... 20.8 19.1 15.5 15.7 21.0
Selling, general &
administrative................ 5.5 4.5 5.7 5.3 7.3
Research & development......... 1.4 2.3 3.3 3.5 2.7
Write down of impaired assets.. 4.0 -- -- -- --
Management fees................ 1.1 0.2 -- -- 0.1
Change of control expenses..... -- -- 3.2 -- --
----- ------- ------- --------- ---------
Operating income............... 8.8% 12.1% 3.4% 6.9% 11.0%
===== ======= ======= ========= =========
</TABLE>
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999
Revenues: Net revenues in the three months ended March 31, 2000 increased
14.0% to $97.5 million from $85.5 million in the prior year period, primarily
due to the growth from new customers in the communications and multi-
application end markets. This increase was partially offset by a reduction in
revenues from the computing end market. Laminate product assembly revenue,
59.5% of our revenues for the three months ended March 31, 2000, declined 6.9%
over the comparable prior year period from $62.4 million to $58.1 million,
primarily due to a reduction in average selling price. BGA, a component of our
laminate product assembly revenue, continued to be fueled by demand for
wireless communications applications. Leaded product assembly revenue, 34.8% of
our revenues for the three months ended March 31, 2000, increased 55.5% over
the prior year period from $21.8 million to $33.9 million, primarily due to
increased demand for services to the flash memory market at our Chinese
facility. Test revenues comprised 5.7% of our revenues for the three months
ended March 31, 2000 and continued to grow dramatically increasing 323.9% over
the prior year period from $1.3 million to $5.5 million, primarily due to new
customer growth.
End-market demand in communications and multi-applications remained very
strong for the three months ended March 31, 2000, with revenue growth of
approximately 70% over the prior year period in each end-market. Demand in the
computing end market for the three months ended March 31, 2000 declined 23.3%
from
43
<PAGE>
the prior year period, primarily due to a reduction in chip-set packaging
requirements from one of our core customers.
Gross Profit: Gross profit increased to $20.4 million in the three months
ended March 31, 2000, resulting in a gross margin of 21.0% compared to gross
profit of $13.4 million and a gross margin of 15.7% in the prior year period.
Effective January 1, 2000 we re-evaluated the estimated useful lives of our
property, plant and equipment. Based on an independent appraisal of the useful
lives of such equipment and our internal assessment, we changed the estimated
useful lives of assembly and test product equipment and furniture and fixtures
from five years to eight years. Previously, such equipment was depreciated on a
straight line basis over an estimated useful life of five years. The net book
values of assembly and test product equipment and furniture and fixtures
already in use are now being depreciated over the remaining useful life, based
on eight years from the date such assets were originally placed in service.
This change resulted in depreciation expense for the quarter ended March 31,
2000 being $6.7 million lower than would have been recorded using five year
lives. The remaining increase in gross profit was attributable to improved
materials procurement, partially offset by an increase in average labor costs
and strengthening of the Won against the U.S. Dollar.
Selling, General and Administrative: Selling, general and administrative
expenses increased to $7.1 million for the three months ended March 31, 2000
compared to $4.5 million in the prior year period. As a percentage of revenues
these expenses increased to 7.3% from 5.3%. General and administrative costs
for the three months ended March 31, 2000 increased by $2.1 million compared to
the prior year period, primarily due to additions to management personnel, MIS
development and management advisory fees. The remaining increase was due to
additional sales, marketing and customer service headcount in support of the
acquisition of new customers.
Research and Development: Research and development expenses decreased to
$2.6 million for the three months ended March 31, 2000 from $3.0 million in the
prior year period, despite a 38% increase in total research and development
headcount. Spending on consumable materials, supplies, and tooling was
significantly curtailed as we have focused our research efforts on highly
collaborative programs with major customers. In addition, research and
development expenses for the three months ended March 31, 1999 included
significant start-up costs incurred in connection with the Santa Clara flip-
chip prototype design and development laboratory.
Net Interest Expense: The total outstanding interest bearing debt, including
capital leases, increased to $307.5 million at March 31, 2000 from $143.5
million at March 31, 1999, principally as a result of the recapitalization.
Related interest expense was $8.8 million for the three months ended March 31,
2000, an increase of 191.5% over the prior year period. Interest income was
$0.2 million for the three months ended March 31, 2000 compared to $1.0 million
for the prior year period.
Foreign Currency Gains (Losses): The foreign currency gain was $0.4 million
in the three months ended March 31, 2000 compared to $0.9 million in the prior
year period. Our exposure to foreign currency gains and losses has been
significantly mitigated by two related factors. First, on October 1, 1999, we
changed our functional currency to the U.S. Dollar from the local currencies of
our Korean and Chinese subsidiaries. Second, we negotiated with the large
majority of our material and equipment suppliers to denominate our purchase
transactions in U.S. Dollars.
Income Taxes: Income tax expense for the three months ended March 31, 2000
decreased to $0.5 million from $3.1 million in the prior year period, for an
effective tax rate of 20%. Concurrently with the recapitalization, we were
reorganized and now a significant portion of our total worldwide income is
earned in jurisdictions having relatively low tax rates, or where we enjoy tax
holidays or other similar tax benefits. During the three months ended March 31,
1999, we incurred a $4.4 million loss from operations in China, for
44
<PAGE>
which no tax benefit was realized. Our remaining income before taxes of $9.3
million was taxed at an effective rate of 33.3% during the three months ended
March 31, 1999.
Net Income: As of a result of the items described above, net income
increased to $2.2 million for the three months ended March 31, 2000 from
$1.8 million during the prior year period before preferred dividends and
recorded value of the Intel Warrant.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Revenues: Net revenues in 1999 increased 12.4% to $375.5 million from $334.1
million in 1998. This increase came primarily from sales growth in BGA
packaging services, which increased by 23.6% from $206.9 million to $255.8
million. This increase was partially offset by a decline in revenues from
leaded packages services from $127.2 million to $109.3 million. The strong
growth in BGA revenues was driven primarily by higher volumes of BGA packaging
services sold to Intel, our leading customer, partially offset by lower average
selling prices. Additionally, we started to ship BGA packages to new customers
including NVIDIA, IBM, Lucent and Level One during 1999. The decline in leaded
product revenues was driven by the continuing soft market conditions in the
semiconductor industry present during the second half of 1998, and was
partially offset by strengthening market conditions during 1999.
Gross Profit: Gross profit decreased to $58.0 million in 1999 from $63.7
million in 1998, resulting in gross margin of 15.5% in 1999 compared to 19.1%
for 1998. The gross profit experienced during 1998 was significantly higher
than usual due to the large depreciation of the Won which averaged 1,372.1 Won
per U.S. Dollar during 1998 compared to an average exchange rate of 1,189.3 Won
per U.S. Dollar during 1999. This exchange rate resulted in lower costs for
overhead and labor in Korea in 1998.
Selling, General and Administrative: Selling, general and administrative
expenses increased to $21.2 million in 1999 from $15.1 million during 1998. As
a percentage of revenues, these expenses increased to 5.6% from 4.5%. This
increase was due to additional expenses associated with hiring new personnel in
the areas of administration, sales and marketing.
Research and Development: Research and development expenses increased to
$12.4 million in 1999 from $7.7 million in 1998. As a percentage of revenues,
these expenses increased to 3.3% from 2.3%. The increase in the level of
research and development expenses was due to the establishment of a prototype
development center in Santa Clara, California at the end of 1998. Expenses for
the prototype development center increased by $1.7 million during 1999 over
1998.
Change of Control Expense: As result of our recapitalization, we were
contractually required to make a one-time change of control payment to our
unionized Korean employees of approximately $11.8 million. The payment was
recorded as an operating expense during the three months ended September 30,
1999.
Extraordinary Loss: We incurred an extraordinary loss of $1.4 million, net
of tax benefit, related to the early retirement of our debt upon the
recapitalization.
Management fees charged by affiliate: From 1995 to June 30, 1998, Hyundai
charged us fees for the use of technology and technical support for our
facility in China. This agreement was terminated on June 30, 1998. We are
internally providing this support today.
Interest Income: For 1999, interest income increased to $2.8 million from
$1.3 million for 1998. Most of the interest income was earned from cash
invested in time deposits. During 1999, we maintained an average cash balance
of $51.0 million. During 1998, we did not have a significant cash balance as
substantially all cash was transferred to Hyundai, the then sole stockholder,
at its request.
Interest Expense: Interest expense for 1999 increased 59.2% to $21.2 million
from $13.3 million for 1998. This is primarily due to interest expense on the
debt incurred as part of our recapitalization.
45
<PAGE>
Foreign Currency (Gains) Losses: During 1998, we incurred a net non-cash
foreign currency gain of $24.7 million which arose from ChipPAC Korea's holding
of U.S. Dollar-denominated liabilities in excess of U.S. Dollar-denominated
assets and from an appreciation in the value of the Won. During 1999, we
incurred a non-cash foreign currency gain of $1.2 million.
Other Income (Expense): Other expense increased from $0.2 million in 1998 to
other income of $0.6 million in 1999. The increase in other income arose
principally from an increase in the gains from the sale of miscellaneous excess
equipment and supplies.
Income Taxes: Income tax expense was $1.9 million in 1999 compared to $20.6
million in 1998. The effective tax rate was approximately negative 48% in 1999
versus the historic effective tax rate of approximately 38.9% in 1998. The
effective tax rates during both periods were adversely affected by losses by
our operations in China, for which no tax benefit was realized.
Net Income (Loss): As a result of the items described above, we had a net
loss of $7.3 million for 1999 compared to net income of $32.3 million in 1998.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Revenues: Net revenues in 1998 increased 15.4% to $334.1 million from $289.4
million in 1997. This increase was primarily due to sales growth in BGA
packaging, which grew approximately 89.2% for 1998 as compared to the prior
year. As a percentage of total revenues, BGA packaging revenues increased from
37.7% in 1997 to 61.8% in 1998. Revenues from leaded packaging services
declined to $127.2 million in 1998 from $172.1 million in 1997. The decline in
revenues from leaded packaging services arose from a combination of soft market
conditions in the semiconductor industry in 1998 and from management's decision
to discontinue several unprofitable product lines in the fourth quarter of
1997. Testing revenues increased from $8.2 million to $9.3 million as a result
of management's efforts to increase sales in the test area.
Gross Profit: Gross profit increased to $63.7 million in 1998 from $60.2
million in 1997. Gross margin declined to 19.1% in 1998 from 20.8% in 1997. The
decline in gross margin arose primarily from soft market conditions prevailing
in the semiconductor industry during 1998, which led to lower average selling
prices. The decline of gross margin was partially offset by higher volumes of
BGA packaging, reductions in materials costs from suppliers, cost reduction
programs and a decline in labor and overhead costs due to devaluation of the
Won against the U.S. Dollar.
Selling, General and Administrative: Selling, general and administrative
expenses decreased to $15.1 million in 1998 from $15.9 million in 1997. As a
percentage of revenues, these expenses decreased to 4.5% in 1998 from 5.5% in
1997. The decrease in selling, general and administrative expenses arose
primarily from a weaker Won which was partially offset by an increase in
administrative and sales infrastructure costs incurred in connection with the
implementation of a new corporate infrastructure, including the addition of a
new senior management team.
Research and Development: Research and development expenses increased to
$7.7 million in 1998 from $4.1 million in 1997. As a percentage of revenues,
these expenses increased to 2.3% in 1998 from 1.4% in 1997. Research and
development costs grew in 1998 primarily due to the effect of having a full
year's expenses from the research and development center established at
Chandler, Arizona, and from additional investment in BGA development. The 1998
increases in R&D costs attributable to the Chandler R&D center and to spending
for BGA development were $2.2 million and $0.9 million, respectively.
Management Fees Charged by Affiliate: In 1998, the management fees charged
by Hyundai declined to $0.5 million from $3.2 million charged in 1997. The
decline in the level of management fees reflects the decline in the need for
support from Hyundai, which led to the termination of the management fee
agreement with Hyundai effective June 30, 1998.
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Write Down of Impaired Assets: Consistent with U.S. GAAP, management reviews
all assets for possible impairment arising from changes in technology and
market conditions. At December 1997, we recorded a charge of $11.6 million to
write down particular equipment as a result of a combination of our decision to
discontinue unprofitable product lines and from the identification of
particular production equipment judged to be in excess of foreseeable
requirements.
Interest Income: Interest income increased to $1.3 million in 1998 compared
to $0.1 million during 1997. Prior to July 1, 1998, our Korean operations did
not have any significant cash balances because they existed as a division of
Hyundai. As a division, almost all cash receipts and disbursements were handled
through Hyundai. Most of the interest income earned in 1998 was earned during
the second half of 1998 by our investments of surplus cash in time deposits.
Interest Expense: Interest expense for 1998 increased to $13.3 million from
$11.0 million during 1997. The increase arose from a combination of an increase
in the average level of bank debt from approximately $157 million during 1997
to $168 million in 1998 and from increases in the interest rates charged to us
by our lenders.
Foreign Currency (Gains) Losses: During 1998, we incurred a non-cash gain of
$24.7 million as the value of the Won increased to 1,196 Won per U.S. Dollar at
December 31, 1998 from 1,696 Won per U.S. Dollar at December 31, 1997.
Other Income (Expense): Net other expense declined to $0.2 million in 1998
from $0.8 million in 1997. Most of the 1997 net other expense consisted of
losses recorded on the disposition of surplus equipment.
Income Taxes: We recorded a provision for income taxes of $20.6 million
during 1998 compared with a tax benefit of $9.7 million on a pretax loss of
$55.8 million for 1997. Our effective tax rate was 38.9% in 1998. Our effective
tax rate in 1997 was significantly impacted by non-deductible operating losses
in 1997. The effective tax rates during both periods were adversely affected by
losses incurred by our operations in China, for which no tax benefit was
realized.
Net Income (Loss): As a result of the items described above, we had net
income of $32.3 million for 1998 compared to net loss of $46.1 million in 1997.
Liquidity and Capital Resources
We have a borrowing capacity of $50.0 million for working capital and
general corporate purposes under the revolving credit line portion of our
senior credit facilities. In addition, borrowings of up to $20.0 million are
available for acquiring equipment and making other specified capital
expenditures under the capital expenditure line of our senior credit
facilities. We may borrow and repay under the capital expenditure line until
August 5, 2001. Amounts that we repay under the capital expenditure line after
August 5, 2001 may not be reborrowed by us later. The final maturity for both
these facilities is August 5, 2005. We did not draw upon these facilities in
connection with our recapitalization. In connection with our acquisition of the
Malaysian business, we added a $55.0 million term C loan to our senior credit
facilities and we obtained the ability to increase our revolving credit line by
$25.0 million without further consent from our existing lenders. The proceeds
of the term C loan were used to finance our proposed acquisition of the
Malaysian business and pay transaction fees and expenses.
Our ongoing primary cash needs are for operations and equipment purchases.
Prior to our recapitalization, we met a significant portion of our cash
requirements from a combination of (1) short- and long-term bank loans and (2)
capital contributions from Hyundai. All short and long-term debt, loans, leases
and other credit facilities existing prior to our recapitalization were repaid
and terminated at the recapitalization date. Subsequent to year end, we made an
initial borrowing of $13.5 million on our revolving line of credit.
Prior to the recapitalization, Hyundai Electronics invested significant
amounts of capital to increase our packaging and test services capacity. The
capital investments made by Hyundai Electronics from 1995 to 1997 totaled
$307.0 million. We intend to spend approximately $108.2 million in capital
expenditures in 2000. We
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spent approximately $57.9 million in capital expenditures in 1999, a decline of
8.8% from the $63.5 million spent in capital expenditures in 1998, and a
decline of 57.6% from the $136.6 million spent in 1997.
Under the recapitalization agreement, Hyundai Electronics may receive up to
an additional $55.0 million of cash during the four-year period beginning
January 1, 1999 if we exceed specified levels of EBITDA as described in the
recapitalization agreement. Hyundai Electronics is entitled to receive 33.3% of
the amount by which our EBITDA, which is defined in the recapitalization
agreement, exceeds $116.5 million, $171.3 million, $198.5 million and $231.8
million, respectively, in each of the first four years following our
recapitalization. No payment was made to Hyundai Electronics in 1999 under
these terms.
Under the terms of the agreement relating to our acquisition of the
Malaysian business, during the period from June 1, 2000 to June 30, 2003,
Intersil will be entitled to receive additional contingent incentive payments
based upon the achievement of milestones relating to the transfer of business
currently subcontracted by Intersil to a third party. In the event that
Intersil were to achieve all the milestones, we would pay Intersil an
additional sum of approximately $17.9 million in the aggregate.
As of March 31, 2000, our debt consisted of $307.5 million of borrowings
which were comprised of $7.5 million of revolving loans, $150.0 million in term
loans and $150.0 million of senior subordinated notes. We also have
$85.7 million of preferred stock.
We believe that our existing cash balances, cash flows from operations,
available equipment lease financing, available borrowings under our senior
credit facilities and the net proceeds from this offering and the Qualcomm
private placement will be sufficient to meet our projected capital
expenditures, working capital and other cash requirements for the next twelve
months.
Our debt instruments require that we meet specified financial tests,
including, without limitation, a maximum leverage ratio, a minimum interest
coverage ratio and minimum fixed charge coverage ratio. These debt instruments
also contain covenants restricting our operations.
There were no violations of these covenants through March 31, 2000 and we
expect to comply with all these covenants during the next twelve months.
Therefore, our liquidity and capital resources are not expected to be impacted
by these covenants.
Derivative Financial Instruments
Since October 1998, we have entered into foreign forward contracts to
mitigate the effect of foreign currency movements on the cost of materials and
equipment. The contracts entered into require the purchase of Korean Won or
Japanese Yen, and the delivery of U.S. Dollars, and generally have maturities
which do not exceed three months. Because the contracts entered into to date do
not qualify as hedges under generally accepted accounting principles, the gains
and losses from these contracts have been recorded as foreign currency gains
and losses. We had a net gain of $2.2 million and a net loss of $0.8 million
arising in 1998 and 1999, respectively, from forward foreign currency
contracts.
As of March 31, 2000, we had no foreign currency contracts outstanding.
Recent Accounting Pronouncements
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137, "Accounting for Derivative Instruments
and Hedging Activities--Deferral of the Effective Date of FASB Statement No.
133." SFAS 137 amends Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities," to defer its
effective date to all fiscal quarters of all fiscal years beginning after June
15, 2000. SFAS 133 establishes accounting and reporting standards for
derivative instruments including standalone instruments, as forward currency
exchange contracts and interest rate swaps or embedded derivatives and requires
that these instruments be marked-to-market on an ongoing
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<PAGE>
basis. These market value adjustments are to be included either in the income
statement or stockholders' equity, depending on the nature of the transaction.
We are required to adopt SFAS 133 in the first quarter of our fiscal year 2001.
We are in process of evaluating the effect of SFAS 133 on our financial
statements.
In December 1999, the Securities and Exchange Commission issued SAB No. 101,
"Revenue Recognition in Financial Statements," which provides guidance on the
recognition, presentation, and disclosure of revenue in financial statements
filed with the SEC. SAB No. 101 outlines the basic criteria that must be met to
recognize revenue and provides guidance for disclosures related to revenue
recognition policies. We believe that the impact of SAB No. 101 will have no
material effect on our financial position or results of operations.
In April 2000, the Financial Accounting Standards Board issued FASB
interpretation of No. 44, Accounting for Certain Transactions Involving Stock
Compensation, an interpretation of APB Opinion No. 25. Among other issues, this
interpretation clarifies the definition of employees for purposes of applying
Opinion No. 25, the criteria for determining whether a plan qualifies as a non-
compensatory plan, the accounting consequence of various modifications to the
terms of a previously fixed stock option or award and the accounting for an
exchange of stock compensation awards in a business combination. This
interpretation is effective July 1, 2000, but certain conclusions in the
interpretation cover specific events that occur after either December 15, 1998
or January 12, 2000. To the extent that this interpretation covers events
occurring during the period after December 15, 1998, or January 12, 2000, but
before the effective date of July 1, 2000, the effect of applying this
interpretation is recognized on a prospective basis from July 1, 2000. We are
currently reviewing stock grants to determine the impact, if any, that may
arise from implementation of this interpretation, although we do not expect the
impact, if any, to be material to our financial statements.
Quantitative and Qualitative Disclosure about Market Risk
We are exposed to financial market risks, including changes in interest
rates and foreign currency exchange rates. We utilize derivative financial
instruments but do not use derivative financial instruments for speculative or
trading purposes. We have long-term debt that carries fixed and variable
interest rates. A fluctuation in interest rates of 1% would increase our annual
interest charge by $1.5 million based on our outstanding indebtedness as of
March 31, 2000. A majority of our revenue and capital spending is transacted in
U.S. Dollars. We do, however, enter into transactions in other currencies,
primarily the Korean Won. With effect from October 1, 1999 we have changed the
functional currency of ChipPAC Korea and ChipPAC China from their respective
local currencies to the U.S. Dollar. The use of the U.S. Dollar as the
functional currency will result in a much lower level of foreign exchange gains
and losses in our overseas subsidiaries.
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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 divided
broadly into three primary stages:
. fabricating a wafer;
. slicing the wafer into multiple die and processing these die into
finished devices, which is referred to as "packaging"; and
. testing of finished devices and other value-added processes.
According to Worldwide Semiconductor Trade Statistics, worldwide
semiconductor market revenues grew 18.9% in 1999 to approximately
$149.4 billion. From 1992 to 1999, the global semiconductor market has expanded
at a compounded annual growth rate of approximately 14.0%. The worldwide
semiconductor market can be divided into three segments:
. microcomponents, including microprocessors and microcontrollers, which
process data;
. memory devices, which store data, including flash memory, Dynamic Random
Access Memory, which is referred to as DRAM and Static Random Access
Memory, which is referred to as SRAM; and
. moving and shaping devices, which move and shape electronic signals
around a printed circuit board, including logic, analog, discrete and
power devices and chipsets.
According to Worldwide Semiconductor Trade Statistics, the semiconductor
industry's revenues are expected to grow at a compounded annual growth rate of
20.0% from 1999 to 2003. Semiconductor growth continues to be driven by strong
end-user demand for telecommunications, computers and consumer products, which
require semiconductors characterized by greater functionality, increased speed
and smaller size. One of the principal drivers of growth in the semiconductor
industry during the next several years is expected to be increased sales of
communications semiconductors used in applications including computer modems,
networks, cellular phones and Internet and electronic commerce hardware and
appliances. The proliferation of digital technology, particularly in
communications applications, has increased demand for analog functionality,
which helps the digital electronics interact with the real world of sound,
light, heat and motion. Increasing cost pressure and size constraints are
prompting silicon providers to integrate high performance analog and digital
functionality into mixed-signal semiconductors. This functional integration of
analog and digital components onto single chips makes these mixed-signal
semiconductors more difficult to design and test than most other types of
semiconductors.
In 1999, according to Electronic Trends Publications, total packaging
revenues for the semiconductor industry were $18.3 billion, of which revenues
from independent packaging companies, like us, represented $7.2 billion, or
39.3%, of total packaging revenues. Independent packaging revenues are expected
to grow at a compounded annual growth rate of 17.6% from 1999 to 2004. Revenues
for BGA packaging services, the fastest growing component of the independent
packaging market, are expected to grow at a compounded annual growth rate of
24.9% over the same period. Today, most major semiconductor manufacturers use
independent packaging and test service providers for at least a portion of
their packaging and test needs. We expect this outsourcing trend to continue as
semiconductor manufacturers focus on their core strengths, like chip design and
wafer fabrication. According to Semiconductor Business News, spending on
outsourced test services is growing by more than 40.0% per year and is expected
to reach $2.0 billion by 2001.
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Industry Trend Toward Outsourcing
Historically, semiconductor companies primarily manufactured semiconductors
in their own facilities. In recent years, however, the need for semiconductor
companies to outsource their semiconductor packaging and test needs has grown
dramatically. Principal factors contributing to this are as follows:
. Time-to-Market Pressures Are Increasing for Semiconductor
Companies. End-users are increasingly demanding more sophisticated
electronic products in a market in which product life cycles are
becoming shorter. As a result, semiconductor companies are increasingly
seeking to shorten their time-to-market for new products. Having the
right packaging technology and capacity in place is a critical factor in
reducing time-to-market. Semiconductor companies frequently do not have
the equipment or production experience to implement new packaging
solutions or sufficient time to develop these capabilities before
introducing a new product into the market. For this reason,
semiconductor companies are increasingly utilizing the resources and
capabilities of independent packaging and test companies to deliver
their new products to market more quickly.
. ""Fabless'' Semiconductor Companies Are Focusing Exclusively on
Semiconductor Design Process and Application Support. There continues to
be growth of "fabless" semiconductor companies, which are companies that
outsource all of their manufacturing and all of their packaging and test
service needs. According to the Fabless Semiconductor Association and
Dataquest, fabless companies' revenues have increased as a percentage of
the worldwide semiconductor market from 3.0% in 1994 to 7.6% in 1999.
Fabless companies' revenues are expected to increase to approximately
$37 billion, or an 11.8% market share, in 2004. The significant growth
in the number of fabless semiconductor companies has been driven in
large part by the ability of these companies to effectively outsource
virtually every significant step of the semiconductor manufacturing
process. This development has allowed fabless semiconductor companies to
introduce new semiconductors very quickly without committing significant
amounts of capital and other resources to manufacturing. We believe that
the growth of fabless semiconductor companies will continue to be a
significant driver of growth in the independent semiconductor
manufacturing industry.
. Significant Capital Expenditures Are Required for Semiconductor
Manufacturing. Semiconductor packaging and test services have evolved
into increasingly complex processes that require a substantial
investment in specialized equipment, resources and facilities. For
example, the capital investment in facilities and equipment necessary
for a processing line capable of packaging 100 million BGA packages per
year can be as much as $200 million. As a result of these substantial
costs, equipment must be utilized at a high capacity level in order to
be cost effective. Independent providers of packaging and test services,
like us, can use existing equipment at high utilization levels over a
longer period of time by providing services for a broad range of
customers.
Moreover, as the cost to build a new state-of-the-art wafer fabrication
facility has increased to nearly $1.2 billion, semiconductor companies
have been forced to concentrate their capital resources on core wafer
manufacturing activities. As a result, semiconductor companies are
increasingly using independent packaging and test providers who are able
to invest capital to develop new packaging and test capacity.
. Sophisticated Expertise and Technological Innovation Are Necessary.
Semiconductor companies are facing ever-increasing demands for
miniaturization, higher lead counts for more connections and improved
thermal and electrical performance from IC packaging. In addition, the
proliferation of package types and the increased value of advanced
packaging as a percentage of the overall value of a semiconductor have
resulted in semiconductor companies turning to companies like us for
sophisticated expertise and technological innovation in packaging and
test technology.
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BUSINESS
Company Overview
We are one of the world's largest providers of semiconductor packaging and
test services. We provide one of the broadest portfolios of packaging and test
services available in the industry, serving all segments of semiconductor
usage. We are a leader in providing high end packaging solutions, including
ball grid array packages, or BGA packages, one of the most advanced mass
produced type of packages. We also provide advanced packaging products that
address the needs of semiconductors used in wireless and wireline
communications applications, including flip-chip, chip-scale and stacked die
technologies.
A semiconductor package is a plastic, ceramic or metal covering that
protects and insulates the enclosed semiconductor chip and attaches to a
printed circuit board. As a result, packages are an integral part of the basic
functionality of semiconductors and contribute to their overall performance. We
provide packaging and test services to 77 customers worldwide, including 41
customers in the United States. Our customers include many of the world's
largest and most prominent semiconductor manufacturers, including: Atmel,
Intel, IBM, LSI Logic, Lucent Technologies, Inc., Samsung, STMicroelectronics
and Intersil. Our facilities are strategically located to address the needs of
our customers, who are typically high growth semiconductor companies who are
leaders within their respective end markets. Our headquarters are located in
Santa Clara, California.
Our Business Strategy
Our business strategy emphasizes the following key elements:
Continue to implement long term partnership agreements with key
customers. Pro forma for the acquisition of the Malaysian business, over half
of our 1999 revenues were covered by long term contracts, including the five-
year contract we have with Intersil to assemble and test their PRISM(R)
wireless LAN chipsets and the two and one-half year supply agreement with Intel
to assemble and test its personal computer and Internet server chipsets and
communications devices. We also have a three and one-half year agreement with
Hyundai Electronics to provide our chip-scale packaging and test services for
Hyundai's outsourced RDRAM assembly needs and a three year supply agreement
with Qualcomm to provide packaging and test services for integrated circuit
devices. Each of Intel, Hyundai Electronics America and Intersil is, and upon
completion of the concurrent private placements, Qualcomm will become, a
stockholder of our company. Our goal is to increase our share of our customers'
packaging business by providing superior customer service, providing quality
packaging with the highest yield rates and providing new and advanced
packaging, like BGA, flip-chip, chip-scale packaging and multi-die systems in a
package.
Our customers today are leaders in multiple semiconductor market segments,
including flash memory, personal computer chipsets, 3D video graphics chipsets
chips, system ICs, wireless ICs, communications ICs, and mass storage ICs.
Advanced Micro Devices, Hyundai, IBM, Intel, LSI Logic, Samsung,
STMicroelectronics and Taiwan Semiconductor Manufacturing Corporation accounted
for approximately 41% of worldwide semiconductor revenues in 1999. All of these
customers compete in large segments within the semiconductor industry and
demand packaging and test services to address the trend to smaller, thinner,
lighter and higher performance packaging.
Expand our test business, as the need for outsourced test service
grows. Growth in independent packaging and test services is expected to be
greater than that of the overall semiconductor market because of the increasing
trend of semiconductor companies to outsource their packaging and test needs.
Through increased emphasis on and additional capacity of our test business, we
have seen a significant acceleration in our test revenues over the most recent
four quarters, and we expect the growth to continue, due to increasing demand
for our test services, notably from LSI Logic, Atmel and nVidia. We provide
test services for flash and eeprom memories for wireless applications, mixed-
signal for DSP-based applications and digital testing for applications like
three-dimensional graphics. We intend to grow the test portion of our business
to provide
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"one-stop shopping" capabilities for both packaging and test services for our
customers, aiding in the reduction of their time-to-market and increasing our
share of this higher margin business.
Utilize our product breadth, technology and geographic locations to secure
relationships with the foundries that are servicing the fabless semiconductor
manufacturers. Fabless semiconductor companies' revenues have grown faster than
the total semiconductor market, increasing as a percentage of the worldwide
semiconductor market from 3% in 1994 to 7.6% in 1999. Because these companies
do not own their own manufacturing facilities, they must outsource all their
manufacturing needs. To capitalize on this outsourcing trend, we intend to
develop closer working relationships with fabless semiconductor customers using
wafer foundries in Malaysia, Singapore, Korea, China and the United States. We
believe that we are well-positioned to increase our share of fabless
semiconductor customers' packaging needs due to our technology leadership,
particularly in BGA, and our strategically located facilities in Korea, China
and Malaysia.
Pursue strategic acquisitions, licensing and joint development projects in
the fragmented packaging and test industry. We continue to evaluate candidates
for strategic acquisitions, particularly back end facilities owned by IDMs who
are focusing their resources on chip design and wafer fabrication, to
strengthen our core business, broaden our technology portfolio and expand our
geographic reach. We intend to structure these acquisitions, if any, with long-
term supply contracts and intellectual property transfers.
Develop new packaging technology that will attract new customers and allow
us to become early stage partners with our customers. We believe that a key to
expanding our customer base will be to capitalize on our technological
leadership in developing new packaging. We have introduced or plan to introduce
the following advanced new packages: Flip-chip CSP, TBGA, M/2/BGA(TM),
EconoCSP(TM) and FBGA-T, TBGAII and EconoCSPT(TM). In 1999, we established a
U.S. research and development center that allows customers to validate future
flip-chip packaging options early in the development process. Pro forma for the
acquisition of the Malaysian business, research and development spending was
approximately 2.6% of revenues during 1999, which is comparable to that of the
independent packaging industry, but is significantly lower than that of most
semiconductor manufacturing companies. As of March 31, 2000 we had 90 engineers
dedicated to new packaging development.
Our Services
We offer semiconductor packaging and test services to the semiconductor
industry, with products and service offerings in communications, computing and
multi-applications end markets. Pro forma for the acquisition of the Malaysian
business, approximately 92.0% and 8.0% of our revenues during 1999 and
approximately 91.9% and 8.1% of our revenues during the quarter ended March 31,
2000 were derived from packaging and test services, respectively.
Since customers require their suppliers to pass a lengthy and rigorous
qualification process that can be costly to the customers, we believe they
generally do business with a few suppliers. Because our services are considered
part of the customer's manufacturing infrastructure, we must have dedicated
resources and systems to provide flexible manufacturing, quick-turns and real-
time information transfers.
Packaging
We have provided semiconductor packaging and test services to third parties
since 1984, and offer a broad range of packaging formats for a wide variety of
electronics applications. Pro forma for the acquisition of the Malaysian
business, our two types of packaging services, leaded and substrate, or BGA,
contributed approximately 38.4% and 53.6% of revenue, respectively, for 1999,
and 43.5% and 48.4% of revenue, respectively, for the three months ended March
31, 2000.
Leaded Packaging. Leaded packaging is the most widely used packaging type
and is used in almost every electronics application, including automobiles,
household appliances, desktop and notebook computers, and telecommunications.
Leaded packages have been in existence since semiconductors were first
produced, and in 1999 comprised over half of the total industry packaging
volume. Leaded packages are characterized by
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a semiconductor die encapsulated in a plastic mold compound with metal leads
surrounding the perimeter of the package. With leaded packages the die is
attached to a leadframe, which is a flat lattice of wires. The die is then
encapsulated in a plastic or ceramic package, with the ends of the leadframe
wires protruding from the edges of the package to enable connection to a
printed circuit board. This packaging type has evolved from packages designed
to be plugged into a printed circuit board by inserting the leads into holes on
the printed circuit board to the more modern surface-mount design, in which the
leads or pins are soldered to the surface of the printed circuit board.
Specific packaging customization and improvements are continually being
engineered to improve electrical and thermal performance, shrink package sizes
and enable multi-chip capability.
We offer a wide range of lead counts and body sizes within this packaging
group to satisfy customer die size variations. Our traditional leaded packages
are at least three millimeters in thickness and include PDIP, PLCC and SOIC.
Our advanced leaded packages are thinner than our traditional leaded packages,
approximately 1.4 millimeters in thickness, and have a finer pitch because the
leads are closer together, allowing for a higher pin count and greater
functionality in a smaller package size. Our advanced leaded packages include
MQFP, TQFP, iQUAD, TSSOP and SSOP.
Leaded Package Profile
Substrate, or BGA, Packaging. BGA packaging represents the newest and
fastest growing area in the packaging industry and is used primarily in high-
growth end markets, including computing platforms and networks, hand held
consumer products including wireless communications devices, personal digital
assistants and video cameras, and home electronics devices, like DVDs and home
video game machines. BGA technology was first introduced as a solution to
problems associated with the increasingly high lead counts required for
advanced semiconductors. As the number of leads surrounding the integrated
circuit increased, high lead count packages experienced significant electrical
shorting problems. The BGA methodology solved this problem by effectively
creating leads on the bottom surface of the package in the form of small bumps
or solder balls. In a typical BGA package, the semiconductor die is placed on
top of a plastic or tape laminate substrate rather than a leadframe. The die is
connected to the circuitry in the substrate by a series of fine gold wires that
are bonded to the top of the substrate near its edges. On the bottom of the
substrate is a grid of metal balls that connect the packaged device to a
printed circuit board. Benefits of BGA packaging over leaded packaging include:
. smaller size;
. greater pin count, or number of connections to the printed circuit
board;
. greater reliability;
. better electrical signal integrity; and
. easier attachment to a printed circuit board.
We supply our customers with substantially the entire family of BGA
packaging services offered in the marketplace today, including:
Standard BGA. Standard BGA packaging has a grid array of balls on the
underside of the integrated circuit, and is used in high-performance
applications, like personal computer chipsets, graphic controllers and DSPs. A
standard BGA package generally has greater than 100 pins. Standard BGA packages
have better thermal and electrical performance than leaded packages. They also
feature more advanced surface mount technology, allowing for easier handling in
the packaging process. Standard BGA packaging services accounted for all of our
BGA packaging revenues in 1998.
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BGA Package Profile
Chip-Scale BGA. Chip-scale BGA packaging includes all packages where the
package is less than 1.2 times the size of the silicon die. Chip-scale BGA is a
substrate-based package that is designed for memory devices and other medium
pin count semiconductors and requires dense ball arrays in very small package
sizes, like wireless telephones and personal digital assistants, video cameras,
digital cameras and pagers.
We are continually developing new BGA technologies and BGA packaging
techniques. One of our research and development facilities is working to
develop prototypes of flip-chip BGA packaging in which the silicon die is
directly attached to the substrate using bumps or solder balls rather than wire
bonds. This is expected to improve heat dissipation and the electrical
performance of the chip. Flip-chip BGA technology can be used in a wide array
of applications ranging from consumer products to highly sophisticated
application specific integrated circuits, referred to as ASIC, microprocessors
and memory packages. While we believe that flip-chip BGA represents the next
generation of BGA packaging technology, we believe that standard BGA and chip-
scale BGA packaging will experience long life cycles as have many of our leaded
packaging solutions.
The following chart summarizes the packaging services we offer. Packaging
revenues are pro forma for the acquisition of the Malaysian business. The full
names of each packaging type are provided in the "Glossary."
<TABLE>
<CAPTION>
Percentage
of Pro
Forma 1999
Packaging
Revenue Packaging Types Application Pin Count
---------- --------------------------------------- ------------------------ ---------
<C> <C> <C> <C> <S> <C>
Leaded 31.1% Traditional: PDIP, PLCC, SOIC, SOJ, Telecommunications, 8-304
SSOP, SIP, DPAK and automobiles, household
D/2/PAK appliances, and desktop
and notebook computers
10.6% Advanced: TQFP, TSOP, QFP, LQFP, Personal computers and 32-176
TSSOP, TO5, iQUAD(TM) telecommunications
and MQFP
BGA 54.5% Standard PBGA, M/2/BGA(TM), Personal computer 119-371
BGA: TBGA and EBGA chipsets, graphic
controllers
3.7% Chip-Scale EconoCSP(TM), (mu)BGA(TM), Wireless telephones, 36-280
BGA: M/2/CSP(TM) and FBGA-T personal digital
assistants, video
cameras and wireless
pagers
0.1% Flip-Chip FlipPAC(TM), RamPAC(TM) High-end network servers 36-1732
BGA: and FlashPAC(TM) products, application
specific integrated
circuits,
microprocessors and
memory packages
</TABLE>
Test Services
We also provide our customers with semiconductor test services for a number
of device types, including mixed-signal, digital logic, memory, power and RF
devices. Semiconductor testing measures and ensures the performance,
functionality and reliability of a packaged device, and requires knowledge of
the specific applications and functions of the devices being tested. In order
to enable semiconductor companies to improve their time-to-market, streamline
their operations and reduce costs, there has been an increasing trend toward
outsourcing both packaging and test services. We have begun to capitalize on
this trend by enhancing our test service capabilities. We operate 72 testers,
and in 1999, we achieved 12.8% year-over-year growth. We achieved over 300%
growth for the three months ended March 31, 2000 compared to the three months
ended March 31, 1999. The Malaysian business expands our mixed-signal testers
and provides us with critical expertise for testing RF devices, one of the
fastest growth areas for test outsourcing.
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In order to test the capability of a semiconductor device, a semiconductor
company will provide us with its proprietary test program and specify the test
equipment to run that program. In the alternative, however, our customers may
consign their test equipment to us. Our test operators place devices to be
tested on a socketed, custom load board and insert the load board into the test
equipment which then tests the devices using software programs developed and
supplied by our customers. The cost of any specific test and the time, usually
measured in seconds, to run a test vary depending on the complexity of the
semiconductor device and the customer's test program.
In addition to final test services, we also provide "burn in" test services.
Through "burn in," a semiconductor is inserted into a socket and subjected to
extreme hot and cold temperatures over a period of time. "Burn in" tests are
typically conducted to determine overall reliability of a semiconductor under
extreme conditions.
Other Services
We also provide a full range of other value-added services, including:
. Design and Characterization Services. We offer design and
characterization services at our Santa Clara, California, Chandler,
Arizona and Ichon, Korea facilities. Our design engineers at these
facilities select, design and develop the appropriate package, leadframe
or substrate for that device by simulating the semiconductor's
performance and end-use environment.
. Dry Pack Services. In order to prevent the failure of any semiconductors
due to exposure to moisture during shipping, we "dry pack" most of our
packaged integrated circuits in specially sealed, environmentally secure
containers.
. Tape and Reel Services. Many electronic assembly lines utilize "tape and
reel" methods in which semiconductors are attached to a tape to enable
faster attachment to the printed circuit board. We offer a service in
which we ship packaged and tested devices on a tape and reel mechanism
rather than on a tray, to facilitate the assembly process.
. Drop Shipment. In order to enable semiconductor companies to improve
their time-to-market and reduce supply chain and handling costs, we
offer drop shipment services in which we ship packaged semiconductor
devices directly to those companies that purchase devices from our
customers.
. Wafer probe. We offer a wafer sort operation where an electrical test is
performed on die while still in wafer form. This process establishes
which die on each wafer are suitable to be assembled into a final
package.
Customers
We provide packaging and test services to 77 customers worldwide, including
41 in the United States. Our customers include many of the world's largest and
most prominent semiconductor manufacturers including: Atmel, Hyundai, Intel,
IBM, LSI Logic, Lucent, Samsung, STMicroelectronics and Intersil.
Pro forma for the acquisition of the Malaysian business, during 1999
approximately 48.7%, 21.3%, 6.0% and 5.1% of our revenues were derived from
Intel, Intersil, Atmel and LSI Logic, respectively. We anticipate that this
customer concentration will decrease as new customers for which we have already
become qualified and customers with which we are undergoing qualification,
including Texas Instruments Incorporated, Broadcom Corporation, TranSwitch
Corporation and Sony Corporation, begin to ship semiconductor devices to us for
packaging. Pro forma for the acquisition of the Malaysian business, in 1999, we
derived approximately 79.2% of our revenues from the U.S., 16.1% from Asia and
4.7% from Europe.
In general, our customers principally rely on at least two independent
packagers. A packaging company must pass a lengthy and rigorous qualification
process that can take a minimum of three months for a typical
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<PAGE>
leaded package and can take more than six months for a typical BGA package and,
in each case, can cost the customer approximately $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 as part of
the overall working relationship. These factors, combined with the pressures of
a semiconductor company to meet the time-to-market demands of its customers,
result in high switching costs for semiconductor companies, making them adverse
to changing or adding additional suppliers. We have been successful in
attracting new customers because we are one of a few independent packaging and
test companies that offers packaging and test services for a full portfolio of
packages.
Our success in becoming one of the world leaders in BGA technology is due in
significant part to our being selected as one of the key suppliers to Intel.
BGA technology is used in almost every personal computer that is built today,
and Intel was the first semiconductor company to require BGA technology
solutions from independent packagers in high volume. Due to the significant
volume of Intel semiconductors sold worldwide, in 1999, we believe Intel
represented over 40% of the BGA independent packaging market. We are currently
one of four suppliers of BGA packaging technology to Intel. In 1999, we were
awarded Intel's Preferred Quality Supplier award.
As a result of our relationship with Intel, we have been able to grow our
infrastructure to support the development of advanced BGA technology. In doing
so, we have gained an early advantage relative to our competitors in packaging
capability, yield enhancement, quality and reliability.
Furthermore, we have developed the expertise to use BGA technology across
almost all Intel business groups, including personal computer chipsets,
Internet server chipsets, graphic controllers, memory, networking and
communications. Intel does not currently outsource packaging services for any
of its microprocessors, including the Pentium III(TM) and Celeron(TM) lines.
Both we and Intel have numerous resources dedicated to improving BGA technology
and new technologies like stacked multi-die packages.
Marketing, Sales and Customer Support
We provide sales support to our customers through an international network
of offices located in:
. the United States,
. Santa Clara, California (our worldwide headquarters),
. San Diego, California,
. Chandler, Arizona,
. Boston, Massachusetts,
. Dallas, Texas,
. Palm Bay, Florida
. Kampen, The Netherlands,
. Tokyo, Japan,
. Shanghai, China,
. Ichon, Korea,
. Singapore and
. Kuala Lumpur, Malaysia.
Our account managers, applications engineers, customer service
representatives and sales support personnel form teams that focus on a specific
customer or geographic region. Our 107 marketing, sales support
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<PAGE>
and customer service personnel's performance is measured by each team's revenue
achievements and number of design "wins," which consist of providing other
value-added services to customers and completing package qualifications with
customers. As is industry practice, customers deliver near-term forecasts to
guide us on anticipated volumes. As a result, we have no meaningful backlog
statistics. Because substantially all of our materials inventory is purchased
based on customer forecasts, we carry small quantities of inventory and we have
relatively low finished goods inventory.
Our marketing efforts focus on creating a brand awareness and familiarity
with ChipPAC and our advanced device packaging technologies and an
understanding of our end-user market applications in networking, memory,
storage, graphics and wireless. We market our leadership in advanced packaging
and test technology and our ability to supply a broad line of packaging and
test services to the semiconductor industry. We target engineers and executive
level decision makers through the delivery of "white papers" at industry
conferences, quarterly mailings of technical brochures and newsletters,
advertisements in trade journals and our website.
We engage in semi-annual and quarterly reviews with our customers; we
regularly collect data from different segments of the semiconductor industry,
for example, personal computers, wireless telephony and digital cameras. When
possible, we work closely with our customers to design and develop packaging
and test solutions for their new products. These "co-development" or
"sponsorship" projects can be critical when customers seek large scale early
market entry with a significant, new product. Task teams assigned by both
ChipPAC and our customers work together to design and develop new solutions and
to analyze and review the outcomes to ascertain if a project's objectives are
being met in a cost-effective manner. Depending on the project, the cost of
development may be borne entirely by us or may be shared with the customer.
Suppliers
Our packaging operations depend upon obtaining adequate supplies of
materials on a timely basis. The principal materials used in our packaging
process are lead frames, rigid and flexible substrates, gold wire and molding
compound. We purchase materials based on the demand forecasts of our customers.
Our customers are responsible for the costs of any unique materials that we
purchase but do not use, particularly those lead frames and substrates that are
ordered on the basis of customer-supplied forecasts. We work closely with our
primary materials suppliers to insure the timely availability of materials
supplies, and we are not dependent on any one supplier for a substantial
portion of our materials requirements. We have no significant supply contracts
or arrangements with any supplier of materials, and we typically purchase
materials by entering into written purchase orders. Approximately 70% of our
substrate costs were incurred from the purchase of materials from Korea, with
the balance primarily from Japan and Taiwan. We expect that in the next several
years, an increasing portion of our materials will be supplied from sources in
China and Taiwan.
Our packaging operations and expansion plans also depend on obtaining
adequate quantities of equipment on a timely basis. To that end, we work
closely with our major equipment suppliers to insure that equipment deliveries
are on time and the equipment meets our stringent performance specifications.
Operations and Facilities
Our packaging process begins by cutting customer supplied wafers into
individual die using a high speed precision saw. For leaded packaging, the
individual die are then mounted onto metal strips called lead frames, which are
generally made of copper with selective silver plating on which a pattern of
input/output, or I/O, leads has been cut. For BGA packaging, individual die are
placed onto plastic or tape laminate substrates which are miniature printed
circuit boards. Next, very fine gold wires, with an average diameter of about
0.001 inch, are attached to the die and the lead frame or substrate, as
applicable. These gold wires provide the electrical connection between the
electronic circuits on the die and the I/O points of the lead frame or
substrate. Each die is then encapsulated in a plastic casing and marked.
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For leaded packaging, the next step consists of plating the protruding leads
with a tin alloy which facilitates soldering when the finished chips are placed
onto a printed circuit board. The die then go through a series of mechanical
stamping processes where the leads are then trimmed and formed into the
requisite finished shape. For BGA packaging, the next step consists of
attaching tiny solder balls to the bottom of the substrates. The completed
devices then undergo a final inspection before being packed and shipped to
customers. We are not responsible for shipping customer packaged products;
customers either retrieve their finished packaged products directly from our
facilities or third parties deliver the finished packaged products to the
airport to be retrieved by customers.
Our operations are conducted through six operating facilities. Our corporate
headquarters are located in Santa Clara, California, and we provide all
packaging, warehousing and test services through our facilities in Ichon and
Chungju, Korea, Shanghai, China and Kuala Lumpur, Malaysia. Our Chungju
facility provides electroplating services on leadframes from the Ichon
facility. Our Chungju facility was founded in 1983 and is both ISO-9002 and QS-
9000 certified. The Ichon facility was founded in 1985 and is both ISO-9002 and
QS-9000 certified. The Shanghai facility was founded in 1994 and is also ISO-
9002 certified and QS-9000 certified. The Kuala Lumpur facility is ISO-9002,
QS-9000 and ISO-14001 certified. The following chart summarizes our packaging
and research and development facilities:
<TABLE>
<CAPTION>
Principal Packaging or
Owned/ Service Provided or
Facility Location Leased Sq. Ft. Functions/Services Being Developed
----------------- ------ ------- ------------------ ----------------------
<S> <C> <C> <C> <C>
Santa Clara, Leased 40,000 Executive offices, Flip-Chip BGA, Flip-
California............. Research and Chip and CSP Design
Development, Sales and Services
Marketing
Chandler, Arizona....... Leased 5,000 Research and Design and
Development, Sales and Characterization
Marketing Services
Shanghai, China......... Owned(1) 442,000 Packaging and Test Traditional Leaded
Services Chip-Scale Packaging
and Test Services
Ichon, Korea............ Leased 474,000 Packaging and Test Advanced Leaded, BGA
Services; Research and Packaging, Chip-Scale
Development and Test Services
Chungju, Korea.......... Leased 129,000 Electroplating
leadframes from Ichon,
Korea
Kuala Lumpur, Malaysia.. Owned(1) 524,000 Packaging and Test Discrete Power,
Services Traditional Leaded
Packaging and Test
Services
</TABLE>
---------------------
(1) Improvements are owned by ChipPAC but upon the termination of the existing
long-term lease revert to the lessor.
Competition
The packaging and test industry is highly fragmented. Our primary
competitors and their locations are as follows:
. Advanced Semiconductor Engineering, Inc.--Taiwan
. Amkor Technology, Inc.--Korea and Philippines
. ASAT, Ltd.--Hong Kong
. ASE Test Limited--Taiwan and Malaysia
. Shinko Electric Industries Co., Ltd.--Japan
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. Siliconware Precision Industries Co., Ltd.--Taiwan
. ST Assembly Test Services Limited--Singapore
Each of these companies has significant packaging capacity, financial
resources, research and development operations, marketing and other
capabilities, and has some degree of operating experience. These companies also
have established relationships with many large semiconductor companies which
are current or potential customers of ours. We also compete with the internal
packaging and testing capabilities of many of our largest customers. We believe
the principal elements of competition in the independent semiconductor
packaging market include time-to-market, breadth of packaging services,
technical competence, design services, quality, yield, customer service and
price. We believe that we generally compete favorably in these areas.
Due in significant part to the lengthy and costly process of qualifying a
supplier, most semiconductor manufacturers generally have two or more sources
of packaging services.
Research and Development
Our research and development efforts are focused on developing new packaging
designs and process capabilities and on improving the efficiency and
capabilities of our existing packaging and test services. We believe that
technology development is one of the key success factors in the packaging
market and we believe that we have considerable ability in this area. During
the past two years, we have introduced the following new packages:
. Flip-Chip CSP,
. TBGA,
. M/2/BGA(TM),
. EconoCSP(TM) and
. FBGA-T.
We expect to introduce the following packages during the remainder of 2000:
. TBGA II and
. EconoCSPT(TM).
In 1999, we established a U.S. research and development center that allows
us to work closer with our customers to validate future flip-chip packaging
options early in the development process by giving direct access to flip-chip
materials, equipment and our engineering expertise. We believe materials
engineering will play a more critical role in future advanced packages and we
are currently working on furthering our research and development within package
development. In addition to our own development, we will also license
technology where appropriate to strengthen a strategic relationship or where it
offers competitive or time-to-market advantages. For example, we are currently
licensing flip-chip package technology from LSI Logic.
As of March 31, 2000, we employed approximately 90 full-time research and
development personnel. During 1999, we spent approximately $12.4 million on
research and development.
Employees
As of March 31, 2000, we employed 3,851 full-time employees, of whom
approximately 90 were employed in research and development, 3,545 in packaging
and test services and 242 in marketing, sales, customer service and
administration.
Approximately 2,100 of our employees at the Ichon, Korea facility are
represented by ChipPAC Korea Labor Union and are covered by a collective
bargaining agreement which provides for salary and wages through May 1, 2000
and expires on May 1, 2001. We are currently negotiating salary and wages for
our employees represented by ChipPAC Korea Labor Union. We believe that we have
good relationships with our employees and unions.
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As of March 31, 2000, the Malaysian business employed 2,912 full-time
employees.
Intellectual Property
Our ability to develop and provide advanced packaging technologies and
designs for our customers depends in part on our proprietary know-how, trade
secrets and other non-patented, confidential technologies, which we either own
or license from third parties. We also have licenses to use numerous third
party patents, patent applications and other technology rights, as well as
trademark rights, in the operation of our business. Under the patent and
technology license agreement that we entered into with Hyundai Electronics,
which we refer to as the Hyundai Electronics License, we obtained a non-
exclusive license to use intellectual property in connection with our packaging
activities.
Following expiration of its initial term on December 31, 2003, the Hyundai
Electronics License may be extended by us from year to year upon payment of a
nominal annual license fee. Hyundai Electronics may terminate the Hyundai
Electronics License prior to December 31, 2003 if we breach the Hyundai
Electronics License and do not cure that breach within the applicable time
period, or in the event of our bankruptcy or similar event, or if a force
majeure event prevents performance of the agreement.
We have entered into a License Agreement with Tessera, Inc. which we refer
to as the Tessera License, under which we have obtained a worldwide, royalty-
bearing, non-exclusive license under specified Tessera patents, technical
information and trademarks relating to Tessera's proprietary IC packages, most
significantly its mBGA(TM), or micro BGA, packages. The Tessera License will
run until the expiration of the last Tessera patent licensed under the Tessera
License. Accordingly, the expiration of the Tessera License will not occur
until sometime after February, 2018, which is the earliest date that all
patents licensed under the Tessera License can expire.
In connection with our recapitalization, we obtained a non-exclusive
sublicense from Hyundai Electronics under patents owned by Motorola for use in
connection with our BGA packaging process. The initial term of our sublicense
under the Motorola patents will expire on December 31, 2002. This sublicense
requires Hyundai Electronics to use commercially reasonable efforts to extend
or renew its license from Motorola prior to its expiration on December 31, 2002
and obtain from Motorola the right to grant us a sublicense on the same terms
and conditions as those of any extended or renewed license.
We have entered into two license agreements with LSI Logic. Under the first
license, which we refer to as the LSI flip-chip license, we have received a
worldwide, non-exclusive, royalty-bearing license to use LSI packaging
technology and technical information to manufacture, use and sell flip-chip
semiconductor devices having at least 200 solder balls. Our rights under the
LSI flip-chip license will become perpetual and irrevocable upon our payment of
fees or January 1, 2004, whichever occurs first. The LSI flip-chip license also
requires LSI Logic to purchase 20% of its requirements for flip-chip packaging
services from us for three years following our completion of LSI's flip-chip
qualification requirements, provided that we remain competitive with respect to
price, quality and turn-around time and that we reach an agreement with LSI
Logic concerning the terms that will govern their purchase of those flip-chip
packaging services. LSI Logic may terminate the LSI flip-chip license if,
before our rights have become perpetual and irrevocable, we breach the LSI
flip-chip license and do not cure that breach within the applicable time
period, or in the event of our bankruptcy or similar event.
Our second license from LSI Logic, which we refer to as the LSI CSP license,
grants us a worldwide, non-exclusive license under LSI packaging technology and
technical information to manufacture, use and sell semiconductor device
assemblies having an overall height of less than 1.2 millimeter. Our rights
under the LSI CSP license are perpetual but LSI Logic may terminate the LSI CSP
license if we breach the LSI CSP license and do not cure that breach within the
applicable time period, or in the event of our bankruptcy or similar event.
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In connection with our acquisition of the Malaysian business, we acquired
ownership of all Intersil patents, technical information and copyrights used
exclusively in or associated exclusively with the Malaysian business and,
additionally, Intersil granted us a worldwide, non-exclusive, royalty-free
license under other Intersil patents, copyrights and technical information
which are also used in or related to the operation of the Malaysian business.
This Intersil license is perpetual and irrevocable. Any intellectual property
rights in the bonding diagrams, test programs, maskworks and test boards
uniquely related to the Intersil products for which we will provide packaging
and test services under a five-year supply agreement with Intersil are licensed
to us only for use in providing those services.
Our primary trademark and trade name is "ChipPAC." We own or are licensed to
use other secondary trademarks.
Environmental Matters
Our business is affected by liabilities and compliance obligations arising
under environmental, health and safety laws. These laws impose various controls
on the quality of our air and water discharges and on the generation, storage,
handling, discharge, treatment, transportation and disposal of chemicals which
we use, and on employee exposure to hazardous substances in the workplace. It
is our policy to comply with all applicable environmental, health and safety
laws and regulations, and we believe we are currently in material compliance
with all applicable laws and regulations. In September 1996, we received ISO-
14001 certification for our facilities in Ichon and Chongju by Lloyd's Register
Quarterly Assurance.
Significant regulatory and public attention has been focused on the
environmental impact of semiconductor packaging operations and the risk of
chemical releases from these operations. Environmental, health and safety laws
could require us to incur capital and operational costs to maintain compliance
and could impose liability to remedy the effects of hazardous substance
contamination. We do not anticipate making material environmental capital
expenditures in fiscal years 2000 and 2001. There can be no assurance that
applicable environmental, health and safety laws will not in the future impose
the need for additional capital equipment or other process requirements upon
us, curtail our operations, or restrict our ability to expand operations. The
adoption of new environmental, health and safety laws, the failure to comply
with new or existing laws, or issues relating to hazardous substances could
result in future material liability for us.
Legal Proceedings
We are not involved in any legal proceedings, the outcome of which we
believe would have a material adverse effect on our business, financial
condition or results of operations. From time to time, however, we are involved
in claims that arise in the ordinary course of business, and we maintain
insurance that we believe to be adequate to cover these claims.
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MANAGEMENT
Directors and Executive Officers
The following table provides information about our directors and executive
officers.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Dennis P. McKenna....... 50 President, Chief Executive Officer and Director
Robert Krakauer......... 34 Senior Vice President and Chief Financial Officer
Gregory S. Bronzovic.... 43 Vice President, Worldwide Sales
Bruce Stromstad......... 55 Vice President, Manufacturing Process and
Planning
Marcos Karnezos......... 55 Vice President, Technology
Robert Bowden........... 52 Vice President, Chief Procurement Officer
(Peter) Phang Guk Bing.. 51 President, ChipPAC Assembly and Test (Shanghai)
Company Ltd.
S.N. Lee................ 55 President and Chief Executive Officer, ChipPAC
Korea Company, Ltd.
C.B. Teh................ 52 President, ChipPAC (Malaysia) Bnd. Sdn.
Edward Conard........... 42 Director
Michael A. Delaney...... 45 Director
David Dominik........... 43 Director
Marshall Haines......... 32 Director
Joseph Martin........... 51 Director
Chong Sup Park.......... 51 Director
Paul C. Schorr, IV...... 33 Director
</TABLE>
Dennis P. McKenna has been President and Chief Executive Officer since
October 1997. He was appointed to these positions when ChipPAC California was
incorporated as a separate United States corporation. From October 1995 to
October 1997, he served as Senior Vice President of the Components Group for
Hyundai Electronics. He joined Hyundai Electronics in January 1993 and served
as Vice President and General Manager of the Semiconductor Group until October
1995. Prior to joining Hyundai Electronics, Mr. McKenna, who has over 28 years
of industry experience, held management positions at TRW, Inc. and Oki
Semiconductor, a division of Oki America, Inc.
Robert Krakauer has been Senior Vice President and Chief Financial Officer
since November 1999. Prior to that time, he served as Vice President, Finance
and Chief Financial Officer at Allied Signal Electronic Materials from May 1998
to November 1999. From June 1996 to May 1998, he served as Corporate Controller
at Altera Corporation. From June 1993 to June 1996, he was Vice President,
Finance and Chief Financial Officer at Alphatec Electronics USA.
Gregory S. Bronzovic joined us in April 1998 as Vice President, North
American Sales. From September 1998 to the present, he has served as Vice
President, Worldwide Sales. From January 1995 until April 1998, he was Director
of Sales, Hyundai America; prior to that time, he served as Western Area
Manager, Hyundai America from February 1994.
Bruce Stromstad has been Vice President, Manufacturing Process and Planning
since December 1999. Prior to this, he was Vice President, Operations at
Silicon Motion from May 1999 to December 1999. He was General Manager of
Substrate Manufacturing at Allied Signal from June 1998 to April 1999. From
June 1996
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to June 1998, he was Vice President, Manufacturing with Cirrus Logic. From 1993
to 1996, he was President at Alphatec. He was employed at Coopers & Lybrand
from 1989 to 1993 as a Managing Associate.
Marcos Karnezos has been Vice President, Technology since October 1998. From
December 1996 to October 1998, he served as Vice President, Technology at
Signetics KP. Prior to that, he was Vice President, Technology at ASAT, Ltd.
from November 1992 to December 1996. From September 1981 to October 1992 he
held various technical positions with Hewlett Packard, most recently as a
Department Manager.
Robert Bowden has been Vice President, Chief Procurement Officer since June
1999. From June 1974 through May 1999 he was with Hewlett Packard, most
recently as Director Contract Manufacturing, HP Procurement from 1995 to 1999
and previously held the positions of Director Semiconductor Procurement from
1991 to 1994 and Operations Manager, Secure Products Operation from 1989 to
1991.
(Peter) Phang Guk Bing was appointed as President, ChipPAC Assembly and Test
(Shanghai) Company Ltd. in November 1999. From July 1998 to October 1999, he
served as Vice President of Operations at ChipPAC (Shanghai) Company Ltd. From
September 1994 to June 1998, he was employed by Silicon Systems Singapore,
where he was Director of Manufacturing Support Engineering and, prior to that,
Director of Assembly Operations.
S.N. Lee has been President and Chief Executive Officer, ChipPAC Korea
Company, Ltd. since July 1998. Mr. Lee served from October 1996 through June
1998 as Executive Vice President of the Assembly and Test Division of Hyundai
Electronics, the predecessor of ChipPAC Korea Company, Ltd. From January 1996
to October 1996, Mr. Lee served as Senior Vice President of the LCD Division of
Hyundai Electronics. Prior to this, Mr. Lee served as Senior Vice President of
the Assembly and Test Division of Hyundai Electronics from April 1986 through
December 1995.
C.B. Teh joined us in June 2000 as the President, ChipPAC (Malaysia)
Bhd.Sdn. upon the consummation of the acquisition of the Malaysian business. He
served as the Vice President, Manufacturing of Intersil Technology Sdn. Bhd.
from January 1997 to June 2000. Prior to this he was the Director Manufacturing
at Intersil Technology from January 1991 to December 1996. From September 1987
to December 1990, he served as Director Manufacturing for General
Electronic/Harris Semiconductor in Singapore. From January 1981 to August 1987,
he was the Manufacturing Operations Manager for RCA in Kuala Lumpur.
Edward Conard joined Bain Capital in 1993 as a Managing Director. Prior to
joining Bain Capital, Mr. Conard was a director of Wasserstein Perella from
1990 to 1992, where he headed the firm's Transaction Development Group.
Previously, Mr. Conard was a Vice President at Bain & Company, where he headed
the firm's operations practice and managed major client relationships in the
industrial manufacturing and consumer goods industries. Mr. Conard currently
serves on the boards of Waters Corporation, Cambridge Industries, Dynamic
Details Inc., Medical Specialties Group, Inc., Alliance Commercial Laundry,
Inc. and U.S. Synthetics, Inc.
Michael A. Delaney has been Managing Director of Citicorp Venture Capital
Ltd., an investor in the SXI Group LLC, since 1989. Mr. Delaney is also a
director of JAC Holdings, Palomar Technologies, Inc., SC Processing, Inc.,
CLARK Material Handling Inc., MSX International Inc., Delco Remy International,
Inc., Fabri-Steel Products Inc., Trianon Industries Corporation, Strategic
Industries Inc., Hoover Corporation and Great Lakes Dredge & Dock Corporation.
David Dominik is founder and managing director of CCG, Inc. and a special
limited partner of Bain Capital. From 1990 to March 2000, Mr. Dominik was a
Managing Director of Bain Capital. Mr. Dominik serves on the board of directors
of Therma-Wave, Inc., Dynamic Details, Incorporated, OneSource Information
Services, Inc. and Integrated Circuit Systems, Inc.
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Marshall Haines joined Bain Capital in 1993 and has been an Associate since
1995. Prior to joining Bain Capital, Mr. Haines was a management consultant
with The LEK Partnership. Mr. Haines currently serves on the board of directors
of TravelCLICK, Incorporated.
Joseph Martin has been Executive Vice President and Chief Financial Officer
of Fairchild Semiconductor Corp. since 1997, prior to which time he was Vice
President of Finance, Worldwide Operations for National Semiconductor Corp.
since 1989. Mr. Martin is also a director of Fairchild Semiconductor Corp.
Chong Sup Park joined Hyundai Electronics in 1983 and served as President
and Chief Executive Officer of Hyundai Electronics America from October 1996 to
March 2000. Mr. Park has served as Chairman of Hyundai Electronics America
since November 1999 and was named President and Chief Executive Officer,
Hyundai Electronic Industries Company, Limited, in March 2000. From February
1995 to October 1996, he served as President and Chief Executive Officer of
Maxtor Corporation and has served as Chairman of Maxtor Corporation since
February 1995. Mr. Park is also a director of Dot Hill Systems Corporation and
Viador, Inc.
Paul C. Schorr, IV has been Managing Director, Equity Investments for
Citicorp Venture Capital Ltd., an investor in the SXI Group LLC, since January
2000. Mr. Schorr served as Vice President from 1996 through 1999. Prior to
that, Mr. Schorr was an Engagement Manager in Management Consulting at McKinsey
& Company. Mr. Schorr serves on the board of directors of KEMET Corporation,
Sybron Chemicals and Fairchild Semiconductor Corp.
Compensation of Directors
We reimburse members of the board of directors for any out-of-pocket
expenses incurred by them in connection with services provided in this
capacity. In addition, we pay the independent members of our board of
directors, who are currently Messrs. Dominik, Martin and Park, the following
for their services as directors:
. $10,000 annual retainer fee;
. $2,500 for in-person attendance at each regularly-scheduled board
meeting; and
. $1,250 for telephonic participation at each regularly-scheduled board
meeting.
We have also entered into an agreement with each of Messrs. Martin and Park
for the grant of stock options to purchase shares of our Class A common stock.
The options granted under to these agreements will begin vesting in August
2000. We intend to enter into a similar agreement with Mr. Dominik.
After the closing of the offering, employees of our company serving on the
board of directors will not be entitled to receive any compensation for serving
on the board. Following this offering, directors who are not employees of our
company or who are not otherwise affiliated with us or our principal
stockholders may receive compensation that is commensurate with arrangements
offered to directors of companies that are similar to our company. Compensation
arrangements for independent directors established by our board could be in the
form of cash payment and/or option grants.
65
<PAGE>
Executive Compensation
Summary Compensation Table
The following table provides, for the year ended December 31, 1999, the
compensation paid to our Chief Executive Officer and our four other most highly
compensated executive officers whose total annual salary and bonus was in
excess of $100,000 for fiscal year 1999. For ease of reference, we refer to
each of these executive officers throughout this section as a Named Executive
Officer and collectively as the Named Executive Officers.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation(2)
------------------------------------ --------------------------------------------
Securities
Other Annual Restricted Restricted Underlying All Other
Name and Compensation Stock Stock Options/SARS Compensation
Principal Position Salary Bonus (1) Awards ($) Awards (#) (#) (3)
------------------ ----------- ----------- ------------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Dennis P. McKenna....... $376,480.40 $277,520.90 $ -- $66,660(5)(6) 228,593(5)(6) 259,072 $46,741.54
President and Chief
Executive Officer,
ChipPAC, Inc.
Tony Lin................ 183,420.36 105,085.64 -- 16,665(5)(6) 57,148(5)(6) 57,148 20,884.12
Vice President,
Manufacturing
Finance, ChipPAC, Inc.
Gregory S. Bronzovic.... 190,040.28 70,710.46 -- 11,110(5)(6) 38,099(5)(6) 38,099 10,972.94
Vice President,
Worldwide Sales,
ChipPAC, Inc.
Marcos Karnezos......... 186,252.05 55,985.32 -- 11,110(5)(6) 38,099(5)(6) 38,099 7,803.10
Vice President,
Technology,
ChipPAC, Inc.
Peter Phang............. 155,533.46 26,240.19 80,800.00(4) 11,110(5)(6) 38,099(5)(6) 38,099 3,150.00
Managing Director
and President
ChipPAC Shanghai
</TABLE>
---------------------
(1) Excludes perquisites and other personal benefits or property aggregating
less than the lesser of either: (i) $50,000 or (ii) 10% of the total annual
salary and bonus reported for the applicable Named Executive Officer.
(2) At the closing of the recapitalization on August 5, 1999, all options held
by the Named Executive Officers were canceled in the case of unexercised
options, or converted into the right to receive cash, in the case of vested
options. Please see "Other Compensation" for more information about cash
payments made to our Named Executive Officers in return for their vested
options. A new ChipPAC, Inc. 1999 Stock Purchase and Option Plan was
adopted as of August 5, 1999 and these options were granted under that
plan, none of which have been exercised as of the date of this prospectus.
(3) Includes amounts contributed (a) under our 401(k) plan for 1999 as follow:
Mr. McKenna--$4,325; Mr. Lin--$3,787; Mr. Karnezos--$2,137; and Mr.
Bronzovic--$2,026, (b) for premiums for a life insurance policy as follow:
Mr. McKenna--$1,917; Mr. Lin--$1,347; Mr. Karnezos--$2,291; and
Mr. Bronzovic--$509 and (c) for cancellation of vested stock options from
the 1997 ChipPAC Stock Option Plan as follow: Mr. McKenna--$40,500; Mr.
Lin--$15,570; Mr. Karnezos--$3,375; Mr. Bronzovic-- $8,438; and Mr. Phang--
$3,150.
(4) Represents an overseas allowance of $15,300 and a housing allowance of
$65,500 for Mr. Phang.
(5) Represents shares of Class A common stock with a fair value of $0.2916 per
share as determined by the board of directors based upon a good faith
estimate on the conversion described in the following note. Each of the
Named Executive Officers purchased these shares at a purchase price of
$0.2916 per share on the conversion described in the following note. Twenty
percent of the stock vests at the end of the first year, an additional
twenty percent vests at the end of the second year, an additional thirty
percent vests at the end of the third year and the remaining thirty percent
vests at the end of the fourth year.
(6) These shares previously represented options for Class A common stock which
were converted into restricted shares of the Class A common stock upon
notification of the intention to convert from the Named Executive Officers
during the year ended December 31, 1999.
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<PAGE>
Option Grants in Last Fiscal Year
Individual Grants
The following table sets forth the option grants during the year ended
December 31, 1999 for the Named Executive Officers.
<TABLE>
<CAPTION>
Potential
Realizable
Value at Assumed
Annual Rate of
Stock
Number of % of Total Price Appreciation
Securities Options Exercise for
Underlying Granted to or Base Option Term(3)
Options Employees in Price Expiration -------------------
Name Granted(1) Fiscal Year(2) ($/Share) Date 5%($) 10%($)
---- ---------- -------------- --------- -------------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Dennis P. McKenna....... 259,072 19.5% $5.51 August 4, 2009 $898,062 $2,275,863
Tony Lin................ 57,148 4.3 5.51 August 4, 2009 198,102 502,029
Gregory S. Bronzovic.... 38,099 2.9 5.51 August 4, 2009 132,068 334,686
Marcos Karnezos......... 38,099 2.9 5.51 August 4, 2009 132,068 334,686
Peter Phang............. 38,099 2.9 5.51 August 4, 2009 132,068 334,686
</TABLE>
---------------------
(1) These options for Class A common stock were granted under the ChipPAC, Inc.
1999 Stock Purchase and Option Plan. Twenty percent of the options vests at
the end of the first year, an additional twenty percent vests at the end of
the second year, an additional thirty percent vests at the end of the third
year and the remaining thirty percent vests at the end of the fourth year.
(2) For purposes of calculating this percentage, options for Class A common
stock which were converted into restricted shares of the Class A common
stock were not counted as options granted to employees during the year
ended December 31, 1999.
(3) Amounts reflect assumed rates of appreciation set forth in the executive
compensation disclosures rules of the SEC. Actual gains, if any, on stock
option exercises depend on future performance of our stock and overall
market conditions.
67
<PAGE>
Fiscal Year End Option Values
The following table contains information regarding unexercised options held
by the Named Executive Officers as of December 31, 1999. The value of "in-the-
money" options represents the difference between the exercise price of an
option and the fair market value of our common stock as of December 31, 1999.
No options were exercised by the Named Executive Officers during the year ended
December 31, 1999.
<TABLE>
<CAPTION>
Value
of Unexercised
Number of Securities In-the-Money
Underlying Unexercised Options at
Options at Fiscal Fiscal Year-End
Year-End(#)(1) ($)(2)
---------------------- ---------------
Exercisable/ Exercisable/
Name Unexercisable Unexercisable
---- ---------------------- ---------------
<S> <C> <C>
Dennis P. McKenna..................... 0/259,072 $0/0
Tony Lin.............................. 0/ 57,148 0/0
Gregory S. Bronzovic.................. 0/ 38,099 0/0
Marcos Karnezos....................... 0/ 38,099 0/0
Peter Phang........................... 0/ 38,099 0/0
</TABLE>
---------------------
(1) At the closing of the recapitalization on August 5, 1999, all options held
by the Named Executive Officers were canceled in the case of unexercised
options, or converted into the right to receive cash, in the case of vested
options. The ChipPAC, Inc. 1999 Stock Purchase and Option Plan was adopted
and these options were granted under that plan.
(2) The fair market value of the common stock at December 31, 1999 as
determined by the board of directors based upon a good faith estimate was
equal to the exercise price of the options.
Employment Agreements
Mr. McKenna
Mr. McKenna is employed under an employment agreement with us that provides
that Mr. McKenna will serve as our President and Chief Executive Officer. The
initial term of the agreement terminates on December 31, 2001 and automatically
renews for successive one-year periods unless either party notifies the other
of his or our intention not to renew the agreement. Under the agreement, we pay
Mr. McKenna a base salary of $400,000 per year, which may be increased if
approved by the board of directors, plus a bonus of up to 80% of his base
salary upon attainment by us of financial performance targets described in the
agreement. The agreement also provides for customary fringe benefits.
We have agreed to pay Mr. McKenna a bonus equal to twice his base salary
plus a portion of his annual bonus if we terminate Mr. McKenna for any reason
other than cause, or if Mr. McKenna terminates his employment for good reason.
If Mr. McKenna dies before the end of his employment period, we will pay his
estate a pro rated portion of the bonus he would have earned in the year of his
death.
The agreement also provides that, should Mr. McKenna continue to serve as
President and Chief Executive Officer following a change of our control, the
provisions of the employment agreement shall remain in force and effect
following the change of control.
Messrs. Bronzovic, Karnezos, Krakauer, Lin and Phang
Messrs. Bronzovic, Karnezos, Krakauer, Lin and Phang are employed under
letter agreements with us. Messrs. Bronzovic's, Karnezos' and Lin's letter
agreements provide that Messrs. Bronzovic, Karnezos and Lin are employees-at-
will and that either party has the right to terminate the employment
relationship at any time with or without cause.
68
<PAGE>
Mr. Bronzovic's letter agreement provides that he serves as Vice President,
Worldwide Sales. Mr. Bronzovic's current base salary is $201,350. In addition
to his base salary, Mr. Bronzovic is eligible to earn an annual bonus targeted
at $100,000.
Mr. Karnezos' letter agreement provides that he serves as Vice President,
Technology. Mr. Karnezos' current base salary is $198,132. In addition to his
base salary, Mr. Karnezos is eligible to earn an annual bonus targeted at 30%
of his base salary based on the attainment of financial performance targets
determined by us and personal performance goals.
Mr. Krakauer's letter agreement provides that he serves as Senior Vice
President and Chief Financial Officer. Mr. Krakauer's current base salary is
$235,000. In addition to his base salary, Mr. Krakauer is eligible to earn an
annual bonus targeted at $117,500. For 2000 only, he will receive a minimum
bonus of $82,250. In the event of termination by us for reasons other than
cause, he is eligible to receive eight months of severance. This severance
amount may be reduced by any other employment compensation he receives from
another company during that eight month period.
Mr. Lin's letter agreement provides that he serves as Vice President,
Manufacturing Finance. Mr. Lin's current base salary is $185,229. In addition
to his base salary, Mr. Lin is eligible to earn an annual bonus targeted at 30%
of his base salary based on the attainment of financial performance targets
determined by us and personal performance goals.
Mr. Phang's letter agreement provides that he serves as President, ChipPAC
Assembly and Test (Shanghai) Company Ltd. Mr. Phang's current base salary is
$175,000. In addition to his base salary, Mr. Phang is eligible to receive an
annual bonus targeted at $52,500. Mr. Phang also receives a monthly housing
allowance of $7,500 and an overseas allowance of $17,500, which is payable upon
completion of each 12 months of his assignment. Mr. Phang's assignment is for
four years and renewable by mutual agreement. Mr. Phang's assignment may be
terminated by either party with three months written notice if Mr. Phang
voluntarily terminates or six months written notice if we terminate his
employment for reasons other than cause. If we terminate his employment for
reasons other than cause, we will pay for Mr. Phang's relocation back to
Singapore, and any unvested options held by Mr. Phang would immediately vest
upon this termination.
Messrs. Bronzovic's, Karnezos', Krakauer's, Lin's and Phang's letter
agreements provide for perquisites, including automobile allowances, and
customary personal benefits.
Other Compensation
Following our 1999 recapitalization, we paid cash to the Named Executive
Officers in return for the vested options held by each of these officers. The
amounts of those cash payments were $8,438, $3,375, $15,750, $40,500 and $3,150
in the case of Messrs. Bronzovic, Karnezos, Lin, McKenna and Phang,
respectively.
Messrs. McKenna and Lin also received special bonuses of $100,000 and
$50,000, respectively, in connection with the closing of our 1999
recapitalization.
Option Grants
Under the recapitalization agreement, each option to purchase our common
stock that was outstanding prior to our recapitalization was, in the case of
unvested options, canceled, and in the case of vested options, converted into
the right to receive cash from us immediately prior to the recapitalization.
1999 Stock Purchase and Option Plan
Our board of directors has adopted the 1999 Stock Purchase and Option Plan,
or the 1999 Stock Plan, which authorizes the granting of stock options and the
sale of Class A common stock or Class L common stock
69
<PAGE>
to current or future employees, directors, consultants or advisors of us or our
subsidiaries. Under the 1999 Stock Plan, a committee of the board of directors
is authorized to sell or otherwise issue Class A common stock or Class L common
stock at any time prior to the termination of the 1999 Stock Plan in a
quantity, at a price and on terms and conditions as established by the
committee up to an aggregate of 5,905,310 shares of Class A common stock and
190,494 shares of Class L common stock, including shares of common stock for
which options may be granted, which may be adjusted upon the occurrence of
specified events to prevent any dilution or expansion of the rights of
participants that might otherwise result from the occurrence of these events.
As of December 31, 1999, shares of Class A common stock and Class L common
stock and options to purchase stock were granted under the 1999 Stock Plan as
depicted in Management Equity Sales below and in the Principal Stockholders
section. As of August 7, 2000, 193,980 of these shares or options have vested.
2000 Equity Incentive Plan
The 2000 Equity Incentive Plan, or the 2000 Plan, is expected to be adopted
by our board of directors and approved by our stockholders prior to the
completion of this offering. As of the date of this prospectus, no awards have
been made under the 2000 Plan. No future grants will be made under the 1999
Stock Plan upon the effectiveness of the 2000 Plan.
The 2000 Plan provides for the grant of incentive stock options to our
employees (including officers and employee directors) and for the grant of
nonstatutory stock options to our employees, directors and consultants. A total
of (1) 1,142,963 shares of Class A common stock, (2) any shares returned to the
1999 Stock Plan as a result of termination of options and (3) annual increases
to be added on the date of each annual meeting of stockholders of ChipPAC
commencing in 2001 equal to 1.0% of the outstanding shares of common stock,
or a lesser amount as may be determined by the board of directors, will be
reserved for issuance under the 2000 Plan.
The administrator of the 2000 Plan has the power to determine the terms of
the options granted, including the exercise price of the option, the number of
shares subject to each option, the exercisability of the option, and the form
of consideration payable upon exercise. In addition, our board of directors has
the authority to amend, suspend or terminate the 2000 Plan, provided that no
action may affect any share of Class A common stock previously issued and sold
or any option previously granted under the 2000 Plan.
Options granted under the 2000 Plan are generally not transferable by the
optionee, and each option is exercisable during the lifetime of the optionee
and only by that optionee. Options granted under the 2000 Plan must generally
be exercised within 30 days after the end of an optionee's status as an
employee, director or consultant of ChipPAC, or within six months after an
optionee's termination by death or disability, but in no event later than the
expiration of the option term.
The exercise price of all incentive stock options granted under the 2000
Plan must be at least equal to the fair market value of the Class A common
stock on the date of grant. The exercise price of nonstatutory stock options
granted under the 2000 Plan is determined by the administrator, but with
respect to nonstatutory stock options intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Internal Revenue
Code, the exercise price must be at least equal to the fair market value of the
Class A common stock on the date of grant. With respect to any participant who
owns stock possessing more than 10% of the voting power of all classes of the
outstanding capital stock of ChipPAC, the exercise price of any incentive stock
option granted must be at least equal to 110% of the fair market value on the
grant date and the term of the incentive stock option must not exceed five
years. The term of all other options granted under the 2000 Plan may not exceed
ten years.
The 2000 Plan provides that in the event of a merger of ChipPAC with or into
another corporation, or a sale of substantially all of our assets, each option
shall be assumed or an equivalent option substituted for by the successor
corporation. If the outstanding options are not assumed or substituted for by
the successor corporation, the administrator shall provide for the optionee to
have the right to exercise the option as to all of
70
<PAGE>
the optioned stock, including shares as to which it would not otherwise be
exercisable. If the administrator makes an option exercisable in full in the
event of a merger or sale of assets, the administrator shall notify the
optionee that the option shall be fully exercisable for a period of fifteen
(15) days from the date of that notice, and the option will terminate upon the
expiration of that period.
Employee Stock Purchase Plan
The 2000 Employee Stock Purchase Plan, or the Stock Purchase Plan, will be
adopted by our board of directors and our stockholders prior to the completion
of this offering. The Stock Purchase Plan will be established to give employees
desiring to do so a convenient means of purchasing shares of Class A common
stock through payroll deductions or lump sum cash payments. The Stock Purchase
Plan provides an incentive to participate by permitting purchases at a
discounted price. We believe that ownership of stock by employees will foster
greater employee interest in the success, growth and development of ChipPAC.
A total of 1,142,963 shares of our Class A common stock will be reserved for
issuance under the Stock Purchase Plan, which is intended to qualify under
Section 423 of the Internal Revenue Code but also allows for grants of options
which do not qualify under Section 423 of the Internal Revenue Code. The Stock
Purchase Plan will be implemented through a series of overlapping purchase
periods of six months in duration, with new purchase periods (other than the
first purchase period) commencing on February 1 and August 1 of each year. The
initial purchase period is expected to commence on the date of this offering
and end on January 31, 2000. The Stock Purchase Plan will be administered by
our board of directors or by a committee appointed by the board.
Our employees, including officers and employee directors, and the employees
of any majority-owned subsidiary designated by our board of directors, are
eligible to participate in the Stock Purchase Plan if they are employed by us
or any designated majority-owned subsidiary for at least 35 hours per week and
more than five months per year. The Stock Purchase Plan permits eligible
employees to purchase shares of our Class A common stock through payroll
deductions or lump sum cash payments, which may not exceed 15% of an employee's
compensation, at a price equal to the lower of 85% of the fair market value of
our Class A common stock at the beginning or end of each purchase period. In
circumstances described in the Stock Purchase Plan, the purchase price may be
adjusted during a purchase period to avoid our having to incur adverse
accounting charges. Employees may end their participation in the Stock Purchase
Plan at any time during the purchase period, and participation in the Stock
Purchase Plan ends automatically upon termination of employment with us. Unless
terminated earlier by our board of directors, the Stock Purchase Plan will have
a term of ten years.
Qualified 401(k) Plan
We maintain a qualified 401(k) plan. Employees are permitted to contribute
up to 15.0% of their annual compensation to our 401(k) plan, not to exceed
$10,500 per year. Under the plan, we make matching contributions of up to 50.0%
of the first 6.0% of annual deferral per participant, limited by IRS rules. We
contributed and expensed $175,000 in 1999, $119,000 in 1998 and $49,000 in
1997.
Pension Plans and Deferred Compensation Plans
We do not maintain any pension plans or deferred compensation plans other
than the 401(k) plan described above. In connection with our recapitalization,
members of management may receive deferred compensation arrangements. The terms
of these arrangements have not yet been finalized.
Management Equity Sales
Under the 1999 Stock Plan, we entered into stock purchase agreements, which
we refer to as purchase agreements, with many of our senior employees,
including Mr. Bronzovic, Mr. Karnezos, Mr. Krakauer, Mr. Lee, Mr. Lin and Mr.
McKenna. Under the purchase agreements, these senior-level employees purchased
shares
71
<PAGE>
of our Class A common stock and Class L common stock. We have loaned these
senior-level employees up to 50% of the purchase price of the common stock
purchased under these purchase agreements. These loans are represented by
promissory notes between the employee and us. Prior to the consummation of this
offering, the common stock purchased under the purchase agreements may be
repurchased by us upon termination of the employee's employment.
Compensation Committee Interlocks and Insider Participation
We currently do not have a compensation committee. The compensation
arrangements for each of our executive officers were established under the
terms of the respective employment agreements between us and each executive
officer. The terms of the employment agreements were established in arms-length
negotiations between us and each executive officer and approved by our board of
directors, except that agreement relating to Mr. McKenna, which was negotiated
between representatives of the Equity Investors and Mr. McKenna. Following this
offering, any changes in the compensation arrangements of our executive
officers will be determined by the compensation committee of our board of
directors.
Committees of the Board of Directors
Upon the closing of this offering, the board of directors will have an audit
committee and a compensation committee. The audit committee will report to the
board regarding the appointment of our independent public accountants, the
scope and results of our annual audits, compliance with our accounting and
financial policies and management's procedures and policies relative to the
adequacy of our internal accounting controls. Upon the completion of the
initial public offering, the audit committee will consist exclusively of
directors not otherwise affiliated with us. The compensation committee of the
board of directors will review and make recommendations to the board regarding
our compensation policies and all forms of compensation to be provided to our
executive officers. In addition, the compensation committee will review bonus
and stock compensation arrangements for all of our other employees. Upon the
completion of the initial public offering, the compensation committee will
consist of at least two non-employee directors (as defined in Rule 16b-3 under
the Securities Exchange Act of 1934).
72
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table provides information with respect to the beneficial
ownership of our Class A common stock, as of March 31, 2000 after giving effect
to the reclassification as of that date (a) prior to this offering of
10,000,000 shares of our Class A common stock and sales of 2,193,986 shares of
our Class A common stock in the concurrent private placements and (b)
immediately following this offering and the concurrent private placements, in
each case by:
. each person or group of affiliated persons who is known by us to own
beneficially more than 5% of our Class A common stock;
. each of our directors;
. each of our executive officers; and
. all directors and executive officers as a group.
The table includes the number of shares and percentage ownership represented
by the shares determined to be beneficially owned by a person under the rules
of the Securities and Exchange Commission. The number of shares beneficially
owned by a person includes: (a) shares of Class A common stock that are subject
to options held by that person that are currently exercisable within 60 days of
March 31, 2000 and (b) shares of Class A common stock that are subject to
repurchase but vest within 60 days of March 31, 2000. These shares are deemed
outstanding for the purpose of computing the percentage of outstanding shares
owned by that person. These shares are not deemed outstanding, however, for the
purposes of computing the percentage ownership of any other person.
The column entitled "Percentage After the Offering" assumes no exercise of
the underwriters' over-allotment option.
Except as otherwise noted and subject to community property laws, the
persons or entities in this table have sole voting and investment power with
respect to all the shares of common stock owned by them. Unless otherwise
provided herein, the street address of each director and executive officer is
3151 Coronado Drive, Santa Clara, California 95054.
<TABLE>
<CAPTION>
Shares Beneficially Owned
-----------------------------
Percentage of
Shares Outstanding
------------------
Number Prior to After the
Name and Address of Shares Offering Offering
---------------- ---------- -------- ---------
<S> <C> <C> <C>
Principal Stockholders:
Bain Capital Funds(1)............................. 20,896,927 42.4 31.0
c/o Bain Capital, Inc.
Two Copley Place
Boston, Massachusetts 02116
SXI Group LLC(2).................................. 20,644,597 41.9 30.7
c/o Citicorp Venture Capital, Ltd.
399 Park Avenue
New York, NY 10043
Hyundai Electronics America....................... 4,587,689 9.3 6.8
3101 North First Street
San Jose, California 95134
</TABLE>
73
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Owned
-----------------------------
Percentage of
Shares Outstanding
------------------
Number Prior to After the
Name and Address of Shares Offering Offering
---------------- ---------- -------- ---------
<S> <C> <C> <C>
Directors and Executive Officers:
Dennis P. McKenna............................... 227,910 * *
Robert Krakauer................................. 182,029 * *
Gregory S. Bronzovic............................ 36,467 * *
Bruce Stromstad................................. 45,509 * *
Marcos Karnezos................................. 45,583 * *
Robert Bowden................................... 56,979 * *
(Peter) Phang Guk Bing.......................... 11,342 * *
S.N. Lee........................................ 113,956 * *
C.B. Teh........................................ -- -- --
Edward Conard(3)................................ -- -- --
Michael A. Delaney(4)........................... 20,644,597 41.9 30.7
David Dominik(5)................................ -- -- --
Marshall Haines(6).............................. -- -- --
Joseph Martin(7)................................ 20,644,597 41.9 30.7
Chong Sup Park.................................. -- -- --
Paul C. Schorr, IV(8)........................... 20,644,597 41.9 30.7
All directors and executive officers as a group
(16 persons)................................... 21,364,372 43.3 31.7
</TABLE>
---------------------
* Less than one percent.
(1) Includes: (a) 16,067,591 shares of Class A common stock owned by Bain
Capital Fund VI, L.P., whose sole general partner is Bain Capital Partners
VI, L.P., whose sole general partner is Bain Capital Investors VI, Inc., a
Delaware corporation wholly owned by W. Mitt Romney; (b) 2,170,997 shares
of Class A common stock owned by BCIP Associates II, whose managing partner
is Bain Capital, Inc., a Delaware corporation wholly owned by W. Mitt
Romney; (c) 390,574 shares of Class A common stock owned by BCIP Associates
II-B, whose managing partner is Bain Capital, Inc., a Delaware corporation
wholly owned by W. Mitt Romney; (d) 730,254 shares of Class A common stock
owned by BCIP Trust Associates II, L.P., whose general partner is Bain
Capital, Inc., a Delaware corporation wholly owned by W. Mitt Romney; (e)
190,447 shares of Class A common stock owned by BCIP Trust Associates II-B,
whose general partner is Bain Capital, Inc., a Delaware corporation wholly
owned by W. Mitt Romney; (f) 834,735 shares of Class A common stock owned
by BCIP Associates II-C, whose managing partner is Bain Capital, Inc., a
Delaware corporation wholly owned by W. Mitt Romney; (g) 53,559 shares of
Class A common stock owned by PEP Investments Pty, Ltd., whose controlling
persons are Timothy J. Sims, Richard J. Gardell, Simon D. Pillar and Paul
J. McCullagh; and (h) 458,770 shares of Class A common stock by Sankaty
High Yield Asset Partners, L.P., whose sole general partner is Sankaty High
Yield Asset Investors, LLC, whose managing member is Sankaty High Yield
Asset Investors, Ltd., a Bermuda corporation wholly owned by W. Mitt
Romney.
(2) SXI Group LLC distributed its shares of our stock to its members on August
4, 2000. Citicorp Venture Capital Ltd. and its affiliates, which had an
interest in SXI Group LLC, received an aggregate of 19,972,862 shares of
our Class A common stock in that distribution. These shares represented
40.8% prior to the offering and 29.6% after the offering. No other member
became a 5% or greater holder of our Class A common stock as a result of
that distribution.
(3) Mr. Conard is a limited partner of Bain Capital Partners VI, L.P., which is
the general partner of Bain Capital Fund VI, L.P. In addition, Mr. Conard
is a general partner of BCIP Associates II and BCIP Trust Associates II,
L.P. In such capacities, Mr. Conard has a pecuniary interest in certain of
the shares held by the Bain Capital Funds. Mr. Conard's address is c/o Bain
Capital, Inc., Two Copley Place, Boston, Massachusetts 02116.
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<PAGE>
(4) Mr. Delaney is an investor in SXI Group LLC, a member of its Board of
Representatives and a Managing Director of Citicorp Venture Capital, Ltd.
Accordingly, Mr. Delaney may be deemed to beneficially own all shares held
by SXI Group LLC. Mr. Delaney disclaims beneficial ownership of all shares
held by SXI Group LLC, except those shares reported for Mr. Delaney. SXI
Group LLC distributed its shares of our stock to its members on August 4,
2000. Mr. Delaney received 204,036 shares of our Class A common stock in
that distribution. Mr. Delaney's address is c/o Citicorp Venture Capital,
Ltd., 399 Park Avenue, New York, New York 10043.
(5) Mr. Dominik is a special limited partner of Bain Capital Partners VI, L.P.,
which is the general partner of Bain Capital Fund VI, L.P. In addition, Mr.
Dominik is a general partner of BCIP Associates II and BCIP Trust
Associates II, L.P. In such capacities, Mr. Dominik has a pecuniary
interest in certain shares held by the Bain Capital Funds. Mr. Dominik's
address is c/o Convergence Capital Group, One Embarcadero, Suite 3300, San
Francisco, California 94111.
(6) Mr. Haines is a general partner of BCIP Associates II-B, and BCIP Trust
Associates II-B and in such capacity has a pecuniary interest in certain
shares held by these funds. Mr. Haines' address is c/o Bain Capital, Inc.,
One Embarcadero, Suite 2260, San Francisco, California 94111.
(7) Mr. Martin is an investor in SXI Group LLC and, accordingly, may be deemed
to beneficially own all shares held by SXI Group LLC. Mr. Martin disclaims
beneficial ownership of all shares held by SXI Group LLC, except those
shares reported for Mr. Martin. SXI Group LLC distributed its shares of our
stock to its members on August 4, 2000. Mr. Martin and his children
received 45,341 shares of our Class A common stock in that distribution.
Mr. Martin's address is c/o Fairchild Semiconductor Corporation, 333
Western Avenue, South Portland, Maine 04106.
(8) Mr. Schorr is an investor in SXI Group LLC, a member of its Board of
Representatives and a Managing Director of Citicorp Venture Capital, Ltd.
Accordingly, Mr. Schorr may be deemed to beneficially own all shares held
by SXI Group LLC. Mr. Schorr disclaims beneficial ownership of all shares
held by SXI Group LLC, except those shares reported for Mr. Schorr. SXI
Group LLC distributed its shares of our stock to its members on August 4,
2000. An affiliate of Mr. Schorr received 86,149 shares of our Class A
common stock in that distribution. Mr. Schorr's address is c/o Citicorp
Venture Capital, Ltd., 399 Park Avenue, New York, New York 10043.
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QUALCOMM PRIVATE PLACEMENT
On July 13, 2000, we entered into an agreement with Qualcomm, in which
Qualcomm agreed to purchase from us a number of shares of our Class A common
stock equal to $25.0 million divided by a purchase price per share equal to 95%
of the initial public offering price in this offering in a private placement
that will occur concurrently with the closing of this offering. Based on an
assumed initial public offering price of $14.00, the midpoint of the range set
forth on the cover page of this prospectus, Qualcomm will purchase 1,879,700
shares of Class A common stock in the concurrent private placement.
Accordingly, if the initial public offering price is greater or less than
$14.00 per share, then:
. a smaller or greater number of shares of our Class A common stock will
be issued in the concurrent private placement;
. a smaller or greater number of our Class A common stock will be
outstanding upon the closing of this offering and the concurrent private
placement; and
. the shares of our Class A common stock issued in the offering will
represent a greater or lesser percentage of our outstanding common
stock.
The agreement provides that Qualcomm will not offer, sell, contract to sell,
pledge or otherwise dispose of, directly or indirectly, any of our Class A
common stock acquired in the private placement without the prior written
consent of Credit Suisse First Boston Corporation for a period of 180 days
after the date of this prospectus.
Qualcomm has also agreed to enter into a three-year supply agreement which
automatically renews every year after the initial term unless either party
provides 90 day written notice to the other party of its intent to terminate
the agreement. Under the supply agreement, ChipPAC will provide packaging and
test services for integrated circuit devices for Qualcomm.
In addition, after an offering of our stock to the public and before the
seventh anniversary of the closing of the concurrent private placement, the
holders of a majority of the registrable securities held by Qualcomm may
require us to register under the Securities Act of 1933 all those shares under
one "long form" or "short form" registration at our expense.
SIGNIFICANT RELATIONSHIPS AND RELATED TRANSACTIONS
Because this is a summary, it does not contain all of the information that
may be important to you. You should read the complete document before making an
investment decision. These documents have been filed as exhibits to the
registration statement of which this prospectus forms a part. See "Where You
Can Find More Information."
Malaysian Business
On June 30, 2000, we consummated the acquisition of the Malaysian business.
The acquisition of the Malaysian business involved the acquisition of all
equity interests in the Malaysian business along with related intellectual
property, in exchange for $52.5 million in cash and newly authorized shares of
our Class C preferred stock having an aggregate liquidation preference of $17.5
million. In addition, during the period from June 1, 2000 to June 30, 2003,
Intersil will be entitled to receive additional contingent incentive payments
based upon the achievement of milestones relating to the transfer of business
currently subcontracted by Intersil to a third party. In the event that
Intersil were to achieve all the milestones, we would pay Intersil an
additional sum of approximately $17.9 million in the aggregate.
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In connection with the acquisition, we entered into a five-year supply
agreement with Intersil under which we will supply Intersil and each of its
current and future affiliates with their packaging and test services
requirements.
In addition, Intersil assigned to us patents, copyrights and technical
information used exclusively in or associated exclusively with the Malaysian
business. Furthermore, Intersil granted us a worldwide, non-exclusive, royalty-
free license under other Intersil patents, copyrights and technical information
which is also used in or related to the operation of the Malaysian business.
This Intersil license is perpetual and irrevocable. Any intellectual property
rights in the bonding diagrams, test programs, maskworks and test boards
uniquely related to the Intersil products for which we will provide packaging
and test services under the supply agreement with Intersil are licensed to us
only for use in providing those services.
We also entered into a long term joint services agreement with Intersil in
connection with the acquisition of the Malaysian business under which each
party is required to assist the other in a smooth transition of each party's
operations following the acquisition. Intersil is an affiliate of SXI Group
LLC.
The Reclassification
The reclassification will be effected immediately prior to the effectiveness
of the registration statement of which this prospectus is a part. The
reclassification will be effected pursuant to a merger whereby ChipPAC
California will merge with and into ChipPAC Delaware, the newly formed, wholly
owned subsidiary of ChipPAC California that is incorporated under the laws of
the state of Delaware and that will issue the Class A common stock in this
offering. The merger will have the effect of reincorporating our company under
the laws of the state of Delaware. In connection with the merger:
. each share of Class A common stock of ChipPAC California will become one
share of Class A common stock of ChipPAC Delaware;
. each share of Class B common stock of ChipPAC California will become one
share of Class B common stock of ChipPAC Delaware;
. each share of Class L common stock of ChipPAC California will become one
share of Class A common stock of ChipPAC Delaware, plus an additional
number of shares of Class A common stock of ChipPAC Delaware, rounded to
the nearest whole share, determined by dividing the Preference Amount by
the value of a share of Class A common stock of ChipPAC Delaware based
on the initial public offering price;
. each share of Class A convertible preferred stock of ChipPAC California
will become one share of Class A convertible preferred stock of ChipPAC
Delaware;
. each share of Class B preferred stock of ChipPAC California will become
one share of Class B preferred stock of ChipPAC Delaware;
. each share of Class C preferred stock of ChipPAC California will become
one share of Class C preferred stock of ChipPAC Delaware; and
. each outstanding option and warrant for the purchase of Class A common
stock of ChipPAC California will become an option and warrant for the
purchase of Class A common stock of ChipPAC Delaware.
As a result of the reclassification, stockholders of ChipPAC California will
become stockholders of ChipPAC Delaware. The reclassification will be effected
under an agreement and plan of merger between ChipPAC California and ChipPAC
Delaware and the certificate of incorporation included within that agreement
and plan of merger, each as approved by the requisite vote of our current
stockholders. See "The Reclassification."
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The Recapitalization
On March 13, 1999, our company, ChipPAC Merger Corp., Hyundai Electronics
and Hyundai Electronics America entered into a recapitalization agreement to
consummate the recapitalization. The recapitalization was consummated on August
5, 1999.
Under the recapitalization agreement, Hyundai Electronics and Hyundai
Electronics America agreed to jointly indemnify us against any and all losses
resulting from any misrepresentation or breach of warranty made by us in the
recapitalization agreement, a claim for which must generally be made no later
than 24 months after the closing of the recapitalization. The indemnification
obligations of Hyundai Electronics and Hyundai Electronics America under the
recapitalization agreement have a $3.85 million minimum aggregate threshold
amount and are limited to a maximum aggregate amount payable of no more than
$38.5 million; provided, however, that in cases where indemnification
obligations are not affected by this payment limitation, if the amount of any
indemnification obligation would exceed 50.0% of the total consideration to be
paid to Hyundai Electronics and Hyundai Electronics America, then the
recapitalization may be rescinded. In addition, Hyundai Electronics and Hyundai
Electronics America have jointly agreed to indemnify us for any and all losses
and liabilities:
. that are owed to third parties and are in the nature of "successor
liability" or which are caused by the pre-closing conduct of Hyundai
Electronics or its affiliates; and
. that (a) we may incur within ten years of the recapitalization and (b)
which relate to patent infringement claims brought by specified third
parties; in this case the indemnification obligations are limited to
$5.0 million.
In addition, we will indemnify Hyundai Electronics and Hyundai Electronics
America against any and all losses arising out of a breach of any of ChipPAC
Merger Corp.'s representations or warranties, covenants or agreements described
in the recapitalization agreement, with limitations.
Hyundai Electronics and Hyundai Electronics America have also agreed for a
period of four years after the closing of the recapitalization not to provide
semiconductor packaging or test services to any person or any entity anywhere
in the world, except for fabricated products for their respective semiconductor
units. Hyundai Electronics and Hyundai Electronics America have also agreed for
a period of two years after the closing of the recapitalization not to offer
employment to or hire any of our current or former employees, other than any
employee that was terminated by us on or prior to December 1, 1998.
As part of the transfer of control in the recapitalization, Hyundai
Electronics, Hyundai Electronics America and/or their affiliates, entered into
or amended a number of ancillary agreements with us and our operating
subsidiaries, including:
. utility and service agreements with ChipPAC Korea to provide it with
utility service at its Ichon and Chungju, Korea facilities;
. an information technology services agreement relating to maintenance and
support of our computer hardware and software; and
. a lease for our Ichon and Chungju, Korea facilities and a sublease for
our Santa Clara, California facility.
All of these ancillary agreements are on terms we believe are market and
customary.
Advisory Agreements
At the time of our recapitalization, we entered into advisory agreements
with the Equity Investors. Under these agreements, the Equity Investors may
provide financial, advisory and consulting services to us. In exchange for
these services, the Equity Investors will be entitled to receive fees billed at
the Equity Investors'
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customary rates for actual time spent performing these services plus
reimbursement for out-of-pocket expenses; provided that, commencing with the
three months ended March 31, 2000, the Equity Investors will each be entitled
to an annual advisory fee, the amount of which will be limited by our senior
credit agreements, for the remaining term of the advisory agreement. For the
three months ended March 31, 2000, we paid approximately $0.5 million to the
Equity Investors under these agreements. There are no minimum levels of service
required to be provided under the advisory agreements. At the time of our
recapitalization, the Equity Investors received a one-time fee of 1.0% of the
aggregate value of the recapitalization. In addition, the Equity Investors will
each receive a fee not to exceed 1.0% of the aggregate value of any
acquisition, divestiture or financing transaction of the company in which the
Equity Investors are involved, including the acquisition of the Malaysian
business. Each advisory agreement will remain in effect for an initial term of
ten years, but they may be terminated by the Equity Investors or us upon
written notice 90 days prior to the expiration of the initial term or any
extension. Each advisory agreement includes customary indemnification
provisions in favor of each of the Equity Investors.
Equity Investors Private Placement
We and the Equity Investors have agreed to terminate the advisory agreements
upon the closing of this offering in exchange for a one-time aggregate payment
of $8.0 million consisting of a $3.6 million cash payment and the issuance of
$4.4 million of our Class A common stock at a price per share equal to the
initial public offering price in this offering in a private placement that will
occur concurrently with the closing of this offering. Based on an assumed
initial public offering price of $14.00, the midpoint of the range set forth on
the cover page of this prospectus, the Equity Investors will be issued an
aggregate of 314,286 shares of our Class A common stock in this concurrent
private placement. Accordingly, if the initial public offering price is greater
or less than $14.00 per share, then:
. a smaller or greater number of shares of our Class A common stock will
be issued in the concurrent private placement;
. a smaller or greater number of our Class A common stock will be
outstanding upon the closing of this offering and the concurrent private
placement; and
. the shares of our Class A common stock issued in the offering will
represent a greater or lesser percentage of our outstanding common
stock.
The Equity Investors have agreed not to offer, sell, contract to sell,
pledge or otherwise dispose of, directly or indirectly, any of our Class A
common stock acquired in the private placement without the prior written
consent of Credit Suisse First Boston Corporation for a period of 180 days
after the date of this prospectus.
Stockholders Agreement
At the time of our recapitalization, our company, each of the Equity
Investors and all of the other non-management equity holders, including Hyundai
Electronics America and Intel, entered into a stockholders agreement that
provides for restrictions on the transfer of shares and specified preemptive
rights. Also under the stockholders agreement, our board of directors will be
comprised of
. our chief executive officer,
. three representatives designated by Bain Capital,
. three representatives designated by SXI Group LLC and
. one representative designated by Hyundai Electronics America.
All of the provisions of the stockholders agreement described above will
terminate upon the consummation of this offering.
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Registration Agreement
Our company, the Equity Investors and their designees, Hyundai Electronics
America, Intel and Intersil have entered into a registration agreement which
provides for "demand" registration rights to cause us to register under the
Securities Act of 1933 all or part of the shares of our stock held by them, as
well as "piggyback" registration rights. Specifically, the registration
agreement provides that:
. the holders of a majority of our registrable securities may require us,
at our expense, to register any or all of the stock held by them on a
"long-form" registration statement or, if available, a "short-form"
registration statement;
. after an offering of our stock to the public, with specified exceptions,
(a) at any time, the holders of a majority of the registrable securities
held by Hyundai Electronics or Hyundai America may require one "long
form" or "short form" registration at our expense and (b) before August
5, 2006, the holders of a majority of the registrable securities held by
Intel may also require one "long form" or "short form" registration at
our expense; and
. all holders of registrable securities may request that their eligible
stock be included whenever we register any of our securities under the
Securities Act of 1933, with specified exceptions.
We have agreed to indemnify all holders of registered securities against
specified liabilities, including liabilities under the Securities Act of 1933.
Transition Services Agreement
We entered into a transition services agreement with affiliates of Hyundai
Electronics under which these affiliates will continue to provide
administrative and other services to us for amounts to be determined depending
upon the type and number of services performed. Services to be provided by
these affiliates under the transition services agreement include:
. purchasing assistance;
. transit insurance;
. water freight services;
. uniform and travel services;
. office space in Tokyo, Japan;
. services of employees located in Tokyo, Japan; and
. consulting services.
Patent and Technology License Agreement
We entered into a patent and technology license agreement with Hyundai
Electronics under which we received a non-exclusive license to use intellectual
property in connection with our semiconductor packaging activities. Following
the expiration of its initial term on December 31, 2003, the patent and
technology license agreement may be extended by us from year to year upon
payment of a nominal annual license fee. Hyundai Electronics may terminate the
patent and technology license agreement prior to December 31, 2003 if we breach
the agreement and do not cure within the applicable time period, or in the
event of a bankruptcy or similar event, or if a force majeure event prevents
performance of the agreement.
Services Agreement
We entered into a services agreement with Hyundai Electronics for the
packaging of Hyundai Electronics' RDRAM chips. Under the services agreement, we
must procure sufficient capital equipment to meet Hyundai's
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packaging requests. However, if this equipment is not utilized, Hyundai is
required to reimburse us for the cost of underutilization of the equipment. The
initial term of the agreement expires on June 30, 2002, but may be terminated
for cause.
Intel Materials Agreement
On August 5, 1999, ChipPAC Limited and Intel entered into the Intel
Materials Agreement under which Intel will outsource to ChipPAC Limited a
portion of its semiconductor packaging needs. In return, we will provide Intel
with rebates based upon the dollar volume of packaging services outsourced to
us. Rebates are deducted from revenue and accrued as current liabilities when
the sale is made. The rebate percentage applied in computing the accrual is
based on projected total sales and the relevant rebate percentages for the
periods stated in the agreement. The Intel Materials Agreement covers
semiconductor packaging services for which Intel has an ongoing purchasing
requirement and for which we are a qualified source and where costs, yields and
quality are equal to that of the same services provided by other semiconductor
packaging companies.
The Intel Materials Agreement also provides that Intel will not enter into
other agreements for packaging services that contain provisions relating to
competitive pricing and volume guarantees similar to those contained in the
Intel Materials Agreement. This restriction only applies to agreements with
semiconductor packaging companies that (a) are qualified to provide packaging
services to Intel and (b) provide the same type of packaging services provided
by us.
The Intel Materials Agreement also obligates us to first offer to Intel
rights to license from us intellectual property related to new packaging
services technology developed by us. Following the expiration of its initial
term on December 31, 2001, the Intel Materials Agreement may be extended upon
the mutual consent of ChipPAC Limited and Intel.
Intel Stock Purchase Agreement
Immediately following our recapitalization, we entered into the stock
purchase agreement with Intel. Under this agreement, we issued to Intel (a) the
Intel Preferred Stock, which has an initial aggregate liquidation preference of
$10.0 million, and (b) the Intel Warrant, which entitles Intel to purchase $5.0
million of our Class B common stock at a 20.0% discount to the initial public
offering price when and if we complete an initial public offering of our common
stock. The ability of the warrant holder to exercise the warrant is conditioned
entirely upon our completing an initial public offering of our common stock.
Accordingly, we have valued the Intel Warrant at $1.25 million and this amount
has been recorded as equity. The Intel Preferred Stock has been recorded net of
this amount and is being accreted to redemption value over the period to
August 1, 2001, the first date at which the Intel Preferred Stock becomes
redeemable. See "Description of Financing Arrangements--Intel Preferred Stock;
Intel Warrant."
Senior Subordinated Notes and Senior Credit Facilities
Sankaty High Yield Asset Partners, L.P., an affiliate of Bain Capital, Inc.,
will receive a portion of the net proceeds of this offering from the redemption
and repurchase of the senior subordinated notes and from the repayment of some
of our indebtedness under our senior credit facilities.
Loans to Executive Officers
In August 2000, we made unsecured loans to Messrs. McKenna and Krakauer in
the principal amounts of $1,250,000 and $250,000, respectively. The loans are
payable upon termination of employment with the company or in the event of the
bankruptcy or insolvency of the payee. Each loan accrues interest at the rate
of 8.0% per annum, provided that no interest accrues during the first year of
the loan.
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Interests of Experts
Randolph Street Partners owns 204,041 shares of Class A common stock
acquired in our recapitalization. In connection therewith, Randolph Street
Partners entered into the stockholders agreement and is considered part of the
Bain Group under the stockholders agreement and the registration agreement.
Some partners of Kirkland & Ellis are partners in Randolph Street Partners.
Kirkland & Ellis has provided legal services to us, including services in
connection with this offering, and to Bain Capital from time to time and may
continue to do so in the future.
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DESCRIPTION OF CAPITAL STOCK
General Matters
Following the reclassification and upon completion of this offering and the
concurrent private placements, the total amount of our authorized capital stock
will consist of 250,000,000 shares of Class A common stock, 250,000,000 shares
of Class B common stock, 10,000 shares of Class A convertible preferred stock,
105,000 shares of Class B preferred stock, 17,500 shares of Class C preferred
stock and 9,867,500 shares of undesignated preferred stock. After giving effect
to this offering and the concurrent private placements and the application of
the net proceeds from this offering and the Qualcomm private placement,
assuming an initial public offering price of $14.00 per share, the midpoint of
the range set forth on the cover page of this prospectus, and a Preference
Amount of $9.46 per share of Class L common stock, we will have 65,266,250
shares of Class A common stock and no shares of Class B common stock or of any
series of preferred stock outstanding. As of March 31, 2000, we had 43
stockholders of record with respect to our common stock. The following summary
of provisions of our capital stock describes all material provisions of, but
does not purport to be complete and is subject to, and qualified in its
entirety by, our certificate of incorporation and our by-laws, which are
included as exhibits to the registration statement of which this prospectus
forms a part, and by the provisions of applicable law.
The certificate of incorporation and by-laws contain provisions that are
intended to enhance the likelihood of continuity and stability in the
composition of the board of directors and which may have the effect of
delaying, deferring or preventing a future takeover or change in control of our
company unless the takeover or change in control is approved by our board of
directors.
Class A Common Stock
Subject to the prior rights of the holders of any series of preferred stock,
the holders of outstanding shares of Class A common stock are entitled to
receive dividends out of assets legally available therefor at that time and in
amounts as the board of directors may from time to time determine. See
"Dividend Policy." Holders of Class A common stock have no preemptive or
subscription rights to purchase any of our securities. A holder of Class A
common stock will, at its option, be able to convert its shares of Class A
common stock into shares of Class B common stock on a share-for-share basis at
any time. Upon liquidation, dissolution or winding up of ChipPAC, the holders
of Class A common stock are entitled to receive pro rata, together with holders
of our Class B common stock, our assets which are legally available for
distribution, after payment of all debts and other liabilities and subject to
the prior rights of any holders of any series of preferred stock then
outstanding. Each outstanding share of Class A common stock is entitled to one
vote on all matters submitted to a vote of stockholders. There is no cumulative
voting. Except as otherwise required by law or the certificate of
incorporation, the holders of Class A common stock and the holders of Class A
convertible preferred stock vote together as a single class on all matters
submitted to a vote of stockholders.
Our Class A common stock has been approved for listing and will be included
on the Nasdaq National Market under the symbol "CHPC."
Class B Common Stock
In connection with the reclassification, we will authorize shares of a new
class of Class B common stock. The holders of Class B common stock will be
entitled to the same rights, privileges, benefits and notices as the holders of
Class A common stock, except that the holders of Class B common stock will:
. not be entitled to vote, except as required by law; and
. be able to convert their shares into Class A common stock on a share-
for-share basis at any time.
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Class A Convertible Preferred Stock
The Class A convertible preferred stock has a liquidation preference of
$1,000 per share, plus all accreted and unpaid dividends. Dividends on the
Class A convertible preferred stock accrete at a rate of 10.0% per annum. The
Class A convertible preferred stock is convertible by the holders thereof at
any time into shares of Class A common stock and, moreover, automatically
converts into shares of Class A common stock upon consummation of an initial
public offering, including this offering, in which gross proceeds to ChipPAC
exceed $50.0 million. At any time after August 1, 2005, we have the right to
redeem all or any portion of any outstanding Class A convertible preferred
stock. Each share of Class A convertible preferred stock has that number of
votes equal to the number of shares of Class A common stock then issuable upon
the conversion of that share of Class A convertible preferred stock. Except as
otherwise required by law or as provided in the following sentence, the holders
of Class A convertible preferred stock and the holders of Class A common stock
vote together as a single class on all matters submitted to a vote of
stockholders. The prior written consent of the holders of at least 66 2/3% of
the outstanding Class A convertible preferred stock is required to change the
terms of the Class A convertible preferred stock or to authorize, create or
issue any new shares of stock or reclassify any outstanding shares of capital
stock into shares having superior rights to those of the Class A convertible
preferred stock. All of the shares of Class A convertible preferred stock are
held by Intel.
Class B Preferred Stock
The Class B preferred stock has a liquidation preference of $1,000 per
share, plus all accreted and unpaid dividends. Dividends on the Class B
preferred stock accrete at a rate of 12.5% per annum. The Class B preferred
stock has a scheduled redemption date of August 5, 2010 and is otherwise
redeemable by us at any time in our sole discretion. Except as required by law,
the Class B preferred stock does not entitle the holder of the stock to vote on
matters submitted to a vote of stockholders. The terms of the Class B preferred
stock cannot be altered or changed without the prior written consent of the
holders of a majority of the Class B preferred stock outstanding at the time
that action is taken. See "Description of Financing Arrangements--Hyundai
Preferred Stock." All of the shares of Class B preferred stock are held by
Hyundai Electronics America.
Class C Preferred Stock
The Class C preferred stock has an aggregate liquidation preference of
$17.5 million, plus all accreted and unpaid dividends. Dividends on the Class C
preferred stock accrete at a rate of 5.0% per annum. The Class C preferred
stock automatically converts into shares of Class A common stock upon
consummation of this offering. Fifty percent of these shares convert at the
initial public offering price and the remaining 50% of these shares convert at
90% of the initial public offering price. Except as required by law, the Class
C preferred stock does not entitle the holder of the stock to vote on matters
submitted to a vote of stockholders. The prior written consent of the holders
of at least 66 2/3% of the outstanding Class C preferred stock is required to
change the terms of the Class C preferred stock or to authorize, create or
issue any new shares of stock or reclassify any outstanding shares of capital
stock into shares having superior rights to those of the Class C preferred
stock. All of the shares of Class C preferred stock are held by Intersil.
Other Preferred Stock
Our board of directors may, without further action by our stockholders, from
time to time, direct the issuance of shares of preferred stock in a series and
may, at the time of issuance, determine the rights, preferences and limitations
of each series. Satisfaction of any dividend preferences of outstanding shares
of preferred stock would reduce the amount of funds available for the payment
of dividends on shares of common stock. Holders of shares of preferred stock
may be entitled to receive a preference payment in the event of any
liquidation, dissolution or winding-up of our company before any payment is
made to the holders of shares of common stock. The issuance of shares of
preferred stock may render more difficult or tend to discourage a merger,
tender offer or proxy contest, the assumption of control by a holder of a large
block of our securities or the removal of incumbent management. Upon the
affirmative vote of a majority of the total number of directors
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then in office, the board of directors, without stockholder approval, may issue
shares of preferred stock with voting and conversion rights which could
adversely affect the holders of shares of common stock. Upon completion of this
offering and after the application of the net proceeds from this offering,
there will be no shares of preferred stock outstanding.
Other Provisions of the Certificate of Incorporation and By-laws
The certificate of incorporation provides that stockholder action can be
taken only at an annual or special meeting of stockholders and cannot be taken
by written consent in lieu of a meeting. The certificate of incorporation and
the by-laws provide that, except as otherwise required by law, special meetings
of stockholders can only be called through a resolution adopted by a majority
of the board of directors or by our chief executive officer. Stockholders will
not be permitted to call a special meeting or to require the board to call a
special meeting.
The by-laws establish an advance notice procedure for stockholder proposals
to be brought before an annual meeting of our stockholders, including proposed
nominations of persons for election to the board. Stockholders at an annual
meeting may only consider proposals or nominations specified in the notice of
meeting or brought before the meeting by or at the direction of the board or by
a stockholder who was a stockholder of record on the record date for the
meeting, who is entitled to vote at the meeting and who has given to our
secretary written notice no later than 60 days and no more than 90 days before
the meeting, in proper form, of the stockholder's intention to bring that
business before the meeting. Although the by-laws do not give the board the
power to approve or disapprove stockholder nominations of candidates or
proposals regarding other business to be conducted at a special or annual
meeting, the by-laws may have the effect of precluding the conduct of business
at a meeting if the proper procedures are not followed or may discourage or
defer a potential acquiror from conducting a solicitation of proxies to elect
its own slate of directors or otherwise attempting to obtain control of
ChipPAC.
Our certificate of incorporation and by-laws provide that the affirmative
vote of holders of at least 66 2/3% of the total votes eligible to be cast in
the election of directors is required to amend, alter, change or repeal some of
their provisions, unless the amendment or change has been approved by a
majority of the directors not affiliated or associated with any person or
entity holding 20% or more of the voting power of our outstanding capital
stock, other than the Bain Capital Funds and SXI Group LLC. This requirement of
a super-majority vote to approve amendments to the certificate of incorporation
and by-laws could enable a minority of our stockholders to exercise veto power
over any amendments.
Provisions of Delaware Law Governing Business Combinations
We are not subject to the provisions of Section 203 of the General
Corporation Law of Delaware regulating takeovers. Section 203 generally makes
it more difficult for a third party to take control of a company by prohibiting
a third party owning more than 15% of the company's stock from entering into
transactions with the company unless the board of directors or stockholders
unaffiliated with the third party approve either the third party or the
transaction at issue, before the third party becomes a 15% owner or the third
party acquires at least 85% of the company's stock.
Limitations on Liability and Indemnification of Officers and Directors
The certificate of incorporation limits the liability of directors to the
fullest extent permitted by the Delaware General Corporation Law. In addition,
the certificate of incorporation provides that we will indemnify our directors
and officers to the fullest extent permitted by the Delaware General
Corporation Law. We expect to enter into indemnification agreements with our
current directors and executive officers prior to the completion of the
offering and expect to enter into a similar agreement with any new directors or
executive officers.
Transfer Agent and Registrar
The transfer agent and registrar for our Class A common stock is Firstar
Bank, N.A.
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DESCRIPTION OF FINANCING ARRANGEMENTS
Senior Credit Facilities
The senior credit facilities currently provide for three term loans: the
term A loan for $70.0 million, the term B loan for $80.0 million and the term C
loan for $55.0 million. In addition, the senior credit facilities provide for a
capital expenditure line of up to $20.0 million and for revolving loans of up
to $50.0 million, including letters of credit. In addition, the senior credit
facilities permit us to request the lenders to make available to us up to an
additional $25.0 million of revolving loans. Subject to various restrictions,
we may use the senior credit facilities in the future for our working capital
and general corporate purposes. The different loans under the senior credit
facilities are due as follows:
. the term A loan--$6.5 million during the period from June 30, 2000
through March 31, 2001; $11.5 million during the period June 30, 2001
through March 31, 2002; $12.0 million during the period from June 30,
2002 through March 31, 2003; $14.3 million during the period from June
30, 2003 through March 31, 2004; $20.3 million during the period from
June 30, 2004 through March 31, 2005; and the balance due on July 31,
2005;
. the term B loan--$200,000 on the last business day of March, June,
September and December in each year, commencing on the last business day
of March 2000, with the balance due on July 31, 2006;
. the term C loan--$137,500 on the last business day of March, June,
September and December in each year, commencing on the last business day
of September 2000, with the balance due on July 31, 2007;
. the capital expenditure line--approximately 15.0%, 22.5%, 25.0% and
37.5% during the periods from September 30, 2001 through June 30, 2002,
September 30, 2002 through June 30, 2003, September 30, 2003 through
June 30, 2004 and September 30, 2004 through July 31, 2005,
respectively; and
. the revolving loans will mature on July 31, 2005.
Also, it is mandatory that we repay any outstanding borrowings under the
senior credit facilities out of a portion of net proceeds we receive from types
of asset sales, insurance recovery and condemnation events, specified equity
issuances, including this offering, and annual excess cash flow. These
facilities also contain covenants, which restrict our ability to:
. make capital expenditures;
. incur liens or engage in sale-leaseback transactions;
. transact with affiliates;
. incur indebtedness and contingent obligations;
. declare dividends or redeem or repurchase capital stock;
. prepay, redeem or repurchase indebtedness;
. change the business being conducted;
. make loans and investments; and
. engage in mergers, acquisitions, consolidations and asset sales.
The senior credit facilities also require that we satisfy customary
affirmative covenants and provide customary indemnifications in favor of the
senior lenders. These credit facilities contain customary events of 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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Senior Subordinated Notes
The senior subordinated notes were issued under an indenture, dated as of
July 29, 1999, by and between us, one of our subsidiaries and Firstar Bank of
Minnesota, National Association, as trustee. The senior subordinated notes are
limited in aggregate principal amount to $150.0 million and will mature on
August 1, 2009. Interest on the senior subordinated notes accrues at the rate
of 12.75% per annum and is payable semiannually in cash on each August 1 and
February 1, to the persons who are registered holders of the senior
subordinated notes at the close of business on the July 15 and January 15,
respectively, immediately preceding the applicable interest payment date. The
senior subordinated notes are not entitled to the benefit of any mandatory
sinking fund. The senior subordinated notes are general obligations of ours and
are subordinated in right of payment to all of our current and future senior
debt. The subordinated notes rank pari passu in right of payment with all other
senior unsecured obligations of our company. The senior subordinated notes are
guaranteed by us and some of our subsidiaries.
The senior subordinated notes are redeemable, at our option, in whole at any
time or in part from time to time, on and after August 1, 2004, upon not less
than 30 nor more than 60 days' notice at the following redemption prices,
expressed as percentages of the principal amount of the notes, if redeemed
during the twelve-month period commencing on August 1 of the years set forth
below, plus, in each case, accrued interest to the date of redemption:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2004.......................................................... 106.375%
2005.......................................................... 104.250%
2006.......................................................... 102.125%
2007 and thereafter........................................... 100.000%
</TABLE>
At any time, or from time to time, on or prior to August 1, 2002, we may, at
our option, use the net cash proceeds of one or more equity offerings to redeem
up to 35% of the aggregate principal amount of senior subordinated notes due
2009 originally issued at a redemption price equal to 112.75% of the principal
amount plus accrued and unpaid interest on those notes, if any, to the date of
the redemption; provided that at least 65% of the aggregate principal amount of
senior subordinated notes originally issued remains outstanding immediately
after any redemption.
The indenture provides that, upon the occurrence of specified change of
control events, each holder will have the right to require that we purchase all
or a portion of the senior subordinated notes, at a purchase price equal to
101% of the principal amount plus accrued interest on those notes to the date
of purchase.
The following events are defined in the indenture as "events of default":
. the failure to pay interest on any senior subordinated notes and that
default continues for a period of 30 days;
. the failure to pay the principal on any senior subordinated notes;
. the failure to comply with the restrictive covenant prohibiting mergers
and consolidations with any other person;
. the failure to comply for 30 days after notice with specified
significant covenants;
. the failure to comply for 60 days after notice with other agreements
contained in the indenture;
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. the failure to pay any indebtedness within any applicable grace period
after final maturity or the acceleration by the holders of any
indebtedness because of a default and the total amount of the
indebtedness unpaid or accelerated exceeds $10.0 million;
. events of bankruptcy, insolvency or reorganization affecting us or any
of our significant subsidiaries;
. any judgment or decree for the payment of money in excess of $10.0
million is entered against us or any of our significant subsidiaries,
remains outstanding for a period of 60 days following the judgment and
is not discharged, waived or stayed within 10 days after notice; and
. except as permitted by the indenture, any note guarantee cases to be in
full force and effect or any of the guarantors denies or disaffirms its
obligations under its note guarantee.
The indenture contains covenants for the benefit of the holders of the
senior subordinated notes that, among other things, limit our ability and any
of our restricted subsidiaries to:
. incur indebtedness;
. pay dividends or make other restricted payments;
. impose restrictions on the ability of a subsidiary to pay dividends or
make payments to us and our subsidiaries;
. sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of our assets;
. enter into transactions with affiliates; or
. merge or consolidate with any other person.
Hyundai Preferred Stock
As part of our recapitalization, we issued to Hyundai Electronics America
70,000 shares of Class B preferred stock, which we refer to as the Hyundai
Preferred Stock, which has an initial aggregate liquidation preference of $70.0
million. Dividends on the Hyundai Preferred Stock accrue on a daily basis from
August 5, 1999 at a rate of 12.5% per annum. Until February 5, 2005, dividends
will not be paid in cash, but will be capitalized as accumulated and unpaid
dividends. All dividends accruing on the Hyundai Preferred Stock from and after
this period will be paid in cash, semiannually, beginning after February 5,
2005. In the event we fail to pay any dividend when due, the dividend rate on
the Hyundai Preferred Stock will immediately increase by 2.5% per annum and the
holders of a majority of the outstanding Hyundai Preferred Stock will have the
exclusive right to nominate and elect one additional member of our board of
directors, in each case until there is no longer any default. The Hyundai
Preferred Stock has a scheduled redemption date of August 5, 2010 and is
otherwise redeemable by us at any time in our sole discretion. We intend to
redeem all of the outstanding shares of Class B preferred stock with the
proceeds from this offering. The prior written consent of the holders of a
majority of the outstanding Hyundai Preferred Stock is required to amend,
modify or waive the terms of the Hyundai Preferred Stock.
In addition, Hyundai Electronics may receive up to an additional $55.0
million in cash during the four-year period beginning January 1, 1999 if we
exceed specified levels of EBITDA as described in the recapitalization
agreement. Hyundai Electronics is entitled to receive 33.3% of the amount by
which our EBITDA, defined in the recapitalization agreement as net income
before interest, taxes, depreciation, amortization, extraordinary items and
advisory fees, exceeds $116.5 million, $171.3 million, $198.5 million and
$231.8 million, respectively, in each of the first four years following our
recapitalization. In the event the final $20.0 million of this $55.0 million in
cash is required to be paid to Hyundai Electronics, it shall be paid by the
mandatory redemption of an equal amount of Hyundai Preferred Stock. Therefore,
since we intend to redeem all outstanding shares of Class B preferred stock,
the $55.0 million cash earnout payment will be reduced to a maximum payment of
$35.0 million.
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Intel Preferred Stock
Under the Intel Stock Purchase Agreement, we issued 10,000 shares of Class A
convertible preferred stock to Intel, which we refer to as the Intel Preferred
Stock.
Dividends on the Intel Preferred Stock accrete on a daily basis from the
date of issuance at a rate of 10.0% per annum, payable when and as declared by
the board of directors; provided, however, that dividends will be paid prior to
the payment of any dividends on any of our capital stock or equity securities,
which we refer to as junior securities, other than the Hyundai Preferred Stock.
Dividends on each share of Intel Preferred Stock will accrete from the date of
issuance of the Intel Preferred Stock to the first to occur of:
. the date upon which the face value ($1,000 per share) of a share of
Intel Preferred Stock plus all accrued but unpaid dividends is paid;
. the date upon which a share of Intel Preferred Stock is converted into
common stock, as described below; or
. the date upon which a share of Intel Preferred Stock is acquired by us.
At any time, and from time to time, holders of the Intel Preferred Stock may
convert all or any portion of the Intel Preferred Stock into shares of common
stock at an initial conversion price equal to 150.0% of the weighted average
price per share of common stock paid by the Equity Investors in connection with
our recapitalization, although the purchase price may be adjusted.
In the event of any liquidation, dissolution or winding up of our company,
holders of the Intel Preferred Stock will be entitled to receive, prior to any
distribution to the holders of junior securities, an amount equal to the face
value of $1,000 per share of the Intel Preferred Stock, plus all accrued and
unpaid dividends on the stock. In addition, each of the following will be
deemed a liquidation, dissolution or winding up of our company:
. any sale by us of all or substantially all of our assets;
. any consolidation or merger of our company as a result of which holders
of our common stock possessing the voting power to elect a majority of
the board of directors immediately prior to a consolidation or merger
cease to own capital stock of the surviving corporation possessing the
voting power to elect a majority of the surviving corporation's board of
directors; or
. any issuance, sale or transfer to any third party of our capital stock
as a result of which holders of our outstanding capital stock possessing
the voting power to elect a majority of the board of directors
immediately prior to that issuance, sale or transfer cease to own
capital stock of our company possessing the voting power to elect a
majority of the board of directors, each of which we refer to as a
Liquidation Event.
At any time, and from time to time, after August 1, 2005, we have the right
to redeem all or any portion of the Intel Preferred Stock then outstanding at a
redemption price per share equal to the greater of (a) its fair market value
and (b) its face value of $1,000 per share, plus all accrued and unpaid
dividends on the stock plus a redemption premium of 10.0%. The premium shall
decrease ratably from year to year and shall be zero on or after August 1,
2010. In addition, if we do not complete an underwritten initial public
offering of shares of our common stock with gross proceeds in excess of $50.0
million on or prior to August 1, 2001, holders of not less than a majority of
the Intel Preferred Stock may require us to redeem all or a portion of the
Intel Preferred Stock at a price per share equal to a stock's face value plus
all accrued and unpaid dividends on the stock; provided, however, that any
redemption will be limited by all restrictions of applicable law and our debt
and equity financing arrangements.
Each share of Intel Preferred Stock has that number of votes equal to the
number of shares of voting common stock then issuable upon the conversion of
that share of Intel Preferred Stock. Except as required by
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law or as provided in the following sentence, holders of the Intel Preferred
Stock are entitled to vote on all matters submitted to the stockholders for a
vote and will vote together with holders of our common stock as a single class.
The prior written consent of the holders of at least 66 2/3% of the outstanding
Intel Preferred Stock is required for:
. any amendment or change of the rights, preferences, privileges or powers
of, or the restrictions provided for the benefits of, the Intel
Preferred Stock;
. any action that authorized, created or issued any new shares of any
class of stock having preferences superior to the Intel Preferred Stock,
other than any issuance of the Hyundai Preferred Stock; or
. any action that reclassifies any outstanding shares of capital stock
into shares having preferences or priority as to dividends or assets
senior to the preference of the Intel Preferred Stock.
Intel Warrant
Under the Intel Stock Purchase Agreement we issued the Intel Warrant to
Intel. The Intel Warrant provides that, for 180 days after we have completed
our first underwritten public offering, Intel is entitled to purchase $5.0
million of our non-voting common stock at a 20.0% discount to its initial
public offering price. This right may expire prior to completion of the 180 day
period on the earlier of (a) our sale or (b) August 5, 2009. Intel, at its
election, may exercise the Intel Warrant in whole or in part and on one or more
occasions. The warrant has been assigned a value of $1.25 million.
The foregoing summary of the material provisions of our senior credit
facility, the indenture, the Hyundai Preferred Stock, the Intel Preferred Stock
and the Intel Warrant is qualified in its entirety by reference to all of the
provisions of the senior credit facility, the indenture, our certificate of
incorporation and the Intel Warrant, respectively, which have been filed as
exhibits to the registration statement of which this prospectus forms a part.
See "Where You Can Find More Information."
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there was no market for our Class A common stock. We
can make no predictions as to the effect, if any, that sales of shares or the
availability of shares for sale will have on the market price prevailing from
time to time. Nevertheless, sales of significant amounts of our Class A common
stock in the public market, or the perception that those sales may occur, could
adversely affect prevailing market prices.
Sale of Restricted Shares
Upon completion of this offering and the concurrent private placements, we
will have, assuming an initial public offering price of $14.00 per share, the
midpoint of the range set forth on the cover page of this prospectus, and a
Preference Amount of $9.46 per share on Class L common stock, 65,266,250 shares
of common stock outstanding. In addition, of the 1,748,362 shares of Class A
common stock issuable upon the exercise of stock options outstanding, 193,980
will be exercisable immediately after this offering. The 446,428 shares of
Class B common stock issuable upon the exercise of the Intel Warrant are
currently exercisable. Of the shares outstanding after the offering, 10,000,000
shares of common stock, or 11,500,000 shares if the underwriters' over-
allotment is exercised in full, are freely tradeable without restriction under
the Securities Act of 1933, except for any shares which may be held or acquired
by an "affiliate" of our company, as that term is defined in Rule 144
promulgated under the Securities Act of 1933, which shares will be subject to
the volume limitations and other restrictions of Rule 144 described below. An
aggregate of 53,072,264 shares of common stock held by our existing
stockholders upon completion of the offering and the 2,193,986 shares of common
stock issued to Qualcomm and the Equity Investors in the concurrent private
placements will be "restricted securities," as that phrase is defined in Rule
144, and may not be resold in the absence of registration under the Securities
Act of 1933 or under an exemption from registration under the Securities Act,
including among others, the exemptions provided by Rule 144.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, if a period of at least one year has elapsed since
the later of the date the "restricted securities" were acquired from us or the
date they were acquired from an affiliate, then the holder of restricted
securities, including an affiliate, is entitled to sell in the public market a
number of shares within any three-month period that does not exceed the greater
of 1% of the then outstanding shares of the common stock or the average weekly
reported volume of trading of the common stock on the Nasdaq National Market
during the four calendar weeks preceding the sale. The holder may only sell
those shares through "brokers' transactions" or in transactions directly with a
"market maker," as those terms are defined in Rule 144. Sales under Rule 144
are also subject to requirements regarding providing notice of those sales and
the availability of current public information concerning us. Affiliates may
sell shares not constituting restricted securities subject to the foregoing
volume limitations and other requirements but without regard to the one-year
holding period.
Under Rule 144(k), if a period of at least two years has elapsed between the
later of the date restricted securities were acquired from us or the date they
were acquired from an affiliate, as applicable, a holder of those restricted
securities who is not an affiliate at the time of the sale and has not been an
affiliate for at least three months prior to the sale would be entitled to sell
the shares in the public market without regard to the volume limitations and
other restrictions described above. Beginning 90 days after the date of this
prospectus, approximately 4,534,135 shares of our common stock will be eligible
for sale in the public market under Rule 144(k).
Securities issued in reliance on Rule 701, including shares of common stock
acquired upon exercise of options granted under our stock plans, are also
restricted and, beginning 90 days after the effective date of this prospectus,
may be sold by stockholders other than our affiliates, subject only to the
manner of sale provisions of Rule 144, and by affiliates under Rule 144 without
compliance with its one-year holding period requirement.
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Options
We intend to file registration statements on Form S-8 under the Securities
Act of 1933 to register approximately 4,034,287 shares of common stock issuable
under our stock plans. These registration statements are expected to be filed
within six months of the effective date of the registration statement of which
this prospectus forms a part and will be effective upon filing. Shares issued
upon the exercise of stock options after the effective date of the Form S-8
registration statements will be eligible for resale in the public market
without restriction, subject to Rule 144 limitations applicable to Affiliates
and the lock-up agreements described below.
Lock-Up Agreements
Our officers and directors, Intel, Intersil and various other holders of our
common stock, who together own substantially all of our common stock, and
Qualcomm, in connection with the concurrent private placement, have agreed that
they will not offer, sell, contract to sell, pledge or otherwise dispose of any
shares of our common stock or securities convertible into or exchangeable or
exercisable for any shares of our common stock, enter into a transaction which
would have the same effect, or enter into any swap, hedge or other arrangement
that transfers, in whole or in part, any of the economic consequences of
ownership of our common stock, whether the transaction is to be settled by
delivery of our common stock or other securities, in cash or otherwise, or
publicly disclose the intention to make any offer, sale, pledge or disposition,
or enter into any aforementioned transaction, swap, hedge or other arrangement,
without, in each case the prior written consent of Credit Suisse First Boston
Corporation for a period of 180 days after the date of this prospectus.
Registration Agreement
Our company, the Equity Investors and their designees, Hyundai Electronics
America, Intel and Intersil have entered into a registration agreement which
provides for "demand" registration rights to cause us to register under the
Securities Act of 1933 all or part of the shares of our stock held by them, as
well as "piggyback" registration rights. See "Significant Relationships and
Related Transactions--Registration Agreement."
In connection with those registrations, we have agreed to indemnify all
holders of registrable securities against liabilities set forth in the
registration agreement, including liabilities under the Securities Act of 1933.
Beginning 180 days after the completion of the offering, the holders of an
aggregate of 52,567,542 shares of common stock, assuming an initial public
offering price of $14.00 per share, the midpoint of the range set forth on the
cover page of this prospectus, and a Preference Amount of $9.46 per share on
Class L common stock, will have limited rights to require us to register their
shares of common stock under the Securities Act of 1933 at our expense.
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MATERIAL UNITED STATES TAX CONSIDERATIONS
FOR NON-UNITED STATES HOLDERS
The following is a general discussion of the material United States federal
income and estate tax consequences of the ownership and disposition of our
common stock applicable to Non-United States Holders of our common stock. A
"Non-United States Holder" is any holder that for United Stated federal income
tax purposes is not a United States person. For purposes of this discussion,
the term "United States person" means: (i) a citizen or resident of the United
States; (ii) a corporation or other entity taxable as a corporation created or
organized in the United States or under the laws of the United States or of any
political subdivision of the United States; (iii) an estate the income of which
is included in gross income for United States federal income tax purposes
regardless of its source; or (iv) a trust if its administration is subject to
the primary supervision of a United States court and one or more United States
persons have the authority to control all substantial decisions of the trust.
In the case of a partnership that holds our common stock, any partner described
in any of (i) through (iv) above is also a United States person.
This discussion does not address all aspects of United States federal income
and estate taxation that may be relevant in light of a Non-United Stated
Holder's particular facts and circumstances, including being a U.S. expatriate,
the tax consequences for the stockholders or beneficiaries of a Non-United
States Holder, special tax rules that may apply to some Non-United States
Holders, including banks, insurance companies, dealers in securities and
traders in securities who elect to apply a mark-to-market method of accounting
or special tax rules that may apply to a Non-United States Holder that holds
our common stock as part of a "straddle," "hedge" or "conversion transaction,"
and, further, does not address any tax consequences arising under the laws of
any state, local or non-United States taxing jurisdiction. Furthermore, the
following discussion is based on current provisions of the U.S. Internal
Revenue Code of 1986, as amended, applicable Treasury regulations and
administrative and judicial interpretations of the Internal Revenue Code, all
as in effect as of the date of this prospectus, and all of which are subject to
change, possibly with retroactive effect.
We have not and will not seek a ruling from the Internal Revenue Service
with respect to the United States federal income and estate tax consequences
described below, and as a result, there can be no assurance that the IRS will
not disagree with or challenge any of the conclusions set forth in this
discussion.
Dividends
We have never paid, and do not anticipate that we will pay, cash dividends
on our common stock. Should we ever pay a cash dividend, any dividend paid to a
Non-United States Holder of common stock generally would be subject to United
States withholding tax at the then-effective U.S. withholding tax rate,
currently 30% of the gross amount of the dividend, or a lower rate as may be
specified by an applicable tax treaty. Dividends received by a Non-United
States Holder that are effectively connected with a United States trade or
business conducted by that Non-United States Holder or, if a tax treaty
applies, attributable to a permanent establishment, or, in the case of an
individual, a "fixed base" in the United States, as provided in that treaty,
which we refer to as U.S. trade or business income, would be exempt from the
withholding tax, provided that Non-United States Holder complies with
applicable certification and disclosure requirements. However, any U.S. trade
or business income, net of deductions and credits, would be taxed at the same
graduated rates that apply to United States persons. Any U.S. trade or business
income received by a Non-United States Holder that is a corporation may also,
under some circumstances, be subject to an additional "branch profits tax" at a
30% rate or a lower rate as specified by an applicable income tax treaty.
Dividends may be subject to backup withholding at the rate of 31% unless the
Non-United States Holder certifies to required information as specified in
United States Treasury Regulations applicable to withholding and information
reporting. Currently, backup withholding does not apply to dividends paid to a
Non-United States Holder at an address outside the United States. However,
under final regulations regarding withholding and information reporting, which
will generally be effective for payments made after December 31, 2000, payment
of dividends to a Non-United States Holder at an address outside of the United
States may be subject
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to backup withholding unless that Non-United States Holder satisfies applicable
certification requirements. Backup withholding, if applied, is not an
additional tax. Rather, the tax liability of persons subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained, provided that the
required information is furnished to the IRS.
Generally, we must report annually to the IRS the amount of dividends paid,
the name and address of the recipient, and the amount, if any, of tax withheld.
A similar report is sent to the holder. Under tax treaties or other agreements,
the IRS may make those reports available to tax authorities in the recipient's
country of residence.
Gain on Disposition of Common Stock
A Non-United States Holder generally will not be subject to United States
federal income tax on any gain realized upon the sale or other disposition of
its common stock unless: (i) that gain is U.S. trade or business income, in
which case all or a portion of that gain, in the case of a corporate Non-United
States Holder, may be subject to the branch profits tax at the rate of 30% or
lower treaty rate, if applicable, (ii) the Non-United States Holder is an
individual who holds the common stock as a capital asset within the meaning of
Section 1221 of the Internal Revenue Code and who is present in the United
States for a period or periods aggregating 183 days or more during the taxable
year in which the sale or disposition occurs and other conditions are met; or
(iii) we are or have been a "United States real property holding corporation"
for United States federal income tax purposes at any time within the shorter of
the five-year period preceding the disposition or that Non-United States
Holder's holding period of its common stock. We have determined that we are not
and do not believe that we are likely to become a "United States real property
holding corporation" for United States federal income tax purposes. However, no
assurance can be provided that we will not become a United States real property
holding corporation. If we were to become a United States real property holding
corporation, gains realized by a Non-United States Holder which did not
directly or indirectly own more than 5% of our common stock at any time during
the shorter of the five-year period preceding the disposition or that Holder's
holding period generally would not be subject to United Stated federal income
tax as a result of the status of our company as a United States real property
holding corporation, provided that our common stock was regularly traded on an
established securities market.
The payment of the proceeds of a sale of common stock to or through the
United States office of a broker is currently subject to both information
reporting and backup withholding at the rate of 31% unless the Non-United
States Holder certifies its non-United States status under penalties of perjury
or otherwise establishes an exemption. Generally, the payment of proceeds of a
disposition by a Non-United States Holder of common stock outside the United
States to or through a foreign office of a broker will not be subject to backup
withholding. However, those payments will be subject to information reporting
if the broker is: (i) a United States person; (ii) a "controlled foreign
corporation" for United States tax purposes; (iii) a foreign person 50% or more
of whose gross income for a specified three-year period is effectively
connected with a United States trade or business or (iv) with respect to
payments made after December 31, 2000, a foreign partnership, if at any time
during its taxable year, one or more of its partners are United States persons
who in the aggregate hold more than 50% of the income or capital interest in
the partnership or if, at any time during its taxable year, the foreign
partnership is engaged in a United States trade or business, unless the Non-
United States Holder establishes an exemption as specified in the current or
final United States Treasury Regulations regarding withholding and information
reporting, as applicable.
The final regulations regarding withholding and information reporting unify
current certification procedures and forms and clarify reliance standards.
Except as noted above with respect to foreign brokers that are partnerships,
the final regulations generally do not significantly alter the substantive
withholding and information reporting requirements but do alter the procedures
for claiming the benefits of an income tax treaty and change the certification
procedures relating to the receipt by intermediaries of payments on behalf of
the beneficial owner of shares of common stock. Non-United States Holders
should consult their own tax advisors regarding the effect, if any, of the
final regulations on their particular situations.
94
<PAGE>
Estate Tax
Common stock owned or treated as owned at the time of death by an individual
who is not a citizen or resident of the United States for federal estate tax
purposes will be included in that individual's estate for United States federal
estate tax purposes, unless an applicable estate tax or other treaty provides
otherwise, and therefore, may be subject to United States federal estate tax.
The foregoing discussion is a summary of the principal United States federal
income and estate tax consequences of the ownership, sale or other disposition
of our common stock by Non-United States Holders. Accordingly, investors are
urged to consult their own tax advisors with respect to the income tax
consequences of the ownership and disposition of our common stock, including
the application and effect of the laws of any state, local, foreign or other
taxing jurisdiction.
95
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement, dated , 2000, we have agreed to sell to the underwriters named
below, for whom Credit Suisse First Boston Corporation, Deutsche Bank
Securities Inc., FleetBoston Robertson Stephens Inc., Merrill Lynch, Pierce,
Fenner & Smith Incorporated and Thomas Weisel Partners LLC are acting as
representatives, the following respective numbers of shares of Class A common
stock:
<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- ----------
<S> <C>
Credit Suisse First Boston Corporation............................
Deutsche Bank Securities Inc......................................
FleetBoston Robertson Stephens Inc................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................................
Thomas Weisel Partners LLC........................................
----------
Total........................................................... 10,000,000
==========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of Class A common stock in the offering if any are
purchased, other than those shares covered by the over-allotment option
described below. The underwriting agreement also provides that if an
underwriter defaults, the purchase commitments of non-defaulting underwriters
may be increased or the offering of Class A common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to 1,500,000 additional shares at the initial public offering
price less the underwriting discounts and commissions. The option may be
exercised only to cover any over-allotments of Class A common stock.
The underwriters propose to offer the shares of Class A common stock
initially at the public offering price on the cover page of this prospectus,
and to selling group members at that price less a concession of $ per share.
The underwriters and selling group members may allow a discount of $ per
share on sales to other broker/dealers. After the initial public offering, the
public offering price and concession and discount to broker/dealers may be
changed by the representatives.
The following table summarizes the compensation and estimated expenses we
will pay.
<TABLE>
<CAPTION>
Per Share Total
------------------- -------------------
Without With Without With
Over- Over- Over- Over-
Allotment Allotment Allotment Allotment
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Underwriting Discounts and
Commissions paid by us................. $ $ $ $
Expenses payable by us.................. $ $ $ $
</TABLE>
The underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
We intend to use more than 10% of the net proceeds of the sale of our Class
A common stock to repay indebtedness under our existing senior credit
facilities owed by us to banking affiliates of certain of the underwriters.
Accordingly, the offering is being made in compliance with the requirements of
Rule 2710(c)(8) of the National Association of Securities Dealers, Inc. Conduct
Rules. This rule provides that if more than 10% of the net proceeds from the
sale of our Class A common stock, not including underwriting compensation, is
paid to the underwriters or their affiliates, the initial public offering price
of the stock may not be higher than that recommended by a "qualified
independent underwriter" meeting certain standards. Accordingly, Deutsche
96
<PAGE>
Bank Securities Inc. is assuming the responsibilities of acting as the
qualified independent underwriter in pricing the offering and conducting due
diligence. The initial public offering price of the shares of our Class A
common stock will be no higher than the price recommended by Deutsche Bank
Securities Inc.
We have agreed that we will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act of 1933
relating to, any shares of common stock or securities convertible into or
exchangeable or exercisable for any of our common stock, or publicly disclose
the intention to make any offer, sale, pledge, disposition or filing, without
the prior written consent of Credit Suisse First Boston Corporation for a
period of 180 days after the date of this prospectus.
Our officers and directors, Intel, Intersil, various other holders of our
common stock and Qualcomm, in connection with its concurrent private placement,
have agreed that they will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, any shares of our common stock or
securities convertible into or exchangeable or exercisable for any shares of
our common stock, enter into a transaction which would have the same effect, or
enter into any swap, hedge or other arrangement that transfers, in whole or in
part, any of the economic consequences of ownership of our common stock,
whether the transaction is to be settled by delivery of our common stock or
other securities, in cash or otherwise, or publicly disclose the intention to
make any offer, sale, pledge or disposition, or enter into any such
transaction, swap, hedge or other arrangement, without, in each case, the prior
written consent of Credit Suisse First Boston Corporation for a period of 180
days after the date of this prospectus.
The underwriters have reserved for sale, at the initial public offering
price up to 500,000 shares of Class A common stock for employees, directors and
other persons associated with us who have expressed an interest in purchasing
Class A common stock in the offering. The number of shares available for sale
to the general public in the offering will be reduced to the extent persons
purchase reserved shares. Any reserved shares not so purchased will be offered
by the underwriters to the general public on the same terms as the other
shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act of 1933, or contribute to payments which the underwriters may be
required to make in that respect.
Our Class A common stock has been approved for listing on The Nasdaq Stock
Market's National Market under the symbol "CHPC."
Prior to this offering, there has been no public market for our Class A
common stock. The initial public offering price for the Class A common stock
will be negotiated among us and the representatives. Among the principal
factors to be considered in determining the initial public offering price will
be:
. market conditions for initial public offerings;
. the history of and prospects for our business;
. our past and present operations;
. our past and present earnings and current financial position;
. an assessment of our management;
. the market of securities of companies in businesses similar to ours; and
. the general condition of the securities markets.
There can be no assurance that the initial public offering price will
correspond to the price at which the Class A common stock will trade in the
public market subsequent to the offering or that an active trading market will
develop and continue after the offering.
97
<PAGE>
Credit Suisse First Boston, New York branch, an affiliate of Credit Suisse
First Boston Corporation, is a lender and the administrative agent under our
senior credit facilities. An affiliate of Credit Suisse First Boston
Corporation owns 429,049 shares of our Class A common stock after giving effect
to the reclassification. Deutsche Bank Securities Inc. and FleetBoston
Robertson Stephens Inc. are lenders under our senior credit facilities. Bank
Boston, N.A., an affiliate of FleetBoston Robertson Stephens Inc., and certain
funds associated with Merrill Lynch, Pierce, Fenner & Smith Incorporated are
also lenders under our senior credit facilities.
We are currently in compliance with the terms of our senior credit facility.
The decision of Credit Suisse First Boston Corporation to distribute our shares
of Class A common stock was made independent of Credit Suisse First Boston, New
York branch, and the affiliate of Credit Suisse First Boston Corporation that
owns an interest in SXI Group LLC, which affiliates had no involvement in
determining whether or when to distribute our shares of Class A common stock
under this offering or the terms of this offering. The decision of each of the
other underwriters to distribute our shares of Class A common stock was made
independent of their respective affiliates that are lenders under our senior
credit facilities, which affiliates had no involvement in determining whether
or when to distribute our shares of Class A common stock under this offering or
the terms of this offering. The underwriters, exclusive of their banking
affiliates, will not receive any benefit from this offering other than their
respective portions of the underwriting fee as paid by us.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids under Regulation M of the
Securities Exchange Act of 1934.
. Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
. Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
. Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
. Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by that
syndicate member is purchased in a stabilizing or syndicate covering
transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the Class A common stock to be higher than it would
otherwise be in the absence of these transactions. These transactions may be
effected on The Nasdaq Stock Market's National Market or otherwise and, if
commenced, may be discontinued at any time.
A prospectus in electronic form may be available on the web sites maintained
by one or more of the underwriters participating in this offering. The
representatives may agree to allocate a number of shares to underwriters for
sale to their online brokerage account holders. Internet distributions will be
allocated by the underwriters that will make Internet distributions on the same
basis as other allocations.
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker/dealer in December 1998. Since
December 1998, Thomas Weisel Partners has acted as a lead or co-manager on
numerous public offerings of equity securities. Thomas Weisel Partners does not
have any material relationship with us or any of our officers, directors or
other controlling persons except with respect to its expected contractual
relationship with us under the underwriting agreement expected to be entered
into in connection with this offering.
98
<PAGE>
NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the Class A common stock in Canada is being made only on
a private placement basis exempt from the requirement that we prepare and file
a prospectus with the securities regulatory authorities in each province where
trades of Class A common stock are effected. Accordingly, any resale of the
Class A common stock in Canada must be made in accordance with applicable
securities laws which will vary depending on the relevant jurisdiction, and
which may require resales to be made in accordance with available statutory
exemptions or pursuant to a discretionary exemption granted by the applicable
Canadian securities regulatory authority. Purchasers are advised to seek legal
advice prior to any resale of our Class A common stock.
Representations of Purchasers
Each purchaser of the Class A common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom such
purchase confirmation is received that (i) such purchaser is entitled under
applicable provincial securities laws to purchase such Class A common stock
without the benefit of a prospectus qualified under such securities laws, (ii)
where required by law, that such purchaser is purchasing as principal and not
as agent and (iii) such purchaser has reviewed the test above under "Resale
Restrictions."
Rights of Action (Ontario Purchasers)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damage or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
Enforcement of Legal Rights
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada
upon the issuer or such persons. All or a substantial portion of the assets of
the issuer and such persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against the issuer or such persons
in Canada or to enforce a judgement obtained in Canadian courts against such
issuer or persons outside of Canada.
Notice to British Columbia Residents
A purchaser of Class A common stock to whom the Securities Act (British
Columbia) applies is advised that such purchaser is required to file with the
British Columbia Securities Commission a report within ten days of the sale of
any Class A common stock acquired by such purchaser pursuant to this offering.
Such report must be in the form attached to British Columbia Securities
Commission Blanket Order BOR #95/17, a copy of which may be obtained from us.
Only one report must be filed in respect of shares of Class A common stock
acquired on the same date and under the same prospectus exemption.
Taxation and Eligibility for Investment
Canadian purchasers of Class A common stock should consult their own legal
and tax advisors with respect to the tax consequences of an investment in the
Class A common stock in their particular circumstances and with respect to the
eligibility of the Class A common stock for investment by the purchaser under
relevant Canadian legislation.
99
<PAGE>
LEGAL MATTERS
Some of the legal matters in connection with the issuance of the Class A
common stock will be passed upon for us by Kirkland & Ellis, Los Angeles,
California. Partners of Kirkland & Ellis are partners in Randolph Street
Partners, which acquired less than 1.0% of our common stock in connection with
the closing of our 1999 recapitalization. The underwriters have been
represented by Cravath, Swaine & Moore, New York, New York. Kirkland & Ellis
has, from time to time, represented, and may continue to represent, some of the
underwriters in connection with various legal matters and Bain Capital and some
of their affiliates (including our company and our direct and indirect
subsidiaries) in connection with legal matters.
EXPERTS
The financial statements of ChipPAC, Inc. as of December 31, 1999 and 1998,
and for each of the three years in the period ended December 31, 1999 included
in this prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
Ernst & Young LLP, independent certified public accountants, have audited
the financial statements of Intersil Technology Sdn. Bhd. at July 2, 1999 and
July 3, 1998 and for each of the three fiscal years in the period ended July 2,
1999, as set forth in their report. We have included Intersil's financial
statements in the prospectus and registration statement in reliance on Ernst &
Young LLP's report, given on their authority as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
ChipPAC California is currently subject to the informational requirements of
the Securities Exchange Act of 1934, and consequently, ChipPAC California is
required to file periodic reports and other information with the SEC. The
reports and other information filed by ChipPAC California with the SEC may be
inspected and copied at the public reference facilities maintained by the SEC
as described below.
We have filed with the SEC a registration statement on Form S-1, which we
refer to as the Registration Statement and which term shall encompass all
amendments, exhibits, annexes and schedules to said Registration Statement,
under the Securities Act, and the rules and regulations promulgated under the
Securities Act, with respect to the shares of our Class A common stock. This
prospectus, which constitutes part of the Registration Statement, does not
contain all the information set forth in the Registration Statement, parts of
which are omitted in compliance with the rules and regulations of the SEC. For
further information with respect to us and our Class A common stock, reference
is made to the Registration Statement. Statements made in this prospectus as to
the contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made
to the exhibit for a more complete description of the document or matter
involved, and each of these statements shall be deemed qualified in its
entirety by this reference.
The Registration Statement, including the exhibits thereto, can be inspected
and copied at the public reference facilities maintained by the SEC at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549 (telephone number: 1-800-
SEC-0330), at the Regional Offices of the SEC at 7 World Trade Center, 13th
Floor, New York, New York 10048 and at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of these materials can be
obtained from the Public Reference Section of the SEC at 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. The SEC maintains a website
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC. The address of the
site is http://www.sec.gov.
We intend to furnish our stockholders with annual reports containing
financial statements audited by an independent accounting firm, and to make
available quarterly reports containing unaudited financial information for the
first three quarters of each fiscal year.
100
<PAGE>
INDEX TO FINANCIAL STATEMENTS
ChipPAC, Inc.
<TABLE>
<CAPTION>
Page
----
<S> <C>
(1) Annual Financial Statements
Report of Independent Accountants........................................ F-2
Balance Sheets........................................................... F-3
Statements of Operations................................................. F-4
Statement of Shareholders' and Divisional Equity......................... F-5
Statements of Cash Flows................................................. F-6
Notes to Financial Statements............................................ F-7
(2) Interim Financial Statements (unaudited)
Condensed Consolidated Balance Sheets.................................... F-37
Condensed Consolidated Statements of Operations.......................... F-38
Condensed Consolidated Statements of Cash Flows.......................... F-39
Notes to Condensed Consolidated Financial Statements..................... F-40
Intersil Technology Sdn. Bhd.
(3) Annual Financial Statements
Independent Certified Public Accountants' Report ........................ F-50
Balance Sheet............................................................ F-51
Statement of Income...................................................... F-52
Statement of Cash Flows.................................................. F-53
Notes to Financial Statements............................................ F-54
(4) Interim Financial Statements (unaudited)
Condensed Balance Sheets................................................. F-58
Condensed Statements of Income........................................... F-59
Condensed Statements of Cash Flows....................................... F-60
Notes to Condensed Consolidated Financial Statements..................... F-61
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Boards of Directors and Shareholders of ChipPAC, Inc.
In our opinion, the ChipPAC, Inc. financial statements listed in the index
under item (1) on page F-1 present fairly, in all material respects, the
financial position of ChipPAC, Inc. and its subsidiaries at December 31, 1998
and 1999, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
February 29, 2000
San Jose, California
F-2
<PAGE>
ChipPAC, Inc.
BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
December 31,
-------------------
1998 1999
-------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 68,767 $ 32,117
Receivable from shareholder............................. 4,922 11,662
Accounts receivable, less allowance for doubtful
accounts of $1,162 and $1,196.......................... 37,729 30,003
Inventories............................................. 10,325 17,497
Deferred taxes.......................................... 803 775
Prepaid expenses and other current assets............... 2,923 2,386
-------- ---------
Total current assets................................... 125,469 94,440
Property, plant and equipment, net........................ 229,002 226,931
Other assets.............................................. 5,001 22,058
-------- ---------
Total assets........................................... $359,472 $ 343,429
======== =========
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable........................................ $ 61,853 $ 52,208
Accrued expenses and other liabilities.................. 7,677 27,208
Short-term debt......................................... 18,777 --
Current portion of long-term debt....................... 31,954 4,800
Current portion of HEI long-term debt................... 2,610 --
Payables to affiliates.................................. 22,918 --
-------- ---------
Total current liabilities.............................. 145,789 84,216
-------- ---------
Long-term debt, less current portion...................... 80,943 295,200
HEI long-term debt, less current portion.................. 18,208 --
Deferred taxes............................................ -- 240
Other long-term liabilities............................... 1,341 3,689
-------- ---------
Total liabilities...................................... 246,281 383,345
-------- ---------
Commitments and contingencies (Note 9)
Mandatorily redeemable preferred stock:
10.0% cumulative convertible preferred stock, class A--
par value $0.01 per share; 10,000 shares authorized,
issued and outstanding at December 31, 1999............ -- 9,416
12.5% cumulative preferred stock, class B--par value
$0.01 per share; 105,000 shares authorized, issued and
outstanding 70,000 shares at December 31, 1999......... -- 73,554
Shareholders' and divisional equity (deficit):
Common stock, class A--par value $0.01 per share;
180,000,000 shares authorized, issued and outstanding
96,254,000 shares at December 31, 1999................. -- 963
Common stock, class B--par value $0.01 per share;
authorized 180,000,000 shares, no shares issued or
outstanding at December 31, 1999....................... -- --
Common stock, class L--par value $0.01 per share;
20,000,000 shares authorized, issued and outstanding
10,456,000 shares at December 31, 1999................. -- 104
Warrants, Class A Common Stock (the Intel Warrant)...... -- 1,250
Additional paid-in-capital.............................. -- 85,750
Divisional equity, net of capital redemption............ 180,091 (167,714)
Receivable for shareholders............................. (37,626) (1,128)
Accumulated deficit..................................... (39,752) (51,280)
Accumulated other comprehensive income (loss)........... 10,478 9,169
-------- ---------
Total shareholders' and divisional equity (deficit).... 113,191 (122,886)
-------- ---------
Total liabilities, mandatorily redeemable preferred
stock, and equity..................................... $359,472 $ 343,429
======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
ChipPAC, Inc.
STATEMENTS OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Revenue.......................................... $289,429 $334,081 $375,530
Cost of revenue.................................. 229,238 270,365 317,488
-------- -------- --------
Gross profit..................................... 60,191 63,716 58,042
Operating expenses:
Selling, general & administrative.............. 15,853 15,067 21,219
Research & development......................... 4,052 7,692 12,362
Management fees charged by affiliate........... 3,199 528 --
Change of control expense...................... -- -- 11,842
Write down of impaired assets.................. 11,569 -- --
-------- -------- --------
Total operating expenses..................... 34,673 23,287 45,423
-------- -------- --------
Operating income................................. 25,518 40,429 12,619
Non-operating income (expenses):
Interest income................................ 96 1,276 2,751
Interest expense............................... (10,972) (13,340) (21,241)
Foreign currency gains (losses)................ (69,669) 24,670 1,224
Other income (expenses), net................... (762) (168) 650
-------- -------- --------
Non-operating income (expenses).............. (81,307) 12,438 (16,616)
-------- -------- --------
Income (loss) before income taxes................ (55,789) 52,867 (3,997)
Provision for (benefit from) income taxes........ (9,671) 20,564 1,938
-------- -------- --------
Income (loss) before extraordinary item.......... $(46,118) $ 32,303 $ (5,935)
-------- -------- --------
Extraordinary Item:
Loss from early extinguishment of debt, net of
related income tax benefit of $272............ -- -- 1,373
-------- -------- --------
Net income (loss)............................ $(46,118) $ 32,303 $ (7,308)
-------- -------- --------
Accretion of dividends on mandatorily redeemable
preferred stock................................. -- -- (3,960)
Accretion of recorded value of the Intel
warrant......................................... -- -- (260)
-------- -------- --------
Net income (loss) available to common
shareholders.................................... $(46,118) $ 32,303 $(11,528)
======== ======== ========
Comprehensive income:
Net income (loss).............................. $(46,118) $ 32,303 $ (7,308)
Currency translation gain (loss)............... (16,942) 28,261 (1,309)
-------- -------- --------
Comprehensive income (loss).................. $(63,060) $ 60,564 $ (8,617)
======== ======== ========
Basic and diluted earnings (loss) per common
share........................................... (0.45) 0.32 (0.11)
======== ======== ========
Basic and diluted weighted average common shares
outstanding..................................... 102,000 102,000 102,194
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
ChipPAC, Inc.
STATEMENT OF SHAREHOLDERS' AND DIVISIONAL EQUITY
(In thousands)
<TABLE>
<CAPTION>
Divisional
Common Stock Warrants, Equity, Accumulated
-------------- Class A Additional Net of Amount Due Other
No. of Common Paid-in Capital From Comprehensive Accumulated
Shares Amount Stock Capital Redemption Shareholders Income (Loss) Deficit Total
------- ------ --------- ---------- ---------- ------------ ------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December
31, 1996............. -- -- -- -- $ 70,769 -- $ (841) $(16,236) $ 53,692
Capital increase...... -- -- -- -- 26,306 -- -- -- 26,306
Advances to HEA....... -- -- -- -- -- $ (7,466) -- -- (7,466)
Currency translation
loss................. -- -- -- -- -- -- (16,942) -- (16,942)
Net loss.............. -- -- -- -- -- -- -- (46,118) (46,118)
------- ------ ------ ------- --------- -------- -------- -------- ---------
Balances at December
31, 1997............. -- -- -- 97,075 (7,466) (17,783) (62,354) 9,472
Capital increase...... -- -- -- -- 82,953 -- -- -- 82,953
Advances to HEA....... -- -- -- -- -- (30,160) -- -- (30,160)
Amortization of stock
option compensation.. -- -- -- -- 63 -- -- -- 63
Currency translation
gain................. -- -- -- -- -- -- 28,261 -- 28,261
Dividends declared by
CPK.................. -- -- -- -- -- -- -- (9,701) (9,701)
Net income............ -- -- -- -- -- -- -- 32,303 32,303
------- ------ ------ ------- --------- -------- -------- -------- ---------
Balances at December
31, 1998............. -- -- -- -- 180,091 (37,626) 10,478 (39,752) 113,191
Proceeds from common
stock issuance at
recapitalization net
of issuance cost of
$17,982.............. 102,000 $1,020 -- $82,998 (10,000) -- -- -- 74,018
Sale of Common Stock
to management........ 4,710 47 -- 2,752 -- (1,128) -- -- 1,671
Capital of
contributions........ -- -- -- -- (16,401) 37,626 -- -- 21,225
Conversion of
divisional equity to
redeemable preferred
stock................ -- -- -- -- (30,000) -- -- -- (30,000)
Capital redemption at
recapitalization..... -- -- -- -- (311,220) -- -- -- (311,220)
Capital contribution
by HEI at
recapitalization..... -- -- -- -- 19,816 -- -- -- 19,816
Issuance of Intel
warrant.............. -- -- $1,250 -- -- -- -- -- 1,250
Accretion of recorded
value of Intel
warrant.............. -- -- -- -- -- -- -- (260) (260)
Dividend accretion on
mandatorily
redeemable preferred
stock................ -- -- -- -- -- -- -- (3,960) (3,960)
Currency translation
loss................. -- -- -- -- -- -- (1,309) -- (1,309)
Net loss.............. -- -- -- -- -- -- -- (7,308) (7,308)
------- ------ ------ ------- --------- -------- -------- -------- ---------
Balances at December
31, 1999............. 106,710 $1,067 $1,250 $85,750 $(167,714) $ (1,128) $ 9,169 $(51,280) $(122,886)
======= ====== ====== ======= ========= ======== ======== ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
ChipPAC, Inc.
STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------
1997 1998 1999
--------- -------- ---------
<S> <C> <C> <C>
Cash flows provided by operating activities:
Net income (loss)............................. $ (46,118) $ 32,303 $ (7,308)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization................ 40,682 45,855 57,475
Write down of impaired assets................ 11,569 -- --
Provision for inventory and accounts
receivable.................................. 3,502 (425) (1,060)
Non-operating early debt extinguishment
loss........................................ -- -- 1,373
Foreign currency (gains) losses.............. 69,669 (24,670) (1,224)
(Gain) loss on sale of equipment............. 515 26 (282)
Changes in assets and liabilities:
Accounts receivable........................ (10,092) (12,740) 750
Inventories................................ (16,122) 9,089 (5,415)
Prepaid expenses and other assets.......... (16,471) 11,859 (2,878)
Advances (to) from affiliates.............. 2,418 4,671 (7,424)
Accounts payable........................... 5,006 39,979 (11,615)
Accrued expenses and other current
liabilities............................... (2,569) 126 20,021
Other long-term liabilities................ 1,226 (7,326) 3,519
--------- -------- ---------
Net cash provided by operating
activities.............................. 43,215 98,747 45,932
--------- -------- ---------
Cash flows used in investing activities:
Acquisition of property and equipment......... (110,693) (61,332) (57,856)
Proceeds from sale of equipment............... 17 1,635 1,347
--------- -------- ---------
Net cash used in investing activities.... (110,676) (59,697) (56,509)
--------- -------- ---------
Cash flows provided by (used in) financing
activities:
Advances to affiliates........................ (7,466) (30,160) (4,430)
Proceeds from short-term loans................ 86,014 63,391 1,169
Repayment of short-term loans................. (63,612) (79,093) (19,469)
Net proceeds from long-term loans............. 39,511 10,185 285,631
Capital redemption at recapitalization........ -- -- (311,220)
Capital contribution by HEI at
recapitalization............................. -- -- 19,816
Repayment of long-term debt and capital
leases....................................... (17,181) (31,795) (133,615)
Payment made to extinguish debt early......... -- -- (1,373)
Dividend paid................................. -- -- (9,435)
Net proceeds from common stock issuance at
recapitalization............................. -- -- 74,018
Net proceeds from preferred stock issuance.... -- -- 50,000
Net proceeds from sale of stock to
management................................... -- -- 1,671
Contributions to paid in capital.............. 26,306 82,953 20,750
--------- -------- ---------
Net cash provided by (used in) financing
activities.............................. 63,572 15,481 (26,487)
--------- -------- ---------
Effect on cash from changes in exchange
rates........................................ 4,633 11,169 414
--------- -------- ---------
Net increase (decrease) in cash............... 744 65,700 (36,650)
Cash and cash equivalents at beginning of
year......................................... 2,323 3,067 68,767
--------- -------- ---------
Cash and cash equivalents at end of year...... $ 3,067 $ 68,767 $ 32,117
========= ======== =========
Supplemental disclosure of noncash investing
and financing activities
Acquisition of equipment under capital
leases....................................... $ 25,901 $ 2,191 --
========= ======== =========
Dividend declared and accreted................ -- $ (9,701) $ (3,960)
========= ======== =========
Accretion of recorded value of the Intel
warrant...................................... -- -- (260)
========= ======== =========
Conversion of HEA equity to preferred stock... -- -- $ 30,000
========= ======== =========
Contribution of non-cash capital.............. -- -- $ 475
========= ======== =========
Sale of common stock for shareholder notes.... -- -- $ 1,128
========= ======== =========
Supplemental disclosure of cash flow
information
Income taxes paid in cash..................... -- $ 195 $ 1,442
========= ======== =========
Interest paid in cash......................... $ 10,364 $ 12,708 $ 12,400
========= ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
ChipPAC, Inc.
NOTES TO FINANCIAL STATEMENTS
Note 1: Business, Recapitalization and Basis of Presentation
Business and Organization
ChipPAC Inc. and its subsidiaries, (the "Company") provides packaging and
testing services to the worldwide semiconductor industry. The Company packages
and tests integrated circuits from wafers provided by its customers. The
Company markets its services worldwide, with emphasis on the North American
market. The Company's packaging and testing operations are located in the
Republic of Korea ("South Korea" or "Korea") and the People's Republic of China
("China").
Recapitalization
Prior to August 5, 1999 the Company represented the combination of three
business units of Hyundai Electronics Industries Co., Ltd. ("HEI") which
operated collectively as HEI's worldwide packaging and testing operations.
These three business units historically consisted of the Assembly and Test
Division of HEI, Hyundai Electronics Co. (Shanghai) Ltd. ("HECS"), and the
Assembly and Test Division of Hyundai Electronics America ("HEA"), a majority
owned subsidiary of HEI. Sales and marketing services were primarily performed
by the Assembly and Test Division of HEA, and packaging and testing services
were performed by HECS and the Assembly and Test Division of HEI.
Beginning in 1995 HEI's packaging business, comprised of the packaging and
test divisions, began to provide greater levels of advanced substrate packaging
services which significantly increased the growth rate of the business and the
managerial complexity of the divisions. The transfer of the packaging and test
divisions into stand-alone subsidiaries facilitated the separate management,
operation and control of the packaging business.
ChipPAC, Inc. was formed in September 1997 by HEA, the US based majority
owned subsidiary of HEI. In June of 1998 HEI transferred its packaging and test
business to a wholly owned subsidiary that was subsequently renamed ChipPAC
Korea, Ltd. The transfer of HEA's and HEI's packaging and test businesses to
ChipPAC, Inc. and ChipPAC Korea, Ltd. respectively was done in connection with
HEI's desire to more definitively separate the packaging and test division from
HEI's core business operations. The formation of ChipPAC, Inc. and the transfer
of HEA's packaging and test division was undertaken solely by HEA.
During the first quarter of 1998, management of the packaging and test
division drafted plans for the spin-off of the ChipPAC entities, with ChipPAC,
Inc. as the parent company. This plan was approved by Hyundai's board of
directors in March 1998. During the second quarter of 1998 Hyundai retained
Merrill Lynch to act as investment bankers and assist Hyundai in determining
how best to dispose of ChipPAC. In July 1998, Hyundai, with the assistance of
Merrill Lynch, initiated an auction process for the packaging and test
division, which transpired through March 1999.
On August 5, 1999, affiliates of Bain Capital, Inc. and SXI Group LLC, a
portfolio concern of Citicorp Venture Capital Ltd., which we refer to
collectively as the "Equity Investors," and management acquired a controlling
interest in the Company from Hyundai Electronics and Hyundai Electronics
America through a series of transactions, including a merger into ChipPAC, Inc.
of a special purpose corporation organized by the Equity Investors. The merger
was structured to be accounted for as a recapitalization. Specifically:
. the Equity Investors and other parties, including members of our
management, invested $92.0 million to acquire common stock of ChipPAC,
Inc. which represented approximately 90.2% of its common stock
outstanding immediately following the recapitalization;
F-7
<PAGE>
ChipPAC, Inc.
NOTES TO FINANCIAL STATEMENTS--(Continued)
. the prior stockholders of ChipPAC, Inc. retained a portion of their
common stock in ChipPAC, Inc. equal to $10.0 million, or approximately
9.8% of ChipPAC, Inc.'s common stock outstanding immediately following
the recapitalization; and
. the prior stockholders received as consideration for the remainder of
their common stock (i) an aggregate of $384.0 million in cash and (ii)
mandatorily redeemable convertible preferred stock payable for up to an
aggregate of $70.0 million. Net payment to Hyundai of $384 million,
included capital redemption of $311 million and debt retirement of $133
million, offset by Hyundai investment of $40 million in mandatorily
redeemable preferred stock, and a capital contribution of $20 million.
The formation of ChipPAC, Inc. did not result from any planned or integrated
series of transactions with the Equity Investors in 1999 and was not negotiated
by Hyundai and the Equity Investors in connection with transferring control of
the packaging and test division.
Basis of Presentation
The financial statements for the period subsequent to the recapitalization
and as at December 31, 1999 have been prepared on a consolidated basis. The
consolidated financial statements include the accounts of ChipPAC, Inc. and its
majority controlled and owned subsidiaries. All significant intercompany
balances have been eliminated on consolidation.
For the comparative disclosures for the two years ended December 31, 1998
and the balance sheets at December 31, 1998, the Company represents the
combination of four corporations then owned by Hyundai Electronics Industries
Co., Ltd (HEI) and Hyundai Electronics America (HEA). These four corporations
are ChipPAC, Inc. (CPI), ChipPAC Korea Co., Ltd (CPK), ChipPAC Assembly and
Test Co. Ltd. (CATS), and Hyundai Electronics Co. (Shanghai) Ltd., (HECS).
Accordingly the financial statements for the comparative periods are prepared
on a combined basis.
These comparative financial statements prepared on a combined basis include
the accounts of CPI, CPK, HECS and CATS, or the divisional accounts of the
predecessor Assembly and Test Divisions for periods prior to the business
transfers referred to above, and reflect the combined financial position,
results of operations, and cash flows of these entities. All inter-company or
inter-divisional transactions have been eliminated in the combination.
The combined statements of operations include all revenue and costs
attributable to the Company including an allocation of the costs of shared
facilities, costs of general and administrative services and overhead costs of
HEI and HEA. For the periods prior to the legal formations of CPI and CPK, such
allocated expenses were determined according to allocation bases deemed
appropriate for the nature of each expense item, including relative headcount,
relative occupancy of shared facilities, and relative sales volume. Costs
allocated by HEI and HEA after the legal formations were based on services
rendered, the costs of which were specified by affiliate agreements. In
addition, subsequent to the legal formations, CPI and CPK established internal
administrative and support functions, significantly reducing their reliance on
HEI and HEA for such services. Since inception, HECS generally maintained its
own internal administrative and support functions and was not allocated any
costs by HEI. Management fees charged by HEI to HECS have been included in the
combined results of operations and varied based on the level of services
provided by HEI. Interest is not charged on intercompany trading balances.
Management believes that the allocation methods used are reasonable.
However, the financial information included herein may not be representative of
the combined financial position, results of operations, and cash flows of the
Company in the future or what they would have been had the Company operated as
a separate entity during the periods presented.
F-8
<PAGE>
ChipPAC, Inc.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Note 2: Summary of Significant Accounting Policies
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
revenues and expenses in the financial statements and accompanying notes.
Significant estimates made by management include those related to the useful
lives of property, plant and equipment, allowances for doubtful accounts and
customer returns, inventory realizability, contingent assets and liabilities
and allocated expenses, among others. Actual results could differ from those
estimates, and such differences may be material to the combined financial
statements.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Financial Instruments
The amounts reported for cash and cash equivalents, accounts receivable,
certain other assets, accounts payable, certain accrued and other liabilities,
and short-term and long-term debt approximate fair value due to their short
maturities or market interest rates. Obligations due to or receivable from
related parties and mandatorily redeemable preferred stockholders have no
ascertainable fair value as no market exists for such instruments.
Inventories
Inventories are stated at the lower of cost (computed using first-in, first-
out method) or market value.
Property, Plant and Equipment
Property, plant and equipment are stated at cost and are depreciated on a
straight-line basis over the estimated useful lives of the assets, which
generally range from three to ten years except for building facilities and
building improvements in Shanghai, China which are depreciated over thirty and
fifteen years, respectively. In addition, land use rights in Shanghai, China
are amortized over fifty years. Assets under capital leases and leasehold
improvements are amortized over the shorter of the asset life or the remaining
lease term. Amortization of assets under capital leases is included with
depreciation expense. Upon disposal or sale, the Company removes the asset and
accumulated depreciation from its records and recognizes the gain or loss in
operations.
The Company reviews property, plant and equipment and other long lived
assets for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. The Company determines
whether there has been an impairment by comparing the anticipated undiscounted
future net cash flows to the related asset's carrying value. If an asset is
considered impaired, the asset is written down to fair value which is either
determined based on discounted cash flows or appraised values, depending on the
nature of the asset. The Company recognized an impairment write down in 1997,
see Note 4.
Concentration of Credit Risk and Major Customers
Financial instruments which potentially subject the Company to
concentrations of credit risk, consist principally of trade accounts receivable
and cash and cash equivalents.
F-9
<PAGE>
ChipPAC, Inc.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Company's customers are comprised of companies in the semiconductor
industry located primarily in the United States. Credit risk with respect to
the Company's trade receivables is mitigated by selling to well established
companies, performing ongoing credit evaluations and maintaining frequent
contact with customers. The allowance for doubtful accounts is based upon the
expected collectibility of the Company's accounts receivable. At December 31,
1998, two customers accounted for 68% and 13% of outstanding trade receivables,
respectively. At December 31, 1999 three customers accounted for 24%, 14% and
11% of the outstanding trade receivables, respectively. Loss of or default by
these customers could have an adverse effect upon the Company's financial
position, results of operations and cash flows.
During the year ended December 31, 1997, two customers accounted for 45% and
15% of the Company's revenue, respectively. During the year ended December 31,
1998, two customers accounted for 67% and 10% of the Company's revenue,
respectively. During the year ended December 31, 1999, one customer accounted
for 62% of the Company's revenue.
Cash and cash equivalents are deposited with banks in the United States,
Korea and China. Deposits in these banks may exceed the amount of insurance
provided on such deposits; however, the Company is exposed to loss only to the
extent of the amount of cash reflected on its balance sheet. The Company has
not experienced any losses to date on its bank cash deposits.
Revenue Recognition
The Company recognizes revenue, net of rebates and discounts, upon shipment
of packaged semiconductors to its customers. The Company does not take
ownership of customer-supplied semiconductors as these materials are sent to
the Company on a consignment basis. Accordingly, the customer supplied
materials are not reflected in revenue or in cost of revenue.
Research and Development Costs
Research and development costs are charged to expense as incurred.
Accounting for Income Taxes
The Company accounts for deferred income taxes using the liability method
whereby deferred tax assets and liabilities are recorded for temporary
differences between amounts reported in the financial statements and amounts
that would have been reported had the combined companies filed separate income
tax returns. A valuation allowance is provided for deferred tax assets when it
is more likely than not that all or a portion of the deferred tax assets will
not be realized through future operations. The provision for income taxes
represents taxes that would have been payable for the current period, plus the
net change in deferred tax amounts.
Foreign Exchange Contracts
In the ordinary course of business the Company enters into foreign exchange
forward contracts to mitigate the effect of foreign currency movements
associated with its international operations. The contracts entered into
require the purchase of Korean won or Japanese yen, and the delivery of US
dollars, and generally have maturities which do not exceed six months. To date
contracts entered into by the Company do not qualify as hedges and therefore
are included in foreign currency gains and losses in the period in which the
exchange rates change. There were no deferred gains or losses at December 31,
1999. At December 31, 1999 the Company had outstanding forward contracts to
purchase Japanese yen totaling $25.5 million.
F-10
<PAGE>
ChipPAC, Inc.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Foreign Currency Translation
Upon completion of the recapitalization, management decided to change the
functional currency of its foreign operations to the US Dollar effective
October 1999. Previously, the Company's functional currencies of its foreign
operations were the respective local currencies and the net of the effect of
the translation of the accounts of the foreign operation was included in equity
as a cumulative translation adjustment.
Stock-Based Compensation
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," in accounting for its employee
stock purchase options. Accordingly, compensation for stock purchase options is
measured by the excess of the fair market value of the Company's stock at the
date of the grant over the amount an employee must pay to acquire the stock.
The Company has adopted the disclosure of pro-forma information required under
SFAS No. 123, "Accounting for Stock-Based Compensation".
Recent Accounting Pronouncements
In June 1999, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 137 ("SFAS 137"), "Accounting
for Derivative Instruments and Hedging Activities--Deferral of the Effective
Date of FASB Statement No. 133." SFAS 137 amends Statement of Financial
Accounting Standards No. 133 ("SFAS"), "Accounting for Derivative Instruments
and Hedging Activities," to defer its effective date to all fiscal quarters of
all fiscal years beginning after June 15, 2000. SFAS 133 establishes accounting
and reporting standards for derivative instruments including standalone
instruments, such as forward currency exchange contracts and interest rate
swaps or embedded derivatives and requires that these instruments be marked-to-
market on an ongoing basis. These market value adjustments are to be included
either in the income statement or stockholders' equity, depending on the nature
of the transaction. The Company is required to adopt SFAS 133 in the first
quarter of its fiscal year 2001. The company is in the process of evaluating
the effect of SFAS 133 on its financial statements.
In December 1999, the Securities and Exchange Commission issued SAB No. 101.
"Revenue Recognition in Financial Statements," which provides guidance on the
recognition, presentation, and disclosure of revenue in financial statements
filed with the SEC. SAB No. 101 outlines the basic criteria that must be met to
recognize revenue and provides guidance for disclosures related to revenue
recognition policies. We believe that the impact of SAB No. 101 will have no
material effect on our financial position or results of operations.
Net Income (Loss) Per Common Share
The Company has presented net income (loss) per share pursuant to SFAS No.
128, Earnings per Share, and the Securities and Exchange Commission Staff
Accounting Bulletin No. 98. Basic income (loss) per share was computed by
dividing net income (loss) applicable to common stockholders by the weighted
average shares of common stock outstanding.
F-11
<PAGE>
ChipPAC, Inc.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following table reconciles net income (loss) to net income (loss)
applicable to common stockholders, and basic to diluted weighted average shares
outstanding:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1997 1998 1999
-------- -------- --------
(in thousands, except per
share data)
<S> <C> <C> <C>
Net income (loss)................................ $(46,118) $ 32,303 $ (5,935)
Extraordinary item(a)........................... -- -- (1,373)
Mandatorily redeemable preferred stock
dividends...................................... -- -- (3,960)
Accretion of the recorded value of the Intel
warrant........................................ -- -- (260)
-------- -------- --------
Net income (loss) available to common
stockholders $(46,118) $ 32,303 $(11,528)
======== ======== ========
Weighted average shares outstanding used for
basic and diluted income (loss) per share:
Class A common stock............................. 91,800 91,800 91,983
Class L common stock............................. 10,200 10,200 10,211
-------- -------- --------
Common Stock..................................... 102,000 102,000 102,194
-------- -------- --------
Basic and diluted earnings per share............. $ (0.45) $ 0.32 $ (0.11)
======== ======== ========
</TABLE>
Note 3: Risks and Uncertainties Industry
Industry
The Company's business involves certain risks and uncertainties. Factors
that could affect the Company's future operating results and cause actual
results to vary materially from expectations include, but are not limited to,
dependence on a cyclical industry that is characterized by rapid technological
changes, fluctuations in end-user demands, evolving industry standards,
competitive pricing and declines in average selling prices, risks associated
with foreign currencies, and enforcement of intellectual property rights.
Additionally, the market in which the Company operates is very competitive. As
a result of these industry and market characteristics, key elements of
competition in the independent semiconductor packaging market include breadth
of packaging offerings, time-to-market, technical competence, design services,
quality, production yields, reliability customer service and price. The
Company's customer base is highly concentrated with one customer accounting for
62% of revenue for the year ended December 31, 1999. As a result, any de-
commitment from our major customer for products could have an adverse impact on
the Company's financial position, results of operations and cash flows.
Korea
The Korean economy suffered a period of economic turmoil beginning in 1997
which has resulted in the devaluation of the Korean currency and volatility in
interest rates. A significant portion of the Company's assets and operations
are located in Korea.
The Korean government has announced restructuring plans directed at
rationalizing certain industries. Based on such a government directive, HEI has
recently acquired LG Semicon Company, a leading competitor of HEI. ChipPAC,
Inc. was not a party to this transaction.
The majority of CPK's employees are represented by an organized labor union
and are subject to a collective bargaining agreement.
China
A significant portion of the Company's assets and operations are owned by
HECS and are located in China. HECS is subject to the laws and regulations of
China including regulations governing the maintenance of business permits and
operating licenses. HECS operates under a business license granted by the local
F-12
<PAGE>
ChipPAC, Inc.
NOTES TO FINANCIAL STATEMENTS--(Continued)
municipal government. It is reasonably possible that additional business
licensure requirements may be applied by the National government that would
pertain to HECS.
Other
Korean and Chinese foreign currency exchange regulations place restrictions
on the flow of foreign funds into and out of those countries. The Company is
required to comply with these regulations when entering into transactions in
foreign currencies in Korea and China.
ChipPAC, through CPK, procures materials from local vendors in the ordinary
course of business. Three vendors in South Korea supply approximately 40% of
the Company's component parts used in performing packaging services. Management
believes that they have sufficient suppliers such that the loss of these
concentrated suppliers would not have a material impact on the Company's
combined financial position, results of operations or cash flows.
Note 4: Selected Balance Sheet Accounts
The components of inventories are as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------
1998 1999
------- -------
<S> <C> <C>
Inventories
Raw materials................................................ $ 6,002 $12,274
Work in process.............................................. 2,159 3,003
Finished goods............................................... 2,164 2,220
------- -------
$10,325 $17,497
======= =======
</TABLE>
Property, plant and equipment are comprised of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------
1998 1999
--------- ---------
<S> <C> <C>
Property, Plant and Equipment
Land use rights........................................ $ 4,041 $ 4,041
Buildings and improvements............................. 51,720 49,688
Equipment.............................................. 319,382 369,212
--------- ---------
375,143 422,941
Less accumulated depreciation and amortization......... (146,141) (196,010)
--------- ---------
$ 229,002 $ 226,931
========= =========
</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.
As discussed in Note 7, all assets except those held by ChipPAC China are
encumbered under the Credit Agreement entered into as part of the
recapitalization.
F-13
<PAGE>
ChipPAC, Inc.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Property, plant and equipment under capital leases (see Note 7) are as
follows (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------
1998 1999
-------- ----
<S> <C> <C>
Property, Plant and Equipment under capital leases
Cost......................................................... $ 44,501 --
Less accumulated amortization................................ (20,970) --
-------- ----
$ 23,531 $
======== ====
</TABLE>
Management reviews fixed assets for impairment in accordance with SFAS No.
121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of". Effective December 31, 1997, and based on management
changes and deteriorating economic conditions in Asia, the Company undertook a
detailed asset impairment analysis. The analysis covered all assets and
considered discontinuance of products, technological obsolescence, poor quality
of product and changes in demand for products. Based on this analysis the
Company recorded a charge of $11.6 million to recognize the impairment of
certain production equipment in the Company's facilities in China and Korea.
The impairment arose from a combination of management's decision to discontinue
certain product lines which were projected to have limited future growth
potential, and from the write down of production equipment judged to be in
excess of foreseeable requirements. After recognition of the impairment write-
down, the carrying value of the impaired assets was effectively reduced to
$650,000 at December 31, 1997. No assets were held for sale and for those
assets still in use, the carrying amount is being depreciated over the
remaining useful life, which on average is one year.
Other assets are comprised of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------
1998 1999
------ -------
<S> <C> <C>
Other Assets
Deposits for severance benefits.............................. $1,618 $ 2,027
Long-term employee loans..................................... 1,478 1,216
Deferred taxes............................................... 1,889 5,207
Debt issuance costs, net of amortization of $774............. -- 13,594
Other........................................................ 16 14
------ -------
$5,001 $22,058
====== =======
</TABLE>
The debt issuance costs of $14,368 were incurred in raising $300 million of
debt in connection with the recapitalization.
Accrued expenses and other liabilities are comprised of the following (in
thousands):
<TABLE>
<CAPTION>
December 31,
--------------
1998 1999
------ -------
<S> <C> <C>
Accrued Expenses & Other Liabilities
Accrued personnel expenses................................... $3,645 $ 4,673
Accrued interest payable..................................... 950 8,781
Accrued customer rebate...................................... -- 4,127
Accrued taxes................................................ 1,897 4,685
Accrued warranty and other expenses.......................... 1,185 4,942
------ -------
$7,677 $27,208
====== =======
</TABLE>
F-14
<PAGE>
ChipPAC, Inc.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Note 5: Dividends Accreted
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ------
<S> <C> <C> <C>
Preferred Stock, class A ("Intel Preferred Stock")........ -- -- $ 406
Preferred Stock, class B ("Hyundai Preferred Stock")...... -- -- 3,554
--- --- ------
-- -- $3,960
=== === ======
</TABLE>
Dividends on the Hyundai Preferred Stock accrue on a daily basis at a rate
of 12.5% per annum. Until February 5, 2005, dividends will not be paid in cash,
but will be capitalized as accumulated and unpaid dividends as part of
Mandatorily Redeemable Preferred Stock.
Dividends on the Intel Preferred Stock accrue on a daily basis at a rate of
10% per annum. Dividends are paid annually on August 1, and accumulated and
unpaid dividends as at the balance sheet date are capitalized as part of
Mandatorily Redeemable Preferred Stock.
Note 6: Segments and Geographic Information
The Company is engaged in one industry segment, the packaging and testing of
integrated circuits. Financial data, summarized by geographic area, is as
follows (in thousands):
<TABLE>
<CAPTION>
United
States Korea China Eliminations Combined
-------- -------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1997
Revenue from unaffiliated
customers................ $231,615 $ 43,888 -- -- $275,503
Revenue from affiliates... 4,206 232,381 $ 21,611 $(244,272) 13,926
-------- -------- -------- --------- --------
Total revenue........... $235,821 $276,269 $ 21,611 $(244,272) $289,429
======== ======== ======== ========= ========
Interest expense.......... -- $ 9,858 $ 1,114 -- $ 10,972
Depreciation,
amortization, and asset
impairment expense....... $ 75 40,515 11,661 -- 52,251
Income tax expense
(benefit)................ 2,290 (11,961) -- -- (9,671)
Income (loss) from
operations............... 5,538 33,639 (13,659) -- 25,518
Acquisition of equipment
under capital leases..... -- 25,901 -- -- 25,901
Identifiable assets....... $ 28,613 $190,818 $ 87,108 $ (73,298) $233,241
======== ======== ======== ========= ========
Year ended December 31,
1998
Revenue from unaffiliated
customers................ $317,348 $ 11,529 -- -- $328,877
Revenue from affiliates... 2,330 305,334 $ 13,759 $(316,219) 5,204
-------- -------- -------- --------- --------
Total revenue........... $319,678 $316,863 $ 13,759 $(316,219) $334,081
======== ======== ======== ========= ========
Interest expense.......... -- $ 9,973 $ 3,367 -- $ 13,340
Depreciation and
amortization expense..... $ 489 35,584 9,782 -- 45,855
Income tax expense
(benefit)................ 954 19,610 -- -- 20,564
Income (loss) from
operations............... 1,885 51,334 (12,790) -- 40,429
Acquisition of equipment
under capital leases..... -- 2,191 -- -- 2,191
Identifiable assets....... $ 62,724 $316,288 $ 97,085 $(116,625) $359,472
======== ======== ======== ========= ========
Year ended December 31,
1999
Revenue from unaffiliated
customers................ $347,349 $ 17,231 $ 151 -- $364,731
Revenue from affiliates... -- 330,137 16,863 $(336,201) 10,799
-------- -------- -------- --------- --------
Total revenue........... $347,349 $347,368 $ 17,014 $(336,201) $375,530
======== ======== ======== ========= ========
Interest expense.......... 14,484 4,913 1,844 -- 21,241
======== ======== ======== ========= ========
Depreciation and
amortization expense..... 2,528 44,489 10,458 -- 57,475
Income tax expense........ 1,166 772 -- -- 1,938
Income (loss) from
operations............... 4,307 18,295 (9,983) -- 12,619
Extraordinary item, net of
related income tax
benefit.................. -- 1,373 -- -- 1,373
Acquisition of equipment
under capital leases..... -- -- -- -- --
Identifiable assets....... $286,673 $278,505 $ 92,577 $(314,326) $343,429
======== ======== ======== ========= ========
</TABLE>
F-15
<PAGE>
ChipPAC, Inc.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Revenue from unaffiliated and affiliated customers is based on the
geographic location of each customer's principal place of business.
Identifiable assets are those assets that can be directly associated with a
particular geographic area. In determining each geographic location's income
(loss) from operations and identifiable assets, the expenses and assets
relating to general corporate activities are included in the amounts for the
geographical area where they were incurred, acquired or utilized.
Note 7: Term Debt, Credit Facilities, and Capital Lease Obligation
Under the terms of the recapitalization and merger in 1999 all short and
long term debt, loans and leases and other credit facilities existing prior to
the recapitalization were terminated at the recapitalization date.
To finance part of the recapitalization, the Company borrowed $300.0 million
of new debt, comprising $150.0 million of term loans and $150.0 million of
senior subordinated notes (the Exchange Notes). The term loans bear interest at
base rate (8.50% at December 31, 1999) plus 2.25% to 3.0% and the senior
subordinated notes bear interest at 12.75% per annum. The senior subordinated
notes mature on July 21, 2009. If a change of control of ChipPAC, Inc. occurs,
we may be required to allow holders of the senior subordinated notes to sell us
their notes at a purchase price of 101.0% of the principal amount of the notes,
plus accrued and unpaid interest.
We have a borrowing facility of $50.0 million for working capital and
general corporate purposes under the revolving credit facility. In addition,
borrowings of up to $20.0 million are available for acquiring equipment and
making certain other capital expenditures under the capex facility. We may
borrow and repay under the capex facility until August 5, 2001. Amounts that we
repay under the capex facility after August 5, 2001 may not be borrowed by us
later. The final maturity of these facilities will be on August 5, 2005. No
amounts were outstanding under either the revolving credit facility or the
capex facility at December 31, 1999.
Future maturities of term debt outstanding, at December 31, 1999 are as
follows (in thousands):
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
2000.......................................................... $ 4,800
2001.......................................................... 11,800
2002.......................................................... 12,800
2003.......................................................... 14,300
2004.......................................................... 19,300
2005.......................................................... 11,800
2006.......................................................... 75,200
2007.......................................................... --
2008.......................................................... --
2009.......................................................... 150,000
--------
$300,000
========
</TABLE>
The term loans and the revolving and capital expenditure lines (the Senior
Credit Facilities) require that we meet specified financial tests, including,
without limitation, a maximum leverage ratio, a minimum interest coverage ratio
and minimum fixed charge coverage ratio. These facilities also contain
covenants which restrict the Company's ability to:
. make capital expenditures;
. incur liens or engage in sale-leaseback transactions;
. transact with affiliates;
. incur indebtedness and contingent obligations;
F-16
<PAGE>
ChipPAC, Inc.
NOTES TO FINANCIAL STATEMENTS--(Continued)
. declare dividends or redeem or repurchase capital stock;
. prepay, redeem or repurchase indebtedness;
. change the business being conducted;
. make loans and investments; and
. engage in mergers, acquisitions, consolidations and asset sales.
The Senior Credit Facilities also require that we satisfy customary
affirmative covenants and provide customary indemnifications in favor of the
senior lenders. These credit facilities contain customary events of default,
including, without limitation, payment defaults, breaches of representations
and warranties in all material respects, covenant defaults, some events of
bankruptcy and insolvency, ERISA violations, judgment defaults, cross-defaults
to other indebtedness and a change in control.
There were no violations of these loan covenants through December 31, 1999.
Substantially all assets of the ChipPAC consolidated group, with the
exception of the two Chinese non-grantor entities (CATS and HECS), have been
pledged as collateral under the term debt and revolving credit facilities
agreement put in place on August 5, 1999.
On early retirement of certain of the debt upon recapitalization, the
Company incurred termination penalties and recorded an extraordinary loss of
$1.4 million, net of related tax benefit.
The following is a summary of the Company's long-term debt and capital lease
obligations which were in existence prior to, and terminated on the
recapitalization (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------
1998 1999
-------- ----
<S> <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.................... $ 69,363 $ --
Notes payable to a Japanese bank, principal payable in
aggregate semi-annual installments beginning March 28, 1999,
maturing September 28, 2000, together with interest at the
6-month LIBOR rate (5.5% at December 31, 1998) plus 0.4% per
annum guaranteed by HEI....................................... 8,228 --
Note payable to a Korean bank, principal payable in aggregate
semi-annual installments beginning May 22, 1999 maturing
November 22, 2001 together with interest at the 3-month LIBOR
rate (5.08% at December 31, 1998) plus 3% per annum,
guaranteed by HEI............................................. 20,000 --
Capital lease obligations to institutions with interest at
rates ranging from LIBOR (5.72% at December 31, 1998) plus
.58% to 2.2% per annum, collateralized by certain machinery
and equipment, guaranteed by HEI.............................. 10,945 --
Capital lease obligations in Korean Won to institutions with
interest at rates ranging from 11% per annum to 14.58% per
annum, collateralized by certain machinery and equipment,
guaranteed by HEI............................................. 4,361 --
Less current maturities........................................ (31,954) --
-------- ----
$ 80,943 $ --
======== ====
</TABLE>
F-17
<PAGE>
ChipPAC, Inc.
NOTES TO FINANCIAL STATEMENTS--(Continued)
HEI Capital Leases
During the periods through June 30, 1998, HEI transferred certain machinery
and equipment that it leased, amounting to $17.0 million at cost, with related
accumulated depreciation of $6.8 million, to CPK; these leases qualified as
capital lease obligations. HEI assumed all obligations under these leases and
no amounts were to be serviced by CPK; however, title to these assets used by
CPK was held by the leasing companies under these agreements. Total capital
lease obligations at December 31, 1997 and 1998, were $16.7 million and
$16.1 million, respectively. The assets and the related obligations have been
reflected in the accompanying combined financial statements. The Company
recorded lease payments made by HEI as a reduction of the Company's capital
lease obligations and a corresponding increase in capital amounting to $7.2
million, and $10.0 million for the years ended December 31, 1997 and 1998,
respectively.
During the periods through June 30, 1998, HEI also transferred to CPK
certain machinery and equipment which are pledged as collateral under dollar
denominated loan agreements with banks. HEI did not transfer the debt
obligation to CPK and remained the named borrower. Since the assets used by CPK
were pledged as collateral for the related loan obligations, the Company
recorded these loan obligations as a liability due to HEI in the accompanying
financial statements. At December 31, 1998 the outstanding balance on these
loans amounted to $4.7 million. The Company recorded payments made by HEI on
these loans as a reduction of the liability to HEI and a corresponding increase
in capital amounting to $1.2 million for the year ended December 31, 1998.
Note 8: Mandatorily Redeemable Preferred Stock
Hyundai Preferred Stock
In connection with the recapitalization, we issued to Hyundai Electronics
and Hyundai Electronics America 70,000 shares of Class B preferred stock, which
we refer to as the Hyundai Preferred Stock, which has an initial aggregate
liquidation preference of $70.0 million. Dividends on the Hyundai Preferred
Stock accrue on a daily basis from August 5, 1999 at a rate of 12.5% per annum.
Until February 5, 2005, dividends will not be paid in cash, but will be
capitalized as accumulated and unpaid dividends. All dividends accruing on the
Hyundai Preferred Stock from and after such period will be paid in cash,
semiannually, beginning after February 5, 2005. In the event we fail to pay any
such dividend when due, the dividend rate on the Hyundai Preferred Stock will
immediately increase by 2.5% per annum and the holders of a majority of the
outstanding Hyundai Preferred Stock will have the exclusive right to nominate
and elect one additional member of our board of directors, in each case until
there is no longer any such default. The Hyundai Preferred Stock is mandatorily
redeemable on August 5, 2010 and is otherwise redeemable by us at any time at
our sole discretion. All of the shares of Hyundai Preferred Stock will be held
by either Hyundai Electronics or Hyundai Electronics America. The prior written
consent of the holders of a majority of the outstanding Hyundai Preferred Stock
are required to amend, modify or waive the terms of the Hyundai Preferred
Stock. The senior credit facilities and the senior subordinated notes are
senior in right of payment to the Hyundai Preferred Stock. The Class B
preferred shares are non-voting shares.
In the event of any liquidation, dissolution or winding up of ChipPAC, Inc.,
holders of the class B preferred stock shall be entitled to receive an amount
equal to the face value of the class B preferred stock plus all accrued and
unpaid dividends thereon after payment to the holders of the class A preferred
stock and prior to any distribution to the common stockholders.
In addition, Hyundai Electronics may receive up to an additional $55.0
million in cash during the four year period beginning January 1, 1999 if we
exceed certain levels of EBITDA as set forth in the recapitalization agreement.
Hyundai Electronics is entitled to receive 33.3% of the amount by which our
F-18
<PAGE>
ChipPAC, Inc.
NOTES TO FINANCIAL STATEMENTS--(Continued)
EBITDA (defined in the recapitalization agreement as net income before
interest, taxes, depreciation, amortization, extraordinary items and advisory
fees) exceeds $116.5 million, $171.3 million, $198.5 million and $231.8
million, respectively, in each of the first four years following the
recapitalization. In the event the final $20.0 million of such $55.0 million in
cash is required to be paid to Hyundai Electronics, it shall be paid by the
mandatory redemption of an equal amount of Hyundai Preferred Stock. During the
year ended December 31, 1999, the Company's EBITDA did not exceed the level in
the agreement and no amount is due.
Accretion of dividends is required and the total dividend accreted at
December 31, 1999 is $3,554,000. This amount has been added to the Mandatorily
Redeemable Preferred Stock at December 31, 1999.
Intel Preferred Stock
Pursuant to the Intel Stock Purchase Agreement, we issued 10,000 shares of
Class A 10.0% preferred stock and the Intel warrant to Intel, which we refer to
as the Intel Preferred Stock, for $10 million in cash.
Dividends on the Intel Preferred Stock accrue on a daily basis from the date
of issuance at a rate of 10.0% per annum, payable when and as declared by the
board of directors; provided, however, that dividends will be paid prior to the
payment of any dividends with respect to any of our capital stock or equity
securities which we refer to as junior securities, other than the Hyundai
Preferred Stock. Dividends on each share of Intel Preferred Stock will accrue
from the date of issuance of the Intel Preferred Stock to the first to occur
of:
(1) the date upon which the face value ($1,000 per share) of such share
of Intel Preferred Stock plus all accrued but unpaid dividends is paid;
(2) the date upon which such share of Intel Preferred Stock is converted
into common stock (as described below); or
(3) the date upon which such share of Intel Preferred Stock is acquired
by us.
Accretion of dividends is required and the total dividend accreted at
December 31, 1999 is $406,000. This amount has been added to the Mandatorily
Redeemable Preferred Stock at December 31, 1999.
At any time, and from time to time, holders of the Intel Preferred Stock may
convert all or any portion of such Intel Preferred Stock into shares of common
stock at an initial conversion price equal to 150.0% of the weighted average
price per share of common stock paid by the Equity Investors in connection with
the recapitalization, with the purchase price subject to certain adjustments.
The Intel Preferred Stock is convertible into not less than 6.25% of our Class
L common stock and Class A common stock, before taking into account any shares
of our common stock issued or issuable to employees, officers or directors of
ChipPAC, Inc. or our subsidiaries or financing sources.
In the event of any liquidation, dissolution or winding up of ChipPAC, Inc.,
holders of the Intel Preferred Stock will be entitled to receive, prior to any
distribution to the holders of junior securities, an amount equal to the face
value ($1,000 per share an aggregate liquidation preference of $10 million) of
the Intel Preferred Stock plus all accrued and unpaid dividends thereon. In
addition, each of the following will be deemed a liquidation, dissolution or
winding up of ChipPAC, Inc.:
. any sale by us of all or substantially all of its assets;
. any consolidation or merger of ChipPAC, Inc. as a result of which
holders of our common stock possessing the voting power to elect a
majority of the board of directors immediately prior to such
consolidation or merger cease to own capital stock of the surviving
corporation possessing the voting power to elect a majority of the
surviving corporation's board of directors; or
F-19
<PAGE>
ChipPAC, Inc.
NOTES TO FINANCIAL STATEMENTS--(Continued)
. any issuance, sale or transfer to any third party of our capital stock
as a result of which holders of our outstanding capital stock possessing
the voting power to elect a majority of the board of directors
immediately prior to such sale cease to own capital stock of ChipPAC,
Inc. possessing the voting power to elect a majority of the board of
directors (each of the foregoing, a "Liquidation Event").
At any time, and from time to time, after August 1, 2005, we have the right
to redeem all or any portion of the Intel Preferred Stock then outstanding at a
redemption price per share equal to the greater of (i) its fair market value
and (ii) its face value ($1,000 per share) plus all accrued and unpaid
dividends thereon plus a redemption premium of 10.0%. The premium shall
decrease ratably from year to year and shall be zero on or after August 1,
2010. The stock is mandatorily redeemable in the event that we do not complete
an underwritten initial public offering of shares of our common stock with
gross proceeds in excess of $50.0 million on or prior to August 1, 2001, and
holders of not less than a majority of the Intel Preferred Stock require us to
redeem all or a portion of the Intel Preferred Stock at a price per share equal
to such stock's face value ($1,000 per share) plus all accrued and unpaid
dividends thereon; provided, however, that any such redemption will be subject
to all restrictions of applicable law and our debt and equity financing
arrangements.
Each share of Intel Preferred Stock has that number of votes equal to the
number of shares of voting common stock then issuable upon the conversion of
that share of Intel Preferred Stock. Except as required by law or as provided
in the following sentence, holders of the Intel Preferred Stock are entitled to
vote on all matters submitted to the stockholders for a vote and will vote
together with holders of our common stock as a single class. The prior written
consent of the holders of at least 66.7% of the outstanding Intel Preferred
Stock is required for:
. any amendment or change of the rights, preferences, privileges or powers
of, or the restrictions provided for the benefits of, the Intel
Preferred Stock;
. any action that authorized, created or issued any new shares of any
class of stock having preferences superior to the Intel Preferred Stock,
other than any issuance of the Hyundai Preferred Stock; or
. any action that reclassifies any outstanding shares of capital stock
into shares having preferences or priority as to dividends or assets
senior to the preference of the Intel Preferred Stock.
The senior credit facilities and the senior subordinated notes are senior in
right of payment to the Intel Preferred Stock.
Intel Warrant
Under the Intel Stock Purchase Agreement, we also issued to Intel the Intel
Warrant, which entitles Intel to purchase $5.0 million of our common stock at a
20.0% discount to the initial public offering price, when and if we complete an
initial public offering of our common stock. Accordingly, we have valued the
Intel warrant at $1.25 million and this amount has been recorded as equity. The
Intel Preferred Stock has been recorded net of this amount and is being
accreted to redemption value over the period to August 1, 2001, the first date
at which the Intel Preferred Stock becomes redeemable.
Note 9: Commitments and Contingencies
Intel Materials Agreement
On August 5, 1999, ChipPAC Limited and Intel entered into the Intel
Materials Agreement pursuant to which Intel will outsource to ChipPAC Limited a
portion of its semiconductor packaging needs. In return, we will provide Intel
with rebates based upon the volume of packaging services outsourced to us.
Rebates are
F-20
<PAGE>
ChipPAC, Inc.
NOTES TO FINANCIAL STATEMENTS--(Continued)
deducted from revenue and accrued as current liabilities when the sale is made.
The rebate percentage applied in computing the accrual is based on projected
total sales and the relevant rebate percentages for the periods stated in the
agreement. The Intel Materials Agreement covers semiconductor packaging
services for which Intel has an ongoing purchasing requirement and for which we
are a qualified source and where costs, yields and quality are equal to that of
the same services provided by other semiconductor packaging companies. The
Intel Materials Agreement also provides that Intel will not enter into other
agreements for packaging services that contain provisions relating to
competitive pricing and volume guarantees similar to those contained in the
Intel Materials Agreement. This restriction only applies to agreements with
semiconductor packaging companies that (i) are qualified to provide packaging
services to Intel and (ii) provide the same type of packaging services provided
by us. The Intel Materials Agreement also obligates us to first offer to Intel
rights to use intellectual property related to certain new packaging services
technology developed by us. Following the expiration of its initial term on
December 31, 2001, the Intel Materials Agreement may be extended upon the
mutual consent of ChipPAC Limited and Intel.
The Company's executive offices in the United States and its facilities in
Korea are leased from HEA and HEI respectively, under noncancellable operating
lease arrangements through 2001. Rent expense for the years ended December 31,
1996, 1997 1998, and 1999 was $5.0 million, $4.3 million, $7.6 million and $4.9
million respectively. Future annual minimum lease payments under operating
leases that have initial or remaining noncancellable lease terms in excess of
one year at December 31, 1999 are as follows (in thousands):
<TABLE>
<S> <C>
2000.............................................................. $5,012
2001.............................................................. 2,940
------
$7,952
======
</TABLE>
Note 10: Related Party Transactions
The Company has sold packaging and testing services to HEI and to Symbios,
Inc. (a subsidiary of HEA). The Company recorded sales of $9.7 million , $2.9
million and $10.8 million to HEI for the years ended December 31, 1997, 1998
and 1999 respectively. The Company recorded sales of $4.2 million and $2.3
million to Symbios, Inc. for the years ended December 31, 1997 and 1998,
respectively. Symbios, Inc. was not a subsidiary of HEA during 1999.
During the periods prior to June 30, 1998, HEI reimbursed CPK for the use of
a metal plating facility. After June 30, 1998, HEI entered into an agreement
with CPK, whereby CPK charged for plating services on a per piece basis. During
fiscal years 1997, 1998 and 1999 the Company recognized $8.5 million, $6.2
million and $8.1 million from HEI as reimbursement for plating services,
respectively. These amounts exceeded actual costs by $832,000, $57,000 and
$2,734,000 for the years ended December 31, 1997, 1998 and 1999 respectively.
The total amount receivable from HEI for plating services and from the sale of
packaging services was $11.7 million at December 31, 1999.
HEI has provided certain support functions for CPK, including sales,
administration, finance and treasury management. In connection with these
functions, HEI incurred certain expenses on behalf of CPK, which consisted
primarily of general, selling and administrative expenses. During the years
ended December 31, 1997 and the six months ended June 30, 1998, HEI allocated
$4.0 million and $1.2 million, respectively, which are included as an operating
expense by the Company. No allocation of operating expenses was made after June
30, 1998, as CPK established its own administration functions.
In addition, HEI allocated to CPK, $4.3 million and $1.7 million for
facilities and utilities costs during fiscal years ended December 31, 1997, and
the six-month period ended June 30, 1998, respectively. CPK
F-21
<PAGE>
ChipPAC, Inc.
NOTES TO FINANCIAL STATEMENTS--(Continued)
expenses which were paid by HEI during the periods prior to June 30, 1998, are
recorded as capital contributions. For the six month period from June 30, 1998
to December 31, 1998, CPK paid HEI a total of $5.5 million for facilities,
utilities, and employee welfare. During the periods prior to June 30, 1998, a
portion of these costs was included in the operating expenses allocated to
CPK.
In December 1998, CPK declared a dividend payable of $9.7 million to HEI,
which was paid in February 1999.
HEI entered into an agreement with the Company to provide technical
services and manufacturing support for the Company's facility in China. This
agreement was terminated on June 30, 1998. Under this agreement, the Company
owed HEI approximately, $4.2 million, $6.7 million and $7.2 million at
December 31, 1996, 1997 and 1998, respectively. Payment was made under this
agreement at the recapitalization date.
During 1995 through 1998, HECS contracted with Hyundai Engineering and
Construction Co. Ltd. ("HEC"), a Hyundai affiliated company, to construct the
Company's packaging and testing facilities in Shanghai, China. From inception
through December 31, 1998, charges from HEC amounted to approximately $43.7
million. Amounts payable to HEC, included in the accompanying balance sheets,
were $2.2 million and $1.2 million at December 31, 1996 and December 31, 1998
respectively. No amounts are payable or due to HEC at December 31, 1999.
At December 31, 1998, HECS had a payable of $4.4 million due HEI for the
cost of certain equipment which had been transferred to HECS. This amount is
included as a current liability in payables to affiliates at December 31,
1998. No amount is payable or due at December 31, 1999.
The following table summarized the payables to affiliates at December 31,
1998 and 1999 (in thousands):
<TABLE>
<CAPTION>
December 31
------------
1998 1999
------- ----
<S> <C> <C>
Payables to Affiliates
Dividend payable to HEI by CPK................................. $ 9,701 $ --
Management fee due HEI......................................... 7,187 --
Payable to HEI from HECS for equipment purchases............... 4,430 --
Payable to HEA from CPI for current tax obligations............ 443 --
Payable to HEC from HECS for construction work................. 1,157 --
------- ----
$22,918 $ --
======= ====
</TABLE>
Intercompany Trading Balances comprised the following (in thousands):
<TABLE>
<CAPTION>
December 31
--------------------
1998 1999
--------- ---------
<S> <C> <C>
Intercompany Trading Balances
Intercompany Trading Balances, beginning balance........ $ 73,244 $ 119,625
Intercompany purchases.................................. 316,219 337,481
Intercompany payments................................... (269,838) (326,427)
--------- ---------
Intercompany Trading Balances, ending balance......... $ 119,625 $ 130,679
========= =========
</TABLE>
F-22
<PAGE>
ChipPAC, Inc.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Since May 1998, CPI's primary office facility has been located on premises
which it has subleased from HEA. During the year ended December 31, 1998 and
1999, HEA charged $467,000 and $789,000 to CPI for rent and building related
taxes, insurance, and maintenance.
At December 31, 1997 and 1998, the Company had advances receivable of $7.5
million and $37.6 million, respectively, due from HEA. These advances were non-
interest bearing and had no fixed repayment date. These advances have been
classified as deductions from shareholders' equity in these financial
statements. No amounts are receivable from HEA at December 31, 1999.
At June 30, 1998, Hyundai Information Technology ("HIT") entered into a
three year agreement with CPK to provide information technology services.
Substantially all of CPK's major information technology services are provided
by HIT. HIT also entered into a six month agreement at October 1998 to provide
CPK with services for Year 2000 remediation. For the six month period from June
30, 1998 to December 31, 1998, HIT charged CPK $1.0 million. For the year ended
December 31, 1999, HIT charged CPK $2,265,000. Prior to June 30, 1998, while
HIT provided substantially all of CPK's information technology services, such
charges were included with the general allocation of general, selling and
administrative operating expenses made by HEI.
During 1998, CPI entered into an agreement with HIT for the installation of
a significant portion of a modular software system. The installation of this
portion of the software system was completed in February 1999. For the years
ended December 31, 1998 and 1999, CPI incurred charges of $1,198,000 and
$2,265,000 from HIT, respectively.
Management Advisory Agreements
At the time of the recapitalization, the Company entered into advisory
agreements with the Equity Investors. Under these agreements, Equity Investors
may provide financial, advisory and consulting services to us. In exchange for
these services, the Equity Investors will be entitled to receive fees billed at
the Equity Investors' customary rates for actual time spent performing these
services plus reimbursement for out-of-pocket expenses; provided that,
commencing with the quarter ending March 31, 2000, when and if we achieve
EBITDA, as calculated through the twelve-month period ended March 31, 2000, in
excess of $81.2 million, the Equity Investors will each be entitled to an
annual advisory fee, the amount of which will be limited by our senior credit
agreements, for the remaining term of the advisory agreement. There are no
minimum levels of service required to be provided under the advisory
agreements. At the time of the recapitalization, the Equity Investors each
received a one-time fee of 1.0% of the aggregate value of the recapitalization,
which fees totaled $10 million. In addition, the Equity Investors will each
receive a fee not to exceed 1.0% of the aggregate value of any acquisition,
divestiture or financing transaction of ChipPAC, Inc. in which the Equity
Investors are involved. Each advisory agreement will remain in effect for an
initial term of ten years, but they may be terminated by the Equity Investors
or us upon written notice 90 days prior to the expiration of the initial term
or any extension. Each advisory agreement includes customary indemnification
provisions in favor of each of the Equity Investors.
Note 11: Common Stock and Shareholders' and Divisional Equity
The Company's equity for earlier periods includes the divisional equity of
CPI, paid-in-capital of HECS, and the common stock and divisional equity of
CPK. This divisional equity was either redeemed or converted in accordance with
the terms of the recapitalization agreement.
F-23
<PAGE>
ChipPAC, Inc.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Common Stock
The Company currently has authorized class A, B, and L common stock. There
are 180,000,000, $0.01 par value, shares authorized of each class A and class B
common stock. At December 31, 1999 there were 96,254,000 shares of class A
common stock issued and outstanding and there were no shares of class B common
issued or outstanding.
There are 20,000,000 shares of $0.01 par value Class L common stock,
authorized of which 10,456,000 shares were issued and outstanding at December
31, 1999. Only Class A common shares have voting rights.
In the event of liquidation, the Class L common shares have certain
distribution preferences over the Class A and B shares, once the senior
liquidation rights of the mandatorily redeemable preferred stock have first
been satisfied. To the extent available a liquidating distribution equal to the
original share cost, plus an amount equal to 12.0% per annum calculated on a
compound basis, shall be made to the holders of the Class L common shares
before any distribution is made to the Class A and B shareholders.
Class A and B common shareholders may convert their shares at the ratio of
one to one into the shares of the other class.
Note 12: 1999 Stock Purchase and Option Plan
As a result of the March 1999 HEI and HEA agreement to re-organize the
Company, the 1997 stock purchase plan was terminated. Cash paid to holders of
vested options upon termination of the plan totaled approximately $170,000 and
was charged as additional employee compensation.
Our board of directors has adopted the ChipPAC, Inc. 1999 Stock Purchase and
Option Plan, or the "1999 Stock Plan," which authorizes the granting of stock
options and the sale of Class A common stock or Class L common stock to current
or future employees, directors, consultants or advisors of ChipPAC, Inc. or its
subsidiaries. Under the 1999 Stock Plan, a committee of the board of directors
is authorized to sell or otherwise issue Class A common stock or Class L common
stock at any time prior to the termination of the 1999 Stock Plan in such
quantity, at such price, on such terms and subject to such conditions as
established by the committee up to an aggregate of 15,500,000 shares of Class A
common stock and 500,000 shares of Class L common stock, including shares of
common stock with respect to which options may be granted, subject to
adjustment upon the occurrence of specified events to prevent any dilution or
expansion of the rights of participants that might otherwise result from the
occurrence of such events.
F-24
<PAGE>
ChipPAC, Inc.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following table summarizes stock option activity under the 1997 Option
Plan of ChipPAC through December 31, 1999:
<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
========== ========== ===== =========
Options granted......... (102,500) 102,500 $0.30 30,750
Options canceled........ 1,076,200 (1,076,200) $0.30 (322,860)
Options repurchased..... 494,050 (494,050) $0.30 (148,215)
Termination of plan..... (2,508,960) -- -- --
---------- ---------- ----- ---------
Balances at December 31,
1999................... -- -- -- $ --
========== ========== ===== =========
</TABLE>
As of December 31, 1998, options for 160,239 shares were vested. No options
were vested at December 31, 1997.
The following table summarizes stock option activity under the 1999 Option
Plan of ChipPAC through December 31, 1999:
<TABLE>
<CAPTION>
Weighted
Options Average
Available Options Exercise Aggregate
for Grant Outstanding Price Value
---------- ----------- -------- ----------
<S> <C> <C> <C> <C>
Balances at January 1,
1999
Options reserved........ 7,500,000 -- -- $ --
Options granted......... (5,935,500) 5,935,500 $0.88 5,223,240
Options canceled........ 85,000 (85,000) $0.88 (74,800)
---------- --------- ----- ----------
Balances at December 31,
1999................... 1,649,500 5,850,500 $0.88 $5,148,440
========== ========= ===== ==========
</TABLE>
As of December 31, 1999, no options share were vested. The weighted average
contractual life is approximately 9.7 years.
The Company calculated the value of each option grant on the date of grant
using the Black-Scholes option pricing model with the following assumptions:
<TABLE>
<CAPTION>
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Risk free interest rate.............................. 4-5% 4-5% 6%
Expected lives....................................... 4 years 4 years 4 years
Dividend yield....................................... -- -- --
Expected volatility.................................. -- -- --
</TABLE>
F-25
<PAGE>
ChipPAC, Inc.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Note 13: Income Taxes
The provision for (benefit from) income taxes is comprised of the following
(in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------
1997 1998 1999
-------- ------- -------
<S> <C> <C> <C>
Current
Federal.......................................... $ 1,768 $ 1,099 $ 209
State............................................ 519 279 98
Foreign.......................................... 4,817 3,012 4,680
Deferred
Federal.......................................... -- (358) 566
State............................................ -- (62) 95
Foreign.......................................... (16,775) 16,594 (3,710)
-------- ------- -------
Tax expense.................................... $ (9,671) $20,564 $ 1,938
======== ======= =======
</TABLE>
Income (loss) before taxes is comprised of the following (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------
1997 1998 1999
-------- ------- -------
<S> <C> <C> <C>
Domestic.......................................... $ 5,579 $ 2,165 $(1,498)
Foreign........................................... (61,368) 50,702 (2,499)
-------- ------- -------
$(55,789) $52,867 $(3,997)
======== ======= =======
</TABLE>
A summary of the composition of net deferred income tax assets (liabilities)
is as follows (in thousands):
<TABLE>
<CAPTION>
At December
31,
--------------
1998 1999
------ ------
<S> <C> <C>
Assets:
Foreign currency transaction losses.......................... $ 388 --
Foreign lease obligations.................................... 1,366 $ 887
Impaired loss................................................ 1,484 787
Provision for slow moving inventory.......................... 657 971
Capitalized interest......................................... 2,427 1,591
Accrued expenses and other................................... 420 2,343
------ ------
6,742 6,579
------ ------
Less liabilities:
Foreign currency transaction gains........................... (3,182) (259)
Foreign lease obligations.................................... -- --
Reserves deducted for tax, not for books..................... (868) (579)
------ ------
(4,050) (838)
------ ------
$2,692 $5,741
====== ======
</TABLE>
F-26
<PAGE>
ChipPAC, Inc.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The differences between provision for (benefit from) income taxes at the
statutory Federal income tax rate and income taxes reported in the combined
statements of operations are as follows:
<TABLE>
<CAPTION>
Years Ended
December 31,
--------------------
1997 1998 1999
----- ---- -----
<S> <C> <C> <C>
Federal statutory tax
rate................... (35.0)% 35.0 % (35.0)%
State tax, net of
Federal benefit........ 0.6 % 0.3 % 0.5 %
Losses not benefitted,
China.................. 12.5 % 11.4 % 14.5 %
Foreign operations rate
difference............. 4.6 % (7.8)% 44.2 %
Other................... -- -- 5.4 %
----- ---- -----
(17.3)% 38.9 % 29.6 %
===== ==== =====
</TABLE>
Since inception on September 30, 1997, until August 5, 1999 CPI has been a
party to a tax sharing agreement with its parent company HEA with which it has
filed a consolidated US Federal income tax return, and various consolidated and
separate state income tax returns. Under the tax sharing agreement CPI will
remit to HEA its tax liability calculated on a separate company basis. For the
year ended December 31, 1998, CPI recorded an income tax provision of $954,000,
of which $443,000 was recorded as a current liability due to HEA. The balance
of prior tax charges was accounted for as a reduction of shareholder
receivable--HEA, and included in shareholders' and divisional equity.
HECS operates under a business license in China whereby a tax holiday is
granted to the Company. The tax holiday entitles the Company to a two year tax
exemption followed by three years of reduced statutory tax rates being applied
to taxable income generated in the five year period commencing from the first
year HECS generates taxable income, after utilization of operating losses
carried forward. Operating losses may be carried over for five years. HECS has
been loss making to date. No benefit for income taxes has been reflected in the
accompanying combined financial statements for losses incurred by HECS, thereby
increasing the effective tax rate.
Under Korean tax law, CPK is allowed certain income tax deductions for the
appropriation of retained earnings and the Company has established a deferred
tax liability for such appropriations. In addition, CPK incurred certain
unrealized foreign currency translation gains and losses, included in
operations, which must be deferred for tax reporting purposes. The accompanying
combined financial statements reflect the provision or benefit for such gains
and losses and are reflected as deferred income tax assets and liabilities.
Included in contributions to capital is approximately $4.2 million comprised
primarily of income tax liability assumed by the Company's parent through
December 31, 1998.
Note 14: Employee Benefit Plans
Retirement and Deferred Savings Plan--United States
CPI has maintained a retirement and deferred savings plan for its employees
(the "401(k) Plan") through its immediate parent company, HEA. The 401(k) Plan
is intended to qualify as a tax qualified plan under the Internal Revenue Code.
The 401(k) Plan provides that each participant may contribute up to 15% of tax
gross compensation (up to a statutory limit). Under the 401(k) Plan, the
Company is required to make contributions based on contributions made by
employees. The Company's contributions to the 401(k) Plan for the years ended
December 31, 1996, 1997, 1998 and 1999 were approximately $11,000, $49,000,
$119,000 and $175,000 respectively. All amounts contributed by participants and
related earnings are fully vested at all times.
F-27
<PAGE>
ChipPAC, Inc.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Employee Welfare and Social Insurance Plan--China
In accordance with the National and Shanghai Municipal Regulations on labor
administration, HECS is required to provide a certain percentage of total
employee salaries as a welfare and social insurance reserve. The rates of
provision are as follows:
<TABLE>
<S> <C>
Pension.............................................................. 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, 1997, 1998 and 1999 amounted to approximately $449,100, $820,900, and
$1,230,000 respectively. The Company is under a statutory requirement in China
to establish and maintain a general reserve fund and an enterprise expansion
fund by way of appropriations from net income. The board of directors
determines the amount of the appropriations. There were no amounts appropriated
for these funds during the periods presented.
Severance Benefits--Korea
Employees and directors with more than one year of service are entitled to
receive a lump-sum payment upon termination of their employment with CPK, based
on their length of service and rate of pay at the time of termination. Accrued
severance benefits are adjusted annually for all eligible employees based on
their employment as of the balance sheet date.
In accordance with the National Pension Act, a certain portion of severance
benefits is required to be remitted to the National Pension Fund and deducted
from accrued severance benefits. The amounts contributed will be refunded to
employees from the National Pension Fund upon retirement. The expense for
severance benefits for the years ended December 31, 1997, 1998 and 1999
amounted to approximately $3.0 million, $2.9 million and $0.6 million,
respectively.
F-28
<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>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE>
ChipPAC
SUPPLEMENTAL COMBINING CONDENSED STATEMENTS OF CASH FLOWS
Year Ended December 31, 1997
(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.............. $ 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>
The accompanying notes are an integral part of these financial statements.
F-30
<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>
The accompanying notes are an integral part of these financial statements.
F-31
<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>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE>
ChipPAC
SUPPLEMENTAL COMBINING CONDENSED STATEMENTS OF CASH FLOWS
Year Ended December 31, 1998
(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.............. $ 1,211 $ 48,320 $(17,228) $ -- $ 32,303
Adjustments to reconcile
net income
Depreciation and
amortization......... 489 35,584 9,782 -- 45,855
Write down of impaired
assets............... -- -- -- -- --
Provision for
inventory and
receivables.......... 448 (873) -- -- (425)
Foreign currency
(gains) losses....... -- (24,670) -- -- (24,670)
(Gain) loss on
intercompany sales of
equipment............ -- (686) -- 686 --
(Gain) loss on
external sales of
equipment............ -- 26 -- -- 26
Changes in assets and
liabilities............ --
Intercompany accounts
receivable............. (10,845) (39,058) 3,576 46,327 --
Accounts receivable..... (8,367) (4,373) -- -- (12,740)
Inventories............. -- 7,056 2,033 -- 9,089
Prepaid expenses and
other assets........... (475) 11,761 519 54 11,859
Advances (to) from
affiliates............. 443 (730) 4,958 -- 4,671
Intercompany accounts
payable................ 59,196 (3,573) (9,242) (46,381) --
Accounts payable........ 1,777 36,395 1,807 -- 39,979
Accrued expenses and
other liabilities...... 642 (1,615) 1,099 -- 126
Other long-term
liabilities............ -- (7,326) -- -- (7,326)
-------- -------- -------- -------- --------
Net cash provided by
operating
activities......... 44,519 56,238 (2,696) 686 98,747
-------- -------- -------- -------- --------
Cash flows used in
investing activities:
Acquisition of property
and equipment.......... (5,443) (52,514) (13,240) 9,865 (61,332)
Proceeds, intercompany
equipment sales........ -- 10,551 -- (10,551) --
Proceeds, external
equipment sales........ -- 1,635 -- -- 1,635
-------- -------- -------- -------- --------
Net cash used in
investing
activities......... (5,443) (40,328) (13,240) (686) (59,697)
-------- -------- -------- -------- --------
Cash flows provided by
financing activities:
Advances to HEA......... (30,160) -- -- -- (30,160)
Proceeds from short-term
loans.................. -- 50,735 12,656 -- 63,391
Repayment of short-term
loans.................. -- (79,136) 43 -- (79,093)
Proceeds from term
loans.................. -- 185 10,000 -- 10,185
Repayment, term loans
and capital leases..... -- (17,681) (14,114) -- (31,795)
Contributions
(withdrawals) of
capital................ 938 62,014 20,001 -- 82,953
-------- -------- -------- -------- --------
Net cash provided by
financing
activities......... (29,222) 16,117 28,586 -- 15,481
-------- -------- -------- -------- --------
Effect from changes in
exchange rates......... -- 11,174 (5) -- 11,169
-------- -------- -------- -------- --------
Net increase (decrease)
in cash................ 9,854 43,201 12,645 -- 65,700
Cash and equivalents at
beginning of period.... 973 1,091 1,003 -- 3,067
-------- -------- -------- -------- --------
Cash and equivalents at
end of period.......... $ 10,827 $ 44,292 $ 13,648 $ -- $ 68,767
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-33
<PAGE>
ChipPAC, Inc.
SUPPLEMENTAL CONDENSED CONSOLIDATED BALANCE SHEETS
Year Ended December 31, 1999
(In thousands)
<TABLE>
<CAPTION>
Parent
Guarantor Issuer Non-Guarantor
--------- -------- Other -------------
CPI CP Int'l Guarantors HECS Eliminations Consolidated
--------- -------- ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.......... $ 1,006 $ 3,474 $ 22,275 $ 5,362 -- $ 32,117
Intercompany accounts
receivable........... 6,778 4,053 128,078 8,799 $(147,708) --
Accounts receivable
from customers....... (28) -- 41,673 20 -- 41,665
Inventories........... -- -- 17,331 166 -- 17,497
Deferred taxes........ -- -- 775 -- -- 775
Prepaid expenses &
other current
assets............... 230 -- 1,884 272 -- 2,386
-------- -------- -------- ------- --------- ---------
Total current
assets.............. 7,986 7,527 212,016 14,619 147,708) 94,440
-------- -------- -------- ------- --------- ---------
Property, plant and
equipment, net......... 6,293 0 142,680 77,958 0 226,931
Intercompany loans
receivable............. -- 271,000 -- -- (271,000) --
Investment in
subsidiaries........... 82,866 30,532 283,366 -- (396,764) --
Other assets............ 27 13,595 8,436 -- -- 22,058
-------- -------- -------- ------- --------- ---------
Total assets......... $ 97,172 $322,654 $646,498 $92,577 $(815,472) $ 343,429
======== ======== ======== ======= ========= =========
LIABILITIES AND EQUITY
Current liabilities:
Intercompany accounts
payable.............. $ (29) $ -- $116,150 $31,586 $(147,707) --
Accounts payable...... 1,251 40 49,265 1,652 -- $ 52,208
Accrued expenses and
other liabilities.... 4,467 9,044 9,992 3,705 -- 27,208
Deferred taxes........ -- -- -- -- -- --
Short-term debt....... -- -- -- -- -- --
Current portion of
long-term debt....... -- 4,800 -- -- -- 4,800
-------- -------- -------- ------- --------- ---------
Total current
liabilities......... 5,689 13,884 175,407 36,943 (147,707) 84,216
======== ======== ======== ======= ========= =========
Long-term debt, less
current portion...... -- 295,200 -- -- -- 295,200
Intercompany loans
payable.............. -- -- 237,000 34,000 (271,000) --
Other long-term
liabilities.......... 240 -- 3,689 -- -- 3,929
-------- -------- -------- ------- --------- ---------
Total liabilities.... 5,929 309,084 416,096 70,943 (418,707) 383,345
======== ======== ======== ======= ========= =========
Mandatorily redeemable
preferred stock........ 82,970 -- -- -- -- 82,970
Shareholders' and
divisional equity:
Common stock.......... 1,067 -- -- -- -- 1,067
Warrants--common stock
A.................... 1,250 -- -- -- -- 1,250
Additional paid in
capital.............. 85,750 -- -- -- -- 85,750
Receivable from
shareholder.......... (1,128) -- -- -- -- (1,128)
Divisional equity, net
of capital
distributions........ (63,403) 14,191 205,655 85,281 (409,438) (167,714)
Accumulated earnings
(deficit)............ (15,263) (621) 16,043 (64,112) 12,673 (51,280)
Accumulated other
comprehensive income
(loss)............... -- -- 8,704 465 -- 9,169
-------- -------- -------- ------- --------- ---------
Shareholders' and
divisional equity... 8,273 13,570 230,402 21,634 (396,765) (122,886)
-------- -------- -------- ------- --------- ---------
Total liabilities and
equity.............. $ 97,172 $322,654 $646,498 $92,577 $(815,472) $ 343,429
======== ======== ======== ======= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-34
<PAGE>
ChipPAC, Inc.
SUPPLEMENTAL COMBINING CONDENSED STATEMENTS OF OPERATIONS
Year Ended December 31, 1999
(In thousands)
<TABLE>
<CAPTION>
Parent
Guarantor Issuer Non-Guarantor
--------- -------- Other -------------
CPI CP Int'l Guarantors HECS Eliminations Consolidated
--------- -------- ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue
Intercompany revenue.. $ 10,772 $ -- $320,618 $ 16,863 $(348,253) $ --
Customer revenue...... 191,897 -- 183,482 151 -- 375,530
-------- ------- -------- -------- --------- --------
Revenue............. 202,669 -- 504,100 17,014 (348,253) 375,530
Cost of revenue......... 183,633 -- 444,339 26,997 (337,481) 317,488
-------- ------- -------- -------- --------- --------
Gross profit............ 19,036 -- 59,761 (9,983) (10,772) 58,042
Operating expenses:
Selling, general &
administrative....... 15,113 -- 16,878 -- (10,772) 21,219
Research &
development.......... 5,928 -- 6,434 -- -- 12,362
Change of control
expenses............. 180 -- 11,662 -- -- 11,842
-------- ------- -------- -------- --------- --------
Total operating
expenses........... 21,221 -- 34,974 -- (10,772) 45,423
-------- ------- -------- -------- --------- --------
Operating Income........ (2,185) -- 24,787 (9,983) -- 12,619
Non-operating Income
(Expense)
Interest income....... 625 12,491 14,101 441 (24,907) 2,751
Interest expense...... -- (14,481) (28,416) (3,251) 24,907 (21,241)
Foreign currency gains
(losses)............. -- -- 1,253 (29) -- 1,224
Income (loss) from
investment in
subsidiaries......... (4,848) 1,502 (9,327) -- 12,673 --
Other income
(expenses), net...... 61 -- 713 (124) -- 650
-------- ------- -------- -------- --------- --------
Non-operating income
(expenses)......... (4,162) (488) (21,676) (2,963) 12,673 (16,616)
-------- ------- -------- -------- --------- --------
Income (loss) before
income taxes........... (6,347) (488) 3,111 (12,946) 12,673 (3,997)
Provision for (benefit
from) income taxes..... 961 132 845 -- -- 1,938
-------- ------- -------- -------- --------- --------
Income before
extraordinary item..... (7,308) (620) 2,266 (12,946) 12,673 (5,935)
Extraordinary item:
Loss from early
extinguishment of
debt, net of related
income tax benefit... -- -- (1,373) -- -- 1,373
-------- ------- -------- -------- --------- --------
Net Income (loss)... $ (7,308) $ (620) $ 893 $(12,946) $ 12,673 $ (7,308)
======== ======= ======== ======== ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-35
<PAGE>
ChipPAC, Inc.
SUPPLEMENTAL COMBINING CONDENSED STATEMENTS OF CASH FLOWS
Year Ended December 31, 1999
(In thousands)
<TABLE>
<CAPTION>
Parent
Guarantor Issuer Non-Guarantor
--------- --------- Other -------------
CPI CP Int'l Guarantors HECS Eliminations Consolidated
--------- --------- ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net Income............. $ (7,308) $ (620) $ 893 $(12,946) $ 12,673 $ (7,308)
Adjustments to
reconcile net income
(loss) to net cash
provided by operating
activities:
Depreciation and
amortization......... 1,753 774 44,490 10,458 -- 57,475
Provision for
inventory and
receivables.......... (110) -- (950) -- -- (1,060)
Non-operating early
debt extinguishment
loss................. -- -- 1,373 -- -- 1,373
Foreign currency
(gains) losses....... -- -- (1,224) -- -- (1,224)
(Gain) loss on
external sales of
equipment............ -- -- (283) 1 -- (282)
Equity income from
investment in
subsidiaries......... 4,848 (1,502) 9,327 -- (12,673) --
Changes in assets and
liabilities:
Intercompany accounts
receivable........... 4,067 (4,053) (21,244) (6,852) 28,082 --
Accounts receivable... 34,879 -- (34,109) (20) -- 750
Inventories........... -- -- (5,464) 49 -- (5,415)
Prepaid expenses and
other assets......... 247 -- (3,198) 73 -- (2,878)
Advances (to) from
affiliates........... (443) -- (6,981) -- -- (7,424)
Intercompany accounts
payable.............. (83,585) -- 114,203 (2,536) (28,082) --
Accounts payable...... (1,035) 40 (10,465) (155) -- (11,615)
Accrued expenses &
other liabilities.... 4,000 9,045 6,283 693 -- 20,021
Other long-term
liabilities.......... -- -- 3,519 -- -- 3,519
-------- --------- --------- -------- --------- ---------
Net cash provided by
operating
activities......... (42,687) 3,684 96,170 (11,235) -- 45,932
-------- --------- --------- -------- --------- ---------
Cash flows used in
investing activities:
Acquisition of property
and equipment......... (2,239) -- (52,792) (9,926) 7,101 (57,856)
Proceeds, external
equipment sales....... -- -- 6,017 2,431 (7,101) 1,347
Investment in
subsidiaries.......... (90,637) (29,030) (184,970) -- 304,637 --
-------- --------- --------- -------- --------- ---------
Net cash used in
investing
activities......... (92,876) (29,030) (231,745) (7,495) 304,637 (56,509)
-------- --------- --------- -------- --------- ---------
Cash flows provided by
financing activities:
Loans & advances with
affiliates............ -- -- -- (4,430) -- (4,430)
Proceeds from short-
term loans............ -- -- 1,169 -- -- 1,169
Repayment of short-term
loans................. -- -- (3,769) (15,700) -- (19,469)
Net proceeds from long-
term loans............ -- 285,631 -- -- -- 285,631
Repayment, term loans
and capital leases.... -- -- (105,387) (28,228) -- (133,615)
Intercompany loan
(advances) payments... -- (271,000) 237,000 34,000 -- --
Capital redemption at
recap................. -- -- (311,220) -- -- (311,220)
Capital contributions
at recap.............. -- -- 19,816 -- -- 19,816
Intercompany capital
contributions......... -- 14,215 290,422 -- (304,637) --
Payments made to
extinguish debt
early................. -- -- (1,373) -- -- (1,373)
Dividend paid.......... -- -- (9,435) -- -- (9,435)
Net proceeds from
common stock
issuance.............. 74,071 (26) (27) -- -- 74,018
Net proceeds from
mandatorily redeemable
preferred stock....... 50,000 -- -- -- -- 50,000
Net proceeds from sale
of stock to
management............ 1,671 -- -- -- -- 1,671
Contributions
(withdrawals) of
capital............... -- -- (4,052) 24,802 -- 20,750
-------- --------- --------- -------- --------- ---------
Net cash provided by
financing
activities......... 125,742 28,820 113,144 10,444 (304,637) (26,487)
-------- --------- --------- -------- --------- ---------
Effect from changes in
exchange rates........ -- -- 414 -- -- 414
-------- --------- --------- -------- --------- ---------
Net increase (decrease)
in cash............... (9,821) 3,474 (22,017) (8,286) -- (36,650)
Cash and equivalents at
beginning of period... 10,827 -- 44,292 13,648 -- 68,767
-------- --------- --------- -------- --------- ---------
Cash and equivalents at
end of period......... $ 1,006 $ 3,474 $ 22,275 $ 5,362 $ -- $ 32,117
======== ========= ========= ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-36
<PAGE>
ChipPAC, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
December 31, March 31,
1999 2000
------------ ---------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents............................ $ 32,117 $ 19,538
Accounts receivable, less allowance for doubtful
accounts of $1,203 and $1,196....................... 30,003 35,535
Receivable from shareholder.......................... 11,662 --
Inventories.......................................... 17,497 14,941
Deferred taxes....................................... 775 716
Prepaid expenses and other current assets............ 2,386 7,799
--------- ---------
Total current assets............................... 94,440 78,529
Property and equipment, net............................ 226,931 229,430
Other assets........................................... 22,058 20,995
--------- ---------
Total assets....................................... $ 343,429 $ 328,954
========= =========
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND
EQUITY
-------------------------------------------------------
Current liabilities:
Bank borrowings...................................... $ -- $ 7,500
Accounts payable..................................... 52,208 35,723
Accrued expenses and other liabilities............... 27,208 18,727
Current portions of long-term debt................... 4,800 7,300
--------- ---------
Total current liabilities.......................... 84,216 69,250
--------- ---------
Long-term debt, less current portion................... 295,200 292,700
Other long-term liabilities............................ 3,929 4,512
--------- ---------
Total liabilities.................................. 383,345 366,462
--------- ---------
Commitments and contingencies
Mandatorily redeemable preferred stock................. 82,970 85,685
Shareholders' and divisional equity:
Common stock--class A................................ 963 974
Common stock--class B................................ -- --
Common stock--class L................................ 104 104
Warrants--common stock A............................. 1,250 1,250
Additional paid in capital--common stock............. 85,750 86,336
Divisional equity, net of capital redemption......... (167,714) (167,714)
Receivable from shareholders......................... (1,128) (1,478)
Accumulated deficit.................................. (51,280) (51,834)
Accumulated other comprehensive income............... 9,169 9,169
--------- ---------
Total shareholders' and divisional equity.......... (122,886) (123,193)
--------- ---------
Total liabilities, mandatorily redeemable preferred
stock and equity.................................. $ 343,429 $ 328,954
========= =========
</TABLE>
The accompanying notes form an integral part of these condensed consolidated
financial statements.
F-37
<PAGE>
ChipPAC, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
----------------
1999 2000
------- -------
<S> <C> <C>
Revenue..................................................... $85,548 $97,469
Cost of revenue............................................. 72,131 77,044
------- -------
Gross profit................................................ 13,417 20,425
Operating expenses:
Selling, general and administrative....................... 4,511 7,099
Research and development.................................. 3,003 2,631
------- -------
Total operating expenses................................ 7,514 9,730
------- -------
Operating income............................................ 5,903 10,695
Non-operating income (expenses):
Interest income........................................... 950 238
Interest expense.......................................... (3,007) (8,764)
Foreign currency gains (losses)........................... 946 399
Other income (expenses), net.............................. 127 134
------- -------
Non-operating income (expenses)......................... (984) (7,993)
------- -------
Income before income taxes.................................. 4,919 2,702
Provision for income taxes.................................. 3,115 542
------- -------
Net income.................................................. $ 1,804 $ 2,160
======= =======
Accretion of dividends on mandatorily redeemable preferred
stock...................................................... -- (2,549)
Accretion of recorded value of the Intel warrant............ -- (156)
------- -------
Net income (loss) available to common shareholders...... $ 1,804 $ (545)
======= =======
Comprehensive income:
Net income (loss)......................................... 1,804 2,160
Currency translation loss................................. (3,526) --
------- -------
Comprehensive income (loss)............................. $(1,722) $ 2,160
======= =======
</TABLE>
The accompanying notes form an integral part of these condensed consolidated
financial statements.
F-38
<PAGE>
ChipPAC, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1999 2000
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)....................................... $ 1,804 $ 2,160
Adjustments to reconcile net income (loss) to net cash
provided by (use in) operating activities:
Depreciation and amortization......................... 13,465 8,891
Provision for inventory and accounts receivable....... (517) (151)
Non-operating early debt extinguishments loss......... -- --
Foreign currency (gains) losses....................... (946) (399)
(Gain) loss on sale of equipment...................... (98) (132)
Change in assets and liabilities:
Accounts receivable................................. 12,451 6,461
Inventories......................................... (3,283) 2,347
Prepaid expenses and other assets................... 1,204 (4,338)
Advances (to) from affiliates....................... (4,224) --
Accounts payable.................................... (23,095) (16,989)
Accrued expenses and other current liabilities...... 2,617 (8,310)
Other long-term liabilities......................... 1,486 1,020
--------- ---------
Net cash provided by (used in) operating
activities....................................... 864 (9,440)
--------- ---------
Cash flows used in investing activities:
Acquisition of property and equipment................... (4,343) (11,042)
Proceeds from sale of equipment......................... 119 154
--------- ---------
Net cash used in investing activities............. (4,224) (10,888)
--------- ---------
Cash flows provided by financing activities:
Advances (to) from affiliates........................... 186 (350)
Proceeds from short-term loans.......................... 693 13,500
Repayment of short-term loans........................... (4,653) (6,000)
Repayments of long-term debt and capital leases ........ (5,043) --
Dividend paid........................................... (9,435) --
Proceeds from stock issuance............................ -- 599
Contributions to (withdrawals from) paid in capital..... 20,989 --
--------- ---------
Net cash provided by (used in) financing
activities....................................... 2,737 7,749
--------- ---------
Effect on cash from changes in exchange rates........... (1,379) --
Net increases (decrease) in cash........................ (2,002) (12,579)
Cash and cash equivalents at beginning of period........ 68,767 32,117
--------- ---------
Cash and cash equivalents at end of period.............. $ 66,865 $ 19,538
========= =========
</TABLE>
The accompanying notes form an integral part of these condensed consolidated
financial statements.
F-39
<PAGE>
ChipPAC, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Quarter Ended April 2, 2000
(Unaudited)
Note 1: Interim Statements
In the opinion of management of ChipPAC, Inc. ("ChipPAC"), the accompanying
unaudited condensed consolidated financial statements contain all adjustments
(consisting solely of normal recurring adjustments) necessary to present fairly
the financial information included therein. ChipPAC believes that the
disclosures are adequate to make the information not misleading. However, it is
suggested that this financial data be read in conjunction with the audited
consolidated financial statements and related notes thereto for the year ended
December 31, 1999 included in ChipPAC's 1999 Registration on Form S-4
(Registration No. 333-91641) as declared effective by the Securities and
Exchange Commission on April 28, 2000.
The results of operations for interim periods are not necessarily indicative
of the results of operations that may be expected for any other period or the
fiscal year which ends on December 31, 2000.
Basis of Presentation
Prior to August 5, 1999 the Company represented the combination of three
business units of Hyundai Electronics Industries Co., Ltd. ("HEI") which
operated collectively as HEI's worldwide packaging and testing operations.
These three business units historically consisted of the Assembly and Test
Division of HEI, Hyundai ELectronics Co. (Shanghai) Ltd. ("HECS"), and the
Assembly and Test Division of Hyundai Electronics America ("HEA"), a majority
owned subsidiary of HEI. Sales and marketing services were primarily performed
by the Assembly and Test Division of HEA, and packaging and testing services
were performed by HECS and the Assembly and Test Division of HEI.
On August 5, 1999, affiliates of Bain Capital, Inc. and SXI Group LLC, a
portfolio concern of Citicorp Venture Capital Ltd., which we refer to
collectively as the "Equity Investors," and management acquired a controlling
interest in the Company from Hyundai Electronics and Hyundai Electronics
America, the prior stockholders, through a series of transactions, including a
merger into ChipPAC, Inc. of a special purpose corporation organized by the
Equity Investors. The merger was structured to be accounted for as a
recapitalization. Specifically:
. the Equity Investors and other parties, including members of our
management, invested $92.0 million to acquire common stock of ChipPAC,
Inc. which represented approximately 90.2% of its common stock
outstanding immediately following the recapitalization;
. the prior stockholders of ChipPAC, Inc. retained a portion of their
common stock in ChipPAC, Inc. equal to $10.0 million, or approximately
9.8% of ChipPAC, Inc.'s common stock outstanding immediately following
the recapitalization; and
. the prior stockholders received as consideration for the remainder of
their common stock (i) an aggregate of $384.0 million in cash and (ii)
mandatorily redeemable convertible preferred stock payable for up to an
aggregate of $70.0 million. Net payment to Hyundai of $384 million,
included capital redemption of $311 million and debt retirement of $133
million, offset by Hyundai investment of $40 million in mandatorily
redeemable preferred stock, and a capital contribution of $20 million.
The financial statements for the period subsequent to the recapitalization
and as at December 31, 1999 and March 31, 2000 have been prepared on a
consolidated basis. The consolidated financial statements include the accounts
of ChipPAC, Inc. and its majority controlled and owned subsidiaries. All
significant intercompany balances have been eliminated on consolidation.
F-40
<PAGE>
ChipPAC, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For the comparative disclosures for the three months ended March 31, 1999,
the Company represents the combination of four corporations then owned by
Hyundai Electronics Industries Co., Ltd (HEI) and Hyundai Electronics America
(HEA). These four corporations are ChipPAC, Inc. (CPI), ChipPAC Korea Co., Ltd
(CPK), ChipPAC Assembly and Test Co. Ltd. (CATS) and Hyundai Electronics Co.
(Shanghai) Ltd., (HECS). Accordingly the financial statements for the
comparative period is prepared on a combined basis. These comparative financial
statements are prepared on a combined basis include the accounts of CPI, CPK,
HECS and CATS, or the divisional accounts of the predecessor Assembly and Test
Divisions for periods prior to the business transfers referred to above, and
reflect the combined financial position, results of operations, and cash flows
of these entities. All inter-company or inter-divisional transactions have been
eliminated in the combination.
Foreign Currency Translation
Upon completion of the recapitalization on August 5, 1999, management
decided to change the functional currency of its foreign operations to the US
Dollar effective October 1999. Previously, the Company's functional currencies
of its foreign operations were the respective local currencies and the net of
the effect of the translation of the accounts of the foreign operation was
included in equity as a cumulative translation adjustment.
Note 2: Property, Plant and Equipment
Effective January 1, 2000 we re-evaluated the estimated useful lives of our
property, plant and equipment. Based on an independent appraisal to evaluate
the useful lives of such equipment and our internal assessment, we changed the
estimated useful lives of assembly and test product equipment, and furniture
and fixtures from five years to eight years. Previously, such equipment was
depreciated on a straight line basis over and an estimated useful life of five
years.
The net book values of assembly and test product equipment and furniture and
fixtures already in use are now being depreciated over the remaining useful
life, based on eight years from the date such assets were originally placed in
service. This change resulted in depreciation expense being $6.7 million lower
than would have been recorded using five year lives.
Note 3: Inventories
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------- ------------
(In thousands)
<S> <C> <C>
Raw materials......................................... $10,422 $12,274
Work-in-process....................................... 3,068 3,003
Finished goods........................................ 1,451 2,220
------- -------
Total............................................... $14,941 $17,497
======= =======
</TABLE>
Note 4: Comprehensive Income
In fiscal 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income".
Comprehensive income refers to the change in the equity of a company during a
period from transactions except those resulting from investments by owners and
distributions to owners. ChipPAC adopted this statement as of the first quarter
of 1998. Accumulated other comprehensive income at December 31, 1999 and March
31, 2000 comprised cumulative gains and losses prior to the change of
functional currency to the U.S. dollar for the overseas operations on October
1, 1999.
F-41
<PAGE>
ChipPAC, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 5: Segment Reporting
The Company is engaged in one industry segment, the packaging and testing of
integrated circuits.
Note 6: Recent Accounting Pronouncements
In December 1999, the staff of the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101 ("SAB 101") "Views on Selected Revenue
Recognition Issues" which provides the staff's views in applying generally
accepted accounting principles to selected revenue recognition issues. Adoption
of SAB 101 is required by the second quarter of fiscal 2000. Management is
currently evaluating SAB 101 and its effects on company revenue recognition
policies and practices. At this time, management believes that there is no
significant effect on the revenue recognition policies currently in place.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 establishes a new model for
accounting for derivatives and hedging activities and supercedes and amends a
number of existing accounting standards. SFAS 133 requires that all derivatives
be recognized in the balance sheet at their fair market value. In addition,
corresponding derivative gains and losses should be either reported in the
statement of operations and stockholders equity, depending on the type of
hedging relationship that exists with respect to such derivatives. Adopting the
provisions of SFAS 133, which will be effective in fiscal year 2001, are not
expected to have a material effect on ChipPAC's consolidated financial
statements.
In April 2000, the Financial Accounting Standards Board issued FASB
interpretation of No. 44, Accounting for Certain Transactions Involving Stock
Compensation, an interpretation of APB Opinion No. 25 ("FIN44"). Among other
issues, FIN 44 clarifies (a) the definition of employees for purposes of
applying Opinion No. 25, (b) the criteria for determining whether a plan
qualifies as a non-compensatory plan, (c) the accounting consequence of various
modifications to the terms of a previously fixed stock option or award, and (d)
the accounting for an exchange of stock compensation awards in a business
combination. FIN 44 is effective July 1, 2000, but certain conclusions in the
interpretation cover specific events that occur after either December 15, 1998
or January 12, 2000. To the extent that this interpretation covers events
occurring during the period after December 15, 1998, or January 12, 2000, but
before the effective date of July 1, 2000, the effect of applying this
interpretation are recognized on a prospective basis from July 1, 2000. The
Company is currently reviewing stock grants to determine the impact, if any,
that may arise from implementation of FIN 44, although management does not
expect the impact, if any, to be material to the financial statements.
Note 7: Supplemental Financial Statements of Guarantor/Non-Guarantor Entities
In connection with the recapitalization, ChipPAC International Company
Limited (CP Int'l) issued senior subordinated debt securities which are fully
and unconditionally guaranteed, jointly and severally, on a senior subordinated
basis, by the parent company, ChipPAC, Inc. (CPI) and by ChipPAC (Barbados)
Ltd., ChipPAC Limited, ChipPAC Korea Company Limited (CPK), ChipPAC Luxembourg
S.a.R.L., and ChipPAC Liquidity Management Hungary Limited Liability Company
(the "Guarantor Subsidiaries"). All guarantor subsidiaries are wholly-owned
direct or indirect subsidiaries of ChipPAC, Inc. Hyundai Electronics Co.
(Shanghai) Ltd. (HECS) and ChipPAC Assembly & Test Co. Ltd. (CATS)
(collectively the Chinese entities), will not provide guarantees (the "Non-
Guarantor Subsidiaries"). The following is consolidated and combining financial
information for CP Int'l CPI, and CPK, HECS, CATS, ChipPAC (Barbados) Ltd.,
ChipPAC Limited, ChipPAC Luxembourg S.a.R.L., and ChipPAC Liquidity Management
Hungary Limited Liability Company, segregated between the Guarantor and Non-
Guarantor Subsidiaries. ChipPAC (Barbados) Ltd., ChipPAC Limited, ChipPAC
Luxembourg S.a.R.L. and ChipPAC Liquidity Management Hungary Limited Liability
Company
F-42
<PAGE>
ChipPAC, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
were formed by Hyundai in 1999 and have no historical operating results or
balances for the four years ended December 31, 1998. As a result, it is not
possible to include these entities in the supplemental financial statements for
these periods. Separate financial statements and other disclosures concerning
the Guarantor Subsidiaries are not presented herein because management has
determined that they are not material to investors. Financial information for
ChipPAC (Barbados) Ltd., ChipPAC Limited, ChipPAC Luxembourg S.a.R.L. and
ChipPAC Liquidity Management has not been presented as these entities have no
historical financial results and future transactions will primarily consist of
inter-company transactions. The following HECS financial statements in the
condensed combining financial statements include the accounts of CATS.
F-43
<PAGE>
ChipPAC
SUPPLEMENTAL COMBINING CONDENSED BALANCE SHEETS
March 31, 1999
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Non-
Guarantors Guarantor
------------------ ---------
CPI CPK HECS Eliminations Combined
-------- -------- --------- ------------ --------
<S> <C> <C> <C> <C> <C>
ASSETS
------
Current assets:
Cash and cash
equivalents............. $ 11,824 $ 37,588 $ 17,353 $ -- $ 66,765
Receivable from
shareholder............. -- 4,114 -- -- 4,114
Intercompany accounts
receivable.............. 11,162 95,434 1,947 (108,543) --
Accounts receivable from
customers............... 24,563 1,566 1 -- 26,130
Inventories.............. 20 13,293 174 -- 13,487
Deferred taxes........... 420 527 -- -- 947
Prepaid expenses & other
current assets.......... 108 2,628 527 -- 3,263
-------- -------- -------- --------- --------
Total current assets... 48,097 155,150 20,002 (108,543) 114,706
Property, plant and
equipment, net............ 6,180 131,051 79,358 -- 216,589
Other assets............... 4,813 3,107 -- (4,800) 3,120
-------- -------- -------- --------- --------
Total assets........... $ 59,090 $289,308 $ 99,360 $(113,343) $334,415
======== ======== ======== ========= ========
LIABILITIES AND EQUITY
----------------------
Current liabilities:
Intercompany accounts
payable................. $ 80,010 $ 1,947 $ 26,586 $(108,543) $ --
Accounts payable......... 2,201 36,165 503 -- 38,869
Accrued expenses and
other liabilities....... 906 5,935 3,177 -- 10,018
Short-term debt.......... -- 2,117 12,700 -- 14,817
Long-term debt, current
portion................. -- 21,164 10,781 -- 31,945
HEI long-term debt....... -- 3,053 -- -- 3,053
Payables to affiliates... 443 -- 7,247 -- 7,690
-------- -------- -------- --------- --------
Total current
liabilities........... 83,560 70,381 60,994 (108,543) 106,392
Long-term debt, less
current portion........... -- 60,900 15,390 -- 76,290
HEI long-term debt, less
current portion........... -- 17,384 -- -- 17,384
Other long-term
liabilities............... -- 1,705 -- -- 1,705
-------- -------- -------- --------- --------
Total liabilities...... 83,560 150,370 76,384 (108,543) 201,771
-------- -------- -------- --------- --------
Shareholders' and
divisional equity
Preferred stock and paid
in capital.............. 16,674 111,110 78,096 (4,800) 201,080
Shareholder receivable-
HEA..................... (37,440) -- -- -- (37,440)
Accumulated earnings
(deficit)............... (3,704) 21,341 (55,585) -- (37,948)
Accumulated other
comprehensive income
(loss).................. -- 6,487 465 -- 6,952
-------- -------- -------- --------- --------
Shareholders' and
divisional equity
(deficit)............. (24,470) 138,938 22,976 (4,800) 132,644
-------- -------- -------- --------- --------
Total liabilities and
equity................ $ 59,090 $289,308 $ 99,360 $(113,343) $334,415
======== ======== ======== ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-44
<PAGE>
ChipPAC
SUPPLEMENTAL COMBINING CONDENSED STATEMENTS OF OPERATIONS
Three Months Ended March 31, 1999
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Guarantors Non-Guarantor
---------------- -------------
CPI CPK HECS Eliminations Combined
------- ------- ------------- ------------ --------
<S> <C> <C> <C> <C> <C>
Revenue:
Intercompany revenue... $ -- $77,416 $ 1,723 $(79,139) $ --
Customer revenue....... 81,828 3,720 -- -- 85,548
------- ------- ------- -------- -------
Revenue.............. 81,828 81,136 1,723 (79,139) 85,548
Cost of revenue.......... 77,613 68,203 5,454 (79,139) 72,131
------- ------- ------- -------- -------
Gross profit............. 4,215 12,933 (3,731) -- 13,417
Operating expenses:
Selling, general &
administrative........ 2,838 1,673 -- -- 4,511
Research &
development........... 1,475 1,528 -- -- 3,003
------- ------- ------- -------- -------
Total operating
expenses............ 4,313 3,201 -- -- 7,514
------- ------- ------- -------- -------
Operating income......... (98) 9,732 (3,731) -- 5,903
Non-operating income
(expense)
Interest income........ 127 693 130 -- 950
Interest expense....... -- (2,196) (811) -- (3,007)
Foreign currency gains
(losses).............. -- 965 (19) -- 946
Other income
(expenses), net....... 2 114 11 -- 127
------- ------- ------- -------- -------
Non-operating income
(expenses).......... 129 (424) (689) -- (984)
------- ------- ------- -------- -------
Income (loss) before
income taxes............ 31 9,308 (4,420) -- 4,919
Provision for income
taxes................... -- 3,115 -- -- 3,115
------- ------- ------- -------- -------
Net income (loss)...... $ 31 $ 6,193 $(4,420) $ -- $ 1,804
======= ======= ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-45
<PAGE>
ChipPAC
SUPPLEMENTAL COMBINING CONDENSED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 1999
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Non-
Guarantors Guarantor
----------------- ---------
CPI CPK HECS Eliminations Combined
------- -------- --------- ------------ --------
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)........ $ 31 $ 6,193 $ (4,420) $ -- $ 1,804
Adjustments to reconcile
net income (loss) to
net cash provided by
operating activities:
Depreciation and
amortization.......... 273 10,808 2,384 -- 13,465
Provision for inventory
and receivables....... (33) (484) -- -- (517)
Foreign currency
gains................. -- (946) -- -- (946)
(Gain) loss on
intercompany sales of
equipment............. -- -- -- -- --
Gain on external sales
of equipment.......... -- (98) -- -- (98)
Changes in assets and
liabilities:
Intercompany accounts
receivable............ (317) 11,399 -- (11,082) --
Accounts receivable.... 10,211 2,240 -- -- 12,451
Inventories............ (20) (3,304) 41 -- (3,283)
Prepaid expenses and
other assets.......... (4,840) 1,426 (182) 4,800 1,204
Advances (to) from
affiliates............ -- (4,224) -- -- (4,224)
Intercompany accounts
payable............... (3,546) (1) (7,535) 11,082 --
Accounts payable....... (83) (21,768) (1,244) -- (23,095)
Accrued expenses &
other liabilities..... (220) 2,672 165 -- 2,617
Other long-term
liabilities........... -- 1,486 -- -- 1,486
------- -------- -------- -------- --------
Net cash provided by
(used in) operating
activities.......... 1,456 5,399 (10,791) 4,800 864
------- -------- -------- -------- --------
Cash flows used in
investing activities:
Acquisition of property
and equipment........... (646) (2,868) (829) -- (4,343)
Proceeds, intercompany
equipment sales......... -- (37) 37 -- --
Proceeds, external
equipment sales......... -- 119 -- -- 119
------- -------- -------- -------- --------
Net cash used in
investing
activities.......... (646) (2,786) (792) -- (4,224)
------- -------- -------- -------- --------
Cash flows from financing
activities:
Advances to HEA.......... 187 4,429 (4,430) -- 186
Proceeds from short-term
loans................... -- 693 -- -- 693
Repayment of short-term
loans................... -- (1,653) (3,000) -- (4,653)
Proceeds from term
loans................... -- -- -- -- --
Repayment, term loans
and capital leases...... -- (2,987) (2,056) -- (5,043)
Dividend paid............ -- (9,435) -- -- (9,435)
Contributions
(withdrawals) of
capital................. -- 987 24,802 (4,800) 20,989
------- -------- -------- -------- --------
Net cash provided by
(used in) financing
activities.......... 187 (7,966) 15,316 (4,800) 2,737
------- -------- -------- -------- --------
Effect from changes in
exchange rates........... -- (1,351) (28) -- (1,379)
------- -------- -------- -------- --------
Net increase (decrease) in
cash..................... 997 (6,704) 3,705 -- (2,002)
Cash and equivalents at
beginning of period...... 10,827 44,292 13,648 -- 68,767
------- -------- -------- -------- --------
Cash and equivalents at
end of period............ $11,824 $ 37,588 $ 17,353 $ -- $ 66,765
======= ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-46
<PAGE>
ChipPAC, Inc.
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEETS
March 31, 2000
(In thousands)
<TABLE>
<CAPTION>
Parent Non-
Guarantor Issuer Guarantor
--------- -------- Other ---------
CPI CP Int'l Guarantors CPS Eliminations Consolidated
--------- -------- ---------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
------
Current assets:
Cash and cash
equivalents.......... $ 2,530 $ 1,423 $ 11,905 $ 3,680 $ -- $ 19,538
Intercompany accounts
receivable........... 8,058 7,109 33,782 8,136 (57,085) --
Accounts receivable
from customers....... 355 -- 35,157 23 -- 35,535
Inventories........... -- -- 12,615 2,326 -- 14,941
Deferred taxes........ -- -- 716 -- -- 716
Prepaid expenses &
other current
assets............... 122 -- 7,493 184 -- 7,799
-------- -------- -------- ------- --------- --------
Total current
assets.............. 11,065 8,532 101,668 14,349 (57,085) 78,529
Property, plant and
equipment, net........ 6,904 -- 143,868 78,658 -- 229,430
Intercompany loans
receivable............ -- 271,000 -- (34,000) (237,000) --
Investment in
subsidiaries.......... 79,216 31,424 185,790 -- (296,430) --
Other assets........... 135 13,663 107,197 -- (100,000) 20,995
-------- -------- -------- ------- --------- --------
Total assets......... $ 97,320 $324,619 $538,523 $59,007 $(690,515) $328,954
======== ======== ======== ======= ========= ========
LIABILITIES, MANDATORILY
REDEEMABLE PREFERRED
STOCK AND EQUITY
------------------------
Current liabilities:
Short term bank
borrowings............ $ -- $ 7,500 $ -- $ -- $ -- $ 7,500
Intercompany accounts
payable.............. 4,201 -- 26,374 26,501 (57,076) --
Accounts payable...... 866 40 31,387 3,430 -- 35,723
Accrued expenses and
other liabilities.... 3,909 3,348 8,877 4,521 (1,928) 18,727
Deferred taxes........ -- -- -- -- -- --
Short-term debt....... -- -- -- -- -- --
Current portion of
long-term debt....... -- 7,300 -- -- -- 7,300
-------- -------- -------- ------- --------- --------
Total current
liabilities......... 8,976 18,188 66,638 34,452 (59,004) 69,250
Long-term debt, less
current portion...... -- 292,700 -- -- -- 292,700
Intercompany loans
payable.............. -- -- 237,000 -- (237,000) --
Other long-term
liabilities.......... 240 -- 4,272 -- -- 4,512
-------- -------- -------- ------- --------- --------
Total liabilities.... 9,216 311,888 307,910 34,452 (296,004) 366,462
Mandatorily redeemable
preferred stock........ 85,685 -- -- -- -- 85,685
Shareholders' and
divisional equity:
Common stock.......... 1,078 -- -- -- -- 1,078
Common stock of
subsidiaries......... 210,790 14,544 171,315 -- (396,649) --
Warrants-common stock
A.................... 1,250 -- -- -- -- 1,250
Additional paid in
capital.............. 86,336 -- -- -- -- 86,336
Receivable from
shareholder.......... (1,478) -- -- -- -- (1,478)
Divisional equity, net
of capital
distributions........ (277,818) -- 29,623 88,282 (7,801) (167,714)
Accumulated earnings
(deficit)............ (17,739) (813) 20,972 (64,193) 9,939 (51,834)
Accumulated other
comprehensive income
(loss)............... -- -- 8,703 466 -- 9,169
-------- -------- -------- ------- --------- --------
Shareholders' and
divisional equity
(deficit)............ 2,419 13,731 230,613 24,555 (394,511) (123,193)
-------- -------- -------- ------- --------- --------
Total liabilities and
equity.............. $ 97,320 $324,619 $538,523 $59,007 $(690,515) $328,954
======== ======== ======== ======= ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-47
<PAGE>
ChipPAC, Inc.
SUPPLEMENTAL COMBINING CONDENSED STATEMENTS OF OPERATIONS
Quarter Ended March 31, 2000
(In thousands)
<TABLE>
<CAPTION>
Parent Non-
Guarantor Issuer Guarantor
--------- -------- Other ---------
CPI CP Int'l Guarantors CPS Eliminations Consolidated
--------- -------- ---------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Intercompany revenue.. $ 7,263 -- $ 1 $8,306 $(15,570) --
Customer revenue...... 376 -- 97,090 3 -- $97,469
-------- ------- -------- ------ -------- -------
Revenue............... 7,639 -- 97,091 8,309 (15,570) 97,469
Cost of revenue......... 123 -- 77,663 7,565 (8,307) 77,044
-------- ------- -------- ------ -------- -------
Gross profit............ 7,516 -- 19,428 744 (7,263) 20,425
Operating expenses:
Selling, general &
administrative....... 5,390 $ 8 8,964 -- (7,263) 7,099
Research &
development.......... 1,242 -- 1,389 -- -- 2,631
-------- ------- -------- ------ -------- -------
Total operating
expenses............. 6,632 8 10,353 -- (7,263) 9,730
-------- ------- -------- ------ -------- -------
Operating income........ 884 (8) 9,075 744 -- 10,695
Non-operating Income
(Expense):
Interest income....... (10,373) 7,762 8,079 20 (5,250) 238
Interest expense...... 10,383 (8,757) (14,780) (860) 5,250 (8,764)
Foreign currency gains
(losses)............. -- -- 406 (7) -- 399
Income (loss) from
investment in
subsidiaries......... (461) 892 4,224 -- (4,655) --
Other income
(expenses), net...... (2) -- 114 22 -- 134
-------- ------- -------- ------ -------- -------
Non-operating income
(expenses)........... (453) (103) (1,957) (825) (4,655) (7,993)
-------- ------- -------- ------ -------- -------
Income (loss) before
income taxes........... 431 (111) 7,118 (81) (4,655) 2,702
Provision for (benefit
from) income taxes..... (194) 81 2,190 -- (1,923) 542
-------- ------- -------- ------ -------- -------
Net Income (loss)....... $ 237 $ (192) $ 4,928 $ (81) $ (2,732) $ 2,160
======== ======= ======== ====== ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-48
<PAGE>
ChipPAC, Inc.
SUPPLEMENTAL COMBINING CONDENSED STATEMENTS OF CASH FLOWS
Quarter Ended March 31, 2000
(In thousands)
<TABLE>
<CAPTION>
Parent Non-
Guarantor Issuer Guarantor
--------- -------- Other ---------
CPI CP Int'l Guarantors CPS Eliminations Consolidated
--------- -------- ---------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net Income............. $ 237 $ (192) $ 4,928 $ (81) $(2,732) $ 2,160
Adjustments to
reconcile net income
(loss) to net cash
provided by operating
activities
Depreciation and
amortization......... 450 376 6,374 1,691 -- 8,891
Provision for
inventory and
receivables.......... -- -- (151) -- -- (151)
Foreign currency
(gains) losses....... -- -- (399) -- -- (399)
(Gain) loss on
external sales of
equipment............ -- -- (132) -- -- (132)
Equity income from
investment in
subsidiaries......... 461 (892) (4,224) -- 4,655 --
Changes in assets and
liabilities:.......... -- -- -- -- -- --
Intercompany accounts
receivable........... 2,091 (3,056) 7,863 663 (7,561) --
Accounts receivable... (7) -- 6,470 (2) -- 6,461
Inventories........... -- -- 4,507 (2,160) -- 2,347
Prepaid expenses and
other assets......... (376) 58 (4,108) 88 -- (4,338)
Advances (to) from
affiliates........... -- -- -- -- -- --
Intercompany accounts
payable.............. 858 -- (3,331) (5,088) 7,561 --
Accounts payable...... (382) -- (18,388) 1,781 -- (16,989)
Accrued expenses &
other liabilities.... (559) (5,697) (952) 821 (1,923) (8,310)
Other long-term
liabilities.......... -- -- 1,020 -- -- 1,020
------- ------- ------- ------ ------- -------
Net cash provided by
operating
activities........... 2,773 (9,403) (523) (2,287) -- (9,440)
------- ------- ------- ------ ------- -------
Cash flows used in
investing activities:
Acquisition of
property and
equipment............ (1,061) -- (7,383) (2,598) -- (11,042)
Proceeds, external
equipment sales...... -- -- (48) 202 -- 154
Investment in
subsidiaries......... (438) -- (3,000) -- 3,438 --
------- ------- ------- ------ ------- -------
Net cash used in
investing
activities........... (1,499) -- (10,431) (2,396) 3,438 (10,888)
------- ------- ------- ------ ------- -------
Cash flows provided by
financing activities:
Loans & advances with
affiliates........... (350) -- -- -- -- (350)
Proceeds from short-
term loans........... -- 13,500 -- -- -- 13,500
Repayment of short-
term loans........... -- (6,000) -- -- -- (6,000)
Net proceeds from
long-term loans...... -- (502) 502 -- -- --
Repayment, term loans
and capital leases... -- -- -- -- -- --
Intercompany loan
(advances) payments.. -- -- -- -- -- --
Capital redemption at
recap................ -- -- -- -- -- --
Capital contributions
at recap............. -- -- -- -- -- --
Intercompany capital
contributions........ -- 354 84 -- (438) --
Payments made to
extinguish debt
early................ -- -- -- -- -- --
Dividend paid......... -- -- -- -- -- --
Net proceeds from
common stock
issuance............. 599 -- -- -- (599) --
Net proceeds from
mandatorily
redeemable preferred
stock................ -- -- -- -- -- --
Net proceeds from sale
of stock to
management........... -- -- -- -- 599 599
Contributions
(withdrawals) of
capital.............. -- -- -- 3,000 (3,000) --
------- ------- ------- ------ ------- -------
Net cash provided by
financing
activities........... 249 7,352 586 3,000 (3,438) 7,749
------- ------- ------- ------ ------- -------
Net increase (decrease)
in cash................ 1,523 (2,051) (10,368) (1,683) -- (12,579)
Cash and equivalents at
beginning of period.... 1,007 3,474 22,273 5,363 -- 32,117
------- ------- ------- ------ ------- -------
Cash and equivalents at
end of period.......... $ 2,530 $ 1,423 $11,905 $3,680 $ -- $19,538
======= ======= ======= ====== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-49
<PAGE>
Independent Certified Public Accountants' Report
Board of Directors
Intersil Holding Corporation
We have audited the accompanying balance sheets of Intersil Technology Sdn.
Bhd. (the "Company"), which is wholly-owned by Intersil Holding Corporation
("Intersil"), as of July 2, 1999 and July 3, 1998 and the related statements of
income and cash flows for each of the three fiscal years in the period ended
July 2, 1999. These financial statements are the responsibility of Intersil's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
The accompanying consolidated financial statements were prepared on the
basis of presentation as described in Note A. The results of operations are not
necessarily indicative of the results of operations that would be recorded by
the Company on a stand-alone basis.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company at July 2, 1999
and July 3, 1998 and the results of its operations and its cash flows for each
of the three fiscal years in the period ended July 2, 1999, on the basis
described in Note A, in conformity with accounting principles generally
accepted in the United States.
/s/ Ernst & Young LLP
May 16, 2000
Jacksonville, Florida
F-50
<PAGE>
Intersil Technology Sdn. Bhd.
BALANCE SHEET
(In thousands)
<TABLE>
<CAPTION>
July 3, July 2,
1998 1999
-------- --------
<S> <C> <C>
ASSETS
------
Current assets:
Cash....................................................... $ 131 $ 802
Short-term investments..................................... 651 2,952
Inventories................................................ 5,886 6,528
Prepaid expenses and other current assets.................. 656 847
Due from parent............................................ 125,139 45,502
Deferred income taxes...................................... 674 --
-------- --------
Total current assets..................................... 133,137 56,631
Plant and equipment, net..................................... 116,795 118,619
Deferred income taxes........................................ 732 275
-------- --------
Total assets............................................. $250,664 $175,525
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
Current liabilities:
Trade accounts payable..................................... $ 7,691 $ 7,310
Accrued compensation....................................... 1,803 2,060
Other accrued items........................................ 3,611 765
Deferred income taxes...................................... -- 51
-------- --------
Total current liabilities................................ 13,105 10,186
Stockholder's Equity:
Common stock............................................... 81,092 81,092
Additional paid-in capital................................. 5,923 5,923
Retained earnings.......................................... 150,544 78,324
-------- --------
237,559 165,339
-------- --------
Total liabilities and stockholder's equity............... $250,664 $175,525
======== ========
</TABLE>
See notes to financial statements.
F-51
<PAGE>
Intersil Technology Sdn. Bhd.
STATEMENT OF INCOME
(In thousands)
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------
June
27, July 3, July 2,
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Revenue:
Intercompany sales................................ $83,674 $80,376 $110,504
Costs and expenses:
Cost of intercompany sales........................ 69,073 70,110 94,426
Interest income................................... (160) (139) (134)
Other............................................. 95 57 69
------- ------- --------
Income before income taxes.......................... 14,666 10,348 16,143
Pro forma income tax expense/(benefit).............. 3,060 (5,911) 1,182
------- ------- --------
Net income.......................................... $11,606 $16,259 $ 14,961
======= ======= ========
</TABLE>
See notes to financial statements.
F-52
<PAGE>
Intersil Technology Sdn. Bhd.
STATEMENT OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
June 27, July 3, July 2,
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Operating Activities:
Net income...................................... $ 11,606 $ 16,259 $ 14,961
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................. 12,308 14,823 18,289
Deferred income taxes......................... 2,300 (5,950) 1,182
Changes in assets and liabilities
Inventories................................. 6,757 353 (642)
Prepaid expenses and other current assets... 18 102 (191)
Due from parent............................. 16,077 16,758 79,636
Due from affiliates......................... 3,672 -- --
Trade payables and accrued liabilities...... 3,391 1,392 (2,969)
-------- -------- --------
Net cash provided by operating
activities............................... 56,129 43,737 110,266
Investing Activities:
Purchases of short-term investments, net........ (27) (624) (2,301)
Purchases of plant and equipment................ (37,016) (38,798) (20,113)
-------- -------- --------
Net cash used in investing activities..... (37,043) (39,422) (22,414)
Financing Activities:
Dividends paid to parent........................ (17,036) -- (91,877)
Net cash transfers and billings from (to)
parent......................................... (1,583) (6,146) 4,696
-------- -------- --------
Net cash used in financing activities..... (18,619) (6,146) (87,181)
Net increase (decrease) in cash................. 467 (1,831) 671
Cash at beginning of period..................... 1,495 1,962 131
-------- -------- --------
Cash at end of period........................... $ 1,962 $ 131 $ 802
======== ======== ========
</TABLE>
See notes to financial statements.
F-53
<PAGE>
Intersil Technology Sdn. Bhd.
NOTES TO FINANCIAL STATEMENTS
July 2, 1999
NOTE A--ORGANIZATION AND BASIS OF PRESENTATION
Intersil Technology Sdn. Bhd. (the "Company"), a Malaysian corporation
located in Kuala Lumpur, Malaysia, is a wholly-owned subsidiary of Intersil
Corporation ("Intersil"), which is a wholly-owned subsidiary of Intersil
Holding Corporation ("Intersil Holding"). The Company's principal activities
include the assembly and testing of integrated circuits for Intersil. All
revenue transactions are intercompany.
Intersil Holding was formed on August 13, 1999 through a series of
transactions, in which Intersil Holding acquired the Semiconductor Business of
Harris Corporation ("Harris"), which included Harris Advanced Technology Sdn.
Bhd., the predecessor of the Company.
On May 5, 2000, Intersil Holding announced that it entered into a Letter of
Intent to sell 100% of the issued and outstanding capital stock of the Company
to ChipPAC, Inc. ("ChipPAC") and will enter into an outsourcing agreement with
ChipPAC for its assembly and testing requirements. The Letter of Intent does
not include finished goods inventory and all die and wafer inventory which will
be retained by Intersil. Accordingly, the accompanying financial statements
include the assets, liabilities and results of operations for the assembly and
testing operations of the Company that are to be sold as part of the Letter of
Intent.
Interest expense of Intersil has not been allocated to the Company.
NOTE B--SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year
The 1997 fiscal year includes the 52 weeks ended June 27, 1997; fiscal year
1998 includes the 53 weeks ended July 3, 1998; and fiscal year 1999 includes
the 52 weeks ended July 2, 1999.
Short-Term Investments
Short-term investments consist of certificates of deposit which are due in
one year or less. Certificates of deposit are readily convertible to cash and
are stated at cost.
Inventories
Inventories are carried at the lower of standard cost, which approximates
actual cost, determined by the First-In-First-Out (FIFO) method, or market.
Inventories represent raw materials and supplies (exclusive of die stock
received from Intersil), labor and overhead held for or incurred in the course
of performing contract manufacturing activities on behalf of Intersil.
Plant and Equipment
Plant and equipment are carried on the basis of cost. The estimated useful
lives of buildings range between 8 and 45 years. The estimated useful lives of
machinery and equipment range between 5 and 8 years. Leasehold improvements are
amortized over the life of the lease. Depreciation of buildings and machinery
and equipment is computed by straight-line and accelerated methods.
Revenue Recognition
All revenue transactions are with Intersil. The Company records revenue upon
shipment to Intersil based upon cost plus a fixed mark-up, pursuant to an
agreement with Intersil. Revenues and cost of intercompany sales exclude costs
of die stock received from Intersil to be subject to the Company's processing
activities.
F-54
<PAGE>
Intersil Technology Sdn. Bhd.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Income Taxes
Income taxes have been provided on a pro forma basis related to the
operations of the Company presented as described in footnote A "Organization
and Basis of Presentation". The Company follows the liability method of
accounting for income taxes. Deferred income taxes are provided for temporary
differences between the financial reporting basis and the tax basis of the
Company's assets and liabilities.
Financial Instruments
The carrying values of short-term investments and accounts payable
approximate their fair values.
Asset Impairment
The Company accounts for long-lived asset impairment under Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of. The Company
recognizes impairment losses on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amounts. The
impairment loss is measured by comparing the fair value of the asset to its
carrying amount. Fair value is estimated based on discounted future cash flows.
Long-lived assets to be disposed of are recorded at the lower of their carrying
amount or estimated fair value less cost to sell.
Foreign Currency Translation
The functional currency of the Company is the U.S. dollar. Remeasurement
gains and losses, resulting from the process of remeasuring non-U.S. dollar
transactions and assets and liabilities into U.S. dollars, are included in cost
of intercompany sales.
Use of Estimates
These statements have been prepared in conformity with generally accepted
accounting principles and require management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE C--ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued FAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. The statement
establishes standards for recording derivative financial instruments and the
recognition of gains or losses resulting from changes in the fair values of
those instruments. The Company plans to adopt the new standard no later than
the first quarter of fiscal 2001. However, the Company has not determined the
anticipated impact of FAS No. 133.
NOTE D--INVENTORIES
Inventories are summarized below:
<TABLE>
<CAPTION>
July 3, July 2,
1998 1999
------- -------
(In thousands)
<S> <C> <C>
Work in process.............................................. $1,382 $3,384
Raw materials and supplies................................... 4,504 3,144
------ ------
$5,886 $6,528
====== ======
</TABLE>
F-55
<PAGE>
Intersil Technology Sdn. Bhd.
NOTES TO FINANCIAL STATEMENTS--(Continued)
At July 2, 1999, the Company was committed to purchase $12.9 million of
inventory from suppliers. Management believes the cost of this inventory
approximates current market value.
NOTE E--PLANT AND EQUIPMENT
Plant and equipment are summarized below:
<TABLE>
<CAPTION>
July 3, July 2,
1998 1999
-------- --------
(In thousands)
<S> <C> <C>
Leasehold improvements................................... $ 784 $ 784
Buildings................................................ 36,544 38,614
Machinery and equipment.................................. 242,552 239,361
-------- --------
279,880 278,759
Less allowances for depreciation......................... 163,085 160,140
-------- --------
$116,795 $118,619
======== ========
</TABLE>
NOTE F--STOCKHOLDER'S EQUITY
Changes in the stockholder's equity are as follows:
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained
Stock Capital Earnings
------- ---------- --------
(In thousands)
<S> <C> <C> <C>
Balance at July 1, 1996... $81,092 $5,923 $147,444
Net income.............. -- -- 11,606
Dividends paid to
parent................. -- -- (17,036)
Net cash transfers and
billings to Intersil... -- -- (1,583)
------- ------ --------
Balance at June 27, 1997.. 81,092 5,923 140,431
Net income.............. -- -- 16,259
Dividends paid to
parent................. -- -- --
Net cash transfers and
billings to Intersil... -- -- (6,146)
------- ------ --------
Balance at July 3, 1998... 81,092 5,923 150,544
Net income.............. -- -- 14,961
Dividends paid to
parent................. -- -- (91,877)
Net cash transfers and
billings to Intersil... -- -- 4,696
------- ------ --------
Balance at July 2, 1999... $81,092 $5,923 $ 78,324
======= ====== ========
</TABLE>
NOTE G--INCOME TAXES (PRO FORMA)
The Company incurs and pays tax exclusively in Malaysia. Pro forma income
tax expense/(benefit) is summarized below:
<TABLE>
<CAPTION>
June 27, July 3, July 2,
1997 1998 1999
-------- ------- -------
(In thousands)
<S> <C> <C> <C>
Current............................................ $ 760 $ 39 $ --
Deferred........................................... 2,300 (5,950) 1,182
------ ------- ------
$3,060 $(5,911) $1,182
====== ======= ======
</TABLE>
F-56
<PAGE>
Intersil Technology Sdn. Bhd.
NOTES TO FINANCIAL STATEMENTS--(Continued)
In the year 2000, the Malaysian taxing authority will convert its income tax
system to a self-assessment system. The new self-assessment system will require
Malaysian corporate taxpayers to begin making estimated tax payments in the
year 2000 based on year 2000 estimated taxable income. Currently, Malaysian
corporate taxpayers submit tax payments following the year of assessment. In
1999, the Company made Malaysian taxing payments based on 1998's taxable
income. As a result of the change in the Malaysian taxing system, the Company
will not be required to make tax payments on its 1999 Malaysian taxable income
and, therefore, has not provided a current tax provision for Malaysian taxes in
1999, which would have amounted to approximately $.9 million.
The components of deferred income tax assets (liabilities) are as follows:
<TABLE>
<CAPTION>
July 3, 1998 July 2, 1999
------------------- -------------------
Current Non-Current Current Non-Current
------- ----------- ------- -----------
(In thousands)
<S> <C> <C> <C> <C>
Depreciation....................... $-- $(6,373) $-- $(8,881)
Reinvestment allowance
carryforward...................... -- 7,105 -- 9,156
All other--net..................... 674 -- (51) --
---- ------- ---- -------
$674 $ 732 $(51) $ 275
==== ======= ==== =======
</TABLE>
Income taxes paid were $8.3 million in 1997, $.1 million in 1998, and $0 in
1999.
NOTE H--LEASE COMMITTMENTS
The Company leases land for its assembly and test facilities under leases
that expire from 2072 to 2081. Total rental expense for the leased land
amounted to $.05 million in 1997, $.03 million in 1998 and $.03 million in
1999. Future minimum rental commitments under the land leases amounted to
approximately $2.95 million at July 2, 1999. The commitments for the years
following 1999 are: 2000--$.03 million, 2001--$.03 million, 2002--$.03 million,
2003--$.03 million, 2004--$.03 million and $2.80 million thereafter.
F-57
<PAGE>
Intersil Technology Sdn. Bhd.
CONDENSED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
Predecessor Successor
July 2, March 31,
1999 2000
----------- -----------
(Unaudited)
ASSETS
------
<S> <C> <C>
Current assets:
Cash, cash equivalents and restricted cash............ $ 802 $ 2,082
Short-term investments................................ 2,952 --
Inventories........................................... 6,528 5,612
Prepaids and other current assets..................... 847 373
Due from parent....................................... 45,502 --
-------- --------
Total current assets................................ 56,631 8,067
Property and equipment, net............................. 118,619 83,983
Deferred income taxes................................... 275 --
-------- --------
Total assets........................................ $175,525 $ 92,050
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Trade accounts payable................................ $ 7,310 $ 7,369
Accrued compensation.................................. 2,060 1,932
Other accrued items................................... 765 994
Due to parent......................................... -- 14,934
Deferred income taxes................................. 51 --
-------- --------
Total current liabilities........................... 10,186 25,229
Deferred income taxes................................... -- 4,622
-------- --------
Total liabilities..................................... 10,186 29,851
Stockholders' equity:
Common stock.......................................... 81,092 81,092
Additional paid in capital............................ 5,923 5,923
Retained earnings..................................... 78,324 (24,816)
-------- --------
Total stockholders' equity ........................... 165,339 62,199
-------- --------
Total liabilities and stockholders' equity ......... $175,525 $ 92,050
======== ========
</TABLE>
See accompanying notes to Intersil's condensed financial statements.
F-58
<PAGE>
Intersil Technology Sdn. Bhd.
CONDENSED STATEMENTS OF INCOME
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
---------------------
Successor
Predecessor Combined
April 2, March 31,
1999 2000
----------- ---------
<S> <C> <C>
Revenues
Intercompany sales...................................... $77,837 $68,473
Costs and expenses
Cost of intercompany sales.............................. 66,712 58,566
Interest income........................................... (106) (49)
Other..................................................... 55 40
------- -------
Income before income taxes................................ 11,176 9,916
Pro forma income tax expense/(benefit).................... (1,180) 6,528
------- -------
Net income ............................................... $12,356 $ 3,388
======= =======
</TABLE>
See accompanying notes to Intersil's condensed financial statements.
F-59
<PAGE>
Intersil Technology Sdn. Bhd.
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
---------------------
Successor
Predecessor Combined
April 2, March 31,
1999 2000
----------- ---------
<S> <C> <C>
Operating Activities:
Net income ............................................. $12,356 $ 3,388
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization......................... 13,646 11,771
Deferred income taxes................................. (1,180) 4,846
Changes in assets and liabilities:
Inventories......................................... (3,047) 916
Prepaid expenses and other assets................... (496) 475
Due from parent..................................... 8,787 60,437
Trade payables and accrued liabilities ............. (4,882) 159
------- -------
Net cash provided by operating activities......... 25,184 81,992
Investing Activities:
Sale of short-term investments, net..................... 651 2,952
Purchases of plant and equipment........................ (14,836) (3,896)
------- -------
Net cash used for investing activities............ (14,185) (944)
Financing Activities:
Dividends paid to parent................................ -- (85,411)
Net cash transfer and billings from (to) parent......... (8,446) 5,643
------- -------
Net cash used for financing activities............ (8,446) (79,768)
Net increase in cash and cash equivalents............... 2,553 1,280
Cash and cash equivalents at beginning of period........ 131 802
------- -------
Cash and cash equivalents at end of period.............. $ 2,684 $ 2,082
======= =======
</TABLE>
See accompanying notes to Intersil's condensed financial statements.
F-60
<PAGE>
Intersil Technology Sdn. Bhd.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Quarter Ended March 31, 2000
(Unaudited)
Note A--Organization and Basis of Presentation
Intersil Technology Sdn. Bhd. (the "Company or "Successor"), a Malaysian
corporation located in Kuala Lumpur, Malaysia, is a wholly-owned subsidiary of
Intersil Corporation ("Intersil"), which is a wholly-owned subsidiary of
Intersil Holding Corporation ("Intersil Holding"). The Company's principal
activities include the assembly and testing of integrated circuits for
Intersil. All revenue transactions are intercompany.
Intersil Holding was formed on August 13, 1999 through a series of
transactions, in which Intersil Holding acquired the Semiconductor Business of
Harris Corporation ("Harris"), which included Harris Advanced Technology Sdn.
Bhd. (Predecessor), the predecessor of the Company. The unaudited condensed
consolidated balance sheet as of July 2, 1999 and the unaudited condensed
consolidated statements of operations and cash flows for the nine months ended
March 31, 1999, include the accounts of the Predecessor company. The unaudited
combined condensed consolidated statements of operations and cash flows for the
nine months ended March 31, 1999, include the accounts of the Predecessor
company from July 3, 1999 to August 13, 1999.
On May 5, 2000, Intersil Holding announced that it entered into a Letter of
Intent to sell 100% of the issued and outstanding capital stock of the Company
to ChipPAC Inc. ("ChipPAC") and will enter into an outsourcing agreement with
ChipPAC for its assembly and testing requirements. The Letter of Intent does
not include finished goods inventory and all die and wafer inventory, which
will be retained by Intersil. Accordingly, the accompanying unaudited condensed
financial statements include the assets, liabilities and results of operations
for the assembly and testing operations of the Company that are to be sold as
part of the Letter of Intent.
Interest expense of Intersil has not been allocated to the Company.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments, all of which are of
a normal recurring nature, necessary for a fair presentation of the results for
these interim periods and are not necessarily indicative of full year results.
This financial information should be read in conjunction with the audited
financial statements and notes thereto for the year ended July 2, 1999.
Note B--Inventories
<TABLE>
<CAPTION>
Successor
Predecessor Combined
July 2, March 31,
1999 2000
----------- ---------
(In thousands)
<S> <C> <C>
Raw materials.......................................... $3,144 $2,055
Work-in-process........................................ 3,384 3,557
------ ------
Total................................................ $6,528 $5,612
====== ======
</TABLE>
F-61
<PAGE>
Intersil Technology Sdn. Bhd.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note C--Recent Accounting Pronouncements
In December 1999, the staff of the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101 ("SAB 101") "Views on Selected Revenue
Recognition Issues" which provides the staff's views in applying generally
accepted accounting principles to selected revenue recognition issues. Adoption
of SAB 101 is required by the second quarter of fiscal 2000. Management is
currently evaluating SAB 101 and its effects on company revenue recognition
policies and practices. At this time, management believes that there is no
significant effect on the revenue recognition policies currently in place.
In June 1998, the Financial Accounting Standards Board issued FAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. The statement
establishes standards for recording derivative financial instruments and the
recognition of gains or losses resulting from changes in the fair values of
those instruments. The Company plans to adopt the new standard no later than
the first quarter of fiscal 2001. However, the Company has not determined the
anticipated impact of FAS No. 133.
F-62
<PAGE>
[ChipPAC LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated expenses to be incurred in
connection with the issuance and distribution of the securities being
registered, other than underwriting discounts and commissions, paid or to be
paid by the Registrant.
<TABLE>
<S> <C>
SEC registration fee........................................... $ 103,528
National Association of Securities Dealers, Inc. filing fee.... 30,500
Nasdaq National Market listing fee............................. 95,000
Printing and engraving fees.................................... 300,000
Legal fees and expenses........................................ 350,000
Accounting fees and expenses................................... 500,000
Blue Sky fees and expenses..................................... 1,000
Transfer agent and register fees............................... 7,000
Directors' and officers' insurance............................. 465,000
Miscellaneous.................................................. 7,972
----------
Total........................................................ $1,860,000
==========
</TABLE>
Item 14. Indemnification of Directors and Officers.
Registrant is incorporated under the laws of the State of Delaware. Section
145 ("Section 145") of the General Corporation Law of the State of Delaware, as
the same exists or may hereafter be amended (the "General Corporation Law"),
inter alia, provides that a Delaware corporation may indemnify any persons who
were, are or are threatened to be made, parties to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of such corporation),
by reason of the fact that such person is or was an officer, director, employee
or agent of such corporation as a director, officer, employee or agent of
another corporation or enterprise. The indemnity may include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding, provided such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the corporation's best interests
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe his conduct was illegal. A Delaware corporation may indemnify any
persons who are, were or are threatened to be made, a party to any threatened,
pending or completed action or suit by or in the right of the corporation by
reasons of the fact that such person was a director, officer, employee or agent
of such corporation, or is or was serving at the request of such corporation as
a director, officer, employee or agent of another corporation or enterprise.
The indemnity may include expenses (including attorneys' fees), actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit, provided such person acted in good faith and in a
manner he reasonably believed to be in or not opposed to the corporation's best
interests, provided that no indemnification is permitted without judicial
approval if the officer, director, employee or agent is adjudged to be liable
to the corporation. Where an officer, director, employee or agent is successful
on the merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses which such officer or
director has actually and reasonably incurred. Section 145 further authorizes a
corporation to purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation or enterprise, against any liability asserted
against him and incurred by him in any such capacity, arising out of his status
as such, whether or not the corporation would otherwise have the power to
indemnify him under Section 145.
II-1
<PAGE>
Registrant's Certificate of Incorporation and By-laws provide for the
indemnification of officers and directors to the fullest extent permitted by
the General Corporation Law. Registrant maintains a policy of directors and
officers liability insurance covering certain liabilities incurred by its
directors and officers in connection with the performance of their duties.
Item 15. Recent Sales of Unregistered Securities.
The Registrant was incorporated in Delaware in 2000 in order to effect the
reincorporation of ChipPAC, Inc., a California corporation ("ChipPAC
California") through a merger of ChipPAC California into the Registrant.
On June 13, 2000 the Registrant entered into an Agreement and Plan of Merger
(the "Merger Agreement") with ChipPAC California. Pursuant to the Merger
Agreement, which is filed as Exhibit 2.1 to the Registration Statement, the
ChipPAC California will merge with and into the Registrant (the "Merger"), as a
result of which ChipPAC California will cease to exist and the Registrant will
operate business as ChipPAC, Inc. The Merger is to occur immediately prior to
the effectiveness of this Registration Statement. Such transactions will be
exempt from registration by virtue of Sections 3(a)(11) or 4(2) of the
Securities Act. In the Merger the following issuances will take place:
. each outstanding share of ChipPAC California Class A common stock, par
value $0.01, will be converted into and become one share of Class A
common stock of the Registrant ("Registrant Class A Common Stock");
. each outstanding share of ChipPAC California Class B common stock, par
value $0.01, will be converted into and become one share of Class B
common stock of the Registrant ("Registrant Class B Common Stock");
. each outstanding share of ChipPAC California Class L common stock, par
value $0.01 will be converted into and become one share of Registrant
Class A Common Stock plus an additional number of shares of Registrant
Class A Common Stock determined by dividing a preferential distribution,
based in part on the original cost of such share plus an amount which
accrues daily at a rate of 12% per annum, compounded quarterly, by the
per share price of the Registrant Class A Common Stock in the offering
to which this Registration Statement relates;
. each share of outstanding ChipPAC California Class A Convertible
preferred stock, $0.01 par value, will be converted into one share of
Registrant Class A Convertible preferred stock, par value $0.01;
. each share of outstanding ChipPAC California Class B preferred stock,
par value $0.01, will be converted into one share of Registrant Class B
preferred stock, par value $0.01; and
. each share of outstanding ChipPAC California Class C preferred stock,
par value $0.01, will be converted into one share of Registrant Class C
preferred stock, par value $0.01.
ChipPAC California completed a recapitalization on August 5, 1999. In
connection with the recapitalization, ChipPAC California issued:
. 4,500,000 shares of Class L common stock, par value $0.01, and
40,500,000 shares of Class A common stock, par value $0.01, to Bain
Capital Fund VI, L.P. and its affiliates for a total of $45,000,000;
. 4,500,000 shares of Class L common stock, par value $0.01, and
40,500,000 shares of Class A common stock, par value $0.01, to SXI Group
LLC and its affiliates for a total of $45,000,000;
. 1,000,000 shares of Class L common stock, par value $0.01, 9,000,000
shares of Class A common stock, par value $0.01 and 30,000 shares of
Class B Preferred Stock, par value $0.01, to Hyundai Electronics America
in exchange for all of the previously outstanding capital stock of
ChipPAC California held by Hyundai Electronics America;
II-2
<PAGE>
. 100,000 shares of Class L common stock, par value $0.01, and 900,000
shares of Class A common stock, par value $0.01, to each of ChipPAC
Equity Investors LLC and Sankaty High Yield Asset Partners, L.P. for a
total of $2,000,000;
. 40,000 shares of Class B preferred stock, par value $0.01, to Hyundai
Electronics America for $40,000,000; and
. 10,000 shares of Class A Convertible preferred stock, par value $0.01,
to Intel Corporation for $10,000,000.
The sales and issuances above were deemed exempt from registration under the
Securities Act of 1933, as amended, by virtue of Section 4(2), 3(a)(9) or
3(a)(11).
In October 1999, pursuant to its 1999 Stock Purchase and Option Plan,
ChipPAC California authorized to a group of 213 employees: (i) the sale of
303,500 shares of Class L common stock, par value $0.01, at a price of $9.00
per share, and the sale of 2,731,500 shares of Class A common stock, par value
$0.01, at a price of $0.1111 per share, for an aggregate purchase price of
$3,035,000, (ii) the sale of 2,470,000 shares Class A common stock, par value
$0.01 per share, at a price of $0.1111 per share, which shares vest over time,
(iii) the grant of options to purchase an aggregate of 1,051,750 shares of
Class A common stock at a price of $0.1111 per share and (iv) the grant of
options to purchase an aggregate of 2,285,500 shares of Class A common stock at
a price of $2.10 per share. The options are not transferable, and neither the
options nor the employees' rights to the time vesting stock vest prior to
August 2000.
In January 2000, pursuant to its 1999 Stock Purchase and Option Plan,
ChipPAC California authorized to a group of 27 employees: (i) the sale of
20,000 shares of Class L common stock, par value $0.01, at a price of $9.00 per
share, and the sale of 180,000 shares of Class A common stock, par value $0.01,
at a price of $0.1111 per share, for an aggregate purchase price of $200,000,
(ii) the sale of 75,000 shares of Class A common stock, par value $0.01 per
share, at a price of $0.1111 per share, which shares vest over time, (iii) the
grant of options to purchase an aggregate of 130,750 shares of Class A common
stock at a price of $0.1111 per share and (iv) the grant of options to purchase
an aggregate of 108,000 shares of Class A common stock at a price of $2.10 per
share. The options are not transferable, and neither the options nor the
employees' rights to the time vesting stock vest prior to January 2001.
In April 2000, pursuant to its 1999 Stock Purchase and Option Plan, ChipPAC
California authorized to a group of 11 employees: (i) the grant of options to
purchase an aggregate of 57,500 shares of Class A common stock at a price of
$0.1111 per share and (ii) the grant of options to purchase an aggregate of
5,000 shares of Class A common stock at a price of $2.10 per share. The options
are not transferable, and the options do not vest prior to April 2001.
On June 30, 2000, ChipPAC California issued 17,500 shares of Class C
preferred stock, par value $0.01, to Intersil Corporation ("Intersil") in
connection with and as partial consideration for ChipPAC California's
acquisition of Intersil's Malaysian business.
The sales and issuances above were deemed exempt from registration under the
Securites Act of 1933, as amended, by virtue of Section 4(2) and Rule 701 of
the Securities Act.
Item 16. Exhibits and Financial Statement Schedules.
<TABLE>
<C> <S>
(a) Exhibits.
1.1 Form of Underwriting Agreement.
2.1 Amended and Restated Agreement and Plan of Merger of ChipPAC, Inc., a
California corporation, and ChipPAC, Inc., a Delaware corporation.**
2.2 Agreement and Plan of Recapitalization and Merger, dated as of March 13,
1999, by and among Hyundai Electronics Industries Co., Ltd., Hyundai
Electronics America, ChipPAC, Inc. and ChipPAC Merger Corp.*
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
2.3 First Amendment to Agreement and Plan of Recapitalization and
Merger, dated as of June 16, 1999 by and among Hyundai Electronics
Industries Co., Ltd., Hyundai Electronics America, ChipPAC, Inc.
and ChipPAC Merger Corp.*
2.4 Second Amendment to Agreement and Plan of Recapitalization and
Merger, dated as of August 5, 1999, by and among Hyundai
Electronics Industries Co., Ltd., Hyundai Electronics America,
ChipPAC, Inc. and ChipPAC Merger Corp.*
3.1 Amended and Restated Certificate of Incorporation of ChipPAC,
Inc.**
3.2 Amended and Restated By-Laws of ChipPAC, Inc.**
4.1 Specimen certificate for ChipPAC, Inc. Common Stock.**
5.1 Opinion of Kirkland & Ellis.
10.1 Credit Agreement, dated as of August 5, 1999, as amended and
restated as of June 30, 2000, by and among ChipPAC International
Company Limited, ChipPAC, Inc., the Lenders listed therein and
Credit Suisse First Boston, as Administrative Agent, Sole Lead
Manager and Collateral Agent.**
10.2 Guaranty, dated as of August 5, 1999, by and among ChipPAC, Inc.
and certain subsidiaries of ChipPAC, Inc., in favor of Credit
Suisse First Boston.*
10.3 Subsidiary Guaranty Agreement, dated as of August 5, 1999, by and
among ChipPAC Korea Company Ltd., ChipPAC Limited, ChipPAC
(Barbados) Ltd., ChipPAC Luxembourg S.a.R.L., ChipPAC Liquidity
Management Hungary Limited Liability Company and ChipPAC
International Company Limited, in favor of Firstar Bank of
Minnesota, N.A.*
10.4 Amended and Restated Stockholders Agreement, dated as of August 5,
1999, by and among ChipPAC, Inc. the Hyundai Group (as defined
therein), the Bain Group (as defined therein), the SXI Group
(as defined therein), Intel Corporation, ChipPAC Equity Investors
LLC, and Sankaty High Yield Asset Partners, L.P.*
10.5 Amended and Restated Registration Agreement, dated as of August 5,
1999, by and among ChipPAC, Inc., the Hyundai Stockholders (as
defined therein), the Bain Stockholders (as defined therein), the
SXI Stockholders (as defined therein), Intel Corporation, ChipPAC
Equity Investors LLC, and Sankaty High Yield Asset Partners, L.P.*
10.5.1 Amendment No. 1 to Amended and Restated Registration Agreement,
dated as of June 30, 2000, by and among ChipPAC, Inc., Sapphire
Worldwide Investments, Inc., the Bain Stockholders (as defined
therein) and SXI Group LLC.**
10.5.2 Form of Amendment No. 2 to Amended and Restated Registration
Agreement, dated as of July 13, 2000, by and among ChipPAC, Inc.,
Qualcomm Incorporated, SXI Group LLC and the Bain Shareholders (as
defined therein).**
10.5.3 Form of Amendment No. 3 to Amended and Restated Registration
Agreement, dated as of August 2, 2000, by and among ChipPAC, Inc.,
Bain Capital, Inc., SXI Group LLC and the Bain Shareholders (as
defined therein).
10.6 Transition Services Agreement, dated as of August 5, 1999, by and
among Hyundai Electronics Industries Co., Ltd., Hyundai
Electronics America, ChipPAC, Inc., ChipPac Korea Company Ltd.,
Hyundai Electronis Company (Shanghai) Ltd., ChipPAC Assembly and
Test (Shanghai) Company Ltd., ChipPAC Barbados Limited and ChipPAC
Limited.*
10.7 Lease Agreement, dated as of June 30, 1998, by and between Hyundai
Electronics Industries Co., Ltd. and ChipPAC Korea Ltd.*
10.7.1 Amendment Agreement, dated September 30, 1998, to Lease Agreement,
dated June 30, 1998, by and between Hyundai Electronics Industries
Co., Ltd. and ChipPAC Korea Ltd.*
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
10.7.2 Amendment Agreement 2, dated September 30, 1999, to Lease
Agreement, dated June 30, 1998, by and between Hyundai Electronics
Industries Co., Ltd. and ChipPAC Korea Ltd.*
10.8 Agreement Concerning Supply of Utilities, Use of Welfare
Facilities and Management Services for Real Estate, dated as of
June 30, 1998, by and between Hyundai Electronics Industries Co.,
Ltd. and ChipPAC Korea Ltd.*
10.9 Service Agreement, dated as of August 5, 1999, by and between
Hyundai Electronics Industries Co., Ltd. and ChipPAC Limited.+*
10.10 Sublease Agreement, dated as of May 1, 1998, by and between
Hyundai Electronics America and ChipPAC, Inc.*
10.11 Patent Sublicense Agreement, dated as of August 5, 1999, by and
between Hyundai Electronics Industries Co., Ltd. and ChipPAC
Limited.*
10.12 TCC License Agreement, dated December 22, 1998, between Tessera
Inc., the Tessera Affiliates (as defined therein), ChipPAC, Inc.
and the Licensee Affiliates (as defined therein).+*
10.12.1 Letter Agreement, dated July 15, 1999, by and among ChipPAC, Inc.,
Hyundai Electronics America, ChipPAC Limited and Tessera, Inc.*
10.13 Materials Agreement, dated as of July 1, 1999, by and between
ChipPAC Limited and Intel Corporation.+*
10.14 Assembly Services Agreement, dated as of August 5, 1999, by and
between Intel Corporation and ChipPAC Limited.+*
10.15 Stock Purchase Agreement, dated as of August 5, 1999, by and
between ChipPAC, Inc. and Intel Corporation.*
10.16 Warrant to Purchase Class B Common Stock of ChipPAC, Inc., dated
as of August 5, 1999, issued to Intel Corporation.*
10.17 Advisory Agreement, dated as of August 5, 1999, by and among
ChipPAC, Inc., ChipPAC Limited, ChipPAC Operating Limited and Bain
Capital, Inc.*
10.18 Advisory Agreement, dated as of August 5, 1999, by and among
ChipPAC, Inc., ChipPAC Limited, ChipPAC Operating Limited and SXI
Group LLC.*
10.19 Employment Agreement, dated as of October 1, 1999, between
ChipPAC, Inc. and Dennis McKenna.*
10.20 ChipPAC, Inc. 1999 Stock Purchase and Option Plan.*
10.21 ChipPAC, Inc. 2000 Equity Incentive Plan.**
10.22 ChipPAC, Inc. 2000 Employee Stock Purchase Plan.**
10.23.1 Form of Key Employee Purchased Stock Agreement.*
10.23.2 Form of Key Employee Purchased Stock Agreement (with Loan).*
10.24 Form of Employee Restricted Stock Agreement.*
10.25 Form of Directors Tranche I Stock Option Agreement.*
10.26 Form of Employees Tranche I Stock Option Agreement.*
10.27 Form of Tranche II Stock Option Agreement.*
10.28 Indenture, dated as of July 29, 1999, by and among ChipPAC
International Limited, ChipPAC Merger Corp. and Firstar Bank of
Minnesota, N.A., as trustee.*
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
10.29 First Supplemental Indenture, dated as of August 5, 1999, by and
among ChipPAC International Company Limited, ChipPAC, Inc. and
Firstar Bank of Minnesota, N.A., as trustee.*
10.30 12 3/4% Senior Subordinated Notes Due 2009.*
10.31 Form of Series B 12 3/4% Senior Subordinated Notes Due 2009.*
10.32 Intellectual Property Rights Agreement, entered into as of June
30, 2000, by and between Intersil Corporation and ChipPAC
Limited.**
10.33 Supply Agreement, entered into as of June 30, 2000, by and between
Intersil Corporation and ChipPAC Limited.**
10.34 Shareholders Agreement, dated as of June 30, 2000, by and among
ChipPAC, Inc., the Bain Group (as defined therein), the SXI Group
(as defined therein) and Sapphire Worldwide Investments, Inc.**
10.35 Class A Common Stock Purchase Agreement, dated as of July 13,
2000, by and between ChipPAC, Inc. and Qualcomm Incorporated.**
10.36 Promissory Note, dated as of August 2, 2000 by and between Dennis
McKenna and ChipPAC, Inc.**
10.37 Promissory Note, dated as of August 2, 2000, by and between Robert
Krakauer and ChipPAC, Inc.**
10.38 Form of Amended and Restated Supplemental Agreement No. 1 to the
Advisory Agreement, dated as of August 2, 2000, by and among
ChipPAC, Inc., ChipPAC Limited, ChipPAC International Company
Limited and Bain Capital, Inc.
10.39 Amended and Restated Supplemental Agreement No. 4 to the Advisory
Agreement, dated as of August 2, 2000 by and among ChipPAC, Inc.,
ChipPAC Limited, ChipPAC International Company Limited and SXI
Group LLC.
21.1 Subsidiaries of ChipPAC, Inc., ChipPAC International Company
Limited, ChipPAC (Barbados) Ltd., ChipPAC Limited, ChipPAC
Liquidity Management Limited Liability Company, ChipPAC Luxembourg
S.a.R.L. and ChipPAC Korea Company Ltd.*
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Ernst & Young LLP.
23.3 Consent of Kirkland & Ellis (included in Exhibit 5.1).
24.1 Powers of Attorney.**
27.1 Financial Data Schedule.**
</TABLE>
---------------------
* Incorporated by reference to the Registrant's Form S-4 (No. 333-91641).
** Previously filed.
+ Confidential treatment has been granted as to certain portions of these
exhibits, which are incorporated by reference.
II-6
<PAGE>
(b) Financial Statement Schedules.
The following financial statement schedules for the three years ended
December 31, 1999 are included in this registration statement.
Schedule II--Valuation and Qualifying Accounts and Reserves--Allowance for
Doubtful Accounts
(in thousands)
<TABLE>
<CAPTION>
Additions charged Deductions Balance
Balance at to Costs and and at End
Year Ended December 31 beginning of year Expenses Write-offs of Period
---------------------- ----------------- ----------------- ---------- ---------
<S> <C> <C> <C> <C>
1999.................. 1,162 144 (110) 1,196
1998.................. 375 787 -- 1,162
1997.................. 85 404 (114) 375
</TABLE>
Item 17. Undertakings.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to provisions described in Item 14 above, or otherwise, the
Registrant has been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to Rule 424 (b)(1) or (4) or
497 (h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Pre-Effective Amendment No. 3 to the
Registration Statement on Form S-1 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Santa Clara, State of
California, on August 7, 2000.
ChipPAC, Inc.
By: /s/ Dennis P. McKenna
-----------------------------------
Name: Dennis P. McKenna
Title: President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Pre-Effective Amendment No. 3 to the Registration Statement on Form S-1 has
been signed by the following persons in the capacity and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Dennis P. McKenna President and Chief August 7, 2000
____________________________________ Executive Officer
Dennis P. McKenna (Principal Executive
Officer) and Director
/s/ Robert Krakauer Chief Financial Officer August 7, 2000
____________________________________ (Principal Financial
Robert Krakauer Officer)
* Vice President of Finance August 7, 2000
____________________________________ and Corporate Controller
Curt Mason (Principal Accounting
Officer)
* Director August 7, 2000
____________________________________
David Dominik
* Director August 7, 2000
____________________________________
Edward Conard
* Director August 7, 2000
____________________________________
Marshall Haines
* Director August 7, 2000
____________________________________
Michael A. Delaney
* Director August 7, 2000
____________________________________
Paul C. Schorr, IV
* Director August 7, 2000
____________________________________
Joseph Martin
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Director August 7, 2000
____________________________________
Chong Sup Park
</TABLE>
* The undersigned, by signing his name hereto, does hereby sign and execute
this Pre-Effective Amendment No. 3 to the Registration Statement on Form S-1
on behalf of the above named officer and directors of the Registrant
pursuant to the Power of Attorney executed by such officer and/or director
and previously filed with the Securities and Exchange Commission.
/s/ Robert Krakauer
*By: __________________________
Robert Krakauer
Attorney-in-Fact
II-9
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
2.1 Amended and Restated Agreement and Plan of Merger of ChipPAC,
Inc., a California corporation, and ChipPAC, Inc., a Delaware
corporation.**
2.2 Agreement and Plan of Recapitalization and Merger, dated as of
March 13, 1999, by and among Hyundai Electronics Industries Co.,
Ltd., Hyundai Electronics America, ChipPAC, Inc. and ChipPAC
Merger Corp.*
2.3 First Amendment to Agreement and Plan of Recapitalization and
Merger, dated as of June 16, 1999 by and among Hyundai Electronics
Industries Co., Ltd., Hyundai Electronics America, ChipPAC, Inc.
and ChipPAC Merger Corp.*
2.4 Second Amendment to Agreement and Plan of Recapitalization and
Merger, dated as of August 5, 1999, by and among Hyundai
Electronics Industries Co., Ltd., Hyundai Electronics America,
ChipPAC, Inc. and ChipPAC Merger Corp.*
3.1 Amended and Restated Certificate of Incorporation of ChipPAC,
Inc.**
3.2 Amended and Restated By-Laws of ChipPAC, Inc.**
4.1 Specimen certificate for ChipPAC, Inc. Common Stock.**
5.1 Opinion of Kirkland & Ellis.
10.1 Credit Agreement, dated as of August 5, 1999, as amended and
restated as of June 30, 2000, by and among ChipPAC International
Company Limited, ChipPAC, Inc., the Lenders listed therein and
Credit Suisse First Boston, as Administrative Agent, Sole Lead
Manager and Collateral Agent.**
10.2 Guaranty, dated as of August 5, 1999, by and among ChipPAC, Inc.
and certain subsidiaries of ChipPAC, Inc., in favor of Credit
Suisse First Boston.*
10.3 Subsidiary Guaranty Agreement, dated as of August 5, 1999, by and
among ChipPAC Korea Company Ltd., ChipPAC Limited, ChipPAC
(Barbados) Ltd., ChipPAC Luxembourg S.a.R.L., ChipPAC Liquidity
Management Hungary Limited Liability Company and ChipPAC
International Company Limited, in favor of Firstar Bank of
Minnesota, N.A.*
10.4 Amended and Restated Stockholders Agreement, dated as of August 5,
1999, by and among ChipPAC, Inc. the Hyundai Group (as defined
therein), the Bain Group (as defined therein), the SXI Group
(as defined therein), Intel Corporation, ChipPAC Equity Investors
LLC, and Sankaty High Yield Asset Partners, L.P.*
10.5 Amended and Restated Registration Agreement, dated as of August 5,
1999, by and among ChipPAC, Inc., the Hyundai Stockholders (as
defined therein), the Bain Stockholders (as defined therein), the
SXI Stockholders (as defined therein), Intel Corporation, ChipPAC
Equity Investors LLC, and Sankaty High Yield Asset Partners, L.P.*
10.5.1 Amendment No. 1 to Amended and Restated Registration Agreement,
dated as of June 30, 2000, by and among ChipPAC, Inc., Sapphire
Worldwide Investments, Inc., the Bain Stockholders (as defined
therein) and SXI Group LLC.**
10.5.2 Form of Amendment No. 2 to Amended and Restated Registration
Agreement, dated as of July 13, 2000, by and among ChipPAC, Inc.,
Qualcomm Incorporated, SXI Group LLC and the Bain Shareholders (as
defined therein).**
10.5.3 Form of Amendment No. 3 to Amended and Restated Registration
Agreement, dated as of August 2, 2000, by and among ChipPAC, Inc.,
Bain Capital, Inc., SXI Group LLC and the Bain Shareholders (as
defined therein).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
10.6 Transition Services Agreement, dated as of August 5, 1999, by and
among Hyundai Electronics Industries Co., Ltd., Hyundai
Electronics America, ChipPAC, Inc., ChipPac Korea Company Ltd.,
Hyundai Electronis Company (Shanghai) Ltd., ChipPAC Assembly and
Test (Shanghai) Company Ltd., ChipPAC Barbados Limited and ChipPAC
Limited.*
10.7 Lease Agreement, dated as of June 30, 1998, by and between Hyundai
Electronics Industries Co., Ltd. and ChipPAC Korea Ltd.*
10.7.1 Amendment Agreement, dated September 30, 1998, to Lease Agreement,
dated June 30, 1998, by and between Hyundai Electronics Industries
Co., Ltd. and ChipPAC Korea Ltd.*
10.7.2 Amendment Agreement 2, dated September 30, 1999, to Lease
Agreement, dated June 30, 1998, by and between Hyundai Electronics
Industries Co., Ltd. and ChipPAC Korea Ltd.*
10.8 Agreement Concerning Supply of Utilities, Use of Welfare
Facilities and Management Services for Real Estate, dated as of
June 30, 1998, by and between Hyundai Electronics Industries Co.,
Ltd. and ChipPAC Korea Ltd.*
10.9 Service Agreement, dated as of August 5, 1999, by and between
Hyundai Electronics Industries Co., Ltd. and ChipPAC Limited.+*
10.10 Sublease Agreement, dated as of May 1, 1998, by and between
Hyundai Electronics America and ChipPAC, Inc.*
10.11 Patent Sublicense Agreement, dated as of August 5, 1999, by and
between Hyundai Electronics Industries Co., Ltd. and ChipPAC
Limited.*
10.12 TCC License Agreement, dated December 22, 1998, between Tessera
Inc., the Tessera Affiliates (as defined therein), ChipPAC, Inc.
and the Licensee Affiliates (as defined therein).+*
10.12.1 Letter Agreement, dated July 15, 1999, by and among ChipPAC, Inc.,
Hyundai Electronics America, ChipPAC Limited and Tessera, Inc.*
10.13 Materials Agreement, dated as of July 1, 1999, by and between
ChipPAC Limited and Intel Corporation.+*
10.14 Assembly Services Agreement, dated as of August 5, 1999, by and
between Intel Corporation and ChipPAC Limited.+*
10.15 Stock Purchase Agreement, dated as of August 5, 1999, by and
between ChipPAC, Inc. and Intel Corporation.*
10.16 Warrant to Purchase Class B Common Stock of ChipPAC, Inc., dated
as of August 5, 1999, issued to Intel Corporation.*
10.17 Advisory Agreement, dated as of August 5, 1999, by and among
ChipPAC, Inc., ChipPAC Limited, ChipPAC Operating Limited and Bain
Capital, Inc.*
10.18 Advisory Agreement, dated as of August 5, 1999, by and among
ChipPAC, Inc., ChipPAC Limited, ChipPAC Operating Limited and SXI
Group LLC.*
10.19 Employment Agreement, dated as of October 1, 1999, between
ChipPAC, Inc. and Dennis McKenna.*
10.20 ChipPAC, Inc. 1999 Stock Purchase and Option Plan.*
10.21 ChipPAC, Inc. 2000 Equity Incentive Plan.**
10.22 ChipPAC, Inc. 2000 Employee Stock Purchase Plan.**
10.23.1 Form of Key Employee Purchased Stock Agreement.*
10.23.2 Form of Key Employee Purchased Stock Agreement (with Loan).*
10.24 Form of Employee Restricted Stock Agreement.*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
10.25 Form of Directors Tranche I Stock Option Agreement.*
10.26 Form of Employees Tranche I Stock Option Agreement.*
10.27 Form of Tranche II Stock Option Agreement.*
10.28 Indenture, dated as of July 29, 1999, by and among ChipPAC
International Limited, ChipPAC Merger Corp. and Firstar Bank of
Minnesota, N.A., as trustee.*
10.29 First Supplemental Indenture, dated as of August 5, 1999, by and
among ChipPAC International Company Limited, ChipPAC, Inc. and
Firstar Bank of Minnesota, N.A., as trustee.*
10.30 12 3/4% Senior Subordinated Notes Due 2009.*
10.31 Form of Series B 12 3/4% Senior Subordinated Notes Due 2009.*
10.32 Intellectual Property Rights Agreement, entered into as of June
30, 2000, by and between Intersil Corporation and ChipPAC
Limited.**
10.33 Supply Agreement, entered into as of June 30, 2000, by and between
Intersil Corporation and ChipPAC Limited.**
10.34 Shareholders Agreement, dated as of June 30, 2000, by and among
ChipPAC, Inc., the Bain Group (as defined therein), the SXI Group
(as defined therein) and Sapphire Worldwide Investments, Inc.**
10.35 Class A Common Stock Purchase Agreement, dated as of July 13,
2000, by and between ChipPAC, Inc. and Qualcomm Incorporated.**
10.36 Promissory Note, dated as of August 2, 2000, by and between Dennis
McKenna and ChipPAC, Inc.**
10.37 Promissory Note, dated as of August 2, 2000, by and between Robert
Krakauer and ChipPAC, Inc.**
10.38 Form of Amended and Restated Supplemental Agreement No. 1 to the
Advisory Agreement, dated as of August 2, 2000, by and among
ChipPAC, Inc., ChipPAC Limited, ChipPAC International Company
Limited and Bain Capital, Inc.
10.39 Amended and Restated Supplemental Agreement No. 1 to the Advisory
Agreement, dated as of August 2, 2000, by and among ChipPAC, Inc.,
ChipPAC Limited, ChipPAC International Company Limited and SXI
Group LLC.
21.1 Subsidiaries of ChipPAC, Inc., ChipPAC International Company
Limited, ChipPAC (Barbados) Ltd., ChipPAC Limited, ChipPAC
Liquidity Management Limited Liability Company, ChipPAC Luxembourg
S.a.R.L. and ChipPAC Korea Company Ltd.*
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Ernst & Young LLP.
23.3 Consent of Kirkland & Ellis (included in Exhibit 5.1).
24.1 Powers of Attorney.**
27.1 Financial Data Schedule.**
</TABLE>
---------------------
* Incorporated by reference to the Registrant's Form S-4 (No. 333-91641).
** Previously filed.
+ Confidential treatment has been granted as to certain portions of these
exhibits, which are incorporated by reference.
