-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FBMvw4qTmSyME+bziQfCEsuNghwIRY7elHBX+KOOHkStg7q7xJdXCdVXTY34HD7w DVOttIOJwr7/N85djANEIQ== 0000950131-99-006471.txt : 19991125 0000950131-99-006471.hdr.sgml : 19991125 ACCESSION NUMBER: 0000950131-99-006471 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 50 FILED AS OF DATE: 19991124 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHIPPAC INTERNATIONAL CO LTD CENTRAL INDEX KEY: 0001097583 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 660573152 STATE OF INCORPORATION: D8 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-91641 FILM NUMBER: 99764168 BUSINESS ADDRESS: STREET 1: 3151 CORONADO DR CITY: SANTA CLARA STATE: CA ZIP: 95054 BUSINESS PHONE: 4084864900 MAIL ADDRESS: STREET 1: CRAIGMUIR CHAMBERS, ROAD TOWN STREET 2: TORTOLA CITY: BRITISH VIRGIN ISLAN STATE: D8 ZIP: 00000 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHIPPAC INC CENTRAL INDEX KEY: 0001093779 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 770463048 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-91641-01 FILM NUMBER: 99764169 BUSINESS ADDRESS: STREET 1: 3151 CORONADO DR CITY: SANTA CLARA STATE: CA ZIP: 95054 BUSINESS PHONE: 4084865900 MAIL ADDRESS: STREET 1: 3151 CORONADO DRIVE CITY: SANTA CLARA STATE: CA ZIP: 95054 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHIPPAC LUXEMBOURG SARL CENTRAL INDEX KEY: 0001097578 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 000000000 STATE OF INCORPORATION: N4 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-91641-02 FILM NUMBER: 99764170 BUSINESS ADDRESS: STREET 1: 3151 CORONADO DR CITY: SANTA CLARA STATE: CA ZIP: 95054 BUSINESS PHONE: 4084864900 MAIL ADDRESS: STREET 1: L2453 LUXEMBOURG, 16, RUE EUGENE RUPPERT CITY: LUXEMBOURG STATE: N4 ZIP: 00000 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHIPPAC LIQUIDITY MANAGEMENT LIMITED LIABILITY CO CENTRAL INDEX KEY: 0001097579 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 980209814 STATE OF INCORPORATION: K5 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-91641-03 FILM NUMBER: 99764171 BUSINESS ADDRESS: STREET 1: 3151 CORONADO DR CITY: SANTA CLARA STATE: CA ZIP: 95054 BUSINESS PHONE: 4084864900 MAIL ADDRESS: STREET 1: 9700 SZOMBATHLEY STREET 2: VARKONYIV.15 CITY: HUNGARY STATE: K5 ZIP: 00000 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHIPPAC KOREA CO LTD CENTRAL INDEX KEY: 0001097580 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 980209695 STATE OF INCORPORATION: M5 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-91641-04 FILM NUMBER: 99764172 BUSINESS ADDRESS: STREET 1: 3151 CORONADO DR CITY: SANTA CLARA STATE: CA ZIP: 95054 BUSINESS PHONE: 4084864900 MAIL ADDRESS: STREET 1: SAN 136-1, AMI-RI, BUBAL-CUB, ICHON-SI STREET 2: KYOUNG KI-DO CITY: 467-701 KOREA STATE: M5 ZIP: 00000 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHIPPAC BARBADOS LTD CENTRAL INDEX KEY: 0001097581 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 980209821 STATE OF INCORPORATION: C8 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-91641-05 FILM NUMBER: 99764173 BUSINESS ADDRESS: STREET 1: 3151 CORONADO DR CITY: SANTA CLARA STATE: CA ZIP: 95054 BUSINESS PHONE: 4084864900 MAIL ADDRESS: STREET 1: CHANCERY HOUGE STREET 2: HIGHSTREET CITY: BRIDGETOWN, BARBADOS STATE: C8 ZIP: 00000 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHIPPAC LTD CENTRAL INDEX KEY: 0001097582 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 980209699 STATE OF INCORPORATION: D8 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-91641-06 FILM NUMBER: 99764174 BUSINESS ADDRESS: STREET 1: 3151 CORONADO DR CITY: SANTA CLARA STATE: CA ZIP: 95054 BUSINESS PHONE: 4084864900 MAIL ADDRESS: STREET 1: CRAIGMUIR CHAMBERS, ROAD TOWN STREET 2: TORTOLA CITY: BRITISH VIRGIN ISLAN STATE: D8 ZIP: 00000 S-4 1 FORM S-4 As filed with the Securities and Exchange Commission on November 24, 1999 Registration No. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------- FORM S-4 REGISTRATION STATEMENT Under The Securities Act of 1933 -------------- ChipPAC International Company Limited ChipPAC, Inc. ChipPAC Liquidity Management Hungary Limited Liability Company ChipPAC Luxembourg S.a.R.L. ChipPAC Korea Company Ltd. ChipPAC Limited ChipPAC (Barbados) Ltd. (Exact name of registrants as specified in their charters) British Virgin Islands 3674 66-0573152 California 3674 77-0463-48 Hungary 3674 98-0209814 Luxembourg 3674 98-0209817 Republic of Korea 3674 98-0209695 British Virgin Islands 3674 98-0209699 Barbados 3674 98-0209821 (State or other (Primary Standard (I.R.S. Employer Jurisdiction of Industrial Classification Code) Identification No.) incorporation or organization) -------------- 3151 Coronado Drive, Santa Clara, California 95404 Telephone: (408) 486-5900 (Address, including zip code, and telephone number, including area code of registrants' principal executive offices) -------------- Dennis P. McKenna President & Chief Executive Officer ChipPAC, Inc. -------------- 3151 Coronado Drive, Santa Clara, California 95404 (408) 486-5900 (Name, address, including zip code, and telephone number, including area code, of agent for service) -------------- Copies of all communications, including communications sent to agent for service, should be sent to: Eva Herbst Davis Kirkland & Ellis 300 South Grand Avenue, Suite 3000 Los Angeles, California 90071 (213) 680-8400 Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. -------------- If any of the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] -------------- CALCULATION OF REGISTRATION FEE - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Proposed Amount Maximum Proposed Title of Each Class of Securities to be Offering Price Maximum Aggregate Amount of to be Registered Registered Per Unit(1) Offering Price(1) Registration Fee - ----------------------------------------------------------------------------------------------------------------- 12 3/4% Series B Senior Subordinated Notes Due 2009.......................................... $150,000,000 100% $150,000,000 $41,700 - ----------------------------------------------------------------------------------------------------------------- Guarantees of 12 3/4% Series B Senior Subordinated Notes Due 2009(2)................ -- -- -- (3)
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (1)Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(f) under the Securities Act of 1933, as amended. (2)The guarantors are affiliates of the registrant and have guaranteed the Series B notes being registered. (3)Pursuant to Rule 457(n), no separate fee is payable with respect to the guarantees of the Series B notes being registered. -------------- The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +The information in this prospectus is not complete and may be changed. We may + +not sell these notes until the registration statement filed with the + +Securities and Exchange Commission and any applicable state securities + +commission becomes effective. This prospectus is not an offer to sell these + +notes and we are not soliciting offers to buy these notes in any state where + +the offer or sale is not permitted. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED , 1999 PROSPECTUS Exchange Offer for $150,000,000 12 3/4% Senior Subordinated Notes Due 2009 of ChipPAC International Company Limited ----------- Terms of the Exchange Offer: . We are offering to . The terms of the notes exchange the notes to be issued are that we sold in a identical to the private offering for outstanding notes, new registered except for the exchange notes. transfer restrictions and registration rights relating to the outstanding notes. . The exchange offer expires 5:00 p.m., New York City time, , 2000, unless extended. . The parent company of the issuer and some of its direct and indirect subsidiaries will guarantee the exchange notes with unconditional guarantees that will effectively rank junior in right of payment to their senior debt. . You may withdraw your tender of notes at any time before the expiration of the exchange offer. . We will exchange all of the outstanding notes that you validly tender and do not validly withdraw. . There is no existing market for the exchange notes, and we do not intend to apply for their listing on any securities exchange. . We believe that the exchange of the notes will not be a taxable exchange for U.S. federal income tax purposes. . If you are a broker- dealer and you acquired existing notes as a result of market-making or other trading activities, you must acknowledge that you will deliver this prospectus, as it may be amended or supplemented, in connection with any resale of exchange notes that you acquire in exchange for the existing notes. . We will not receive any proceeds from the exchange offer. . This exchange offer is subject to customary conditions, which we may waive. You should carefully consider the risks described beginning on page 12 before tendering your notes. ----------- Neither the Securities and Exchange Commission nor any state securities commission has approved the notes to be distributed in the exchange offer, nor have any of these organizations determined that this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. ----------- The date of this prospectus is , 1999. TABLE OF CONTENTS
Page ---- Prospectus Summary........................................................ 1 Risk Factors.............................................................. 12 Forward-Looking Statements................................................ 21 Industry Data............................................................. 21 Use of Proceeds........................................................... 22 Capitalization............................................................ 23 The Exchange Offer........................................................ 24 Unaudited Pro Forma Condensed Combined Financial Data..................... 32 Selected Historical Financial Data........................................ 36 Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................... 38 Industry.................................................................. 46 Business.................................................................. 49 Management................................................................ 61 Principal Shareholders.................................................... 66 The Recapitalization...................................................... 69 Certain Relationships and Related Transactions............................ 71 Description of Other Financing Arrangements............................... 75 Description of the Exchange Notes......................................... 79 Material Income Tax Consequences.......................................... 121 Plan of Distribution...................................................... 122 Where You Can Find More Information....................................... 123 Legal Matters............................................................. 123 Experts................................................................... 123 Index to Combined Financial Statements.................................... F-1 Index to Unaudited Interim Condensed Consolidated Financial Statements.... F-39 Glossary.................................................................. G-1
You should rely only on the information contained in this document or to which we have referred you. We have not authorized anyone to provide you with information that is different. This document may only be used where it is legal to sell these securities. The information in this document may only be accurate on the date of this document. We are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate as of the date on the front cover of this prospectus only. Our business, financial condition, results of operations and prospects may have changed since that date. i PROSPECTUS SUMMARY This summary highlights selected information from the prospectus. It does not contain all of the information that is important to you in order to understand this exchange offer or the terms of the exchange notes. Unless the context requires otherwise, "ChipPAC," "Company," "we," "our," "ours" and "us" refer to ChipPAC, Inc. and its subsidiaries. ChipPAC International Company Limited, the issuer of the notes in the exchange offer, is a wholly owned subsidiary of ChipPAC, Inc. ChipPAC reports on a calendar year basis. See the "Glossary" section for a description of certain other terms used in this prospectus. Overview of Our Business We are one of the world's largest providers of packaging and test services for manufacturers in the semiconductor industry. We offer complete portfolios of packaging and test solutions and we are one of the largest providers of high-margin, ball grid array packages, or BGA packages, the most advanced mass- produced semiconductor package. A semiconductor package is a container that protects and insulates the enclosed semiconductor chip and attaches to a printed circuit board. As a result, packages are an integral part of the basic functionality of semiconductors and contribute to their overall performance. We provide packaging and test services to approximately 70 customers worldwide, including approximately 40 customers in the United States who represented 92.8% of our sales during 1998. Our customers include some of the world's largest and most prominent semiconductor manufacturers, such as Atmel Corporation, Intel Corporation, International Business Machines Corporation, LSI Logic Corp., Lucent Technologies, Inc., Samsung Electronics Co., Ltd. and STMicroelectronics N.V. Today, most major semiconductor manufacturers use independent packaging and test service providers for 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, such as chip design and wafer fabrication. Our executive and sales headquarters are in the United States and our packaging facilities are in Korea and China. During 1998, we packaged over 792.9 million units and generated $334.1 million in revenues, $63.7 million in gross profit, $32.2 million in net income and $86.3 million in EBITDA. For the nine-month period ended September 30, 1999, we packaged over 885.2 million units and generated $267.7 million in revenues, $39.9 million in gross profit, $3.3 million in net loss and $58.4 million in EBITDA. For the nine month period ended September 30, 1999, we incurred one time charges for a change of control expense and loss from early extinguishment of debt in the amount of $11.8 million and $1.4 million, respectively. In 1984, our semiconductor packaging business began operating as a separate division of Hyundai Electronics, one of the world's largest seminconductor manufacturers and a member of the Hyundai Group, the Korean conglomerate. As of August 5, 1999, we are no longer majority-owned by Hyundai Electronics as a result of the recapitalization and other transactions described in this prospectus. Operations We offer our customers a full array of semiconductor packages for both traditional and advanced semiconductor products. The semiconductor production process can be broadly divided into three primary stages: (1) fabricating a wafer; (2) slicing the wafer into multiple die and assembling those die into finished devices, which is referred to as "packaging"; and (3) testing of finished devices and other back-end processes. We provide outsourced services for the final two stages of this semiconductor production process. We offer the following packaging and test services to our customers: 1 Substrate, or BGA, packaging, which comprised 61.8% of our 1998 revenues. Substrate packaging, also referred to as BGA packaging, represents the newest and fastest growing area in the semiconductor packaging industry and is characterized by a semiconductor die placed directly on a plastic or tape laminate substrate, which is a mini printed circuit board. We are continuously developing new BGA packaging services and BGA assembly techniques, including chip scale BGA packaging, which is characterized by a package size of less than 1.2 times the size of the device. Benefits of BGA packaging over traditional leaded packaging include: . smaller size; . higher pin count, or number of connections to a printed circuit board; . greater reliability; . better electrical signal integrity; and . easier attachment to a printed circuit board. Leaded packaging, which comprised 35.5% of our 1998 revenues. Traditional leaded packages are the most widely used packaging type, are found in almost every electronics application and are characterized by a semiconductor die encapsulated in a plastic mold compound with metal leads surrounding the perimeter of the device. In 1998, leaded packaging comprised over half of total industry packaging volume. Leaded packaging is used in a variety of applications, including automobiles, household appliances, desktop computers and telecommunications. We offer a wide range of lead counts and body sizes for use in many different applications. Test services, which comprised 2.7% of our 1998 revenues. Semiconductor testing measures and ensures the performance, functionality and reliability of a packaged device, and requires knowledge of the specific applications and functions of the devices being tested. We provide our customers with semiconductor test services for a number of device types, including logic, mixed signal and memory devices. Competitive Strengths We believe the following attributes have helped us become one of the world's largest providers of packaging and test services for semiconductor manufacturers: . demonstrated technology leadership; . growing blue chip customer base; . low-cost infrastructure; . efficiency and quality leader; . major investments in packaging facilities; and . experienced management team. Business Strategy Our business strategy focuses on: . maintaining high-quality customer service; . increasing penetration with existing customers; . expanding customer base through technology leadership; and . maintaining low-cost structure. The Recapitalization On August 5, 1999, affiliates of Bain Capital, Inc. and SXI Group LLC, a portfolio concern of Citicorp Venture Capital Ltd., which we refer to collectively as the "Equity Investors," and management acquired a controlling interest in ChipPAC from Hyundai Electronics and Hyundai Electronics America through a series of 2 transactions, including a merger into ChipPAC, Inc. of a special purpose corporation organized by the Equity Investors. The merger was structured to be accounted for as a recapitalization. Specifically: . the Equity Investors, and other parties, invested $92.0 million to acquire common stock of ChipPAC, Inc. which represented approximately 90.2% of its common stock outstanding immediately following the recapitalization; . the prior stockholders of ChipPAC, Inc. retained a portion of their common stock in ChipPAC, Inc. equal to $10.0 million, or approximately 9.8% of ChipPAC, Inc.'s common stock outstanding immediately following the recapitalization; and . the prior stockholders received as consideration for the remainder of their common stock (i) an aggregate of $385.0 million in cash and (ii) mandatorily redeemable convertible preferred stock payable for up to an aggregate of $70.0 million. These events are collectively referred to as the "recapitalization." You should refer to the information in the section entitled "The Recapitalization" for a more detailed description of the transactions summarized above. In connection with the recapitalization, we entered into several agreements with Hyundai Electronics and Hyundai Electronics America pursuant to which we received, among other things, licenses to use technologies used in our business and transitional operational, administrative and utility services. We have also leased certain facilities from Hyundai Electronics and Hyundai Electronics America. See "Certain Relationships and Related Transactions" for more information on these agreements. In order to finance the recapitalization, we completed the transactions set forth in the section entitled "Use of Proceeds." Our current corporate structure after giving effect to the recapitalization is as follows: 3 The Exchange Offer The exchange offer relates to the exchange of all of ChipPAC International Company Limited's outstanding 12 3/4% Senior Subordinated Notes due 2009 for an equal aggregate principal amount of ChipPAC International Company Limited's new 12 3/4% Series B Senior Subordinated Notes due 2009. The exchange notes will be obligations of ChipPAC International Company Limited entitled to the benefits of the indenture governing the notes, which is the legal document governing the outstanding notes. Registration Rights You have the right to exchange your outstanding Agreement................. notes for registered notes with terms that are identical in all material respects. This exchange offer is intended to satisfy this right. After this exchange offer is complete, you will no longer be entitled to the benefits of the exchange or registration rights granted under the registration rights agreement which we entered into as part of the offering of the outstanding notes. The Exchange Offer........ We are offering to exchange $1,000 principal amount of exchange notes, which have been registered under the Securities Act, for each $1,000 principal amount of outstanding notes. Your outstanding notes must be properly tendered and accepted to be exchanged. All outstanding notes that are validly tendered and not validly withdrawn will be exchanged. $150,000,000 in aggregate principal amount of our notes is currently outstanding. We will issue the registered exchange notes on or promptly after the expiration of this exchange offer. Expiration Date........... This exchange offer will expire at 5:00 p.m., New York City time, on , 2000, unless we decide to extend the expiration date. Conditions to the We will not complete this exchange offer if it Exchange Offer............ violates applicable law or staff interpretations of the Securities and Exchange Commission. This exchange offer is not conditioned upon any minimum principal amount of our outstanding notes being tendered. Resale of the Exchange We believe that the exchange notes may be Notes..................... offered for resale, resold and otherwise transferred by you without compliance with the registration and prospectus delivery provisions of the Securities Act. We have based this belief on letters issued in connection with past offerings of this kind in which the staff of the Securities and Exchange Commission has interpreted the laws and regulations relating to the resale of notes to the public without the requirement of further registration under the Securities Act. See Shearman & Sterling (available July 2, 1993); Morgan Stanley & Co. Incorporated (available June 5, 1991); and Exxon Capital Holdings Corporation (available May 13, 1989). In order for the exchange notes to be offered for resale, resold or otherwise transferred: . you must acquire the exchange notes in the ordinary course of your business; . you must not intend to participate, and have no arrangement or understanding with any person to participate, in the distribution of the exchange notes issued to you in this exchange offer; 4 . you must not be a broker-dealer who purchased your outstanding notes directly from us for resale under Rule 144A or any other available exemption under the Securities Act; and . you must not be an "affiliate" of ours within the meaning of Rule 405 under the Securities Act. If you do not meet the above conditions, you may incur liability under the Securities Act if you transfer any exchange note without delivering a prospectus meeting the requirements of the Securities Act. We do not assume or indemnify you against this liability. Each broker-dealer that is issued exchange notes in this exchange offer for its own account in exchange for outstanding notes which were acquired by that broker-dealer as a result of market-making or other trading activities must acknowledge that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of the exchange notes. A broker-dealer may use this prospectus for an offer to resell, resale or other transfer of the exchange notes issued to it in this exchange offer. We have agreed that, for a period of 180 days after the date this exchange offer is completed, we will make this prospectus and any amendment or supplement to this prospectus available to a broker-dealer for use in connection with resales. We are not offering to exchange with you, and will not accept surrenders for exchange from you, in any jurisdiction in which this exchange offer or its acceptance would not comply with the securities or blue sky laws of that jurisdiction. Furthermore, if you acquire the exchange notes, you are responsible for compliance with securities or blue sky laws regarding resales. We assume no responsibility for compliance with these requirements. Accrued Interest on the Exchange Notes and the Outstanding Notes......... Each exchange note will bear interest from its issuance date. The holders of outstanding notes that are accepted for exchange will receive, in cash, accrued interest on those notes to, but not including, the issuance date of the exchange notes. This interest will be paid with the first interest payment on the exchange notes. Interest on the outstanding notes accepted for exchange will cease to accrue upon issuance of the exchange notes. Consequently, if you exchange your outstanding notes for exchange notes you will receive the same interest payment on February 1, 2000, which is the first interest payment date with respect to the outstanding notes and the exchange notes, that you would have received if you had not accepted this exchange offer. Procedures for Tendering If you wish to tender your notes for exchange Notes..................... in this exchange offer, you must transmit to the notes exchange agent, on or before the expiration date either: 5 . an original or a facsimile of a properly completed and duly executed copy of the letter of transmittal accompanying this prospectus, together with your outstanding notes and any other documentation required by the letter of transmittal, at the address provided on the cover page of the letter of transmittal; or . if the notes you own are held of record by The Depository Trust Company in book-entry form and you are making delivery by book-entry transfer, a computer-generated message transmitted by means of the Automated Tender Offer Program System of The Depository Trust Company in which you acknowledge and agree to be bound by the terms of the letter of transmittal and which, when received by the notes exchange agent, forms a part of a confirmation of book-entry transfer. As part of the book-entry transfer, the Depository Trust Company will facilitate the exchange of your notes and update your account to reflect the issuance of the exchange notes to you. The Automated Tender Offer Program allows you to electronically transmit your acceptance of the exchange offer to The Depository Trust Company instead of physically completing the delivering a letter of transmittal to the notes exchange agent. In addition, you must deliver to the notes exchange agent on or before the expiration date: . if you are effecting delivery by book-entry transfer, a timely confirmation of book-entry transfer of your outstanding notes into the account of the notes exchange agent at The Depository Trust Company as required by the procedures for book-entry transfers described in this prospectus under the heading "The Exchange Offer--Procedures for Tendering"; or . if necessary, the documents required for compliance with the guaranteed delivery procedures described in this prospectus under the heading "The Exchange Offer--Guaranteed Delivery Procedures." By executing and delivering the accompanying letter of transmittal or effecting delivery by book-entry transfer, you are representing to us that, among other things: . the person receiving the exchange notes in this exchange offer, whether or not that person is the holder, is receiving them in the ordinary course of business; . neither you nor any other person receiving the exchange notes in the exchange offer has an arrangement or understanding with any person to participate in the distribution of the exchange notes and that you are not engaged in, and do not intend to engage in, a distribution of the exchange notes; and . neither you nor any other person receiving the exchange notes in the exchange offer is an "affiliate" of ours within the meaning of Rule 405 under the Securities Act. 6 Special Procedures for Beneficial Owners......... If you are a beneficial owner of the notes that are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and you wish to tender your notes in this exchange offer, you should promptly contact the person in whose name your notes are registered and instruct that person to tender on your behalf. If you wish to tender on your own behalf you must, before completing and executing the letter of transmittal and delivering your outstanding notes, either make appropriate arrangements to register ownership of the outstanding notes in your name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time. Guaranteed Delivery If you wish to tender your outstanding notes Procedures................ and: . time will not permit your notes or other required documents to reach the notes exchange agent by the expiration date; or . the procedure for book-entry transfer cannot be completed on time; you may tender your notes in compliance with the guaranteed delivery procedures described in this prospectus under the heading "The Exchange Offer--Guaranteed Delivery Procedures." Withdrawal Rights......... You may withdraw the tender of your outstanding notes at any time before 5:00 p.m., New York City time, on , 2000 which is the expiration date. Acceptance of Outstanding Notes and Delivery of Exchange Notes............ Except under the circumstances described above under "Conditions to the Exchange Offer," we will accept for exchange any and all outstanding notes which are properly tendered and not validly withdrawn before 5:00 p.m., New York City time, on the expiration date. The exchange notes issued in this exchange offer will be delivered promptly following the expiration date. United States Federal Tax Consequences.............. Based on the advice of our counsel, we believe the exchange of your outstanding notes for the exchange notes will not be a taxable exchange for United States federal income tax purposes. See "Material Income Tax Considerations." Exchange Agent............ Firstar Bank of Minnesota, N.A. is serving as the notes exchange agent in connection with the exchange offer. The notes exchange agent will assist us in the exchange offer by performing various administrative functions on our behalf. 7 The Exchange Notes Issuer.................... ChipPAC International Company Limited, a wholly owned subsidiary of ChipPAC, Inc. General................... The form and terms of the exchange notes are identical in all material respects to the form and terms of the outstanding notes except that: . the exchange notes will bear a Series B designation to differentiate them from the outstanding notes; . the exchange notes have been registered under the Securities Act and, therefore, will not bear legends restricting their transfer; and . the holders of exchange notes will not be entitled to rights under the registration rights agreement. The exchange notes will evidence the same debt as the outstanding notes and will be entitled to the benefits of the same indenture under which the outstanding notes were issued. Total Amount of Exchange Notes Securities Offered.. $150,000,000 aggregate principal amount of 12 3/4% Series B Senior Subordinated Notes Due 2009. Maturity Date............. August 1, 2009. Interest Payment Dates.... February 1 and August 1 of each year, beginning February 1, 2000. Optional Redemption....... We cannot redeem the exchange notes prior to August 1, 2004, except as discussed below. Until August 1, 2002, we can choose to redeem the exchange notes in an amount not to exceed 35.0% of the sum of the original principal amount of the exchange notes with money ChipPAC, Inc. raises in equity offerings described herein, as long as: . we pay the holders of the exchange notes a redemption price of 112 3/4% of the principal amount of the exchange notes, plus accrued but unpaid interest to the date of redemption; and . at least 65.0% of the original aggregate principal amount of the exchange notes (plus any additional exchange notes issued under the indenture) remains outstanding after each such redemption. On or after August 1, 2004, we can redeem some or all of the exchange notes at the redemption prices listed in the "Description of the Exchange Notes--Optional Redemption" section of this prospectus, plus accrued but unpaid interest to the date of redemption. Change of Control......... If a Change of Control of ChipPAC, Inc. occurs, subject to certain conditions, we must give holders of the exchange notes an opportunity to sell to us their exchange notes at a purchase price of 101.0% of the principal amount of the exchange notes, plus accrued and unpaid interest. The term "Change of Control" is defined in the "Description of the Exchange Notes--Change of Control" section of the prospectus. Ranking................... The exchange notes will be our senior subordinated unsecured obligations. They will rank senior in right of payment with any of our future Subordinated Indebtedness, equal in right of payment with any of our existing and future Senior Subordinated Indebtedness and 8 subordinated in right of payment to any of our existing and future Senior Indebtedness. The exchange notes are effectively subordinated to indebtedness and other liabilities of ChipPAC, Inc.'s subsidiaries which are not guarantors. As of September 30, 1999, we had approximately $300 million of Senior Indebtedness, and none of our subsidiaries, whether or not such subsidiary is a guarantor, had any Senior Indebtedness. The terms "Senior Indebtedness," "Senior Subordinated Indebtedness" and "Subordinated Indebtedness" are defined in the "Description of the Exchange Notes--Certain Definitions" section of this prospectus. Guaranties................ The Issuer's parent, ChipPAC, Inc., and the following direct, and indirect subsidiaries of ChipPAC, Inc. are guarantors of the exchange notes: ChipPAC (Barbados) Ltd., ChipPAC Limited, ChipPAC Korea Company Ltd., ChipPAC Luxembourg S.a.R.L. and ChipPAC Liquidity Management Hungary Limited Liability Company. Each guarantor has provided a full and unconditional guarantee of the payment of the principal, premium and interest on the exchange notes on a senior subordinated basis. The guaranties by the guarantors are subordinated to all existing and future Senior Indebtedness of such guarantors. Substantially all of our operations are conducted through ChipPAC Limited and its Korean and Chinese subsidiaries. ChipPAC's Chinese subsidiaries are not guarantors. See "Description of the Exchange Notes--Guaranties" and "Risk Factors-- Our ability to pay our obligations under the exchange notes may be reduced because ChipPAC's Chinese operating subsidiaries are not guarantors of the exchange notes." Basic Covenants of the The indenture governing the exchange notes Indenture................. contains covenants that limit our ability and the ability of subsidiaries (other than subsidiaries we have designated as unrestricted subsidiaries) to: . incur or guarantee additional indebtedness; . pay dividends and make distributions; . make investments and other restricted payments; . permit payment or dividend restrictions on our subsidiaries; . transfer or sell assets; . create liens; . engage in transactions with affiliates; and . consolidate or merge. These restrictions and prohibitions are subject to a number of important qualifications and exceptions. See "Description of the Exchange Notes--Certain Covenants." Use of Proceeds........... We will not receive any cash proceeds from the issuance of the exchange notes. For more complete information about the exchange notes, see "Description of the Exchange Notes." Principal Executive Offices ChipPAC, Inc.'s executive offices are located at 3151 Coronado Drive, Santa Clara, California 95054 and its telephone number is (408) 486-5900. ChipPAC International Company Limited's executive offices are located at Craigmuir Chambers, Road Town, Tortola, British Virgin Islands and its telephone number is (284) 494-2233. 9 Summary Historical and Unaudited Pro Forma Combined Financial and Operating Data The following summary financial historical data for the four years ended December 31, 1998 were derived from the audited combined financial statements of ChipPAC included elsewhere in this prospectus. The summary unaudited pro forma data for the nine month period ended September 30, 1999, were derived from our unaudited combined financial statements which, in the opinion of management, reflect all adjustments necessary for the fair presentation of the financial condition and results of operations for such period. The summary unaudited pro forma combined statements of operations and other operating data for the nine month period ended September 30, 1999 give effect to the recapitalization as if it had occurred on January 1, 1998. The summary unaudited pro forma balance sheet data at September 30, 1999 give effect to the recapitalization as if it had occurred on September 30, 1999. Our historical information reflected in the Pro Forma Combined Financial Statements represents the accounts and operations of Hyundai Electronics with respect to ChipPAC. During the period covered by our Combined Financial Statements, its activities were conducted as part of Hyundai Electronics' overall operations, and separate financial statements were not prepared. Our Combined Financial Statements were prepared from the historical accounting records of Hyundai Electronics and include various allocations for costs and expenses. Therefore, the Combined Statement of Operations of ChipPAC may not be indicative of the results of operations that would have resulted if ChipPAC had operated on a stand-alone basis. All of the allocations and estimates reflected in our Combined Financial Statements are based on assumptions that we believe are reasonable under the circumstances and that have been reviewed by Hyundai Electronics America. "EBITDA" as presented below has been adjusted to exclude certain historical charges and credits. EBITDA is not intended to be a performance measure that should be regarded as an alternative to, or more meaningful than, either operating income or net income as an indicator of operating performance or cash flow as a measure of liquidity, as determined in accordance with GAAP. The following summary unaudited pro forma combined financial data are intended for informational purposes and should not be considered indicative of either the future results of operations or the results that might have occurred if the recapitalization had been consummated on the indicated date or had been in effect for the period presented. The following table should be read in conjunction with "Capitalization," "Unaudited Pro Forma Condensed Combined Financial Data," "Selected Historical Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the historical combined financial statements and the notes related thereto included elsewhere in this prospectus.
Unaudited Fiscal Year Ended December 31, Pro Forma Nine ------------------------------------------ Month Period Ended 1995 1996 1997 1998 September 30, 1999 -------- -------- -------- -------- ------------------ (Dollars in thousands) Statement of Operations Data: Revenue................. $179,234 $191,655 $289,429 $334,081 $267,671 Gross profit............ 20,707 24,990 60,191 63,716 39,879 Selling, general and administrative (1)..... 11,943 14,753 19,052 15,595 14,416 Research and development............ 1,724 2,617 4,052 7,692 8,628 Write-down of impaired assets (2)............. -- -- 11,569 -- -- -------- -------- -------- -------- -------- Operating income........ $ 7,040 $ 7,620 $ 25,518 $ 40,429 $ 16,835 ======== ======== ======== ======== ======== Balance Sheet Data (at September 30, 1999): Cash and cash equivalents................................... 33,142 Accounts receivable......................................... 34,679 Inventories................................................. 12,420 Total assets................................................ 322,461 Total debt.................................................. 300,000 Total shareholders' deficit................................. 109,749 Other Financial Data: Depreciation and amortization........... $ 27,917 $ 26,632 $ 40,682 $ 45,855 $ 41,850 Capital expenditures (3).................... 51,462 118,971 136,594 63,523 29,062 Ratio of earnings to fixed charges (4)...... 1.4x -- (4) -- (4) 4.3x -- (4) EBITDA (5).............. $ 34,957 $ 34,252 $ 77,769 $ 86,284 $ 58,436 Total cash interest expense (6)............ 11,840 Ratio of EBITDA to total cash interest expense (7).................... 4.9x
- -------- Footnotes to table appear on following page. 10 Footnotes to table on previous page. (1) Includes management fees charged by Hyundai. (2) At December 1997, in accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, we recorded a charge of $11.6 million to write down the value of certain assets which had been identified as economically impaired, as a result of management's decision to discontinue certain product lines or which were judged to be in excess of foreseeable requirements. (3) Includes capital leases. (4) For purposes of this computation, earnings are defined as income (loss) before provision for income taxes and fixed charges. Fixed charges are the sum of (a) interest costs, (b) the portion (approximately one-third) of operating lease rental expenses that are representative of the interest factor and (c) the pre-tax effect of preferred stock dividend requirements. Earnings for 1996 and 1997 and the nine month period ended September 30, 1999 were inadequate to cover fixed charges by $2.7 million, $55.8 million, and $6.5 million, respectively. Earnings for the year ended December 31, 1997 included a non-cash foreign currency loss of $69.7 million and a non-cash asset impairment charge of $11.6 million. (5) "EBITDA" is defined herein as operating income plus depreciation, amortization, and, in 1997, non-cash charges related to write-downs of impaired assets. EBITDA is presented because we believe it is a widely accepted financial indicator of a company's ability to service and/or incur indebtedness. However, EBITDA should not be considered as an alternative to net income as a measure of operating results or to cash flows as a measure of liquidity in accordance with generally accepted accounting principles. Because EBITDA is not calculated identically by all companies, the presentation herein may not be comparable to those disclosed by other companies. See footnote (6) in "Unaudited Pro Forma Condensed Combined Financial Data" for the reconciliation of net income to EBITDA as defined above. (6) Total cash interest expense represents the pro forma interest expense less amortization of deferred debt issuance costs. (7) For purposes of this computation, EBITDA is defined at (5) and cash interest expense is defined at (6). For the nine month period ended September 30, 1999 we generated EBITDA of $58.4 million and incurred cash interest expense of $11.8 million resulting from interest charges of $12.1 million less debt issuance amortization of $0.3 million. 11 RISK FACTORS You should carefully consider the risks described below in addition to the other information set forth in this prospectus before making an investment in the exchange notes. Holders of existing notes who fail to exchange their existing notes may be unable to resell their notes. We did not register the outstanding notes under the federal or any state securities laws, nor do we intend to register them following the exchange offer. As a result, the outstanding notes may only be transferred in limited circumstances under the securities laws. If the holders of outstanding notes do not exchange their notes in the exchange offer, they lose their right to have their notes registered under the federal securities laws, subject to certain limitations. As a result, a holder of outstanding notes after the exchange offer may be unable to sell their notes. Your notes will not be accepted for exchange if you fail to follow the exchange offer procedures. The exchange notes will be issued to you in exchange for your notes only after timely receipt by the exchange agent of: . your notes; and . a properly completed and executed Letter of Transmittal and all of the required documentation; or . a book-entry delivery by transmittal of an agent's message through The Depository Trust Company. If you want to tender your notes in exchange for exchange notes, you should allow sufficient time to ensure timely delivery. Neither we nor the exchange agent or any of its affiliates are under any duty to give you notification of defects or irregularities with respect to tenders of existing notes for exchange. Existing notes that are not tendered or are tendered but not accepted will, following the exchange offer, continue to be subject to their existing transfer restrictions. In addition, if you tender your notes in the exchange offer to participate in a distribution of the exchange notes, you will be required to comply with the registration and prospectus delivery requirements of the federal securities laws in connection with any resale transaction. For additional information, please refer to "The Exchange Offer" and "Plan of Distribution" sections of this prospectus. Our substantial indebtedness could adversely affect our financial health, make us vulnerable to adverse economic and industry conditions and prevent us from fulfilling our obligations under these exchange notes. To finance the recapitalization, we incurred a significant amount of indebtedness. The following chart sets forth important credit information, assuming we had completed this offering as of the date, or at the beginning of the periods, specified below and applied the proceeds as intended:
At September 30, 1999 Pro Forma (unaudited) --------------------- (in thousands) Total indebtedness.................................. $300,000 Shareholders' deficit............................... 112,249
Nine Months Ended September Years Ended December 31, 30, -------------------------- ---------- 1994 1995 1996 1997 1998 1998 1999 ---- ---- ---- ---- ---- ---- ---- Ratio of earnings to fixed charges......................... 2.0x 1.4x -- -- 4.3x 5.1x --
For the years ended December 31, 1996 and 1997 and the nine month period ended September 30, 1999, earnings were insufficient to cover fixed charges by $2.7 million $55.8 million and $6.5 million, respectively. 12 Our substantial indebtedness could have important consequences to you. For example, it could: . make it more difficult for us to satisfy our obligations with respect to the exchange notes; . increase our vulnerability to general adverse economic and industry conditions by limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; . require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, research and development efforts and other general corporate purposes; . place us at a competitive disadvantage relative to our competitors that have less debt; and . limit, along with the financial and other restrictive covenants in our indebtedness, among other things, our ability to borrow additional funds. Furthermore, failing to comply with those covenants could result in an event of default which, if not cured or waived, could have a material adverse effect on our business, financial condition and results of operations. For purposes of the computation of pro forma ratio of earnings to fixed charges in the table above, earnings are defined as income (loss) before provision for income taxes and fixed charges. Fixed charges are the sum of (a) interest costs and (b) the portion (approximately one-third) of operating lease rental expenses that are representative of the interest factor. Despite our current levels of indebtedness, we still may be able to incur substantially more debt which could increase the risks created by our substantial indebtedness. We may be able to incur substantial additional indebtedness in the future. For example, our senior credit facilities permit us to borrow up to an additional $70.0 million to finance working capital requirements and capital expenditures, and for trade letters of credit. All of these borrowings will be secured by all of our assets and those of certain of our subsidiaries. The addition of new debt to our current debt levels could intensify the debt- related risks that we now face that are described above. See "Description of Other Financing Arrangements--Senior Credit Facilities" and "Description of the Exchange Notes." Your right to receive payments on the exchange notes is junior to ChipPAC International Company Limited's existing and, possibly future, senior indebtedness and all of the guarantors' senior indebtedness. It is possible, therefore, that you may receive no compensation of any kind with respect to the exchange notes if there is a bankruptcy, liquidation or similar proceeding affecting us. We may not have sufficient funds to satisfy our obligations with respect to the exchange notes. The exchange notes and the guarantees rank behind all of our existing indebtedness and all of our future borrowings, except any future indebtedness that expressly provides that it ranks with, or subordinated in right of payment to, the exchange notes and the guarantees. As a result, upon any distribution to our creditors, in a bankruptcy, liquidation or reorganization or similar proceeding relating to us or our property. We will have to pay the holders of debt senior to the exchange notes in full before we can make any payment to you with respect to the exchange notes. In addition, all payments on the exchange notes and the guarantees will be blocked in the event of a payment default on some of our senior debt (including borrowings under the senior credit facilities) and may be blocked for specified periods in the event of some non-payment defaults on senior debt. As a holder of the exchange notes, you will typically have equal rights to your ratable share, along with all of our suppliers and vendors to which we owe money, commonly referred to as trade creditors, and other holders of debt of the same class as the exchange notes, of any assets remaining after we have paid off all of the debt senior to the exchange notes. However, the indenture requires that amounts otherwise payable to holders of exchange notes in a bankruptcy, liquidation or similar proceeding be paid to holders of debt senior to the exchange notes instead. Consequently, holders of the exchange notes may receive less, ratably, than holders of trade payables or other debt of the same class in any such proceeding. 13 ChipPAC International Company Limited, the issuer of the exchange notes, will rely on intercompany loans through ChipPAC, Inc.'s direct and indirect subsidiaries to satisfy obligations of its indebtedness; as a result, if these subsidiaries are not able to make payments on these intercompany loans, we may not be able to pay you interest on the exchange notes when due. ChipPAC International Company Limited has no business operations of its own and its only assets are intercompany notes and the capital stock of its subsidiaries, none of which will have any substantial assets other than intercompany loans or conduct any business of their own other than intercompany financing. Thus, the only source of cash for ChipPAC International Company Limited to pay interest on the exchange notes will be through payments of interest and principal on intercompany notes, capital contributions from ChipPAC, Inc. or dividends or distributions from ChipPAC, Inc.'s subsidiaries, which dividends or distributions would be funded through payments on intercompany notes. We will rely principally on funds generated by ChipPAC, Inc.'s operating subsidiaries to fund payments on the exchange notes and other indebtedness. If such subsidiaries are unable to make payments on their intercompany loans, we may not be able to satisfy obligations under our debt instruments, including payment of interest on the senior credit facilities and the exchange notes. Our ability to pay our obligations under the exchange notes may be reduced because ChipPAC's Chinese operating subsidiaries are not guarantors of the exchange notes. ChipPAC's Chinese subsidiaries are not guarantors of the exchange notes. However, the historical combined financial information and the pro forma combined financial information included in this prospectus are presented on a combined basis and include the Chinese entities. After giving effect to the recapitalization, the aggregate revenue and EBITDA for the Chinese entities, for the year ended December 31, 1998, would have been approximately $13.8 million and a loss of $3.0 million, respectively, and their combined fixed assets at September 30, 1999 would have been approximately $78.0 million. Since ChipPAC's Chinese subsidiaries will not guarantee the exchange notes, holders of the exchange notes will have to rely solely on dividends or distributions from ChipPAC's Korean and British Virgin Islands subsidiaries to satisfy their respective obligations under the exchange notes should ChipPAC's Chinese subsidiaries be unable to make dividends or distributions. The exchange notes will not be secured by any of our assets. Our obligations under the senior credit facilities are secured by our assets and those of certain of our subsidiaries, and the senior lenders will have a prior claim to our assets if we become insolvent, are liquidated or if our senior secured indebtedness is accelerated. The exchange notes and the guarantees will not be secured by any of our assets. Our obligations under the senior credit facilities will be secured by a first priority pledge of all our capital stock, a perfected first priority security interest in substantially all of our assets and those of our subsidiaries and a first priority pledge of all intercompany loans among: . ChipPAC International Company Limited and each of ChipPAC Luxembourg S.a.R.L., ChipPAC Assembly and Test (Shanghai) Company, Ltd. and ChipPAC Limited, respectively; . ChipPAC Luxembourg S.a.R.L. and ChipPAC Liquidity Management Hungary Limited Liability Company; and . ChipPAC Liquidity Management Hungary Limited Liability Company and ChipPAC Korea Company, Ltd. If we become insolvent or are liquidated, or if payment under the senior credit facilities or under other secured senior indebtedness is accelerated, the lenders under the senior credit facilities or holders of such other secured senior indebtedness will be entitled to exercise the remedies available to a secured lender under applicable law and under documents pertaining to the senior credit facilities or such other senior debt. Accordingly, holders of such secured senior indebtedness will have a prior claim to our assets. See "Description of Other Financing Arrangements--Senior Credit Facilities" and "Description of the Exchange Notes." 14 The senior credit facilities and the indenture governing the exchange notes limit us in significant respects. The senior credit facilities and the indenture governing the exchange notes contain restrictions on us that could increase our vulnerability to general adverse economic and industry conditions by limiting our flexibility in planning for and reacting to changes in our business and industry. Specifically, these restrictions limit our ability, among other things, to: . incur additional debt; . pay dividends and make other distributions; . prepay subordinated debt; . make investments and other restricted payments; . enter into sale and leaseback transactions; . create liens; . sell assets; and . enter into transactions with affiliates. We may not have the ability to raise the funds necessary to finance the change of control offer required by the indenture governing the exchange notes. If we undergo a change of control as defined in the indenture governing the exchange notes, we must offer to buy back the exchange notes for a price equal to 101.0% of the principal amount of the exchange notes, plus any accrued and unpaid interest. In addition, our senior credit facilities prohibit us from repurchasing the exchange notes until we first repay the senior credit facilities in full. If we fail to repurchase the exchange notes in that circumstance, we will go into default under both the indenture governing the exchange notes and under the senior credit facilities. Any future debt which we incur may also contain restrictions on repayment upon a change of control. If any change of control occurs, we cannot assure you that we will have sufficient funds to satisfy all of our debt obligations. These buyback requirements may also delay or make it harder for others to effect a change of control. However, some other corporate events, such as leveraged recapitalizations that would increase our level of indebtedness, would not constitute a change of control under the indenture governing the exchange notes. See "Description of Other Financing Arrangements--Senior Credit Facilities" and "Description of the Exchange Notes--Change of Control." Federal and state laws allow courts, under specific circumstances, to void the exchange notes and the subsidiary guarantees and require note holders to return payments received from us or the subsidiary guarantors. A significant portion of the net proceeds from the offering of the existing notes was used to pay for our common stock outstanding prior to the recapitalization and vested options to purchase our common stock. If a bankruptcy proceeding or a lawsuit is initiated by our unpaid creditors, the debt which we incurred to finance the recapitalization, including the exchange notes and the guarantees, may be reviewed under federal bankruptcy laws and comparable provisions of state fraudulent transfer laws. Under these laws, indebtedness incurred by us to consummate the recapitalization could be voided, or claims in respect of the debt could be subordinated to all other debt if, among other things, we: . received less than reasonably equivalent value or fair consideration for the incurrence of such debt; . were insolvent or rendered insolvent by reason of such incurrence; . were engaged in a business or transaction for which our remaining assets constituted unreasonably small capital; or . intended to incur, or believed that we would incur, debts beyond our ability to pay such debts as they mature. 15 In addition, you may be required to return to us, or to a fund for the benefit of creditors, any payments received from us in respect of the exchange notes. The measures of insolvency will vary depending upon the fraudulent transfer law applied in any proceeding to determine whether such a transfer has occurred. Generally, however, a debtor would be considered insolvent if: . the sum of its debts, including contingent liabilities, were greater than the fair saleable value of all of its assets; . the present fair saleable value of its assets were less than the amount that would be required to pay its probable liability on existing debts, including contingent liabilities, as they become absolute and mature; or . it could not pay its debts as they become due. We believe that we received fair market value for the indebtedness we incurred in connection with the recapitalization. On the basis of historical financial information, recent operating history and other factors, we believe that, after giving effect to the recapitalization, we will not be insolvent, will not have unreasonably small capital for the business in which we are engaged or will not have incurred debts beyond our ability to pay such obligations as they mature. We cannot assure you, however, as to what standard a court would apply in making such determination, or that a court would agree with our conclusions in this regard. Our operations could be materially adversely effected if our relationship with Hyundai, our owner prior to the recapitalization, deteriorates. 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, in turn, could have a material adverse effect on our business, financial condition and results of operations. Our operating results may be adversely affected by market forces in the semiconductor industry which are beyond our control. Our business is substantially affected by market conditions in the semiconductor industry, which is highly cyclical and, at various times, has been subject to significant economic downturns characterized by reduced product demand, rapid erosion of average selling prices and production overcapacity. Beginning in 1997 and continuing through the end of 1998, intense competition and a general slowdown in the semiconductor industry worldwide resulted in decreases in the average selling prices of many of our packaging services. We expect that average selling prices for our services will continue to decline in the future. A decline in average selling prices for these services, if not offset by reductions in the costs of providing those services or by a shift to higher margin services, would decrease our gross profits and could have a material adverse effect on our business, financial condition and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." 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 business, financial condition and operating results would be materially and adversely affected. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Our inability to provide new packaging and test services could adversely affect our business. 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 16 advanced package designs in order to respond to competitive industry conditions and customer requirements. The requirement to develop and maintain advanced packaging capabilities and equipment could require significant research and development and capital expenditures in future years. In addition, advances in technology typically lead to rapid and significant price decreases and lower margins for older packaging types and may lead to our current services becoming less competitive. Any failure by us to achieve advances in package design or to obtain access to advanced package designs developed by others could have a material adverse effect on our business, results of operations and financial condition. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Our research and development efforts may not yield profitable and commercially viable services for years. Our research and development efforts may not yield commercially viable packages or test services, if at all, for anywhere from one to two years. The qualification process is conducted in various stages which may take up to an additional year to complete, and during each stage there is a substantial risk that we will have to abandon a potential package or test service which is no longer marketable and in which we have invested significant resources. In the event we are able to qualify new packages, a significant amount of time will have elapsed between our investment in such packages and the receipt of any related revenues. The intensity of competition in our industry could result in downward pressure on pricing, or loss of our customers which could adversely affect our operating results. We face substantial competition from a number of established independent packaging companies and with the internal capabilities of many of our largest customers. Each of our primary competitors has significant operational capacity, financial resources, research and development operations, and established relationships with many large semiconductor companies which are current or potential customers of ours. The presence of these competitors may result in downward price pressure in our industry. Furthermore, our competitors may in the future capture our existing or potential customers through superior responsiveness, service quality, product design, technical competence or other factors which we view as the principal elements of competition in our industry. In addition, our primary customers may, in the future, shift more of their packaging and test service demand internally. Each of the factors could have a material adverse effect on our business, financial condition and results of operations. Our results may be adversely affected by reduced quality of our packaging and test 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 such factors, particularly in connection with any expansion of capacity or change in processing steps. In addition, our yield on new packaging will be lower during the period necessary for us to develop the requisite expertise and experience with such processes. Any failure by us to maintain high quality standards or acceptable yields, if significant and sustained, could result in the loss of customers, delays in shipments, increased costs and cancellation of orders. Our business may be adversely affected by the loss of, or reduced purchases by, Intel, Atmel Corporation, LSI Logic or any other large customer. Additionally, we may encounter difficulties in soliciting new customers. In 1998, sales of packaging and test services to Intel, Atmel Corporation and LSI Logic accounted for approximately 67.0%, 10.1% and 9.8% of our net revenues, respectively, and sales to our top five customers in the aggregate accounted for approximately 89.7% of total net revenues. If any of our key customers were to 17 purchase significantly less of our services in the future, such decreased level of purchases could have a material adverse effect on our business, financial condition and results of operations. Semiconductor packaging companies must pass a lengthy and rigorous qualification process that can take up to six months at a cost to the customer of $250,000 to $300,000. If we fail to qualify packages with potential customers or customers with which we have recently become qualified do not use our services, then our customer base could become more concentrated with a limited number of customers accounting for a significant portion of our revenues. Moreover, we believe that once a semiconductor company has selected a particular packaging company's services, the former generally relies on that vendor's packages for specific applications and, to the extent possible, subsequent generations of that vendor's packages. Accordingly, it may be difficult to achieve significant sales to a particular or potential customer once another vendor's packages have been selected by that customer unless there are compelling reasons to do so, such as significant performance or cost advantages. Economic crisis in the Pacific Rim region where our suppliers are located could prevent us from securing adequate supplies of materials which could adversely affect our operations. All of our materials suppliers are located in the Pacific Rim. Historically, over half of our substrate costs were incurred from the purchase of materials from Japanese suppliers. In the future, we expect that a growing portion of these materials will be supplied by sources in Korea and Taiwan. Several countries in this region have experienced currency devaluation and/or difficulties in financing short-term obligations. We cannot assure you that the effect of this economic crisis on our suppliers will not impact operations, or that the effect on our customers in that region will not adversely affect both the demand for our services and the collectibility of receivables. We obtain the direct materials to fill orders for our packaging and test services directly from vendors. To maintain competitive packaging operations, we must obtain from our vendors, in a timely manner, sufficient quantities of acceptable materials at expected prices. We source most of our materials, including critical materials such as lead frames, laminate substrates and gold wires, from a limited group of suppliers. We purchase all of our materials on a purchase order basis and have no long-term contracts with any suppliers. From time to time, vendors have extended lead times or limited the supply of required materials to us because of vendor capacity constraints and, consequently, we have experienced difficulty in obtaining acceptable materials on a timely basis. Our business, financial condition and results of operations could be materially and adversely affected if our ability to obtain sufficient quantities of materials and other supplies in a timely manner were substantially diminished or if there were significant increases in the costs of materials that we could not pass on to our customers. Our inability to protect our intellectual property could adversely affect our business. We license critical technology from Hyundai and Motorola. Our failure to extend the Motorola sublicense after it expires on December 31, 2002 could adversely affect our business. We seek to protect our proprietary information and know-how through the use of trade secrets, confidentiality agreements and other security measures. With respect to patents, we cannot assure you that any applications we file for patent protection will be granted, or, if granted, will offer meaningful protection. Additionally, we cannot assure you that our competitors will not develop, patent or gain access to similar know-how and technology, or reverse engineer our packaging services, or that any confidentiality agreements upon which we rely to protect our trade secrets and other proprietary information will be adequate to protect our proprietary technology. The occurrence of any such events could have a material adverse effect on our business, financial condition and results of operations. Any patents and utility model, design right and computer program right registrations obtained with respect to technology that we developed prior to the recapitalization are owned by Hyundai Electronics. In connection 18 with the recapitalization, we entered into a patent and technology license agreement pursuant to which Hyundai Electronics granted us a license to use certain 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 certain patented BGA technologies owned by Motorola. Motorola may also license such patents to others, including our competitors. These BGA technologies contributed to 61.8% of our net revenues in 1998. After expiration of this sublicense on December 31, 2002, we may be unable to utilize such BGA technologies if this sublicense is not extended or otherwise renewed. Alternatively, in the event that we are able to renew this arrangement, we cannot assure you that it will be on the same terms as currently exist. Any failure to extend or renew this sublicense arrangement with respect to Motorola's patented BGA technologies could cause us to incur substantial liabilities and to suspend the packaging services and processes that utilize these technologies. We may in the future receive communications from third parties claiming that we may be infringing certain of such parties' patents and other intellectual property rights. Any infringement claim or other litigation against or by us could have a material adverse effect on our business, financial condition and results of operations. The loss of our skilled personnel or our key executive officers could have a material adverse effect on our business. Our competitiveness within our industry will depend in large part upon whether we can attract and retain skilled technical and marketing personnel and can retain members of our executive team. Competition for skilled personnel is intense, and we cannot assure you that we will be successful in attracting and retaining the technical personnel or executive managers we require to develop new and enhanced packaging and test services and to continue to grow and operate profitably. Our operations could be negatively affected by future labor problems. As of September 30, 1999, over half of our employees were represented by the ChipPAC Korea Labor Union. In addition, one of our Chinese subsidiaries experienced labor protests and a two day work stoppage in July 1998 in connection with proposed work force reductions. We cannot assure you that issues with the labor union or other employees will be resolved favorably for us in the future, that we will not experience significant work stoppages in future years or that we will not record significant charges related to those work stoppages. Our business could be adversely affected by changes in political and economic conditions in foreign countries, particularly in Asia. For 1996, 1997 and 1998, we generated approximately 38.2%, 17.6% and 7.2% of total revenues, respectively, from international markets, primarily from customers in the Pacific Rim. In addition, all of the facilities currently used to provide our packaging services are located in Korea and China and many of our customers' operations are located in countries outside of the United States. We cannot determine to what extent our future operations and earnings may be affected by new laws, new regulations, changes in or new interpretations of existing laws or regulations or other consequences of doing business outside the U.S., particularly in Korea and China. Fluctuations in the exchange rate of the U.S. dollar and foreign currencies could have a material adverse effect on our financial performance and results of operations. A portion of our costs and revenues are denominated in other currencies, such as the South Korean Won and the Chinese RMB. As a result, changes in the exchange rates of these currencies or any other applicable currencies to the U.S. dollar will affect our costs of goods sold and operating margins and could result in exchange losses. The impact of future exchange rate fluctuations on our results of operations cannot be 19 accurately predicted. 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. 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 certain assumptions about the various tax laws, including withholding tax, and other relevant laws of the applicable non-U.S. jurisdictions. We cannot assure you that foreign taxing authorities will agree with our interpretations or that they will reach the same conclusions. Our interpretations are not binding on any taxing authority and, if such 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. See "Material Income Tax Considerations." We are controlled by two principal shareholders and their interests may conflict with your interests. ChipPAC International Company Limited, the issuer of the existing notes and the exchange notes, is a wholly owned subsidiary of ChipPAC, Inc. Affiliates of Bain Capital, Inc. and SXI Group LLC, together with members of our management, own approximately 90.0% of the issued and outstanding voting stock of ChipPAC, Inc. Consequently, these owners will have the ability to control our business and affairs by virtue of their ability to elect a majority of ChipPAC, Inc.'s board of directors. The directors have the authority to make decisions affecting ChipPAC, Inc.'s capital structure, including the issuance of additional indebtedness. In addition, a shareholders agreement that was signed at the closing of the recapitalization entitles affiliates of Bain Capital, Inc. and the SXI Group LLC to fill six of eight seats on the board of directors of ChipPAC, Inc. We cannot assure you that the interests of Bain Capital, Inc. and SXI Group LLC do not or will not conflict with the interests of the holders of the outstanding notes or of the exchange notes. See "Principal Shareholders" and "Certain Relationships and Related Transactions." Our failure, or the failure of our customer or suppliers, to address informational technology issues related to the year 2000 could adversely affect our operations. Our inability to remedy unforeseen Year 2000 problems or the failure of third parties to do so may cause a business interruption or shutdown, financial loss, regulatory action, reputational harm or result in liability to third parties. We cannot assure you that our Year 2000 program or the programs of our customers or suppliers will be effective, that our estimate about the timing and costs of completing our program will be accurate or that all remediation will be complete by the Year 2000. In addition, we have entered into arrangements with Hyundai Electronics and Hyundai Electronics America for business support services. We cannot assure you that Hyundai Electronics and Hyundai Electronics America will be Year 2000 compliant. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of ChipPAC--Year 2000 Compliance." You may not be able to resell your exchange notes or may have to sell them at a discount if an active trading market does not develop. The exchange notes are new securities for which there currently is no market. We have been informed by the initial purchasers of the outstanding notes, Credit Suisse First Boston Corporation and Donaldson Lufkin & Jenrette Securities Corporation, that they intend to make a market in the exchange notes. However, they are not obligated to do so and may cease their market- making activities at any time. Accordingly, there can be no assurance as to the development or liquidity of any market for the exchange notes. The exchange notes are expected to be eligible for trading by qualified buyers in the PORTAL market. The PORTAL market acts as a facilitator of SEC Rule 144A and provides regulatory oversight for the clearance and settlement of domestic and foreign debt and equity securities through designated clearing and depository organizations. We do not intend to apply for listing of the exchange notes on any securities exchange or for quotation through The Nasdaq National Market. In addition, both the liquidity and the market price quoted for the exchange notes may be adversely affected by changes in the overall market for high-yield securities and by changes in our financial performance or prospects, or in the prospects for companies in our industry generally. As a result, we cannot assure you that an active or stable trading market will develop for the exchange notes. 20 FORWARD-LOOKING STATEMENTS This prospectus includes forward-looking statements regarding, among other things, our financial condition and business strategy. Also, statements that contain words such as "believes," "expects," "anticipates," "intends," "estimated" or similar expressions are forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events. While we believe that these expectations and projections are reasonable, such forward-looking statements are inherently subject to risks, uncertainties and assumptions about us, including, among other things: . our dependence on continuous introduction of new services based on the latest technology; . our ability to compete in the intensely competitive semiconductor and personal computer component industries; . risks associated with our international business activities and with acquisitions and integration of acquired companies; . our dependence on proprietary information and technology and key personnel; . our fluctuating quarterly results and product liability exposure; . our response to general economic conditions, including economic conditions related to the semiconductor and personal computer industries; and . those other risks identified in the "Risk Factors" section of this prospectus. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this prospectus might not occur. INDUSTRY DATA In this prospectus, we rely on and refer to information regarding the semiconductor market and its segments and competitors from Dataquest, Electronic Trends Publications, International Data Corporation, Semiconductor Industry Association, Worldwide Semiconductor Test Services, The McClean Report (1999 edition), market research reports, analyst reports and other publicly available information. Although we believe that this information is reliable, we cannot guarantee the accuracy and completeness of the information and have not independently verified it. 21 USE OF PROCEEDS We used the gross proceeds of approximately $417.7 million from the offering of the existing notes, the senior credit facility and the equity investment made in connection with the recapitalization together with cash on hand: . to pay approximately $257.3 million in recapitalization consideration which is subject to post-closing adjustments for working capital, capital expenditures, research and development expenditures and our EBITDA in each of the four calendar years following the recapitalization. See "Description of Other Financing Arrangements-- Hyundai Preferred Stock"; . to repay approximately $127.7 million of existing Hyundai debt; and . to pay fees and expenses associated with the merger and related transactions of approximately $32.7 million. We will not receive any cash proceeds from the issuance of the exchange notes in the exchange offer. In consideration for issuing these exchange notes as contemplated in this prospectus, we will receive existing notes in like principal amount, the terms of which are the same in all material respects to the exchange notes. The existing notes surrendered in exchange for the exchange notes will be retired, canceled and not reissued. Accordingly, the issuance of the exchange notes will not result in any increase or decrease in our debt. 22 CAPITALIZATION The following table sets forth our capitalization as of September 30, 1999. The information in the following table should be read in conjunction with the "Unaudited Pro Forma Condensed Combined Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections and the historical combined financial statements and the exchange notes related thereto included elsewhere in this prospectus.
At September 30, 1999 ------------- Actual ------------- (in millions) Long-term debt (including current portion): Existing senior credit facility and capital leases................ $ -- Senior Credit Facilities: Revolving Credit Facility (1)................................... -- CapEx Facility (2).............................................. -- Term Loan Facilities (3)........................................ 150.0 Senior Subordinated Notes Due 2009.............................. 150.0 ------ Total long-term debt.......................................... 300.0 Hyundai Redeemable Preferred Stock (4)(5)......................... 71.4 Shareholders' equity (deficit).................................... (109.7) ------ Total capitalization.......................................... $261.7 ======
- -------- (1) Borrowings of up to $50.0 million are available under the revolving credit facility. We did not draw upon the revolving credit facility in connection with the recapitalization. (2) Borrowings of up to $20.0 million are available under the capex facility for acquiring equipment and making certain other capital expenditures. We did not draw upon the capex facility in connection with the recapitalization. (3) Borrowings of up to an aggregate of $150 million were available under the two term loan facilities. Both term loan facilities were fully drawn at the closing of the recapitalization to finance the consideration paid in the recapitalization. (4) 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. For more information on the Hyundai Preferred Stock see, "Description of Other Financing Arrangements--Hyundai Preferred Stock." (5) The Hyundai Preferred Stock is mandatorily redeemable on the eleventh anniversary of the closing of the Recapitalization, and will accrue dividends from the date of issuance at a rate of 12.5% per annum over the life of the securities, will not pay cash dividends during the five years and six months following the Recapitalization. As discussed in footnote (4) above however, up to $20.0 million of the Hyundai Preferred Stock and the related accrued dividends may be redeemed during the four-year period following the Recapitalization. See "Description of Other Financing Arrangements--Hyundai Preferred Stock." 23 THE EXCHANGE OFFER This is a summary of the material provisions of the registration rights agreement entered into by and among ChipPAC International Company Limited, the guarantors named therein and the initial purchasers as of July 29, 1999. It does not purport to be complete and reference is made to the provisions of the registration rights agreement which has been filed as an exhibit to the registration statement of which this prospectus forms a part. General In connection with the issuance of the existing notes pursuant to a purchase agreement dated as of July 22, 1999 by and among ChipPAC International Company Limited, the guarantors named therein and the initial purchasers, the initial purchasers and their respective assignees became entitled to the benefits of the registration rights agreement. The registration rights agreement requires us to file the registration statement of which this prospectus is a part for a registered exchange offer relating to an issue of exchange notes identical in all material respects to the existing notes but containing no restrictive legend. Under the registration rights agreement, ChipPAC International Company Limited is required to: . file a registration statement not later than 150 days following the date of original issuance of the existing notes (the "Issue Date"); . use its reasonable best efforts to cause the registration statement to become effective no later than 210 days after the Issue Date; . use its reasonable best efforts to keep the exchange offer effective for not less than 30 days (or longer if required by applicable law) after the date that notice of the exchange offer is first mailed to holders of the existing notes; and . use its reasonable best efforts to consummate the exchange offer on or prior to the 60th day following the date on which the exchange offer registration statement is initially declared effective. The exchange offer being made pursuant to this prospectus, if commenced and consummated within the time periods described above, will satisfy those requirements under the registration rights agreement. Upon the terms and subject to the conditions set forth in this prospectus and in the Letter of Transmittal, we will accept any and all existing notes validly tendered and not validly withdrawn prior to 5:00 p.m., New York City time, on the expiration date which is , 2000, or such later date and time as to which the exchange offer has been extended. We will issue $1,000 principal amount of exchange notes in exchange for each $1,000 principal amount of outstanding existing notes accepted in the exchange offer. Holders may tender some or all of their existing notes pursuant to the exchange offer. However, existing notes may be tendered only in integral multiples of $1,000. The form and terms of the exchange notes are substantially the same as the form and terms of the existing notes except that: . the exchange notes bear an exchange note designation and a different CUSIP number from the existing notes; . the exchange notes have been registered under the federal securities laws and will not bear legends restricting the transfer thereof as the existing notes do; and . the holders of the exchange notes will generally not be entitled to rights under the registration rights agreement, which rights generally will be satisfied when the exchange offer is consummated. 24 The exchange notes will evidence the same debt as the tendered existing notes and will be entitled to the benefits of the same indenture under which the existing notes were issued. As of the date of this prospectus, $150,000,000 aggregate principal amount of existing notes were outstanding. Holders of existing notes do not have any appraisal or dissenters' rights under the laws of the Territory of the British Virgin Islands or the indentures relating to such exchange notes in connection with the exchange offer. We intend to conduct the exchange offer in accordance with the applicable requirements of the Securities Exchange Act of 1934, and the rules and regulations of the SEC thereunder. We shall be deemed to have accepted validly tendered existing notes when, as and if we have given oral or written notice thereof, such notice if given orally, to be confirmed in writing, to the exchange agent. The exchange agent will act as agent for the tendering holders for the purpose of receiving the exchange notes from our company. If any tendered existing notes are not accepted for exchange because of an invalid tender, the occurrence of certain other events set forth herein or otherwise, the certificates for any such unaccepted existing notes will be returned, without expense, to the tendering holder thereof as promptly as practicable after the expiration date. Holders who tender existing notes in the exchange offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the Letter of Transmittal, transfer taxes with respect to the exchange of existing notes pursuant to the exchange offer. We will pay all charges and expenses, other than transfer taxes in certain circumstances, in connection with the exchange offer. For additional information, please refer to the "--Fees and Expenses" section of this prospectus. Expiration Date; Extensions; Amendments The expiration date is 5:00 p.m., New York City time, on , 2000, unless we extend the exchange offer, in which case the expiration date will be the latest date and time to which the exchange offer is extended. In order to extend the exchange offer, we will notify the exchange agent of any extension by oral or written notice, such notice if given orally, to be confirmed in writing, and will issue a press release or other public announcement thereof, each prior to 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date. We reserve the right: . to delay accepting any existing notes, to extend the exchange offer or to terminate the exchange offer if any of the conditions set forth below under "--Conditions" shall not have been satisfied, by giving oral or written notice, such notice if given orally, to be confirmed in writing, of such delay, extension or termination to the exchange agent, or . to amend the terms of the exchange offer in any manner. Any such delay in acceptance, extension, termination or amendment will be followed as promptly as practicable by oral or written notice thereof to the registered holders. Interest on the Exchange Notes The exchange notes will bear interest from their date of issuance. Holders of existing notes that are accepted for exchange will receive, in cash, accrued interest thereon to, but not including, the date of issuance of the exchange notes. Such interest will be paid with the first interest payment on the exchange notes on February 1, 2000 to persons who are registered holders of the exchange notes on January 15, 2000. Interest on the existing notes accepted for exchange will cease to accrue upon issuance of the exchange notes. 25 Interest on the exchange notes is payable semi-annually on each February 1 and August 1, commencing on February 1, 2000. Procedures for Tendering Only a registered holder of existing notes may tender such exchange notes in the exchange offer. To tender in the exchange offer, a holder must complete, sign and date the Letter of Transmittal, or a facsimile thereof, have the signatures thereon guaranteed if required by the Letter of Transmittal and mail or otherwise deliver such Letter of Transmittal or such facsimile, together with the existing notes and any other required documents, or cause The Depository Trust Company to transmit an agent's message as described below in connection with a book-entry transfer, to the exchange agent prior to the expiration date. To be tendered effectively, the existing notes, the Letter of Transmittal or agent's message and other required documents must be completed and received by the exchange agent at the address set forth below under "-- Exchange Agent" prior to the expiration date. Delivery of the existing notes may be made by book-entry transfer in accordance with the procedures described below. Confirmation of such book-entry transfer must be received by the exchange agent prior to the expiration date. The term "agent's message" means a message, transmitted by a book-entry transfer facility to, and received by, the exchange agent forming a part of a confirmation of a book-entry, which states that such book-entry transfer facility has received an express acknowledgment from the participant in such book-entry transfer facility tendering the existing notes that such participant has received and agrees: . to participate in the Automated Tender Option Program; . to be bound by the terms of the Letter of Transmittal; and . that we may enforce such agreement against such participant. By executing the Letter of Transmittal or agent's message, each holder will make to us the representations set forth above in the fourth paragraph under the heading "--Purpose and Effect of the Exchange Offer." The tender by a holder and the acceptance thereof by us will constitute agreement between such holder and the company in accordance with the terms and subject to the conditions set forth herein and in the Letter of Transmittal or agent's message. The method of delivery of existing notes and the Letter of Transmittal or agent's message and all other required documents to the exchange agent is at the election and sole risk of the holder. As an alternative to delivery by mail, holders may wish to consider overnight or hand delivery service. In all cases, sufficient time should be allowed to assure delivery to the exchange agent before the expiration date. No Letter of Transmittal or existing notes should be sent to any of ChipPAC International Company Limited or any of its affiliates. Holders may request their respective brokers, dealers, commercial banks, trust companies or nominees to effect the above transactions for such holders. Any beneficial owner whose existing notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact the registered holder promptly and instruct such registered holder to tender on such beneficial owner's behalf. For additional information, please refer to the "Instructions to Registered Holder and/or Book-Entry Transfer Facility Participant from Beneficial Owner" included with the Letter of Transmittal. Signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed by an eligible institution referred to below, unless the existing notes tendered pursuant thereto are tendered by a registered holder who has not completed the box entitled "Special Registration Instructions" or "Special Delivery Instructions" on the Letter of Transmittal, or for the account of an eligible institution. In the event that signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, are required to be 26 guaranteed, such guarantee must be by a member firm of the Medallion System, which we refer to as an "eligible institution." If the Letter of Transmittal is signed by a person other than the registered holder of any existing notes listed therein, such notes must be endorsed or accompanied by a properly completed bond power, signed by such registered holder as such registered holder's name appears on such notes with the signature thereon guaranteed by an eligible institution. If the Letter of Transmittal or any existing notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and evidence to our satisfaction of their authority to so act must be submitted with the Letter of Transmittal. We understand that the exchange agent will make a request promptly after the date of this prospectus to establish accounts with respect to the existing notes at the book-entry transfer facility, The Depository Trust Company, which we refer to as the "book-entry transfer facility," for the purpose of facilitating the exchange offer, and subject to the establishment thereof, any financial institution that is a participant in the book-entry transfer facility's system may make book-entry delivery of existing notes by causing such book-entry transfer facility to transfer such existing notes into the exchange agent's account with respect to the existing notes in accordance with the book-entry transfer facility's procedures for such transfer. Although delivery of the existing notes may be effected through book-entry transfer into the exchange agent's account at the book-entry transfer facility, unless an agent's message is transmitted to and received by the exchange agent in compliance with the Automated Tender Option Program on or prior to the expiration date, or, if the guaranteed delivery procedures described below are complied with, within the time period provided under such procedures, the tender of such notes will not be valid. Delivery of documents to the book-entry transfer facility does not constitute delivery to the exchange agent. All questions as to the validity, form, eligibility, including time of receipt, acceptance of tendered existing notes and withdrawal of tendered existing notes will be determined by ChipPAC International Company Limited, in its sole discretion, which determination will be final and binding. ChipPAC International Company Limited reserves the absolute right to reject any and all existing notes not properly tendered or any existing notes our acceptance of which would, in the opinion of ChipPAC International Company Limited's counsel, be unlawful. ChipPAC International Company Limited also reserves the right to waive any defects, irregularities or conditions of tender as to particular existing notes. ChipPAC International Company Limited may not waive any condition to the exchange offer unless such condition is legally waivable. In the event such a waiver by ChipPAC International Company Limited gives rise to the legal requirement to do so, ChipPAC International Company Limited will hold the exchange offer open for at least five business days thereafter. ChipPAC International Company Limited's interpretation of the terms and conditions of the exchange offer, including the instructions in the Letter of Transmittal, will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of existing notes must be cured within such time as ChipPAC International Company Limited shall determine. Although ChipPAC International Company Limited intends to notify holders of defects or irregularities with respect to tenders of existing notes, neither ChipPAC International Company Limited, the exchange agent nor any other person shall incur any liability for failure to give such notification. Tender of existing notes will not be deemed to have been made until such defects or irregularities have been cured or waived. Any existing notes received by the exchange agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned by the exchange agent to the tendering holders, unless otherwise provided in the Letter of Transmittal, as soon as practicable following the expiration date. Guaranteed Delivery Procedures Holders who wish to tender their existing notes and whose existing notes are not immediately available, who cannot deliver their existing notes, the Letter of Transmittal or any other required documents to the 27 exchange agent, or who cannot complete the procedures for book-entry transfer, prior to the expiration date, may effect a tender if: (a) the tender is made through an eligible institution; (b) prior to the expiration date, the exchange agent receives by facsimile transmission, mail or hand delivery from such eligible institution a properly completed and duly executed Notice of Guaranteed Delivery, setting forth the name and address of the holder, the certificate number(s) of such existing notes and the principal amount of existing notes tendered, stating that the tender is being made thereby and guaranteeing that, within three New York Stock Exchange trading days after the expiration date, the Letter of Transmittal, or facsimile thereof, or, in the case of a book-entry transfer, an agent's message, together with the certificate(s) representing the existing notes, or a confirmation of book- entry transfer of such notes into the exchange agent's account at the Book- Entry Transfer Facility, and any other documents required by the Letter of Transmittal will be deposited by the eligible institution with the exchange agent; and (c) the certificate(s) representing all tendered existing notes in proper form for transfer, or a confirmation of a book-entry transfer of such existing notes into the exchange agent's account at the book entry transfer facility, together with a Letter of Transmittal, of facsimile thereof, properly completed and duly executed, with any required signature guarantees, or, in the case of a book-entry transfer, an agent's message, are received by the exchange agent within three New York Stock Exchange trading days after the expiration date of the exchange offer. Withdrawal of Tenders Except as otherwise provided herein, tenders of existing notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the expiration date of the exchange offer. To validly withdraw a tender of existing notes in the exchange offer, a telegram, telex, letter or facsimile transmission notice of withdrawal must be received by the exchange agent at its address set forth herein prior to 5:00 p.m., New York City time, on the expiration date of the exchange offer. Any such notice of withdrawal must: . specify the name of the person having deposited exchange notes to be withdrawn, which we refer to as the "depositor"; . identify the notes to be withdrawn, including the certificate number(s) and principal amount of such notes, or, in the case of existing notes transferred by book-entry transfer, the name and number of the account at the book entry transfer facility to be credited; . be signed by the holder in the same manner as the original signature on the Letter of Transmittal by which such notes were tendered, including any required signature guarantees, or be accompanied by documents of transfer sufficient to have the trustee with respect to the existing notes register the transfer of such notes into the name of the person withdrawing the tender; and . specify the name in which any such existing notes are to be registered, if different from that of the depositor. All questions as to the validity, form and eligibility, including time of receipt, of such notices will be determined by us and shall be final and binding on all parties. Any existing notes so withdrawn will be deemed not to have been validly tendered for purposes of the exchange offer, and no exchange notes will be issued with respect thereto unless the existing notes so withdrawn are validly retendered. Any existing notes which have been tendered but which are not accepted for exchange will be returned to the holder thereof without cost to such holder as soon as practicable after withdrawal, rejection of tender or termination of the exchange offer. Properly withdrawn existing notes may be retendered by following one of the procedures described above under "--Procedures for Tendering" at any time prior to the expiration date. 28 Conditions Notwithstanding any other term of the exchange offer, ChipPAC International Company Limited shall not be required to accept for exchange, or exchange notes for, any existing notes, and may terminate or amend the exchange offer as provided herein before the acceptance of such existing notes, if: . any action or proceeding is instituted or threatened in any court or by or before any governmental agency with respect to the exchange offer which, in ChipPAC International Company Limited's sole judgment, might materially impair ChipPAC International Company Limited's ability to proceed with the exchange offer, or any material adverse development has occurred in any existing action or proceeding with respect to ChipPAC International Company Limited or any of its subsidiaries; or . any law, statute, rule, regulation or interpretation by the staff of the SEC is proposed, adopted or enacted, which, in ChipPAC International Company Limited's sole judgment, might materially impair ChipPAC International Company Limited's ability to proceed with the exchange offer or materially impair the contemplated benefits of the exchange offer; or . any governmental approval has not been obtained, which approval ChipPAC International Company Limited shall, in its sole discretion, deem necessary for the consummation of the exchange offer as contemplated hereby. If ChipPAC International Company Limited determines, in its sole discretion, that any of the conditions are not satisfied, ChipPAC International Company Limited may: . refuse to accept any existing notes and return all tendered existing notes to the tendering holders; . extend the exchange offer and retain all existing notes tendered prior to the expiration of the exchange offer, subject, however, to the rights of holders to withdraw such existing notes as described in "--Withdrawal of Tenders" above; and . waive such unsatisfied conditions with respect to the exchange offer and accept all properly tendered existing notes which have not been withdrawn. Exchange Agent Firstar Bank of Minnesota, N.A. has been appointed as exchange agent for the exchange offer. Questions and requests for assistance, requests for additional copies of this prospectus or of the Letter of Transmittal and requests for Notice of Guaranteed Delivery should be directed to the exchange agent addressed as follows: By Registered or Certified Mail or By Hand: Overnight Courier: Firstar Bank of Firstar Bank of Minnesota, N.A. 101 Minnesota, N.A. 101 East Fifth Street East Fifth Street St. Paul, Minnesota St. Paul, Minnesota 55101-1860 Attn: 55101-1860 Attn: Frank P. Leslie, III Frank P. Leslie, III By Facsimile: (For Eligible Institutions Only) (651) 229-6415 Confirm by Telephone: (651) 229-2600 Delivery to an address other than set forth above will not constitute a valid delivery. 29 Fees and Expenses The expenses of soliciting tenders will be borne by ChipPAC International Company Limited. The principal solicitation is being made by mail however, additional solicitation may be made by telegraph, telecopy, telephone or in person by officers and regular employees of ChipPAC International Company Limited and its affiliates. ChipPAC International Company Limited has not retained any dealer-manager in connection with the exchange offer and will not make any payments to brokers, dealers, or others soliciting acceptances of the exchange offer. ChipPAC International Company Limited, however, will pay the exchange agent reasonable and customary fees for its services and will reimburse it for its reasonable out-of-pocket expenses in connection therewith. ChipPAC International Company Limited will pay the cash expenses to be incurred in connection with the exchange offer. Such expenses include fees and expenses of the exchange agent and trustee, accounting and legal fees and printing costs, among others. Accounting Treatment The exchange notes will be recorded at the same carrying value as the existing notes, which is face value, as reflected in ChipPAC International Company Limited's accounting records on the date of exchange. Accordingly, ChipPAC International Company Limited will recognize no gain or loss for accounting purposes. The expenses of the exchange offer will be capitalized as deferred financing costs and amortized over the term of the exchange notes. Consequences of Failure to Exchange The existing notes that are not exchanged for exchange notes pursuant to the exchange offer will remain restricted securities. Accordingly, such existing notes may be resold only: . to ChipPAC International Company Limited, upon redemption thereof or otherwise; . so long as the existing notes are eligible for resale pursuant to Rule 144A under the Securities Act, to a person inside the United States whom the seller reasonably believes is a qualified institutional buyer within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A; . in accordance with Rule 144 under the Securities Act; . outside the United States to a foreign person in a transaction meeting the requirements of Rule 904 under the Securities Act; . pursuant to another exemption from the registration requirements of the Securities Act, and based upon an opinion of counsel reasonably acceptable to ChipPAC International Company Limited; or . pursuant to an effective registration statement under the Securities Act, in each case in accordance with any applicable securities laws of any state of the United States. Resale of the Exchange Notes With respect to resales of exchange notes, based on interpretations by the staff of the SEC set forth in no-action letters issued to third parties, we believe that a holder or other person who receives exchange notes, whether or not such person is the holder, other than a person that is an "affiliate" of ChipPAC International Company Limited within the meaning of Rule 405 under the Securities Act, in exchange for existing notes in the ordinary course of business and who is not participating, does not intend to participate, and has no arrangement or understanding with any person to participate, in the distribution of the exchange notes, will be allowed to resell the exchange notes to the public without further registration under the Securities Act and 30 without delivering to the purchasers of the exchange notes a prospectus that satisfies the requirements of Section 10 of the Securities Act. However, if any holder acquires exchange notes in the exchange offer for the purpose of distributing or participating in a distribution of the exchange notes, such holder cannot rely on the position of the staff of the SEC enunciated in such no-action letters or any similar interpretive letters, and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction, unless an exemption from registration is otherwise available. Further, each Participating Broker-Dealer that receives exchange notes for its own account in exchange for existing notes, where such existing notes were acquired by such Participating Broker-Dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such exchange notes. As contemplated by these no-action letters and the registration rights agreement, each holder who participates in the exchange offer will be required to represent to ChipPAC International Company Limited in the Letter of Transmittal that: . any exchange notes received by it will be acquired in the ordinary course of its business; . at the time of the consummation of the exchange offer such holder will have no arrangement or understanding with any person to participate in the distribution of the exchange notes; . such holder is not an "affiliate" of ChipPAC International Company Limited within the meaning of the Securities Act; and . any additional representation that in the written opinion of counsel to ChipPAC International Company Limited are necessary under then- existing interpretations of the SEC in order for the exchange registration statement to be declared effective. 31 UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA The following unaudited pro forma condensed combined statements of operations for the nine month period ended September 30, 1999 and the year ended December 31, 1998, which we refer to as the "Pro Forma Financial Statements," have been derived by the application of pro forma adjustments to our combined results included elsewhere in this prospectus. The Pro Forma statements of operations give effect to the recapitalization as if it had occurred on January 1, 1998. EBITDA as presented below has been adjusted to exclude certain historical charges and credits as described in Note 6. The Pro Forma Financial Statements do not purport to represent what our financial position or results of operations would have actually been had the recapitalization in fact occurred on such dates, or to project results of operations for any future period. The Pro Forma Financial Statements should be read in conjunction with the "Capitalization," "Prospectus Summary--Summary Historical and Unaudited Pro Forma Combined Financial and Operating Data," "Selected Historical Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections and the historical combined financial statements and the notes related thereto included elsewhere in this prospectus. During the periods covered by our Combined Financial Statements, our activities were conducted as part of Hyundai Electronics' overall operations, and separate financial statements were not prepared. Our Combined Financial Statements were prepared from the historical accounting records of Hyundai Electronics and include various allocations for costs and expenses. Therefore, our Combined Statement of Operations may not be indicative of the results of operations that would have resulted if we had operated on a stand-alone basis. All of the allocations and estimates reflected in our Combined Financial Statements are based on assumptions that we believe are reasonable under the circumstances and that have been reviewed by Hyundai Electronics America.
Nine-Month Period Ended September 30, 1999 ------------------------------- Pro Forma Pro Historical Adjustments Forma ---------- ----------- -------- (in thousands) Unaudited Pro Forma Condensed Combined Statement of Operations: Revenues...................................... $267,671 $ -- $267,671 Costs of revenues............................. 227,792 -- 227,792 -------- ------- -------- Gross profit.................................. 39,879 -- 39,879 Operating expenses: Selling, general and administrative (1)..... 14,416 -- 14,416 Research and development.................... 8,628 -- 8,628 Change of control expense (2)............... 11,842 (11,842) -- -------- ------- -------- Operating income.............................. 4,993 11,842 16,835 Interest expense (3).......................... 12,089 13,515 25,604 Interest income............................... (2,334) -- (2,334) Foreign currency (gain) loss.................. (506) -- (506) Other (income) expense, net................... (566) -- (566) -------- ------- -------- Income (loss) before provision for income taxes and extraordinary item................. (3,690) (1,673) (5,363) Provision (benefit) for income taxes (4)...... (1,823) (859) (2,682) Extraordinary loss (5)........................ 1,372 (1,372) -- -------- ------- -------- Net income (loss)............................. $ (3,239) $ 558 $ (2,681) ======== ======= ======== Other Data: EBITDA (6)........................................................... $ 58,436 Depreciation and amortization (7).................................... 41,601 Capital expenditures (including capital leases)...................... 29,062
32
Year Ended December 31, 1998 ------------------------------- Pro Forma Pro Historical Adjustments Forma ---------- ----------- -------- (in thousands) Unaudited Pro Forma Condensed Combined Statement of Operations: Revenues..................................... $334,081 $ -- $334,081 Costs of revenues............................ 270,365 -- 270,365 -------- -------- -------- Gross profit................................. 63,716 63,716 Operating expenses: Selling, general and administrative (1).... 15,595 -- 15,595 Research and development................... 7,692 -- 7,692 -------- -------- -------- Operating income............................. 40,429 40,429 Interest expense (3)......................... 13,340 20,798 34,138 Interest income.............................. (1,276) -- (1,276) Foreign currency (gain) loss................. (24,670) -- (24,670) Other (income) expense, net.................. 168 -- 168 -------- -------- -------- Income before provision for income taxes..... 52,867 20,798 32,069 Provision (benefit) for income taxes (4)..... 20,564 (14,150) 6,414 -------- -------- -------- Net income (loss)............................ $ 32,303 $ (6,648) $ 25,655 ======== ======== ======== Other Data: EBITDA (6).......................................................... $ 86,284 Depreciation and amortization....................................... 45,855 Capital expenditures (including capital leases)..................... 63,523
33 NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS Nine-Month Period Ended September 30, 1999 and Year Ended December 31, 1998 1. In connection with the recapitalization, we entered into advisory agreements with the Equity Investors pursuant to which the Equity Investors will provide financial, advisory and consulting services. In exchange for such services, the Equity Investors are entitled to receive fees billed at the Equity Investors' customary rates for actual time spent performing such services plus reimbursement for out-of-pocket expenses. There are no minimum levels of service required to be provided. Commencing with the fiscal quarter ended March 31, 2000, when and if we achieve EBITDA for the preceding twelve- month period in excess of $81.2 million, the Equity Investors will be entitled to an annual advisory fee, the amount of which is limited by our senior credit agreements. As there are no minimum levels of required service and because the annual advisory fee would not commence until after December 31, 1999 and is dependent upon achieving a certain EBITDA level, no amounts related to the Equity Investors' advisory fees have been included in the pro forma operating results. 2. As a result of the Recapitalization, the Company was contractually required to make a one-time change of control payment to its unionized Korean employees of approximately $11.8 million. The payment was recorded as an operating expense during the quarter ended September 30, 1999. This amount has been excluded from the pro forma operating results for the nine-month period ended September 30, 1999, as it represents a one-time charge directly related to the transaction. 3. The increase to pro forma interest expense as a result of the recapitalization is summarized as follows:
Nine Month Period Ended Year Ended September 30, 1999 December 31, 1998 ------------------ ----------------- (in thousands) Interest on Term Loan Facilities-- 8.86%................................. $ 9,966 $13,288 Interest on Exchange Notes--12.75%..... 14,344 19,125 Interest on Revolving Credit Facility-- 8.54%................................. -- -- Interest on CapEx Facility--8.54%...... -- -- Bank commitment fees/Capital leases.... -- -- ------- ------- Cash interest expense.................. 24,310 32,413 Amortization of debt issuance costs.... 1,294 1,725 ($13.8 million over an 8 year amortization period) ------- ------- Interest expense from recapitalization debt requirements..................... 25,604 34,138 Less: historical interest expense...... 12,089 13,340 ------- ------- Net increase........................... $13,515 $20,798 ======= =======
An increase or decrease in the assumed weighted average interest rate on the senior credit facilities of 0.125% would change pro forma interest expense by $141,000 and $187,500 for the nine month period ended September 30, 1999 and the year ended December 31, 1998 respectively. 4. Under the terms of the recapitalization agreement, Hyundai Electronics was required to reorganize the ChipPAC entities into a distinct group of subsidiaries owned by ChipPAC, Inc. If the reorganization had taken place on January 1, 1998, ChipPac would have had an effective tax rate of approximately 20% for 1998. Based on the expected 1999 results, the expected effective tax rate for 1999 is approximately 50%. These adjustments reflect the income tax adjustment required to result in a pro forma income tax provision based on these effective tax rates and the tax effects of the pro forma adjustments described herein. 5. The Company incurred an extraordinary loss of $1.4 million related to the early retirement of debt upon the recapitalization of the Company. This amount has been excluded from the pro-forma operating results from the nine-month period ended September 30, 1999. 34 NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED--(Continued) STATEMENT OF OPERATIONS Nine Month Period Ended September 30, 1999 and Year Ended December 31, 1998 6. "EBITDA" is defined herein as operating income, plus depreciation and amortization and in 1997, non-cash charges related to write-downs of impaired assets. EBITDA is presented because we believe it is a widely accepted financial indicator of a company's ability to service and/or incur indebtedness. However, EBITDA should not be considered as an alternative to net income as a measure of operating results or to cash flows as a measure of liquidity in accordance with generally accepted accounting principles. Because EBITDA is not calculated identically by all companies, the presentation herein may not be comparable to those disclosed by other companies. The following table reconciles net income (loss) with EBITDA for the historical statements of operations for each of the four years ended December 31, 1998 and the pro-forma nine month period ended September 30, 1999.
Unaudited Pro Forma Nine Month Period Ended Year Ended December 31, September 30, ---------------------------------- ------------- 1995 1996 1997 1998 1999 ------- ------- -------- ------- ------------- (in thousands) Net income (loss) as reported................... $ 98 $(5,625) $(46,118) $25,906 $(2,681) Provision for (benefit from) income taxes............... 1,977 2,883 (9,671) 6,477 (2,682) Non-operating (income) expense items: Foreign currency (gains) losses................... 1,012 5,041 69,669 (24,670) (506) Interest income........... -- (108) (96) (1,276) (2,334) Interest expense.......... 3,151 5,780 10,972 33,824 25,604 Other (income) expenses, net...................... 802 (351) 762 168 (566) ------- ------- -------- ------- ------- Operating income as reported................... 7,040 7,620 25,518 40,429 16,835 Adjustments to arrive at EBITDA as defined: Depreciation and amortization............. 27,917 26,632 40,682 45,855 41,601 Write-down of impaired assets................... -- -- 11,569 -- -- ------- ------- -------- ------- ------- EBITDA as defined above..... $34,957 $34,252 $ 77,769 $86,284 $58,436 ======= ======= ======== ======= =======
7. Depreciation and amortization for the nine months ended September 30, 1999 exclude $0.3 million of amortization of debt insurance cost. This amount is included as interest expense. 35 SELECTED HISTORICAL FINANCIAL DATA The following table presents our selected historical combined statements of operations, balance sheet, and other data for the periods presented. No separate financial information for ChipPAC International Company Limited has been provided in this prospectus because (a) ChipPAC International Company Limited does not itself conduct any operations but rather all operations of ChipPAC, Inc. are conducted by ChipPAC, Inc. or by its direct or indirect subsidiaries; (b) ChipPAC International Company Limited has no material assets; and (c) ChipPAC, Inc. and certain of its subsidiaries are unconditionally guaranteeing the exchange notes on an unsecured, senior subordinated basis. This information should only be read in conjunction with our audited and unaudited combined financial statements and the related exchange notes thereto, "Unaudited Pro Forma Condensed Combined Financial Data," and "Management's Discussion and Analysis of Financial Condition and Results of Operations," all included elsewhere in this prospectus. The data for each of the four years ended December 31, 1998 have been derived from ChipPAC's combined financial statements which have been audited by PricewaterhouseCoopers LLP, whose report appears elsewhere in this prospectus.
Nine-Month Period Ended Year Ended December 31, September 30, ------------------------------------------------------------ ------------------ 1994 1995 1996 1997 1998 1998 1999 ----------- -------- ----------- ----------- -------- -------- -------- (unaudited) (Dollars in thousands) (unaudited) Statement of Operations Data: Revenue................. $149,310 $179,234 $ 191,655 $ 289,429 $334,081 $237,969 $267,671 Costs and expenses: Cost of revenue........ 129,068 158,527 166,665 229,238 270,365 186,000 227,792 Selling, general and administrative expenses.............. 13,407 11,805 11,431 15,853 15,067 10,396 14,416 Research and development expenses.. 1,095 1,724 2,617 4,052 7,692 4,895 8,628 Management fees charged by affiliate.......... -- 138 3,322 3,199 528 528 -- Write-down of impaired assets (1)............ -- -- -- 11,569 -- -- -- Change in control expenses (2).......... -- -- -- -- -- -- 11,842 -------- -------- ----------- ----------- -------- -------- -------- Operating income........ 5,740 7,040 7,620 25,518 40,429 36,150 4,993 Interest expense........ 2,423 3,151 5,780 10,972 13,340 10,037 12,089 Interest income......... -- -- (108) (96) (1,276) (491) (2,334) Foreign currency (gains) losses (3)............. (562) 1,012 5,041 69,669 (24,670) (20,427) (506) Other (income) expense, net.................... -- 802 (351) 762 168 (50) (566) -------- -------- ----------- ----------- -------- -------- -------- Income (loss) before income taxes........... 3,879 2,075 (2,742) (55,789) 52,867 47,081 (3,690) Provision for (benefit from) income taxes..... 1,492 1,977 2,883 (9,671) 20,564 17,933 (1,823) Extraordinary item: Loss from early extinguishment of debt, net of related income tax benefit (4)................... -- -- -- -- -- -- 1,372 -------- -------- ----------- ----------- -------- -------- -------- Net income (loss)....... $ 2,387 $ 98 $ (5,625) $ (46,118) $ 32,303 $ 29,148 $ (3,239) ======== ======== =========== =========== ======== ======== ======== Balance Sheet Data (at end of period): Cash and cash equivalents............ $ 5,416 $ 2,602 $ 2,323 $ 3,067 $ 68,767 $ 33,013 $ 33,142 Working capital......... (20,240) (29,637) (26,436) 30,097 Total assets............ 98,112 127,984 215,932 233,241 359,472 313,970 322,461 Total long-term debt, including current portion................ 21,995 52,468 109,053 152,410 133,715 138,006 300,000 Total shareholders' equity (deficit)....... 34,066 11,559 53,692 9,472 113,191 82,342 (109,749) Other Financial Data: Capital expenditures.... 38,635 51,462 118,971 136,594 63,523 52,111 29,062 Ratio of earnings to fixed charges (5)...... 2.0x 1.4x -- (6) -- (6) 4.3x 5.1x -- (6)
- -------- (1) At December 1997, in accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, ChipPAC recorded a charge of $11.6 million to write down the value of certain assets which had been identified as economically impaired, as a result of management's decision to discontinue certain product lines or which were judged to be in excess of foreseeable requirements. (2) The $11.8 million change in control charge in the nine-month period ended September 30, 1999 was a special bonus paid to employees of ChipPAC's Korean subsidiary arising from the change in control. 36 (3) The foreign currency gains and losses were primarily the result of U.S. Dollar denominated debt of ChipPAC's Korean subsidiary. In accordance with U.S. GAAP, as the U.S. Dollar/South Korean Won exchange rates change, resulting foreign currency exchange gains/(losses) are recorded in ChipPAC's Combined Statement of Operations. (4) The extraordinary loss of $1.4 million, net of tax effects, represents costs related to the early retirement of debt, necessary under the recapitalization of the company on August 5, 1999. (5) For purposes of this computation, earnings are defined as income (loss) before provision for income taxes and fixed charges. Fixed charges are the sum of (a) interest costs and (b) the portion (approximately one-third) of operating lease rental expenses that are representative of the interest factor. Earnings for 1996 and 1997 and for the nine months ended September 30, 1999, were inadequate to cover fixed charges by $2.7 million, $55.8 million and $6.5 million, respectively. Earnings for the year ended December 31, 1997 included a non-cash foreign currency loss of $69.7 million and a non-cash asset impairment charge of $11.6 million. 37 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of the financial condition and results of operations covers periods prior to the completion of the recapitalization. In connection with the recapitalization, we entered into financing arrangements and, as a result, we have a different capital structure. Accordingly, the results of operations for periods subsequent to the recapitalization will not necessarily be comparable to prior periods. The following discussion should be read in conjunction with the combined financial statements contained elsewhere in this prospectus. Overview We are one of the world's largest providers of packaging and test services to the semiconductor industry. We offer complete portfolios of packaging and test solutions and are one of the largest providers of high-margin, BGA packages, the most advanced mass-produced semiconductor packages. We provide packaging and test services to approximately 70 customers worldwide, including approximately 40 in the United States who represented approximately 92.8% of our revenues in 1998. Our customers include some of the world's largest and most prominent semiconductor manufacturers such as Atmel Corporation, Intel Corporation, International Business Machines Corporation, LSI Logic Corp., Lucent Technologies, Inc., Samsung Electronics Co., Ltd. and STMicroelectronics N.V. We maintain executive and sales headquarters in the United States and our packaging and test facilities are located in Korea and China. We maintain sales offices in Asia, Europe, and the United States. Research and development activities are conducted in Korea and the United States. In 1984, our packaging business began operating as a separate division of Hyundai Electronics, one of the world's largest semiconductor manufacturers and a member of the Hyundai Group, the Korean conglomerate. In 1997, ChipPAC, Inc. was incorporated as a distinct entity and established as the parent of a stand- alone worldwide business. Following the recapitalization, Hyundai Electronics continues to own approximately 10.0% of our outstanding common stock and also holds redeemable preferred stock having an aggregate liquidation preference of approximately $70.0 million. In addition, Hyundai Electronics may receive up to an additional $55.0 million of cash during the four-year period beginning January 1, 1999 if we exceed certain levels of EBITDA as set forth in the recapitalization agreement. Hyundai Electronics is entitled to receive 33.3% of the amount by which our EBITDA (as defined in the recapitalization agreement) exceeds $116.5 million, $171.3 million, $198.5 million and $231.8 million, respectively, in each of the first four years following the recapitalization. In the event the final $20.0 million of 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, including dividends, of Hyundai Preferred Stock. Our revenues consist of fees charged to our customers for the packaging and testing of their integrated circuits, which we refer to as ICs. From 1995 to 1998, net revenues increased from $179.2 million to $334.1 million, primarily from the growth of BGA packaging. We are the second largest provider of outsourced BGA packaging services worldwide, and one of two key suppliers of BGA packaging services to Intel, whom we believe represents over 40% of the independent packaging market today. The capital investments made by Hyundai Electronics from 1995 to 1997 totaled approximately $300 million and provided us with the capacity necessary to support this growth in advanced packaging services, along with providing capacity to support future growth. By 1998, we possessed the scale required to provide our services to other customers who required BGA packaging services. We also have a significant business in leaded packaging, which accounted for 35.5% of our sales in 1998. The following table sets forth the composition of revenue by product group and test services, as a percentage of total revenues:
Fiscal Year Ended Nine Month December 31, Period Ended ------------------- September 30, 1996 1997 1998 1999 ----- ----- ----- ------------- BGA.......................................... 3.5% 37.7% 61.8% 68.7% Leaded....................................... 92.2 59.5 35.5 28.8 Testing...................................... 4.3 2.8 2.7 2.5 ----- ----- ----- ----- Total...................................... 100.0% 100.0% 100.0% 100.0% ===== ===== ===== =====
38 For the year ended December 31, 1998, over 95% of our revenues were denominated in U.S. Dollars with the remainder denominated primarily in Korean Won. Prior to 1999, our purchases of raw materials were made primarily in U.S. Dollars and Japanese Yen. Since the beginning of 1999, however, almost all purchases of raw materials have been made in U.S. Dollars. Labor and overhead costs at our facilities in Korea and China have been incurred in the local currencies of those countries. Our historical borrowings have been primarily made in U.S. Dollars. Our monetary assets and liabilities are primarily denominated in U.S. Dollars. The historical financial statements of ChipPAC Korea and ChipPAC China have been translated into U.S. Dollars using the local currency of those respective countries as the functional currency. The assets and liabilities of these entities have been translated at the exchange rates in effect on the balance sheet dates, and the revenues and expenses have been translated using the weighted average exchange rates for the periods measured. Historically, our foreign currency gains and losses have arisen primarily from the holding of monetary assets and liabilities denominated in U.S. Dollars by ChipPAC Korea and did not have a cash impact. ChipPAC Korea's U.S. Dollar denominated liabilities consist primarily of long- and short-term debt, and accounts payable, while its U.S. Dollar monetary assets consist primarily of intercompany receivables from other ChipPAC entities. From 1995 until December 31, 1998, ChipPAC Korea's U.S. Dollar-denominated liabilities exceeded its U.S. Dollar monetary assets. During this period, our reported foreign currency losses upon depreciation of the value of the Won and foreign currency gains upon the appreciation of the Won. From December 31, 1998 through March 31, 1999, ChipPAC Korea's U.S. Dollar monetary assets exceeded its U.S. Dollar- denominated liabilities. Upon completion of the recapitalization, management decided to change the functional currency of ChipPAC Korea and ChipPAC China from the respective local currencies to the U.S. Dollar, effective October 1, 1999. The change in functional currency to the U.S. Dollar reflects significant changes in the nature of our business including an overall increase in the level of U.S. Dollar sales, purchasing, and borrowings, as well as the planned change in ownership from a Korean-based parent company to a U.S.-based parent company. The use of the U.S. Dollar as the functional currency for ChipPAC Korea and ChipPAC China will not impact the cash flows of ChipPAC Korea or ChipPAC China or or us as a whole. Quarterly Results The following table sets forth our unaudited historical quarterly sales, gross profit and EBITDA in thousands of U.S. Dollars:
1997 1998 1999 ---------------------------------- ---------------------------------- ------------------------ Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------ ------- Revenues................ $53,130 $67,662 $82,052 $86,585 $77,130 $78,020 $82,818 $96,113 $85,548 80,853 101,270 Gross profit............ 3,228 13,298 19,308 24,357 23,196 12,862 15,911 11,747 13,417 9,684 16,778 EBITDA.................. 5,795 17,826 24,768 29,380 27,180 18,827 22,423 17,854 19,368 15,273 23,795 Gross margin............ 6.1% 19.7% 23.5% 28.1% 30.1% 16.5% 19.2% 12.2% 15.7% 12.0% 16.6% EBITDA margin(1)........ 10.9% 26.3% 30.2% 33.9% 35.2% 24.1% 27.1% 18.6% 22.6% 18.9% 23.7%
(1) EBITDA margin represents EBITDA, defined herein, as operating income plus depreciation, amortization and, in 1997, non cash charges related to write downs of impaired assets, as a percentage of revenue. The above table illustrates the cyclical and seasonal nature of our financial performance, although management believes that as a provider of packaging and test services, we are less susceptible to cyclical fluctuations than the semiconductor industry as a whole. We have historically experienced steadily rising revenue levels during the course of the year, peaking in the fourth quarter, due to a peak in demand from the personal computer industry in the fourth quarter of the year. BGA revenues have risen steadily throughout the period as a result of increased sales to Intel, our largest customer. The decline in leaded packaging revenue in 1998 arose from soft market conditions prevalent throughout the semiconductor industry and from our decision to discontinue certain unprofitable product lines. 39 Results of Operations The following table sets forth our results of operations based on the percentage relationship of certain items to revenues during the periods shown:
Nine-Month Period Year Ended December Ended September 31, 30, --------------------- ---------------- 1996 1997 1998 1998 1999 ----- ----- ------- ------- ------- Weighted average exchange rate of Won per U.S. Dollar...................... 804.7 939.0 1,388.9 1,425.7 1,194.7 ===== ===== ======= ======= ======= Historical Statement of Operations Data: Revenue............................... 100.0% 100.0% 100.0% 100.0% 100.0% Gross margin.......................... 13.0 20.8 19.1 21.8 14.9 Selling, general & administrative..... 6.0 5.5 4.5 4.3 5.4 Research & development................ 1.4 1.4 2.3 2.1 3.2 Write down of impaired assets......... -- 4.0 -- -- -- Management fees....................... 1.7 1.1 0.2 0.2 -- Change of control expenses............ -- -- -- -- 4.4 ----- ----- ------- ------- ------- Operating income...................... 3.9% 8.8% 12.1% 15.2 % 1.9% ===== ===== ======= ======= ======= Other Financial Data: Depreciation & amortization........... 13.9% 14.1% 13.7% 13.6% 15.6% Capital expenditures.................. 62.1 47.2 19.0 21.9 10.9
Nine-Month Period Ended September 30, 1999 Compared to Nine-Month Period Ended September 30, 1998 Revenues: Net revenues in the first nine months of 1999 increased 12.5% to $267.7 million, compared with $238.0 in the first nine months of 1998. This increase came primarily from sales growth in BGA packaging services, revenues from which increased by 35.1% from $136.0 million to $183.8 million. This increase was partially offset by a decline in revenues from leaded packages services from $94.7 million to $77.1 million. The strong growth in BGA revenues was driven primarily by higher volumes of BGA packaging services sold to Intel, ChipPAC's leading customer, partially offset by lower average selling prices. Additionally, ChipPAC started to ship BGA packages to new customers including nVIDA, IBM, Lucent and Level One during the first nine months of 1999. The decline in leaded product revenues was driven by the continuing soft market conditions in the semiconductor industry present during the second half of 1998, and has been partially offset by strengthening market conditions during the first nine months of 1999. Gross Profit: Gross profit decreased to $39.9 million in the first nine months of 1999 from $52.0 million resulting in gross margin of 14.9% in the first nine months of 1999 compared to 21.8% for the same period in 1998. The gross profit experienced during the first nine months of 1998 was significantly higher than usual due to the large depreciation of the Korean Won which averaged 1,425.7 Won per U.S. Dollar during the first nine months of 1998 compared to an average exchange rate of 1,194.7 Won per U.S. Dollar during the first nine months of 1999. This exchange rate resulted in lower costs for overhead and labor in 1998. Selling, General and Administrative: Selling, general and administrative expenses increased 38.7% to $14.4 million in the first nine months of 1999 compared to $10.4 million during the first nine months of 1998. As a percentage of sales, these expenses increased from 4.3% to 5.4% of sales during the same period. This increase was due to the additional expenses associated with hiring new personnel in the areas of administration, sales and marketing necessary to strengthen our worldwide infrastructure. Research and Development: Research and development expenses increased to $8.6 million in the first nine months of 1999 compared to $4.9 million in the first nine months of 1998. As a percentage of sales, these expenses increased to 3.2% of sales in the first nine months of 1999 as compared to 2.1% of sales in the first nine months of 1998. The increase in the level of research and development expenses was due to a combination of our increased spending on BGA packaging technology and the establishment of a prototype development center in Santa Clara, California at the end of 1998. 40 Management fees charged by affiliate: From 1995 to June 30, 1998, Hyundai charged fees to ChipPAC for the use of technology and technical support for our facility in China. This agreement was terminated on June 30, 1998. ChipPAC is fully capable of providing such support today. Interest Income: For the first nine months of 1999, interest income increased to $2.3 million from $0.5 million for the first nine months in 1998. Most of the interest income was earned from cash invested in time deposits. During the first nine months of 1999, ChipPAC maintained an average cash balance exceeding $55.8 million. During the first nine months of 1998, ChipPAC did not have a significant cash balance as substantially all cash was transferred to Hyundai. ChipPAC does not expect to maintain significant cash balances going forward. Interest Expense: Interest expense for the first nine months of 1999 increased 20.4% to $12.1 million from $10.0 million for the first nine months of 1998. Foreign Currency (Gains) Losses: During the first nine months of 1998, ChipPAC incurred a net non-cash foreign currency gain of $20.4 million which arose from ChipPAC Korea's holding of U.S. Dollar-denominated liabilities in excess of U.S. Dollar monetary assets and from an appreciation in the value of the Won. During the first nine months of 1999, ChipPAC incurred a non-cash foreign currency gain of $0.1 million. Other Income (Expense): Other income increased from $0.1 million in the first nine months of 1998 to $0.6 million for the first nine months of 1999. The decline in other income arose principally from a decline in the gains from the sale of excess production equipment. Income Taxes: Income tax benefit was $1.8 million in the first nine months of 1999 compared to $17.9 million expense for the first nine months of 1998. The estimated effective tax rate is approximately 50% in 1999 versus the historic effective tax rate of approximately 38.1% in 1998. The effective tax rates during both periods were adversely affected by losses by ChipPAC's operations in China, for which no tax benefit was realized. Year Ended December 31, 1998 Compared to Year Ended December 31, 1997 Revenues: Net revenues in 1998 increased 15.4% to $334.1 million from $289.4 million in 1997. This increase was primarily due to sales growth in BGA packaging, which grew approximately 89.2% for 1998 as compared to the prior year. As a percentage of total revenues, BGA packaging revenues increased from 37.7% in 1997 to 61.8% in 1998. Revenues from leaded packaging services declined to $118.5 million in 1998 from $172.1 million in 1997. The decline in revenues from leaded packaging services arose from a combination of soft market conditions in the semiconductor industry in 1998 and from management's decision to discontinue several unprofitable product lines in the fourth quarter of 1997. Testing revenues increased from $8.2 million to $9.3 million as a result of management's efforts to increase sales in the test area. Gross Profit: Gross profit increased 5.9% to $63.7 million in 1998 from $60.2 million in 1997. Gross margin declined to 19.1% in 1998 from 20.8% in 1997. The decline in gross margin arose primarily from soft market conditions prevailing in the semiconductor industry during 1998, which led to lower average selling prices. The decline of gross margin was partially offset by higher volumes of BGA packaging services sold, reductions in materials costs from suppliers, cost reduction programs and a decline in labor and overhead costs due to devaluation of the Won against the U.S. Dollar. Selling, General and Administrative: Selling, general and administrative expenses decreased 5.0% to $15.1 million in 1998 from $15.9 million in 1997. As a percentage of sales, these expenses decreased to 4.5% in 1998 from 5.5% in 1997. The decrease in selling, general and administrative expenses arose primarily from a 41 weaker Won which was partially offset by an increase in administrative and sales infrastructure costs incurred in connection with the implementation of a new corporate infrastructure, including the addition of the new senior management team. Research and Development: Research and development expenses increased to $7.7 million in 1998 from $4.1 million in 1997. As a percentage of sales, these expenses increased to 2.3% in 1998 from 1.4% in 1997. Research and development costs grew in 1998 primarily due to the effect from having a full year's expenses from the R&D center established at Chandler, Arizona, and from additional spending for BGA development. Management fees charged by affiliate: From 1995 to June 30, 1998, Hyundai charged us fees for the use of technology and technical support for our facility in China. In 1998, the management fees charged by Hyundai declined to $0.5 million from $3.2 million charged in 1997. The decline in the level of management fees reflects the decline in the need for such support from Hyundai, which led to the termination of the agreement effective June 30, 1998. Write down of impaired assets: In accordance 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 certain equipment as a result of a combination of management's decision to discontinue certain unprofitable product lines and from the identification of certain production equipment judged to be in excess of foreseeable requirements. There were no assets identified as impaired during 1998. Interest Income: Interest income increased to $1.3 million in 1998 compared to $0.1 million during 1997. Prior to July 1, 1998, our Korean operations did not have any significant cash balances because it existed as a division of Hyundai. As a division, almost all cash receipts and disbursements were handled through Hyundai. Most of the interest income earned in 1998 was earned during the second half of 1998 by our investments of surplus cash in time deposits. Interest Expense: Interest expense for 1998 increased to $13.3 million from $11.0 million during 1997. The increase arose from a combination of an increase in the average level of bank debt from approximately $157 million during 1997 to $168 million in 1998 and from increases in the interest rates charged to us by our lenders. Foreign Currency (Gains) Losses: During 1998, we incurred a non-cash gain of $24.7 million as the value of the Korean Won increased from 1,696 Won per Dollar at December 31, 1997 to 1,196 Won per Dollar at December 31, 1997. Other Income (Expense): Net other expense declined to $0.2 million in 1998 from $0.8 million in 1997. Most of the 1997 net other expense consisted of losses recorded on the disposition of surplus equipment. There were no significant gains or losses on disposition of equipment during 1998. Income Taxes: We recorded a provision for income taxes of $20.6 million during 1998 compared with a tax benefit of $9.7 million on a pretax loss of $55.8 million for 1997. Our effective tax rate was 38.9% in 1998. Our effective tax rate in 1997 was not meaningful since we incurred losses in 1997. The effective tax rates during both periods were adversely affected by losses incurred by our operations in China, for which no tax benefit was realized. Year Ended December 31, 1997 Compared to Year Ended December 31, 1996 Revenues: Revenues increased 51.0% to $289.4 million in 1997 from $191.7 million in 1996. This increase was due to the mass production of a newly developed BGA package causing revenues from BGA packaging services to increase from $6.8 million in 1996 to $109.1 million in 1997. Revenues from leaded packaging services declined 2.6% to $172.1 million in 1997 from $176.7 million in 1996. Revenues from test services remained flat at $8.2 million. Gross Profit: Gross profit increased 140.9% to $60.2 million in 1997 from $25.0 million in 1996. Gross margin as a percentage of revenue increased to 20.8% in 1997 compared to 13.0% for 1996. Gross profit in 42 1997 increased from 1996 primarily due to the emergence of BGA packaging services which carried higher margins and economies of scale arising from the substantially higher level of sales of BGA packaging services, primarily to Intel. Selling, General and Administrative: Selling, general and administrative expenses increased 38.7% to $15.9 million in 1997 from $11.4 million in 1996. As a percent of sales, these expenses decreased to 5.5% in 1997 from 6.0% in 1996. The increase in the level of expenses arose from the establishment of a new corporate management staff based in the United States, from an increase in the level of customer support costs in Korea, and from an increase in the level of administrative expense allocated by Hyundai. Research and Development: Research and development expenses increased 54.8% to $4.1 million in 1997 from $2.6 million in 1996. As a percent of sales, these expenses remained level at 1.4% for both 1996 and 1997. The increase in the level of research and development expenses reflected our efforts to develop capabilities in BGA packaging services. Management fees charged by affiliate: Management fees represented fees charged by Hyundai for technology and technical support for our facility in China. The fees charged in 1997 which were $3.2 million was approximately the same as the $3.3 million charged in 1996. Write down of impaired assets: In accordance 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 certain equipment as a result of a combination of management's decision to discontinue certain product lines and from the identification of certain production equipment judged to be in excess of foreseeable requirements. Interest Income: Interest income earned during 1997 and 1996 was insignificant because, as a division of Hyundai, we did not have any significant cash balances. Interest Expense: Interest expense for 1997 increased to $11.0 million from $5.8 million during 1996. The increase arose from net additional borrowing made during 1996 and 1997 for capital equipment. Foreign Currency (Gains) Losses: During 1997, we incurred a non-cash loss of $69.7 million as the Korean Won devalued from 845 Won per Dollar at December 31, 1996 to 1,696 Won per Dollar at December 31, 1997. During 1996, we incurred a non-cash loss of $5.0 million as the Korean Won devalued from 775 Won per Dollar at December 31, 1995 to 845 Won per Dollar at December 31, 1996. Other Income (Expense): We had net other expense of $0.8 million in 1997 compared to net other income of $0.4 million in 1996. In 1997, the $0.8 million arose largely from losses taken on the disposition of surplus production equipment. In 1996, we had $0.4 million of miscellaneous income. Income Taxes: We recorded a tax benefit of $9.7 million in 1997 compared to a tax expense of $2.9 million in 1996. In both years, the effective tax is not meaningful because we incurred pre-tax losses. Liquidity and Capital Resources We have a borrowing capacity of $50.0 million for working capital and general corporate purposes under the revolving credit facility. In addition, borrowings of up to $20.0 million are available for acquiring equipment and making 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 reborrowed by us later. The final maturity for both these facilities will be on August 5, 2005. We did not draw upon these facilities in connection with the recapitalization. Our ongoing primary cash needs are for operations and equipment purchases. Prior to the recapitalization, we met a significant portion of our cash requirements from a combination of (1) short- and long-term bank loans and (2) capital contributions from Hyundai. Hyundai Electronics has invested significant amounts of capital to increase our packaging and test services capacity. The capital investments made by Hyundai Electronics from 1995 to 1997 totaled approximately $300 million, and as a result, we believe that our facilities have sufficient capacity for future growth without 43 significant capital expenditures in the near future. We intend to spend approximately $40.9 million in capital expenditures in 1999, a decline of 35.6% from the $63.5 million spent in capital expenditures in 1998, and a decline of 70.1% from the $136.6 million spent in 1997. Through 2000, we intend to spend approximately $35.0 million in capital expenditures to increase capacity for our micro BGA packaging in order to support our three-year contract with Hyundai to package an agreed upon amount of their RDRAM devices. If Hyundai does not provide the agreed upon RDRAM devices, then Hyundai will reimburse us for the underutilized equipment which will be depreciated over three years. At the closing of the recapitalization, our debt consisted of $300.0 million of borrowings which were comprised of $150.0 million in term loan facilities and $150.0 million of senior subordinated notes. We also had $70.0 million of preferred stock and approximately $100.0 million of newly contributed equity. We believe that our existing cash balances, cash flow from operations, available equipment lease financing, and the net proceeds from the recapitalization will be sufficient to meet our projected capital expenditures, working capital and other cash requirements. Year 2000 Compliance We recognize the need to ensure that our operations will not be adversely impacted by year 2000 computer hardware and software failures and embedded chip or processor failures. Issues relating to the year 2000 are the result of computer programs and certain embedded-chip systems being written or developed using two digits rather than four to define the applicable year. Any computer programs or embedded-chip systems that have date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of our operations, including, among other things, a temporary inability to process transactions, obtain materials, provide packaging and test services, generate invoices, or engage in similar normal business activities. As of September 30, 1999, we had completed a formal review of all of the computer hardware, software systems, communications equipment and equipment used in our packaging and test processes. Our review included analysis of all potentially affected business and process systems. Computer code which was non- compliant was replaced or corrected, and when this was not possible, the systems were replaced. Additionally, the systems have been tested for compliance. We believe that all of our systems and equipment necessary for our packaging and test process are 100% year 2000 compliant in all material respects. We have completed a survey of the year 2000 readiness of all of the suppliers which are material to us. As part of the survey, these material suppliers completed and returned to us a written questionnaire which we had provided to them. The survey indicated that all of our material suppliers are fully year 2000 compliant. Therefore, we believe that there will be no material adverse effect on our business as a result of year 2000 problems or issues experienced by our suppliers. If any of our suppliers do experience year 2000 problems, our contingency plans include procuring critical supplies from alternate suppliers, and we have arranged to do so if necessary. We do not have any information concerning the year 2000 compliance status of our customers. If any significant customers do not successfully and in a timely manner achieve year 2000 compliance, our business or operations could be materially adversely affected. Approximately $600,000 has been spent on year 2000 compliance issues through September 30, 1999. While failure of any critical technology components to operate properly in the year 2000 could adversely affect our operations, we believe that resolution of the year 2000 issue will not require additional material costs and will not have a material adverse effect on our results of operations. Year 2000 contingency plans for our information technology operations include manual procedures for routing accounting, financial and product information to support on-time delivery and processing of our customers' products. If we experience interruptions in operations, we are prepared to correct the problems while sustaining our operations manually. 44 While we currently expect no material adverse affect on our business, financial condition or results of operations due to year 2000 issues, our beliefs and expectations are based on certain assumptions that ultimately may prove to be inaccurate. We cannot assure you that if we do experience problems associated with year 2000 issues or if our material suppliers or customers experience such problems, that it will not have a material adverse effect on us. Derivative Financial Instruments Since October 1998, we have entered into foreign forward contracts to mitigate the effect of foreign currency movements on the cost of materials and equipment. The contracts entered into require the purchase of Korean Won or Japanese Yen, and the delivery of U.S. Dollars, and generally have maturities which do not exceed three months. Because the contracts entered into to date do not qualify as hedges under generally accepted accounting principles, the gains and losses from these contracts have been recorded as foreign currency gains and losses. We had a net gain of $2.2 million and no gain or loss arising in 1998 and through the first three quarters of 1999, respectively, from forward foreign currency contracts. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 requires us to recognize all derivatives on the balance sheet at fair value. Derivatives which are not hedges must be adjusted to fair value through net income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the change in fair value of assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. SFAS 133 is effective for years beginning after June 15, 2000, but companies can adopt it as of the beginning of any fiscal quarter that begins after June 1998. We are evaluating the requirements of SFAS 133, but do not expect this pronouncement to materially impact our financial position or results of operations. We have adopted SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, issued in June 1997. This statement establishes standards for disclosure about operating segments in annual financial statements and selected information in interim financial reports. It also establishes standards for related disclosures about products and services, geographic area and major customers. This statement supersedes SFAS No. 14, Financial Reporting for Segments of a Business Enterprise. We operate in one segment and accordingly, do not report product segment information but will report geographic and significant customer revenue. We have adopted Statement of Position ("SOP") 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use, issued in March 1998 by the Accounting Standards Executive Committee. SOP 98-1 provides guidance on when costs related to software developed or obtained for internal use should be capitalized or expensed. The adoption of this statement has not had a material effect upon our combined results of operations, financial position or cash flows. Quantitative and Qualitative Disclosure about Market Risk We are exposed to financial market risks, including changes in interest rates and foreign currency exchange rates. We utilize derivative financial instruments but do not use derivative financial instruments for speculative or trading purposes. We have long-term debt that carries fixed interest rates. Fluctuations in interest rates would not have a material effect on our financial position, results of operations and cash flows. A majority of our revenue and capital spending is transacted in U.S. dollars. We do, however, enter into transactions in other currencies, primarily the Korean Won. With effect from October 1, 1999 we have changed the functional currency of ChipPAC Korea and ChipPAC China from their respective local currencies to the U.S. Dollar. The use of the U.S. Dollar as the functional currency will not have a material impact on our financial position, results of operations and cash flows. 45 INDUSTRY The production of a semiconductor is a complex process that requires increasingly sophisticated expertise. The production process can be broadly divided into three primary stages: (1) fabricating a wafer; (2) slicing the wafer into multiple die and processing these die into finished devices, which is referred to as "packaging"; and (3) testing of finished devices and other back-end processes. The three primary steps of the semiconductor production process are illustrated below: 46 According to International Data Corporation, worldwide semiconductor market revenues were approximately $125.0 billion during 1998. Since 1993, the global semiconductor market has expanded at a compound annual growth rate of approximately 10.4%. The worldwide semiconductor market can be divided into three segments: . microcomponents, including microprocessors and microcontrollers, which process data, such as the Pentium Microprocessor; . memory devices, which store data, such as Dynamic Random Access Memory, which is referred to as DRAM; and . moving and shaping devices, which move and share electronic signals around a printed circuit board, such as logic, analog, discrete and power devices and chipsets. Manufacturers have not outsourced packaging in their production of microcomponents or volatile memory devices such as DRAM. Outsourcing to date has been focused on the moving and shaping segment of the market. Historically, leaded packages, which are characterized by metal leads around the perimeter of the package connecting it to the printed circuit board, were the predominant package types used in the industry. In 1995, manufacturers began large scale production of BGA packaging, which offer significant advantages over leaded packaging. BGA packages are characterized by a grid of tiny metal balls on the bottom of the package that connect the device to the printed circuit board. According to International Data Corporation, the semiconductor industry's revenues are expected to grow at a compound annual growth rate of 13.2% from 1998 to 2003. Semiconductor growth continues to be driven by strong end-user demand for computers, telecommunications and consumer products, which require semiconductors characterized by greater functionality, increased speed and smaller size. In 1998, according to Electronic Trends Publications, total packaging revenues for the semiconductor industry were $16.1 billion of which revenues from independent packaging companies, like us, represented $6.1 billion, or 38.0%, of total packaging revenues. Independent packaging revenues are expected to grow at a compound annual growth rate of 16.2% from 1998 to 2003. Revenues for BGA packaging services, the fastest growing component of the independent packaging market, are expected to grow at a compound annual growth rate of 32.6% over the same period. Today, most major semiconductor manufacturers use independent packaging and test service providers for at least a portion of their packaging and test needs. We expect this outsourcing trend to continue as semiconductor manufacturers focus on their core strengths, such as chip design and wafer fabrication. Trend Toward Outsourcing of Semiconductor Packaging and Test Services Historically, semiconductor companies primarily manufactured semiconductors in their own facilities. Independent semiconductor packaging and test services were used only when semiconductor companies' production requirements exceeded their capacity constraints. In recent years, however, semiconductor companies have begun to face increasing time-to-market pressures, shorter product life cycles, accelerating advancements in packaging technology and rapidly expanding capital expenditure requirements. As a result of this challenging environment, the need for semiconductor companies to outsource their semiconductor packaging and test needs has grown dramatically. Principal factors contributing to this are as follows: Significant Capital Expenditures Are Required For Semiconductor Manufacturing. Semiconductor packaging and test services have evolved into increasingly complex processes that require a substantial investment in specialized equipment and facilities. For example, the capital investment in facilities and equipment necessary for a processing line capable of packaging 100 million BGA packages per year can be as much as $200 million. As a result of these substantial costs, equipment must be utilized at a high capacity level in order to be cost effective. However, it has become increasingly difficult for semiconductor companies to sustain high levels of capacity utilization due to ever-shorter product life cycles and the need to continuously update or replace packaging equipment to accommodate new products. Independent providers of packaging and 47 test services, on the other hand, 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 wafer fabrication facility has increased to over $1 billion, semiconductor companies have been forced to concentrate their capital resources on core wafer manufacturing activities. As a result, semiconductor companies are increasingly using independent packaging and test providers who are able to invest capital to develop new packaging and test capacity. We believe that as the cost to construct new wafer fabrication facilities continues to increase, semiconductor manufacturers will increasingly seek to outsource their packaging and test needs. 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 more compressed and manufacturers that are "first to market" can earn significant rewards. As a result, semiconductor companies are increasingly seeking to shorten their time-to-market for new products. Having the right packaging technology and capacity in place is a critical factor in reducing time-to-market. Semiconductor companies frequently do not have the equipment or expertise to implement new packaging solutions or sufficient time to develop these capabilities before introducing a new product into the market. For this reason, semiconductor companies are increasingly utilizing the resources and capabilities of independent packaging and test companies to deliver their new products to market more quickly. "Fabless" Semiconductor Companies are Focusing Exclusively on Semiconductor Design Process. There has been a recent growth of "fabless" semiconductor companies, which are companies that outsource all of their manufacturing and all of their packaging and test service needs. Their core competency and focus is entirely on the semiconductor design process. According to Dataquest, sales by fabless semiconductor companies grew from $3.2 billion in 1993 to $9.1 billion in 1997, representing 3.7% and 6.7%, respectively, of the worldwide market for semiconductors. Revenues of fabless semiconductor companies are expected to grow at a compounded annual growth rate of 26.4% from 1998 to 2002. The significant growth in the number of fabless semiconductor companies has been driven in large part by the ability of such companies to effectively outsource virtually every significant step of the semiconductor manufacturing process. This development has allowed fabless semiconductor companies to introduce new semiconductors very quickly without committing significant amounts of capital and other resources to manufacturing. We believe that increases in the number of fabless semiconductor companies will continue to be a significant driver of growth in the independent semiconductor manufacturing industry. Sophisticated Expertise and Technological Innovation Are Necessary. Semiconductor companies are facing ever-increasing demands for miniaturization, higher lead counts for more connections and improved thermal and electrical performance from IC packaging. As a result, semiconductor packaging is now viewed as an enabling technology requiring sophisticated expertise and technological innovation. Independent providers of packaging and test services have developed substantial expertise in packaging and test technology. Moreover, the multitude of packaging and test options required to support the proliferation of new semiconductor technologies makes it extremely difficult for semiconductor companies to invest their time and resources in packaging research and development and capacity. Semiconductor companies, having found it difficult to keep pace using their internal resources, have come to rely increasingly on the independent packaging and test services providers as a key source for a new technology development and innovation. 48 BUSINESS Company Overview We are one of the world's largest providers of packaging and test services for manufacturers in the semiconductor industry. We offer complete portfolios of packaging and test solutions and are one of the largest providers of high- margin, ball grid array, or BGA, packages, the most advanced mass-produced semiconductor package. A semiconductor package is a container that protects and insulates the enclosed semiconductor chip and attaches to a printed circuit board. As a result, packages are an integral part of the basic functionality of semiconductors and contribute to their overall performance. We provide packaging and test services to approximately 70 customers worldwide, including approximately 40 customers in the United States who represented 92.8% of our sales during 1998. Our customers include some of the world's largest and most prominent semiconductor manufacturers, such as Atmel Corporation, Intel, International Business Machines Corporation, LSI Logic Corp., Lucent Technologies, Inc., Samsung Electronics Co., Ltd. and STMicroelectronics N.V. Today, most major semiconductor manufacturers use independent packaging and test service providers for at least a portion of their packaging and test needs. We expect this outsourcing trend to continue as semiconductor manufacturers focus on their core strengths, such as chip design and wafer fabrication. Our executive and sales headquarters are in the United States and our packaging facilities are in Korea and China. During 1998, we packaged over 792.9 million units and generated $334 million in revenues and $86 million in EBITDA. For the nine-month period ended September 30, 1999, we packaged over 885.2 million units and generated $267.7 million in revenues and $58.4 million in EBITDA. In 1984, our packaging business began operating as a separate division of Hyundai Electronics, one of the world's largest semiconductor manufacturers and a member of the Hyundai Group, the Korean conglomerate. At that time, we began providing packaging and test services to third parties. In 1995, we identified an opportunity to become a leader in providing high-margin, advanced substrate packaging services, such as BGA. From 1995 to 1997, Hyundai Electronics invested approximately $300 million in plant and equipment in order to give us the capacity necessary to provide advanced packaging and test services. As a result of this strategic shift to high-margin, BGA packaging services, we have developed strong relationships with leading semiconductor companies in the various market segments of the semiconductor industry and have become a leader in BGA technology. In 1997, ChipPAC, Inc. was established as a stand-alone, worldwide business and was incorporated as a distinct entity. Since the year ended December 31, 1995 through September 30, 1999, our revenues have grown at a compound annual growth rate of 41.1%, and our EBITDA has grown at a compound annual growth rate of 49.3%. Competitive Strengths Demonstrated technology leadership. We are the world's second largest provider of outsourced, high-margin, advanced BGA packaging services. We offer one of the most complete portfolios of packaging and test solutions in the industry, focusing on high end solutions, with approximately 61.8% of our revenues in 1998 derived from BGA packaging services. BGA is currently the industry's most advanced mass produced packaging technology and outsourced BGA revenues are currently expected to grow at a compound annual growth rate of 32.6% from 1998 through 2003. We also continue to invest in research and development of next-generation packaging such as flip chip technology. We believe that maintaining our technology leadership is critical to meet the needs of our high-end customers, like Intel, who often require advanced packaging techniques. Intel was an early adopter of BGA technology, and in 1998, we estimate that Intel accounted for more than 40.0% of independent worldwide BGA packaging consumption. Packaging services provided to Intel accounted for approximately 67.0% of our revenues during 1998. The recent opening of our state-of-the-art research and development facilities in Chandler, Arizona and Santa Clara, California demonstrate our commitment to maintaining a technology leadership position. These facilities allow us to better service our customers through the development of new packaging solutions. 49 Growing blue chip customer base. We are a leading supplier of packaging services to a number of tier one customers, including Intel, LSI Logic and Atmel and are expanding our list of customers to include additional industry leaders. New customers include IBM, Lucent, nVIDIA, Level One and NEC. These customers are expected to generate significant revenues in 1999. Leading IDMs require early access to advanced packaging services because they manufacture products which require first-to-market technologies. Our close relationships with IDMs help to further develop our technology and position us to benefit from the high unit volumes of these major semiconductor manufacturers. Additionally, to become a qualified packager, a packaging company must pass a lengthy and rigorous qualification process that can take up to nine months for each packaging type. As a result, we believe semiconductor companies are generally reluctant to switch packaging suppliers once such suppliers have been qualified. Low-cost infrastructure. Our packaging facilities are located in Korea and China, affording us a highly competitive cost structure. Currently, high-end BGA packaging services are provided in Korea, while most of our higher volume leaded packaging services are provided in China. In addition, we believe that our early entry into the BGA market and our subsequent investment in capacity for these services have allowed us to achieve significant economies of scale through higher utilization rates and lower materials costs. Efficiency and quality leader. We consistently rank among the top service providers to our customers. We have received numerous quality awards from our customers, including supplier of the year recognition from Atmel and LSI Logic and, most recently, Intel's Preferred Quality Supplier Award. We are one of the most efficient packagers as measured by yields, cycle time, delivery and quality. Throughout 1998, we maintained a 99.8% yield on BGA packaging services which management believes is the highest for BGA packaging services. Our customers monitor the yield we are achieving on their ICs on a real time basis. Our strength separates us from our competition for two primary reasons: (1) management believes no other independent packaging company can ramp up from the R&D phase to full scale production faster than us; (2) once at full scale production levels, no other independent packaging company maintains the same level of yield and cycle time performance as us. This efficiency is due to: . our engineers' skills in providing our customers with unique, specialized solutions; . our operational excellence program, which focuses on quality, cycle time and continuous improvement; and . our state-of-the-art facilities and equipment. Major investments in packaging facilities. Most of our major investments in plant and capital equipment are already in place. From 1995 to 1997, Hyundai Electronics invested approximately $300 million in our plant and equipment in order to give us the necessary capacity to provide advanced packaging and test services. Investments included the purchase of advanced capital equipment and the construction of our packaging facility in China, which allows us to move most of our high-volume leaded packaging services operations to China from Korea. As a result, we believe that our facilities have sufficient capacity to allow us to grow without significant capital expenditures in the near future. Experienced management team. Our management team averages over 23 years of semiconductor industry experience. Our President and Chief Executive Officer, Dennis McKenna, has over 26 years of industry experience and has held various management positions at TRW, Inc., Oki Semiconductor (a division of Oki America, Inc.) and Hyundai Electronics. Under his tenure, which began in 1995, we have significantly increased our revenues and earnings and also procured the Intel account, our largest customer. As a result, we are one of the world's top two providers of BGA packaging services. Business Strategy Maintain high-quality customer service. We approach our customer relationships with the knowledge that we are an integral part of their design process and technology strategy. To achieve the highest possible customer satisfaction, we employ a high concentration of resources for each customer through a team approach. Each team is comprised of business development, technical solutions and order management professionals who 50 are familiar with a customer's specific organization, product, procedural and logistical requirements. In addition, we plan to engage in electronic commerce with many of our customers to transfer documents, collaborate on product design and development, receive detailed forecasts from our customers, receive customer orders, track our customers' work-in-process and furnish invoices to our customers. Also, in late 1997, we established a design and materials characterization center to provide BGA and leaded packaging designs, as well as electrical and thermal modeling services, in order to better assist our customers in shortening their product development cycles. Increase penetration with existing customers. Our goal is to increase our share of our customers' packaging business by providing superior customer service, providing quality packaging with the highest yield rates and providing new and advanced, high-quality packaging services, like BGA. Our customers today are leading semiconductor companies, including AMD, IBM, Intel, LSI Logic, Lucent, Samsung Electronics and STMicroelectronics, which are leaders in multiple semiconductor market segments, including flash memory, personal computer chipsets, memory chips, system ICs, wireless ICs, communications ICs, and mass storage ICs. According to The McClean Report (1999 edition), these companies accounted for approximately 38% of worldwide semiconductor revenues in 1998. All of these customers compete in large segments within the semiconductor industry and are on the leading edge of the trend to smaller, thinner, lighter and higher performance packaging. Our customers and these market applications also drive the next generation of packaging technology. Seamless integration with our customers' research and development efforts can further strengthen our customer relationships. Expand customer base through technology leadership. The key to expanding our customer base will be the development of new packaging technology. Within the last two years, we have introduced six new packages: mBGA(TM) (micro BGA), PBGA, TBGA, M/2/BGA(TM), EconoCSP(TM) and FBGA-T. In the last six months, we have either qualified or begun the qualification process for 13 new customers, including nVIDIA Corporation and Broadcom Corporation. In 1999, we established a U.S. research and development center that allows customers to validate future packaging options early in the development process. Research and development spending was approximately 2.3% of revenues during 1998, which is comparable to that of the independent packaging industry, but is significantly lower than that of most semiconductor manufacturing companies. We have 80 engineers dedicated to new packaging development. Maintain low-cost structure. We believe that a low-cost infrastructure is critical to our ongoing success in a highly competitive marketplace. As a result, we have initiated several programs to further increase the efficiency of our packaging processes, such as adopting a standard set of equipment to handle and process existing and potential packaging types. This equipment set strategy will reduce our requirements for space, utilities, materials and manpower. We are also taking steps to streamline our cost structure for existing processes, including initiating a materials cost reduction program, including gold wire diameter reduction, process simplification and use of quick cure mold compound; and adopting new inventory management, materials procurement and logistics procedures. Our Services We offer semiconductor packaging and test services to the semiconductor industry. During 1998, approximately 97.2% and 2.8% of our revenues were derived from packaging and test services, respectively. During the nine month period ended September 30, 1999, approximately 97.5% and 2.5% of our revenues were derived from packaging and test services, respectively. Packaging We have provided semiconductor packaging and test services to third parties since 1984, and offer a broad range of packaging formats for a wide variety of electronics applications. Our two types of packaging services, leaded and substrate (BGA), contributed to approximately 61.8% and 35.5% of revenues, respectively, for 1998. 51 Leaded Packaging. Leaded packaging is the most widely recognized packaging type and is used in almost every electronics application, including automobiles, household appliances, desktop and notebook computers, and telecommunications. Leaded packages have been in existence since semiconductors were first produced, and in 1998 comprised over half of the total industry packaging volume. Leaded packages are characterized by a semiconductor die encapsulated in a plastic mold compound with metal leads surrounding the perimeter of the package. With leaded packages the die is attached to a leadframe, which is a flat lattice of wires. The die is then encapsulated in a plastic or ceramic package, with the ends of the leadframe wires protruding from the edges of the package to enable connection to a printed circuit board. This packaging type has evolved from packages designed to be plugged into the printed circuit board by inserting the leads into holes on the printed circuit board to the more modern surface-mount design, in which the leads or pins are soldered to the surface of the printed circuit board. Specific packaging customization and evolutionary improvements are continually being engineered to improve electrical and thermal performance, shrink package sizes and enable multi-chip capability. We offer a wide range of lead counts and body sizes within this packaging group to satisfy customer die size variations. Our traditional leaded packages are at least three millimeters in thickness and include MQFP, PDIP, PLCC and SOIC. Our advanced leaded packages are thinner than our traditional leaded packages, approximately 1.4 millimeters in thickness, and have a finer pitch because the leads are closer together, allowing for a higher pin count and greater functionality in a smaller package size. Our advanced leaded packages include TQFP, TSOP, TSSOP and SSOP. Leaded Package Profile (LOGO OF LEADED PACKAGE PROFILE]) (LOGO OF ChipPAC) Substrate, or BGA, Packaging. BGA packaging represents the newest and fastest growing area in the packaging industry and is used primarily in high- growth end markets, including computing platforms and networks, hand held consumer products such as wireless technologies, personal digital assistants and video cameras, and home electronics, such as DVDs and home video game machines. BGA technology was first introduced as a solution to problems associated with the increasingly high lead counts required for advanced semiconductors. As the number of leads surrounding the integrated circuit increased, high lead count packages experienced significant electrical shorting problems. The BGA methodology solved this problem by effectively creating leads on the bottom surface of the package in the form of small bumps or 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. 52 We supply our customers with substantially the entire family of BGA packaging services offered in the marketplace today, including: . Standard BGA. Standard BGA packaging has a grid array of balls on the underside of the integrated circuit, and is utilized in high- performance applications, such as personal computer chipsets, graphic controllers and microprocessors. A standard BGA package generally has a high pin count, usually greater than 100 pins. Standard BGA packages have better thermal and electrical performance than leaded packages. They also feature more advanced surface mount technology, allowing for easier handling in the packaging process. Standard BGA packaging services accounted for all of our BGA packaging revenues in 1998. BGA Package Profile (LOGO OF BGA PACKAGE PROFILE) (LOGO OF ChipPAC) . Chip Scale BGA. Chip scale BGA packaging includes all packages where the package is less than 1.2 times the size of the silicon die. Chip scale BGA is a substrate-based package that is designed for memory devices and other high pin count semiconductors, which generally contain fewer than 100 pins, and require dense ball arrays in very small package sizes, such as wireless telephones and personal digital assistants, video cameras, digital cameras and wireless pagers. We recently secured a three-year contract with Hyundai Electronics to package their RDRAM devices using mBGA(TM), or micro BGA, packaging, a chip scale BGA packaging technology. Although none of our 1998 BGA revenues were derived from chip scale BGA packaging, we expect that chip scale packaging will contribute to our future revenues as a result of the Hyundai Electronics mBGA(TM), or micro BGA, contract and contracts with other customers requiring the smaller chip scale BGA package. We are continually developing new BGA technologies and BGA packaging techniques. One of our research and development facilities is working to develop prototypes of flip chip BGA packaging whereby the silicon die is directly attached to the substrate using solder rather than wire bonds. This improves heat dissipation and the electrical performance of the chip. Flip chip BGA technology can be used in a wide array of applications ranging from consumer products to highly sophisticated application specific integrated circuits, referred to as "ASIC," digital signal processors, referred to as "DSPs," and memory packages. While we believe that flip chip BGA represents the next generation of BGA packaging technology, we believe that standard BGA and chip scale BGA packaging will continue to experience long life cycles like many of our leaded packaging solutions. 53 The following chart summarizes the packaging services we offer:
Percentage of 1998 Packaging Revenues Packaging Types* Applications Pin Count ---------- ---------------- ------------ --------- Leaded 31.8% Traditional: PDIP, PLCC, QFP, Telecommunications, 8-304 MQFP, SOIC, SOJ, automobiles, household TSOC, LQFP, SSOP appliances, and desktop and and iQUAD(TM) notebook computers 6.1% Advanced: TQFP, TSOP and TSSOP Personal computers and 32-176 telecommunications BGA 61.8% Standard BGA: PBGA, Personal computer chipsets, 119-371 M/2/BGA(TM), graphic controllers and TBGA, EPBGA microprocessors -- Chip Scale BGA: EconoCSP(TM), 36-280 eBGA(TM), Wireless telephones, M2CSP(TM) and personal digital assistants, FBGA-T video cameras and wireless pagers 0.2% Flip Chip BGA: FlipPAC(TM), 36-1732 RamPAC(TM) and High-end consumer products, FlashPAC(TM) application specific integrated circuits, digital signal processors and memory packages
- -------- *The full names of these packages are set forth in the "Glossary." Testing Services We also provide our customers with semiconductor test services for a number of device types, including logic, mixed signal and memory devices. Semiconductor testing measures and ensures the performance, functionality and reliability of a packaged device, and requires knowledge of the specific applications and functions of the devices being tested. In order to enable semiconductor companies to improve their time-to-market, streamline their operations and reduce costs, there has been an increasing trend toward outsourcing both packaging and test services. We have begun to capitalize on this trend by enhancing our test service capabilities. In order to test the capability of a semiconductor device, a semiconductor company will provide us with its proprietary test program and specify the test equipment to run that program. In some instances, our customers may consign their test equipment to us. Our test operators place devices to be tested on a socketed load board and insert the load board into the test equipment which then tests the devices using software programs developed and supplied by our customers. The cost of any specific test and the time, usually measured in seconds, to run a test vary depending on the complexity of the semiconductor device and the customer's test program. When we provide test services for a packaging type, we run the test against every device it packages. In addition to final test services, we also provide "burn in" test services. Through "burn in," a semiconductor is inserted into a socket and subjected to extreme hot and cold temperatures over a period of time. "Burn in" tests are typically conducted to determine overall reliability under extreme conditions. We expect test services to become an important component of our revenues during the next several years as customers seek to reduce the time-to-market for their products by outsourcing both their packaging and test services. Other Services We also provide a full range of other related services, including: Design and Characterization Services. We offer design and characterization services at our Chandler, Arizona and Ichon, Korea facilities. When the selection of a package is critical to the overall development of a 54 semiconductor device, our design engineers at these facilities select, design and develop the appropriate package for that device by simulating the semiconductor's performance and end-use environment. Dry Pack Services. In order to prevent the failure of any semiconductors due to exposure to moisture during shipping, we "dry pack" most of our packaged integrated circuits in specially-sealed, environmentally-secure containers. Tape and Reel Services. Many electronic assembly lines utilize "tape and reel" methods whereby semiconductors are attached to a tape to enable faster attachment to the printed circuit board. We offer a service whereby we ship packaged and tested devices on a tape and reel mechanism rather than on a tray, to facilitate the assembly process. Drop Shipment. In order to enable semiconductor companies to improve their time-to-market and reduce supply chain and management costs, we offer drop shipment services whereby we ship packaged semiconductor devices directly to those companies that purchase such devices from our customers. Customers We provide packaging and test services to over 70 customers worldwide, including approximately 40 in the United States. Our customers include some of the world's largest and most prominent semiconductor manufacturers such as Atmel Corporation, Intel Corporation, International Business Machines Corporation, LSI Logic Corp., Lucent Technologies, Inc., Samsung Electronics Co., Ltd. and STMicroelectronics N.V. In 1998, approximately 67.0% of our revenues were derived from Intel, and 10.1% and 9.8% of our revenues were derived from Atmel and LSI, respectively. For the nine month period ended September 30, 1999, approximately 7.2% and 6.2% of our revenues were derived from Atmel and LSI, respectively. We anticipate that this customer concentration will decrease as new customers for which we have already become qualified and customers with which we are undergoing qualification, such as International Business Machines, Lucent Technologies Inc. and nVIDIA Corporation, begin to ship semiconductor devices to us for packaging. In 1998, we derived approximately 92.8% of our revenues from sales in the U.S., 5.1% in Asia and 2.1% in Europe. In general, our customers principally rely on at least two independent packagers. A packaging company must pass a lengthy and rigorous qualification process that can take up to three months for a typical leaded package and cost the customer $100,000 to $200,000 or can take more than six months for a typical BGA package and cost the customer $250,000 to $300,000. Once a primary packager has been selected, that packager gains insight into its customer's business operations and an understanding of its products while strengthening the overall working relationship. These factors, combined with the pressures of a semiconductor company to meet the time-to-market demands of its customers, results in high switching costs for semiconductor companies, making them adverse to changing suppliers or adding additional suppliers. We have been successful in attracting new customers because we are one of a few independent packaging and test companies that offers a complete line of BGA packaging services. Our success in becoming one of the world leaders in BGA technology is due in significant part to our being selected as one of the key suppliers to Intel. BGA technology is used in almost every personal computer that is built today, and Intel was the first semiconductor company to demand BGA technology solutions from independent packagers. In 1998, Intel accounted for approximately 90.0% of the industry's worldwide personal computer chipset revenues and approximately 80.0% of worldwide personal computer chipset units. Due to the significant volume of Intel semiconductors sold worldwide, in 1998, we believe Intel accounted for more than 40.0% of worldwide BGA packaging consumption. We are currently one of two suppliers of BGA packaging technology to Intel. In 1999, we were awarded Intel's Preferred Quality Supplier award. As a result of the Intel account, we have been able to grow our infrastructure to support the development of advanced BGA technology. In doing so, we have gained an early advantage relative to our competitors in: . packaging capability; . yield enhancement; . quality; and . reliability. 55 Furthermore, we have developed the expertise to use BGA technology across almost all Intel business groups, including personal computer chipsets, graphic controllers, memory, networking and communications. Intel does not currently outsource packaging services for any of its microprocessors, including the Pentium and Celeron lines. Both Intel and ChipPAC have resources dedicated to continuing the support of BGA packaging. Marketing, Sales and Customer Support We provide sales support to our customers through an international network of offices located in: . United States . Santa Clara, California (our executive offices) . San Diego, California . Chandler, Arizona . Boston, Massachusetts . Dallas, Texas . Kampen, The Netherlands . Tokyo, Japan . Shanghai, China . Ichon, Korea . Singapore Our account managers, applications engineers, customer service representatives and sales support personnel form teams that focus on a specific customer or geographic region. Our 60 marketing, sales support and customer service personnel's performance is measured by each team's revenue achievements and number of design "wins," providing a new service to an existing customer or signing up a new customer. In 1998, approximately 92.8% of our revenues were derived from U.S.-based customers. As is industry practice, we have no long- term customer contracts; rather, customers deliver near-term forecasts to guide us on anticipated volumes. As a result, we have no meaningful backlog statistics. Because substantially all of our materials inventory is purchased based on customer forecasts, we carry small quantities of such inventory and we have relatively low finished goods inventory. Our marketing efforts focus on creating a brand awareness and familiarity with ChipPAC and its advanced device packaging technologies and an understanding of its end-user market applications in networking, memory, storage, graphics and wireless. We emphasize that we are a leader in advanced packaging and test technology, supplying a broad line of packaging and test services to the semiconductor industry. We target engineers and executive level decision makers through the delivery of "white papers" at industry conferences, quarterly mailings of technical brochures and newsletters, advertisements in trade journals and our website. We engage in semi-annual and quarterly reviews of all of our customers; we regularly collect data from different segments of the semiconductor industry, for example, personal computers, wireless telephony, video and digital cameras, etc.. When possible, we work closely with our customers to design and develop packaging and test solutions for their new products. These "co-development" or "sponsorship" projects can be critical when customers seek large scale early market entry with a significant, new product. Task teams assigned by both ChipPAC and its customers work together to design and develop new solutions and to analyze and review the outcomes to ascertain if a project's objectives are being met in a cost-effective manner. Depending on the project, the cost of development may be borne entirely by us or may be shared with the customer. Suppliers Our packaging operations depend upon obtaining adequate supplies of materials on a timely basis. The principal materials used in our packaging process are lead frames, rigid and flexible substrates, gold wire and 56 molding compound. We purchase materials based on the stated demand forecasts of our customers. Our customers are responsible for the costs of unique materials which go unused, particularly those lead frames and substrates that are ordered on the basis of customer-supplied forecasts. We work closely with our primary materials suppliers to insure the availability and timeliness of materials supplies, and we are not dependent on any one supplier for a substantial portion of our materials requirements. We have no significant supply contracts or arrangements with any supplier of materials, and we typically purchase materials by entering into written purchase orders. Historically, over half of our substrate costs were incurred from the purchase of materials from Japan. We expect that a growing portion of these substrate materials in the next several years will be supplied by sources in Korea and, to some extent, Taiwan. Our packaging operations and expansion plans also depend on obtaining adequate supplies of equipment on a timely basis. To that end, we work closely with our major equipment suppliers to insure that equipment deliveries are on time and the equipment meets our stringent performance specifications. Operations and Facilities Our packaging process begins by cutting customer supplied wafers into individual die using a high speed precision saw. For leaded packaging, the individual die are then mounted onto metal strips called lead frames, which are generally made of copper with selective silver plating on which a pattern of input/output, or I/O, leads has been cut. For BGA packaging, individual die are placed onto plastic or tape laminate substrates which are miniature printed circuit boards. Next, very fine gold wires, with an average diameter of about 0.001 inch, are attached to the die and the lead frame or substrate, as applicable. These gold wires provide the electrical connection between the electronic circuits on the die and the I/O points of the lead frame or substrate. Each die is then encapsulated in a plastic casing and marked. For leaded packaging, the next step consists of plating the protruding leads with a tin alloy which facilitates soldering when the finished chips are placed onto a printed circuit board. The die then go through a series of mechanical stamping processes where the leads are then trimmed and formed into the requisite finished shape. For BGA packaging, the next step consists of attaching tiny solder balls to the bottom of the substrates. The completed devices then undergo a final inspection before being packed and shipped to customers according to customers' specifications. We are not responsible for shipping customer packaged products; customers either retrieve their finished packaged products directly from our facilities or third parties deliver the finished packaged products to the airport to be retrieved by customers. Our operations are conducted through five operating facilities pursuant to contracts entered into by ChipPAC Limited, our British Virgin Islands operating subsidiary. Our corporate headquarters are located in Santa Clara, California, and we provide all packaging, warehousing and test services through our facilities in Ichon and Chungju, Korea and Shanghai, China. Our Chungju facility provides electroplating services on chips from the Ichon facility. Our Chungju facility was founded in 1983 and is both ISO-9002 and QS-9000 certified. The Ichon facility was founded in 1985 and is both ISO-9002 and QS- 9000 certified. The Shanghai facility was founded in 1994 and is also ISO-9002 certified and QS-9000 certified. The following chart summarizes our packaging and research and development facilities:
Principal Packaging or Service Owned/ Provided or Being Facility Location Leased Sq. Ft. Functions/Services Developed ----------------- ------ ------- -------------------------- -------------------------- Santa Clara, California. Leased 40,000 Executive offices, Flip Chip BGA and Quick- Research and Turn BGA Development Development, Sales and Marketing Chandler, Arizona....... Leased 5,000 Research and Development, Design and Sales and Marketing Characterization Services Shanghai, China......... Owned 442,000 Packaging and Test Traditional Leaded BGA Services Packaging and Test Services Ichon, Korea............ Leased 474,000 Packaging and Test Advanced Leaded and BGA Services; Research and Packaging and Test Development Services Chungju, Korea.......... Leased 129,000 Electroplating chips from -- Ichon, Korea
57 Competition The packaging and test industry is highly fragmented. Our primary competitors and their locations are as follows: . Advanced Semiconductor Engineering, Inc. -- Taiwan . ASE Test Limited -- Taiwan and Malaysia . Amkor Technology, Inc. -- USA . ASAT, Ltd. -- Hong Kong . Hana Microelectronics Public Co., Ltd. -- Hong Kong and Thailand . Siliconware Precision Industries Co., Ltd. -- Taiwan . Shinko Electric Industries Co., Ltd. -- Japan . ST Assembly Test Services Limited -- Singapore Each of these companies has significant packaging capacity, financial resources, research and development operations, marketing and other capabilities, and has been operating for some time. These companies also have established relationships with many large semiconductor companies which are current or potential customers of ours. We also compete with the internal packaging and test capabilities of many of our largest customers. We believe the principal elements of competition in the independent semiconductor packaging market include time-to-market, breadth of packaging services, technical competence, design services, quality, yield, customer service and price. We believe that we generally compete favorably in these areas. Due in significant part to the lengthy and costly process of qualifying a supplier, most semiconductor manufacturers generally have two sources of packaging services. Research and Development Our research and development efforts are focused on developing new packaging designs and process capabilities and on improving the efficiency and capabilities of our existing packaging and test services. We believe that technology development is one of the key success factors in the packaging market and we believe that we have a distinct advantage in this area. Within the last two years, we have introduced six new packages: mBGA(TM), PBGA, TBGA, M/2/BGA(TM), EconoCSP(TM) and FBGA-T. In 1999, we established a U.S. research and development center that allows customers to validate future flip chip packaging options early in the development process by giving such customers direct access to flip chip materials, equipment and our engineering expertise. As of September 30, 1999, we employed approximately 70 full-time research and development personnel. Since we partner with the semiconductor manufacturers that are our customers, research and development costs have not historically represented a material percentage of our revenues. During 1998, we spent approximately $7.7 million on research and development. Employees As of September 30, 1999, we employed 3,795 full-time employees, of whom approximately 80 were employed in research and development, 3,575 in packaging and test services and 236 in marketing, sales, customer service and administration. Approximately 1,806 of our employees at the Ichon, Korea facility are represented by ChipPAC Korea Labor Union and are subject to a collective bargaining agreement which provides for provisions with respect to salary and wages through May 1, 2000 and expires on May 1, 2001. We believe that we have good relationships with our employees and unions. 58 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 certain trademark rights, in the operation of our business. Pursuant to the patent and technology license agreement that ChipPAC Limited entered into with Hyundai Electronics, which we refer to as the Hyundai Electronics License, in connection with the recapitalization, we obtained a non-exclusive license to use certain intellectual property in connection with our packaging activities. Following expiration of its initial term on December 31, 2003, the Hyundai Electronics License may be extended by us from year to year upon payment of a nominal annual license fee. Hyundai Electronics may terminate the Hyundai Electronics License prior to December 31, 2003 if we breach the Hyundai Electronics License and do not cure within the applicable time period, or in the event of our bankruptcy or similar event, or if a force majeure event prevents performance of the agreement. ChipPAC Limited has entered into a License Agreement with Tessera, Inc. which we refer to as the Tessera License, pursuant to which we have obtained a worldwide, royalty-bearing, non-exclusive license under certain 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 thereunder. Further, in connection with the recapitalization, ChipPAC Limited obtained a non-exclusive, royalty-free sub license from Hyundai Electronics under certain patents owned by Motorola for use in connection with our BGA packaging process. The initial term of our sub license under the Motorola patents will expire on December 31, 2002. This sublicense requires Hyundai Electronics to use commercially reasonable efforts to extend or renew its license from Motorola prior to expiration thereof on December 31, 2002 and obtain from Motorola the right to grant ChipPAC Limited a sublicense on the same terms and conditions as those of any such extended or renewed license. Our primary trademark and trade name is "ChipPAC." We own or are licensed to use other secondary trademarks, but none of these trademarks are considered of primary importance to our business. Environmental Matters We are subject to liabilities and compliance obligations arising under environmental, health and safety laws. These laws impose various controls on the quality of our air and water discharges and on the generation, storage, handling, discharge, treatment, transportation and disposal of chemicals which we use, and on employee exposure to hazardous substances in the workplace. It is our policy to comply with all applicable environmental, health and safety laws and regulations, and we believe we are currently in material compliance with all such 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 such 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 1999 and 2000. There can be no assurance that applicable environmental, health and safety laws will not in the future impose the need for additional capital equipment or other process requirements upon us, curtail our operations, or restrict our ability to expand operations. The adoption of new environmental, health and safety laws, the failure to comply with new or existing laws, or issues relating to hazardous substances could subject to future material liability. 59 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 subject to claims that arise in the ordinary course of business, and we maintain insurance that we believe to be adequate to cover these claims. 60 MANAGEMENT Directors and Executive Officers The following table sets forth certain information about the persons who are the directors and executive officers of ChipPAC, Inc.
Name Age Position ---- --- -------- Dennis P. McKenna 49 President, Chief Executive Officer and Director, ChipPAC, Inc. Tony Lin 50 Chief Financial Officer, ChipPAC, Inc. Gregory S. 42 Vice President, Worldwide Sales, ChipPAC, Inc. Bronzovic Marcos Karnezos 55 Vice President, Technology, ChipPAC, Inc. (Peter) Phang Guk 51 President, ChipPAC Assembly Bing and Test (Shanghai) Company Ltd. S. N. Lee 55 President and Chief Executive Officer, ChipPAC Korea Company, Ltd. David Dominik 43 Director, ChipPAC, Inc. Edward Conard 42 Director, ChipPAC, Inc. Prescott Ashe 32 Director, ChipPAC, Inc. Michael A. Delaney 45 Director, ChipPAC, Inc. Paul C. Schorr IV 32 Director, ChipPAC, Inc. Joseph Martin 51 Director, ChipPAC, Inc. Chong Sup Park 51 Director, ChipPAC, Inc.
Dennis P. McKenna has been President and Chief Executive Officer of ChipPAC, Inc. since October 1997; he was appointed to these positions when ChipPAC, Inc. was incorporated as a separate United States corporation. From October 1995 to January 1997, he served as Senior Vice President of the Components Group for Hyundai Electronics. He joined Hyundai Electronics in January 1993 and served as Vice President and General Manager of the Semiconductor Group until October 1995. Prior to joining Hyundai Electronics, Mr. McKenna, who has over 26 years of industry experience, held management positions at TRW, Inc. and Oki Semiconductor, a division of Oki America, Inc. Tony Lin has served as Chief Financial Officer of ChipPAC, Inc. since November 1997. From June 1993 to September 1997, he was the Chief Financial Officer and Vice President, Finance at Integrated Packaging Assembly Corp. Gregory S. Bronzovic joined ChipPAC, Inc. in April 1998 and has served as Vice President North American Sales, ChipPAC, Inc. since that time. From September 1998 to the present he has also served as Vice President, Worldwide Sales, ChipPAC, Inc. From January 1995 until April 1998, he was Director of Sales, Hyundai America; prior to that time he served as Western Area Manager, Hyundai America from February 1994. Marcos Karnezos has been Vice President, Technology of ChipPAC, Inc. since October 1998. From December 1996 to October 1998, he served as Vice President, Technology at Signetics KP. Prior to that, he was Vice President, Technology at ASAT, Ltd. from October 1992 to December 1996. (Peter) Phang Guk Bing was appointed as President, ChipPAC Assembly and Test (Shanghai) Company Ltd. in November 1999. He was also recently appointed as President, Chief Executive Officer and Chief Financial Officer of ChipPAC International Company Limited, ChipPAC (Barbados) Ltd and ChipPAC Limited. From July 1998 to October 1999, he served as Vice President of Operations at ChipPAC (Shanghai) Company Ltd. From September 1994 to June 1998, he was employed by Silicon Systems Singapore, where he was Director of Manufacturing Support Engineering and, prior to that, Director of Assembly Operations. 61 S. N. Lee has been President and Chief Executive Officer, ChipPAC Korea Company, Ltd. since July 1998. Mr. Lee served as Senior Vice President from April 1986 through December 1995, and as Executive Vice President from October 1996 through June 1998 of the Assembly and Test Division of Hyundai Electronics, the predecessor of ChipPAC Korea Company, Ltd. From January 1996 to October 1996, Mr. Lee served as Senior Vice President of the LCD Division of Hyundai Electronics. David Dominik joined Bain Capital in 1990 as a Managing Director. Prior to joining Bain Capital, Mr. Dominik was a general partner of Zero Stage Capital, a venture capital firm focused on early-stage companies. Previously, Mr. Dominik was a venture capital investor and assistant to the Chairman of Genzyme Corporation, a biotechnology firm. From 1982 to 1984, Mr. Dominik was a management consultant at Bain & Company. Mr. Dominik serves on the board of directors of Therma-Wave, Inc., Dynamic Details, Incorporated and OneSource Information Services, Inc. Edward Conard joined Bain Capital in 1993 as a Managing Director. Prior to joining Bain Capital, Mr. Conard was a director of Wasserstein Perella from 1990 to 1992 where he headed the firm's Transaction Development Group. Previously, Mr. Conard was a Vice President at Bain & Company, where he headed the firm's operations practice and managed major client relationships in the industrial manufacturing and consumer goods industries. Mr. Conard currently serves on the boards of Waters Corporation, Cambridge Industries, Dynamic Details Inc., Medical Specialties Group, Inc., Alliance Commercial Laundry, Inc. and U.S. Synthetics, Inc. Prescott Ashe joined Bain Capital in 1991 and has been a Principal of Bain Capital since 1998. Prior to Bain Capital, Mr. Ashe was a management consultant at Bain & Company. Mr. Ashe currently serves on the board of directors of Dynamic Details, Incorporated. Michael A. Delaney has been Managing Director of Citicorp Venture Capital Ltd., an investor in the SXI Group LLC, since 1989. Mr. Delaney is also a director of GVC Holding, JAC Holdings, CORT Business Services, Inc., Palomar Technologies, Inc., SC Processing, Inc., Triumph Group, Inc., CLARK Material Handling Inc., MSX International, Delco Remy International, Inc., International Knife and Saw, Inc., Fabri-Steel Products, Inc., Aetna Inc., AmeriSource Health Corporation and Allied Digital Technologies Inc. Paul C. Schorr IV has been Vice President, Equity Investments for Citicorp Venture Capital Ltd., an investor in the SXI Group LLC, since June 1996. Prior to that, Mr. Schorr was Engagement Manager in Management Consulting at McKinsey & Company. Mr. Schorr serves on the board of directors of KEMET Corporation, Sybron Chemicals and Fairchild Semiconductor Corporation. Joseph Martin has been Executive Vice President and Chief Financial Officer of Fairchild Semiconductor Corp. since 1997, prior to which time he was Vice President of Finance, Worldwide Operations for National Semiconductor Corp. since 1989. Mr. Martin is also a director of Fairchild Semiconductor Corp. Chong Sup Park joined Hyundai Electronics in 1983 and has been Chairman of Hyundai Electronics America since November 1999. From February 1995 to October 1999, he served as President and Chief Executive Officer of Hyundai Electronics America and Maxtor Corporation. Mr. Park is also a director of Maxtor Corporation, Dot Hill Systems Corporation, and Viador, Inc. Compensation of Directors We reimburse members of the board of directors for any out-of-pocket expenses incurred by them in connection with services provided in such capacity. In addition, we pay Mr. Martin and Dr. Park compensation that is commensurate with arrangements offered to directors of companies that are similar to ChipPAC, Inc. for their services as directors. We will also enter into agreements with Mr. Martin and Dr. Park for the grant of stock options to purchase shares of our Class A common stock. The options granted pursant to these agreements will be subject to vesting beginning in August 2000. 62 Executive Compensation Summary Compensation Table The following table sets forth, for the year ended December 31, 1998, the compensation paid to the Chief Executive Officer and the four next most highly compensated executive officers of ChipPAC whose total annual salary and bonus was in excess of $100,000 for fiscal year 1998. For ease of reference, we refer to each of these executive officers throughout this section as a "named executive officer" and collectively as the "named executive officers."
Long-Term Annual Compensation Compensation(2) ---------------------------------- ---------------- Securities All Other Name and Principal Year Other Annual Underlying Compensation Position Ended Salary Bonus Compensation (1) Options/SARS (#) (3) - ------------------ ----- ------ -------- ---------------- ---------------- ------------ Dennis P. McKenna....... 1998 $325,012 $165,925 $7,200 300,000 $6,565 President and Chief Executive Officer, ChipPAC, Inc. Tony Lin................ 1998 175,805 50,925 6,000 100,000 6,059 Chief Financial Officer, ChipPAC, Inc. Richard L. Groover(4)... 1998 167,205 32,886 6,000 75,000 5,767 Vice President, Engineering, ChipPAC, Inc. Gary J. Breton(4)....... 1998 167,967 44,686 45,073(5) 75,000 3,659 Vice President, China Operations, ChipPAC, Inc. Gregory S. Bronzovic.... 1998 136,210 42,137 4,500 75,000 2,850 Vice President, Worldwide Sales, ChipPAC, Inc.
- -------- (1) Includes a car allowance but excludes perquisites and other personal benefits or property aggregating less than the lesser of either: (i) $50,000 or (ii) 10% of the total annual salary and bonus reported for the applicable named officer. (2) At the closing of the recapitalization on August 5, 1999, all options held by the named executive officers were canceled in the case of unexercised options, or converted into the right to receive cash, in the case of vested options. The options set forth in this summary compensation table are no longer outstanding. See "Option Grants" below for more information on option grants to our management. (3) Includes amounts contributed (a) under our 401(k) plan for 1998 as follow: Mr. McKenna--$4,999; Mr. Lin--$4,317; Mr. Groover--$4,126; Mr. Bronzovic-- $2,388; and Mr. Breton--$2,009 and (b) for premiums for a life insurance policy as follow: Mr. McKenna--$1,566; Mr. Lin--$1,742; Mr. Groover--$1641; Mr. Bronzovic--$462; and Mr. Breton--$1,650. (4) Mr. Groover and Mr. Breton are no longer employed by us. (5) Includes an overseas allowance of $22,800 and relocation reimbursement of $22,273. Employment Agreements Mr. McKenna Mr. McKenna is employed pursuant to an employment agreement with us. The agreement provides that Mr. McKenna will serve as our President and Chief Executive Officer. The initial term of the agreement terminates on December 31, 2001 and automatically renews for successive one-year periods unless either party notifies the other of his or its intention not to renew the agreement. Under the agreement, we pay Mr. McKenna a base salary of $400,000 per year, subject to increases approved by the board of directors, plus a bonus of up 63 to 80% of his base salary upon attainment by us of financial performance targets set forth in the agreement. Mr. McKenna will receive a pro rated bonus for the remainder of 1999. The agreement also provides for customary fringe benefits. We have agreed to pay Mr. McKenna a bonus equal to twice his base salary plus a portion of his annual bonus if we terminate Mr. McKenna for any reason other than cause, or if Mr. McKenna terminates his employment for good reason. If Mr. McKenna dies before the end of his employment period, we will pay his estate a pro rated portion of the bonus he would have earned in the year of his death. The agreement also provides that, should Mr. McKenna continue to serve as President and Chief Executive Officer following a change of control of ChipPAC, the provisions of the employment agreement shall remain in force and effect following the change of control. Mr. Lin and Mr. Bronzovic Mr. Lin and Mr. Bronzovic are employed pursuant to letter agreements with us. Each letter agreement provides that Mr. Lin and Mr. Bronzovic are employees-at-will and that either party has the right to terminate the employment relationship at anytime with or without cause. Mr. Lin's letter agreement provides that he serves as Chief Financial Officer. Mr. Lin's current base salary is $181,597. 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 certain ChipPAC and personal performance goals. Mr. Bronzovic's letter agreement provides that he serves as Vice President, Worldwide Sales. Mr. Bronzovic's current base salary is $178,180. In addition to his base salary, Mr. Bronzovic is eligible to earn an annual bonus targeted at $100,000. Mr. Lin's and Mr. Bronzovic's letter agreements provides for certain perquisites, such as automobile allowances, and customary personal benefits. Management Incentive Agreements Mr. Lin and Mr. Bronzovic are parties to management incentive agreements with us under which they are entitled to receive payments from us in the event of a change of control or, subject to conditions described in the management incentive agreements, in the event their employment is terminated or they resign. The recapitalization was a change of control as defined in the management incentive agreements. Mr. Groover and Mr. Breton were parties to such agreements prior to termination of their employment with us. Mr. McKenna's employment agreement, described above, amended and restated the management incentive agreement to which he was a party. Following the recapitalization, we paid cash to the named executive officers in return for the vested options held by each of these officers. The amount of those cash payments was $40,500, $15,750, $11,813, $11,813 and $8,438 in the case of Messrs. McKenna, Lin, Groover, Breton and Bronzovic, respectively. In addition, if Mr. Lin's or Mr. Bronzovic's employment is terminated without cause or if they resign for good reason, in each case before February 5, 2000, we are required to pay Mr. Lin or Mr. Bronzovic cash in an amount equal to a percentage of their annual base salary and target bonus, together with unpaid vacation, salary and unreimbursed expenses. The applicable percentage of annual base salary and bonus is 50.0% for Mr. Lin and 25.0% for Mr. Bronzovic. No such payment was made to Mr. Groover or Mr. Breton upon their termination of employment with us. Mr. McKenna and Mr. Lin also received special bonuses of $100,000 and $50,000, respectively, in connection with the closing of the recapitalization. 64 Option Grants Pursuant to the recapitalization agreement, each option to purchase our common stock that was outstanding prior to the recapitalization was, in the case of unvested options, canceled, and in the case of vested options, converted into the right to receive cash from ChipPAC, Inc. immediately prior to the recapitalization. 1999 Stock Purchase and Option Plan Our board of directors has adopted the ChipPAC, Inc. 1999 Stock Purchase and Option Plan, or the "1999 Stock Plan," which authorizes the granting of stock options and the sale of Class A common stock or Class L common stock to current or future employees, directors, consultants or advisors of ChipPAC, Inc. or its subsidiaries. Under the 1999 Stock Plan, a committee of the board of directors is authorized to sell or otherwise issue Class A common stock or Class L common stock at any time prior to the termination of the 1999 Stock Plan in such quantity, at such price, on such terms and subject to such conditions as established by the committee up to an aggregate of 15,500,000 shares of Class A common stock and 500,000 shares of Class L common stock, including shares of common stock with respect to which options may be granted, subject to adjustment upon the occurrence of specified events to prevent any dilution or expansion of the rights of participants that might otherwise result from the occurrence of such events. As of September 30, 1999, no shares of Class A common stock or Class L common stock or options to purchase such stock were outstanding under the 1999 Stock Plan. Qualified 401(k) and Profit Sharing Plan We maintain a qualified 401(k) and profit sharing plan. Employees are permitted to contribute up to 15.0% of their annual compensation to our 401(k) plan, not to exceed $10,000 per year. Under the plan, we make matching contributions of up to 50.0% of the first 6.0% of annual deferral per participant, subject to the IRS limits. We contributed and expensed $119,000 in 1998, $49,000 in 1997 and $11,000 in 1996. Pension Plans and Deferred Compensation Plans We do not maintain any pension plans or deferred compensation plans other than the 401(k) and profit sharing plan described above. In connection with the recapitalization, certain members of management may receive deferred compensation arrangements. The terms of these arrangements have not yet been finalized. Management Equity Sale Under the 1999 Stock Plan, we intend to enter into purchased stock agreements, which we refer to as purchase agreements, with certain of our senior employees, including Mr. McKenna, Mr. Lin and Mr. Bronzovic, among others. Under these purchase agreements, some of our senior-level employees may purchase shares of our Class A common stock and Class L common stock. We may loan some of these senior-level employees up to 50% of the purchase price of the common stock purchased under these purchase agreements. These loans will be represented by promissory notes between the employee and us. The common stock purchased under the purchase agreements will be subject to vesting and is also subject to repurchase upon termination of the employee's employment with us. 65 PRINCIPAL SHAREHOLDERS ChipPAC International Company Limited is a wholly-owned subsidiary of ChipPAC, Inc. ChipPAC, Inc.'s outstanding equity securities consist of Class A common stock, Class L common stock, Hyundai Preferred Stock and Intel Preferred Stock. The shares of Class A common stock entitle the holder to one vote per share on all other matters to be voted upon by shareholders. The Class L common stock is identical to the Class A common stock except that the Class L common stock is nonvoting and is entitled to a preference over the Class A common stock with respect to any distribution to holders of our capital stock, equal to the original cost of such share plus an amount which accrues at a rate of 12.5% per annum, compounded quarterly. The Class L Common Stock is convertible into Class A Common Stock upon an initial public offering. See "Certain Relationships and Related Transactions." Hyundai Electronics and Hyundai Electronics America own all of the issued and outstanding Hyundai Preferred Stock. Intel owns all of the issued and outstanding Intel Preferred Stock. Holders of the Hyundai Preferred Stock and the Intel Preferred Stock have no right to vote on any matters to be voted on by the stockholders of ChipPAC, Inc. The following table sets forth certain information as of September 30, 1999 regarding the approximate beneficial ownership of (1) each person known to us to own more than 5% of the outstanding voting securities of ChipPAC, Inc. and (2) the voting securities of ChipPAC, Inc. held by each director of ChipPAC, Inc., each named executive officer and all of such directors and named executive officers as a group. Unless otherwise noted, to our knowledge, each of such stockholders has sole voting and investment power as to the shares shown. Unless otherwise indicated, the address of each director and named executive officer is 3151 Coronado Drive, Santa Clara, California 95054.
Class A Common Stock Shares Beneficially Owned ------------------------ Number of Percentage Name and Address Shares of Class - ---------------- ------------- ---------- Principal Stockholders: Bain Capital Funds (1)................................ 40,995,003.17 44.7% c/o Bain Capital, Inc. Two Copley Place Boston, Massachusetts 02116 SXI Group LLC (2)..................................... 40,500,000 44.1% c/o Citicorp Venture Capital, Ltd. 399 Park Avenue New York, NY 10043 Hyundai Electronics America........................... 9,000,000 9.8% 3101 North First Street San Jose, California 95134 Directors and Executive Officers: -- -- Dennis P. McKenna..................................... -- -- Tony Lin.............................................. -- -- Gregory S. Bronzovic.................................. -- -- Marcas Karnezos....................................... -- -- David Dominik (3)..................................... 8,468,975.98 9.2% Edward Conard (4)..................................... 8,468,975.98 9.2% Prescott Ashe (5)..................................... 8,468,975.98 9.2% Michael A. Delaney (6)................................ 40,500,000 44.1% Paul C. Schorr IV(7).................................. 40,500,000 44.1% Joseph Martin (8)..................................... Chong Sup Park........................................ All Directors and named executive officers as a group (11 persons)......................................... 48,968,975.98 53.3%
66 - -------- (1) Includes: (a) 31,520,958.49 shares of Class A common stock owned by Bain Capital Fund VI, L.P. ("Fund VI"), whose sole general partner is Bain Capital Partners VI, L.P., whose sole general partner is Bain Capital Investors VI, Inc., a Delaware corporation wholly owned by W. Mitt Romney; (b) 4,617,715.49 shares of Class A common stock owned by BCIP Associates II ("BCIP II"), whose managing partner is Bain Capital, Inc., a Delaware corporation wholly owned by W. Mitt Romney; (c) 728,085.59 shares of Class A common stock owned by BCIP Associates II-B ("BCIP II-B"), whose managing partner is Bain Capital, Inc., a Delaware corporation wholly owned by W. Mitt Romney; (d) 1,156,306.49 shares of Class A common stock owned by BCIP Trust Associates II, L.P. ("BCIP Trust II"), whose general partner is Bain Capital, Inc., a Delaware corporation wholly owned by W. Mitt Romney; (e) 329,309.41 shares of Class A common stock owned by BCIP Trust Associates II-B ("BCIP Trust II-B"), whose general partner is Bain Capital, Inc., a Delaware corporation wholly owned by W. Mitt Romney; (f) 1,637,559 shares of Class A common stock owned by BCIP Associates II-C ("BCIP II-C"), whose managing partner is Bain Capital, Inc., a Delaware corporation wholly owned by W. Mitt Romney; (g) 105,068.70 shares of Class A common stock owned by PEP Investments Pty, Ltd. ("PEP"), whose controlling persons are Timothy J. Sims, Richard J. Gardell, Simon D. Pillar and Paul J. McCullagh; and (h) Sankaty High Yield Asset Partners, L.P. ("Sankaty"), whose sole general partner is Sankaty High Yield Asset Investors, LLC, whose managing member is Sankaty High Yield Asset Investors, Ltd., a Bermuda corporation wholly owned by W. Mitt Romney. (2) SXI Group LLC is a portfolio concern of Citicorp Venture Capital Ltd. (3) Includes: (a) 4,617,715.49 shares of Class A common stock owned by BCIP II, a Delaware general partnership of which Mr. Dominik is a general partner; (b) 1,156,306.49 shares of Class A common stock owned by BCIP Trust II, a Delaware limited partnership of which Mr. Dominik is a general partner; (c) 105,068.70 shares of Class A common stock owned by PEP, a New South Wales limited company for which Mr. Dominik has a power of attorney. Mr. Dominik disclaims beneficial ownership of any such shares in which he does not have a pecuniary interest. Mr. Dominik's address is c/o Bain Capital, Inc., Two Copley Place, Boston, Massachusetts 02116. (4) Includes: (a) 4,617,715.49 shares of Class A common stock owned by BCIP II, a Delaware general partnership of which Mr. Conard is a general partner, (b) 1,156,306.49 shares of Class A common stock owned by BCIP Trust II, a Delaware limited partnership of which Mr. Conard is a general partner; (c) 105,068.70 shares of Class A common stock owned by PEP, a New South Wales limited company for which Mr. Conard has a power of attorney. Mr. Conard disclaims beneficial ownership of any such shares in which he does not have a pecuniary interest. Mr. Conard's address is c/o Bain Capital, Inc., Two Copley Place, Boston, Massachusetts 02116. (5) Includes: (a) 4,617,715.49 shares of Class A common stock owned by BCIP II, a Delaware general partnership of which Mr. Ashe is a general partner, (b) 728,085.59 shares of Class A common stock owned by BCIP II-B, a Delaware limited partnership of which Mr. Ashe is a general partner; (c) 1,156,306.49 shares of Class A common stock owned by BCIP Trust II, a Delaware limited partnership of which Mr. Ashe is a general partner; and (d) 329,301.41 shares of Class A common stock owned by BCIP Trust II-B, a Delaware limited partnership of which Mr. Ashe is a general partner. Mr. Ashe disclaims beneficial ownership of any such shares in which he does not have a pecuniary interest. Mr. Ashe's address is c/o Bain Capital, Inc., Two Copley Place, Boston, Massachusetts 02116. (6) Includes all shares of Class A common stock owned by SXI Group LLC, a portfolio concern of Citicorp Venture Capital, Ltd. Mr. Delaney is both an investor in SXI Group LLC, a member of its Board of Representatives and a Managing Director of Citicorp Venture Capital, Ltd. Accordingly, Mr. Delaney may be deemed to beneficially own all such shares held by SXI Group LLC. Mr. Delaney disclaims beneficial ownership of any such shares in which he does not have a pecuniary interest. Mr. Delaney's address is c/o Citicorp Venture Capital, Ltd., 399 Park Avenue, New York, New York 10043. (7) Includes all shares of Class A common stock owned by SXI Group LLC, a portfolio concern of Citicorp Venture Capital, Ltd. Mr. Schorr is both an investor in SXI Group LLC, a member of its Board of Representatives and a Managing Director of Citicorp Venture Capital, Ltd. Accordingly, Mr. Schorr may 67 be deemed to beneficially own all such shares held by SXI Group LLC. Mr. Schorr disclaims beneficial ownership of any such shares in which he does not have a pecuniary interest. Mr. Schorr's address is c/o Citicorp Venture Capital, Ltd., 399 Park Avenue, New York, New York 10043. (8) Includes all shares of Class A common stock owned by SXI Group LLC, a portfolio concern of Citicorp Venture Capital, Ltd. Mr. Martin is an investor in SXI Group LLC and, accordingly, may be deemed to beneficially own all such shares held by SXI Group LLC. Mr. Martin disclaims beneficial ownership of any such shares in which he does not have a pecuniary interest. Mr. Martin's address is c/o Fairchild Semiconductor Corporation, 333 Western Avenue, South Portland, Maine 04106. 68 THE RECAPITALIZATION The recapitalization and related transactions resulted in, among other things: . the Equity Investors and other parties owning approximately 90.2% of the outstanding common stock of ChipPAC, Inc. and Hyundai Electronics and Hyundai Electronics America owning approximately 9.8% of the outstanding common stock; . the creation of several new foreign subsidiaries of ChipPAC, Inc., including ChipPAC International Company Limited, the issuer of the exchange notes; . the organization of the new direct and indirect subsidiaries and the existing direct and indirect subsidiaries of ChipPAC, Inc. into a distinct group of operating subsidiaries and a distinct group of borrowing subsidiaries; and . the issuance of the preferred stock to Hyundai and the implementation of the new senior credit facilities described under "Description of Other Financing Arrangements--Senior Credit Facilities." Prior to the recapitalization, Hyundai Electronics owned: (1) all of the outstanding equity of ChipPAC Korea Company, Ltd., which we refer to as ChipPAC Korea, and which leases our Ichon, Korea and Chungju, Korea facilities; and (2) all of the outstanding equity of Hyundai Electronics (Shanghai) Company Ltd. which was renamed ChipPAC (Shanghai) Company Limited after the recapitalization and which we refer to as ChipPAC China I and which owns, among other things, ChipPAC's Shanghai, China facility and (3) 82.0% of the outstanding equity of Hyundai Electronics America. The remaining 18% was owned by another 100% owned Hyundai subsidiary. Hyundai Electronics directly owns certain intellectual property rights used in our business. Hyundai Electronics America, in turn, owned all of the outstanding stock of ChipPAC, Inc. prior to the recapitalization. ChipPAC, Inc. owned all of the outstanding equity of ChipPAC Assembly and Test (Shanghai) Company, Ltd., which we refer to as ChipPAC China II. The steps described below were taken in order to complete the recapitalization. Please refer to the diagram at the end of this section for information on our current corporate structure. . Through a series of restructuring transactions involving entities controlled by Hyundai Electronics and Hyundai Electronics America, ChipPAC, Inc. became the indirect owner of all of the outstanding equity of ChipPAC Korea, ChipPAC China I and ChipPAC China II. . Hyundai Electronics formed ChipPAC Limited as a new subsidiary and ChipPAC (Barbados) Ltd. as a new subsidiary of ChipPAC, Inc. ChipPAC (Barbados) Ltd. is now a wholly-owned subsidiary of ChipPAC, Inc. and ChipPAC Limited is now a wholly-owned subsidiary of ChipPAC (Barbados) Ltd. ChipPAC Limited owns all of the outstanding equity of ChipPAC China I and ChipPAC China II and 99.9% of the outstanding equity of ChipPAC Korea. ChipPAC (Barbados) Ltd. owns the remaining 0.1% of the outstanding equity of ChipPAC Korea. . Hyundai sold the rights to substantially all of the intellectual property used in our business, including rights under our agreements with Intel Corporation, to ChipPAC Limited. . Hyundai Electronics formed a subsidiary of ChipPAC, Inc. named ChipPAC Operating Limited, which owned all of the outstanding equity of two additional entities formed by Hyundai Electronics, ChipPAC Luxembourg S.a.R.L. and ChipPAC Liquidity Management. . The Equity Investors, together with other investors, invested an aggregate of approximately $92.0 million cash in ChipPAC, Inc. through the merger of ChipPAC Merger Corp., a newly-formed, wholly- owned subsidiary of the Equity Investors, in exchange for approximately 90.2% of the common stock of ChipPAC, Inc. after the completion of the recapitalization steps. . ChipPAC International Limited, the issuer of the outstanding notes and the exchange notes was merged with and into ChipPAC Operating Limited and renamed ChipPAC International Company Limited. 69 . Concurrently with the recapitalization described above, we borrowed $150 million under the term loan facilities. We used all the proceeds from the term loan facilities, the issuance of the outstanding notes and the equity issuance to repay existing third party indebtedness and to purchase most of Hyundai Electronics and Hyundai Electronics America's equity interest in us and our subsidiaries and the intellectual property used in our business and to pay certain other accounts in conjunction with the recapitalization. Our current corporate structure is as follows: [CORPORATE STRUCTURE CHART APPEARS HERE] 70 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Because this is a summary, it does not contain all of the information that maybe important to you. You should read the complete document before making an investment decision. These documents have been filed as exhibits to the registration statement of which this prospectus forms a part. See "Where You Can Find Additional Information." Recapitalization Agreement On March 13, 1999, ChipPAC, Inc., ChipPAC Merger Corp., Hyundai Electronics and Hyundai Electronics America entered into the recapitalization agreement, as amended. Pursuant to the recapitalization agreement, the transactions described in "The Recapitalization" section were consummated. As part of the recapitalization, we also paid fees and expenses related to the financing of the recapitalization. Pursuant to the recapitalization agreement, Hyundai Electronics and Hyundai Electronics America agreed to jointly indemnify us against any and all losses resulting from any misrepresentation or breach of warranty made by ChipPAC in the recapitalization agreement, a claim for which must be made (in most cases) 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 are generally subject to a $3.85 million minimum aggregate threshold amount and limited to a maximum aggregate amount payable of no more than $38.5 million; provided, however, that in certain cases where indemnification obligations are not subject to such 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 (with certain exceptions); and . that (i) we may incur within ten years of the recapitalization and (ii) which relate to patent infringement claims brought by specified third parties (the indemnification obligations are limited to $5.0 million in this instance). 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 set forth in the recapitalization agreement, subject to limitations set forth therein. Hyundai Electronics and Hyundai Electronics America have also agreed for a period of four years after the closing of the recapitalization not to provide semiconductor packaging or test services to any person or any entity anywhere in the world, except for fabricated products for its semiconductor units. Hyundai Electronics and Hyundai Electronics America have also agreed for a period of two years after the closing of the recapitalization not to offer employment to (or hire) any of our current or former employees, other than any employee that was terminated by us on or prior to December 1, 1998. In conjunction with the transfer of control of ChipPAC, Inc. and its subsidiaries in the recapitalization, Hyundai Electronics and Hyundai Electronics America, or their affiliates, entered into or amended a number of ancillary agreements with certain of our subsidiaries, including: . utility and service agreements with ChipPAC Korea to provide it with utility service at its Ichon and Chungju, Korea facilities; . an information technology services agreement relating to maintenance and support of our computer hardware and software; and . a lease for our Ichon and Chungju, Korea facilities and a sublease for our Santa Clara, California facility. All of these ancillary agreements are on terms we believe are market and customary. 71 Advisory Agreements In connection with the recapitalization, we entered into advisory agreements with the Equity Investors pursuant to which the Equity Investors may provide financial, advisory and consulting services to us. In exchange for such services (if and when provided), the Equity Investors will be entitled to receive fees billed at the Equity Investors' customary rates for actual time spent performing such services plus reimbursement for out-of-pocket expenses; provided that, commencing with the quarter ended March 31, 2000, when and if we achieve EBITDA, as calculated through the twelve-month period ended March 31, 2000, in excess of $81.2 million, the Equity Investors will each be entitled to an annual advisory fee, the amount of which will be limited by our senior credit agreements, for the remaining term of the advisory agreement. There are no minimum levels of service required to be provided pursuant to the advisory agreements. In connection with the recapitalization, the Equity Investors received a one-time fee of 1.0% of the aggregate value of the recapitalization, which fees are included in the $32.7 million of fees and expenses identified in "Use of Proceeds." In addition, the Equity Investors will each receive a fee not to exceed 1.0% of the aggregate value of any acquisition, divestiture or financing transaction of ChipPAC, Inc. in which the Equity Investors are involved. Each advisory agreement will remain in effect for an initial term of ten years, subject to termination by the Equity Investors or us upon written notice 90 days prior to the expiration of the initial term or any extension thereof. Each advisory agreement includes customary indemnification provisions in favor of each of the Equity Investors. Shareholders Agreement In connection with the recapitalization, ChipPAC, Inc., each of the Equity Investors and all of the other non-management equity holders, including Hyundai Electronics, Hyundai Electronics America and Intel, entered into a shareholders agreement that, among other things, provides for restrictions on the transfer of shares and certain preemptive rights. Also pursuant to the shareholders agreement, our board of directors will be comprised of . the chief executive officer of ChipPAC, Inc., . three representatives designated by Bain Capital, . three representatives designated by SXI Group LLC and . one representative designated collectively by Hyundai Electronics and Hyundai Electronics America. Registration Agreement ChipPAC, Inc., the Equity Investors and certain of their designees, Hyundai Electronics, Hyundai Electronics America and Intel entered into a registration agreement which provides for "demand' registration rights to cause us to register under the Securities Act all or part of the shares of our stock, as well as "piggyback" registration rights. Specifically, the registration agreement provides that: (1) 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; (2) after an offering of our stock to the public and subject to certain exceptions, (a) at any time, the holders of a majority of the registrable securities held by Hyundia Electronics or Hyundai America may require one "long form' or "short form' registration at our expense and (b) before August 5, 2006, the holders of a majority of the registrable securities held by Intel may also require one "long form' or "short form' registration at our expense; and (3) all holders of registrable securities may request that their eligible stock be included whenever we register any of our securities under the Securities Act, with certain exceptions. 72 We have agreed to indemnify all holders of registered securities against certain liabilities, including liabilities under the Securities Act. Transition Services Agreement We entered into a transition services agreement with Hyundai Electronics and Hyundai Electronics America whereby Hyundai Electronics and Hyundai Electronics America will continue to provide certain administrative and other services to us for amounts to be determined depending upon the type and number of services performed. Services to be provided by Hyundai Electronics and Hyundai Electronics America pursuant to 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, pursuant to which we received a non-exclusive license to use intellectual property in connection with our semiconductor packaging activities. Following the expiration of its initial term on December 31, 2003, the patent and technology license agreement may be extended by us from year to year upon payment of a nominal annual license fee. Hyundai Electronics may terminate the patent and technology license agreement prior to December 31, 2003 if we breach the agreement and do not cure within the applicable time period, or in the event of bankruptcy or similar event, or if a force majeure event prevents performance of the agreement. Services Agreement We entered into an agreement with Hyundai Electronics for the packaging of Hyundai Electronics' (mu)BGA (micro BGA) chips. Pursuant to the services agreement, we must procure sufficient capital equipment to meet Hyundai's packaging requests. The initial term of the agreement expires on June 30, 2002, subject to earlier termination for cause. 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 estimated and accrued as current liabilities based on projected sales and the rebate percentages 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. 73 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. Intel Stock Purchase Agreement Immediately following the recapitalization, we entered into the stock purchase agreement with Intel. Pursuant to this agreement, we issued to Intel (i) the Intel Preferred Stock, which has an initial aggregate liquidation preference of $10.0 million, and (ii) 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. See "Description of Other Financing Arrangements--Intel Preferred Stock; Intel Warrant." 74 DESCRIPTION OF OTHER FINANCING ARRANGEMENTS Senior Credit Facilities General. On August 5, 1999, in connection with the recapitalization, ChipPAC International Company Limited entered into several senior loan facilities, which we refer to as the senior credit facilities, with Credit Suisse First Boston, New York Branch, or CSFB, as administrative agent, and certain other financial institutions, which we refer to as the senior lenders. The senior credit facilities consist of: . two tranches of term loans, which we refer to as the term loan facilities, of $70.0 million, which we refer to as "Term Loan A" and $80.0 million, which we refer to as "Term Loan B"; . a revolving loan, which we refer to as the revolving credit facility, including letters of credit, of up to $50.0 million; and . a capital expenditure facility, which we refer to as the capex facility, in an amount of up to $20.0 million. Purposes. We must use the amounts available under the senior credit facilities as follows: . the term loan facilities must be used to pay a portion of the cash consideration to be paid in the recapitalization and to pay related fees and expenses; . the revolving credit facility may be used for our working capital and general corporate purposes; . the capex facility may be used only for acquiring equipment or making certain other capital expenditures. Repayment and Final Maturity. The different senior credit facilities are due as follows: . Revolving Credit Facility will mature on July 31, 2005. . CapEx Facility will mature on July 31, 2005 and will amortize beginning 25.5 months after the closing of the recapitalization over approximately four years. . Term Loan A will amortize in each of the first five years according to a schedule to be determined with the balance maturing on July 31, 2005. . Term Loan B will amortize in each of the first six years according to a schedule to be determined with the balance maturing on July 31, 2006. We may repay any portion of the revolving credit facility which is outstanding without premium or penalty from time to time, other than payment of breakage costs and reimbursement of the senior lenders' actual re-deployment costs under certain circumstances. Also, it is mandatory that we repay any outstanding borrowings under the senior credit facilities out of a portion of net cash proceeds we receive from certain asset sales, insurance recovery and condemnation events, certain equity issuances and annual excess cash flow. Availability. The entire amount of the term loan facilities was drawn at the closing of the recapitalization; any amount of the term loan facilities that we repay may not be reborrowed by us later. We may borrow under the revolving credit facility until final maturity and letters of credit will be available until the fifth business day prior to final maturity of the revolving credit facility. We may reborrow any amounts of the revolving credit facility that we repay. We may borrow and repay under the capex facility until July 31, 2001. Amounts of the capex facility that we repay after July 31, 2001 may not be borrowed by us later. Security; Guaranty. The senior credit facilities provide that all of our indebtedness be secured as fully as is permitted by applicable law by substantially all of the assets of ChipPAC, Inc., ChipPAC International Company Limited, and the assets of each of ChipPAC, Inc.'s present and future direct and indirect subsidiaries, including without limitation: . a first priority pledge of all the capital stock of all present and future subsidiaries; and 75 . perfecting a first priority (subject to customary exceptions) security interest in, and mortgages on, substantially all tangible and intangible assets (to the extent permitted by applicable law) of ChipPAC, Inc. and each of its present and future direct and indirect subsidiaries. In addition, in order to maximize tax benefits pursuant to certain withholding tax treaties among several of the jurisdictions in which subsidiaries of ours are located, we made a series of direct and indirect intercompany loans among these subsidiaries, which we refer to as the intercompany loans. Each of the intercompany loans is evidenced by an intercompany note (which will be pledged to the senior lenders as part of the assets of each of ChipPAC's subsidiaries), and each of the borrowers under the intercompany loans has executed security agreements in favor of the lenders of these loans. Finally, each present and future subsidiary of ours (other than our subsidiaries in China) has (to the extent permitted by applicable law) guaranteed our obligations under the senior credit facilities by executing a guaranty in favor of the senior lenders. Interest. The interest rates under the senior credit facilities are, at our option, either (a) the base rate, which is the higher of the Agent's prime lending rate and the Federal Funds Effective Rate plus 0.5%, plus a margin or (b) adjusted LIBOR plus a margin. The margins of the different loans under the senior credit facilities, except Term Loan B, were set initially as described below. In the future, however, the margins on Term Loan A, the revolving credit facility and the capex facility will vary according to a pricing grid based upon our consolidated leverage ratio. . the initial margin on Term Loan A, the revolving credit facility and the capex facility are 2.25% over the base rate and 3.25% over adjusted LIBOR; and . the margin on Term Loan B is 3.00% over the base rate and 4.00% over adjusted LIBOR. Fees. We have agreed to pay certain fees in connection with the senior credit facilities, including: . letter of credit fees; . agency fees; and . commitment fees. Covenants. The senior credit facilities require that we meet certain financial tests, including, without limitation, a maximum leverage ratio, a minimum interest coverage ratio and minimum fixed charge coverage ratio. The senior credit facilities also contain covenants which, among other things and subject to certain exceptions, restrict our ability to: . incur liens or engage in sale-leaseback transactions; . transact with affiliates; . incur indebtedness and contingent obligations; . declare dividends or redeem or repurchase capital stock; . prepay, redeem or repurchase indebtedness; . change the business being conducted; . make loans and investments; . engage in mergers, acquisitions, consolidations and asset sales; and . make capital expenditures. The senior credit facilities also require that we satisfy certain customary affirmative covenants and provide certain customary indemnifications in favor of the senior lenders. Events of Default. The senior credit facilities contain customary events of default, including, without limitation, payment defaults, breaches of representations and warranties in all material respects, covenant defaults, certain events of bankruptcy and insolvency, ERISA violations, judgment defaults, cross-defaults to certain other indebtedness and a change in control. 76 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 has a scheduled redemption date of August 5, 2010 and is otherwise redeemable by us at any time in our sole discretion. All of the shares of Hyundai Preferred Stock will be held by either Hyundai Electronics or Hyundai Electronics America. The prior written consent of the holders of a majority of the outstanding Hyundai Preferred Stock are required to amend, modify or waive the terms of the Hyundai Preferred Stock. The exchange notes will be senior in right of payment to the Hyundai Preferred Stock. In addition, Hyundai Electronics may receive up to an additional $55.0 million in cash during the four-year period beginning January 1, 1999 if we exceed certain levels of EBITDA as set forth in the recapitalization agreement. Hyundai Electronics is entitled to receive 33.3% of the amount by which our EBITDA (defined in the recapitalization agreement as net income before interest, taxes, depreciation, amortization, extraordinary items and advisory fees) exceeds $116.5 million, $171.3 million, $198.5 million and $231.8 million, respectively, in each of the first four years following the recapitalization. In the event the final $20.0 million of such $55.0 million in cash is required to be paid to Hyundai Electronics, it shall be paid by the mandatory redemption of an equal amount of Hyundai Preferred Stock. Intel Preferred Stock Pursuant to the Intel Stock Purchase Agreement, we issued 10,000 shares of Class A 10.0% preferred stock to Intel, which we refer to as the Intel Preferred Stock. Dividends on the Intel Preferred Stock accrue on a daily basis from the date of issuance at a rate of 10.0% per annum, payable when and as declared by the board of directors; provided, however, that dividends will be paid prior to the payment of any dividends with respect to any of our capital stock or equity securities which we refer to as junior securities, other than the Hyundai Preferred Stock. Dividends on each share of Intel Preferred Stock will accrue from the date of issuance of the Intel Preferred Stock to the first to occur of: (1) the date upon which the face value ($1,000 per share) of such share of Intel Preferred Stock plus all accrued but unpaid dividends is paid; (2) the date upon which such share of Intel Preferred Stock is converted into common stock (as described below); or (3) the date upon which such share of Intel Preferred Stock is acquired by us. 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. 77 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) of the Intel Preferred Stock plus all accrued and unpaid dividends thereon. In addition, each of the following will be deemed a liquidation, dissolution or winding up of ChipPAC, Inc.: . any sale by us of all or substantially all of its assets; . any consolidation or merger of ChipPAC, Inc. as a result of which holders of our common stock possessing the voting power to elect a majority of the board of directors immediately prior to such consolidation or merger cease to own capital stock of the surviving corporation possessing the voting power to elect a majority of the surviving corporation's board of directors; or . any issuance, sale or transfer to any third party of our capital stock as a result of which holders of our outstanding capital stock possessing the voting power to elect a majority of the board of directors immediately prior to such sale cease to own capital stock of ChipPAC, Inc. possessing the voting power to elect a majority of the board of directors (each of the foregoing, a "Liquidation Event"). At any time and from time to time after August 1, 2005, we have the right to redeem all or any portion of the Intel Preferred Stock then outstanding at a redemption price per share equal to the greater of (i) its fair market value and (ii) its face value ($1,000 per share) plus all accrued and unpaid dividends thereon plus a redemption premium of 10.0%. The premium shall decrease ratably from year to year and shall be zero on or after August 1, 2010. In addition, in the event that we do not complete an underwritten initial public offering of shares of our common stock with gross proceeds in excess of $50.0 million on or prior to August 1, 2001, holders of not less than a majority of the Intel Preferred Stock may require us to redeem all or a portion of the Intel Preferred Stock at a price per share equal to such stock's face value ($1,000 per share) plus all accrued and unpaid dividends thereon; provided, however, that any such redemption will be subject to all restrictions of applicable law and our debt and equity financing arrangements. Each share of Intel Preferred Stock has that number of votes equal to the number of shares of voting common stock then issuable upon the conversion of that share of Intel Preferred Stock. Except as required by law or as provided in the following sentence, holders of the Intel Preferred Stock are entitled to vote on all matters submitted to the stockholders for a vote and will vote together with holders of our common stock as a single class. The prior written consent of the holders of at least 66.7% of the outstanding Intel Preferred Stock is required for: . any amendment or change of the rights, preferences, privileges or powers of, or the restrictions provided for the benefits of, the Intel Preferred Stock; . any action that authorized, created or issued any new shares of any class of stock having preferences superior to the Intel Preferred Stock, other than any issuance of the Hyundai Preferred Stock; or . any action that reclassifies any outstanding shares of capital stock into shares having preferences or priority as to dividends or assets senior to the preference of the Intel Preferred Stock. The exchange notes are senior in right of payment to the Intel Preferred Stock. Intel Warrant Pursuant to the Intel Stock Purchase Agreement we issued the Intel Warrant to Intel. The Intel Warrant provides that, for 180 days after we have completed our first underwritten public offering, Intel is entitled to purchase $5.0 million of our common stock at a 20.0% discount to its initial public offering price. This right is subject to expiration prior to completion of such 180 day period in the event that we are sold. Intel, at its election, may exercise the Intel Warrant in whole or in part and on one or more occasions. 78 DESCRIPTION OF THE EXCHANGE NOTES General You can find the definition of certain terms used in this description under the subheading of "Certain Definitions." In this description, unless the context requires otherwise, the words "ChipPAC," "Company," "we," "our," "ours" and "us" refer only to ChipPAC, Inc. and not to any of its subsidiaries. The "Issuer" refers to ChipPAC International Company Limited, a wholly owned subsidiary of ChipPAC, Inc. ChipPAC International Company Limited will issue the exchange notes pursuant to an indenture dated July 29, 1999 by and among itself, ChipPAC, Inc. and Firstar Bank of Minnesota, N.A., as trustee. The terms of the exchange notes include those stated in the indenture and those made part of the indenture by reference to the Trust Indenture Act of 1939, as amended. The form and terms of the exchange notes are identical in all material respects to the form and terms of the outstanding notes except that: . the exchange notes will bear a Series B designation; . the exchange notes have been registered under the Securities Act and, therefore, will not bear legends restricting their transfer; and . the holders of the exchange notes will not have some of the rights under the registration rights agreement, including the provision providing for liquidated damages relating to the timing of this exchange offer. The exchange notes will evidence the same debt as the outstanding notes and will be entitled to the benefits of the indenture. The exchange notes will rank equally with the outstanding notes if all of the outstanding notes are not exchanged in this exchange offer. The following description is only a summary of the material provisions of the indenture, which is filed as an exhibit to the registration statement of which this prospectus forms a part. We urge you to read the indenture because it, and not this description, defines your rights as holders of the exchange notes. You may request copies of these agreements at our address set forth under "Where You Can Find More Information." Brief Description of the Exchange Notes and the Guaranties The Exchange Notes These exchange notes: . are unsecured senior subordinated obligations of ChipPAC International Company Limited; . rank equally in right of payment with any future senior subordinated Indebtedness of ChipPAC International Company Limited; . are subordinated in right of payment to all existing and future Senior Indebtedness of ChipPAC International Company Limited; and . are senior in right of payment to any future Subordinated Obligations of ChipPAC International Company Limited. The Guaranties The Company Guaranty and each Subsidiary Guaranty: . unconditionally guarantee the obligations of ChipPAC International Company Limited under the exchange notes; . rank equally in right of payment with any future senior subordinated Indebtedness of the Guarantor; and 79 . are senior subordinated obligations of the Company and the relevant Subsidiary Guarantor, as the case may be. Principal, Maturity and Interest The exchange notes will be limited in aggregate principal amount to $150.0 million. ChipPAC International Company Limited will issue the exchange notes in denominations of $1,000 and any integral multiple of $1,000. The exchange notes will mature on August 1, 2009. Subject to our compliance with the covenant described under the caption "--Certain Covenants--Limitation on Indebtedness," we are permitted to issue more notes, which we refer to as Additional Notes, under the indenture in an unlimited principal amount. Any such Additional Notes that are actually issued will be treated as issued and outstanding exchange notes and as the same class as the existing notes for all purposes of the indenture and this "Description of the Exchange Notes," unless the context indicates otherwise. Interest on these exchange notes will accrue at the rate of 12 3/4% per annum and will be payable semiannually in arrears on August 1 and February 1, commencing on February 1, 2000. We will make each interest payment to the holders of record of these exchange notes on the immediately preceding July 15 and January 15. We will pay interest on overdue principal at 1% per annum in excess of the above rate and will pay interest on overdue installments of interest at such higher rate to the extent lawful. Interest on these exchange notes will accrue from the last interest payment date on which interest was paid on the existing note surrendered in exchange thereof, or, if no interest has been repaid on such existing note, from the date of the original issue. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. Optional Redemption Except as set forth below under this section or under the section "Redemption for Changes in British Virgin Islands Withholding Taxes," we will not be entitled to redeem the exchange notes at our option prior to August 1, 2004. On and after August 1, 2004, we will be entitled at our option to redeem all or a portion of these exchange notes upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon, if any, to the applicable redemption date, if redeemed during the 12-month period beginning on August 1 in the years indicated below:
Year Percentage ---- ---------- 2004........................................................... 106.375% 2005........................................................... 104.250 2006........................................................... 102.125 2007 and thereafter............................................ 100.000%
In addition, prior to August 1, 2002, we may at our option on one or more occasions redeem exchange notes (which includes Additional Notes, if any) in an aggregate principal amount not to exceed 35% of the aggregate principal amount of exchange notes (which includes Additional Notes, if any) originally issued under the indenture at a redemption price of 112 3/4% of the principal amount thereof, plus accrued and unpaid interest thereon, if any, to the redemption date, with the net cash proceeds from one or more Equity Offerings (provided that if the Equity Offering is an offering by the Company, a portion of the Net Cash Proceeds thereof equal to the amount required to redeem any such exchange notes is contributed to the equity capital of ChipPAC International Company Limited); provided, however, that: (1) at least 65% of such aggregate principal amount of exchange notes, which includes Additional Notes, if any, remains outstanding immediately after the occurrence of each such redemption, other than exchange notes held, directly or indirectly, by the Company or its Affiliates; and 80 (2) each such redemption occurs within 60 days after the date of the closing of the related Equity Offering. Selection and Notice of Redemption If we are redeeming less than all the exchange notes at any time, the trustee will select exchange notes on a pro rata basis, by lot or by such other method as the Trustee in its sole discretion shall deem to be fair and appropriate. Exchange notes redeemed in part will be redeemed only in principal amounts of $1,000. We will cause notices of redemption to be mailed by first-class mail at least 30 but not more than 60 days before the redemption date to each holder of exchange notes to be redeemed at its registered address. If any exchange note is to be redeemed in part only, the notice of redemption that relates to that note shall state the portion of the principal amount thereof to be redeemed. We will issue a new exchange note in principal amount equal to the unredeemed portion of the original exchange note in the name of the holder thereof upon cancellation of the original exchange note. Exchange notes called for redemption become due on the date fixed for redemption. On and after the redemption date, interest ceases to accrue on exchange notes or portions of them called for redemption. Withholding Taxes All payments made under or with respect to the exchange notes or under or with respect to the Guaranties must be made free and clear of and without withholding or deduction for or on account of any present or future tax, duty, levy, impost, assessment or other governmental charge of whatever nature (including penalties, interest and other liabilities related thereto) imposed or levied by or on behalf of any jurisdiction from or through which payment is made or in which the payor is organized, resident or engaged in business for tax purposes or any province or territory thereof or by any taxing authority therein, which we refer to as taxes, unless any of ChipPAC International Company Limited or the guarantors is required to withhold or deduct such Taxes by law or by the interpretation or administration thereof. If ChipPAC International Company Limited or a guarantor is so required to withhold or deduct any amount for or on account of Taxes from any payment made under or with respect to the exchange notes or under or with respect to a Guaranty, ChipPAC International Company Limited or such guarantor, as the case may be, will pay such additional amounts ("Additional Amounts") as may be necessary so that the net amount received by each Holder after such withholding or deduction (including any withholding or deduction with respect to Additional Amounts) will not be less than the amount the Holder would have received if such Taxes had not been withheld or deducted; provided, however, that no Additional Amounts will be payable with respect to payments made to a Holder (an "Excluded Holder") to the extent such Holder is subject to such Taxes by reason of its being connected with the British Virgin Islands or any province or territory thereof otherwise than by the mere holding of the exchange notes or the receipt of payments thereunder or the enforcement of its rights and obligations under the exchange notes or a Guaranty. ChipPAC International Company Limited and the guarantors will make such withholding or deduction and remit the full amount deducted or withheld to the relevant authority as and when required in accordance with applicable law. ChipPAC International Company Limited or the guarantor will furnish to the Holder, within 30 days after the payment of any Taxes, certified copies of tax receipts evidencing such payment by ChipPAC International Company Limited or a guarantor. ChipPAC International Company Limited will upon written request of each Holder (other than an Excluded Holder), reimburse each such Holder for the amount of (1) any Taxes (including penalties, interest and expenses arising therefrom or with respect thereto) imposed or levied and paid by such Holder as a result of payments made under or with respect to the exchange notes or under or with respect to a Guaranty and (2) any Taxes so levied or imposed and paid by such Holder with respect to any reimbursement under the foregoing clause (1) , but excluding any such Taxes on such Holder's net income, so that the net amount received by such Holder after such reimbursement will not be less than the net amount the Holder would have received if Taxes (other than such Taxes on such Holder's net income) on such reimbursement had not been imposed. 81 At least 30 days prior to each date on which payment under or with respect to the exchange notes or the Guaranties is due and payable (unless such obligation to pay Additional Amounts arises shortly before or after the 30th day prior to such date, in which case promptly thereafter), if any of ChipPAC International Company Limited or the guarantors is obligated to pay Additional Amounts with respect to such payment, ChipPAC International Company Limited or such guarantor will deliver to the trustee an Officers' Certificate stating the fact that such Additional Amounts will be payable and the amounts so payable and setting forth such other information as necessary to enable the trustee to pay such Additional Amounts to Holders of the exchange notes on the payment date. ChipPAC International Company Limited or the guarantors will pay any present or future stamp, court or documentary taxes or any other excise or property taxes, charges or similar levies that arise in any jurisdiction from the execution, delivery, enforcement or registration of the exchange notes or a Guaranty, the indenture or any other document or instrument in relation thereof, or the receipt of any payments with respect to the exchange notes or a Guaranty, excluding such taxes, charges or similar levies imposed by any jurisdiction other than (1) the British Virgin Islands, (2) any other jurisdiction in which any of ChipPAC International Company Limited or the guarantors is organized, resident or engaged in business for tax purposes, (3) any jurisdiction in which any successor to ChipPAC International Company Limited or the guarantors is organized, resident or engaged in business for tax purposes or (4) any jurisdiction in which a paying agent is located. In addition, ChipPAC International Company Limited and the guarantors will agree to indemnify the Holders (on an after-tax basis) for any such taxes paid by such Holders. The obligations described under this heading shall survive any termination, defeasance or discharge of the Indenture. Redemption for Changes in British Virgin Islands Withholding Taxes The exchange notes may be redeemed, at the option of ChipPAC International Company Limited, at any time as a whole but not in part, on not less than 30 nor more than 60 days' notice, at 100% of the principal amount thereof, plus accrued and unpaid interest if any, to the date of redemption (subject to the right of a Holder of record on the relevant record date to receive interest due on the relevant interest payment date), in the event ChipPAC International Company Limited has become or will become obligated to pay for reasons outside its control, and after taking reasonable measures to avoid such obligation, on the next date on which any amount would be payable with respect to the exchange notes, any Additional Amounts as a result of a change in or an amendment to the laws, including any regulations promulgated thereunder, of the British Virgin Islands, or any political subdivision or taxing authority thereof or therein, or any change in or amendment to any official position regarding the application or interpretation of such laws or regulations, which change or amendment is announced or becomes effective on or after the Issue Date; provided, however, that (1) no such notice of redemption may be given earlier than 60 days prior to the earliest date on which Additional Amounts are due and payable in respect of the exchange notes and (2) at the time any such redemption notice is given, such obligation to pay Additional Amounts remains in effect. Prior to giving any notice of redemption pursuant to this provision, ChipPAC International Company Limited will deliver to the applicable trustee (1) an Officers' Certificate stating that it is entitled to effect such redemption and setting forth a statement of facts showing that the conditions precedent to its right to so redeem have occurred and (2) an Opinion of Counsel in the British Virgin Islands to the effect that ChipPAC International Company Limited has become or will become obligated to pay such Additional Amounts as a result of such amendment or change. Guaranties The Company and each of the Subsidiary Guarantors will jointly and severally guarantee, on a senior subordinated basis, our obligations under the exchange notes. Each Subsidiary Guaranty will be limited as necessary to prevent such Subsidiary Guaranty from being rendered voidable under applicable law relating to fraudulent conveyance or fraudulent transfer or similar laws affecting the rights of creditors generally. See "Risk Factors--Federal and state laws allow courts, under specific circumstances, to void debts and require holders of some high yield securities to return payments received from debtors." 82 Each Subsidiary Guarantor that makes a payment under its Subsidiary Guaranty will be entitled to a contribution from each other Subsidiary Guarantor in an amount equal to such other Subsidiary Guarantor's pro rata portion of such payment based on the respective net assets of all the Subsidiary Guarantors at the time of such payment determined in accordance with GAAP. If a Subsidiary Guaranty were to be rendered voidable, it could be subordinated by a court to all other indebtedness (including guarantees and other contingent liabilities) of the applicable Subsidiary Guarantor and, depending on the amount of such indebtedness, a Subsidiary Guarantor's liability on its Subsidiary Guaranty could be reduced to zero. Pursuant to the indenture, ChipPAC International Company Limited, the Company or a Subsidiary Guarantor may consolidate with, merge with or into, or transfer all or substantially all its assets to any other Person to the extent described below under "--Certain Covenants--Merger and Consolidation;" provided, however, that if the surviving Person is not ChipPAC International Company Limited, the Company or such Subsidiary Guarantor, as the case may be, ChipPAC International Company Limited's obligations with respect to the exchange notes, the Company's obligations under the Company Guaranty or such Subsidiary Guarantor's obligations under its Subsidiary Guaranty, as the case may be, must be expressly assumed by such surviving Person. A Subsidiary Guarantor will be released and relieved from all its obligations under its Subsidiary Guaranty: (1) upon the sale or other disposition (including by way of consolidation or merger) of all or substantially all the capital stock of such Subsidiary Guarantor in one or more related transactions; or (2) upon the sale, assignment, transfer or disposition of all or substantially all the assets of such Subsidiary Guarantor in one or more related transactions; in each case other than to ChipPAC International Company Limited or an Affiliate of ChipPAC International Company Limited and as permitted by the indenture. Ranking Exchange Notes and Guaranties versus Senior Indebtedness. The indebtedness evidenced by the exchange notes, the Company Guaranty and the Subsidiary Guaranties will be senior subordinated obligations of ChipPAC International Company Limited, the Company and the Subsidiary Guarantors, as the case may be. The payment of the principal of, premium, if any, and interest on the exchange notes and the payment of the Company Guaranty and any Subsidiary Guaranty is subordinate in right of payment, as set forth in the indenture, to the prior payment in full in cash when due of all Obligations with respect to Senior Indebtedness of ChipPAC International Company Limited, the Company or the relevant Subsidiary Guarantor, as the case may be, whether outstanding on the Issue Date or thereafter incurred, including the obligations of ChipPAC International Company Limited, the Company and such Subsidiary Guarantor under the Credit Agreement. As of September 30, 1999, (1) the Senior Indebtedness of ChipPAC International Company Limited is approximately $150.0 million, all of which is secured indebtedness under the Credit Agreement; (2) the Senior Indebtedness of the Company is approximately $150.0 million, consisting of the Company's senior guaranty of ChipPAC International Company Limited's obligations under the Credit Agreement; and 83 (3) the Senior Indebtedness of the Subsidiary Guarantors is approximately $150.0 million, consisting of the Subsidiary Guarantors' senior guaranty of ChipPAC International Company Limited's obligations under the Credit Agreement. In addition, ChipPAC International Company Limited has additional availability of $70.0 million for borrowings of Senior Indebtedness under the Credit Agreement. Although the indenture contains limitations on the amount of additional Indebtedness that ChipPAC International Company Limited, the Company and the Subsidiary Guarantors may incur, under certain circumstances the amount of such Indebtedness is substantial and, in any case, such Indebtedness may be Senior Indebtedness. See "--Certain Covenants--Limitation on Indebtedness." Guaranties versus Other Liabilities of Subsidiaries. All of our operations are conducted through our subsidiaries that are not subsidiaries of ChipPAC International Company Limited. Our Chinese subsidiaries are not guaranteeing the exchange notes or ChipPAC International Company Limited's obligations under the Credit Agreement. Claims of creditors of such non-guarantor subsidiaries, including trade creditors, secured creditors and creditors holding indebtedness and guarantees issued by such non-guarantor subsidiaries, and claims of preferred stockholders, if any, of such non- guarantor subsidiaries generally will have priority with respect to the assets and earnings of such non-guarantor subsidiaries over the claims of creditors of ChipPAC International Company Limited, including holders of the exchange notes, even if such obligations do not constitute Senior Indebtedness. The exchange notes, the Company Guaranty and each Subsidiary Guaranty, therefore, will be effectively subordinated to creditors (including trade creditors) and preferred stockholders of such non-guarantor subsidiaries of the Company. See "Risk Factors--Your right to receive payments on these exchange notes is junior to ChipPAC International Company Limited's existing Senior Indebtedness and possibly all of its future borrowings. Further, the Guaranties of these exchange notes are junior to all the guarantors' existing senior indebtedness and possibly to all of their future borrowings." As of September 30, 1999, the total liabilities of our non-guarantor subsidiaries are approximately $69.1 million. Although the indenture limits the incurrence of Indebtedness and preferred stock of certain of our subsidiaries, such limitation is subject to a number of significant qualifications. Moreover, the indenture does not impose any limitation on the incurrence by such subsidiaries of liabilities that are not considered Indebtedness or Preferred Stock under the indenture. See "--Certain Covenants--Limitation on Indebtedness." Exchange Notes and Guaranties versus Other Senior Subordinated Indebtedness. Only Indebtedness of ChipPAC International Company Limited, the Company or a Subsidiary Guarantor that is Senior Indebtedness will rank senior to the exchange notes, the Company Guaranty and the relevant Subsidiary Guaranty in accordance with the provisions of the indenture. The exchange notes, the Company Guaranty and each Subsidiary Guaranty will in all respects rank equally with all other Senior Subordinated Indebtedness of ChipPAC International Company Limited, the Company and the relevant Subsidiary Guarantor, respectively. All Indebtedness of a Subsidiary of ours that is not a Subsidiary Guarantor will be structurally senior to the exchange notes. ChipPAC International Company Limited, the Company and each Subsidiary Guarantor have agreed in the indenture that they will not Incur, directly or indirectly, any Indebtedness that is subordinate or junior in ranking in right of payment to its Senior Indebtedness unless such Indebtedness is Senior Subordinated Indebtedness or is expressly subordinated in right of payment to Senior Subordinated Indebtedness. Unsecured Indebtedness is not deemed to be subordinated or junior to Secured Indebtedness merely because it is unsecured. 84 Payment of Exchange Notes. We are not permitted to pay principal of, premium, if any, or interest on, the exchange notes or make any deposit pursuant to the provisions described under "--Defeasance" below and may not repurchase, redeem or otherwise retire any exchange notes (collectively, "pay the exchange notes") if either of the following (each, a "Payment Default") occurs: (1) any Obligations with respect to Senior Indebtedness are not paid in full when due; or (2) any other default on Senior Indebtedness occurs and the maturity of such Senior Indebtedness is accelerated in accordance with its terms; unless, in either case, the Payment Default has been cured or waived and any such acceleration has been rescinded in writing or such Senior Indebtedness has been paid in full in cash. Regardless of the foregoing, we are permitted to pay the exchange notes without regard to the foregoing if ChipPAC International Company Limited and the trustee receive written notice approving such payment from the Representative of the Senior Indebtedness with respect to which the Payment Default has occurred and is continuing. During the continuance of any default (other than a Payment Default) with respect to any Designated Senior Indebtedness pursuant to which the maturity thereof may be accelerated immediately without further notice (except such notice as may be required to effect such acceleration) or the expiration of any applicable grace periods, we are not permitted to pay the exchange notes for a period (a "Payment Blockage Period") commencing upon the receipt by the trustee (with a copy to ChipPAC International Company Limited) of written notice (a "Blockage Notice") of such default from the Representative of the holders of such Designated Senior Indebtedness specifying an election to effect a Payment Blockage Period and ending 179 days thereafter. The Payment Blockage Period will end earlier if such Payment Blockage Period is terminated: (1) by written notice to the trustee and ChipPAC International Company Limited from the Person or Persons who gave such Blockage Notice; (2) because no defaults continue in existence which would permit the acceleration of the maturity of any Designated Senior Indebtedness at such time; or (3) because such Designated Senior Indebtedness has been repaid in full in cash. Notwithstanding the provisions described above, unless the holders of such Designated Senior Indebtedness or the Representative of such holders have accelerated the maturity of such Designated Senior Indebtedness, or any Payment Default otherwise exists, we are permitted to resume payments on the exchange notes after the end of such Payment Blockage Period. The exchange notes shall not be subject to more than one Payment Blockage Period in any consecutive 360- day period, irrespective of the number of defaults with respect to Designated Senior Indebtedness during such period, except that if any Blockage Notice is delivered to the trustee by or on behalf of holders of Designated Senior Indebtedness (other than holders of the Bank Indebtedness), a Representative of holders of Bank Indebtedness may give another Blockage Notice within such period. However, in no event may the total number of days during which any Payment Blockage Period or Periods is in effect exceed 179 days in the aggregate during any 360 consecutive day period, and there must be 181 days during any 360-day consecutive period during which no Payment Blockage Period is in effect. Upon any payment or distribution by ChipPAC International Company Limited upon any liquidation, dissolution, winding up, assignment for the benefit of creditors or marshaling of assets of ChipPAC International Company Limited or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to ChipPAC International Company Limited or its property: (1) the holders of Senior Indebtedness will be entitled to receive payment in full in cash of all Obligations with respect to such Senior Indebtedness before the Noteholders are entitled to receive any payment or distribution; and 85 (2) until all Obligations with respect to Senior Indebtedness are paid in full in cash, any payment or distribution to which Noteholders would be entitled but for the subordination provisions of the indenture will be made to holders of such Senior Indebtedness as their interests may appear, except that holders of exchange notes may receive certain Capital Stock and subordinated debt obligations. If a distribution is made to Noteholders that, due to the subordination provisions, should not have been made to them, such Noteholders are required to hold it in trust for the holders of Senior Indebtedness and pay it over to them as their interests may appear. If payment of the exchange notes is accelerated because of an Event of Default, we or the trustee shall promptly notify the holders of Designated Senior Indebtedness or the Representative of such holders of the acceleration. If any Designated Senior Indebtedness is outstanding at the time of such acceleration, none of ChipPAC International Company Limited, the Company or any Subsidiary Guarantor may pay the exchange notes until five Business Days after the Representatives of all the issues of Designated Senior Indebtedness receive notice of such acceleration and, thereafter, may pay the exchange notes only if the Indenture otherwise permits payment at that time. The obligations of the Company under the Company Guaranty and of a Subsidiary Guarantor under its Subsidiary Guaranty are senior subordinated obligations. As such, the rights of Noteholders to receive payment by the Company or by a Subsidiary Guarantor pursuant to the Company Guaranty or a Subsidiary Guaranty will be subordinated in right of payment to the rights of holders of Senior Indebtedness of the Company or such Subsidiary Guarantor, as the case may be. The terms of the subordination provisions described above with respect to ChipPAC International Company Limited's obligations under the exchange notes apply equally to the Company and a Subsidiary Guarantor and the obligations of the Company and such Subsidiary Guarantor under the Company Guaranty or a Subsidiary Guaranty, as the case may be. By reason of the subordination provisions contained in the indenture, in the event of insolvency, creditors of ChipPAC International Company Limited, the Company or a Subsidiary Guarantor who are holders of Senior Indebtedness of ChipPAC International Company Limited, the Company or a Subsidiary Guarantor, as the case may be, may recover more, ratably, than the Noteholders, and creditors of ChipPAC International Company Limited who are not holders of Senior Indebtedness may recover less, ratably, than holders of Senior Indebtedness and may recover more, ratably, than the Noteholders. The terms of the subordination provisions described above will not apply to payments from money or the proceeds of U.S. Government Obligations held in trust by the trustee for the payment of principal of and interest on the exchange notes pursuant to the provisions described under "--Defeasance," if the foregoing subordination provisions were not violated at the time the respective amounts were deposited pursuant to such defeasance provisions. Book-Entry, Delivery and Form We will initially issue the exchange notes in the form of one or more global exchange notes, which we refer to as the Global Note. The Global Note will be deposited with, or on behalf of, the Depository and registered in the name of the Depository or its nominee. Except as set forth below, the Global Note may be transferred, in whole and not in part, only to the Depository or another nominee of the Depository. You may hold your beneficial interests in the Global Note directly through the Depository if you have an account with the Depository or indirectly through organizations which have accounts with the Depository. The Depository has advised ChipPAC International Company Limited as follows: the Depository is a limited-purpose trust company organized under the laws of the State of New York, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, 86 and "a clearing agency" registered pursuant to the provisions of Section 17A of the Exchange Act. The Depository was created to hold securities of institutions that have accounts with the Depository ("participants") and to facilitate the clearance and settlement of securities transactions among its participants in such securities through electronic book-entry changes in accounts of the participants, thereby eliminating the need for physical movement of securities certificates. The Depository's participants include securities brokers and dealers (which may include the initial purchasers), banks, trust companies, clearing corporations and certain other organizations. Access to the Depository's book-entry system is also available to others such as banks, brokers, dealers and trust companies (collectively, the "indirect participants") that clear through or maintain a custodial relationship with a participant, whether directly or indirectly. ChipPAC International Company Limited expects that pursuant to procedures established by the Depository, upon the deposit of the Global Note with the Depository, the Depository will credit, on its book-entry registration and transfer system, the principal amount of exchange notes represented by such Global Note to the accounts of participants. The accounts to be credited shall be designated by the initial purchasers. Ownership of beneficial interests in the Global Note will be limited to participants or persons that may hold interests through participants. Ownership of beneficial interests in the Global Note will be shown on, and the transfer of those ownership interests will be effected only through, records maintained by the Depository, with respect to participants' interests, the participants and the indirect participants, with respect to the owners of beneficial interests in the Global Note other than participants. The laws of some jurisdictions may require that certain purchasers of securities take physical delivery of such securities in definitive form. Such limits and laws may impair the ability to transfer or pledge beneficial interests in the Global Note. So long as the Depository, or its nominee, is the registered holder and owner of the Global Note, the Depository or such nominee, as the case may be, will be considered the sole legal owner and holder of any related exchange notes evidenced by the Global Note for all purposes of such exchange notes and the Indenture. Except as set forth below, as an owner of a beneficial interest in the Global Note, you will not be entitled to have the exchange notes represented by the Global Note registered in your name, will not receive or be entitled to receive physical delivery of certificated exchange notes and will not be considered to be the owner or holder of any exchange notes under the Global Note. We understand that under existing industry practice, in the event an owner of a beneficial interest in the Global Note desires to take any action that the Depository, as the holder of the Global Note, is entitled to take, the Depository would authorize the participants to take such action, and the participants would authorize beneficial owners owning through such participants to take such action or would otherwise act upon the instructions of beneficial owners owning through them. We will make payments of principal of, premium, if any, and interest on exchange notes represented by the Global Note registered in the name of and held by the Depository or its nominee to the Depository or its nominee, as the case may be, as the registered owner and holder of the Global Note. We expect that the Depository or its nominee, upon receipt of any payment of principal of, premium, if any, or interest on the Global Note will credit participants' accounts with payments in amounts proportionate to their respective beneficial interests in the principal amount of the Global Note as shown on the records of the Depository or its nominee. We also expect that payments by participants or indirect participants to owners of beneficial interests in the Global Note held through such participants or indirect participants will be governed by standing instructions and customary practices and will be the responsibility of such participants or indirect participants. We will not have any responsibility or liability for any aspect of the records relating to, or payments made on account of, beneficial ownership interests in the Global Note for any note or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests or for any other aspect of the relationship between the Depository and its participants or indirect participants or the relationship between such participants or indirect participants and the owners of beneficial interests in the Global Note owning through such participants or indirect participants. 87 Although the Depository has agreed to the foregoing procedures in order to facilitate transfers of interests in the Global Note among participants of the Depository, it is under no obligation to perform or continue to perform such procedures, and such procedures may be discontinued at any time. Neither the Trustee nor ChipPAC International Company Limited will have any responsibility or liability for the performance by the Depository or its participants or indirect participants of their respective obligations under the rules and procedures governing their operations. Certificated Exchange Notes Subject to certain conditions, the exchange notes represented by the Global Note are exchangeable for certificated exchange notes in definitive form of like tenor in denominations of $1,000 and integral multiples thereof if: (1) the Depository notifies ChipPAC International Company Limited that it is unwilling or unable to continue as Depository for the Global Note or if at any time the Depository ceases to be a clearing agency registered under the Exchange Act and, in either case, we are unable to appoint a qualified successor within 90 days; (2) we in our discretion at any time determine not to have all the exchange notes represented by the Global Note; or (3) a default entitling the holders of the exchange notes to accelerate the maturity thereof has occurred and is continuing. Any note that is exchangeable as above is exchangeable for certificated exchange notes issuable in authorized denominations and registered in such names as the Depository shall direct. Subject to the foregoing, the Global Note is not exchangeable, except for a Global Note of the same aggregate denomination to be registered in the name of the Depository or its nominee. Same-Day Payment The indenture requires us to make payments in respect of exchange notes (including principal, premium, if any, and interest) by wire transfer of immediately available funds to the accounts specified by the holders thereof or, if no such account is specified, by mailing a check to each such holder's registered address. Change of Control Upon the occurrence of any of the following events (each a "Change of Control"), each Holder shall have the right to require that ChipPAC International Company Limited repurchase such Holder's exchange notes at a purchase price in cash equal to 101% of the principal amount thereof plus any accrued and unpaid interest to the date of purchase (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date): (1) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than one or more Permitted Holders, is or becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that such person shall be deemed to have "beneficial ownership" of all shares that any such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 50% of the total voting power of the Voting Stock of the Company (for the purposes of this clause (1), such person shall be deemed to beneficially own any Voting Stock of a Person held by any other Person (the "parent entity"), if such person is the beneficial owner (as defined in this clause (1)), directly or indirectly, of more than 50% of the voting power of the Voting Stock of such parent entity; 88 (2) individuals who on the Issue Date constituted the Board of Directors (together with any new directors (A) whose election by such Board of Directors or whose nomination for election by the stockholders of the Company was approved by a vote of a majority of the directors of the Company then still in office who were either directors on the Issue Date or whose election or nomination for election was previously so approved or (B) who were elected to the Board of Directors pursuant to the Shareholders Agreement, as amended, modified or supplemented from time to time) cease for any reason to constitute a majority of the Board of Directors then in office; or (3) the merger or consolidation of the Company with or into another Person or the merger of another Person with or into the Company, or the sale of all or substantially all the assets of the Company to another Person (in each case other than a Person that is controlled by the Permitted Holders), if the securities of the Company that are outstanding immediately prior to such transaction and which represent 100% of the aggregate voting power of the Voting Stock of the Company are changed into or exchanged for cash, securities or property, unless pursuant to such transaction such securities are changed into or exchanged for, in addition to any other consideration, securities of the surviving Person or transferee that represent, immediately after such transaction, at least a majority of the aggregate voting power of the Voting Stock of the surviving Person or transferee. Within 30 days following any Change of Control (but subject to compliance with the immediately succeeding paragraph), ChipPAC International Company Limited shall mail a notice to each Holder with a copy to the Trustee stating: (1) that a Change of Control has occurred and that such Holder has the right to require ChipPAC International Company Limited to purchase such Holder's notes at a purchase price in cash equal to 101% of the principal amount thereof plus any accrued and unpaid interest to the date of purchase (subject to the right of holders of record on the relevant record date to receive interest on the relevant interest payment date); (2) the circumstances and relevant facts regarding such Change of Control; (3) the repurchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed); and (4) the instructions determined by ChipPAC International Company Limited, consistent with the covenant described hereunder, that a Holder must follow in order to have its notes purchased. If the terms of the Credit Agreement prohibit ChipPAC International Company Limited from making the foregoing offer upon a Change of Control or from purchasing any notes pursuant thereto, prior to the mailing of the notice to Holders described in the preceding paragraph, but in any event within 30 days following any Change of Control, ChipPAC International Company Limited covenants to: (1) repay in full all indebtedness outstanding under the Credit Agreement or offer to repay in full all such indebtedness and repay the indebtedness of each lender who has accepted such offer; or (2) obtain the requisite consent under the Credit Agreement to permit the purchase of the notes as described above. ChipPAC International Company Limited must first comply with the covenant described above before it will be required to purchase notes in the event of a Change of Control; provided, however, that ChipPAC International Company Limited's failure to comply with the covenant described in the preceding sentence or to make a Change of Control offer because of any such failure shall constitute a Default described in clause (4) under "--Defaults" below (and not under clause (2) thereof). As a result of the foregoing, a holder of the notes may not be able to compel ChipPAC International Company Limited to purchase the notes unless ChipPAC International Company Limited is able at the time to refinance all indebtedness outstanding under the Credit Agreement or obtain requisite consents under the Credit Agreement. 89 ChipPAC International Company Limited shall comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of notes pursuant to the covenant described hereunder. To the extent that the provisions of any securities laws or regulations conflict with the provisions of the covenant described hereunder, ChipPAC International Company Limited shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under the covenant described hereunder by virtue thereof. The Change of Control purchase feature is a result of negotiations between ChipPAC International Company Limited and the initial purchasers. We have no present intention to engage in a transaction involving a Change of Control, although we could decide to do so in the future. Subject to the limitations discussed below, we could, in the future, enter into certain transactions, including acquisitions, refinances or other recapitalizations, that would not constitute a Change of Control under the indenture, but that could increase the amount of indebtedness outstanding at such time or otherwise affect our capital structure or credit ratings. Restrictions on our ability to incur additional Indebtedness are contained in the covenants described under "--Certain Covenants--Limitation on Indebtedness." Such restrictions can only be waived with the consent of the holders of a majority in principal amount of the notes then outstanding. Except for the limitations contained in such covenants, however, the indenture will not contain any covenants or provisions that may afford holders of the notes protection in the event of a highly leveraged transaction. The Credit Agreement will prohibit us from purchasing any notes, and will also provide that the occurrence of certain change of control events with respect to the Company would constitute a default thereunder. In the event a Change of Control occurs at a time when ChipPAC International Company Limited is prohibited from purchasing notes, ChipPAC International Company Limited could seek the consent of its lenders to the purchase of notes or could attempt to refinance the borrowings that contain such prohibition. If ChipPAC International Company Limited does not obtain such a consent or repay such borrowings, ChipPAC International Company Limited will remain prohibited from purchasing notes. In such case, ChipPAC International Company Limited's failure to comply with this covenant would constitute a Default under the Indenture which would, in turn, constitute a default under the Credit Agreement. In such circumstances, the subordination provisions in the Indenture would likely restrict payment to the Holders of notes. Future indebtedness that we may incur may contain prohibitions on the occurrence of certain events that would constitute a Change of Control or require such indebtedness to be repurchased upon a Change of Control. Moreover, the exercise by the holders of their right to require us to repurchase the notes could cause a default under such indebtedness, even if the Change of Control itself does not, due to the financial effect of such repurchase on us. Finally, our ability to pay cash to the holders of notes following the occurrence of a Change of Control may be limited by our then existing financial resources. There can be no assurance that sufficient funds will be available when necessary to make any required repurchases. The provisions under the Indenture relative to our obligation to make an offer to repurchase the notes as a result of a Change of Control may be waived or modified with the written consent of the holders of a majority in principal amount of the notes. Certain Covenants The Indenture contains covenants including, among others, the following: Limitation on Indebtedness. (a) We shall not, and shall not permit any Restricted Subsidiary to, Incur, directly or indirectly, any Indebtedness, except that ChipPAC and ChipPAC International Company Limited may Incur Indebtedness if, after giving pro forma effect thereto, the Consolidated Coverage Ratio exceeds 2.0 to 1.0. (b) Notwithstanding the foregoing paragraph (a), ChipPAC and its Restricted Subsidiaries may Incur the following Indebtedness: (1) Indebtedness of us or any Restricted Subsidiary Incurred pursuant to any Revolving Credit Facility; provided, however, that, immediately after giving effect to any such Incurrence, the aggregate 90 principal amount of all Indebtedness incurred under this clause (1) and then outstanding does not exceed the greater of (A) $50.0 million and (B) the sum of (x) $20.0 million, (y) 50% of the book value of our inventory and that of our Restricted Subsidiaries and (z) 80% of the book value of our accounts receivables and that of our Restricted Subsidiaries; provided, however, that such Indebtedness may only be Incurred by a Restricted Subsidiary if such Indebtedness, when added together with the amount of all other Indebtedness Incurred by Restricted Subsidiaries pursuant to this clause (1) and then outstanding, does not exceed an amount equal to 50% of the greater of (x) the amount in clause (A) above and (y) the amount determined in clause (B) above; (2) Indebtedness of ChipPAC International Company Limited Incurred pursuant to any Term Loan Facilities; provided, however, that, after giving effect to any such Incurrence, the aggregate principal amount of all Indebtedness Incurred under this clause (2) and then outstanding does not exceed $190.0 million less the aggregate sum of all principal payments actually made from time to time after the Issue Date with respect to such Indebtedness pursuant to paragraph (a)(3)(A) of the covenant described under "--Limitation on Sales of Assets and Subsidiary Stock"; (3) Indebtedness of ChipPAC International Company Limited Incurred prior to August 5, 2001 pursuant to any Capital Expenditure Facility (and Refinancing Indebtedness in respect thereof) in an aggregate principal amount not to exceed $20.0 million; (4) Indebtedness of us or any Restricted Subsidiary owed to and held by us or a Restricted Subsidiary; provided, however, that any subsequent issuance or transfer of any Capital Stock which results in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any subsequent transfer of such Indebtedness (other than to the Company or another Restricted Subsidiary) shall be deemed, in each case, to constitute the Incurrence of such Indebtedness by the issuer thereof; (5) Indebtedness consisting of the exchange notes (other than Additional Notes); (6) Indebtedness outstanding on the Issue Date (other than Indebtedness described in clause (1), (2), (3), (4) or (5) of this covenant); (7) Refinancing Indebtedness in respect of Indebtedness Incurred pursuant to paragraph (a) or pursuant to clause (4), (5), (6), (8) or this clause (7); provided, however, that to the extent such Refinancing Indebtedness directly or indirectly Refinances Indebtedness of a Subsidiary Incurred pursuant to clause (8), such Refinancing Indebtedness shall be Incurred only by such Subsidiary; (8) Indebtedness of a Person Incurred and outstanding on or prior to the date on which such Person was acquired by the Company or a Restricted Subsidiary (other than Indebtedness Incurred in anticipation of, in connection with, or to provide all or any portion of the funds or credit support utilized to consummate, the transaction or series of related transactions pursuant to which such Person was acquired by the Company or a Restricted Subsidiary); provided, however, that after giving pro forma effect thereto, (a) the Consolidated Coverage Ratio increases as a consequence of such incurrence and related acquisition and (b) the Consolidated Coverage Ratio is at least 1.5 to 1.0; (9) Hedging Obligations of ours or any Restricted Subsidiary under or with respect to Interest Rate Agreements and Currency Agreements entered into in the ordinary course of business and not for the purpose of speculation; (10) Indebtedness of ours or any Restricted Subsidiary in respect of performance bonds, completion guarantees and surety or appeal bonds entered into by us and the Restricted Subsidiaries in the ordinary course of their business; (11) Indebtedness consisting of the Guaranties and Guarantees of other Indebtedness otherwise permitted to be Incurred pursuant to the Indenture; (12) Indebtedness of ours or any Restricted Subsidiary arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business, provided that such Indebtedness is satisfied within five business days of Incurrence; 91 (13) Indebtedness (including Capital Lease Obligations) Incurred by us or any of our Restricted Subsidiaries to finance the purchase, lease or improvement of property (real or personal) or equipment (whether through the direct purchase of assets or the Capital Stock of any Person owning such assets) in an aggregate principal amount which, when added together with the amount of Indebtedness Incurred pursuant to this clause (13) and then outstanding, does not exceed the greater of (A) $15.0 million and (B) 5% of Total Assets (in each case including any Refinancing Indebtedness with respect thereto); (14) Indebtedness Incurred by us or any of our Restricted Subsidiaries constituting reimbursement obligations with respect to letters of credit issued in the ordinary course of business including, without limitation, letters of credit to procure raw materials, or in respect of workers' compensation claims or self-insurance, or other Indebtedness with respect to reimbursement type obligations regarding workers' compensation claims; (15) Indebtedness of ours issued to any of our directors, employees, officers or consultants or a Restricted Subsidiary in connection with the redemption or purchase of Capital Stock that, by its terms, is subordinated to the exchange notes, is not secured by any of our assets or our Restricted Subsidiaries and does not require cash payments prior to the Stated Maturity of the exchange notes and Refinancing Indebtedness in respect thereof, in an aggregate principal amount which, when added together with the amount of Indebtedness Incurred pursuant to this clause (15) and then outstanding, does not exceed $5.0 million; (16) Indebtedness arising from agreements of our or a Restricted Subsidiary providing for indemnification, adjustment of purchase price, earn out or other similar obligations, in each case, incurred or assumed in connection with the disposition of any business, assets or a Restricted Subsidiary of ours, other than guarantees of Indebtedness incurred by any Person acquiring all or any portion of such business, assets or Restricted Subsidiary for the purpose of financing such acquisition; provided that the maximum assumable liability in respect of all such Indebtedness shall at no time exceed the gross proceeds actually received by us and our Restricted Subsidiaries in connection with such disposition; (17) Indebtedness arising from the Recapitalization Agreement providing for indemnification, adjustment of purchase price, earn out or other similar business obligations; and (18) Indebtedness of ours or a Restricted Subsidiary in an aggregate principal amount which, together with all other Indebtedness of ChipPAC and the Restricted Subsidiaries outstanding on the date of such Incurrence (other than Indebtedness permitted by clauses (1) through (17) above or paragraph (a) above) does not exceed $20.0 million. (c) Notwithstanding the foregoing, we shall not, and shall not permit any Restricted Subsidiary to, Incur any Refinancing Indebtedness pursuant to the foregoing paragraph (b) if the proceeds thereof are used, directly or indirectly, to Refinance any Subordinated Obligations unless such Indebtedness shall be subordinated to the exchange notes or the relevant Guaranty, as applicable, to at least the same extent as such Subordinated Obligations. (d) For purposes of determining compliance with the foregoing covenant, (1) in the event that an item of Indebtedness meets the criteria of more than one of the types of Indebtedness described above, ChipPAC International Company Limited, in its sole discretion, will classify such item of Indebtedness at the time of its Incurrence and only be required to include the amount and type of such Indebtedness in one of the above clauses and (2) an item of Indebtedness may be divided and classified in more than one of the types of Indebtedness described above. (e) Notwithstanding paragraphs (a) and (b) above, neither we nor ChipPAC International Company Limited shall, and we shall not permit any Subsidiary Guarantor to, Incur (1) any Indebtedness if such Indebtedness is subordinate or junior in ranking in any respect to any Senior Indebtedness of ChipPAC International Company Limited, the ChipPAC or such Subsidiary Guarantor, as applicable, unless such Indebtedness is Senior Subordinated Indebtedness or is expressly subordinated in right of payment to Senior Subordinated Indebtedness or (2) any Secured Indebtedness (other than trade payables incurred in 92 the ordinary course of business) that is not Senior Indebtedness unless contemporaneously therewith effective provision is made to secure the exchange notes or the relevant Guaranty, as applicable, equally and ratably with such Secured Indebtedness for so long as such Secured Indebtedness is secured by a Lien. (f) For purposes of determining compliance with any U.S. dollar denominated restriction on the Incurrence of Indebtedness where the Indebtedness Incurred is denominated in a different currency, the amount of such Indebtedness will be the U.S. Dollar Equivalent determined on the date of the Incurrence of such Indebtedness, provided, however, that if any such Indebtedness denominated in a different currency is subject to a Currency Agreement with respect to U.S. dollars, covering all principal, premium, if any, and interest payable on such Indebtedness, the amount of such Indebtedness expressed in U.S. dollars will be as provided in such Currency Agreement. The principal amount of any Refinancing Indebtedness Incurred in the same currency as the Indebtedness being Refinanced will be the U.S. Dollar Equivalent of the Indebtedness Refinanced, except to the extent that (i) such U.S. Dollar Equivalent was determined based on a Currency Agreement, in which case the Refinancing Indebtedness will be determined in accordance with the preceding sentence, and (ii) the principal amount of the Refinancing Indebtedness exceeds the principal amount of the Indebtedness being Refinanced, in which case the U.S. Dollar Equivalent of such excess will be determined on the date such Refinancing Indebtedness is Incurred. Limitation on Restricted Payments. (a) We shall not, and shall not permit any Restricted Subsidiary, directly or indirectly, to make a Restricted Payment if at the time that we or such Restricted Subsidiary makes such Restricted Payment: (1) a Default shall have occurred and be continuing (or would result therefrom); (2) we are not able to Incur an additional $1.00 of Indebtedness pursuant to paragraph (a) of the covenant described under "--Limitation on Indebtedness;" or (3) the aggregate amount of such Restricted Payment and all other Restricted Payments since the Issue Date would exceed the sum (without duplication) of: (A) 50% of the Consolidated Net Income accrued during the period (treated as one accounting period) from the beginning of the fiscal quarter immediately following the fiscal quarter during which the exchange notes are originally issued to the end of the most recent fiscal quarter for which internal financial statements are available on or prior to the date of such Restricted Payment (or, in case such Consolidated Net Income shall be a deficit, minus 100% of such deficit); (B) the aggregate Net Cash Proceeds received by us from the issuance or sale of, or capital contribution in respect of, its Capital Stock (other than Disqualified Stock) subsequent to the Issue Date (other than an issuance or sale to a Subsidiary of ours and other than an issuance or sale to an employee stock ownership plan or to a trust established by us or any of our Subsidiaries for the benefit of employees to the extent that the purchase by such plan or trust is financed by Indebtedness of such plan or trust to us or any Subsidiary or Indebtedness Guaranteed by us or any Subsidiary) and the fair market value (as determined in good faith by resolution of our Board of Directors) of property (other than cash that would constitute Temporary Cash Equivalents or a Related Business) received by us or a Restricted Subsidiary subsequent to the Issue Date as a contribution to its common equity capital (other than from a Subsidiary or that was financed with loans from us or any Restricted Subsidiary); (C) the amount by which Indebtedness of ours or any Restricted Subsidiary is reduced on our consolidated balance sheet upon the conversion or exchange (other than by a Subsidiary of ours subsequent to the Issue Date of any Indebtedness ours or any Restricted Subsidiary convertible or exchangeable for our Capital Stock (other than Disqualified Stock) (less the amount of any cash, or the fair value of any other property, distributed by us or any Restricted Subsidiary upon such conversion or exchange); and 93 (D) an amount equal to the sum of (i) the net reduction in Investments in any Person resulting from dividends, repayments of loans or advances or other transfers of assets subsequent to the Issue Date, in each case to us or any Restricted Subsidiary from such Person, and (ii) the portion (proportionate to our equity interest in such Subsidiary) of the fair market value of the net assets of an Unrestricted Subsidiary at the time such Unrestricted Subsidiary is designated a Restricted Subsidiary; provided, however, that the foregoing sum shall not exceed, in the case of any Person, the amount of Investments previously made (and treated as a Restricted Payment) by us or any Restricted Subsidiary in such Person. (b) The provisions of the foregoing paragraph (a) shall not prohibit: (1) any Restricted Payment made by exchange for, or out of the proceeds of the substantially concurrent sale of, or capital contribution in respect of, our Capital Stock (other than Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary of ours or an employee stock ownership plan or to a trust established by us or any of our Subsidiaries for the benefit of employees to the extent that the purchase by such plan or trust is financed by Indebtedness of such plan or trust to us or any Subsidiary of ours or Indebtedness Guaranteed by us or any Subsidiary of ours); provided, however, that (A) such Restricted Payment shall be excluded in the calculation of the amount of Restricted Payments and (B) the Net Cash Proceeds from such sale shall be excluded from the calculation of amounts under clause (3)(B) of paragraph (a) above; (2) any purchase, repurchase, redemption, defeasance or other acquisition or retirement for value of Subordinated Obligations made by exchange for, or out of the proceeds of the substantially concurrent sale of, Indebtedness which is permitted to be Incurred pursuant to the covenant described under "--Limitation on Indebtedness;" provided, however, that such purchase, repurchase, redemption, defeasance or other acquisition or retirement for value shall be excluded in the calculation of the amount of Restricted Payments; (3) any purchase or redemption of Disqualified Stock of ChipPAC or a Restricted Subsidiary made by exchange for, or out of the proceeds of the substantially concurrent sale of, Disqualified Stock of ChipPAC or a Restricted Subsidiary which is permitted to be Incurred pursuant to the covenant described under "--Limitation on Indebtedness;" provided, however, that such purchase or redemption shall be excluded in the calculation of the amount of Restricted Payments; (4) any purchase or redemption of Subordinated Obligations from Net Available Cash to the extent permitted by the covenant described under "CLimitation on Sales of Assets and Subsidiary Stock;" provided, however, that such purchase or redemption shall be excluded in the calculation of the amount of Restricted Payments; (5) upon the occurrence of a Change of Control and within 60 days after the completion of the offer to repurchase the exchange notes pursuant to the covenant described under "Change of Control" above (including the purchase of the exchange notes tendered), any purchase or redemption of Subordinated Obligations required pursuant to the terms thereof as a result of such Change of Control at a purchase or redemption price not to exceed the outstanding principal amount thereof, plus any accrued and unpaid interest; provided, however, that (A) at the time of such purchase or redemption no Default shall have occurred and be continuing (or would result therefrom); (B) we would be able to Incur an additional $1.00 of Indebtedness pursuant to paragraph (a) of the covenant described under "--Limitation on Indebtedness" after giving pro forma effect to such Restricted Payment; and (C) such purchase or redemption shall be included in the calculation of the amount of Restricted Payments. (6) dividends paid within 60 days after the date of declaration thereof if at such date of declaration such dividend would have complied with this covenant; provided, however, that such dividend shall be included in the calculation of the amount of Restricted Payments; 94 (7) the repurchase or other acquisition of shares of, or options to purchase shares of, common stock of the Company or any of its Subsidiaries from employees, former employees, consultants, former consultants, directors or former directors of the Company or any of its Subsidiaries (or permitted transferees of such employees, former employees, consultants, former consultants, directors or former directors), pursuant to the terms of the agreements (including employment and consulting agreements) or plans (or amendments thereto) approved by the Board of Directors under which such individuals purchase or sell or are granted the option to purchase or sell, shares of such common stock; provided, however, that the aggregate amount of such repurchases shall not exceed the sum of: (x) $5.0 million; (y) the Net Cash Proceeds from the sale of Capital Stock to members of management or directors of the Company and its Subsidiaries that occurs after the Issue Date (to the extent the Net Cash Proceeds from the sale of such Capital Stock have not otherwise been applied to the payment of Restricted Payments by virtue of clause (3)(B) of paragraph (a) above); and (z) the cash proceeds of any "Key man" life insurance policies that are used to make such repurchases; provided further, however, that (A) such repurchases shall be excluded in the calculation of the amount of Restricted Payments and (B) the Net Cash Proceeds from such sale shall be excluded from the calculation of amounts under clause (3)(B) of paragraph (a) above. (8) payments required pursuant to the terms of the Recapitalization Agreement to consummate the recapitalization pursuant to the terms of the Recapitalization Agreement; provided, however, that such payments shall be excluded in the calculation of the amount of Restricted Payments; (9) payments in respect of the Hyundai Earn-out pursuant to the terms of the Recapitalization Agreement as in effect on the Issue Date; provided, however, that such payments shall be excluded in the calculation of the amount of Restricted Payments; (10) payments of in-kind dividends when due or the accrual or cumulation of dividends on the Hyundai Preferred Stock pursuant to the terms of such Hyundai Preferred Stock as in effect on the Recapitalization Closing Date; provided, however, that such payments shall be excluded in the calculation of the amount of Restricted Payments; (11) payments of cash dividends when due on and after 5 1/2 years from the Recapitalization Closing Date on the Hyundai Preferred Stock pursuant to the terms of such Hyundai Preferred Stock as in effect on the Recapitalization Closing Date; provided, however, that such payments shall be included in the calculation of the amount of Restricted Payments; (12) repurchases of Capital Stock deemed to occur upon the exercise of stock options if such Capital Stock represents a portion of the exercise price thereof; provided, however, that such payments shall be excluded in the calculation of the amount of Restricted Payments; (13) payments not to exceed $200,000 in the aggregate solely to enable us to make payments to holders of its Capital Stock in lieu of the issuance of fractional shares of its Capital Stock; provided, however, that such payments shall be excluded in the calculation of the amount of Restricted Payments; (14) Restricted Payments not to exceed $15.0 million payable on Capital Stock (including Disqualified Stock) issued to customers, clients, suppliers or purchasers or sellers of goods or services of ours or a Restricted Subsidiary in connection with a strategic investment in us or a Restricted Subsidiary by such customers, clients, suppliers or purchasers or sellers of goods or services; provided, however, that such payments shall be included in the calculation of the amount of Restricted Payments; (15) Restricted Payments not exceeding $15.0 million in the aggregate for any purchase, repurchase, redemption, defeasance or other acquisition or retirement for value of Subordinated Obligations; provided, however, that (A) at the time of such Restricted Payments, no Default shall have occurred and be continuing (or result therefrom) and (B) such Restricted Payments shall be included in the calculation of the amount of Restricted Payments; or 95 (16) the distribution, as a dividend or otherwise, of shares of Capital Stock or assets of an Unrestricted Subsidiary provided that the fair market value (as determined in good faith by our Board of Directors) of such shares of Capital Stock or assets shall not exceed the amount of the Investments that were made (and not subsequently reduced pursuant to clause (3)(D) of paragraph (a) above) by us in such Unrestricted Subsidiary and were treated as Restricted Payments or were included in the calculation of the amount of Restricted Payments previously made; provided, however, that (A) such distributions shall be excluded in the calculation of the amount of Restricted Payments and (B) any net reduction in Investments in such Unrestricted Subsidiary resulting from such distribution shall be excluded from the calculation of amounts under clause (3)(D) of paragraph (a) above; (17) Restricted Payments not exceeding $7.5 million in the aggregate; provided, however, that (A) at the time of such Restricted Payments, no Default shall have occurred and be continuing (or result therefrom) and (B) such Restricted Payments shall be included in the calculation of the amount of Restricted Payments. Limitation on Restrictions on Distributions from Restricted Subsidiaries. We shall not, and shall not permit any Restricted Subsidiary to, create or otherwise cause or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to (a) pay dividends or make any other distributions on its Capital Stock to us or any Restricted Subsidiary or pay any Indebtedness owed to ChipPAC International Company Limited or us, (b) make any loans or advances to ChipPAC International Company Limited or us or (c) transfer any of its property or assets to ChipPAC International Company Limited or us, except: (1) any encumbrance or restriction pursuant to an agreement in effect at or entered into on the Issue Date (including the Indenture, the exchange notes and the Guaranties), or, in the case of the Credit Agreement, as in effect on the Recapitalization Closing Date; (2) any encumbrance or restriction with respect to a Restricted Subsidiary pursuant to an agreement relating to any Indebtedness Incurred by such Restricted Subsidiary on or prior to the date on which such Restricted Subsidiary was acquired by us (other than Indebtedness Incurred as consideration in, or to provide all or any portion of the funds or credit support utilized to consummate, the transaction or series of related transactions pursuant to which such Restricted Subsidiary became a Restricted Subsidiary or was acquired by us) and outstanding on such date; (3) any encumbrance or restriction pursuant to an agreement (A) evidencing Indebtedness Incurred without violation of the Indenture or (B) effecting a Refinancing of Indebtedness Incurred pursuant to an agreement referred to in clause (1) or (2) of this covenant or this clause (3) or contained in any amendment to an agreement referred to in clause (1) or (2) of this covenant or this clause (3); provided, however, that in the case of clauses (A) and (B), the encumbrances and restrictions with respect to such Restricted Subsidiary contained in any such refinancing agreement or amendment are, in the good faith judgment of the Board of Directors, no more restrictive in any material respect than the encumbrances and restrictions with respect to such Restricted Subsidiary contained in agreements of such Restricted Subsidiary in effect at, or entered into on, the Issue Date or the Recapitalization Closing Date; (4) any such encumbrance or restriction consisting of customary non- assignment provisions in leases governing leasehold interests to the extent such provisions restrict the transfer of the lease or the property leased thereunder or in licenses entered into in the ordinary course of business to the extent such licenses restrict the transfer of the license or the property licensed thereunder; (5) in the case of clause (c) above, restrictions contained in security agreements or mortgages securing Indebtedness of a Restricted Subsidiary to the extent such restrictions restrict the transfer of the property subject to such security agreements or mortgages; (6) restrictions on the transfer of assets subject to any Lien permitted under the Indenture imposed by the holder of such Lien; 96 (7) purchase money obligations for property acquired in the ordinary course of business that impose restrictions on the property so acquired of the nature described in clause (c) above; (8) provisions with respect to the disposition or distribution of assets or property in joint venture agreements and other similar agreements entered into in the ordinary course of business; (9) any restriction with respect to a Restricted Subsidiary imposed pursuant to an agreement entered into for the sale or disposition of all or substantially all the Capital Stock or assets of such Restricted Subsidiary pending the closing of such sale or disposition; (10) any restriction arising under applicable law, regulation or order; (11) any agreement or instrument governing Capital Stock (other than Disqualified Stock) of any Person that is in effect on the date such Person is acquired by us or a Restricted Subsidiary; (12) any restriction on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business; and (13) any restriction in any agreement that is not more restrictive than the restrictions under the terms of the Credit Agreement as in effect on the Recapitalization Closing Date. Limitation on Sales of Assets and Subsidiary Stock. (a) We shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, consummate any Asset Disposition unless: (1) we or such Restricted Subsidiary receives consideration at the time of such Asset Disposition at least equal to the fair market value (including as to the value of all non-cash consideration), as determined in good faith by the Board of Directors, of the shares and assets subject to such Asset Disposition; (2) at least 75% of the consideration thereof received by us or such Restricted Subsidiary is in the form of cash or cash equivalents; and (3) an amount equal to 100% of the Net Available Cash from such Asset Disposition is applied by us or such Restricted Subsidiary, as the case may be, pursuant to one or more of the following: (A) to the extent we elect (or are required by the terms of any Indebtedness), to prepay, repay, redeem or purchase Senior Indebtedness of ChipPAC International Company Limited or Indebtedness (other than any Disqualified Stock) of ours or another Restricted Subsidiary of ours (in each case other than Indebtedness owed to the Company or an Affiliate of the Company) within one year from the later of the closing date of such Asset Disposition and the receipt of such Net Available Cash; (B) to the extent we elect, to acquire Additional Assets within one year from (or enter into a binding commitment to acquire Additional Assets, provided that such commitment shall be subject only to customary conditions (other than financing) and such acquisition shall be consummated within two years from) the later of the closing date of such Asset Disposition and the receipt of such Net Available Cash; and (C) to the extent we elect, or to the extent of the balance of such Net Available Cash after application in accordance with clauses (A) and (B), to make an offer to the holders of the exchange notes (and to holders of other Senior Subordinated Indebtedness of ChipPAC International Company Limited designated by ChipPAC International Company Limited) to purchase exchange notes (and such other Senior Subordinated Indebtedness) pursuant to and subject to the conditions contained in the Indenture; provided, however, that in connection with any prepayment, repayment or purchase of Indebtedness pursuant to clause (A) or (C) above, we or such Restricted Subsidiary shall permanently retire such Indebtedness and, in the case of any revolving facility, shall cause the related loan commitment, if any, to be permanently reduced in an amount equal to the principal amount so prepaid, repaid or purchased. Notwithstanding the foregoing provisions of this paragraph, we and the Restricted Subsidiaries shall not be required to apply any Net Available Cash in accordance with this paragraph except to the extent that the aggregate Net Available Cash 97 from all Asset Dispositions which are not applied in accordance with this paragraph exceeds $10.0 million. Pending application of Net Available Cash pursuant to this covenant, such Net Available Cash shall be invested in Permitted Investments or used to temporarily reduce loans outstanding under any revolving credit facility. For the purposes of this covenant, the following are deemed to be cash or cash equivalents: (x) the assumption of Indebtedness of ours or any Restricted Subsidiary and the release of us or such Restricted Subsidiary from all liability on such Indebtedness in connection with such Asset Disposition, (y) securities, exchange notes or other obligations received by us or any Restricted Subsidiary from the transferee that are promptly converted by us or such Restricted Subsidiary into cash; and (z) any Additional Assets (so long as such Additional Assets were acquired for fair market value in connection with the transaction giving rise to such Asset Disposition, as determined in good faith by the board of directors of the Company or such Restricted Subsidiary, as applicable), which Additional Assets shall be deemed to have been acquired pursuant to clause (A) of the preceding paragraph in connection with such Asset Disposition. (b) In the event of an Asset Disposition that requires the purchase of the exchange notes (and other Senior Subordinated Indebtedness) pursuant to clause (a)(3)(C) above, ChipPAC International Company Limited will be required to purchase exchange notes tendered pursuant to an offer by ChipPAC International Company Limited for the exchange notes (and other Senior Subordinated Indebtedness) at a purchase price of 100% of their principal amount (without premium) plus accrued but unpaid interest (or, in respect of such other Senior Subordinated Indebtedness, such lesser price, if any, as may be provided for by the terms of such Senior Subordinated Indebtedness) in accordance with the procedures (including prorating in the event of oversubscription) set forth in the Indenture. If the aggregate purchase price of the exchange notes (and any other Senior Subordinated Indebtedness) tendered exceeds the Net Available Cash allotted to the purchase thereof, ChipPAC International Company Limited will select the exchange notes (and any other Senior Subordinated Indebtedness) to be purchased on a pro rata basis but in denominations of $1,000 or multiples thereof. ChipPAC International Company Limited shall not be required to make such an offer to purchase exchange notes (and other Senior Subordinated Indebtedness) pursuant to this covenant if the Net Available Cash available therefor is less than $10.0 million (which lesser amount shall be carried forward for purposes of determining whether such an offer is required with respect to the Net Available Cash from any subsequent Asset Disposition). (c) ChipPAC International Company Limited shall comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of exchange notes pursuant to this covenant. To the extent that the provisions of any securities laws or regulations conflict with provisions of this covenant, ChipPAC International Company Limited shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this clause by virtue thereof. Limitation on Affiliate Transactions. (a) We shall not, and shall not permit any Restricted Subsidiary to, enter into or permit to exist any transaction (including the purchase, sale, lease or exchange of any property, employee compensation arrangements or the rendering of any service) with any Affiliate of ours involving aggregate consideration in excess of $2.5 million (an "Affiliate Transaction") unless the terms thereof: (1) are no less favorable to us or such Restricted Subsidiary than those that could be obtained at the time of such transaction in arm's-length dealings with a Person who is not such an Affiliate; (2) have been approved by a majority of the disinterested members of the Board of Directors; and (3) if such Affiliate Transaction involves an amount in excess of $10.0 million, have been determined by (A) a nationally recognized investment banking firm to be fair, from a financial standpoint, to us and our Restricted Subsidiaries or (B) an accounting or appraisal firm nationally recognized in making such determinations to be on terms that are not less favorable to us and our Restricted Subsidiaries than the terms that could be obtained in an arms-length transaction from a Person that is not an Affiliate of ours. 98 (b) The provisions of the foregoing paragraph (a) shall not prohibit; (1) any Restricted Payment permitted to be paid pursuant to the covenant described under "--Limitation on Restricted Payments;" (2) any issuance of securities, or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment arrangements, stock options and stock ownership plans approved by the Board of Directors; (3) the grant of stock options or similar rights to our employees and directors or those of our Restricted Subsidiaries pursuant to plans or agreements approved by the Board of Directors; (4) loans or advances to employees, directors, officers or consultants (A) in the ordinary course of business or (B) otherwise in an aggregate amount not to exceed $5.0 million in the aggregate outstanding at any one time; (5) reasonable fees, compensation or employee benefit arrangements to and indemnity provided for the benefit of employees, directors, officers or consultants of ours or any Subsidiary in the ordinary course of business; (6) any transaction exclusively between or among us and our Restricted Subsidiaries or between or among Restricted Subsidiaries; provided, however, that such transactions are not otherwise prohibited by the Indenture; (7) the payment of management, consulting and advisory fees and related expenses made pursuant to the Advisory Agreements as in effect on the Recapitalization Closing Date and the payment of other customary management, consulting and advisory fees and related expenses to the Principals and their Affiliates made pursuant to any financial advisory, financing, underwriting or placement agreement or in respect of other investment banking activities, including, without limitation, in connection with acquisitions or divestitures which fees and expenses are made pursuant to arrangements approved by our board of directors or that of such Restricted Subsidiary in good faith; (8) any Affiliate Transaction with Hyundai Electronics and its Affiliates pursuant to written agreements in effect on the Recapitalization Closing Date and as amended, renewed or extended from time to time; provided, however, that any such amendment, renewal or extension shall not contain terms which are materially less favorable to us and our Restricted Subsidiaries than those in the agreements in effect on the Recapitalization Closing Date; (9) any agreement with us or any Restricted Subsidiary as in effect as of the Recapitalization Closing Date or any amendment or replacement thereto or any transaction contemplated thereby (including pursuant to any amendment or replacement thereto) so long as any such amendment or replacement agreement is not more disadvantageous to us or such Restricted Subsidiary in any material respect than the original agreement as in effect on the Recapitalization Closing Date; (10) the existence of, or the performance by us or any of our Restricted Subsidiaries of obligations under the terms of, the Shareholders Agreement and any similar agreements which it may enter into thereafter; provided, however, that the existence of, or the performance by us or any of our Restricted Subsidiaries of obligations under, any future amendment to any such existing agreement or under any similar agreement entered into after the Recapitalization Closing Date shall only be permitted by this clause (10) to the extent that the terms of any such amendment or new agreement are not more disadvantageous to us or any such Restricted Subsidiary in any material respect; (11) transactions with customers, clients, suppliers, joint venture partners or purchasers or sellers of goods or services, in each case in the ordinary course of business (including, without limitation, pursuant to joint venture agreements) and otherwise in compliance with the terms of the Indenture which are fair to us and our Restricted Subsidiaries, in the reasonable determination of the board of directors or the senior management thereof, or are on terms at least as favorable as might reasonably have been obtained at such time from an unaffiliated party; and (12) the issuance or sale of any of our Capital Stock (other than Disqualified Stock). 99 Merger and Consolidation. Neither ChipPAC International Company Limited nor we shall consolidate with or merge with or into, or convey, transfer or lease, in one transaction or a series of related transactions, all or substantially all its assets to, any Person, unless: (1) the resulting, surviving or transferee Person (the "Successor Company") shall be a Person organized and existing under the laws of the British Virgin Islands or of the United States of America, any State thereof or the District of Columbia and the Successor Company (if not us or ChipPAC International Company Limited) shall expressly assume, by an indenture supplemental thereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of ChipPAC International Company Limited or us, as applicable, under the Indenture and the Company Guaranty or the exchange notes, as applicable; (2) immediately after giving effect to such transaction (and treating any Indebtedness which becomes an obligation of the Successor Company or any Subsidiary as a result of such transaction as having been Incurred by such Successor Company or such Subsidiary at the time of such transaction), no Default shall have occurred and be continuing; (3) immediately after giving effect to such transaction, (A) the Successor Company would be able to Incur an additional $1.00 of Indebtedness pursuant to paragraph (a) of the covenant described under "-- Limitation on Indebtedness" or (B) the Consolidated Coverage Ratio for the Successor Company and its Restricted Subsidiaries would be equal to or greater than such ratio for us and our Restricted Subsidiaries immediately prior to such transaction; (4) ChipPAC International Company Limited or us, as applicable, shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and any supplemental indenture comply with the Indenture; (5) In the event that the merging corporation (i.e., the Company or ChipPAC International Company Limited, as applicable) is organized and existing under the laws of the British Virgin Islands and the Successor Company is organized and existing under the laws of the United States of America, any State thereof or the District of Columbia or in the event that the merging corporation is organized and existing under the laws of the United States of America, any State thereof or the District of Columbia and the Successor Company is organized and existing under the laws of the British Virgin Islands (any of the foregoing events are referred to herein as a "Foreign Jurisdiction Merger"), ChipPAC International Company Limited or ChipPAC, as applicable, shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders will not recognize income, gain or loss for U.S. Federal income tax purposes as a result of such transaction and will be subject to U.S. Federal income tax on the same amounts and at the same times as would have been the case if such transaction had not occurred; and (6) In the event of a Foreign Jurisdiction Merger, ChipPAC International Company Limited or ChipPAC, as applicable, shall have delivered to the Trustee an Opinion of Counsel in the British Virgin Islands (or other applicable jurisdiction) to the effect that (A) any payment of interest or principal under or with respect to the exchange notes or the Guaranties will, after the consolidation, merger, conveyance, transfer or lease of assets, be exempt from the Taxes described under "--Withholding Taxes" and (B) no other taxes on income (including capital gains) will be payable under the laws of the British Virgin Islands or any other jurisdiction where the Successor Company is or becomes organized, resident or engaged in business for tax purposes in respect of the acquisition, ownership or disposition of the exchange notes, including the receipt of interest or principal thereon, provided that such Holder does not use or hold, and is not deemed to use or hold the exchange notes in carrying on a business in the British Virgin Islands or other jurisdiction where the Successor Company is or becomes organized, resident or engaged in business for tax purposes. provided, however, that clause (3) above shall not apply (x) if, in the good faith determination of the Board of Directors, whose determination shall be evidenced by a resolution of the Board of Directors, the principal purpose and effect of such transaction is to change the jurisdiction of incorporation of ChipPAC International 100 Company Limited or the Company or (y) in the case of a merger of ChipPAC International Company Limited or the Company with or into a Wholly Owned Subsidiary of ours. The Successor Company shall be the successor to us or ChipPAC International Company Limited, as the case may be, and shall succeed to, and be substituted for, and may exercise every right and power of, ChipPAC International Company Limited or us under the Indenture, and the predecessor Issuer or Company, except in the case of a lease, shall be automatically released from its obligations under the Company Guaranty, the exchange notes and the Indenture. We will not permit any Subsidiary Guarantor to consolidate with or merge with or into, or convey, transfer or lease, in one transaction or a series of transactions, all or substantially all of its assets to any Person unless: (1) the resulting, surviving or transferee Person (if not such Subsidiary) shall be a Person organized and existing under the laws of the jurisdiction under which such Subsidiary was organized or under the laws of the United States of America, or any State thereof or the District of Columbia, and such Person shall expressly assume, by executing a supplemental indenture or Guaranty Agreement, as applicable, all the obligations of such Subsidiary under the Indenture or its Subsidiary Guaranty and under the exchange notes and the Indenture; (2) immediately after giving effect to such transaction or transactions on a pro forma basis (and treating any Indebtedness which becomes an obligation of the resulting, surviving or transferee Person as a result of such transaction as having been issued by such Person at the time of such transaction), no Default shall have occurred and be continuing; and (3) we deliver to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such supplemental indenture or Guaranty Agreement, if any, complies with the Indenture. The provisions of clauses (1) and (2) above shall not apply to any one or more transactions involving a Subsidiary Guarantor which constitute an Asset Disposition if we have complied with the applicable provisions of the covenant described under "--Limitation on Sales of Assets and Subsidiary Stock" above. Future Guarantors. In the event that, after the Issue Date, we form or otherwise acquire, directly or indirectly, any Restricted Subsidiary, we shall cause such Restricted Subsidiary to Guarantee the exchange notes pursuant to a Subsidiary Guaranty on the terms and conditions set forth in the Indenture and the Subsidiary Guaranty Agreement; provided, however, in the event we or a Restricted Subsidiary forms or otherwise acquires, directly or indirectly, a Restricted Subsidiary organized under the laws of a jurisdiction other than the United States and such jurisdiction prohibits by law, regulation or order such Restricted Subsidiary from providing a Guarantee, we shall use all commercially reasonable efforts (including pursuing required waivers) over a period up to one year, to provide such Guarantee; provided, however, that we shall not be required to use such commercially reasonable efforts with respect to such subsidiaries for more than a one-year period or such shorter period as we shall determine in good faith that we have used all commercially reasonable efforts. If we or such Restricted Subsidiary is unable during such period to obtain an enforceable Guarantee in such jurisdiction, then such Restricted Subsidiary shall not be required to provide a Guarantee of the exchange notes pursuant to the Subsidiary Guaranty so long as such Restricted Subsidiary does not Guarantee any other Indebtedness of ours and our Restricted Subsidiaries. Limitation on Assets of Non-Subsidiary Guarantors. We shall not permit our Restricted Subsidiaries that are not Subsidiary Guarantors, excluding ChipPAC Assembly and Test (Shanghai) Company, Ltd. and ChipPAC (Shanghai) Company Ltd. or any successors thereto, to collectively hold at any one time more than 33 1/3% of the consolidated assets of ours and our Restricted Subsidiaries. Limitation on Sale of the Capital Stock of ChipPAC International Company Limited. For so long as any of the exchange notes are outstanding, ChipPAC International Company Limited will continue to be, directly or indirectly, a Wholly Owned Subsidiary of ours. 101 SEC Reports. Whether or not subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, we will file with the SEC and provide the Trustee and Noteholders with such annual reports and such information, documents and other reports as are specified in Sections 13 and 15(d) of the Exchange Act and applicable to a U.S. corporation subject to such Sections at the times specified for such filings under such Sections. However, we will not be required to file any reports, documents or other information if the SEC will not accept such a filing. Defaults Each of the following is an Event of Default: (1) a default in the payment of interest or any Additional Amounts on the exchange notes when due, continued for 30 days; (2) a default in the payment of principal of any note when due at its Stated Maturity, upon redemption, upon required repurchase, upon declaration or otherwise; (3) the failure by us, ChipPAC International Company Limited or any Subsidiary Guarantor to comply with its obligations under "--Certain Covenants--Merger and Consolidation" above; (4) the failure by us or any Restricted Subsidiary to comply for 30 days after notice with any of its obligations in the covenants described above under "--Change of Control" (other than a failure to purchase the exchange notes) or under "--Certain Covenants" under "--Limitation on Indebtedness," "--Limitation on Restricted Payments," "--Limitation on Restrictions on Distributions from Restricted Subsidiaries," "--Limitation on Sales of Assets and Subsidiary Stock" (other than a failure to purchase the exchange notes), "--Limitation on Affiliate Transactions," "--Future Guarantors," "--Limitation on Assets of Non-Subsidiary Guarantors," "--Limitation on Sale of the Capital Stock of ChipPAC International Company Limited" or "-- SEC Reports;" (5) the failure by us or any Restricted Subsidiary to comply for 60 days after notice with its other agreements contained in the Indenture; (6) Indebtedness of ours, ChipPAC International Company Limited or any Significant Subsidiary is not paid within any applicable grace period after final maturity or is accelerated by the holders thereof because of a default and the total amount of such Indebtedness unpaid or accelerated exceeds $10.0 million (the "cross acceleration provision"); (7) certain events of bankruptcy, insolvency or reorganization of us, ChipPAC International Company Limited or a Significant Subsidiary (the "bankruptcy provisions"); (8) any judgment or decree for the payment of money in excess of $10.0 million is entered against us, ChipPAC International Company Limited or a Significant Subsidiary, remains outstanding for a period of 60 days following such judgment and is not discharged, waived or stayed within 10 days after notice (the "judgment default provision"); or (9) the Company Guaranty or any Subsidiary Guaranty of a Significant Subsidiary ceases to be in full force and effect (other than in accordance with the terms of the Company Guaranty or such Subsidiary Guaranty) or the ChipPAC or any Significant Subsidiary that is a Subsidiary Guarantor denies or disaffirms its obligations under the Company Guaranty or its Subsidiary Guaranty, as the case may be. However, a default under clauses (4), (5) and (8) will not constitute an Event of Default until the Trustee or the holders of 25% in principal amount of the outstanding exchange notes notify ChipPAC International Company Limited and us of the default and ChipPAC International Company Limited or ChipPAC does not cure such default within the time specified after receipt of such notice. If an Event of Default occurs and is continuing, the Trustee or the holders of at least 25% in principal amount of the outstanding exchange notes may declare the principal of and accrued but unpaid interest on all the exchange notes to be due and payable. Upon such a declaration, such principal and interest shall be due and 102 payable immediately; provided, however, that if upon such declaration there are any amounts outstanding under the Credit Agreement and the amounts thereunder have not been accelerated, such principal and interest shall be due and payable upon the earlier of the time such amounts are accelerated or five Business Days after receipt by ChipPAC International Company Limited and us and the Representative under the Credit Agreement of such declaration. If an Event of Default relating to certain events of bankruptcy, insolvency or reorganization of us or ChipPAC International Company Limited occurs and is continuing, the principal of and interest on all the exchange notes will ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any holders of the exchange notes. Under certain circumstances, the holders of a majority in principal amount of the outstanding exchange notes may rescind any such acceleration with respect to the exchange notes and its consequences. Subject to the provisions of the Indenture relating to the duties of the Trustee, in case an Event of Default occurs and is continuing, the Trustee will be under no obligation to exercise any of the rights or powers under the Indenture at the request or direction of any of the holders of the exchange notes unless such holders have offered to the Trustee reasonable indemnity or security against any loss, liability or expense. Except to enforce the right to receive payment of principal, premium, if any, or interest when due, no holder of a note may pursue any remedy with respect to the Indenture or the exchange notes unless: (1) such holder has previously given the Trustee notice that an Event of Default is continuing; (2) holders of at least 25% in principal amount of the outstanding exchange notes have requested the Trustee to pursue the remedy; (3) such holders have offered the Trustee reasonable security or indemnity against any loss, liability or expense; (4) the Trustee has not complied with such request within 60 days after the receipt thereof and the offer of security or indemnity; and (5) the holders of a majority in principal amount of the outstanding exchange notes have not given the Trustee a direction inconsistent with such request within such 60-day period. Subject to certain restrictions, the holders of a majority in principal amount of the outstanding exchange notes are given the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. The Trustee, however, may refuse to follow any direction that conflicts with law or the Indenture or that the Trustee determines is unduly prejudicial to the rights of any other holder of a note or that would involve the Trustee in personal liability. The Indenture provides that if a Default occurs and is continuing and is known to the Trustee, the Trustee must mail to each holder of the exchange notes notice of the Default within 90 days after it occurs. Except in the case of a Default in the payment of principal of or interest on any note, the Trustee may withhold notice if and so long as a committee of its trust officers determines that withholding notice is not opposed to the interest of the holders of the exchange notes. In addition, ChipPAC International Company Limited is required to deliver to the Trustee, within 120 days after the end of each fiscal year, a certificate indicating whether the signers thereof know of any Default that occurred during the previous year. ChipPAC International Company Limited also is required to deliver to the Trustee, within 30 days after the occurrence thereof, written notice of any event which would constitute certain Defaults, their status and what action ChipPAC International Company Limited is taking or proposes to take in respect thereof. Amendments and Waivers Subject to certain exceptions, the Indenture may be amended with the consent of the holders of a majority in principal amount of the exchange notes then outstanding (including consents obtained in connection with a tender offer or exchange for the exchange notes) and any past default or compliance with any provisions may also be waived with the consent of the holders of a majority in principal amount of the exchange notes then 103 outstanding. However, without the consent of each holder of an outstanding note affected thereby, no amendment may, among other things: (1) reduce the amount of exchange notes whose holders must consent to an amendment; (2) reduce the rate of or extend the time for payment of interest on any note; (3) reduce the principal of or extend the Stated Maturity of any note; (4) reduce the premium payable upon the redemption of any note or change the time at which any note may be redeemed as described under "--Optional Redemption" or "--Redemption for Changes in British Virgin Islands Withholding Taxes" above; (5) make any note payable in money other than that stated in the note; (6) impair the right of any holder of the exchange notes to receive payment of principal of and interest on such holder's exchange notes on or after the due dates therefor or to institute suit for the enforcement of any payment on or with respect to such holder's exchange notes; (7) make any change in the amendment provisions which require each holder's consent or in the waiver provisions; or (8) make any change in the Company Guaranty or any Subsidiary Guaranty that would adversely affect the Noteholders. In addition, any amendment to the subordination provisions of the Indenture that would adversely affect the Holders of the exchange notes will require the consent of the Holders of at least 75% in aggregate principal amount of the exchange notes then outstanding. However, no amendment may be made to the subordination provisions of the Indenture that adversely affects the rights of any holder of Senior Indebtedness then outstanding unless the holders of such Senior Indebtedness (or their Representative) consents to such change. Without the consent of any holder of the exchange notes, ChipPAC International Company Limited and Trustee may amend the Indenture to cure any ambiguity, omission, defect or inconsistency, to provide for the assumption by a successor corporation of the obligations of ChipPAC International Company Limited under the Indenture (provided, that ChipPAC International Company Limited or ChipPAC delivers to the Trustee the Opinions of Counsel described in clauses five and six of "Certain Covenants--Merger and Consolidation" if such opinions are required pursuant to the provisions of such clauses), to provide for uncertificated exchange notes in addition to or in place of certificated exchange notes (provided that the uncertificated exchange notes are issued in registered form for purposes of Section 163(f) of the Code, or in a manner such that the uncertificated exchange notes are described in Section 163(f)(2)(B) of the Code), to add guarantees with respect to the exchange notes, to release a Subsidiary Guaranty when permitted by the Indenture, to secure the exchange notes, to add to our covenants and those of our Restricted Subsidiaries for the benefit of the holders of the exchange notes or to surrender any right or power conferred upon us and our Restricted Subsidiaries, to make any change that does not adversely affect the rights of any holder of the exchange notes or to comply with any requirement of the SEC in connection with the qualification of the Indenture under the Trust Indenture Act. The consent of the holders of the exchange notes is not necessary under the Indenture to approve the particular form of any proposed amendment. It is sufficient if such consent approves the substance of the proposed amendment. After an amendment under the Indenture becomes effective, ChipPAC International Company Limited is required to mail to holders of the exchange notes a notice briefly describing such amendment. However, the failure to give such notice to all holders of the exchange notes, or any defect therein, will not impair or affect the validity of the amendment. 104 Transfer The exchange notes will be issued in registered form and will be transferable only upon the surrender of the exchange notes being transferred for registration of transfer. ChipPAC International Company Limited may require payment of a sum sufficient to cover any tax, assessment or other governmental charge payable in connection with certain transfers and exchanges. Defeasance ChipPAC International Company Limited and ChipPAC at any time may terminate all of our obligations under the exchange notes and the Indenture ("legal defeasance"), except for certain obligations, including those respecting the defeasance trust and obligations to register the transfer or exchange of the exchange notes, to replace mutilated, destroyed, lost or stolen exchange notes and to maintain a registrar and paying agent in respect of the exchange notes. ChipPAC International Company Limited or ChipPAC at any time may terminate our obligations under "--Change of Control" and under the covenants described under "--Certain Covenants" (other than the covenant described under "--Merger and Consolidation"), the operation of the cross acceleration provision, the bankruptcy provisions with respect to Significant Subsidiaries and the judgment default provision described under "--Defaults" above and the limitations contained in clause (3) of the first paragraph under "--Certain Covenants-- Merger and Consolidation" above ("covenant defeasance"). ChipPAC International Company Limited and ChipPAC may exercise our legal defeasance option notwithstanding its prior exercise of its covenant defeasance option. If ChipPAC International Company Limited or ChipPAC exercises our legal defeasance option, payment of the exchange notes may not be accelerated because of an Event of Default with respect thereto. If ChipPAC International Company Limited or ChipPAC exercises our covenant defeasance option, payment of the exchange notes may not be accelerated because of an Event of Default specified in clause (4), (6), (7) (with respect only to Significant Subsidiaries) or (8) under "--Defaults" above or because of the failure of us to comply with clause (3) of the first paragraph under "--Certain Covenants--Merger and Consolidation" above or the failure of ChipPAC International Company Limited or any Subsidiary Guarantor to comply with the limitation under the third paragraph under "--Certain Covenants--Merger and Consolidation" above. If ChipPAC International Company Limited or ChipPAC exercises our legal defeasance option or our covenant defeasance option, we and each Subsidiary Guarantor will be released from all of its obligations with respect to the Company Guaranty or its Subsidiary Guaranty, as the case may be. In order to exercise either defeasance option, ChipPAC International Company Limited or ChipPAC must irrevocably deposit in trust (the "defeasance trust") with the Trustee money or U.S. Government Obligations for the payment of principal and interest on the exchange notes to redemption or maturity, as the case may be, and must comply with certain other conditions, including delivery to the Trustee of (i) an Opinion of Counsel to the effect that Holders of the exchange notes will not recognize income, gain or loss for U.S. Federal income tax purposes as a result of such deposit and defeasance and will be subject to U.S. Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred (and, in the case of legal defeasance only, such Opinion of Counsel must be based on a ruling of the Internal Revenue Service or other change in applicable U.S. Federal income tax law) and (ii) an Opinion of Counsel in each of the British Virgin Islands and any other jurisdiction in which ChipPAC International Company Limited or ChipPAC is organized, resident or engaged in business for tax purposes to the effect that (A) Holders of the exchange notes will not recognize income gain or loss for purposes of the tax laws of such jurisdiction as a result of such legal defeasance or covenant defeasance, as applicable, and will be subject for purposes of the tax laws of such jurisdiction to income tax on the same amounts, in the same manner and at the same times as would have been the case if such legal defeasance or covenant defeasance had not occurred and (B) payments from the defeasance trust will be free or exempt from any and all withholding and other taxes of whatever nature of such jurisdiction or any political subdivision or taxing authority thereof or therein, except in the case of a payment made to a Holder which is subject to such tax by reason of such Holder's carrying on a business in the British Virgin Islands or such other jurisdiction. 105 Concerning the Trustee Firstar Bank of Minnesota, N.A. is to be the Trustee under the Indenture and has been appointed by us as Registrar and Paying Agent with regard to the exchange notes. The Holders of a majority in principal amount of the outstanding exchange notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee, subject to certain exceptions. The Indenture provides that if an Event of Default occurs (and is not cured), the Trustee will be required, in the exercise of its power, to use the degree of care of a prudent man in the conduct of his own affairs. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any Holder of exchange notes, unless such Holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense and then only to the extent required by the terms of the Indenture. Governing Law The Indenture provides that it and the exchange notes will be governed by, and construed in accordance with, the laws of the State of New York without giving effect to applicable principles of conflicts of law to the extent that the application of the law of another jurisdiction would be required thereby. Enforceability of Judgments Since substantially all the operating assets of ChipPAC International Company Limited, ChipPAC and their Subsidiaries are outside the United States, any judgment obtained in the United States against ChipPAC International Company Limited, ChipPAC or a Subsidiary Guarantor, including judgments with respect to the payment of principal, interest, Additional Amounts, redemption price and any purchase price with respect to the exchange notes, may not be collectible within the United States. ChipPAC International Company Limited has been informed by its British Virgin Island counsel, Harney Westwood & Riegels, that in such counsel's opinion the laws of the British Virgin Islands applicable therein permit an action to be brought in a court of competent jurisdiction in the British Virgin Islands on a final and conclusive judgment in personam of a United States federal court or a court of the State of New York sitting in the Borough of Manhattan in The City of New York (the "New York Court"), respecting the enforcement of the exchange notes or the Indenture (including the Company Guaranty and the Subsidiary Guaranties), that is not impeachable as void or voidable under the laws of the State of New York and that is for a sum certain in money if (i) the New York Court that rendered such judgment has jurisdiction over the judgment debtor, as recognized by the courts of the British Virgin Islands and in accordance with the British Virgin Islands' conflict of laws rules (and submission by ChipPAC International Company Limited, the Company and the Subsidiary Guarantors in the Indenture to the jurisdiction of the New York Court will be sufficient for this purpose); (ii) such judgment was not obtained by fraud or in a manner contrary to natural justice and the enforcement thereof would not be inconsistent with public policy, as such term is understood under the laws of the British Virgin Islands applicable therein; (iii) the enforcement of such judgment does not constitute, directly or indirectly, the enforcement of foreign revenue, expropriator, public or penal laws; (iv) no new admissible evidence relevant to the action is discovered prior to the rendering of judgment by the British Virgin Islands; and (v) the action to enforce such judgment is commenced within six years after the date of such judgment. Furthermore, ChipPAC International Company Limited has been advised by such counsel that they do not know of any reason under present laws of the British Virgin Islands for avoiding recognition of such judgment of New York Court under the Indenture (including the Company Guaranty and the Subsidiary Guaranties) or on the exchange notes based upon a reasonable interpretation of public policy. Consent to Jurisdiction and Service The Indenture provides that ChipPAC International Company Limited, ChipPAC and each Subsidiary Guarantor will appoint CT Corporation System, 1633 Broadway, New York, New York 10019 as its agent for actions brought under Federal or state securities laws brought in any Federal or state court located in the Borough of Manhattan in The City of New York and will submit to such jurisdiction. 106 Certain Definitions "Additional Assets" means (1) any property or assets (other than Indebtedness and Capital Stock) in a Related Business, (2) the Capital Stock of a Person that becomes a Restricted Subsidiary as a result of the acquisition of such Capital Stock by the Company or another Restricted Subsidiary or (3) Capital Stock constituting a minority interest in any Person that at such time is a Restricted Subsidiary; provided, however, that any such Restricted Subsidiary described in clauses (2) or (3) above is primarily engaged in a Related Business. "Advisory Agreements" mean each of the advisory agreements by and between ChipPAC, Inc., ChipPAC Limited, ChipPAC International Company Limited and each Principal entered into on the Recapitalization Closing Date, as the same may be amended from time to time in a manner that is not more disadvantageous to us in any material respect than the original agreement as in effect on the Recapitalization Closing Date. "Affiliate" of any specified Person means any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. For purposes of the provisions described under "--Certain Covenants--Limitation on Restricted Payments," "--Certain Covenants--Limitation on Affiliate Transactions" and "--Certain Covenants--Limitation on Sales of Assets and Subsidiary Stock" only, "Affiliate" shall also mean any beneficial owner of Capital Stock representing 10% or more of the total voting power of our Voting Stock (on a fully diluted basis) or of rights or warrants to purchase such Capital Stock (whether or not currently exercisable) and any Person who would be an Affiliate of any such beneficial owner pursuant to the first sentence hereof. "Asset Disposition" means any sale, lease (other than operating leases entered into in the ordinary course of business), transfer or other disposition (or series of related sales, leases, transfers or dispositions) by us or any Restricted Subsidiary, including any disposition by means of a merger, consolidation or similar transaction (each referred to for the purposes of this definition as a "disposition"), of (1) any shares of Capital Stock of a Restricted Subsidiary (other than directors' qualifying shares or shares required by applicable law to be held by a Person other than us or a Restricted Subsidiary), (2) all or substantially all the assets of any division or line of business of ours or any Restricted Subsidiary or (3) any other assets of ours or any Restricted Subsidiary outside of the ordinary course of our business or that of such Restricted Subsidiary (other than, in the case of (1), (2) and (3) above, (w) a disposition by a Restricted Subsidiary to us or by us or a Restricted Subsidiary to a Restricted Subsidiary, (x) for purposes of the covenant described under "--Certain Covenants--Limitation on Sales of Assets and Subsidiary Stock" only, a disposition that constitutes a Restricted Payment permitted by the covenant described under "--Certain Covenants--Limitation on Restricted Payments," (y) sales or other dispositions of obsolete, uneconomical, negligible, worn-out or surplus assets in the ordinary course of business (including but not limited to equipment and intellectual property) and (z) disposition of assets with a fair market value of less than $1,000,000); provided, however, that a disposition of all or substantially all of our assets and our Restricted Subsidiaries taken as a whole will be governed by the provisions of the Indenture described above under the caption "--Change of Control" and/or the provisions described above under the caption "--Merger and Consolidation" and not by the provisions of the "--Limitation on Sales of Assets and Subsidiary Stock" covenant. "Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at the time of determination, the present value (discounted at the interest rate borne by the exchange notes, compounded annually) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such Sale/Leaseback Transaction (including any period for which such lease has been extended). "Average Life" means, as of the date of determination, with respect to any Indebtedness or Preferred Stock, the quotient obtained by dividing (1) the sum of the products of the numbers of years from the date of 107 determination to the dates of each successive scheduled principal payment of such Indebtedness or redemption or similar payment with respect to such Preferred Stock multiplied by the amount of such payment by (2) the sum of all such payments. "Bain" means Bain Capital, Inc. "Banks" has the meaning specified in the Credit Agreement. "Bank Indebtedness" means all Obligations pursuant to the Credit Agreement. "Board of Directors" means the Board of Directors of ChipPAC or any committee thereof duly authorized to act on behalf of such Board. "Business Day" means each day other than a Saturday, Sunday or a day on which commercial banking institutions are authorized or required by law to close in New York City. "Capital Expenditure Facility" means the capital expenditure facility contained in the Credit Agreement. "Capital Lease Obligations" means an obligation that is required to be classified and accounted for as a capital lease for financial reporting purposes in accordance with GAAP, and the amount of Indebtedness represented by such obligation shall be the capitalized amount of such obligation determined in accordance with GAAP; and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty. "Capital Stock" of any Person means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) equity of such Person, including any Preferred Stock, but excluding any debt securities convertible into such equity. "Code" means the Internal Revenue Code of 1986, as amended. "Company Guaranty" means the Guarantee by us of ChipPAC International Company Limited's obligations with respect to the exchange notes contained in the Indenture. "Consolidated Coverage Ratio" as of any date of determination means the ratio of (a) the aggregate amount of EBITDA for the period of the most recent four consecutive fiscal quarters for which internal financial statements are available ending on or prior to the date of such determination to (b) Consolidated Interest Expense for such four fiscal quarters; provided, however, that: (1) if ChipPAC or any Restricted Subsidiary has Incurred any Indebtedness since the beginning of such period that remains outstanding or if the transaction giving rise to the need to calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness, or both, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving effect on a pro forma basis to such Indebtedness as if such Indebtedness had been Incurred on the first day of such period and the discharge of any other Indebtedness repaid, repurchased, defeased or otherwise discharged with the proceeds of such new Indebtedness as if such discharge had occurred on the first day of such period; (2) if ChipPAC or any Restricted Subsidiary has repaid, repurchased, defeased or otherwise discharged any Indebtedness since the beginning of such period or if any Indebtedness is to be repaid, repurchased, defeased or otherwise discharged (in each case other than Indebtedness Incurred under any revolving credit facility unless such Indebtedness has been permanently repaid and has not been replaced) on the date of the transaction giving rise to the need to calculate the Consolidated Coverage Ratio, EBITDA and Consolidated Interest Expense for such period shall be calculated on a pro forma basis as if such discharge had occurred on the first day of such period and as if ChipPAC or such Restricted 108 Subsidiary has not earned the interest income actually earned during such period in respect of cash or Temporary Cash Investments used to repay, repurchase, defease or otherwise discharge such Indebtedness; (3) if since the beginning of such period we or any Restricted Subsidiary shall have made any Asset Disposition, the EBITDA for such period shall be reduced by an amount equal to the EBITDA (if positive) directly attributable to the assets which are the subject of such Asset Disposition for such period, or increased by an amount equal to the EBITDA (if negative), directly attributable thereto for such period and Consolidated Interest Expense for such period shall be reduced by an amount equal to the Consolidated Interest Expense directly attributable to any Indebtedness of ours or any Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged with respect to us and our continuing Restricted Subsidiaries in connection with such Asset Disposition for such period (or, if the Capital Stock of any Restricted Subsidiary is sold, the Consolidated Interest Expense for such period directly attributable to the Indebtedness of such Restricted Subsidiary to the extent we and our continuing Restricted Subsidiaries are no longer liable for such Indebtedness after such sale); (4) if since the beginning of such period ChipPAC or any Restricted Subsidiary (by merger or otherwise) shall have made an Investment in any Restricted Subsidiary (or any person which becomes a Restricted Subsidiary) or an acquisition of assets, including any acquisition of assets occurring in connection with a transaction requiring a calculation to be made hereunder, which constitutes all or substantially all of an operating unit of a business, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto (including the Incurrence of any Indebtedness) as if such Investment or acquisition occurred on the first day of such period; and (5) if since the beginning of such period any Person (that subsequently became a Restricted Subsidiary or was merged with or into us or any Restricted Subsidiary since the beginning of such period) shall have made any Asset Disposition, any Investment or acquisition of assets that would have required an adjustment pursuant to clause (3) or (4) above if made by us or a Restricted Subsidiary during such period, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto as if such Asset Disposition, Investment or acquisition occurred on the first day of such period. For purposes of this definition, whenever pro forma effect is to be given to an acquisition or disposition of assets, the amount of income or earnings relating thereto and the amount of Consolidated Interest Expense associated with any Indebtedness Incurred in connection therewith, the pro forma calculations shall be determined in good faith by a responsible financial or accounting Officer of ChipPAC (and shall include any applicable Pro Forma Cost Savings). If any Indebtedness bears a floating rate of interest and is being given pro forma effect, the interest of such Indebtedness shall be calculated as if the rate in effect on the date of determination had been the applicable rate for the entire period (taking into account any Interest Rate Agreement applicable to such Indebtedness if such Interest Rate Agreement has a remaining term in excess of 12 months). "Consolidated Interest Expense" means, for any period, our total interest expense and that of our consolidated Restricted Subsidiaries determined in accordance with GAAP, plus, to the extent not included in such total interest expense, and to the extent incurred by us or our Restricted Subsidiaries, without duplication: (1) interest expense attributable to Capital Lease Obligations and the interest expense attributable to leases constituting part of a Sale/Leaseback Transaction, in each case, determined in accordance with GAAP; (2) amortization of debt discount and debt issuance cost; (3) capitalized interest; (4) non-cash interest expenses; (5) commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing; 109 (6) net costs associated with Hedging Obligations involving any Interest Rate Agreement (including amortization of fees) determined in accordance with GAAP; (7) dividends paid in cash or Disqualified Stock in respect of (A) all Preferred Stock of Restricted Subsidiaries and (B) all of our Disqualified Stock, in each case held by Persons other than us or a Wholly Owned Subsidiary; (8) interest actually paid by us or a Restricted Subsidiary under any Guarantee of Indebtedness of any other Person; and (9) the cash contributions to any employee stock ownership plan or similar trust to the extent such contributions are used by such plan or trust to pay interest or fees to any Person (other than us) in connection with Indebtedness Incurred by such plan or trust; and less, to the extent included in such total interest expense, (A) the amortization during such period of capitalized financing costs associated with the recapitalization and the financing thereof and (B) the amortization during such period of other capitalized financing costs. "Consolidated Net Income" means, for any period, the net income of us and our consolidated Subsidiaries determined in accordance with GAAP; provided, however, that there shall not be included in such Consolidated Net Income: (1) any net income of any Person (other than us) if such Person is not a Restricted Subsidiary, except that (A) subject to the exclusion contained in clause (4) below, our equity in the net income of any such Person for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by such Person during such period to us or a Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution paid to a Restricted Subsidiary, to the limitations contained in clause (3) below) and (B) our equity in a net loss of any such Person for such period shall be included in determining such Consolidated Net Income; (2) any net income (or loss) of any Person acquired by us or a Subsidiary in a pooling of interests transaction for any period prior to the date of such acquisition; (3) any net income of any Restricted Subsidiary if such Restricted Subsidiary is subject to restrictions, directly or indirectly, on the payment of dividends or the making of distributions by such Restricted Subsidiary, directly or indirectly, to us, except that (A) subject to the exclusion contained in clause (4) below, our equity in the net income of any such Restricted Subsidiary for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash that could have been distributed by such Restricted Subsidiary consistent with such restrictions during such period to us or another Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution paid to another Restricted Subsidiary, to the limitation contained in this clause) and (B) our equity in a net loss of any such Restricted Subsidiary for such period shall be included in determining such Consolidated Net Income; (4) any gain (or loss) realized upon the sale or other disposition of any of our assets or those of our consolidated Subsidiaries (including pursuant to any sale-and-leaseback arrangement) which is not sold or otherwise disposed of in the ordinary course of business and any gain (or loss) realized upon the sale or other disposition of any Capital Stock of any Person; (5) any extraordinary or unusual gains or losses and the related tax effect in accordance with GAAP; (6) any translation gains and losses due solely to fluctuations in currency values and the related tax effect in accordance with GAAP; (7) any cash charges resulting from the recapitalization to the extent such cash charges are paid or payable by Hyundai Electronics, Hyundai Electronics America or any of their Affiliates; (8) the cumulative effect of a change in accounting principles. 110 Notwithstanding the foregoing, for the purposes of the covenant described under "--Certain Covenants--Limitation on Restricted Payments" only, there shall be excluded from Consolidated Net Income any dividends, repayments of loans or advances or other transfers of assets from Unrestricted Subsidiaries to us or a Restricted Subsidiary to the extent such dividends, repayments or transfers increase the amount of Restricted Payments permitted under such covenant pursuant to clause (a)(3)(D) thereof. "Credit Agreement" means the Credit Agreement entered into by and among ChipPAC International Company Limited, ChipPAC, certain of its Subsidiaries, the lenders referred to therein and Credit Suisse First Boston, as Administrative Agent, together with the related documents thereto (including without limitation the term loans and revolving loans thereunder, any guarantees and security documents), as amended, extended, renewed, restated, supplemented or otherwise modified (in whole or in part, and without limitation as to amount, terms, conditions, covenants and other provisions) from time to time, and any agreement (and related document) governing Indebtedness incurred to refund or refinance, in whole or in part, the borrowings and commitments then outstanding or permitted to be outstanding under such Credit Agreement or a successor Credit Agreement, whether by the same or any other lender or group of lenders. "Currency Agreement" means in respect of a Person any foreign exchange contract, currency swap agreement or other similar agreement to which such Person is a party or beneficiary. "CVC" means Citicorp Venture Capital, Ltd. "Default" means any event which is, or after notice or passage of time or both would be, an Event of Default. "Designated Senior Indebtedness" with respect to any Person means (1) the Bank Indebtedness; provided, however, that Bank Indebtedness outstanding under any Credit Agreement that is Refinanced in part, but not in whole, the previously outstanding Bank Indebtedness shall only constitute Designated Senior Indebtedness if it meets the requirements of succeeding clause (2); and (2) any other Senior Indebtedness of such Person which, at the date of determination, has an aggregate principal amount outstanding of, or under which, at the date of determination, the holders thereof are committed to lend up to, at least $10.0 million and is specifically designated by such Person in the instrument evidencing or governing such Senior Indebtedness as "Designated Senior Indebtedness" for purposes of the Indenture. "Disqualified Stock" means, with respect to any Person, any Capital Stock which by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable) or upon the happening of any event (1) matures or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise, (2) is convertible or exchangeable for Indebtedness or Disqualified Stock or (3) is redeemable at the option of the holder thereof, in whole or in part, in each case on or prior to the first anniversary of the Stated Maturity of the exchange notes; provided, however, that any Capital Stock that would not constitute Disqualified Stock but for provisions thereof giving holders thereof the right to require such Person to repurchase or redeem such Capital Stock upon the occurrence of an "asset sale" or "change of control" occurring prior to the first anniversary of the Stated Maturity of the exchange notes shall not constitute Disqualified Stock if the "asset sale" or "change of control" provisions applicable to such Capital Stock are not more favorable to the holders of such Capital Stock than the provisions described under "--Change of Control" and under "--Certain Covenants--Limitation on Sales of Assets and Subsidiary Stock." Notwithstanding the foregoing, the Intel Preferred Stock as in effect on the date of issuance will be deemed not to constitute Disqualified Stock. "EBITDA" for any period means the sum of Consolidated Net Income, plus Consolidated Interest Expense plus the following to the extent deducted in calculating such Consolidated Net Income, without duplication: (1) all income tax expense of ours and our consolidated Restricted Subsidiaries; (2) depreciation expense of ours and our consolidated Restricted Subsidiaries; 111 (3) amortization expense of ours and our consolidated Restricted Subsidiaries (excluding amortization expense (other than the amortization of capitalized financing costs) attributable to a prepaid cash item that was paid in a prior period); and (4) all other non-cash charges of ours and our consolidated Restricted Subsidiaries (excluding any such non-cash charge to the extent that it represents an accrual of or reserve for cash expenditures in any future period); in each case for such period. Notwithstanding the foregoing, the provision for taxes based on the income or profits of, and the depreciation and amortization and non-cash charges of, a Restricted Subsidiary shall be added to Consolidated Net Income to compute EBITDA only to the extent (and in the same proportion) that the net income of such Restricted Subsidiary was included in calculating Consolidated Net Income and only if a corresponding amount would be permitted at the date of determination to be dividended to us by such Restricted Subsidiary without prior approval (that has not been obtained), pursuant to the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to such Restricted Subsidiary or its stockholders. "Equity Offering" means a primary offering of our Capital Stock (other than Disqualified Stock). "Exchange Act" means the Securities Exchange Act of 1934, as amended. "GAAP" means generally accepted accounting principles in the United States of America as in effect as of the Issue Date, including those set forth in (1) the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants, (2) statements and pronouncements of the Financial Accounting Standards Board and (3) such other statements by such other entity as approved by a significant segment of the accounting profession. All ratios and computations based on GAAP contained in the Indenture shall be computed in conformity with GAAP. "Guarantee" means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness of any Person and any obligation, direct or indirect, contingent or otherwise, of such Person (1) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation of such Person (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services, to take-or-pay or to maintain financial statement conditions or otherwise) or (2) entered into for the purpose of assuring in any other manner the obligee of such Indebtedness of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided, however, that the term "Guarantee" shall not include endorsements for collection or deposit or standard contractual indemnities, in each case in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "Guaranty" means the Company Guaranty and each Subsidiary Guaranty, as applicable. "Guaranty Agreement" means a supplemental indenture, in a form reasonably satisfactory to the Trustee, pursuant to which a Subsidiary Guarantor becomes subject to the applicable terms and conditions of the Indenture. "Hedging Obligations" of any Person means the obligations of such Person pursuant to any Interest Rate Agreement or Currency Agreement. "Holder" or "Noteholder" means the Person in whose name a note is registered on the Registrar's books. "Hyundai Earn-out" means the cash payment to Hyundai Electronics of up to an additional $55.0 million during the four-year period following January 1, 1999 in the event we exceed certain levels of EBITDA as set forth in the Recapitalization Agreement; provided, however, in the event the final $20.0 million of such $55.0 112 million in cash is required to be paid to Hyundai Electronics, it shall be paid by the mandatory redemption of an equal amount of Hyundai Preferred Stock. "Hyundai Electronics" means Hyundai Electronics Industries Company Ltd., a Republic of Korea corporation. "Hyundai Preferred Stock" means the 12.5% mandatorily redeemable Preferred Stock issued to Hyundai Electronics and/or Hyundai Electronics America in connection with the recapitalization. "Incur" means issue, assume, Guarantee, incur or otherwise become liable for; provided, however, that any Indebtedness or Capital Stock of a Person existing at the time such Person becomes a Subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred by such Subsidiary at the time it becomes a Subsidiary. The term "Incurrence" when used as a noun shall have a correlative meaning. The accretion of principal of a non-interest bearing or other discount security, and the issuance as interest or dividend payments of pay-in-kind securities having identical terms to the underlying security and which pay-in-kind securities were contemplated on the issue date of such underlying security, in each case shall not be deemed the Incurrence of Indebtedness. "Indebtedness" means, with respect to any Person on any date of determination (without duplication): (1) the principal of and premium (if any) in respect of (A) indebtedness of such Person for money borrowed and (B) indebtedness evidenced by exchange notes, debentures, bonds or other similar instruments for the payment of which such Person is responsible or liable; (2) all Capital Lease Obligations of such Person and all Attributable Debt in respect of Sale/Leaseback Transactions entered into by such Person; (3) all obligations of such Person issued or assumed as the deferred purchase price of property, all conditional sale obligations of such Person and all obligations of such Person under any title retention agreement (but excluding trade accounts and accrued expenses payable arising in the ordinary course of business); (4) all obligations of such Person for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction (other than obligations with respect to letters of credit securing obligations (other than obligations described in clauses (1) through (3) above) entered into in the ordinary course of business of such Person to the extent such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the tenth Business Day following payment on the letter of credit); (5) the amount of all obligations of such Person with respect to the redemption, repayment or other repurchase of any Disqualified Stock or, with respect to any Subsidiary of such Person, the liquidation preference with respect to, any Preferred Stock (but excluding, in each case, any accrued dividends); (6) all obligations of the type referred to in clauses (1) through (5) of other Persons and all dividends of other Persons for the payment of which, in either case, such Person is responsible or liable, directly or indirectly, as obligor, guarantor or otherwise, including by means of any Guarantee; (7) all obligations of the type referred to in clauses (1) through (6) of other Persons secured by any Lien on any property or asset of such Person (whether or not such obligation is assumed by such Person), the amount of such obligation being deemed to be the lesser of the value of such property or assets or the amount of the obligation so secured; and (8) to the extent not otherwise included in this definition, Hedging Obligations of such Person. The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and the maximum liability, upon the occurrence of the contingency giving rise to the obligation, of any contingent obligations at such date; provided, however, that the amount outstanding at any time of any Indebtedness issued with original issue discount shall be deemed to be the face amount of such Indebtedness less the remaining unamortized portion of the original issue discount of such indebtedness at such time as determined in accordance with GAAP. 113 "Intel" means Intel Corporation. "Intel Preferred Stock" means the 10.0% convertible Preferred Stock issuable to Intel pursuant to the Stock Purchase Agreement dated August 5, 1999 by and between Intel and ChipPAC, Inc. "Interest Rate Agreement" means in respect of a Person any interest rate swap agreement, interest rate cap agreement or other financial agreement or arrangement designed to protect such Person against fluctuations in interest rates. "Investment" with respect to any Person means all investments by such person in other persons in the forms of any direct or indirect advance, loan (other than (A) advances to customers in the ordinary course of business that are recorded as accounts receivable on the balance sheet of the lender and (B) commission, travel and similar advances to officers and employees made in the ordinary course of business) or other extensions of credit (including by way of Guarantee or similar arrangement) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of Capital Stock, Indebtedness or other similar instruments issued by such other Person. For purposes of the definition of "Unrestricted Subsidiary," the definition of "Restricted Payment" and the covenant described under "--Certain Covenants--Limitation on Restricted Payments:" (1) "Investment" shall include the portion (proportionate to our equity interest in such Subsidiary) of the fair market value of the net assets of any Subsidiary of our at the time that such Subsidiary is designated an Unrestricted Subsidiary; provided, however, that upon a redesignation of such Subsidiary as a Restricted Subsidiary, we shall be deemed to continue to have a permanent "Investment" in an Unrestricted Subsidiary equal to an amount (if positive) equal to (x) our "Investment" in such Subsidiary at the time of such redesignation less (y) the portion (proportionate to our equity interest in such Subsidiary) of the fair market value of the net assets of such Subsidiary at the time of such redesignation; and (2) any property transferred to or from an Unrestricted Subsidiary shall be valued at its fair market value at the time of such transfer, in each case as determined in good faith by the Board of Directors. "Issue Date" means the date on which the exchange notes are originally issued. "Lien" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any conditional sale or other title retention agreement or lease in the nature thereof). "Net Available Cash" from an Asset Disposition means cash payments received therefrom (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise and proceeds from the sale or other disposition of any securities received as consideration, but only as and when received, but excluding any other consideration received in the form of assumption by the acquiring Person of Indebtedness or other obligations relating to such properties or assets or received in any other non-cash form), in each case net of: (1) all legal, title and recording tax expenses, commissions and other fees and expenses incurred, and all Federal, state, provincial, foreign and local taxes required to be accrued as a liability under GAAP, as a consequence of such Asset Disposition; (2) all payments made on any Indebtedness which is secured by any assets subject to such Asset Disposition, in accordance with the terms of any Lien upon or other security agreement of any kind with respect to such assets, or which must by its terms, or in order to obtain a necessary consent to such Asset Disposition, or by applicable law be, repaid out of the proceeds from such Asset Disposition; (3) all distributions and other payments required to be made to minority interest holders in Subsidiaries or joint ventures as a result of such Asset Disposition; and 114 (4) the deduction of appropriate amounts provided by the seller as a reserve, in accordance with GAAP, against any liabilities associated with the property or other assets disposed in such Asset Disposition and retained by the Company or any Restricted Subsidiary after such Asset Disposition. "Net Cash Proceeds" with respect to any issuance or sale of Capital Stock, means the cash proceeds of such issuance or sale net of attorneys' fees, accountants' fees, underwriters' or placement agents' fees, discounts or commissions and brokerage, consultant and other fees actually incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP. "Obligations" means with respect to any Indebtedness all obligations for principal, premium, interest, penalties, fees, indemnifications, reimbursements, and other amounts payable pursuant to the documentation governing such Indebtedness. "Permitted Holders" means the Principals and any Related Party thereto and (2) any group of investors if deemed to be a "person" (as such terms is used in Section 13(d)(3) of the Exchange Act) by virtue of the Shareholders Agreement, as the same may be amended, modified or supplemented from time to time, provided that (1) a Principal is party to such Shareholders Agreement, (2) the persons party to the Shareholders Agreement, as so amended, supplemented or modified from time to time that were not parties and are not Affiliates of persons who were parties, to the Shareholders Agreement as of the Recapitalization Closing Date, together with their respective Affiliates (collectively, the "New Investors"), are not direct or indirect beneficial owners (determined without reference to the Shareholders Agreement) of more than 50% of the Voting Stock owned by all parties to the Stockholders' Agreement as so amended, supplemented or modified, and (3) the New Investors, individually or in the aggregate, do not, directly or indirectly, have the right, pursuant to the Shareholders Agreement (as so amended, supplemented or modified from time to time) or otherwise to designate more than 50% of the members of our Board of Directors or any direct or indirect parent entity of ours. "Permitted Investment" means an Investment by us or any Restricted Subsidiary in: (1) a Restricted Subsidiary or a Person that will, upon the making of such Investment, become a Restricted Subsidiary; provided, however, that the primary business of such Restricted Subsidiary is a Related Business; (2) another Person if as a result of such Investment such other Person is merged or consolidated with or into, or transfers or conveys all or substantially all its assets to, us or a Restricted Subsidiary; provided, however, that such Person's primary business is a Related Business; (3) Temporary Cash Investments; (4) receivables owing to us or any Restricted Subsidiary if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; provided, however, that such trade terms may include such concessionaire trade terms as ChipPAC or any such Restricted Subsidiary deems reasonable under the circumstances; (5) payroll, travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses for accounting purposes and that are made in the ordinary course of business; (6) loans or advances to employees, directors, officers or consultants made in the ordinary course of our business or that of such Restricted Subsidiary; 115 (7) stock, obligations or securities received in settlement of debts created in the ordinary course of business and owing to us or any Restricted Subsidiary or in satisfaction of judgments; (8) any Person to the extent such Investment represents the non-cash portion of the consideration received for an Asset Disposition as permitted pursuant to the covenant described under "--Certain Covenants--Limitation on Sales of Assets and Subsidiary Stock;" (9) Currency Agreements and Interest Rate Agreements entered into in the ordinary course of our business and otherwise in compliance with the Indenture; and (10) so long as no Default shall have occurred and be continuing (or result therefrom), any Person in an aggregate amount which, when added together with the amount of all the Investments made pursuant to this clause (10) which at such time have not been repaid through repayments of loans or advances or other transfers of assets, does not exceed the greater of (A) $30.0 million and (B) 7.5% of Total Assets (with the fair market value of each Investment being measured at the time made and without giving effect to subsequent changes in value). "Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Preferred Stock" as applied to the Capital Stock of any Person, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends or distributions, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over shares of Capital Stock of any other class of such Person. "principal" of a note means the principal of the note plus the premium, if any, payable on the note which is due or overdue or is to become due at the relevant time. "Principal" means Bain and SXI Holders. "Pro Forma Cost Savings" means, with respect to any period, the reduction in costs that were (1) directly attributable to an asset acquisition and calculated on a basis that is consistent with Regulation S-X under the Securities Act in effect and applied as of the Issue Date, or (2) implemented by the business that was the subject of any such asset acquisition within six months of the date of the asset acquisition and that are supportable and quantifiable by the underlying accounting records of such business, as if, in the case of each of clause (1) and (2), all such reductions in costs had been effected as of the beginning of such period. "Recapitalization" means the plan of recapitalization and merger pursuant to the Agreement and Plan of Recapitalization and Merger dated as of March 13, 1999 as amended on or prior to the Issue Date, among Hyundai Electronics Industries Co., Ltd., Hyundai Electronics America, ChipPAC, Inc. and ChipPAC Merger Corp. "Recapitalization Closing Date" means August 5, 1999. "Refinance" means, in respect of any Indebtedness, to refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue other Indebtedness in exchange or replacement for, such indebtedness. "Refinanced" and "Refinancing" shall have correlative meanings. "Refinancing Indebtedness" means Indebtedness that Refinances any Indebtedness of ours or any Restricted Subsidiary existing on the Issue Date or Incurred in compliance with the Indenture, including Indebtedness that Refinances Refinancing Indebtedness; provided, however, that 116 (1) such Refinancing Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the Indebtedness being Refinanced, (2) such Refinancing Indebtedness has an Average Life at the time such Refinancing Indebtedness is Incurred that is equal to or greater than the Average Life of the Indebtedness being Refinanced; and (3) such Refinancing Indebtedness has an aggregate principal amount (or if Incurred with original issue discount, an aggregate issue price) that is equal to or less than the aggregate principal amount (or if Incurred with original issue discount, the aggregate accreted value) then outstanding or committed (plus fees and expenses, including any premium and defeasance costs) under the Indebtedness being Refinanced; provided further, however, that Refinancing Indebtedness shall not include (x) Indebtedness of a Subsidiary that Refinances Indebtedness of ours or (y) Indebtedness of ours or a Restricted Subsidiary that Refinances Indebtedness of an Unrestricted Subsidiary. "Related Business" means any business related, ancillary or complementary to our businesses and those of our Restricted Subsidiaries on the Issue Date. "Related Party" with respect to any Principal means: (1) any controlling stockholder, or 80% (or more) owned Subsidiary of such Principal; (2) any trust, corporation, partnership or other entity, the beneficiaries, stockholders, partners, owners or Persons beneficially holding an 80% or more controlling interest of which consist of such Principal and/or such other Persons referred to in the immediately preceding clause (1); or (3) any Affiliate of any Principal. "Representative" means any trustee, agent or representative (if any) for an issue of our Senior Indebtedness; provided, however, that if and for so long as any Senior Indebtedness lacks such a representative, then the Representative for such Senior Indebtedness shall at all times be the holders of a majority in outstanding principal amount of such Senior Indebtedness. "Restricted Payment" with respect to any Person means: (1) the declaration or payment of any dividends or any other distributions of any sort in respect of its Capital Stock (including any payment in connection with any merger or consolidation involving such Person) or similar payment to the direct or indirect holders of its Capital Stock in their capacity as such (other than dividends or distributions payable solely in its Capital Stock (other than Disqualified Stock) and dividends or distributions payable solely to us or a Restricted Subsidiary, and other than pro rata dividends or other distributions made by a Subsidiary that is not a Wholly Owned Subsidiary to minority stockholders (or owners of an equivalent interest in the case of a Subsidiary that is an entity other than a corporation)); (2) the purchase, redemption or other acquisition or retirement for value of any of our Capital Stock held by any Person or of any Capital Stock of a Restricted Subsidiary held by any Affiliate of ours (other than a Restricted Subsidiary), including the exercise of any option to exchange any Capital Stock (other than into our Capital Stock that is not Disqualified Stock); (3) the purchase, repurchase, redemption, defeasance or other acquisition or retirement for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund payment of any Subordinated Obligations (other than the purchase, repurchase or other acquisition of Subordinated Obligations purchased in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of acquisition); or (4) the making of any Investment in any Person (other than a Permitted Investment). In determining the amount of any Restricted Payment made in property other than cash, such amount shall be the fair market value of such property at the time of such Restricted Payment, as determined in good faith by the Board of Directors. 117 "Restricted Subsidiary" means any Subsidiary of ours (including ChipPAC International Company Limited) that is not an Unrestricted Subsidiary. "Revolving Credit Facility" means the revolving credit facility contained in the Credit Agreement and any other facility or financing arrangement that Refinances or replaces, in whole or in part, any such revolving credit facility. "Sale/Leaseback Transaction" means an arrangement relating to property now owned or hereafter acquired whereby ChipPAC or a Restricted Subsidiary transfers such property to a Person and ChipPAC or a Restricted Subsidiary leases it from such Person. "SEC" means the Securities and Exchange Commission. "Secured Indebtedness" means any Indebtedness of ours secured by a Lien. "Senior Indebtedness" of any Person means all (1) Bank Indebtedness of or guaranteed by such Person, whether outstanding on the Issue Date or thereafter Incurred, and (2) Indebtedness of such Person, whether outstanding on the Issue Date or thereafter Incurred, including interest thereon, in respect of (A) Indebtedness for money borrowed, (B) Indebtedness evidenced by exchange notes, debentures, bonds or other similar instruments for the payment of which such Person is responsible or liable and (C) Hedging Obligations, unless, in the case of (1) and (2), in the instrument creating or evidencing the same or pursuant to which the same is outstanding, it is provided that such obligations are subordinate in right of payment to the obligations under the exchange notes; provided, however, that Senior Indebtedness shall not include (i) any obligation of such Person to any subsidiary of such Person, (ii) any liability for Federal, state, local or other taxes owed or owing by such Person, (iii) any accounts payable or other liability to trade creditors arising in the ordinary course of business (including guarantees thereof or instruments evidencing such liabilities), (iv) any Indebtedness of such Person (and any accrued and unpaid interest in respect thereof) which is subordinate or junior by its terms to any other Indebtedness or other obligation of such Person or (v) that portion of any Indebtedness which at the time of Incurrence is Incurred in violation of the Indenture (but as to any such Indebtedness under the Credit Agreement, no such violation shall be deemed to exist if the Representative of the Lenders thereunder shall have received an officers' certificate of ChipPAC to the effect that the issuance of such Indebtedness does not violate such covenant and setting forth in reasonable detail the reasons therefor). "Senior Subordinated Indebtedness" means (1) with respect to ChipPAC International Company Limited, the exchange notes and any other Indebtedness of ChipPAC International Company Limited that specifically provides that such Indebtedness is to rank pari passu with the exchange notes in right of payment and is not subordinated by its terms in right of payment to any Indebtedness or other obligation of ChipPAC International Company Limited which is not Senior Indebtedness of ChipPAC International Company Limited and (2) with respect to ChipPAC or a Subsidiary Guarantor, their respective Guarantees of the exchange notes and any other Indebtedness of such Person that specifically provides that such Indebtedness ranks pari passu with such Guaranty in respect of payment and is not subordinated by its terms in respect of payment to any Indebtedness or other obligation of such Person which is not Senior Indebtedness of such Person. "Shareholders Agreement" means the Shareholders Agreement entered into on the Recapitalization Closing Date by and among Hyundai Electronics, Hyundai Electronics America, SXI Group LLC, certain Bain Related Parties and ChipPAC, Inc. "Significant Subsidiary" means any Restricted Subsidiary that would be a "Significant Subsidiary" of ours within the meaning of Rule 1-02 under Regulation S-X promulgated by the SEC. "Stated Maturity" means, with respect to any security, the date specified in such security as the fixed date on which the final payment of principal of such security is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase of such security at the option of the holder thereof upon the happening of any contingency unless such contingency has occurred). 118 "Subordinated Obligation" means any Indebtedness of ChipPAC International Company Limited, of us or any Subsidiary Guarantor (whether outstanding on the Issue Date or thereafter Incurred) which is subordinate or junior in right of payment to, in the case of ChipPAC International Company Limited, the exchange notes or, in the case of ChipPAC or such Subsidiary Guarantor, its Guaranty, pursuant to a written agreement to that effect. "Subsidiary" means, in respect of any Person, any corporation, association, partnership or other business entity of which more than 50% of the total voting power of shares of Capital Stock or other interests (including partnership interests) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by (1) such Person, (2) such Person and one or more Subsidiaries of such Person or (3) one or more Subsidiaries of such Person. "Subsidiary Guarantor" means each of ChipPAC (Barbados) Ltd., ChipPAC Limited, ChipPAC Korea Company Ltd., ChipPAC Luxembourg S.a.R.L. and ChipPAC Liquidity Management Hungary Limited Liability Company and any other subsidiary of ours that Guarantees ChipPAC International Company Limited's obligations with respect to the exchange notes. "Subsidiary Guaranty" means a Guarantee by a Subsidiary Guarantor of Issuer's obligations with respect to the exchange notes. "Subsidiary Guaranty Agreement" means the Subsidiary Guaranty Agreement, dated the Recapitalization Closing Date between the Subsidiary Guarantors and ChipPAC International Company Limited. "SXI Group LLC" means SXI Group LLC, a Delaware limited liability company. "SXI Holders" means (1) CVC, (2) SXI Group LLC and (3) any officer, employee or director of CVC or any trust, partnership or the entity established solely for the benefit of such officers, employers or directors. "Temporary Cash Investments" means any of the following: (1) any evidence of indebtedness, maturing not more than one year after the date of investment by us, ChipPAC International Company Limited or any other Restricted Subsidiary, issued by the United States of America or any instrumentality agency thereof, or by the Republic of Korea or any instrumentality or agency thereof, or by the Asian Development Bank, the World Bank or any other supranational organization (collectively, "Government Entities") and guaranteed or otherwise backed, directly or indirectly fully as to principal, premium, if any, and interest, by the Government Entity issuing such indebtedness; (2) investments in time deposit accounts, certificates of deposit and money market deposits maturing within 180 days of the date of acquisition thereof issued by a bank or trust company which is organized under the laws of the United States of America, any state thereof or any foreign country recognized by the United States, and which bank or trust company has capital, surplus and undivided profits aggregating in excess of $250.0 million (or the foreign currency equivalent thereof) and has outstanding debt which is rated "A" (or such similar equivalent rating) or higher by at least one nationally recognized statistical rating organization (as defined in Rule 436 under the Securities Act) or any money-market fund sponsored by a registered broker dealer or mutual fund distributor; (3) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clause (1) above entered into with a bank meeting the qualifications described in clause (2) above; (4) investments in commercial paper, maturing not more than 90 days after the date of acquisition, issued by a corporation (other than an Affiliate of ours) organized and in existence under the laws of the United States of America or any foreign country recognized by the United States of America with a rating at the time as of which any investment therein is made of "P-1" (or higher) according to Moody's Investors Service, Inc. or "A-1" (or higher) according to Standard and Poor's Ratings Group; and 119 (5) investments in securities with maturities of six months or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States of America, or by any political subdivision or taxing authority thereof, and rated at least "A" by Standard & Poor's Ratings Group or "A" by Moody's Investors Service, Inc. "Term Loan Facilities" means the term loan facilities contained in the Credit Agreement and any other facility or financing arrangement that Refinances in whole or in part any such term loan facility. "Total Assets" means our total consolidated assets and those of our Restricted Subsidiaries, as set forth on our most recent consolidated balance sheet. "Unrestricted Subsidiary" means (1) any Subsidiary of ours that at the time of determination shall be designated an Unrestricted Subsidiary by the Board of Directors in the manner provided below and (2) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of ours (including any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Capital Stock or Indebtedness of, or holds any Lien on any property of, ChipPAC or any other Subsidiary of ChipPAC that is not a Subsidiary of the Subsidiary to be so designated; provided, however, that either (A) the Subsidiary to be so designated has total assets of $1,000 or less or (B) if such Subsidiary has assets greater than $1,000, such designation would be permitted under the covenant described under "--Certain Covenants--Limitation on Restricted Payments." The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that immediately after giving effect to such designation (x) we could Incur $1.00 of additional Indebtedness under paragraph (a) of the covenant described under "--Certain Covenants--Limitation on Indebtedness" and (y) no Default shall have occurred and be continuing. Any such designation by the Board of Directors shall be evidenced to the Trustee by promptly filing with the Trustee a copy of the resolution of the Board of Directors giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing provisions. "U.S. Dollar Equivalent" means with respect to any monetary amount in a currency other than U.S. dollars, at any time for determination thereof, the amount of U.S. dollars obtained by converting such foreign currency involved in such computation into U.S. dollars at the spot rate for the purchase of U.S. dollars with the applicable foreign currency as published in The Wall Street Journal in the "Exchange Rates" column under the heading "Currency Trading" on the date two Business Days prior to such determination. Except as described under "--Certain Covenants--Limitation on Indebtedness," whenever it is necessary to determine whether we have complied with any covenant in the Indenture or a Default has occurred and an amount is expressed in a currency other than U.S. dollars, such amount will be treated as the U.S. Dollar Equivalent determined as of the date such amount is initially determined in such currency. "U.S. Government Obligations" means direct obligations (or certificates representing an ownership interest in such obligations) of the United States of America (including any agency or instrumentality thereof) for the payment of which the full faith and credit of the United States of America is pledged and which are not callable at the issuer's option. "Voting Stock" of a Person means all classes of Capital Stock or other interests (including partnership interests) of such Person then outstanding and normally entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof. "Wholly Owned Subsidiary" means a Restricted Subsidiary the Capital Stock of which (other than directors' qualifying shares) is at least 95% owned by us or one or more Wholly Owned Subsidiaries. 120 MATERIAL INCOME TAX CONSEQUENCES United States Federal Income Taxation The following discussion, including the opinion of counsel described below, is based upon current provisions of the Internal Revenue Code of 1986, as amended, applicable Treasury regulations, judicial authority and administrative rulings and practice. The Internal Revenue Service may take a contrary view, and no ruling from the Service has been or will be sought. Legislative, judicial or administrative changes or interpretations may be forthcoming that could alter or modify the following statements and conditions. Any changes or interpretations may or may not be retroactive and could affect the tax consequences to holders. Some holders, including insurance companies, tax- exempt organizations, financial institutions, broker-dealers, foreign corporations and persons who are not citizens or residents of the United States, may be subject to special rules not discussed below. We recommend that each holder consult his own tax advisor as to the particular tax consequences of exchanging such holder's existing notes for exchange notes, including the applicability and effect of any state, local or foreign tax laws. Kirkland & Ellis, U.S. counsel to ChipPAC International Company Limited, has advised us that in its opinion, the exchange of the existing notes for exchange notes pursuant to the exchange offer will not be treated as an "exchange" for federal income tax purposes because the exchange notes will not be considered to differ materially in kind or extent from the existing notes. Rather, the exchange notes received by a holder will be treated as a continuation of the existing notes in the hands of such holder. As a result, there will be no federal income tax consequences to holders exchanging existing notes for exchange notes pursuant to the exchange offer. British Virgin Islands Taxation The following discussion is based upon the Income Tax Ordinance (Cap. 206), as amended, the International Business Companies Act (Cap. 291), as amended, and administrative and judicial interpretations thereof, all as of the date hereof and all of which are subject to change, possibly on a retroactive basis. In general, there is no British Virgin Islands income, corporation or profits tax, withholding tax, capital gains tax, or capital transfer tax payable by Holders of the exchange notes other than Holders ordinarily resident in the British Virgin Islands. The exchange notes and documents relating to the issue, transfer or redemption are not subject to any stamp or similar duty in the British Virgin Islands. 121 PLAN OF DISTRIBUTION Each broker-dealer that receives exchange notes for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of such exchange notes. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with the resale of exchange notes received in exchange for existing notes where such existing notes were acquired as a result of market-making activities or other trading activities. We have agreed that for a period of 180 days from the consummation of the exchange offer, we will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until 90 days after the commencement of the exchange offer, all dealer effecting transactions in the exchange notes may be required to delivery a prospectus. We will not receive any proceeds from any sales of the exchange notes by broker dealers. Exchange notes received by broker-dealers for their own account pursuant to the exchange offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the exchange notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer and/or the purchasers of any such exchange notes. Any broker- dealer that resells the exchange notes that were received by it for its own account pursuant to the exchange offer and any broker or dealer that participates in a distribution of such exchange notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of exchange notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of 180 days after the Expiration Date, we will promptly send additional copies of this prospectus and any amendment or supplement to this prospectus to any broker-dealer that requests such documents in the Letter of Transmittal. 122 WHERE YOU CAN FIND MORE INFORMATION We have filed with the Securities and Exchange Commission a registration statement on Form S-4 under the Securities Act of 1933 with respect to the exchange notes offered in this prospectus. This prospectus, which forms part of the registration statement, does not contain all of the information that is included in the registration statement. You will find additional information about our company, the subsidiary guarantors and the exchange notes in the registration statement. Any statements made in this prospectus concerning the provisions of legal documents are not necessarily complete and you should read the documents that are filed as exhibits to the registration statement for a more complete understanding of the document or matter. After the registration statement becomes effective, we will be subject to the informational requirements of the Exchange Act of 1934, and will file periodic reports, registration statements and other information with the SEC. You may read and copy the registration statement and any of the other documents we file with the SEC at the public reference facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the SEC's regional offices located at 7 World Trade Center, New York, New York 10048 and at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Please call the SEC at 1-800-SEC-0330 for more information on the public reference rooms. In addition, reports and other filings are available to the public on the SEC's web site at http://www.sec.gov. If for any reason we are not subject to the reporting requirements of the Securities Exchange Act of 1934 in the future, we will still be required under the indenture governing the notes to furnish the holders of such notes with certain financial and reporting information. See "Description of the Exchange Notes--Covenants--Reports" for a description of the information we are required to provide. LEGAL MATTERS Certain legal matters with regard to the validity of the exchange notes will be passed upon for us by Kirkland & Ellis (a partnership including professional corporations), Chicago, Illinois. Certain partners of Kirkland & Ellis are partners in Randolph Street Partners, which acquired less than 1.0% of our common stock in connection with the closing of the recapitalization. Kirkland & Ellis has, from time to time, represented, and may continue to represent, Bain Capital and certain of its affiliates (including ChipPAC and its direct and indirect subsidiaries) in connection with certain legal matters. EXPERTS The financial statements as of December 31, 1998, 1997, and 1996 and for each of the four years in the period ended December 31, 1998 included in this Prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. 123 Index to Combined Financial Statements
Page ---- Report of Independent Accountants........................................ F-2 Combined Balance Sheets.................................................. F-3 Combined Statements of Operations........................................ F-4 Combined Statement of Shareholders' and Divisional Equity................ F-5 Combined Statements of Cash Flows........................................ F-6 Notes to Combined Financial Statements................................... F-7
F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Boards of Directors and Shareholders In our opinion, the accompanying combined balance sheets and the related combined statements of operations, of shareholders' and divisional equity, and of cash flows present fairly, in all material respects, the financial position of ChipPAC at December 31, 1996, 1997, and 1998, and the results of their operations and their cash flows for each of the years in the four year period ended December 31, 1998, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As discussed in Note 3 to the financial statements, the Company's ultimate parent, Hyundai Electronics Industries, Co. Ltd. (HEI) is located in the Republic of Korea. The Republic of Korea has experienced volatility in its currency and interest rates which has affected the operations of most Korean companies, including HEI. HEI has provided certain financial support to the Company in the past and is a guarantor of the Company's debt. May 17, 1999, except for the last paragraph of Note 14 as to which the date is June 11, 1999 San Jose, California F-2 ChipPAC (Direct and Indirect Subsidiaries of Hyundai Electronics Industries Co., Ltd.) COMBINED BALANCE SHEETS (In thousands)
December 31, ---------------------------- 1996 1997 1998 -------- -------- -------- ASSETS ------ Current assets: Cash and cash equivalents...................... $ 2,323 $ 3,067 $ 68,767 Receivable from shareholder.................... -- -- 4,922 Accounts receivable, less allowance for doubtful accounts of $85, $375, and $1,162.... 20,694 30,156 37,729 Inventories.................................... 10,896 14,149 10,325 Deferred taxes................................. 696 4,193 803 Prepaid expenses and other current assets...... 1,149 957 2,923 -------- -------- -------- Total current assets......................... 35,758 52,522 125,469 Property, plant and equipment, net............... 172,291 170,226 229,002 Other assets..................................... 7,883 10,493 5,001 -------- -------- -------- Total assets................................. $215,932 $233,241 $359,472 ======== ======== ======== LIABILITIES AND EQUITY ---------------------- Current liabilities: Accounts payable............................... $ 15,190 $ 17,468 $ 61,853 Accrued expenses and other liabilities......... 4,337 5,824 7,677 Short-term debt................................ 12,075 34,479 18,777 Current portion of long-term debt.............. 16,351 13,256 31,954 Current portion of HEI long-term debt.......... 1,597 4,473 2,610 Payables to affiliates......................... 6,448 6,659 22,918 -------- -------- -------- Total current liabilities.................... 55,998 82,159 145,789 -------- -------- -------- Long-term debt, less current portion............. 81,772 116,694 80,943 HEI long-term debt, less current portion......... 9,333 17,987 18,208 Other long-term liabilities...................... 15,137 6,929 1,341 -------- -------- -------- Total liabilities............................ 162,240 223,769 246,281 -------- -------- -------- Commitments and contingencies (Notes 8, 9 and 14) Shareholders' and divisional equity.............. Divisional equity, preferred stock and paid in capital....................................... 70,769 97,075 180,091 Shareholder receivable-HEA..................... -- (7,466) (37,626) Accumulated deficit............................ (16,236) (62,354) (39,752) Accumulated other comprehensive income (loss).. (841) (17,783) 10,478 -------- -------- -------- Total shareholders' and divisional equity.... 53,692 9,472 113,191 -------- -------- -------- Total liabilities and equity................. $215,932 $233,241 $359,472 ======== ======== ========
The accompanying notes are an integral part of these financial statements. F-3 ChipPAC (Direct and Indirect Subsidiaries of Hyundai Electronics Industries Co., Ltd.) COMBINED STATEMENTS OF OPERATIONS (In thousands)
Year Ended December 31, -------------------------------------- 1995 1996 1997 1998 -------- -------- -------- -------- Revenue................................ $170,164 $174,119 $275,503 $328,877 Revenue from affiliates................ 9,070 17,536 13,926 5,204 -------- -------- -------- -------- Total revenue.......................... 179,234 191,655 289,429 334,081 Cost of revenue........................ 158,527 166,665 229,238 270,365 -------- -------- -------- -------- Gross profit........................... 20,707 24,990 60,191 63,716 Operating expenses: Selling, general & administrative.... 11,805 11,431 15,853 15,067 Research & development............... 1,724 2,617 4,052 7,692 Management fees charged by affiliate. 138 3,322 3,199 528 Write down of impaired assets........ -- -- 11,569 -- -------- -------- -------- -------- Total operating expenses........... 13,667 17,370 34,673 23,287 -------- -------- -------- -------- Operating income....................... 7,040 7,620 25,518 40,429 Non-operating income (expenses): Interest income...................... -- 108 96 1,276 Interest expense..................... (3,151) (5,780) (10,972) (13,340) Foreign currency gains (losses)...... (1,012) (5,041) (69,669) 24,670 Other income (expenses), net......... (802) 351 (762) (168) -------- -------- -------- -------- Non-operating income (expenses).... (4,965) (10,362) (81,307) 12,438 -------- -------- -------- -------- Income (loss) before income taxes...... 2,075 (2,742) (55,789) 52,867 Provision for (benefit from) income taxes................................. 1,977 2,883 (9,671) 20,564 -------- -------- -------- -------- Net income (loss)...................... $ 98 $ (5,625) $(46,118) $ 32,303 ======== ======== ======== ======== Other comprehensive income: Currency translation gain (loss)..... 387 (1,318) (16,942) 28,261 -------- -------- -------- -------- Comprehensive income (loss)............ $ 485 $ (6,943) $(63,060) $ 60,564 ======== ======== ======== ========
The accompanying notes are an integral part of these financial statements. F-4 ChipPAC (Direct and Indirect Subsidiaries of Hyundai Electronics Industries Co., Ltd.) COMBINED STATEMENT OF SHAREHOLDERS' AND DIVISIONAL EQUITY (In thousands)
Divisional Equity, Accumulated Preferred Share- Other Com- Stock and holder prehensive Accum- Paid-in Receivable Income ulated Capital HEA (Loss) Deficit Total ---------- ---------- ----------- -------- ------- Balances at January 1, 1995..................... $44,685 -- $ 90 $(10,709) $34,066 Capital decrease........ (22,992) -- -- -- (22,992) Currency translation gain................... -- -- 387 -- 387 Net income.............. -- -- -- 98 98 ------- ------- -------- -------- ------- Balances at December 31, 1995..................... 21,693 -- 477 (10,611) 11,559 Capital increase........ 49,076 -- -- -- 49,076 Currency translation loss................... -- -- (1,318) -- (1,318) Net loss................ -- -- -- (5,625) (5,625) ------- ------- -------- -------- ------- Balances at December 31, 1996..................... 70,769 -- (841) (16,236) 53,692 Capital increase........ 26,306 -- -- -- 26,306 Advances to HEA......... -- $(7,466) -- -- (7,466) Currency translation loss................... -- -- (16,942) -- (16,942) Net loss................ -- -- -- (46,118) (46,118) ------- ------- -------- -------- ------- Balances at December 31, 1997..................... 97,075 (7,466) (17,783) (62,354) 9,472 Capital increase........ 82,953 -- -- -- 82,953 Advances to HEA......... -- (30,160) -- -- (30,160) Amortization of stock option compensation.... 63 -- -- -- 63 Currency translation gain................... -- -- 28,261 -- 28,261 Dividends declared by CPK.................... -- -- -- (9,701) (9,701) Net income.............. -- -- -- 32,303 32,303 ------- ------- -------- -------- ------- Balances at December 31, 1998..................... 180,091 (37,626) 10,478 (39,752) 113,191 ======= ======= ======== ======== =======
The accompanying notes are an integral part of these financial statements. F-5 ChipPAC (Direct and Indirect Subsidiaries of Hyundai Electronics Industries Co., Ltd.) COMBINED STATEMENTS OF CASH FLOWS (In thousands)
Year Ended December 31, ------------------------------------ 1995 1996 1997 1998 ------- -------- -------- ------- Cash flows provided by operating activities: Net income (loss)...................... $ 98 ($ 5,625) ($46,118) $32,303 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........ 27,917 26,632 40,682 45,855 Write down of impaired assets........ -- -- 11,569 -- Provision for inventory and accounts receivable.......................... 799 120 3,502 (425) Foreign currency (gains) losses...... 1,012 5,041 69,669 (24,670) (Gain) loss on sale of equipment..... 791 (16) 515 26 Changes in assets and liabilities:... Accounts receivable................ (3,149) (4,025) (10,092) (12,740) Inventories........................ (2,025) (354) (16,122) 9,089 Prepaid expenses and other assets.. (3,803) (1,077) (16,471) 11,859 Advances (to) from affiliates...... (1,679) 1,933 2,418 4,671 Accounts payable................... (4,876) (908) 5,006 39,979 Accrued expenses and other current liabilities....................... 7,401 (3,872) (2,569) 126 Other long-term liabilities........ 5,774 1,403 1,226 (7,326) ------- -------- -------- ------- Net cash provided by operating activities....................... 28,260 19,252 43,215 98,747 ------- -------- -------- ------- Cash flows used in investing activities: Acquisition of property and equipment.. (39,695) (104,359) (110,693) (61,332) Proceeds from sale of equipment........ 51 240 17 1,635 ------- -------- -------- ------- Net cash used in investing activities....................... (39,644) (104,119) (110,676) (59,697) ------- -------- -------- ------- Cash flows provided by financing activities: Advances (to) from HEA................. -- -- (7,466) (30,160) Proceeds from short-term loans......... 93,942 83,513 86,014 63,391 Repayment of short-term loans.......... (78,990) (90,800) (63,612) (79,093) Proceeds from term loans............... 20,749 49,396 39,511 10,185 Repayment of long-term debt and capital leases................................ (2,047) (7,110) (17,181) (31,795) Dividend paid.......................... -- -- -- -- Contributions to (withdrawals from) paid in capital....................... (22,992) 49,076 26,306 82,953 ------- -------- -------- ------- Net cash provided by financing activities....................... 10,662 84,075 63,572 15,481 ------- -------- -------- ------- Effect on cash from changes in exchange rates (2,092) 513 4,633 11,169 ------- -------- -------- ------- Net increase (decrease) in cash (2,814) (279) 744 65,700 Cash and cash equivalents at beginning of period.............................. 5,416 2,602 2,323 3,067 ------- -------- -------- ------- Cash and cash equivalents at end of period $ 2,602 $ 2,323 $ 3,067 $68,767 ======= ======== ======== ======= Supplemental disclosure of noncash investing and financing activities Acquisition of equipment under capital leases................................ $11,767 $ 14,612 $ 25,901 $ 2,191 ======= ======== ======== ======= Dividend declared and accrued as affiliate payable..................... -- -- -- ($9,701) ======= ======== ======== ======= Supplemental disclosure of cash flow information Income taxes paid in cash -- -- -- $ 195 ======= ======== ======== ======= Interest paid in cash.................. $ 2,999 $ 5,338 $ 10,364 $12,708 ======= ======== ======== =======
The accompanying notes are an integral part of these financial statements. F-6 ChipPAC (Direct and Indirect Subsidiaries of Hyundai Electronics Industries Co., Ltd.) NOTES TO COMBINED FINANCIAL STATEMENTS Note 1: Business and Basis of Presentation Business and Organization ChipPAC (the "Company") is a provider of packaging and testing services to the worldwide semiconductor industry. The Company packages and tests integrated circuits from wafers provided by its customers. The Company markets its services worldwide, with emphasis on the North American market. The Company's packaging and testing operations are located in the Republic of Korea ("South Korea" or "Korea") and People's Republic of China ("China"). The Company represents the combination of three business units of Hyundai Electronics Industries Co., Ltd. ("HEI") which operate collectively as HEI's worldwide packaging and testing operations. These three business units historically consisted of the Assembly and Test Division of HEI, Hyundai Electronics Co. (Shanghai) Ltd. ("HECS"), and the Assembly and Test Division of Hyundai Electronics America ("HEA"), a majority owned subsidiary of HEI. Sales and marketing services were primarily performed by the Assembly and Test Division of HEA, and packaging and testing services were performed by HECS and the Assembly and Test Division of HEI. On September 30, 1997, HEA transferred its Assembly and Test Division into a separate corporation, known as ChipPAC, Inc. ("CPI"). On June 30, 1998, HEI transferred its Assembly and Test Division into a separate company known as ChipPAC Korea Co., Ltd. ("CPK"). These transfers were accounted for at historical cost and the accompanying financial statements include the accounts of these business units for all periods presented. In December 1998, CPI formed a subsidiary in China, known as ChipPAC Assembly and Test Co., Ltd. ("CATS"). CATS and HECS operate as a single business unit and the Company intends to merge the two subsidiaries into a single legal entity in the future. For purposes of this report, references to HECS include CATS. HEI intends to reorganize the ownership of the four legal entities so that they operate under single ownership by CPI, as the parent company. On March 13, 1999 HEI and HEA entered into an agreement with a U.S. investment group to recapitalize the Company. See Note 14: Subsequent Events. Basis of Presentation The accompanying combined financial statements include the accounts of CPI, CPK, HECS and CATS, or the divisional accounts of the predecessor Assembly and Test Divisions for periods prior to the business transfers referred to above, and reflect the combined financial position, results of operations, and cash flows of these entities. All inter-company or inter-divisional transactions have been eliminated in the combination. The combined statements of operations include all revenue and costs attributable to the Company including an allocation of the costs of shared facilities, costs of general and administrative services and overhead costs of HEI and HEA. For the periods prior to the legal formations of CPI and CPK, such allocated expenses were determined according to allocation bases deemed appropriate for the nature of each expense item, including relative headcount, relative occupancy of shared facilities, and relative sales volume. Costs allocated by HEI and HEA after the legal formations were based on services rendered, the costs of which were specified by affiliate agreements. In addition, subsequent to the legal formations, CPI and CPK established internal administrative and support functions, significantly reducing their reliance on HEI and HEA for such services. Since inception, HECS has generally maintained its own internal administrative and support functions and was not allocated any costs by HEI. Management fees charged by HEI to HECS have been included in the combined results of operations and varied based on the level of services provided by HEI. F-7 ChipPAC (Direct and Indirect Subsidiaries of Hyundai Electronics Industries Co., Ltd.) NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued) Management believes that the allocation methods used are reasonable. However, the financial information included herein may not be representative of the combined financial position, results of operations, and cash flows of the Company in the future or what they would have been had the Company operated as a separate entity during the periods presented. Note 2: Summary of Significant Accounting Policies Accounting Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and revenues and expenses in the financial statements and accompanying notes. Significant estimates made by management include those related to the useful lives of property, plant and equipment, allowances for doubtful accounts and customer returns, inventory realizability, contingent assets and liabilities and allocated expenses, among others. Actual results could differ from those estimates, and such differences may be material to the combined financial statements. Cash and Cash Equivalents The Company considers all highly liquid investments, purchased with an original maturity of six months or less to be cash equivalents. Financial Instruments The amounts reported for cash and cash equivalents, accounts receivable, certain other assets, accounts payable, certain accrued and other liabilities, and short-term and long-term debt approximate fair value due to their short maturities or market interest rates. Obligations due to or receivable from related parties have no ascertainable fair value as no market exists for such instruments. Inventories Inventories are stated at the lower of cost (computed using first-in, first- out method) or market value. Property, Plant and Equipment Property, plant and equipment are stated at cost and are depreciated on a straight-line basis over the estimated useful lives of the assets, which generally range from three to ten years except for building facilities and building improvements in Shanghai, China which are depreciated over thirty and fifteen years, respectively. In addition, land use rights in Shanghai, China are amortized over fifty years. Assets under capital leases and leasehold improvements are amortized over the shorter of the asset life or the remaining lease term. Amortization of assets under capital leases is included with depreciation expense. Upon disposal or sale, the Company removes the asset and accumulated depreciation from its records and recognizes the gain or loss in operations. During 1996, CPK revised the estimated~ useful lives used in computing depreciation of equipment acquired on and after July 1, 1996. The effects of the change are reported prospectively. Had the revised estimated useful lives been used, depreciation expense would have been approximately $300,000 and $1.2 million less than the amounts presented in the combined financial statements for the years ended December 31, 1995 and 1996, respectively. F-8 ChipPAC (Direct and Indirect Subsidiaries of Hyundai Electronics Industries Co., Ltd.) NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued) In calculating depreciation, CPK has estimated a residual value of approximately 10% of the cost of assets acquired on or before December 31, 1994. For assets acquired on or after January 1, 1995, CPK has estimated no residual values to more accurately reflect annual depreciation. The residual values of assets acquired on or before December 31, 1994 are depreciated over three years following the year in which the assets were otherwise fully depreciated. For each of the years ended December 31, 1995, 1996 and 1997, depreciation of residual values of $1.2 million was charged to operations. The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for Impairment of Long-Lived Assets and Long- Lived Assets to be Disposed of" effective January 1, 1996. The Company reviews property, plant and equipment and other long lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. There was no impact in the year of adoption. The Company recognized an impairment write down in 1997, see Note 4. Concentration of Credit Risk and Major Customers Financial instruments which potentially subject the Company to concentrations of credit risk, consist principally of trade accounts receivable and cash and cash equivalents. The Company's customers are comprised of companies in the semiconductor industry located primarily in the United States. Credit risk with respect to the Company's trade receivables is mitigated by selling to well established companies, performing ongoing credit evaluations and maintaining frequent contact with customers. The allowance for doubtful accounts is based upon the expected collectibility of the Company's accounts receivable. At December 31, 1996, two customers accounted for 32% and 30% of the outstanding trade receivables, respectively. At December 31, 1997, three customers accounted for 27%, 23%, and 17% of the outstanding trade receivables, respectively. At December 31, 1998, two customers accounted for 68% and 13% of outstanding trade receivables, respectively. Loss of or default by these customers could have an adverse effect upon the Company's financial position, results of operations and cash flows. During the year ended December 31, 1995, two customers accounted for 13% and 12% of the Company's revenue, respectively. During the year ended December 31, 1996, two customers accounted for 24% and 13% of the Company's revenue, respectively. During the year ended December 31, 1997, two customers accounted for 45% and 15% of the Company's revenue, respectively. During the year ended December 31, 1998, two customers accounted for 67% and 10% of the Company's revenue, respectively. Cash and cash equivalents are deposited with banks in the United States, Korea and China. Deposits in these banks may exceed the amount of insurance provided on such deposits; however, the Company is exposed to loss only to the extent of the amount of cash reflected on its balance sheet. The Company has not experienced any losses on its bank cash deposits. Revenue Recognition The Company recognizes revenue upon shipment of packaged semiconductors to its customers. The Company does not take ownership of customer-supplied semiconductors as these materials are sent to the Company on a consignment basis. Accordingly, the customer supplied materials are not reflected in revenue or in cost of revenue. Research and Development Costs Research and development costs are charged to expense as incurred. F-9 ChipPAC (Direct and Indirect Subsidiaries of Hyundai Electronics Industries Co., Ltd.) NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued) Accounting for Income Taxes The accompanying combined financial statements present income taxes as if each of the combined companies filed its income taxes on a separate return basis. The Company accounts for deferred income taxes using the liability method whereby deferred tax assets and liabilities are recorded for temporary differences between amounts reported in the financial statements and amounts that would have been reported had the combined companies filed separate income tax returns. A valuation allowance is provided for deferred tax assets when it is more likely than not that all or a portion of the deferred tax assets will not be realized through future operations. The provision for income taxes represents taxes that would have been payable for the current period, plus the net change in deferred tax amounts. Foreign Exchange Contracts In the ordinary course of business the Company enters into foreign exchange forward contracts to mitigate the effect of foreign currency movements associated with its international operations. The contracts entered into require the purchase of Korean won or Japanese yen, and the delivery of US dollars, and generally have maturities which do not exceed six months. To date contracts entered into by the Company do not qualify as hedges and therefore are included in foreign currency gains and losses in the period in which the exchange rates change. There were no deferred gains or losses at December 31, 1998. At December 31, 1998 the Company had outstanding forward contracts to purchase Japanese yen totaling $25.5 million. Foreign Currency Translation The Company's functional currencies of its foreign operations are the local currencies. The assets and liabilities, and revenues and expenses of these foreign combined companies have been translated using the exchange rate at the balance sheet date and the weighted average exchange rate for the period, respectively. The net effect of the translation of the accounts of the Company's foreign combined companies has been included in equity as a cumulative translation adjustment. The net effect of adjustments that arise from exchange rate changes on transactions denominated in a currency other than local currency are reported as foreign currency gains or losses in the accompanying combined statements of operations. Stock-Based Compensation Under the contemplated reorganization plan described below, CPI's current stock option plan will be terminated at the closing of the reorganization, and each option holder will receive from the Company, cash compensation for each vested share in accordance with the reorganization agreement. The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," in accounting for CPI's employee stock purchase options. Accordingly, compensation for stock purchase options is measured by the excess of the fair market value of CPI's stock at the date of the grant over the amount an employee must pay to acquire the stock. The Company has adopted the disclosure of pro-forma information required under SFAS No. 123, "Accounting for Stock-Based Compensation". Recent Accounting Pronouncements June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133 requires the Company to recognize all derivatives on the balance sheet at fair value. Derivatives which are not hedges must be adjusted to fair value through net income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the change in fair value of assets, liabilities, or firm commitments F-10 ChipPAC (Direct and Indirect Subsidiaries of Hyundai Electronics Industries Co., Ltd.) NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued) through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. SFAS 133 is effective for years beginning after June 15, 1999, but companies can early adopt as of the beginning of any fiscal quarter that begins after June 1998. The Company is evaluating the requirements of SFAS 133, but does not expect this pronouncement to materially impact the Company's financial position or results of operations. The Company has adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", issued in June 1997. This statement establishes standards for disclosure about operating segments in annual financial statements and selected information in interim financial reports. It also establishes standards for related disclosures about products and services, geographic area and major customers. This statement supersedes SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise". The Company operates in one segment and accordingly, does not report product segment information but will report geographic and significant customer revenue. The Company has adopted Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use", issued in March 1998 by the Accounting Standards Executive Committee. SOP 98-1 provides guidance on when costs related to software developed or obtained for internal use should be capitalized or expensed. The adoption of this statement has not had a material effect upon the Company's combined results of operations, financial position or cash flows. Note 3: Risks and Uncertainties The Company's business involves certain risks and uncertainties. Factors that could affect the Company's future operating results and cause actual results to vary materially from expectations include, but are not limited to, dependence on a cyclical industry that is characterized by rapid technological changes, fluctuations in end-user demands, evolving industry standards, competitive pricing and declines in average selling prices, risks associated with foreign currencies, and enforcement of intellectual property rights. Additionally, the market in which the Company operates is very competitive. As a result of these industry and market characteristics, key elements of competition in the independent semiconductor packaging market include breadth of packaging offerings, time-to-market, technical competence, design services, quality, production yields, reliability customer service and price. The Company's customer base is highly concentrated with one customer accounting for 67% of revenue for the year ended December 31, 1998. As a result, any de- commitment from major customers for products could have an adverse impact on the Company's financial position, results of operations and cash flows. Korea The Korean economy suffered a period of economic turmoil beginning in 1997 which has resulted in the devaluation of the Korean currency and volatility in interest rates. A significant portion of the Company's assets and operations are located in Korea. Also, a significant portion of the Company's debt is guaranteed by HEI and its Chairman, and the Company has relied upon the these guarantees. It is reasonably possible that further deterioration in the Korean economy and a decline in the value of the Korean currency could have an adverse effect on the ability of the ultimate parent and its Chairman to continue to guarantee the debt of and otherwise provide support for the Company. The Korean government has recently announced restructuring plans directed at rationalizing certain industries. Based on such a government directive, HEI has recently announced plans to acquire LG Semicon Company, a leading competitor of HEI. F-11 ChipPAC (Direct and Indirect Subsidiaries of Hyundai Electronics Industries Co., Ltd.) NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued) The majority of CPK's employees are represented by an organized labor union and are subject to a collective bargaining agreement. China A significant portion of the Company's assets and operations are owned by HECS and are located in China. HECS is subject to the laws and regulations of China including regulations governing the maintenance of business permits and operating licenses. HECS operates under a business license granted by the local municipal government. It is reasonably possible that additional business licensure requirements may be applied by the National government that would pertain to HECS. Liquidity At December 31, 1998, the Company had current liabilities in excess of current assets amounting to $20.3 million. Additionally, the Company has experienced significant currency devaluations in South Korea which has increased its cost to procure materials manufactured outside South Korea and increased its cost to service obligations payable in United States dollars. HEI has provided certain financial support to the Company in the past and is a guarantor of the Company's debt. Other Korean and Chinese foreign currency exchange regulations place restrictions on the flow of foreign funds into and out of those countries. The Company is required to comply with these regulations when entering into transactions in foreign currencies in Korea and China. ChipPAC, through CPK, procures materials from local vendors in the ordinary course of business. Three vendors in South Korea supply approximately 40% of the Company's component parts used in performing packaging services. Management believes that they have sufficient suppliers such that the loss of these concentrated suppliers would not have a material impact on the Company's combined financial position, results of operations or cash flows. Note 4: Selected Balance Sheet Accounts The components of inventories are as follows (in thousands):
December 31, ----------------------- 1996 1997 1998 ------- ------- ------- Inventories Raw materials................................... $ 6,652 $10,420 $ 6,002 Work in process................................. 1,785 2,015 2,159 Finished goods.................................. 2,459 1,714 2,164 ------- ------- ------- $10,896 $14,149 $10,325 ======= ======= =======
F-12 ChipPAC (Direct and Indirect Subsidiaries of Hyundai Electronics Industries Co., Ltd.) NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued) Property, plant and equipment are comprised of the following (in thousands):
December 31, ------------------------------ 1996 1997 1998 --------- -------- --------- Property, Plant and Equipment Land use rights........................ $ 3,915 $ 4,041 $ 4,041 Buildings and improvements............. 39,108 44,911 51,720 Equipment.............................. 233,464 199,079 319,382 --------- -------- --------- 276,487 248,031 375,143 Less accumulated depreciation and amortization.......................... (104,196) (77,805) (146,141) --------- -------- --------- $ 172,291 $170,226 $ 229,002 ========= ======== =========
Land use rights represents payments made to secure on a fully paid up basis the use of the property where the Company's facilities are located in Shanghai China for a period of 50 years. Interest costs of $152,000, $510,000, and $1.1 million were capitalized as part of the cost of buildings and improvements in 1995, 1996, and 1997 respectively. No interest costs were capitalized in 1998. As discussed in Notes 6, 7 and 8, certain equipment is pledged or encumbered under borrowing arrangements of the Company or HEI. Property, plan and equipment under capital leases (see Notes 7 and 8) are as follows (in thousands):
December 31, -------------------------- 1996 1997 1998 ------- ------- -------- Property, Plant and Equipment under capital leases Cost..................................... $31,082 $32,369 $ 44,501 Less accumulated amortization............ (8,758) (9,533) (20,970) ------- ------- -------- $22,324 $22,836 $ 23,531 ======= ======= ========
Capital lease assets include equipment with a cost of $19.6 million, which the leasing companies have not granted to HEI the right to transfer such equipment to the Company. (See Note 8.) Management reviews fixed assets for impairment in accordance with SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of". Effective December 31, 1997, and based on management changes and deteriorating economic conditions in Asia, the Company undertook a detailed asset impairment analysis. Based on this analysis the Company recorded a change of $11.6 million to recognize the impairment of certain equipment. 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. F-13 ChipPAC (Direct and Indirect Subsidiaries of Hyundai Electronics Industries Co., Ltd.) NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued) Other assets are comprised of the following (in thousands):
December 31, --------------------- 1996 1997 1998 ------ ------- ------ Other Assets Deposits for severance benefits.................. $5,909 $ 3,123 $1,618 Long-term employee loans......................... 1,971 1,252 1,478 Deferred taxes................................... -- 6,115 1,889 Other............................................ 3 3 16 ------ ------- ------ $7,883 $10,493 $5,001 ====== ======= ======
Accrued expenses and other liabilities are comprised of the following (in thousands):
December 31, -------------------- 1996 1997 1998 ------ ------ ------ Accrued Expenses & Other Liabilities Accrued personnel expenses........................ $3,609 $2,606 $3,645 Accrued interest payable.......................... 290 318 950 Other accrued expenses............................ 438 2,900 3,082 ------ ------ ------ $4,337 $5,824 $7,677 ====== ====== ======
F-14 ChipPAC (Direct and Indirect Subsidiaries of Hyundai Electronics Industries Co., Ltd.) NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued) Note 5: Segments and Geographic Information The Company is engaged in one industry segment, the packaging and testing of integrated circuits. Finanical data, summarized by geographic area, is as follows (in thousands):
United States Korea China Eliminations Combined -------- -------- -------- ------------ -------- Year ended December 31, 1995 Revenue from unaffiliated customers............... $ 67,230 $102,934 -- -- $170,164 Revenue from affiliates.. 78 71,488 -- $ (62,496) 9,070 -------- -------- -------- --------- -------- Total revenue.......... $ 67,308 $174,422 -- $ (62,496) $179,234 ======== ======== ======== ========= ======== Interest expense......... $ 20 $ 3,131 -- -- $ 3,151 Depreciation and amortization expense.... 3 27,848 $ 66 -- 27,917 Income tax expense....... 1,053 924 -- -- 1,977 Income (loss) from operations.............. 2,585 5,403 (948) -- 7,040 Acquisition of equipment under capital leases.... -- 11,767 -- -- 11,767 Identifiable assets...... $ 10,174 $ 95,370 $ 36,104 $ (13,664) $127,984 ======== ======== ======== ========= ======== Year ended December 31, 1996 Revenue from unaffiliated customers............... $110,943 $ 63,176 -- -- $174,119 Revenue from affiliates.. 2,277 122,704 $ 6,889 $(114,334) 17,536 -------- -------- -------- --------- -------- Total revenue.......... $113,220 $185,880 $ 6,889 $(114,334) $191,655 ======== ======== ======== ========= ======== Interest expense......... $ 8 $ 5,268 $ 504 -- $ 5,780 Depreciation and amortization expense.... 4 24,039 2,589 -- 26,632 Income tax expense....... 1,401 1,482 -- -- 2,883 Income (loss) from operations.............. 3,421 12,597 (8,398) -- 7,620 Acquisition of equipment under capital leases.... -- 14,612 -- -- 14,612 Identifiable assets...... $ 17,237 $163,908 $ 62,398 $ (27,611) $215,932 ======== ======== ======== ========= ======== Year ended December 31, 1997 Revenue from unaffiliated customers............... $231,615 $ 43,888 -- -- $275,503 Revenue from affiliates.. 4,206 232,381 $ 21,611 $(244,272) 13,926 -------- -------- -------- --------- -------- Total revenue.......... $235,821 $276,269 $ 21,611 $(244,272) $289,429 ======== ======== ======== ========= ======== Interest expense......... -- $ 9,858 $ 1,114 -- $ 10,972 Depreciation, amortization, and asset impairment expense...... $ 75 40,515 11,661 -- 52,251 Income tax expense (benefit)............... 2,290 (11,961) -- -- (9,671) Income (loss) from operations.............. 5,538 33,639 (13,659) -- 25,518 Acquisition of equipment under capital leases.... -- 25,901 -- -- 25,901 Identifiable assets...... $ 28,613 $190,818 $ 87,108 $ (73,298) $233,241 ======== ======== ======== ========= ========
F-15 ChipPAC (Direct and Indirect Subsidiaries of Hyundai Electronics Industries Co., Ltd.) NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
United States Korea China Eliminations Combined -------- -------- ------- ------------ -------- 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 ======== ======== ======= ========= ========
Revenue from unaffiliated and affiliated customers is based on the origin of the sale. Identifiable assets are those assets that can be directly associated with a particular geographic area. In determining each geographic location's income (loss) from operations and identifiable assets, the expenses and assets relating to general corporate activities are included in the amounts for the geographical area where they were incurred, acquired or utilized. Note 6: Short-Term Debt and Credit Facilities Korea CPK maintains credit facilities with two Korean banks that provide a total of $45 million of short-term credit against export invoices. The credit facilities allow CPK to borrow money at an interest rate of LIBOR plus 3.2%, against specific export invoices presented on the basis of document against acceptance ("D/A"). There were no outstanding borrowings under these facilities at December 31, 1998. The credit facility with one of the banks, which provides $30 million of credit, is guaranteed personally by the chairman of HEI. CPK has a $2.5 million overdraft facility with a Korean bank, collateralized by the personal guarantee of the chairman of HEI. Interest is charged against amounts borrowed at the rate of 12.8%. No amounts were outstanding under this facility at December 31, 1998. CPK has a credit facility of $17.7 million with a Korean bank for the issuance of sight letters of credit. A total of $11.7 million of this facility is restricted to letters of credit issued to Korean suppliers. The use of this credit facility is limited to providing guarantees to CPK's vendors for payment. It does not provide for the lending of money. At December 31, 1998, the portion allocated to Korean suppliers was overdrawn by $2.6 million. The amount outstanding under the portion allocated to foreign suppliers was $300,000 at December 31, 1998. This credit facility is personally guaranteed by the chairman of HEI and collateralized by CPK's bank deposits of $10 million. CPK also maintains credit facilities with two Korean banks that provide a total of $25 million of short-term credit, available for the issuance of bankers' usance and shippers' usance letters of credit. In both cases, the banks extend credit by making payment to the vendors upon document acceptance and by providing payment terms to CPK ranging from 30 to 120 days from document acceptance. F-16 ChipPAC (Direct and Indirect Subsidiaries of Hyundai Electronics Industries Co., Ltd.) NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued) Under the bankers' usance letters of credit, interest is paid by CPK. Under the shippers' usance letters of credit, interest is paid by CPK's vendors. Amounts outstanding under the shippers' usance letters of credit are recorded as accounts payable as they represent money borrowed by the vendors. Amounts outstanding under bankers' usance are recorded as short-term debt of the Company. At December 31, 1998, CPK also had shippers' usance and bankers' usance letters of credit outstanding against credit facilities of HEI. The following table summarizes the bankers' and shippers' usance outstanding at December 31, 1998 (in thousands):
Under CPK Credit Under HEI Line Credit Line Total --------- ----------- ------- Shippers' usance recorded as accounts payable.................................. $25,136 $7,413 $32,549 Bankers' usance recorded as short-term debt..................................... 2,360 714 3,074 ------- ------ ------- $27,496 $8,127 $35,623 ======= ====== =======
The $3.1 million of the Company's short-term debt consisted of borrowings under bankers' usance letters of credit, carrying an interest rate of LIBOR plus 5.0% to 6.0%. The credit facility provided by one of the banks, which totals $10 million, has been personally guaranteed by the chairman of HEI. United States CPI has a short-term credit facility of $10 million from an American bank. The credit facility allows the bank to take a security interest in CPI's accounts receivable upon notification from CPI of its intent to utilize the credit facility. The credit facility provides for borrowing at the rate of the bank's prime rate plus 0.5%. As CPI has not notified the bank of its intent to utilize this facility as of December 31, 1998, no security interest in any of CPI's assets has been granted. The credit facility has certain covenants based on financial measurements. CPI was in compliance with the covenants at December 31, 1998; however, the plan of recapitalization as described below, may result in a violation of the covenants of this facility. China At December 31, 1998, HECS had a $9.7 million loan due a Korean bank, which bears interest at the six month LIBOR rate plus 0.43%. This loan was due in January 1999 and is guaranteed by HEI. In January 1999, this loan was renewed for another year. At December 31, 1998, HECS also had loans totaling $6 million due to a Korean bank, which bears interest at 6%. These loans are guaranteed by Hyundai Electronics Co. (Dalian), a Hyundai affiliate company. A total of $3 million is due in March 1999, and the balance is due in April 1999. F-17 ChipPAC (Direct and Indirect Subsidiaries of Hyundai Electronics Industries Co., Ltd.) NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued) Note 7: Long-Term Debt and Capital Lease Obligations The following is a summary of the Company's long-term debt and capital lease obligations (in thousands):
December 31, ---------------------------- 1996 1997 1998 -------- -------- -------- Notes payable to a Korean bank, principal maturing at various dates from December 9, 1998 to June 18, 2005, payable in aggregate monthly or quarterly installments together with interest at rates ranging from LIBOR (5.72% at December 31, 1998) plus 0.12% to 1.5% per annum, collateralized by certain machinery and equipment, guaranteed by HEI.. $ 54,307 $ 76,009 $ 69,363 Notes payable to a Japanese bank, principal payable in aggregate semi-annual installments beginning March 28, 1999, maturing September 28, 2000, together with interest at the 6-month LIBOR rate (5.5% at December 31, 1998) plus 0.4% per annum guaranteed by HEI........................... 14,400 12,342 8,228 Note payable to a Korean bank, principal payable in aggregate semi-annual installments beginning May 22, 1999 maturing November 22, 2001 together with interest at the 3-month LIBOR rate (5.08% at December 31, 1998) plus 3% per annum, guaranteed by HEI......................................... 9,000 20,000 20,000 Capital lease obligations to institutions with interest at rates ranging from LIBOR (5.72% at December 31, 1998) plus .58% to 2.2% per annum, collateralized by certain machinery and equipment, guaranteed by HEI.. 13,323 17,064 10,945 Less current maturities...................... (16,351) (13,256) (31,954) -------- -------- -------- $ 81,772 $116,694 $ 80,943 ======== ======== ========
Capital lease obligations in Korean Won to institutions with interest at rates ranging from 11% per annum to 14.58% per annum, collateralized by certain machinery and equipment, guaranteed by HEI................ 7,093 4,535 4,361 The debt repayment is guaranteed by HEI and certain Hyundai affiliated companies. Substantially all property, plant and equipment are pledged as collateral for the above loans. HEI has not yet received permission to transfer certain of the capital lease obligations included above to CPK. While HEI is endeavoring to transfer such leases, there is no assurance that the lessors will authorize transfer of these leases. Future maturities of long-term debt outstanding, excluding capital lease obligations, at December 31, 1998 are as follows (in thousands):
Year Ending December 31, ------------------------ 1999............................. $23,792 2000............................. 34,172 2001............................. 18,068 2002............................. 9,515 2003............................. 7,684 2004............................. 4,360
F-18 ChipPAC (Direct and Indirect Subsidiaries of Hyundai Electronics Industries Co., Ltd.) NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued) The Company has entered into lease agreements with several leasing companies which are recorded as capital leases. Future annual payments under capital lease obligations as of December 31, 1998 are as follows (in thousands):
Year Ending December 31, ------------------------ 1999............................. $ 8,852 2000............................. 5,601 2001............................. 2,033 2002............................. 45 ------- 16,531 Less amounts representing interest........................ (1,225) ------- $15,306 =======
Note 8: Term Loans and HEI Capital Leases During the periods through June 30, 1998, HEI transferred certain machinery and equipment that it leased, amounting to $17.0 million at cost, with related accumulated depreciation of $6.8 million, to CPK; these leases qualify as capital lease obligations. HEI assumed all obligations under these leases and no amounts will be serviced by CPK; however, title to these assets used by CPK is held by the leasing companies under these agreements. Total capital lease obligations at December 31, 1996, 1997 and 1998, were $4.0 million, $16.7 million and $16.1 million, respectively. The lessors have not authorized HEI to transfer the leases to CPK, and a change of ownership of CPK without prior written consent may cause a technical default under the terms of the agreements. The assets and the related obligations have been reflected in the accompanying combined financial statements. The Company has recorded lease payments made by HEI as a reduction of the Company's capital lease obligations and a corresponding increase in capital amounting to $3.4 million, $7.2 million, and $10.0 million for the years ended December 31, 1996, 1997, and 1998, respectively. During the periods through June 30, 1998, HEI also transferred to CPK certain machinery and equipment which are pledged as collateral under dollar denominated loan agreements with banks. HEI has not transferred the debt obligations to CPK and remains the named borrower. Since the assets used by CPK are pledged as collateral for the related loan obligations, the Company has recorded these loan obligations as a liability due to HEI in the accompanying financial statements. At December 31, 1998 the outstanding balance on these loans amounted to $4.7 million. The Company has recorded payments made by HEI on these loans as a reduction of the liability to HEI and a corresponding increase in capital amounting to $1.2 million for the year ended December 31, 1998. Note 9: Commitments and Contingencies During the periods through June 30, 1998, HEI transferred to CPK certain machinery and equipment acquired by HEI and which had been originally financed through dollar denominated loan agreements between HEI and Korean banks. HEI is named as the borrower under the loan agreements and the debt has not been transferred to CPK or reflected in the accompanying combined financial statements. As of December 31, 1998, approximately $38.0 million is outstanding under these loans. The loan agreements provide that the banks may request a collateral security interest in the assets transferred to CPK; however, as of December 31, 1998, no security agreements have been executed or requested with respect to the outstanding borrowings. Management believes that the lenders would be required to seek assets other than those held by CPK if they wish to assert a security interest. Also, HEI has represented to CPK that it has the ability and the intention to service repayment F-19 ChipPAC (Direct and Indirect Subsidiaries of Hyundai Electronics Industries Co., Ltd.) NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued) of the borrowings from assets other than those transferred to CPK. Notwithstanding, it is reasonably possible that the banks may attempt to exert a security interest in the assets transferred to CPK. In the event that the lenders establish such a collateral security interest in CPK's assets, the Company will reflect such borrowings in its financial statements as a reduction of contributed capital. The Company's executive offices in the United States and its facilities in Korea are leased from HEA and HEI respectively, under noncancelable operating lease arrangements through 2001. Rent expense for the years ended December 31, 1995, 1996, 1997, and 1998 was $5.2 million, $5.0 million, $4.3 million and $7.6 million, respectively. Future annual minimum lease payments under operating leases that have initial or remaining noncancelable lease terms in excess of one year at December 31, 1998 are as follows (in thousands): 1999............................. $ 4,683 2000............................. $ 4,859 2001............................. $ 2,427 ------- $11,969 =======
Note 10: Related Party Transactions The Company has sold packaging and testing services to HEI and to a subsidiary of HEA. The Company recorded sales of $9.0, $15.2, $9.7, and $2.9 million to HEI for the years ended December 31, 1995, 1996, 1997, and 1998 respectively. The Company recorded sales of $2.3, $4.2, and $2.3 million to a subsidiary of HEA for the years ended December 31, 1996, 1997, and 1998 respectively. During the periods prior to June 30, 1998, HEI reimbursed CPK for the use of a metal plating facility. After June 30, 1998, HEI entered into an agreement with CPK, whereby CPK charged for plating services on a per piece basis. During fiscal years 1995, 1996, 1997, and 1998 the Company recognized $6.8 million, $5.4 million, $8.5 million, and $6.2 million from HEI as reimbursement for plating services, respectively. These amounts exceeded actual costs by $623,000, $519,000, $832,000, and $57,000 for the years ended December 31, 1995, 1996, 1997, and 1998, respectively. The total amount receivable from HEI for plating services and from the sale of packaging services was $4.7 million at December 31, 1998, and additionally CPK had a receivable balance of $202,000 at December 31, 1998 for advances made to HEI. HEI has provided certain support functions for CPK, including sales, administration, finance and treasury management. In connection with these functions, HEI incurred certain expenses on behalf of CPK, which consist primarily of general, selling and administrative expenses. During the years ended December 31, 1995, 1996, 1997 and the six months ended June 30, 1998, HEI allocated $5.6 million, $5.3 million, $4.0 million and $1.2 million, respectively, which are included as an operating expense by the Company. No allocation of operating expenses was made after June 30, 1998, as CPK established its own administration functions. In addition, HEI allocated to CPK, $4.9 million, $4.8 million, and $4.3 million and $1.7 million for facilities and utilities costs during fiscal years ended December 31, 1995, 1996, 1997, and the six-month period ended June 30, 1998, respectively. CPK expenses which were paid by HEI during the periods prior to June 30, 1998, are recorded as capital contributions. For the six month period from June 30, 1998 to December 31, 1998, CPK paid HEI a total of $5.5 million for facilities, utilities, and employee welfare. During the periods prior to June 30, 1998, a portion of these costs was included in the operating expenses allocated to CPK. In December 1998, CPK declared a dividend payable of $9.7 million to HEI, which was paid in February 1999. F-20 ChipPAC (Direct and Indirect Subsidiaries of Hyundai Electronics Industries Co., Ltd.) NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued) HEI entered into an agreement with the Company to provide technical services and manufacturing support for the Company's facility in China. This agreement was terminated on June 30, 1998. Under this agreement, the Company owed HEI approximately, $4.2 million, $6.7 million and $7.2 million at December 31, 1996, 1997 and 1998, respectively. Through December 31, 1998, no payments had been made under this agreement. During 1995 through 1998, HECS contracted with Hyundai Engineering and Construction Co. Ltd. ("HEC"), a Hyundai affiliated company, to construct the Company's packaging and testing facilities in Shanghai, China. From inception through December 31, 1998, charges from HEC amounted to approximately $43.7 million. Amounts payable to HEC, included in the accompanying balance sheets, were $2.2 million and $1.2 million at December 31, 1996 and December 31, 1998 respectively. No amounts were due to HEC at December 31, 1997. At December 31, 1998, HECS had a payable of $4.4 million due HEI for the cost of certain equipment which had been transferred to HECS. This amount is included as a current liability in payables to affiliates. The following table summarized the payables to affiliates at December 31, 1996, 1997, and 1998 (in thousands):
December 31, --------------------- 1996 1997 1998 ------ ------ ------- Payables to Affiliates Dividend payable to HEI by CPK................... -- -- $ 9,701 Management fee due HEI........................... $4,241 $6,659 7,187 Payable to HEI from HECS for equipment purchases. -- -- 4,430 Payable to HEA from CPI for current tax obligations..................................... -- -- 443 Payable to HEC from HECS for construction work... 2,207 -- 1,157 ------ ------ ------- $6,448 $6,659 $22,918 ====== ====== =======
Since May 1998, CPI's primary office facility has been located on premises which it has subleased from HEA. During the year ended December 31, 1998, HEA charged $467,000 to CPI for rent and building related taxes, insurance, and maintenance. At December 31, 1997 and 1998, the Company had advances receivable of $7.5 million and $37.6 million, respectively, due from HEA. These advances are non- interest bearing and have no fixed repayment date. These advances have been classified as deductions from shareholders' equity in these financial statements. Amounts advanced between CPI and HEA prior to 1997 were not material. At June 30, 1998, Hyundai Information Technology ("HIT") entered into a three year agreement with CPK to provide information technology services. Substantially all of CPK's major information technology services are provided by HIT. HIT also entered into a six month agreement at October 1998 to provide CPK with services for Year 2000 remediation. For the six month period from June 30, 1998 to December 31, 1998, HIT charged CPK $1.0 million. Prior to June 30, 1998, while HIT provided substantially all of CPK's information technology services, such charges were included with the general allocation of general, selling and administrative operating expenses made by HEI. During 1998, CPI entered into an agreement with HIT for the installation of a significant portion of a modular software system. The installation of this portion of the software system was completed in February 1999. For the year ended December 31, 1998, CPI incurred charges of $700,000 from HIT. F-21 ChipPAC (Direct and Indirect Subsidiaries of Hyundai Electronics Industries Co., Ltd.) NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued) Note 11: Shareholders' and Divisional Equity The Company's equity includes the preferred stock, and for earlier periods the divisional equity, of CPI, paid-in-capital of HECS, and the common stock or divisional equity of CPK. Preferred Stock CPI is authorized to issue up to 45,500,000 shares of no par value preferred stock. The Company issued 33,333,333 shares of Series A Preferred Stock to HEA upon inception on September 30, 1997. As of June 30, 1998, 33,333,333 shares of Series A Preferred Stock were issued and outstanding. The holders of Series A Preferred Stock are entitled to receive a dividend as and when declared of $0.05 per share per year, before any distribution is paid on common stock or any other class of capital stock that is junior in right or priority of payment of dividends. Additionally, the holders of Series A Preferred Stock are entitled to receive dividends equal to those dividends paid on common or any other class of capital stock. Such dividend rights are not cumulative. No dividends have been declared. The Series A Preferred Stock is convertible, at the option of the holder, into such whole number of common stock as is determined by dividing $0.30 plus all declared but unpaid dividends on each share of Series A Preferred Stock by the Series A conversion price, in effect at the time of the conversion. The Series A conversion price will be adjusted for stock dividends, stock splits, capital reorganization or reclassification and in situations where the Company issues additional stock at a price less than $0.30, subject to the terms of an adjustment formula. Preferred stockholders vote with common stockholders on an as if converted basis. The Series A Preferred Stock has a liquidation preference equal to $0.30 per share plus any declared but unpaid dividends. In the event of a public offering in which the gross proceeds exceed $7.5 million and in which the offering price exceeds $5.00 per share, all Series A Preferred Stock will automatically convert into fully paid nonassessable shares of common stock. Common Stock CPI is authorized to issue up to 40,000,000 shares of no par value Common Stock. As of December 31, 1997 and December 31, 1998, no shares of Common Stock were issued or outstanding. CPI has authorized the issuance of up to 2,508,960 shares of Common Stock through the exercise of stock options under CPI's 1997 Stock Option Plan (the "Plan"). CPI is required to reserve and keep available out of authorized but unissued common stock, that number necessary to affect the conversion of Preferred Stock. CPK is authorized to issue up to 80,000,000 shares of U.S. dollar equivalent $3.64 par value Common Stock. As of December 31, 1998, CPK issued 40,000,000 shares of Common Stock. Pursuant to Chinese commercial practices, no capital shares are issued by HECS. The registered capital invested in HECS amounted to approximately $53.3 million as of December 31, 1998. Stock Options In November 1997, CPI's Board of Directors adopted a stock purchase plan, which provides for the grant of incentive stock purchase options, and non- qualified stock purchase options. In March 1999, HEI and HEA entered into an agreement to reorganize the Company and to terminate the CPI stock purchase plan. Under the F-22 ChipPAC (Direct and Indirect Subsidiaries of Hyundai Electronics Industries Co., Ltd.) NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued) reorganization, option folders will receive $0.36 for each vested share. At December 31, 1998, options for 1,467,750 shares were outstanding, of which 160,239 options were vested. The Company has adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation". Had compensation cost been determined based on the fair value at the grant date, the impact on net operations as reported for the year ended December 31, 1997 and 1998 would have been $0 and $9,000, respectively. The following table summarizes stock option activity of CPI through December 31, 1998:
Weighted Options Average Available Options Exercise Aggregate for Grant Outstanding Price Value --------- ----------- -------- --------- Balances at October 1, 1997.... -- -- -- Options reserved............. 2,508,960 -- -- Options granted.............. (952,750) 952,750 $0.30 $285,825 --------- --------- ----- -------- Balances at December 31, 1997.. 1,556,210 952,750 $0.30 285,825 Options granted.............. (793,500) 793,500 $0.30 238,050 Options canceled............. 278,500 (278,500) $0.30 (83,550) --------- --------- ----- -------- Balances at December 31, 1998.. 1,041,210 1,467,750 $0.30 $440,325 ========= ========= ===== ========
As of December 31, 1998, options for 160,239 shares were vested. No options were vested at December 31, 1997. The weighted average contractual life is approximately 9.7 years. Note 12: Income Taxes The provision for (benefit from) income taxes is comprised of the following (in thousands):
Years Ended December 31, ------------------------------- 1995 1996 1997 1998 ------ ------ -------- ------- Current Federal................................ $ 813 $1,082 $ 1,768 $ 1,099 State.................................. 239 317 519 279 Foreign................................ -- 574 4,817 3,012 Deferred Federal................................ -- -- -- (358) State.................................. -- -- -- (62) Foreign................................ 925 910 (16,775) 16,594 ------ ------ -------- ------- Tax expense............................ $1,977 $2,883 $ (9,671) $20,564 ====== ====== ======== =======
Income (loss) before taxes is comprised of the following (in thousands):
Years Ended December 31, ---------------------------------- 1995 1996 1997 1998 ------ ------- -------- ------- Domestic............................... $2,565 $ 3,413 $ 5,579 $ 2,165 Foreign................................ (490) (6,155) (61,368) 50,702 ------ ------- -------- ------- $2,075 $(2,742) $(55,789) $52,867 ====== ======= ======== =======
F-23 ChipPAC (Direct and Indirect Subsidiaries of Hyundai Electronics Industries Co., Ltd.) NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued) A summary of the composition of net deferred income tax assets (liabilities) is as follows (in thousands):
At December 31, ------------------------- 1996 1997 1998 ------- ------- ------- Assets: Foreign currency transaction losses.......... $ 12 $13,356 $ 388 Foreign lease obligations.................... -- 1,806 1,366 Impaired loss................................ -- 1,355 1,484 Provision for slow moving inventory.......... 688 1,027 657 Capitalized interest......................... -- 1,242 2,427 Accrued expenses -- -- 420 ------- ------- ------- 700 18,786 6,742 ------- ------- ------- Less liabilities: Foreign currency transaction gains........... (3) (3,614) (3,182) Foreign lease obligations.................... (651) -- -- Reserves deducted for tax, not for books..... (1,262) (4,864) (868) Depreciation................................. (630) -- -- ------- ------- ------- (2,546) (8,478) (4,050) ------- ------- ------- $(1,846) $10,308 $ 2,692 ======= ======= =======
The differences between provision for (benefit from) income taxes at the statutory Federal income tax rate and income taxes reported in the combined statements of operations are as follows:
Years Ended December 31, --------------------------- 1995 1996 1997 1998 ---- ----- ----- ---- Federal statutory tax rate................. 35.0% (35.0)% (35.0)% 35.0% State tax, net of Federal benefit.......... 7.5% 7.5% 0.6% 0.3% Losses not benefitted, China............... 60.7% 128.8% 12.5% 11.4% Korean operations rate difference.......... (7.9)% 3.8% 4.6% (7.8)% ---- ----- ----- ---- 95.3% 105.1% (17.3)% 38.9% ==== ===== ===== ====
Since inception on September 30, 1997, CPI has been a party to a tax sharing agreement with its parent company HEA with which it has filed a consolidated US Federal income tax return, and various consolidated and separate state income tax returns. Under the tax sharing agreement CPI will remit to HEA its tax liability calculated on a separate company basis. For the year ended December 31, 1998, CPI recorded an income tax provision of $954,000, of which $443,000 was recorded as a current liability due to HEA. The balance of prior tax charges was accounted for as a reduction of shareholder receivable-HEA, and included in shareholders' and divisional equity. HECS operates under a business license in China whereby a tax holiday is granted to the Company. The tax holiday will result in 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. No benefit for income taxes has been reflected in the accompanying combined financial statements for losses incurred by HECS, thereby increasing the effective tax rate. F-24 ChipPAC (Direct and Indirect Subsidiaries of Hyundai Electronics Industries Co., Ltd.) NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued) Under Korean tax law, CPK is allowed certain income tax deductions for the appropriation of retained earnings and the Company has established a deferred tax liability for such appropriations. In addition, CPK incurred certain unrealized foreign currency translation gains and losses, included in operations, which must be deferred for tax reporting purposes. The accompanying combined financial statements reflect the provision or benefit for such gains and losses and are reflected as deferred income tax assets and liabilities. Included in contributions to capital is approximately $4.2 million comprised primarily of income tax liability assumed by the Company's parent through December 31, 1998. Note 13: Employee Benefit Plans Retirement and Deferred Savings Plan--United States CPI has maintained a retirement and deferred savings plan for its employees (the "401(k) Plan") through its immediate parent company, HEA. The 401(k) Plan is intended to qualify as a tax qualified plan under the Internal Revenue Code. The 401(k) Plan provides that each participant may contribute up to 15% of tax gross compensation (up to a statutory limit). Under the 401(k) Plan, the Company is required to make contributions based on contributions made by employees. The Company's contributions to the 401(k) Plan for the years ended December 31, 1996, 1997 and 1998 were approximately $11,300, $49,100 and $118,600 respectively. No amounts were contributed during 1995. All amounts contributed by participants and related earnings are fully vested at all times. Employee Welfare and Social Insurance Plan--China In accordance with the National and Shanghai Municipal Regulations on labor administration, HECS is required to provide a certain percentage of total employee salaries as a welfare and social insurance reserve. The rates of provision are as follows: Pension fund........................................................ 25.5% Welfare fund........................................................ 5.5% Housing fund........................................................ 6.0% Unemployment insurance fund......................................... 2.0%
Employee welfare and social insurance expense for the years ended December 31, 1995, 1996, 1997 and 1998 amounted to approximately $13,300, $32,800, $449,100 and $820,900 respectively. The Company is under a statutory requirement in China to establish and maintain a general reserve fund and an enterprise expansion fund by way of appropriations from net income. The board of directors determines the amount of the appropriations. There were no amounts appropriated for these funds during the periods presented. Severance Benefits--Korea Employees and directors with more than one year of service are entitled to receive a lump-sum payment upon termination of their employment with CPK, based on their length of service and rate of pay at the time of termination. Accrued severance benefits are adjusted annually for all eligible employees based on their employment as of the balance sheet date. In accordance with the National Pension Act, a certain portion of severance benefits is required to be remitted to the National Pension Fund and deducted from accrued severance benefits. The amounts contributed will be refunded to employees from the National Pension Fund upon retirement. The provision for severance F-25 ChipPAC (Direct and Indirect Subsidiaries of Hyundai Electronics Industries Co., Ltd.) NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued) benefits for the years ended December 31, 1995, 1996, 1997 and 1998 amounted to approximately $5.0 million, $2.4 million, $3.0 million, and $2.9 million, respectively. Severance benefits are funded approximately 44%, 41% and 79% at December 31, 1996, 1997, and 1998, respectively through deposits to a group severance insurance plan with several life insurance companies. The amounts funded under this insurance plan are classified as long-term severance deposits. CPK may fund subsequent accruals at its discretion. Included in other long-term liabilities are accrued severance benefits of $12.5 million, $7.0 million, and $1.3 million at December 31, 1996, 1997 and 1998, respectively. All accrued severance benefits totaling $8.8 million were paid at June 30, 1998 in conjunction with the initiation of CPK as the legal employer of the former employees of the HEI Assembly and Test Division. Note 14: Subsequent Events In January 1999, HEI made an additional equity investment of $20.0 million in HECS. On March 13, 1999, HEI and HEA (collectively "Hyundai") entered into an agreement and plan of recapitalization and merger (the "Recapitalization Agreement") with an outside investor group (the "Equity Investors"). The following steps are contemplated by the Recapitalization Agreement in order to consummate the recapitalization: . Under a series of planned transactions under common control Hyundai restructures the Company, such that ChipPAC, Inc. indirectly owns all of the outstanding equity of CPK, HECS, and CATS. . Hyundai forms ChipPAC (Barbados) Ltd. and ChipPAC Limited. ChipPAC (Barbados) Ltd. is to be wholly owned by ChipPAC, Inc. and is to own all of the outstanding equity of ChipPAC Limited, which is to own all the outstanding equity of CPK, HECS, and CATS. . Hyundai forms ChipPAC Operating Limited, which is to be wholly owned by ChipPAC, Inc. ChipPAC Operating Limited is to own all of the outstanding equity of two additional entities formed by Hyundai, ChipPAC Luxembourg S.a.R.L. and ChipPAC Liquidity Management. . The ChipPAC Operating Limited borrows approximately $320 million through certain term loan facilities and the issuance of senior subordinated notes and, in connection with the equity investment discussed below, purchases from Hyundai 90% of the outstanding equity of the ~Company and repays previously existing indebtedness. . The Equity Investors invest an aggregate $90 million in cash in ChipPAC, Inc. in exchange for 90% of the common equity. Hyundai receives 10% of the common equity of ChipPAC, Inc. and redeemable preferred stock. The Company and HEI negotiated the terms of a special one-time change of control bonus and a compensation payment with the CPK labor union totaling approximately $12 million. According to the recapitalization agreement, certain termination payments will be paid by HEI, or if directly paid by CPK will be reimbursed to the Company by HEI, and therefore to the extent such payments are reimbursed, it is expected that there will be no net cash impact to the Company. The charges for these payments will be reflected as an operating expense of the Company. F-26 ChipPAC (Direct and Indirect Subsidiaries of Hyundai Electronics Industries Co., Ltd.) NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued) Note 15: Supplemental Financial Statements of Guarantor/Non-Guarantor Entities In connection with the recapitalization, the Company anticipates that ChipPAC Operating Limited will issue senior subordinated debt securities which will be fully and unconditionally guaranteed, jointly and severally, on a senior subordinated basis, by CPI, ChipPAC (Barbados) Ltd., ChipPAC Limited, CPK, ChipPAC Luxembourg S.a.R.L., and ChipPAC Liquidity Management (the "Guarantor Subsidiaries"). HECS and CATS (collectively the Chinese entities), will not provide guarantees (the "Non-Guarantor Subsidiaries"). The following is combining financial information for CPI, CPK, HECS and CATS, segregated between the Guarantor and Non-Guarantor Subsidiaries. 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 Operating Limited has not been presented as this entity has no historical financial results and future transactions and balances will primarily relate to issuance of debt, payment of principal and interest, and inter-company transactions. Financial information for ChipPAC (Barbados) Ltd., ChipPAC Limited, ChipPAC Luxembourg S.a.R.L. and ChipPAC Liquidity Management has not been presented as these entities have no historical financial results and future transactions will primarily consist of inter-company transactions. The following HECS financial statements in the condensed combining financial statements include the accounts of CATS. F-27 ChipPAC SUPPLEMENTAL COMBINING CONDENSED STATEMENTS OF OPERATIONS Year Ended December 31, 1995 (In thousands)
Non- Guarantors Guarantor ----------------- --------- CPI CPK HECS Eliminations Combined ------- -------- --------- ------------ -------- Revenue Intercompany revenue..... $ -- $ 62,496 $ -- $(62,496) $ -- Customer revenue......... 67,308 111,926 -- -- 179,234 ------- -------- ------- -------- -------- Revenue.................. 67,308 174,422 -- (62,496) 179,234 Cost of revenue............ 62,566 157,647 810 (62,496) 158,527 ------- -------- ------- -------- -------- Gross profit............... 4,742 16,775 (810) -- 20,707 Operating expenses: Selling, general & administrative.......... 2,157 9,648 -- -- 11,805 Research & development... -- 1,724 -- -- 1,724 Management fees charged by affiliate............ -- -- 138 -- 138 Writedown of impaired assets.................. -- -- -- -- -- ------- -------- ------- -------- -------- Total operating expenses.............. 2,157 11,372 138 -- 13,667 ------- -------- ------- -------- -------- Operating income........... 2,585 5,403 (948) -- 7,040 Non-operating income (Expense) Interest income.......... -- -- -- -- -- Interest expense......... (20) (3,131) -- (3,151) Foreign currency gains (losses)................ -- (980) (32) (1,012) Other income (expenses), net..................... -- 1,814 (2,616) -- (802) ------- -------- ------- -------- -------- Non-operating income (expenses).............. (20) (2,297) (2,648) -- (4,965) ------- -------- ------- -------- -------- Income (loss) before income taxes..................... 2,565 3,106 (3,596) -- 2,075 Provision for (benefit from) income taxes........ 1,053 924 -- -- 1,977 ------- -------- ------- -------- -------- Net Income (loss)...... $ 1,512 $ 2,182 $(3,596) $ -- $ 98 ======= ======== ======= ======== ========
F-28 ChipPAC SUPPLEMENTAL COMBINING CONDENSED STATEMENTS OF CASH FLOWS Year Ended December 31, 1995 (In thousands)
Guarantors Non-Guarantor ----------------- ------------- CPI CPK HECS Eliminations Combined ------- -------- ------------- ------------ -------- Cash flows from operating activities: Net Income........... $ 1,512 $ 2,182 $ (3,596) $ -- $ 98 Adjustments to recon- cile net income (loss) to net cash provided by operat- ing activities: Depreciation and amortization...... 3 27,848 66 -- 27,917 Write down of impaired assets... -- -- -- -- -- Provision for inventory and receivables....... -- 799 -- -- 799 Foreign currency (gains) losses.... -- 1,012 -- -- 1,012 (Gain) loss on intercompany sales of equipment...... -- (2,603) -- 2,603 -- (Gain) loss on external sales of equipment......... -- 791 -- -- 791 Changes in assets and liabilities: Intercompany accounts receivable........ -- (9,934) -- 9,934 -- Accounts receivable........ (3,187) 38 -- -- (3,149) Inventories........ -- (1,426) (599) -- (2,025) Prepaid expenses and other assets.. 1,053 (4,700) (156) -- (3,803) Advances (to) from affiliates........ (1,817) -- 138 -- (1,679) Intercompany accounts payable.. 2,326 -- 7,608 (9,934) -- Accounts payable... 103 (4,979) -- -- (4,876) Accrued expenses & other liabilities. 8 658 6,735 -- 7,401 Other long-term liabilities....... -- 5,774 -- -- 5,774 ------- -------- -------- ------- -------- Net cash provided by operating activities...... 1 15,460 10,196 2,603 28,260 ------- -------- -------- ------- -------- Cash flows used in investing activities: Acquisition of property and equipment........... (1) (17,998) (28,542) 6,846 (39,695) Proceeds, intercompany equip- ment sales.......... -- 9,449 -- (9,449) -- Proceeds, external equipment sales..... -- 51 -- -- 51 ------- -------- -------- ------- -------- Net cash used in investing activities...... (1) (8,498) (28,542) (2,603) (39,644) ------- -------- -------- ------- -------- Cash flows provided by financing activities: Advances to HEA...... -- -- -- -- -- Proceeds from short- term loans.......... -- 93,942 -- -- 93,942 Repayment of short- term loans.......... -- (78,990) -- -- (78,990) Proceeds from term loans............... -- 7,049 13,700 -- 20,749 Repayment, term loans and capital leases.. -- (2,047) -- -- (2,047) Contributions (with- drawals) of capital. -- (24,792) 1,800 -- (22,992) ------- -------- -------- ------- -------- Net cash provided by financing activities...... -- (4,838) 15,500 -- 10,662 ------- -------- -------- ------- -------- Effect from changes in exchange rates........ -- (2,124) 32 -- (2,092) ------- -------- -------- ------- -------- Net increase (decrease) in cash............... -- -- (2,814) -- (2,814) Cash and equivalents at beginning of period... -- -- 5,416 -- 5,416 ------- -------- -------- ------- -------- Cash and equivalents at end of period......... $ -- $ -- $ 2,602 $ -- $ 2,602 ======= ======== ======== ======= ========
F-29 ChipPAC SUPPLEMENTAL COMBINING CONDENSED BALANCE SHEETS December 31, 1996 (In thousands)
Guarantors Non-Guarantor ----------------- ------------- CPI CPK HECS Eliminations Combined ------- -------- ------------- ------------ -------- Assets Current assets: Cash and cash equivalents........ $ -- $ 31 $ 2,292 $ -- $ 2,323 Receivable from shareholder........ -- -- -- -- -- Intercompany accounts receivable......... -- 21,790 5,821 (27,611) -- Accounts receivable from customers..... 17,175 3,519 -- -- 20,694 Inventories......... -- 9,767 1,129 -- 10,896 Deferred taxes...... -- 696 -- -- 696 Prepaid expenses & other current assets............. 30 209 910 -- 1,149 ------- -------- ------- -------- -------- Total current assets........... 17,205 36,012 10,152 (27,611) 35,758 Property, plant and equipment, net....... 28 120,017 52,246 -- 172,291 Other assets.......... 4 7,879 -- -- 7,883 ------- -------- ------- -------- -------- Total assets...... $17,237 $163,908 $62,398 $(27,611) $215,932 ======= ======== ======= ======== ======== Liabilities and Equity Current liabilities: Intercompany accounts payable... $10,895 $ 5,821 $10,895 $(27,611) $ -- Accounts payable.... 301 14,889 -- -- 15,190 Accrued expenses and other liabilities.. 114 3,344 879 -- 4,337 Short-term debt..... -- 10,267 1,808 -- 12,075 Current portion of long-term debt..... -- 14,293 2,058 -- 16,351 Current portion of HEI long-term debt. -- 1,597 -- -- 1,597 Payables to affiliates......... 781 -- 5,667 -- 6,448 ------- -------- ------- -------- -------- Total current liabilities...... 12,091 50,211 21,307 (27,611) 55,998 Long-term debt, less current portion.... -- 60,429 21,343 -- 81,772 HEI long-term debt, less current portion............ -- 9,333 -- -- 9,333 Other long-term liabilities........ -- 15,137 -- -- 15,137 ------- -------- ------- -------- -------- Total liabilities. 12,091 135,110 42,650 (27,611) 162,240 ------- -------- ------- -------- -------- Shareholders' and divisional equity: Preferred stock and paid in capital...... 13,382 24,094 33,293 -- 70,769 Shareholder receivable-HEA....... -- -- -- -- -- Accumulated earnings (deficit)............ (8,236) 5,983 (13,983) -- (16,236) Accumulated other comprehensive income (loss)............... -- (1,279) 438 -- (841) ------- -------- ------- -------- -------- Shareholders' and divisional equity........... 5,146 28,798 19,748 -- 53,692 ------- -------- ------- -------- -------- Total liabilities and equity....... $17,237 $163,908 $62,398 $(27,611) $215,932 ======= ======== ======= ======== ========
F-30 ChipPAC SUPPLEMENTAL COMBINING CONDENSED STATEMENTS OF OPERATIONS Year Ended December 31, 1996 (In thousands)
Non- Guarantors Guarantor ------------------ --------- CPI CPK HECS Eliminations Combined -------- -------- --------- ------------ -------- Revenue Intercompany revenue.... $ -- $107,445 $ 6,889 $(114,334) $ -- Customer revenue........ 113,220 78,435 -- -- 191,655 -------- -------- -------- --------- -------- Revenue................. 113,220 185,880 6,889 (114,334) 191,655 Cost of revenue........... 107,471 161,563 11,965 (114,334) 166,665 -------- -------- -------- --------- -------- Gross profit.............. 5,749 24,317 (5,076) -- 24,990 Operating expenses: Selling, general & administrative......... 2,328 9,103 -- -- 11,431 Research & development.. -- 2,617 -- -- 2,617 Management fees charged by affiliate........... -- -- 3,322 -- 3,322 Writedown of impaired assets................. -- -- -- -- -- -------- -------- -------- --------- -------- Total operating expenses............. 2,328 11,720 3,322 -- 17,370 -------- -------- -------- --------- -------- Operating income.......... 3,421 12,597 (8,398) -- 7,620 Non-operating Income (Expense) Interest income......... 1 1 106 -- 108 Interest expense........ (8) (5,268) (504) -- (5,780) Foreign currency gains (losses)............... -- (5,005) (36) -- (5,041) Other income (expenses), net.................... -- 1,606 (1,255) -- 351 -------- -------- -------- --------- -------- Non-operating income (expenses)............. (7) (8,666) (1,689) -- (10,362) -------- -------- -------- --------- -------- Income (loss) before income taxes............. 3,414 3,931 (10,087) -- (2,742) Provision for (benefit from) income taxes....... 1,401 1,482 -- -- 2,883 -------- -------- -------- --------- -------- Net Income (loss)..... $ 2,013 $ 2,449 $(10,087) $ -- $ (5,625) ======== ======== ======== ========= ========
F-31 ChipPAC SUPPLEMENTAL COMBINING CONDENSED STATEMENTS OF CASH FLOWS Year Ended December 31, 1996 (In thousands)
Non- Guarantors Guarantor ----------------- --------- CPI CPK HECS Eliminations Combined ------- -------- --------- ------------ --------- Cash flows from operating activities: Net Income.............. $ 2,013 $ 2,449 $(10,087) $ -- $ (5,625) Adjustments to reconcile net income Depreciation and amortization......... 4 24,039 2,589 -- 26,632 Write down of impaired assets............... -- -- -- -- -- Provision for inventory and receivables.......... 1,401 (1,281) -- -- 120 Foreign currency (gains) losses....... -- 5,041 -- -- 5,041 (Gain) loss on intercompany sales of equipment............ -- (1,283) -- 1,283 -- (Gain) loss on external sales of equipment............ -- (16) -- -- (16) Changes in assets and liabilities: Intercompany accounts receivable........... -- (8,113) (5,809) 13,922 -- Accounts receivable... (7,047) 3,022 -- -- (4,025) Inventories........... -- 172 (526) -- (354) Prepaid expenses and other assets......... -- (363) (714) (1,077) Advances (to) from affiliates........... (1,389) -- 3,322 -- 1,933 Intercompany accounts payable.............. 4,859 5,821 3,242 (13,922) -- Accounts payable...... 132 (1,040) -- -- (908) Accrued expenses & other liabilities.... 47 (233) (3,686) -- (3,872) Other long-term liabilities.......... -- 1,403 -- -- 1,403 ------- -------- -------- -------- --------- Net cash provided by operating activities......... 20 29,618 (11,669) 1,283 19,252 ------- -------- -------- -------- --------- Cash flows used in investing activities: Acquisition of property and equipment.......... (20) (86,666) (22,011) 4,338 (104,359) Proceeds, intercompany equipment sales........ -- 5,621 -- (5,621) -- Proceeds, external equipment sales........ -- 240 -- -- 240 ------- -------- -------- -------- --------- Net cash used in investing activities......... (20) (80,805) (22,011) (1,283) (104,119) ------- -------- -------- -------- --------- Cash flows provided by financing activities: Advances to HEA......... -- -- -- -- -- Proceeds from short-term loans.................. -- 81,709 1,804 -- 83,513 Repayment of short-term loans.................. -- (90,800) -- -- (90,800) Proceeds from term loans.................. -- 39,696 9,700 -- 49,396 Repayment, term loans and capital leases..... -- (7,111) 1 -- (7,110) Contributions (withdrawals) of capital................ -- 27,176 21,900 -- 49,076 ------- -------- -------- -------- --------- Net cash provided by financing activities......... -- 50,670 33,405 -- 84,075 ------- -------- -------- -------- --------- Effect from changes in exchange rates........... -- 548 (35) -- 513 ------- -------- -------- -------- --------- Net increase (decrease) in cash..................... -- 31 (310) -- (279) Cash and equivalents at beginning of period...... -- -- 2,602 -- 2,602 ------- -------- -------- -------- --------- Cash and equivalents at end of period............ $ -- $ 31 $ 2,292 $ -- $ 2,323 ======= ======== ======== ======== =========
F-32 ChipPAC SUPPLEMENTAL COMBINING CONDENSED BALANCE SHEETS December 31, 1997 (In thousands)
Non- Guarantors Guarantor ----------------- --------- CPI CPK HECS Eliminations Combined ------- -------- --------- ------------ -------- Assets Current assets: Cash and cash equivalents........... $ 973 $ 1,091 $ 1,003 $ -- $ 3,067 Receivable from shareholder........... -- -- -- -- -- Intercompany accounts receivable............ -- 67,775 5,523 (73,298) -- Accounts receivable from customers........ 26,822 3,334 -- -- 30,156 Inventories............ -- 11,902 2,247 -- 14,149 Deferred taxes......... -- 4,193 -- -- 4,193 Prepaid expenses & other current assets.. 24 69 864 -- 957 ------- -------- -------- -------- -------- Total current assets. 27,819 88,364 9,637 (73,298) 52,522 Property, plant and equipment, net.......... 790 91,965 77,471 -- 170,226 Other assets............. 4 10,489 -- -- 10,493 ------- -------- -------- -------- -------- Total assets......... $28,613 $190,818 $ 87,108 $(73,298) $233,241 ======= ======== ======== ======== ======== Liabilities and Equity Current liabilities: Intercompany accounts payable............... $24,360 $ 5,521 $ 43,417 $(73,298) $ -- Accounts payable....... 506 16,962 -- -- 17,468 Accrued expenses and other liabilities..... 488 3,479 1,857 -- 5,824 Short-term debt........ -- 31,478 3,001 -- 34,479 Current portion of long-term debt........ -- 11,199 2,057 -- 13,256 Current portion of HEI long-term debt........ -- 4,473 -- -- 4,473 Payables to affiliates. -- -- 6,659 -- 6,659 ------- -------- -------- -------- -------- Total current liabilities......... 25,354 73,112 56,991 (73,298) 82,159 Long-term debt, less current portion....... -- 86,408 30,286 -- 116,694 HEI long-term debt, less current portion.. -- 17,987 -- -- 17,987 Other long-term liabilities........... -- 6,929 -- -- 6,929 ------- -------- -------- -------- -------- Total liabilities.... 25,354 184,436 87,277 (73,298) 223,769 ------- -------- -------- -------- -------- Shareholders' and divisional equity Preferred stock and paid in capital.............. 15,672 48,110 33,293 -- 97,075 Shareholder receivable- HEA..................... (7,466) -- -- -- (7,466) Accumulated earnings (deficit)............... (4,947) (23,469) (33,938) -- (62,354) Accumulated other comprehensive income (loss).................. -- (18,259) 476 -- (17,783) ------- -------- -------- -------- -------- Shareholders' and divisional equity... 3,259 6,382 (169) -- 9,472 ------- -------- -------- -------- -------- Total liabilities and equity.............. $28,613 $190,818 $ 87,108 $(73,298) $233,241 ======= ======== ======== ======== ========
F-33 ChipPAC SUPPLEMENTAL COMBINING CONDENSED STATEMENTS OF OPERATIONS Year Ended December 31, 1997 (In thousands)
Guarantors Non-Guarantor ----------------- ------------- CPI CPK HECS Eliminations Combined -------- -------- ------------- ------------ -------- Revenue Intercompany revenue.. $ -- $222,661 $ 21,611 $(244,272) $ -- Customer revenue...... 235,821 53,608 -- -- 289,429 -------- -------- -------- --------- -------- Revenue............... 235,821 276,269 21,611 (244,272) 289,429 Cost of revenue......... 222,628 227,041 23,841 (244,272) 229,238 -------- -------- -------- --------- -------- Gross profit............ 13,193 49,228 (2,230) -- 60,191 Operating expenses: Selling, general & administrative....... 6,814 9,039 -- -- 15,853 Research & development.......... 841 3,211 -- -- 4,052 Management fees charged by affiliate. -- -- 3,199 -- 3,199 Writedown of impaired assets............... -- 3,339 8,230 -- 11,569 -------- -------- -------- --------- -------- Total operating expenses........... 7,655 15,589 11,429 -- 34,673 -------- -------- -------- --------- -------- Operating income 5,538 33,639 (13,659) -- 25,518 Non-operating income (Expense) Interest income....... 41 -- 55 -- 96 Interest expense...... -- (9,858) (1,114) -- (10,972) Foreign currency gains (losses)............. -- (69,691) 22 -- (69,669) Other income (expenses), net...... -- 4,497 (5,259) -- (762) -------- -------- -------- --------- -------- Non-operating income (expenses)........... 41 (75,052) (6,296) -- (81,307) -------- -------- -------- --------- -------- Income (loss) before income taxes........... 5,579 (41,413) (19,955) -- (55,789) Provision for (benefit from) income taxes..... 2,290 (11,961) -- -- (9,671) -------- -------- -------- --------- -------- Net Income (loss)... $ 3,289 $(29,452) $(19,955) $ -- $(46,118) ======== ======== ======== ========= ========
F-34 ChipPAC SUPPLEMENTAL COMBINING CONDENSED STATEMENTS OF CASH FLOWS Year Ended December 31, 1997 (In thousands)
Guarantors Non-Guarantor ------------------ ------------- CPI CPK HECS Eliminations Combined ------- --------- ------------- ------------ --------- Cash flows from operating activities: Net Income........... $ 3,289 $ (29,452) $(19,955) $ -- $ (46,118) Adjustments to reconcile net income Depreciation and amortization...... 75 37,176 3,431 -- 40,682 Write down of impaired assets... -- 3,339 8,230 -- 11,569 Provision for inventory and receivables....... 3,502 -- -- 3,502 Foreign currency (gains) losses.... -- 69,669 -- -- 69,669 (Gain) loss on intercompany sales of equipment...... -- (4,709) -- 4,709 -- (Gain) loss on external sales of equipment......... -- 515 -- -- 515 Changes in assets and liabilities: Intercompany accounts receivable........ -- (45,898) 308 45,590 -- Accounts receivable........ (9,647) (445) -- -- (10,092) Inventories........ -- (15,006) (1,116) -- (16,122) Prepaid expenses and other assets.. 6 (16,526) 49 -- (16,471) Advances (to) from affiliates........ (781) -- 3,199 -- 2,418 Intercompany accounts payable.. 13,465 (300) 32,425 (45,590) -- Accounts payable... 205 4,801 -- -- 5,006 Accrued expenses & other liabilities. 2,665 (4,053) (1,181) -- (2,569) Other long-term liabilities....... -- 1,226 -- -- 1,226 ------- --------- -------- -------- --------- Net cash provided by operating activities...... 9,277 3,839 25,390 4,709 43,215 ------- --------- -------- -------- --------- Cash flows used in investing activities: Acquisition of property and equipment........... (838) (101,747) (36,749) 28,641 (110,693) Proceeds, intercompany equipment sales..... -- 33,350 -- (33,350) -- Proceeds, external equipment sales..... -- 17 -- 17 ------- --------- -------- -------- --------- Net cash used in investing activities...... (838) (68,380) (36,749) (4,709) (110,676) ------- --------- -------- -------- --------- Cash flows provided by financing activities: Advances to HEA...... (7,466) -- -- -- (7,466) Proceeds from short- term loans.......... -- 83,014 3,000 -- 86,014 Repayment of short- term loans.......... -- (61,804) (1,808) -- (63,612) Proceeds from term loans............... -- 28,511 11,000 -- 39,511 Repayment, term loans and capital leases.. -- (15,124) (2,057) -- (17,181) Contributions (withdrawals) of capital............. -- 26,306 -- -- 26,306 ------- --------- -------- -------- --------- Net cash provided by financing activities...... (7,466) 60,903 10,135 -- 63,572 ------- --------- -------- -------- --------- Effect from changes in exchange rates........ -- 4,698 (65) -- 4,633 ------- --------- -------- -------- --------- Net increase (decrease) in cash............... 973 1,060 (1,289) -- 744 Cash and equivalents at beginning of period... -- 31 2,292 -- 2,323 ------- --------- -------- -------- --------- Cash and equivalents at end of period......... $ 973 $ 1,091 $ 1,003 $ -- $ 3,067 ======= ========= ======== ======== =========
F-35 ChipPAC SUPPLEMENTAL COMBINING CONDENSED BALANCE SHEETS December 31, 1998 (In thousands)
Guarantors Non-Guarantor ------------------ ------------- CPI CPK HECS Eliminations Combined -------- -------- ------------- ------------ -------- Assets Current assets: Cash and cash equivalents........ $ 10,827 $ 44,292 $ 13,648 $ -- $ 68,767 Receivable from shareholder........ -- 4,922 -- -- 4,922 Intercompany accounts receivable......... 10,845 103,833 1,947 (116,625) -- Accounts receivable from customers..... 34,741 2,988 -- -- 37,729 Inventories......... -- 10,110 215 -- 10,325 Deferred taxes...... 420 383 -- -- 803 Prepaid expenses & other current assets............. 74 2,504 345 -- 2,923 -------- -------- -------- --------- -------- Total current assets........... 56,907 169,032 16,155 (116,625) 125,469 Property, plant and equipment, net....... 5,807 142,265 80,930 -- 229,002 Other assets.......... 10 4,991 -- -- 5,001 -------- -------- -------- --------- -------- Total assets...... $ 62,724 $316,288 $ 97,085 $(116,625) $359,472 ======== ======== ======== ========= ======== Liabilities and Equity Current liabilities: Intercompany accounts payable... $ 83,556 $ (1,052) $ 34,121 $(116,625) $ -- Accounts payable.... 2,284 57,761 1,808 -- 61,853 Accrued expenses and other liabilities.. 1,128 3,537 3,012 -- 7,677 Short-term debt..... -- 3,077 15,700 -- 18,777 Current portion of long-term debt..... -- 21,173 10,781 -- 31,954 Current portion of HEI long-term debt. -- 2,610 -- -- 2,610 Payables to affiliates......... 443 10,858 11,617 -- 22,918 -------- -------- -------- --------- -------- Total current liabilities...... 87,411 97,964 77,039 (116,625) 145,789 Long-term debt, less current portion.... -- 63,495 17,448 -- 80,943 HEI long-term debt, less current portion............ -- 18,208 -- -- 18,208 Other long-term liabilities........ -- 1,341 -- -- 1,341 -------- -------- -------- --------- -------- Total liabilities. 87,411 181,008 94,487 (116,625) 246,281 -------- -------- -------- --------- -------- Shareholders' and divisional equity Preferred stock and paid in capital...... 16,674 110,124 53,293 -- 180,091 Shareholder receivable-HEA....... (37,626) -- -- -- (37,626) Accumulated earnings (deficit)............ (3,735) 15,149 (51,166) -- (39,752) Accumulated other comprehensive income (loss)............... -- 10,007 471 -- 10,478 -------- -------- -------- --------- -------- Shareholders' and divisional equity........... (24,687) 135,280 2,598 -- 113,191 -------- -------- -------- --------- -------- Total liabilities and equity....... $ 62,724 $316,288 $ 97,085 $(116,625) $359,472 ======== ======== ======== ========= ========
F-36 ChipPAC SUPPLEMENTAL COMBINING CONDENSED STATEMENTS OF OPERATIONS Year Ended December 31, 1998 (In thousands)
Guarantors Non-Guarantor ----------------- ------------- CPI CPK HECS Eliminations Combined -------- -------- ------------- ------------ -------- Revenue Intercompany revenue.. $ -- $302,460 $ 13,759 $(316,219) $ -- Customer revenue...... 319,678 14,403 -- -- 334,081 -------- -------- -------- --------- -------- Revenue............... 319,678 316,863 13,759 (316,219) 334,081 Cost of revenue......... 303,937 256,626 26,021 (316,219) 270,365 -------- -------- -------- --------- -------- Gross profit............ 15,741 60,237 (12,262) -- 63,716 Operating expenses: Selling, general & administrative....... 10,252 4,815 -- -- 15,067 Research & development.......... 3,604 4,088 -- -- 7,692 Management fees charged by affiliate. -- -- 528 -- 528 Writedown of impaired assets............... -- -- -- -- -- -------- -------- -------- --------- -------- Total operating expenses........... 13,856 8,903 528 -- 23,287 -------- -------- -------- --------- -------- Operating income........ 1,885 51,334 (12,790) -- 40,429 Non-operating Income (Expense) Interest income....... 265 967 44 -- 1,276 Interest expense...... -- (9,973) (3,367) -- (13,340) Foreign currency gains (losses)............. -- 24,699 (29) -- 24,670 Other income (expenses), net...... 15 903 (1,086) -- (168) -------- -------- -------- --------- -------- Non-operating income (expenses)........... 280 16,596 (4,438) -- 12,438 -------- -------- -------- --------- -------- Income (loss) before income taxes........... 2,165 67,930 (17,228) -- 52,867 Provision for (benefit from) income taxes..... 954 19,610 -- -- 20,564 -------- -------- -------- --------- -------- Net Income (loss)... $ 1,211 $ 48,320 $(17,228) $ -- $ 32,303 ======== ======== ======== ========= ========
F-37 ChipPAC SUPPLEMENTAL COMBINING CONDENSED STATEMENTS OF CASH FLOWS Year Ended December 31, 1998 (In thousands)
Non- Guarantors Guarantor ------------------ --------- CPI CPK HECS Eliminations Combined -------- -------- --------- ------------ -------- Cash flows from operating activities: Net Income.............. $ 1,211 $ 48,320 $(17,228) $ -- $ 32,303 Adjustments to reconcile net income Depreciation and amortization......... 489 35,584 9,782 -- 45,855 Write down of impaired assets............... -- -- -- -- -- Provision for inventory and receivables.......... 448 (873) -- -- (425) Foreign currency (gains) losses....... -- (24,670) -- -- (24,670) (Gain) loss on intercompany sales of equipment............ -- (686) -- $ 686 -- (Gain) loss on external sales of equipment............ -- 26 -- -- 26 Changes in assets and liabilities: -- Intercompany accounts receivable........... (10,845) (39,058) 3,576 46,327 -- Accounts receivable... (8,367) (4,373) -- -- (12,740) Inventories........... -- 7,056 2,033 -- 9,089 Prepaid expenses and other assets......... (475) 11,761 519 54 11,859 Advances (to) from affiliates........... 443 (730) 4,958 -- 4,671 Intercompany accounts payable.............. 59,196 (3,573) (9,242) (46,381) -- Accounts payable...... 1,777 36,395 1,807 -- 39,979 Accrued expenses & 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 ======== ======== ======== ======== ========
F-38 UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Page ---- Condensed Consolidated Balance Sheets.................................... F-40 Condensed Consolidated Statements of Operations.......................... F-41 Condensed Consolidated Statements of Cash Flows.......................... F-42 Notes to Condensed Consolidated Financial Statements..................... F-43
F-39 ChipPAC Inc. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)
December 31, September 30, 1998 1999 ------------ ------------- (Unaudited) Assets Current assets: Cash and cash equivalents....................... $ 68,767 $ 33,142 Accounts receivable, less allowance for doubtful accounts of $1,001 and $1,162.................. 42,651 34,679 Inventories..................................... 10,325 12,420 Deferred taxes.................................. 803 2,107 Prepaid expenses and other current assets....... 2,923 8,141 -------- --------- Total current assets.......................... 125,469 90,489 Property, plant and equipment, net................ 229,002 213,269 Other assets...................................... 5,001 18,703 -------- --------- Total assets.................................. $359,472 $ 322,461 ======== ========= Liabilities and Equity Current liabilities: Accounts payable................................ $ 61,853 $ 39,985 Accrued expenses and other liabilities.......... 7,677 17,807 Short-term debt................................. 18,777 -- Current portion of long-term debt............... 31,954 2,600 Current portion of HEI long-term debt........... 2,610 -- Payable~s to affiliates......................... 22,918 -- -------- --------- Total current liabilities..................... 145,789 60,392 -------- --------- Long-term debt, less current portion............ 80,943 297,400 HEI long-term debt, less current portion........ 18,208 -- Other long-term liabilities..................... 1,341 3,052 -------- --------- Total liabilities............................. 246,281 360,844 -------- --------- Commitments and contingencies Mandatorily redeemable preferred stock.............. -- 71,366 Shareholders' and divisional equity (deficit) Common and preferred stock, and paid in capital... 180,091 (75,927) Shareholder receivable--HEA....................... (37,626) -- Accumulated deficit............................... (39,752) (44,357) Accumulated other comprehensive income............ 10,478 10,535 -------- --------- Total shareholders' and divisional equity (deficit).................................... 113,191 (109,749) -------- --------- Total liabilities and equity.................. $359,472 $ 322,461 ======== =========
The accompanying notes form an integral part of these condensed consolidated financial statements. F-40 ChipPAC Inc. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited) (In thousands)
Three Months Ended September Nine Months Ended 30, September 30, ----------------- ------------------ 1998 1999 1998 1999 ------- -------- -------- -------- Revenue............................ $82,818 $101,270 $237,969 $267,671 Cost of revenue.................... 66,907 84,492 186,000 227,792 ------- -------- -------- -------- Gross profit....................... 15,911 16,778 51,969 39,879 Operating expenses: Selling, general & administrative.................. 3,803 5,083 10,396 14,416 Research & development........... 1,923 2,640 4,895 8,628 Management fees charged by affiliate....................... -- -- 528 -- Change of control expense........ -- 11,842 -- 11,842 ------- -------- -------- -------- Total operating expenses....... 5,726 19,565 15,819 34,886 ------- -------- -------- -------- Operating income................... 10,185 (2,787) 36,150 4,993 Non-operating income (expenses) Interest income.................. 345 595 491 2,334 Interest expense................. (3,265) (6,295) (10,037) (12,089) Foreign currency~ gains (losses). 972 (869) 20,427 506 Other income (expenses), net..... (80) 384 50 566 ------- -------- -------- -------- Non-operating income (expenses).................... (2,028) (6,185) 10,931 (8,683) ------- -------- -------- -------- Income (loss) before income taxes, and extraordinary item............ 8,157 (8,972) 47,081 (3,690) Provision for (benefit from) income taxes............................. 3,529 (4,771) 17,933 (1,823) ------- -------- -------- -------- Income before extraordinary item... 4,628 (4,201) 29,148 (1,867) Extraordinary item: Loss from early extinguishment of debt, net of related income tax benefit......................... -- 1,372 -- 1,372 ------- -------- -------- -------- Net income (loss).................. $ 4,628 $ (5,573) $ 29,148 $ (3,239) ======= ======== ======== ======== Other comprehensive income: Currency translation gain (loss)... (2,741) (5,978) (2,741) (5,978) ------- -------- -------- -------- Comprehensive income (loss)........ $ 1,887 $(11,551) $ 26,407 $ (9,217) ======= ======== ======== ========
The accompanying notes form an integral part of these condensed consolidated financial statements. F-41 ChipPAC Inc. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)
Nine Months Ended September 30, --------------------- 1998 1999 --------- ---------- Cash flows provided by operating activities: Net income (loss)..................................... $ 29,148 $ (3,239) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization....................... 32,280 41,850 Provision for inventory and accounts receivable..... (407) (427) Loss from early debt retirement..................... -- 1,372 Foreign currency gains ............................. (20,427) (506) (Gain) loss on sale of equipment.................... 74 (241) Changes in assets and liabilities: Accounts receivable................................. (8,651) 9,843 Inventories......................................... 7,843 (1,889) Prepaid expenses and other assets................... 3,772 (20,780) Advances (to) from affiliates....................... 4,593 (6,190) Accounts payable.................................... 27,522 (22,193) Accrued expenses and other current liabilities...... 5,599 7,040 Other long-term liabilities......................... (7,807) 2,617 --------- ---------- Net cash provided by operating activities......... 73,539 7,257 --------- ---------- Cash flows used in investing activities: Acquisition of property and equipment................. (52,211) (29,062) Proceeds from sale of equipment....................... 122 1,263 --------- ---------- Net cash used in investing activities............. (52,089) (27,799) --------- ---------- Cash flows provided by financing activities: Advances (to) from affiliates ........................ (30,514) (4,430) Proceeds from short-term loans........................ 37,585 1,169 Repayment of short-term loans......................... (50,745) (19,469) Proceeds from term loans.............................. 10,185 300,000 Repayment of long-term debt and capital leases........ (26,039) (134,987) Dividend paid......................................... -- (9,435) Proceeds from stock issuance.......................... -- 123,415 Contributions to (withdrawals from) paid in capital... 68,546 (270,918) --------- ---------- Net cash provided by (used in) financing activities....................................... 9,018 (14,655) --------- ---------- Effect on cash from changes in exchange rates........... (522) (428) --------- ---------- Net increase (decrease) in cash......................... 29,946 (35,625) Cash and cash equivalents at beginning of period........ 3,067 68,767 --------- ---------- Cash and cash equivalents at end of period.............. $ 33,013 $ 33,142 ========= ========== Supplemental disclosure of noncash investing and financing activities Acquisition of equipment under capital leases......... $ 724 $ -- ========= ==========
The accompanying notes form an integral part of these condensed consolidated financial statements. F-42 ChipPAC, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 1: Business and Basis of Presentation Business and Organization ChipPAC Inc. and its subsidiaries (the "Company") provide packaging and testing services to the worldwide semiconductor industry. The Company packages and tests integrated circuits from wafers provided by its customers. The Company markets its services worldwide, with emphasis on the North American market. The Company's packaging and testing operations are located in the Republic of Korea ("South Korea" or "Korea") and People's Republic of China ("China"). Interim Statements In the opinion of management of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the financial information included therein. The Company believes that the disclosures are adequate to make the information not misleading. However, it is suggested that this financial data be read in conjunction with the audited consolidated financial statements and the related notes thereto for the years ended December 31, 1996, 1997, and 1998. The results of operations for the three month and nine month periods ended September 30, 1999 are not necessarily indicative of the results to be expected for the full year. The Company has adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", issued in June 1997. This statement establishes standards for disclosure about operating segments in annual financial statements and selected information in interim financial reports. It also establishes standards for related disclosures about products and services, geographic area and major customers. This statement supersedes SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise". The Company operates in one segment and accordingly, does not report product segment information but will report geographic and significant customer revenue in its annual financial report. Note 2: Inventories The components of inventories are as follows (in thousands):
December 31, September 30, 1998 1999 ------------ ------------- (unaudited) Inventories Raw materials................................ $ 6,002 $ 9,148 Work in process.............................. 2,159 2,515 Finished goods............................... 2,164 757 ------- ------- $10,325 $12,420 ======= =======
Note 3: Recapitalization On August 5, 1999, affiliates of Bain Capital, Inc. and SXI Group LLC, a portfolio concern of Citicorp Venture Capital Ltd., which we refer to collectively as the "Equity Investors," and management acquired a controlling interest in the Company from Hyundai Electronics and Hyundai Electronics America through a series of transactions, including a merger into ChipPAC, Inc. of a special purpose corporation organized by the Equity Investors. The merger was structured to be accounted for as a recapitalization. Specifically: . the Equity Investors, management and other parties, including members of our management, invested $92.0 million to acquire common stock of ChipPAC, Inc. which represented approximately 90.2% of its common stock outstanding immediately following the recapitalization; F-43 ChipPAC, Inc. NOTES TO CONDENSED CONSOLIDATED 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 $385.0 million in cash and (ii) mandatorily redeemable convertible preferred stock payable for up to an aggregate of $70.0 million. As a result of the Recapitalization, the Company was contractually required to make a one-time change of control payment to its unionized Korean employees of approximately $11.8 million. The payment was recorded as an operating expense during the quarter ended September 30, 1999. Note 5: New Debt To finance part of the recapitalization, the Company borrowed $300.0 million of new debt, comprising $150.0 million of term loans and $150.0 million of senior subordinated notes. At September 30, 1999 our debt consisted of $300.0 million of borrowings which were comprised of $150.0 million in term loan facilities and $150.0 million of senior subordinated notes. The term loans bear interest at base rate plus 2.25% to 3.0% and the senior subordinated notes bear interest at 12.75% per annum. An amount of $70.0 million of the term loans matures on July 31, 2005, the remainder matures on July 21, 2006. The senior subordinated notes mature on July 21, 2009. We have a borrowing facility of $50.0 million for working capital and general corporate purposes under the revolving credit facility. In addition, borrowings of up to $20.0 million are available for acquiring equipment and making certain other capital expenditures under the capex facility. We may borrow and repay under the capex facility until August 5, 2001. Amounts that we repay under the capex facility after August 5, 2001 may not be borrowed by us later. The final maturity of these facilities will be on August 5, 2005. We have not drawn on these facilities at September 30, 1999. Note 6: 1999 Stock Purchase and Option Plan Our board of directors has adopted the ChipPAC, Inc. 1999 Stock Purchase and Option Plan, or the "1999 Stock Plan," which authorizes the granting of stock options and the sale of Class A common stock or Class L common stock to current or future employees, directors, consultants or advisors of ChipPAC, Inc. or its subsidiaries. Under the 1999 Stock Plan, a committee of the board of directors is authorized to sell or otherwise issue Class A common stock or Class L common stock at any time prior to the termination of the 1999 Stock Plan in such quantity, at such price, on such terms and subject to such conditions as established by the committee up to an aggregate of 15,500,000 shares of Class A common stock and 500,000 shares of Class L common stock, including shares of common stock with respect to which options may be granted, subject to adjustment upon the occurrence of specified events to prevent any dilution or expansion of the rights of participants that might otherwise result from the occurrence of such events. As of September 30, 1999, no shares of Class A common stock or Class L common stock or options to purchase such stock were outstanding under the 1999 Stock Plan. Note 7: Intel Materials Agreement On August 5, 1999, ChipPAC Limited and Intel entered into the Intel Materials Agreement pursuant to which Intel will outsource to ChipPAC Limited a portion of the semiconductor packaging needs. In return, we will provide Intel with rebates based upon the volume of packaging services outsourced to us. Rebates are estimated and accrued as current liabilities based on projected sales and the rebate percentages stated in the F-44 ChipPAC, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) agreement. The Intel Materials Agreement covers semiconductor packaging services for which Intel has an ongoing purchasing requirement and for which we are a qualified source and where costs, yields and quality are equal to that of the same services provided by other semiconductor packaging companies The Intel Materials Agreement also provides that Intel will not enter into other agreements for packaging services that contain provisions relating to competitive pricing and volume guarantees similar to those contained in the Intel Materials Agreement. This restriction only applies to agreements with semiconductor packaging companies that (i) are qualified to provide packaging services to Intel and (ii) provide the same type of packaging services provided by us. The Intel Materials Agreement also obligates us to first offer to Intel rights to use intellectual property related to certain new packaging services technology developed by us. Following the expiration of its initial term on December 31, 2001, the Intel Materials Agreement may be extended upon the mutual consent of ChipPAC Limited and Intel. Note 8: Supplemental Financial Statements of Guarantor/Non-Guarantor Entities In connection with the recapitalization, ChipPAC International Company Limited has issued senior subordinated debt securities which are fully and unconditionally guaranteed, jointly and severally, on a senior subordinated basis, by ChipPAC Inc. (CPI), ChipPAC (Barbados) Ltd., ChipPAC Limited, ChipPAC Korea Co., Ltd, ("CPK"), ChipPAC Luxembourg S.a.R.L., and ChipPAC Liquidity Management (the "Guarantor Subsidiaries'). ChipPAC Shanghai Co. Ltd. ("CPS") and ChipPAC Assembly and Test (Shanghai) Co. Ltd, ("CATS"), (collectively the Chinese entities), will not provide guarantees (the "Non-Guarantor Subsidiaries"). The following is combining financial information for CPI and its subsidiaries, segregated between the issuer, the Guarantor and Non- Guarantor Subsidiaries. The following CPS financial statements in the condensed combining financial statements include the accounts of CATS. F-45 ChipPAC, Inc. Supplemental Combining Condensed Balance Sheets September 30, 1998 (In thousands) (Unaudited)
Guarantors Non-Guarantor ------------------ ------------- CPI CPK CPS Eliminations Combined -------- -------- ------------- ------------ -------- Assets Current assets: Cash and cash equivalents........ $ 11,604 $ 19,615 $ 1,791 -- $ 33,010 Intercompany accounts receivable......... 8,237 106,676 1,909 $(116,822) -- Accounts receivable from customers..... 35,056 8,870 -- -- 43,926 Inventories......... -- 9,423 389 -- 9,812 Deferred taxes...... 281 1,026 -- -- 1,307 Prepaid expenses & other current assets............. 975 2,225 353 -- 3,553 -------- -------- -------- --------- -------- Total current assets........... 56,153 147,835 4,442 (116,822) 91,608 Property, plant and equipment, net....... 2,684 127,932 82,990 -- 213,606 Other assets.......... 195 7,411 -- -- 7,606 -------- -------- -------- --------- -------- Total assets...... $ 59,032 $283,178 $ 87,432 $(116,822) $312,820 ======== ======== ======== ========= ======== Liabilities and Equity Current liabilities: Intercompany accounts payable... $ 82,996 $ 1,908 $ 31,918 $(116,822) -- Accounts payable.... 1,165 44,230 24 -- $ 45,419 Accrued expenses and other liabilities.. 710 6,458 1,934 -- 9,102 Short-term debt..... -- 2,541 18,778 -- 21,319 Current portion of long-term debt..... -- 15,575 7,449 -- 23,024 Current portion of HEI long-term debt. -- 3,076 -- -- 3,076 Payables to affiliates......... -- 1 17,276 -- 17,276 -------- -------- -------- --------- -------- Total current liabilities...... 84,871 73,788 77,379 (116,822) 119,216 Long-term debt, less current portion.... -- 73,304 20,449 -- 93,753 HEI long-term debt, less current portion............ -- 18,153 -- -- 18,153 Other long-term liabilities........ -- 687 -- -- 687 -------- -------- -------- --------- -------- Total liabilities. 84,871 165,932 97,828 (116,822) 231,809 -------- -------- -------- --------- -------- Mandatorily redeemable preferred stock........ -- -- -- -- -- Shareholders' and divisional equity Preferred stock and paid in capital...... 16,729 110,489 33,292 -- 160,510 Shareholder receivable--HEA...... (37,981) -- -- -- (37,981) Accumulated earnings (deficit)............ (4,587) 15,545 (44,165) -- (33,207) Accumulated other comprehensive income (loss)............... -- (8,788) 477 -- (8,311) -------- -------- -------- --------- -------- Shareholders' and divisional equity (deficit)........ (25,839) 117,246 (10,396) -- 81,011 -------- -------- -------- --------- -------- Total liabilities and equity....... $ 59,032 $283,178 $ 87,432 $(116,822) $312,820 ======== ======== ======== ========= ========
F-46 ChipPAC, Inc. SUPPLEMENTAL COMBINING CONDENSED STATEMENTS OF OPERATIONS Nine Months Ended September 30, 1998 (In thousands) (Unaudited)
Guarantors Non-Guarantor ------------------ ------------- CPI CPK CPS Eliminations Combined -------- -------- ------------- ------------ -------- Revenue: Intercompany revenue.. -- $215,755 $ 11,168 $(226,923) -- Customer revenue...... $226,916 11,053 -- -- $237,969 -------- -------- -------- --------- -------- Revenue............... 226,916 226,808 11,168 (226,923) 237,969 Cost of revenue......... 216,537 178,516 17,870 (226,923) 186,000 -------- -------- -------- --------- -------- Gross profit............ 10,379 48,292 (6,702) -- 51,969 Operating expenses: Selling, general & administrative....... 7,273 3,123 -- -- 10,396 Research & development.......... 2,434 2,461 -- -- 4,895 Management fees charged by affiliate. -- -- 528 -- 528 Change of control expenses............. -- -- -- -- -- -------- -------- -------- --------- -------- Total operating expenses........... 9,707 5,584 528 -- 15,819 -------- -------- -------- --------- -------- Operating income........ 672 42,708 (7,230) -- 36,150 Non-operating income (expense): Interest income....... 171 295 25 -- 491 Interest expense...... -- (7,676) (2,361) -- (10,037) Foreign currency gains (losses)............. -- 20,427 -- -- 20,427 Other income (expenses), net...... (4) 715 (661) -- 50 -------- -------- -------- --------- -------- Non-operating income (expenses)......... 167 13,761 (2,997) -- 10,931 -------- -------- -------- --------- -------- Income (loss) before income taxes........... 839 56,469 (10,227) -- 47,081 Provision for (benefit from) income taxes..... 479 17,454 -- -- 17,933 -------- -------- -------- --------- -------- Net income (loss)....... $ 360 $ 39,015 $(10,227) $ -- $ 29,148 ======== ======== ======== ========= ========
F-47 ChipPAC, Inc. SUPPLEMENTAL COMBINING CONDENSED STATEMENTS OF CASH FLOWS Nine Months Ended September 30, 1998 (In thousands) (Unaudited)
Guarantors Non-Guarantor ------------------ ------------- CPI CPK CPS Eliminations Combined -------- -------- ------------- ------------ -------- Cash flows from operating activities: Net Income........... $ 360 $ 39,015 $(10,227) -- $ 29,148 Adjustments to reconcile net income: Depreciation and amortization...... 292 25,693 6,295 -- 32,280 Provision for inventory and receivables....... 374 (781) -- -- (407) Foreign currency (gains) losses.... -- (20,427) -- -- (20,427) (Gain) loss on external sales of equipment......... -- 74 -- -- 74 Changes in assets and liabilities: Intercompany accounts receivable........ (8,238) (38,904) 3,614 43,528 -- Accounts receivable........ (9,156) 505 -- -- (8,651) Inventories........ -- 5,986 1,857 -- 7,843 Prepaid expenses and other assets.. (1,426) 4,688 510 -- 3,772 Advances (to) from affiliates........ -- (5,493) 10,086 -- 4,593 Intercompany accounts payable.. 59,187 (1,951) (13,708) (43,528) -- Accounts payable... 659 26,839 24 -- 27,522 Accrued expenses & other liabilities. 221 2,558 2,820 -- 5,599 Other long-term liabilities....... -- (7,807) -- -- (7,807) -------- -------- -------- -------- -------- Net cash provided by operating activities...... 42,273 29,995 1,271 -- 73,539 -------- -------- -------- -------- -------- Cash flows used in investing activities: Acquisition of property and equipment........... (2,121) (38,273) (11,817) -- (52,211) Proceeds, equipment sales............... -- 122 -- -- 122 -------- -------- -------- -------- -------- Net cash used in investing activities...... (2,121) (38,151) (11,817) -- (52,089) -------- -------- -------- -------- -------- Cash flows provided by financing activities: Advances to HEA...... (30,514) -- -- -- (30,514) Proceeds from short- term loans.......... -- 21,929 15,656 -- 37,585 Repayment of short- term loans.......... -- (50,867) 122 -- (50,745) Proceeds from term loans............... -- 185 10,000 -- 10,185 Repayment, term loans and capital leases.. -- (11,595) (14,444) -- (26,039) Contributions (withdrawals) of capital............. 993 67,553 -- -- 68,546 -------- -------- -------- -------- -------- Net cash provided by financing activities...... (29,521) 27,205 11,334 -- 9,018 -------- -------- -------- -------- -------- Effect from changes in exchange rates........ -- (525) -- -- (525) -------- -------- -------- -------- -------- Net increase (decrease) in cash............... 10,631 18,524 788 -- 29,943 Cash and equivalents at beginning of period... 973 1,091 1,003 -- 3,067 -------- -------- -------- -------- -------- Cash and equivalents at end of period......... $ 11,604 $ 19,615 $ 1,791 -- $ 33,010 ======== ======== ======== ======== ========
F-48 ChipPAC, Inc. SUPPLEMENTAL COMBINING CONDENSED BALANCE SHEETS September 30, 1999 (In thousands) (Unaudited)
Non- Guarantors Guarantor ------------------------------- --------- CPI Int'l CPI CPK CPS Eliminations Combined --------- --------- --------- --------- ------------ --------- Assets Current assets: Cash and cash equivalents........ $ 1 $ 10,622 $ 12,822 $ 9,697 -- $ 33,142 Intercompany accounts receivable......... 3,416 30,088 77,162 4,830 (115,496) -- Accounts receivab~le from customers..... -- 20,971 13,708 -- -- 34,679 Inventories......... -- 5 12,102 313 -- 12,420 Deferred taxes...... -- 420 1,687 -- -- 2,107 Prepaid expenses & other current assets............. -- 416 7,344 381 -- 8,141 --------- --------- --------- ------- ---------- --------- Total current assets........... 3,417 62,522 124,825 15,221 (115,496) 90,489 Property, plant and equipment, net....... 6,168 129,133 77,968 -- 213,269 Intercompany loans receivable........... 271,000 145,000 -- -- (416,000) -- Other assets.......... 42,307 5,087 5,139 -- (33,830) 18,703 --------- --------- --------- ------- ---------- --------- Total assets...... $ 316,724 $ 218,777 $ 259,097 $93,189 $ (565,326) $ 322,461 ========= ========= ========= ======= ========== ========= Liabilities and Equity Current liabilities: Intercompany accounts payable... -- $ 77,162 $ 8,148 $30,186 $ (115,496) -- Accounts payable.... $ 40 2,580 36,284 1,081 -- $ 39,985 Accrued expenses and other liabilities.. 3,861 5,002 5,127 3,817 -- 17,807 Short-term debt..... -- -- -- -- -- -- Current portion of long-term debt..... 2,600 -- -- -- -- 2,600 --------- --------- --------- ------- ---------- --------- Total current liabilities...... 6,501 84,744 49,559 35,084 (115,496) 60,392 Long-term debt, less current portion.... 297,400 -- -- -- 297,400 Intercompany loans payable............ -- 237,000 145,000 34,000 (416,000) -- Other long-term liabilities........ -- -- 3,052 -- -- 3,052 --------- --------- --------- ------- ---------- --------- Total liabilities. 303,901 321,744 197,611 69,084 (531,496) 360,844 --------- --------- --------- ------- ---------- --------- Mandatorily redeemable preferred stock........ -- 71,366 -- -- -- 71,366 Shareholders' and divisional equity Preferred stock and paid in capital...... 13,399 (169,040) 29,627 85,283 (33,830) (74,561) Accumulated earnings (deficit)............ (576) (5,293) 23,154 (61,642) -- (44,357) Accumulated other comprehensive income (loss)............... -- -- 8,705 464 -- 9,169 --------- --------- --------- ------- ---------- --------- Shareholders' and divisional equity........... 12,823 (174,333) 61,486 24,105 (33,830) (109,749) --------- --------- --------- ------- ---------- --------- Total liabilities and equity....... $ 316,724 $ 218,777 $ 259,097 $93,189 $ (565,326) $ 322,461 ========= ========= ========= ======= ========== =========
F-49 ChipPAC, Inc. SUPPLEMENTAL COMBINING CONDENSED STATEMENTS OF OPERATIONS Nine Months Ended September 30, 1999 (In thousands) (Unaudited)
Non- Guarantors Guarantor ---------------------------- --------- CP Int'l CPI CPK CPS Eliminations Combined -------- -------- -------- --------- ------------ -------- Revenue Intercompany revenue.. -- -- $231,903 $ 11,057 $ (242,960) -- Customer revenue...... -- $247,535 20,004 131 -- $267,671 ------- -------- -------- -------- ---------- -------- Revenue............... -- 247,535 251,907 11,189 (242,960) 267,671 Cost of revenue......... -- 231,794 219,230 19,728 (242,960) 227,792 ------- -------- -------- -------- ---------- -------- Gross profit............ -- 15,741 32,677 (8,539) -- 39,879 Operating expenses: Selling, general & administrative....... -- 10,019 4,397 -- -- 14,416 Research & development.......... -- 4,278 4,350 -- -- 8,628 Change of control expenses............. -- 180 11,662 -- -- 11,842 ------- -------- -------- -------- ---------- -------- Total operating expenses........... -- 14,477 20,409 -- -- 34,886 ------- -------- -------- -------- ---------- -------- Operating income........ -- 1,264 12,268 (8,539) -- 4,993 Non-operating Income (Expense) Interest income....... $ 119 588 1,275 352 -- 2,334 Interest (expense).... (5,330) (1) (4,914) (1,844) -- (12,089) Intercompany interest income (expense)..... 4,685 (1,522) (2,626) (538) -- -- ------- -------- -------- -------- ---------- -------- Interest expense...... (645) (1,523) (7,540) (2,382) -- (12,089) Foreign currency gains (losses)............. -- -- 516 (10) -- 506 Other income (expenses), net...... -- (568) 1,031 103 -- 566 ------- -------- -------- -------- ---------- -------- Non-operating income (expenses)......... (526) (1,503) (4,718) (1,937) -- (8,683) ------- -------- -------- -------- ---------- -------- Income (loss) before income taxes........... (526) (239) 7,550 (10,476) -- (3,690) Provision for (benefit from) income taxes..... 50 (47) (1,827) -- -- (1,823) ------- -------- -------- -------- ---------- -------- Income before extraordinary item..... (576) (192) 9,377 (10,476) -- (1,867) Extraordinary item: Loss from early extinguishment of debt, net of related income tax benefit... -- -- 1,372 -- -- 1,372 ------- -------- -------- -------- ---------- -------- Net Income (loss)....... $ (576) $ (192) $ 8,005 $(10,476) -- $ (3,239) ======= ======== ======== ======== ========== ========
F-50 ChipPAC, Inc. SUPPLEMENTAL COMBINING CONDENSED STATEMENTS OF CASH FLOWS Nine Months Ended September 30, 1999 (In thousands) (Unaudited)
Non- Guarantors Guarantor ---------------------------- --------- CP Int'l CPI CPK CPS Eliminations Combined -------- -------- -------- --------- ------------ -------- Cash flows from operating activities: Net income........... $ (576) $ (192) $ 8,005 $ (10,476) -- $ (3,239) Adjustments to reconcile net income Depreciation and amortization...... 250 1,070 32,726 7,804 -- 41,850 Provision for inventory and receivables....... -- (110) (317) -- -- (427) Non-operating early debt extinguishment loss.............. -- -- 1,372 -- -- 1,372 Foreign currency (gains) losses.... -- -- (516) 10 -- (506) (Gain) loss on external sales of equipment......... -- -- (241) -- -- (241) Changes in assets and liabilities: Intercompany accounts receivable........ (3,416) (19,243) 21,638 (2,882) 3,903 -- Accounts receivable........ -- 13,881 (4,038) -- -- 9,843 Inventories........ -- (5) (1,785) (99) -- (1,889) Prepaid expenses and other assets.. (11,027) (5,522) (4,195) (36) -- (20,780) Advances (to) from affiliates........ -- 791 (6,981) -- -- (6,190) Intercompany accounts payable.. -- (6,563) 14,401 (3,935) (3,903) -- Accounts payable... 40 296 (21,803) (726) -- (22,193) Accrued expenses & other liabilities. 3,911 2,756 (399) 772 -- 7,040 Other long-term liabilities....... -- -- 2,617 -- -- 2,617 -------- -------- -------- --------- ------ -------- Net cash provided/(used) by operating activities...... (10,818) (12,841) 40,484 (9,568) -- 7,257 -------- -------- -------- --------- ------ -------- Cash flows used in investing activities: Acquisition of property and equipment........... -- (1,430) (26,990) (6,651) 6,009 (29,062) Proceeds, external equipment sales..... -- -- 5,447 1,825 (6,009) 1,263 Investment in subsidiaries........ (29,030) 29,030 -- -- -- -- -------- -------- -------- --------- ------ -------- Net cash used in investing activities...... (29,030) 27,600 (21,543) (4,826) -- (27,799) -------- -------- -------- --------- ------ -------- Cash flows provided by financing activities: Loans & advances with affiliates.......... -- (178,900) 144,900 29,570 -- (4,430) Proceeds from short- term loans.......... -- 476 693 -- -- 1,169 Repayment of short- term loans.......... -- -- (3,769) (15,700) -- (19,469) Proceeds from term loans............... 300,000 -- -- -- -- 300,000 Repayment, term loans and capital leases.. -- -- (105,387) (28,228) -- (133,615) Intercompany loan (advances) payments. (271,000) 271,000 -- -- -- -- Payments made to extinguish debt early............... -- -- (1,372) -- -- (1,372) Dividend paid........ -- -- (9,435) -- -- (9,435) Issuance of stock.... 10,849 110,066 2,500 -- -- 123,415 Contributions (withdrawals) of capital............. -- (217,606) (78,114) 24,802 -- (270,918) -------- -------- -------- --------- ------ -------- Net cash provided by financing activities...... 39,849 (14,964) (49,984) 10,444 -- (14,655) -------- -------- -------- --------- ------ -------- Effect from changes in exchange rat~es....... -- -- (428) -- -- (428) -------- -------- -------- --------- ------ -------- Net increase (decrease) in cash............... 1 (205) (31,471) (3,950) -- (35,625) Cash and equivalents at beginning of period... -- 10,827 44,293 13,647 -- 68,767 -------- -------- -------- --------- ------ -------- Cash and equivalents at end of period......... $ 1 $ 10,622 $ 12,822 $ 9,697 -- $ 33,142 ======== ======== ======== ========= ====== ========
F-51 GLOSSARY Array...................... A group of items (elements, leads, bonding pads, circuits, etc.) arranged in rows and columns. ASIC ...................... Application Specific Integrated Circuit. A custom-designed integrated circuit that performs specific functions which would otherwise require a number of off-the-shelf integrated circuits to perform. The use of an ASIC in place of a conventional integrated circuit reduces product size and cost and also improves reliability. Back-End Processing........ The packaging and testing portion of the semiconductor manufacturing process. BGA........................ Ball grid array. A semiconductor package consisting of an encapsulated die mounted on top of a substrate. The bottom of the package has a matrix of solder balls; this matrix is attached to a printed circuit board by solder reflow. Its advantages over leaded packages include smaller size, greater assembly yield and better electrical performance. See "Business--Our Services." Bonding.................... The process of attaching the chip (die) to a package substrate is called die bonding, or die attach. The next step is to attach the bonding pads of the die to a lead frame, using wire bonding or tape automated bonding techniques. Bonding Wire............... Fine wires, usually aluminum or gold, connecting the metal bonding pads on an integrated circuit to the internal terminations of the leads of the package. Burn-In.................... Pretest operation of semiconductor devices, frequently at high temperatures, which stabilizes characteristics and identifies early failures. Chip....................... Usually refers to a single integrated circuit die, but also used as a generic term for semiconductor devices. Chipset.................... Two or more chips designed to perform as a unit for one or more functions. Chip-Scale Packages (CSP).. Any semiconductor package in which the package is no more than 1.2 times the size of the bare semiconductor die. Die........................ Individual integrated circuits, transistors, or diodes, separated from the original whole silicon wafer but not yet packaged. They vary in size from 20 mils on a side to larger than 250 mils on a side. The number of dice on a wafer may vary from tens to thousands. Also called a chip. Refers to a semiconductor that has not yet been packaged. Die Attachment............. A step in the packaging process of an integrated circuit in which the individual chip (or die) is mounted in a package in preparation for wire bonding. This step is usually accomplished using either an epoxy resin or a welding process to attach the chip to the substrate. DRAM....................... Dynamic Random Access Memory. A type of volatile memory product that is used in electronic systems to store data and program instructions. It is the most common type of RAM and must be refreshed with electricity thousands of times per send or else it will fade away. G-1 DSP........................ Digital Signal Processor. A type of integrated circuit that processes and manipulates digital information after it has been converted from an analog source. EconoCSP(TM)............... A low cost version of CSP with construction similar to that of PBGA. Fab........................ Short for wafer fabrication. Fabless Semiconductor A new class of semiconductor companies that Companies.................. design, test and sell ICs, but subcontract wafer manufacturing by forming alliances with silicon wafer manufacturers. FBGAT...................... Fine Pitch Ball Grid Array--Tape. A version of a BGA package, mounted on tape substrate, that has a solder ball pitch of less than 1.0mm. Flash...................... A type of non-volatile memory product that is used in electronic systems to store data and program instructions. FlashPAC(TM)............... A version of CSP where the silicon die is attached to the package using FlipChip interconnect intended for Flash. FlipChip................... Package type where silicon die is attached to the packaging substrate using solder balls instead of wires. See "Business--Our Services." FlipPAC(TM) ............... A version of a BGA package where the silicon die is attached to the package using a FlipChip interconnect. IC......................... Integrated circuit. A combination of two or more transistors on a base material, usually silicon. All semiconductor chips, including memory chips and logic chips, are very complicated ICs with thousands of transistors. IDMs....................... Integrated Device Manufacturers. A semiconductor device manufacturer that has its own manufacturing facilities. I/O........................ A connector which interconnects the chip to the package or one package level to the next level in the hierarchy. Also referred to as pin out connections or terminals. iQUAD(TM) ................. Package type with superior thermal performance to that of the conventional Plastic Quad Flat Package. ISDN....................... Integrated Services Digital Network. An international telecommunications standard for transmitting voice, video and data over digital lines running at 64 Kbps. Leadframe.................. A metal frame, connected to the bonding pads of the die by leads, that provides electrical connection to the outside world. Logic Device............... A device that contains digital integrated circuits that process, rather than store, information. LQFP....................... A thinner version of the Quad Flat Package (1.4mm thick). See "Business--Our Services." M/2/BGA(TM) ............... Molded Multi Die Ball Grid Array. A version of a BGA package that contains 2 or more silicon die. G-2 M/2/CSP(TM) ............... Molded Multi Die Chip Scale Package. A version of a CSP that contains 2 or more silicon die. BGA(TM) ................... Micro Ball Grid Array. A version of a BGA package that is adapted to chip scale size. This is a proprietary package trademarked by the Tessera Corporation. See "Business--Our Services." 1/25,000 of an inch. Circuitry on an IC typically Micron..................... follows lines that are less than one micron wide. Microprocessor (MPU)....... A standard circuit design that provides, in one or more chips, functions equivalent to those contained in the central processing unit of a computer. A microprocessor interprets and executes instructions and usually incorporates arithmetic capabilities. The CPU of a personal computer along with main memory and other components, typically contained on a single board. MOS........................ A device which consists of three layers (metal, oxide and semiconductors) and operates as a transistor. MQFP....................... Metric Quad Flat Package. See "Business--Our Services." Package.................... The protective container for an electronic component that connects it to the printed circuit board. The most common IC package is a DIP, or dual-in-line package--a rectangular plastic or ceramic package in which the leads run along the two longer edges. Packaging.................. A process whereby a wafer is diced into individual die which are then separated from the wafer and attached to a substrate via an epoxy adhesive. Leads on the substrate are then connected by extremely fine gold wires to the input/output ("I/O") terminals on the chips through the use of automated machines known as "wire bonders". Each die is then encapsulated in a plastic molding compound, thus forming the package. Semiconductor packaging serves to protect the chip, facilitate integration into electronic systems, and enable the dissipation of heat from the devices. PBGA....................... Plastic Ball Grid Array. See "Business--Our Services." Personal Computer Board.... See "Glossary--Printed Circuit Board." PDA........................ Personal Digital Assistant. PDIP....................... Plastic Dual In-Line Packages. A semiconductor package with leads on two sides, bent vertically, so that the leads can be inserted into holes drilled through the printed circuit board. See "Business--Our Services." PGA........................ Pin Grid Array. An IC package that has multiple rows of pins on the bottom. Pitch...................... The center-to-center distance between adjacent leads on a package. PLCC....................... Plastic Leaded Chip Carrier. See "Business--Our Services." PLD........................ A logic chip that is programmed at the customer's site. G-3 PQFP....................... Plastic Quad Flat Packages. See "Business--Our Services." Printed Circuit Board...... A laminate sheet into which integrated circuits are soldered. Wires in the board connect the circuits with each other, forming a larger functional unit. Printed circuit boards generally contain a subsystem of a larger electronic system, e.g., one board might hold the semiconductor memory of a computer. QFP........................ Quad Flat Pack. A semiconductor package with leads on all four sides and which is attached to a printed circuit board by surface mounting. RamPAC(TM) ................ A version of a CSP where the die is attached to the package using FlipChip interconnect intended for DRAM. SIP........................ Single In-line Package. See "Business--Our Services." SOIC....................... Small Outline IC packages. See "Business--Our Services." SOJ........................ An SOIC package with J-leads for high density memory. SRAM....................... Static Random Access Memory. A type of volatile memory product that is used in electronic systems to store data and program instructions. Unlike the more common DRAM, it does not need to be refreshed. SSOP....................... Shrink Small Outline Packages. See "Business--Our Services." Substrate.................. The underlying material upon which a device, circuit, or epitaxial layer is fabricated, normally a silicon wafer. Surface Mount Technology... A circuit board packaging technique in which the leads (pins) on the chips and components are soldered on top of the board. TBGA....................... Thermally Enhanced Ball Grid Array. A version of a BGA package with superior thermal properties compared to that of the conventional PBGA. TQFP....................... Thin Quad Flat Packages. See "Business--Our Services." TSOC....................... Thin Small Outline IC packages. See "Business-- Our Services." TSOP....................... Thin Small Outline Packages. See "Business--Our Services." TSSOP...................... Thin Shrink Small Outline Packages. See "Business--Our Services." Wafer...................... Thin, round, flat piece of silicon that is the base of most integrated circuits. Wafer Fabrication.......... The sequence of oxidation, diffusion, deposition and photolithographic process steps by which semiconductor devices are batch fabricated on wafers. Wire Bonding............... The method used to attach very fine wire to semiconductor components in order to provide electrical continuity between the semiconductor die and a terminal. G-4 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- $150,000,000 [ChipPAC International Company Limited Logo] ChipPAC International Company Limited Offer to Exchange $150,000,000 Series B 12 3/4% Senior Subordinated Notes due 2009 for any and all outstanding 12 3/4% Senior Subordinated Notes due 2009 ----------------------- PROSPECTUS ----------------------- Subject to completion, , 1999 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 20. Indemnification of Directors and Officers. ChipPAC International Company Limited As in most United States jurisdictions, the board of directors of a British Virgin Islands company is charged with the management and affairs of the company, and subject to any limitations to the contrary in the Memorandum of Association of a company, the Board of Directors is entrusted with the power to manage the business and affairs of the company (hereinafter, the "Issuer"). In most United States jurisdictions, directors owe a fiduciary duty to a company and its shareholders, including a duty of care, pursuant to which directors must properly apprise themselves of all reasonably available information, and a duty of loyalty, pursuant to which they must protect the interests of the company and refrain from conduct that injures the company or its shareholders or that deprives the company or its shareholders of any profit or advantage. Many United States jurisdictions have enacted various statutory provisions which permit the monetary liability of directors to be eliminated or limited. Under British Virgin Islands law, liability of a director or officer of a company director is, for the most part, limited to cases of willful malfeasance in the performance of duties or to cases where such director or officer, as applicable, has not acted honestly, in good faith and with a view to the company's best interests. Under its Memorandum of Association, the Issuer is authorized to indemnify any person who is made or threatened to be made a party to a legal or administrative proceeding by virtue of being a director, officer or liquidator of the Issuer, provided such person acted honestly and in good faith and with a view to the best interests of the Issuer and, in the case of a criminal proceeding, such person had no reasonable cause to believe that his conduct was unlawful. The Issuer's Memorandum of Association also permits it to indemnify any director, officer or liquidator of the Issuer who was successful in any proceeding against expenses and judgments, fines and amounts paid in settlement and reasonably incurred in connection with the proceeding, where such person met the standard of conduct described in the preceding sentence. The Issuer has provisions in its Memorandum of Association that insure or indemnify, to the full extent allowed by the laws of the Territory of the British Virgin Islands, directors, officers, employees, agents or persons serving in similar capacities in other enterprises at the request of the Issuer. The Issuer may obtain a directors' and officers' insurance policy. ChipPAC, Inc. ChipPAC, Inc. ("ChipPAC") is incorporated under the laws of the State of California. Section 317 of the General Corporation Law of the State of California provides that a California corporation may indemnify any person who is, or is threatened to be made, party to any proceeding (other than an action by or in the right of the corporation to procure a judgment in its favor) by reason of the fact that the person is or was an agent of the corporation, against expenses, judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with the proceeding if that person acted in good faith and in a manner the person reasonably believed to be in the best interests of the corporation and, in the case of a criminal proceeding, had no reasonable cause to believe the conduct of the person was unlawful. A corporation has power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action by or in the right of the corporation to procure a judgment in its favor by reason of the fact that the person is or was an agent of the corporation, against expenses actually and reasonably incurred by that person in connection with the defense or settlement of the action if the person acted in good faith, in a manner the person believed to be in the best interests of the corporation and its shareholders. Under Article V of ChipPAC's Amended and Restated By-Laws, ChipPAC will indemnify any person who was or is a party, or is threatened to be made a party, to any proceeding (other than an action by or in the right of this corporation) by reason of the fact that such person is or was an agent of ChipPAC, against expenses, II-1 judgments, fines, settlements or other amounts actually and reasonably incurred in connection with such proceeding if that person acted in good faith and in a manner that person reasonably believed to be in the best interests of ChipPAC and, in the case of a criminal proceeding, if that person had no reasonable cause to believe his conduct was unlawful. Such right of indemnification will be a contract right and will not be exclusive of any other right which such directors, officers or representatives may have or hereafter acquire under any contract or otherwise. For purposes of the foregoing discussion, "agent" means any person who is or was a director, officer, employee or other agent of ChipPAC, or is or was serving at the request of ChipPAC as a director, officer, employee, or agent of another foreign or domestic corporation, limited liability company, partnership, joint venture, trust or other enterprise, or was a director, officer, employee or agent of a foreign or domestic corporation which was a predecessor corporation of ChipPAC or of another enterprise at the request of such predecessor corporation In addition, Section 204 of the General Corporation Law of the State of California allows a corporation to eliminate the personal liability of a director of a corporation to the corporation or to any of its stockholders for monetary damages for a breach of fiduciary duty as a director, provided, however, that: (A) such a provision may not eliminate or limit the liability of directors: (1) for acts or omissions that involve intentional misconduct or a knowing and culpable violation of law; (2) for acts or omissions that a director believes to be contrary to the best interests of the corporation or its shareholders or that involve the absence of good faith on the part of the director; (3) for any transaction from which a director derived an improper personal benefit; (4) for acts or omissions that show a reckless disregard for the director's duty to the corporation or its shareholders in circumstances in which the director was aware, or should have been aware, in the ordinary course of performing a director's duties, of a risk of serious injury to the corporation or its shareholders; (5) for acts or omissions that constitute an unexcused pattern of inattention that amounts to an abdication of the director's duty to the corporation or its shareholders; (6) under Section 310; or (7) under Section 316; (B) no such provision will eliminate or limit the liability of a director for any act or omission occurring prior to the date when the provision becomes effective; and (C) no such provision will eliminate or limit the liability of an officer for any act or omission as an officer, notwithstanding that the officer is also a director or that his or her actions, if negligent or improper, have been ratified by the directors. Article IV of ChipPAC's Amended and Restated Articles of Incorporation includes a provision which eliminates directors' personal liability to the full extent permitted under the General Corporation Law of the State of California. ChipPAC maintains a policy of directors and officers liability insurance covering certain liabilities incurred by its directors and officers in connection with the performance of their duties. ChipPAC (Barbados) Ltd. Paragraph 10 of ChipPAC (Barbados) Ltd.'s ("ChipPAC Barbados") By-Laws provides for the indemnification of its officers and directors (and such persons' executors and administrators) against any and all judgments, fines, amounts paid in settlement and reasonable expenses, including attorneys' fees, incurred by such person in connection with any claim, action, suit or proceeding, whether civil, criminal, administrative or investigative by reason of the fact that such person is or was a director or officer of ChipPAC Barbados, or is or II-2 was serving at the request of ChipPAC Barbados as a director or officer, of any other corporation, partnership, joint venture, trust, enterprise or organization, except with respect to any matter for which indemnification would be void pursuant to the Companies Act, 1982 of Barbados (the "Companies Act"). Under the Companies Act, indemnification of the officers and directors of ChipPAC Barbados against any liability which would attach by reason of any contract entered into or act or thing done or omitted to be done by them in performance of their office or in any way in the discharge of their duties, if the same happens through their not acting in good faith and in the best interest of ChipPAC Barbados is void. ChipPAC Limited As in most United States jurisdictions, the board of directors of a British Virgin Islands company is charged with the management and affairs of the company, and subject to any limitations to the contrary in the Memorandum of Association of a company, its Board of Directors is entrusted with the power to manage the company's business and affairs. In most United States jurisdictions, directors owe a fiduciary duty to the company and its shareholders, including a duty of care, pursuant to which directors must properly apprise themselves of all reasonably available information, and a duty of loyalty, pursuant to which they must protect the interests of the company and refrain from conduct that injures the company or its shareholders or that deprives the company or its shareholders of any profit or advantage. Many United States jurisdictions have enacted various statutory provisions which permit the monetary liability of directors to be eliminated or limited. Under British Virgin Islands law, liability of a director or officer of a company is basically limited to cases of willful malfeasance in the performance of his duties or to cases where the director has not acted honestly and in good faith and with a view to the best interests of the company. Under its Memorandum of Association, ChipPAC Limited is authorized to indemnify any person who is made or threatened to be made a party to a legal or administrative proceeding by virtue of being a director, officer or liquidator of ChipPAC Limited, provided such person acted honestly and in good faith and with a view to the best interests of ChipPAC Limited and, in the case of a criminal proceeding, such person had no reasonable cause to believe that his conduct was unlawful. ChipPAC Limited's Memorandum of Association also permits it to indemnify any director, officer or liquidator who was successful in any proceeding against expenses and judgments, fines and amounts paid in settlement and reasonably incurred in connection with the proceeding, where such person met the standard of conduct described in the preceding sentence. ChipPAC Limited has provisions in its Memorandum of Association that insure or indemnify, to the full extent allowed by the laws of the Territory of the British Virgin Islands, directors, officers, employees, agents or persons serving in similar capacities in other enterprises at the request of ChipPAC Limited. ChipPAC Limited may obtain a directors' and officers' insurance policy. ChipPAC Korea Company Ltd. The Republic of Korea Commercial Act (the "Commercial Act") governs the liability relationship between companies and their officers and directors in both joint stock companies (chusik hoesa) and limited liability companies (yuhan hoesa). Articles 399 and 400 of the Commercial Act describe the circumstances in which officers and directors may be held liable to the company, while Article 401 of the Commercial Act outlines the circumstances in which officers and directors may be held liable to third parties. The latter provides that third parties which are harmed by a wilful act or gross negligence of an officer or director may have recourse against both the applicable officer or director and the company. In the event that third parties are harmed through the mere negligence of an officer or director, such third party may only have recourse against the company. In the event the company incurs damages as a result of the negligence of its directors and officers, it may the seek indemnification from the negligent party. The organizational documents of ChipPAC Korea Company Ltd. ("ChipPAC Korea") are silent as to the issue of indemnification of officers and directors. In addition, ChipPAC Korea, like many Korean companies, does not carry directors and officers liability insurance. II-3 ChipPAC Luxembourg S.a.R.L. Under Luxembourg law, civil liability of directors both to ChipPAC Luxembourg S.a.R.L. ("ChipPAC Luxembourg") and to third parties is generally considered to be a matter of public policy. It is possible that Luxembourg courts would declare void an explicit or even implicit contractual limitation on directors' liability to ChipPAC Luxembourg. ChipPAC Luxembourg, however, can validly agree to indemnify its directors against the consequences of liability actions brought by third parties (including shareholders if such shareholders have personally suffered a damage which is independent of and distinct from the damage caused to the company). Under Luxembourg law, an employee of ChipPAC Luxembourg can only be liable to ChipPAC Luxembourg for damages brought about by his or her willful acts or gross negligence. Any arrangement providing for the indemnification of officers against claims of ChipPAC Luxembourg would be contrary to public policy. Employees are liable to third parties under general tort law and may enter into arrangements with ChipPAC Luxembourg providing for indemnification against third party claims. Under Luxembourg law, an indemnification agreement can never cover a willful act or gross negligence. ChipPAC Luxembourg's Articles of Incorporation are silent as to the issue of indemnification of its officers and directors. ChipPAC Liquidity Management Hungary Limited Liability Company The organizational documents of ChipPAC Liquidity Management Hungary Limited Liability Company ("ChipPAC Hungary") are silent as to the issue of indemnification of the managing director. ChipPAC Hungary has no other officers or directors. Therefore, in the event any case arises which involves the liability of a managing director, such case must be settled in accordance with the applicable provisions of the Hungarian Companies Act (the "Companies Act") and the Hungarian Civil Code (the "Civil Code"). Under the Companies Act, a managing director must conduct himself in respect of the management of a company with "increased care," as opposed to the standard of "general care" which is prescribed by the Civil Code. A managing director may be held liable in the event of a culpable breach of any provision of the Companies Act, a company's Deed of Foundation or any validly enacted resolutions of the company's Founder. If the aforementioned duty of care is breached, a managing director may be held liable under the rules of the Civil Code for any damages to the company where such managing director's actions were (i) in contravention of Hungarian law, (ii) caused damage to the company and (iii) were not undertaken with the requisite degree of care specified in the Companies Act. Enforcement of liability claims against a managing director is in the sole discretion of the Founder. A Founder may exercise his or her rights against a managing director within one year of the company's deletion from the Company Registry. A managing director is only obliged to compensate the company for damages, and is not liable to third parties for acts that are within the scope of his or her role or responsibility as a managing director. Third parties may only seek damages from the company. Should the company be required to pay damages to a third party for acts of the managing director, however, it may have recourse against the managing director for damages incurred as a result of third party claims. II-4 Item 21. Exhibits and Financial Statement Schedules. (a) Exhibits.
Exhibit No. Description ------- ----------- --- 2.1 Agreement and Plan of Recapitalization and Merger, dated as of March 13, 1999, by and among Hyundai Electronics Industries Co., Ltd., Hyundai Electronics America, ChipPAC, Inc. and ChipPAC Merger Corp. 2.2 First Amendment to Agreement and Plan of Recapitalization and Merger, dated as of June 16, 1999 by and among Hyundai Electronics Industries Co., Ltd., Hyundai Electronics America, ChipPAC, Inc. and ChipPAC Merger Corp. 2.3 Second Amendment to Agreement and Plan of Recapitalization and Merger, dated as of August 5, 1999, by and among Hyundai Electronics Industries Co., Ltd., Hyundai Electronics America, ChipPAC, Inc. and ChipPAC Merger Corp. 3.1 Amended and Restated Articles of Incorporation of ChipPAC, Inc. 3.2 Amended and Restated By-Laws of ChipPAC, Inc. 3.3 Memorandum of Association of ChipPAC International Company Limited (formerly known as ChipPAC Finance Limited). 3.4 Articles of Association of ChipPAC International Company Limited (formerly known as ChipPAC Finance Limited). 3.5 Articles of Incorporation of ChipPAC (Barbados) Ltd. 3.6 By-Law No. 1 of ChipPAC (Barbados) Ltd. 3.7 Memorandum of Association of ChipPAC Limited. 3.8 Articles of Association of ChipPAC Limited. 3.9 Articles of Incorporation of ChipPAC Luxembourg S.a.R.L. 3.10 Deed of Foundation of ChipPAC Liquidity Management Hungary Limited Liability Company. 3.11 Policy and Operating Guidelines of ChipPAC Liquidity Management Hungary Limited Liability Company (abbreviated as ChipPAC Ltd.) 3.12 Articles of Incorporation of ChipPAC Korea Company Ltd. 4.1 Purchase Agreement, dated as of July 22, 1999, by and among ChipPAC International Limited, ChipPAC Merger Corp., Credit Suisse First Boston Corporation and Donaldson, Lufkin & Jenrette Securities Corporation (executed in counterpart on August 5, 1999 by ChipPAC (Barbados) Ltd., ChipPAC Limited, ChipPAC Korea Company Ltd., ChipPAC Luxembourg S.a.R.L. and ChipPAC Liquidity Management Hungary Limited Liability Company). 4.2 Indenture, dated as of July 29, 1999, by and among ChipPAC International Limited, ChipPAC Merger Corp. and Firstar Bank of Minnesota, N.A., as trustee. 4.3 First Supplemental Indenture, dated as of August 5, 1999, by and among ChipPAC International Company Limited, ChipPAC, Inc. and Firstar Bank of Minnesota, N.A., as trustee. 4.4 12 3/4% Senior Subordinated Notes Due 2009. 4.5 Form of Series B 12 3/4% Senior Subordinated Notes Due 2009.*
II-5
Exhibit No. Description ------- ----------- --- 4.6 Registration Rights Agreement, dated as of July 29, 1999, by and among ChipPAC International Limited, ChipPAC Merger Corp., and Credit Suisse First Boston Corporation and Donaldson, Lufkin & Jenrette Securities Corporation, as Initial Purchasers. 5.1 Opinion of Kirkland & Ellis 8.1 Opinion of Kirkland & Ellis. 10.1 Credit Agreement, dated as of August 5, 1999, by and among ChipPAC International Company Limited, ChipPAC, Inc., the Lenders listed therein and Credit Suisse First Boston, as Administrative Agent, Sole Lead Manager and Collateral Agent. 10.2 Guaranty, dated as of August 5, 1999, by and among ChipPAC, Inc. and certain subsidiaries of ChipPAC, Inc., in favor of Credit Suisse First Boston. 10.3 Subsidiary Guaranty Agreement, dated as of August 5, 1999, by and among ChipPAC Korea Company Ltd., ChipPAC Limited, ChipPAC (Barbados) Ltd., ChipPAC Luxembourg S.a.R.L., ChipPAC Liquidity Management Hungary Limited Liability Company and ChipPAC International Company Limited, in favor of Firstar Bank of Minnesota, N.A. 10.4 Amended and Restated Shareholders Agreement, dated as of August 5, 1999, by and among ChipPAC, Inc. the Hyundai Group (as defined therein), the Bain Group (as defined therein), the SXI Group (as defined therein), Intel Corporation, ChipPAC Equity Investors LLC, and Sankaty High Yield Asset Partners, L.P. 10.5 Amended and Restated Registration Agreement, dated as of August 5, 1999, by and among ChipPAC, Inc., the Hyundai Shareholders (as defined therein), the Bain Shareholders (as defined therein), the SXI Shareholders (as defined therein), Intel Corporation, ChipPAC Equity Investors LLC, and Sankaty High Yield Asset Partners, L.P. 10.6 Transition Services Agreement, dated as of August 5, 1999, by and among Hyundai Electronics Industries Co., Ltd., Hyundai Electronics America, ChipPAC, Inc., ChipPAC Korea Company Ltd., Hyundai Electronics Company (Shanghai) Ltd., ChipPAC Assembly and Test (Shanghai) Company Ltd., ChipPAC Barbados Limited and ChipPAC Limited. 10.7 Lease Agreement, dated as of June 30, 1998, by and between Hyundai Electronics Industries Co., Ltd. and ChipPAC Korea Ltd. 10.7.1 Amendment Agreement, dated September 30, 1998, to Lease Agreement, dated June 30, 1998, by and between Hyundai Electronics Industries Co., Ltd. and ChipPAC Korea Ltd. 10.7.2 Amendment Agreement 2, dated September 30, 1999, to Lease Agreement, dated June 30, 1998, by and between Hyundai Electronics Industries Co., Ltd. and ChipPAC Korea Ltd. 10.8 Agreement Concerning Supply of Utilities, Use of Welfare Facilities and Management Services for Real Estate, dated as of June 30, 1998, by and between Hyundai Electronics Industries Co., Ltd. and ChipPAC Korea Ltd. 10.9 Service Agreement, dated as of August 5, 1999, by and between Hyundai Electronics Industries Co. Ltd. and ChipPAC Limited.*+
II-6
Exhibit No. Description ------- ----------- 10.10 Sublease Agreement, dated as of May 1, 1998, by and between Hyundai Electronics America and ChipPAC, Inc. 10.11 Patent Sublicense Agreement, dated as of August 5, 1999, by and between Hyundai Electronics Industries Co., Ltd. and ChipPAC Limited.*+ 10.12 TCC License Agreement, dated December 22, 1998, between Tessera Inc., the Tessera Affiliates (as defined therein), ChipPAC, Inc. and the Licensee Affiliates (as defined therein).*+ 10.12.1 Letter Agreement, dated July 15, 1999, by and among ChipPAC, Inc., Hyundai Electronics America, ChipPAC Limited and Tessera, Inc.* 10.13 Materials Agreement, dated as of July 1, 1999, by and between ChipPAC Limited and Intel Corporation.*+ 10.14 Assembly Services Agreement, dated as of August 5, 1999, by and between Intel Corporation and ChipPAC Limited.*+ 10.15 Stock Purchase Agreement, dated as of August 5, 1999, by and between ChipPAC, Inc. and Intel Corporation.* 10.16 Warrant to Purchase Class B Common Stock of ChipPAC, Inc., dated as of August 5, 1999, issued to Intel Corporation.* 10.17 Advisory Agreement, dated as of August 5, 1999, by and among ChipPAC, Inc., ChipPAC Limited, ChipPAC Operating Limited and Bain Capital, Inc. 10.18 Advisory Agreement, dated as of August 5, 1999, by and among ChipPAC, Inc., ChipPAC Limited, ChipPAC Operating Limited and SXI Group LLC. 10.19 Employment Agreement, dated as of October 1, 1999, between ChipPAC, Inc. and Dennis McKenna.* 10.20 ChipPAC, Inc. 1999 Stock Purchase and Option Plan. 10.21 Form of Key Employee Purchased Stock Agreement. 10.22 Form of Key Employee Purchased Stock Agreement (with Loan). 10.23 Form of Directors Tranche I Stock Option Agreement. 10.24 Form of Employees Tranche I Stock Option Agreement. 10.25 Form of Tranche II Stock Option Agreement. 12.1 Statement Regarding Computation of Ratio of Earnings to Fixed Charges. 21.1 Subsidiaries of ChipPAC, Inc., ChipPAC International Company Limited, ChipPAC (Barbados) Ltd., ChipPAC Limited, ChipPAC Liquidity Management Limited Liability Company, ChipPAC Luxembourg S.a.R.L. and ChipPAC Korea Company Ltd. 23.1 Consent of PricewaterhouseCoopers LLP. 23.2 Consent of Kirkland & Ellis (included in Exhibit 5.1). 24.1 Powers of Attorney (included in Part II to the Registration Statement). 25.1 Statement of Eligibility on Form T-1 of Firstar Bank of Minnesota, N.A., as trustee, under the Indenture. 27.1 Financial Data Schedule. 99.1 Form of Letter of Transmittal. 99.2 Form of Notice of Guaranteed Delivery. 99.3 Form of Tender Instructions.
- -------- *To be filed by amendment +Confidential treatment requested. II-7 (b) Financial Statement Schedules. The following financial statement schedules for the three years ended December 31, 1998 are included in this registration statement. Schedule II--Valuation and Qualifying Accounts and Reserves--Allowance for Doubtful Accounts (in thousands)
Additions charged Year Ended Balance at to Costs and Deductions and Balance at End of December 31 beginning of year Expenses Write-offs Period - ----------- ----------------- ----------------- -------------- ----------------- 1998.................... 375 787 -- 1,162 1997.................... 85 404 (114) 375 1996.................... 74 16 (5) 85
Item 22. Undertakings. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrants pursuant to the provisions described under Item 20 or otherwise, the registrants have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrants of expenses incurred or paid by a director, officer or controlling person of the registrants in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrants will, unless in the opinion of their counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned registrants hereby undertake: (1) To supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. (2) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (a) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933. (b) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in the volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement. (c) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. II-8 (3) That, for the purpose of determining liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (4) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the exchange offer. II-9 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the ChipPAC International Company Limited has duly caused this Registration Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in Tortola, British Virgin Islands, on November 24, 1999. ChipPAC International Company Limited /s/ Phang Guk Bing By: _________________________________ (Peter) Phang Guk Bing President, Chief Executive Officer and Chief Financial Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Dennis McKenna, Tony Lin, Curt Mason, David Dominik and Paul C. Schorr IV, and each of them, his true and lawful attorneys- in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments including post-effective amendments to this registration statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. * * * * Pursuant to the requirements of the Securities Act of 1933, this Registration Statement on Form S-4 and Power of Attorney have been signed by the following persons in the indicated capacities on November 24, 1999:
Signatures Capacity ---------- -------- /s/ Phang Guk Bing President, Chief Executive Officer, Chief ____________________________________ Financial Officer and Director (Peter) Phang Guk Bing (Principal Executive, Financial and Accounting Officer) /s/ Curt Mason Director ____________________________________ Curt Mason /s/ Richard Parsons Director ____________________________________ Richard Parsons /s/ P.J. Kim Director ____________________________________ P.J. Kim Authorized Representative in the United States: /s/ Dennis P. McKenna ____________________________________ Dennis P. McKenna President and Chief Executive Officer, ChipPAC, Inc.
II-10 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the ChipPAC, Inc. has duly caused this Registration Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Santa Clara, State of California, on November 24, 1999. ChipPac, Inc. /s/ Dennis P. McKenna By: _________________________________ Dennis P. McKenna President and Chief Executive Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Dennis McKenna, Tony Lin, Curt Mason, David Dominik and Paul C. Schorr IV, and each of them, his true and lawful attorneys- in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments, including post-effective amendments, to this registration statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. * * * * Pursuant to the requirements of the Securities Act of 1933, this Registration Statement on Form S-4 and Power of Attorney have been signed by the following persons in the capacities indicated on November 24, 1999:
Signatures Capacity ---------- -------- /s/ Dennis P. McKenna President, Chief Executive ____________________________________ Officer and Director Dennis P. McKenna (Principal Executive Officer) /s/ Tony Lin Chief Financial Officer ____________________________________ (Principal Financial Tony Lin Officer) /s/ Curt Mason Vice President of Finance ____________________________________ and Corporate Controller Curt Mason (Principal Accounting Officer) /s/ David Dominik Director ____________________________________ David Dominik /s/ Edward Conard Director ____________________________________ Edward Conard
II-11
Signatures Capacity ---------- -------- /s/ Prescott Ashe Director ____________________________________ Prescott Ashe /s/ Michael A. Delaney Director ____________________________________ Michael A. Delaney /s/ Paul C. Schorr IV Director ____________________________________ Paul C. Schorr IV /s/ Joseph Martin Director ____________________________________ Joseph Martin /s/ Chong Sup Park Director ____________________________________ Chong Sup Park
II-12 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the ChipPAC Korea Company Ltd. has duly caused this Registration Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in Ichon-Shi, Kyungai-Do, Korea, on November 24, 1999. ChipPAC Korea Company Ltd. /s/ Soo Nam Lee By: _________________________________ Soo Nam Lee President and Managing Director POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Dennis McKenna, Tony Lin, Curt Mason, David Dominik and Paul C. Schorr IV, and each of them, his true and lawful attorneys- in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments, including post-effective amendments, to this registration statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. * * * * Pursuant to the requirements of the Securities Act of 1933, this Registration Statement on Form S-4 and Power of Attorney have been signed by the following persons in the indicated capacities on November 24, 1999:
Signatures Capacity ---------- -------- /s/ Soo Nam Lee Director, President and Managing Director ____________________________________ (Principal Executive Officer) Soo Nam Lee /s/ Dong Woo Lee Chief Financial Officer (Principal Financial ____________________________________ and Accounting Officer) Dong Woo Lee /s/ Dennis P. McKenna Director ____________________________________ Dennis P. McKenna Authorized Representative in the United States: /s/ Dennis P. McKenna ____________________________________ Dennis P. McKenna President and Chief Executive Officer, ChipPAC, Inc.
II-13 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the ChipPAC (Barbados) Ltd. has duly caused this Registration Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in Barbados, West Indes, on November 24, 1999. ChipPAC (Barbados) Ltd. /s/ Phang Guk Bing By: _________________________________ (Peter) Phang Guk Bing President, Chief Executive Officer and Chief Financial Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Dennis McKenna, Tony Lin, Curt Mason, David Dominik and Paul C. Schorr IV, and each of them, his true and lawful attorneys- in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments, including post-effective amendments, to this registration statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. * * * * Pursuant to the requirements of the Securities Act of 1933, this Registration Statement on Form S-4 and Power of Attorney have been signed by the following persons in the indicated capacities and on November 24, 1999.
Signatures Capacity ---------- -------- /s/ Phang Guk Bing President, Chief Executive Officer and ____________________________________ Chief Financial Officer (Principal (Peter) Phang Guk Bing Executive, Financial and Accounting Officer) /s/ Eulalie Greenaway Director ____________________________________ Eulalie Greenaway /s/ Trevor Carmichael Director ____________________________________ Trevor Carmichael /s/ Curt Mason Director ____________________________________
Curt Mason Authorized Representative in the United States /s/ Dennis P. McKenna - -------------------------------- Dennis P. McKenna President and Chief Executive Officer, ChipPAC, Inc. II-14 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the ChipPAC Luxembourg S.a.R.L. has duly caused this Registration Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in Luxembourg, on November 24, 1999. ChipPAC Luxembourg S.a.R.L. /s/ Michele Musty By: _________________________________ Michele Musty Corporate Manager POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Dennis McKenna, Tony Lin, Curt Mason, David Dominik and Paul C. Schorr IV, and each of them, his true and lawful attorneys- in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments, including post-effective amendments, to this registration statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. * * * * Pursuant to the requirements of the Securities Act of 1933, this Registration Statement on Form S-4 and Power of Attorney have been signed by the following persons in the indicated capacities and on November 24, 1999:
Signatures Capacity ---------- -------- /s/ Michele Musty Corporate Manager ____________________________________ (Co-Principal Executive, Financial and Accounting Officer Michele Musty and Director) /s/ Eric Vanderkerken Corporate Manager ____________________________________ (Co-Principal Executive, Financial and Accounting Officer Eric Vanderkerken and Director) /s/ Phang Guk Bing Corporate Manager ____________________________________ (Co-Principal Executive, Financial and Accounting Officer ChipPAC International Company and Director) Limited by: (Peter) Phang Guk Bing President and Chief Executive Officer
Authorized Representative in the United States: /s/ Dennis P. McKenna - -------------------------------- Dennis P. McKenna President and Chief Executive Officer, ChipPAC, Inc. II-15 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the ChipPAC Liquidity Management Hungary Limited Liability Company has duly caused this Registration Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in Budapest, Hungary on November 24, 1999. ChipPAC Liquidity Management Hungary Limited Liability Company /s/ Jozsef Veress By: _________________________________ Jozsef Veress Managing Director POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Dennis McKenna, Tony Lin, Curt Mason, David Dominik and Paul C. Schorr IV, and each of them, his true and lawful attorneys- in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments, including post-effective amendments, to this registration statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. * * * * Pursuant to the requirements of the Securities Act of 1933, this Registration Statement on Form S-4 and Power of Attorney have been signed by the following persons in the indicated capacities on November 24, 1999:
Signatures Capacity ---------- -------- /s/ Jozsef Veress Managing Director (Principal Executive, ____________________________________ Financial and Accounting Officer Jozsef Veress and Sole Director) Authorized Representative in the United States: /s/ Dennis P. McKenna ____________________________________ Dennis P. McKenna President and Chief Executive Officer, ChipPAC, Inc.
II-16 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the ChipPAC Limited has duly caused this Registration Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in Tortola, British Virgin Islands, on November 24, 1999. ChipPAC Limited /s/ Phang Guk Bing By: _________________________________ (Peter) Phang Guk Bing President, Chief Executive Officer and Chief Financial Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Dennis McKenna, Tony Lin, Curt Mason, David Dominik and Paul C. Schorr IV, and each of them, his true and lawful attorneys- in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments, including post-effective amendments to this registration statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. * * * * Pursuant to the requirements of the Securities Act of 1933, this Registration Statement on Form S-4 and Power of Attorney have been signed by the following persons in the indicated capacities on November 24, 1999:
Signatures Capacity ---------- -------- /s/ Phang Guk Bing President, Chief Executive ____________________________________ Officer, Chief Financial (Peter) Phang Guk Bing Officer and Director (Principal Executive, Financial and Accounting Officer) /s/ Curt Mason Director ____________________________________ Curt Mason /s/ P.J. Kim Director ____________________________________ P.J. Kim /s/ Richard Parsons Director ____________________________________ Richard Parsons Authorized Representative in the United States: /s/ Dennis P. McKenna ____________________________________ Dennis P. McKenna President and Chief Executive Officer, ChipPAC, Inc.
II-17 EX-2.1 2 AGREEMENT & PLAN OF MERGER Exhibit 2.1 AGREEMENT AND PLAN OF RECAPITALIZATION AND MERGER dated as of March 13, 1999 by and among HYUNDAI ELECTRONICS INDUSTRIES CO., LTD., HYUNDAI ELECTRONICS AMERICA, CHIPPAC, INC., and CHIPPAC MERGER CORP. TABLE OF CONTENTS ----------------- Page ---- ARTICLE I CERTAIN DEFINITIONS ............................................... 1 Section 1.1 Definitions................................................. 1 ARTICLE II RECAPITALIZATION AND CLOSING ..................................... 13 Section 2.1 Closing..................................................... 13 Section 2.2 Recapitalization ........................................... 14 Section 2.3 The Merger ................................................. 19 Section 2.4 Purchase Price Adjustment .................................. 22 Section 2.5 Hyundai Earn-Out ........................................... 26 ARTICLE III REPRESENTATIONS AND WARRANTIES OF HEI AND HEA.................... 29 Section 3.1 Corporate Existence and Authority........................... 29 Section 3.2 Authorization; Binding Effect............................... 30 Section 3.3 Capital Stock............................................... 30 Section 3.4 Subsidiaries................................................ 30 Section 3.5 Absence of Conflicts........................................ 31 Section 3.6 Governmental Approvals and Filings.......................... 32 Section 3.7 Financial Statements and Condition.......................... 32 Section 3.8 Taxes....................................................... 33 Section 3.9 Legal Proceedings........................................... 33 Section 3.10 Compliance With Laws and Orders............................ 34 Section 3.11 Benefit Plans; ERISA....................................... 34 Section 3.12 Real Property.............................................. 35 Section 3.13 Tangible Personal Property................................. 35 Section 3.14 Intellectual Property Rights............................... 35 Section 3.15 Contracts.................................................. 36 Section 3.16 Permits.................................................... 37 Section 3.17 Affiliate Transactions..................................... 37 Section 3.18 Environmental Matters...................................... 38 Section 3.19 Accounts Receivable; Inventory............................. 38 Section 3.20 Insurance.................................................. 38 Section 3.21 No Brokers................................................. 38 Section 3.22 No Other Representations................................... 39 Section 3.23 Assets..................................................... 39 Section 3.24 Product Warranty........................................... 39 Section 3.25 Customers.................................................. 40 -i- TABLE OF CONTENTS ----------------- (continued) Page ---- Section 3.26 Interim Operations of ChipPAC BVI, ChipPAC BVI II, ChipPAC Barbados, ChipPAC Hungary and ChipPAC Luxembourg................ 40 Section 3.27 Transition Services........................................ 40 Section 3.28 Closing Date............................................... 40 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF MERGER SUB ..................... 41 Section 4.1 Corporate Existence and Authority........................... 41 Section 4.2 Authorization; Binding Effect............................... 41 Section 4.3 Absence of Conflicts........................................ 41 Section 4.4 Governmental Approvals and Filings ......................... 41 Section 4.5 Legal Proceedings .......................................... 42 Section 4.6 Purchase for Investment..................................... 42 Section 4.7 Financing................................................... 42 Section 4.8 No Brokers ................................................. 43 Section 4.9 Investment Company Status................................... 43 Section 4.10 Interim Operations of Merger Sub and Certain Other Entities 43 ARTICLE V COVENANTS OF HEI AND HEA........................................... 43 Section 5.1 Regulatory and Other Approvals.............................. 43 Section 5.2 Investigation by Merger Sub................................. 44 Section 5.3 Financial Statements and Reports............................ 44 Section 5.4 Conduct of Business ........................................ 45 Section 5.5 Certain Restrictions ....................................... 45 Section 5.6 Affiliate Transactions ..................................... 47 Section 5.7 Fulfillment of Conditions .................................. 47 ARTICLE VI COVENANTS OF MERGER SUB........................................... 48 Section 6.1 Regulatory and Other Approvals.............................. 48 Section 6.2 Fulfillment of Conditions................................... 48 Section 6.3 Certain Actions............................................. 48 ARTICLE VII ADDITIONAL AGREEMENTS............................................ 49 Section 7.1 Stock Option Plans and Options ............................. 49 Section 7.2 ChipPAC Employees .......................................... 49 Section 7.3 Ancillary Agreements........................................ 50 Section 7.4 Release of Guarantees....................................... 50 Section 7.5 Change of Name.............................................. 50 Section 7.6 Indemnification of Directors and Officers................... 51 -ii- TABLE OF CONTENTS ----------------- (continued) Page ---- Section 7.7 Grant of Sublicenses........................................ 52 ARTICLE VIII CONDITIONS TO OBLIGATIONS OF THE PARTIES ....................... 52 Section 8.1 Obligations of Both Parties ................................ 52 Section 8.2 Obligations of Merger Sub................................... 53 Section 8.3 Obligations of HEI and HEA ................................. 54 ARTICLE IX TERMINATION....................................................... 55 Section 9.1 Termination................................................. 55 Section 9.2 Effect of Termination....................................... 56 Section 9.3 Effect of Breach............................................ 56 ARTICLE X INDEMNIFICATION.................................................... 56 Section 10.1 Survival of Representations and Warranties; Indemnification Period ............................................... 56 Section 10.2 Indemnification by HEI and HEA............................. 57 Section 10.3 Limitation of HEI's and HEA's Liability.................... 58 Section 10.4 Indemnification by the Company............................. 60 Section 10.5 Limitation of the Company's Liability...................... 60 Section 10.6 Defense of Third Party Claims ............................. 61 Section 10.7 Procedure and Dispute Resolution .......................... 62 Section 10.8 Arbitration................................................ 63 Section 10.9 Adjustment to Cash Consideration .......................... 64 Section 10.10 Set-off................................................... 64 ARTICLE XI TAX MATTERS....................................................... 64 Section 11.1 Returns: Indemnification; Liability for Taxes.............. 64 Section 11.2 Refunds and Credits........................................ 65 Section 11.3 Termination of Tax Sharing Agreements...................... 66 Section 11.4 Conduct of Audits and Other Procedural Matters............. 66 Section 11.5 Assistance and Cooperation................................. 66 ARTICLE XII MISCELLANEOUS.................................................... 67 Section 12.1 Notices.................................................... 67 Section 12.2 Entire Agreement........................................... 69 Section 12.3 Expenses................................................... 69 Section 12.4 Public Announcements....................................... 69 Section 12.5 Confidentiality............................................ 70 Section 12.6 Further Assurances; Post-Closing Cooperation............... 71 -iii- TABLE OF CONTENTS ----------------- (continued) Page ---- Section 12.7 Waiver..................................................... 72 Section 12.8 Amendment.................................................. 72 Section 12.9 No Third-Party Beneficiary ................................ 72 Section 12.10 No Assignment: Binding Effect............................. 72 Section 12.11 Invalid Provisions ....................................... 72 Section 12.12 Governing Law............................................. 72 Section 12.13 Counterparts ............................................. 73 Section 12.14 Construction ............................................. 73 Section 12.15 Specific Performance...................................... 73 Section 12.16 Non-Competition; Non-Solicitation ........................ 73 Section 12.17 Financial Information..................................... 74 Section 12.18 Other Agreements.......................................... 74 -iv- Table of Schedules ------------------
No. Description 2.2(g)(ii) Certain Obligations of ChipPAC Korea and Certain Obligations of HEI Secured by Assets of ChipPAC Korea 2.2(g)(iii) Certain Obligations of ChipPAC Shanghai 2.2(g)(iv) Certain Payables and Liabilities 2.2(g)(vi) Certain Obligations of HEI secured by assets of ChipPAC Korea 7.2 Certain Employment Agreements and Commitments 8.2(e) Matters to be Covered by Opinions of U.S. and Korean Legal Counsel to HEI and HEA 8.3(e) Matters to be Covered by Opinion of Legal Counsel to Merger Sub
Table of Annexes ----------------
No. Description I Building Lease Agreement between Hyundai Electronics Industries Co., Ltd. and ChipPAC Korea dated June 30, 1998, as amended (English translation and summary included for informational purposes only). II Utilities and Services Agreement between Hyundai Electronics Industries Co., Ltd. and ChipPAC Korea dated June 18/30, 1998, as amended (providing for utilities and services from HEI to ChipPAC Korea) (English translation and summary included for informational purposes only). III Utilities and Services Agreement between ChipPAC Korea and Hyundai Electronics Industries Co., Ltd. dated June 18/30, 1998 (providing for utilities and services from ChipPAC Korea to HEI) (English summary included for informational purposes only). IV Equipment Lease Agreement between Hyundai Electronics Industries Co., Ltd. and ChipPAC Korea dated June 30, 1998, as amended (English translation included for informational purposes only). V Information System Management Service Agreement between Hyundai Information Technology and ChipPAC Korea dated October 1998 (English translation included for informational purposes only). VI Sublease Agreement between the Company and HEA (unexecuted draft). VII Patent and Technology License Agreement between Hyundai Electronics Industries Co., Ltd. and ChipPAC Korea dated June 30, 1998, as amended (English translation included for informational purposes only). VIII Form of Shareholders Agreement to be dated as of the Closing Date by and among HEA, the Bain Group, the MSX Group and the Company. IX Form of Transition Services Agreement to be dated as of the Closing Date by and among HEI, HEA, the Company, ChipPAC Korea and ChipPAC Shanghai. XI Form of Service Agreement to be dated as of the Closing Date between HEI and ChipPAC BVI. XI Form of Registration Agreement to be dated as of the Closing Date by and among the Company and the shareholders of the Company named therein
-i- XII Form of Equity Commitment Letter Agreement XIII Debt Commitment Letter XIV Highly Confident Letter XV ChipPAC Korea Note XVI Intellectual Property Note
-ii- Table of Exhibits ----------------- No. Description A California Agreement of Merger B Delaware Certificate of Merger C Articles of Incorporation D Bylaws E Capital Budget F Research and Development Budgets This AGREEMENT AND PLAN OF RECAPITALIZATION AND MERGER, dated as of March 13, 1999, is made and entered into by and among Hyundai Electronics Industries Company, Ltd., a Republic of Korea corporation ("HEI"), Hyundai Electronics America, a California corporation ("HEA"), ChipPAC, Inc., a California corporation (the "Company"), and ChipPAC Merger Corp., a Delaware corporation ("Merger Sub"). Capitalized terms not otherwise defined herein have the meanings set forth in Section 1.1. Recitals -------- HEI is the owner of all of the issued and outstanding shares of capital stock of ChipPAC Korea Company Ltd., a corporation incorporated under the laws of the Republic of Korea ("ChipPAC Korea") and all of the outstanding equity interests of Hyundai Electronics (Shanghai) Company Ltd. ("ChipPAC Shanghai I"), and the Company is the owner of all of the outstanding equity interests of ChipPAC Assembly and Test (Shanghai) Company, Ltd. ("ChipPAC Shanghai II"), each of which is a company limited and a wholly foreign owned entity under the laws of the People's Republic of China (collectively "ChipPAC Shanghai"), and HEA is the owner of 100% of the issued and outstanding capital stock of the Company. HEI and HEA desire to recapitalize the Company, and the stockholders of Merger Sub desire, through Merger Sub, to invest in the Company (and, through the Company, in ChipPAC Korea and ChipPAC Shanghai), such recapitalization and investment to be effected as set forth in detail in this Agreement, in each case on the terms and subject to the conditions set forth in this Agreement. HEI owns certain of the intellectual property rights currently used by the Company, ChipPAC Korea and ChipPAC Shanghai in the conduct of their business. Certain of those intellectual property rights shall be transferred to ChipPAC BVI, as set forth in Section 2.2. NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I CERTAIN DEFINITIONS Section 1. 1 Definitions. (a) Defined Terms. As used in this Agreement, the following defined terms have the meanings indicated below: "Action or Proceeding" and "Actions or Proceedings" mean any action, suit, proceeding, arbitration or publicly disclosed Governmental or Regulatory Authority investigation. "Actual Capital Expenditures" has the meaning assigned in Section 2.4(a)(ii). 1 "Actual R&D Expenditures" has the meaning assigned in Section 2.4(a)(ii). "Advisory Agreements" means the Advisory Agreement to be dated as of the Closing Date by and among the Company, ChipPAC BVI, ChipPAC Operating and Bain Capital, Inc. and the Advisory Agreement to be dated as of the Closing Date by and among the Company, ChipPAC BVI, ChipPAC Operating and MSX Holdings LLC, forms of which are annexed as exhibits to the Shareholders Agreement. MSX Holdings LLC plans to change its name to SXI Group LLC. "Affiliate" means any person that directly, or indirectly through one or more intermediaries, controls or is controlled by or is under common control with the person specified. A "controlled Affiliate" means any person that is controlled by the person specified. "Aggregate Consideration" means collectively, the Cash Consideration, the Common Stock Consideration, the Preferred Stock Consideration and the HEI Earn-Out. "Agreement" means this Agreement and Plan of Recapitalization and Merger dated as of March 13, 1999 by and among HEI, HEA, the Company, and Merger Sub. "Ancillary Agreements" means (i) the Building Lease Agreement between HEI and ChipPAC Korea dated June 30, 1998, as amended in accordance with Section 12.18, in substantially the form of Annex I hereto; (ii) the Utilities and Services Agreement between HEI and ChipPAC Korea dated June 18/30, 1998, as amended, in substantially the form of Annex II hereto; (iii) the Utilities and Services Agreement between ChipPAC Korea and HEI dated June 18/30, 1998, as amended, in substantially the form of Annex III hereto; (iv) the Equipment Lease Agreement between HEI and ChipPAC Korea dated June 30, 1998, as amended in accordance with Section 12.18, in substantially the form of Annex IV hereto; (v) the Information System Management Service Agreement between Hyundai Information Technology and ChipPAC Korea dated June 1998, as amended, in substantially the form of Annex V hereto; (vi) the Sublease to 3151 Coronado Drive, Santa Clara, CA 95054 dated as of May 1, 1998, as amended, by and among HEA and the Company, in substantially the form of Annex VI hereto; (vii) the Patent and Technology License Agreement between HEI and ChipPAC BVI to be dated as of the Closing Date, in substantially the form of Annex VII hereto and as amended in accordance with Section 12.18; (viii) a Shareholders Agreement to be dated as of the Closing Date by and among HEA, the Bain Group, the MSX Group and the Company with respect to ChipPAC Inc., in substantially the form of Annex VIII hereto; (ix) a Transition Services Agreement to be dated as of the Closing Date by and among HEI, HEA, the Company, ChipPAC Korea, ChipPAC Shanghai and ChipPAC BVI, in substantially the form of Annex IX hereto providing for transition service arrangements for the Company and its Subsidiaries; (x) a Service Agreement to be dated as of the Closing Date between HEI and ChipPAC BVI in substantially the form of Annex X hereto, and (xi) a Registration Agreement to be dated as of the Closing Date between the Company and the shareholders of the Company named therein, in substantially the form of Annex XI hereto. "Associated Covenants and Agreements" means, with respect to (i) HEI and HEA, the covenants and agreements of HEI and HEA set forth in the first sentence of Section 5.4, Section 2 5.5(m) and Section 5.7 which affect the continued accuracy of the specified representations and warranties of HEI and HEA as brought down to the Closing pursuant to Section 8.2(a), and (ii) Merger Sub, the covenants and agreements of Merger Sub set forth in Section 6.2 and Section 6.3 which affect the continued accuracy of the specified representations and warranties of Merger Sub as brought down to the Closing pursuant to Section 8.3(a). "Bain Group" has the meaning set forth in the Shareholders Agreement. "Balance Sheet" has the meaning assigned in Section 3.7(a). "Benefit Plan" means any Plan established by the Company, ChipPAC Korea, ChipPAC Shanghai or any of their respective Subsidiaries, or any predecessor or Affiliate of any of the foregoing, existing at the date hereof or at the Closing Date to which the Company, ChipPAC Korea or ChipPAC Shanghai contributes or has contributed, or under which any employee, former employee or director of the Company, ChipPAC Korea or ChipPAC Shanghai or any beneficiary thereof is covered, is eligible for coverage or has benefit rights in such person's capacity as an employee or former employee or director of the Company, ChipPAC Korea or ChipPAC Shanghai or any of their respective Subsidiaries. "Business Day" means a day that is not a Saturday, a Sunday or a statutory or civic holiday in the State of California or the Republic of Korea, or any other day on which the principal offices of HEI, HEA, or the Company are closed or become closed prior to 2 p.m. local time whether in accordance with established company policy or as a result of unanticipated events, including adverse weather conditions. "California Agreement of Merger" has the meaning assigned in Section 2.3. "Capital Budget" means the capital expenditure budget of the Company, ChipPAC Korea and ChipPAC Shanghai heretofore provided to Merger Sub and attached hereto as Exhibit E. "Cash Consideration" means an aggregate total of four hundred twenty-five million dollars ($425,000,000), comprised of (i) the Korean Stock Sale Proceeds before adding or subtracting the Korean Stock Sale Adjustments, (ii) the Chinese Equity Sale Proceeds before subtracting the Chinese Debt Payoff and the Chinese Intercompany Payoff, (iii) the ChipPAC Korea Note payment plus the Estimated Korean Debt Payoff, and (iv) the Intellectual Property Note payment. "CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, and the rules and regulations promulgated thereunder. "CERCLIS" means the Comprehensive Environmental Response and Liability Information System, as provided by 40 C.F.R. (S) 300.5. "CGCL" has the meaning assigned in Section 2.3. 3 "Change-In-Control Payments" has the meaning assigned in Section 2.3(d). "Chinese Debt Payoff" has the meaning assigned in Section 2.2(g)(iii). "Chinese Equity Sale Proceeds" has the meaning assigned in Section 2.2(f)(ii). "Chinese Intercompany Payoff" has the meaning assigned in Section 2.2(g)(iv). "ChipPAC Barbados" means ChipPAC Barbados, Inc., a corporation incorporated or to be incorporated under the laws of Barbados which immediately prior to the Closing shall be a wholly owned subsidiary of the Company. "ChipPAC BVI" means ChipPAC Limited, a corporation incorporated or to be incorporated under the laws of the Territory of the British Virgin Islands which immediately prior to the Closing shall be wholly owned subsidiary of HEI. "ChipPAC BVI II" means ChipPAC Operating Limited, a corporation incorporated or to be incorporated under the laws of the Territory of the British Virgin Islands which immediately prior to the Closing shall be a wholly owned subsidiary of the Company. "ChipPAC Hungary" means ChipPAC Hungary Kft, a corporation incorporated or to be incorporated under the laws of Hungary as a subsidiary of ChipPAC BVI II. "ChipPAC Korea" means ChipPAC Korea Company Ltd., a corporation incorporated under the laws of the Republic of Korea. "ChipPAC Korea Note" has the meaning assigned in Section 2.2(a). "ChipPAC Korea Shareholders Agreement" has the meaning assigned in Section 2.2(f)(i). "ChipPAC Luxembourg" means ChipPAC Luxembourg S.a.r.l., a corporation incorporated or to be incorporated under the laws of Luxembourg as a subsidiary of ChipPAC BVI II. "ChipPAC Shanghai" means ChipPAC Shanghai I and ChipPAC Shanghai II, or either of them, as the context may require. "ChipPAC Shanghai I" means Hyundai Electronics (Shanghai) Company Ltd., a company limited and a wholly foreign owned entity under the laws of the People's Republic of China. "ChipPAC Shanghai II" means ChipPAC Assembly and Test (Shanghai) Company, Ltd., a company limited and wholly foreign owned entity under the laws of the People's Republic of China. "Claim Notice" has the meaning assigned in Section 10.7(a). 4 "Class A Common" means the Class A Common Stock, par value $.01 per share, of the Company. "Class L Common" means the Class L Common Stock, par value $.01 per share, of the Company. "Closing" has the meaning assigned in Section 2.1. "Closing Balance Sheet" has the meaning assigned in Section 2.4(a)(ii). "Closing Financial Statements" has the meaning assigned in Section 2.4(a)(ii). "Closing Working Capital" has the meaning assigned in Section 2.4(a)(ii). "Closing Date" has the meaning assigned in Section 2.1. "Code" means the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder. "Common Stock Consideration" has the meaning assigned in Section 2.3(a)(i)(x). "Company" means ChipPAC, Inc., a California corporation. "Company Common Stock" means the shares of common stock, no par value, of the Company. "Company Disclosure Schedule" has the meaning assigned in the forepart of Article III. "Company Option" and "Company Options" mean options to acquire Company Common Stock. "Company Preferred Stock" means the shares of Series A preferred stock, no par value, of the Company. "Company Senior Preferred Stock" means the Series B senior preferred stock, par value $.01 per share, with the terms set forth in the Amended and Restated Articles of Incorporation attached hereto as Exhibit C. "Company Tax Returns" has the meaning assigned in Section 11.1(a). "Contract" means any contract, agreement or other document (including any oral contract or agreement) setting forth an agreement or understanding between two or more parties intended by such parties to be legally binding. "Conversion Date" has the meaning assigned in Section 2.2(b). "Counter-Notice of Disagreement" has the meaning assigned in Section 2.4(d). 5 "CPA Firm" has the meaning assigned in Section 2.4(d). "Delaware Certificate of Merger" has the meaning assigned in Section 2.3. "Designee" has the meaning assigned in Section 2.2(b). "DGCL" has the meaning assigned in Section 2.3. "Earn-Out Maximum" has the meaning assigned in the forepart of Section 2.5. "Earn-Out Payment" has the meaning assigned in the forepart of Section 2.5. "Earn-Out Period" has the meaning assigned in Section 2.5. "Earn-Out Ratio" has the meaning assigned in Section 2.5(a). "Earn-Out Spread" has the meaning assigned in Section 2.5(a). "EBITDA" has the meaning assigned in Section 2.5(a). "Effective Time" has the meaning assigned in Section 2.3. "Encumbrances" means any mortgage, pledge, assessment, security interest, lease, lien, adverse claim, levy, charge or other encumbrance of any kind, or any conditional sale contract, title retention contract or other contract to give any of the foregoing. "Environmental Law" means any statute, enactment, administrative agency rule or promulgation, regulation, ordinance, or other law or Order relating to the regulation or protection of human health, safety or the environment or to emissions, discharges, generation, releases or threatened releases of pollutants, contaminants, chemicals or industrial, toxic or hazardous substances or wastes into the environment (including, without limitation, ambient air, soil, surface water, ground water, wetlands, land or subsurface strata), or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of any Hazardous Material. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations promulgated thereunder. "Estimated Closing Balance Sheet" has the meaning assigned in Section 2.4(a)(i). "Estimated Closing Working Capital" has the meaning assigned in Section 2.4(a)(i). "Estimated Korean Debt Payoff" has the meaning assigned in Section 2.2(a). "Estimated Pre-Closing Capital Expenditures" has the meaning assigned in Section 2.4(a)(i). 6 "Estimated Pre-Closing R&D Expenditures" has the meaning assigned in Section 2.4(a)(i). "Excess Cash" has the meaning assigned in Section 2.4(a)(i). "FEMR" means the Foreign Exchange Management Regulation of the Republic of Korea. "FIFCIL" means the Foreign Investment and Foreign Capital Inducement Law of the Republic of Korea. "Financial Statement Date" has the meaning assigned in Section 3.7(a). "Financial Statements" has the meaning assigned in Section 3.7(a). "Financing Source" has the meaning assigned in Section 12.5. "Furnishing Party" has the meaning assigned in Section 12.5. "GAAP" means United States generally accepted accounting principles, consistently applied throughout the specified period and in the immediately prior comparable period. "Governmental or Regulatory Authority" means any court, tribunal, arbitrator, authority, agency, commission, official or other instrumentality of the United States, any other country, any state, provincial, county, city, municipal or other political subdivision in the United States or any other country, or any supranational body established pursuant to international law or treaty exercising similar powers. "Hazardous Material" means (i) any petroleum or petroleum products, flammable explosives, radioactive materials, asbestos in any friable form, urea formaldehyde foam insulation and transformers or other equipment that contain dielectric fluid containing levels of polychlorinated biphenyls (PCBs); (ii) any chemicals or other materials or substances which are now or hereafter become defined as or included in the definition of "hazardous substances," "hazardous wastes," "hazardous materials," "extremely hazardous wastes" "restricted hazardous wastes," "toxic substances," "toxic pollutants" or words of similar import under any Environmental Law; and (iii) any other chemical or other material or substance, exposure to which is now or hereafter prohibited, limited or regulated by any Governmental or Regulatory Authority under any Environmental Law. "HEA" means Hyundai Electronics America, a California corporation. "HEI" means Hyundai Electronics Industries Company Ltd., a Republic of Korea corporation. "HEI Earn-Out" has the meaning assigned in Section 2.5. 7 "HEI License Agreement" means the Patent and Technology License Agreement between HEI and ChipPAC BVI to be dated as of the Closing Date, in substantially the form of Annex VII hereto, as amended in accordance with Section 12.18(d) hereof, pursuant to which HEI shall grant ChipPAC BVI the rights in the subject intellectual property described therein. "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder. "Hyundai Compliance Certificate" has the meaning assigned in Section 10.2(a). "Indebtedness" of any person means (a) each and every obligation of such person which is either (i) an obligation for borrowed money, (ii) an obligation evidenced by notes, bonds, debentures or similar instruments (including banker's usances), (iii) an obligation for the deferred purchase price of goods or services (other than trade payables or accruals incurred in the ordinary course of business), (iv) an obligation under capital leases, or (v) any accrued but unpaid interest or prepayment or other penalties upon any of the foregoing or any lease termination charges or payments required to take title to property under a lease, and (b) an obligation in the nature of a guarantee by such person, or a pledge of assets of such person, in support of any obligation of any other person that is within the scope of the immediately preceding clauses (a)(i) through (a)(v). "Indemnity Claim" has the meaning assigned in Section 10.7(a). "Intellectual Property" means all patents and patent rights, trademarks and trademark rights, trade names and trade name rights, service marks and service mark rights, service names and service name rights, brand names, inventions, copyrights and copyright rights, processes, formulae, trade dress, business and product names, logos, slogans, trade secrets, industrial models, processes, designs, methodologies, computer programs (including all source codes) and related documentation, technical information, manufacturing, engineering and technical drawings, know-how, all pending applications for and registrations of patents, trademarks, service marks and copyrights, and all other intellectual property rights of every kind or nature. "Intellectual Property Note" has the meaning assigned in Section 2.2(c)(iv). "Intercompany Technical Fees" has the meaning assigned in Schedule 2.2(g)(iv). "Intercompany Interest" has the meaning assigned in Schedule 2.2(g)(iv). "IP Rights" has the meaning assigned in Section 3.14(a). "IRS" means the United States Internal Revenue Service. "Knowledge", when used with respect to HEI or HEA, means the knowledge, after due inquiry, of the directors, the chief executive officer and chief financial officer of the Company, and the chief executive officer (or equivalent managing officer) of ChipPAC Korea and the chief executive officer (or equivalent managing officer) of ChipPAC Shanghai, and, when used with 8 respect to Merger Sub, means the knowledge, after due inquiry, of the executive officers of Merger Sub. "Korean Debt Payoff" has the meaning assigned in Section 2.3(g)(ii). "Korean Stock Sale Adjustments" has the meaning assigned in Section 2.2(f)(iii). "Korean Stock Sale Proceeds" has the meaning assigned in Section 2.2(f)(iii). "Lemelson Estate" has the meaning assigned in Section 10.2(b)(ii). "Lemelson Foundation" has the meaning assigned in Section 10.2(b)(ii). "Lemelson License Agreement" has the meaning assigned in Section 10.2(b)(ii). "Liability" and "Liabilities" mean any and all Indebtedness, obligations and other liabilities of a person (whether absolute, accrued, contingent, fixed or otherwise, or whether due or to become due). "License" has the meaning assigned in Section 7.7. "Loss" and "Losses" mean any and all damages, fines, penalties, deficiencies, losses and expenses (including interest, court costs, reasonable fees of attorneys, accountants and other experts and other reasonable expenses of litigation or other proceedings or of any claim, default or assessment). "Material Adverse Effect" with respect to any person means a material adverse change in or effect on the business, financial condition, assets, properties, operations or results of operations of such person and all Subsidiaries of such person, taking such person together with such person's Subsidiaries as a whole; provided, however, that a "Material Adverse Effect" with respect to the Company, ChipPAC Korea and ChipPAC Shanghai shall not include any of the following or any combination of the following: any change or effect resulting from (A) general national, international, or regional economic or financial conditions or currency exchange rates, (B) other developments which are not unique to the Company, ChipPAC Korea, ChipPAC Shanghai and their Subsidiaries but also affect other persons who participate or are engaged in the lines of business in which they and their Subsidiaries participate or are engaged, and (C) any change or effect resulting from the failure in and of itself of results of operations of the Company, ChipPAC Korea, ChipPAC Shanghai or any of their respective Subsidiaries, for a given quarterly period, to meet any internal or external predictions, projections, estimates or expectations, unless such failure reflects an ongoing long-term change in the business rather than near-term timing of orders or payments that will be realized in the subsequent quarterly period. "Merger" has the meaning assigned in Section 2.3. "Merger Sub" has the meaning assigned in the forepart of this Agreement. 9 "Merger Sub Compliance Certificate" has the meaning assigned in Section 10.4 of this Agreement. "Merger Sub Disclosure Schedule" has the meaning assigned in the forepart of Article IV. "MOFE" means the Ministry of Finance and Economy of the Republic of Korea. "MOFTEC" means Ministry of Foreign Trade and Economic Cooperation of the People's Republic of China. "Motorola License Agreement" has the meaning assigned in Section 2.2(c)(iii). "MSX Group" has the meaning assigned in the Shareholders Agreement. MSX Holdings LLC, a member of the MSX Group, plans to change its name to SXI Group LLC. "New Shares" means the shares of Company common stock to be issued to the shareholders of Merger Sub in the Merger pursuant to Article II. "Note Payments" has the meaning assigned in Section 2.2(g)(v). "Notice of Disagreement" has the meaning assigned in Section 2.4(d). "NPL" means the National Priorities List under CERCLA. "Officers' Certificates" has the meaning assigned in Section 2.3. "Olin License Agreement" has the meaning assigned in Section 2.2(c)(iii). "Order" means any writ, judgment, decree, injunction or similar order of any Governmental or Regulatory Authority (whether preliminary or final). "Packaging-Related IP Rights" means, with respect to the Motorola License Agreement and the Olin License Agreement, those rights thereunder which are necessary for the Company and its Subsidiaries after the Closing to conduct the businesses of the Company, ChipPAC Korea, and ChipPAC Shanghai as presently conducted. "Peg Amount" has the meaning assigned in the forepart of Section 2.4. "Pension Benefit Plan" means each Benefit Plan which is a pension benefit plan within the meaning of Section 3(2) of ERISA. "Permit" and "Permits" mean any and all permits, licenses, certificates of authority, authorizations, approvals, registrations, franchises and similar consents granted or issued by any Governmental or Regulatory Authority. 10 "Permitted Encumbrance" means any of the following: (i) any Encumbrance for Taxes not yet due or delinquent or being contested in good faith by appropriate proceedings for which adequate reserves have been established in accordance with GAAP, (ii) any statutory Encumbrance arising in the ordinary course of business by operation of law with respect to a Liability that is not yet due or delinquent, or (iii) any minor imperfection of title or similar Encumbrance which does not materially impair the Company's use of the property subject to such Encumbrance. "Per Share Amount" means the amount determined by dividing (i) the sum of (A) the Cash Consideration plus (B) the value as of the Closing of the Common Stock Consideration, the Preferred Stock Consideration and the HEI Earn-Out, by (ii) the sum of (A) the number of shares of Company Common Stock deemed to be outstanding pursuant to the Management Incentive Agreement dated as of August 1, 1998 by and between ChipPAC, Inc., and Dennis McKenna (i.e., 755,549,999) and (B) the number of shares of Common Stock which would have been issuable upon exercise of all vested Company Options. "Plan" means any bonus, incentive compensation, deferred compensation, pension, profit sharing, retirement, stock purchase, stock option, stock ownership, stock appreciation rights, phantom stock, leave of absence, layoff, vacation, day or dependent care, legal services, cafeteria, life, health, accident, disability, workmen's compensation or other insurance, severance, separation or other employee benefit plan, practice, policy or arrangement of any kind, whether written or oral, including any "employee benefit plan" within the meaning of Section 3(3) of ERISA. "Pre-Closing Period" has the meaning assigned in Section 11.1(a). "Pre-Existing Test Business" has the meaning assigned in Section 12.16(a). "Preferred Stock Consideration" has the meaning assigned in Section 2.3(a)(i)(y). "Purchaser Party" has the meaning assigned in Section 10.2(a). "R&D Budgets" has the meaning assigned in Section 2.4(b). "Recapitalization Transactions" has the meaning assigned in Section 2.2. "Receiving Party" has the meaning assigned in Section 12.5. "Redemption Date" has the meaning assigned in Section 2.2(a). "Reduction in Capital" has the meaning assigned in Section 2.2(a). "Registration Agreement" means the Registration Agreement to be dated as of the Closing Date between the Company and the shareholders of the Company named therein, in substantially the form of Annex XI hereto. "Regulation S-X has the meaning assigned in Section 2.5(b). 11 "Release" means any release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration into the indoor or outdoor environment, including, without limitation, the movement of Hazardous Materials through ambient air, soil, surface water, ground water, wetlands, land or subsurface strata. "Representatives" has the meaning assigned in Section 5.2. "Required Working Capital" has the meaning assigned in Section 2.4(b). "Shareholders Agreement" means the Shareholders Agreement to be dated as of the Closing Date by and among HEA, the Bain Group, the MSX Group and the Company with respect to ChipPAC, Inc. "Stock Plan" means the ChipPAC, Inc. 1997 Stock Option Plan. "Straddle Period" has the meaning assigned in Section 11.1(a). "Subsidiary" and "Subsidiaries" mean any and all corporations or other entities more than fifty percent (50%) of the voting power of which is owned directly, or indirectly through one or more intermediate corporations or entities which are so owned, by a party or other relevant person, as the context requires. "Surviving Corporation" has the meaning assigned in Section 2.3. "Tax Proceedings" has the meaning assigned in Section 11.4. "Tax Returns" means a report, return or other information required to be supplied to a governmental entity with respect to Taxes including combined or consolidated returns for any group of entities that includes the Company, ChipPAC Korea or ChipPAC Shanghai. "Tax Sharing Agreement" means that certain Tax Allocation Agreement, dated July 21, 1995, by and among HEA, the Company and certain other direct or indirect Subsidiaries of HEA, as amended, to be terminated as to the Company as of the Closing Date. "Taxes" means any national, federal, provincial, state, county, local or other taxes, charges, fees, levies, duties or other assessments, including all net income, gross income, sales and use, ad valorem, transfer, gains, profits, excise, franchise, real and personal property, gross receipt, capital stock, production, business and occupation, disability, employment, payroll, license, estimated, stamp, custom duties, severance or withholding taxes or charges imposed by a governmental entity, and includes any interest and penalties (civil or criminal) on or additions to any such taxes and any expenses incurred in connection with the determination, settlement or litigation of any tax liability. "Tessera License Agreement" has the meaning assigned in Section 2.2(c)(iii). "Third Party" means any person (including a Governmental or Regulatory Authority) not an Affiliate of the referenced person or persons. 12 "Third Party Claim" has the meaning assigned in Section 10.6(a). "US Debt Payoff" has the meaning assigned in Section 2.2(g)(i). "US Intercompany Payoff" has the meaning assigned in Section 2.2(g)(iv). "Working Capital" has the meaning assigned in Section 2.4. "YH Conversion" has the meaning assigned in Section 2.2(b). "YH Purchase Price" has the meaning assigned in Section 2.2(b). (b) Construction of Certain Terms and Phrases. Unless the context of this Agreement otherwise requires: (i) words of any gender include each other gender; (ii) all references to monetary amounts are in U.S. dollars, unless expressly stated to refer to another currency; (iii) the terms "hereof," "herein," "hereby," "hereunder," and similar words refer to this entire Agreement; (iv) the terms "Article" or "Section" refer to the specified Article or Section of this Agreement; (v) the phrase "ordinary course of business" refers to the businesses of the Company, ChipPAC Korea and ChipPAC Shanghai; (vi) whenever the words "include," "includes" or "including" are used in this Agreement they shall be deemed to be followed by the words "without limitation"; (vii) whenever this Agreement refers to a number of days, such number shall refer to calendar days unless Business Days are specified; (viii) the phrases "the date of this Agreement," "the date hereof," and terms of similar import, unless the context otherwise requires, shall be deemed to refer to March 13, 1999; (ix) all accounting terms used herein and not expressly defined herein shall have the meanings given to them under GAAP; (x) any representation or warranty contained herein as to the enforceability of a Contract shall be subject to the effect and limitations of any bankruptcy, insolvency, reorganization, moratorium or other similar law affecting the enforcement of creditors' rights generally and to general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law); and (xi) the table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. ARTICLE II RECAPITALIZATION AND CLOSING Section 2.1 Closing. The closing of the Recapitalization Transactions (as defined in Section 2.2) (the "Closing") shall take place as promptly as practicable after the date of this Agreement, subject only to the satisfaction or waiver of the conditions set forth in Article VIII, and in any event no later than August 15, 1999, or such other date as Merger Sub, HEI and HEA mutually agree upon in writing (the "Closing Date"). The Closing shall take place at 8 a.m. local time on the Closing Date and shall be held at the offices of Cravath Swaine & Moore, 825 Eighth Avenue, New York, New York, or at such other place as Merger Sub, HEI and HEA mutually agree. At the Closing: 13 (a) the Recapitalization Transactions shall be consummated; (b) the opinions, certificates and other documents and instruments required to be delivered pursuant to Article VIII shall be delivered; and (c) each of HEI, the Company, ChipPAC Korea and ChipPAC Shanghai shall provide payoff letters from the creditors of all Indebtedness and obligations which are to be repaid pursuant to Section 2.2, which payoff letters shall indicate that such creditors have agreed to immediately release all Encumbrances in favor of such creditors relating to the assets of the Company, ChipPAC Korea, ChipPAC Shanghai and any of their respective Subsidiaries upon receipt of the amounts indicated in such payoff letters. Section 2.2 Recapitalization. On the terms and subject to the conditions set forth in this Agreement, the Company will be recapitalized through the steps set forth in subsections (a) through (g) of this Section 2.2. The transactions set forth in subsections (a) through (g) of this Section 2.2, together with the Merger described in Section 2.3, are collectively referred to herein as the "Recapitalization Transactions" and shall be deemed to have taken place in the order set forth herein. (a) Reduction of ChipPAC Korea Capital. Upon such date as Merger Sub shall determine following consultation with HEI (which date shall be more than thirty (30) but not more than thirty-five (35) days prior to the anticipated Closing Date), HEI shall cause ChipPAC Korea to publish notice, in accordance with the applicable requirements of Korean law, of its intention to effect a reduction in the capital of ChipPAC Korea (the "Reduction in Capital"), effective on the date specified therein (which date shall be the earliest date permitted by applicable law after the notice date) (the "Redemption Date"), in an amount equal to (A) one hundred seventy five million dollars ($175,000,000) minus (B) the amount which Merger Sub and HEI mutually agree to be the estimated amount of the Korean Debt Payoff (the "Estimated Korean Debt Payoff"). On the Redemption Date, the Reduction in Capital shall be effected, unless (i) ChipPAC Korea shall then be required, prior to and as a condition to the completion of the Reduction in Capital, to pay creditor claims in an aggregate amount in excess of $10 million, and (ii) the other Recapitalization Transactions are not likely, in the reasonable good faith judgment of HEI following consultation with Merger Sub, to be consummated within thirty (30) days after the Redemption Date, in which case the Reduction in Capital may, prior to the effectiveness thereof, at the election of HEI, be postponed or withdrawn and a new Redemption Date fixed which is reasonably likely to occur on or prior to the anticipated Closing Date. Upon the effectiveness of the Reduction in Capital, ChipPAC Korea shall issue to HEI a non-interest-bearing demand promissory note substantially in the form of Annex XV (the "ChipPAC Korea Note") in the initial principal amount equal to the amount of the Reduction in Capital. (b) Conversion of the Corporate Form of ChipPAC Korea. Promptly after the date of this Agreement (and not less than forty-five (45) days before the anticipated Closing Date), HEI shall, and shall cause ChipPAC Korea to, undertake all necessary corporate 14 formalities required for the conversion of the corporate form of ChipPAC Korea from a Chusik Hosea to a Yuhan Hosea (the "YH Conversion"). Thereafter, upon such date as Merger Sub shall determine following consultation with HEI (which date shall be more than thirty (30) but not more than thirty-five (35) days prior to the anticipated Closing Date), HEI shall, and shall cause ChipPAC Korea to, publish notice, in accordance with the applicable requirements of Korean law, of its intention to effect the YH Conversion, effective on the date specified therein (or such other later date occurring on or prior to the Closing Date which is permitted pursuant to applicable law) (the "Conversion Date"). On the Conversion Date, the YH Conversion shall be effected and HEI shall sell to one of its Korean Subsidiaries or to another person or entity reasonably satisfactory to Merger Sub (the "Designee") a 0.1% interest in the equity of ChipPAC Korea for a purchase price (the "YH Purchase Price") equal to 0.1% of the estimated Korean Stock Sale Proceeds (such purchase price estimated to be approximately seventy thousand dollars ($70,000)). (c) Equity Contributions and Transfers Relating to ChipPAC Barbados and ChipPAC BVI. Prior to the Closing: (i) the Company shall contribute one hundred dollars ($100) of equity capital to ChipPAC Barbados in exchange for all of the capital stock of ChipPAC Barbados; (ii) HEI shall contribute one hundred dollars ($100) of equity capital to ChipPAC BVI in exchange for all of the capital stock of ChipPAC BVI; (iii) Subject, in the case of clause (A), to the retention by HEI of the right to use those Packaging-Related IP Rights required by HEI and its controlled Affiliates for the conduct of test, assembly and packaging services permitted by Section 12.16, (A) HEI will assign or otherwise transfer to ChipPAC BVI (whether by assignment, substitution of parties or novation, or by other means reasonably satisfactory to Merger Sub) the Packaging-Related IP Rights held by HEI under the Patent License Agreement dated December 20, 1994 by and between Motorola, Inc. and HEI, as amended by letter agreement dated August 5, 1998 (as so amended, the "Motorola License Agreement") and the Technology License Agreement dated as of March 28, 1994 by and between Olin Corporation and HEI, as amended by Amendment No. 1 thereto dated November 22/30, 1994 and Amendment No. 2 thereto dated March 1/April 11, 1996 (as so amended, the "Olin License Agreement"), and obtain a release of HEI's obligations thereunder with respect to such Packaging-Related IP Rights so assigned or transferred; (B) HEA will cause ChipPAC BVI to obtain rights from Tessera, Inc. (whether by direct license from Tessera, Inc., assignment of existing license rights from the Company to HEA and then from HEA to ChipPAC BVI, substitution of parties or novation, or by other means reasonably satisfactory to Merger Sub) substantially equivalent to the rights granted to the Company in the TCC License Agreement dated December 22, 1998 by and among Tessera Inc., the Tessera Affiliates, and the Company (the "Tessera License Agreement"); (C) HEI will assign or otherwise transfer to ChipPAC BVI (whether by assignment, substitution of parties or novation, or by other means reasonably satisfactory to Merger Sub) the rights of HEI and HEA under the Assembly Services Agreement dated September 16, 1996 by and among Intel Corporation, HEA and HEI; and (D) HEI will assign or otherwise transfer, or cause the Company to assign or 15 otherwise transfer, to ChipPAC BVI (whether by assignment, substitution of parties or novation, or by other means reasonably satisfactory to Merger Sub) the Assembly and Test Services Agreement dated March 15, 1993 by and between LSI Logic Corporation and HEI, and the Company's rights under the Assembly Agreement dated October 23, 1998 by and between Asahi Kasei Microsystems Co., Ltd. and the Company and to obtain a release of HEI, HEA and the Company from any and all obligations thereunder; and (iv) ChipPAC BVI shall issue to HEI a non-interest-bearing demand promissory note substantially in the form of Annex XVI (the "Intellectual Property Note") in the initial principal amount of one hundred million dollars ($100,000,000), in exchange for the HEI License Agreement and the assignment of the agreements specified in Section 2.2(c)(iii). (d) Equity Contributions Relating to ChipPAC BVI II, ChipPAC Luxembourg and ChipPAC Hungary. Prior to the Closing: (i) the Company shall contribute one hundred dollars ($100) of equity capital to ChipPAC BVI II in exchange for all of the capital stock of ChipPAC BVI II; and (ii) ChipPAC BVI II shall contribute the minimum amount of equity capital required by applicable law in Luxembourg and Hungary, respectively, in exchange for all of the capital stock of ChipPAC Luxembourg and ChipPAC Hungary, respectively. (e) Merger: Borrowing of Funds and Subsequent Loans and Equity Investments. At the Closing: (i) Merger Sub shall merge with and into the Company and the capital stock of the Company and Merger Sub shall be converted into the consideration provided for in Section 2.3. (ii) immediately following the consummation of the Merger, the Company shall contribute not less than sixty-seven million dollars ($67,000,000) in cash to ChipPAC Barbados; (iii) ChipPAC BVI II shall incur indebtedness in the aggregate amounts and upon the terms and conditions to be determined by its Board of Directors immediately following the Merger; (iv) ChipPAC BVI II shall loan (A) one hundred forty million dollars ($140,000,000) to ChipPAC Luxembourg; (B) thirty-four million dollars ($34,000,000) to ChipPAC Shanghai I and (C) one hundred fifty-one million dollars ($151,000,000) to ChipPAC BVI; (v) ChipPAC BVI II shall increase its equity investment in ChipPAC Hungary to at least thirty-five million dollars ($35,000,000); 16 (vi) ChipPAC Luxembourg shall loan one hundred forty, million dollars ($140,000,000) to ChipPAC Hungary; and (vii) ChipPAC Hungary shall loan an amount equal to the sum of the Estimated Korean Debt Payoff and the amount of the ChipPAC Korea Note (i.e., one hundred seventy-five million dollars ($175,000,000)) to ChipPAC Korea. (f) Purchase of ChipPAC BVI, ChipPAC Korea and ChipPAC Shanghai. At the Closing: (i) ChipPAC Barbados shall: (A) purchase ChipPAC BVI from HEI for one hundred dollars ($100) in cash, (B) purchase the Designee's 0.1% interest in the equity of ChipPAC Korea (which interest shall be held in accordance with the terms of the shareholders agreement to be executed and delivered by ChipPAC Barbados and ChipPAC BVI (the "ChipPAC Korea Shareholders Agreement")) for an amount equal to the YH Purchase Price, and (C) contribute not less than sixty-seven million dollars ($67,000,000) in cash to ChipPAC BVI; (ii) ChipPAC BVI shall purchase one hundred percent (100%) of the equity capital of ChipPAC Shanghai I from HEI for an amount (the "Chinese Equity Sale Proceeds") equal to eighty million dollars ($80,000,000) in cash minus the sum of (A) the Chinese Debt Payoff and (B) the Chinese Intercompany Payoff; (iii) ChipPAC BVI shall purchase 99.9% of the then outstanding capital stock of ChipPAC Korea from HEI (which interest shall be held in accordance with the terms of the ChipPAC Korea Shareholders Agreement) for an amount (the "Korean Stock Sale Proceeds") equal to seventy million dollars ($70,000,000) in cash, plus (A) the difference by which the amount of the Estimated Korean Debt Payoff exceeds the actual amount of the Korean Debt Payoff, if any, minus (B) the difference by which the actual amount of the Korean Debt Payoff exceeds the amount of the Estimated Korean Debt Payoff, if any, minus (C) the sum of the payments required to be made pursuant to Section 2.3(a)(iv) and Section 2.3(d) hereof, and minus (D) the sum of the US Debt Payoff and the US Intercompany Payoff (clauses (A) through (D) of this Section 2.2(f)(iii) collectively, the "Korean Stock Sale Adjustments"); and (iv) ChipPAC BVI shall purchase ChipPAC Shanghai II from the Company for two million dollars ($2,000,000) in cash. In addition to the cash payments at the Closing set forth in clauses (ii) and (iii) of this Section 2.2(f), HEI shall be entitled to receive, on the terms and conditions set forth in Section 2.5, the HEI Earn-Out (as defined in Section 2.5), it being understood and agreed that 70.185% of the HEI Earn-Out (if any) shall be deemed to be additional consideration for the sale of ChipPAC Korea stock pursuant to clause (iii) of this Section 2.2(f) and 29.815% of the HEI Earn-Out (if any) shall be deemed to be additional consideration for the sale of ChipPAC Shanghai stock pursuant to clause (ii) of this Section 2.2(f). (g) Payoff of Debt. At the Closing: 17 (i) the Company shall repay all of its Indebtedness outstanding immediately prior to the consummation of the Merger (collectively, the "US Debt Payoff"); (ii) ChipPAC Korea shall repay all of its Indebtedness outstanding immediately prior to the consummation of the Merger and all Indebtedness and Liabilities related to the items disclosed on Schedule 2.2(g)(ii) outstanding immediately prior to the consummation of the Merger (collectively, the "Korean Debt Payoff"); (iii) ChipPAC Shanghai shall repay all of its Indebtedness outstanding immediately prior to the consummation of the Merger and all Indebtedness and payables disclosed on Schedule 2.2(g)(iii) outstanding immediately prior to the consummation of the Merger (collectively, the "Chinese Debt Payoff"); (iv) all payables and other Liabilities (other than Liabilities created by this Agreement and the Ancillary Agreements) owed by HEI, HEA or any of their respective Affiliates (other than the Company, ChipPAC Korea or ChipPAC Shanghai) to the Company, ChipPAC Korea, ChipPAC Shanghai, ChipPAC BVI, ChipPAC Barbados or any other Subsidiary of the Company, whether or not reflected in the Balance Sheet, shall be canceled without payment, in full and complete satisfaction of such payables and Liabilities, and (to the extent not already paid pursuant to other provisions of this Agreement) all payables and other Liabilities (other than Liabilities created by this Agreement and the Ancillary Agreements) owed by the Company, ChipPAC Korea, ChipPAC Shanghai, ChipPAC BVI, ChipPAC Barbados or any other Subsidiary of the Company to HEI, HEA or any of their respective Affiliates shall be canceled without payment, in full and complete satisfaction of such payables and Liabilities, except that (A) the Company shall repay its payables and Liabilities set forth in Schedule 2.2(g)(iv) outstanding immediately prior to the consummation of the Merger (the "US Intercompany Payoff"), (B) ChipPAC BVI shall pay to HEI (such payment to be treated as a deduction from the gross Chinese Equity Sale Proceeds) the amount of the Intercompany Technical Fees and the Intercompany Interest outstanding as of the Closing Date, by delivery of checks in the amount thereof payable to HEI (it being agreed that such payments shall be deemed made on behalf of ChipPAC Shanghai and shall constitute full and complete satisfaction of the Intercompany Technical Fees and Intercompany Interest owed by ChipPAC Shanghai to HEI and that such checks shall bear a notation to such effect), and HEI shall cause the other payables and Liabilities of ChipPAC Shanghai set forth in Schedule 2.2(g)(iv) outstanding as of the Closing Date to be paid (such payments to be treated as a deduction from the gross Chinese Equity Sale Proceeds) (the "Chinese Intercompany Payoff"), and (C) HEI and HEA shall indemnify and hold harmless each Purchaser Party from and against any and all Taxes incurred as a result of any of the transactions contemplated by this Section 2.2(g)(iv); (v) each of ChipPAC Korea and ChipPAC BVI shall repay (the "Note Payments") the outstanding principal amount of the ChipPAC Korea Note and the Intellectual Property Note, respectively, to HEI; and 18 (vi) HEI shall repay the amount of Indebtedness outstanding immediately prior to the consummation of the Merger with respect to the items disclosed in Schedule 2.2(g)(vi). (h) Management of Regulatory Proceedings. Without limiting the obligations of HEI and HEA pursuant to Section 5.1, Merger Sub shall have primary responsibility for and management of all governmental and regulatory filings, proceedings and approvals required for consummation of the Recapitalization Transactions contemplated by Section 2.2, subject to consultation with HEI and HEA and subject further to control by HEI and HEA of matters affecting interests of HEI and HEA. (i) Withholding Taxes. Merger Sub shall bear the cost of all withholding taxes (if any) required to be paid with respect to the transactions contemplated by Section 2.2(c)(i), Section 2.2(c)(ii), Section 2.2(c)(iii), Section 2.2(d), Section 2.2(e)(ii), Section 2.2(e)(iii), Section 2.2(e)(iv), Section 2.2(e)(v), Section 2.2(e)(vi), Section 2.2(e)(vii), and Section 2.2(f)(i). HEI shall bear the cost of all other withholding taxes required to be paid with respect to the transactions contemplated by Article II of this Agreement, including withholding taxes (if any) required to be paid with respect to the transactions comprising the Cash Consideration. (j) Adjustment of Amounts. To the extent permitted by applicable law and the terms of applicable governmental and regulatory approvals, Merger Sub shall have the right, on or prior to the Closing Date, to vary the individual dollar amounts of the particular Recapitalization Transactions to take into account changes as a result of business operations, exchange rate changes or otherwise, so long as the aggregate amount of the Cash Consideration, the Common Stock Consideration and the Preferred Stock Consideration payable to HEI and HEA at the Closing, and the tax impact thereof to HEI and HEA, and the timing of payment remain unchanged and so long as there is no increase in the overall amount of payments by HEI, HEA and their Subsidiaries prior to the Closing. Section 2.3 The Merger. At the Closing, subject to the provisions of this Agreement and in accordance with the California General Corporation Law (the "CGCL") and the Delaware General Corporation Law (the "DGCL"), Merger Sub shall be merged with and into the Company (the "Merger"), with the Company continuing as surviving corporation (the "Surviving Corporation"). To effect the Merger, at the Closing: an agreement of merger, in substantially the form of Exhibit A hereto (the "California Agreement of Merger"), shall be duly executed and acknowledged by Merger Sub and by the Company as the Surviving Corporation and shall be delivered to the Secretary of State of the State of California for filing, along with certificates of the officers of the constituent corporations to the Merger ("Officers' Certificates"); and a certificate of merger, in substantially the form of Exhibit B hereto (the "Delaware Certificate of Merger"), shall be duly executed and acknowledged by the Company and shall be delivered to the Secretary of State of the State of Delaware for filing. The Merger shall become effective upon the latest of: (x) the date and time of the filing and effectiveness of the California Agreement of Merger and the Officers' Certificates with the Secretary of State of the State of California, (y) the date and time of the filing and effectiveness of the Delaware 19 Certificate of Merger with the Secretary of State of the State of Delaware, or (z) such other date and time as is provided in the California Agreement of Merger (the "Effective Time"). (a) Treatment of Stock and Options; Merger Consideration. Prior to the Effective Time, all shares of Company Preferred Stock held by HEA shall be converted by HEA into shares of Company Common Stock in accordance with the terms of the Company's Articles of Incorporation (it being acknowledged and agreed that no accrued but unpaid dividends on the Company Preferred Stock are outstanding as of the date hereof). In addition, prior to the Effective Time, the Company's Articles of Incorporation shall be amended and restated in the form of Exhibit C to establish the classes and amounts of authorized capital stock set forth therein. Immediately thereafter, at the Effective Time: (i) the issued and outstanding shares of capital stock of Merger Sub shall be converted, in their entirety, without any action by the stockholders of Merger Sub, into the right to receive, at the Closing, a number of shares of Class L Common and Class A Common (in strips, such that for each share of Class L Common to be issued to the stockholders of Merger Sub, such persons shall be issued nine (9) shares of Class A Common) (the "New Shares"), and the issued and outstanding shares of Company Common Stock and Company Preferred Stock then held by HEA shall be converted in their entirety, without any action by HEA as the holder thereof, into a right on the part of HEI or HEA (as set forth in clause (x) and clause (y) below) to receive, at the Closing: (x) to HEA: a number of shares of Class L Common and Class A Common (in strips, such that for each share of Class L Common to be issued to HEA, HEA shall be issued nine (9) shares of Class A Common) (the "Common Stock Consideration") so that immediately following the Effective Time (before taking into account any shares of common stock issued or issuable to employees of the Company or its Subsidiaries or to financing sources), the stockholders of Merger Sub shall own ninety percent (90%) and HEA shall own ten percent (10%) of the shares of Class L Common and Class A Common then issued and outstanding (it being agreed and understood that for purposes of this Section 2.3(a)(i)(x), any stockholder who elects to take Class B Common Stock, par value $0.01 per share, of the Company in lieu of Class A Common shall be deemed to be a holder of Class A Common); and (y) to HEA or HEI, as HEA shall direct by written notice to Merger Sub not less than two Business Days prior to the Closing: Company Senior Preferred Stock with an aggregate liquidation value of thirty million dollars ($30,000,000) (the "Preferred Stock Consideration"); (ii) the Company shall issue (A) to HEA a certificate or certificates (as HEA shall direct) representing a number of shares of Class L Common and Class A Common equal to the Common Stock Consideration and a certificate or certificates (as HEA shall direct) representing a number of shares of Company Senior Preferred Stock equal to the Preferred Stock Consideration, and (B) to the stockholders of Merger Sub a certificate or certificates representing 20 the New Shares; provided, that pending the issuance and delivery of such certificates, the certificates that formerly represented the shares of Merger Sub capital stock held by the stockholders of Merger Sub shall evidence and represent the New Shares; the certificates that formerly represented the Company capital stock held by HEA shall evidence and represent the right to receive the Common Stock Consideration and the Preferred Stock Consideration; and each such certificate for shares of Merger Sub capital stock and Company capital stock shall entitle the holder thereof to all of the rights of a holder of the applicable number of shares of Class L Common, Class A Common or Company Senior Preferred Stock, as the case may be; (iii) the shares of Company capital stock surrendered by HEA and the shares of Merger Sub capital stock surrendered by the stockholders of Merger Sub shall be canceled and retired; and (iv) each Company Option which is outstanding and unvested immediately prior to the Effective Time shall be canceled without any payment or other consideration therefor, and each Company Option which is outstanding and vested immediately prior to the Effective Time shall be converted into the right to receive from the Company, immediately prior to the Effective Time (A) the cash payment specified by the Management Incentive Agreement dated as of August 1, 1998 and extended as of March 5, 1999 by and between ChipPAC, Inc., and Dennis McKenna (in the case of Company Options covered thereby), or (B) the cash payment specified by the Management Incentive Agreement dated as of August 1, 1998 and extended as of March 5, 1999 by and between ChipPAC, Inc. and Tony Lin (in the case of Company Options covered thereby), or (C) the cash payment specified by the ChipPAC, Inc. Management Incentive Plan (in the case of Company Options covered thereby) or (D) a cash payment equal to the product of (I) the number of shares of Company Common Stock for which such vested Company Option is exercisable and (II) the difference between the Per Share Amount and the exercise price of such vested Company Option (in the case of any other vested Company Options). (b) Further Effects of Merger. At the Effective Time, (i) the separate existence of Merger Sub shall cease and Merger Sub shall be merged with and into the Company with the Company as the Surviving Corporation; (ii) the Articles of Incorporation and Bylaws of the Surviving Corporation shall be amended and restated in the form set forth in Exhibit C and Exhibit D, respectively; and (iii) the Merger shall have the further effects set forth in the CGCL and the DGCL. Without limiting the generality of the foregoing, from and after the Effective Time, the Surviving Corporation shall possess all the rights, privileges, powers and franchises of a public as well as of a private nature, and be subject to all the restrictions, disabilities and duties of each of the constituent corporations in the Merger; and all rights, privileges, powers and franchises of each of the constituent corporations, and all property, real, personal and mixed, and all debts due to either of the constituent corporations on whatever account, as well as for stock subscriptions and all other things in action or belonging to each of the constituent corporations, shall be vested in the Surviving Corporation, and all property, rights, privileges, powers and franchises, and all and every other interest shall be thereafter as effectually the property of the Surviving Corporation as they were of the constituent corporations, and the title to any real estate vested by deed or otherwise, in either of the constituent corporations, shall not revert or be in any 21 way impaired; but all rights of creditors and all liens upon any property of either of the constituent corporations shall be preserved unimpaired, and all debts, liabilities and duties of the constituent corporations shall thereafter attach to the Surviving Corporation, and may be enforced against it to the same extent as if such debts and liabilities had been incurred by it. (c) Directors and Officers. The directors and officers of Merger Sub immediately prior to the Effective Time, plus one director designated by HEA in accordance with the Shareholders Agreement, shall be the initial directors and officers of the Surviving Corporation and shall hold office in accordance with the Articles of Incorporation and Bylaws of the Surviving Corporation, in each case until their respective successors are duly elected or appointed. The directors and officers of the Company, ChipPAC Korea and ChipPAC Shanghai immediately prior to the Effective Time and each person who is or at any time prior to the Closing Date has been an officer or director of the Company, ChipPAC Korea or ChipPAC Shanghai shall be entitled to indemnification on the terms, and subject to the conditions, set forth in Section 2. (d) Change-In-Control Payments. At or immediately prior to the Effective Time, the Company, ChipPAC Korea and ChipPAC Shanghai (as the case may be) shall pay all additional compensation, bonuses and other amounts (if any) required to be paid, as a result, in whole or in part, of the execution and delivery of this Agreement or the consummation of the Recapitalization Transactions, to employees of the Company, ChipPAC Korea or ChipPAC Shanghai pursuant to agreements and arrangements adopted prior to the Effective Time and all Taxes (if any) imposed on the Company, ChipPAC Korea and ChipPAC Shanghai with respect to such additional compensation, bonuses and other amounts, including compensation, bonuses, other amounts and Taxes (if any) which are required to be paid by the Company as a result of (A) the Management Incentive Agreement dated as of August 1, 1998 and extended as of March 5, 1999 by and between ChipPAC, Inc. and Dennis McKenna, (B) the Management Incentive Agreement dated as of August 1, 1998 and extended as of March 5, 1999 by and between ChipPAC, Inc. and Tony Lin, or (C) the ChipPAC, Inc. Management Incentive Plan (it being understood and agreed that nothing herein shall impose on HEI, HEA, the Company, ChipPAC Korea or ChipPAC Shanghai any obligation to pay the Tax liability of any recipient of such additional compensation, bonuses or other amounts) (the "Change-In-Control Payments"). HEA (subject to proportionate reimbursement to HEA by HEI) shall reimburse the Company after the closing for all Change-In-Control Payments (if any) paid by the Company, ChipPAC Korea or ChipPAC Shanghai after the Closing. Each contract pursuant to which any Change- In-Control Payments are or may become due is listed in Section 3.11 (a) of the Company Disclosure Schedule. Section 2.4 Purchase Price Adjustment. For purposes of this Section 2.4: (x) "Working Capital" means an amount equal to the difference (whether positive or negative) between (i) the combined tangible current assets of the Company, ChipPAC Korea and ChipPAC Shanghai (which for purposes of this Agreement shall consist of cash and marketable securities (but not foreign exchange contracts), accounts receivable, inventory and other current assets) and (ii) the combined current liabilities of the Company, ChipPAC Korea and ChipPAC Shanghai (which for purposes of this Agreement shall consist of trade accounts payable, accrued personnel 22 expenses and other accrued expenses); (y) "Peg Amount" means: (i) if the Cash Consideration has been reduced pursuant to Section 2.4(b)(i) because Estimated Working Capital is less than Required Working Capital, Estimated Closing Working Capital, and (ii) if the Cash Consideration has been increased pursuant to Section 2.4(b)(ii), the sum of Required Working Capital plus the amount by which the Cash Consideration has been increased pursuant to Section 2.4(b)(ii); and (z) no lease termination charge or payments required to take title to property shall be deemed to be capital expenditures. (a) Closing Financial Statements. (i) At least five (5) Business Days prior to the Closing, HEI and HEA shall prepare and deliver to Merger Sub (A) an unaudited estimated combined balance sheet of the Company, ChipPAC Korea and ChipPAC Shanghai as of the close of business on the Closing Date but without giving effect to any of the Recapitalization Transactions and without accruing or reflecting the payment of the fees and expenses of Merger Sub, Bain Capital, Inc., MSX Holdings LLC, Citicorp Venture Capital Ltd. or any of their Affiliates contemplated by Section 12.3 (the "Estimated Closing Balance Sheet"), which shall reflect reasonable good faith estimates of the amount of Working Capital and cash (net of book overdrafts) that will be on the balance sheets of the Company, ChipPAC Korea and ChipPAC Shanghai as of the close of business on the Closing Date (but without giving effect to any of the Recapitalization Transactions) (the "Estimated Closing Working Capital" and the "Excess Cash", respectively); (B) an unaudited statement of estimated combined research and development expenditures made by the Company ChipPAC Korea and ChipPAC Shanghai for the period beginning January 1, 1999 and ending as of the close of business on the Closing Date (but without giving effect to any of the Recapitalization Transactions) (the "Estimated Pre- Closing R&D Expenditures"); and (C) an unaudited statement of estimated combined capital expenditures made by the Company, ChipPAC Korea and ChipPAC Shanghai for the period beginning January 1, 1999 and ending as of the close of business on the Closing Date (but without giving effect to any of the Recapitalization Transactions) (the "Estimated Pre-Closing Capital Expenditures"); provided, that if HEI and HEA, on the one hand, and Merger Sub, on the other hand, cannot agree upon the amounts to be included in the Estimated Closing Balance Sheet (including the amount of Estimated Closing Working Capital or Excess Cash), the statement of Estimated Pre-Closing R&D Expenditures, or the statement of Estimated Pre-Closing Capital Expenditures, the amounts in dispute shall be based upon the balances reflected in the books and records of the Company, ChipPAC Korea and ChipPAC Shanghai as of calendar month end immediately preceding the Closing Date. The Estimated Closing Balance Sheet and the statements of Estimated Pre-Closing R&D Expenditures and Estimated Pre-Closing Capital Expenditures shall be prepared in accordance with GAAP in a manner consistent with the Company's accounting policies used in the preparation of the Balance Sheet. (ii) As soon as practicable but in no event later than one hundred twenty (120) days after the Closing Date, the Company shall deliver to HEI and HEA (A) an audited combined balance sheet of the Company, ChipPAC Korea and ChipPAC Shanghai as of the close of business on the Closing Date, but without giving effect to any of the Recapitalization Transactions (the "Closing Balance Sheet"), which Closing Balance Sheet shall reflect actual 23 Working Capital as of the close of business on the Closing Date (the "Closing Working Capital"); (B) an audited statement of combined research and development expenditures made by the Company, ChipPAC Korea and ChipPAC Shanghai for the period beginning January 1, 1999 and ending as of the close of business on the Closing Date (the "Actual R&D Expenditures"), and (C) an audited statement of combined capital expenditures made by the Company, ChipPAC Korea and ChipPAC Shanghai for the period beginning January 1, 1999 and ending as of the close of business on the Closing Date (the "Actual Capital Expenditures"). The Closing Balance Sheet and the statements of Actual R&D Expenditures and Actual Capital Expenditures are collectively referred to as the "Closing Financial Statements". The Closing Financial Statements shall be audited by a PriceWaterhouseCoopers engagement team selected by the Company (or another firm of independent public accountants mutually acceptable to the Company, HEI and HEA) and shall be prepared in accordance with GAAP in a manner consistent with the Company's accounting policies used in the preparation of the Balance Sheet and the related statements of operations, stockholders equity and cash flows for the six months ending on the Financial Statement Date, subject to the provisions of Section 2.4(e) and without giving effect to any of the Recapitalization Transactions or any fees and expenses of Merger Sub, Bain Capital Inc., Citicorp Venture Capital Ltd. or their Affiliates paid or reimbursed by the Company. (b) Adjustments at the Closing. At the Closing, (i) if Estimated Closing Working Capital is less than thirty million dollars ($30,000,000) (the "Required Working Capital"), or if Estimated Pre-Closing Capital Expenditures are less than the prorated budgeted amounts (prorated on a daily basis for the period beginning January 1, 1999 and ending on the Closing Date) for capital expenditures set forth in the capital budget annexed hereto as Exhibit E (the "Capital Budget"), or if Estimated Pre-Closing R&D Expenditures are less than the prorated budgeted amounts (prorated on a daily basis for the period beginning January 1, 1999 and ending on the Closing Date) for research and development expenditures set forth in the quarterly research and development budgets annexed hereto as Exhibit F (the "R&D Budgets"), then the Cash Consideration payable at the Closing shall be reduced by the total amount of such shortfall, (ii) if Estimated Closing Working Capital is greater than Required Working Capital, then the Cash Consideration payable at Closing shall be increased by the amount of such excess (not to exceed the amount of Excess Cash) and (iii) if Estimated Pre-Closing Capital Expenditures exceed the prorated budgeted amounts for capital expenditures set forth in the Capital Budget, or if Estimated Pre-Closing R&D Expenditures exceed the prorated budgeted amounts for research and development expenditures set forth in the R&D Budgets, and if Merger Sub has consented in writing to the expenditures resulting in such excess, then the Cash Consideration payable at the Closing shall be increased by the total amount of such excess. (c) Post-Closing Adjustment. Promptly following the determination of the Closing Balance Sheet and the Closing Working Capital, the Cash Consideration shall be adjusted as follows and payment, by wire transfer of immediately available funds shall be made by the Company or by HEI and HEA, as the case may be, not later than five (5) Business Days following such determination: 24 (i) if Closing Working Capital is less than the Peg Amount, or if Actual Capital Expenditures are less than the Estimated Pre-Closing Capital Expenditures, or if Actual R&D Expenditures are less than the Estimated Pre- Closing R&D Expenditures, then the Cash Consideration shall be reduced, and HEI shall pay to the Company, the aggregate amount of such shortfall, and (ii) if Closing Working Capital is greater than the Peg Amount, or if Actual Capital Expenditures are greater than the Estimated Pre-Closing Capital Expenditures (and if Merger Sub has consented in writing to the expenditures resulting in such excess), or if Actual R&D Expenditures are greater than the Estimated Pre-Closing R&D Expenditures (and if Merger Sub has consented in writing to the expenditures resulting in such excess), then the Cash Consideration shall be increased, and the Company shall cause ChipPAC BVI or ChipPAC Korea to pay to HEI the amount of such excess. (iii) In each case, the payments provided by this Section 2.4(c) shall include interest from the Closing Date to the date of such payment at a rate of ten percent (10%) per annum. (d) Resolution of Disputes. The Closing Financial Statements (including the amount of Closing Working Capital, the amount of Actual R&D Expenditures and the amount of Actual Capital Expenditures) shall become final and binding on HEI, HEA and the Company unless HEI and HEA give written notice of their disagreement (a "Notice of Disagreement") to the Company within forty- five (45) days following receipt by HEI and HEA of the Closing Financial Statements. Any such Notice of Disagreement shall specify in reasonable detail the nature of any disagreement so asserted. The Company shall have twenty-five (25) days following its receipt of the Notice of Disagreement to review the Notice of Disagreement and to give notice of any disagreement therewith (the "Counter-Notice of Disagreement") to HEI and HEA. If the Company does not give a Counter-Notice of Disagreement within such period, the Closing Financial Statements (including the amount of Closing Working Capital, Actual R&D Expenditures and Actual Capital Expenditures) shall be adjusted as set forth in the Notice of Disagreement and, as so adjusted, shall be final and binding upon all parties. If the Company gives timely Counter-Notice of Disagreement, HEI, HEA and the Company shall attempt in good faith to resolve their disagreements. If HEI, HEA and the Company are unable to resolve all of their disagreements with respect to the Closing Financial Statements or the amount of Closing Working Capital or the amount of Actual R&D Expenditures or the amount of Actual Capital Expenditures within twenty (20) days following the Company's delivery to HEI and HEA of a Counter-Notice of Disagreement, they shall refer their remaining differences to the U.S. national office of an internationally recognized firm of independent accountants as to which HEI, HEA and the Company mutually agree (the "CPA Firm"), which shall, acting as experts and not as arbitrators, determine, and only with respect to the remaining differences so submitted, whether, and to what extent, if any, the Closing Financial Statements or the amount of Closing Working Capital, Actual R&D Expenditures or Actual Capital Expenditures requires adjustment. HEI, HEA and the Company shall direct the CPA Firm to use its best efforts to render its determination within forty- five (45) days after the submission of any such dispute to the CPA Firm. The CPA Firm's determination of the Closing Financial Statements (including the amount 25 of Closing Working Capital, Actual R&D Expenditures and Actual Capital Expenditures) shall be conclusive and binding upon the Company, HEI and HEA. The fees and disbursements of the CPA Firm shall be borne fifty percent (50%) by the Company and fifty percent (50%) by HEI and HEA. (e) No Double-Counting. In calculating the adjustments provided by this Section 2.4, it is the intention of the parties to avoid double payment, double-crediting or other double-counting of items (including Taxes and other items covered by the indemnification provisions of Article X or Article XI) which would result in an inequitable and unintended benefit to one party or parties to the detriment of the other party or parties, and no adjustment pursuant to this Section 2.4 shall be made for any loss contingencies for which the Company has already recovered indemnification pursuant to Article X or Article XI. (f) Indebtedness. In the event of an error in the calculation of any Indebtedness of HEI, the Company, ChipPAC Korea or ChipPAC Shanghai required to be repaid at or prior to the Closing pursuant to Section 2.2, any underpayment or overpayment shall be for the account of HEI and HEA and shall be treated as an adjustment to the Cash Consideration when ultimately closed out, and in the event of any dispute shall be subject to the dispute resolution procedure of Section 2.4(d). (g) Foreign Exchange Contracts. HEI and HEA shall cause the Company, ChipPAC Korea and ChipPAC Shanghai to settle and close all foreign exchange contracts to which the Company, ChipPAC Korea or ChipPAC Shanghai is a party, effective prior to the Closing. Any gains or losses with respect to such foreign exchange contracts that remain unsettled shall be for the account of HEI and HEA and shall be treated as an adjustment to the Cash Consideration when ultimately closed out, and in the event of any dispute shall be subject to the dispute resolution procedure of Section 2.4(d). (h) Physical Inventory. The Company, ChipPAC Korea and ChipPAC Shanghai shall take and complete a 100% physical inventory as soon as practicable following the Closing Date. HEI, HEA and Merger Sub (or their respective representatives), shall be entitled to observe such physical inventory. Section 2.5 Hyundai Earn-Out. HEI will be eligible to receive from the Company additional consideration (the "HEI Earn-Out") during the four (4) year period commencing January 1, 1999 (the "Earn-Out Period"), payable annually, if earned (the "Earn-Out Payment"), and calculated in the manner set forth below; provided, however, that such HEI Earn-Out shall not exceed the aggregate amount of thirty-five million dollars ($35,000,000) (the "Earn-Out Maximum"). (a) The Earn-Out Payment shall be calculated as the product of (i) 33.3% (the "Earn-Out Ratio") and (ii) the amount by which earnings before interest, taxes, depreciation and amortization of the Company and its Subsidiaries on a consolidated basis and before deduction or accrual of fees paid or payable to Bain Capital, Inc., MSX Holdings LLC and their respective Affiliates pursuant to the Advisory Agreements, excluding all extraordinary gains or losses as determined by the Company's auditors ("EBITDA") during the specified fiscal year of the Earn- 26 Out Period exceeds the annual EBITDA Thresholds described below for such specified fiscal year (such difference, hereinafter referred to as the "Earn-Out Spread".) (b) The Earn-Out Spread in any one year shall be calculated by deducting from actual EBITDA for a fiscal year period (such actual EBITDA, as determined by the Company's independent auditors on a basis consistent with Regulation S-X promulgated under the Securities Act of 1933 ("Regulation S-X"), the EBITDA Thresholds set forth below for each respective fiscal year. If HEI or HEA or the Company recovers any amount by way of indemnification pursuant to Article X hereof, such amount shall be disregarded for purposes of determining EBITDA for such fiscal year.
Fiscal Year EBITDA Threshold - ----------- ---------------- 1999....... $116.5 million 2000....... $171.3 million 2001....... $198.5 million 2002....... $231.8 million
To the extent that the calculated Earn-Out Spread is negative, it shall be deemed to be zero and HEI shall not at any time be entitled to the Earn-Out Payment for such fiscal year. (c) The amount of the Earn-Out Payment shall be calculated by the independent auditors of the Company annually, and shall be notified to HEI within one hundred twenty (120) days of the end of each fiscal year. Except as provided in the following sentence, the Earn-Out Payment shall be made by the Company to HEI in cash in immediately available funds within ten (10) days of the notification by the auditors. If, notwithstanding the exercise of the Company's good faith commercially reasonable best efforts to secure less restrictive terms or a waiver of the applicable restrictions, terms required by creditors in credit agreements or indentures with the Company or any of its Subsidiaries have the effect of prohibiting the Company or any of its Subsidiaries in any fiscal year from making the Earn-Out Payment (either in whole or in part) in cash, the Company shall (i) so notify HEI and shall furnish copies of such agreements and indentures and a detailed explanation of the effect thereof on the Company's ability to pay the Earn-Out Payment in cash, and (ii) make the Earn-Out Payment for such fiscal year in cash up to the maximum extent permitted by such agreements and indentures and, for all amounts in excess of such maximum, by issuing to HEI shares of Company Senior Preferred Stock with an aggregate liquidation value equal to the balance of the Earn-Out Payment. If the Earn-Out Payment is made in whole or in part in shares of Company Senior Preferred Stock, then the Company shall notify HEI promptly after it becomes able to make such payment, either in whole or in part, in cash and shall forthwith redeem such shares of Company Senior Preferred Stock, for cash, in the full amount of the liquidation value of such shares together with accrued and unpaid dividends thereon. No Non-Liquidating Distribution (as defined in the Articles of Incorporation), shall be declared or paid to the holders of the Company's Common Stock or any class thereof (i) if such Non-Liquidating Distribution would impair in any manner the ability of 27 the Company to pay any portion of the Earn-Out Payment in cash and (ii) until HEI's entitlement to an Earn-Out Payment for the preceding fiscal given year has been calculated pursuant to this Section 2.5(c) and the full amount of the Earn- Out Payment (if any) earned for such preceding fiscal year has been paid in cash in full. Subject to the foregoing, and subject to the restrictions set forth in the Company's Articles of Incorporation, Non-Liquidating Distributions may be made to holders of the Company's common stock after HEI's entitlement to an Earn-Out Payment for the preceding fiscal year has been calculated pursuant to this Section 2.5(c) and either no Earn-Out Payment is due or the full amount of all Earn-Out Payments due for all prior periods has been paid in cash. (d) During the Earn-Out Period, the Company's and its Subsidiaries' financial records shall be maintained in accordance with GAAP (it being agreed that to the extent that any change in GAAP from and after the date hereof requires the Company to modify its accounting policies to conform with GAAP and such change in GAAP results in an increase or decrease in actual EBITDA, such change in GAAP will be ignored for purposes of computing the HEI Earn-Out). During the Earn-Out Period, the Company shall provide to HEI all financial statements to be delivered to HEI pursuant to the Shareholders Agreement. (e) The Company shall allow an auditing firm of international standing selected by HEI to review appropriate records of the Company in order to verify the accuracy of the calculation of the Earn-Out Payment hereunder. Any such review shall be conducted during normal business hours and shall be commenced within ten (10) days after the Company's receipt of written request by HEI therefor (which request shall be made, if at all, no later than sixty (60) days after receipt by HEI of the calculation of the Earn Out Payment for 1999, 2000 and 2001 and no later than ninety (90) days after receipt of the calculation of the final Earn-Out Payment, pursuant to Section 2.5(c)), it being agreed that after the expiration of any such period, no "look-back" to the calculation of any prior year's Earn-Out Payments shall be allowed unless the financial statements for such period are restated. The cost of such review shall be borne by HEI unless the parties agree (or the decision of the independent accountant referred to in the last sentence of this paragraph establishes) that the Company has underpaid the Earn-Out Payment by the greater of ten percent (10%) or two hundred fifty thousand dollars ($250,000), in which case such costs shall be born by the Company. No such review shall be conducted more often than once per year. Any disagreement by the Company with the calculation of the Earn-Out Payment based on such review shall be referred to an internationally recognized firm of independent accountants selected by reasonable mutual agreement of HEI and the Company (which shall each bear fifty percent (50%) of the fees and disbursements of such firm), which firm shall, acting as experts and not as arbitrators, determine, and only with respect to the remaining differences so submitted, whether and to what extent the calculation of the Earn-Out Payment should be adjusted. (f) If (x) the Company sells, leases, licenses or otherwise disposes of a majority of its assets (on a consolidated basis), or holders of the Company's capital stock sell or transfer to any third party (whether by sale of stock, merger, consolidation or otherwise) shares of the Company's capital stock and, as a result of such sale of transfer, the holders of Company capital stock possessing the voting power (under ordinary circumstances) to elect a majority of 28 the Company's Board of Directors immediately prior to such sale or transfer cease to own Company capital stock possessing the voting power (under ordinary circumstances) to elect a majority of the Company's Board of Directors, and (y) the Earn-Out Payment for each of the two years immediately preceding such transaction has been earned, and based on the Company's results of operations as of the date of such transaction, a pro rata portion of the EBITDA Threshold has been exceeded, then the amount of the remaining Earn-Out Maximum which has not theretofore been paid to HEI as of such date shall, upon closing of such transaction, be paid to HEI in full. If the Company acquires another entity or entities, or if the Company acquires or discontinues or disposes of or sells any line or lines of business or assets, in each case (i) in exchange for aggregate consideration with a value of fifty million dollars ($50,000,000) or more or (ii) with an aggregate value in excess of ten percent (10%) of the consolidated assets of the Company and its Subsidiaries (but not less fifty million dollars ($50,000,000)) (determined based on fair value as determined by the Board of Directors of the Company in good faith), or if the Company otherwise takes any material action that could reasonably be expected to affect the amount, timing or ability of the Company to pay the Earn-Out Payment, then in each case the Company and HEI shall in good faith determine the pro forma effect of such transaction on the results of operations of the Company and its Subsidiaries on a consolidated basis, and negotiate in good faith mutually agreeable adjustments in the calculation of the EBITDA Thresholds to reflect such pro forma economic effect. Should the parties fail to agree on the pro forma effect of such transaction, or on the resulting changes to the EBITDA Threshold, the parties shall refer their disagreement to the CPA Firm, which shall determine the pro forma effect of such transaction and the resulting adjustments to EBITDA Threshold. ARTICLE III REPRESENTATIONS AND WARRANTIES OF HEI AND HEA Except as set forth in or contemplated by this Agreement, the Financial Statements delivered to Merger Sub pursuant to Section 3.7 or the disclosure schedule of HEI and HEA delivered to Merger Sub herewith (the "Company Disclosure Schedule"), HEI and HEA hereby jointly and severally represent and warrant to Merger Sub as follows: Section 3.1 Corporate Existence and Authority. HEI is a corporation duly incorporated and validly existing under the laws of the Republic of Korea; HEA is a corporation duly incorporated, validly existing and in good standing under the laws of the State of California; and the Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of California. Each of HEI, HEA and the Company has full corporate power and authority to execute and deliver this Agreement and the Ancillary Agreements to which it is a party, to perform its obligations hereunder and thereunder, and to consummate the transactions contemplated hereby and thereby. The Company has full corporate power and authority to conduct its business as and to the extent now conducted and to own, use and lease its assets and properties, and is duly qualified, licensed or admitted to do business and is in good standing in those jurisdictions in which the ownership, use or leasing of its assets and properties or the conduct of its business makes such qualification, licensing, or admission necessary, except 29 where the failure to be so qualified, licensed, admitted or in good standing could not reasonably be expected to have a Material Adverse Effect on the Company. Section 3.2 Authorization; Binding Effect. The execution and delivery by HEI, HEA and the Company of this Agreement and the Ancillary Agreements to which HEI, HEA or the Company is a party, and the performance by HEI, HEA and the Company of their respective obligations hereunder and thereunder, have been duly and validly authorized by their respective Boards of Directors, no other corporate action on their part or on the part of their respective shareholders being necessary, except shareholder approval of the Merger by the shareholders of the Company, which approval HEI and HEA agree they shall effect promptly following the date hereof and shall not thereafter revoke or rescind. This Agreement has been and the Ancillary Agreements have been (or prior to the Closing will be) duly and validly executed and delivered by HEI, HEA and the Company and, upon the execution and delivery thereof by the other parties thereto, will constitute, their legal, valid and binding obligations enforceable against them in accordance with the terms thereof. Section 3.3 Capital Stock. The authorized capital stock of the Company consists of eighty five million five hundred thousand (85,500,000) shares of capital stock of which not more than forty million (40,000,000) shares may be shares of common stock, no par value ("Company Common Stock") and not more than forty five million five hundred thousand (45,500,000) shares may be shares of preferred stock, no par value. As of the date of this Agreement, (i) thirty three million three hundred thirty three thousand three hundred thirty three and thirty-three hundredths (33,333,333.33) shares of Series A Preferred Stock, no par value, of the Company ("Company Preferred Stock") were issued and outstanding, all of which were validly issued, fully paid and nonassessable; (ii) no shares of Company Common Stock were issued or outstanding; and (iii) two million five hundred eight thousand nine hundred sixty (2,508,960) shares of Company Common Stock were reserved for issuance under the Stock Plan, one million four hundred forty thousand eight hundred seventy-six (1,440,876) shares of which were subject to outstanding options and one million sixty-eight thousand eighty-four (1,068,084) shares of which were available for future grants. Immediately prior to the Closing (and prior to the consummation of the Recapitalization Transactions), subject to HEA's right to convert its shares of Company Preferred Stock into Company Common Stock, thirty three million three hundred thirty three thousand three hundred thirty three and thirty-three hundredths (33,333,333.33) shares of Company Preferred Stock will be issued and outstanding, all of which will be owned by HEA. Except for this Agreement, and Company Options outstanding pursuant to the Stock Plan, there are no outstanding options or rights in favor of any person to purchase shares of any class or series of capital stock from the Company. Set forth in Section 3.3 of the Company Disclosure Schedule is a table showing the number of Company Options outstanding as of the date of this Agreement, the number of Company Options held by non-employee directors of the Company and the exercise price and vesting schedule of all such Company Options. Section 3.4 Subsidiaries. ChipPAC Korea is a corporation duly incorporated and validly existing under the laws of the Republic of Korea. Each of ChipPAC Shanghai I and ChipPAC Shanghai II is a company limited and a wholly foreign owned entity duly formed and validly existing under the laws of the People's Republic of China. ChipPAC Korea, ChipPAC 30 Shanghai I and ChipPAC Shanghai II each has full corporate power and authority to conduct its business as and to the extent now conducted and to own, use and lease its assets and properties. The authorized capital stock of ChipPAC Korea consists of eighty million (80,000,000) shares of ChipPAC Korea common stock, of which forty million (40,000,000) shares are issued and outstanding, all of which are fully paid and nonassessable. As of February 26, 1999, ChipPAC Korea had paid-up capital of two hundred billion (200,000,000,000) Korean won and between such date and the date of this Agreement there has been no material change in the amount of such paid-up capital. All outstanding shares of capital stock of ChipPAC Korea will be owned by HEI or ChipPAC BVI prior to the Closing as part of the Recapitalization Transactions. The registered capital of ChipPAC Shanghai I consisted as of the date of this Agreement of seventy three million three hundred thousand dollars ($73,300,000). The authorized capital of ChipPAC Shanghai II consisted as of the date of this Agreement of twelve million dollars ($12,000,000), of which one million eight hundred thousand dollars ($1,800,000) in registered capital is legally required to be contributed, and will be contributed, before March 31, 1999. The Company does not directly or indirectly own any rights or interests in any other person or entity, other than ChipPAC Korea and ChipPAC Shanghai. All of the equity interests of ChipPAC Shanghai I and ChipPAC Shanghai II will be owned by HEI or a direct or indirect Subsidiary of HEI prior to the Closing as part of the Recapitalization Transactions. There are no outstanding options or rights in favor of any person to purchase shares of any class or series of capital stock of ChipPAC Korea or ChipPAC Shanghai. Section 3.5 Absence of Conflicts. The execution and delivery by HEI, HEA and the Company of this Agreement and the Ancillary Agreements do not, and the performance by HEI, HEA and the Company of their respective obligations under this Agreement and the Ancillary Agreements and the consummation of the transactions contemplated hereby and thereby will not, (a) conflict with or result in a violation or breach of the articles of incorporation, by-laws or other similar charter documents of HEI, HEA or the Company, ChipPAC Korea or ChipPAC Shanghai; (b) subject to obtaining the consents, approvals and actions, and making the filings and giving the notices described in Section 3.6 and Section 4.4, conflict with or result in a violation or breach of any law or Order applicable to (i) HEI, HEA, the Company, ChipPAC Korea or ChipPAC Shanghai, or any of their respective assets and properties; (c) (i) conflict with or result in a violation or breach of, (ii) constitute (with or without notice or lapse of time or both) a default under, (iii) require HEI, HEA, the Company, ChipPAC Korea or ChipPAC Shanghai to obtain any consent or approval of any person as a result or under the terms of, (iv) result in or give to any person any right of termination, cancellation, acceleration or modification in or with respect to, or (v) result in the creation or imposition of any Encumbrance upon the Company, ChipPAC Korea or ChipPAC Shanghai, or any of their respective assets or properties under, any agreement to which HEI, HEA, the Company, ChipPAC Korea or ChipPAC Shanghai is a party or by which any of their respective assets or properties is bound, other than, in the case of clauses (b) and (c), such conflicts, violations, breaches and other consequences within the scope of clauses (b) and (c) which would occur solely as a result of the identity or the legal or regulatory status of Merger Sub or any of its Affiliates. Notwithstanding any provision in the Agreement or any schedule or exhibit to the Agreement to the contrary, HEI's and HEA's obligations to consummate the transactions contemplated by the Agreement shall not be conditioned upon the waiver or amendment of any instrument governing any 31 Indebtedness for Borrowed Money or any Encumbrance granted in connection therewith. In furtherance of the foregoing, on or prior to the Closing Date. HEI and HEA hereby covenant and agree to obtain the release of any Encumbrance (other than Permitted Encumbrances) on any of the assets of the Company, ChipPAC Korea or ChipPAC Shanghai, including any such item listed in the Company Disclosure Schedule. Section 3.6 Governmental Approvals and Filings. No consent, approval or action of, filing with or notice to any Governmental or Regulatory Authority on the part of HEI, HEA, the Company, ChipPAC Korea or ChipPAC Shanghai is required in connection with the execution, delivery and performance of this Agreement or any of the Ancillary Agreements or the consummation of the transactions contemplated hereby or thereby, except (i) the filing of a Notification and Report Form pursuant to the HSR Act and the expiration or early termination of the waiting period thereunder; (ii) approvals by government of the Republic of Korea, including approval of the Ministry of Finance and Economy of the Republic of Korea (the "MOFE") under the Korean Foreign Investment and Foreign Capital Inducement Law (the "FIFCIL"); (iii) required filing of an overseas investment report pursuant to the Korean Foreign Exchange Management Regulation ("FEMR"); (iv) approvals by the local Foreign Investment Commission of the municipal government of Shanghai and/or, if required, the Ministry of Foreign Trade of Economic Cooperation of the People's Republic of China ("MOFTEC"); (v) any required filings under applicable antitrust and similar laws of any country (other than the United States) or supranational authority and the expiration or termination of waiting periods thereunder; (vi) the filing of the Delaware Certificate of Merger with the Secretary of State of the State of Delaware and the California Agreement of Merger and the Officers' Certificates with the Secretary of State of the State of California, and (vii) where required solely as a result of the identity or the legal or regulatory status of Merger Sub or any of its Affiliates. Section 3.7 Financial Statements and Condition. ----------------------------------- (a) HEI and HEA have delivered to Merger Sub the audited pro forma combined balance sheets of the Company, ChipPAC Korea and ChipPAC Shanghai I as of June 30, 1998 (the "Financial Statement Date"), and December 31, 1997 and 1996 and the unaudited pro forma combined balance sheet as of September 30, 1998, as if the Company, ChipPAC Korea and ChipPAC Shanghai I had existed on a combined basis as of such dates and the related audited pro forma combined statements of operations, stockholders' equity and cash flows for the six months ended on the Financial Statement Date and the years ended December 31, 1997, 1996 and 1995 and unaudited pro forma combined statement of operations, stockholders' equity and cash flows for the nine months ended September 30, 1998, together with a true and correct copy of the report on such financial statements by PriceWaterhouseCoopers (the June 30, 1998 pro forma combined balance sheet hereinafter referred to as the "Balance Sheet" and all of the aforementioned financial statements are collectively referred to herein as the "Financial Statements"). Except as set forth in the notes thereto, all such pro forma combined financial statements were prepared in accordance with GAAP and fairly present in all material respects the combined financial condition and results of operations of the Company, ChipPAC Korea and ChipPAC Shanghai I as of the respective dates thereof and for the respective periods covered thereby, subject, in the case of the unaudited 32 financial statements, to normal year-end adjustments and the absence of notes. Schedule 2.2(g)(ii), Schedule 2.2(g)(iii), Schedule 2.2(g)(iv) and Schedule 2.2(g)(vi) reflect the Company's best estimates of the Indebtedness of the Company, ChipPAC Korea and ChipPAC Shanghai as of the dates set forth therein. (b) Since the Financial Statement Date there has been no Material Adverse Effect on the Company and no event has occurred which could reasonably be expected to result in a Material Adverse Effect on the Company. (c) Except as set forth on the Balance Sheet, the Company, ChipPAC Korea and ChipPAC Shanghai are not subject to any Liability other than trade payables and accrued expenses incurred in the ordinary course of business of the Company, ChipPAC Korea and ChipPAC Shanghai. (d) Since the Financial Statement Date, neither the Company, ChipPAC Korea nor ChipPAC Shanghai has taken any action described in clause (a) through (n), inclusive, of Section 5.5 of this Agreement. Section 3.8 Taxes. The Company, ChipPAC Korea and ChipPAC Shanghai have filed or caused to be filed all Tax Returns required to be filed in all jurisdictions under applicable law and all such Tax Returns are complete and correct in all material respects. The Company, ChipPAC Korea and ChipPAC Shanghai have, within the time and in the manner prescribed by law, paid directly or indirectly (and until the Closing will pay directly or indirectly within the time and in the manner prescribed by law) all Taxes that are due and payable. No examination of any Tax Return of the Company, ChipPAC Korea or ChipPAC Shanghai is underway of which notice has been provided to HEI, HEA, the Company, ChipPAC Korea or ChipPAC Shanghai. There are no outstanding (a) powers of attorney granted by the Company, ChipPAC Korea or ChipPAC Shanghai concerning any Tax matter, (b) agreements or waivers extending the statutory period of limitation applicable to any Tax Return or Taxes of the Company, ChipPAC Korea or ChipPAC Shanghai, or (c) agreements entered into with any taxing authority that would have a continuing effect on the Company, ChipPAC Korea and ChipPAC Shanghai taken together as a whole after the Closing Date. The Company, ChipPAC Korea and ChipPAC Shanghai have no liability for the Taxes of any other person other than the Company, ChipPAC Korea and ChipPAC Shanghai under Treasury Regulation Section 1.1502-6 (or any similar provision of national, state, provincial, local or other law of any country). Section 3.9 Legal Proceedings. There are no Orders outstanding and no Actions or Proceedings pending or, to the Knowledge of HEI and HEA, threatened (i) against the Company, ChipPAC Korea or ChipPAC Shanghai or any of their respective assets and properties, or (ii) against, relating to or affecting HEI, HEA or the Company or ChipPAC Korea or ChipPAC Shanghai, or any of their respective assets and properties, which could reasonably be expected to delay or to result in the issuance of an Order restraining, enjoining or otherwise prohibiting or making illegal the consummation of any of the transactions contemplated by this Agreement or any of the Ancillary Agreements, or otherwise to impair the ability of HEI, HEA or the Company to perform its respective obligations under this Agreement and the Ancillary Agreements and to 33 consummate the transactions contemplated hereby and thereby or otherwise to impair the ability of the Company, ChipPAC Korea or ChipPAC Shanghai to conduct their business after the Closing. Section 3.10 Compliance With Laws and Orders. Neither the Company, ChipPAC Korea nor ChipPAC Shanghai has been or is in violation of or in default under any law applicable to the Company, ChipPAC Korea or ChipPAC Shanghai, or any of their respective assets and properties (i) in any material respect or (ii) in any respect that restricts the operation of the business of the Company or its Subsidiaries. Section 3.11 Benefit Plans; ERISA. (a) Set forth in Section 3.11 of the Company Disclosure Schedule is a list of all Benefit Plans of the Company, ChipPAC Korea and ChipPAC Shanghai or pursuant to which any employee of the Company, ChipPAC Korea and ChipPAC Shanghai is entitled to benefits. Each Benefit Plan which is listed in Section 3.11 of the Company Disclosure Schedule is in compliance in all material respects with all applicable laws, including, if applicable, provisions of ERISA, the Code and all other U.S. federal and U.S. state laws and all local laws applicable in the jurisdiction in which the Benefit Plan is maintained. There are no proceedings, claims (other than for benefits payable in the normal course of business) or suits pending or, to the Knowledge of HEI or HEA, threatened by any Governmental or Regulatory Authority or any participant or beneficiary against any of the Benefit Plans, the assets of any of the trusts under any of the Benefit Plans or the plan sponsor or any fiduciary of any of the Benefit Plans. All contributions required to be made with respect to the Benefit Plans relating to any employee of the Company, ChipPAC Korea and ChipPAC Shanghai have been made (or have been accrued for in the Balance Sheet or will be accrued for in the Closing Balance Sheet). None of the Company, ChipPAC Korea or ChipPAC Shanghai (i) has any obligation to pay any separation, severance, termination or similar benefit as a result of the execution and delivery of this Agreement or the consummation of the Recapitalization Transactions (other than the obligations set forth in the management incentive plan and agreements described in Section 2.3(a)(iv)); (ii) maintains, participates in or contributes to any employee pension benefit plan within the meaning of Section 3(2) of ERISA which is subject to Title IV of ERISA or Section 412 of the Code or any similar plan providing for the payment of pension or post-retirement benefits under the laws of the Republic of Korea or the People's Republic of China (other than the ChipPAC Korea "severance indemnity plan" and the ChipPAC Shanghai "pension plan" described in Section 3.11 of the Company Disclosure Schedule); or (iii) as of the Closing Date, will have any unfunded obligations under any Benefit Plan providing for pension or post-retirement benefits or similar payments (other than obligations that will be reflected in accruals in the Closing Balance Sheet with respect to the ChipPAC Korea "severance indemnity plan" and the ChipPAC Shanghai "pension plan"). (b) There are no (i) unfair labor practice charges pending against any of the Company, ChipPAC Korea or ChipPAC Shanghai or (ii) pending or, to the best of HEI's and HEA's Knowledge, threatened strikes or arbitration proceedings involving labor matters affecting the Company, ChipPAC Korea or ChipPAC Shanghai. Neither the Company, 34 ChipPAC Korea nor ChipPAC Shanghai has experienced any strikes, work stoppage or other significant labor difficulties of any nature. Section 3.12. Real Property. (a) Section 3.12(a) of the Company Disclosure Schedule contains a list of each parcel of real property leased or subleased by the Company, ChipPAC Korea or ChipPAC Shanghai (as lessor or lessee). Neither the Company, ChipPAC Korea nor ChipPAC Shanghai owns any real property. (b) The Company, ChipPAC Korea and ChipPAC Shanghai have or will have at Closing valid and subsisting leasehold or subleasehold estates in the respective real properties leased by them as lessee or sublessee under leases or subleases referred to in paragraph (a) of this Section 3.12. Each such lease or sublease is a legal, valid and binding agreement, enforceable in accordance with its terms. Section 3.13 Tangible Personal Property. The Company, ChipPAC Korea and ChipPAC Shanghai are or at the Closing will be in possession of, and have or at the Closing will have marketable title to, valid leasehold interests in or valid and enforceable rights to use, all tangible personal property which is used in and material to their business, subject to any Permitted Encumbrance. Section 3.14 Intellectual Property Rights. (a) Section 3.14 of the Company Disclosure Schedule contains a list of (i) all patented and registered Intellectual Property and all patent applications and applications for registration of Intellectual Property, in each case owned by the Company, ChipPAC Korea or ChipPAC Shanghai; (ii) Intellectual Property licenses to which the Company, ChipPAC Korea or ChipPAC Shanghai is a party; (iii) Intellectual Property subject to the HEI License Agreement; and (iv) all material unregistered trademarks, service marks, copyrights and trade names used by the Company, ChipPAC Korea or ChipPAC Shanghai, or subject to the HEI License Agreement. At the Closing, giving effect to the Ancillary Agreements, the Company, ChipPAC Korea and ChipPAC Shanghai will have all requisite right, title and interest in or valid and enforceable rights under Contract to use all Intellectual Property necessary to the conduct of their business as presently conducted (the "IP Rights") and after the Closing such IP Rights will be available for use by the Company, ChipPAC Korea, ChipPAC Shanghai or ChipPAC BVI as provided in the HEI License Agreement and the licenses listed in Section 3.14 of the Company Disclosure Schedule. None of HEI, HEA, the Company, ChipPAC Korea, or ChipPAC Shanghai has received notice that the Company, ChipPAC Korea or ChipPAC Shanghai is infringing or misappropriating any Intellectual Property of any other person. None of the Company, ChipPAC Korea, or ChipPAC Shanghai is infringing or misappropriating any Intellectual Property of any other person, and no claim against the Company, ChipPAC Korea, or ChipPAC Shanghai is pending or has been threatened asserting any such infringement or contesting the validity, enforceability, use or ownership of any IP Rights. No "right to use" study or similar investigation with respect to the Intellectual Property of any third party has been conducted by HEI, HEA, the Company, ChipPAC Korea, or ChipPAC Shanghai. To the Knowledge of HEI 35 and HEA, no Third Party is infringing or misappropriating the IP Rights. HEI and HEA make no representation or warranty with respect to (i) any post-Closing use of the IP Rights different from the use of such IP Rights by HEI, HEA, the Company, ChipPAC Korea and ChipPAC Shanghai prior to the Closing; (ii) any use of the IP Rights to manufacture or assemble products other than those of the type manufactured or assembled by HEI, HEA, the Company, ChipPAC Korea and ChipPAC Shanghai prior to the Closing; or (iii) the use by the Company after the Closing of Intellectual Property other than the IP Rights used by HEI, HEA, the Company, ChipPAC Korea and ChipPAC Shanghai prior to the Closing. (b) All computer systems used in (or to be used in, pursuant to the Information System Management Service Agreement) the business of the Company, ChipPAC Korea and ChipPAC Shanghai recognize and shall recognize the advent of the year 2000 and can correctly recognize and manipulate date information relating to dates before, on or after January 1, 2000 and the operation and functionality of such computer systems will not be adversely affected by the advent of the year 2000 or any manipulations of data featuring date information relating to dates before, on or after January 1, 2000. Section 3.15 Contracts. --------- (a) Section 3.15(a) of the Company Disclosure Schedule contains a list of each of the following Contracts (other than this Agreement and the Ancillary Agreements and Contracts no longer in force or effect) to which the Company, ChipPAC Korea or ChipPAC Shanghai is a party or by which any of their respective assets and properties is bound, as of the date hereof: (i) all Contracts (excluding Benefit Plans) providing for a commitment of employment or consulting services for a specified term and payments at any one time or in any one year in excess of two hundred thousand dollars ($200,000), and all labor union contracts; (ii) all Contracts with any person containing any provision or covenant prohibiting or materially limiting the ability of the Company, ChipPAC Korea or ChipPAC Shanghai to engage in any business activity or compete with any person or prohibiting or materially limiting the ability of any person to compete with the Company, ChipPAC Korea or ChipPAC Shanghai; (iii) all partnership or joint venture agreements and all Contracts relating to Intellectual Property (other than licenses of software readily available and having a total license fee of less than fifty thousand dollars ($50,000)); (iv) all Contracts governing Indebtedness of the Company, ChipPAC Korea or ChipPAC Shanghai; (v) all Contracts providing for (A) the future disposition or acquisition of any assets or properties other than dispositions or acquisitions in the ordinary course of business, and (B) any merger or other business combination; 36 (vi) all Contracts between or among the Company, ChipPAC Korea or ChipPAC Shanghai, on the one hand, and HEI, HEA, or any of their other respective Affiliates, or any other entity in which HEI or HEA has any direct or indirect interest, on the other hand, and that by their terms call for the payment by the Company, ChipPAC Korea or ChipPAC Shanghai of more than five hundred thousand dollars ($500,000) in the future in any one year; (vii) all Contracts (other than this Agreement) that (A) limit or contain restrictions on the ability of the Company, ChipPAC Korea or ChipPAC Shanghai to declare or pay dividends on, to make any other distribution in respect of or to issue or purchase, redeem or otherwise acquire its capital stock, to incur Indebtedness, to incur or suffer to exist any Encumbrance, to purchase or sell any assets and properties, to change the lines of business in which it participates or engages or to engage in any merger or other business combination or (B) require the Company, ChipPAC Korea or ChipPAC Shanghai to maintain specified financial ratios or levels of net worth or other indicia of financial condition; (viii) all other Contracts that (A) by their terms call for the payment by or to the Company, ChipPAC Korea or ChipPAC Shanghai of more than five hundred thousand dollars ($500,000) in the future in any one year and (B) cannot be terminated within ninety (90) days after giving notice of termination without resulting in any material cost or penalty to the Company, ChipPAC Korea or ChipPAC Shanghai in excess of one hundred thousand dollars ($100,000); and (ix) all Contracts between the Company, ChipPAC Korea or ChipPAC Shanghai, on the one hand, and Intel Corp., on the other hand. (b) Each Contract required to be disclosed in Section 3.15(a) of the Company Disclosure Schedule is in full force and effect and constitutes a legal, valid and binding agreement, enforceable in accordance with its terms, of each other party thereto; neither the Company, ChipPAC Korea or ChipPAC Shanghai nor, to the Knowledge of HEI and HEA, any other party to such Contract is in violation of or default under any material provision of any such Contract (or with notice or lapse of time or both, would be in violation of or default under any material provision of any such Contract). Section 3.16 Permits. The Company, ChipPAC Korea and ChipPAC Shanghai have all Permits required for the conduct of their business as presently conducted. Each such Permit valid, binding and in full force and effect; and to the Knowledge of HEI and HEA the Company, ChipPAC Korea and ChipPAC Shanghai are not in default (or with the giving of notice or lapse of time or both, would be in default) under any such Permit in any material respect. ChipPAC Korea's manufacturing facility and ChipPAC Shanghai's manufacturing facility hold the QS and ISO certifications set forth in Section 3.16 of the Company Disclosure Schedule. Section 3.17 Affiliate Transactions. Except as reflected in the Financial Statements and except for the Ancillary Agreements, there is no Indebtedness between the Company, ChipPAC Korea or ChipPAC Shanghai, on the one hand, and HEI, HEA or any of their other Affiliates, on the other hand. 37 Section 3.18 Environmental Matters. --------------------- (a) No written notification of a Release of a Hazardous Material has been filed by or on behalf of the Company, ChipPAC Korea or ChipPAC Shanghai, and no site or facility, or related offsite disposal site, is listed or is proposed for listing on the NPL, CERCLIS or any similar list of sites requiring investigation or clean-up under the laws of any other country. (b) There have been no environmental investigations, studies, audits, tests, reviews or other analyses conducted by, or that are in the possession HEI or HEA, or the Company, ChipPAC Korea or ChipPAC Shanghai, in relation to any site or facility now or previously owned, operated or leased by the Company, ChipPAC Korea or ChipPAC Shanghai which have not been made available to Merger Sub prior to the execution of this Agreement. (c) Neither the Company nor any of its Subsidiaries has treated, stored, disposed of, handled or released any Hazardous Material or owned or operated any property or facility (and no such property or facility is contaminated by any Hazardous Material) in any manner that has given or would give rise to any liabilities or remedial obligations pursuant to any Environmental Law. Section 3.19 Accounts Receivable; Inventory. The accounts receivable shown in the Balance Sheet arose in the ordinary course of business; subject to any allowances set forth in the Balance Sheet, were not, as of the Financial Statement Date, subject to any material discount, contingency, claim of offset or recoupment or counterclaim; and represented, as of the Financial Statement Date, bona fide claims against debtors for sales, leases, licenses and other charges. All accounts receivable of the Company, ChipPAC Korea and ChipPAC Shanghai arising after the Financial Statement Date through the date of this Agreement arose in the ordinary course of business consistent with past credit extension and other practices and, as of the date of this Agreement, are not subject to any discount, contingency, claim of offset or recoupment or counterclaim, except for normal allowances consistent with past practice. The amount carried for doubtful accounts and allowances disclosed in the Balance Sheet is sufficient to provide for any material Losses which may be sustained on realization of the accounts receivable shown in the Balance Sheet. The inventories shown on the Balance Sheet consisted in all material respects of items of a quantity and quality usable or salable in the ordinary course of business. All such inventories are valued on the Balance Sheet in accordance with GAAP and allowances have been established on the Balance Sheet, in each case in an amount which is adequate for slow-moving, obsolete or unusable inventories. Section 3.20 Insurance. HEI and HEA have made available or caused to be made available to Merger Sub copies of each insurance policy (including policies providing property, casualty, liability, and worker's compensation coverage and bond and surety arrangements, but excluding policies no longer in force) with respect to which the Company, ChipPAC Korea or ChipPAC Shanghai is a party, or named insured, or otherwise the beneficiary of coverage as of the date of this Agreement. Section 3.21 No Brokers. Except for Merrill Lynch & Co., whose fees, commissions and expenses are the sole responsibility of HEI and HEA, all negotiations relative to this 38 Agreement and the Ancillary Agreements and the transactions contemplated hereby and thereby have been carried out by HEI and HEA directly with Merger Sub without the intervention of any person on behalf of HEI or HEA in such a manner as to give rise to any valid claim by any person against Merger Sub, or against the Company, ChipPAC Korea or ChipPAC Shanghai, for a finder's fee, brokerage commission or similar payment. Section 3.22 No Other Representations. Notwithstanding anything to the contrary contained in this Agreement, it is the explicit intent, understanding and agreement of each party hereto that neither HEI nor HEA is making any representation or warranty whatsoever, express or implied, except those representations and warranties contained in this Article III and in any certificate delivered pursuant to Section 8.2(g). In particular, neither HEI nor HEA makes any representation or warranty to Merger Sub with respect to (a) the information set forth in the Confidential Descriptive Memorandum relating to the Company, ChipPAC Korea and/or ChipPAC Shanghai or made available to Merger Sub or any of its Representatives in connection with Merger Sub's consideration of the transactions contemplated by this Agreement, and (b) any financial projection or forecast furnished to Merger Sub by, or otherwise relating to, the Company, ChipPAC Korea and/or ChipPAC Shanghai, other than the fact that such projections and forecasts were prepared in good faith and based upon assumptions believed to be reasonable. With respect to all such projections and forecasts, Merger Sub hereby acknowledges and agrees that (i) there are uncertainties inherent in attempting to make such projections and forecasts, (ii) Merger Sub is aware of such uncertainties, (iii) Merger Sub is taking full responsibility for making its own evaluation of the adequacy and accuracy of all such projections and forecasts, including projections and forecasts relating to the businesses and operations of the Company, ChipPAC Korea and ChipPAC Shanghai that were previously conducted by HEI, HEA or other Affiliates of HEI or HEA, and (iv) Merger Sub shall have no claim against HEI, HEA or any of their respective Representatives or Affiliates with respect to such projections or forecasts. Section 3.23 Assets. All of the Company's, ChipPAC Korea's and ChipPAC Shanghai's buildings, improvements, machinery, equipment and other tangible personal property and assets are in good condition and repair in all material respects, ordinary wear and tear excepted, and are usable in the ordinary course of business and, as of the Closing, giving effect to the Chinese Debt Payoff, the Korean Debt Payoff, the US Debt Payoff and the other repayments and cancellations of Indebtedness and payments of payables to occur as part of the Recapitalization Transactions, all of the assets of each of the Company, ChipPAC Korea and ChipPAC Shanghai will be free and clear of all Encumbrances other than Permitted Encumbrances. The assets of the Company, ChipPAC Korea and ChipPAC Shanghai (together with the services to be made available to the Company, ChipPAC Korea and ChipPAC Shanghai pursuant to the Ancillary Agreements) include all assets (including all Intellectual Property) necessary to the conduct of the business of the Company, ChipPAC Korea and ChipPAC Shanghai as presently conducted. Section 3.24 Product Warran1y. No products heretofore sold by the Company, ChipPAC Korea or ChipPAC Shanghai are now subject to any guarantee or warranty other than the Company's standard terms and conditions of sale, a copy of which has previously been made available to Merger Sub. The amount carried in the Balance Sheet is sufficient to provide for 39 replacement of any product designed, manufactured, merchandised, serviced. distributed or sold by the Company, ChipPAC Korea, or ChipPAC Shanghai, or other damages in connection with such sales" or deliveries at any time prior to the Closing Date. Section 3.25 Customers. None of HEI, HEA, the Company, ChipPAC Korea or ChipPAC Shanghai has received any notice prior to the date of this Agreement that any of the top twenty (20) customers set forth in Section 3.25 of the Company Disclosure Schedule (which lists the top twenty (20) customers of the Company, ChipPAC Korea and ChipPAC Shanghai for calendar year 1997 and calendar year 1998) intends to terminate or materially reduce its business with the Company, ChipPAC Korea or ChipPAC Shanghai, and no such material customer has terminated or materially reduced its business with the Company, ChipPAC Korea or ChipPAC Shanghai in the twelve (12) months immediately preceding the date of this Agreement (it being understood and agreed that nothing herein shall be construed as a guarantee of any future level of business by any such customer with the Company, ChipPAC Korea or ChipPAC Shanghai, and no claim for indemnification shall be made and no indemnification shall be available, under Article X or otherwise, for breach or alleged breach of the representation and warranty in this Section 3.25 (except for failure to disclose any such notices received as required by the first sentence of this Section 3.25). Section 3.26 Interim Operations of ChipPAC BVI, ChipPAC BVI II, ChipPAC Barbados, ChipPAC Hungary and ChipPAC Luxembourg. Since their acquisition by HEI or the Company, each of ChipPAC BVI, ChipPAC BVI II, ChipPAC Barbados, ChipPAC Hungary and ChipPAC Luxembourg has engaged in no other business activities and has incurred no Liabilities (except as contemplated by this Agreement), and has conducted its respective operations only in furtherance of the transactions contemplated by this Agreement. Section 3.27 Transition Services. The level and category of services to be provided to the Company, ChipPAC Korea, ChipPAC Shanghai and ChipPAC BVI pursuant to the Ancillary Agreements, together with the separate assets and operations of the Company, ChipPAC Korea and ChipPAC Shanghai and ChipPAC BVI, are sufficient to operate the business of the Company, ChipPAC Korea and ChipPAC Shanghai as currently conducted in all material respects (taken as whole). Section 3.28 Closing Date. The representations and warranties of HEI and HEA contained in this Article III shall be true and correct on the date of the Closing as though then made, other than (i) representations and warranties made as of a specified date earlier than the Closing Date, which shall be true and correct as of such earlier date, or (ii) as HEI and HEA have otherwise advised Merger Sub in writing prior to the Closing. 40 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF MERGER SUB Except as set forth in this Agreement or the disclosure schedule of Merger Sub delivered to HEI and HEA herewith (the "Merger Sub Disclosure Schedule"), Merger Sub hereby represents and warrants to HEI and HEA as follows: Section 4.1 Corporate Existence and Authority. Merger Sub is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware. Merger Sub has full corporate power and authority to execute and deliver this Agreement and the Ancillary Agreements to which it is a party, to perform its obligations hereunder and thereunder, and to consummate the transactions contemplated hereby and thereby. Section 4.2 Authorization, Binding Effect. The execution and delivery by Merger Sub of this Agreement and the Ancillary Agreements to which it is a party, and the performance by Merger Sub of its obligations hereunder and thereunder, have been duly and validly authorized by the Board of Directors of Merger Sub, no other corporate action on the part of Merger Sub or any of its stockholders being necessary (including stockholder approval of the Merger, which is not required pursuant to Section 251(f) of the DGCL). This Agreement has been duly and validly executed by Merger Sub, and contemporaneously with the Closing, Merger Sub shall cause its shareholders to duly and validly execute the Shareholders Agreement, and upon the execution and delivery by the other parties thereto, will constitute legal, valid and binding obligations of Merger Sub and, in the case of the Shareholders Agreement, its shareholders, enforceable against Merger Sub and its shareholders, respectively, in accordance with their terms. Section 4.3 Absence of Conflicts. The execution and delivery by Merger Sub of this Agreement does not, and the execution and delivery by Merger Sub of the Ancillary Agreements to which it is a party, the performance by Merger Sub of its obligations under this Agreement and such Ancillary Agreements and the consummation of the transactions contemplated hereby and thereby will not: (a) conflict with or result in a violation or breach of the certificate of incorporation or bylaws of Merger Sub; (b) conflict with or result in a violation or breach of any law or Order applicable to Merger Sub or any of its assets or properties; or (c)(i) conflict with or result in a violation or breach of, (ii) constitute (with or without notice or lapse of time or both) a default under, (iii) require Merger Sub to obtain any consent or approval of any person as a result or under the terms of, or (iv) result in or give to any person any right of termination, cancellation, acceleration or modification with respect to, or (v) result in the creation or imposition of any Encumbrance upon Merger Sub or any of its assets or properties under, any Contract or license to which Merger Sub is a party or by which any of its assets and properties is bound. Section 4.4 Governmental Approvals and Filings. No consent, approval or action of, filing with or notice to any Governmental or Regulatory Authority on the part of Merger Sub or any of its stockholders is required in connection with the execution, delivery and performance of this Agreement or the Ancillary Agreements to which any of them is a party or the 41 consummation of the transactions contemplated hereby or thereby, except (i) the filing of a Notification and Report Form pursuant to the HSR Act and the expiration or early termination of the waiting periods thereunder, (ii) any required filings under any applicable antitrust or similar laws of any country (other than the United States) or supranational authority and the expiration or termination of waiting periods thereunder, or (iii) approvals by the government of the Republic of Korea, including approval of MOFE under FIFCIL; (iv) required filing of an overseas investment report pursuant to FEMR; (v) approvals by the local Foreign Investment Commission of the municipal government of Shanghai and/or, if required, MOFTEC; (vi) the filing of the Delaware Certificate of Merger with the Secretary of State of the State of Delaware and the California Agreement of Merger and the Officers' Certificates with the Secretary of State of the State of California; or (vii) where the failure to obtain any such consent, approval or action, to make any such filing or to give any such notice could not reasonably be expected to have a Material Adverse Effect on the Company after the Closing or to delay or have a material adverse effect on the ability of Merger Sub to consummate the transactions contemplated by this Agreement or any of the Ancillary Agreements or to perform any of their respective obligations hereunder or thereunder or where required solely as a result of the identity or the legal or regulatory status of HEI or any of its Affiliates. Section 4.5 Legal Proceedings. There are no Orders outstanding and no Actions or Proceedings pending or, to the Knowledge of Merger Sub, threatened against, relating to or affecting Merger Sub or any of its stockholders or any of their respective assets and properties which could reasonably be expected to have a Material Adverse Effect on Merger Sub (or on the Company after the Closing), to delay or to result in the issuance of an Order restraining, enjoining or otherwise prohibiting or making illegal the consummation of any of the transactions contemplated by this Agreement or any of the Ancillary Agreements, or otherwise to impair the ability of Merger Sub or its stockholders to perform their respective obligations under this Agreement and the Ancillary Agreements and to consummate the transactions contemplated hereby and thereby. Section 4.6 Purchase for Investment. The New Shares will be acquired by the stockholders of Merger Sub for their own account for the purpose of investment. The stockholders of Merger Sub shall refrain from transferring or otherwise disposing of any of the New Shares, or any interest therein, and the stockholders of Merger Sub shall refrain from transferring or otherwise disposing of their interests in Merger Sub or the Company in such manner as to cause HEI, HEA or the Company, or any of their directors or officers, to be in violation of the registration requirements of the Securities Act of 1933, as amended, or applicable U.S. state securities or blue sky laws or applicable securities laws of any other country. Subject to the foregoing limitations, the right to dispose of the New Shares shall otherwise be within the sole discretion of the stockholders of Merger Sub. Section 4.7 Financing. Merger Sub has previously delivered to HEI copies of the equity commitment, debt commitment and highly confident letters (copies of which are annexed as Annexes XII, XIII and XIV hereto) pursuant to which Merger Sub intends to obtain the funds necessary to deliver the Cash Consideration due and payable at Closing and to make all other necessary payments of fees and expenses due and payable at Closing (including the fees, 42 commissions and expenses of any investment bank or financial adviser to Merger Sub) in connection with the transactions contemplated by this Agreement and the Ancillary Agreements. Bain Capital, Inc. and MSX Holdings LLC have entered into a commitment with Merger Sub (and Citicorp Venture Capital Ltd. has entered into a commitment letter with MSX Holdings LLC, to which each of HEI and HEA is a third party beneficiary of each such letter, to make an equity investment in Merger Sub, on the terms and conditions and in the form set forth in Annex XII attached hereto. Section 4.8 No Brokers. Subject to Section 12.3 hereof, all negotiations relative to this Agreement and the Ancillary Agreements and the transactions contemplated hereby and thereby have been carried out by Merger Sub directly with HEI and HEA without the intervention of any person on behalf of Merger Sub in such a manner as to give rise to any valid claim by any person against the Company, ChipPAC Korea, ChipPAC Shanghai, HEI, HEA or any of their respective Subsidiaries for a finder's fee, brokerage commission or similar payment. Section 4.9 Investment Company Status. Merger Sub is not, and will not become as a result of the transactions contemplated by this Agreement, registered or regulated as an investment company pursuant to the U.S. Investment Company Act of 1940, as amended. Section 4.10 Interim Operations of Merger Sub and Certain Other Entities. Merger Sub was formed solely for the purpose of engaging in the Merger, has engaged in no other business activities, has incurred no Liabilities (except as contemplated by this Agreement), and has conducted its operations only in furtherance of the transactions contemplated by this Agreement. Each of ChipPAC BVI, ChipPAC BVI II, ChipPAC Barbados, ChipPAC Luxembourg and ChipPAC Hungary has been or will be formed solely for the purpose of engaging in the Recapitalization Transactions, and until their acquisition by HEI or the Company have engaged in no other business activities and has incurred no Liabilities (except as contemplated by this Agreement), and has conducted its respective operations only in furtherance of the transactions contemplated by this Agreement. ARTICLE V COVENANTS OF HEI AND HEA HEI and HEA covenant and agree with Merger Sub that, at all times from and after the date hereof until the Closing, HEI and HEA shall comply with all covenants and provisions of this Article V, except to the extent Merger Sub may otherwise consent in writing. Section 5.1 Regulatory and Other Approvals. Subject to the responsibility and management of Merger Sub contemplated by Section 2.2(h), HEI and HEA shall, and shall cause the Company and each of its Subsidiaries to, (a) take commercially reasonable steps necessary or desirable, and proceed diligently and in good faith, to obtain, as promptly as practicable, all consents, approvals or actions of, to make all filings with and to give all notices to Governmental or Regulatory Authorities or any other person (including under the HSR Act) required of HEI and HEA, the Company, ChipPAC Korea, ChipPAC Shanghai or any of their respective 43 Subsidiaries to consummate the transactions contemplated by this Agreement and by the Ancillary Agreements, (b) provide such other information and communications to such Governmental or Regulatory Authorities or other persons as such Governmental or Regulatory Authorities or other persons may reasonably request in connection therewith, (c) provide reasonable cooperation and support to Merger Sub in obtaining all consents, approvals or actions of, making all filings with and giving all notices to Governmental or Regulatory Authorities or other persons required of Merger Sub to consummate the transactions contemplated by this Agreement and by the Ancillary Agreements, and (d) provide, and cause their respective officers, employees and advisors to provide, reasonable cooperation in connection with arranging any financing to be consummated contemporaneously or substantially contemporaneously with the Closing and as contemplated by the Recapitalization Transactions. HEI and HEA shall provide prompt notification to Merger Sub when any such consents, approvals, actions, filings or notices referred to in clause (a) of this Section 5.1 are obtained, taken, made or given, as applicable, and shall advise Merger Sub of any communications (and, unless precluded by law, provide copies of any such communications that are in writing) with any Governmental or Regulatory Authority or other person regarding any of the transactions contemplated by this Agreement or any of the Ancillary Agreements. HEI and HEA shall proceed diligently and in good faith to obtain all consents required by Section 8.2(d) to be delivered at the Closing and shall use commercially reasonable efforts to obtain other consents (not identified in Section 8.2(d)) that may be reasonably requested by Merger Sub in connection with the transactions contemplated by this Agreement or by any of the Ancillary Agreements. Nothing in this Section 5.1, Section 5.7 or any other provision of this Agreement shall require HEI, HEA or the Company to make any extraordinary payment, or to agree to any extraordinary terms, as a condition to receiving the Third Party consents, approvals, waivers and other action contemplated by Section 2.2(c)(iii). Section 5.2 Investigation by Merger Sub. HEI and HEA shall, and shall cause the Company and its Subsidiaries to, (a) provide Merger Sub and the officers, employees, counsel, accountants, financial advisors, consultants, investors, financing sources and other representatives (together, "Representatives") of Merger Sub with access, upon reasonable prior notice and during normal business hours, to all officers, employees, agents and accountants (including independent accountants) of the Company, ChipPAC Korea and ChipPAC Shanghai and their respective assets, properties, books and records, but only to the extent that such access does not unreasonably interfere with the business and operations of the Company, ChipPAC Korea and ChipPAC Shanghai, and (b) make available to Merger Sub and its Representatives all such information and data concerning the business and operations of the Company, ChipPAC Korea and ChipPAC Shanghai as Merger Sub or any of its Representatives reasonably may request in connection with such investigation, except to the extent that furnishing any such information or data would violate any law, Order, Contract or Permit applicable to HEI, HEA, the Company, ChipPAC Korea or ChipPAC Shanghai or by which any of their respective assets or properties is bound. Section 5.3 Financial Statements and Reports. As promptly as practicable and in any event no later than forty-five (45) days after the end of each fiscal quarter ending after the date hereof and before the Closing Date (other than the fourth quarter) or ninety (90) days after the end of the year ending December 31, 1998, as the case may be, HEI and HEA shall (or shall 44 cause the Company to) deliver to Merger Sub copies of (in the case of any such fiscal year) the audited and (in the case of any such fiscal quarter) the unaudited consolidated balance sheet, and the related audited or unaudited pro forma or actual (as the case may be) consolidated statements of operations, stockholders' equity and cash flows, of the Company, ChipPAC Korea and ChipPAC Shanghai, in each case as of and for the fiscal year then ended or as of and for each such fiscal quarter and the portion of the fiscal year then ended, as the case may be, together with the notes, if any, relating thereto, which financial statements (subject, in the case of the quarterly financial statements, to normal year-end adjustments and except for the omission of notes) shall be prepared in accordance with GAAP and shall fairly present in all material respects the financial condition and results of operations of the Company, ChipPAC Korea and ChipPAC Shanghai as of their respective dates thereof and for the respective periods covered thereby, and which shall be in a form meeting the requirements of Regulation S-X and shall be accompanied by the consent of HEI's and the Company's independent accountants to the use of their reports thereon and such accountants' unqualified opinion thereon. Section 5.4 Conduct of Business. Except as set forth in or contemplated by this Agreement or any of the Ancillary Agreements, HEI and HEA shall cause the Company, ChipPAC Korea and ChipPAC Shanghai to conduct business only in the ordinary course, and, without limiting the generality of the foregoing, shall cause the Company, ChipPAC Korea and ChipPAC Shanghai to use commercially reasonable efforts to (a) preserve intact the present business organization and reputation of the Company, ChipPAC Korea and ChipPAC Shanghai in all material respects, (b) keep available (subject to dismissals and retirements in the ordinary course of business) the services of the key officers and employees of the Company, ChipPAC Korea and ChipPAC Shanghai, (c) maintain the assets and properties of the Company, ChipPAC Korea and ChipPAC Shanghai in good working order and condition, subject to ordinary wear and tear, and (d) maintain the goodwill of key customers, suppliers and lenders and other persons with whom the Company, ChipPAC Korea or ChipPAC Shanghai otherwise has significant business relationships. ChipPAC Shanghai II shall not have less than one million eight hundred thousand dollars ($1,800,000) in paid-in capital prior to the Closing. Section 5.5 Certain Restrictions. Except as set forth in or contemplated by this Agreement, any of the Ancillary Agreements or Section 5.5 of the Company Disclosure Schedule, and subject further to the additional express exceptions set forth below, HEI and HEA shall cause the Company, ChipPAC Korea and ChipPAC Shanghai to refrain from: (a) amending their respective certificates or articles of incorporation or bylaws (or other comparable corporate charter documents) in any respect or taking any action with respect to any such amendment or any recapitalization, reorganization, liquidation or dissolution of any such corporation; (b) other than upon conversion or exercise of rights under the terms of securities outstanding on the date of this Agreement, authorizing, issuing, selling or otherwise disposing of any shares of their respective capital stock of or any option or other right with respect thereto, or modifying or amending any right of any holder of outstanding shares of their respective capital stock of or options or other rights with respect thereto; 45 (c) declaring, setting aside or paying any dividend or other distribution in respect of their respective capital stock, or directly or indirectly redeeming, purchasing or otherwise acquiring any capital stock of or any option with respect thereto, other than for the purpose of eliminating any minority interests not contemplated by this Agreement or upon conversion or exercise of rights under the terms of securities outstanding on the date of this Agreement; (d) except as set forth in Sections 3.7 and 3.9 of the Company Disclosure Schedule and other than inventory acquired or disposed of in the ordinary course of business, acquiring or disposing of, or incurring any Encumbrance (other than a Permitted Encumbrance) on, any assets (including any IP Rights) or properties; (e) other than in the ordinary course of business, amending, modifying, terminating (partially or completely), granting any waiver under or giving any consent with respect to any material term of any Contract or license; (f) except as required by law or by the terms of Contracts with any Third Party entered into before the date of this Agreement, (i) voluntarily incurring any Indebtedness or (ii) purchasing, canceling, prepaying or otherwise providing for a complete or partial discharge or repayment with respect to, or waiving any right under, any Indebtedness (including intercompany Indebtedness (x) owed to the Company, ChipPAC Korea or ChipPAC Shanghai by HEI, HEA or any of their other controlled Affiliates, or (y) owed by the Company, ChipPAC Korea or ChipPAC Shanghai to HEI, HEA or any of their respective other Affiliates); provided, that, subject to Section 2.2(j), if for any reason the anticipated amounts of Indebtedness of ChipPAC Korea or ChipPAC Shanghai to be repaid at the Closing pursuant to Section 2.2(g)(ii) and Section 2.2(g)(iii) would otherwise be less than approximately eighty-two million dollars ($82,000,000) and thirty- four million dollars ($34,000,000), respectively, HEI and HEA will, in consultation with and at the request of Merger Sub, cause ChipPAC Korea and ChipPAC Shanghai to incur additional short-term Indebtedness such that the anticipated amounts of Indebtedness to be repaid at the Closing pursuant to Section 2.2(g)(ii) and Section 2.2(g)(iii) are approximately eighty-two million dollars ($82.000,000) and thirty-four million dollars ($34,000,000), respectively. (g) engaging with any person in any merger or other business combination; (h) making research and development expenditures or capital expenditures or commitments for additions to property, plant or equipment constituting capital assets (except as set forth in the quarterly research and development budget annexed hereto as Exhibit F and the Capital Budget, respectively); (i) except to the extent required by applicable law, making any material change in (A) any pricing, investment, accounting, financial reporting, inventory, credit, allowance or Tax practice or policy, or (B) any method of calculating any bad debt, contingency or other reserve for accounting, financial reporting or Tax purposes; 46 (j) other than in the ordinary course of business or to the extent required by applicable law or as disclosed in Schedule 7.2, adopting, entering into or becoming bound by any material Benefit Plan, employment-related Contract or collective bargaining agreement, or amending, modifying or terminating (partially or completely) any such Benefit Plan, employment-related Contract or collective bargaining agreement, or reassigning or transferring (including by termination and rehiring) any employee of the Company, ChipPAC Korea or ChipPAC Shanghai to HEI, HEA or any of their other Affiliates; (k) making any change in its fiscal year; (l) other than in the ordinary course of business or as required by law or existing Contract, increase or otherwise modify any employee's compensation, benefits or bonus; (m) take any action which, or fail to take any action the omission of which, could reasonably be expected to have a Material Adverse Effect; or (n) entering into any Contract to do or engage in any of the foregoing. Section 5.6 Affiliate Transactions. Except for the (i) payments by the Company, ChipPAC Korea or ChipPAC Shanghai to HEI or HEA under the Tax Sharing Agreement, (ii) the Ancillary Agreements and, payments by the Company, ChipPAC Korea, ChipPAC Shanghai or ChipPAC BVI under the Ancillary Agreements and payments by HEI or HEA under the Ancillary Agreements, (iii) the Plating Services Agreement referred to in Section 12.18(e) and in Section 3.15 of the Company Disclosure Schedule, and (iv) contracts mutually agreed by the parties hereto as necessary to the Company's, ChipPAC Korea's or ChipPAC Shanghai's business, HEI and HEA shall, on or before the Closing Date, terminate and shall cause any such officer, director, or Affiliate to terminate any Contract between the Company, ChipPAC Korea or ChipPAC Shanghai, on the one hand, and HEI, HEA or any of their Affiliates or any of their respective officers, directors, employees or representatives, on the other hand, including any Contract noted in the Company Disclosure Schedule to be terminated as of the Closing. Section 5.7 Fulfillment of Conditions. HEI and HEA shall use all requisite commercially reasonable efforts and proceed diligently and in good faith to satisfy each condition to the obligations of Merger Sub contained in Section 8.1 and Section 8.2 that depends on action by HEI or HEA for its satisfaction and, to the extent commercially reasonable, shall not, and shall not permit the Company, ChipPAC Korea or ChipPAC Shanghai to, take any action that, or fail to take any action the omission of which, could reasonably be expected to result in the nonfulfillment of any such condition. HEI and HEA shall give prompt written notice to Merger Sub of any event, condition or circumstance coming to their Knowledge occurring from the date hereof through the Closing Date that, if uncured, would cause any of the conditions set forth in Section 8.1 or Section 8.2 not to be satisfied. 47 ARTICLE VI COVENANTS OF MERGER SUB Merger Sub covenants and agrees with HEI and HEA that, at all times from and after the date hereof until the Closing, it shall comply, and to the extent applicable after the Closing shall cause the Company, ChipPAC Korea, ChipPAC Shanghai and their respective Affiliates to comply, with the covenants applicable to or made by them in this Article VI, except to the extent HEI and HEA may otherwise consent in writing. Section 6.1 Regulatory and Other Approvals. Merger Sub shall (a) take commercially reasonable steps necessary or desirable, and proceed diligently and in good faith and use all commercially reasonable efforts, as promptly as practicable to obtain all consents, approvals or actions of, to make all filings with and to give all notices to Governmental or Regulatory Authorities or any other person (including under the HSR Act) required of Merger Sub to consummate the transactions contemplated by this Agreement and by the Ancillary Agreements, (b) provide such other information and communications to such Governmental or Regulatory Authorities or other persons as such Governmental or Regulatory Authorities or other persons may reasonably request in connection therewith, and (c) provide reasonable cooperation and support to HEI, HEA, the Company, ChipPAC Korea and ChipPAC Shanghai in obtaining all consents, approvals or actions of, making all filings with and giving all notices to Governmental or Regulatory Authorities or other persons required of HEI, HEA, the Company, ChipPAC Korea or ChipPAC Shanghai to consummate the transactions contemplated by this Agreement and the Ancillary Agreements. Merger Sub shall provide prompt notification to HEI and HEA when any such consent, approval, action, filing or notice referred to in clause (a) of this Section 6.1 is obtained, taken, made or given, as applicable, and shall advise HEI and HEA of any communications (and, unless precluded by law, provide copies of any such communications that are in writing) with any Governmental or Regulatory Authority or other person regarding any of the transactions contemplated by this Agreement or any of the Ancillary Agreements. Section 6.2 Fulfillment of Conditions. Merger Sub shall use all requisite commercially reasonable efforts and proceed diligently and in good faith to satisfy each condition to the obligations of HEI and HEA contained in Section 8.1 and Section 8.3 that depends on Merger Sub for its satisfaction and, to the extent commercially reasonable, shall not take any action that, or fail to take any action the omission of which, could reasonably be expected to result in the nonfulfillment of any such condition. Merger Sub shall give prompt written notice to HEI and HEA of any event, condition or circumstance coming to its Knowledge occurring from the date hereof through the Closing Date that, if uncured, would cause any of the conditions set forth in Section 8.1 and Section 8.3 not to be satisfied. Section 6.3 Certain Actions. Merger Sub shall not engage in any activity other than the activities contemplated by and in furtherance of the Recapitalization Transactions and the Ancillary Agreements to which Merger Sub is a party. Without limiting the generality of the foregoing, except as provided by, or as necessary or desirable for the performance of its 48 obligations under or for the consummation of the transactions contemplated by, this Agreement, Merger Sub shall not, prior to the Closing without the prior written consent of HEI and HEA: (a) amend its certificate of incorporation or bylaws; (b) issue, sell or otherwise dispose of any shares of its capital stock or any option or other right with respect thereto; (c) declare, set aside or pay any dividend or other distribution in respect of its capital stock, or directly or indirectly redeem, purchase or otherwise acquire any of its capital stock or any option or other right with respect thereto; (d) cancel, discharge, waive, release or forebear from the exercise of any rights under any debt or equity commitment letter, or enter into or agree to any amendment thereof, in each case where such action would adversely affect the consummation of the Recapitalization Transactions; (e) incur any Liabilities; (f) engage with any person in any merger or other business combination; or (g) enter into any Contract to do or engage in any of the foregoing. ARTICLE VII ADDITIONAL AGREEMENTS Section 7.1 Stock Option Plans and Options. The Company Options shall be canceled or paid out as described in Section 23(a)(iv) hereof, and in connection therewith, HEI and HEA in their sole discretion may, at or prior to the Closing, cause the Company to require any or all holders of Company Options to execute and deliver a general release of claims including any and all stock-, option- or equity-related claims against the Company, HEI, HEA, Merger Sub, and their respective Affiliates, as a condition to the receipt of the payment described in Section 2.3(a)(iv), it being understood and agreed that receipt of all or any of such releases shall not be a condition to any party's obligation to consummate the Recapitalization Transactions. Section 7.2 ChipPAC Employees. (a) Subject to HEI's and HEA's obligations set forth in Section 2.3(a)(iv) and Section 2.3(d) hereof, the Company shall unconditionally honor and perform, and shall unconditionally cause ChipPAC Korea and ChipPAC Shanghai after the Closing to honor and perform, all of their obligations under all (i) employment, incentive and severance agreements (including the agreement in principle with the ChipPAC labor unions in Korea set forth in Schedule 7.2); (ii) agreements, arrangements, commitments and resolutions heretofore adopted 49 governing employee rights and benefits set forth in Schedule 7.2; (iii) collective bargaining or other union agreements or arrangements, set forth in Schedule 7.2. and (iv) provisions of applicable law governing employee rights or benefits, in favor of all employees of the Company, ChipPAC Korea and ChipPAC Shanghai in effect from time to time in accordance with the terms thereof, subject, in each case, to any rights any of the Company, ChipPAC Korea or ChipPAC Shanghai may have pursuant to law, contract or otherwise to alter or modify the terms of any such agreement, arrangement, commitment or resolution. (b) The Company shall recognize all service with HEI, HEA, the Company. ChipPAC Korea or ChipPAC Shanghai, including service with any predecessor employer that was recognized by HEI, HEA, the Company, ChipPAC Korea or ChipPAC Shanghai thereof, for purposes of post-Closing benefits, including, but not limited to, vacation entitlement and retirement plan participation and vesting (but not for benefit accruals), welfare plan participation and eligibility and severance pay. No pre-existing condition exclusions or waiting periods may be imposed under the Company's employee welfare benefit plans within the meaning of Section 3(l) of ERISA upon any employee of the Company, ChipPAC Korea or ChipPAC Shanghai. (c) HEI and HEA shall cause the Company to fully vest each of its employees in all applicable 401(k) plan contributions (including employer contributions) under the Company's 401(k) plan as of the Closing. Section 7.3 Ancillaa Agreements. The parties to this Agreement shall cause the Ancillary Agreements to be executed and delivered by such party and/or their Affiliates, in substantially the form set forth in the annexes to this Agreement, at or prior to the Closing. Section 7.4 Release of Guarantees. Before the Closing, to the extent reasonably requested by HEI and HEA, Merger Sub shall provide commercially reasonable cooperation to HEI, HEA, the Company, ChipPAC Korea and ChipPAC Shanghai in obtaining releases of HEI and HEA from guarantees (if any) that HEI or HEA has given or retained in respect of obligations of the Company, ChipPAC Korea and ChipPAC Shanghai (other than obligations required by this Agreement and the Ancillary Agreements to be borne by HEI or HEA and other than obligations in respect of Indebtedness required to be repaid at or prior to the Closing); provided, that nothing in this Section 7.4 shall require Merger Sub to make any payment or give any item of value. Section 7.5 Change of Name. (a) Promptly following the Closing, the Company shall take all action required to change the name of ChipPAC Shanghai from "Hyundai Electronics (Shanghai) Company Ltd." to a name which does not include the name "Hyundai" or any confusingly similar name. Subject only to such continued use of the Hyundai name by ChipPAC Shanghai as is required by law pending the name change contemplated by the immediately preceding sentence, and except as contemplated by the Ancillary Agreements and as otherwise contemplated herein, Merger Sub, the Company, ChipPAC Korea, ChipPAC Shanghai and their Affiliates shall refrain after the Closing from using the Hyundai name, any other name of HEI, 50 HEA or their Affiliates (other than the ChipPAC name), any confusingly similar name, and any other trademarks, service marks or trade names of HEI, HEA or their Affiliates, without the prior written consent of HEI and HEA. The Company, ChipPAC Korea and/or ChipPAC Shanghai may have after the Closing a quantity of work-in-process, preprinted stationery, invoices, receipts, forms, packaging materials and other supplies in inventory which bear the Hyundai name. Except as limited or prohibited by applicable law (as to which no representation or warranty is made by HEI or HEA or any of their Affiliates), HEI and HEA hereby grant, and shall cause their Affiliates to grant, to the Company, ChipPAC Korea and ChipPAC Shanghai a paid-up license, to remain in effect until the exhaustion of such inventory and supplies in the ordinary course of business (up to a maximum of one hundred eighty (180) days), to use any trademarks, trade names, trade dress, copyright or other intellectual property rights of HEI, HEA or their Affiliates necessary for such use of such inventory or supplies. The Company, on behalf of itself and ChipPAC Korea and ChipPAC Shanghai, agrees to exhaust such inventory and supplies in the ordinary course of business as soon as is reasonably practicable after the Closing, and in any event within one hundred eighty (180) days after the Closing; provided, however, that should the Company, ChipPAC Korea or ChipPAC Shanghai be required to requalify with any of its customers as a result of such change of name, Merger Sub and, following the Closing, the Company, ChipPAC Korea and ChipPAC Shanghai shall use their commercially reasonable best efforts to requalify with any such customers as promptly as practicable and, subject to the continued exercise of such efforts, HEI and HEA shall extend, and cause their Subsidiaries to extend, such license to the extent necessary until the Company, ChipPAC Korea or ChipPAC Shanghai has obtained such requalification. (b) The parties hereto acknowledge and agree that any remedy at law for any breach of the provisions of this Section 7.5 would be inadequate, and the Company hereby consents (and shall cause ChipPAC Korea and ChipPAC Shanghai to consent) to the granting by any court of an injunction or other equitable relief, without the necessity of actual monetary loss being proved, in order that the breach or threatened breach of such provisions may be effectively restrained. Section 7.6 Indemnification of Directors and Officers. Except with respect to any matter which is the subject of HEI's and HEA's indemnification pursuant to Section 10.2, until the tenth (10th) anniversary of the Closing Date: (a) the Company shall indemnify and hold harmless, to the fullest extent permitted by law, each person who is or at any time prior to the Closing Date has been an officer or director of the Company, ChipPAC Korea or ChipPAC Shanghai from and against all Losses and Liabilities incurred by such person by reason of the fact that he is or was a director, officer or agent of the Company, ChipPAC Korea or ChipPAC Shanghai, except to the extent any such Loss or Liability is caused by the gross negligence or willful misconduct of any such person; and (b) the Company shall not, and shall not cause or permit any of their respective Subsidiaries or Affiliates to, take any action with the purpose or effect of amending, circumventing or rendering the Company unable (whether legally, financially or otherwise) to perform and satisfy its obligations hereunder or under any provision of the Articles of Incorporation, by-laws or other comparable corporate charter documents of the Company, ChipPAC Korea or ChipPAC Shanghai, or any agreement between the Company, ChipPAC Korea or ChipPAC Shanghai and any of their respective directors, officers or 51 employees, that provides for indemnification of any director, officer or employee (including an amendment effected through a merger, consolidation, sale of all or substantially all the assets, liquidation or dissolution of any such corporation), if the effect of such amendment would be to have an adverse effect on any right provided thereby to any person who shall have served as a director or officer of the Company, ChipPAC Korea or ChipPAC Shanghai prior to the Closing Date in respect of actions taken in such capacity on or prior to the Closing Date, unless such person would immediately thereafter be entitled to indemnification by the Company comparable to that provided by the affected provision prior to any such amendment. Section 7.7 Grant of Sublicenses. In the event HEI, HEA or any of their controlled Affiliates obtains a license or comparable right, including but not limited to any cross-licensing arrangement that HEI, HEA or any of their controlled Affiliates may enter into with Texas Instruments and/or Hitachi or any covenant not to sue granted by Texas Instruments and/or Hitachi (collectively, a "License") from Texas Instruments and/or Hitachi in order to resolve infringement charges made against them, HEI, HEA and/or their controlled Affiliates shall seek in good faith and use commercially reasonable efforts to obtain the right from Texas Instruments or Hitachi, as applicable, to grant to ChipPAC BVI and its Affiliates a sublicense under any such License and shall grant such sublicense ChipPAC BVI and its Affiliates on the same terms and conditions as the License, provided, however, that any such sublicense shall apply only to those patent, utility, design and computer program rights licensed from Texas Instruments or Hitachi that are relevant to business of the Company, ChipPAC Korea or ChipPAC Shanghai. Notwithstanding the foregoing, to the extent the License requires payment by HEI, HEA or their controlled Affiliates to Texas Instruments and/or Hitachi, the payment obligation under the sublicense shall be prorated in a commercially reasonable manner as agreed to between ChipPAC BVI (on behalf of itself and its Affiliates) and HEI, HEA or their Affiliates, as applicable. Nothing in this Section 7.7 shall require HEI, HEA or any of their Affiliates to pay or agree to pay for the right to grant such a sublicense or prevent HEI, HEA or any of their Affiliates from entering into an agreement or arrangement with Texas Instruments and/or Hitachi that does not provide for a right to grant such a sublicense; provided, however, that HEI or HEA, as applicable, shall promptly notify ChipPAC BVI of any payment required by Texas Instruments and/or Hitachi for the right to grant such a sublicense, and ChipPAC BVI shall have the option to pay such amount in return for receiving such sublicense. ARTICLE VIII CONDITIONS TO OBLIGATIONS OF THE PARTIES Section 8.1 Obligations of Both Parties. The obligation of each party to consummate the Recapitalization Transactions is subject to the fulfillment, at or before the Closing, of each of the following conditions: (a) Orders and Laws. There shall not be in effect as of the Closing any Order or law restraining, enjoining or otherwise prohibiting or making illegal the 52 Recapitalization Transactions, or any pending application or motion for a preliminary injunction or temporary restraining order against the Recapitalization Transactions. (b) Regulatory Consents and Approvals. All consents, approvals and actions of, filings with and notices to any Governmental or Regulatory Authority necessary to permit the consummation of the Recapitalization Transactions shall have been duly obtained, made or given and shall be in full force and effect, and all waiting periods imposed by any Governmental or Regulatory Authority necessary for the consummation of the Recapitalization Transactions, including the waiting period under the HSR Act and any applicable waiting periods under any other antitrust or similar laws of any other country or supranational authority, shall have expired or been terminated. (c) Shareholders and Registration Agreements. The Shareholders Agreement and the Registration Agreement shall have been executed and delivered by the parties thereto and shall be in full force and effect, subject only to the conditions precedent to effectiveness (if any) set forth therein. Section 8.2 Obligations of Merger Sub. The obligation of Merger Sub to consummate the Recapitalization Transactions is subject to the fulfillment, at or before the Closing, of each of the following additional conditions (all or any of which may be waived in whole or in part by Merger Sub in its sole discretion): (a) Representations and Warranties. The representations and warranties made by HEI and HEA in this Agreement, taken as a whole, shall be true and correct in all respects on and as of the Closing Date as though made on and as of the Closing Date or, in the case of representations and warranties made as of a specified date earlier than the Closing Date, on and as of such earlier date, without taking into account any disclosures made by HEI or HEA to Merger Sub after the date hereof, except where the failure of such representations and warranties to be true and correct could not reasonably be expected to have a Material Adverse Effect on the Company (it being agreed that for purposes of determining such "Material Adverse Effect" for purposes of this Section 8.2(a), all references to "materiality," "Material Adverse Effect," "in all material respects" or "materially" contained in the representations and warranties of HEI and HEA in this Agreement shall be disregarded). (b) Performance. HEI and HEA in all material respects shall have performed and complied with the agreements, covenants and obligations required by this Agreement to be so performed or complied with by HEI and HEA at or before the Closing, without taking into account any disclosures made by HEI or HEA to Merger Sub after the date hereof (c) Officers' Certificates. HEI and HEA shall have delivered to Merger Sub (i) a certificate, dated the Closing Date and executed by an Executive Vice President of HEI and the President of HEA, certifying to the satisfaction of the conditions set forth in Section 8.2(a) and Section 8.2(b) and (ii) a certificate, dated the Closing Date and executed by an Executive Vice President of HEI and the Secretary or any Assistant Secretary of HEA, attaching and certifying the accuracy and completeness of the certificate or articles of incorporation, bylaws or comparable charter documents of the Company, ChipPAC Korea and ChipPAC Shanghai and all 53 board resolutions adopted in connection with this Agreement and the Ancillary Agreements by the respective Boards of Directors of HEI and HEA and the Company. (d) Third-Party Consents. The consents, waivers and agreements of Intel Corp., Motorola, Inc., Tessera Inc. and Olin Corp. required (if any) for the transactions contemplated by Section 2.2(c)(iii) shall have been obtained and shall be in full force and effect. (e) Opinion of Counsel. Merger Sub shall have received the opinions of Korean and U.S. counsel to HEI, HEA and the Company, dated the Closing Date, as to the matters set forth in Schedule 8.2(e) hereto, in a form and subject to such assumptions, exceptions and limitations as are customary for such counsel in connection with transactions such as those contemplated by this Agreement. (f) Ancillary Agreements. Each of the Ancillary Agreements shall have been executed and delivered by the parties thereto and shall be in full force and effect, subject only to the consummation of the Recapitalization Transactions and the other conditions precedent to effectiveness (if any) set forth in such Ancillary Agreements. (g) Financing. Merger Sub, the Company, ChipPAC Korea, ChipPAC Shanghai, ChipPAC BVI, ChipPAC BVI II and their respective Subsidiaries shall have received financing proceeds on terms not materially less favorable than the terms set forth in the commitment and highly confident letters described in Section 4.7 and annexed hereto as Annexes XIII and XIV. Section 8.3 Obligations of HEI and HEA. The obligations of HEI and HEA to consummate, and to cause the Company to consummate, the Recapitalization Transactions are subject to the fulfillment, at or before the Closing, of each of the following conditions (all or any of which may be waived in whole or in part by HEI and HEA in their sole discretion): (a) Representations and Warranties. The representations and warranties made by Merger Sub in this Agreement, taken as a whole, shall be true and correct in all material respects on and as of the Closing Date as though made on and as of the Closing Date or, in the case of representations and warranties made as of a specified date earlier than the Closing Date, on and as of such earlier date, except where the failure of such representations and warranties to be true and correct could not reasonably be expected to have a Material Adverse Effect on HEI or HEA (or on the Company after the Closing). (b) Performance. Merger Sub in all material respects shall have performed and complied with the agreements, covenants and obligations required by this Agreement to be so performed or complied with by it at or before the Closing. (c) Officers' Certificates. Merger Sub shall have delivered to HEI and HEA (i) a certificate, dated the Closing Date and executed by the President or any Executive or Senior Vice President of Merger Sub, certifying as to the satisfaction of the conditions set forth in Section 8.3(a) and Section 8.3(h), and (ii) a certificate, dated the Closing Date and executed by the Secretary or any Assistant Secretary of Merger Sub, attaching and certifying the accuracy and 54 completeness of the copies of the articles or certificate of incorporation, bylaws and all resolutions adopted in connection with this Agreement and the Ancillary Agreements, of Merger Sub. (d) Opinion of Counsel. HEI and HEA shall have received the opinion of counsel to Merger Sub, dated the Closing Date, with respect to the matters set forth in Schedule 8.3(c) hereto, in a form and subject to such assumptions, exceptions and limitations as are customary for such counsel in connection with transactions such as those contemplated by this Agreement. ARTICLE IX TERMINATION ----------- Section 9.1 Termination. This Agreement may be terminated, and the transactions contemplated hereby may be abandoned: (a) at any time before the Closing, by mutual written agreement of HEI and HEA, on the one hand, and Merger Sub, on the other hand; (b) at any time before the Closing, by HEI and HEA or by Merger Sub, in the event that any final, non-appealable Order or law becomes effective restraining, enjoining or otherwise prohibiting or making illegal the consummation of any of the transactions contemplated by this Agreement or any of the Ancillary Agreements, upon notice to the nonterminating party by the terminating party; (c) at any time after July 15, 1999, by HEI and HEA, by notice to Merger Sub if the Closing shall not have occurred on or before such date and the failure of the Closing to occur is not caused by a material breach of this Agreement by HEI and HEA, provided, that such date shall be extended to August 15, 1999 if on or prior to July 15, 1999 Merger Sub certifies to HEI and HEA that Merger Sub believes in good faith that all conditions to Closing will be satisfied or waived on or before such extended date; (d) at any time after July 15, 1999, by Merger Sub, by notice to HEI and HEA if the Closing shall not have occurred on or before such date and the failure of the Closing to occur is not caused by a material breach of this Agreement by Merger Sub, provided, that such date shall be extended to August 15, 1999 if on or prior to July 15, 1999 HEI and HEA certify to Merger Sub that HEI and HEA believe in good faith that all conditions to Closing will be satisfied or waived on or before such extended date; (e) at any time before the Closing, by HEI and HEA, by notice to Merger Sub, in the event of a material breach of this Agreement by Merger Sub which if uncured would cause one or more of the conditions to Closing set forth in Section 8.1 or Section 8.3 not to be satisfied and which is incapable of being cured prior to the latest date set forth in Section 9.1(c); and 55 (f) at any time before the Closing, by Merger Sub, by notice to HEI and HEA, in the event of a material breach of this Agreement by HEI, HEA or the Company which if uncured would cause one or more of the conditions to Closing set forth in Section 8.1 or Section 8.2 not to be satisfied and which is incapable of being cured prior to the latest date set forth in Section 9.1(d). Section 9.2 Effect of Termination. If this Agreement is validly terminated pursuant to Section 9.1, this Agreement shall forthwith become null and void, and there shall be no liability or obligation on the part of any party hereto (or any of their respective officers, directors, employees, agents or other Representatives or Affiliates), except as set forth in this Article IX and except that the provisions with respect to fees and expenses in Section 12.3 and confidentiality in Section 12.5 shall continue to apply following any such termination. Notwithstanding any other provision in this Agreement to the contrary, upon termination of this Agreement pursuant to Section 9.1 (other than pursuant to Section 9.1 (a)), HEI and HEA shall remain liable to Merger Sub for any willful breach by HEI or HEA of their respective obligations to consummate the Recapitalization Transactions upon satisfaction or waiver of the conditions set forth in Article VIII or of their respective obligations under Section 5.7 ("Fulfillment of Conditions") existing at the time of such termination, and Merger Sub shall remain liable to HEI and HEA for any willful breach by Merger Sub of its obligations to consummate the Recapitalization Transactions upon satisfaction or waiver of the conditions set forth in Article VIII or its obligations under Section 6.2 ("Fulfillment of Conditions") existing at the time of such termination, and each party hereto may seek such remedies, including damages and fees of attorneys, against the other parties with respect to any such breach as are provided in this Agreement or as are otherwise available at law or in equity. Section 9.3 Effect of Breach. In the event that HEI and HEA, on the one hand, or Merger Sub, on the other hand, elect (i) to terminate this Agreement pursuant to Section 9.1 and/or (ii) not to proceed with the Closing of this Agreement because the conditions to Closing specified in Article VIII are not satisfied, any such election shall be without prejudice to the rights of the party making such election to recover any actual reasonable documented out- - -of-pocket costs and expenses incurred by such party if the nonsatisfaction of such conditions results from the breach or violation of any of the representations, warranties, covenants or agreements of the other party; but otherwise such election shall terminate all obligations and liabilities of the parties hereunder except as provided in Section 9.2. ARTICLE X INDEMNIFICATION Section 10.1 Survival of Representations and Warranties; Indemnification Period. The representations and warranties of HEI, HEA and Merger Sub contained in this Agreement and in the certificates delivered pursuant to Section 8.2(c) and Section 8.3(c) shall survive the Closing for a period of (i) in the case of Section 3.3, Section 3.4, Section 3.8, Section 3.13, Section 3.21 and Section 4.8, for the applicable statute of limitations, (ii) in the case of 56 Section 3.18 and insofar as it addresses environmental matters, Section 3.10, for a period of three (3) years after the Closing Date and (iii) otherwise, for a period of two (2) years from the Closing Date, provided, however, that the representations and warranties set forth in Section 3.25 shall not survive the Closing (except for failure to disclose any notices received as required by the first sentence thereof), and provided, further, that in the case of a breach of the representations and warranties contained in Section 3.28, where the subject matter of the breach is addressed by one of the representations and warranties referred to in clause (i), (ii) or (iii) of this Section 10.1, the time limitation set forth in the relevant item of such clauses (i) through (iii) shall control the survival period of Section 3.28 as to such subject matter and the time when written notice of such breach must be given. The covenants and agreements of HEI and HEA set forth in Section 5.4 and Section 5.5 shall survive the Closing for a period ending on the delivery of the financial statements of the Company and its Subsidiaries for the fiscal year ending December 31, 1999 audited by the Company's independent auditors. All other covenants and agreements of the parties in this agreement which by their terms are to be performed or observed after the Closing shall survive the Closing (until fully performed or observed) in accordance with their terms but in no event longer than for a period of ten (10) years (except for covenants relating to the Company Senior Preferred Stock which shall survive until all shares of Company Senior Preferred Stock have been redeemed, and all dividends thereon have been paid in full). Except as provided in Article IX and Article XI, the provisions of this Article X shall be the sole and exclusive remedy after the Closing for the breach of any representation or warranty of HEI, HEA or Merger Sub contained in this Agreement or any of the certificates delivered pursuant to Section 8.2(c) and Section 8.3(c). No party shall have any liability whatsoever with respect to any such representation or warranty, covenant or agreement after the expiration of the relevant survival period, except for claims then pending or theretofore asserted in writing by any party and delivered to the other party in accordance with the terms and conditions of this Agreement. Section 10.2 Indemnification by HEI and HEA. (a) Subject to the provisions and limitations in this Agreement, HEI and HEA hereby agree to indemnify, defend and hold harmless each Purchaser Party from and against any and all Losses and Liabilities which any Purchaser Party may at any time sustain or incur which are occasioned by, caused by or arise out of any breach of any representation or warranty made by HEI and HEA in this Agreement or any covenant or agreement of HEI and HEA set forth in this Agreement or the certificate delivered by HEI and HEA pursuant to Section 8.2(c) (the "Hyundai Compliance Certificate"), in each case to the extent not waived by such Purchaser Party. "Purchaser Party" means the Company, a Korea, ChipPAC Shanghai, ChipPAC BVI and their respective Subsidiaries and their respective officers, directors, shareholders, employees, agents, and representatives in their capacities as such. (b) Until the expiration of the applicable statutes of limitation (or such shorter period as may be specified below), HEI and HEA hereby agree to indemnify, defend and hold harmless the Company and each of its Subsidiaries from and against: (i) any and all Losses and Liabilities to Third Parties which the Company or any of its Subsidiaries may at any time sustain or incur, which are based upon the 57 assertion of any claim, or the commencement of any Action or Proceeding, by any Third Party which (A) is in the nature of successor liability or (B) is caused by or arises out of pre-Closing conduct of any business of HEI or any of its controlled Affiliates (other than businesses of the Company, ChipPAC Korea or ChipPAC Shanghai), except, in each case, to the extent any such Losses or Liabilities are attributable to any action or fault on the part of the Company or any of its Subsidiaries; (ii) any and all Losses and Liabilities which the Company or any of its Subsidiaries may at any time sustain or incur, which are caused by or arise out of any claim or action brought on or prior to the tenth anniversary of the Closing Date by or on behalf of Lemelson Medical, Education and Research Foundation (the "Lemelson Foundation", Jerome H. Lemelson, the estate of Jerome H. Lemelson (the "Lemelson Estate") or any entity to which the Lemelson Foundation, Jerome H. Lemelson or the Lemelson Estate has assigned its patents or patent applications with respect to infringement or contributory infringement, alleged or otherwise, by the Company or any of its Subsidiaries, of any patent or patent application for which Jerome H. Lemelson is a named inventor and which is the subject of the License Agreement dated August 17, 1994 by and between the Lemelson Foundation and HEI (the "Lemelson License Agreement" (provided, that the Company and its Subsidiaries (and each of them) shall comply with all applicable terms of the Lemelson License Agreement; that neither the Company nor any of its Subsidiaries shall have any right to indemnification by HEI or any of its Subsidiaries for any breach by the Company or any of its Subsidiaries after the Closing Date of any term of the Lemelson License Agreement; and that HEI's indemnification obligations pursuant to this Section 10.2(b)(ii) shall not exceed, in the aggregate, the sum of five million dollars ($5,000,000)); and (iii) any and all Losses and Liabilities which the Company or any of its Subsidiaries may at any time sustain or incur, which are caused by or arise out of any claim or action brought by any person or entity with respect to the transactions set forth in Section 2.3(a)(iv) or Section 2.3(d). Section 10.3 Limitation of HEI's and HEA's Liabilily. The liability of HEI and HEA under Section 10.2(a) and Section 10.2(b) shall be limited as follows: (a) The maximum aggregate amount payable by HEI and HEA in respect of all claims for indemnification for breach of any representation or warranty by HEI or HEA, the Associated Covenants and Agreements of HEI and HEA and the associated portions of the Hyundai Compliance Certificate (other than the representations and warranties in Section 3.3, Section 3.4, Section 3.7(a), Section 3.8, Section 3.13 or Section 3.21, the Associated Covenants and Agreements of HEI and HEA or the associated portions of the Hyundai Compliance Certificate) under this Agreement shall not exceed ten percent (10%) of the Cash Consideration. In no event shall the maximum aggregate amount payable by HEI and HEA in respect of claims for inderrinification for breach of any of the representations or warranties set forth in Section 3.7(a), the Associated Covenants and Agreements of HEI and HEA or the associated portions of the Hyundai Compliance Certificate exceed the Aggregate Consideration (plus the actual reasonable documented expenses theretofore paid by Merger Sub in connection with the 58 negotiation of this Agreement and the Ancillary Agreements and the consummation of the transactions contemplated hereby and thereby and each of the financing transactions contemplated hereby), and in no event shall the maximum aggregate amount payable able by HEI and HEA in respect of claims for indemnification for breach of any of the representations or warranties set forth in Section 3.3, Section 3.4 or Section 3.13, the Associated Covenants and Agreements of HEI and HEA or the associated portions of the Hyundai Compliance Certificate exceed the Aggregate Consideration (plus the actual reasonable documented expenses theretofore paid by Merger Sub in connection with the negotiation of this Agreement and the Ancillary Agreements and the consummation of the transactions contemplated hereby and thereby and each of the financing transactions contemplated hereby); provided, that if the aggregate amount of otherwise indemnifiable Losses or Liabilities sustained by any Purchaser Party in respect of claims for breach of the representations or warranties set forth in Section 3.3, Section 3.4 and Section 3.13, the Associated Covenants and Agreements of HEI and HEA or the associated portions of the Hyundai Compliance Certificate and for indemnification under Section 10.2(b) would exceed fifty percent (50%) of the Aggregate Consideration, then (i) the Recapitalization Transactions shall, at the election of HEI and HEA, be rescinded, the Aggregate Consideration shall be returned by HEI and HEA and ownership of the Company, ChipPAC Korea and ChipPAC Shanghai restored to HEI and HEA, to the extent then feasible, and (ii) the expenses of effecting such rescission shall be borne by HEI and HEA. (b) No claim shall be made against HEI or HEA for indemnification for any breach of any representation or warranty by HEI and HEA under this Agreement or the Associated Covenants and Agreements of HEI and HEA or the associated portions of Hyundai Compliance Certificate (other than the representations and warranties in Section 3.3, Section 3.4, Section 3.7(a), and 3.8, Section 3.13 or Section 3.21, the Associated Covenants and Agreements of HEI and HEA and the associated portions of the Hyundai Compliance Certificate) until the aggregate amount of all Losses and Liabilities indeninifiable for such breaches of representations and warranties, the Associated Covenants and Agreements of HEI and HEA and the associated portions of the Hyundai Compliance Certificate exceeds one percent (1%) of the Cash Consideration, and then only to the extent of such excess. (c) No Purchaser Party shall be entitled to recover under Section 10.2 or otherwise with respect to: (i) the breach of any representation or warranty unless such claim has been asserted by written notice, specifying the details of such breach, delivered to HEI and HEA on or prior to the expiration of the relevant survival period set forth in Section 10.1; (ii) the breach of any representation or warranty, if before the Closing HEI or HEA or the Company provided notification to Merger Sub in writing of the fact or facts which cause such breach; or (iii) any claim, to the extent the claim has been satisfied by insurance proceeds (the Company, ChipPAC Korea, ChipPAC Shanghai and their respective Subsidiaries 59 (if any) hereby agreeing to use, all requisite commercially reasonable efforts to collect the maximum amount of insurance proceeds to which each of them may be entitled). (d) The amount of any recovery to which any Purchaser Party may be entitled pursuant to Section 10.2 shall be net of (i.e., after deducting), as and when realized, all national, federal, state, provincial and local income tax benefits and insurance proceeds inuring to such person as a result of the set of facts which entitle such Purchaser Party to recover from HEI and HEA pursuant to Section 10.2. (e) HEI and HEA shall not be liable under the indemnification provisions of Section 10.2 or otherwise to the extent that any Loss or Liability results from an indemnified party's bad faith or willful or intentional tortious misconduct. Section 10.4 Indemnification by the Company. Subject to the provisions and limitations herein contained, the Company hereby agrees to indemnify, defend and hold harmless HEI and HEA and their respective Affiliates and their respective, officers, directors, employees, agents and representatives, in their capacity as such, from and against any and all Losses and Liabilities which HEI, HEA or any of their Affiliates may at any time sustain or incur which are occasioned by, caused by or arise out of any breach of any of the representations or warranties made by Merger Sub in this Agreement or any covenant or agreement of Merger Sub set forth in this Agreement or the certificate delivered by Merger Sub pursuant to Section 8.3(c) with respect to the satisfaction of the conditions set forth in Section 8.3(a) (the "Merger Sub Compliance Certificate"), in each case to the extent not waived by HEI or HEA. Section 10.5 Limitation of the Company's Liability. The liability of the Company under Section 10.4 shall be limited as follows: (a) The maximum aggregate amount payable by the Company in respect of all claims for indemnification for any breach of any representation or warranty by Merger Sub, the Associated Covenants and Agreements of Merger Sub and the associated portions of the Merger Sub Compliance Certificate shall not exceed ten percent (10%) of the Cash Consideration. (b) No claim shall be made for indemnification under Section 10.4 until the aggregate amount of all Losses and Liabilities indemnifiable for such breaches of representations and warranties, the Associated Covenants and Agreements of Merger Sub and the associated portions of the Merger Sub Compliance Certificate exceeds one percent (1%) of the Cash Consideration, and then only to the extent of such excess. (c) HEI and HEA shall not be entitled to recover under Section 10.4 with respect to: (i) the breach of any representation, warranty, covenant or agreement unless such claim has been asserted by written notice, specifying the details of such breach, delivered to Merger Sub on or prior to the first anniversary of the Closing Date; 60 (ii) the breach of any representation or warranty, or of any covenant to be performed prior to the Closing, if before the Closing Merger Sub provided written notification to HEI and HEA of the fact or facts which caused such breach, or (iii) any claim, to the extent the claim has been satisfied by insurance proceeds (HEI and HEA hereby agreeing to all requisite commercially reasonable efforts to collect the maximum amount of insurance proceeds to which they may be entitled). (d) The amount of any recovery to which HEI and HEA may be entitled pursuant to Section 10.4 shall be net of (i.e., after deducting) any national, federal, state, provincial and local income tax benefits and insurance proceeds inuring to such person as a result of the set of facts which entitle HEI and HEA to recover from the Company pursuant to Section 10.4. (e) The Company shall not be liable under the indemnification provisions of Section 10.4 to the extent that any Loss or Liability results from an indemnified party's bad faith, or willful or intentional tortious misconduct. Section 10.6 Defense of Third Party Claims. (a) The indemnified party seeking indemnification under this Agreement shall promptly notify the indemnifying party of the assertion of any claim, or the commencement of any Action or Proceeding by any Third Party, in respect of which indemnity may be sought hereunder and shall give the indemnifying party such information with respect thereto as the indemnifying party may reasonably request, but failure to give such notice shall not relieve the indemnifying party of any liability hereunder (except to the extent that the indemnifying party has suffered actual prejudice by such failure). The indemnifying party shall have the right, but not the obligation, exercisable by written notice to (which shall contain the unconditional undertaking by the indemnifying party to bear all Liabilities, obligations and Losses with respect to such Third Party Claim) the indemnified party within thirty (30) days of receipt of notice from the indemnified party of the commencement of or assertion of any claim, Action or Proceeding by a Third Party in respect of which indemnity may be sought hereunder (a "Third-Party Claim" to assume the defense at its sole expense such Third-Party Claim that (i) involves (and continues to involve) solely money damages or (ii) involves (and continues to involve) claims for both money damages and equitable relief against the indemnified party that cannot be severed, where the claims for money damages are the primary claims asserted by the Third Party and the claims for equitable relief are incidental to the claims for money damages, and where the indemnified party reasonably determines (and continues to reasonably determine) that defense of the claim by the indemnifying party will not have a material adverse effect on the indemnified party. If the indemnifying party does not assume the defense of any such Third-Party Claim, the indemnifying party shall, in addition to any other amounts due under this Article X, indemnify the indemnified party for all actual expenses of the defense of such Third-Party Claim (including court costs, reasonable fees of attorneys, accountants and other experts and other reasonable expenses of litigation), including with respect to any Third Party Claim which, if the facts alleged therein were proven to be true, would otherwise constitute an indemnifiable claim. 61 (b) The indemnifying party or the indemnified party, as the case may be, shall have the right to participate in (but not control), at its own expense, the defense of any Third-Party Claim that the other is defending pursuant to this Agreement. (c) The indemnifying party, if it has assumed the defense of any such Third-Party Claim pursuant to this Agreement, shall not, without the indemnified party's prior written consent (not to be unreasonably withheld), enter into any compromise or settlement, it being agreed that no such compromise or settlement may be entered into that (i) results in any liability to the indemnified party, (ii) commits the indemnified party to take, or to forbear to take, any action or (iii) does not provide for a complete release by such Third Party of the indemnified party. The indemnifying party shall not, without the indemnified party's prior written consent, enter into any compromise or settlement where the amount of such compromise or settlement would cause the applicable cap on the indemnifying party's liability, as provided herein, to be exceeded. The indemnified party shall have the sole and exclusive right to settle any Third- Party Claim, with the consent of the indemnifying party, which shall not be unreasonably withheld or delayed, on such terms and conditions as it deems reasonably appropriate, to the extent such Third-Party Claim involves equitable or other nonmonetary relief against the indemnified party, and shall have the right to settle, at the indemnifying party's sole expense, any Third-Party Claim involving money damages for which the indemnifying party has not assumed the defense pursuant to this Section 10.6 with the written consent of the indemnifying party, which consent shall not be unreasonably withheld or delayed. Notwithstanding the foregoing, the indemnified party shall have the right to employ separate counsel at the indemnifying party's expense and to control its own defense of any such asserted liability if (i) there are or may be legal defenses available to such indemnified party that are different from or additional to those available to the indemnifying party or (ii) in the reasonable opinion of counsel to such indemnified party, conflict or potential conflict exists between the indemnifying party and such indemnified party that would make such separate representation advisable. Section 10.7 Procedure and Dispute Resolution. (a) If an indemnified party shall have a claim of indemnification pursuant to this Article X (an "Indemnity Claim"), it shall promptly give written notice thereof (the "Claim Notice" to the indemnifying party or parties, including therein a brief description of the facts upon which such claim is based and the amount thereof, to the extent that it can be ascertained, provided, however, that failure to provide such prompt notice shall not affect any rights or remedies of the indemnified party except to the extent of any actual prejudice caused thereby. (b) In the event that the indemnifying party disputes the validity or amount of any Indemnity Claim, prior to taking any other action, the matter shall be referred to responsible executives of the affected parties for consideration and resolution. If the parties have not otherwise resolved the dispute, they shall meet in person in a mutually agreeable location within thirty (30) days after the delivery of the Claim Notice and exercise their best efforts to settle the matter amicably. 62 (c) If any such dispute is not settled within thirty (30) days from the delivery of the Claim Notice, such dispute shall, at the demand of either party, be referred to and decided by arbitration in accordance with the provisions of Section 10.8. Section 10.8 Arbitration. (a) Within thirty (30) days after notice of a dispute or claim is given by any party, appropriate senior executives of the parties shall meet and make a good faith attempt to negotiate an amicable resolution of such dispute or claim before initiating arbitration proceedings. Nothing herein, however, shall prohibit either party from initiating arbitration proceedings during such 30-day period if such party would be substantially prejudiced by delay. (b) Any dispute or claim arising under this Article X shall be finally settled by binding arbitration conducted in the English language in San Francisco, California, under the International Chamber of Commerce arbitration rules, by three arbitrators. Each party shall appoint one arbitrator; the third arbitrator, who shall be the chair of the arbitration tribunal, shall be appointed by the other two arbitrators. (c) The arbitrators shall have the power to decide all questions of arbitrators. The arbitrators shall have the power to order pre-hearing discovery of documents, witness lists, and a limited number of discovery depositions, not to exceed three per side. At the request to either party, the arbitrators shall enter an appropriate protective order to maintain the confidentiality of information produced or exchanged in the course of the arbitration proceedings. The arbitrators shall be instructed that time is of the essence in resolving all arbitration matters and, to the extent a schedule cannot be mutually agreed to by the parties, directed to resolve such arbitration within sixty (60) days after the initiation thereof. (d) The parties may apply to any court of competent jurisdiction for a temporary restraining order, preliminary injunction, or other interim or conservatory relief, as necessary, without breach of this arbitration agreement and without any abridgment of the powers of the arbitrators. The arbitrators shall also have the power to grant temporary or permanent injunctive or other equitable relief, including any interim or conservatory relief, as necessary. (e) The arbitrators may award to the prevailing party, if any, as determined by the arbitrators, its costs and fees incurred in connection with any arbitration or related judicial proceeding hereunder. Cost and fees awarded may include, without limitation, reasonable attorneys' fees, expert and other witness fees, travel expenses, and out-of-pocket expenses (including, without limitation, such expenses as copying, telephone, facsimile, postage, and courier fees). Judgment on the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. (f) Subject to the provisions of Section 10.8(d), the parties agree not to submit a dispute subject to this Section 10.8 to any federal, national, state, provincial, local or other court except as may be necessary to enforce the arbitration procedures of this Section 10.8 or to enforce the award of the arbitrator. 63 Section 10.9 Adjustment to Cash Consideration. Subject to Section 10.10, amounts paid in respect of the parties' indemnification obligations shall be paid in cash and shall be treated as an adjustment to the Cash Consideration. Section 10.10 Set-off. To the extent that (x) any Purchaser Party, on the one hand, or HEI, HEA or any of their controlled Affiliates, on the other hand. is obligated to pay or is entitled to receive indemnification pursuant to this Article X, and (y) any dispute concerning the validity or amount of such indemnification has been resolved pursuant to Section 10.7 or has been finally determined pursuant to Section 10.8, or the time for disputing the validity or amount of such indemnification has expired, then: (a) the indemnifying party may set off the amount of such indemnification against any amounts then due and owing and unpaid, within the time period allowed for payment (to the extent theretofore admitted in writing or established by contract, finally adjudicated by court judgment or finally determined by arbitral award) to such indemnifying party by the indemnified party and (b) the indemnified party may set off the amount of such indemnification against any amounts then due and owing and unpaid within the time period allowed for payment (to the extent so admitted, so adjudicated or so determined) to such indemnified party by such indemnifying party. In the case of any amounts set off against HEI or HEA, such amounts shall be set off in the following order: (i) first, against any amount then due and owing in cash, (ii) second, against the HEI Earn-Out, (iii) third, against any accrued and unpaid dividends or redemption payments with respect to the Company Senior Preferred Stock, and (iv) fourth, against any, accrued and unpaid cash dividends, distributions or redemption payments with respect to other capital stock of the Company. ARTICLE XI TAX MATTERS Section 11.1 Returns: Indemnification: Liability for Taxes. --------------------------------------------- (a) HEI and HEA shall prepare and file (or cause to be prepared and filed) on a timely basis all Tax Returns with respect to the Company, ChipPAC Korea, ChipPAC Shanghai and their respective Subsidiaries (if any) for all taxable periods ending on or before the Closing Date ("Company Tax Returns" and shall pay directly or promptly reimburse the Company, and shall indemnify and hold the Company harmless against and from, (i) all Taxes of the Company, ChipPAC Korea, ChipPAC Shanghai and their respective Subsidiaries (if any) for all taxable years or periods which end on or before the Closing Date; (ii) all Taxes for all taxable years or periods of all other members or Subsidiaries of any affiliated, unitary or combined group of which the Company, ChipPAC Korea or ChipPAC Shanghai is or has been a member on or prior to the Closing Date; and (iii) with respect to any taxable period commencing before the Closing Date and ending after the Closing Date (a "Straddle Period," all Taxes of the Company, ChipPAC Korea, ChipPAC Shanghai and their respective Subsidiaries (if any) attributable to the portion of the Straddle Period prior to and including the Closing Date (the "Pre-Closing Period"). For purposes of this Agreement, the portion of any Tax that is attributable to the Pre-Closing Period shall be (i) in the case of a Tax that is not based on net 64 income, gross income, sales, premiums or gross receipts, the total amount of such Tax for the period in question multiplied by a fraction, the numerator of which is the number of days in the Pre-Closing Period, and the denominator of which is the total number of days in such Straddle Period, and (ii) in the case of a Tax that is based on any of net income, gross income, sales, premiums or gross receipts, the Tax that would be due with respect to the Pre-Closing, Period if such Pre-Closing Period were a separate taxable period, except that exemptions, allowances, deductions or credits that are calculated on an annual basis without respect to the amount of net income, gross income, sales, premiums or gross receipts (such as the deduction for depreciation or capital allowances) shall be apportioned on a per them basis. (b) Company shall prepare and file (or cause to be prepared and filed) on a timely basis all Tax Returns of Company relating to periods ending after the Closing Date and shall cause the Company to pay, and shall cause the Company to indemnify and hold HEI and HEA harmless against and from (i) all Taxes of the Company, ChipPAC Korea, ChipPAC Shanghai and their respective Subsidiaries (if any) for any taxable year or period commencing after the Closing Date; and (ii) all Taxes of the Company, ChipPAC Korea, ChipPAC Shanghai and their respective Subsidiaries (if any) for any Straddle Period (other than Taxes attributable to the Pre-Closing Period which if paid by the Company pursuant to this Section 11.1(b) shall be promptly reimbursed by HEI and HEA to the extent provided by Section 11.1(a). (c) Notwithstanding any other provision of this Section 11.1, the Company shall pay, and shall indemnify and hold HEI and HEA harmless against and from any Taxes (i) attributable to transactions occurring on the Closing Date affecting the Company and its Subsidiaries at any time after the consummation of all of the Recapitalization Transactions or (ii) imposed as a result of any election under Section 338(g) of the Code (or any comparable election under state law) with respect to the acquisition of New Shares contemplated hereby. Section 11.2 Refunds and Credits. (a) All refunds or credits of Taxes for or attributable to taxable years or periods of the Company, ChipPAC Korea, ChipPAC Shanghai and their respective Subsidiaries (if any) ending on or before the Closing Date (or the Pre-Closing Period, in the case of a Straddle Period) shall be for the account of HEI and HEA; all other refunds or credits of Taxes, for or attributable to the Company or any of its Subsidiaries, including refunds or credits arising from the carryback or carryforward of losses, credits or similar items, shall be for the account of the Company. Following the Closing, the Company shall forward to HEI and HEA any such refunds or credits due HEI and HEA pursuant to this Section 11.2 after receipt or realization thereof by the Company, and HEI and HEA shall promptly forward (or cause to be forwarded) to the Company any refunds or credits due to the Company pursuant to this Section 11.2 after receipt or realization thereof by HEI and HEA, in each case in accordance with the provisions of subsection (b) of this Section 11.2. (b) Any payments or refunds or credits for Taxes required to be paid under this Agreement shall be made within ten (10) Business Days of the receipt of any refund or 65 credit, as the case may be. Any payments not made within such time period shall be subject to an interest charge of seven percent (7%) per annum. Section 11.3 Termination of Tax Sharing, Agreements. HEI and HEA hereby agree and covenant that obligations of or to the Company and its Subsidiaries (including ChipPAC Korea and ChipPAC Shanghai) pursuant to the Tax Sharing Agreement shall be extinguished as of the Closing Date. Section 11.4 Conduct of Audits and Other Procedural Matters. Each party shall, at its own expense, control any audit or examination by any taxing authority, and have the right to initiate any claim for refund or amended return, and contest, resolve and defend against any assessment, notice of deficiency or other adjustment or proposed adjustment of Taxes ("Tax Proceedings" for any taxable period for which that party is charged with payment or indemnification responsibility under this Agreement, subject, in the case of any Pre-Closing Period, to the prior written consent of the Company (not to be unreasonably withheld). Each party shall promptly forward to the other in accordance with Section 12.1 all written notifications and other written communications, including if available the original envelope showing any postmark, from any taxing authority received by such party or its Affiliates relating to any liability for Taxes for any taxable period for which such other party or any of its Affiliates is charged with payment or indemnification responsibility under this Agreement and each indemnifying party shall promptly notify, and consult with, each indemnified party as to any action it proposes to take with respect to any liability for Taxes for which it is required to indemnify another party and shall not enter into any closing agreement or final settlement with any taxing authority with respect to any such liability without the written consent of the indemnified parties, which consent shall not be unreasonably withheld. In the case of any Tax Proceedings relating to any Straddle Period, the Company (if the post-Closing portion of the Straddle Period constitutes a majority in time of the Straddle Period) and HEI and HEA (if the pre-Closing portion of the Straddle Period constitutes a majority in time of the Straddle Period) shall control such Tax Proceedings and shall consult in good faith with the other party as to the conduct of such Tax Proceedings. The party not controlling such Tax proceedings shall reimburse the party controlling such Tax proceedings for such portion of the costs, including reasonable legal costs, of conducting such Tax Proceedings as is represented by the portion of the Tax with respect to such Straddle Period for which the non-controlling party is liable pursuant to this Agreement. Each party shall, at the expense of the requesting party, execute or cause to be executed any powers of attorney or other documents reasonably requested by such requesting party to enable it to take any and all actions such party reasonably requests with respect to any Tax Proceedings which the requesting party controls. The failure by a party to provide timely notice under this Section 11.4 shall relieve the other party from its obligations under this Article XI with respect to the subject matter of any notification not timely forwarded, to the extent the other party has been materially prejudiced because of such failure to provide notification in a timely fashion. Section 11.5 Assistance and Cooperation. After the Closing Date, HEI, HEA and the Company shall (and cause their respective Affiliates to): 66 (a) assist the other party in preparing any Tax Returns which such other party is responsible for preparing and filing in accordance with Section 11.1. (b) cooperate fully in preparing for any audits of, or disputes with taxing authorities regarding, any Tax Returns of the Company, ChipPAC Korea, ChipPAC Shanghai and their respective Subsidiaries (if any); (c) make available to the other and to any taxing authority as reasonably requested all information, records, and documents relating to Taxes of the Company, ChipPAC Korea, ChipPAC Shanghai and their respective Subsidiaries (if any); (d) provide timely notice to the other in writing of any pending or threatened Tax audits or assessments of the Company, ChipPAC Korea, ChipPAC Shanghai and their respective Subsidiaries (if any) for taxable periods for which the other may have a liability under this Article XI; and (e) furnish the other with copies of all correspondence received from any taxing authority in connection with any Tax audit with respect to any taxable period for which the other may have a liability under this Article XI. ARTICLE XII MISCELLANEOUS Section 12.1 Notices. All notices, requests and other communications hereunder must be in writing and will be deemed to have been duly given only if delivered personally or by facsimile transmission or sent by reputable overnight courier to the parties at the following addresses or facsimile numbers: If to Merger Sub, or, after the Closing, c/o Bain Capital, Inc. to the Company, One Embarcadero, Suite 2260 San Francisco, CA 94111 Facsimile: (415) 627-1333 Attn: David Dominik Prescott Ashe c/o Bain Capital, Inc. Two Copley Place Boston, MA 02116 Facsimile: (617) 572-3274 Attn: Edward Conard 67 c/o Citicorp Venture Capital, Ltd. 399 Park Avenue New York, NY 10043 Facsimile: (212) 888-2940 Attn: Michael Delaney Paul C. Schorr, IV and in each case with a copy to: Kirkland & Ellis 200 East Randolph Drive Chicago, IL 60601 Facsimile: (312) 861-2200 Attn: Jeffrey C. Hammes, Esq. Gary M. Holihan, Esq. and to: Dechert Price & Rhoads 4000 Bell Atlantic Tower 1717 Arch Street Philadelphia, PA 19103 Facsimile: (215) 994-2222 Attn: G. Daniel O'Donnell, Esq. Geraldine Sinatra, Esq. If to HEI, to: Hyundai Electronics Industries, Co., Ltd. San 136-1 Amri-ri, Bubal-eub Ichon-si Kyoungki-do, 467-701 Korea Facsimile No.: 82-2-7335486 Attn: Y.H. Kim, Chief Executive Officer if to HEA, or, prior to the Closing, Hyundai Electronics America to the Company, to: 3101 North First Street San Jose, California 95134 Facsimile No.: 408-232-8194 Attn: Dr. C.S. Park and in each case with a copy to: Gray Cary Ware & Freidenrich LLP 400 Hamilton Avenue Palo Alto, California 94301 Facsimile No.: (650) 327-3699 Attn: Gregory M. Gallo, Esq. Rod J. Howard, Esq. 68 All such notices, requests and other communications will (i) if delivered personally to the address as provided in this Section 12.1, be deemed given upon delivery, (ii) if delivered by facsimile transmission to the facsimile number as provided in this Section 12.1, be deemed given upon delivery (transmission confirmed), and (iii) if delivered by an overnight courier service in the manner described above to the address as provided in this Section 12.1, be deemed given one business day after timely deposit with the courier for delivery with instructions to deliver on the following business day (in each case regardless of whether such notice, request or other communication is received by any other person to whom a copy of such notice, request or other communication is to be delivered pursuant to this Section 12.1, but subject, in the case of delivery by courier, to confirmation of the actual date of delivery by such courier). Any party from time to time may change its address, facsimile number or other information for the purpose of notices to that party by giving notice specifying such change to the other party hereto. Section 12.2 Entire Agreement. This Agreement and the Ancillary Agreements supersede all prior discussions and agreements between the parties with respect to the subject matter hereof and thereof, and contain the sole and entire agreement between the parties hereto with respect to the subject matter hereof and thereof. Section 12.3 Expenses. Except as otherwise expressly provided in this Agreement (including as provided in Article IX, Section 10.8, Section 11.1, Section 11.4, and elsewhere in this Section 12.3), whether or not the Recapitalization Transactions are consummated, each party shall pay its own costs and expenses incurred in connection with the negotiation, execution and performance of this Agreement and the Ancillary Agreements (including all regulatory filings and proceedings and all filings with all Governmental or Regulatory Authorities); provided that if the Recapitalization Transactions are consummated, then subject to the occurrence of the Closing, and subject further to the provisions of Section 2.4, all such actual documented out-of-pocket costs and expenses of Merger Sub, Bain Capital, Inc., MSX Holdings LLC and Citicorp Venture Capital Ltd. (including fees to the investors of Merger Sub up to a maximum aggregate amount equal to two percent (2%) of the proceeds of the financings required for the consummation of the transactions contemplated by this Agreement) shall be borne by the Company and shall, for purposes of Section 2.4, be deemed paid immediately after the close of business on the Closing Date and shall not be accrued or reflected in the Closing Balance Sheet. Except as otherwise provided in Section 2.4, the costs of the audits of the Financial Statements contemplated by Section 2.4 shall be borne by the Company and paid after the Closing. Notwithstanding any other provision of this Agreement to the contrary, all filing fees, fees of incorporation or formation, transfer taxes, stamp taxes, corporate franchise taxes and capital registration taxes, notice publication costs and other similar out-of-pocket charges of any Governmental or Regulatory Authority (but not legal and other advisory fees and disbursements) incurred after the date of this Agreement in the consummation (or reversal) of the transactions contemplated by subsections (a), (b), (c)(i), (c)(ii) and (d) of Section 2.2 shall be borne and paid (or, if advanced by HEI, HEA, the Company, ChipPAC Korea or ChipPAC Shanghai, reimbursed upon demand) by Merger Sub. Section 12.4 Public Announcements. At no time before the Closing shall HEI, HEA, the Company, Merger Sub or any of their respective Affiliates or Representatives issue or make 69 any report, statement or release to the public or generally to the employees, customers, suppliers or other persons to whom HEI, HEA, the Company, ChipPAC Korea or ChipPAC Shanghai sells goods or provides services or with whom HEL HEA, the Company, ChipPAC Korea or ChipPAC Shanghai otherwise has significant business relationships with respect to this Agreement, or the transactions contemplated hereby without first consulting with and obtaining the prior written consent of the other, which consent shall not be unreasonably withheld. If any party is unable to obtain the approval of its public report, statement or release from the other party and such report, statement or release is, in the opinion of legal counsel to such party, required by law in order to discharge such party's disclosure obligations, then such party may make or issue the legally required report, statement or release and promptly furnish the other party with a copy thereof. HEI, HEA and Merger Sub shall also obtain the other party's prior written approval of any press release to be issued immediately following the Closing announcing the consummation of the transactions contemplated by this Agreement. Section 12.5 Confidentiality. Unless (i) compelled to disclose by judicial or administrative process (including without limitation in connection with obtaining the necessary approvals of this Agreement and the transactions contemplated hereby of Governmental or Regulatory Authorities) or by other requirements of law, or (ii) disclosed in an Action or Proceeding brought by a party hereto in pursuit of its rights or in the exercise of its remedies hereunder, each party (a "Receiving Party") shall hold, and shall cause its Affiliates and Representatives and, in the case of Merger Sub, each person providing (or considering providing) financing for any portion of the Aggregate Consideration (a "Financing Source"), to hold, in strict confidence all documents and information furnished by or on behalf of each other party (a "Furnishing Party" in connection with this Agreement, the Ancillary Agreements or any of the transactions contemplated hereby or thereby, except to the extent that such documents or information can be shown by the receiving party to have been (a) previously known by the receiving party, (b) in the public domain (either prior to or after the furnishing of such documents or information hereunder) through no fault of the receiving party, or (c) later acquired by the receiving party from another source if the receiving party is not aware that such source is under an obligation to keep such documents and information confidential; provided that following the Closing the foregoing restrictions shall not apply to use by Bain Capital, Inc. or Citicorp Venture Capital, Ltd. or their Affiliates of documents and information concerning the Company, ChipPAC Korea, ChipPAC Shanghai and their respective Subsidiaries (if any) furnished by HEI, HEA, the Company, ChipPAC Korea, ChipPAC Shanghai or any of their Representatives or Affiliates. In the event the transactions contemplated hereby are not consummated, upon the request of a furnishing party, each receiving party shall, and shall cause its Representatives, Affiliates, and Financing Sources to, promptly (and in no event later than three (3) Business Days after such request) redeliver or cause to be redelivered all copies of confidential documents and information furnished by or on behalf of the furnishing party in connection with this Agreement, the Ancillary Agreements or any of the transactions contemplated hereby or thereby, and to destroy or cause to be destroyed all notes, memoranda, summaries, analyses, compilations and other writings related thereto or based thereon prepared by the receiving party or any of its Affiliates, Representatives or Financing Sources. 70 Section 12.6 Further Assurances: Post-Closing Cooperation. (a) At any time or from time to time after the Closing, each of the parties hereto shall execute and deliver such other documents and instruments, provide such materials and information and take such other actions as may reasonably be necessary to fulfill its obligations under this Agreement and the Ancillary Agreements to which it is a party. (b) Following the Closing, each party shall afford the other party, its counsel and its accountants, during normal business hours, reasonable access to the books, records and other data relating to the Company, ChipPAC Korea, ChipPAC Shanghai and their respective Subsidiaries (if any) in its possession with respect to periods prior to the Closing and the right to make copies and extracts therefrom at the cost of the requesting party, to the extent that such access may be reasonably required by the requesting party in connection with (i) the preparation of Tax Returns, (ii) the determination or enforcement of rights and obligations under this Agreement, (iii) compliance with the requirements of any Governmental or Regulatory Authority, or (iv) in connection with any actual or threatened Action or Proceeding. Further, each party agrees for a period extending six (6) years after the Closing Date not to destroy or otherwise dispose of any such books, records and other data unless such party shall first offer in writing to surrender such books, records and other data to the other party and such other party shall not agree in writing to take possession thereof during the ten (10) Business Days after notice of such offer is given. (c) If, in order properly to prepare its Tax Returns, other documents or reports required to be filed with Governmental or Regulatory Authorities or its financial statements or to fulfill its obligations hereunder, it is necessary that a party be furnished with additional information, documents or records relating to the Company, ChipPAC Korea, ChipPAC Shanghai or any of their respective Subsidiaries not referred to in Section 12.6(b), and such information, documents or records are in the possession or control of the other party, such other party agrees to use its best efforts to furnish or make available such information, documents or records (or copies thereof) at the recipient's request, cost and expense. Any information obtained by HEI and HEA in accordance with this paragraph shall be held confidential by HEI and HEA in accordance with Section 12.5. (d) Notwithstanding anything to the contrary contained in this Section 12.6, if the parties are in an adversarial relationship in litigation or arbitration, the furnishing of information, documents or records in accordance with any provision of this Section 12.6 shall be subject to applicable rules relating to discovery. (e) Neither Merger Sub nor any of its Affiliates, nor the Company and its Subsidiaries following the Closing, shall take any position at any time, in any litigation, arbitration or claim, any Tax Return, any filing with or submission to or statement before any Governmental or Regulatory Authority, any financial statement or any other writing, that is inconsistent with (i) the calculation adopted by the Board of Directors of the Company prior to the Closing as to the amounts due pursuant to the agreements and plan described in Section 2.3(a)(iv); (ii) the interpretation of such agreements and plan adopted by the Board of 71 Directors of the Company prior to the Closing; or (iii) the calculation adopted by the Board of Directors of the Company prior to the Closing as to the amounts described in Section 2.3(d). No party nor any of its Affiliates shall take any position at any time, in any Tax Return, any filing with or submission to or statement before any Governmental or Regulatory Authority, any financial statement or any other writing, that is inconsistent with the allocations reflected in Section 2.2. Section 12.7 Waive. Any term or condition of this Agreement may be waived at any time by the party that is entitled to the benefit thereof, but no such waiver shall be effective unless set forth in a written instrument duly executed by or on behalf of the party against whom such waiver is asserted. No waiver by any party of any term or condition of this Agreement, in any one or more instances, shall be deemed to be or construed as a waiver of the same or any other term or condition of this Agreement on any future occasion. Except as expressly provided by this Agreement or the Ancillary Agreements, all remedies, either under this Agreement or by law or otherwise afforded, shall be cumulative and not alternative. Section 12.8 Amendment. This Agreement may be amended, supplemented or modified only by a written instrument duly executed by or on behalf of each party hereto. Section 12.9 No Third-Party Beneficiary. The terms and provisions of this Agreement are intended solely for the benefit of each party hereto and their respective successors or permitted assigns, and it is not the intention of the parties to confer third-party beneficiary rights upon any other person other than any person entitled to indemnification under Section 7.6. Section 12.10 No Assignment: Binding Effect. Except for any assignment by Merger Sub or the Company to any of their financing sources for collateral security purposes, neither this Agreement nor any right, interest or obligation hereunder may be assigned by any party hereto without the prior written consent of the other parties hereto and any attempt to do so shall be void. Subject to the preceding sentence, this Agreement is binding upon, inures to the benefit of and is enforceable by the parties hereto and their respective successors and assigns. Section 12.11 Invalid Provisions. If any provision of this Agreement is held to be illegal, invalid or unenforceable under any present or future law, and if the rights or obligations of any party hereto under this Agreement will not be materially affected thereby, (a) such provision shall be fully severable, (b) this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part hereof, (c) the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom, and (d) in lieu of such illegal, invalid or unenforceable provision, there shall be added automatically as a part of this Agreement a legal, valid and enforceable provision as similar in economic and legal effect to such illegal, invalid or unenforceable provision as may be possible. Section 12.12 Governing Law. Except with respect to the amendments set forth in Section 12.18 (which shall be governed by the law governing the Ancillary Agreements and Contracts to which such amendments relate), this Agreement shall be governed by and construed in accordance with the laws of the State of California applicable to a contract executed and 72 performed entirely in such state, without giving effect to the conflicts of laws principles thereof, and each of the parties hereto submits to jurisdiction in any state or federal court located in the State of California and waives any claim of improper jurisdiction or lack of venue in connection with any claim or controversy which may be brought in connection with this Agreement. Section 12.13 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Section 12.14 Construction. The parties hereby acknowledge and agree that the drafting of this Agreement has been a collaborative effort and that no party shall be deemed to be the sole or primary drafter. Any rule or provision of law which provides that a contract or agreement is to be construed against the author of the contract or agreement shall not apply to this Agreement, the Ancillary Agreements or the documents attached hereto as exhibits or schedules hereto or thereto. Section 12.15 Specific Performance. Each of the parties hereto acknowledges and agrees that the other parties hereto would be damaged irreparably in the event any of the provisions of this Agreement are not performed in accordance with their specific terms or are otherwise breached. Accordingly, each of the parties hereto agrees that the other parties shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically this Agreement and the terms and provisions hereof in any action instituted in any court in the United States or in any state having jurisdiction over the parties and the matter in addition to any other remedy to which such party may be entitled pursuant hereto. Section 12.16 Non-Competition; Non-Solicitation. Each of HEI and HEA agrees, on behalf of itself and its affiliates, that: (a) For a period of four (4) years after the Closing Date, neither HEI, HEA nor any of their controlled Affiliates shall, directly or indirectly, either for itself or for any other person, participate in providing products or services in the merchant semiconductor packaging or test businesses to any person or entity anywhere in the world, it being understood and agreed that nothing in this Section 12.16 shall prohibit HEI, HEA or any of their controlled Affiliates from performing packaging or test services for Hyundai fabricated product for Hyundai semiconductor units. For purposes of this Agreement, the term "participate" includes any direct or indirect interest in any enterprise, whether as an officer, director, employee, partner, sole proprietor, agent, representative, independent contractor, consultant, owner or otherwise. In the event that HEI or HEA is acquired (whether through (i) sale of substantial assets, or (ii) merger, sale of stock or otherwise pursuant to which the shareholders immediately prior to such transaction hold less than a majority of the voting securities of the surviving or acquiring corporation after such transaction), by an independent third party with operations in the merchant semiconductor packaging or test businesses at the time of such transaction (a "Pre-Existing Test Business"), this prohibition shall not apply to such Pre- Existing Test Business. In the event that HEI acquires ownership or control of the stock, business or assets of LG Semicon Co., Ltd. nothing in this Agreement shall be construed to limit the ability of LG Semicon Co., Ltd. and its Affiliates 73 (as determined immediately prior to such acquisition) following such acquisition to continue to conduct the merchant semiconductor packaging and test businesses (if any) conducted by LG Semicon Co., Ltd. and its Affiliates prior to such acquisition to the extent theretofore conducted and with the customers theretofore served, it being understood and agreed that any expansion of such business following such acquisition shall be,subject to the prohibitions of this Section 12.16(a). (b) From and after the date hereof and continuing for a period of two (2) years after the Closing Date, neither HEI, HEA nor any of their Subsidiaries shall directly or indirectly offer employment to or hire any employee or former employee of the Company, ChipPAC Korea or ChipPAC Shanghai other than any employee whose employment is terminated by the Company or any of its Subsidiaries or Affiliates and other than former employees whose employment was terminated on or prior to December 1, 1998. (c) If, at the time of enforcement of this Section 12.16, a court shall hold that the duration, scope or other restrictions stated herein are unreasonable under circumstances then existing, the parties agree that the maximum duration, scope or other restrictions deemed reasonable under such circumstances by such court shall be substituted for the stated restrictions contained herein. (d) Each of HEI and HEA acknowledges and agrees that in the event of a breach of this Section 12.16, money damages may be an inadequate remedy. Accordingly, each of HEI and HEA, on behalf of itself and its affiliates, agrees that the Company shall have the right, in addition to any other existing rights, to enforce the rights granted pursuant to this Section 12.16 not only by an action for damages, but also by an action for specific performance and/or other equitable relief to prevent any violations of this Section 12.16. In the event of a breach by HEI, HEA or any of their affiliates of any of the provisions of this Section 12.16, the running of the non-compete period and no hire period set forth herein (but not of HEI's, HEA's or their Affiliates' obligations hereunder) shall be tolled with respect to HEI, HEA and their Affiliates during the continuance of any actual breach. Section 12.17 inancial Information. The Company shall furnish to Merger Sub the Financial Statements required by Section 3.7 in a form meeting the requirements of Regulation S-X of the Securities Act of 1933, as amended, together with the consent of the Company's independent accountants to the use of their reports thereon. Section 12.18 Other Agreements. Notwithstanding any provision in this Agreement or any of the Ancillary Agreements to the contrary, on or prior to the Closing Date, HEI and HEA shall, and shall cause each of their controlled Affiliates (including the Company, ChipPAC Korea and ChipPAC Shanghai), to make the following modifications to the following Ancillary Agreements and the Contract with respect to the Chung Ju plating facility: (a) with respect to the Building Lease Agreement attached hereto as Annex 1: (i) the term of the lease shall be for an initial term of five (5) years commencing on the Closing Date; (ii) ChipPAC Korea shall have an option to extend the Building Lease Agreement for an additional five (5) year term, exercisable by ChipPAC Korea at any time prior to the expiration 74 of the initial term; (iii) the initial monthly rent during such five (5)-year option term shall be fixed at the market rate for comparable space prevailing at the commencement of such option term and the monthly rent thereafter shall be further adjusted as set forth in Article 4 Section (5) of the Building Lease Agreement; (iv) HEI's discretionary right (set forth in Article 3 Section (2) of the Building Lease Agreement) to terminate such Building Lease Agreement during the initial term or the option term shall be eliminated (it being understood and agreed that nothing herein shall limit HEI's termination rights under Article 10 of the Building Lease Agreement and applicable laws); and (v) ChipPAC Korea shall have the discretionary right, at any time following the third anniversary of the Closing Date on not less than six (6) months prior notice, to terminate all or any portion of such Lease, and, in the case of any partial termination, the monthly rent shall be proportionately reduced based on the reduction in the amount of rentable square meters; (b) the Equipment Lease Agreement attached hereto as Annex IV shall be terminated effective as of the Closing, all Indebtedness and Liabilities related to the equipment and property which is the subject thereof shall be repaid as provided in Article II and the ownership of such equipment and property shall be conveyed to ChipPAC Korea at no additional cost; (c) with respect to the Information System Management Service Agreement attached hereto as Annex V, HEI shall obtain from Hyundai Information Technology Co. Ltd. (and shall deliver to Merger Sub) unconditional written confirmation that all systems described therein will be Y2K compliant on or prior to September 30, 1999; (d) with respect to the Patent and Technology License Agreement attached hereto as Annex VII, (i) such agreement shall be amended to make ChipPAC BVI the licensee thereof; (ii) Section 4.3.4 of Article 4 thereof (and any other provisions thereof which provide that HEI shall have the right to terminate such agreement if HEI ceases to hold 50% or less of the outstanding shares of ChipPAC Korea or the licensee) shall be eliminated; and (iii) Articles 3 and 4 thereof shall be amended so that the term of such agreement may be extended from year to year by ChipPAC BVI by written notice to HEI and payment of an annual license fee of forty million Korean Won; and (e) with respect to the Contract for the Chung Ju plating facility, HEI hereby covenants and agrees to place not less than ninety percent (90%) of its third-party plating requirements with the Chung Ju facility during the three year period immediately following the Closing Date, it being acknowledged and agreed that there shall be no specific volume commitment by or volume requirement on the part of HEI. 75 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly authorized officer of each party hereto as of the date first written above. HYUNDAI ELECTRONICS INDUSTRIES CO., LTD. By: /s/ Y.H. Kim ------------------------------------ Name: Y.H. Kim Title: President HYUNDAI ELECTRONICS AMERICA By: /s/ Dr. C.S. Park ------------------------------------ Name: Dr. C.S. Park Title: President CHIPPAC, INC. By: /s/ Dr. C.S. Park ------------------------------------ Name: Dr. C.S. Park Title: Chairman of the Board CHIPPAC MERGER CORP. By: /s/ David Dominik ------------------------------------ Name: David Dominik Title: Chief Executive Officer 76 EX-2.2 3 1ST AMND TO AGREEMENT & PLAN OF RECAPITALIZATION Exhibit 2.2 AMENDMENT NO. 1 dated as of June 16, 1999 to the 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. This AMENDMENT NO. 1 dated as of June 16, 1999 ("Amendment No. 1") to the AGREEMENT AND PLAN OF RECAPITALIZATION AND MERGER, dated as of March 13, 1999 (the "Original Recapitalization Agreement"), is made and entered into by and among Hyundai Electronics Industries Company, Ltd., a Republic of Korea corporation ("HEI"), Hyundai Electronics America, a California corporation ("HEA"), ChipPAC, Inc., a California corporation (the "Company"), and ChipPAC Merger Corp., a Delaware corporation ("Merger Sub"). Capitalized terms not otherwise defined herein have the meanings set forth in the Original Recapitalization Agreement. Recitals -------- The parties have heretofore entered into the Original Recapitalization Agreement. The parties now wish to amend certain provisions of the Original Recapitalization Agreement. NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth in this Amendment No. 1, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: Section 1. The definition of "Cash Consideration" in Section 1.1 of the Original Recapitalization Agreement is hereby amended and restated so as to read in its entirety as follows: ""Cash Consideration" means an aggregate total of three hundred eighty-five million dollars ($385,000,000), comprised of (i) the sum of (A) the Korean Stock Sale Proceeds before adding or subtracting the Korean Stock Sale Adjustments, (B) the Chinese Equity Sale Proceeds before subtracting the Chinese Debt Payoff and the Chinese Intercompany Payoff, (C) the ChipPAC Korea Note payment plus the Estimated Korean Debt Payoff, and (D) the Intellectual Property Note payment, minus (ii) forty million dollars ($40,000,000) (constituting the amount of the HEA Investment)." Section 2. The following definition is hereby added to Section 1.1 of the Original Recapitalization Agreement: ""HEA Investment" has the meaning assigned in Section 2.2(k)." Section 3. The introductory paragraph of Section 2.2 of the Original Recapitalization Agreement is hereby amended to insert the words "and subsection (k)" immediately following each appearance of the phrase "subsections (a) through (g)". Section 4. The reference in each of Section 2.2(e)(ii) and Section 2.2(f)(i) to "sixty-seven million dollars ($67,000,000)" is hereby deleted and replaced with "one hundred seven million dollars ($107,000,000)". Section 5. Section 2.2(e)(iv)(C) of the Original Recapitalization Agreement is hereby -2- amended and restated so as to road in its entirety as follows: "(C) one hundred eleven million dollars ($111,000,000) to ChipPAC BVI;" Section 6. The following Section 2.2(k) is hereby added to the Original Recapitalization Agreement: "(k) Purchase of Company Senior Preferred Stock. At the Closing, HEA shall purchase from the Company, for forty million dollars ($40,000,000) in cash, Company Senior Preferred Stock with an aggregate liquidation value of forty million dollars ($40,000,000) (the "HEA Investment")." Section 7. Section 2.3(a)(i)(y) of the Original Recapitalization Agreement is hereby amended and restated so as to read in its entirety as follows: "(y) to HEA or HEI, as HEA shall direct by written notice to Merger Sub not less than two Business Days prior to the Closing: Company Senior Preferred Stock with an initial aggregate liquidation value of thirty million dollars ($30,000,000) (together with the HEA Investment, the "Preferred Stock Consideration"), up to twenty million dollars ($20,000,000) of which shall be subject to redemption pursuant to the earn- out provisions of the first sentence of Section 2.5;" Section 8. The first sentence of Section 2.5 of the Original Recapitalization Agreement is hereby amended and restated so as to read in its entirety as follows: "HEI will be eligible to receive from the Company additional consideration (the "HEI Earn-Out") during the four (4) year period commencing January 1, 1999 (the "Earn-Out Period"), payable annually, if earned (the "Earn-Out Payment"), and calculated in the manner set forth below; provided, however, that the HEI Earn-Out shall not exceed the aggregate amount of fifty-five million dollars ($55,000,000) (the "Earn-Out Maximum"); provided further, that, subject to Section 2.5(f), if aggregate Earn-Out Payments shall exceed the sum of thirty-five million dollars ($35,000,000), the portion of the HEI Earn-Out in excess of thirty-five million dollars ($35,000,000) shall be paid by, and applied to, the redemption of a number of shares of Company Senior Preferred Stock with an aggregate Liquidation Preference as defined in the Amended and Restated Articles of Incorporation annexed as Exhibit C to this Agreement (including accrued and unpaid dividends to the time of such redemption) equal to the amount of such excess (which shares of Company Senior Preferred Stock shall then be canceled and retired); and provided further, that the Earn-Out Maximum and the Company's obligation to pay the Earn-Out Payment in the manner described in the immediately preceding proviso shall be reduced on a dollar-for-dollar basis to the extent of the last twenty million dollars ($20,000,000) of then-outstanding Company Senior Preferred Stock issued to HEA (measured on the basis of -3- Liquidation Preference at the time of redemption) which is redeemed other than pursuant to the terms of this Section 2.5. It is the intention of the parties to avoid double payment of (A) the twenty million dollars ($20,000,000) of Company Senior Preferred Stock (measured on the basis of Liquidation Preference) which is subject to redemption as provided in the preceding sentence and (B) the final twenty million dollars ($20,000,000) of the HEI Earn-Out, and no such double payment shall be required or permitted." Section 9. Article III Part A and Article III Part A Section 1 of the Amended and Restated Articles of Incorporation of ChipPAC, Inc. annexed as Exhibit C to the Original Recapitalization Agreement are hereby amended and restated in their entirety as follows: "Part A. Authorized Shares. The total number of shares of capital stock which the Corporation has authority to issue is 485,000 shares, consisting of: 1. 105,000 shares of Class B Preferred Stock, par value $.01 per share ("Senior Preferred Stock");" Section 10. Except as expressly set forth herein, all terms and conditions of the Original Recapitalization Agreement shall remain unchanged. -4- IN WITNESS WHEREOF, this Amendment No. 1 has been duly executed and delivered by the duly authorized officer of each party hereto as of the date first written above. HYUNDAI ELECTRONICS INDUSTRIES CO., LTD. By: /s/ Dr. C. S. Park ------------------------------------------ Name: Dr. C. S. Park Title: Executive Vice President HYUNDAI ELECTRONICS AMERICA By: /s/ Dr. C. S. Park ------------------------------------------ Name: Dr. C. S. Park Title: President & CEO CHIPPAC, INC. By: /s/ Dr. C. S. Park ------------------------------------------ Name: Dr. C. S. Park Title: Chairman of the Board CHIPPAC MERGER CORP. By: /s/ David Dominik ------------------------------------------ Name: David Dominik Title: Chief Executive Officer -4- EX-2.3 4 2ND AMND TO AGREEMENT & PLAN OF RECAPITALIZATION Exhibit 2.3 AMENDMENT NO. 2 dated as of August 5, 1999 to the 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. This AMENDMENT NO. 2 dated as of August 5, 1999 ("Amendment No. 2") to the AGREEMENT AND PLAN OF RECAPITALIZATION AND MERGER, dated as of March 13, 1999, as amended to date (the "Original Recapitalization Agreement"), is made and entered into by and among Hyundai Electronics Industries Company, Ltd., a Republic of Korea corporation ("HEI"), Hyundai Electronics America, a California corporation ("HEA"), ChipPAC, Inc., a California corporation (the "Company"), and ChipPAC Merger Corp., a Delaware corporation ("Merger Sub"). Capitalized terms not otherwise defined herein have the meanings set forth in the Original Recapitalization Agreement. Recitals -------- The parties have heretofore entered into the Original Recapitalization Agreement. The parties now wish to amend certain provisions of the Original Recapitalization Agreement. NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth in this Amendment No. 2, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: Section 1. The following definition is hereby added to Section 1.1 of the Original Recapitalization Agreement: '"ChipPAC BVI 111" means ChipPAC International Limited, a corporation incorporated or to be incorporated under the laws of the Territory of the British Virgin Islands which immediately prior to the Closing shall be a wholly owned subsidiary of Merger Sub;' Section 2. Section 2.2(c)(iii)(A) of the Original Recapitalization Agreement is hereby amended by deleting the words "and the Technology License Agreement dated as of March 28, 1994 by and between Olin Corporation and HEL as amended by Amendment No. 1 thereto dated November 22/30, 1994 and Amendment No. 2 thereto dated March 1/April 11, 1996 (as so amended, the "Olin License Agreement")", and each of the parties hereto acknowledges and agrees that HEI shall retain all rights and obligations under the aforesaid Olin License Agreement, none of which shall be transferred to the Company or any of its Subsidiaries. Section 3. Section 2.2(c)(iii)(D) of the Original Recapitalization Agreement is hereby amended to delete therefrom the phrase", and the Company's rights under the Assembly Agreement dated October 23, 1998 by and between Asahi Kasei Microsystems Co., Ltd. and the Company and to obtain a release of HEI, HEA and the Company from any and all obligations thereunder". Section 4. Section 2.2(e)(iii) of the Original Recapitalization Agreement is hereby amended and restated in its entirety as follows: -1- "(iii) ChipPAC BVI 11 shall incur indebtedness in the aggregate amounts and upon the terms and conditions to be determined by its Board of Directors immediately following the Merger and, prior to the Closing, ChipPAC BVI III shall incur indebtedness in the aggregate amounts and upon the terms and conditions to be determined by its Board of Directors and, simultaneously with the consummation of the Merger, ChipPAC BVI III shall merge with and into ChipPAC BVI 11 upon the terms and conditions approved by their respective boards of directors and shareholders; provided that the terms and conditions of the merger of ChipPAC BVI III with and into ChipPAC BVI 11 shall not alter or adversely affect the rights or obligations of HEI or HEA pursuant to this Agreement or the form or amount of consideration to be paid to HEI or HEA under this Agreement or the timing of the payment of any such consideration, without the prior written consent of HEI and HEA;" Section 5. Section 2.2(e)(iv) of the Original Recapitalization Agreement is hereby amended and restated in its entirety as follows: "(iv) ChipPAC BVI 11 shall loan (A) one hundred sixteen million dollars ($116,000,000) to ChipPAC Luxembourg; (B) thirty-four million dollars ($34,000,000) to ChipPAC Shanghai I and (C) one hundred twenty-one million dollars ($121,000,000) to ChipPAC BVI;" Section 6. Section 2.2(e)(v) of the Original Recapitalization Agreement is hereby amended and restated in its entirety as follows: "(v) ChipPAC BVI 11 shall increase its equity investment in ChipPAC Hungary to at least twenty-nine million dollars ($29,000,000);" Section 7. Section 2.2(e)(vi) of the Original Recapitalization Agreement is hereby amended and restated in its entirety as follows: "(vi) ChipPAC Luxembourg shall loan one hundred sixteen million dollars ($116,000,000) to ChipPAC Hungary; and" Section 8. Section 2.2(e)(vii) of the Original Recapitalization Agreement is hereby amended and restated in its entirety as follows: "(vii) ChipPAC Hungary shall loan one hundred forty-five million dollars ($145,000,000) to ChipPAC Korea." Section 9. Section 2.2(f)(iii) of the Original Recapitalization Agreement is hereby amended and restated in its entirety as follows: "(iii) ChipPAC BVI shall purchase 99.9% of the then outstanding capital stock of ChipPAC Korea from HEI (which interest shall be held in accordance with the terms of the ChipPAC Korea Shareholders Agreement) for an amount (the "Korean Stock Sale Proceeds") equal to seventy million dollars ($70,000,000) in cash, minus (A) the sum of the actual amount -2- of the Reduction in Capital, as reflected in the ChipPAC Korea Note, plus the actual amount of the Korea Debt Payoff, minus one hundred seventy five million dollars ($175,000,000), minus (B) the sum of the payments required to be made pursuant to Section 2.3(a)(iv) and Section 2.3(d) hereof, minus (C) the sum of the US Debt Payoff and the US Intercompany Payoff, and minus (D) the amount of the YH Purchase Price (clauses (A) through (D) of this Section 2.2(f)(iii) collectively, the "Korean Stock Sale Adjustments"); and" Section 10. Section 2.2(g)(iv) of the Original Recapitalization Agreement is hereby amended by inserting the phrase "except for $40,445.72 in accounts payable to Hyundai Electronics Japan (which shall be paid by ChipPAC Korea to Hyundai Electronics Japan the first Business Day following the Closing Date, and which, for purposes hereof, shall be treated as comprising a portion of the Korean Debt Payoff)," at the beginning of said Section 2.2(g)(iv). Section 11. Section 2.3(a) of the Original Recapitalization Agreement is hereby amended by deleting the first sentence thereof. Section 12. The first sentence of Section 2.3(c) of the Original Recapitalization Agreement is hereby amended and restated as follows: "The directors and officers of Merger Sub immediately prior to the Effective Time shall be the initial directors and officers of the Surviving Corporation and shall hold office in accordance with the Articles of Incorporation and Bylaws of the Surviving Corporation, in each case until their respective successors are duly elected or appointed, it being understood and agreed that immediately following the consummation of each of the Recapitalization Transactions and related financings and borrowings to be consummated on the Closing Date, one director designated by HEA in accordance with the Shareholders Agreement shall be appointed to the board of directors of the Surviving Corporation and shall hold office in accordance with the Articles of Incorporation and Bylaws of the Surviving Corporation, until his respective successor is duly elected or appointed." Section 13. Section 2.4(h) of the Original Recapitalization Agreement is hereby deleted. The physical inventory procedures previously contemplated therein may have been effected as of July 31, 1999. However, in the event such physical inventory procedures were not conducted as of July 31, 1999, any required physical inventory procedures shall be determined by the Company in conjunction with its independent accountants, PriceWaterhouseCoopers. Section 14. Section 10.2(b)(iii) of the Original Recapitalization Agreement is hereby amended by adding the following words to the end of said subsection (immediately prior to the appearance of the period (.) therein): "or the subleasing of space by HEA to the Company pursuant to the Sublease Agreement for 3151 Coronado Drive, Santa Clara, CA 95054 in the absence of any required written consent of the Master Lessor thereof pursuant to the Master Lease (in each case as such terms are defined in such Sublease)" -3- Section 15. Appendix 11 to that certain side letter agreement among each of the parties hereto dated June 17, 1999 is hereby amended as set forth in the copy of said Appendix 11 attached hereto. Section 16. Notwithstanding any provision to the contrary in the Original Recapitalization Agreement, the form of Transition Services Agreement to be entered into among each of the parties indicated in such agreement shall be the form appended hereto as Exhibit 1. Notwithstanding any provision to the contrary in the Original Recapitalization Agreement, the Amended and Restated Articles of Incorporation of the Company to be filed with the California Agreement of Merger and the Bylaws of the Company to be adopted as of the Effective Time shall be in the forms attached hereto as Exhibit 2 and Exhibit 3, respectively. Section 17. The parties hereto agree that the amount of Estimated Working Capital in the letter dated July 26, 1999 from Merrill Lynch & Co., Inc. shall be decreased by $2,295,551 (the estimated amount owed to ChipPAC Korea by HEI for packaging services, other than with respect to any amounts owed pursuant to any Ancillary Agreement, which are included within the Estimated Closing Working Capital). The foregoing packaging service amounts owed by HEI (other than those arising pursuant to any Ancillary Agreement) shall be cancelled pursuant to Section 2.2(f)(iv) of the Original Recapitalization Agreement. Accordingly, the net increase to the Cash Consideration as a result of the purchase price adjustments contemplated by Section 2.4(b) of the Original Recapitalization Agreement is $1,978,114. Section 18. HEI's obligations pursuant to Section 2.3(a)(iv) and Section 2.3(d) of the Original Recapitalization Agreement shall be deemed satisfied to the extent of the amount accrued therefor in the Estimated Closing Balance Sheet and the calculation of the purchase price adjustments pursuant to Section 2.4(a) and 2.4(b) of the Original Recapitalization Agreement. Section 19. Except as expressly set forth herein, all terms and conditions of the Original Recapitalization Agreement shall remain unchanged. -4- IN WITNESS WHEREOF, this Amendment No. 2 has been duly executed and delivered by the duly authorized officer of each party hereto as of the date first written above. HYUNDAI ELECTRONICS INDUSTRIES CO., LTD. By: /s/ Baxon S. Kim ------------------------------------- Name: Baxon S. Kim Title: General Manager HYUNDAI ELECTRONICS AMERICA By: /s/ Baxon s. Kim ------------------------------------- Name: Baxon S. Kim Title: Director CHIPPAC, INC. By: /s/ Tony Lin ------------------------------------- Name: Tony Lin Title: Chief Financial Officer CHIPPAC MERGER CORP. By: /s/ Marshall Haines ------------------------------------- Name: Marshall Haines Title: Vice President -5- EX-3.1 5 AMENDED & RESTATED ARTICLES OF INCORPORATION EXHIBIT 3.1 AMENDED AND RESTATED ARTICLES OF INCORPORATION OF CHIPPAC, INC. Tony Lin certifies that: ONE: He is the duly elected and acting Vice President and Secretary of ChipPAC, Inc., a California corporation (the "Corporation"). ----------- TWO: The Articles of Incorporation of the Corporation shall be amended and restated to read in full as follows: I NAME ---- The name of the Corporation is ChipPAC, Inc. II PURPOSE ------- The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code. III CAPITAL STOCK ------------- Part A. Authorized Shares. The total number of shares of capital stock ----------------- which the Corporation has authority to issue is 380,115,000 shares, consisting of: 1. 10,000 shares of Class A Convertible Preferred Stock, par value $.01 per share ("Class A Preferred"); ----------------- 2. 105,000 shares of Class B Preferred Stock, par value $.01 per share ("Senior Preferred Stock"); ---------------------- 3. 20,000,000 shares of Class L Common Stock, par value $.01 per share ("Class L Common"); -------------- 4. 180,000,000 shares of Class A Common Stock, par value $.01 per share ("Class A Common"); and -------------- 5. 180,000,000 shares of Class B Common Stock, par value $.01 per share ("Class B Common"). -------------- The Class L Common, the Class A Common and the Class B Common, and any other common stock issued hereafter are referred to collectively as the "Common ------ Stock." The Class A Preferred shall be junior to the Senior Preferred Stock and - ----- senior to the Common Stock as to dividends and liquidation rights and liquidation preferences and shall have the other rights, preferences and limitations set forth in Part D hereto. The Senior Preferred Stock and the Common Stock shall have the rights, preferences and limitations set forth below. Capitalized terms used but not otherwise defined in Part A or Part B of this Article III are defined in Part C. Part B. Senior Preferred Stock and Common Stock. --------------------------------------- Except as otherwise provided in this Part B or as otherwise required by applicable law and subject to the rights, preferences and limitations of the Class A Preferred specified in Part D hereto, all shares of Senior Preferred Stock, Class L Common, Class A Common and Class B Common shall be identical in all respects and shall entitle the holders thereof to the same rights and privileges, subject to the same qualifications, limitations and restrictions. 1. Voting Rights. Except as otherwise provided in this Part B or as ------------- otherwise required by applicable law, the holders of Class A Common shall be entitled to one vote per share on all matters to be voted on by the Corporation's stockholders, and the holders of Senior Preferred Stock, the holders of Class L Common and the holders of the Class B Common shall have no right to vote on any matters to be voted on by the stockholders of the Corporation. Each holder of Class A Common shall be entitled at all elections of directors to as many votes as shall equal one vote per share held by such holder multiplied by the number of directors to be elected, and such holder may cast all of such votes for a single director or may distribute them among the number to be voted for, or for any two or more of them as such holder may see fit, and to one vote for each share upon all other matters. 2. Dividends. --------- (a) General Obligation. When and as declared by the ------------------ Corporation's Board of Directors and to the extent permitted under the General Corporation Law of California, the -2- Corporation shall pay preferential dividends to the holders of the Senior Preferred Stock as provided in this Section 2. Dividends on each share of the Senior Preferred Stock (a "Share") shall accrue on a daily basis at the rate of ----- 12.5% per annum of the sum of the Stated Value thereof plus all accumulated and unpaid dividends thereon from and including the date of issuance of such Share to and including the first to occur of (i) the date on which the Stated Value of such Share (plus all accrued and unpaid dividends thereon) is paid to the holder thereof in connection with the liquidation of the Corporation or the redemption of such Share by the Corporation or (ii) the date on which such Share is otherwise acquired by the Corporation. Such dividends shall accrue whether or not they have been declared and whether or not there are profits, surplus or other funds of the Corporation legally available for the payment of dividends. The date on which the Corporation initially issues any Share shall be deemed to be its "date of issuance" regardless of the number of times transfer of such Share is made on the stock records maintained by or for the Corporation and regardless of the number of certificates which may be issued to evidence such Share. (b) Accumulation of Dividends; Dividend Payment Dates. All ------------------------------------------------- dividends which have accrued on each Share of Senior Preferred Stock outstanding during each six-month period ending February 1 and August 1, commencing February 1, 2000 and on or prior to August 1, 2004 will not be paid in cash, but will be capitalized as accumulated and unpaid dividends on the Senior Preferred Stock with respect to each Share until paid to the holder thereof. All dividends accruing on each Share of Senior Preferred Stock from and after August 1, 2004, shall be paid in cash, semi-annually on February 1 and August 1, beginning February 1, 2005. (c) Distribution of Partial Dividend Payments. Except as ----------------------------------------- otherwise provided herein, if at any time the Corporation pays less than the total amount of dividends then accrued with respect to the Senior Preferred Stock, such payment shall be distributed pro rata among the holders thereof based upon the aggregate accrued but unpaid dividends on the Shares held by each such holder. (d) In Event of Default. In the event the Corporation fails, ------------------- either in whole or in part, to pay, when due, any dividend or other amount required by these Articles to be paid with respect to the Senior Preferred Stock (an "Event of Default"), then from and after the due date of such dividend or ---------------- other payment until such dividend or other payment has been paid in full: (i) the dividend rate on the Senior Preferred Stock shall increase immediately by an increment of two and one-half percent (2.5%) per annum (the "Default Rate") and ------------ (ii) the holders of a majority of the Senior Preferred Stock then outstanding shall have the sole and exclusive right to nominate, and the holders of the Senior Preferred Stock voting as a separate class will have the sole and exclusive right to elect, one member of the Corporation's Board of Directors, which right shall be in addition to any other rights of the holders of the Senior Preferred Stock in any other capacity to nominate, elect or vote with respect to the election of the directors of the Corporation pursuant to these Articles or any agreement with the Corporation and/or its shareholders. Dividends shall accrue at the Default Rate, and the director so nominated and elected by the holders of the Senior Preferred Stock shall serve, until such time as there is no longer any Event of Default in existence, at which time the special right of the holders of the Senior Preferred Stock to nominate and elect one member of the Corporation's -3- Board of Directors shall terminate subject to revesting upon the occurrence and continuation of any Event of Default which gives rise to such special right hereunder. 3. Liquidating Distributions. At the time of each Liquidating ------------------------- Distribution, such Liquidating Distribution shall be made to the holders of the Senior Preferred Stock, Class L Common, Class A Common and Class B Common in the following priority: (a) The holders of the Senior Preferred Stock shall be entitled to receive all or a portion of such Liquidating Distribution (ratably among such holders based upon the number of Shares of Senior Preferred Stock held by each such holder as of the time of such Liquidating Distribution) equal to the aggregate Liquidation Preference on the outstanding Shares of Senior Preferred Stock as of the time of such Liquidating Distribution, and no Liquidating Distribution or any portion thereof shall be made under paragraphs 3(b), (c) or (d) below until the entire amount of the Liquidation Preference on the outstanding Shares of Senior Preferred Stock as of the time of such Liquidating Distribution has been paid in full. The Liquidating Distributions made pursuant to this paragraph 3(a) to the holders of the Senior Preferred Stock shall constitute a payment of Liquidation Preference on Senior Preferred Stock. (b) After the required amount of a Liquidating Distribution has been made in full pursuant to paragraph 3(a) above, the holders of Class L Common shall be entitled to receive all or a portion of such Liquidating Distribution (ratably among such holders based upon the number of shares of Class L Common held by each such holder as of the time of such Distribution) equal to the aggregate Unpaid Yield on the outstanding shares of Class L Common as of the time of such Liquidating Distribution, and no Liquidating Distribution or any portion thereof shall be made under paragraphs 3(c) or (d) below until the entire amount of the Unpaid Yield on the outstanding shares of Class L Common as of the time of such Liquidating Distribution has been paid in full. The Liquidating Distributions made pursuant to this paragraph 3(b) to holders of Class L Common shall constitute a payment of Yield on Class L Common. (c) After the required amount of a Liquidating Distribution has been made in full pursuant to paragraph 3(b) above, the holders of Class L Common shall be entitled to receive all or a portion of such Liquidating Distribution (ratably among such holders based upon the number of shares of Class L Common held by each such holder as of the time of such Liquidating Distribution) equal to the aggregate Unreturned Original Cost of the outstanding shares of Class L Common as of the time of such Liquidating Distribution, and no Liquidating Distribution or any portion thereof shall be made under paragraph 3(d) below until the entire amount of the Unreturned Original Cost of the outstanding shares of Class L Common as of the time of such Liquidating Distribution has been paid in full. The Liquidating Distributions made pursuant to this paragraph 3(c) to holders of Class L Common shall constitute a return of Original Cost of Class L Common. -4- (d) After the required amount of a Liquidating Distribution has been made pursuant to paragraphs 3(a), (b) and (c) above, the holders of Common Stock as a group, shall be entitled to receive the remaining portion of such Liquidating Distribution (ratably among such holders based upon the number of shares of Common Stock held by each such holder as of the time of such Liquidating Distribution). 4. Non-Liquidating Distributions. At the time of each Non- ----------------------------- Liquidating Distribution, such Non-Liquidating Distribution shall be made to the holders of the Senior Preferred Stock, Class L Common, Class A Common and Class B Common in the following priority: (a) The holders of the Senior Preferred Stock shall be entitled to receive all or a portion of such Non-Liquidating Distribution (ratably among such holders based upon the number of Shares of Senior Preferred Stock held by each such holder as of the time of such Non-Liquidating Distribution) equal to the aggregate amount of accrued but unpaid cash dividends required to be paid pursuant to the last sentence of paragraph 2(b) of this Part B of this Article III on the outstanding Shares of Senior Preferred Stock as of the time of such Non-Liquidating Distribution, and no Non-Liquidating Distribution or any portion thereof shall be made under paragraph 4(b) below until the entire amount of the accrued but unpaid cash dividends required to be paid pursuant to the last sentence of paragraph 2(b) of this Part B of this Article III on the outstanding Shares of Senior Preferred Stock as of the time of such Non-Liquidating Distribution have been paid in full. The Non-Liquidating Distributions made pursuant to this paragraph 4(a) to the holders of the Senior Preferred Stock shall constitute a payment of dividends on Senior Preferred Stock. (b) After the required amount of a Non-Liquidating Distribution has been made in full pursuant to paragraph 4(a) above, the holders of Common Stock shall be entitled to receive all or a portion of such Non-Liquidating Distribution in the manner and in the priority set forth in paragraphs 3(b), (c) and (d) hereof. (c) Notwithstanding any other provision in these Articles of Incorporation to the contrary, prior to the date on which the Stated Value of each Share of Senior Preferred Stock, plus all accrued and unpaid dividends thereon, is paid in full to the holder thereof in connection with the redemption of such Share or otherwise or such Share is otherwise acquired by the Corporation, the Corporation shall not make Non-Liquidating Distributions which would result in cash, property or securities of the Corporation in excess of $25 million being distributed to the holders of the Common Stock. 5. Redemption. ---------- (a) Optional Redemption. The Corporation shall have the right ------------------- to redeem all or any portion of the Shares of Senior Preferred Stock then outstanding from the holders thereof by notice to such holders at a redemption price per Share, to be paid in cash, equal to the Liquidation Preference. -5- (b) Mandatory Redemption. On August 1, 2010 (the "Mandatory -------------------- --------- Redemption Date"), the Corporation shall redeem all of the Senior Preferred - --------------- Stock then outstanding from the holders thereof, at a redemption price per Share, to be paid in cash, equal to the Liquidation Preference. (c) Redemption Procedures. In the event of a redemption --------------------- pursuant to Subsection (a) or Subsection (b) of this Section 5, the Corporation shall deliver notice of such redemption to each holder of record of the Senior Preferred Stock to be redeemed (determined as of the close of business on the business day next preceding the day on which such notice is given), at the address shown on the records of the Corporation for such holder or given by such holder to this Corporation for notice purposes, or if no such address appears or is given, at the address of the Corporation's principal executive offices. Such notice (i) shall notify such holder of the redemption to be effected, specify the number of Shares to be redeemed from such holder, the date of the redemption (which date shall be not less than thirty (30) nor more than sixty (60) days after the date the notice is given) (the "Redemption Date"), and the manner in --------------- which payment may be obtained, and (ii) shall call upon such holder to surrender to the Corporation, at the Corporation's principal executive offices, in the manner designated, the certificate or certificates representing the Shares of Senior Preferred Stock to be redeemed (the "Redemption Notice"). On or after the ----------------- Redemption Date, (x) each holder of Senior Preferred Stock to be redeemed shall surrender to the Corporation the certificate or certificates representing such Shares in the manner and at the place designated in the Redemption Notice, (y) the applicable redemption price shall forthwith be paid to the order of the person whose name appears on such certificate or certificates as the owner thereof, either by wire transfer of immediately available funds to such account as the holder may direct or by delivery of a check (drawn on the New York City or San Francisco, California branch of a bank chartered under the laws of the United States of America or any state thereof) to the holder in the manner prescribed for notices in this Article III and (z) each certificate so surrendered shall be canceled. In the event that fewer than all of the Shares represented by any certificate surrendered pursuant to clause (x) of this Section 5(c) are redeemed, a new certificate representing the unredeemed Shares shall forthwith be issued and delivered to the holder in the manner prescribed for notices in this Article III. (d) Insufficient Funds. If the funds of the Corporation legally ------------------ available for redemption of the Senior Preferred Stock on the Mandatory Redemption Date are insufficient to redeem the total number of Shares of Senior Preferred Stock to be redeemed on such date, those funds which are legally available will be used to redeem the maximum possible number of such Shares ratably among the holders of such Shares to be redeemed. The Shares of Senior Preferred Stock not redeemed shall remain outstanding and shall be entitled to dividends at the Default Rate and shall otherwise be entitled to all the rights and preferences provided in these Articles. At any time thereafter when additional funds of the Corporation are legally available for the redemption of the previously unredeemed Shares of Senior Preferred Stock, such funds will immediately be used to redeem the balance of the Shares which the Corporation has become obligated to redeem on the Mandatory Redemption Date but which it has not redeemed. For purposes of Section 2(d) of Part B of Article III, the failure to redeem all of the Shares of Senior Preferred Stock to be redeemed at the Mandatory Redemption Date and to pay in full the Liquidation Preference for such Shares of -6- Senior Preferred Stock on such date shall be treated as an Event of Default entitling the holders of the Senior Preferred Stock to the rights set forth therein until such Shares have been redeemed, and the Liquidation Preference has been paid in full. (e) Status of Redeemed Stock. In the event that any Shares of ------------------------ Senior Preferred Stock are redeemed pursuant to this Section 5, the Shares so redeemed shall be canceled. No Share of Senior Preferred Stock is entitled to any Distributions accruing after the date on which the Liquidation Preference is paid to the holder thereof. On such date all rights of the holder of such Share of Senior Preferred Stock shall cease, and such Share of Senior Preferred Stock shall not be deemed to be outstanding. 6. Stock Splits and Stock Dividends. The Corporation shall not in -------------------------------- any manner subdivide (by stock split, stock dividend or otherwise) or combine (by stock split, stock dividend or otherwise) the outstanding shares of Common Stock of one class unless the outstanding shares of Common Stock of the other classes shall be proportionately subdivided or combined. All such subdivisions and combinations shall be payable only in shares of Class L Common to the holders of Class L Common, in shares of Class A Common to the holders of Class A Common and in shares of Class B Common to the holders of Class B Common. In no event shall a stock split or stock dividend constitute a payment of Yield or a return of Original Cost. 7. Conversion Right. Each record holder of Class A Common will be ---------------- entitled to convert any or all of such holder's Class A Common into the same number of shares of Class B Common and each record holder of Class B Common will be entitled to convert any or all of the shares of such holder's Class B Common into the same number of shares of Class A Common; provided, however, that at the -------- ------- time of conversion of shares of Class B Common into shares of Class A Common such holder would be permitted, pursuant to applicable law, to hold the total number of shares of Class A Common which such holder would hold after giving effect to such conversion; and provided, further, that the determination of a -------- ------- holder of Class B Common that such holder is permitted pursuant to applicable law to convert Class B Common into Class A Common pursuant to this Section 7 shall be final and binding upon the Corporation. Each conversion of shares of one class of Common Stock into shares of another class of Common Stock will be effected by the surrender of the certificate or certificates representing the shares to be converted at the principal executive office of the Corporation at any time during normal business hours, together with a written notice by the holder of such shares stating the number of shares that any such holder desires to convert into the other class of Common Stock. Such conversion will be deemed to have been effected as of the close of business on the date on which such certificate or certificates have been surrendered and such notice has been received by the Corporation, and at such time the rights of any such holder with respect to the converted class of Common Stock will cease and the person or persons in whose name or names the certificate or certificates for shares of the other class of Common Stock are to be issued upon such conversion will be deemed to have become the holder or holders of record of the shares of such other class of Common Stock represented thereby. -7- So long as any shares of any class of Common Stock are outstanding, the Corporation will at all times reserve and keep available out of its authorized but unissued shares of Class A Common and Class B Common (or any shares of Class A Common or Class B Common which are held as treasury shares), the number of shares sufficient for issuance upon conversion. 8. Protective Provisions. As long as any Shares of Senior Preferred --------------------- Stock are outstanding, the Corporation shall not without first obtaining the written consent of the holders of at least a majority of the then outstanding Shares of Senior Preferred Stock: (a) alter or change the rights, preferences or privileges of any shares of Senior Preferred Stock; (b) except as may be required pursuant to Section 2.5 of that certain Recapitalization Agreement dated as of March 13, 1999, as the same be amended from time to time, by and among the Corporation, Hyundai Electronics Industries Co., Ltd., Hyundai Electronics America and ChipPAC Merger Corp., increase the total number of authorized shares of Senior Preferred Stock or issue or authorize the issuance of any additional Shares of Senior Preferred Stock; or (c) authorize or issue, or obligate itself to issue, any other equity security (including any other security convertible into or exercisable for any equity security) having a preference over or being on a parity with the Senior Preferred Stock with respect to dividends or liquidation rights or liquidation preferences. 9. No Impairment. The Corporation shall not, by amendment of its ------------- Articles of Incorporation or Bylaws or through any reorganization, recapitalization, transfer of assets, consolidation, merger or other business combination transaction, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed under Part B of this Article III by the Corporation, but will at all times in good faith assist in the carrying out of all provisions of Part B of Article III and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holders of the Senior Preferred Stock under these Articles against impairment. 10. Registration of Transfer. The Corporation shall keep at its ------------------------ principal office (or such other place as the Corporation reasonably designates) a register for the registration of the Senior Preferred Stock and the Common Stock. Upon the surrender of any certificate representing shares of Senior Preferred Stock or any class of Common Stock at such place, the Corporation shall, at the request of the registered holder of such certificate, execute and deliver a new certificate or certificates in exchange therefor (either of the same class, or as directed by the holder in connection with a conversion from one class to another) representing in the aggregate the number of shares of such class represented by the surrendered certificate and the Corporation forthwith shall cancel such surrendered certificate. Each such new certificate will be registered in such name and will represent such number of shares of such class as is requested by the holder of the surrendered certificate and -8- shall be substantially identical in form to the surrendered certificate. The issuance of new certificates shall be made without charge to the holders of the surrendered certificates for any issuance tax in respect thereof or other cost incurred by the Corporation in connection with such issuance. The Corporation will not close its books against the transfer of any share of Common Stock, or of any share of Common Stock issued or issuable upon conversion of shares of another class of Common Stock, in any manner that would interfere with the timely conversion of such shares of Common Stock. 11. Replacement. Upon receipt of evidence reasonably satisfactory to ----------- the Corporation (an affidavit of the registered holder will be satisfactory) of the ownership and the loss, theft, destruction or mutilation of any certificate evidencing one or more shares of any class of Senior Preferred Stock or Common Stock, and in the case of any such loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to the Corporation, or, in the case of any such mutilation upon surrender of such certificate, the Corporation shall (at its expense) execute and deliver in lieu of such certificate a new certificate of like kind representing the number of shares of such class represented by such lost, stolen, destroyed or mutilated certificate and dated the date of such lost, stolen, destroyed or mutilated certificate. 12. Notices. All notices referred to herein shall be in writing, ------- shall be delivered personally or by first class mail, postage prepaid, and shall be deemed to have been given when so delivered or mailed to the Corporation at its principal executive offices and to any stockholder at such holder's address as it appears in the stock records of the Corporation (unless otherwise specified in a written notice to the Corporation by such holder). 13. Amendment and Waiver. No amendment or waiver of any provision of -------------------- this Article III shall be effective without the prior written consent of the holders of not less than a majority of the then outstanding Class A Common, voting as a single class; provided that no amendment as to any terms or provisions of, or for the benefit of, the Senior Preferred Stock or any class of Common Stock that adversely affects the powers, preferences or special rights of the Senior Preferred Stock or such class of Common Stock shall be effective without the prior consent of the holders of a majority of the then outstanding shares of such affected class of Common Stock or the affected shares of Senior Preferred Stock, as the case may be, voting as a single class. Part C. Definitions. ----------- "Distribution" means each distribution made by the Corporation to holders ------------ of capital stock, whether in cash, property, or securities of the Corporation and whether by dividend, liquidating distributions or otherwise; provided that none of the following shall be a Distribution: (a) any redemption or repurchase by the Corporation of any capital stock held by an employee, director or former employee or director of the Corporation or any of its subsidiaries or (b) any recapitalization or exchange of any capital stock, or any subdivision (by stock split, stock dividend or otherwise) or any combination (by stock split, stock dividend or otherwise) of any outstanding shares of capital stock. -9- "Hyundai Group" means Hyundai Electronics Industries Co., Ltd., Hyundai ------------- Electronics America and their respective affiliates. "Liquidating Distribution" mean any Distribution made upon a Liquidation ------------------------ Event. "Liquidation Event" means (i) any liquidation, dissolution or winding up of ----------------- the Corporation, whether voluntary or involuntary, (ii) any sale or transfer by the Corporation of all or substantially all (as defined in the Revised Model Business Corporation Act) of its assets on a consolidated basis, (iii) any consolidation, merger or reorganization of the Corporation with or into any other entity or entities as a result of which the holders of the Corporation's outstanding capital stock possessing the voting power (under ordinary circumstances) to elect a majority of the Corporation's Board of Directors immediately prior to such consolidation, merger or reorganization cease to own the outstanding capital stock of the surviving corporation possessing the voting power (under ordinary circumstances) to elect a majority of the surviving corporation's board of directors or (iv) any sale or transfer to any third party of shares of the Corporation's capital stock by the holders thereof as a result of which the holders of the Corporation's outstanding capital stock possessing the voting power (under ordinary circumstances) to elect a majority of the Corporation's Board of Directors immediately prior to such sale or transfer cease to own the outstanding capital stock of the Corporation possessing the voting power (under ordinary circumstances) to elect a majority of the Corporation's board of directors. "Liquidation Preference" means an amount per Share of Senior Preferred ---------------------- Stock equal to the sum of (A) the Stated Value plus (B) the amount of all accrued but unpaid dividends on such Share of Senior Preferred Stock as provided in Section 2 of Part B of Article III. "Non-Liquidating Distribution" means each Distribution other than a ---------------------------- Liquidating Distribution. "Original Cost" of each share of Class L Common shall be equal to $9.00 (as ------------- proportionally adjusted for all stock splits, stock dividends and other recapitalizations affecting the Class L Common). "Person" means an individual, a partnership, a corporation, a limited ------ liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a government or any branch, department, agency, political subdivision or official thereof. "Stated Value" of each share of Senior Preferred Stock shall be equal to ------------ $1,000 (as proportionally adjusted for all stock splits, stock dividends and other recapitalizations affecting the Senior Preferred Stock). "Unpaid Yield" of any share of Class L Common means an amount equal to the ------------ excess, if any, of (a) the aggregate Yield accrued on such share, over (b) the aggregate amount of Distributions made by the Corporation that constitute payment of Yield on such share. -10- "Unreturned Original Cost" of any share of Class L Common means an amount ------------------------ equal to the excess, if any, of (a) the Original Cost of such share, over (b) the aggregate amount of Distributions made by the Corporation that constitute a return of Original Cost of such share. "Yield" means, with respect to each share of Class L Common for each ----- calendar quarter, the amount accruing on such share each day during such quarter at the rate of 12.0% per annum of the sum of (a) such share's Unreturned Original Cost, plus (b) Unpaid Yield thereon for all prior quarters. In calculating the amount of any Distribution to be made during a calendar quarter, the portion of a Class L Common share's Yield for such portion of such quarter elapsing before such Distribution is made shall be taken into account. Part D. Class A Preferred Stock Terms. ----------------------------- 10,000 shares of the Corporation's Preferred Stock shall be designated as Class A Convertible Preferred Stock, par value $.01 per share (the "Class A ------- Preferred"). - --------- The Class A Preferred shall have the following rights, preferences and privileges, subject to the following restrictions, limitations and qualifications. Section 1. Dividends. --------- 1A. General Obligation. When and as declared by the Corporation's ------------------ Board of Directors (the "Board") and to the extent permitted under the General ----- Corporation Law of California, the Corporation shall pay preferential dividends in cash to the holders of the Class A Preferred as provided in this Section 1. Dividends on each share of the Class A Preferred (a "Share") shall accrue on a ----- daily basis at the rate of 10% per annum of the sum of the Liquidation Value thereof plus all accumulated and unpaid dividends thereon from and including the date of issuance of such Share to and including the first to occur of (i) the date on which the Liquidation Value of such Share (plus all accrued and unpaid dividends thereon) is paid to the holder thereof in connection with the liquidation of the Corporation or the redemption of such Share is effected by the Corporation, (ii) the date on which such Share is converted into shares of Conversion Stock hereunder or (iii) the date on which such Share is otherwise acquired by the Corporation. Such dividends shall accrue whether or not they have been declared and whether or not there are profits, surplus or other funds of the Corporation legally available for the payment of dividends, and such dividends shall be cumulative. The date on which the Corporation initially issues any Share shall be deemed to be its "date of issuance" regardless of the number of times transfer of such Share is made on the stock records maintained by or for the Corporation and regardless of the number of certificates which may be issued to evidence such Share. 1B. Dividend Reference Dates. To the extent not paid on August 1 of ------------------------ each year, beginning August 1, 2000 (the "Dividend Reference Date"), all ----------------------- dividends which have accrued on each Share outstanding during the twelve-month period (or other period in the case of the initial -11- Dividend Reference Date) ending upon each such Dividend Reference Date shall be accumulated and shall remain accumulated dividends with respect to such Share until paid to the holder thereof. 1C. Distribution of Partial Dividend Payments. Except as otherwise ----------------------------------------- provided herein, if at any time the Corporation pays less than the total amount of dividends then accrued with respect to the Class A Preferred, such payment shall be distributed pro rata among the holders thereof based upon the aggregate accrued but unpaid dividends on the Shares held by each such holder. 1D. Participation in Non-Cash Dividends. In addition to the ----------------------------------- dividends accruing on the Class A Preferred under paragraph 1A above, if the Corporation declares or pays any dividends upon the Common Stock other than cash dividends or dividends payable solely in shares of Common Stock, the Corporation shall also declare and pay to the holders of the Class A Preferred at the same time that it declares and pays such dividends to the holders of the Common Stock, the dividends which would have been declared and paid with respect to the Common Stock issuable upon conversion of the Class A Preferred had all of the outstanding Class A Preferred been converted immediately prior to the record date for such dividend, or if no record date is fixed, the date as of which the record holders of Common Stock entitled to such dividends are to be determined. Section 2. Liquidation. ----------- Upon any liquidation, dissolution or winding up of the Corporation (whether voluntary or involuntary), each holder of Class A Preferred shall be entitled to be paid, before any distribution or payment is made upon any Junior Securities, an amount in cash equal to the aggregate Liquidation Value of all Shares held by such holder (plus all accrued and unpaid dividends thereon), and the holders of Class A Preferred shall not be entitled to any further payment. If upon any such liquidation, dissolution or winding up of the Corporation the Corporation's assets to be distributed among the holders of the Class A Preferred hereunder are insufficient to permit payment to such holders of the aggregate amount which they are entitled to be paid upon any liquidation, dissolution or winding up of the Corporation, then the entire assets available to be distributed to the Corporation's stockholders shall be distributed pro rata among such holders based upon the aggregate Liquidation Value (plus all accrued and unpaid dividends) of the Class A Preferred held by each such holder. Prior to the liquidation, dissolution or winding up of the Corporation, the Corporation shall declare for payment all accrued and unpaid dividends with respect to the Class A Preferred, but only to the extent of funds of the Corporation legally available for the payment of dividends. Not less than 30 days prior to the payment date stated therein, the Corporation shall mail written notice of any such liquidation, dissolution or winding up to each record holder of Class A Preferred, setting forth in reasonable detail the amount of proceeds to be paid with respect to each Share and each share of Common Stock in connection with such liquidation, dissolution or winding up. Any (i) sale or transfer by the Corporation of all or substantially all (as defined in the Revised Model Business Corporation Act) of its assets on a consolidated basis, (ii) consolidation, merger or reorganization of the Corporation with or into any other entity or entities as a result of which the holders of the Corporation's outstanding capital stock possessing the voting power (under ordinary circumstances) -12- to elect a majority of the Board immediately prior to such consolidation, merger or reorganization cease to own the outstanding capital stock of the surviving corporation possessing the voting power (under ordinary circumstances) to elect a majority of the surviving corporation's board of directors (any such transaction described in clause (i) or (ii), a "Fundamental Change") or (iii) ------------------ issuance by the Corporation or sale or transfer to any third party of shares the Corporation's capital stock by the holders thereof as a result of which the holders of the Corporation's outstanding capital stock possessing the voting power (under ordinary circumstances) to elect a majority of the Board immediately prior to such sale or transfer cease to own the outstanding capital stock of the Corporation possessing the voting power (under ordinary circumstances) to elect a majority of the Board (any such transaction in this clause (iii), a "Change in Control") shall be deemed to be a liquidation, ----------------- dissolution or winding up of the Corporation within the meaning of this Section 2, and the holders of the Class A Preferred shall be entitled to receive payment from the Corporation of the amounts payable with respect to the Class A Preferred upon a liquidation, dissolution or winding up of the Corporation under this Section 2 in cancellation of their Shares upon the consummation of any such transaction. Section 3. Priority of Class A Preferred on Dividends and ---------------------------------------------- Redemptions. - ----------- So long as any Class A Preferred remains outstanding, without the prior written consent of the holders of at least a majority of the outstanding Shares, the Corporation shall not, nor shall it permit any Subsidiary to, redeem, purchase or otherwise acquire directly or indirectly any Junior Securities, nor shall the Corporation directly or indirectly pay or declare any dividend or make any distribution upon any Junior Securities, if at the time of or immediately after any such redemption, purchase, acquisition, dividend or distribution the Corporation has failed to pay the full amount of dividends accrued on the Class A Preferred or the Corporation has failed to make any redemption of the Class A Preferred required hereunder; provided that (i) the Corporation may redeem or repurchase any capital stock held by an employee, director or former employee or director of the Corporation or any of its Subsidiaries, (ii) any recapitalization or exchange of any capital stock, or any subdivision (by stock split, stock dividend or otherwise) or any combination (by stock split, stock dividend or otherwise) of any outstanding shares of the Corporation's capital stock shall not be deemed a redemption, purchase, acquisition, dividend or distribution within the meaning of this Section 3 and (iii) the Corporation may redeem, purchase or otherwise acquire Common Stock for cash or pay or declare dividends or distributions on the Common Stock in cash in an aggregate amount not to exceed $25 million (provided that the aggregate amount of such redemptions, purchases, acquisitions, dividends or distributions paid or payable in any one calendar year shall not exceed the amount of dividends paid on the Class A Preferred in such year multiplied by a fraction, ---------- the numerator of which shall be equal to the total number of shares of Common Stock then outstanding immediately prior to any such redemption, purchase, acquisition, dividend or distribution and the denominator of which shall be equal to the total number of shares of Common Stock issuable upon conversion of all of the Shares of Class A Preferred immediately prior to any such redemption, purchase, acquisition, dividend or distribution). -13- Section 4. Redemptions. ----------- 4A. Optional Redemptions. The Corporation may at any time and from -------------------- time to time after August 1, 2005 redeem all or any portion of the Shares of Class A Preferred then outstanding. Upon any such redemption, the Corporation shall pay a price per Share equal to the greater of (i) the Market Price thereof and (ii) the Liquidation Value thereof (plus all accrued and unpaid dividends thereon) and a premium equal to the following percentage of the Liquidation Value: Redemption Occurs On or After But Prior to % Premium ------------------ ------------ --------- August 1, 2005 August 1, 2006 10% August 1, 2006 August 1, 2007 8% August 1, 2007 August 1, 2008 6% August 1, 2008 August 1, 2009 4% August 1, 2009 August 1, 2010 2% August 1, 2010 0% 4B. Redemption upon Request. If the Corporation does not consummate ----------------------- a Qualifying IPO on or prior to August 1, 2001, the holders of not less than a majority of the then outstanding Class A Preferred may request redemption of all of their Shares of Class A Preferred by delivering written notice of such request to the Corporation. Within five days after receipt of such request, the Corporation shall give written notice of such request to all other holders of Class A Preferred, and such other holders may request redemption of their Shares of Class A Preferred by delivering written notice to the Corporation within ten days after receipt of the Corporation's notice. The Corporation shall be required to redeem all Shares with respect to which such redemption requests have been made at a price per Share equal to the Liquidation Value thereof (plus all accrued and unpaid dividends thereon) within 30 days after receipt of the initial redemption request. The provisions of this paragraph 4B shall terminate automatically and be of no further force and effect upon the consummation of a Qualifying IPO. 4C. Redemption Payments. For each Share which is to be redeemed ------------------- hereunder, the Corporation shall be obligated on the Redemption Date to pay to the holder thereof (upon surrender by such holder at the Corporation's principal office of the certificate representing such Share) an amount in cash determined in accordance with paragraph 4A or paragraph 4B, as the case may be. Notwithstanding anything to the contrary contained herein, all redemptions pursuant to this Section 4 will be subject to applicable restrictions contained in the General Corporation Law of California and in the Corporation's and its Subsidiaries' debt and equity financing agreements. If, due to any of the aforementioned restrictions, the funds of the Corporation available for redemption of Shares on any Redemption Date are insufficient to redeem the total number of Shares to be redeemed on such date, those funds which are available free of such restrictions shall be used to redeem the maximum possible number of Shares pro rata among the holders of the Shares to be -14- redeemed based upon the aggregate Liquidation Value of such Shares held by each such holder (plus all accrued and unpaid dividends thereon). At any time thereafter when additional funds of the Corporation are available free of such restrictions for the redemption of Shares, such funds shall immediately be used to redeem the balance of the Shares which the Corporation has become obli gated to redeem on any Redemption Date but which it has not redeemed. Prior to any redemption of Class A Preferred, the Corporation shall declare for payment all accrued and unpaid dividends with respect to the Shares which are to be redeemed, but only to the extent of funds of the Corporation available free of such restrictions for the payment of dividends. 4D. Notice of Redemption. Except as otherwise provided herein, the -------------------- Corporation shall mail written notice of each redemption of any Class A Preferred (other than a redemption at the request of a holder or holders of Class A Preferred) to each record holder thereof not more than 60 nor less than 30 days prior to the date on which such redemption is to be made. In case fewer than the total number of Shares represented by any certificate are redeemed, a new certificate representing the number of unredeemed Shares shall be issued to the holder thereof without cost to such holder within five business days after surrender of the certificate representing the redeemed Shares. 4E. Determination of the Number of Each Holder's Shares to be --------------------------------------------------------- Redeemed. Except as otherwise provided herein, the number of Shares of Class A - -------- Preferred to be redeemed from each holder thereof in redemptions hereunder shall be the number of Shares determined by multiplying the total number of Shares to be redeemed times a fraction, the numerator of which shall be the total number of Shares then held by such holder and the denominator of which shall be the total number of Shares then outstanding. 4F. Dividends After Redemption Date. No Share shall be entitled to ------------------------------- any dividends accruing after the date on which the Liquidation Value of such Share (plus all accrued and unpaid dividends thereon) is paid to the holder of such Share. On such date, all rights of the holder of such Share shall cease, and such Share shall no longer be deemed to be issued and outstanding. Section 5. Voting Rights. ------------- The holders of the Class A Preferred shall be entitled to notice of all stockholders meetings in accordance with the Corporation's bylaws, and the holders of the Class A Preferred shall be entitled to vote on all matters submitted to the stockholders for a vote together with the holders of the Class A Common voting together as a single class, with each share of Class A Common entitled to one vote per share and each Share of Class A Preferred entitled to one vote for each share of Class A Common issuable upon conversion of the Class A Preferred as of the record date for such vote or, if no record date is specified, as of the date of such vote. -15- Section 6. Conversion. ---------- 6A. Conversion Procedure. -------------------- (i) At any time and from time to time, any holder of Class A Preferred may convert all or any portion of the Class A Preferred held by such holder into a number of shares of Conversion Stock computed by multiplying the number of Shares to be converted by $1,000.00 and dividing the result by the Conversion Price then in effect. (ii) Except as otherwise provided herein, each conversion of Class A Preferred shall be deemed to have been effected as of the close of business on the date on which the certificate or certificates representing the Class A Preferred to be converted have been surrendered for conversion at the principal office of the Corporation. At the time any such conversion has been effected, the rights of the holder of the Shares converted as a holder of Class A Preferred shall cease and the Person or Persons in whose name or names any certificate or certificates for shares of Conversion Stock are to be issued upon such conversion shall be deemed to have become the holder or holders of record of the shares of Conversion Stock represented thereby. (iii) The conversion rights of any Share subject to redemption hereunder shall terminate on the Redemption Date for such Share unless the Corporation has failed to pay to the holder thereof all amounts due to such holder in connection with any such redemption. (iv) Notwithstanding any other provision hereof, if a conversion of Class A Preferred is to be made in connection with an Initial Public Offering or other transaction affecting the Corporation, the conversion of any Shares of Class A Preferred may, at the election of the holder thereof, be conditioned upon the consummation of such transaction, in which case such conversion shall not be deemed to be effective until such transaction has been consummated. (v) As soon as possible after a conversion has been effected (but in any event within five business days in the case of subparagraph (a) below), the Corporation shall deliver to the converting holder: (a) a certificate or certificates representing the number of shares of Conversion Stock issuable by reason of such conversion in such name or names and such denomination or denominations as the converting holder has specified; (b) payment in an amount equal to all accrued dividends with respect to each Share converted which have not been paid prior thereto, plus the amount payable under subparagraph (x) below with respect to such conversion; and (c) a certificate representing any Shares of Class A Preferred which were represented by the certificate or certificates delivered to the Corporation in connection with such conversion but which were not converted. -16- (vi) The Corporation shall declare the payment of all dividends payable under subparagraph (v)(b) above. If the Corporation is not permitted under applicable law or any restriction contained in the Corporation's and its Subsidiaries' debt and equity financing agreements to pay any portion of the accrued and unpaid dividends on the Class A Preferred being converted, the Corporation shall pay such dividends to the converting holder as soon thereafter as funds of the Corporation are available free of any such restrictions or prohibition of applicable law for such payment. (vii) The issuance of certificates for shares of Conversion Stock upon conversion of Class A Preferred shall be made without charge to the holders of such Class A Preferred for any issuance tax in respect thereof or other cost incurred by the Corporation in connection with such conversion and the related issuance of shares of Conversion Stock. Upon conversion of each Share of Class A Preferred, the Corporation shall take all such actions as are necessary in order to insure that the Conversion Stock issuable with respect to such conversion shall be validly issued, fully paid and nonassessable, free and clear of all taxes, liens, charges and encumbrances with respect to the issuance thereof. (viii) The Corporation shall not close its books against the transfer of Class A Preferred or of Conversion Stock issued or issuable upon conversion of Class A Preferred in any manner which interferes with the timely conversion of Class A Preferred. (ix) The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Conversion Stock, solely for the purpose of issuance upon the conversion of the Class A Preferred, such number of shares of Conversion Stock issuable upon the conversion of all outstanding Class A Preferred. All shares of Conversion Stock which are so issuable shall, when issued, be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges. The Corporation shall not take any action which would cause the number of authorized but unissued shares of Conversion Stock to be less than the number of such shares required to be reserved hereunder for issuance upon conversion of the Class A Preferred. (x) If any fractional interest in a share of Conversion Stock would, except for the provisions of this subparagraph, be delivered upon any conversion of the Class A Preferred, the Corporation, in lieu of delivering the fractional share therefor, shall pay an amount to the holder thereof equal to the Market Price of such fractional interest as of the date of conversion. (xi) If the shares of Conversion Stock issuable by reason of conversion of Class A Preferred are convertible into or exchangeable for any other stock or securities of the Corporation, the Corporation shall, at the converting holder's option, upon surrender of the Shares to be converted by such holder as provided herein together with any notice, statement or payment required to effect such conversion or exchange of Conversion Stock, deliver to such holder or as otherwise specified by such holder a certificate or certificates representing the stock or securities into which the shares of Conversion Stock issuable by reason of such conversion are so convertible or -17- exchangeable, registered in such name or names and in such denomination or denominations as such holder has specified. 6B. Conversion Price. ---------------- (i) The initial Conversion Price shall be $1.50, which is 150% of the weighted average price per share of Class L Common and Class A Common paid by Bain and CVC in connection with the Recapitalization Agreement, of which 90% is attributable to the shares of Class L Common and 10% is attributable to the shares of Class A Common. Ninety percent (90%) of the initial and any subsequent Conversion Price shall be deemed attributable to the shares of Class L Common and ten percent (10%) of the initial and any subsequent Conversion Price shall be deemed attributable to the shares of Class A Common. In order to prevent dilution of the conversion rights granted under this Section 6, the Conversion Price shall be subject to adjustment from time to time pursuant to this paragraph 6B. (ii) If and whenever on or after the original date of issuance of the Class A Preferred the Corporation issues or sells, or in accordance with paragraph 6C is deemed to have issued or sold, any shares of its Common Stock for a consideration per share less than the portion of the Conversion Price attributable to such class of Common Stock (as set forth in Section 6B(i)) in effect immediately prior to the time of such issue or sale, then immediately upon such issue or sale or deemed issue or sale the Conversion Price shall be reduced to the Conversion Price determined (in accordance with Section 6B(i)) by dividing (a) the sum of (1) the product derived by multiplying the Conversion Price in effect immediately prior to such issue or sale by the number of shares of Common Stock Deemed Outstanding immediately prior to such issue or sale, plus (2) the consideration, if any, received by the Corporation upon such issue or sale, by (b) the number of shares of Common Stock Deemed Outstanding immediately after such issue or sale. (iii) Notwithstanding the foregoing, there shall be no adjustment in the Conversion Price as a result of any issue or sale (or deemed issue or sale) of any shares of Common Stock to (A) employees, officers or directors of the Corporation and its Subsidiaries pursuant to stock option plans, stock ownership plans or agreements or other incentive stock arrangements approved by the Board or (B) unaffiliated third party financing sources, so long as such issuances or sales (or deemed issuances or sales) to unaffiliated third party financing sources for a consideration per share less than the portion of the Conversion Price attributable to such class of Common Stock (as set forth in Section 6B(i)) does not exceed 10% of the Corporation's Common Stock. 6C. Effect on Conversion Price of Certain Events. For purposes of -------------------------------------------- determining the adjusted Conversion Price under paragraph 6B, the following shall be applicable: (i) Issuance of Rights or Options. If the Corporation in any ----------------------------- manner grants or sells any Options and the price per share for which Common Stock is issuable upon the exercise of such Options, or upon conversion or exchange of any Convertible Securities issuable upon -18- exercise of such Options, is less than the portion of the Conversion Price attributable to such class of Common Stock (as set forth in Section 6B(i)) in effect immediately prior to the time of the granting or sale of such Options, then the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon conversion or exchange of the total maximum amount of such Convertible Securities issuable upon the exercise of such Options shall be deemed to be outstanding and to have been issued and sold by the Corporation at the time of the granting or sale of such Options for such price per share. For purposes of this paragraph, the "price per share for which Common Stock is issuable" shall be determined by dividing (A) the total amount, if any, received or receivable by the Corporation as consideration for the granting or sale of such Options, plus the minimum aggregate amount of additional consideration payable to the Corporation upon exercise of all such Options, plus in the case of such Options which relate to Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the issuance or sale of such Convertible Securities and the conversion or exchange thereof, by (B) the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon the conversion or exchange of all such Convertible Securities issuable upon the exercise of such Options. No further adjustment of the Conversion Price shall be made when Convertible Securities are actually issued upon the exercise of such Options or when Common Stock is actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities. (ii) Issuance of Convertible Securities. If the Corporation in ---------------------------------- any manner issues or sells any Convertible Securities and the price per share for which Common Stock is issuable upon conversion or exchange thereof is less than the portion of the Conversion Price attributable to such class of Common Stock (as set forth in Section 6B(i)) in effect immediately prior to the time of such issue or sale, then the maximum number of shares of Common Stock issuable upon conversion or exchange of such Convertible Securities shall be deemed to be outstanding and to have been issued and sold by the Corporation at the time of the issuance or sale of such Convertible Securities for such price per share. For the purposes of this paragraph, the "price per share for which Common Stock is issuable" shall be determined by dividing (A) the total amount received or receivable by the Corporation as consideration for the issue or sale of such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the conversion or exchange thereof, by (B) the total maximum number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities. No further adjustment of the Conversion Price shall be made when Common Stock is actually issued upon the conversion or exchange of such Convertible Securities, and if any such issue or sale of such Convertible Securities is made upon exercise of any Options for which adjustments of the Conversion Price had been or are to be made pursuant to other provisions of this Section 6, no further adjustment of the Conversion Price shall be made by reason of such issue or sale. (iii) Change in Option Price or Conversion Rate. If the ----------------------------------------- purchase price provided for in any Options, the additional consideration, if any, payable upon the conversion or exchange of any Convertible Securities or the rate at which any Convertible Securities are convertible into or exchangeable for Common Stock changes at any time, the Conversion Price in -19- effect at the time of such change shall be immediately adjusted to the Conversion Price which would have been in effect at such time had such Options or Convertible Securities still outstanding provided for such changed purchase price, additional consideration or conversion rate, as the case may be, at the time initially granted, issued or sold. For purposes of paragraph 6C, if the terms of any Option or Convertible Security which was outstanding as of the date of issuance of the Class A Preferred are changed in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such change. (iv) Treatment of Expired Options and Unexercised Convertible -------------------------------------------------------- Securities. Upon the expiration of any Option or the termination of any right to - ---------- convert or exchange any Convertible Security without the exercise of any such Option or right, the Conversion Price then in effect hereunder shall be adjusted immediately to the Conversion Price which would have been in effect at the time of such expiration or termination had such Option or Convertible Security, to the extent outstanding immediately prior to such expiration or termination, never been issued. For purposes of paragraph 6C, the expiration or termination of any Option or Convertible Security which was outstanding as of the date of issuance of the Class A Preferred shall not cause the conversion Price hereunder to be adjusted unless, and only to the extent that, a change in the terms of such Option or Convertible Security caused it to be deemed to have been issued after the date of issuance of the Class A Preferred. (v) Calculation of Consideration Received. If any Common ------------------------------------- Stock, Option or Convertible Security is issued or sold or deemed to have been issued or sold for cash, the consideration received therefor shall be deemed to be the amount received by the Corporation therefor (net of discounts, commissions and related expenses). If any Common Stock, Option or Convertible Security is issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Corporation shall be the fair value of such consideration, except where such consideration consists of securities, in which case the amount of consideration received by the Corporation shall be the Market Price thereof as of the date of receipt. If any Common Stock, Option or Convertible Security is issued to the owners of the non- surviving entity in connection with any merger in which the Corporation is the surviving corporation, the amount of consideration therefor shall be deemed to be the fair value of such portion of the net assets and business of the non- surviving entity as is attributable to such Common Stock, Option or Convertible Security, as the case may be. The fair value of any consideration other than cash and securities shall be determined by the Board in its reasonable good faith judgment. (vi) Integrated Transactions. In case any Option is issued in ----------------------- connection with the issue or sale of other securities of the Corporation, together comprising one integrated transaction in which no specific consideration is allocated to such Option by the parties thereto, the Option shall be deemed to have been issued for a consideration of $.01. (vii) Treasury Shares. The number of shares of Common Stock --------------- outstanding at any given time shall not include shares owned or held by or for the account of the Corporation or -20- any Subsidiary, and the disposition of any shares so owned or held shall be considered an issue or sale of Common Stock. (viii) Record Date. If the Corporation takes a record of the ----------- holders of Common Stock for the purpose of entitling them (a) to receive a dividend or other distribution payable in Common Stock, Options or in Convertible Securities or (b) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or upon the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. 6D. Subdivision or Combination of Common Stock. If the Corporation ------------------------------------------ at any time subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision shall be proportionately reduced (in accordance with Section 6B(i)), and if the Corporation at any time combines (by reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior to such combination shall be proportionately increased (in accordance with Section 6B(i)). 6E. Notices. Immediately upon any adjustment of the Conversion ------- Price, the Corporation shall give written notice thereof to all holders of Class A Preferred, setting forth in reasonable detail and certifying the calculation of such adjustment. 6F. Mandatory Conversion. Upon the consummation of a Qualifying -------------------- IPO, all of the then outstanding Shares of Class A Preferred shall be automatically converted into Conversion Stock at the then effective Conversion Price. Any such automatic conversion shall only be effected at the time of and subject to the closing of such Qualifying IPO and upon written notice of such automatic conversion delivered to all holders of Class A Preferred at least seven days prior to such closing. Section 7. Protective Provisions. --------------------- As long as any Shares of Class A Preferred are outstanding, the Corporation shall not without first obtaining the written consent of the holders of at least 662/3% of the then outstanding Shares of Class A Preferred: (a) amend or change the rights, preferences, privileges or powers of, or the restrictions provided for the benefit of, the Class A Preferred; (b) authorize, create or issue any new shares of any class of capital stock or any security convertible into or exercisable for any such class of capital stock having a preference superior to the Class A Preferred with respect to dividends or liquidation rights or liquidation -21- preferences, other than the issuance of any shares of the Corporation's Class B Preferred Stock, par value $.01 per share; or (c) reclassify any outstanding shares of capital stock into any class of capital stock or any security convertible into or exercisable for any such class of capital stock having a preference superior to the Class A Preferred with respect to dividends or liquidation rights or liquidation preferences. Section 8. Registration of Transfer. ------------------------ The Corporation shall keep at its principal office a register for the registration of Class A Preferred. Upon the surrender of any certificate representing Class A Preferred at such place, the Corporation shall, at the request of the record holder of such certificate, execute and deliver (at the Corporation's expense) a new certificate or certificates in exchange therefor representing in the aggregate the number of Shares represented by the surrendered certificate. Each such new certificate shall be registered in such name and shall represent such number of Shares as is requested by the holder of the surrendered certificate and shall be substantially identical in form to the surrendered certificate, and dividends shall accrue on the Class A Preferred represented by such new certificate from the date to which dividends have been fully paid on such Class A Preferred represented by the surrendered certificate. Section 9. Replacement. ----------- Upon receipt of evidence reasonably satisfactory to the Corporation (an affidavit of the registered holder shall be satisfactory) of the ownership and the loss, theft, destruction or mutilation of any certificate evidencing Shares of Class A Preferred, and in the case of any such loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to the Corporation, or, in the case of any such mutilation upon surrender of such certificate, the Corporation shall (at its expense) execute and deliver in lieu of such certificate a new certificate of like kind representing the number of Shares of such class represented by such lost, stolen, destroyed or mutilated certificate and dated the date of such lost, stolen, destroyed or mutilated certificate, and dividends shall accrue on the Class A Preferred represented by such new certificate from the date to which dividends have been fully paid on such lost, stolen, destroyed or mutilated certificate. Section 10. Definitions. ----------- "Bain" means Bain Capital, Inc. and its affiliates. ---- "Class A Common" means the Corporation's Class A Common Stock, par -------------- value $.01 per share and the Corporation's Class B Common Stock, par value $.01 per share. "Class L Common" means the Corporation's Class L Common Stock, par -------------- value $.01 per share. -22- "Common Stock" means, collectively, the Corporation's Class A Common, ------------ Class L Common and any capital stock of any class of the Corporation hereafter authorized which is not limited to a fixed sum or percentage of par or stated value in respect to the rights of the holders thereof to participate in dividends or in the distribution of assets upon any liquidation, dissolution or winding up of the Corporation. "Common Stock Deemed Outstanding" means, at any given time, the number ------------------------------- of shares of Common Stock actually outstanding at such time, plus the number of shares of Common Stock issuable upon the exercise or conversion of any Options or Convertible Securities, including, without limitation, the Class A Preferred (whether or not, in the case of any Options or Convertible Securities, any such Options or Convertible Securities are actually exercisable at such time). "Conversion Stock" means the total number of shares of the ---------------- Corporation's Common Stock issuable upon conversion of the Class A Preferred, such issuance to be effected in strips, such that for each share of Class L Common to be issued upon any conversion, nine (9) shares of Class A Common shall be issued; provided that if there is a change such that such securities issuable upon conversion of the Class A Preferred are issued by an entity other than the Corporation or there is a change in the type or class of securities so issuable, then the term "Conversion Stock" shall mean a number of shares of the securities to which the aforementioned shares of Common Stock are convertible. "Convertible Securities" means any stock or securities directly or ---------------------- indirectly convertible into or exchangeable for Common Stock. "CVC" means Citicorp Venture Capital, Ltd. and its affiliates. --- "Initial Public Offering" means a public offering and sale of the ----------------------- Common Stock pursuant to an effective registration statement under the Securities Act of 1933, if immediately thereafter the Corporation has publicly held Common Stock listed on a national securities exchange or the NASD automated quotation system. "Junior Securities" means any capital stock or other equity securities ----------------- of the Corporation, except for the Class A Preferred and the Corporation's Class B Preferred Stock, par value $.01 per share (together, in each case, with all accumulated dividends thereon). "Liquidation Value" of any Share as of any particular date shall be ----------------- equal to $1,000.00 (as proportionately adjusted for all stock splits, stock dividends and other recapitalizations affecting such Share). "Market Price" of any security means the average of the closing prices ------------ of such security's sales on all securities exchanges on which such security may at the time be listed, or, if there has been no sales on any such exchange on any day, the average of the highest bid and lowest asked prices on all such exchanges at the end of such day, or, if on any day such security is not so -23- listed, the average of the representative bid and asked prices quoted in the NASDAQ System as of 4:00 P.M., New York time, or, if on any day such security is not quoted in the NASDAQ System, the average of the highest bid and lowest asked prices on such day in the domestic over-the-counter market as reported by the National Quotation Bureau, Incorporated, or any similar successor organization, in each such case averaged over a period of 21 days consisting of the day as of which "Market Price" is being determined and the 20 consecutive business days prior to such day. If at any time such security is not listed on any securities exchange or quoted in the NASDAQ System or the over-the-counter market, the "Market Price" shall be the fair value thereof determined by the Board and the holders of not less than a majority of the Class A Preferred, each in the exercise of their good faith judgment; provided that if the Board and such holders cannot agree on such value, such value shall be determined by an independent valuation firm experienced in valuing businesses such as the Corporation and jointly selected by the Board and such holders. The fees and expenses of the valuation firm shall be borne by the Corporation and the holders of the Class A Preferred. "Options" means any rights, warrants or options to subscribe for or ------- purchase Common Stock or Convertible Securities. "Person" means an individual, a partnership, a corporation, a limited ------ liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof. "Qualifying IPO" means an Initial Public Offering in which the gross -------------- proceeds to the Corporation exceed $50 million. "Recapitalization Agreement" means that certain Agreement and Plan of -------------------------- Recapitalization and Merger, dated as of March 13, 1999, as amended, by and among Hyundai Electronics Industries Co., Ltd., Hyundai Electronics America, the Corporation and ChipPAC Merger Corp. "Redemption Date" as to any Share means the date specified in the --------------- notice of any redemption at the Corporation's option or the applicable date specified herein in the case of any other redemption; provided that no such date shall be a Redemption Date unless the redemption payment required to be made pursuant to Section 4 of this Part D is actually paid in full on such date, and if not so paid in full, the Redemption Date shall be the date on which such amount is fully paid. "Subsidiary" means any corporation of which the shares of outstanding ---------- capital stock possessing the voting power (under ordinary circumstances) in electing the board of directors are, at the time as of which any determination is being made, owned by the Corporation either directly or indirectly through Subsidiaries. -24- Section 11. Amendment and Waiver. -------------------- No amendment, modification or waiver shall be binding or effective with respect to any provision of this Part D to Article III hereof without the prior written consent of the holders of at least 662/3% of the Class A Preferred outstanding at the time such action is taken. Section 12. Notices. ------- Except as otherwise expressly provided hereunder, all notices referred to herein shall be in writing and shall be delivered by registered or certified mail, return receipt requested and postage prepaid, or by reputable overnight courier service, charges prepaid, and shall be deemed to have been given when so mailed or sent (i) to the Corporation, at its principal executive offices and (ii) to any stockholder, at such holder's address as it appears in the stock records of the Corporation (unless otherwise indicated by any such holder). IV DIRECTORS' LIABILITY AND INDEMNIFICATION OF AGENTS -------------------------------------------------- 1. The liability of the directors of the Corporation for monetary damage shall be eliminated to the fullest extent permitted by California law. 2. The Corporation is authorized to provide indemnification of agents (as defined in Section 317 of the California Corporations Code) through bylaw provisions, agreements with agents, vote of shareholders or disinterested directors, or otherwise, in excess of that otherwise permitted by Section 317 of the California Corporations Code, subject only to the limits set forth in Section 204 of the California Corporations Code with respect to actions for breach of duty to the Corporation or it shareholders. 3. Any amendment, repeal or modification of the foregoing provisions of this Article IV by the shareholders of the Corporation shall not adversely affect any right or protection of an agent or director of this Corporation existing at the time of such amendment, repeal or modification. * * * * * -25- THREE: The foregoing Amended and Restated Articles of Incorporation have been duly approved by the Board of Directors. FOURTH: The foregoing Amended and Restated Articles of Incorporation have been duly approved by the required vote of the shareholders of this Corporation in accordance with Sections 603 and 903 of the California General Corporation Law. The total number of outstanding shares of this Corporation entitled to vote with respect to the foregoing Amended and Restated Articles was 90,000,000 shares of Class A Common Stock, par value $.01 per share, 10,00,000 shares of Class L Common Stock, par value $.01 per share and 70,000 shares of Class B Preferred Stock, par value $.01 per share. The number of shares voting in favor of the amendment equaled or exceeded the vote required, such required vote being a majority of the total number of outstanding shares of Class A Common Stock, par value $.01 per share, Class L Common Stock, par value $.01 per share and Class B Preferred Stock, par value $.01 per share. The undersigned certifies under penalty of perjury that he has read the foregoing Amended and Restated Articles of Incorporation and knows the contents thereof, and that the statements therein are true. /s/ Tony Lin Executed at Santa Clara, ____________________________________ California, on August 5, 1999. Tony Lin, Vice President /s/ Tony Lin ____________________________________ Tony Lin, Secretary -26- EX-3.2 6 AMENDED & RESTATED BY-LAWS EXHIBIT 3.2 AMENDED AND RESTATED BY-LAWS OF CHIPPAC, INC. A California corporation (Adopted as of August 5, 1999) ARTICLE I --------- OFFICES ------- Section 1. Principal Office. The board of directors shall fix the --------- ---------------- location of the principal office of the corporation. Section 2. Other Offices. The corporation may also have offices at such --------- ------------- other places, both within and without the State of California, as the board of directors may from time to time determine or the business of the corporation may require. ARTICLE II ---------- MEETINGS OF SHAREHOLDERS ------------------------ Section 1. Place of Meetings. Meeting of the shareholders shall be held --------- ----------------- at any place within or outside the State of California designated by the board of directors. In the absence of any such designation, shareholders meetings shall be held at the corporation's principal executive office. Section 2. Annual Meeting. The annual meeting of shareholders shall be --------- -------------- held on the second Friday of the month of May of each year, or at any other time designated by the board of directors provided that the annual meeting in any year shall be held not longer than 15 months after the preceding annual meeting. At each annual meeting, directors shall be elected and any other proper business may be transacted which it is within the power of the shareholders to conduct. Section 3. Special Meetings. Special meetings of shareholders may be --------- ---------------- called for any purpose and may be held at such time and place, within or without the State of California, as shall be stated in a notice of meeting or in a duly executed waiver of notice thereof. Such meetings may be called at any time by the board of directors or the chief executive officer and shall be called by the chief executive officer upon the written request of holders of shares entitled to cast not less than twenty five percent (25%) of the votes at the meeting. Such written request shall state the purpose or purposes of the meeting and shall be delivered to the chief executive officer. Upon receipt of such written request, the chief executive officer shall fix a date and time for such meeting within two days of the date requested for such meeting in such written request. Section 4. Notice. Whenever shareholders are required or permitted to --------- ------ take action at a meeting, written or printed notice stating the place, date, time, and, in the case of special meetings, the purpose or purposes, of such meeting, shall be given to each shareholder entitled to vote at such meeting not less than ten (10) nor more than sixty (60) days before the date of the meeting. All such notices shall be delivered, either personally or by mail, by or at the direction of the board of directors, the chief executive officer or the secretary, and if mailed, such notice shall be deemed to be delivered when deposited in the United States mail, postage prepaid, addressed to the shareholder at his, her or its address as the same appears on the records of the corporation. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Section 5. Shareholders List. The officer having charge of the stock --------- ----------------- ledger of the corporation shall make, at least ten (10) days before every meeting of the shareholders, a complete list of the shareholders entitled to vote at such meeting arranged in alphabetical order, showing the address of each shareholder and the number of shares registered in the name of each shareholder. Such list shall be open to the examination of any shareholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days nor more than sixty (60) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any shareholder who is present. Section 6. Quorum. The holders of a majority of the outstanding shares of --------- ------ capital stock entitled to vote, present in person or represented by proxy, shall constitute a quorum at all meetings of the shareholders, except as otherwise provided by statute or by the articles of incorporation. If a quorum is not present, the holders of a majority of the shares present in person or represented by proxy at the meeting, and entitled to vote at the meeting, may adjourn the meeting to another time and/or place. Section 7. Adjourned Meetings. When a meeting is adjourned to another --------- ------------------ time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business which might have been -2- transacted at the original meeting. If the adjournment is for more than forty- five (45) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the meeting. Section 8. Vote Required. When a quorum is present, the affirmative vote --------- ------------- of the majority of shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the shareholders, unless the question is one upon which by express provisions of an applicable law, the Shareholders Agreement, dated as of August 5, 1999, by and among the corporation and certain of its shareholders (the "Shareholders ------------ Agreement"), or the articles of incorporation a different vote is required, in - --------- which case such express provision shall govern and control the decision of such question. Section 9. Voting Rights. Except as otherwise provided by the --------- ------------- Corporations Code of the State of California or by the articles of incorporation of the corporation or any amendments thereto and subject to Section 3 of Article VI hereof, every shareholder shall at every meeting of the shareholders be entitled to one (1) vote in person or by proxy for each share of common stock held by such shareholder. Section 10. Proxies. Each shareholder entitled to vote at a meeting of ---------- ------- shareholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him or her by proxy, but no such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the corporation generally. Any proxy is suspended when the person executing the proxy is present at a meeting of shareholders and elects to vote, except that when such proxy is coupled with an interest and the fact of the interest appears on the face of the proxy, the agent named in the proxy shall have all voting and other rights referred to in the proxy, notwithstanding the presence of the person executing the proxy. At each meeting of the shareholders, and before any voting commences, all proxies filed at or before the meeting shall be submitted to and examined by the secretary or a person designated by the secretary, and no shares may be represented or voted under a proxy that has been found to be invalid or irregular. Section 11. Action by Written Consent. Unless otherwise provided in the ---------- ------------------------- articles of incorporation, any action required to be taken at any annual or special meeting of shareholders of the corporation, or any action which may be taken at any annual or special meeting of such shareholders, may be taken without a meeting, without prior -3- notice and without a vote, if a consent or consents in writing, setting forth the action so taken and bearing the dates of the signature of the shareholders who signed the consent or consents, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the corporation by delivery to its principal executive office, or an officer or agent of the corporation having custody of the book or books in which proceedings of meetings of the shareholders are recorded. All consents properly delivered in accordance with this section shall be deemed to be recorded when so delivered. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those shareholders who have not consented in writing. Any action taken pursuant to such written consent or consents of the shareholders shall have the same force and effect as if taken by the shareholders at a meeting thereof. If the consents of all shareholders entitled to vote have not been solicited in writing or if the unanimous written consents of all such shareholders have not been received, the secretary shall give prompt notice of the corporate action approved by the shareholders without a meeting. Such notice shall be given in the manner specified in Section 4 of this Article II. ARTICLE III ----------- DIRECTORS --------- Section 1. General Powers. The business and affairs of the corporation --------- -------------- shall be managed by or under the direction of the board of directors. Section 2. Number, Election and Term of Office. The number of directors --------- ----------------------------------- which shall constitute the board shall be established from time to time in accordance with the provisions of the Shareholders Agreement. Except as otherwise provided in the corporation's articles of incorporation, the directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote in the election of directors. The directors shall be elected in this manner at the annual meeting of the shareholders, except as provided in Section 4 of this Article III or in the Shareholders Agreement. Each director elected shall hold office until a successor is duly elected and qualified or until his or her earlier death, resignation or removal as hereinafter provided. Section 3. Removal and Resignation. Any director or the entire board of --------- ----------------------- directors shall be removed in accordance with the provisions of the Shareholders -4- Agreement. Any director may resign at any time upon written notice to the corporation. Section 4. Vacancies. Vacancies and newly created directorships resulting --------- --------- from any increase in the authorized number of directors shall be filled in accordance with the provisions of the Shareholders Agreement. Each director so chosen shall hold office until a successor is duly elected and qualified or until his or her earlier death, resignation or removal as herein provided. Section 5. Annual Meetings. The annual meeting of each newly elected --------- --------------- board of directors shall be held without other notice than this by-law immediately after, and at the same place as, the annual meeting of shareholders. Section 6. Other Meetings and Notice. Regular meetings, other than the --------- ------------------------- annual meeting, of the board of directors may be held without notice at such time and at such place as shall from time to time be determined by resolution of the board. Special meetings of the board of directors may be called by or at the request of the chief executive officer or two directors on at least twenty- four (24) hours notice to each director, either personally, by telephone, by mail, by telegraph or by facsimile. A notice, or waiver of notice, need not specify the purpose of any regular or special meeting of the board. Section 7. Quorum. A majority of the total number of directors shall --------- ------ constitute a quorum for the transaction of business, except to adjourn as provided in Section 9 of this Article III. Every act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present shall be regarded as the act of the board of directors. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors if any action taken is approved by at least a majority of the required quorum for that meeting. Notwithstanding the foregoing, no action shall be taken without the affirmative vote of a majority of the Bain Directors and a majority of the SXI Directors (as each such term is defined in the Shareholders Agreement) with respect to: (A) any merger of the corporation into any other corporation or merger of any other corporation into the corporation, or any consolidation of the corporation with any other corporation (other than the merger of a wholly-owned subsidiary into the corporation), the liquidation or dissolution of the corporation, or the sale, assignment, lease, transfer or other disposition of all or substantially all of the assets of the corporation as, or substantially as, an entirety to any other corporation or other entity or person; (B) the amendment or repeal of any provision of, or the addition -5- of any provision to the corporation's Articles of Incorporation or the corporation's Bylaws; (C) the expenditure by the corporation of an amount of funds in excess of $5,000,000 for a purpose which is not within the then current strategic and operating plan referred to in clause (H) hereof; (D) any declaration or payment of any dividend on, or other distribution in respect of, the corporation's capital stock, or any payment in cash of interest on indebtedness that by its terms may be paid in kind or accrued; (E) any issuance, redemption, repurchase or other transaction involving the capital stock of the corporation (other than in connection with the exercise of stock options granted pursuant to any plan or arrangement approved under clause (N) hereof, or the issuance of no more than $3,000,000 in shares of the corporation's common stock (determined for this purpose by the price allocated to shares of common stock acquired pursuant to the Recapitalization Agreement (as such term is defined in the Shareholders Agreement)) issued to members of the corporation's management within 120 days after the date hereof); (F) any borrowings (or guarantees thereof) in excess of $5,000,000 from any bank or other person or entity, other than drawings on borrowings or lines of credit existing as of the date hereof (or any extensions, renewals or refinancings thereof) or as previously approved as provided herein; (G) any loans to any persons or entities by the corporation, other than advances to employees of the corporation or its subsidiaries for ordinary and necessary business expenses consistent with past practice or to purchase the corporation's common stock described in the parenthetical in clause (E) above; (H) the annual strategic and operating plan of the corporation, which shall be prepared by the officers of the corporation and shall include a summary of expected capital expenditures and expenditures in respect of acquisitions, and any material departures from such plan; (I) any sale or encumbrance of assets in excess of $5,000,000; -6- (J) any business acquisition by the corporation, by purchase of assets, capital stock, merger or otherwise, for purchase consideration exceeding $5,000,000; (K) the selection of commercial or investment bankers for the corporation; (L) the selection of the public accountants for the corporation; (M) the selection of the Chief Executive Officer of the corporation; (N) the approval of compensation payable to the corporate officers of the corporation, including executive bonus and incentive plans and arrangements of such officers; or (O) the approval of any action by a subsidiary of the corporation in respect of any matter of the nature set forth in this Section 7 with respect to such subsidiary. Section 8. Waiver of Notice. The transactions of any meeting of the board --------- ---------------- of directors, however called and noticed or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice if a quorum is present and if, either before or after the meeting, each of the directors not present signs a written waiver of notice, a consent to holding the meeting or an approval of the minutes. The waiver of notice or consent need not specify the purpose of the meeting. All such waivers, consents, and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Notice of a meeting shall also be deemed given to any director who attends the meeting without protesting, before or at its commencement, the lack of notice to that director. Section 9. Adjournment. A majority of the directors present, whether or --------- ----------- not constituting a quorum, may adjourn any meeting to another time and place. Section 10. Notice of Adjournment. Notice of the time and place of ---------- --------------------- holding an adjourned meeting need not be given, unless the meeting is adjourned for more than twenty-four hours, in which case notice of the time and place shall be given before the time of the adjourned meeting, in the manner specified in Section 6 of this Article III, to the directors who were not present at the time of adjournment. Section 11. Action without Meeting. Any action required or permitted to ---------- ---------------------- be taken at any meeting of the board of directors, or of any committee thereof, may be taken without a meeting if all members of the board or committee, as the case may be, -7- consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the board or committee. Section 12. Committees. The board of directors may, by resolution passed ---------- ---------- by a majority of the whole board, designate one or more committees, each committee to consist of one or more of the directors of the corporation, which to the extent provided in such resolution or these by-laws shall have and may exercise the powers of the board of directors in the management and affairs of the corporation except as otherwise limited by law. The board of directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the board of directors. Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required. Section 13. Committee Rules. Each committee of the board of directors may ---------- --------------- fix its own rules of procedure and shall hold its meetings as provided by such rules, except as may otherwise be provided by a resolution of the board of directors designating such committee. Unless otherwise provided in such a resolution, the presence of at least a majority of the members of the committee shall be necessary to constitute a quorum. In the event that a member and that member's alternate, if alternates are designated by the board of directors as provided in Section 12 of this Article III, of such committee is or are absent or disqualified, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in place of any such absent or disqualified member. Section 14. Communications Equipment. Members of the board of directors ---------- ------------------------ or any committee thereof may participate in and act at any meeting of such board or committee through the use of a conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in the meeting pursuant to this section shall constitute presence in person at the meeting. Section 15. Waiver of Notice and Presumption of Assent. Any member of the ---------- ------------------------------------------ board of directors or any committee thereof who is present at a meeting shall be conclusively presumed to have waived notice of such meeting except when such member attends for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Such member shall be conclusively presumed to have assented to any action taken unless his or her dissent shall be entered in the minutes of the meeting or unless his or her written dissent to such action shall be filed with the person acting as the secretary -8- of the meeting before the adjournment thereof or shall be forwarded by registered mail to the secretary of the corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to any member who voted in favor of such action. ARTICLE IV ---------- OFFICERS -------- Section 1. Number. The officers of the corporation shall be elected by --------- ------ the board of directors and shall consist of a chairman of the board, chief executive officer, president, chief financial officer, one or more vice- presidents, secretary, a treasurer, and such other officers and assistant officers as may be deemed necessary or desirable by the board of directors. Any number of offices may be held by the same person. In its discretion, the board of directors may choose not to fill any office for any period as it may deem advisable, except that the offices of chief executive officer and secretary shall be filled as expeditiously as possible. Section 2. Election and Term of Office. The officers of the corporation --------- --------------------------- shall be elected annually by the board of directors at its first meeting held after each annual meeting of shareholders or as soon thereafter as conveniently may be. The chief executive officer shall be elected annually by the board of directors at the first meeting of the board of directors held after each annual meeting of shareholders or as soon thereafter as conveniently may be. The chief executive officer shall appoint other officers to serve for such terms as he or she deems desirable. Vacancies may be filled or new offices created and filled at any meeting of the board of directors. Each officer shall hold office until a successor is duly elected and qualified or until his or her earlier death, resignation or removal as hereinafter provided. Section 3. Removal. Any officer or agent elected by the board of --------- ------- directors may be removed by the board of directors whenever in its judgment the best interests of the corporation would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Section 4. Vacancies. Any vacancy occurring in any office because of --------- --------- death, resignation, removal, disqualification or otherwise, may be filled by the board of directors for the unexpired portion of the term by the board of directors then in office. Section 5. Compensation. Compensation of all officers shall be fixed by --------- ------------ the board of directors, and no officer shall be prevented from receiving such compensation by virtue of his or her also being a director of the corporation. -9- Section 6. Chairman of the Board. The chairman of the board, if such an --------- --------------------- officer is elected, shall, if present, preside at meetings of the board of directors and exercise and perform such other powers and duties as may be from time to time assigned to him or her by the board of directors or prescribed by the by-laws. If there is no chief executive officer, the chairman of the board shall in addition be the chief executive officer of the corporation and shall have the powers and duties prescribed in Section 7 of this Article IV. Section 7. The Chief Executive Officer. The chief executive officer shall --------- --------------------------- be the chief executive officer of the corporation and shall have the powers and perform the duties incident to that position. Subject to the powers and direction of the board of directors, the chief executive officer shall have general charge of the business, affairs and property of the corporation, shall have control over the corporation's officers, agents and employees and shall be its chief policy making officer. Except as set forth in Section 6 of this Article IV, the chief executive officer shall preside at all meetings of the shareholders and board of directors at which he is present and shall have such other powers and perform such other duties as may be prescribed by the board of directors or as may be provided in these by-laws. Section 8. The President. The president shall, subject to the powers and ---------- ------------- direction of the Board and the chief executive officer, be in the general and active charge of all day-to-day activities and affairs of the corporation and shall be responsible for implementing the policies of the board of directors and the chief executive officer. The president shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the board of directors or the chief executive officer to some other officer or agent of the corporation. The president shall have such other powers and perform such other duties as may be prescribed by the board of directors, chairman of the board, the chief executive officer or as may be provided in these by-laws. The president shall, in the absence or disability of the chief executive officer, act with all of the powers and be subject to all of the restrictions of the chief executive officer. Section 9. Chief Financial Officer. The chief financial officer shall --------- ----------------------- keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings, and shares. The chief financial officer shall deposit all moneys and other valuables in the name and to the credit of the corporation with such depositories as may be designated -10- by the board of directors. The chief financial officer shall disburse the funds of the corporation as may be ordered by the board of directors, shall render to the chief executive officer and directors, whenever they request it, an account of all his transactions as chief financial officer and of the financial condition of the corporation, and shall have other powers and perform such other duties as may be prescribed by the board of directors, the chief executive officer or the by-laws. Unless the board of directors has elected a separate treasurer, the chief financial officer shall be deemed to be the treasurer for purposes of giving any reports or executing any certificates or other documents. Section 10. Vice-presidents. The vice-president, or if there shall be ---------- --------------- more than one, the vice-presidents in the order determined by the board of directors or by the chief executive officer, shall, in the absence or disability of the president, act with all of the powers and be subject to all the restrictions of the president. The vice-presidents shall also perform such other duties and have such other powers as the board of directors, chief executive officer, the president or these by-laws may, from time to time, prescribe. Section 11. The Secretary and Assistant Secretaries. The secretary shall ---------- --------------------------------------- attend all meetings of the board of directors, all meetings of the committees thereof and all meetings of the shareholders and record all the proceedings of the meetings in a book or books to be kept for that purpose. Under the president's supervision, the secretary shall give, or cause to be given, all notices required to be given by these by-laws or by law; shall have such powers and perform such duties as the board of directors, the chief executive officer, the president or these by-laws may, from time to time, prescribe; and shall have custody of the corporate seal of the corporation. The secretary, or an assistant secretary, shall have authority to affix the corporate seal to any instrument requiring it and when so affixed, it may be attested by his signature or by the signature of such assistant secretary. The board of directors may give general authority to any other officer to affix the seal of the corporation and to attest the affixing by his signature. The assistant secretary, or if there be more than one, the assistant secretaries in the order determined by the board of directors, shall, in the absence or disability of the secretary, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the board of directors, the chief executive officer, the president, or secretary may, from time to time, prescribe. Section 12. The Treasurer and Assistant Treasurer. The treasurer shall ---------- ------------------------------------- have the custody of the corporate funds and securities; shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation; shall deposit all monies and other valuable effects in the name and to the credit of the corporation as may be ordered by the board of directors; shall cause the funds of the corporation to be -11- disbursed when such disbursements have been duly authorized, taking proper vouchers for such disbursements; and shall render to the chief executive officer and the board of directors, at its regular meeting or when the board of directors so requires, an account of the corporation; shall have such powers and perform such duties as the board of directors, the chief executive officer or these by-laws may, from time to time, prescribe. If required by the board of directors, the treasurer shall give the corporation a bond (which shall be rendered every six (6) years) in such sums and with such surety or sureties as shall be satisfactory to the board of directors for the faithful performance of the duties of the office of treasurer and for the restoration to the corporation, in case of death, resignation, retirement, or removal from office, of all books, papers, vouchers, money, and other property of whatever kind in the possession or under the control of the treasurer belonging to the corporation. The assistant treasurer, or if there shall be more than one, the assistant treasurers in the order determined by the board of directors, shall in the absence or disability of the treasurer, perform the duties and exercise the powers of the treasurer. The assistant treasurers shall perform such other duties and have such other powers as the board of directors, the chief executive officer, the president or treasurer may, from time to time, prescribe. Section 13. Other Officers, Assistant Officers and Agents. Officers, ---------- --------------------------------------------- assistant officers and agents, if any, other than those whose duties are provided for in these by-laws, shall have such authority and perform such duties as may from time to time be prescribed by resolution of the board of directors. Section 14. Absence or Disability of Officers. In the case of the absence ---------- --------------------------------- or disability of any officer of the corporation and of any person hereby authorized to act in such officer's place during such officer's absence or disability, the board of directors may by resolution delegate the powers and duties of such officer to any other officer or to any director, or to any other person whom it may select. ARTICLE V --------- INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS ------------------------------------------------- Section 1. Agents, Proceedings, and Expenses. For the purposes of this --------- --------------------------------- Article, "agent" means any person who is or was a director, officer, employee or other agent of this corporation, or is or was serving at the request of this corporation as a director, officer, employee, or agent of another foreign or domestic corporation, limited liability company, partnership, joint venture, trust or other enterprise, or was a director, officer, employee or agent of a foreign or domestic corporation which was a predecessor corporation of this corporation or of another enterprise at the request of such predecessor corporation; "proceeding" means any threatened, pending or completed -12- action or proceeding, whether civil, criminal, administrative, or investigative; and "expenses" include, without limitation, attorneys' fees and any expenses of establishing a right to indemnification under Section 4 or Section 5(c) of this Article V. Section 2. Actions Other Than by the Corporation. This corporation shall --------- ------------------------------------- indemnify any person who was or is a party, or is threatened to be made a party, to any proceeding (other than an action by or in the right of this corporation) by reason of the fact that such person is or was an agent of this corporation, against expenses, judgments, fines, settlements or other amounts actually and reasonably incurred in connection with such proceeding if that person acted in good faith and in a manner that person reasonably believed to be in the best interests of this corporation and, in the case of a criminal proceeding, if that person had no reasonable cause to believe his conduct was unlawful. The termination of any proceeding by judgment, order, settlement, conviction, or plea of nolo contendere or its equivalent shall not, of itself, create a presumption that the person did not act in good faith and in a manner which the person reasonably believed to be in the best interests of this corporation or that the person had reasonable cause to believe that his conduct was unlawful. Section 3. Actions by the Corporation. This corporation shall indemnify --------- -------------------------- any person who was or is a party, or is threatened to be made a party, to any threatened, pending or completed action by or in the right of this corporation to procure a judgment in its favor by reason of the fact that that person is or was an agent of this corporation, against expenses actually and reasonably incurred by that person in connection with the defense or settlement of that action if that person acted in good faith, in a manner that that person believed to be in the best interests of this corporation, and with such care, including reasonably inquiry, as a reasonable person would exercise under similar circumstances. No indemnification shall be made under this Section 3: (a) in respect of any claim, issue or matter as to which that person shall have been adjudged to be liable to this corporation in the performance of that person's duty to this corporation, unless and only to the extent that the court in which that action was brought shall determine upon application that, in view of all the circumstances of the case, that person is fairly and reasonably entitled to indemnity for the expenses which the court shall determine; (b) of amounts paid in settling or otherwise disposing of a threatened or pending action, with or without court approval; or (c) of expenses incurred in defending a threatened or pending action which is settled or otherwise disposed of without court approval. Section 4. Successful Defense by Agent. To the extent that an agent of --------- --------------------------- this -13- corporation has been successful on the merits in defense of any proceeding referred to in Sections 2 or 3 of this Article, or in defense of any claim, issue, or matter therein, the agent shall be indemnified against expenses actually and reasonably incurred by the agent in connection therewith. Section 5. Required Approval. Except as provided in Section 4 of this --------- ----------------- Article, any indemnification under this Article shall be made by this corporation only if authorized in the specific case on a determination that indemnification of the agent is proper in the circumstances because the agent has met the applicable standard of conduct set forth in Sections 2 or 3 of this Article, by: (a) a majority vote of a quorum consisting of directors who are not parties to the proceeding; (b) approval by the affirmative vote of a majority of the shares of this corporation entitled to vote represented at a duly held meeting at which a quorum is present or by the written consent of holders of a majority of the outstanding shares entitled to vote. For this purpose, the shares owned by the person to be indemnified shall not be considered outstanding or entitled to vote thereon; or (c) the court in which the proceeding is or was pending, on application made by this corporation or the agent or the attorney or other person rendering services in connection with the defense, whether or not such application by the agent, attorney, or other person is opposed by this corporation. Section 6. Advance of Expenses. Expenses incurred in defending any --------- ------------------- proceeding may be advanced by this corporation before the final disposition of the proceeding on receipt of an undertaking by or on behalf of the agent to repay the amount of the advance unless it shall be determined ultimately that the agent is entitled to be indemnified as authorized in this Article. Section 7. Other Contractual Rights. Nothing contained in this Article --------- ------------------------ shall affect any right to indemnification to which persons other than directors and officers of this corporation or any subsidiary hereof may be entitled by contract or otherwise. Section 8. Limitations. No indemnification or advance shall be made under --------- ----------- this Article, except as provided in Section 4 or Section 5(c), in any circumstance where it appears: (a) that it would be inconsistent with a provision of the articles, a resolution of the shareholders, or an agreement in effect at the time of the accrual of the alleged cause of action asserted in the proceeding in which the expenses were -14- incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or (b) that it would be inconsistent with any condition expressly imposed by a court in approving a settlement. Section 9. Insurance. Upon and in the event of a determination by the --------- --------- board of directors of this corporation to purchase such insurance, this corporation shall purchase and maintain insurance on behalf of any agent of the corporation against any liability asserted against or incurred by the agent in such capacity or arising out of the agent's status as such whether or not this corporation would have the power to indemnify the agent against that liability under the provisions of this section. Section 10. Fiduciaries of Corporate Employee Benefit Plan. This Article ---------- ---------------------------------------------- does not apply to any proceeding against any trustee, investment manager, or other fiduciary of an employee benefit plan in that person's capacity as such even though that person may also be an agent of the corporation as defined in Section 1 of this Article. Nothing contained in this Article shall limit any right to indemnification to which such a trustee, investment manager or other fiduciary may be entitled by contract or otherwise, which shall be enforceable to the extent permitted by applicable law other than this Article. ARTICLE VI ---------- CERTIFICATES OF STOCK --------------------- Section 1. Form. Every holder of stock in the corporation shall be --------- ---- entitled to have a certificate, signed by, or in the name of the corporation by the chairman of the board, chief executive officer, president, chief financial officer, or a vice-president and the secretary or an assistant secretary of the corporation, certifying the number of shares of a specific class or series owned by such holder in the corporation. If such a certificate is countersigned (1) by a transfer agent or an assistant transfer agent other than the corporation or its employee or (2) by a registrar other than the corporation or its employee, the signature of any such chairman of the board, chief executive officer, president, chief financial officer, vice-president, secretary, or assistant secretary may be facsimiles. In case any officer or officers who have signed, or whose facsimile signature or signatures have been used on, any such certificate or certificates shall cease to be such officer or officers of the corporation whether because of death, resignation or otherwise before such certificate or certificates have been delivered by the corporation, such certificate or certificates may nevertheless be issued and delivered as though the person or persons who signed such certificate or certificates or whose facsimile signature or signatures have been used thereon had not ceased to be -15- such officer or officers of the corporation. All certificates for shares shall be consecutively numbered or otherwise identified. The name of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered on the books of the corporation. Shares of stock of the corporation shall only be transferred on the books of the corporation by the holder of record thereof or by such holder's attorney duly authorized in writing, upon surrender to the corporation of the certificate or certificates for such shares endorsed by the appropriate person or persons, with such evidence of the authenticity of such endorsement, transfer, authorization, and other matters as the corporation may reasonably require, and accompanied by all necessary stock transfer stamps. In that event, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate or certificates, and record the transaction on its books. The board of directors may appoint a bank or trust company organized under the laws of the United States or any state thereof to act as its transfer agent or registrar, or both in connection with the transfer of any class or series of securities of the corporation. Section 2. Lost Certificates. The board of directors may direct a new --------- ----------------- certificate or certificates to be issued in place of any certificate or certificates previously issued by the corporation alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen, or destroyed. When authorizing such issue of a new certificate or certificates, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen, or destroyed certificate or certificates, or his or her legal representative, to give the corporation a bond sufficient to indemnify the corporation against any claim that may be made against the corporation on account of the loss, theft or destruction of any such certificate or the issuance of such new certificate. Section 3. Fixing a Record Date for Shareholder Meetings. In order that --------- --------------------------------------------- the corporation may determine the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors, and which record date shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If no record date is fixed by the board of directors, the record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be the close of business on the next day preceding the day on which notice is given, or if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. -16- Section 4. Fixing a Record Date for Action by Written Consent. In order --------- -------------------------------------------------- that the corporation may determine the shareholders entitled to consent to corporate action in writing without a meeting, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors, and which date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the board of directors. If no record date has been fixed by the board of directors, the record date for determining shareholders entitled to consent to corporate action in writing without a meeting, when no prior action by the board of directors is required by statute, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation by delivery to its registered office in the State of California, its principal place of business, or an officer or agent of the corporation having custody of the book in which proceedings of meetings of shareholders are recorded. Delivery made to the corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the board of directors and prior action by the board of directors is required by statute, the record date for determining shareholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the board of directors adopts the resolution taking such prior action. Section 5. Fixing a Record Date for Other Purposes. In order that the --------- --------------------------------------- corporation may determine the shareholders entitled to receive payment of any dividend or other distribution or allotment or any rights or the shareholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purposes of any other lawful action, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty (60) days prior to such action. If no record date is fixed, the record date for determining shareholders for any such purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating thereto. Section 6. Registered Shareholders. Prior to the surrender to the --------- ----------------------- corporation of the certificate or certificates for a share or shares of stock with a request to record the transfer of such share or shares, the corporation may treat the registered owner as the person entitled to receive dividends, to vote, to receive notifications, and otherwise to exercise all the rights and powers of an owner. The corporation shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof. Section 7. Subscriptions for Stock. Unless otherwise provided for in the --------- ----------------------- subscription agreement, subscriptions for shares shall be paid in full at such time, or in -17- such installments and at such times, as shall be determined by the board of directors. Any call made by the board of directors for payment on subscriptions shall be uniform as to all shares of the same class or as to all shares of the same series. In case of default in the payment of any installment or call when such payment is due, the corporation may proceed to collect the amount due in the same manner as any debt due the corporation. ARTICLE VII ----------- GENERAL PROVISIONS ------------------ Section 1. Checks, Drafts or Orders. All checks, drafts, or other orders --------- ------------------------ for the payment of money by or to the corporation and all notes and other evidences of indebtedness issued in the name of the corporation shall be signed by such officer or officers, agent or agents of the corporation, and in such manner, as shall be determined by resolution of the board of directors or a duly authorized committee thereof. Section 2. Contracts. The board of directors may authorize any officer or --------- --------- officers, or any agent or agents, of the corporation to enter into any contract or to execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances. Section 3. Loans. The corporation may lend money to, or guarantee any --------- ----- obligation of, or otherwise assist any officer or other employee of the corporation or of its subsidiary, including any officer or employee who is a director of the corporation or its subsidiary, whenever, in the judgment of the directors, such loan, guaranty or assistance may reasonably be expected to benefit the corporation. The loan, guaranty or other assistance may be with or without interest, and may be unsecured, or secured in such manner as the board of directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing in this section contained shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute. Section 4. Fiscal Year. The fiscal year of the corporation shall be fixed --------- ----------- by resolution of the board of directors. Section 5. Corporate Seal. The board of directors shall provide a --------- -------------- corporate seal which shall be in the form of a circle and shall have inscribed thereon the name of the corporation and the words "Corporate Seal, California". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. -18- Section 6. Voting Securities Owned By Corporation. Voting securities in --------- -------------------------------------- any other corporation held by the corporation shall be voted by the chief executive officer, unless the board of directors specifically confers authority to vote with respect thereto, which authority may be general or confined to specific instances, upon some other person or officer. Any person authorized to vote securities shall have the power to appoint proxies, with general power of substitution. Section 7. Inspection of Books and Records. Any shareholder of record, in --------- ------------------------------- person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its shareholders, and its other books and records, and to make copies or extracts therefrom. A proper purpose shall mean any purpose reasonably related to such person's interest as a shareholder. In every instance where an attorney or other agent shall be the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing which authorizes the attorney or other agent to so act on behalf of the shareholder. The demand under oath shall be directed to the corporation at its registered office in the State of California or at its principal place of business. Section 8. Section Headings. Section headings in these by-laws are for --------- ---------------- convenience of reference only and shall not be given any substantive effect in limiting or otherwise construing any provision herein. Section 10. Inconsistent Provisions. In the event that any provision of ---------- ----------------------- these by-laws is or becomes inconsistent with any provision of the Shareholders Agreement, the articles of incorporation, the Corporations Code of the State of California or any other applicable law, the provision of these by-laws shall not be given any effect to the extent of such inconsistency but shall otherwise be given full force and effect. ARTICLE VIII ------------ AMENDMENTS ---------- These by-laws may be amended, altered, or repealed and new by-laws adopted at any meeting of the board of directors by a majority vote. The fact that the power to adopt, amend, alter, or repeal the by-laws has been conferred upon the board of directors shall not divest the shareholders of the same powers. -19- EX-3.3 7 MEMORANDUM OF ASSOCIATION OF CHIPPAC INTL EXHIBIT 3.3 TERRITORY OF THE BRITISH VIRGIN ISLANDS THE INTERNATIONAL BUSINESS COMPANIES ACT (CAP 291) MEMORANDUM OF ASSOCIATION OF ChipPAC FINANCE LIMITED NAME 1. The name of the Company is ChipPAC Finance Limited. REGISTERED OFFICE 2. The Registered Office of the Company will be at Craigmuir Chambers, P.O. Box 71, Road Town, Tortola, British Virgin Islands. REGISTERED AGENT 3. The Registered Agent of the Company will be HWR Services Limited of Craigmuir Chambers, P.O. Box 71, Road Town, Tortola, British Virgin Islands. GENERAL OBJECTS AND POWERS 4. (1) The object of the Company is to engage in any act or activity that is not prohibited under any law for the time being in force in the British Virgin Island; (2) The Company may not (a) carry on business with persons resident in the British Virgin Islands; (b) own an interest in real property situate in the British Virgin Islands, other than a lease referred to in paragraph (e) of Subclause (3); (c) carry on banking or trust business, unless it is licensed to do so under the Banks and Trust Companies Act, 1990; (d) carry on business as an insurance or reinsurance company, insurance agent or insurance broker unless it is licensed under an enactment authorizing it to carry on that business. 1 (e) carry on the business of company management, unless it is licensed under the Company Management Act, 1990; or (f) carry on the business of providing the registered office or the registered agent for companies incorporated in the British Virgin Islands. (3) For purposes of paragraph (a) of subclause (2), the Company shall not be treated as carrying on business with persons resident in the British Virgin Islands if (a) it makes or maintains deposits with a person carrying on banking business within the British Virgin Islands. (b) it makes or maintains professional contact with solicitors, barristers, accountants, bookkeepers, trust companies, administration companies, investment advisers or other similar persons carrying on business within the British Virgin Islands; (c) it prepares or maintains books and records within the British Virgin Islands; (d) it holds, within the British Virgin Islands, meetings of its directors or members; (e) it holds a lease of property for use as an office from which to communicate with members or where books and records of the Company are prepared or maintained; (f) it holds shares, debt, obligations or other securities in a company incorporated under the International Business Companies Act or under the Companies Act; or (g) shares, debt obligations or other securities in the Company are owned by any person resident in the British Virgin Islands or by any company incorporated under the International Business Companies Act or under the Companies Act. (4) The Company shall have all such powers as are permitted by law for the time being in force in the British Virgin Islands, irrespective of corporate benefit, to 2 perform all acts and engage in all activities necessary or conducive to the conduct, promotion or attainment of the object of the Company. CURRENCY 5. Shares in the Company shall be issued in the currency of the United States of America. AUTHORIZED CAPITAL 6. The authorized capital of the Company is US$50,000.00. CLASSES, NUMBER AND PAR VALUE OF SHARES 7. The authorized capital is made up of one class and one series of shares divided into 50,000 shares of US$1.00 per value. DESIGNATIONS, POWERS, PREFERENCES, ETC. OF SHARES 8. All shares shall (a) have one vote each; (b) be subject to redemption, purchase or acquisition by the Company for fair value; and (c) have the same rights with regard to dividends and distributions upon liquidation of the Company. VARIATION OF CLASS RIGHTS 9. If at any time the authorized capital is divided into different classes or series of shares, the rights attached to any class or series (unless otherwise provided by the terms of issue of the shares of that class or series) may, whether or not the Company is being wound up, be varied with the consent in writing of the holders of not less than three-fourths of the issued shares of that class or series and of the holders of not less than three-fourths of the issued shares of any other class or series of shares which may be affected by such variation. RIGHTS NOT VARIED BY THE ISSUE OF SHARES PARI PASSU 10. The rights conferred upon the holders of the shares or any class issued with preferred or other rights shall not 3 unless otherwise expressly provided by the terms of issue of the shares of that class, be deemed to be varied by the creation or issue of further shares ranking pari passu therewith. REGISTERED SHARES AND BEARER SHARES 11. Shares may be issued as registered shares or to bearer as may be determined by a resolution of directors. EXCHANGE OF REGISTERED SHARES AND BEARER SHARES 12. Registered shares may be exchanged for bearer shares and bearer shares may be exchanged for registered shares. TRANSFER OF REGISTERED SHARE 13. Subject to the provisions relating to the transfer of shares set forth in the Articles of Association annexed hereto (the "Articles of Association") registered shares in the Company may be transferred subject to the prior or subsequent approval of the Company as evidenced by a resolution of directors or by a resolution of members. SERVICE OF NOTICE ON HOLDERS OF BEARER SHARES 14. Where shares are issued to bearer, the bearer, identified for this purpose by the number of the share certificate, shall be requested to provide the company with the name and address of an agent for service of any notice, information or written statement required to be given to members, and services upon such agent shall constitute service upon the bearer of such shares until such time as a new name and address for service is provided to the Company. In the absence of such name and address being provided it shall be sufficient for the purposes of service for the Company to publish the notice, information or written statement or a summary thereof in one or more newspapers published or circulated in the British Virgin Islands and in such other place, if any, as the Company shall from time to time by a resolution of directors or a resolution of members determine. The directors of the Company must give sufficient notice of meetings to members holding shares issued to bearer to allow a reasonable opportunity for them to secure or exercise the right or privilege that is the subject of the notice other than the right or privilege to vote, as to which the period of notice shall be governed by the Articles of Association. What amounts to sufficient notice is a 4 matter of fact to be determined after having regard to all the circumstances. AMENDMENT OF MEMORANDUM AND ARTICLES OF ASSOCIATION 15. The Company may amend its Memorandum of Association and Articles of Association by a resolution of members or directors. DEFINITIONS 16. The meanings of words in this Memorandum of Association are as defined in the Articles of Association. We, HWR SERVICES LIMITED, of Craigmuir Chambers, Road Town, Tortola, British Virgin Islands for the purpose of incorporating an International Business Company under the laws of the British Virgin Islands hereby subscribe our name to this Memorandum of Association the 5th day of February, 1999 in the presence of: Witness Subscriber /s/ Ibn K. Thomas /s/ Adel K. Clyne - -------------------------- -------------------------- Ibn K. Thomas Adel K. Clyne Craigmuir Chambers Authorized Signatory Road Town, Tortola HWR Services Limited 5 EX-3.4 8 ARTICLES OF ASSOCIATION OF CHIPPAC INTL EXHIBIT 3.4 TERRITORY OF THE BRITISH VIRGIN ISLANDS THE INTERNATIONAL BUSINESS COMPANIES ACT (Cap. 291) ARTICLES OF ASSOCIATION OF ChipPAC FINANCE LIMITED PRELIMINARY 1. In these Articles, if not inconsistent with the subject or context, the words and expressions standing in the first column of the following table shall bear the meanings set opposite them respectively in the second column thereof. Words Meaning ----- ------- capital The sum of the aggregate par value of all outstanding shares with par value of the Company and shares with par value held by the Company as treasury shares plus (a) the aggregate of the amounts designated as capital of all outstanding shares without par value of the Company and shares without par value held by the Company as treasury shares, and (b) the amounts as are from time to time transferred from surplus to capital by a resolution of directors. member A person who holds shares in the Company. person An individual, a corporation, a trust, the estate of a deceased individual, a partnership or an unincorporated association of persons. resolution of (a) A resolution approved at a duly convened and directors constituted meeting of directors of the Company or of a committee of directors of the Company by the affirmative vote of a simple majority of the directors present at the meeting who voted and did not abstain; or 1 (b) a resolution consented to in writing by all directors or of all members of the committee, as the case may be; except that where a director is given more than one vote, he shall be counted by the number of votes he casts for the purpose of establishing a majority. resolution of (a) A resolution approved at a duly convened members and constituted meeting of the members of the Company by the affirmative vote of (i) a simple majority of the votes of the shares entitled to vote thereon which were present at the meeting and were voted and not abstained, or (ii) a simple majority of the votes of each class or series of shares which were present at the meeting and entitled to vote thereon as a class or series and were voted and not abstained and of a simple majority of the votes of the remaining shares entitled to vote thereon which were present at the meeting and were voted and not abstained; or (b) a resolution consented to in writing by (i) an absolute majority of the votes of shares entitled to vote thereon, or (ii) an absolute majority of the votes of each class or series of shares entitled to vote thereon as a class or series and of an absolute majority 2 of the votes of the remaining shares entitled to vote thereon; securities Shares and debt obligations of every kind, and options, warrants and rights to acquire shares, or debt obligations. surplus The excess, if any, at the time of the determination of the total assets of the Company over the aggregate of its total liabilities, as shown in its books of account, plus the Company's capital. the Act The International Business Companies Act (CAP 291) including any modification, extension, re-enactment or renewal thereof and any regulations made thereunder. the Memorandum The Memorandum of Association of the Company as originally framed or as from time to time amended. the Seal Any Seal which has been duly adopted as the Seal of the Company. these Articles These Articles of Association as originally framed or as from time to time amended. treasury shares Shares in the Company that were previously issued but were repurchased, redeemed or otherwise acquired by the Company and not cancelled. 2. "Written" or any term of like import includes words typewritten, printed, painted, engraved, lithographed, photographed or represented or reproduced by any mode of reproducing words in a visible form, including telex, facsimile, telegram, cable or other form of writing produced by electronic communication. 3. Save as aforesaid any words or expressions defined in the Act shall bear the same meaning in these Articles. 4. Whenever the singular or plural number, or the masculine, feminine or neuter gender is used in these articles it shall equally, where the context admits, include the others. 3 5. A reference in these Articles to voting in relation to shares shall be construed as a reference to voting by members holding the shares except that it is the votes allocated to the shares that shall be counted and not the number of members who actually voted and a reference to shares being present at a meeting shall be given a corresponding construction. 6. A reference to money in these Articles is, unless otherwise stated, a reference to the currency in which shares in the Company shall be issued according to the provisions of the Memorandum. REGISTERED SHARES 7. Every member holding registered shares in the Company shall be entitled to a certificate signed by a director or officer of the Company and under the Seal specifying the share or shares held by him and the signature of the director or officer and the Seal may be facsimiles. 8. Any member receiving a share certificate for registered shares shall indemnify and hold the Company and its directors and officers harmless from any loss or liability which it or they may incur by reason of any wrongful or fraudulent use or representation made by any person by virtue of the possession thereof. If a share certificate for registered shares is worn out or lost it may be renewed on production of the worn out certificate or on satisfactory proof of its loss together with such indemnity as may be required by a resolution of directors. 9. If several persons are registered as joint holders of any shares, any one of such persons may give an effectual receipt for any dividend payable in respect of such shares. BEARER SHARES 10. Subject to a request for the issue of bearer shares and to the payment of the appropriate consideration for the shares to be issued, the Company may, to the extent authorized by the Memorandum, issue bearer shares to, and at the expense of, such person as shall be specified in the request. Bearer shares may not be issued for debt obligations, promissory notes or other obligations to contribute money or property and registered shares issued for debt obligations, promissory notes or other obligations to contribute money or property shall not be exchanged for bearer shares unless such debt obligations, promissory notes or other obligations to contribute money or property have been satisfied. The Company may also upon receiving a request in writing accompanied by the share certificate for the shares in question, exchange registered shares for bearer shares or may exchange bearer shares for registered shares. Such request served on the Company by the holder of bearer shares shall specify the name and address of the person to be registered and unless the request is delivered in person by 4 the bearer shall be authenticated as hereinafter provided. Such request served on the Company by the holder of bearer shares shall also be accompanied by any coupons or talons which at the date of such delivery have not become due for payment of dividends or any other distribution by the Company to the holders of such shares. Following such exchange the share certificate relating to the exchanged shares shall be delivered as directed by the member requesting the exchange. 11. Bearer share certificates shall be under the Seal and shall state that the bearer is entitled to the shares therein specified, and may provide by coupons, talons or otherwise for the payment of dividends or other moneys on the shares included therein. 12. Subject to the provisions of the Act and of these Articles, the bearer of a bearer share certificate shall be deemed to be a member of the Company and shall be entitled to the same rights and privileges as he would have had if his name had been included in the share register of the Company as the holder of the shares. 13. Subject to any specific provisions in these Articles, in order to exercise his rights as a member of the Company, the bearer of a bearer share certificate shall produce the bearer share certificate as evidence of his membership of the Company. Without prejudice to the generality of the foregoing, the following rights may be exercised in the following manner: (a) for the purpose of exercising his voting rights at a meeting, the bearer of a bearer share certificate shall produce such certificate to the chairman of the meeting; (b) for the purpose of exercising his vote on a resolution in writing, the bearer of a bearer share certificate shall cause his signature to any such resolution to be authenticated as hereinafter set forth; (c) for the purpose of requisitioning a meeting of members, the bearer of a bearer share certificate shall address his requisition to the directors and his signature thereon shall be duly authenticated as hereinafter provided; and (d) for the purpose of receiving dividends, the bearer of a bearer share certificate shall present at such places as may be designated by the directors any coupons or talons issued for such purpose, or shall present the bearer share certificate to any paying agent authorized to pay dividends. 14. The signature of the bearer of a bearer share certificate shall be deemed to be duly authenticated if the bearer of the bearer share certificate shall produce such certificate 5 to a notary public or a bank manager or a director or officer of the Company (herein referred to as an "authorized person") and the authorized person endorses the document bearing such signature with a statement: (a) identifying the bearer share certificate produced to him by number and date and specifying the number of shares and the class of shares (if appropriate) comprised therein; (b) confirming that the signature of the bearer of the bearer share certificate was subscribed in his presence and that if the bearer is representing a body corporate he has so acknowledged and has produced satisfactory evidence thereof; and (c) specifying the capacity in which he is qualified as an authorized person and, if a notary public, affixing his seal thereto or, if a bank manager, attaching an identifying stamp of the bank of which he is a manager. 15. Notwithstanding any other provisions of these Articles, at any time, the bearer of a bearer share certificate may deliver the certificate for such shares into the custody of the Company at its registered office, whereupon the Company shall issue a receipt therefor under the Seal signed by a director or officer identifying by name and address the person delivering such certificate and specifying the date and number of the bearer share certificate so deposited and the number of shares comprised therein. Any such receipt may be used by the person named therein for the purpose of exercising the rights vested in the shares represented by the bearer share certificate so deposited including the right to appoint a proxy. Any bearer share certificate so deposited shall be returned to the person named in the receipt or his personal representative if such person be dead and thereupon the receipt issued therefor shall be of no further effect whatsoever and shall be returned to the Company for cancellation or, if it has been lost or mislaid, such indemnity as may be required by resolution of directors shall be given to the Company. 16. The bearer of a bearer share certificate shall for all purposes be deemed to be the owner of the shares comprised in such certificate and in no circumstances shall the Company or the chairman of any meeting of members or the Company's registrars or any director or officer of the Company or any authorized person be obliged to inquire into the circumstances whereby a bearer share certificate came into the hands of the bearer thereof, or to question the validity or authenticity of any action taken by the bearer of a bearer share certificate whose signature has been authenticated as provided herein. 17. If the bearer of a bearer share certificate shall be a corporation, then all the rights exercisable by virtue of such shareholding may be exercised by an individual duly 6 authorized to represent the corporation but unless such individual shall acknowledge that he is representing a corporation and shall produce upon request satisfactory evidence that he is duly authorized to represent the corporation, the individual shall for all purposes hereof be regarded as the holder of the shares in any bearer share certificate held by him. 18. The directors may provide for payment of dividends to the holders of bearer shares by coupons or talons and in such event the coupons or talons shall be in such form and payable at such time and in such place or places as the directors shall resolve. The Company shall be entitled to recognize the absolute right of the bearer of any coupon or talon issued as aforesaid to payment of the dividend to which it relates and delivery of the coupon or talon to the Company or its agents shall constitute in all respects a good discharge of the Company in respect of such dividend. 19. If any bearer share certificate, coupon or talon be worn out or defaced, the directors may, upon the surrender thereof for cancellation, issue a new one in its stead, and if any bearer share certificate, coupon or talon be lost or destroyed, the directors may upon the loss or destruction being established to their satisfaction, and upon such indemnity being given to the Company as it shall by resolution of directors determine, issue a new bearer share certificate in its stead, and in either case on payment of such sum as the Company may from time to time by resolution of directors require. In case of loss or destruction the person to whom such new bearer share certificate, coupon or talon is issued shall also bear and pay to the Company all expenses incidental to the investigation by the Company of the evidence of such loss or destruction and to such indemnity. SHARES, AUTHORIZED CAPITAL, CAPITAL AND SURPLUS 20. Subject to the provisions of these Articles and any resolution of members, the unissued shares of the Company shall be at the disposal of the directors who may, without limiting or affecting any rights previously conferred on the holders of any existing shares or class or series of shares, offer, allot, grant options over or otherwise dispose of shares to such persons, at such times and upon such terms and conditions as the Company may by resolution of directors determine. 21. No share in the Company may be issued until the consideration in respect thereof is fully paid, and when issued the share is for all purposes fully paid and non-assessable save that a share issued for a promissory note or other written obligation for payment of a debt may be issued subject to forfeiture in the manner prescribed in these Articles. 7 22. Shares in the Company shall be issued for money, services rendered, personal property, an estate in real property, a promissory note or other binding obligation to contribute money or property or any combination of the foregoing as shall be determined by a resolution of directors. 23. Shares in the Company may be issued for such amount of consideration as the directors may from time to time by resolution of directors determine, except that in the case of shares with par value, the amount shall not be less than the par value, and in the absence of fraud the decision of the directors as to the value of the consideration received by the Company in respect of the issue is conclusive unless a question of law is involved. The consideration in respect of the shares constitutes capital to the extent of the par value and the excess constitutes surplus. 24. A share issued by the Company upon conversion of, or in exchange for, another share or a debt obligation or other security in the Company, shall be treated for all purposes as having been issued for money equal to the consideration received or deemed to have been received by the Company in respect of the other share, debt obligation or security. 25. Treasury shares may be disposed of by the Company on such terms and conditions (not otherwise inconsistent with these Articles) as the Company may by resolution of directors determine. 26. The Company may issue fractions of a share and a fractional share shall have the same corresponding fractional liabilities, limitations, preferences, privileges, qualifications, restrictions, rights and other attributes of a whole share of the same class or series of shares. 27. Upon the issue by the Company of a share without par value, if an amount is stated in the Memorandum to be authorized capital represented by such shares then each share shall be issued for no less than the appropriate proportion of such amount which shall constitute capital, otherwise the consideration in respect of the share constitutes capital to the extent designated by the directors and the excess constitutes surplus, except that the directors must designate as capital an amount of the consideration that is at least equal to the amount that the share is entitled to as a preference, if any, in the assets of the Company upon liquidation of the Company. 28. The Company may purchase, redeem or otherwise acquire and hold its own shares but only out of surplus or in exchange for newly issued shares of equal value. 29. Subject to provisions to the contrary in (a) the Memorandum or these Articles; 8 (b) the designations, powers, preferences, rights, qualifications, limitations and restrictions with which the shares were issued; or (c) the subscription agreement for the issue of the shares, the Company may not purchase, redeem or otherwise acquire its own shares without the consent of members whose shares are to be purchased, redeemed or otherwise acquired. 30. No purchase, redemption or other acquisition of shares shall be made unless the directors determine that immediately after the purchase, redemption or other acquisition the Company will be able to satisfy its liabilities as they become due in the ordinary course of its business and the realizable value of the assets of the Company will not be less than the sum of its total liabilities, other than deferred taxes, as shown in the books of account, and its capital and, in the absence of fraud, the decision of the directors as to the realizable value of the assets of the Company is conclusive, unless a question of law is involved. 31. A determination by the directors under the preceding Regulation is not required where shares are purchased, redeemed or otherwise acquired (a) pursuant to a right of a member to have his shares redeemed or to have his shares exchanged for money or other property of the Company; (b) by virtue of a transfer of capital pursuant to Regulation 59; (c) by virtue of the provisions of Section 83 of the Act; or (d) pursuant to an order of the Court. 32. Shares that the Company purchases, redeems or otherwise acquires pursuant to the preceding Regulation may be cancelled or held as treasury shares except to the extent that such shares are in excess of 80 percent of the issued shares of the Company in which case they shall be cancelled but they shall be available for reissue. 33. Where shares in the Company are held by the Company as treasury shares or are held by another company of which the Company holds, directly or indirectly, shares having more than 50 percent of the votes in the election of directors of the other company, such shares of the Company are not entitled to vote or to have dividends paid thereon and shall not be treated as outstanding for any purpose except for purposes of determining the capital of the Company. 34. The Company may purchase, redeem or otherwise acquire its shares at a price lower than the fair value if permitted by, and then only in accordance with, the terms of 9 (a) the Memorandum or these Articles; or (b) a written agreement for the subscription for the shares to be purchased, redeemed or otherwise acquired. 35. The Company may by a resolution of directors include in the computation of surplus for any purpose the unrealized appreciation of the assets of the Company, and, in the absence of fraud, the decision of the directors as to the value of the assets is conclusive, unless a question of law is involved. MORTGAGES AND CHARGES OF REGISTERED SHARES 36. Members may mortgage or charge their registered shares in the Company and upon satisfactory evidence thereof the Company shall give effect to the terms of any valid mortgage or charge except insofar as it may conflict with any requirements herein contained for consent to the transfer of shares. 37. In the case of the mortgage or charge of registered shares there may be entered in the share register of the Company at the request of the registered holder of such shares (a) a statement that the shares are mortgaged or charged; (b) the name of the mortgagee or chargee; and (c) the date on which the aforesaid particulars are entered in the share register. 38. Where particulars of a mortgage or charge are registered, such particulars shall be cancelled (a) with the consent of the named mortgagee or chargee or anyone authorized to act on his behalf; or (b) upon evidence satisfactory to the directors of the discharge of the liability secured by the mortgage or charge and the issue of such indemnities as the directors shall consider necessary or desirable. 39. Whilst particulars of a mortgage or charge are registered, no transfer of any share comprised therein shall be effected without the written consent of the named mortgagee or chargee or anyone authorized to act on his behalf. FORFEITURE 40. When shares issued for a promissory note or other written obligation for payment of a debt have been issued subject to forfeiture, the following provisions shall apply. 10 41. Written notice specifying a date for payment to be made and the shares in respect of which payment is to be made shall be served on the member who defaults in making payment pursuant to a promissory note or other written obligations to pay a debt. 42. The written notice specifying a date for payment shall (a) name a further date not earlier than the expiration of 14 days from the date of service of the notice on or before which payment required by the notice is to be made; and (b) contain a statement that in the event of non-payment at or before the time named in the notice the shares, or any of them, in respect of which payment is not made will be liable to be forfeited. 43. Where a written notice has been issued and the requirements have not been complied with within the prescribed time, the directors may at any time before tender of payment forfeit and cancel the shares to which the notice relates. 44. The Company is under no obligation to refund any moneys to the member whose shares have been forfeited and cancelled pursuant to these provisions. Upon forfeiture and cancellation of the shares the member is discharged from any further obligation to the Company with respect to the shares forfeited and cancelled. LIEN 45. The Company shall have a first and paramount lien on every share issued for a promissory note or for any other binding obligation to contribute money or property or any combination thereof to the Company, and the Company shall also have a first and paramount lien on every share standing registered in the name of a member, whether singly or jointly with any other person or persons, for all the debts and liabilities of such member or his estate to the Company, whether the same shall have been incurred before or after notice to the Company of any interest of any person other than such member, and whether the time for the payment or discharge of the same shall have actually arrived or not, and notwithstanding that the same are joint debts or liabilities of such member or his estate and any other person, whether a member of the Company or not. The Company's lien on a share shall extend to all dividends payable thereon. The directors may at any time either generally, or in any particular case, waive any lien that has arisen or declare any share to be wholly or in part exempt from the provisions of this Regulation. 46. In the absence of express provisions regarding sale in the promissory note or other binding obligation to contribute money or property, the Company may sell, in such manner as the directors may by resolution of directors determine 11 share on which the Company has a lien, but no sale shall be made unless some sum in respect of which the lien exists is presently payable nor until the expiration of twenty-one days after a notice in writing, stating and demanding payment of the sum presently payable and giving notice of the intention to sell in default of such payment, has been served on the holder for the time being of the share. 47. The net proceeds of the sale by the Company of any shares on which it has a lien shall be applied in or towards payment of discharge of the promissory note or other binding obligation to contribute money or property or any combination thereof in respect of which the lien exists so far as the same is presently payable and any residue shall (subject to a like lien for debts or liabilities not presently payable as existed upon the share prior to the sale) be paid to the holder of the share immediately before such sale. For giving effect to any such sale the directors may authorize some person to transfer the share sold to the purchaser thereof. The purchaser shall be registered as the holder of the share and he shall not be bound to see to the application of the purchase money, nor shall his title to the share be affected by any irregularity or invalidity in the proceedings in reference to the sale. TRANSFER OF SHARES 48. Subject to any limitations in the Memorandum, registered shares in the Company may be transferred by a written instrument of transfer signed by the transferor and containing the name and address of the transferee, but in the absence of such written instrument of transfer the directors may accept such evidence of a transfer of shares as they consider appropriate. 49. The Company shall not be required to treat a transferee of a registered share in the Company as a member until the transferee's name has been entered in the share register. 50. Subject to any limitations in the Memorandum, the Company must on the application of the transferor or transferee of a registered share in the Company enter in the share register the name of the transferee of the share save that the registration of transfers may be suspended and the share register closed at such times and for such periods as the Company may from time to time by resolution of directors determine provided always that such registration shall not be suspended and the share register closed for more than 6O days in any period of 12 months. TRANSMISSION OF SHARES 51. The executor or administrator of a deceased member, the guardian of an incompetent member or the trustee of a bankrupt member shall be the only person recognized by the Company as having any title to his share but they shall not 12 be entitled to exercise any rights as a member of the Company until they have proceeded as set forth in the next following three Regulations. 52. The production to the Company of any document which is evidence of probate of the will, or letters of administration of the estate, or confirmation as executor, of a deceased member or of the appointment of a guardian of an incompetent member or the trustee of a bankrupt member shall be accepted by the Company even if the deceased, incompetent or bankrupt member is domiciled outside the British Virgin Islands if the document evidencing the grant of probate or letters of administration, confirmation as executor, appointment as guardian or trustee in bankruptcy is issued by a foreign court which had competent jurisdiction in the matter. For the purpose of establishing whether or not a foreign court had competent jurisdiction in such a matter the directors may obtain appropriate legal advice. The directors may also require an indemnity to be given by the executor, administrator, guardian or trustee in bankruptcy. 53. Any person becoming entitled by operation of law or otherwise to a share or shares in consequence of the death, incompetence or bankruptcy of any member may be registered as a member upon such evidence being produced as may reasonably be required by the directors. An application by any such person to be registered as a member shall for all purposes be deemed to be a transfer of shares of the deceased, incompetent or bankrupt member and the directors shall treat it as such. 54. Any person who has become entitled to a share or shares in consequence of the death, incompetence or bankruptcy of any member may, instead of being registered himself, request in writing that some person to be named by him be registered as the transferee of such share or shares and such request shall likewise be treated as if it were a transfer. 55. What amounts to incompetence on the part of a person is a matter to be determined by the court having regard to all the relevant evidence and the circumstances of the case. REDUCTION OR INCREASE IN AUTHORIZED CAPITAL OR CAPITAL 56. The Company may by a resolution of directors amend the Memorandum to increase or reduce its authorized capital and in connection therewith the Company may in respect of any unissued shares increase or reduce the number of such shares, increase or reduce the par value of any such shares or effect any combination of the foregoing. 57. The Company may amend the Memorandum to (a) divide the shares, including issued shares, of a class or series into a larger number of shares of the same class or series; or 13 (b) combine the shares, including issued shares, of a class or series into a smaller number of shares of the same class or series, provided, however, that where shares are divided or combined under (a) or (b) of this Regulation, the aggregate par value of the new shares must be equal to the aggregate par value of the original shares. 58. The capital of the Company may by a resolution of directors be increased by transferring an amount of the surplus of the Company to capital. 59. Subject to the provisions of the two next succeeding Regulations, the capital of the Company may by resolution of directors be reduced by transferring an amount of the capital of the Company to surplus. 60. No reduction of capital shall be effected that reduces the capital of the Company to an amount that immediately after the reduction is less than the aggregate par value of all outstanding shares with par value and all shares with par value held by the Company as treasury shares and the aggregate of the amounts designated as capital of all outstanding shares without par value and all shares without par value held by the Company as treasury shares that are entitled to a preference, if any, in the assets of the Company upon liquidation of the Company. 61. No reduction of capital shall be effected unless the directors determine that immediately after the reduction the Company will be able to satisfy its liabilities as they become due in the ordinary course of its business and that the realizable assets of the Company will not be less than its total liabilities, other than deferred taxes, as shown in the books of the Company and its remaining capital, and, in the absence of fraud, the decision of the directors as to the realizable value of the assets of the Company is conclusive, unless a question of law is involved. MEETINGS AND CONSENTS OF MEMBERS 62. The directors of the Company may convene meetings of the members of the Company at such times and in such manner and places within or outside the British Virgin Islands as the directors consider necessary or desirable. 63. Upon the written request of members holding 10 percent or more of the outstanding voting shares in the Company the directors shall convene a meeting of members. 64. The directors shall give not less than 7 days notice of meetings of members to those persons whose names on the date the notice is given appear as members in the share register of the Company and are entitled to vote at the meeting 14 65. The directors may fix the date notice is given of a meeting of members as the record date for determining those shares that are entitled to vote at the meeting. 66. A meeting of members may be called on short notice: (a) if members holding not less than 90 percent of the total number of shares entitled to vote on all matters to be considered at the meeting, or 90 percent of the votes of each class or series of shares where members are entitled to vote thereon as a class or series together with not less than a 90 percent majority of the remaining votes, have agreed to short notice of the meeting, or (b) if all members holding shares entitled to vote on all or any matters to be considered at the meeting have waived notice of the meeting and for this purpose presence at the meeting shall be deemed to constitute waiver. 67. The inadvertent failure of the directors to give notice of a meeting to a member, or the fact that a member has not received notice, does not invalidate the meeting. 68. A member may be represented at a meeting of members by a proxy who may speak and vote on behalf of the member. 69. The instrument appointing a proxy shall be produced at the place appointed for the meeting before the time for holding the meeting at which the person named in such instrument proposes to vote. 70. An instrument appointing a proxy shall be in substantially the following form or such other form as the Chairman of the meeting shall accept as properly evidencing the wishes of the member appointing the proxy; (Name of Company) I/We being a member of the above Company with shares HEREBY APPOINT of or failing him of to be my/our proxy to vote for me/us at the meeting of members to be held on the day of and at any adjournment thereof. (Any restrictions on voting to be inserted here.) Signed this day of --------------------------------------- Member 71. The following shall apply in respect of joint ownership of shares: 15 (a) if two or more persons hold shares jointly each of them may be present in person or by proxy at a meeting of members and may speak as a member; (b) if only one of the joint owners is present in person or by proxy he may vote on behalf of all joint owners, and (c) if two or more of the joint owners are present in person or by proxy they must vote as one. 72. A member shall be deemed to be present at a meeting of members if he participates by telephone or other electronic means and all members participating in the meeting are able to hear each other. 73. A meeting of members is duly constituted if, at the commencement of the meeting, there are present in person or by proxy not less than 50 percent of the votes of the shares or class or series of shares entitled to vote on resolutions of members to be considered at the meeting. If a quorum be present, notwithstanding the fact that such quorum may be represented by only one person then such person may resolve any matter and a certificate signed by such person accompanied where such person be a proxy by a copy of the proxy form shall constitute a valid resolution of members. 74. If within two hours from the time appointed for the meeting a quorum is not present, the meeting, if convened upon the requisition of members, shall be dissolved; in any other case it shall stand adjourned to the next business day at the same time and place or to such other time and place as the directors may determine, and if at the adjourned meeting there are present within one hour from the time appointed for the meeting in person or by proxy not less than one third of the votes of the shares or each class or series of shares entitled to vote on the resolutions to be considered by the meeting, those present shall constitute a quorum but otherwise the meeting shall be dissolved. 75. At every meeting of members, the Chairman of the Board of Directors shall preside as chairman of the meeting. If there is no Chairman of the Board of Directors or if the Chairman of the Board of Directors is not present at the meeting, the members present shall choose some one of their number to be the chairman. If the members are unable to choose a chairman for any reason, then the person representing the greatest number of voting shares present in person or by prescribed form of proxy at the meeting shall preside as chairman failing which the oldest individual member or representative of a member present shall take the chair. 16 76. The chairman may, with the consent of the meeting, adjourn any meeting from time to time, and from place to place, but no business shall be transacted at any adjourned meeting other than the business left unfinished at the meeting from which the adjournment took place. 77. At any meeting of the members the chairman shall be responsible for deciding in such manner as he shall consider appropriate whether any resolution has been carried or not and the result of his decision shall be announced to the meeting and recorded in the minutes thereof. If the chairman shall have any doubt as to the outcome of any resolution put to the vote, he shall cause a poll to be taken of all votes cast upon such resolution, but if the chairman shall fail to take a poll then any member present in person or by proxy who disputes the announcement by the chairman of the result of any vote may immediately following such announcement demand that a poll be taken and the chairman shall thereupon cause a poll to be taken. If a poll is taken at any meeting, the result thereof shall be duly recorded in the minutes of that meeting by the chairman. 78. Any person other than an individual shall be regarded as one member and subject to the specific provisions hereinafter contained for the appointment of representatives of such persons the right of any individual to speak for or represent such member shall be determined by the law of the jurisdiction where, and by the documents by which, the person is constituted or derives its existence. In case of doubt, the directors may in good faith seek legal advice from any qualified person and unless and until a court of competent jurisdiction shall otherwise rule, the directors may rely and act upon such advice without incurring any liability to any member. 79. Any person other than an individual which is a member of the Company may by resolution of its directors or other governing body authorize such person as it thinks fit to act as its representative at any meeting of the Company or of any class of members of the Company, and the person so authorized shall be entitled to exercise the same powers on behalf of the person which he represents as that person could exercise if it were an individual member of the Company. 80. The chairman of any meeting at which a vote is cast by proxy or on behalf of any person other than an individual may call for a notarially certified copy of such proxy or authority which shall be produced within 7 days of being so requested or the votes cast by such proxy or on behalf of such person shall be disregarded. 81. Directors of the Company may attend and speak at any meeting of members of the Company and at any separate meeting of the holders of any class or series of shares in the Company. 17 82. An action that may be taken by the members at a meeting may also be taken by a resolution of members consented to in writing or by telex, telegram, cable, facsimile or other written electronic communication, without the need for any notice, but if any resolution of members is adopted otherwise than by the unanimous written consent of all members, a copy of such resolution shall forthwith be sent to all members not consenting to such resolution. The consent may be in the form of counterparts, each counterpart being signed by one or more members. DIRECTORS 83. The first directors of the Company shall be appointed by the subscribers to the Memorandum; and thereafter, the directors shall be elected by the members for such term as the members determine. 84. The minimum number of directors shall be one and the maximum number shall be 7. 85. Each director shall hold office for the term, if any, fixed by resolution of members or until his earlier death, resignation or removal. 86. A director may be removed from office, with or without cause, by a resolution of members or, with cause, by a resolution of directors. 87. A director may resign his office by giving written notice of his resignation to the Company and the resignation shall have effect from the date the notice is received by the Company or from such later date as may be specified in the notice. 88. The directors may at any time appoint any person to be a director either to fill a vacancy or as an addition to the existing directors. A vacancy occurs through the death, resignation or removal of a director, but a vacancy or vacancies shall not be deemed to exist where one or more directors shall resign after having appointed his or their successor or successors. 89. The Company may determine by resolution of directors to keep a register of directors containing (a) the names and addresses of the persons who are directors of the Company; (b) the date on which each person whose name is entered in the register was appointed as a director of the company; and (c) the date on which each person named as a director ceased to be a director of the Company 18 90. If the directors determine to maintain a register of directors, a copy thereof shall be kept at the registered office of the Company and the Company may determine by resolution of directors to register a copy of the register with the Registrar of Companies. 91. With the prior or subsequent approval by a resolution of members, the directors may, by a resolution of directors, fix the emoluments of directors with respect to services to be rendered in any capacity to the Company. 92. A director shall not require a share qualification and may be an individual or a company. POWERS OF DIRECTORS 93. The business and affairs of the Company shall be managed by the directors who may pay all expenses incurred preliminary to and in connection with the formation and registration of the Company and may exercise all such powers of the Company as are not by the Act or by the Memorandum or these Articles required to be exercised by the members of the Company, subject to any delegation of such powers as may be authorized by these Articles and to such requirements as may be prescribed by a resolution of members; but no requirement made by a resolution of members shall prevail if it be inconsistent with these Articles nor shall such requirement invalidate any prior act of the directors which would have been valid if such requirement had not been made. 94. The directors may, by a resolution of directors, appoint any person, including a person who is a director, to be an officer or agent of the Company. The resolution of directors appointing an agent may authorize the agent to appoint one or more substitutes or delegates to exercise some or all of the powers conferred on the agent by the Company. 95. Every officer or agent of the Company has such powers and authority of the directors, including the power and authority to affix the Seal, as are set forth in these Articles or in the resolution of directors appointing the officer or agent, except that no officer or agent has any power or authority with respect to the matters requiring a resolution of directors under the Act. 96. Any director which is a body corporate may appoint any person its duly authorized representative for the purpose of representing it at meetings of the Board of Directors or with respect to unanimous written consents. 97. The continuing directors may act notwithstanding and in their body, save that if their number is reduced to their knowledge below the number fixed by or pursuant to these Articles as the necessary quorum for a meeting of directors, 19 the continuing directors or director may act only for the purpose of appointing directors to fill any vacancy that has arisen or for summoning a meeting of members. 98. The directors may by resolution of directors exercise all the powers of the Company to borrow money and to mortgage or charge its undertakings and property or any part thereof, to issue debentures, debenture stock and other securities whenever money is borrowed or as security for any debt, liability or obligation of the Company or of any third party. 99. All cheques, promissory notes, drafts, bills of exchange and other negotiable instruments and all receipts for moneys paid to the Company, shall be signed, drawn, accepted, endorsed or otherwise executed, as the case may be, in such manner as shall from time to time be determined by resolution of directors. 100. The Company may determine by resolution of directors to maintain at its registered office a register of mortgages, charges and other encumbrances in which there shall be entered the following particulars regarding each mortgage,charge and other encumbrance: (a) the sum secured; (b) the assets secured; (c) the name and address of the mortgagee, chargee or other encumbrancer; (d) the date of creation of the mortgage, charge or other encumbrance; and (e) the date on which the particulars specified above in respect of the mortgage, charge or other encumbrance are entered in the register. 101. The Company may further determine by a resolution of directors to register a copy of the register of mortgages, charges or other encumbrances with the Registrar of Companies. PROCEEDINGS OF DIRECTORS 102. The directors of the Company or any committee thereof may meet at such times and in such manner and places within or outside the British Virgin Islands as the directors may determine to be necessary or desirable. 103. A director shall be deemed to be present at a meeting of directors if he participates by telephone or other electronic means and all directors participating in the meeting are able to hear each other. 20 104. A director shall be given not less than 3 days notice of meetings of directors, but a meeting of directors held without 3 days notice having been given to all directors shall be valid if all the directors entitled to vote at the meeting who do not attend, waive notice of the meeting and for this purpose, the presence of a director at a meeting shall constitute waiver on his part. The inadvertent failure to give notice of a meeting to a director, or the fact that a director has not received the notice, does not invalidate the meeting. 105. A director may by a written instrument appoint an alternate who need not be a director and an alternate is entitled to attend meetings in the absence of the director who appointed him and to vote or consent in place of the director. 106. A meeting of directors is duly constituted for all purposes if at the commencement of the meeting there are present in person or by alternate not less than one-half of the total number of directors, unless there are only 2 directors in which case the quorum shall be 2. 107. If the Company shall have only one director the provisions herein contained for meetings of the directors shall not apply but such sole director shall have full power to represent and act for the Company in all matters as are not by the Act or the Memorandum or these Articles required to be exercised by the members of the Company and in lieu of minutes of a meeting shall record in writing and sign a note or memorandum of all matters requiring a resolution of directors. Such a note or memorandum shall constitute sufficient evidence of such resolution for all purposes. 108. At every meeting of the directors the Chairman of the Board of Directors shall preside as chairman of the meeting. If there is no Chairman of the Board of Directors or if the Chairman of the Board of Directors is not present at the meeting the Vice-Chairman of the Board of Directors shall preside. If there is no Vice-Chairman of the Board of Directors or if the Vice-Chairman of the Board of Directors is not present at the meeting the directors present shall choose some one of their number to be chairman of the meeting. 109. An action that may be taken by the directors or a committee of directors at a meeting may also be taken by a resolution of directors or a committee of directors consented to in writing or by telex, telegram, cable, facsimile or other written electronic communication by all directors or all members of the committee as the case may be, without the need for any notice. The consent may be in the form of counterparts, each counterpart being signed by one or more directors. 110. The directors shall cause the following corporate records to be kept: 21 (a) minutes of all meetings of directors, members, committees of directors, committees of officers and committees of members; (b) copies of all resolutions consented to by directors,members, committees of directors, committees of officers and committees of members; and (c) such other accounts and records as the directors by resolution of directors consider necessary or desirable in order to reflect the financial position of the Company. 111. The books, records and minutes shall be kept at the registered office of the Company, its principal place of business or at such other place as the directors determine. 112. The directors may, by resolution of directors, designate one or more committees, each consisting of one or more directors. 113. Each committee of directors has such powers and authorities of the directors, including the power and authority to affix the Seal, as are set forth in the resolution of directors establishing the committee, except that no committee has any power or authority to amend the Memorandum or these Articles, to appoint directors or fix their emoluments, or to appoint officers or agents of the Company. 114. The meetings and proceedings of each committee of directors consisting of 2 or more directors shall be governed mutatis mutandis by the provisions of these Articles regulating the proceedings of directors so far as the same are not superseded by any provisions in the resolution establishing the committee. OFFICERS 115. The Company may by resolution of directors appoint officers of the Company at such times as shall be considered necessary or expedient. Such officers may consist of a Chairman of the Board of Directors, a Vice-Chairman of the Board of Directors, a President and one or more Vice-Presidents, Secretaries and Treasurers and such other officers as may from time to time be deemed desirable. Any number of offices may be held by the same person. 116. The officers shall perform such duties as shall be prescribed at the time of their appointment subject to any modification in such duties as may be prescribed thereafter by resolution of directors or resolution of members, but in the absence of any specific allocation of duties it shall be the responsibility of the Chairman of the Board of Directors to preside at meetings of directors and members, the Vice-Chairman to act in the absence of the Chairman, the President to manage the day to day affairs of the Company, the Vice-Presidents to act in order of seniority in the 22 absence of the President but otherwise to perform such duties as may be delegated to them by the President, the Secretaries to maintain the share register, minute books and records (other than financial records) of the Company and to ensure compliance with all procedural requirements imposed on the Company by applicable law, and the Treasurer to be responsible for the financial affairs of the Company. 117. The emoluments of all officers shall be fixed by resolution of directors. 118. The officers of the Company shall hold office until their successors are duly elected and qualified, but any officer elected or appointed by the directors may be removed at any time, with or without cause, by resolution of directors. Any vacancy occurring in any office of the Company may be filled by resolution of directors. CONFLICT OF INTERESTS 119. No agreement or transaction between the Company and one or more of its directors or any person in which any director has a financial interest or to whom any director is related, including as a director of that other person, is void or voidable for this reason only or by reason only that the director is present at the meeting of directors or at the meeting of the committee of directors that approves the agreement or transaction or that the vote or consent of the director is counted for that purpose if the material facts of the interest of each director in the agreement or transaction and his interest in or relationship to any other party to the agreement or transaction are disclosed in good faith or are known by the other directors. 120. A director who has an interest in any particular business to be considered at a meeting of directors or members may be counted for purposes of determining whether the meeting is duly constituted. INDEMNIFICATION 121. Subject to the limitations hereinafter provided the Company may indemnify against all expenses, including legal fees, and against all judgments, fines and amounts paid in settlement and reasonably incurred in connection with legal, administrative or investigative proceedings any person who (a) is or was a party or is threatened to be made a party to any threatened, pending or completed proceedings, whether civil, criminal, administrative or investigative, by reason of the fact that the person is or was a director, an officer or a liquidation of the Company; or 23 (b) is or was, at the request of the Company, serving as a director, officer or liquidator of, or in any other capacity is or was acting for, another company or a partnership, joint venture, trust or other enterprise. 122. The Company may only indemnify a person if the person acted honestly and in good faith and with a view to the best interests of the Company and, in the case of criminal proceedings, the person had no reasonable cause to believe that his conduct was unlawful. 123. The decision of the directors as to whether the person acted honestly and in good faith and with a view to the best interests of the Company and as to whether the person had no reasonable cause to believe that his conduct was unlawful is, in the absence of fraud, sufficient for the purposes of these Articles, unless a question of law is involved. 124. The termination of any proceedings by any judgment, order, settlement, conviction or the entering of a nolle prosequi does not, by itself, create a presumption that the person did not act honestly and in good faith and with a view to the best interests of the Company or that the person had reasonable cause to believe that his conduct was unlawful. 125. If a person to be indemnified has been successful in defence of any proceedings referred to above the person is entitled to be indemnified against all expenses, including legal fees, and against all judgments, fines and amounts paid in settlement and reasonably incurred by the person in connection with the proceedings. 126. The Company may purchase and maintain insurance in relation to any person who is or was a director, an officer or a liquidator of the Company, or who at the request of the Company is or was serving as a director, an officer or a liquidator of, or in any other capacity is or was acting for, another company or a partnership, joint venture, trust or other enterprise, against any liability asserted against the person and incurred by the person in that capacity, whether or not the Company has or would have had the power to indemnify the person against the liability as provided in these Articles. SEAL 127. The Company may have more than one Seal and references herein to the Seal shall be references to every Seal which shall have been duly adopted by resolution of directors. The directors shall provide for the safe custody of the Seal and for an imprint thereof to be kept at the Registered Office. Except as otherwise expressly provided herein the Seal when affixed to any written instrument shall be witnessed and attested to by the signature of a director or any other person so authorized from time to time by resolution of directors. Such authorization may be before or after the Seal is affixed, may be general or specific and 24 may refer to any number of sealings. The Directors may provide for a facsimile of the Seal and of the signature of any director or authorized person which may be reproduced by printing or other means on any instrument and it shall have the same force and validity as if the Seal had been affixed to such instrument and the same had been signed as hereinbefore described. DIVIDENDS 128. The Company may by a resolution of directors declare and pay dividends in money, shares, or other property, but dividends shall only be declared and paid out of surplus. In the event that dividends are paid in specie the directors shall have responsibility for establishing and recording in the resolution of directors authorizing the dividends, a fair and proper value for the assets to be so distributed. 129. The directors may from time to time pay to members such interim dividends as appear to the directors to be justified by the profits of the Company. 130. The directors may, before declaring any dividend, set aside out of the profits of the Company such sum as they think proper as a reserve fund, and may invest the sum so set aside as a reserve fund upon such securities as they may select. 131. No dividend shall be declared and paid unless the directors determine that immediately after the payment of the dividend the Company will be able to satisfy its liabilities as they become due in the ordinary course of its business and the realizable value of the assets of the Company will not be less than the sum of its total liabilities, other than deferred taxes, as shown in its books of account, and its capital. In the absence of fraud, the decision of the directors as to the realizable value of the assets of the Company is conclusive, unless a question of law is involved. 132. Notice of any dividend that may have been declared shall be given to each member in manner hereinafter mentioned and all dividends unclaimed for 3 years after having been declared may be forfeited by resolution of directors for the benefit of the Company. 133. No dividend shall bear interest as against the Company and no dividend shall be paid on treasury shares or shares held by another company of which the Company holds, directly or indirectly, shares having more than 50 percent of the vote in electing directors. 134. A share issued as a dividend by the Company shall be treated for all purposes as having been issued for money equal to the surplus that is transferred to capital upon the issue of the share. 25 135. In the case of a dividend of authorized but unissued shares with par value, an amount equal to the aggregate par value of the shares shall be transferred from surplus to capital at the time of the distribution. 136. In the case of a dividend of authorized but unissued shares without par value, the amount designated by the directors shall be transferred from surplus to capital at the time of the distribution, except that the directors must designate as capital an amount that is at least equal to the amount that the shares are entitled to as a preference, if any, in the assets of the Company upon liquidation of the Company. 137. A division of the issued and outstanding shares of a class or series of shares into a larger number of shares of the same class or series having a proportionately smaller par value does not constitute a dividend of shares. ACCOUNTS AND AUDIT 138. The Company may by resolution of members call for the directors to prepare periodically a profit and loss account and a balance sheet. The profit and loss account and balance sheet shall be drawn up so as to give respectively a true and fair view of the profit and loss of the Company for the financial period and a true and fair view of the state of affairs of the Company as at the end of the financial period. 139. The Company may by resolution of members call for the accounts to be examined by auditors. 140. The first auditors shall be appointed by resolution of directors; subsequent auditors shall be appointed by a resolution of members. 141. The auditors may be members of the Company but no director or other officer shall be eligible to be an auditor of the Company during his continuance in office. 142. The remuneration of the auditors of the Company (a) in the case of auditors appointed by the directors, may be fixed by resolution of directors; and (b) subject to the foregoing, shall be fixed by resolution of members or in such manner as the Company may by resolution of members determine. 143. The auditors shall examine each profit and loss account and balance sheet required to be served on every member of the Company or laid before a meeting of the members of the Company and shall state in a written report whether or not 26 (a) in their opinion the profit and loss account and balance sheet give a true and fair view respectively of the profit and loss for the period covered by the accounts, and of the state of affairs of the Company at the end of that period; and (b) all the information and explanations required by the auditors have been obtained. 144. The report of the auditors shall be annexed to the accounts and shall be read at the meeting of members at which the accounts are laid before the Company or shall be served on the members. 145. Every auditor of the Company shall have a right of access at all times to the books of account and vouchers of the Company, and shall be entitled to require from the directors and officers of the Company such information and explanations as he thinks necessary for the performance of the duties of the auditors. 146. The auditors of the Company shall be entitled to receive notice of, and to attend any meetings of members of the Company at which the Company's profit and loss account and balance sheet are to be presented. NOTICES 147. Any notice, information or written statement to be given by the Company to members be served in the case of members holding registered shares in any way by which it can reasonably be expected to reach each member or by mail addressed to each member at the address shown in the share register and in the case of members holding shares issued to bearer, in the manner provided in the Memorandum. 148. Any summons, notice, order, document, process, information or written statement to be served on the Company may be served by leaving it, or by sending it by registered mail addressed to the Company, at its registered office, or by leaving it with, or by sending it by registered mail to, the registered agent of the Company. 149. Service of any summons, notice, order, document, process, information or written statement to be served on the Company may be proved by showing that the summons, notice, order, document, process, information or written statement was delivered to the registered office or the registered agent of the Company or that it was mailed in such time as to admit to its being delivered to the registered office or the registered agent of the Company in the normal course of delivery within the period prescribed for service and was correctly addressed and the postage was prepaid. 27 PENSION AND SUPERANNUATION FUNDS 150. The directors may establish and maintain or procure the establishment and maintenance of any non-contributory or contributory pension or superannuation funds for the benefit of, and give or procure the giving of donations, gratuities, pensions, allowances or emoluments to, any persons who are or were at any time in the employment or service of the Company or any company which is a subsidiary of the Company or is allied to or associated with the Company or with any such subsidiary, or who are or were at any time directors or officers of the Company or of any such other company as aforesaid or who hold or held any salaried employment or office in the Company or such other company, or any persons in whose welfare the Company or any such other company as aforesaid is or has been at any time interested, and to the wives, widows, families and dependents of any such person, and may make payments for or towards the insurance of any such persons as aforesaid, and may do any of the matters aforesaid either alone or in conjunction with any such other company as aforesaid. Subject always to the proposal being approved by resolution of members, a director holding any such employment or office shall be entitled to participate in and retain for his own benefit any such donation, gratuity, pension allowance or emolument. ARBITRATION 151. Whenever any difference arises between the Company on the one hand and any of the members or their executors, administrators or assigns on the other hand, touching the true intent and construction or the incidence or consequences of these Articles or of the Act, touching anything done or executed, omitted or suffered in pursuance of the Act or touching any breach or alleged breach or otherwise relating to the premises or to these Articles, or to any Act or Ordinance affecting the Company or to any of the affairs of the Company such difference shall, unless the parties agree to refer the same to a single arbitrator, be referred to 2 arbitrators one to be chosen by each of the parties to the difference and the arbitrators shall before entering on the reference appoint an umpire. 152. If either party to the reference makes default in appointing an arbitrator either originally or by way of substitution (in the event that an appointed arbitrator shall die, be incapable of acting or refuse to act) for 10 days after the other party has given him notice to appoint the same, such other party may appoint an arbitrator to act in the place of the arbitrator of the defaulting party. VOLUNTARY WINDING UP AND DISSOLUTION 153. The Company may voluntarily commence to wind up and dissolve by a resolution of members but if the Company has never issued shares it may voluntarily commence to wind up and dissolve by resolution of directors. 28 CONTINUATION 154. The Company may by resolution of members or by a resolution passed unanimously by all directors of the Company continue as a company incorporated under the laws of a jurisdiction outside the British Virgin Islands in the manner provided under those laws. We, HWR SERVICES LIMITED, of Craigmuir Chambers, Road Town, Tortola, British Virgin Islands for the purpose of incorporating an International Business Company under the laws of the British Virgin Islands hereby subscribe our name to these Articles of Association the 5th day of February, 1999 in the presence of: Witness Subscriber /s/ Ibn K. Thomas /s/ Adel K. Clyne - ----------------- ----------------- Ibn K. Thomas Adel K. Clyne Craigmuir Chambers Authorized Signatory Road Town, Tortola HWR Services Limited 29 EX-3.5 9 ARTICLES OF INCORPORATION (CHIPPAC BARBADOS) EXHIBIT 3.5 [LOGO APPEARS HERE] FORM 1 COMPANIES ACT OF BARBADOS (Section 5) ARTICLES OF INCORPORATION - -------------------------------------------------------------------------------- Name of Company Company No: CHIPPAC (BARBADOS) LTD. 16701 - -------------------------------------------------------------------------------- 2. The classes and any maximum number of shares that the Company is authorized to issue The Company is authorised to issue an unlimited number of common shares. - -------------------------------------------------------------------------------- 3. Restriction if any on share transfers No share in the capital of the Company shall be transferred without the approval of the Directors of the Company or of a Committee of such Directors, evidenced by resolution and the Directors may, in their absolute discretion and without assigning any reasons therefor, decline to register any transfer of any share. - -------------------------------------------------------------------------------- 4. Number (or minimum and maximum number) of Directors There shall be a minimum of 1 and a maximum of 10 Directors. - -------------------------------------------------------------------------------- 5. Restrictions if any on business the Company may carry on The Company shall not engage in any business other than international business as defined in the International Business Companies Act, 1991-24. - -------------------------------------------------------------------------------- 6. Other provisions if any None - -------------------------------------------------------------------------------- 7. Incorporators Date March 15, 1999 - -------------------------------------------------------------------------------- Names Address Signature - -------------------------------------------------------------------------------- Gail Marshall Kingsland Crescent, Christ /s/ Gail Marshall - -------------------------------------------------------------------------------- Church, Barbados - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- For Ministry use only - -------------------------------------------------------------------------------- Company No. 16701 Filed 1999-03-15 - -------------------------------------------------------------------------------- BARBADOS [LOGO APPEARS HERE] I, DIANA DORALENE GREENIDGE, Acting Deputy Registrar of Corporate Affairs and Intellectual Property Office, Clarence Greenidge House, Keith Bourne Complex, Belmont Road in the Parish of St. Michael and in the Island of Barbados, and as such a Notary Public do hereby CERTIFY as follows: As Acting Deputy Registrar of Corporate Affairs and Intellectual Property I have custody of all records relating to the registration of Companies in this Island. The Company CHIPPAC (BARBADOS) LTD. was incorporated on the 15th day of March, One thousand nine hundred and ninety-nine as an International Business Company under the Companies Act Chapter 308 of the Laws of Barbados and is registered in the Companies Register. Given under my hand as Acting Deputy Registrar and Seal of Office as Notary Public of this Island [STAMP] this 9/th/ day of April One thousand nine hundred and ninety-nine. [STAMP] /s/ Dianna Greenidge Acting Deputy Registrar and as such a Notary Public in and for the Island of Barbados. EX-3.6 10 BY-LAW NO. 1 OF CHIPPAC BARBADOS Exhibit 3.6 BARBADOS THE COMPANIES ACT OF BARBADOS BY-LAWS NO. 1 A By-Law relating generally to the conduct of the affairs of: CHIPPAC (BARBADOS) LTD. BE IT ENACTED as the by-laws of CHIPPAC (BARBADOS) LTD., (hereinafter called the "Company") as follows: 1. INTERPRETATION 1.1 In this By-Law and all other by-laws of the Company, unless the context otherwise requires: "Act" means the Companies Act, Cap. 308 of the laws of Barbados as from time to time amended and every statute substituted therefor; and in the case of such amendment or substitution, any references in the by-laws of the Company to provisions of the Act or to specific provisions of the Act, shall be read as references to the provisions as amended or substituted therefor in the amendment or the new statute or statutes; "Articles" means the Articles of Incorporation of the Company as may be amended, restated or revived from time to time; "By-Law" means this general By-Law No. 1, as from time to time amended and every general By-Law substituted therefor as the same consolidates the all or any of the by-laws of the Company from time to time in force; "by-law" mean any by-law, or other rule or regulation with regard to the administration of the affairs of the Company having the force of a by-law in accordance with the Act, from time to time in force; "Regulations" means the Companies Regulations made under the Act, and all regulations substituted therefor and, in the case of such substitution, any references in the by-laws of the Company to provisions of the Regulations shall be read as references to the provisions substituted therefor in the new regulations; "Shareholders means a unanimous shareholder agreement in accordance with Agreement" section 133 of the Act, between the Company and each of the shareholders of the Company, and binding on all the parties thereto. The Companies Act By-Law No. 1 CHIPPAC (BARBADOS) LTD. 1.2 The word "person" includes individuals, companies, bodies corporate, limited liability companies, societies with restricted liability, partnerships (whether limited or general), firms, syndicates, joint ventures, trusts, un- incorporated associations, governmental authorities and agencies, and any legal entity or any other association of persons; and the word "individual" means a natural person. 1.3 All terms contained in the by-laws and not specifically defined, shall have the meanings given to such terms in the Act or the Regulations, as such terms may be qualified, amended or substituted in the Articles or the Shareholders Agreement. Terms defined elsewhere in this By-Law, unless otherwise indicated, shall have such meaning in every by-law herein. 1.4 Unless the context clearly requires otherwise, the words "hereof" "herein" and "hereunder" and words of similar import, when used in this By-Law, shall refer to this By-Law as a whole and not to any particular by-law provision; wherever the word "include" "includes" or "including" is used in any by-law provision, it shall be deemed to be followed by the words "without limitations" unless clearly indicated otherwise, or required by the Act, the Regulations, the Articles or the Shareholders Agreement. 1.5 The singular includes the plural and the plural includes the singular; and the masculine gender includes the feminine and neuter genders. 1.6 The division of this By-Law into sections, clauses, articles and paragraphs, the provision of a table of contents and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation hereof. 2. REGISTERED OFFICE 2.1 The registered office of the Company shall be in Barbados at such address as the directors may fix from time to time by resolution. 3. SEAL 3.1 Common Seal: The common seal of the Company shall be such as the directors may by resolution from time to time adopt. 3.2.1 Official Seal: The Company may have one or more official seals for use in any country other than Barbados or for use in any district or place not situated in Barbados. Each official seal must be a facsimile of the common seal of the Company, with the addition on its face of every country, district or place where that official seal is to be used. 3.2.2 The Company may by an instrument in writing under its common seal, authorise any person (appointed by resolution of directors for that purpose) to affix an official seal of the 2 The Companies Act By-Law No. 1 CHIPPAC (BARBADOS) LTD. Company to any document to which the Company is a party in the country, district or place where that official seal is designated for use. 3.2.3 The person who affixes an official seal of the Company to any document shall by writing under his hand, certify on that document the date on which, and the place at which, the official seal is affixed. 4. DIRECTORS 4.1 Number: There shall be a minimum of 1 and a maximum of 10 directors of the Company. 4.2 Election: Directors shall be elected by the shareholders on a show of hands unless a poll is demanded in which case such election shall be by poll. 4.3 Tenure: Unless his tenure is sooner determined, a director shall hold office from the date on which he is elected or appointed until the close of the annual meeting of the shareholders next following but he shall be eligible for re-election if qualified. 4.3.1 A director shall cease to be a director: (a) if he becomes bankrupt or compounds with his creditors or is declared insolvent; (b) if he is found to be of unsound mind; or (c) if by notice in writing to the Company he resigns his office and any such resignation shall be effective at the time it is sent to the Company or at the time specified in the notice, whichever is later. 4.3.2 The shareholders of the Company may, by ordinary resolution passed at a special meeting of the shareholders, remove any director from office and a vacancy created by the removal of a director may be filled at the meeting of the shareholders at which the director is removed. 5. POWERS OF DIRECTORS 5.1 General: Subject to a Shareholders Agreement, the business and affairs of the Company shall be managed by the directors. 5.2 Borrowing Powers: The directors may from time to time: (a) borrow money upon the credit of the Company; 3 The Companies Act By-Law No. 1 CHIPPAC (BARBADOS) LTD. (b) issue, reissue, sell or pledge debentures of the Company; (c) subject to section 53 of the Act, give a guarantee on behalf of the Company to secure performance of an obligation of any person; and (d) mortgage, charge, pledge or otherwise create a security interest in all or any property of the Company, owned or subsequently acquired, to secure any obligation of the Company. 5.2.1 The directors may from time to time by resolution delegate to any officer of the Company all or any of the powers conferred on the directors by by-law 5.2 hereof to the full extent thereof or such lesser extent as the directors may in any such resolution provide. 5.2.2 The powers conferred by by-law 5.2 hereof shall be in supplement of and not in substitution for any powers to borrow money for the purposes of the Company possessed by its directors or officers independently of a borrowing by-law. 5.3 Committee of Directors: The directors may appoint from among their number a committee of directors, subject to the Act, the Articles the Regulations and by-law 5.4 hereof, to be vested with such powers, authorities and discretions as the Board of Directors may from time to time determine. 5.4 Delegation of Powers: The directors may delegate to any director, officer, or committee of directors, any of the powers of the directors except: (a) the submission to the shareholders of any question or matter requiring the approval of the shareholders; (b) the filling a vacancy among the directors (except a vacancy resulting from an increase in the number or minimum number of directors, or from a failure to elect the minimum number of directors required by the Articles); (c) the filling of a vacancy among the directors or in the office of auditor; (d) the issue of shares; (e) the declaration of a dividend; (f) the purchase, redemption or other acquisition of shares issued by the Company; (g) the payment of a commission to any person in consideration for the purchase or the agreement to purchase any shares of the Company; (h) the approval of a management proxy circular; 4 The Companies Act By-Law No. 1 CHIPPAC (BARBADOS) LTD. (i) the approval of the financial statements of the Company; and (j) the adoption, amendment or repeal of any by-laws of the Company. 6. MEETINGS OF DIRECTORS 6.1 Place of Meeting: Meetings of the directors and or any committee of the directors may be held within or outside Barbados, except in Canada. 6.2 Notice: A meeting of the directors may be convened at any time by any director or the Secretary, when directed or authorised by any director. 6.2.1 Except for a meeting called for the transaction of the following business: (a) the submission to the shareholders of any question or matter requiring the approval of the shareholders; (b) the filling of a vacancy among the directors or in the office of auditor; (c) the issue of shares; (d) the declaration of a dividend; (e) the purchase, redemption or other acquisition of shares issued by the Company; (f) the payment of a commission to any person in consideration for the purchase or the agreement to purchase any shares of the Company; (g) the approval of a management proxy circular; (h) the approval of the financial statements of the Company; and (i) the adoption, amendment or repeal of any by-laws of the Company; the notice of any such meeting need not specify the purpose of or the business to be transacted at the meeting. Notice of any such meeting shall be served in the manner specified in by-law 18.1 not less than two (2) days (exclusive of the day on which the notice is delivered or sent but inclusive of the day for which notice is given) before the meeting is to take place. A director may in any manner waiver notice of a meeting of the directors and attendance of a director at a meeting of the directors shall constitute a waiver of notice of the meeting except where a director attends a meeting for the express purpose of objecting to the transaction of any business on the grounds that the meeting is not lawfully called. 5 The Companies Act By-Law No. 1 CHIPPAC (BARBADOS) LTD. 6.2.2 It shall not be necessary to give notice of a meeting of the directors to a newly elected or appointed director for a meeting held immediately following the election of directors by the shareholders or the appointment to fill a vacancy among the directors. 6.3 Quorum: A majority of directors shall form a quorum for the transaction of business and, notwithstanding any vacancy among the directors, a quorum may exercise all the powers of the directors. No business shall be transacted at a meeting of directors unless a quorum is present. 6.4 A meeting of directors or of any committee of the directors may be held by means of telephone or other communications facility that permits all persons participating in the meeting to hear each other, and a director participating in such a meeting by such means is deemed to be present at that meeting. A meeting of directors or of any committee of the directors held by means of telephone or other communications facility that permits all persons participating in the meeting to hear each other, shall be deemed to be held at the place where the chairman of the meeting is located. 6.5 Voting: Questions arising at any meeting of the directors shall be decided by a majority of votes. In case of an equality of votes the chairman of the meeting, in addition to his original vote, shall have a second or casting vote. 6.6 Alternate Director: In addition to the power vested in the shareholders under section 66.1 of the Act, a director (not being an alternate director appointed under section 66.1 of the Act), may by written notice to the Company appoint any person to be his alternate to act in his place at meetings of the directors at which he is not present or by the by-laws deemed not to be present. A duly certified copy of the document whereby any such appointment is made shall be filed with the Company before any such individual acts as alternate as aforesaid. A director may at any time by written notice to the Company revoke the appointment of an alternate appointed by him. 6.6.1 Except for an alternate who is a director of the Company, every appointment of an alternate shall be confirmed by the meeting of the Board of Directors for which he is appointed. Valid confirmation at the meeting of the Board of Directors shall be given, provided that no director then present records his objection to appointment of such person as an alternate. In the event that any directors present at any meeting records his objection to the appointment of a person appointed as the alternate of a director, the Chairman of the meeting, shall adjourn the meeting for a period of not less than two (2) days. The Secretary shall immediately thereupon give notice of the objection to the director who appointed the alternate. 6.6.2 Every alternate appointed under by-law 6.6 shall be entitled to attend and vote at meetings at which the person who appointed him is not present or deemed to be present and, if he is a director, to have a separate vote on behalf of the director he is representing in addition to his own vote. 6 The Companies Act By-Law No. 1 CHIPPAC (BARBADOS) LTD. 6.7 Corporate Representative: A person who is a director of the Company but who is not an individual, shall by such procedure as may be appropriate for the management of the business and affairs of such person appoint an individual to act as such person's representative as a director of the Company with power to exercise all of the powers of a director of the Company. The person appointing any such individual shall remain fully liable as a director of the Company notwithstanding any such appointment. A duly certified copy of the resolution or document whereby any such appointment is made shall be filed with the Company before any such individual acts as representative as aforesaid. Any person appointing an individual under the provisions of this by-law may from time to time revoke the appointment of any such individual and appoint another in his place or stead. 6.8 Resolution in lieu of meeting: Notwithstanding any of the foregoing provisions of this by-law a resolution in writing signed by all the directors entitled to vote on that resolution at a meeting of the directors or any committee of the directors is valid as if passed at a meeting of the directors or any committee of the directors. 7. REMUNERATION OF DIRECTORS 7.1 The remuneration to be paid to any of the directors shall be such as the directors may from time to time determine and such remuneration may be in addition to the salary paid to any officer or employee of the Company who is also a director. The directors may also award special remuneration to any director undertaking any special services on the Company's behalf other than the duties ordinarily required of a director and the confirmation of any such resolution or resolutions by the shareholders shall not be required. The directors shall also be entitled to be paid their travelling and other expenses properly incurred by them in connection with the affairs of the Company. 8. APPROVAL OF TRANSACTIONS BY SHAREHOLDERS 8.1.1 The directors in their discretion may submit any contract, act or transaction for approval or ratification at any annual meeting of the shareholders or at any special meeting of the shareholders called for the purpose of considering the same. 8.1.2 Where a director votes in a resolution of directors approving, ratifying or confirming any contract, act or transaction, in which that director is a party, or a director or officer or has a material interest in any body which is a party (an "Interested Director"), other than: (a) an arrangement by way of security for money loaned to, or obligations undertaken by the director for the benefit of the Company or an affiliate of the Company; (b) is a contract that relates primarily to his remuneration as a director, officer, employee or agent of the Company or affiliate of the Company; 7 The Companies Act By-Law No. 1 CHIPPAC (BARBADOS) LTD. (c) a contract for indemnity or insurance under sections 97 and 101 of the Act; (d) a contract with an affiliate of the Company; the approval, confirmation or ratification of the directors must be approved by special resolution of the shareholders, to whom notice of the nature and extent of the director's interests in the contract must be declared and disclosed in reasonable detail, in accordance with the Act. 8.1.3 Except for a contract, act or transaction referred to in section 8.1.1 of the by-laws, any such contract, act or transaction that is approved or ratified or confirmed by a resolution passed by a majority of the votes cast at any such meeting (unless any different or additional requirement is imposed by the Act or by the Company's articles or any other by-law) shall be as valid and as binding upon the Company and upon all the shareholders as though it had been approved, ratified or confirmed by every shareholder of the Company. 8.2 In accordance with the Act, but subject to any additional requirements imposed by the Act or other applicable law and notwithstanding any contrary provision in the Shareholders Agreement, a special resolution of the shareholder of the Company shall be required to cause or permit the Company to do any of the following actions: (a) to amend the Articles; (b) to amalgamate the Company; (c) to enter into any merger or consolidation or any other manner of reorganisation; and (d) to sell, lease or exchange all or substantially all of the assets of the Company, (other than in the ordinary course of business of the Company). 9. LIMITATION OF LIABILITY OF DIRECTORS AND OFFICERS 9.1 No director or officer of the Company shall be liable to the Company for:- (a) the acts, receipts, neglects or defaults of any other director or officer or employee or for joining in any receipt or act for conformity; (b) any loss, damage or expense incurred by the Company through the insufficiency or deficiency of title to any property acquired by the Company or for or on behalf of the Company; (c) the insufficiency or deficiency of any security in or upon which any of the moneys of or belonging to the Company shall be placed out or invested; 8 The Companies Act By-Law No. 1 CHIPPAC (BARBADOS) LTD. (d) any loss or damage arising from the bankruptcy, insolvency or tortious act of any person, including any person with whom any moneys, securities or effects shall be lodged or deposited; (e) any loss, conversion, misapplication or misappropriation of or any damage resulting from any dealings with any moneys, securities or other assets belonging to the Company; or (f) any other loss, damage or misfortune whatever which may happen in the execution of the duties of his respective office or trust or in relation thereto; unless the same happens by or through his failure to exercise the powers and to discharge the duties of his office honestly and in good faith with a view to the best interests of the Company and in connection therewith to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. 9.2 Nothing herein contained shall relieve a director or officer from the duty to act in accordance with the Act or Regulations or relieve him from liability for a breach thereof. 9.2.1 The directors for the time being of the Company shall not be under any duty or responsibility in respect of any contract, act or transaction whether or not made, done or entered into in name of or on behalf of the Company, except such as are submitted to and authorised or approved by the directors. 9.2.2 If any director or officer of the Company is employed by or performs services for the Company otherwise than as a director or officer or is a member of a firm or a shareholder, director or officer of a body corporate which is employed by or performs services for the Company, the fact of his being a shareholder, director or officer of the Company shall not disentitle such director or officer or such firm or body corporate, as the case may be, from receiving proper remuneration for such services. 10. INDEMNITIES TO DIRECTORS AND OFFICERS 10.1 Subject to section 97 of the Act, except in respect of an action by or on behalf of the Company to obtain a judgement in its favour, the Company shall indemnify a director or officer of the Company; a former director or officer of the Company; a person who acts or acted at the Company's request as a director or officer of a body corporate of which the Company is or was a shareholder or creditor; and the personal representatives of each; against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgement, reasonably incurred by him in respect of any civil, criminal or administrative action or proceeding to which he is made a party by reason of being or having been a director or officer of such company, provided that: 9 The Company Act By-Law No. 1 CHIPPAC (BARBADOS) LTD (a) he acted honestly and in good faith with a view to the best interests of the Company; and (b) in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, he had reasonable grounds for believing that his conduct was lawful. 10.2 With the approval of the court, in respect of an action by or on behalf of the Company to obtain a judgment in its favor, the Company shall indemnify a director or officer of the Company; a former director or officer of the Company; a person who acts or acted at the Company's request as a director or officer of a body corporate of which the Company is or was a shareholder or creditor; and the personal representatives of each; to which such person is made a party by reason of being or having been a director of the Company or body corporate, against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgement, reasonably incurred by him in respect of any action or proceeding, provided that: (a) he acted honestly and in good faith with a view to the best interests of the Company; and (b) in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, he had reasonable grounds for believing that his conduct was lawful. 10.3 The Company shall indemnify a director or officer of the Company; a former director or officer of the Company; a person who acts or acted at the Company's request as a director or officer of a body corporate of which the Company is or was a shareholder or creditor, and the personal representatives of each; to which such person is made a party by reason of being or having been a director of the Company or body corporate, against all costs, charges and expenses, reasonably incurred by him in respect of any civil, criminal or administrative action or proceeding to which he is made a party by reason of being or having been a director or officer of such company, provided that: (a) he was substantially successful on the merits in his defence of the action or proceeding; (b) he acted honestly and in good faith with a view to the best interests of the Company; and (c) he is fairly and reasonably entitled to an indemnity. 10.4 The Company shall insure or obtain third-party insurance for the benefit of a director or officer of the Company; a former director or officer of the Company; a person who acts or acted at the Company's request as a director or officer of a body corporate of which the Company is or was a shareholder or creditor, and the personal representatives of each; against any liability incurred by him in his capacity of a director or officer of the Company for failure to exercise the 10 The Companies Act By-Law No. 1 CHIPPAC (BARBADOS) LTD. care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. 11. OFFICERS 11.1 Appointment: The directors shall as often as may be required appoint a Secretary and, if deemed advisable, may as often as may be required designate any other offices and appoint officers of the Company, who shall have such authority and shall perform such duties as may from time to time be prescribed by the directors. Two or more offices may be held by the same person. 11.2 Remuneration: The remuneration of all officers appointed by the directors shall be determined from time to time by resolution of the directors. The fact that any officer or employee is a director or shareholder of the Company shall not disqualify him from receiving such remuneration as may be determined. 11.3 Powers and Duties: All officers shall sign such contracts, documents or instruments in writing as require their respective signatures and shall respectively have and perform all powers and duties incident to their respective offices and such other powers and duties respectively as may from time to time be assigned to them by the directors. 11.4 Delegation: In case of the absence or inability to act of any officer of the Company, or for any other reason that the directors may deem sufficient the directors may delegate all or any of the powers of such officer to any other officer or to any director. 11.5 Secretary: The Secretary shall give or cause to be given notices for all meetings of the directors, any committee of the directors and the shareholders when directed to do so and shall have charge of the minute books and seal of the Company and of the records (other than accounting records)referred to in section 170 of the Act. 11.6 Assistant Secretary: If appointed, an Assistant Secretary or, if more than one, the Assistant Secretaries, shall respectively perform all the duties of the Secretary, in the absence or inability or refusal to act of the Secretary. 11.7 Vacancies: If the office of any officer of the Company becomes vacant by reason of death, resignation, disqualification or otherwise, the directors by resolution shall, in the case of the Secretary, and may, in the case of any other office, appoint a person to fill such vacancy. 12. SHAREHOLDERS' MEETINGS 12.1 Annual Meeting: Subject to the provisions of section 105 of the Act, the annual meeting of the shareholders shall be held on such day in each year and at such time as the 11 The Companies Act By-Law No. 1 CHIPPAC (BARBADOS) LTD. directors may by resolution determine at any place within Barbados or, if all the shareholders entitled to vote at such meeting so agree, outside Barbados, except in Canada. 12.1.1 For the purposes of by-law 12.1, a shareholder entitled to vote at the annual meeting shall be deemed to agree to the convening of the annual meeting of the Company outside of Barbados, at the place specified in the notice of such annual meeting, unless such shareholder delivers prior to or at the annual meeting its dissent to such meeting, or pursuant to the Act, attends the meeting for the express purpose of objecting to the transaction of business at that annual meeting on the grounds that such meeting is not lawfully held. 12.2 Special Meetings: Special meetings of the shareholders may be convened at any date and time and at any place within Barbados or, if all the shareholders entitled to vote at such meeting so agree, outside Barbados, except in Canada. 12.2.1 For the purposes of by-law 12.2, a shareholder entitled to vote at any special meeting shall be deemed to agree to the convening of the special meeting of the Company outside of Barbados, at the place specified in the notice of such special meeting, unless such shareholder delivers prior to or at the annual meeting its dissent to such meeting, or pursuant to the Act, attends the meeting for the express purpose of objecting to the transaction of business at that special meeting on the grounds that such meeting is not lawfully held. 12.3 Requisitioned Meetings: The directors shall, on the requisition of the holders of not less than five percent of the issued shares of the Company that carry a right to vote at the meeting requisitioned, forthwith convene a meeting of shareholders, and in the case of such requisition the following provisions shall have effect:- (a) the requisition must state the purposes of the meeting and must be signed by the requisitionists and deposited at the Registered Office, and may consist of several documents in like form each signed by one or more of the requisitionists; (b) if the directors do not, within twenty-one (21) days from the date of the requisition being so deposited, proceed to convene a meeting, the requisitionists or any of them may themselves convene the meeting but any meeting so convened shall not be held after three (3) months from the date of such deposit; (c) unless section 129 (3) of the Act applies, the directors shall be deemed not to have duly convened the meeting if they do not give such notice as is required by the Act within fourteen (14) days from the deposit of the requisition; (d) any meeting convened under this by-law the requisitionists shall be called as nearly as possible in the manner in which meetings are to be called pursuant to the by-law and Divisions E and F of Part 1 of the Act; and (e) a requisition by joint holders of shares must be signed by all such holders. 12 The Companies Act By-Law No.1 CHIPPAC (BARBADOS) LTD 12.4 Notice: A printed, written or typewritten notice stating the day, hour and place of meeting shall be given by serving such notice on each shareholder entitled to vote at such meeting, on each director and on the auditor of the Company in the manner specified in by-law 18.1 hereof, not less than twenty-one (21) days or more than fifty (50) days (in each case exclusive of the day for which the notice is delivered or sent and of the day for which notice is given) before the date of the meeting. Notice of a meeting at which special business is to be transacted shall state (a) the nature of that business in sufficient detail to permit the shareholder to form a reasoned judgement thereon, and (b) the text of any special resolution to be submitted to the meeting. 12.5 Waiver of Notice: A shareholder and any other person entitled to attend a meeting of shareholders may in any manner waive notice of a meeting of shareholders and attendance of any such person at a meeting of shareholders shall constitute a waiver of notice of the meeting except where such person attends a meeting for the express purpose of objecting to the transaction of any business on the grounds that the meeting is not lawfully called. 12.6 Omission of Notice. The accidental omission to give notice of any meeting or any irregularity in the notice of any meeting or the non-receipt of any notice by any shareholder, director or the auditor of the Company shall not invalidate any resolution passed or any proceedings taken at any meeting of the shareholders. 12.7 Votes: Every question submitted to any meeting of shareholders shall be decided in the first instance by a show of hands unless a person entitled to vote at the meeting has demanded a poll. 12.7.1 At every meeting at which he is entitled to vote, every shareholder, proxy holder or individual authorised to represent a shareholder who is present in person shall have one vote on a show of hands. Upon a poll at which he is entitled to vote, every shareholder, proxy holder or individual authorised to represent a shareholder shall, subject to the articles, have one vote for every share held by the shareholder. 12.7.2 At any meeting unless a poll is demanded, a declaration by the chairman of the meeting that a resolution has been carried or carried unanimously or by a particular majority or lost or not carried by a particular majority shall be conclusive evidence of the fact. 12.7.3 When the Chairman, the President and the Vice-President are absent, the persons who are present and entitled to vote shall choose another director as chairman of the meeting; but if no director is present or all the directors present decline to take the chair; the persons who are present and entitled to vote shall choose one of their number to be chairman. 12.7.4 A poll, either before or after vote by a show of hands may, be demanded by any person entitled to vote at the meeting. If at any meeting a poll is demanded on the election of a chairman or on the question of adjournment it shall be taken forthwith without adjournment. If at any meeting a poll is demanded on any other question or as to the election of directors, the vote shall be taken by poll in such manner and either at once, later in the meeting on after 13 The Companies Act By-Law No. 1 CHIPPAC (BARBADOS) LTD. adjournment as the chairman of the meeting directs. The result of a poll shall be deemed to be the resolution of the meeting at which the poll was demanded. A demand for a poll may be withdrawn. 12.7.5 If two (2) or more persons hold shares jointly, one of those holders present at a meeting of shareholders may, in the absence of the other, vote the shares; but if two (2) or more of those persons who are present, in person or by proxy vote, they must vote as one on the shares jointly held by them. 12.8 Corporate Representative: A body corporate or association which is a shareholder of the Company, may be represented at any annual or special general meeting of the Company, by an individual who in his capacity as a director or officer of that body corporate or association is authorised under its governing instruments to represent that body corporate or association or by an individual authorised by a resolution of the directors or governing body of that body corporate or association to represent it at meetings of shareholders of the Company. 12.9 Proxies: Votes at meetings of shareholders may be given either personally (in the case of a body corporate or association by an individual described in by-law 12.8) or by proxy. 12.9.1 A proxy shall be executed by the shareholder or his attorney authorised in writing and is valid only at the meeting in respect of which it is given or any adjournment thereof. 12.9.2 A person appointed by proxy need not be a shareholder. 12.9.3 Subject to the provisions of Part V of the Regulations, a proxy may be in the following form: The undersigned shareholder of CHIPPAC (BARBADOS) LTD. hereby appoints of or failing him of as the nominee of the undersigned to attend and act for the undersigned and on behalf of the undersigned at the meeting of the shareholders of the said Company to be held on [_________________] and at any adjournment or adjournments thereof in the same manner, to the same extent and with the same powers as if the undersigned were present at the said meeting or such adjournment or adjournments thereof Dated this day of 19 . Signature of Shareholder 14 The Companies Act By-Law No. 1 CHIPPAC (BARBADOS) LTD. 12.10 Adjournment: The chairman of any meeting may with the consent of the meeting adjourn the same from time to time to a fixed time and place and no notice of such adjournment need be given to the shareholders unless the meeting is adjourned by one or more adjournments for an aggregate of thirty (30) days or more in which case notice of the adjourned meeting shall be given as for an original meeting. Any business that might have been brought before or dealt with at the original meeting in accordance with the notice calling the same may be brought before or dealt with at any adjourned meeting for which no notice is required. 12.11 Quorum: Subject to the Act, and except in the case of a Company having only one shareholder a quorum for the transaction of business at any meeting of the shareholders shall be two persons present in person, each being either a shareholder entitled to vote thereat, or a duly appointed proxy holder or representative of a shareholder so entitled. If a quorum is present at the opening of any meeting of the shareholders, the shareholders present or represented may proceed with the business of the meeting notwithstanding a quorum is not present throughout the meeting. If a quorum is not present within thirty (30) minutes of the time fixed for a meeting of shareholders, the persons present and entitled to vote may adjourn the meeting to a fixed time and place but may not transact any other business. 12.12 Resolution in Lieu of Meeting: Notwithstanding any of the foregoing provisions of this by-law a resolution in writing signed by all the shareholders entitled to vote on that resolution at a meeting of the shareholders is, subject to section 128 of the Act, as valid as if it had been passed at a meeting of the shareholders. 13. SHARES 13.1 Allotment and Issuance: Subject to the Act, the Articles and the Shareholders Agreement, shares in the capital of the Company may be allotted and issued by resolution of the directors at such time and on such terms and conditions and to such persons or class of persons as the directors determine. 13.2 Certificates: Share certificates and the form of share transfer shall (subject to section 181 of the Act) be in such form as the directors may by resolution approve, and such certificates shall be signed by any two officers or directors of the Company. 13.2.1 The directors or any agent designated by the directors may in their or his discretion direct the issuance of a new share certificate or other such certificate in lieu thereof consequent upon the change of name of the registered shareholder pursuant to an amendment to the corporate instruments of the registered shareholder to effect a change of name; an amalgamation between the registered shareholder and another legal entity; a transfer of shares by operation of law; or any other change in the corporate instruments of the registered shareholder. 13.2.2 The directors or any agent designated by the directors may in their or his discretion direct the issuance of a new share certificate or other such certificate in lieu of and upon cancellation of a certificate that has been mutilated or in substitution for a certificate claimed to 15 The Companies Act By-Law No.1 CHIPPAC (BARBADOS) LTD. have been lost, destroyed or wrongfully taken, on payment of such reasonable fee and on such terms as to indemnity, reimbursement of expenses and evidence of loss and of title as the directors may from time to time prescribe, whether generally or in any particular case. 14. TRANSFER OF SHARES AND DEBENTURES 14.1 Transfer: The shares or debentures of a company may be transferred by a written instrument of transfer signed by the transferor and naming the transferee; 14.2 Registers: Registers of shares and debentures issued by the Company shall be kept at the registered office of the Company or at such other place in Barbados as may from time to time be designated by resolution of the directors. 14.3 Surrender of Certificates: Subject to section 179 of the Act, no transfer of shares or debentures shall be registered unless or until the certificate representing the shares or debentures to be transferred has been surrendered for cancellation. 14.4 Surrender in Default to the Company: If so provided in the Articles or the Shareholders Agreement, the Company has a lien on a share registered in the name of a shareholder or his personal representative for a debt of that shareholder to the Company, or for any default in its obligation owing to the Company under the Shareholders Agreement. 14.4.1 By way of enforcement of a lien under by-law 14.4, the directors may refuse to permit the registration of a transfer of such share, and may exercise any right to repurchase all of the shares of any defaulting shareholder. Until completion of such repurchase in accordance with the Shareholders' Agreement (and notwithstanding that any amounts due in respect of such repurchase remain due and outstanding) the Company shall have the right to exercise all rights in respect of the shares, (including without limitation the right to vote at any annual or special general meeting of the Company and to receive all dividends and distributions in respect thereof), and the defaulting shareholder shall have only the rights accorded under the Shareholders Agreement. 15. DIVIDENDS 15.1 The directors may from time to time by resolution declare and the Company may pay dividends out of realised profits of the Company, on the issued and outstanding shares in the capital of the Company subject to the Articles and provided that there are not reasonable ground for believing that: (a) the Company is unable (or would after the payment) be unable to pay its liabilities as they become due; and 16 The Companies Act By-Law No.1 CHIPPAC (BARBADOS) LTD. (b) the realisable value of the Company's assets would thereby be less than the aggregate of its liabilities and stated capital of all classes. 15.1.1 In the event that several persons are registered as the joint holders of any shares, any one of such persons may give effectual receipts for all dividends and payments on account of dividends. 16. VOTING IN OTHER COMPANIES 16.1 All shares or debentures carrying voting rights in any other body corporate that are held from time to time by the Company may be voted at any and all meetings of shareholders, debenture holders (as the case may be) of such other body corporate and in such manner and by such person or persons as the directors of the Company shall from time to time determine. The officers of the Company may for and on behalf of the Company from time to time: (a) execute and deliver proxies; and (b) arrange for the issuance of voting certificates or other evidence of the right to vote; in such names as they may determine without the necessity of a resolution or other action by the directors. 17. INFORMATION AVAILABLE TO SHAREHOLDERS 17.1 Except as provided by the Act, no shareholder shall be entitled to any information respecting any details or conduct of the Company's business which in the opinion of the directors it would be in-expedient in the interests of the Company to communicate to the public. 17.2 The directors may from time to time, subject to rights conferred by the Act, determine whether and to what extent and at what time and place and under what conditions or regulations the documents, books and registers and accounting records of the Company or any of them shall be open to the inspection of shareholders and no shareholder shall have any right to inspect any document or book or register or accounting record of the Company except as conferred by statute or authorised by the directors or by a resolution of the shareholders. 18. NOTICES 18.1 Method of Giving Notice. Any notice or other document required by the Act, the Regulations, the Articles or the by-laws to be sent to any shareholder, debenture holder, director or auditor may be delivered by hand or sent by air courier, registered mail, facsimile, telecopier electronic mail or other instantaneous electronic means to any such person at his latest address as 17 The Companies Act By-Law No.1 CHIPPAC (BARBADOS) LTD. shown in the records of the Company or its transfer agent and to any such director at his latest address as shown in the records of the Company or in the latest notice filed under section 66 or 74 of the Act, and to the auditor at his business address. 18.2 Waiver of Notice: Notice may be waived or the time for the notice may be waived or abridged at any time with the consent in writing of the person entitled thereto. 18.3 Undelivered Notices. If a notice or document is sent to a shareholder or debenture holder by prepaid mail in accordance with this by-law and the notice or document is returned on three (3) consecutive occasions because the shareholder or debenture holder cannot be found, it shall not be necessary to send any further notices or documents to the shareholder or debenture holder until he informs the Company in writing of his new address. 18.4 Shares And Debentures Jointly Registered: All notices or other documents with respect to any shares or debentures registered in more than one name shall be given to whichever of such persons is named first in the records of the Company and any notice or other document so given shall be sufficient notice or delivery to all the holders of such shares or debentures. 18.5 Persons Entitled by Operation of Law: Subject to section 184 of the Act, every person who by operation of law, transfer or by any other means whatsoever becomes entitled to any share is bound by every notice or other document in respect of such share that, previous to his name and address being entered in the records of the Company is duly given to the person from whom he derives his title to such share. 18.6 Deceased Shareholders: Subject to section 184 of the Act, any notice or other document delivered or sent by air courier, registered mail, facsimile, telecopier electronic mail or other instantaneous electronic means or left at the address of any shareholder as the same appears in the records of the Company shall, notwithstanding that such shareholder is deceased, and whether or not the Company has notice of his death, be deemed to have been duly served in respect of the shares held by him (whether held solely or with any other person) until some other person is entered in his stead in the records of the Company as the holder or one of the holders thereof and such service shall for all purposes be deemed a sufficient service or such notice or document on his personal representatives and on all persons, if any, interested with him in such shares. 18.7 Signature of Notices: The signature of any director or officer of the Company to any notice or document to be given by the Company may be written, stamped, typewritten or printed or partly written, stamped, typewritten or printed. 18.8 Computation of Time: Where a notice extending over a number of days or other period is required under any provisions of the Articles or the by-laws the day of sending the notice shall, unless it is otherwise provided, be counted in such number of days or other period. 18 The Companies Act By-Law No. 1 CHIPPAC (BARBADOS) LTD. 18.9 Proof of Service: Where a notice required under by-law 18.1 hereof is delivered to the person to whom it is addressed in the manner prescribed in by-law 18.1 hereof, notice shall be deemed to be received; (a) if delivered by hand, at the time of delivery; (b) if delivered by registered mail, on the fifth day after such notice is mailed, provided that if such day of deemed receipt is not a business day (in the jurisdiction of the recipient), then notice shall be deemed received at the commencement of business on the business day immediately following the day of deemed receipt; and (c) if delivered by facsimile, telecopier, electronic mail or other instantaneous electronic means, at the time of transmission so stated (if any), provided that in the absence of a statement of transmission or if such time of deemed receipt is not a business day (in the jurisdiction of the recipient), or within the hours during which business is normally conducted by the recipient then notice shall be deemed received at the commencement of business on the business day immediately following the day of transmission. 18.9.1 A certificate of an officer of the Company in office at the time of the making of the certificate or of any transfer agent of shares of any class of the Company as to facts in relation to the delivery or sending of any notice shall be conclusive evidence of those facts. 19. BANKING AUTHORISATIONS 19.1 Deposit of Funds. All funds of the Company shall be deposited in the name of the Company with such bank, bankers or trust company or other duly licensed financial institution or intermediary as may be designated from time to time by the Board of Directors. 19.2 Authorised Withdrawals: Withdrawals from the accounts of the Company, and all banking authorisations may be made by commercially recognised means, including telephone instruction, electronic funds transfer, manual signature and facsimile signature signed and/or countersigned by such persons and in the manner, as may be authorised by the Board of Directors to sign and/or countersign the same, provided that no person shall be authorised to sign and countersign the same authorisation. 19.3 Payments: All cheques or drafts shall be made payable to the order of the person entitled to receive the money, except that cheques for cash for office expenses may be drawn to the order of any officer, or other person as may be authorised by the Board of Directors. 19 The Companies Act By-Law No. 1 CHIPPAC (BARBADOS) LTD. 20. EXECUTION OF INSTRUMENTS 20.1 In the absence of any resolution of the directors of the Company, contracts, documents or instruments in writing requiring the signature of the Company, including (subject to section 134 of the Act), all instruments that may be necessary for the purpose of selling, assigning, transferring, exchanging, converting or conveying any such shares, stocks, bonds, debentures, rights, warrants or other securities, may be signed by: (a) [Names of officer(s)]; (b) the chief executive officer of the Company, the Secretary or the Assistant Secretary; or (c) any two directors or officers of the Company. All contracts, documents and instruments in writing so signed shall be binding upon the Company without any further authorisation or formality. 20.2 The directors shall have power from time to time by resolution to appoint any officers or persons on behalf of the Company either to sign certificates for shares in the Company and contracts, documents and instruments in writing generally or to sign specific contracts, documents or instruments in writing. 20.3.1 The common seal of the Company may be affixed to contracts, documents and instruments in writing signed as aforesaid by any director, officer or other person specified in by-law 20.1 hereof, or by any director, officer or other person appointed by resolution under by-law 20.2 hereof. 20.3.2 An official seal which the Company may have, as it is authorised to do by by-law 3.2 hereof, may be affixed to any document to which the Company is part in the country, district or place where such official seal can be used by a person appointed for that purpose by the Company by an instrument in writing under the common seal and a person who affixes an official seal of the Company to a document shall do so in accordance with section 25(6) of the Act. 21. SIGNATURES 21.1 The signature of any director or officer of the Company or any other person on behalf of the Company (whether under the authority of by-law 20.1 or appointed by resolution of the directors pursuant to by-law 20.2) may, if specifically authorised by resolution of the directors, be printed, engraved, lithographed or otherwise mechanically reproduced upon any certificate for shares in the Company or contract, documents or instrument in writing, bond, debenture or other security of the Company executed or issued by or on behalf of the Company. 20 The Companies Act By-Law No. 1 CHIPPAC (BARBADOS) LTD. 21.2 Any document or instrument in writing on which the signature of any such officer or person is so reproduced shall be deemed to have been manually signed by such officer or person whose signature is so reproduced and shall be valid to all intents and purposes as if such document or instrument in writing had been signed manually and notwithstanding that the officer or person whose signature is so reproduced has ceased to hold office at the date on which such document or instrument in writing is delivered or issued. 22. FINANCIAL YEAR 22.1 The directors may from time to time by resolution establish the financial year of the company. 23. CONSTRUCTION OF BY-LAWS 23.1 These by-laws shall be the complete rules and regulations for the purpose of regulating the business of the Company in accordance with the provisions of the Act, the Regulations and the Shareholders Agreement. 23.2.1 These by-laws are subject to the Act, the Articles and the Shareholders Agreement, and are to be read and construed to the fullest extent possible in a manner consistent with the Act, the Articles and the Shareholders Agreement; and to give effect to all duties, rights and obligations prescibed in the Act, the Articles and the Shareholders Agreement. 23.2.2 Notwithstanding the foregoing, in the event that any provision herein is inconsistent with, conflicts with or is at variance with the Act, the Articles or the Shareholders Agreement, this document shall be deemed to be amended (and shall be amended at the earliest opportunity by the special resolution of the shareholders), to the extent necessary to ensure conformity between these by-laws and that inconsistent provision of the Act, the Articles and the Shareholders Agreement. 24. AMENDMENT OF BY-LAWS 24.1 The following by-laws (the "Restricted Clauses") of this By-Law may be amended, varied, modified repealed or replaced only by special resolution of the shareholders. 24.2 Subject by-law 24.1, this By-Law may be restated, repealed or amended, and further by-laws may be enacted by resolution of the Board of Directors; provided that such restatement, repeal or amendment of the By-Law, or the terms of such further by-laws (the "Permitted Amendment") is submitted to the shareholders of the Company for ratification and approval by ordinary resolution at the next annual or special meeting of the Company. 24.2.1 Notwithstanding any omission or failure to give notice to the shareholders in accordance with the provisions of by-law 12.4 hereof, the shareholders entitled to vote at any annual or special 21 The Companies Act By-Laws No. 1 CHIPPAC (BARBADOS) LTD. meeting at which the Permitted Amendment must be considered in accordance with by-law 24.2 hereof, shall be deemed to have received notice that such meeting has been called to consider (in addition to any other matters), the Permitted Amendment and its ratification and approval (a) in sufficient detail to permit the shareholders to form a reasoned judgement thereon, and (b) with the text of an approval and ratification resolution. 24.3 Where the Permitted Amendment is confirmed or further amended by the shareholders pursuant to by-law 24.2 hereof, the Permitted Amendment (in the form in which it was confirmed or amended), shall be effective from the date of the resolution of the directors approving and enacting the Permitted Amendment. In the event that the Permitted Amendment is rejected by the shareholders, pursuant to by-law 24.2 hereof, the Permitted Amendment shall be effective from the date of the resolution of the directors approving and enacting the Permitted Amendment until the date rejected by the shareholders. 24.4.1 The shareholders may defer consideration of the Permitted Amendment to an adjourned or later annual or special general meeting of the Company, and in any such event, the Permitted Amendment in the form approved by the directors, shall continue in effect until the date of such adjourned or later annual or special general meeting of the Company to which consideration of the Permitted Amendment has been deferred, and the provisions of by-law 24.3 hereof apply to any resolution of the shareholders adopted at any such adjourned or later annual or special general meeting of the Company. 24.4.2 Except where the shareholders expressly reject a resolution calling for the approval and ratification of the Permitted Amendment, or expressly declare the non-applicability of by-law 24.4.1 hereof, any failure to adopt a resolution approving and ratifying a Permitted Amendment (with or without any modification or further amendment), shall be deemed as a resolution to defer consideration of the Permitted Amendment to an adjourned or later annual or special general meeting of the Company pursuant to by-law 24.4.1. ENACTED this 13/th/ day of APRIL _____ 1999 /s/ Eulalie Greenaway - ----------------------- [Corporate Seal Appears Here] 22 EX-3.7 11 MEMORANDUM OF ASSOCIATION OF CHIPPAC LTD EXHIBIT 3.7 TERRITORY OF THE BRITISH VIRGIN ISLANDS THE INTERNATIONAL BUSINESS COMPANIES ACT (CAP 291) MEMORANDUM OF ASSOCIATION OF ChipPAC LIMITED NAME 1. The name of the Company is ChipPAC Limited. REGISTERED OFFICE 2. The Registered Office of the Company will be at Craigmuir Chambers, P.O. Box 71, Road Town, Tortola, British Virgin Islands. REGISTERED AGENT 3. The Registered Agent of the Company will be HWR Services Limited of Craigmuir Chambers, P.O. Box 71, Road Town, Tortola, British Virgin Islands. GENERAL OBJECTS AND POWERS 4. (1) The object of the Company is to engage in any act or activity that is not prohibited under any law for the time being in force in the British Virgin Islands; (2) The Company may not (a) carry on business with persons resident in the British Virgin Islands; (b) own an interest in real property situate in the British Virgin Islands, other than a lease referred to in paragraph (e) of subclause (3); (c) carry on banking or trust business, unless it is licensed to do so under the Banks and Trust Companies Act, 1990; (d) carry on business as an insurance or reinsurance company, insurance agent or insurance broker unless it is licensed under an enactment authorizing it to carry on that business. 1 (e) carry on the business of company management, unless it is licensed under the Company Management Act, 1990; or (f) carry on the business of providing the registered office or the registered agent for companies incorporated in the British Virgin Islands. (3) For purposes of paragraph (a) of subclause (2), the Company shall not be treated as carrying on business with persons resident in the British Virgin Islands if (a) it makes or maintains deposits with a person carrying on banking business within the British Virgin Islands; (b) it makes or maintains professional contact with solicitors, barristers, accountants, bookkeepers, trust companies, administration companies, investment advisers or other similar persons carrying on business within the British Virgin Islands; (c) it prepares or maintains books and records within the British Virgin Islands; (d) it holds, within the British Virgin Islands, meetings of its directors or members; (e) it holds a lease of property for use as an office from which to communicate with members or where books and records of the Company are prepared or maintained; (f) it holds shares, debt obligations or other securities in a company incorporated under the International Business Companies Act or under the Companies Act; or (g) shares, debt obligations or other securities in the Company are owned by any person resident in the British Virgin Islands or by any company incorporated under the International Business Companies Act or under the Companies Act. (4) The Company shall have all such powers as are permitted by law for the time being in force in the British Virgin Islands, irrespective of corporate benefit, to 2 Perform all acts and engage in all activities necessary or conducive to the conduct, promotion or attainment of the object of the Company. CURRENCY 5. Shares in the Company shall be issued in the currency of the United States of America. AUTHORIZED CAPITAL 6. The authorized capital of the Company is US$50,000.00. CLASSES, NUMBER AND PAR VALUE OF SHARES 7. The authorized capital is made up of one class and one series of shares divided into 50,000 shares of US$1.00 par value. DESIGNATIONS, POWERS, PREFERENCES, ETC. OF SHARES 8. All shares shall (a) have one vote each; (b) be subject to redemption, purchase or acquisition by the Company for fair value; and (c) have the same rights with regard to dividends and distributions upon liquidation of the Company. VARIATION OF CLASS RIGHTS 9. If at any time the authorized capital is divided into different classes or series of shares, the rights attached to any class or series (unless otherwise provided by the terms of issue of the shares of that class or series) may, whether or not the Company is being wound up, be varied with the consent in writing of the holders of not less than three-fourths of the issued shares of that class or series and of the holders of not less than three-fourths of the issued shares of any other class or series of shares which may be affected by such variation. RIGHTS NOT VARIED BY THE ISSUE OF SHARES PARI PASSU 10. The rights conferred upon the holders of the shares of any class issued with preferred or other rights shall not, 3 unless otherwise expressly provided by the terms of issue of the shares of that class, be deemed to be varied by the creation or issue of further shares ranking pari passu therewith. REGISTERED SHARES AND BEARER SHARES 11. Shares may be issued as registered shares or to bearer as may be determined by a resolution of directors. EXCHANGE OF REGISTERED SHARES AND BEARER SHARES 12. Registered shares may be exchanged for bearer shares and bearer shares may be exchanged for registered shares. TRANSFER OF REGISTERED SHARES 13. Subject to the provisions relating to the transfer of shares set forth in the Articles of Association annexed hereto (the "Articles of Association") registered shares in the Company may be transferred subject to the prior or subsequent approval of the Company as evidenced by a resolution of directors or by a resolution of members. SERVICE OF NOTICE ON HOLDERS OF BEARER SHARES 14. Where shares are issued to bearer, the bearer, identified for this purpose by the number of the share certificate, shall be requested to provide the Company with the name and address of an agent for service of any notice, information or written statement required to be given to members, and service upon such agent shall constitute service upon the bearer of such shares until such time as a new name and address for service is provided to the Company. In the absence of such name and address being provided it shall be sufficient for the purposes of service for the Company to publish the notice, information or written statement or a summary thereof in one or more newspapers published or circulated in the British Virgin Islands and in such other place, if any, as the Company shall from time to time by a resolution of directors or a resolution of members determine. The directors of the Company must give sufficient notice of meetings to members holding shares issued to bearer to allow a reasonable opportunity for them to secure or exercise the right or privilege that is the subject of the notice other than the right or privilege to vote, as to which the period of notice shall be governed by the Articles of Association. What amounts to sufficient notice is a 4 matter of fact to be determined after having regard to all the circumstances. AMENDMENT OF MEMORANDUM AND ARTICLES OF ASSOCIATION 15. The company may amend its Memorandum of Association and Articles of Association by a resolution of members or directors. DEFINITIONS 16. The meanings of words in this Memorandum of Association are as defined in the Articles of Association. We, HWR SERVICES LIMITED, of Craigmuir Chambers, Road Town, Tortola, British Virgin Islands for the purpose of incorporating an International Business Company under the laws of the British Virgin Islands hereby subscribe our name to this Memorandum of Association the 5th day of February, 1999 in the presence of: Witness Subscriber /s/ Ibn K. Thomas /s/ Adel K. Clyne - ------------------------ ------------------------------ Ibn K. Thomas Adel K. Clyne Craigmuir Chambers Authorized Signatory Road Town, Tortola HWR Services Limited 5 EX-3.8 12 ARTICLES OF ASSOCIATION OF CHIPPAC LTD Exhibit 3.8 TERRITORY OF THE BRITISH VIRGIN ISLANDS THE INTERNATIONAL BUSINESS COMPANIES ACT (Cap. 291) ARTICLES OF ASSOCIATION OF ChipPAC LIMITED PRELIMINARY 1. In these Articles, if not inconsistent with the subject or context, the words and expressions standing in the first column of the following table shall bear the meanings set opposite them respectively in the second column thereof. Words Meaning ----- ------- capital The sum of the aggregate par value of all outstanding shares with par value of the company and shares with par value held by the Company as treasury shares plus (a) the aggregate of the amounts designated as capital of all outstanding shares without par value of the Company and shares without par value held by the Company as treasury shares, and (b) the amounts as are from time to time transferred from surplus to capital by a resolution of directors. member A person who holds shares in the Company. person An individual, a corporation, a trust, the estate of a deceased individual, a partnership or an unincorporated association of persons. resolution of (a) A resolution approved at a duly convened and directors constituted meeting of directors of the Company or of a committee of directors of the company by the affirmative vote of a simple majority of the directors present at the meeting who voted and did not abstain; or 1 (b) a resolution consented to in writing by all directors or of all members of the committee, as the case may be; except that where a director is given more than one vote, he shall be counted by the number of votes he casts for the purpose of establishing a majority. resolution of (a) A resolution approved at a duly convened and members constituted meeting of the members of the Company by the affirmative vote of (i) a simple majority of the votes of the shares entitled to vote thereon which were present at the meeting and were voted and not abstained, or (ii) a simple majority of the votes of each class or series of shares which were present at the meeting and entitled to vote thereon as a class or series and were voted and not abstained and of a simple majority of the votes of the remaining shares entitled to Vote thereon which were present at the meeting and were voted and not abstained; or (b) a resolution consented to in writing by (i) an absolute majority of the votes of shares entitled to vote thereon, or (ii) an absolute majority of the votes of each class or series of shares entitled to vote thereon as a class or series and of an absolute majority 2 of the votes of the remaining shares entitled to vote thereon; securities shares and debt obligations of every kind, and options, warrants and rights to acquire shares, or debt obligations. surplus The excess, if any, at the time of the determination of the total assets of the Company over the aggregate of its total liabilities, as shown in its books of account, plus the Company's capital. the act The International Business companies Act (CAP 291) including any modification, extension, re-enactment or renewal thereof and any regulations made thereunder. the Memorandum The Memorandum of Association of the Company as originally framed or as from time to time amended. the seal Any Seal which has been duly adopted as the Seal of the Company. these Articles These Articles of Association as originally framed or as from time to time amended. treasury shares Shares in the Company that were previously issued but were repurchased, redeemed or otherwise acquired by the Company and not cancelled. 2. "Written" or any term of like import includes words typewritten, printed, painted, engraved, lithographed, photographed or represented or reproduced by any mode of reproducing words in a visible form, including telex, facsimile, telegram, cable or other form of writing produced by electronic communication. 3. Save as aforesaid any words or expressions defined in the Act shall bear the same meaning in these Articles 4. Whenever the singular or plural number, or the masculine, feminine or neuter gender is used in these articles it shall equally, where the context admits, includes the others 3 5. A reference in these Articles to voting in relation to hares shall be construed as a reference to voting by members holding the shares except that it is the votes allocated to the shares that shall be counted and not the number of members who actually voted and a reference to shares being present at a meeting shall be given a corresponding construction. 6. A reference to money in these Articles is, unless otherwise stated, a reference to the currency in which shares in the company shall be issued according to the provisions of the Memorandum. REGISTERED SHARES 7. Every member holding registered shares in the Company shall be entitled to a certificate signed by a director or officer of the company and under the Seal specifying the share or shares held by him and the signature of the director or officer and the Seal may be facsimiles. 8. Any member receiving a share certificate for registered shares shall indemnify and hold the Company and its directors and officers harmless from any loss or liability which it or they may incur by reason of any wrongful or fraudulent use or representation made by any person by virtue of the possession thereof. If a share certificate for registered shares is worn, out or lost it may be renewed on production of the worn out certificate or on satisfactory proof of its loss together with such indemnity as may be required by a resolution of directors. 9. If several persons are registered as joint holders of any shares, any one of such persons may give an effectual receipt for any dividend payable in respect of such shares. BEARER SHARES 10. Subject to a request for the issue of bearer shares and to the payment of the appropriate consideration for the shares to be issued, the Company may, to the extent authorized by the Memorandum, issue bearer shares to, and at the expense of, such person as shall be specified in the request. Bearer shares may not be issued for debt obligations, promissory notes or other obligations to contribute money or property and registered shares issued for debt obligations, promissory notes or other obligations to contribute money or property shall not be exchanged for bearer shares unless such debt obligations, promissory notes or other obligations to contribute money or property have been satisfied. The Company may also upon receiving a request in writing accompanied by the share certificate for the shares in question, exchange registered shares for bearer shares or may exchange bearer shares; for registered shares. Such request served on the Company by the holder of bearer shares shall specify the name and address of the person to be registered and unless the request is delivered in person by 4 the bearer shall be authenticated as hereinafter provided. Such request served on the Company by the holder of bearer shares shall also be accompanied by any coupons or talons which at the date of such delivery have not become due for payment of dividends or any other distribution by the company to the holders of such shares. Following such exchange the share certificate relating to the exchanged shares shall be delivered as directed by the member requesting the exchange. 11. Bearer share certificates shall be under the Seal and shall state that the bearer is entitled to the shares therein specified, and may provide by coupons, talons or otherwise for the payment of dividends or other moneys on the shares included therein. 12. Subject to the provisions of the Act and of these Articles, the bearer of a bearer share certificate shall be deemed to be a member of the Company and shall be entitled to the same rights and privileges as he would have had if his name had been included in the share register of the Company as the holder of the shares. 13. Subject to any specific provisions in these Articles, in order to exercise his rights as a member of the Company, the bearer of a bearer share certificate shall produce the bearer share certificate as evidence of his membership of the Company. Without prejudice to the generality of the foregoing, the following rights may be exercised in the following manner: (a) for the purpose of exercising his voting rights at a meeting, the bearer of a bearer share certificate shall produce such certificate to the chairman of the meeting; (b) for the purpose of exercising his vote on a resolution in writing, the bearer of a bearer share certificate shall cause his signature to any such resolution to be authenticated as hereinafter set forth; (c) for the purpose of requisitioning a meeting of members, the bearer of a bearer share certificate shall address his requisition to the directors and his signature thereon shall be duly authenticated as hereinafter provided; and (d) for the purpose of receiving dividends, the bearer of a bearer share certificate shall present at such places as may be designated by the directors any coupons or talons issued for such purpose, or shall present the bearer share certificate to any paying agent authorized to pay dividends. 14. The signature of the bearer of a bearer share certificate shall be deemed to be duly authenticated if the bearer of the bearer share certificate shall produce such certificate 5 to a notary public or a bank manager or a director or officer of the Company (herein referred to as an "authorized person") and the authorized person endorses the document bearing such signature with a statement: (a) identifying the bearer share certificate produced to him by number and date and specifying the number of shares and the class of shares (if appropriate) comprised therein; (b) confirming that the signature of the bearer of the bearer share certificate was subscribed in his presence and that if the bearer is representing a body corporate he has so acknowledged and has produced satisfactory evidence thereof; and (c) specifying the capacity in which he is qualified as an authorized person and, if a notary public, affixing his seal thereto or, if a bank manager, attaching an identifying stamp of the bank of which he is a manager. 15. Notwithstanding any other provisions of these Articles, at any time, the bearer of a bearer share certificate may deliver the certificate for such shares into the custody of the Company at its registered office, whereupon the Company shall issue a receipt therefor under the Seal signed by a director or officer identifying by name and address the person delivering such certificate and specifying the date and number of the bearer share certificate so deposited and the number of shares comprised therein. Any such receipt may be used by the person named therein for the purpose of exercising the rights vested in the shares represented by the bearer share certificate so deposited including the right to appoint a proxy. Any bearer share certificate so deposited shall be returned to the person named in the receipt or his personal representative if such person be dead and thereupon the receipt issued therefor shall be of no further effect whatsoever and shall be returned to the Company for cancellation or, if it has been lost or mislaid, such indemnity as may be required by resolution of directors shall be given to the Company. 16. The bearer of a bearer share certificate shall for all purposes be deemed to be the owner of the shares comprised in such certificate and in no circumstances shall the Company or the chairman of any meeting of members or the Company's registrars or any director or officer of the Company or any authorized person be obliged to inquire into the circumstances whereby a bearer share certificate came into the hands of the bearer thereof, or to question the validity or authenticity of any action taken by the bearer of a bearer share certificate whose signature has been authenticated as provided herein. 17. If the bearer of a bearer share certificate shall be a corporation, then all the rights exercisable by virtue of shareholding may be exercised by an individual duly 6 authorized to represent the corporation but unless such individual shall acknowledge that he is representing a corporation and shall produce upon request satisfactory evidence that he is duly authorized to represent the corporation, the individual shall for all purposes hereof be regarded as the holder of the shares in any bearer share certificate held by him. 18. The directors may provide for payment of dividends to the holders of bearer shares by coupons or talons and in such event the coupons or talons shall be in such form and payable at such time and in such place or places as the directors shall resolve. The Company shall be entitled to recognize the absolute right of the bearer of any coupon or talon issued as aforesaid to payment of the dividend to which it relates and delivery of the coupon or talon to the company or its agents shall constitute in all respects a good discharge of the company in respect of such dividend. 19. If any bearer share certificate, coupon or talon be worn out or defaced, the directors may, upon the surrender thereof for cancellation, issue a new one in its stead, and if any bearer share certificate, coupon or talon be lost or destroyed, the directors may upon the loss or destruction being established to their satisfaction, and upon such indemnity being given to the company as it shall by resolution of directors determine, issue a new bearer share certificate in its stead, and in either case on payment of such sum as the company may from time to time by resolution of directors require. In case of loss or destruction the person to whom such new bearer share certificate, coupon or talon is issued shall also bear and pay to the Company all expenses incidental to the investigation by the Company of the evidence of such loss or destruction and to such indemnity. SHARES, AUTHORIZED CAPITAL, CAPITAL AND SURPLUS 20. Subject to the provisions of these Articles and any resolution of members, the unissued shares of the Company shall be at the disposal of the directors who may, without limiting or affecting any rights previously conferred on the holders of any existing shares or class or series of shares, offer, allot, grant options over or otherwise dispose of shares to such persons, at such times and upon such terms and conditions as the Company may by resolution of directors determine 21. No share in the Company may be issued until the consideration in respect thereof is fully paid, and when issued the share is for all purposes fully paid and non-assessable save that a share issued for a promissory note or other written obligation for payment of a debt may be issued subject to forfeiture in the manner prescribed in these Articles. 7 22. Shares in the Company shall be issued for money, services rendered, personal property, an estate in real property, a promissory note or other binding obligation to contribute money or property or any combination of the foregoing as shall be determined by a resolution of directors. 23. Shares in the Company may be issued for such amount of consideration as the directors may from time to time by resolution of directors determine, except that in the case of shares with par value, the amount shall not be less than the par value, and in the absence of fraud the decision of the directors as to the value of the consideration received by the Company in respect of the issue is conclusive unless a question of law is involved. The consideration in respect of the shares constitutes capital to the extent of the par value and the excess constitutes surplus. 24. A share issued by the Company upon conversion of, or in exchange for, another share or a debt obligation or other security in the Company, shall be treated for all purposes as having been, issued for money equal to the consideration received or deemed to have been received by the Company in respect of the other share, debt obligation or security. 25. Treasury shares may be disposed of by the Company on such terms and conditions (not otherwise inconsistent with these Articles) as the Company may by resolution of directors determine. 26. The Company may issue fractions of a share and a fractional share shall have the same corresponding fractional liabilities, limitations, preferences, privileges, qualifications, restrictions, rights and other attributes of a whole share of the same class or series of shares. 27. Upon the issue by the Company of a share without par value, if an amount is stated in the Memorandum to be authorized capital represented by such shares then each share shall be issued for no less than the appropriate proportion of such amount which shall constitute capital, otherwise the consideration in respect of the share constitutes capital to the extent designated by the directors and the excess constitutes surplus, except that the directors must designate as capital an amount of the consideration that is at least equal to the amount that the share is entitled to as a preference, if any, in the assets of the Company upon liquidation of the Company. 28. The Company may purchase, redeem or otherwise acquire and own shares but only out of surplus or in exchange for newly issued shares of equal value. 29. Subject to provisions to the contrary in (a) the Memorandum or these Articles; 8 (b) the designations, powers, preferences, rights, qualifications, limitations and restrictions with which the shares were issued; or (c) the subscription agreement for the issue of the shares, the company may not purchase, redeem or otherwise acquire its own shares without the consent of members whose shares are to be purchased, redeemed or otherwise acquired. 30. No purchase, redemption or other acquisition of shares shall be made unless the directors determine that immediately after the purchase, redemption or other acquisition the company will be able to satisfy its liabilities as they become due in the ordinary course of its business and the realizable value of the assets of the Company will not be less than the sum of its total liabilities, other than deferred taxes, as shown in the books of account, and its capital and, in the absence of fraud, the decision of the directors as to the realizable value of the assets of the Company is conclusive, unless a question of law is involved. 31. A determination by the directors under the preceding Regulation is not required where shares are purchased, redeemed or otherwise acquired (a) pursuant to a right of a member to have his shares redeemed or to have his shares exchanged for money or other property of the Company; (b) by virtue of a transfer of capital pursuant to Regulation 59; (c) by virtue of the provisions of Section 83 of the Act; or (d) pursuant to an order of the Court. 32. Shares that the Company purchases, redeems or otherwise acquires pursuant to the preceding Regulation may be cancelled or held as treasury shares except to the extent that such shares are in excess of 80 percent of the issued shares of the Company in which case they shall be cancelled but they shall be available for reissue. 33. Where shares in the Company are held by the company as treasury shares or are held by another company of which the Company holds, directly or indirectly, shares having more than 50 percent of the votes in the election of directors of the other company, such shares of the company are not entitled to vote or to have dividends paid thereon and shall not be treated as outstanding for any purpose except for purposes of determining the capital of the company. 34. The Company may purchase, redeem or otherwise acquire its shares at a price lower than the fair value if permitted by, and then only in accordance with, the terms of 9 (a) the Memorandum or these Articles; or (b) a written agreement for the subscription for the shares to be purchased, redeemed or otherwise acquired. 35. The Company may by a resolution of directors include in the computation of surplus for or any purpose the unrealized appreciation of the assets of the Company, and, in the absence of fraud, the decision of the directors as to the value of the assets is conclusive, unless a question of law is involved. MORTGAGES AND CHARGES OF REGISTERED SHARES 36. Members may mortgage or charge their registered shares in the Company and upon satisfactory evidence thereof the Company shall give effect to the terms of any valid mortgage or charge except insofar as it may conflict with any requirements herein contained for consent to the transfer of shares. 37. In the case of the mortgage or charge of registered shares there may be entered in the share register of the Company at the request of the registered holder of such shares (a) a statement that the shares are mortgaged or charged; (b) the name of the mortgagee or chargee; and (c) the date on which the aforesaid particulars are entered in the share register. 38. Where particulars of a mortgage or charge are registered, such particulars shall be cancelled (a) with the consent of the named mortgagee or chargee or anyone authorized to act on his behalf; or (b) upon evidence satisfactory to the directors of the discharge of the liability secured by the mortgage or charge and the issue of such indemnities as the directors shall consider necessary or desirable. 39. Whilst particulars of a mortgage or charge are registered, no transfer of any share comprised therein shall be effected without the written consent of the named mortgagee or chargee or anyone authorized to act on his behalf. FORFEITURE 40. When shares issued for a promissory note or other written obligation for payment of a debt have been issued subject to forfeiture, the following provisions shall apply. 10 41. Written notice specifying a date for payment to be made and the shares in respect of which payment is to be made shall be served on the member who defaults in making payment pursuant to a promissory note or other written obligations to pay a debt. 42. The written notice specifying a date for payment shall (a) name a further date not earlier than the expiration of 14 days from the date of service of the notice on or before which payment required by the notice is to be made; and (b) contain a statement that in the event of non-payment at or before the time named in the notice the shares, or any of them, in respect of which payment is not made will be liable to be forfeited. 43. Where a written notice has been issued and the requirements have not been complied with within the prescribed time, the directors may at any time before tender of payment forfeit and cancel the shares to which the notice relates. 44. The Company is under no obligation to refund any moneys to the member whose shares have been forfeited and cancelled pursuant to these provisions. Upon forfeiture and cancellation of the shares the member is discharged from any further obligation to the Company with respect to the shares forfeited and cancelled. LIEN 45. The Company shall have a first and paramount lien on every share issued for a promissory note or for any other binding obligation to contribute money or property or any combination thereof to the Company, and the Company shall also have a first and paramount lien on every share standing registered in the name of a member, whether singly or jointly with any other person or persons, for all the debts and liabilities of such member or his estate to the Company, whether the same shall have been incurred before or after notice to the Company of any interest of any person other than such member, and whether the time for the payment or discharge of the same shall have actually arrived or not, and notwithstanding that the same are joint debts or liabilities of such member or his estate and any other person, whether a member of the Company or not. The Company's lien on a share shall extend to all dividends payable thereon. The directors may at any time either generally, or in any particular case, waive any Lien that has arisen or declare any share to be wholly or any part exempt from the provisions of this Regulation. 46. In the absence of express provisions regarding promissory note or other binding obligation to contribute money or property, the Company may sell, in such manner as the directors may by resolution of directors determine 11 share on which the Company has a lien, but no sale shall be made unless some sum in respect of which the lien exists is presently payable nor until the expiration of twenty-one days after a notice in writing, stating and demanding payment of the sum presently payable and giving notice of the intention to sell in default of such payment, has been served on the holder for the time being of the share. 47. The net proceeds of the sale by the Company of any shares on which it has a lien shall be applied in or towards payment of discharge of the promissory note or other binding obligation to contribute money or property or any combination thereof in respect of which the lien exists so far as the same is presently payable and any residue shall (subject to a like lien for debts or liabilities not presently payable as existed upon the share prior to the sale) be paid to the holder of the share immediately before such sale. For giving effect to any such sale the directors may authorize some person to transfer the share sold to the purchaser thereof. The purchaser shall be registered as the holder of the share and he shall not be bound to see to the application of the purchase money, nor shall his title to the share be affected by any irregularity or invalidity in the proceedings in reference to the sale. TRANSFER OF SHARES 48. Subject to any limitations in the Memorandum, registered shares in the Company may be transferred by a written instrument of transfer signed by the transferor and containing the name and address of the transferee, but in the absence of such written instrument of transfer the directors may accept such evidence of a transfer of shares as they consider appropriate. 49. The Company shall not be required to treat a transferee of a registered share in the Company as a member until the transferee's name has been entered in the share register. 50. Subject to any limitations in the Memorandum, the Company must on the application of the transferor or transferee of a registered share in the Company enter in the share register the name of the transferee of the share save that the registration of transfers may be suspended and the share register closed at such times and for such periods as the Company may from time to time by resolution of directors determine provided always that such registration shall not be suspended and the share register closed for more than 60 days in any period of 12 months. TRANSMISSION OF SHARES 51. The executor or administrator of a deceased member, the guardian of an incompetent member or the trustee of a bankrupt member shall be the only person recognized by the Company as having any title to his share but they shall not 12 be entitled to exercise any rights as a member of the Company until they have proceeded as set forth in the next following three Regulations. 52. The production to the Company of any document which is evidence of probate of the will, or letters of administration of the estate, or confirmation as executor, of a deceased member or of the appointment of a guardian of an incompetent member or the trustee of a bankrupt member shall be accepted by the Company even if the deceased, incompetent or bankrupt member is domiciled outside the British Virgin Islands if the document evidencing the grant of probate or letters of administration, confirmation as executor, appointment as guardian or trustee in bankruptcy is issued by a foreign court which had competent jurisdiction in the matter. For the purpose of establishing whether or not a foreign court had competent jurisdiction in such a matter the directors may obtain appropriate legal advice. The directors may also require an indemnity to be given by the executor, administrator, guardian or trustee in bankruptcy. 53. Any person becoming entitled by operation of law or otherwise to a share or shares in consequence of the death, incompetence or bankruptcy of any member may be registered as a member upon such evidence being produced as may reasonably be required by the directors. An application by any such person to be registered as a member shall for all purposes be deemed to be a transfer of shares of the deceased, incompetent or bankrupt member and the directors shall treat it as such. 54. Any person who has become entitled to a share or shares in consequence of the death, incompetence or bankruptcy of any member may, instead of being registered himself, request in writing that some person to be named by him be registered as the transferee of such share or shares and such request shall likewise be treated as if it were a transfer. 55. What amounts to incompetence on the part of a person is a matter to be determined by the court having regard to all the relevant evidence and the circumstances of the case. REDUCTION OR INCREASE IN AUTHORIZED CAPITAL OR CAPITAL 56. The Company may by a resolution of directors amend the Memorandum to increase or reduce its authorized capital and in connection therewith the Company may in respect of any unissued shares increase or reduce the number of such shares, increase or reduce the par value of any such shares or effect any combination of the foregoing. 57. The Company may amend the Memorandum to (a) divide the shares, including issued shares of a class or series into a larger number of shares of the same class or series; or 13 (b) combine the shares, including issued shares, of a class or series into a smaller number of shares of the same class or series, provided, however, that where shares are divided or combined under (a) or (b) of this Regulation, the aggregate par value of the new shares must be equal to the aggregate par value of the original shares. 58. The capital of the Company may by a resolution of directors be increased by transferring an amount of the surplus of the Company to capital. 59. Subject to the provisions of the two next succeeding Regulations, the capital of the Company may by resolution of directors be reduced by transferring an amount of the capital of the Company to surplus. 60. No reduction of capital shall be effected that reduces the capital of the Company to an amount that immediately after the reduction is less than the aggregate par value of all outstanding shares with par value and all shares with par value held by the Company as treasury shares and the aggregate of the amounts designated as capital of all outstanding shares without par value and all shares without par value held by the Company as treasury shares that are entitled to a preference, if any, in the assets of the Company upon liquidation of the Company. 61. No reduction of capital shall be effected unless the directors determine that immediately after the reduction the Company will be able to satisfy its liabilities as they become due in the ordinary course of its business and that the realizable assets of the Company will not be less than its total liabilities, other than deferred taxes, as shown in the books of the Company and its remaining capital, and, in the absence of fraud, the decision of the directors as to the realizable value of the assets of the Company is conclusive, unless a question of law is involved. MEETINGS AND CONSENTS OF MEMBERS 62. The directors of the Company may convene meetings of the members of the Company at such times and in such manner and places within or outside the British Virgin Islands as the directors consider necessary or desirable. 63. Upon the written request of members holding 10 percent or more of the outstanding voting shares in the Company the directors shall convene a meeting of members. 64. The directors shall give not less than 7 days notice of meetings of members to those persons whose names on the date the notice is given appear as members in the share register of the Company and are entitled to vote at the meeting. 14 65. The directors may fix the date notice is given of a meeting of members as the record date for determining those shares that are entitled to vote at the meeting. 66. A meeting of members may be called on short notice: (a) if members holding not less than 90 percent of the total number of shares entitled to vote on all matters to be considered at the meeting, or 90 percent of the votes of each class or series of shares where members are entitled to vote thereon as a class or series together with not less than a 90 percent majority of the remaining votes, have agreed to short notice of the meeting, or (b) if all members holding shares entitled to vote on all or any matters to be considered at the meeting have waived notice of the meeting and for this purpose presence at the meeting shall be deemed to constitute waiver. 67. The inadvertent failure of the directors to give notice of a meeting to a member, or the fact that a member has not received notice, does not invalidate the meeting. 68. A member may be represented at a meeting of members by a proxy who may speak and vote on behalf of the member. 69. The instrument appointing a proxy shall be produced at the place appointed for the meeting before the time for holding the meeting at which the person named in such instrument proposes to vote. 70. An instrument appointing a proxy shall be in substantially the following form or such other form as the Chairman of the meeting shall accept as properly evidencing the wishes of the member appointing the proxy; (Name of Company) I/We being a member of the above Company with shares HEREBY APPOINT of or failing him of to be my/our proxy to vote for me/us at the meeting of members to be held on the day of and at any adjournment thereof. (Any restrictions on voting to be inserted here.) Signed this day of .......................... Member 71. The following shall apply in respect of joint ownership of shares: 15 (a) if two or more persons hold shares jointly each of them may be present in person or by proxy at a meeting of members and may speak as a member; (b) if only one of the joint owners is present in person or by proxy he may vote on behalf of all joint owners, and (c) if two or more of the joint owners are present in person or by proxy they must vote as one. 72. A member shall be deemed to be present at a meeting of members if he participates by telephone or other electronic means and all members participating in the meeting are able to hear each other. 73. A meeting of members is duly constituted if, at the commencement of the meeting, there are present in person or by proxy not less than 50 percent of the votes of the shares or class or series of shares entitled to vote on resolutions of members to be considered at the meeting. If a quorum be present, notwithstanding the fact that such quorum may be represented by only one person then such person may resolve any matter and a certificate signed by such person accompanied where such person be a proxy by a copy of the proxy form shall constitute a valid resolution of members. 74. If within two hours from the time appointed for the meeting a quorum is not present, the meeting, if convened upon the requisition of members, shall be dissolved; in any other case it shall stand adjourned to the next business day at the same time and place or to such other time and place as the directors may determine, and if at the adjourned meeting there are present within one hour from the time appointed for the meeting in person or by proxy not less than one third of the votes of the shares or each class or series of shares entitled to vote on the resolutions to be considered by the meeting, those present shall constitute a quorum but otherwise the meeting shall be dissolved. 75. At every meeting of members, the Chairman of the Board of Directors shall preside as chairman of the meeting. If there is no Chairman of the Board of Directors or if the Chairman of the Board of Directors is not present at the meeting, the members present shall choose some one of their number to be the chairman. If the members are unable to choose a chairman for any reason, then the person representing the greatest number of voting shares present in person or by prescribed form of proxy at the meeting shall preside as chairman failing which the oldest individual member or representative of a member present shall take the chair. 16 76. The chairman may, with the consent of the meeting, adjourn any meeting from time to time, and from place to place, but no business shall be transacted at any adjourned meeting other than the business left unfinished at the meeting from which the adjournment took p1ace. 77. At any meeting of the members the chairman shall be responsible for deciding in such manner as he shall consider appropriate whether any resolution has been carried or not and the result of his decision shall be announced to the meeting and recorded in the minutes thereof. If the chairman shall have any doubt as to the outcome of any resolution put to the vote, he shall cause a poll to be taken of all votes cast upon such resolution, but if the chairman shall fail to take a poll then any member present in person or by proxy who disputes the announcement by the chairman of the result of any vote may immediately following such announcement demand that a poll be taken and the chairman shall thereupon cause a poll to be taken. If a poll is taken at any meeting, the result thereof shall be duly recorded in the minutes of that meeting by the chairman. 78. Any person other than an individual shall be regarded as one member and subject to the specific provisions hereinafter contained for the appointment of representatives of such persons the right of any individual to speak for or represent such member shall be determined by the law of the jurisdiction where, and by the documents by which, the person is constituted or derives its existence. In case of doubt, the directors may in good faith seek legal advice from any qualified person and unless and until a court of competent jurisdiction shall otherwise rule, the directors may rely and act upon such advice without incurring any liability to any member. 79. Any person other than an individual which is a member of the Company may by resolution of its directors or other governing body authorize such person as it thinks fit to act as its representative at any meeting of the Company or of any class of members of the Company, and the person so authorized shall be entitled to exercise the same powers on behalf of the person which he represents as that person could exercise if it were an individual member of the Company. 80. The chairman of any meeting at which a vote is cast by proxy or on behalf of any person other than an individual may call for a notarially certified copy of such proxy or authority which shall be produced within 7 days of being so requested or the votes cast by such proxy or on behalf of such person shall be disregarded. 81. Directors of the Company may attend and speak at any meeting of members of the Company and at any separate meeting of the holders of any class or series of shares in the Company. 17 82. An action that may be taken by the members at a meeting may also be taken by a resolution of members consented to in writing or by telex, telegram, cable, facsimile or other written electronic communication, without the need for any notice, but if any resolution of members is adopted otherwise than by the unanimous written consent of all members, a copy of such resolution shall forthwith be sent to all members not consenting to such resolution. The consent may be in the form of counterparts, each counterpart being signed by one or more members. DIRECTORS 83. The first directors of the Company shall be appointed by the subscribers to the Memorandum; and thereafter, the directors shall be elected by the members for such term as the members determine. 84. The minimum number of directors shall be one and the maximum number shall be 7. 85. Each director shall hold office for the term, if any, fixed by resolution of members or until his earlier death, resignation or removal. 86. A director may be removed from office, with or without cause, by a resolution of members or, with cause, by a resolution of directors. 87. A director may resign his office by giving written notice of his resignation to the Company and the resignation shall have effect from the date the notice is received by the Company or from such later date as may be specified in the notice. 88. The directors may at any time appoint any person to be a director either to fill a vacancy or as an addition to the existing directors. A vacancy occurs through the death, resignation or removal of a director, but a vacancy or vacancies shall not be deemed to exist where one or more directors shall resign after having appointed his or their successor or successors. 89. The Company may determine by resolution of directors to keep a register of directors containing (a) the names and addresses of the persons who are directors of the Company; (b) the date on which each person whose name is entered in the register was appointed as a director of the Company; and (c) the date on which each person named as a director ceased to be a director of the Company. 18 90. If the directors determine to maintain a register of directors, a copy thereof shall be kept at the registered office of the Company and the Company may determine by resolution of directors to register a copy of the register with the Registrar of Companies. 91. With the prior or subsequent approval by a resolution of members, the directors may, by a resolution of directors, fix the emoluments of directors with respect to services to be rendered in any capacity to the Company. 92. A director shall not require a share qualification and may be an individual or a company. POWERS OF DIRECTORS 93. The business and affairs of the Company shall be managed by the directors who may pay all expenses incurred preliminary to and in connection with the formation and registration of the Company and may exercise all such powers of the Company as are not by the Act or by the Memorandum or these Articles required to be exercised by the members of the Company, subject to any delegation of such powers as may be authorized by these Articles and to such requirements as may be prescribed by a resolution of members; but no requirement made by a resolution of members shall prevail if it be inconsistent with these Articles nor shall such requirement invalidate any prior act of the directors which would have been valid if such requirement had not been made. 94. The directors may, by a resolution of directors, appoint any person, including a person who is a director, to be an officer or agent of the Company. The resolution of directors appointing an agent may authorize the agent to appoint one or more substitutes or delegates to exercise some or all of the powers conferred on the agent by the Company. 95. Every officer or agent of the Company has such powers and authority of the directors, including the power and authority to affix the Seal, as are set forth in these Articles or in the resolution of directors appointing the officer or agent, except that no officer or agent has any power or authority with respect to the matters requiring a resolution of directors under the Act. 96. Any director which is a body corporate may appoint any person its duly authorized representative for the purpose of representing it at meetings of the Board of Directors or with respect to unanimous written consents. 97. The continuing directors may act notwithstanding any agency in their body, save that if their number is reduced to their knowledge below the number fixed by or pursuant to these Articles as the necessary quorum for a meeting of directors, 19 the continuing directors or director may act only for the purpose of appointing directors to fill any vacancy that has arisen or for summoning a meeting of members. 98. The directors may by resolution of directors exercise all the powers of the Company to borrow money and to mortgage or charge its undertakings and property or any part thereof, to issue debentures, debenture stock and other securities whenever money is borrowed or as security for any debt, liability or obligation of the Company or of any third party. 99. All cheques, promissory notes, drafts, bills of exchange and other negotiable instruments and all receipts for moneys paid to the Company, shal1 be signed, drawn, accepted, endorsed or otherwise executed as the case may be, in such manner as shall from time to time be determined by resolution of directors. 100. The Company may determine by resolution of directors to maintain at its registered office a register of mortgages, charges and other encumbrances in which there shall be entered the following particulars regarding each mortgage, charge and other encumbrance: (a) the sum secured; (b) the assets secured; (c) the name and address of the mortgagee, chargee or other encumbrancer; (d) the date of creation of the mortgage, charge or other encumbrance; and (e) the date on which the particulars specified above in respect of the mortgage, charge or other encumbrance are entered in the register. 101. The Company may further determine by a resolution of directors to register a copy of the register of mortgages, charges or other encumbrances with the Registrar of Companies. PROCEEDINGS OF DIRECTORS 102. The directors of the Company or any committee thereof may meet at such times and in such manner and places within or outside the British Virgin Islands as the directors may determine to be necessary or desirable. 103. A director shall be deemed to be present at a meeting of directors if he participates by telephone or other electronic means and all directors participating in the meeting are able to hear each other. 20 104. A director shall be given not less than 3 days notice of meetings of directors, but a meeting of directors held without 3 days notice having been given to all directors shall be valid if all the directors entitled to vote at the meeting who do not attend, waive notice of the meeting and for this purpose, the presence of a director at a meeting shall constitute waiver on his part. The inadvertent failure to give notice of a meeting to a director, or the fact that a director has not received the notice, does not invalidate the meeting. 105. A director may by a written instrument appoint an alternate who need not be a director and an alternate is entitled to attend meetings in the absence of the director who appointed him and to vote or consent in place of the director. 106. A meeting of directors is duly constituted for all purposes if at the commencement of the meeting there are present in person or by alternate not less than one-half of the total number of directors, unless there are only 2 directors in which case the quorum shall be 2. 107. If the Company shall have only one director the provisions herein contained for meetings of the directors shall not apply but such sole director shall have full power to represent and act for the Company in all matters as are not by the Act or the Memorandum of these Articles required to be exercised by the members of the Company and in lieu of minutes of a meeting shall record in writing and sign a note or memorandum of all matters requiring a resolution of directors. Such a note or memorandum shall constitute sufficient evidence of such resolution for all purposes. 108. At every meeting of the directors the Chairman of the Board of Directors shall preside as chairman of the meeting. If there is no Chairman of the Board of Directors or if the Chairman of the Board of Directors is not present at the meeting the Vice-Chairman of the Board of Directors shall preside. If there is no Vice-Chairman of the Board of Directors or if the Vice-Chairman of the Board of Directors is not present at the meeting the directors present shall choose some one of their number to be chairman of the meeting. 109. An action that may be taken by the directors or a committee of directors at a meeting may also be taken by a resolution of directors or a committee of directors consented to in writing or by telex, telegram, cable, facsimile or other written electronic communication by all directors or all members of the committee as the case may be without the need for any notice. The consent may be in the form of counterparts, each counterpart being signed by one or more directors. 110. The directors shall cause the following corporate records to be kept: 21 (a) minutes of all meetings of directors, members, committees of directors, committees of officers and committees of members; (b) copies of all resolutions consented to by directors, members, committees of directors, committees of officers and committees of members; and (c) such other accounts and records as the directors by resolution of directors consider necessary or desirable in order to reflect the financial position of the Company. 111. The books, records and minutes shall be kept at the registered office of the Company, its principal place of business or at such other place as the directors determine. 112. The directors may, by resolution of directors, designate one or more committees, each consisting of one or more directors. 113. Each committee of directors has such powers and authorities of the directors, including the power and authority to affix the Seal, as are set forth in the resolution of directors establishing the committee, except that no committee has any power or authority to amend the Memorandum or these Articles, to appoint directors, or fix their emoluments, or to appoint officers or agents of the Company. 114. The meetings and proceedings of each committee of directors consisting of 2 or more directors shall be governed mutatis mutandis by the provisions of these Articles regulating the proceedings of directors so far as the same are not superseded by any provisions in the resolution establishing the committee. OFFICERS 115. The Company may by resolution of directors appoint officers of the Company at such times as shall be considered necessary or expedient. Such officers may consist of a Chairman of the Board of Directors, a Vice-Chairman of the Board of Directors, a President and one or more Vice-Presidents, Secretaries and Treasurers and such other officers as may from time to time be deemed desirable. Any number of offices may be held by the same person. 116. The officers shall perform such duties as shall be prescribed at the time of their appointment subject to any modification in such duties as may be prescribed thereafter by resolution of directors or resolution of members, but in the absence of any specific allocation of duties it shall be the responsibility of the Chairman of the Board of Directors to preside at meetings of directors and members, the Vice-Chairman to act in the absence of the Chairman, the President to manage the day to day affairs of the Company, the Vice-Presidents to act in order of seniority in the 22 CONTINUATION 154. The Company may by resolution of members or by a resolution passed unanimously by all directors of the Company continue as a company incorporated under the laws of a jurisdiction outside the British Virgin Islands in the manner provided under those laws. We, HWR SERVICES LIMITED, of Craigmuir Chambers, Road Town, Tortola, British Virgin Islands for the purpose of incorporating an International Business Company under the laws of the British Virgin Islands hereby subscribe our name to these Articles of Association the 5th day of February, 1999 in the presence of: Witness Subscriber /s/ Ibn K. Thomas /s/ Adel K. Clyne - ----------------- ----------------- Ibn K. Thomas Adel K. Clyne Craigmuir Chambers Authorized Signatory Road Town, Tortola HWR Services Limited 29 EX-3.9 13 ARTICLES OF INCORPORATION OF CHIPPAC LUXEMBOURG Exhibit 3.9 - -------------------------------------------------------------------------------- "ChipPAC Luxembourg S. a R.L." societe a responsabilite limitee Luxembourg - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CONSTITUTION D'UNE SOCIETE A RESPONSABILITE LIMITEE du (18 mars 1999) - -------------------------------------------------------------------------------- In the year one thousand nine hundred and ninety-nine, on the (eighteenth of March.) Before Maitre Joseph ELVINGER, notary public residing at Luxembourg, Grand-Duchy of Luxembourg, undersigned. There appeared; ChipPAC Operating Limited, a company having its registered office at Craigmuir Chambers, Road Town, Tortola, British Virgin Islands; hereby represented by Mr Dominique AUDIA, employee, residing at Luxembourg, by virtue of a proxy given under private seal. The beforesaid proxy, being initialled "ne varietur" by the appearing person and the undersigned notary, shall remain annexed to the present deed to be filed at the same time with the registration authorities. This appearing party has incorporated a "societe a responsabilite limitee" (limited liability partnership), the article of which it has established as follows: Article one.- There is hereby formed a "societe a responsabilite limitee", limited liability company, PAGE 1 governed by the present articles of incorporation and by current Luxembourg laws, especially the laws of August 10th, 1915 on commercial companies, of September 18th, 1933 on "societes a responsabilite limitee", as amended, and more particularly the law of December 28th, 1992 about unipersonal companies. At any moment, the partner may join with one or more joint partners and, in the same way, the following partners may adopt the appropriate measures to restore the unipersonal character of the Company. Article two.- The Company is incorporated under the name of "ChipPAC Luxembourg S. a R.L. ". Article three.- The Company's purpose is to take participations, in any form whatsoever, in other Luxembourg or foreign enterprises; to acquire any securities and rights through participation, contribution, underwriting firm purchase or option, negotiation or in any other way and namely to acquire patents and licences, to manage and develop them; to grant to enterprises in which the Company has an interest, any assistance, loans, advances or guarantees, finally to perform any operation which is directly or indirectly related to its purpose, however without taking advantage of the Act of July 31, 1929, on Holding Companies. The Company can perform all commercial, technical and financial operations, connected directly or indirectly in all areas as described above in order to facilitate the accomplishment. Article four.- The Company has its registered office in the City of Luxembourg, Grand-Duchy of Luxembourg. The registered office may be transferred to any other place within the Grand-Duchy of Luxembourg by a decision of the partners. Article five.- The Company is constituted for an unlimited period. Article six.- The Company's capital is set at USD 15,000 (fifteen thousand US dollars) represented by 300 (three hundred) shares of USD 50 (fifty US dollars) each. PAGE 2 These shares have been subscribed and fully paid in by contribution in cash by ChipPAC Operating Limited, a company having its registered office at Craig-muir Chambers, Road Town, Tortola, British Virgin Islands, sole shareholder. Article seven. - The shares are freely transferable among the partners. No transfer of shares to a non-partner may take place without the agreement of the other partners and without having been first offered to them. Otherwise it is referred to the provisions of articles 189 and 190 of the co-ordinate law on trading companies. The shares are indivisible with regard to the Company, which admit only one owner for each of them. Article eight. - The life of the Company does not come to an end by death, suspension of civil rights, bankruptcy or insolvency of any partner. Article nine.- The creditors, representatives, rightful owner or heirs of any partner are neither allowed, in circumstances, to require the sealing of the assets and documents of the Company, nor to interfere in any manner in the administration of the Company. They must for the exercise of their rights refer to financial statements and to the decisions of the meetings. Article ten. - The Company is managed by one or more managers either partners or not, appointed by the partners with or without limitation of their period of office. Each manager shall have individually and on his single signature the full power to bind the Company for all acts within the bounds laid down by its purpose and by the law. The powers and remuneration of any managers possibly appointed at a later date in addition to or in the place of the first managers will be determined in the act of nomination. Article eleven. - Any manager does not contract in his function any personal obligation concerning the PAGE 3 commitments regularly taken by him in the name of the Company; as a mandatory he is only responsible for the execution of his mandate. Article twelve.- The sole partner exercises the powers devolved to the meeting of partners by the dispositions of Section XII of the law of August 10th, 1915 on societes a responsabilite limitee. As a consequence thereof, all decisions which exceed the powers of the managers are taken by the sole partner. In case of more partners, the decisions which exceed the powers of the managers shall be taken by the meeting. Resolutions are validly adopted when taken by partners representing more than half of the capital. However, decisions concerning a modification of the articles of incorporation must be taken by a majority vote of partners representing the three quarters of the capital. If this majority is not attained at a first meeting, the partners are convened by registered letters to a second meeting with at least thirty days notice, which will be held within three months from the first meeting. At this second meeting, decisions will be taken at the majority of voting partners whatever majority of capital be represented. Article thirteen.- The Company's financial year begins on January 1st and closes on December 31st. Article fourteen.- Each year, as of the 31st of December, the management will draw up the balance sheet which will contain a record of the properties of the Company and the profit and loss account, as also an appendix according to the prescriptions of the law in force. Article fifteen.- Each partner may inspect at the head office the inventory, the balance sheet and the profit and loss account. Article sixteen.- The credit balance of the profit and loss account, after deduction of the expenses, PAGE 4 costs, amortizations, charges and provisions represents the net profit of the Company. Every year five percent of the net profit will be transferred to the statutory reserve. This deduction ceases to be compulsory when the statutory reserve amounts to one tenth of the issued capital but must be resumed till the reserve fund is entirely reconstituted if, at any time and for any reason whatever, it has been broken into. The excess is distributed among the partners. However, the partners may decide, at the majority vote determined by the relevant laws, that the profit, after deduction of the reserve, be either carried forward or transferred to an extraordinary reserve. Article seventeen.- In the event of a dissolution of the Company, the liquidation will be carried out by the managers or a partner upon agreement which are vested with the broadest powers for the realization of the assets and payment of debts. When the liquidation of the Company is closed, the assets of the Company will be attributed to the partners proportionally to the shares they hold. Article eighteen.- For all matters not provided for in the present articles of incorporation, the partners refer to the existing laws. TRANSITORY MEASURES Exceptionally the first financial year shall begin today and end on December 31st, 1999. PAYMENT - CONTRIBUTIONS The appearing person declares and acknowledges that each subscribed share has been fully paid up in cash so that from now on the Company has at its free and entire disposal the contributions referred to above. Proof thereof has been given to the undersigned notary who expressly acknowledges it. ESTIMATE OF COSTS The costs, expenses, fees and charges, in whatsoever form, which are to be borne by the Company or which shall be charged to it in connection with its in- PAGE 5 corporation, have been estimated at about fifty thousand Luxembourg Francs. EXTRAORDINARY GENERAL MEETING Immediately after the incorporation of the Company, the above-named person, representing the entirety of the subscribed capital and exercising the powers of the meeting, passed the following resolutions: 1) Is appointed as manager for an undetermined duration ChipPAC Operating Limited, a company having its registered office at Craigmuir Chambers, Road Town, Tortola, British Virgin Islands; 2) The Company shall have its registered office at L-2453 Luxembourg, 16, rue Eugene Ruppert. The undersigned notary who understands and speaks English, hereby states that on request of the above appearing persons, the present incorporation deed is worded in English, followed by a French version; on request of the same persons and in case of discrepancies between the English and the French text, the English version will prevail. In faith of which we, the undersigned notary have set hand and seal in Luxembourg-City. On the day named at the beginning of this document. The document having been read to the person appearing, said person signed with us, the Notary, the present original deed. TRADUCTION FRANCAISE DU TEXTE QUI PRECEDE L'an mil neuf cent quatre-vingt-dix-neuf, le (dix-huit mars) lisez dix- neuf mars. Pardevant Maitre Joseph ELVINGER, notaire de residence a Luxembourg, soussigne Ont comparu: ChipPAC Operating Limited, une societe ayant son siege social etabli a Craigmuir Chambers, Road Town, Tortola, Iles Vierges Britanniques; ici representee par Monsieur Dominique AUDIA, employe prive, demeurant a Luxembourg, en vertu d'une procuration sous seing prive lui delivree; PAGE 6 Ladite procuration, paraphee "ne varietur" par le mandataire comparaissant et le notaire instrumentant, restera annexee au present acte pour etre formalisee avec lui. Lequel fondateur comparant a declare avoir constitue une societe a responsabilite limitee dont il a arrete les statuts comme suit: Article premier.- Il est forme par les presentes une societe a responsabilite limitee qui sera regie par les presents statuts et les lois luxembourgeoises actuellement en vigueur, notamment par celles du 10 aout 1915 sur les societes commerciales et du 18 septembre 1933 sur les societes a responsabilite limitee, telles que modifiees, et plus particuierement la loi du 28 decembre 1992 sur les societes unipersonnelles, ainsi que par les presents statuts. A tout moment, l'associe peut s'adjoindre un ou plusieurs coassocies et, de meme, les futurs associes peuvent prendre les mesures appropriees tendant a retablir le caractere initial unipersonnel de la Societe. Article deux.- La Societe prend la denomination de "ChipPAC Luxembourg S. a R.L.". Article trois.- La Societe a pour objet la prise de participation sous quelque forme que ce soit, dans toutes entreprises commerciales, industrielles, financieres ou autres, luxembourgeoises ou etrangeres, l'acquisition de tous titres et droits par voie de participation, d'apport, de souscription, de prise ferme ou d'option d'achat, de negociation et de toute autre maniere et notamment l'acquisition de brevets et licences, leur gestion et leur mise en valeur, l'octroi aux entreprises auxquelles elle s'interesse, de tous concours, prets, avances ou garanties, enfin toute activite et toutes operations generalement quelconques se rattachant directement ou indirectement a son objet, sans vouloir beneficier du regime fiscal particulier organise par la loi du 31 juillet 1929 sur les societes de participations financieres. PAGE 7 La Societe peut realiser toutes operations commerciales, techniques ou financieres en relation directe ou indirecte avec tous les secteurs predecrits, de maniere a en faciliter 1'accomplissement. Article quatre.- Le siege social est etabli a Luxembourg, Grand-Duche de Luxembourg. Il pourra etre transfere en tout autre lieu du Grand-Duche de Luxembourg par simple decision des associes. Article cinq.- La Societe est constituee pour une duree indeterminee. Article six.- Le capital social est fixe a USD 15.000,- (quinze mille dollars US) divise en 300 (trois cents) parts sociales de USD 50,- (cinquante dollars US) chacune. Ces parts ont ete integralement liberees et souscrites par la societe ChipPAC Operating Limited, ayant son siege social etabli Craigmuir Chambers, Road Town, Tortola, Iles Vierges Britanniques; Article sept.- Les parts sociales sont librement cessibles entre associes. Aucune cession de parts sociales entre vifs a un tiers non-associe ne peut etre effectuee qu'avec l'agrement des autres associes et apres leur avoir ete offerte en priorite. Pour le reste il est refere aux dispositions des articles 189 et 190 de la loi coordonnee sur les societes commerciales. Les parts sont indivisibles a l'egard de la Societe, qui ne reconnait qu'un seul proprietaire pour chacune d'elle Article huit.- Le deces, l'interdiction, la faillite ou la deconfiture d'un des associes ne mettent pas fin a la Societe Article neuf.- Les creanciers, representants, ayants-droit ou heritiers des associes ne pourront pour quelque motif que ce soit, requerir l'apposition de scelles sur les biens et documents de la Societe, ni s'immiscer en aucune maniere dans les actes de son administration. Ils doivent pour l'exercice de leurs PAGE 8 droits s'en rapporter aux inventaires sociaux et aux decisions des assemblees. Article dix.- La Societe est administree par un ou plusieurs gerants associes ou non, choisis par les associes avec ou sans limitation de la duree de leur mandat. Chaque gerant aura individuellement et sous sa seule signature les pleins pouvoirs pour engager la Societe pour tous actes, dans les limites fixees par son objet social ou la loi. Les pouvoirs et remunerations des gerants eventuellement nommes posterieurement en sus ou en remplacement des premiers gerants seront determines dans l'acte de nomination. Article onze.- Un gerant ne contracte en raison de ses fonctions, aucune obligation personnelle quant aux engagements regulierement pris par lui au nom de la Societe; simple mandataire, il n'est responsable que de l'execution de son mandat. Article douze.- L'associe unique exerce les pouvoirs devolus a l'assemblee generale des associes par les dispositions de la section XII de la loi du 10 aout 1915 relatives aux societes a responsabilite limitees. Il s'ensuit que toutes decisions qui excedent les pouvoirs reconnus aux gerants sont prises par l'associe unique. En cas de pluralite d'associes, les decisions qui excedent les pouvoirs reconnus aux gerants sont prises en assemblee. Les resolutions ne sont valablement adoptees que pour autant qu'elles soient prises par les associes representant plus de la moitie du capital social. Toutefois, les decisions ayant pour objet une modification des statuts ne pourront etre prises qu'a la majorite des associes representant les trois quarts du capital social. Si ce quorum n'est pas atteint lors de la premiere assemblee, une seconde assemblee sera convoquee par lettres recommandees avec un preavis d'un mois au moins et tenue dans un delai de trois mois a dater de la premiere assemblee. PAGE 9 Lors de cette deuxieme assemblee, les resolutions seront adoptees a la majorite des associes votant quelle que soit la portion du capital represente. Article treize.- L'exercice social commence le premier janvier et se termine le 31 decembre. Article quatorze. - Chaque annee avec effet au 31 decembre la gerance etablit le bilan qui contiendra l'inventaire des avoirs de la Societe et de toutes les dettes actives et passives, et le compte de profits et pertes ainsi qu'une annexe conforme aux dispositions de la loi en vigueur. Article quinze. - Tout associe peut prendre communication au siege social de la Societe de l'inventaire, du bilan et du compte de profits et pertes. Article seize. - L'excedent favorable du compte de profits et pertes, apres deduction des frais, charges et amortissements et provisions, constitue le benefice net de la Societe. Chaque annee, cing pour cent du benefice net seront affectes a la reserve legale. Ces prelevements cesseront d'etre obligatoires lorsque la reserve legale aura atteint un dixieme du capital social, mais devront etre repris jusqu'a entiere reconstitution, si a un moment donne et pour quelque cause que ce soit, le fonds de reserve se trouve entame. Le solde du benefice net est distribue entre les associes. Neanmoins, les associes peuvent, a la majorite prevue par la loi, decider qu'apres deduction de la reserve legale, le benefice sera reporte a nouveau ou transfere a une reserve speciale. Article dix-sept.- En cas de dissolution de la Societe pour quelque raison que ce soit, la liquidation sera faite par les gerants ou un associe designe et qui auront les pouvoirs les plus larges pour realiser les actifs et regler le passif de la Societe. La liquidation terminee, les avoirs de la Societe seront attribues aux associes en proportion des parts sociales qu'ils detiennent. PAGE 10 Article dix-huit.- Pour tout ce qui n'est pas prevu par les presents statuts, les associes se referent aux dispositions legales en vigueur. DISPOSITION TRANSITOIRE Exceptionnellement le premier exercice commencera le jour de la constitution pour finir le 31 decembre 1999. LIBERATION - APPORTS Le comparant declare et reconnait que chacune des parts sociales souscrites a ete integralement liberee en especes, de sorte que les apports susmentionnes sont des a present a l'entiere et libre disposition de la Societe. Preuve en a ete apportee au notaire instrumentant qui le constate expressement. FRAIS Le montant des frais, depenses, remunerations ou charges, sous quelque forme que ce soit qui incombent a la Societe ou qui sont mis a sa charge en raison de sa constitution, s'eleve a environ cinquante mille francs luxembourgeois. ASSEMBLEE GENERALE EXTRAORDINAIRE Immediatement apres la constitution de la Societe, le comparant precite, representant la totalite du capital social, exercant les pouvoirs de l'assemblee, a pris les resolutions suivantes: 1) Est nomme gerant pour une duree indeterminee ChipPAC Operating Limited, une societe ayant son siege social etabli a Craigmuir Chambers, Road Town, Tortola, Iles Vierges Britanniques; 2) Le siege social de la Societe est etabli a L-2453 Luxembourg, 16, rue Eugene Ruppert. Le notaire soussigne qui comprend et parle l'anglais constate par le present qu'a la requete des personnes comparantes les presents statuts sont rediges en anglais suivis d'une version francaise, a la requete des memes personnes et en cas de divergences entre le texte anglais et francais, la version anglaise fera foi. PAGE 11 Dont acte, fait et passe a Luxembourg, date qu'en tete des presentes. Et apres lecture faite et interpretation donnee au comparant, il a signe avec nous notaire la presente minute. [NOTAIRE STAMP APPEARS HERE] PAGE 12 EX-3.10 14 DEED OF FOUNDATION Exhibit 3.10 ------------ DEED OF FOUNDATION THE THIS DEED OF FOUNDATION INCLUDES ALL THE MODIFICATIONS UNTIL SIGNATURE OF THIS DEED OF FOUNDATION IN A UNIFIED STRUCTURE 1. Name and seat of the Founder ChipPAC Operating Limited Craigmuir Chambers Road Town Tortola,. BVI 2. Name and seat of the Company 2.1 Name of the Company in Hungarian: ChipPAC Likviditas Menedzsment Magyarorszag Korlatolt Felelossegu Tarsasag in English: ChipPAC Liquidity Management Hungary Limited Liability Company The abbreviated form of the Company's name will be: in Hungarian: ChipPAC Kft. in English: ChipPAC Ltd. 2.2 Seat of the Company: 9700 Szombathely Varkonyi u. 15. 3. Range of activities of the Company The Company is established to carry out the following business activities (identified by the code numbers of the Standard Sector Classification System of Activities): 5170 Other wholesale trading 7484 Service promoting other economic activities not included elsewhere 6522 Other credit granting The scope of Other Credit Granting covers only non-bank credit granting, which is restricted to liquidity management for controlled companies (Act CXII of 1996, Schedule II, Section 3 on Credit Institutions and Financial Enterprises--"CIFEA"--and which does not qualify as the granting of monetary credit under Schedule 11, Section 10 of the CIFEA.) Therefore the permit of the State Money and Capital Market Supervision is not required to practice the above activities. The Founder acknowledges the fact that the Company can only perform those activities, which are subject to a relevant license or a registration obligation, upon receipt of said license or following the registration. The Managing Director will be responsible for obtaining the licenses and registrations. 4. The share capital of the Company 4.1 The share capital of the Company is USD 115,000, that is one hundred and fifteen thousand United States dollars, which is an entirely cash contribution. 4.2 The Founder has fully paid the cash contribution of USD 15,000 that is fifteen thousand United States dollars to the Company's bank account kept at ABN AMRO Bank Rt in Budapest at the establishment of the Company. The Founder undertakes to pay the cash contribution of USD 100,000 that is one hundred thousand United States dollars within 15 days of signature of this Deed of Foundation. The payment will be accomplished in USD to the Company's bank account held at ABN AMRO Bank Rt. 4.3 The business quota of the Founder is 100%. 4.4 The Founder is not obliged to provide any auxiliary services or additional payment. 5. Duration of the Company, business year 5.1 The Company is established for an indefinite term. 5.2 The business year shall coincide with the calendar year. 6. Decisions of the Company 6.1 The Founder shall have the sole power of decision for all Company matters listed under Section 2 of Paragraph 150 of Act No. CXLIV of 1997 on Business Associations. 6.2 The Managing Director is responsible for entering the resolutions of the Founder into the Book of Resolutions. 7. The Managing Director 7.1 The first Managing Director of the Company is: Name: Jozsef Veress Address: 1031 Budapest Anyos U. 8. 11/5 Mother's maiden name: Olga Damianovich ID no.: AN 231197 7.2 The mandate of the Managing Director begins with the signature of this Deed of Foundation and will last for one year. The Managing Director may be re-elected and the mandate can be extended. 7.3 The Managing Director shall manage the Company in accordance with the Resolutions of the Founder which are made pursuant to Section 6.1 of this Deed. In all other aspects, the Managing Director shall be responsible for managing matters of and for the Company. 8. The auditor of the Company: 8.1 The name and address of the auditor: Name: PricewaterhouseCoopers Auditing and Business Consulting Ltd. Seat: 1077 Budapest WesselAnyl u. 16. Registration no.: 01-09-063022 Auditor permit no.: 001464 8.2 The representative appointed as auditor: Name: IstvanPuskas Address: 1124 Budapest Fodor u. 109/b/2. Mother's maiden name: Eva Vecseri Auditor permit no.: 0041 06 8.3 The mandate of the auditor lasts for five years from the date of signing of this Deed of Foundation. 9. Procuration and representation 9.1 The proper signature of the Company will be carried out in such a way that the Managing Director solely signs his name under the prescribed, pre-printed or printed name of the Company. 9.2 The Managing Director shall solely represent the Company before third parties, courts and other authorities. The Managing Director shall exercise the employer's rights with respect to the company's employees. 10. Termination of the Company 10.1 The Company terminates: a) if it resolves its termination without a legal successor; b) if it resolves its termination with legal succession (by transformation); c) upon being declared terminated by the court of registration; d) upon the order of the court of registration on its cancellation ex officio; e) if terminated by the court of registration in liquidation proceedings. 10.2 The Company ceases to exist upon its deletion from the Company Register. 11. Closing provisions 11.1 The Founder hereby declares that he/she/it intends to pursue the Company's activities as a "party acting abroad" as set forth in Article 4(28) of Act No. LXXXI of 1996 on Corporate Tax and Dividend Tax, as amended. 11.2 In all matters not, or not entirely governed by this Deed of Foundation, the provisions of Act No. CXLIV on Business Associations of 1997 and Act No. XXIV on Foreign Investments of 1988, as amended, shall apply. Date: August 5, 1999. The Founder: /s/ Paul Grocott - ---------------------------------------------- Name of the Company: ChipPAC Operating Limited Name of the representative: Paul Grocott Countersigned: /s/ Dr. Horvath Dora EX-3.11 15 POLICY & OPERATING GUIDLINES Exhibit 3.11 ------------ CHIPPAC LTD. POLICY AND OPERATING GUIDELINES ABSTRACT These liquidity management, investment, hedging and administration policy and operating guidelines ("Guidelines") set out the general principles pertaining to the administration of the business of ChipPAC Ltd. (the "Company"). These Guidelines were approved by Resolution of the Managing Director, dated the 5th of August, 1999, and as amended from time to time by subsequent resolutions of the Managing Director. 1.0 Definitions "Auditor" is the statutory auditor appointed in accordance with the terms of the appointment set out in the Deed of Foundation of the Company. "Borrowing Participant" is a Participant making a Funding Request in accordance with the applicable Liquidity Management Agreement entered into between the Borrowing Participant and the Company, a. sample of which is enclosed in Appendix A. "Company" is ChipPAC Ltd., a Hungarian limited liability company. "Director" is the managing director of the Company, with signing authority in matters relating to the Company as set out in the Deed of Foundation. "Financing Account" is the USD denominated account in the name of the Company with ABN AMRO Bank, London, U.K. "Member" is ChipPac Operating Limited, a company incorporated under the laws of US Tortola, or its successor as set out in an amended Deed of Foundation and whose rights and obligations in respect of the Company are determined in accordance with the Deed of Foundation and resolutions of the Member and the Company. "Governing Legislation" is Act CLXI on Business Associations and other applicable Hungarian law governing matters dealt with in these Guidelines. "Participants" are those companies which have entered into a Liquidity Management Agreement with the Company and whose rights and obligations are defined therein. "Operating Account" is the USD denominated bank account in the name of the Company with ABN AMRO Bank in Budapest which is used for settling local expenses and for paying Hungarian taxes. "Service Provider" is TMF Hungary Ltd., pursuant to the terms of a Service and Office Space Agreement, a sample of which is enclosed in Appendix B. Note: Other defined terms mentioned in these Guidelines but which are riot specifically defined in this section have the same meaning as provided for in the applicable Liquidity Management Agreement or the applicable Loan Agreement/Purchased Debt as those terms are defined in the Liquidity Management Agreement. 2.0 General Policy Objectives 2.1 To provide liquidity and treasury management services to Participants under common control in a cost-effective manner. 2.2 To realise a reasonable return on surplus fluids, if applicable, while maintaining adequate liquidity and a low level of overall investment risk. 2.3 To administer the Company in a way that is consistent with and adheres to agreements in place between the Company and other parties and to ensure that the offshore status of the Company under Hungarian law is preserved. 3.0 Liquidity Management re; Participants 3.1 Any and all funds of the Company should be used for one of four purposes: financing and liquidity management of Participants, investment of surplus funds, payment of dividends or settlement of operational expenses. 3.2 The Company should not lend funds to an entity which is not a Participant governed by a Liquidity Management Agreement except where fluids are advanced to the Member for the purpose of making expected or future dividend payments. 3.3 Actual interest and principal repayments should be made both by accounting entries in the records of the Borrowing Participant and the Company as well as by the physical transfer of cash to the Financing Account of the Company. Outstanding interest or principal should not be refinanced. Payments should be made as and when required in accordance with the terms of any applicable Loan Agreement or Purchased Debt. 3.4 The amount and source of funds to be used for the financing and liquidity management activities of the Company should be determined by the Director, from time to time, and in accordance with the guidelines pertaining to Capitalization of the Company in section 5.0, after due consideration of the anticipated borrowing requirements of Borrowing Participants, balance sheet funding restrictions, if applicable, and operational requirements of the Company. 4.0 Management of Surplus Funds 4.1 Surplus funds may accumulate in the Financing Account from time to time as interest and/or principal receipts are received and approval in accordance with these Guidelines has not yet been given for either subsequent lending of the funds or their advance or payment as a dividend to the Member. 4.2 Each year the Director should, if applicable, makes decisions or set policies with respect to the retention and investment of surplus funds throughout the year, including matters relating to investment policies, currencies etc. 4.3 The Company shall be responsible for the proper management of surplus funds in accordance with the decisions of the Director. 4.4 All surplus funds available, from time to time, shall be, where necessary, converted into and/or kept in USD unless the Company has ascertained a specific requirement for funds in another currency in which event the Company may, with prior authorization of the Director, take steps in advance to acquire or maintain funds in such currency. 4.5 Any surplus funds should be placed on deposit, at the best rates obtainable, for committed periods not exceeding two months with any financial institution with a minimum Standard & Poor's short term credit rating of A1. The Company may place surplus funds on deposit for committed periods of up to 3 months or more with the express authorization of the Director. 5.0 Capitalization of the Company 5.1 The Director shall be responsible for ensuring that the Company is sufficiently capitalised such that it can meet its liquidity management and financing responsibilities in respect of Participants. 5.2 The Company may be capitalized, from time to time, through equity contributions from the Member, borrowings from financial institutions approved by the Director or advances from Participants or other entities approved by the Director. 5.3 The Member will usually make equity contributions to the Company either through cash contributions to registered capital, in-kind contributions to registered capital or cash or in-kind contributions to capital reserve. 5.4 The Director must approve all borrowings by or credit facilities granted to the Company. 6.0 Hedging 6.1 The Director shall be responsible for approving and providing for any and all hedging activities of the Company. 6.2 Loans to Participants and advances from Participants and approved entities may be made in USD or any other freely tradable currency. Any loan or advance not denominated in USD may, at the determination of the Director, be hedged in USD with a financial institution with a minimum Standard & Poor's short term credit rating of Al or a minimum Standard & Poor's long term credit rating of AA for any hedging transaction over 12 months or as otherwise determined by the Director. Hedging may not be necessary where the currency of the loan is matched on the funding side. 6.3 For foreign exchange exposures, only spot and forward foreign exchange contracts shall be entered into by the Company, upon approval by the Director. No speculative contracts shall be entered into. Hedge consolidation of net exposure may be undertaken. 6.4 The hedging of interest rates on loans made and borrowings received shall be determined by the Director, on a case by case basis. 7.0 Banking and Disbursements Banking 7.1 The Company shall set up and maintain, at a minimum, one Operating Account in Hungary denominated in USD for the purpose of settling local expenses and paying taxes. 7.2 The following expenses must be paid from the Operating Account and cannot be paid from any other account in the name of the HOC: a) All remuneration of managing Director, employees etc.; b) All statutory filing fees and other amounts paid to government bodies in Hungary; c) All professional advisor's fees in Hungary for services relating to the Company; d) All taxes payable to a Hungarian tax authority. 7.3 The Company shall set up and maintain at least one Financing Account denominated in USD for the purpose of lending funds to Participants and for receiving principal and interest repayments on USD denominated, and, if necessary, other currency denominated lendings to Participant 7.4 No funds may be disbursed from the Financing Account for purposes stated in sections 7.1 or 7.2 or for any other expense reasonably related to the operation or ongoing maintenance of the Company except as specifically set oat in section 7.3. 7.5 The Company may set up arid maintain a non-USD denominated account for specific purposes. 7.6 The Company is responsible for ensuring, by way of funds transfer from the Financing Account and in conjunction with the Service Provider, that sufficient funds are available in the Operating Account for settling anticipated local expenses. Any request for a transfer of funds from the Financing Account to the Operating Account must be authorized on a Financing Account Transfer Request a sample of which is enclosed in Appendix C. 7.7 Person(s) designated in the Deed of Foundation of the Company should have signing authority over the Operating and Financing Account unless other arrangements are agreed to by the Director. 7.8 No funds may be disbursed as a loan to a Borrowing Participant from the Financing Account unless a Funding Request has been submitted and approved by the Director. 7.9 No funds may be disbursed from the Operating Account pursuant to an approved Funding Request. 7.10 The Service Provider shall provide, to the Company, originals or reasonable copies of all invoices or supporting documentation for approval prior to payment of expenses out of the Operating Account. Pre-approval of such expenditures, including pre-authorized payment or payment by standing order may be approved by the Director. 8.0 Dividends to the Member 8.1 The Director shall declare and pay dividends to the Member at their discretion and in accordance with the Deed of Foundation, any applicable resolutions and pursuant to and in accordance with applicable Hungarian law. 8.2 The Director should (where possible) declare and pay dividends no more than once per year, after completion and approval of the annual audited financial statements and submission of the audited financial statements to the Hungarian authorities. 8.3 Interim dividend payments may be made, but must be supported by a resolution of the Director and based on approved interim audited financial statements showing sufficient profit reserves to support the dividend. 8.4 During the course of the year, the Director may approve interim advances to the Member. These advances must be paid from the Financing Account pursuant to a completed Financing Account Transfer Request. All advances to the Member outstanding at the end of the year must be settled first through the declaration and payment of a dividend in accordance with section 8.1 and Hungarian law. 8.5 The Company is responsible for withholding all taxes on dividends paid to the Member and remitting these withholdings to the appropriate Hungarian authorities. 8.6 The Company must file an authenticated document of domicile with the Hungarian tax authorities enabling the Company to withhold at the rate of withholding appropriate for the applicable treaty. 9.0 Accounting and Bookkeeping 9.1 The Service Provider shall be responsible for all record keeping and accounting functions in respect of the Company in accordance with the Service and Office Space Agreement. 9.2 The Service Provider shall be responsible for processing all invoices and requests for payment in the normal course for settlement in accordance with these Guidelines. 9.3 The Service Provider and/or other designated individual or company shall be responsible for administering and maintaining the registered office of the Company in accordance with the terms of the applicable lease or rental agreement. 9.4 The Service Provider shall be responsible for administering and maintaining a business office of the Company in accordance with the terms of the Service and Office Space Agreement. 10.0 Financial Reporting 10.1 The Service Provider should be responsible for completion of internal and external financial reporting requirements for the Company. 10.2 A report should be provided to the Company by the Service Provider detailing management accounts on a quarterly or other basis to be determined by the Company and in a format to be agreed upon in consultation with the Company. 10.3 A report should be provided to the Director by the Service Provider detailing receipts and disbursements and reconciliations in respect of the Operating and Financing Accounts of the Company on a monthly or other basis to be determined by the Company and in a format to be agreed upon in consultation with the Company. 10.4 A report should be provided to the Director by the Company in consultation with the Service Provider which sets out the status of all requests for funding awaiting approval on an annual or other basis to be determined by the Company and in a format to be agreed upon in consultation with the Company. 10.5 The Service Provider in conjunction with the Company shall prepare final year end accounts and financial statements for presentation to the Company within a reasonable time after year end. 10.6 The Service Provider shall be responsible for providing all necessary and requested information on a timely basis to the Auditor for purposes of completion of the annual audit. 10.7 The Service Provider shall provide any and all information or reports requested by the Company or the Director. 10.8 The Service Provider should provide financial statements for the pre- Company to the Auditor on a timely basis. ACKNOWLEDGMENT THESE GUIDELINES including the enclosed Appendices are hereby acknowledged as constituting the Policy and Operating Guidelines of ChipPAC Ltd. as at the date below with retroactive effect to the date of incorporation of ChipPAC Ltd. Date: August 5, 1999 On behalf of ChipPAC Ltd., /s/ Jozsef Veress ----------------------------- Jozsef Veress Managing Director EX-3.12 16 ARTICLES OF INCORPORATION OF CHIPPAC KOREA EXHIBIT 3.12 CHIPPAC KOREA LIMITED ========================== ARTICLES OF INCORPORATION ========================= CHAPTER I. GENERAL PROVISIONS Article 1. Corporate Name - -------------------------- The name of the company shall be " " which shall be written in English as "ChipPAC Korea Limited" (hereinafter referred to as the "Company"). Article 2. Objectives - ---------------------- The objectives of the Company shall be to engage in the following business: (1) Manufacture and sale of products relating to assembling and testing the semiconductor elements; (2) Manufacture and sale of equipments and appliances relating to assembling and testing the semiconductor elements; (3) Manufacture of machinery components and molds; (4) Acquisition of works such as technology research and service on a commission basis; (5) Renting a electronic and electrical machinery components; (6) Publication business; (7) Foreign trade business; (8) Forestation business; (9) Sale and renting the real estate; (10) Construction business; and (11) Any and all business and investment incidental to any of the foregoings. -2- Article 3. Location of Principal Office - ---------------------------------------- The Principal Office of this Company shall be located at San 136-1, Ami-Ri, Bubal-Eup, Ichon-Shi, Kyunggi-Do, Korea and branches, sub-offices, or other business offices will be established or closed elsewhere as required according to resolutions passed at the meetings of Board of Directors. CHAPTER II. CAPITAL AND UNITS OF CONTRIBUTION Article 4. Capital ------- The total amount of the capital of the Company shall be Seven Hundred Eighty Eight Billion Won (W78,800,000,000). Article 5. Amount for One Unit of Contribution ----------------------------------- The amount for one unit of contribution shall be Five Thousand Won (W5,000). Article 6. Name and Address of Members of the Company; Number of Units -----------------------------------------------------------
Name Address No. of Units of - ---- ------- Contribution --------------- ChipPAC Limited Craigmuir Chambers Road Town 15,744,240 units Tortola in the said Territory ChipPAC (Barbados) Ltd. Chancery House, High Street 15,760 units Bridgetown, Barbados, West Indies
Article 7. Restrictions Upon Disposition ----------------------------- A member of the Company may not dispose of the whole or any part of its contribution unit to any person other than a member without the unanimous written consent of all members. -3- CHAPTER III. GENERAL MEETING OF MEMBERS OF THE COMPANY Article 8. Types and Times of General Meetings - ----------------------------------------------- 8.1. The general meetings of members of the Company shall be ordinary or extraordinary. 8.2. An ordinary general meeting of members shall be convened within three (3) months after the end of each fiscal period. Extraordinary general meetings of members may be convened from time to time as necessary. Article 9. Place of General Meetings - ------------------------------------- 9.1. All ordinary and extraordinary general meetings of members of the Company may be held at the Principal Office of this Company or at such other place as may be determined by the Board of Directors, within or outside the Republic of Korea. 9.2. The Representative Director shall have the right to convene a general meeting of the members with one (1) day prior written notice thereof to all the members of the Company. Article 10. Adoption of Resolution - ----------------------------------- 10.1. A quorum for a general meeting of members shall be the presence in person or by proxy of the holders of more than fifty percent (50%) of the total Units of Contribution entitled to vote. Except as otherwise required by applicable laws and these Articles of Incorporation, all actions and resolutions of a general meeting of members shall be adopted by the affirmative vote of a majority of the total number of voting Units of Contribution then issued and outstanding at a duly constituted general meeting of members. -4- 10.2. In the event that all members give written consent to any matter that is object of a resolution, it shall be deemed that the matter has been resolved in writing, and such resolutions shall have the same effect as resolutions adopted at general meetings of members. Article 11. Right to Vote, Voting by Proxy - ------------------------------------------- 11.1. In all matters, each member of the Company shall have one vote for each unit of contribution held by him. 11.2. A member may exercise his voting right by proxy by having another person represent him. Any such representative must submit documentation acceptable to the Company establishing his power of representation (Power of Attorney). Article 12. Presiding Officer of General Meeting - ------------------------------------------------- The representative director of the Company shall preside at all general meetings of members. In the event that the representative director fails to serve as presiding officer over any general meeting of members for any reason, one of the other Directors nominated by the Board of Directors shall take his place. Article 13. Minutes - -------------------- As to the substance of the course of the proceedings of the general meetings and the results thereof, the minutes shall be prepared and the chairman and all directors present at the meeting affix their seals or signatures thereon. -5- CHAPTER IV. DIRECTORS AND AUDITORS Article 14. Directors, Representative Director and Statutory Auditor -------------------------------------------------------- 14.1. The Company shall have three (3) directors and one (1) statutory auditor all of whom shall be elected at a general meeting of members. 14.2. The Company shall have a representative director who shall also be elected at a general meeting of members. The representative director shall represent the Company and manage the daily affairs of the Company. 14.3. The term of office of a director and a statutory auditor shall be one (1) year. That term, however, shall be extend until the closing of the general meeting of members convened first following the last fiscal period comprising the incumbent's term of office. 14.4. Directors and statutory auditors shall be eligible for reelection upon the expiration of their terms of office. CHAPTER V. ACCOUNTING Article 15. Composition and Powers of Board of Directors -------------------------------------------- 15.1. The Board of Directors of the Company shall consist of all the Directors elected at a general meeting of members. Except as otherwise provided in the Commercial Code of Korea and these Articles of Incorporation, the Board of Directors shall decide by resolution all important matters relating to management of the business of the Company and shall supervise the management of the Company carried out by the representative director and the officers of the Company. -6- 15.2. The following matters, in particular, shall require approval of the Board: (a) Establishment, purchase, leasing and abolishment of business offices and other places of business; (b) Approval of forecasts, budgets and statements of accounts; (c) Decision as to major expansion, retrenchment, suspension, and dissolution of the Company and any of its businesses; (d) Designation and appointment of bankers and outside accountants; (e) Decisions as to the borrowing of funds; (f) Decisions as to extending credit; (g) Decisions as to purchase or disposition of assets of more than One Billion Two Hundred Million Won (1,200,000,000) in value or One Billion Two Hundred Million Won (1,200,000,000) in excess of such purchases or dispositions already approved in the budget; or its equivalent in another currency; (h) Decisions as to furnishing of security (collateral) other than in the ordinary course of business; (i) Subject concerning important litigation or arbitration; (j) Formulation and adoption of plans for major changes in the fundamental organization of the Company, including amendment of the Articles of Incorporation of the Company to be submitted to a general meeting of members; (k) Approval of the Company's sales, marketing and research progress and policies; and (l) Determination of other important matters relating to the administration of the affairs of the Company. Article 16. Meeting of Directors, Notice and Place of Meetings -------------------------------------------------- 16.1. Meetings of the Board of Directors shall be convened from time to time by the representative director when he deems the same to be necessary or advisable or promptly upon the request of any director in writing. 16.2. Written notice of each meeting of the Board of Directors, setting forth the date, time, place and agenda of the meeting shall be given via registered or certified -7- mail to directors and the statutory auditor who are residents of Korea and via cable, telefax, or telex, confirmed by registered or certified airmail to all other Directors not resident in Korea, at least one (1) day prior to the date set for such meeting. 16.3. At the meeting, directors may act only with respect to matters set forth in said notice, unless all directors in office otherwise agree. 16.4 Irrespective of the foregoing Paragraph 16.2, meetings of the Board of Directors may be held without conforming to such procedure set forth above written consent thereto has been obtained, prior to the meeting, from all the Directors in office. 16.5. The venue of all meetings of the Board of Directors shall be the Registered Office of the Company or such other place, in or outside of Korea, as shall be determined by the Board of Directors. 16.6. The venue of all meetings of the Board of Directors shall be the Registered Office of the Company or such other place, in or outside of Korea, as shall be determined by the Board of Directors. Article 17. Presiding Officer of the Board ------------------------------ The representative director shall preside over all meetings of the Board of Directors. In the event the representative director is unable or unwilling to preside over any meeting of the Board of Directors for any reasons, one of the others nominated by the Board shall preside. Article 18. Adoption of Resolutions ----------------------- 18.1. All resolutions of the Board of Directors shall be adopted by affirmative vote of the majority of directors in office. A director who is not present at a meeting may vote in writing upon the matters for resolutions submitted at a meeting of the Board. 18.2. In the event that all directors give written consent to any matter which is the object of a resolution, it shall be deemed that the matter has been resolved in writing, and such resolutions shall have the same effect as resolutions adopted at -8- meetings of the Board of Directors. Article 19. Minutes ------- Minutes of the meetings of the Board of Directors containing the substance of course of the proceedings and the results thereof, shall be prepared. The chairman of the meeting and all other directors present at the meeting shall affix their seals or signatures thereon. CHAPTER VI. ACCOUNTING Article 20. Fiscal Period ------------- The fiscal period of the company shall be from the 1st of January to 31st of December each year. Article 21. Accounting Principles --------------------- 21.1. The accounting method employed by the company and financial statements and reports issued by it shall be in accordance with the guidelines agreed by the members; provided however, that such accounting method, financial statements and reports shall be consistent with generally accepted accounting principles and applicable Korean law. The Company shall further provide the competent Korean authorities with any documentation required by the relevant mandatory provisions of Korean laws. 21.2. The books and records of the Company shall be audited annually by an independent and internationally reputable certified public accountant selected by a resolution of the Board of Directors. Such certified public accountant shall provide the Company and all members with copies of the financial report in the English language in accordance with generally accepted accounting principles of Korea and internationally accepted accounting practices within thirty (30) days of the end of each year. -9- Article 22. Preparing and Compiling Financial Statements -------------------------------------------- (1) The representative director shall cause to be prepared the following documents with their supplementary data and submit them to the statutory auditor not later than six (6) weeks prior to the date of the ordinary general meeting of members after obtaining the approval of the Board of Directors: (A) A Balance Sheet as of the end of the fiscal year; (B) A Profit and Loss Statement for the previous fiscal year; (C) Proposals for the appropriation of the retained earnings or deficits; and (D) A business report for the previous fiscal year. The statutory auditor shall submit the Audit Report to the directors within Four (4) weeks from receipt of the aforesaid documents from the representative director. Article 23. Disposition of Profit --------------------- The Company shall dispose of the profit of each fiscal year (including the retained earnings carried over from previous year) in the following order of priority: (A) Replenishment of any capital deficit carried over from prior years, if any; (B) Contributions to reserves required by law and such other reserves as may be decided by the general meeting of members; (C) Payment of dividends to members, and (D) Retained earnings carried forward to next fiscal year. Article 24. Payment of Dividends -------------------- Dividends shall be paid to the members of the Company who have been duly entered in these Articles of Incorporation as of the end of each fiscal year in proportion to their respective number of units of contribution. Article 25. Inspection of Books of Accounting --------------------------------- -10- A member of the Company may at any time demand in writing together with a stated reasons to inspect and make a copy of the books of accounting and/or any other documents of the Company. CHAPTER VII. OTHER MATTERS Article 26. By Laws ------- The Company may by resolutions of the Board of Directors, establish and enforce By-Laws necessary for carrying out its business. Article 27. Application of Commercial Code, etc. ------------------------------------ Matters not specifically provided for herein shall be determined in accordance with the resolutions of the general meetings of members and/or the relevant provisions of the Commercial Code and other applicable laws. ADDENDA ------- These Articles of Incorporation shall enter into effect from ____________, 1999. EX-4.1 17 PURCHASE AGREEMENT, DATED AS OF 7/22/1999 Exhibit 4.1 EXECUTION COPY $150,000,000 CHIPPAC INTERNATIONAL LIMITED 12 3/4% Senior Subordinated Notes Due 2009 PURCHASE AGREEMENT ------------------ July 22, 1999 Credit Suisse First Boston Corporation Donaldson, Lufkin & Jenrette Securities Corporation c/o Credit Suisse First Boston Corporation Eleven Madison Avenue New York, N.Y. 10010 Ladies and Gentlemen: 1. Introductory. ChipPAC International Limited, a British Virgin Islands corporation (the "Issuer"), which is a wholly owned subsidiary of ChipPAC Merger Corp. ("MergerCo"), a Delaware corporation which was formed and is wholly owned by affiliates of Bain Capital, Inc. and SXI Group LLC, an affiliate of Citicorp Venture Capital, proposes, subject to the terms and conditions stated herein, to issue and sell to the several initial purchasers named in Schedule A hereto (the "Initial Purchasers") the respective principal amounts set forth in Schedule A hereto of U.S. $150,000,000 aggregate principal amount of its 12 3/4% Senior Subordinated Notes Due 2009 (the "Offered Securities"). The Offered Securities are to be issued pursuant to an indenture (the "Indenture") to be dated as of July 29, 1999 (the "Closing Date"), between the Issuer, MergerCo and Firstar Bank of Minnesota, N.A., as trustee (the "Trustee"). In connection with the consummation of the Recapitalization, as defined in the Offering Circular (as defined herein), (1) MergerCo will merge with and into ChipPAC, Inc., a California corporation ("ChipPAC"), with ChipPAC, Inc. as the surviving corporation in such merger, and (2) the Issuer will be merged with and into a wholly owned subsidiary of ChipPAC, Inc., which surviving corporation will be renamed ChipPAC International Company Limited (the "Surviving Issuer")(the mergers described in clauses (1) and (2) are collectively referred to herein as the "Merger"). MergerCo will guarantee the Offered Securities as of the issue date on an unconditional senior subordinated basis pursuant to the terms of the Indenture (the "Parent Guaranty"). As a result of the Merger and in connection with the Recapitalization, (1) all of the Issuer's obligations under the Offered Securities, the Indenture, the Registration Rights Agreement and the Escrow Agreement (as each term is defined herein) will, by operation of law, become obligations of ChipPAC International Company Limited, (2) all of MergerCo's obligations under the Parent Guaranty, the Offered Securities, the Indenture, the Registration Rights Agreement and the Escrow Agreement will, by operation of law, become obligations of ChipPAC, Inc., (3) ChipPAC, Inc. and ChipPAC International Company Limited will enter into a supplemental indenture relating to the Indenture (the "Supplemental Indenture"), and, in the case of ChipPAC, Inc., the Parent Guaranty, which Supplemental Indenture will cause the obligations under the Indenture and the Parent Guaranty to be assumed by ChipPAC, Inc. and ChipPAC International Company Limited (4) each direct and indirect subsidiary of ChipPAC, Inc. (other than ChipPAC Assembly and Test (Shanghai) Company, Ltd. and Hyundai Electronics (Shanghai) Company Ltd. (to be renamed ChipPAC (Shanghai) Company Ltd. after the Recapitalization)) will enter into a Subsidiary Guaranty Agreement pursuant to which each will guarantee the Offered Securities on an unconditional basis (the "Subsidiary Guaranties" and, together with the Parent Guaranty, the "Guaranties") and (5) the Issuer will enter into a credit agreement (together with the related guaranties and security documents, the "Credit Agreement") among itself, the guarantors named therein, Credit Suisse First Boston, as administrative agent, and the lenders named therein. The Offered Securities will be offered and sold to the Initial Purchasers without being registered under the Securities Act of 1933 (the "Securities Act"), in reliance upon an exemption therefrom. Pursuant to the terms of the Offered Securities and the Indenture, the Initial Purchasers and investors that acquire Offered Securities may only resell or otherwise transfer such Offered Securities if such Offered Securities are hereafter registered under the Securities Act or if an exemption from the registration requirements of the Securities Act is available (including, without limitation, the exemption afforded by Rule 144A, Rule 144 or Regulation S of the rules and regulations under the Securities Act). Holders of the Offered Securities (including the Initial Purchasers and their direct and indirect transferees) will be entitled to the benefits of a Registration Rights Agreement dated the Closing Date, among the Issuer, MergerCo and the Initial Purchasers (the "Registration Rights Agreement"), pursuant to which the Issuer will agree to file with the Securities and Exchange Commission (the "Commission") (i) a registration statement under the Securities Act (the "Exchange Offer Registration Statement") registering an issue of senior subordinated notes of the Issuer, which are substantially identical to the Offered Securities (the "Exchange Securities") (except that the Exchange Securities will not contain terms with respect to transfer restrictions and interest rate increase) and (ii) under certain circumstances, a shelf registration statement pursuant to Rule 415 under the Securities Act. This Agreement, the Indenture, the Offered Securities, the Exchange Securities, the Registration Rights Agreement and the Escrow Agreement are sometimes referred to in this Agreement collectively as the "Operative Documents". All material agreements and instruments relating to the Recapitalization (including, but not limited to, the Recapitalization Agreement (as defined in the Offering Document) and the Credit Agreement), are sometimes referred to in this Agreement collectively as the "Transaction Agreements". The Operative Documents and the Transactions Agreements are sometimes referred to in this Agreement collectively as the "Transaction Documents". The transactions that comprise the Recapitalization (including the Merger, the issuance and sale of the Offered Securities and the borrowings under the Credit Agreement) are sometimes collectively referred to in this Agreement as the 2 "Transactions." References in this Agreement to the subsidiaries of ChipPAC shall include all direct and indirect subsidiaries of ChipPAC after consummation of the Merger and related Recapitalization. On the Closing Date, the Issuer will deposit with Firstar Bank of Minnesota, N.A. (the "Escrow Agent") the gross proceeds of the offering of the Offered Securities, together with certain other funds made available to the Issuer (the "Escrowed Funds"). Upon the satisfaction of certain conditions as set forth in an Escrow Agreement to be dated the Closing Date between the Issuer, MergerCo and the Escrow Agent (the "Escrow Agreement"), the Escrowed Funds will be released to ChipPAC International Company Limited, and such funds will be used to fund, in part, the Recapitalization. Capitalized terms used but not defined herein shall have the meanings given to such terms in the Offering Document (as defined below). The Issuer and MergerCo hereby agree with the Initial Purchasers as follows: 2. Representations and Warranties of the Issuer and MergerCo. The Issuer and MergerCo, jointly and severally, represent and warrant to, and agree with, the Initial Purchasers that: (a) A preliminary offering circular dated June 30, 1999, a supplemental preliminary offering circular dated July 19, 1999 and an offering circular dated the date of this Agreement relating to the Offered Securities to be offered by the Initial Purchasers have been prepared by the Issuer. Such preliminary offering circular, together with such supplemental preliminary offering circular (collectively, the "Preliminary Offering Circular") and offering circular (the "Offering Circular") are hereinafter collectively referred to as the "Offering Document". Any references herein to the Offering Document shall be deemed to include all amendments and supplements thereto, unless otherwise noted. The Preliminary Offering Circular as of its date does not, and the Offering Circular as of its date and as of the Closing Date does not and will not, and any supplement or amendment to them will not, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The preceding sentence does not apply to statements in or omissions from the Offering Document based upon written information furnished to the Issuer by any Initial Purchaser through Credit Suisse First Boston ("CSFB") specifically for use therein, it being understood and agreed that the only such information is that described as such in Section 7(b) hereof. No stop order preventing the use of the Offering Document, or any order asserting that any of the Transactions are subject to the registration requirements of the Securities Act, has been issued. (b) Each of the Issuer, MergerCo and ChipPAC has been duly incorporated and is an existing corporation in good 3 standing (to the extent such a concept exists in such jurisdiction) under the laws of the jurisdiction of its incorporation, with power and authority (corporate and other) to own its properties and conduct its business as described in the Offering Document; and each of the Issuer, MergerCo and ChipPAC is duly qualified to do business as a foreign corporation in good standing (to the extent such a concept exists in such jurisdiction) in all other jurisdictions in which its ownership or lease of property or the conduct of its business requires such qualification, except where the failure to be so qualified and in good standing would not reasonably be expected to individually or in the aggregate (x) result in a material adverse effect on the properties, business, result of operations, financial condition or prospects of ChipPAC and its subsidiaries taken as a whole, (y) interfere with or adversely affect the issuance or marketability of the Offered Securities or (z) in any manner draw into question the validity of this Agreement, any other Transaction Document or any Transaction (any of the events set forth in clauses (x), (y) or (z), a "Material Adverse Effect"). (c) Each subsidiary of ChipPAC has been duly incorporated and is an existing corporation in good standing (to the extent such a concept exists in such jurisdiction) under the laws of the jurisdiction of its incorporation, with power and authority (corporate and other) to own its properties and conduct its business as described in the Offering Document; and each subsidiary is duly qualified to do business as a foreign corporation in good standing (to the extent such a concept exists in such jurisdiction) in all other jurisdictions in which its ownership or lease of property or the conduct of its business requires such qualification, except where the failure to be so qualified and in good standing could not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect; all of the issued and outstanding capital stock of the Issuer, MergerCo, ChipPAC and of each subsidiary has been, and immediately following the Recapitalization will be, duly authorized and validly issued and fully paid and nonassessable; and except for pledges in favor of Credit Suisse First Boston, as collateral agent, under the Credit Agreement, the capital stock of ChipPAC and each subsidiary owned by ChipPAC, directly or through subsidiaries, will be owned free from liens, encumbrances and defects immediately following the Recapitalization. (d) The Indenture has been duly authorized by the Issuer and MergerCo, and will be duly authorized by each other Guarantor immediately following consummation of the Recapitalization, by all necessary corporate action; the Offered Securities have been duly authorized by the Issuer by all necessary corporate action; and when the Offered Securities are delivered and paid for pursuant to this Agreement and the Indenture on the Closing Date (as defined below), the Indenture will have been duly executed and delivered by the Issuer and MergerCo, such Offered Securities will have been duly executed, authenticated, issued and delivered by the Issuer and will conform in all material respects to the description thereof contained in the Offering 4 Document and the Indenture and such Offered Securities will constitute valid and legally binding obligations of the Issuer and MergerCo and, upon consummation of the Recapitalization, each other Guarantor, enforceable in accordance with their terms and entitled to the benefits of the Indenture, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity). The Exchange Securities have been duly and validly authorized for issuance by the Issuer and, when duly executed, authenticated, issued and delivered by the Issuer and each Guarantor in accordance with the terms of the Exchange Offer and the Indenture, will constitute valid and legally binding obligations of the Issuer and each Guarantor, enforceable in accordance with their terms and entitled to the benefits of the Indenture, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws for general applicability relating to or affecting creditors' rights and to general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity). (e) Except as disclosed or reflected in the fees and expenses set forth in the Offering Document, there are no contracts, agreements or understandings among the Issuer, MergerCo or ChipPAC or its subsidiaries and any person that would give rise to a valid claim against the Issuer, MergerCo or ChipPAC or its subsidiaries or any Initial Purchaser for a brokerage commission, finder's fee or other like payment in connection with the Transactions. (f) Subject to the express assumptions set forth in Section 2(s) below, no consent, approval, authorization, or order of, or filing with, any governmental agency or body or any court is required for the consummation of the Transactions as contemplated by (i) this Agreement and the Registration Rights Agreement, or (ii) any other Transaction Document, in each case, in connection with the consummation of the transactions contemplated therein, except as have already been obtained or as may be required (i) in connection with the registration of the Exchange Securities under the Securities Act, (ii) in connection with the qualification of the Indenture under the Trust Indenture Act (as defined in paragraph (s) below) pursuant to the Registration Rights Agreement, or (iii) pursuant to state securities or "Blue Sky" laws. (g) The execution, delivery and performance by each of the Issuer, MergerCo and ChipPAC and the subsidiaries of ChipPAC (to the extent a party thereto) of each of the Transaction Documents and compliance with the terms and provisions thereof and consummation of the Transactions will not result in a breach or violation of any of the terms and provisions of, or constitute a default under, (i) any statute, any rule, regulation or order of any governmental agency or body or any court, domestic or foreign, having jurisdiction over the Issuer, MergerCo or ChipPAC or any of its 5 subsidiaries or any of their properties, or (ii) the Transaction Documents or any other agreement or instrument to which the Issuer, MergerCo or ChipPAC or any of its subsidiaries is a party or by which the Issuer, MergerCo or ChipPAC or any of its subsidiaries is bound or to which any of the properties of the Issuer, MergerCo or ChipPAC or its subsidiaries is subject, or (iii) the charter, by-laws or similar governing document of the Issuer, MergerCo or ChipPAC or any of its subsidiaries, except (A) in each case, that any rights to indemnity and contribution may be limited by federal and state securities laws and public policy considerations and (B) in the case of clauses (i) and (ii) for such breaches, violations or defaults as would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect; and the Issuer has full corporate power and authority to authorize, issue and sell the Offered Securities as contemplated by this Agreement, and each of the Issuer and MergerCo have full corporate power and authority, and ChipPAC has full corporate power, to execute, deliver and perform the Transaction Documents to which it is a party and to consummate the Recapitalization. (h) This Agreement has been duly authorized, executed and delivered by the Issuer and MergerCo. Each of the other Operative Documents has been, or as of the Closing Date will have been, duly authorized, executed and delivered by each of the Issuer and MergerCo, and immediately upon consummation of the Recapitalization will be duly authorized, executed and delivered by each of ChipPAC and its subsidiaries (to the extent a party thereto). Each of the Transaction Agreements have been or will be as of or on the Recapitalization Closing Date, duly authorized, executed and delivered by each of ChipPAC and its subsidiaries (to the extent a party thereto). Each Transaction Document conforms or will conform in all material respects to the descriptions thereof contained in the Offering Document and each Operative Document (other than this Agreement) is or will constitute valid and legally binding obligations of the Issuer and MergerCo (to the extent each is a party thereto) and each Transaction Agreement constitutes or will constitute valid and legally binding obligations of ChipPAC and each Guarantor, enforceable in accordance with its respective terms, except that any rights to indemnity and contribution may be limited by federal and state securities laws and public policy considerations and subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity). (i) Except as disclosed in the Offering Document, ChipPAC and its subsidiaries have, or following consummation of the Recapitalization will have, good and marketable title to all real properties and all other properties and assets owned by them that are material to ChipPAC and its subsidiaries taken as a whole, in each case free from liens, encumbrances and defects that would materially affect the value thereof or materially interfere with the use made or proposed to be made thereof by them; and except as disclosed 6 in the Offering Document, ChipPAC and its subsidiaries hold any leased real or personal property that is material to ChipPAC and its subsidiaries taken as whole under valid and enforceable leases with no exceptions that would materially interfere with the use made or proposed to be made thereof by them. (j) ChipPAC and its subsidiaries possess all certificates, authorities or permits issued by appropriate governmental agencies or bodies necessary to conduct the business now operated by them and have not received any notice of proceedings relating to the revocation or modification of any such certificate, authority or permit that, if determined adversely to ChipPAC or any of its subsidiaries, would reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect. (k) No labor strike, slowdown, stoppage or dispute with the employees of ChipPAC or any of its subsidiaries exists or, to the knowledge of the Issuer or MergerCo, is imminent, that would reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect. None of ChipPAC or any of its subsidiaries has violated (A) any federal, state or local law or foreign law relating to discrimination in hiring, promotion or pay of employees, (B) any applicable wage or hour laws of, or (C) any provision of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or the rules and regulations thereunder, except those violations that could not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect. (l) ChipPAC and its subsidiaries own, possess, have the right to use or can acquire on reasonable terms, adequate trademarks, trade names and other rights to inventions, know-how, patents, copyrights, confidential information and other intellectual property (collectively, "intellectual property rights") used in the conduct of the business now operated by them, or presently employed by them, and have not received any notice of infringement of or conflict with asserted rights of others with respect to any intellectual property rights that, if determined adversely to ChipPAC or any of its subsidiaries, would reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect. To the knowledge of ChipPAC, the use of the intellectual property rights in connection with the business and operations of ChipPAC or any of its subsidiaries does not infringe on the rights of any person, except such infringements as would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect. (m) Neither ChipPAC nor any of its subsidiaries (i) is in violation of any statute, any rule, regulation, decision or order of any governmental agency or body or any court, domestic or foreign, relating to the use, disposal or release of hazardous or toxic substances or relating to the protection or restoration of the environment or human exposure to hazardous or toxic substances (collectively, "environmental laws"), (ii) owns or operates any real property contaminated 7 with any substance that is subject to any environmental laws, (iii) is liable for any off-site disposal or contamination pursuant to any environmental laws, or (iv) is subject to any claim relating to any environmental laws, in each case, which violation, contamination, liability or claim would reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect; and the Issuer and MergerCo are not aware of any pending investigation which might lead to such a claim. (n) Except as disclosed in the Offering Document, there are no pending actions, suits or proceedings against or affecting the Issuer, MergerCo or ChipPAC or any of its subsidiaries or any of their respective properties that, if determined adversely to the Issuer, MergerCo or ChipPAC or any of its subsidiaries, would reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect, or would materially and adversely affect the ability of the Issuer, MergerCo or ChipPAC or any of its subsidiaries to perform their respective obligations under the Transaction Documents, or which are otherwise material in the context of the sale of the Offered Securities and the consummation of the other Transactions; and no such actions, suits or proceedings are, to Issuer's or MergerCo's knowledge, threatened or contemplated. (o) The financial statements included in the Offering Document present fairly the financial position of ChipPAC and its combined subsidiaries as of the dates shown and their results of operations and cash flows for the periods shown, and such financial statements have been prepared in conformity with the generally accepted accounting principles in the United States applied on a consistent basis and the schedules included in the Offering Document present fairly the information required to be stated therein. The assumptions used in preparing the pro forma financial data included in the Offering Document provide a reasonable basis for presenting the significant effects directly attributable to the transactions or events described therein, the related pro forma adjustments give appropriate effect to those assumptions, and the pro forma columns therein reflect the proper application of those adjustments to the corresponding historical financial statement amounts. Except as otherwise disclosed in the Offering Document, such pro forma financial data comply as to form in all material respects with the requirements that would have been applicable to pro forma financial statements had this Offering Document been a prospectus included in a registration statement on Form S-1 filed with the Commission under the Securities Act. (p) Except as disclosed in the Offering Document, since the date of the latest audited financial statements included in the Offering Document there has been (i) no material adverse change, nor any development or event involving a prospective material adverse change, in the financial condition, business, properties or results of operations of ChipPAC and its subsidiaries taken as a whole, (ii) except as disclosed in or contemplated by the Offering Document, there has been no dividend or distribution of any 8 kind declared, paid or made by ChipPAC or any of its subsidiaries on any class of capital stock owned by any of them, (iii) none of ChipPAC or any of its subsidiaries has incurred any liabilities or obligations, direct or contingent, which are material, individually or in the aggregate, to ChipPAC and its subsidiaries, taken as a whole, nor entered into any transaction not in the ordinary course of business, and (iv) none of ChipPAC or any of its subsidiaries has incurred any liabilities or obligations, direct or contingent, that are material, individually or in the aggregate, to ChipPAC and its subsidiaries, taken as a whole, and that are required to be disclosed on a balance sheet or notes thereto in accordance with generally accepted accounting principles and are not disclosed on the latest balance sheet or notes thereto included in the Offering Document. (q) None of the Issuer or any Guarantor is, and following the Recapitalization none of them will be, an open-end investment company, unit investment trust or face-amount certificate company that is or is required to be registered under Section 8 of the United States Investment Company Act of 1940 (the "Investment Company Act"); and none of the Issuer or any Guarantor is and, after giving effect to the offering and sale of the Offered Securities and the application of the proceeds thereof as described in the Offering Document and the consummation of the other Transactions, none of them will be, an "investment company" as defined in the Investment Company Act. (r) The Offered Securities are eligible for resale to "qualified institutional buyers" pursuant to Rule 144A under the Securities Act and no securities of the Issuer, MergerCo or ChipPAC or any of its subsidiaries are of the same class (within the meaning of Rule 144A(d)(3) under the Securities Act) as the Offered Securities, or are listed on any national securities exchange registered under Section 6 of the Exchange Act or quoted in a U.S. automated inter-dealer quotation system. (s) Assuming that the representations and warranties of the Initial Purchasers contained in Section 4(a) below are true in all material respects, and assuming compliance in all material respects by the Initial Purchasers with their covenants in Section 4 below, the offer and sale of the Offered Securities in the manner contemplated by this Agreement will be exempt from the registration requirements of the Securities Act by reason of Section 4(2) thereof and Regulation S thereunder and it is not necessary to qualify an indenture in respect of the Offered Securities under the United States Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). (t) None of the Issuer, MergerCo, ChipPAC, or any of their respective affiliates, or any person acting on its or their behalf (i) has, within the six-month period prior to the date hereof, offered or sold in the United States or to any U.S. person (as such terms are defined in Regulation S under the Securities Act) the Offered Securities or any security of the same class or series as the Offered Securities or (ii) has 9 offered or will offer or sell the Offered Securities (A) in the United States by means of any form of general solicitation or general advertising within the meaning of Rule 502(c) under the Securities Act or (B) with respect to any such securities sold in reliance on Rule 903 of Regulation S ("Regulation S") under the Securities Act, by means of any directed selling efforts within the meaning of Rule 902(c) of Regulation S. The Issuer, MergerCo, ChipPAC, their respective affiliates and each person acting on their behalf have complied and will comply with the offering restrictions requirement of Regulation S. None of the Issuer, MergerCo or ChipPAC or any of its subsidiaries has entered or will enter into any contractual arrangement with respect to the distribution of the Offered Securities except for this Agreement. (u) Each of ChipPAC and its subsidiaries maintains a system of internal accounting controls sufficient to provide reasonable assurance that: (A) transactions are executed in accordance with management's general or specific authorizations; (B) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (C) access to assets is permitted only in accordance with management's general or specific authorization; and (D) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect thereto. (v) Each of ChipPAC and its subsidiaries maintains insurance covering its properties, operations, personnel and businesses, insuring against such losses and risks as are consistent with industry practice to protect ChipPAC and its subsidiaries and their respective businesses. None of ChipPAC or any of its subsidiaries has received notice from any insurer or agent of such insurer that substantial capital improvements or other expenditures will have to be made in order to continue such insurance. (w) Except as disclosed in the Offering Document, no relationship, direct or indirect, exists between or among the Issuer, MergerCo, ChipPAC or any of its subsidiaries on the one hand, and the directors, officers, stockholders, customers or suppliers of the Issuer, MergerCo, ChipPAC or any of its subsidiaries on the other hand, which would be required by the Securities Act to be described in the Offering Document if the Offering Document were a prospectus included in a registration statement on Form S-1 filed with the Commission under the Securities Act. (x) The statements made in the Offering Circular under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations-Year 2000 Compliance" are true and correct in all material respects and accurately reflect ChipPAC's Year 2000 compliance readiness. (z) The statistical and market-related data included in the Offering Document are based on or derived from sources which the Issuer and ChipPAC believe to be reliable and accurate in all material respects. 10 (aa) The Offering Document, as of its date, and each amendment or supplement thereto, as of its date, contains the information specified in, and meets the requirements of, Rule 144A(d)(4) under the Act. (bb) None of the Issuer, MergerCo or ChipPAC or any of its subsidiaries intends to, nor believes that it will, incur debts beyond its ability to pay such debts as they mature. The present fair saleable value of the assets of each of the Issuer and ChipPAC and its subsidiaries exceeds the amount that will be required to be paid on or in respect of its existing debts and other liabilities (including contingent liabilities) as they become absolute and matured following the Recapitalization. The assets of each of the Issuer, MergerCo and ChipPAC and each of its subsidiaries do not constitute unreasonably small capital to carry out its business as conducted or as proposed to be conducted. Upon the issuance of the Offered Securities and the consummation of the Recapitalization, the present fair saleable value of the assets of the Issuer and the Guarantors will exceed the amount that will be required to be paid on or in respect of their existing debts and other liabilities (including contingent liabilities) as they become absolute and matured. Upon the issuance of the Offered Securities and the consummation of the Recapitalization, the assets of the Issuer and the Guarantors will not constitute unreasonably small capital to carry out its business as now conducted, including the capital needs of each such entity, taking into account the projected capital requirements and capital availability. (cc) None of the Issuer, MergerCo or ChipPAC or any of its subsidiaries has (A) taken, directly or indirectly, any action designed to, or that might reasonably be expected to, cause or result in stabilization or manipulation of the price of any security of the Issuer, MergerCo, ChipPAC or any of its subsidiaries to facilitate the sale or resale of the Offered Securities or (B) since the date of the Preliminary Offering Circular (1) sold, bid for, purchased or paid any person any compensation for soliciting purchases of the Offered Securities or (2) paid or agreed to pay to any person any compensation for soliciting another to purchase any other securities of ChipPAC or any of its subsidiaries. (dd) None of the Issuer, MergerCo or ChipPAC or any of its subsidiaries has used or will use any form of general solicitation in connection with the offer and sale of any of the Offered Securities, including, but not limited to, articles, notices or other communications published in any newspaper, magazine, or similar medium or broadcast over television or radio, or any seminar or meeting whose attendees have been invited by any general solicitation. (ee) Each certificate signed by any officer of the Issuer or MergerCo and delivered to the Initial Purchasers or counsel for the Initial Purchasers dated as of the Closing Date and indicating that it is being delivered pursuant to this Section 2(ee) shall be deemed to be a representation and warranty by the Issuer or MergerCo, as applicable, to the Initial Purchasers as to the matters covered thereby. 11 (ff) None of the Issuer, MergerCo or ChipPAC or any of its subsidiaries or, to the best knowledge of the Issuer, MergerCo and ChipPAC and its subsidiaries, any director, officer, agent, employee or other person associated with or acting on behalf of the Issuer, MergerCo or ChipPAC or its subsidiaries has (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity; (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; (iii) violated or is in violation of any provision of the Foreign Corrupt Practices Act of 1977; or (iv) made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment. 3. Purchase, Sale and Delivery of Offered Securities. On the basis of the representations, warranties and agreements herein contained, but subject to the terms and conditions herein set forth, the Issuer agrees to sell to the Initial Purchasers, and the Initial Purchasers agree, severally and not jointly, to purchase from the Issuer, at a purchase price of 97% of the principal amount thereof plus accrued interest from July 29, 1999 to the Closing Date (as hereinafter defined), the respective principal amounts of the Offered Securities set forth opposite the names of the Initial Purchasers in Schedule A hereto. The Issuer will deliver against payment of the purchase price the Offered Securities in the form of one or more permanent global securities in definitive form (the "Global Securities") deposited with the Trustee as custodian for The Depository Trust Company ("DTC") and registered in the name of Cede & Co., as nominee for DTC. Interests in any permanent Global Securities will be held only in book-entry form through DTC, except in the limited circumstances described in the Offering Document. Payment for the Offered Securities shall be made by the Initial Purchasers in Federal (same day) funds by wire transfer to an account previously designated by the Issuer to CSFB at a bank acceptable to CSFB at the office of Cravath, Swaine & Moore at 9:00 a.m. (New York time), on July 29, 1999, or at such other time not later than seven full business days thereafter as CSFB and the Issuer determine, such time being referred to as the "Closing Date", against delivery to the Trustee as custodian for DTC of the Global Securities representing all of the Offered Securities. The Global Securities will be made available for checking at the office of Cravath, Swaine & Moore at least 24 hours prior to the Closing Date. 4. Representations by Initial Purchasers; Resale by Initial Purchasers. (a) Each Initial Purchaser severally represents and warrants to the Issuer that it is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act. (b) Each Initial Purchaser severally acknowledges that the Offered Securities have not been registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except in accordance with Regulation S or pursuant to 12 an exemption from the registration requirements of the Securities Act, or to non-U.S. persons outside the United States except in accordance with Regulation S or pursuant to an exemption from the registration requirements of the Securities Act. Each Initial Purchaser severally represents and agrees that it has offered and sold the Offered Securities, and will offer and sell the Offered Securities only in accordance with Rule 903 of Regulation S or Rule 144A under the Securities Act ("Rule 144A"). Accordingly, neither such Initial Purchaser nor its affiliates, nor any persons acting on its or their behalf, have engaged or will engage in any directed selling efforts with respect to the Offered Securities, and such Initial Purchaser, its affiliates and all persons acting on its or their behalf have complied in all material respects and will comply in all material respects with the offering restrictions requirements of Regulation S and Rule 144A. (c) Each Initial Purchaser severally agrees that it and each of its affiliates has not entered and will not enter into any contractual arrangement with respect to the distribution of the Offered Securities except for any such arrangements with the other Initial Purchaser or affiliates of the other Initial Purchaser or with the prior written consent of the Issuer. (d) Each Initial Purchaser severally agrees that it and each of its affiliates will not offer or sell the Offered Securities in the United States by means of any form of general solicitation or general advertising within the meaning of Rule 502(c) under the Securities Act, including, but not limited to (i) any advertisement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over television or radio, or (ii) any seminar or meeting whose attendees have been invited by any general solicitation or general advertising. Each Initial Purchaser severally agrees, with respect to resales made in reliance on Rule 144A of any of the Offered Securities, to deliver either with the confirmation of such resale or otherwise prior to settlement of such resale a notice to the effect that the resale of such Offered Securities has been made in reliance upon the exemption from the registration requirements of the Securities Act provided by Rule 144A. (e) Each of the Initial Purchasers severally represents and agrees that (i) it has not offered or sold and prior to the date six months after the date of issue of the Offered Securities will not offer or sell any Offered Securities to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995; (ii) it has complied and will comply with all applicable provisions of the Financial Services Act 1986 with respect to anything done by it in relation to the Offered Securities in, from or otherwise involving the United Kingdom; and (iii) it 13 has only issued or passed on and will only issue or pass on in the United Kingdom any document received by it in connection with the issue of the Offered Securities to a person who is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or is a person to whom such document may otherwise lawfully be issued or passed on. 5. Certain Agreements of the Issuer and MergerCo. The Issuer and MergerCo agree with the several Initial Purchasers that: (a) The Issuer will advise CSFB promptly of any proposal to amend or supplement the Offering Document and will not effect such amendment or supplementation without CSFB's consent. If, at any time prior to the completion of the resale of the Offered Securities by the Initial Purchasers, any event occurs as a result of which the Offering Document as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, the Issuer promptly will notify CSFB of such event and promptly will prepare, at its own expense, an amendment or supplement which will correct such statement or omission or effect such compliance. Upon receipt of such notice in written form, each Initial Purchaser agrees to suspend use of the Offering Document until the Issuer has amended or supplemented the Offering Document to correct such misstatement or omission or to effect compliance with this paragraph (a). Neither CSFB's consent to, nor the Initial Purchasers' delivery to offerees or investors of, any such amendment or supplement shall constitute a waiver of any of the conditions set forth in Section 6. The Issuer's and the Initial Purchasers' obligations under this paragraph (a) shall terminate on the earliest to occur of (i) expiration of the Exchange Offer (as defined in the Registration Rights Agreement) pursuant to the Registration Rights Agreement, (ii) the effective date of a shelf registration statement with respect to the Offered Securities filed pursuant to the Registration Rights Agreement, (iii) the date upon which no Initial Purchaser nor any of their respective affiliates continues to hold Offered Securities acquired as part of their initial distribution, and (iv) the date upon which no Initial Purchaser nor any of their respective affiliates continues to hold Exchange Securities, if any. (b) The Issuer will furnish to the Initial Purchasers copies of any preliminary offering circular, the Offering Document and all amendments and supplements to such documents, in each case as soon as available and in such quantities as the Initial Purchasers request, and the Issuer will furnish to CSFB on the date hereof three copies of the Offering Document signed by a duly authorized officer of the Issuer, one of which will include the independent accountants' reports therein manually signed by such independent accountants. At any time when the Issuer is not subject to Section 13 or 15(d) of the Exchange Act, the Issuer will promptly furnish or cause to be furnished to each Initial Purchaser and, upon request of holders and prospective purchasers of the Offered Securities, 14 to such holders and purchasers, copies of the information required to be delivered to holders and prospective purchasers of the Offered Securities pursuant to Rule 144A(d)(4) under the Securities Act (or any successor provision thereto) in order to permit compliance with Rule 144A in connection with resales by such holders of the Offered Securities. The Issuer will pay the expenses of printing and distributing to the Initial Purchasers all such documents. (c) The Issuer will advise the Initial Purchasers promptly and, if requested by the Initial Purchasers, confirm such advice in writing, of the issuance by any state securities commission of any stop order suspending the qualification or exemption from qualification of any of the Offered Securities for offering or sale in any jurisdiction, or the initiation of any proceeding for such purpose by any state securities commission or other regulatory authority. The Issuer shall use its best efforts to prevent the issuance of any stop order suspending the qualification or exemption of any of the Offered Securities under any state securities or Blue Sky laws and, if at any time any state securities commission or other regulatory authority shall issue an order suspending the qualification or exemption of any of the Offered Securities under any state securities or Blue Sky laws, the Issuer shall use its best efforts to obtain the withdrawal or lifting of such order at the earliest possible time. (d) The Issuer and MergerCo will cooperate with the Initial Purchasers and their counsel in connection with the registration and qualification of the Offered Securities for sale and the determination of their eligibility for investment under the laws of such jurisdictions as CSFB designates and do all things necessary to continue such qualifications in effect so long as required for the resale of the Offered Securities by the Initial Purchasers, provided that the Issuer will not be required to qualify as a foreign corporation or to file a general consent to service of process in any such jurisdiction. (e) During the period of five years hereafter, the Issuer and MergerCo (and, after the Merger, ChipPAC) will furnish to each Initial Purchaser, as soon as practicable after the end of each fiscal year, a copy of its annual report to stockholders for such year; and the Issuer and MergerCo will furnish to each Initial Purchaser as soon as available, a copy of each report and any definitive proxy statement of the Issuer, MergerCo and ChipPAC and any of its subsidiaries filed with the Commission under the Exchange Act or mailed to holders of Offered Securities or any securities of the Issuer, MergerCo or ChipPAC or and any of its subsidiaries which have been registered under Section 12 of the Exchange Act. The obligations of the Issuer under this paragraph (ee) shall cease if and when the Issuer or MergerCo becomes subject to the reporting requirements of the Exchange Act. (f) During the period of two years after the Closing Date, the Issuer will, upon request, furnish to the Initial 15 Purchasers and any holder of Offered Securities a copy of the restrictions on transfer applicable to the Offered Securities. (g) During the period of two years after the Closing Date, none of the Issuer or the Guarantors will permit any of their affiliates (as defined in Rule 144 under the Securities Act) to, resell any of the Offered Securities that have been reacquired by any of them unless such securities are not and will not be Restricted Securities as defined in the Registration Rights Agreement. (h) During the period of two years after the Closing Date, none of the Issuer or the Guarantors will be or become, an open-end investment company, unit investment trust or face-amount certificate company that is or is required to be registered under Section 8 of the Investment Company Act. (i) The Issuer will pay all expenses incidental to the performance of the Issuer's, MergerCo's and ChipPAC's and its subsidiaries' obligations under this Agreement, the Indenture, the Registration Rights Agreement and the other Transaction Documents, including (i) the fees and expenses of counsel and accountant for the Issuer, the Guarantors and of the Trustee and its professional advisers; (ii) all expenses in connection with the execution, issue, authentication, packaging and initial delivery of the Offered Securities and, as applicable, the Exchange Securities, the preparation of this Agreement, the Registration Rights Agreement, the Offered Securities, the Exchange Securities, the Indenture and any supplemental indenture, and the preparation and printing of the Offering Document and amendments and supplements thereto, and any other document relating to the issuance, offer, sale and delivery of the Offered Securities and as applicable, the Exchange Securities; (iii) the cost of listing the Offered Securities and qualifying the Offered Securities for trading in The Portal(SM) Market ("PORTAL") and any expenses incidental thereto; (iv) the cost of any advertising approved by the Issuer in connection with the issue of the Offered Securities; (v) for any expenses (including reasonable fees and disbursements of counsel to the Initial Purchasers) incurred in connection with qualification of the Offered Securities or the Exchange Securities for sale under the laws of such jurisdictions as CSFB designates and the printing of memoranda relating thereto; (vi) for any fees charged by investment rating agencies for the rating of the Offered Securities or the Exchange Securities; and (vii) for expenses incurred in printing and distributing preliminary offering circulars and the Offering Document (including any amendments and supplements thereto) to or at the direction of the Initial Purchasers. The Issuer will also reimburse the Initial Purchasers (to the extent incurred by them) for all reasonable travel expenses of ChipPAC's officers and employees and any other expenses of ChipPAC in connection with attending or hosting meetings with prospective purchasers of the Offered Securities from the Initial Purchasers; it being understood that the only fees and expenses of counsel to the Initial Purchasers to be paid by the Issuer shall be pursuant to the foregoing clause (v). 16 (j) In connection with the offering, until CSFB shall have notified the Issuer and the other Initial Purchaser of the completion of the resale of the Offered Securities, neither the Issuer nor any Guarantor nor any of their affiliates has or will, either alone or with one or more other persons, bid for or purchase for any account in which it or any of its affiliates has a beneficial interest any Offered Securities or attempt to induce any person to purchase any Offered Securities; and neither the Issuer nor any Guarantor nor any of their affiliates will make bids or purchases for the purpose of creating actual, or apparent, active trading in, or of raising the price of, the Offered Securities. (k) For a period of 90 days after the date of the initial offering of the Offered Securities by the Initial Purchasers, none of the Issuer, MergerCo or ChipPAC or any of its subsidiaries, will offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any United States dollar denominated debt securities issued or guaranteed by any of the Issuer, MergerCo or ChipPAC or any of its subsidiaries, and having a maturity of more than three years from the date of issue. None of the Issuer, MergerCo or ChipPAC or any of its subsidiaries will at any time offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any securities under circumstances where such offer, sale, pledge, contract or disposition would cause the exemption afforded by Section 4(2) of the Securities Act, the safe harbor of Regulation S thereunder or the resale exemption under Rule 144A thereunder to cease to be applicable to the offer and sale of the Offered Securities. (l) The Issuer will use the proceeds from the sale of the Offered Securities in the manner described in the Offering Document under the caption "Sources and Uses of Funds." (m) None of the Issuer, MergerCo or ChipPAC or any of its subsidiaries will sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in the Securities Act) that would be integrated with the sale of the Offered Securities in a manner that would require the registration under the Securities Act of the sale to the Initial Purchasers of the Offered Securities or to take any other action that would result in the resale of the Offered Securities not being exempt from registration under the Securities Act. (n) None of the Issuer, MergerCo or ChipPAC or any of its subsidiaries, will take, directly or indirectly, any action designed to, or that might reasonably be expected to, cause or result in stabilization or manipulation of the price of any security of the Issuer to facilitate the resale of the Offered Securities. Except as permitted by the Securities Act, the Issuer will not distribute any (i) preliminary offering memorandum or offering memorandum, including without limitation, the Offering Document or (ii) other offering material in connection with the offering and sale of the Offered Securities. 17 (o) On the Recapitalization Closing Date, the Initial Purchasers shall receive one or more counterparts of the Purchase Agreement which shall have been executed and delivered by duly authorized officers of each of ChipPAC International Company Limited, ChipPAC and the Guarantors. (p) On the Recapitalization Closing Date, the Issuer and MergerCo shall cause the Initial Purchasers to receive an opinion, dated the Recapitalization Closing Date, from Kirkland & Ellis, counsel for ChipPAC, Inc. upon consummation of the Recapitalization, substantially in the form of Exhibit A-2. (q) On the Recapitalization Closing Date, the Issuer and MergerCo shall cause the Initial Purchasers to receive an opinion, dated the Recapitalization Closing Date, from HWR Services Limited, counsel for the Surviving Issuer upon consummation of the Recapitalization, substantially in the form of Exhibit B-2. (r) On the Recapitalization Closing Date, the Issuer and MergerCo shall cause the Initial Purchaser to receive opinions, each dated the Recapitalization Closing Date, of counsel for each of the subsidiaries of ChipPAC, Inc. listed on Annex B of this Agreement, each substantially in the form of Exhibit C, with the exception that counsel for ChipPAC Assembly and Test (Shanghai) Company, Ltd. and Hyundai Electronics (Shanghai) Company Ltd. (to be renamed ChipPAC (Shanghai) Company Ltd. after the Recapitalization)) need not opine as to paragraph (iv) of Exhibit C. (s) On the Recapitalization Closing Date, the Issuer and MergerCo shall cause the Initial Purchasers to receive a copy of the opinions delivered in connection with the consummation of the Credit Agreement, which opinions shall expressly state that the Initial Purchasers are justified in relying upon the opinions therein. 6. Conditions of the Obligations of the Initial Purchasers. The obligations of the several Initial Purchasers to purchase and pay for the Offered Securities will be subject to the accuracy of the representations and warranties on the part of the Issuer and MergerCo (and, after the Merger, ChipPAC) herein, to the accuracy of the statements of officers of the Issuer, MergerCo and ChipPAC made pursuant to the provisions hereof, to the performance by the Issuer and MergerCo of their respective obligations hereunder and to the following additional conditions precedent: (a) The Initial Purchasers shall have received a letter, dated the date of this Agreement, of PricewaterhouseCoopers LLP in agreed form confirming that they are independent public accountants within the meaning of the Securities Act and the applicable published rules and regulations thereunder ("Rules and Regulations") and to the effect that: (i) in their opinion the financial statements and schedules examined by them and included in the Offering 18 Document comply as to form in all material respects with the applicable accounting requirements of the Securities Act and the related published Rules and Regulations; (ii) they have performed the procedures specified by the American Institute of Certified Public Accountants for a review of interim financial information as described in Statement of Auditing Standards No. 71, Interim Financial Information, on the unaudited financial statements and certain specified financial information included in the Offering Document; (iii) on the basis of the review referred to in clause (ii) above, a reading of the latest available interim financial statements of ChipPAC, and of all subsidiaries of ChipPAC for which such interim financial statements are provided, inquiries of officials of ChipPAC and of such subsidiaries who have responsibility for financial and accounting matters and other specified procedures, nothing came to their attention that caused them to believe that: (A) with respect to the unaudited financial statements included in the Offering Document, that any material modifications should be made to such unaudited financial statements for them to be in conformity with generally accepted accounting principles; (B) at the date of the latest available balance sheet read by such accountants, or at a subsequent specified date not more than three business days prior to the date of this Agreement, there was any change in the capital stock or any increase in short-term indebtedness or long-term debt of the Issuer, MergerCo or ChipPAC and its combined subsidiaries or, at the date of the latest available balance sheet read by such accountants, there was any decrease in consolidated net current assets or net assets, as compared with amounts shown on the latest balance sheet included in Offering Document; or (C) for the period from the closing date of the latest income statement included in the Offering Document to the closing date of the latest available income statement read by such accountants there were any decreases, as compared with the corresponding period of the previous year and with the period of corresponding length ended the date of the latest income statement included in the Offering Document, in revenues, operating income or net income or in the ratio of earnings to fixed charges; except in all cases set forth in clauses (B) and (C) above for changes, increases or decreases which the Offering Document disclose have occurred or may occur or which are described in such letter; and 19 (iv) they have performed the procedures specified therein on the pro forma financial statements included in the Offering Document; (v) on the basis of the review referred to in clause (iv) above, nothing came to their attention that caused them to believe that the pro forma financial statements included in the Offering Document do not comply as to form in all material respects with the applicable accounting requirements of the Securities Act and the related published Rules and Regulations or that the pro forma adjustments have not been properly applied to the historical amounts in the compilation of those statements; and (vi) they have compared specified dollar amounts (or percentages derived from such dollar amounts) and other financial information contained in the Offering Document (in each case to the extent that such dollar amounts, percentages and other financial information are derived from the general accounting records of ChipPAC and its subsidiaries subject to the internal controls of ChipPAC's accounting system or are derived directly from such records by analysis or computation) with the results obtained from inquiries, a reading of such general accounting records and other procedures specified in such letter and have found such dollar amounts, percentages and other financial information to be in agreement with such results, except as otherwise specified in such letter. (b) Subsequent to the execution and delivery of this Agreement, there shall not have occurred (i) any material adverse change in general economic, political or financial conditions or if the effect of international conditions on the financial markets in the United States shall be such as, in the Initial Purchasers' reasonable judgment, makes it inadvisable or impracticable to proceed with the delivery of the Offered Securities as contemplated hereby, or (ii) (A) in the reasonable judgment of the Initial Purchasers, any material adverse change in the condition (financial or other), business, properties, assets, liabilities, prospects, net worth, results of operations or cash flows of the ChipPAC or its subsidiaries, taken as a whole, other than set forth in the Offering Document; (B) (i) any downgrading, suspension or withdrawal of, nor shall any notice have been given of any potential or intended downgrading, suspension or withdrawal of, or of any review for a possible change that does not indicate the direction of possible change in, any rating of the Issuer including, without limitation, the placing of any of the foregoing ratings on credit watch with negative or developing implications or under review with an uncertain direction) by any "nationally recognized statistical rating organization" as such term is defined for purposes of Rule 436(g)(2) under the Securities Act, (ii) any change, nor shall any notice have been given of any potential or intended change, in the outlook for any rating of the Issuer by any such rating organization, and (iii) any notice by any such rating organization that it has assigned (or is considering 20 assigning) a lower rating to the Offered Securities than that on which the Offered Securities were marketed; (C) any suspension or material limitation of trading in securities generally on the New York Stock Exchange, the American Stock Exchange, the Chicago Board of Options Exchange, the Chicago Mercantile Exchange, the Chicago Board of Trade or the Nasdaq National Market, or any establishment of minimum or maximum prices for trading, or any requirement of maximum ranges for prices for securities, on such exchange or the Nasdaq National Market, or by such exchange or other regulatory body or governmental authority having jurisdiction (other than limitations on price fluctuations or minimums or maximums in effect as of the date of this Agreement); (D) any banking moratorium declared by federal or state authorities, or any moratorium declared in foreign exchange trading by major international banks or persons; or (E) any outbreak or escalation of armed hostilities involving the United States on or after the date hereof, or if there has been a declaration by the United States of a national emergency or war, the effect of which shall be, in the Initial Purchasers' judgment, to make it inadvisable or impracticable to proceed with this offering or delivery of the Offered Securities on the terms and in the manner contemplated in the Offering Document. (c) Concurrently with the issuance and sale of the Offered Securities by the Issuer, the Transactions shall be consummated on terms that conform in all material respects to the description thereof in the Offering Document and the Transaction Documents; provided, however, that in order to -------- ------- satisfy certain requirements of Korean law, the Recapitalization may be consummated after the issuance and sale of the Offered Securities; and the Initial Purchasers shall have received true and correct copies of all documents pertaining thereto and evidence reasonably satisfactory to the Initial Purchasers of the consummation thereof. (d) There shall exist at and as of the Closing Date and the date of the consummation of the Recapitalization (after giving effect to the transactions contemplated by this Agreement and the Transactions) no condition that would constitute a default (or an event that with notice or lapse of time, or both, would constitute a default) under any Transaction Agreement. (e) The Initial Purchasers shall have received an opinion, dated the Closing Date, of Kirkland & Ellis, counsel for MergerCo, substantially in the form of Exhibit A-1. (f) The Initial Purchasers shall have received an opinion, dated the Closing Date, of Harney Westwood Riegels, counsel for the Issuer, substantially in the form of Exhibit B-1. (g) The Initial Purchasers shall have received from Cravath, Swaine & Moore, counsel for the Initial Purchasers, such opinion or opinions, dated the Closing Date, with respect to the validity of the Offered Securities, the Offering Document, the exemption from registration for the offer and sale of the Offered Securities by the Issuer to the several 21 Initial Purchasers and the resales by the several Initial Purchasers as contemplated hereby and other related matters as CSFB may require, and the Issuer and ChipPAC shall have furnished to such counsel such documents as they request for the purpose of enabling them to pass upon such matters with reference to same in the Offering Circular. (h) The Initial Purchasers shall have received a certificate, dated the Closing Date, of the President or any Vice President and a principal financial or accounting officer of ChipPAC in which such officers shall state that the representations and warranties of the Issuer and ChipPAC in this Agreement are true and correct, that the Issuer and ChipPAC have complied with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to the Closing Date, and that, subsequent to the respective dates of the most recent financial statements in the Offering Document, there has been no material adverse change, nor any development or event involving a prospective material adverse change, in the financial condition, business, properties or results of operations of ChipPAC and its subsidiaries taken as a whole except as set forth in or contemplated by the Offering Document or as described in such certificate. (i) The Initial Purchasers shall have received a letter, dated the Closing Date, of PricewaterhouseCoopers LLP which meets the requirements of subsection (a) of this Section, except that the specified date referred to in such subsection will be a date not more than three days prior to the Closing Date for the purposes of this subsection. (j) The Issuer, MergerCo and the Trustee shall have entered into the Indenture and you shall have received counterparts, conformed as executed, thereof. (k) The Issuer and MergerCo shall have entered into the Registration Rights Agreement and you shall have received counterparts, conformed as executed, thereof. (l) The Issuer shall have entered into the Escrow Agreement and deposited the amounts required in the Escrow Agreement into an escrow account, pursuant to the terms of the Escrow Agreement. (m) The Offered Securities shall have been designated PORTAL securities in accordance with the rules and regulations adopted by the NASD relating to trading in the PORTAL market. (n) On or prior to the Closing Date, the Issuer shall have provided to each of the Initial Purchasers and counsel to the Initial Purchasers copies of all Transaction Documents executed and delivered on or prior to such date (and drafts of Transaction Agreements to be executed on the Recapitalization Closing Date, if later) to the parties relating to the Transactions (including but not limited to legal opinions relating thereto). 22 (o) The Initial Purchasers shall have been furnished with a copy of the opinions delivered on behalf of the Issuer and MergerCo, which opinions shall expressly state that the Initial Purchasers are justified in relying upon the opinions therein. The Issuer will furnish the Initial Purchasers with such conformed copies of such opinions, certificates, letters and documents as the Initial Purchasers reasonably request. CSFB may in its sole discretion waive on behalf of the Initial Purchasers compliance with any conditions to the obligations of the Initial Purchasers hereunder. 7. Indemnification and Contribution. (a) Each of the Issuer and the Guarantors will jointly and severally indemnify and hold harmless each Initial Purchaser, its partners, directors and officers and each person, if any, who controls such Initial Purchaser within the meaning of Section 15 of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which such Initial Purchaser may become subject, under the Securities Act or the Exchange Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Offering Document, or any amendment or supplement thereto, or any related preliminary offering circular or the Exchange Act Reports, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, including any losses, claims, damages or liabilities arising out of or based upon the Issuer's or any Guarantor's failure to perform its obligations under Section 5(a) of this Agreement, and will reimburse each Initial Purchaser for any legal or other expenses reasonably incurred by such Initial Purchaser in connection with investigating or defending any such loss, claim, damage, liability or action as such expenses are incurred; provided, -------- however, (i) that the Issuer and the Guarantors will not be liable in any such - ------- case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement in or omission or alleged omission from any of such documents in reliance upon and in conformity with written information furnished to the Issuer by any Initial Purchaser through CSFB specifically for use therein, it being understood and agreed that the only such information consists of the information described as such in subsection (b) below and (ii) that the Issuer and the Guarantors shall not be liable to any such Initial Purchaser with respect to any untrue statement or alleged untrue statement or omission or alleged omission in the Preliminary Offering Circular to the extent that any such loss, liability, claim, damage or expense of such Initial Purchaser results from the fact that such Initial Purchaser sold Offered Securities to a person to whom there was not sent or given, at or prior to the written confirmation of such sale, a copy of the Offering Circular as then amended or supplemented if the Issuer had previously furnished copies thereof to such Initial Purchaser and the loss, liability, claim, damage or expense of such Initial Purchaser results from an untrue statement or omission of a 23 material fact contained in the Preliminary Offering Circular which was corrected in the Offering Circular. (b) Each Initial Purchaser will severally and not jointly indemnify and hold harmless the Issuer and each Guarantor and their respective directors and officers and each person, if any, who controls the Issuer and each Guarantor within the meaning of Section 15 of the Securities Act, against any losses, claims, damages or liabilities to which the Issuer and each Guarantor may become subject, under the Securities Act or the Exchange Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Offering Document, or any amendment or supplement thereto, or any related preliminary offering circular, or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Issuer by such Initial Purchaser through CSFB specifically for use therein, and will reimburse the Issuer and each Guarantor for any legal or other expenses reasonably incurred by the Issuer or such Guarantor in connection with investigating or defending any such loss, claim, damage, liability or action as such expenses are incurred, it being understood and agreed that the only such information furnished by any Initial Purchaser consists of the following information in the Offering Document furnished on behalf of each Initial Purchaser: under the caption "Plan of Distribution", the first, third, fifth, eighth and tenth paragraphs and the second sentence of the seventh paragraph; provided, however, that the Initial Purchasers shall not be liable -------- ------- for any losses, claims, damages or liabilities arising out of or based upon the Company's failure to perform its obligations under Section 5(a) of this Agreement. (c) Promptly after receipt by an indemnified party under subsection (a) or (b) above of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify each party against whom indemnification is to be sought in writing of the commencement thereof (but the failure so to notify an indemnifying party shall not relieve it from any liability which it may have under this Section except to the extent that it has been prejudiced in any material respect by such failure or from any liability which it may otherwise have). In case any such action is brought against any indemnified party, and it notifies an indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein, and to the extent it may elect by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof with counsel reasonably satisfactory to such indemnified party. Notwithstanding the foregoing, the indemnified party or parties shall have the right to employ its or their own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of such indemnified party or parties unless (i) the employment of such counsel shall 24 have been authorized in writing by the indemnifying parties in connection with the defense of such action, (ii) the indemnifying parties shall not have employed counsel to take charge of the defense of such action within a reasonable time after notice of commencement of the action, or (iii) such indemnified party or parties shall have reasonably concluded that there may be defenses available to it or them which are different from or additional to those available to one or all of the indemnifying parties (in which case the indemnifying party or parties shall not have the right to direct the defense of such action on behalf of the indemnified party or parties), in any of which events such fees and expenses of counsel shall be borne by the indemnifying parties; provided, however, that the indemnifying party under subsection (a) or (b) above shall only be liable for the legal expenses of one counsel (in addition to any local counsel) for all indemnified parties in each jurisdiction in which any claim or action is brought. No indemnifying party shall, without prior written consent of the indemnified party, effect any settlement of any pending or threatened action in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party unless such settlement includes an unconditional release of such indemnified party from all liability on any claims that are the subject matter of such action and does not include a statement as to and an admission of fault, culpability or failure to act by or on behalf of any indemnified party. Anything in this subsection to the contrary notwithstanding, an indemnifying party shall not be liable for any settlement of any claim or action effected without its prior written consent, provided that such consent was not unreasonably withheld, and that if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel, such indemnifying party agrees it shall be liable for any settlement effected without its written consent if (i) such settlement is entered into more than 45 days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall have received notice of the terms of such settlement at least 30 days prior to such settlement being entered into and (iii) such indemnifying party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement. (d) If the indemnification provided for in this Section is unavailable or insufficient to hold harmless an indemnified party under subsection (a) or (b) above, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities referred to in subsection (a) or (b) above (i) in such proportion as is appropriate to reflect the relative benefits received by the Issuer and the Guarantors on the one hand and the Initial Purchasers on the other from the offering of the Offered Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Issuer and the Guarantors on the one hand and the Initial Purchasers on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities as well as any other relevant equitable considerations. The relative benefits received by the Issuer and the Guarantors on the one hand and the Initial Purchasers on the other 25 shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Issuer bear to the total discounts and commissions received by the Initial Purchasers from the Issuer under this Agreement. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Issuer or a Guarantor or the Initial Purchasers and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any action or claim which is the subject of this subsection (d). Notwithstanding the provisions of this subsection (d), no Initial Purchaser shall be required to contribute any amount in excess of the amount by which the total price at which the Offered Securities purchased by it were resold exceeds the amount of any damages which such Initial Purchaser has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. The Initial Purchasers' obligations in this subsection (d) to contribute are several in proportion to their respective purchase obligations and not joint. (e) The obligations of the Issuer and the Guarantors under this Section shall be in addition to any liability which the Issuer and the Guarantors may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls any Initial Purchaser within the meaning of the Securities Act or the Exchange Act; and the obligations of the Initial Purchasers under this Section shall be in addition to any liability which the respective Initial Purchasers may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls the Issuer or any Guarantor within the meaning of the Securities Act or the Exchange Act. 8. Default of Initial Purchasers. If either of the Initial Purchasers defaults in its obligation to purchase Offered Securities hereunder and the aggregate principal amount of Offered Securities that such defaulting Initial Purchaser agreed but failed to purchase does not exceed 10% of the total principal amount of Offered Securities, CSFB may make arrangements satisfactory to the Issuer for the purchase of such Offered Securities by other persons, including the other Initial Purchaser, but if no such arrangements are made by the Closing Date, the non-defaulting Initial Purchaser shall be obligated to purchase the Offered Securities that such defaulting Initial Purchaser agreed but failed to purchase. If one Initial Purchaser so defaults and the aggregate principal amount of Offered Securities with respect to which such default occurs exceeds 10% of the total principal amount of Offered Securities and arrangements satisfactory to CSFB and the Issuer for the purchase of such Offered Securities by other persons are not made within 36 hours after such default, this Agreement will terminate without liability on the part of the non-defaulting Initial Purchaser or the Issuer, except as provided in Section 9. As used in this Agreement, the term "Initial Purchaser" includes any person substituted for an 26 Initial Purchaser under this Section. Nothing herein will relieve the defaulting Initial Purchaser from liability for its default. 9. Survival of Certain Representations and Obligations. The respective indemnities, agreements, representations, warranties and other statements of the Issuer, MergerCo and the Guarantors or any of their officers and of the several Initial Purchasers set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation, or statement as to the results thereof, made by or on behalf of any Initial Purchaser, the Issuer, any Guarantor or any of their respective representatives, officers or directors or any controlling person, and will survive delivery of and payment for the Offered Securities. If this Agreement is terminated pursuant to Sections 8 or 10, or if for any reason the purchase of the Offered Securities by the Initial Purchasers is not consummated, the Issuer and the Guarantors shall remain responsible for the expenses to be paid or reimbursed by them pursuant to Section 5 and the respective obligations of the Issuer and the Guarantors and the Initial Purchasers pursuant to Section 7 shall remain in effect; if any Offered Securities have been purchased hereunder, the Issuer and the Guarantors shall remain responsible for the expenses to be paid or reimbursed by them pursuant to Section 5 and the respective obligations of the Issuer and the Guarantors and the Initial Purchasers pursuant to Section 7 shall remain in effect, and the representations and warranties in Section 2 and all other obligations under Section 5 shall also remain in effect. If the purchase of the Offered Securities by the Initial Purchasers is not consummated for any reason other than solely because of the termination of this Agreement pursuant to Section 8 or the occurrence of any event specified in Section 6(b)(ii) (whether pursuant to Section 10 or otherwise), the Issuer and the Guarantors will reimburse the Initial Purchasers for all out-of-pocket expenses (including fees and disbursements of counsel) reasonably incurred by them in connection with the offering of the Offered Securities. 10. Termination. The Initial Purchasers shall have the right to terminate this Agreement at any time prior to the Closing Date by notice to the Issuer from the Initial Purchasers, without liability (other than with respect to Section 7) on the Initial Purchasers' part to the Issuer if, on or prior to such date, upon the occurrence of any of the events set forth in Section 6(b). 11. Notices. All communications hereunder will be in writing and, if sent to the Initial Purchasers will be mailed, delivered or telegraphed and confirmed to the Initial Purchasers, c/o Credit Suisse First Boston Corporation, Eleven Madison Avenue, New York, New York 10019 Attention: Transactions Advisory Group, or, if sent to the Issuer, will be mailed, delivered or telegraphed and confirmed to it at ChipPAC, Inc., 3151 Coronado Drive, Santa Clara, California 95054 Attention: Chief Financial Officer, with a copy to Kirkland & Ellis, 300 South Grand Avenue, Suite 3000, Los Angeles, California, 90071 Attention: Eva Herbst Davis, Esq.; provided, however, that any notice to an Initial Purchaser pursuant to Section 7 will be mailed, delivered or telegraphed and confirmed to such Initial Purchaser. 12. Successors. This Agreement will inure to the benefit of and be binding upon the parties hereto and their respective 27 successors and the controlling persons referred to in Section 7, and no other person will have any right or obligation hereunder, except that holders of Offered Securities shall be entitled to enforce the agreements for their benefit contained in the second and third sentences of Section 5(b) hereof against the Issuer as if such holders were parties thereto. 13. Representation of Initial Purchasers. You will act for the several Initial Purchasers in connection with the transactions contemplated by this Agreement, and any action under this Agreement taken by you jointly or by CSFB on behalf of the Initial Purchasers will be binding upon all the Initial Purchasers. 14. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same Agreement. Delivery by telecopy or facsimile transmission of an executed counterpart of this Agreement shall be considered due and sufficient delivery. 15. Applicable Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York. THE ISSUER, MERGERCO AND EACH GUARANTOR HEREBY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE FEDERAL AND STATE COURTS IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN ANY SUIT OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 28 If the foregoing is in accordance with the Initial Purchasers' understanding of our agreement, kindly sign and return to us one of the counterparts hereof, whereupon it will become a binding agreement between the Issuer, MergerCo and each Guarantor and the Initial Purchasers in accordance with its terms. Very truly yours, CHIPPAC INTERNATIONAL LIMITED by: /s/ Tony Lin -------------------------- Name: Tony Lin Title: Chief Financial Officer CHIPPAC MERGER CORP. by: /s/ Paul C. Schorr IV --------------------------- Name: Paul C. Schorr IV Title: The foregoing Purchase Agreement is hereby confirmed and accepted as of the date first above written. Credit Suisse First Boston Corporation Donaldson, Lufkin & Jenrette Securities Corporation By: Credit Suisse First Boston Corporation /s/ David M. Wah ___________________________________ Name: David M. Wah Title: Director By: Donaldson, Lufkin & Jenrette Securities Corporation /s/ Edward Biggins ___________________________________ Name: Edward Biggins Title: Vice President The foregoing Agreement is executed in counterpart by the following Guarantors: CHIPPAC (BARBADOS) LTD. by: /s/ P.J. Kim ------------------------- Name: P.J. Kim Title: Secretary CHIPPAC LIMITED by: /s/ P.J. Kim ------------------------- Name: P.J. Kim Title: Secretary CHIPPAC KOREA COMPANY LTD. by: /s/ P.J. Kim ------------------------- Name: P.J. Kim Title: Secretary CHIPPAC LUXEMBOURG S.A.R.L. by: /s/ P.J. Kim ------------------------- Name: P.J. Kim Title: Secretary CHIPPAC LIQUIDITY MANAGEMENT HUNGARY LIMITED LIABILITY COMPANY by: /s/ P.J. Kim ------------------------- Name: P.J. Kim Title: Secretary 30 SCHEDULE A Principal Amount Initial Purchasers of ------------------ Offered Securities ---------------- Credit Suisse First Boston Corporation................ $120,000,000 Donaldson, Lufkin & Jenrette Securities Corporation.......................................... $ 30,000,000 ------------ Total.................................. $150,000,000 ============ 31 SCHEDULE B Jurisdiction Counsel - ------------ ------- Barbados Chancery Chamber British Virgin Islands HWR Services Limited China Lovell White Durrant Korea Kim Shin & Yu Hungary PricewaterhouseCoopers Luxembourg PricewaterhouseCoopers 32 Exhibit A-1 (i) MergerCo is duly incorporated and is existing as a corporation in good standing under the Delaware General Corporation Laws and has all requisite corporate power and authority to carry on its business as it is currently being conducted and as described in the Offering Circular. (ii) The Purchase Agreement has been duly authorized and executed by MergerCo. (iii) Each of the Registration Rights Agreement and the Escrow Agreement has been duly authorized, executed and delivered by MergerCo, and, assuming the due authorization, execution and delivery of such agreements by the Issuer, constitutes a valid and legally binding obligation of the Issuer and MergerCo, enforceable against the Issuer and MergerCo in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and similar laws affecting creditors' rights and remedies generally and to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity). (iv) The Indenture has been duly authorized, executed and delivered by MergerCo, and, assuming (i) the due authorization, execution and delivery of the Indenture by the Issuer under the laws of the British Virgin Islands and (ii) the due authorization, execution and delivery of the Indenture by the Trustee, the Indenture constitutes a valid and legally binding obligation of the Issuer and MergerCo, enforceable against the Issuer and MergerCo in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and similar laws affecting creditors' rights and remedies generally and to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity). (v) The execution and delivery by MergerCo of, and performance by MergerCo of its obligations under, the Indenture, the Purchase Agreement and the Escrow Agreement and the issuance and sale of the Offered Securities will not (i) violate the certificate of incorporation or bylaws of MergerCo, (ii) conflict with or constitute a breach of, or a default under, any agreement listed on a certificate of an officer of MergerCo as being the material agreements of MergerCo and its subsidiaries, (iii) to our knowledge, breach or otherwise violate any provision in any court or administrative order, writ, judgment or decree that names MergerCo and is specifically directed to any of its property or (iv) constitute a violation by MergerCo of any applicable provision of Federal, California or New York State law, statute or regulation (except that for purposes of this paragraph, we express no opinion with respect to federal or state securities laws or other anti-fraud laws and no opinion as to whether performance of the indemnification or contribution provisions in the Purchase Agreement will be enforceable.) 33 (vi) No consent, approval, authorization or order of, or filing with, any governmental agency or body or any court of the United States or the State of New York is required for the issuance and sale by the Issuer of the Offered Securities to the Initial Purchasers and the issuance of the Guarantees by the Guarantors or the consummation by the Issuer and MergerCo of the other transactions contemplated by the Purchase Agreement and the Indenture, except such as have been obtained and made under the Securities Act and the Trust Indenture Act and such as may be required under foreign securities laws and U.S. "Blue Sky" laws. (vii) To our knowledge, there is no action, suit, proceeding or investigation before or by any court or governmental agency or body, domestic or foreign, pending or threatened against, MergerCo or the Issuer that (i) has caused us to conclude that such action, suit, proceeding or investigation is required to be described in the Offering Document but is not so described or (ii) would be reasonably likely to adversely affect the consummation of any of the transactions contemplated by the Purchase Agreement or the Indenture. (viii) The Offering Circular, as of its date, and each amendment or supplement thereto, as of its date (except for the financial statements and related notes, the financial statement schedules and other financial and statistical data included therein or omitted therefrom, as to which no opinion need be expressed), contains the type of information specified in and required by Rule 144A(d)(4) under the Securities Act. (ix) When the Offered Securities are issued and delivered pursuant to the Purchase Agreement, no Offered Securities will be of the same class (within the meaning of Rule 144A under the Securities Act) as securities of the Issuer that are listed on a national securities exchange registered under Section 6 of the Exchange Act or that are quoted in a United States automated inter-dealer quotation system. (x) Neither the Issuer nor MergerCo is an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act; and neither the Issuer nor MergerCo, after giving effect to the sale of the Offered Securities in the Offering Document, will be, an "investment company" or a company controlled by an "investment company" within the meaning of the Investment Company Act. (xi) To our knowledge, no stop order preventing the use of the Offering Document, or any order asserting that the issuance of the Offered Securities and the Guarantees are subject to the registration rights requirements of the Securities Act, has been issued. (xii) It is not necessary in connection with (i) the offer, sale and delivery of the Offered Securities to the several Initial Purchasers pursuant to this Agreement or (ii) the resales of the Offered Securities by the several Initial Purchasers in the manner contemplated in the Offering Circular to register the Offered Securities under the Securities Act or 34 to qualify an indenture in respect thereof under the Trust Indenture Act. (xiii) The Offered Securities, the Registration Rights Agreement, the Guarantee, the Escrow Agreement and the Indenture conform in all material respects to the descriptions thereof contained in the Offering Circular; the description in the Offering Circular under the heading "Description of Other Financing Arrangements-Senior Credit Facilities" is correct and complete in all material respects; and the description in the Offering Circular of United States federal income tax matters under the heading "Certain Income Tax Considerations" insofar as such statements purport to describe certain United States federal income tax consequences of the purchase, ownership and disposition of the Offered Securities under current law, provide a fair summary of such consequences. (xiv) Assuming that the Offered Securities have been duly authorized by the Issuer, when executed and issued by the Issuer and authenticated by the Trustee in accordance with the terms of the Indenture, and delivered and paid for by the Initial Purchasers in accordance with the terms of the Purchase Agreement, the Offered Securities will constitute valid and legally binding obligations of the Issuer enforceable against the Issuer in accordance with their terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and similar laws affecting creditors' rights and remedies generally and to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity). (xv) The Parent Guaranty has been duly authorized by MergerCo, and assuming due authorization, execution and delivery of the Indenture by the Trustee, the Parent Guaranty will constitute a valid and legally binding obligation of MergerCo, enforceable against MergerCo in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and similar laws affecting creditors' rights and remedies generally and to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity). (xvi) Assuming due authorization of the Exchange Securities by the Surviving Issuer, when, as and if (i) the Exchange Offer Registration Statement shall have become effective pursuant to the provisions of the Securities Act, (ii) the Indenture shall have been qualified pursuant to the provisions of the Trust Indenture Act, (iii) the Offered Securities shall have been validly tendered to the Issuer, (iv) the Exchange Securities shall have been duly executed, authenticated and issued in accordance with the provisions of the Indenture and duly delivered to the purchasers thereof in exchange for the Offered Securities, (v) the board of directors and the appropriate officers of the Surviving Issuer have taken all necessary action to fix and approve the terms of the Exchange Securities (vi) the board of directors and appropriate officers of each Guarantor have taken all necessary action to approve the Guaranties of the Exchange Securities and (vii) any legally required consents, approvals, 35 authorizations or other order of the Commission or any other regulatory authorities have been obtained, the Exchange Securities when issued pursuant to the Exchange Offer Registration Statement will constitute valid and binding obligations of the Surviving Issuer and the Guarantors, as applicable, in each case enforceable against the Surviving Issuer and the Guarantors, as applicable, in accordance with their terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and similar laws affecting creditors' rights and remedies generally and to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity). (xvii) Such counsel shall also state that the purpose of such counsel's professional engagement was not to establish factual matters, and preparation of the Offering Circular involved many determinations of a wholly or partially nonlegal character. Such counsel need make no representation that it has independently verified the accuracy, completeness or fairness of the Offering Circular or that the actions taken in connection with the preparation of the Offering Circular (including the actions described below) were sufficient to cause the Offering Circular to be accurate, complete or fair. Such counsel need not pass upon and need not assume any responsibility for the accuracy, completeness or fairness of the Offering Circular except to the extent otherwise explicitly indicated in numbered paragraph (xiv) above. Such counsel shall however confirm that it has participated in discussions with representatives of the Issuer, MergerCo and ChipPAC, representatives of the Initial Purchasers, counsel for the Initial Purchasers and representatives of the independent accountants for the Issuer and MergerCo during which disclosures in the Offering Circular and related matters were discussed. Based upon such counsel's participation in the conferences identified above, such counsel's understanding of applicable law and the experience such counsel has gained in such counsel's practice thereunder and relying to a large extent upon the opinions and statements of officers of the Issuer and MergerCo, such counsel can, however, advise the Initial Purchasers that nothing has come to such counsel's attention that has caused such counsel to conclude that the Offering Circular at the date it bears or on the date of this letter contained or contains an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. 36 Exhibit A-2 (i) ChipPAC (a) is duly incorporated and is existing as a corporation in good standing under the laws of the State of California, (b) has all requisite corporate power and authority to carry on its business as it is currently being conducted and as described in the Offering Circular and to own, lease and operate its properties and (c) is duly qualified and in good standing as a foreign corporation, authorized to do business in each jurisdiction set forth opposite its name on a schedule to this opinion (which jurisdictions have been certified by an officer of ChipPAC as being the material jurisdictions in which ChipPAC conducts business). (ii) The Purchase Agreement has been duly authorized and executed by ChipPAC. (iii) The Supplemental Indenture has been duly authorized, executed and delivered by ChipPAC and, assuming due authorization, execution and delivery by the Surviving Issuer and the Trustee, the Supplemental Indenture constitutes a valid and legally binding obligation of the Surviving Issuer and ChipPAC, enforceable against the Surviving Issuer and ChipPAC in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and similar laws affecting creditors' rights and remedies generally and to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity). (iv) The execution and delivery by ChipPAC of, and performance by ChipPAC of its obligations under the Purchase Agreement and the Supplemental Indenture will not (i) violate the certificate of incorporation or bylaws of ChipPAC, (ii) conflict with or constitute a breach of, or a default under, any agreement listed on a certificate of an officer of ChipPAC as being the material agreements of ChipPAC and its subsidiaries, (iii) to our knowledge, breach or otherwise violate any provision in any court or administrative order, writ, judgment or decree that names ChipPAC and is specifically directed to any of its property or (iv) constitute a violation by ChipPAC of any applicable provision of Federal, California or New York State law, statute or regulation (except that for purposes of this paragraph, we express no opinion with respect to federal or state securities laws or other anti-fraud laws and no opinion as to whether performance of the indemnification or contribution provisions in the Purchase Agreement will be enforceable.) (vi) Other than those already obtained, no consent, approval, authorization or order of, or filing with, any governmental agency or body or court of the United States is required in connection with the consummation of the transactions contemplated by the Transaction Documents by ChipPAC, except for such consents, approvals, authorizations, orders or filings the failure of which to obtain or make would not result in a Material Adverse Effect. 37 (vii) To our knowledge, there is no action, suit, proceeding or investigation before or by any court or governmental agency or body, domestic or foreign, pending or threatened against, ChipPAC or any of its subsidiaries that (i) has caused us to conclude that such action, suit, proceeding or investigation is required to be described in the Offering Document but is not so described or (ii) would be reasonably likely to adversely affect the consummation of the Recapitalization. (viii) The Credit Agreement and the Transaction Agreements conform in all material respects to the descriptions thereof contained in the Offering Document. (ix) The Parent Guaranty has been duly authorized by ChipPAC, and assuming due authorization, execution and delivery of the Supplemental Indenture by the Trustee, the Parent Guaranty will constitute a valid and legally binding obligation of ChipPAC, enforceable against ChipPAC in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and similar laws affecting creditors' rights and remedies generally and to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity). (x) Assuming due authorization, execution and delivery of the Subsidiary Guaranty Agreement by each of the Subsidiary Guarantors, ChipPAC and the Surviving Issuer, the Subsidiary Guaranty Agreement constitutes valid and legally binding obligations of the Subsidiary Guarantors, enforceable against the Subsidiary Guarantors in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and similar laws affecting creditors' rights and remedies generally and to general principles of equity (regardless of whether enforcement is sought via proceeding at law or in equity). 38 Exhibit B-1 (i) The Issuer is duly incorporated and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation and has all requisite corporate power and authority to carry on its business as it is currently being conducted and as described in the Offering Document. (ii) The Issuer has all requisite corporate power and authority to execute, deliver and perform its obligations under the Purchase Agreement and each of the other Operating Documents to which it is a party and to consummate the transactions contemplated thereby, including, without limitation, to the extent applicable, the corporate power and authority to issue, sell and deliver the Offered Securities as provided in the Purchase Agreement. (iii) The Purchase Agreement has been duly and validly authorized and executed by the Issuer. (iv) Each of the Registration Rights Agreement and the Escrow Agreement has been duly authorized, executed and delivered by the Issuer. (v) The Indenture and the Offered Securities have been duly authorized by the Issuer by all necessary corporate action. (vi) The execution and delivery by the Issuer of, and performance by the Issuer of its obligations under, the Indenture, the Supplemental Indenture, the Purchase Agreement, the Registration Rights Agreement and the Escrow Agreement, and compliance by the Issuer with all of the respective provisions thereof, and the issuance and sale of the Offered Securities will not (i) violate the certificate of incorporation or bylaws of the Issuer, (ii) conflict with or constitute a breach of, or a default under, any agreement listed on a certificate of an officer of the Issuer as being the material agreements of the Issuer and its subsidiaries, (iii) to our knowledge, breach or otherwise violate any provision in any court or administrative order, writ, judgment or decree that names the Issuer and is specifically directed to any of its property or (iii) constitute a violation by the Issuer of any applicable provision of British Virgin Islands law, statute or regulation. (vii) No consent, approval, authorization or order of, or filing with, any governmental agency or body or any court of the British Virgin Islands required for the issuance and sale by the Issuer of the Offered Securities to the Initial Purchasers and the issuance of the Guarantees by the Guarantors or the consummation by the Issuer of the other transactions contemplated by the Purchase Agreement and the Indenture, except such as have been obtained. (viii) To our knowledge, there is no action, suit, proceeding or investigation before or by any court or governmental agency or body, domestic or foreign, pending or 39 threatened against, the Issuer that (i) has caused us to conclude that such action, suit, proceeding or investigation is required to be described in the Offering Document but is not so described or (ii) would be reasonably likely to adversely affect the consummation of any of the transactions contemplated by the Purchase Agreement or the Indenture. (ix) The Exchange Securities have been duly and validly authorized for issuance by the Issuer. 40 Exhibit B-2 (i) The Surviving Issuer is duly incorporated and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation and has all requisite corporate power and authority to carry on its business as it is currently being conducted and as described in the Offering Document and to own, lease and operate its properties. (ii) The Surviving Issuer has all requisite corporate power and authority to execute, deliver and perform its obligations under the Purchase Agreement and each of the Transaction Documents to which it is a party and to consummate the transactions contemplated thereby, including without limitation, to the extent applicable, the corporate power and authority to issue, sell and deliver the Offered Securities as provided in the Purchase Agreement. (iii) Each of the Transaction Documents to which it is a party has been duly authorized, executed and delivered by the Surviving Issuer and, to the extent governed by British Virgin Island law, constitutes a valid and legally binding obligation of the Surviving Issuer, enforceable against the Surviving Issuer in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and similar laws affecting creditors' rights and remedies generally and to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity). (iv) The Supplemental Indenture has been duly authorized, executed and delivered by the Surviving Issuer by all necessary corporate action. (v) The execution and delivery by the Surviving Issuer of, and performance by the Surviving Issuer of its obligations under each of the Transaction Documents to which it is a party, and compliance by the Surviving Issuer with all of the respective provisions thereof, and the issuance and sale of the Offered Securities will not (i) violate the certificate of incorporation or bylaws of the Surviving Issuer, (ii) conflict with or constitute a breach of, or a default under, any agreement listed on a certificate of an officer of MergerCo as being the material agreements of MergerCo and its subsidiaries, (iii) to our knowledge, breach or otherwise violate any provision in any court or administrative order, writ, judgment or decree that names the Surviving Issuer and is specifically directed to any of its property or (iii) constitute a violation by the Surviving Issuer of any applicable provision of British Virgin Islands law, statute or regulation. (vi) Other than those already obtained, no consent, approval, authorization or order of, or filing with, any governmental agency or body or court of the British Virgin Islands is required in connection with the consummation of the Transaction Documents by the Surviving Issuer, except for such consents, approvals, authorizations, orders or filings the 41 failure of which to obtain or make would not result in a Material Adverse Effect. (vii) To our knowledge, there is no action, suit, proceeding or investigation before or by any court or governmental agency or body, domestic or foreign, pending or threatened against, the Surviving Issuer that (i) has caused us to conclude that such action, suit, proceeding or investigation is required to be described in the Offering Document but is not so described or (ii) would be reasonably likely to adversely affect the consummation of the Recapitalization. (viii) The choice of New York law to govern the Operative Documents constitutes a valid choice of law insofar as the law of the British Virgin Islands is concerned. The submission by the British Virgin Islands Guarantor to the non-exclusive jurisdiction of any federal or state court in the Borough of Manhattan, The City of New York (a "New York Court") is a valid submission insofar as the law of the British Virgin Islands is concerned. (ix) Neither the British Virgin Islands Guarantor nor any of its property have any immunity from the jurisdiction of any court or from any legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution or otherwise) under the laws of the British Virgin Islands. (x) In a suit on the merits brought before a the British Virgin Islands court, a British Virgin Islands court will respect and enforce the agreement of the parties as to judgment currency. 42 Exhibit C (i) [Insert Name] (a) is duly incorporated and is validly existing as a corporation in good standing under the laws of [Insert Jurisdiction] and (b) has all requisite corporate power and authority to carry on its business as it is currently being conducted and as described in the Offering Document and to own, lease and operate its properties. (ii) [Insert Name] has all requisite corporate power and authority to execute, deliver and perform its obligations under the Purchase Agreement and each of the Transaction Documents to which it is a party and to consummate the transactions contemplated thereby. (iii) Each of the Transaction Documents to which it is a party, has been duly authorized, executed and delivered by [Insert Name] and, to the extent governed by the laws of [Insert Jurisdiction], constitutes a valid and legally binding obligation of [Insert Name], enforceable against [Insert Name] in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and similar laws affecting creditors' rights and remedies generally and to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity). (iv) The Subsidiary Guaranty Agreement has been duly authorized, executed and delivered by [Insert Name] by all necessary corporate action. (v) The execution and delivery by [Insert Name] of, and performance by [Insert Name] of its obligations under each of the Transaction Documents to which it is a party, and compliance by [Insert Name] with all of the respective provisions thereof, and the issuance and sale of the Offered Securities will not (i) violate the certificate of incorporation or bylaws of [Insert Name], (ii) conflict with or constitute a breach of, or a default under, any agreement listed on a certificate of an officer of [Insert Name] as being the material agreements of [Insert Name] and its subsidiaries, (iii) to our knowledge, breach or otherwise violate any provision in any court or administrative order, writ, judgment or decree that names [Insert Name] and is specifically directed to any of its property or (iv) constitute a violation by [Insert Name] of any applicable provision of [Insert Jurisdiction] law, statute or regulation. (vi) Other than those already obtained, no consent, approval, authorization or order of, or filing with, any governmental agency or body or court of [Insert Jurisdiction] in connection with the consummation of the Transaction Documents by [Insert Name], except for such consents, approvals, authorizations, orders or filings the failure of which to obtain or make would not result in a Material Adverse Effect. (vii) To our knowledge, there is no action, suit, proceeding or investigation before or by any court or 43 governmental agency or body, domestic or foreign, pending or threatened against, [Insert Name] that (i) has caused us to conclude that such action, suit, proceeding or investigation is required to be described in the Offering Document but is not so described or (ii) would be reasonably likely to adversely affect the consummation of the Recapitalization. (viii) The choice of New York law to govern the Operative Documents constitutes a valid choice of law insofar as the law of [Insert Jurisdiction] is concerned. The submission by [Insert Name] to the non- exclusive jurisdiction of any federal or state court in the Borough of Manhattan, The City of New York (a "New York Court") is a valid submission insofar as the law of the [Insert Jurisdiction] is concerned. (ix) Neither [Insert Name] nor any of its property have any immunity from the jurisdiction of any court or from any legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution or otherwise) under the laws of [Insert Jurisdiction]. (x) In a suit on the merits brought before [Insert Jurisdiction] court, a [Insert Jurisdiction] court will respect and enforce the agreement of the parties as to judgment currency. 44 EX-4.2 18 INDENTURE, DATED AS OF 7/29/1999 EXHIBIT 4.2 EXECUTION COPY ================================================================================ CHIPPAC INTERNATIONAL LIMITED Issuer CHIPPAC MERGER CORP. Guarantor 12 3/4% Senior Subordinated Notes Due 2009 ____________________ INDENTURE Dated as of July 29, 1999 ____________________ FIRSTAR BANK OF MINNESOTA, N.A. Trustee ================================================================================ CROSS-REFERENCE TABLE
TIA Indenture Section Section - ------- 310(a)(1) .............................. 7.10 (a)(2) .............................. 7.10 (a)(3) .............................. N.A. (a)(4) .............................. N.A. (b) .............................. 7.08; 7.10 (c) .............................. N.A. 311(a) .............................. 7.11 (b) .............................. 7.11 (c) .............................. N.A. 312(a) .............................. 2.05 (b) .............................. 11.03 (c) .............................. 11.03 313(a) .............................. 7.06 (b)(1) .............................. N.A. (b)(2) .............................. 7.06 (c) .............................. 11.02 (d) .............................. 7.06 314(a) .............................. 4.02; 11.02 (b) .............................. N.A. (c)(1) .............................. 11.04 (c)(2) .............................. 11.04 (c)(3) .............................. N.A. (d) .............................. N.A. (e) .............................. 11.05 315(a) .............................. 7.01 (b) .............................. 7.05; 11.02 (c) .............................. 7.01 (d) .............................. 7.01 (e) .............................. 6.11 316(a)(last sentence) .............................. 11.06 (a)(1)(A) .............................. 6.05 (a)(1)(B) .............................. 6.04 (a)(2) .............................. N.A. (b) .............................. 6.07 317(a)(1) .............................. 6.08 (a)(2) .............................. 6.09 (b) .............................. 2.04 318(a) .............................. 11.01
N.A. means Not Applicable. ___________________ Note: This Cross-Reference Table shall not, for any purpose, be deemed to be part of the Indenture. TABLE OF CONTENTS
ARTICLE 1 Page ---- Definitions and Incorporation by Reference ------------------------------------------ SECTION 1.01. Definitions............................................... 1 SECTION 1.02. Other Definitions......................................... 29 SECTION 1.03. Incorporation by Reference of Trust Indenture Act......... 29 SECTION 1.04. Rules of Construction..................................... 30 ARTICLE 2 The Securities -------------- SECTION 2.01. Form and Dating........................................... 31 SECTION 2.02. Execution and Authentication.............................. 31 SECTION 2.03. Registrar and Paying Agent................................ 32 SECTION 2.04. Paying Agent To Hold Money in Trust....................... 32 SECTION 2.05. Securityholder Lists...................................... 33 SECTION 2.06. Transfer and Exchange..................................... 33 SECTION 2.07. Replacement Securities.................................... 34 SECTION 2.08. Outstanding Securities.................................... 34 SECTION 2.09. Temporary Securities...................................... 35 SECTION 2.10. Cancellation.............................................. 35 SECTION 2.11. Defaulted Interest........................................ 35 SECTION 2.12. CUSIP Numbers............................................. 35 SECTION 2.13. Issuance of Additional Securities......................... 36 ARTICLE 3 Redemption ---------- SECTION 3.01. Notices to Trustee........................................ 36 SECTION 3.02. Selection of Securities To Be Redeemed.................... 37 SECTION 3.03. Notice of Redemption...................................... 37 SECTION 3.04. Effect of Notice of Redemption............................ 38 SECTION 3.05. Deposit of Redemption Price............................... 39 SECTION 3.06. Securities Redeemed in Part............................... 39
2 ARTICLE 4 Covenants --------- SECTION 4.01. Payment of Securities..................................... 39 SECTION 4.02. SEC Reports............................................... 39 SECTION 4.03. Limitation on Indebtedness................................ 40 SECTION 4.04. Limitation on Restricted Payments......................... 45 SECTION 4.05. Limitation on Restrictions on Distributions from Restricted Subsidiaries.............................. 51 SECTION 4.06. Limitation on Sales of Assets and Subsidiary Stock........ 53 SECTION 4.07. Limitation on Affiliate Transactions...................... 57 SECTION 4.08. Change of Control......................................... 60 SECTION 4.09. Limitation on Assets of Non-Subsidiary Guarantors......... 62 SECTION 4.10. Limitation on Sale of the Capital Stock of the Issuer..... 62 SECTION 4.11. Future Guarantors......................................... 62 SECTION 4.12. Withholding Taxes......................................... 63 SECTION 4.13. Compliance Certificate.................................... 65 SECTION 4.14. Further Instruments and Acts.............................. 65 ARTICLE 5 Successor Company ----------------- SECTION 5.01. When Company, Issuer, and Subsidiary Guarantors May Merge or Transfer Assets............................. 65 ARTICLE 6 Defaults and Remedies --------------------- SECTION 6.01. Events of Default......................................... 58 SECTION 6.02. Acceleration.............................................. 71 SECTION 6.03. Other Remedies............................................ 71 SECTION 6.04. Waiver of Past Defaults................................... 71 SECTION 6.05. Control by Majority....................................... 72 SECTION 6.06. Limitation on Suits....................................... 72 SECTION 6.07. Rights of Holders To Receive Payment...................... 73 SECTION 6.08. Collection Suit by Trustee................................ 73 SECTION 6.09. Trustee May File Proofs of Claim.......................... 73 SECTION 6.10. Priorities................................................ 73 SECTION 6.11. Undertaking for Costs..................................... 74 SECTION 6.12. Waiver of Stay or Extension Laws.......................... 74
3 ARTICLE 7 Trustee ------- SECTION 7.01. Duties of Trustee......................................... 75 SECTION 7.02. Rights of Trustee......................................... 76 SECTION 7.03. Individual Rights of Trustee.............................. 77 SECTION 7.04. Trustee's Disclaimer...................................... 77 SECTION 7.05. Notice of Defaults........................................ 77 SECTION 7.06. Reports by Trustee to Holders............................. 77 SECTION 7.07. Compensation and Indemnity................................ 77 SECTION 7.08. Replacement of Trustee.................................... 78 SECTION 7.09. Successor Trustee by Merger............................... 79 SECTION 7.10. Eligibility; Disqualification............................. 80 SECTION 7.11. Preferential Collection of Claims Against Company......... 80 ARTICLE 8 Discharge of Indenture; Defeasance ---------------------------------- SECTION 8.01. Discharge of Liability on Securities; Defeasance.......... 80 SECTION 8.02. Conditions to Defeasance.................................. 81 SECTION 8.03. Application of Trust Money................................ 83 SECTION 8.04. Repayment to Issuer....................................... 83 SECTION 8.05. Indemnity for Government Obligations...................... 84 SECTION 8.06. Reinstatement............................................. 84 ARTICLE 9 Amendments ---------- SECTION 9.01. Without Consent of Holders................................ 84 SECTION 9.02. With Consent of Holders................................... 83 SECTION 9.03. Compliance with Trust Indenture........................... 87 SECTION 9.04. Revocation and Effect of Consents and Waivers............. 87 SECTION 9.05. Notation on or Exchange of Securities..................... 87 SECTION 9.06. Trustee To Sign Amendments................................ 87 SECTION 9.07. Payment for Consent....................................... 88
4 ARTICLE 10 Subordination ------------- SECTION 10.01. Agreement To Subordinate.................................. 88 SECTION 10.02. Liquidation, Dissolution, Bankruptcy...................... 88 SECTION 10.03. Default on Senior Indebtedness............................ 89 SECTION 10.04. Acceleration of Payment of Securities..................... 90 SECTION 10.05. When Distribution Must Be Paid Over....................... 90 SECTION 10.06. Subrogation............................................... 90 SECTION 10.07. Relative Rights........................................... 91 SECTION 10.08. Subordination May Not Be Impaired......................... 91 SECTION 10.09. Rights of Trustee and Paying Agent........................ 91 SECTION 10.10. Distribution or Notice to Representative.................. 92 SECTION 10.11. Article 10 Not To Prevent Events of Default or Limit Right To Accelerate......................... 92 SECTION 10.12. Trust Moneys Not Subordinated............................. 92 SECTION 10.13. Trustee Entitled To Rely.................................. 92 SECTION 10.14. Trustee To Effectuate Subordination....................... 93 SECTION 10.15. Trustee Not Fiduciary for Holders of Senior Indebtedness.. 93 SECTION 10.16. Reliance by Holders of Senior Indebtedness on Subordination Provisions............................. 93 ARTICLE 11 Company Guaranty ---------------- SECTION 11.01. Guaranty.................................................. 94 SECTION 11.02. Successors and Assigns.................................... 96 SECTION 11.03. No Waiver................................................. 96 SECTION 11.04. Modification.............................................. 96 ARTICLE 12 Subordination of Company Guaranty --------------------------------- SECTION 12.01. Agreement to Subordinate.................................. 97 SECTION 12.02. Liquidation, Dissolution, Bankruptcy...................... 97 SECTION 12.03. Default on Senior Indebtedness of Guarantor............... 98 SECTION 12.04. Demand for Payment........................................ 98 SECTION 12.05. When Distribution Must Be Paid Over....................... 98 SECTION 12.06. Subrogation............................................... 98 SECTION 12.07. Relative Rights........................................... 99
5 SECTION 12.08. Subordination May Not Be Impaired by Company.............. 99 SECTION 12.09. Rights of Trustee and Paying Agent........................ 99 SECTION 12.10. Distribution or Notice to Representative.................. 100 SECTION 12.11. Article 12 Not to Prevent Defaults Under a Guaranty or Limit Right To Demand Payment............ 100 SECTION 12.12. Trustee Entitled To Rely.................................. 100 SECTION 12.13. Trustee To Effectuate Subordination....................... 101 SECTION 12.14. Trustee Not Fiduciary for Holders of Senior Indebtedness of Guarantor............................ 101 SECTION 12.15. Reliance by Holders of Senior Indebtedness on Subordination Provisions............................. 101 ARTICLE 13 Miscellaneous ------------- SECTION 13.01. Trust Indenture Act Controls.............................. 101 SECTION 13.02. Notices................................................... 102 SECTION 13.03. Communication by Holders with Other Holders............... 102 SECTION 13.04. Certificate and Opinion as to Conditions Precedent........ 103 SECTION 13.05. Statements Required in Certificate or Opinion............. 103 SECTION 13.06. When Securities Disregarded............................... 103 SECTION 13.07. Rules by Trustee, Paying Agent and Registrar.............. 104 SECTION 13.08. Legal Holidays............................................ 104 SECTION 13.09. Governing Law............................................. 104 SECTION 13.10. No Recourse Against Others................................ 104 SECTION 13.11. Successors................................................ 104 SECTION 13.12. Multiple Originals........................................ 104 SECTION 13.13. Table of Contents; Headings............................... 105
Exhibit A - Form of Security Rule 144A/Regulation S Appendix Exhibit 1 to Rule 144A/Regulation S Appendix Exhibit B - Form of Subsidiary Guaranty Agreement INDENTURE dated as of July 29, 1999, among ChipPAC International Limited, a British Virgin Islands corporation (the "Issuer"), ChipPAC Merger Corp., a California corporation (the "Company") and Firstar Bank of Minnesota, N.A., a national banking association organized under the laws of the United States (the "Trustee"). Each party agrees as follows for the benefit of the other party and for the equal and ratable benefit of the Holders of (1) the Issuer's 12 3/4% Senior Subordinated Notes Due 2009 (the "Initial Securities") and, (2) if and when issued pursuant to a registered exchange for Initial Securities, the Issuer's 12 3/4% Senior Subordinated Notes Due 2009 (the "Exchange Securities") and, (3) if and when issued pursuant to a private exchange for Initial Securities, the Issuer's 12 3/4% Senior Subordinated Notes Due 2009 (the "Private Exchange Securities") and, (4) if and when issued, any Additional Securities (as defined herein, and together with the Private Exchange Securities, the Exchange Securities and the Initial Securities, the "Securities"): ARTICLE 1 Definitions and Incorporation by Reference ------------------------------------------ SECTION 1.01. Definitions. ------------ "Additional Assets" means (1) any property or assets (other than Indebtedness and Capital Stock) in a Related Business, (2) the Capital Stock of a Person that becomes a Restricted Subsidiary as a result of the acquisition of such Capital Stock by the Company or another Restricted Subsidiary (3) Capital Stock constituting a minority interest in any Person that at such time is a Restricted Subsidiary; provided, however, that any such Restricted Subsidiary -------- ------- described in clauses (2) or (3) above is primarily engaged in a Related Business. "Additional Securities" means, subject to the Issuer's compliance with Section 4.03, 12 3/4% Senior Subordinated Notes Due 2009 issued from time to time after the Issue Date under the terms of this Indenture (other than pursuant to Section 2.06, 2.07, 2.09 or 3.06 and other than Exchange Securities or Private Exchange Securities issued pursuant to an exchange offer for other Securities outstanding under this Indenture). 2 "Advisory Agreement" means each of the agreements by and among ChipPAC, Inc., ChipPAC Limited, ChipPAC International Company Limited and each Principal entered into pursuant to the Recapitalization, as the same may be amended from time to time in a manner that is not more disadvantageous to the Company in any material respect than the original agreement as in effect on the Recapitalization Closing Date. "Affiliate" of any specified Person means any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. For purposes of Sections 4.04, 4.06 and 4.07 only, "Affiliate" shall also mean any beneficial owner of Capital Stock representing 10% or more of the total voting power of the Voting Stock (on a fully diluted basis) of the Company or of rights or warrants to purchase such Capital Stock (whether or not currently exercisable) and any Person who would be an Affiliate of any such beneficial owner pursuant to the first sentence hereof. "Asset Disposition" means any sale, lease (other than operating leases entered into in the ordinary course of business), transfer or other disposition (or series of related sales, leases, transfers or dispositions) by the Company or any Restricted Subsidiary, including any disposition by means of a merger, consolidation or similar transaction (each referred to for the purposes of this definition as a "disposition"), of (1) any shares of Capital Stock of a Restricted Subsidiary (other than directors' qualifying shares or shares required by applicable law to be held by a Person other than the Company or a Restricted Subsidiary), (2) all or substantially all the assets of any division or line of business of the Company or any Restricted Subsidiary or (3) any other assets of the Company or any Restricted Subsidiary outside of the ordinary course of business of the Company or such Restricted Subsidiary (other than, in the case of (1), (2) and (3) above, (w) a disposition by a Restricted Subsidiary to the Company or by the Company or a Restricted Subsidiary to a Restricted Subsidiary, (x) for purposes of Section 4.06 only, a disposition that constitutes a Restricted Payment permitted by Section 4.04, (y) sales or other dispositions of obsolete, uneconomical, negligible, worn-out or surplus 3 assets in the ordinary course of business (including but not limited to equipment and intellectual property) and (z) disposition of assets with a fair market value of less than $1,000,000). "Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at the time of determination, the present value (discounted at the interest rate borne by the Securities, compounded annually) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such Sale/Leaseback Transaction (including any period for which such lease has been extended). "Average Life" means, as of the date of determination, with respect to any Indebtedness or Preferred Stock, the quotient obtained by dividing (1) the sum of the products of the numbers of years from the date of determination to the dates of each successive scheduled principal payment of such Indebtedness or redemption or similar payment with respect to such Preferred Stock multiplied by the amount of such payment by (2) the sum of all such payments. "Bain" means Bain Capital, Inc. "Banks" has the meaning specified in the Credit Agreement. "Bank Indebtedness" means all Obligations pursuant to the Credit Agreement. "Board of Directors" means the Board of Directors of the Company or any committee thereof duly authorized to act on behalf of such Board. "Business Day" means each day other than a Saturday, Sunday or a day on which commercial banking institutions are authorized or required by law to close in New York City. "Capital Expenditure Facility" means the capital expenditure facility contained in the Credit Agreement. "Capital Lease Obligations" means an obligation that is required to be classified and accounted for as a capital lease for financial reporting purposes in accordance with GAAP, and the amount of Indebtedness represented by such obligation shall be the capitalized amount of such obligation determined in accordance with GAAP; and the 4 Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty. "Capital Stock" of any Person means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) equity of such Person, including any Preferred Stock, but excluding any debt securities convertible into such equity. "Change of Control" means the occurrence of any of the following events: (1) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than one or more Permitted Holders, is or becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that such person shall be deemed to have "beneficial ownership" of all shares that any such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 50% of the total voting power of the Voting Stock of the Company (for the purposes of this clause (1), such person shall be deemed to beneficially own any Voting Stock of a Person held by any other Person (the "parent entity"), if such person is the beneficial owner (as defined in this clause (1)), directly or indirectly, of more than 50% of the voting power of the Voting Stock of such parent entity; (2) individuals who on the Issue Date constituted the Board of Directors (together with any new directors (A) whose election by such Board of Directors or whose nomination for election by the stockholders of the Company was approved by a vote of a majority of the directors of the Company then still in office who were either directors on the Issue Date or whose election or nomination for election was previously so approved or (B) who were elected to the Board of Directors pursuant to the Shareholders Agreement, as amended, modified or supplemented from time to time) cease for any reason to constitute a majority of the Board of Directors then in office; or (3) the merger or consolidation of the Company with or into another Person or the merger of another Person with or into the Company, or the sale of all or 5 substantially all the assets of the Company to another Person (in each case other than a Person that is controlled by the Permitted Holders), if the securities of the Company that are outstanding immediately prior to such transaction and which represent 100% of the aggregate voting power of the Voting Stock of the Company are changed into or exchanged for cash, securities or property, unless pursuant to such transaction such securities are changed into or exchanged for, in addition to any other consideration, securities of the surviving Person or transferee that represent, immediately after such transaction, at least a majority of the aggregate voting power of the Voting Stock of the surviving Person or transferee. "Code" means the Internal Revenue Code of 1986, as amended. "Company" means the party named as such in this Indenture until a successor replaces it and, thereafter, means the successor and, for purposes of any provision contained herein and required by the TIA, each other obligor on the indenture securities. "Company Guaranty" means the Guarantee by the Company of the Issuer's obligations with respect to the Securities contained herein. "Consolidated Coverage Ratio" as of any date of determination means the ratio of (a) the aggregate amount of EBITDA for the period of the most recent four consecutive fiscal quarters for which internal financial statements are available ending on or prior to the date of such determination to (b) Consolidated Interest Expense for such four fiscal quarters; provided, however, -------- ------- that: (1) if the Company or any Restricted Subsidiary has Incurred any Indebtedness since the beginning of such period that remains outstanding or if the transaction giving rise to the need to calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness, or both, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving effect on a pro forma basis to such Indebtedness as if such Indebtedness had been Incurred on the first day of such period and the discharge of any other Indebtedness repaid, repurchased, defeased or otherwise discharged with the proceeds of such new Indebtedness as if such discharge had occurred on the first day of such period; 6 (2) if the Company or any Restricted Subsidiary has repaid, repurchased, defeased or otherwise discharged any Indebtedness since the beginning of such period or if any Indebtedness is to be repaid, repurchased, defeased or otherwise discharged (in each case other than Indebtedness Incurred under any revolving credit facility unless such Indebtedness has been permanently repaid and has not been replaced) on the date of the transaction giving rise to the need to calculate the Consolidated Coverage Ratio, EBITDA and Consolidated Interest Expense for such period shall be calculated on a pro forma basis as if such discharge had occurred on the first day of such period and as if the Company or such Restricted Subsidiary has not earned the interest income actually earned during such period in respect of cash or Temporary Cash Investments used to repay, repurchase, defease or otherwise discharge such Indebtedness; (3) if since the beginning of such period the Company or any Restricted Subsidiary shall have made any Asset Disposition, the EBITDA for such period shall be reduced by an amount equal to the EBITDA (if positive) directly attributable to the assets which are the subject of such Asset Disposition for such period, or increased by an amount equal to the EBITDA (if negative), directly attributable thereto for such period and Consolidated Interest Expense for such period shall be reduced by an amount equal to the Consolidated Interest Expense directly attributable to any Indebtedness of the Company or any Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged with respect to the Company and its continuing Restricted Subsidiaries in connection with such Asset Disposition for such period (or, if the Capital Stock of any Restricted Subsidiary is sold, the Consolidated Interest Expense for such period directly attributable to the Indebtedness of such Restricted Subsidiary to the extent the Company and its continuing Restricted Subsidiaries are no longer liable for such Indebtedness after such sale); (4) if since the beginning of such period the Company or any Restricted Subsidiary (by merger or otherwise) shall have made an Investment in any Restricted Subsidiary (or any person which becomes a Restricted Subsidiary) or an acquisition of assets, including any acquisition of assets occurring in connection with a transaction requiring a calculation to be made hereunder, which constitutes all or 7 substantially all of an operating unit of a business, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto (including the Incurrence of any Indebtedness) as if such Investment or acquisition occurred on the first day of such period; and (5) if since the beginning of such period any Person (that subsequently became a Restricted Subsidiary or was merged with or into the Company or any Restricted Subsidiary since the beginning of such period) shall have made any Asset Disposition, any Investment or acquisition of assets that would have required an adjustment pursuant to clause (3) or (4) above if made by the Company or a Restricted Subsidiary during such period, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto as if such Asset Disposition, Investment or acquisition occurred on the first day of such period. For purposes of this definition, whenever pro forma effect is to be given to an acquisition of assets, the amount of income or earnings relating thereto and the amount of Consolidated Interest Expense associated with any Indebtedness Incurred in connection therewith, the pro forma calculations shall be determined in good faith by a responsible financial or accounting Officer of the Company (and shall include any applicable Pro Forma Cost Savings). If any Indebtedness bears a floating rate of interest and is being given pro forma effect, the interest of such Indebtedness shall be calculated as if the rate in effect on the date of determination had been the applicable rate for the entire period (taking into account any Interest Rate Agreement applicable to such Indebtedness if such Interest Rate Agreement has a remaining term in excess of 12 months). "Consolidated Interest Expense" means, for any period, the total interest expense of the Company and its consolidated Restricted Subsidiaries determined in accordance with GAAP, plus, to the extent not included in such total interest expense, and to the extent incurred by the Company or its Restricted Subsidiaries, without duplication: (1) interest expense attributable to Capital Lease Obligations and the interest expense attributable to leases constituting part of a Sale/Leaseback Transaction, in each case, determined in accordance with GAAP; 8 (2) amortization of debt discount and debt issuance cost; (3) capitalized interest; (4) non-cash interest expenses; (5) commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing; (6) net costs associated with Hedging Obligations involving any Interest Rate Agreement (including amortization of fees) determined in accordance with GAAP; (7) dividends paid in cash or Disqualified Stock in respect of (A) all Preferred Stock of Restricted Subsidiaries and (B) all Disqualified Stock of the Company, in each case held by Persons other than the Company or a Wholly Owned Subsidiary; (8) interest actually paid by the Company or a Restricted Subsidiary under any Guarantee of Indebtedness of any other Person; and (9) the cash contributions to any employee stock ownership plan or similar trust to the extent such contributions are used by such plan or trust to pay interest or fees to any Person (other than the Company) in connection with Indebtedness Incurred by such plan or trust; and less, to the extent included in such total interest expense, (A) the ---- amortization during such period of capitalized financing costs associated with the Recapitalization and the financing thereof and (B) the amortization during such period of other capitalized financing costs. "Consolidated Net Income" means, for any period, the net income of the Company and its consolidated Subsidiaries determined in accordance with GAAP; provided, however, that there shall not be included in such Consolidated Net - -------- ------- Income: (1) any net income of any Person (other than the Company) if such Person is not a Restricted Subsidiary, except that (A) subject to the exclusion contained in clause (4) below, the Company's equity in the net 9 income of any such Person for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by such Person during such period to the Company or a Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution paid to a Restricted Subsidiary, to the limitations contained in clause (3) below) and (B) the Company's equity in a net loss of any such Person for such period shall be included in determining such Consolidated Net Income; (2) any net income (or loss) of any Person acquired by the Company or a Subsidiary in a pooling of interests transaction for any period prior to the date of such acquisition; (3) any net income of any Restricted Subsidiary if such Restricted Subsidiary is subject to restrictions, directly or indirectly, on the payment of dividends or the making of distributions by such Restricted Subsidiary, directly or indirectly, to the Company, except that (A) subject to the exclusion contained in clause (4) below, the Company's equity in the net income of any such Restricted Subsidiary for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash that could have been distributed by such Restricted Subsidiary consistent with such restrictions during such period to the Company or another Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution paid to another Restricted Subsidiary, to the limitation contained in this clause) and (B) the Company's equity in a net loss of any such Restricted Subsidiary for such period shall be included in determining such Consolidated Net Income; (4) any gain (or loss) realized upon the sale or other disposition of any assets of the Company or its consolidated Subsidiaries (including pursuant to any sale-and-leaseback arrangement) which is not sold or otherwise disposed of in the ordinary course of business and any gain (or loss) realized upon the sale or other disposition of any Capital Stock of any Person; (5) any extraordinary or unusual gains or losses and the related tax effect in accordance with GAAP; 10 (6) any translation gains and losses due solely to fluctuations in currency values and the related tax effect in accordance with GAAP; (7) any cash charges resulting from the Recapitalization to the extent such charges are paid or payable by Hyundai Electronics, Hyundai Electronics America or any of their Affiliates; and (8) the cumulative effect of a change in accounting principles. Notwithstanding the foregoing, for the purpose of Section 4.04 only, there shall be excluded from Consolidated Net Income any dividends, repayments of loans or advances or other transfers of assets from Unrestricted Subsidiaries to the Company or a Restricted Subsidiary to the extent such dividends, repayments or transfers increase the amount of Restricted Payments permitted under such Section pursuant to clause (a)(3)(D) thereof. "Credit Agreement" means the Credit Agreement to be entered into by and among the Issuer, the Company, certain of its Subsidiaries, the lenders referred to therein and Credit Suisse First Boston, as Administrative Agent, together with the related documents thereto (including without limitation the term loans and revolving loans thereunder, any guarantees and security documents), as amended, extended, renewed, restated, supplemented or otherwise modified (in whole or in part, and without limitation as to amount, terms, conditions, covenants and other provisions) from time to time, and any agreement (and related document) governing Indebtedness incurred to refund or refinance, in whole or in part, the borrowings and commitments then outstanding or permitted to be outstanding under such Credit Agreement or a successor Credit Agreement, whether by the same or any other lender or group of lenders. "Currency Agreement" means in respect of a Person any foreign exchange contract, currency swap agreement or other similar agreement to which such Person is a party or beneficiary. "CVC" means Citicorp Venture Capital Ltd. "Default" means any event which is, or after notice or passage of time or both would be, an Event of Default. 11 "Designated Senior Indebtedness" with respect to any Person means (1) the Bank Indebtedness; provided, however, that Bank Indebtedness outstanding -------- ------- under any Credit Agreement that Refinanced in part, but not in whole, the previously outstanding Bank Indebtedness shall only constitute Designated Senior Indebtedness if it meets the requirements of succeeding clause (2); and (2) any other Senior Indebtedness of such Person which, at the date of determination, has an aggregate principal amount outstanding of, or under which, at the date of determination, the holders thereof are committed to lend up to, at least $10.0 million and is specifically designated by such Person in the instrument evidencing or governing such Senior Indebtedness as "Designated Senior Indebtedness" for purposes of the Indenture. "Disqualified Stock" means, with respect to any Person, any Capital Stock which by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable) or upon the happening of any event (1) matures or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise, (2) is convertible or exchangeable for Indebtedness or Disqualified Stock or (3) is redeemable at the option of the holder thereof, in whole or in part, in each case on or prior to the first anniversary of the Stated Maturity of the Securities; provided, however, that any Capital Stock -------- ------- that would not constitute Disqualified Stock but for provisions thereof giving holders thereof the right to require such Person to repurchase or redeem such Capital Stock upon the occurrence of an "asset sale" or "change of control" occurring prior to the first anniversary of the Stated Maturity of the Securities shall not constitute Disqualified Stock if the "asset sale" or "change of control" provisions applicable to such Capital Stock are not more favorable to the holders of such Capital Stock than the provisions of Sections 4.06 and 4.08. Notwithstanding the foregoing, the Intel Preferred Stock as in effect on the date of issuance will be deemed not to constitute Disqualified Stock. "EBITDA" for any period means the sum of Consolidated Net Income, plus Consolidated Interest Expense plus the following to the extent deducted in calculating such Consolidated Net Income, without duplication: (1) all income tax expense of the Company and its consolidated Restricted Subsidiaries, (2) depreciation expense of the Company and its consolidated Restricted Subsidiaries, (3) amortization expense of the Company and its consolidated Restricted Subsidiaries (excluding amortization expense (other than the amortization of capitalized financing costs) 12 attributable to a prepaid cash item that was paid in a prior period) and (4) all other non-cash charges of the Company and its consolidated Restricted Subsidiaries (excluding any such non-cash charge to the extent that it represents an accrual of or reserve for cash expenditures in any future period), in each case for such period. Notwithstanding the foregoing, the provision for taxes based on the income or profits of, and the depreciation and amortization and non-cash charges of, a Restricted Subsidiary shall be added to Consolidated Net Income to compute EBITDA only to the extent (and in the same proportion) that the net income of such Restricted Subsidiary was included in calculating Consolidated Net Income and only if a corresponding amount would be permitted at the date of determination to be dividended to the Company by such Restricted Subsidiary without prior approval (that has not been obtained), pursuant to the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to such Restricted Subsidiary or its stockholders. "Equity Offering" means a primary offering of Capital Stock (other than Disqualified Stock) of the Company. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "GAAP" means generally accepted accounting principles in the United States of America as in effect as of the Issue Date, including those set forth in (1) the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants, (2) statements and pronouncements of the Financial Accounting Standards Board and (3) such other statements by such other entity as approved by a significant segment of the accounting profession. All ratios and computations based on GAAP contained in this Indenture shall be computed in conformity with GAAP. "Guarantee" means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness of any Person and any obligation, direct or indirect, contingent or otherwise, of such Person (1) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation of such Person (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services, to take-or-pay or to maintain financial statement conditions or otherwise) or 13 (2) entered into for the purpose of assuring in any other manner the obligee of such Indebtedness of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided, however, that the term -------- ------- "Guarantee" shall not include endorsements for collection or deposit or standard contractual indemnities, in each case in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "Guaranty" means the Company Guaranty and each Subsidiary Guaranty, as applicable. "Guaranty Agreement" means a supplemental indenture, in a form reasonably satisfactory to the Trustee, pursuant to which a Subsidiary Guarantor becomes subject to the applicable terms and conditions of the Indenture. "Hedging Obligations" of any Person means the obligations of such Person pursuant to any Interest Rate Agreement or Currency Agreement. "Holder" or "Securityholder" means the Person in whose name a Security is registered on the Registrar's books. "Hyundai Earn-out" means the cash payment to Hyundai Electronics of up to an additional $55.0 million during the four-year period following January 1, 1999 in the event the Company exceeds certain levels of EBITDA as set forth in the Recapitalization Agreement; provided, however, in the event the final $20.0 -------- ------- million of such $55.0 million in cash is required to be paid to Hyundai Electronics, it shall be paid by the mandatory redemption of an equal amount of Hyundai Preferred Stock. "Hyundai Electronics" means Hyundai Electronics Industries Company Ltd., a Republic of Korea corporation. "Hyundai Preferred Stock" means the 12.5% Redeemable Preferred Stock issuable to Hyundai Electronics and/or Hyundai Electronics America in connection with the Recapitalization. "Incur" means issue, assume, Guarantee, incur or otherwise become liable for; provided, however, that any Indebtedness or Capital Stock of a -------- ------- Person existing at the time such Person becomes a Subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred by such Subsidiary at the time it becomes a Subsidiary. The term "Incurrence" when used as a noun shall 14 have a correlative meaning. The accretion of principal of a non-interest bearing or other discount security, and the issuance as interest or dividend payments of pay-in-kind securities having identical terms to the underlying security and which pay-in-kind securities were contemplated on the issue date of such underlying security, in each case shall not be deemed the Incurrence of Indebtedness. "Indebtedness" means, with respect to any Person on any date of determination (without duplication): (1) the principal of and premium (if any) in respect of (A) indebtedness of such Person for money borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other similar instruments for the payment of which such Person is responsible or liable; (2) all Capital Lease Obligations of such Person and all Attributable Debt in respect of Sale/Leaseback Transactions entered into by such Person; (3) all obligations of such Person issued or assumed as the deferred purchase price of property, all conditional sale obligations of such Person and all obligations of such Person under any title retention agreement (but excluding trade accounts and accrued expenses payable arising in the ordinary course of business); (4) all obligations of such Person for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction (other than obligations with respect to letters of credit securing obligations (other than obligations described in clauses (1) through (3) above) entered into in the ordinary course of business of such Person to the extent such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the tenth Business Day following payment on the letter of credit); (5) the amount of all obligations of such Person with respect to the redemption, repayment or other repurchase of any Disqualified Stock or, with respect to any Subsidiary of such Person, the liquidation preference with respect to, any Preferred Stock (but excluding, in each case, any accrued dividends); (6) all obligations of the type referred to in clauses (1) through (5) of other Persons and all 15 dividends of other Persons for the payment of which, in either case, such Person is responsible or liable, directly or indirectly, as obligor, guarantor or otherwise, including by means of any Guarantee; (7) all obligations of the type referred to in clauses (1) through (6) of other Persons secured by any Lien on any property or asset of such Person (whether or not such obligation is assumed by such Person), the amount of such obligation being deemed to be the lesser of the value of such property or assets or the amount of the obligation so secured; and (8) to the extent not otherwise included in this definition, Hedging Obligations of such Person. The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and the maximum liability, upon the occurrence of the contingency giving rise to the obligation, of any contingent obligations at such date; provided, however, that -------- ------- the amount outstanding at any time of any Indebtedness issued with original issue discount shall be deemed to be the face amount of such Indebtedness less the remaining unamortized portion of the original issue discount of such indebtedness at such time as determined in accordance with GAAP. "Indenture" means this Indenture as amended or supplemented from time to time. "Intel" means Intel Corporation. "Intel Preferred Stock" means the 10.0% convertible Preferred Stock issuable to Intel pursuant to the Stock Purchase Agreement dated on or about the Recapitalization Closing Date by and between Intel and ChipPAC Merger Corp. "Interest Rate Agreement" means in respect of a Person any interest rate swap agreement, interest rate cap agreement or other financial agreement or arrangement designed to protect such Person against fluctuations in interest rates. "Investment" with respect to any Person means any direct or indirect advance, loan (other than (A) advances to customers in the ordinary course of business that are recorded as accounts receivable on the balance sheet of the lender and (B) commission, travel and similar advances to 16 officers and employees made in the ordinary course of business) or other extensions of credit (including by way of Guarantee or similar arrangement) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of Capital Stock, Indebtedness or other similar instruments issued by such Person. For purposes of the definition of "Unrestricted Subsidiary," the definition of "Restricted Payment" and Section 4.04: (1) "Investment" shall include the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of any Subsidiary of the Company at the time that such Subsidiary is designated an Unrestricted Subsidiary; provided, -------- however, that upon a redesignation of such Subsidiary as a Restricted ------- Subsidiary, the Company shall be deemed to continue to have a permanent "Investment" in an Unrestricted Subsidiary equal to an amount (if positive) equal to (x) the Company's "Investment" in such Subsidiary at the time of such redesignation less (y) the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of such Subsidiary at the time of such redesignation; and (2) any property transferred to or from an Unrestricted Subsidiary shall be valued at its fair market value at the time of such transfer, in each case as determined in good faith by the Board of Directors. "Issue Date" means the date on which the Securities are originally issued. "Lien" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any conditional sale or other title retention agreement or lease in the nature thereof). "Net Available Cash" from an Asset Disposition means cash payments received therefrom (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise and proceeds from the sale or other disposition of any securities received as consideration, but only as and when received, but excluding any other consideration received in the form of assumption by the acquiring Person of 17 Indebtedness or other obligations relating to such properties or assets or received in any other noncash form), in each case net of (1) all legal, title and recording tax expenses, commissions and other fees and expenses incurred, and all Federal, state, provincial, foreign and local taxes required to be accrued as a liability under GAAP, as a consequence of such Asset Disposition, (2) all payments made on any Indebtedness which is secured by any assets subject to such Asset Disposition, in accordance with the terms of any Lien upon or other security agreement of any kind with respect to such assets, or which must by its terms, or in order to obtain a necessary consent to such Asset Disposition, or by applicable law, be repaid out of the proceeds from such Asset Disposition, (3) all distributions and other payments required to be made to minority interest holders in Subsidiaries or joint ventures as a result of such Asset Disposition and (4) the deduction of appropriate amounts provided by the seller as a reserve, in accordance with GAAP, against any liabilities associated with the property or other assets disposed in such Asset Disposition and retained by the Company or any Restricted Subsidiary after such Asset Disposition. "Net Cash Proceeds", with respect to any issuance or sale of Capital Stock, means the cash proceeds of such issuance or sale net of attorneys' fees, accountants' fees, underwriters' or placement agents' fees, discounts or commissions and brokerage, consultant and other fees actually incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP. "Obligations" means with respect to any Indebtedness all obligations for principal, premium, interest, penalties, fees, indemnifications, reimbursements, and other amounts payable pursuant to the documentation governing such Indebtedness. "Officer" means the Chairman of the Board, the President, any Vice President, the Treasurer or the Secretary of the Company. "Officers' Certificate" means a certificate signed by two Officers. "Opinion of Counsel" means a written opinion from legal counsel who is acceptable to the Trustee. The counsel may be an employee of or counsel to the Company or the Trustee. 18 "Permitted Holders" means (1) the Principals and any Related Party thereto and (2) any group of investors if deemed to be a "person" (as such terms is used in Section 13(d)(3) of the Exchange Act) by virtue of the Shareholders Agreement, as the same may be amended, modified or supplemented from time to time, provided that -------- (1) a Principal is party to such Shareholders Agreement, (2) the persons party to the Shareholders Agreement, as so amended, supplemented or modified from time to time that were not parties and are not Affiliates of persons who were parties, to the Shareholders Agreement as of the Recapitalization Closing Date, together with their respective Affiliates (collectively, the "New Investors"), are not direct or indirect beneficial owners (determined without reference to the Shareholders Agreement) of more than 50% of the Voting Stock owned by all parties to the Shareholders Agreement as so amended, supplemented or modified, and (3) the New Investors, individually or in the aggregate, do not, directly or indirectly, have the right, pursuant to the Shareholders Agreement (as so amended, supplemented or modified from time to time) or otherwise to designate more than 50% of the members of the Board of Directors of the Company or any direct or indirect parent entity of the Company. "Permitted Investment" means an Investment by the Company or any Restricted Subsidiary in: (1) a Restricted Subsidiary or a Person that will, upon the making of such Investment, become a Restricted Subsidiary; provided, however, that -------- ------- the primary business of such Restricted Subsidiary is a Related Business; (2) another Person if as a result of such Investment such other Person is merged or consolidated with or into, or transfers or conveys all or substantially all its assets to, the Company or a Restricted Subsidiary; provided, however, that such Person's primary business is a Related -------- ------- Business; (3) Temporary Cash Investments; 19 (4) receivables owing to the Company or any Restricted Subsidiary if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; provided, however, -------- ------- that such trade terms may include such concessionary trade terms as the Company or any such Restricted Subsidiary deems reasonable under the circumstances; (5) payroll, travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses for accounting purposes and that are made in the ordinary course of business; (6) loans or advances to employees, directors, officers or consultants made in the ordinary course of business of the Company or such Restricted Subsidiary; (7) stock, obligations or securities received in settlement of debts created in the ordinary course of business and owing to the Company or any Restricted Subsidiary or in satisfaction of judgments; (8) any Person to the extent such Investment represents the non-cash portion of the consideration received for an Asset Disposition as permitted pursuant to Section 4.06; (9) Currency Agreements and Interest Rate Agreements entered into in the ordinary course of the Company's business and otherwise in compliance with the Indenture; and (10) so long as no Default shall have occurred and be continuing (or result therefrom), any Person in an aggregate amount which, when added together with the amount of all the Investments made pursuant to this clause (10) which at such time have not been repaid through repayments of loans or advances or other transfers of assets, does not exceed the greater of (A) $30.0 million and (B) 7.5% of Total Assets (with the fair market value of each Investment being measured at the time made and without giving effect to subsequent changes in value). "Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated 20 organization, government or any agency or political subdivision thereof or any other entity. "Preferred Stock", as applied to the Capital Stock of any Person, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends or distributions, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over shares of Capital Stock of any other class of such Person. "principal" of a Security means the principal of the Security plus the premium, if any, payable on the Secu rity which is due or overdue or is to become due at the relevant time. "Principal" means Bain and SXI Holders. "Pro Forma Cost Savings" means, with respect to any period, the reduction in costs that were (1) directly attributable to an asset acquisition and calculated on a basis that is consistent with Regulation S-X under the Securities Act in effect and applied as of the Issue Date, or (2) implemented by the business that was the subject of any such asset acquisition within six months of the date of the asset acquisition and that are supportable and quantifiable by the underlying accounting records of such business, as if, in the case of each of clause (1) and (2), all such reductions in costs had been effected as of the beginning of such period. "Recapitalization" means the plan of recapitalization and merger pursuant to the Agreement and Plan of Recapitalization and Merger dated as of March 13, 1999 as amended on or prior to the Issue Date, among Hyundai Electronics Industries Co., Ltd., Hyundai Electronics America, ChipPAC, Inc. and ChipPAC Merger Corp. "Recapitalization Closing Date" means the date the Company consummates the Recapitalization. "Refinance" means, in respect of any Indebtedness, to refinance, extend, renew, refund, repay, prepay, redeem, 21 defease or retire, or to issue other Indebtedness in exchange or replacement for, such indebtedness. "Refinanced" and "Refinancing" shall have correlative meanings. "Refinancing Indebtedness" means Indebtedness that Refinances any Indebtedness of the Company or any Restricted Subsidiary existing on the Issue Date or Incurred in compliance with this Indenture, including Indebtedness that Refinances Refinancing Indebtedness; provided, however, that (1) such -------- ------- Refinancing Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the Indebtedness being Refinanced, (2) such Refinancing Indebtedness has an Average Life at the time such Refinancing Indebtedness is Incurred that is equal to or greater than the Average Life of the Indebtedness being Refinanced and (3) such Refinancing Indebtedness has an aggregate principal amount (or if Incurred with original issue discount, an aggregate issue price) that is equal to or less than the aggregate principal amount (or if Incurred with original issue discount, the aggregate accreted value) then outstanding or committed (plus fees and expenses, including any premium and defeasance costs) under the Indebtedness being Refinanced; provided further, however, that -------- ------- ------- Refinancing Indebtedness shall not include (x) Indebtedness of a Subsidiary that Refinances Indebtedness of the Company or (y) Indebtedness of the Company or a Restricted Subsidiary that Refinances Indebtedness of an Unrestricted Subsidiary. "Registration Rights Agreement" means the Registration Rights Agreement, dated July 29, 1999, among the Issuer, the Company, Credit Suisse First Boston Corporation and Donaldson Lufkin & Jenrette. "Related Business" means any business related, ancillary or complementary to the businesses of the Company and the Restricted Subsidiaries on the Issue Date. "Related Party" with respect to any Principal means: (1) any controlling stockholder, or 80% (or more) owned Subsidiary of such Principal; (2) any trust, corporation, partnership or other entity, the beneficiaries, stockholders, partners, owners or Persons beneficially holding an 80% or more controlling interest of which consist of such Principal and/or 22 such other Persons referred to in the immediately preceding clause (1); or (3) any Affiliate of any Person. "Representative" means any trustee, agent or representative (if any) for an issue of Senior Indebtedness of the Company; provided, however, that if -------- ------- and for so long as any Senior Indebtedness lacks such a representative, then the Representative for such Senior Indebtedness shall at all times be the holders of a majority in outstanding principal amount of such senior Indebtedness. "Restricted Payment" with respect to any Person means: (1) the declaration or payment of any dividends or any other distributions of any sort in respect of its Capital Stock (including any payment in connection with any merger or consolidation involving such Person) or similar payment to the direct or indirect holders of its Capital Stock in their capacity as such (other than dividends or distributions payable solely in its Capital Stock (other than Disqualified Stock) and dividends or distributions payable solely to the Company or a Restricted Subsidiary, and other than pro rata dividends or other distributions made by a Subsidiary that is not a Wholly Owned Subsidiary to minority stockholders (or owners of an equivalent interest in the case of a Subsidiary that is an entity other than a corporation)); (2) the purchase, redemption or other acquisition or retirement for value of any Capital Stock of the Company held by any Person or of any Capital Stock of a Restricted Subsidiary held by any Affiliate of the Company (other than a Restricted Subsidiary), including the exercise of any option to exchange any Capital Stock (other than into Capital Stock of the Company that is not Disqualified Stock); (3) the purchase, repurchase, redemption, defeasance or other acquisition or retirement for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund payment of any Subordinated Obligations (other than the purchase, repurchase, or other acquisition of Subordinated Obligations purchased in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in 23 each case due within one year of the date of acquisition); or (4) the making of any Investment in any Person (other than a Permitted Investment). In determining the amount of any Restricted Payment made in property other than cash, such amount shall be the fair market value of such property at the time of such Restricted Payment, as determined in good faith by the Board of Directors. "Restricted Subsidiary" means any Subsidiary of the Company (including the Issuer) that is not an Unrestricted Subsidiary. "Revolving Credit Facility" means the revolving credit facility contained in the Credit Agreement and any other facility or financing arrangement that Refinances or replaces, in whole or in part, any such revolving credit facility. "Sale/Leaseback Transaction" means an arrangement relating to property now owned or hereafter acquired whereby the Company or a Restricted Subsidiary transfers such property to a Person and the Company or a Restricted Subsidiary leases it from such Person. "SEC" means the Securities and Exchange Commission. "Secured Indebtedness" means any Indebtedness of the Company secured by a Lien. "Securities" means the Securities issued under this Indenture. "Senior Indebtedness" of any Person means all (1) Bank Indebtedness of or guaranteed by such Person, whether outstanding on the Issue Date or thereafter Incurred, and (2) Indebtedness of such Person, whether outstanding on the Issue Date or thereafter Incurred, including interest thereon, in respect of (A) Indebtedness for money borrowed, (B) Indebtedness evidenced by notes, debentures, bonds or other similar instruments for the payment of which such Person is responsible or liable and (C) Hedging Obligations, unless, in the case of (1) and (2), in the instrument creating or evidencing the same or pursuant to which the same is outstanding, it is provided that such obligations are subordinate in right of payment to 24 the obligations under the Notes; provided, however, that Senior Indebtedness -------- ------- shall not include (i) any obligation of such Person to any subsidiary of such Person, (ii) any liability for Federal, state, local or other taxes owed or owing by such Person, (iii) any accounts payable or other liability to trade creditors arising in the ordinary course of business (including guarantees thereof or instruments evidencing such liabilities), (iv) any Indebtedness of such Person (and any accrued and unpaid interest in respect thereof) which is subordinate or junior by its terms to any other Indebtedness or other obligation of such Person or (v) that portion of any Indebtedness which at the time of Incurrence is Incurred in violation of the Indenture (but as to any such Indebtedness under the Credit Agreement, no such violation shall be deemed to exist if the Representative of the Lenders thereunder shall have received an officers' certificate of the Company to the effect that the issuance of such Indebtedness does not violate such covenant and setting forth in reasonable detail the reasons therefor). "Senior Subordinated Indebtedness" means (1) with respect to the Issuer, the Notes and any other Indebtedness of the Issuer that specifically provides that such Indebted ness is to rank pari passu with the Notes in right ---- ----- of payment and is not subordinated by its terms in right of payment to any Indebtedness or other obligation of the Issuer which is not Senior Indebtedness of the Issuer and (2) with respect to the Company or a Subsidiary Guarantor, their respective Guarantees of the Notes and any other Indebtedness of such Person that specifically provides that such Indebtedness rank pari passu with ---- ----- such Guaranty in respect of payment and is not subordinated by its terms in respect of payment to any Indebtedness or other obligation of such Person which is not Senior Indebtedness of such Person. "Shareholders Agreement" means the Shareholders Agreement to be entered into on the Recapitalization Closing Date by and among Hyundai Electronics, Hyundai Electronics America, SXI Group LLC, certain Bain Related Parties and ChipPAC, Inc. "Significant Subsidiary" means any Restricted Subsidiary that would be a "Significant Subsidiary" of the Company within the meaning of Rule 1-02 under Regulation S-X promulgated by the SEC. "Stated Maturity" means, with respect to any security, the date specified in such security as the fixed date on which the final payment of principal of such 25 security is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase of such security at the option of the holder thereof upon the happening of any contingency unless such contingency has occurred). "Subordinated Obligation" means any Indebtedness of the Issuer, the Company or any Subsidiary Guarantor (whether outstanding on the Issue Date or thereafter Incurred) which is subordinate or junior in right of payment to, in the case of the Issuer, the Securities or, in the case of the Company or such Subsidiary Guarantor, its Guaranty, pursuant to a written agreement to that effect. "Subsidiary" means, in respect of any Person, any corporation, association, partnership or other business entity of which more than 50% of the total voting power of shares of Capital Stock or other interests (including partnership interests) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by (1) such Person, (2) such Person and one or more Subsidiaries of such Person or (3) one or more Subsidiaries of such Person. "Subsidiary Guarantor" means ChipPAC (Barbados) Ltd., ChipPAC Limited, ChipPAC Korea Company Ltd., ChipPAC Luxembourg S.a.R.L. and ChipPAC Liquidity Management Hungary Limited Liability Company and any other subsidiary of the Company that Guarantees the Company's obligations with respect to the Notes. "Subsidiary Guaranty" means a Guarantee by a Subsidiary Guarantor of the Company's obligations with respect to the Securities. "Subsidiary Guaranty Agreement" means the Subsidiary Guaranty Agreement, to be dated the Recapitalization Closing Date, between the Subsidiary Guarantors and the Issuer, in the form attached as Exhibit B to this Indenture. "SXI Group LLC" means SXI Group LLC, a Delaware limited liability company. "SXI Holders" means (1) CVC, (2) SXI Group LLC and (3) any officer, employee or director of CVC or any trust, partnership or the entity established solely for the benefit of such officers, employees or directors. 26 "Temporary Cash Investments" means any of the following: (1) any evidence of indebtedness, maturing not more than one year after the date of investment by the Company, the Issuer or any other Restricted Subsidiary, issued by the United States of America or any instrumentality agency thereof, or by the Republic of Korea or any instrumentality or agency thereof, or by the Asian Development Bank, the World Bank or any other supranational organization (collectively, "Government Entities") and guaranteed or otherwise backed, directly or indirectly fully as to principal, premium, if any, and interest, by the Government Entity issuing such indebtedness; (2) investments in time deposit accounts, certificates of deposit and money market deposits maturing within 180 days of the date of acquisition thereof issued by a bank or trust company which is organized under the laws of the United States of America, any state thereof or any foreign country recognized by the United States of America, and which bank or trust company has capital, surplus and undivided profits aggregating in excess of $250.0 million (or the foreign currency equivalent thereof) and has outstanding debt which is rated "A" (or such similar equivalent rating) or higher by at least one nationally recognized statistical rating organization (as defined in Rule 436 under the Securities Act) or any money-market fund sponsored by a registered broker dealer or mutual fund distributor; (3) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clause (1) above entered into with a bank meeting the qualifications described in clause (2) above; (4) investments in commercial paper, maturing not more than 90 days after the date of acquisition, issued by a corporation (other than an Affiliate of the Company) organized and in existence under the laws of the United States of America or any foreign country recognized by the United States of America with a rating at the time as of which any investment therein is made of "P-1" (or higher) according to Moody's Investors Service, Inc. or "A-1" (or higher) according to Standard and Poor's Ratings Group; and 27 (5) investments in securities with maturities of six months or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States of America, or by any political subdivision or taxing authority thereof, and rated at least "A" by Standard & Poor's Ratings Group or "A" by Moody's Investors Service, Inc. "Term Loan Facilities" means the term loan facilities contained in the Credit Agreement and any other facility or financing arrangement that Refinances in whole or in part any such term loan facility. "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa- ------ 77bbbb) as in effect on the date of this Indenture. "Total Assets" means the total consolidated assets of the Company and its Restricted Subsidiaries, as set forth on the Company's most recent consolidated balance sheet. "Trustee" means the party named as such in this Indenture until a successor replaces it and, thereafter, means the successor. "Trust Officer" means the Chairman of the Board, the President or any other officer or assistant officer of the Trustee assigned by the Trustee to administer its corporate trust matters. "Uniform Commercial Code" means the New York Uniform Commercial Code as in effect from time to time. "Unrestricted Subsidiary" means (1) any Subsidiary of the Company that at the time of determination shall be designated an Unrestricted Subsidiary by the Board of Directors in the manner provided below and (2) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of the Company (including any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Capital Stock or Indebtedness of, or owns or holds any Lien on any property of, the Company or any other Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so designated; provided, however, that either (A) the -------- ------- Subsidiary to be so designated has total assets of $1,000 or less or (B) if such Subsidiary has assets greater than $1,000, such designation would be permitted under Section 4.04. The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted 28 Subsidiary; provided, however, that immediately after giving effect to such -------- ------- designation (x) the Company could Incur $1.00 of additional Indebtedness under Section 4.03(a) and (y) no Default shall have occurred and be continuing. Any such designation by the Board of Directors shall be evidenced to the Trustee by promptly filing with the Trustee a copy of the resolution of the Board of Directors giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing provisions. "U.S. Dollar Equivalent" means with respect to any monetary amount in a currency other than U.S. dollars, at any time for determination thereof, the amount of U.S. dollars obtained by converting such foreign currency involved in such computation into U.S. dollars at the spot rate for the purchase of U.S. dollars with the applicable foreign currency as published in The Wall Street Journal in the "Exchange Rates" column under the heading "Currency Trading" on the date two Business Days prior to such determination. Except as described under Section 4.03 whenever it is necessary to determine whether the Issuer has complied with any covenant in the Indenture or a Default has occurred and an amount is expressed in a currency other than U.S. dollars, such amount will be treated as the U.S. Dollar Equivalent determined as of the date such amount is initially determined in such currency. "U.S. Government Obligations" means direct obligations (or certificates representing an ownership interest in such obligations) of the United States of America (including any agency or instrumentality thereof) for the payment of which the full faith and credit of the United States of America is pledged and which are not callable or redeemable at the issuer's option. "Voting Stock" of a Person means all classes of Capital Stock or other interests (including partnership interests) of such Person then outstanding and normally entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof. "Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital Stock of which (other than directors' qualifying shares) is at least 95% owned by the Company or one or more Wholly Owned Subsidiaries. 29 SECTION 1.02. Other Definitions. ------------------
Defined in Term Section ---- ---------- "Additional Amounts"....................... 4.12 "Affiliate Transaction".................... 4.08 "Bankruptcy Law"........................... 6.01 "Blockage Notice".......................... 10.03 "covenant defeasance option"............... 8.01(b) "Custodian"................................ 6.01 "Event of Default"......................... 6.01 "Excluded Holder".......................... 4.12 "legal defeasance option".................. 8.01(b) "Legal Holiday"............................ 13.08 "Offer".................................... 4.07(b) "Offer Amount"............................. 4.07(c)(2) "Offer Period"............................. 4.07(c)(2) "pay the Securities"....................... 10.03 "Paying Agent"............................. 2.03 "Payment Blockage Period".................. 10.03 "Purchase Date"............................ 4.07(c)(1) "Registrar"................................ 2.03 "Successor Company"........................ 5.01 "Taxes".................................... 4.12
SECTION 1.03. Incorporation by Reference of Trust Indenture Act. -------------------------------------------------- This Indenture is subject to the mandatory provisions of the TIA which are incorporated by reference in and made a part of this Indenture. The following TIA terms have the following meanings: "Commission" means the SEC; "indenture securities" means the Securities and each Guaranty; "indenture security holder" means a Securityholder; "indenture to be qualified" means this Indenture and each guaranty; "indenture trustee" or "institutional trustee" means the Trustee; and "obligor" on the indenture securities means the Issuer, the Company, each Subsidiary Guarantor and any other obligor on the indenture securities. 30 All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule have the meanings assigned to them by such definitions. SECTION 1.04. Rules of Construction. Unless the context otherwise ---------------------- requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) "including" means including without limitation; (5) words in the singular include the plural and words in the plural include the singular; (6) unsecured Indebtedness shall not be deemed to be subordinate or junior to Secured Indebtedness merely by virtue of its nature as unsecured Indebtedness; (7) the principal amount of any noninterest bearing or other discount security at any date shall be the principal amount thereof that would be shown on a balance sheet of the issuer dated such date prepared in accordance with GAAP; (8) the principal amount of any Preferred Stock shall be (i) the maximum liquidation value of such Preferred Stock or (ii) the maximum mandatory redemption or mandatory repurchase price with respect to such Preferred Stock, whichever is greater; and (9) all references to the date the Securities were originally issued shall refer to the date the Initial Securities were originally issued. 31 ARTICLE 2 The Securities -------------- SECTION 2.01. Form and Dating. Provisions relating to the Initial ---------------- Securities, the Private Exchange Securities and the Exchange Securities are set forth in the Rule 144A/Regulation S Appendix attached hereto (the "Appendix") which is hereby incorporated in and expressly made part of this Indenture. The Initial Securities and the Trustee's certificate of authentication shall be substantially in the form of Exhibit 1 to the Appendix which is hereby incorporated in and expressly made a part of this Indenture. The Exchange Securities, the Private Exchange Securities and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A, which is hereby incorporated in and expressly made a part of this Indenture. The Securities may have notations, legends or endorsements required by law, stock exchange rule, agreements to which the Issuer is subject, if any, or usage (provided that any such notation, legend or endorsement is in a form acceptable to the Issuer). Each Security shall be dated the date of its authentication. The terms of the Securities set forth in the Appendix and Exhibit A are part of the terms of this Indenture. SECTION 2.02. Execution and Authentication. One Officer shall sign ----------------------------- the Securities for the Issuer by manual or facsimile signature. If an Officer whose signature is on a Security no longer holds that office at the time the Trustee authenticates the Security, the Security shall be valid nevertheless. A Security shall not be valid until an authorized signatory of the Trustee manually signs the certificate of authentication on the Security. The signature shall be conclusive evidence that the Security has been authenticated under this Indenture. The Trustee shall authenticate and deliver Securities for original issue in an aggregate principal amount of $1,000, upon a written order of the Issuer signed by two Officers or by an Officer and either an Assistant Treasurer or an Assistant Secretary of the Issuer. Such order shall specify the amount of the Securities to be authenticated and the date on which the original issue of Securities is to be authenticated and, in the case of an issuance of Additional Securities pursuant to Section 2.13 32 after the Issue Date, shall certify that such issuance is in compliance with Section 4.03. The Trustee may appoint an authenticating agent reasonably acceptable to the Issuer to authenticate the Securities. Unless limited by the terms of such appointment, an authenticating agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as any Registrar, Paying Agent or agent for service of notices and demands. SECTION 2.03. Registrar and Paying Agent. The Issuer shall maintain --------------------------- an office or agency where Securities may be presented for registration of transfer or for exchange (the "Registrar") and an office or agency where Securities may be presented for payment (the "Paying Agent"). The Registrar shall keep a register of the Securities and of their transfer and exchange. The Issuer may have one or more co-registrars and one or more additional paying agents. The term "Paying Agent" includes any additional paying agent. The Issuer shall enter into an appropriate agency agreement with any Registrar, Paying Agent or co-registrar not a party to this Indenture, which shall incorporate the terms of the TIA. The agreement shall implement the provisions of this Indenture that relate to such agent. The Issuer shall notify the Trustee of the name and address of any such agent. If the Issuer fails to maintain a Registrar or Paying Agent, the Trustee shall act as such and shall be entitled to appropriate compensation therefor pursuant to Section 7.07. The Company or any of its domestically incorporated Wholly Owned Subsidiaries may act as Paying Agent, Registrar, co-registrar or transfer agent. The Issuer initially appoints the Trustee as Registrar and Paying Agent in connection with the Securities. SECTION 2.04. Paying Agent To Hold Money in Trust. Prior to each due ------------------------------------ date of the principal and interest on any Security, the Issuer shall deposit with the Paying Agent a sum sufficient to pay such principal and interest when so becoming due. The Issuer shall require each Paying Agent (other than the Trustee) to agree in writing that the Paying Agent shall hold in trust for the benefit of Securityholders or the Trustee all money held by the Paying Agent for the payment of principal of or interest on the 33 Securities and shall notify the Trustee of any default by the Company in making any such payment. If the Company or a Subsidiary acts as Paying Agent, it shall segregate the money held by it as Paying Agent and hold it as a separate trust fund. The Issuer at any time may require a Paying Agent to pay all money held by it to the Trustee and to account for any funds disbursed by the Paying Agent. Upon complying with this Section, the Paying Agent shall have no further liability for the money delivered to the Trustee. SECTION 2.05. Securityholder Lists. The Trustee shall preserve in as --------------------- current a form as is reasonably practicable the most recent list available to it of the names and addresses of Securityholders. If the Trustee is not the Registrar, the Issuer shall furnish to the Trustee, in writing at least five Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Securityholders. SECTION 2.06. Transfer and Exchange. The Securities shall be issued ---------------------- in registered form and shall be transferable only upon the surrender of a Security for registration of transfer. When a Security is presented to the Registrar or a co-registrar with a request to register a transfer, the Registrar shall register the transfer as requested if the requirements of Section 8-401(1) of the Uniform Commercial Code are met. When Securities are presented to the Registrar or a co-registrar with a request to exchange them for an equal principal amount of Securities of other denominations, the Registrar shall make the exchange as requested if the same requirements are met. To permit registration of transfers and exchanges, the Issuer shall execute and the Trustee shall authenticate Securities at the Registrar's or co-registrar's request. The Issuer may require payment of a sum sufficient to pay all taxes, assessments or other governmental charges in connection with any transfer or exchange pursuant to this Section. The Issuer shall not be required to make and the Registrar need not register transfers or exchanges of Securities selected for redemption (except, in the case of Securities to be redeemed in part, the portion thereof not to be redeemed) or any Securities for a period of 15 days before a selection of Securities to be redeemed or 15 days before an interest payment date. Prior to the due presentation for registration of transfer of any Security, the Issuer, the Trustee, the Paying Agent, the Registrar or any co- registrar may deem and 34 treat the person in whose name a Security is registered as the absolute owner of such Security for the purpose of receiving payment of principal of and interest on such Security and for all other purposes whatsoever, whether or not such Security is overdue, and none of the Issuer, the Trustee, the Paying Agent, the Registrar or any co-registrar shall be affected by notice to the contrary. All Securities issued upon any transfer or exchange pursuant to the terms of this Indenture will evidence the same debt and will be entitled to the same benefits under this Indenture as the Securities surrendered upon such transfer or exchange. SECTION 2.07. Replacement Securities. If a mutilated Security is ----------------------- surrendered to the Registrar or if the Holder of a Security claims that the Security has been lost, destroyed or wrongfully taken, the Issuer shall issue and the Trustee shall authenticate a replacement Security if the requirements of Section 8-405 of the Uniform Commercial Code are met and the Holder satisfies any other reasonable requirements of the Trustee. If required by the Trustee or the Issuer, such Holder shall furnish an indemnity bond sufficient in the judgment of the Issuer and the Trustee to protect the Issuer, the Trustee, the Paying Agent, the Registrar and any co-registrar from any loss which any of them may suffer if a Security is replaced. The Issuer and the Trustee may charge the Holder for their expenses in replacing a Security. Every replacement Security is an additional obligation of the Issuer. SECTION 2.08. Outstanding Securities. Securities outstanding at any ----------------------- time are all Securities authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation and those described in this Section as not outstanding. A Security does not cease to be outstanding because the Issuer or an Affiliate of the Issuer holds the Security. If a Security is replaced pursuant to Section 2.07, it ceases to be outstanding unless the Trustee and the Issuer receive proof satisfactory to them that the replaced Security is held by a bona fide purchaser. If the Paying Agent segregates and holds in trust, in accordance with this Indenture, on a redemption date or maturity date money sufficient to pay all principal and interest payable on that date with respect to the Securities 35 (or portions thereof) to be redeemed or maturing, as the case may be, and the Paying Agent is not prohibited from paying such money to the Securityholders on that date pursuant to the terms of this Indenture, then on and after that date such Securities (or portions thereof) cease to be outstanding and interest on them ceases to accrue. SECTION 2.09. Temporary Securities. Until definitive Securities are --------------------- ready for delivery, the Issuer may prepare and the Trustee shall authenticate temporary Securities. Temporary Securities shall be substantially in the form of definitive Securities but may have variations that the Issuer considers appropriate for temporary Securities. Without unreasonable delay, the Issuer shall prepare and the Trustee shall authenticate definitive Securities and deliver them in exchange for temporary Securities. SECTION 2.10. Cancellation. The Issuer at any time may deliver ------------- Securities to the Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee any Securities surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else shall cancel and destroy (subject to the record retention requirements of the Exchange Act) all Securities surrendered for registration of transfer, exchange, payment or cancellation and deliver a certificate of such destruction to the Issuer unless the Issuer directs the Trustee to deliver canceled Securities to the Issuer. The Issuer may not issue new Securities to replace Securities it has redeemed, paid or delivered to the Trustee for cancellation. SECTION 2.11. Defaulted Interest. If the Issuer defaults in a ------------------- payment of interest on the Securities, the Issuer shall pay defaulted interest (plus interest on such defaulted interest to the extent lawful) in any lawful manner. The Issuer may pay the defaulted interest to the persons who are Securityholders on a subsequent special record date. The Issuer shall fix or cause to be fixed any such special record date and payment date to the reasonable satisfaction of the Trustee and shall promptly mail to each Securityholder a notice that states the special record date, the payment date and the amount of defaulted interest to be paid. SECTION 2.12. CUSIP Numbers. The Issuer in issuing the Securities -------------- may use "CUSIP" numbers (if then generally in use) and, if so, the Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to Holders; provided, however, that any such notice may state - -------- ------- 36 that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. SECTION 2.13. Issuance of Additional Securities. The Issuer shall be ---------------------------------- entitled, subject to its compliance with Section 4.03, to issue Additional Securities under this Indenture which shall have identical terms as the Initial Securities issued on the Issue Date, other than with respect to the date of issuance, issue price and amount of interest payable on the first payment date applicable thereto. The Initial Securities issued on the Issue Date, any Additional Securities and all Exchange Securities or Private Exchange Securities issued in exchange therefor shall be treated as a single class for all purposes under this Indenture. With respect to any Additional Securities, the Issuer shall set forth in a resolution of the Board of Directors and an Officers' Certificate, a copy of each which shall be delivered to the Trustee, the following information: (1) the aggregate principal amount of such Additional Securities to be authenticated and delivered pursuant to this Indenture; (2) the issue price and the issue date of such Additional Securities and the amount of interest payable on the first payment date applicable thereto; provided, however, that no Additional Securities may be issued at -------- ------- a price that would cause such Additional Securities to have "original issue discount" within the meaning of Section 1273 of the Code; and (3) whether such Additional Securities shall be transfer restricted securities and issued in the form of Initial Securities as set forth in the Appendix to this Indenture or shall be issued in the form of Exchange Securities as set forth in Exhibit A. ARTICLE 3 Redemption ---------- SECTION 3.01. Notices to Trustee. If the Issuer elects to redeem ------------------- Securities pursuant to paragraph 5 of the 37 Securities or is required to redeem Securities pursuant to paragraph 6 of the Securities, it shall notify the Trustee in writing of the redemption date, the principal amount of Securities to be redeemed and the paragraph of the Securities pursuant to which the redemption will occur. If the Issuer is required to redeem Securities pursuant to paragraph 6 of the Securities, it may reduce the principal amount of Securities required to be redeemed to the extent it is permitted a credit by the terms of the Securities and it notifies the Trustee of the amount of the credit and the basis for it. If the reduction is based on a credit for redeemed or canceled Securities that the Issuer has not previously delivered to the Trustee for cancellation, it shall deliver such Securities with the notice. The Issuer shall give each notice to the Trustee provided for in this Section at least 35 but not more than 60 days before the redemption date unless the Trustee consents to a shorter period. Such notice shall be accompanied by an Officers' Certificate and an Opinion of Counsel from the Issuer to the effect that such redemption will comply with the conditions herein. SECTION 3.02. Selection of Securities To Be Redeemed. If fewer than --------------------------------------- all the Securities are to be redeemed, the Trustee shall select the Securities to be redeemed pro rata or by lot or by a method that complies with applicable legal and securities exchange requirements, if any, and that the Trustee in its sole discretion shall deem to be fair and appropriate and in accordance with methods generally used at the time of selection by fiduciaries in similar circumstances. The Trustee shall make the selection from outstanding Securities not previously called for redemption. The Trustee may select for redemption portions of the principal of Securities that have denominations larger than $1,000. Securities and portions of them the Trustee selects shall be in amounts of $1,000 or a whole multiple of $1,000. Provisions of this Indenture that apply to Securities called for redemption also apply to portions of Securities called for redemption. The Trustee shall notify the Issuer promptly of the Securities or portions of Securities to be redeemed. SECTION 3.03. Notice of Redemption. At least 30 days but not more --------------------- than 60 days before a date for redemption of Securities, the Issuer shall mail a notice of redemption by first-class mail to each Holder of Securities to be redeemed at such Holder's registered address. 38 The Issuer will prepare and deliver to the Trustee the notice of the Special Redemption on or prior to the Business Day immediately preceding, and the Trustee will send by first class mail a copy of such notice to the Holders of the Securities on the date it delivers notice to the Trustee pursuant to Section 3.01. The notice shall identify the Securities to be redeemed and shall state: (1) the redemption date; (2) the redemption price; (3) the name and address of the Paying Agent; (4) that Securities called for redemption must be surrendered to the Paying Agent to collect the redemption price; (5) if fewer than all the outstanding Securities are to be redeemed, the identification and principal amounts of the particular Securities to be redeemed; (6) that, unless the Issuer defaults in making such redemption payment or the Paying Agent is prohibited from making such payment pursuant to the terms of this Indenture, interest on Securities (or portion thereof) called for redemption ceases to accrue on and after the redemption date; (7) the paragraph of the Securities pursuant to which the Securities called for redemption are being redeemed; and (8) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Securities. At the Issuer's request, the Trustee shall give the notice of redemption in the Issuer's name and at the Issuer's expense. In such event, the Issuer shall provide the Trustee with the information required by this Section. SECTION 3.04. Effect of Notice of Redemption. Once notice of ------------------------------- redemption is mailed, Securities called for redemption become due and payable on the redemption date and at the redemption price stated in the notice. Upon surrender to the Paying Agent, such Securities shall be paid at the redemption price stated in the notice, plus accrued 39 interest to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the related interest payment date). Failure to give notice or any defect in the notice to any Holder shall not affect the validity of the notice to any other Holder. SECTION 3.05. Deposit of Redemption Price. On or prior to the ---------------------------- redemption date, the Issuer shall deposit with the Paying Agent (or, if the Issuer or a Subsidiary is the Paying Agent, shall segregate and hold in trust) money sufficient to pay the redemption price of and accrued interest on all Securities to be redeemed on that date other than Securities or portions of Securities called for redemption which have been delivered by the Issuer to the Trustee for cancellation. SECTION 3.06. Securities Redeemed in Part. Upon surrender of a ---------------------------- Security that is redeemed in part, the Issuer shall execute and the Trustee shall authenticate for the Holder (at the Issuer's expense) a new Security equal in principal amount to the unredeemed portion of the Security surrendered. ARTICLE 4 Covenants --------- SECTION 4.01. Payment of Securities. The Issuer shall promptly pay ---------------------- the principal of and interest on the Securities on the dates and in the manner provided in the Securities and in this Indenture. Principal and interest shall be considered paid on the date due if on such date the Trustee or the Paying Agent holds in accordance with this Indenture money sufficient to pay all principal and interest then due and the Trustee or the Paying Agent, as the case may be, is not prohibited from paying such money to the Securityholders on that date pursuant to the terms of this Indenture. The Issuer shall pay interest on overdue principal at the rate specified therefor in the Securities, and it shall pay interest on overdue installments of interest at the same rate to the extent lawful. SECTION 4.02. SEC Reports. Notwithstanding that the Issuer may not ------------ be subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Issuer shall file with the SEC and provide the Trustee and 40 Securityholders with such annual reports and such information, documents and other reports as are specified in Sections 13 and 15(d) of the Exchange Act and applicable to a U.S. corporation subject to such Sections, such information, documents and reports to be so filed and provided at the times specified for the filing of such information, documents and reports under such Sections. The Issuer also shall comply with the other provisions of TIA (S) 314(a). SECTION 4.03. Limitation on Indebtedness. (a) The Company shall not, --------------------------- and shall not permit any Restricted Subsidiary to, Incur, directly or indirectly, any Indebtedness except that the Company and the Issuer may Incur Indebtedness if, after giving pro forma effect thereto, the Consolidated Coverage Ratio exceeds 2.0 to 1.0. (b) Notwithstanding the foregoing paragraph (a), the Company and its Restricted Subsidiaries may Incur the following Indebtedness: (1) Indebtedness of the Company or any Restricted Subsidiary Incurred pursuant to any Revolving Credit Facility; provided, however, that, -------- ------- immediately after giving effect to any such Incurrence, the aggregate principal amount of all Indebtedness incurred under this clause (1) and then outstanding does not exceed the greater of (A) $50.0 million and (B) the sum of (x) $20.0 million, (y) 50% of the book value of the inventory of the Company and its Restricted Subsidiaries and (z) 80% of the book value of the accounts receivables of the Company and its Restricted Subsidiaries; provided, however, that such Indebtedness may only be Incurred by a Restricted Subsidiary if such Indebtedness, when added together with the amount of all other Indebtedness Incurred by Restricted Subsidiaries pursuant to this clause (1) and then outstanding, does not exceed an amount equal to 50% of the greater of (x) the amount in clause (A) above and (y) the amount determined in clause (B) above; (2) Indebtedness of the Issuer Incurred pursuant to any Term Loan Facilities; provided, however, that, after giving effect to any such -------- ------- Incurrence, the aggregate principal amount of all Indebtedness Incurred under this clause (2) and then outstanding does not exceed $190.0 million less the aggregate sum of all principal payments 41 actually made from time to time after the Issue Date with respect to such Indebtedness pursuant to paragraph (a)(3)(A) of the covenant described under Section 4.06; (3) Indebtedness of the Issuer Incurred prior to the second anniversary of the Recapitalization Closing Date, pursuant to any Capital Expenditure Facility (and Refinancing Indebtedness in respect thereof) in an aggregate principal amount not to exceed $20.0 million; (4) Indebtedness of the Company or any Restricted Subsidiary owed to and held by the Company or a Restricted Subsidiary; provided, however, -------- ------- that any subsequent issuance or transfer of any Capital Stock which results in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any subsequent transfer of such Indebtedness (other than to the Company or another Restricted Subsidiary) shall be deemed, in each case, to constitute the Incurrence of such Indebtedness by the issuer thereof; (5) Indebtedness consisting of the Initial Securities and the Exchange Securities (other than Additional Securities); (6) Indebtedness outstanding on the Issue Date (other than Indebtedness described in clause (1), (2), (3), (4) or (5) of this covenant); (7) Refinancing Indebtedness in respect of Indebtedness Incurred pursuant to paragraph (a) or pursuant to clause (4), (5), (6), (8) or this clause (7); provided, however, that to the extent such Refinancing -------- ------- Indebtedness directly or indirectly Refinances Indebtedness of a Subsidiary Incurred pursuant to clause (8), such Refinancing Indebtedness shall be Incurred only by such Subsidiary; (8) Indebtedness of a Person Incurred and outstanding on or prior to the date on which such Person was acquired by the Company or a Restricted Subsidiary (other than Indebtedness Incurred in anticipation of, in connection with, or to provide all or any portion of the funds or credit support utilized to consummate, the transaction or series of related transactions pursuant to which such Person was 42 acquired by the Company or a Restricted Subsidiary); provided, -------- however, that after giving pro forma effect thereto, (a) the ------- Consolidated Coverage Ratio increases as a consequence of such incurrence and related acquisition and (b) the Consolidated Coverage Ratio is at least 1.5 to 1.0; (9) Hedging Obligations of the Company or any Restricted Subsidiary under or with respect to Interest Rate Agreements and Currency Agreements entered into in the ordinary course of business and not for the purpose of speculation; (10) Indebtedness of the Company or any Restricted Subsidiary in respect of performance bonds, completion guarantees and surety or appeal bonds entered into by the Company and the Restricted Subsidiaries in the ordinary course of their business; (11) Indebtedness consisting of the Guaranties and Guarantees of other Indebtedness otherwise permitted to be Incurred pursuant to the Indenture; (12) Indebtedness of the Company or any Restricted Subsidiary arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business, provided that such Indebtedness is satisfied within five business days of Incurrence; (13) Indebtedness (including Capital Lease Obligations) Incurred by the Company or any of its Restricted Subsidiaries to finance the purchase, lease or improvement of property (real or personal) or equipment (whether through the direct purchase of assets or the Capital Stock of any Person owning such assets) in an aggregate principal amount which, when added together with the amount of Indebtedness Incurred pursuant to this clause (13) and then outstanding, does not exceed the greater of (A) $15.0 million and (B) 5% of Total Assets (in each case including any Refinancing Indebtedness with respect thereto); 43 (14) Indebtedness Incurred by the Company or any of its Restricted Subsidiaries constituting reimbursement obligations with respect to letters of credit issued in the ordinary course of business including, without limitation, letters of credit to procure raw materials, or in respect of workers' compensation claims or self-insurance, or other Indebtedness with respect to reimbursement type obligations regarding workers' compensation claims; (15) Indebtedness of the Company issued to directors, employees, officers or consultants of the Company or a Restricted Subsidiary in connection with the redemption or purchase of Capital Stock that, by its terms, is subordinated to the Securities, is not secured by any assets of the Company or its Restricted Subsidiaries and does not require cash payments prior to the Stated Maturity of the Securities and Refinancing Indebtedness in respect thereof, in an aggregate principal amount which, when added together with the amount of Indebtedness Incurred pursuant to this clause (15) and then outstanding, does not exceed $5.0 million; (16) Indebtedness arising from agreements of the Company or a Restricted Subsidiary of the Company providing for indemnification, adjustment of purchase price, earn out or other similar obligations, in each case, incurred or assumed in connection with the disposition of any business, assets or a Restricted Subsidiary of the Company, other than guarantees of Indebtedness incurred by any Person acquiring all or any portion of such business, assets or Restricted Subsidiary for the purpose of financing such acquisition; provided that the maximum -------- assumable liability in respect of all such Indebtedness shall at no time exceed the gross proceeds actually received by the Company and its Restricted Subsidiaries in connection with such disposition; (17) Indebtedness arising from the Recapitalization Agreement providing for indemnification, adjustment of purchase price, earn out or other similar business obligations; and (18) Indebtedness of the Company or a Restricted Subsidiary in an aggregate principal amount which, 44 together with all other Indebtedness of the Company and the Restricted Subsidiaries outstanding on the date of such Incurrence (other than Indebtedness permitted by clauses (1) through (17) above or paragraph (a) above) does not exceed $20.0 million. (c) Notwithstanding the foregoing, the Company shall not, and shall not permit any Restricted Subsidiary to, Incur any Indebtedness pursuant to the foregoing paragraph (b) if the proceeds thereof are used, directly or indirectly, to Refinance any Subordinated Obligations unless such Indebtedness shall be subordinated to the Securities or the relevant Guaranty, as applicable, to at least the same extent as such Subordinated Obligations. (d) For purposes of determining compliance with the foregoing covenant, (1) in the event that an item of Indebtedness meets the criteria of more than one of the types of Indebtedness described above, the Issuer, in its sole discretion, will classify such item of Indebtedness at the time of its Incurrence and only be required to include the amount and type of such Indebtedness in one of the above clauses and (2) an item of Indebtedness may be divided and classified in more than one of the types of Indebtedness described above. (e) Notwithstanding paragraphs (a) and (b) above, neither the Company nor the Issuer shall, and the Company shall not permit any Subsidiary Guarantor to, Incur (1) any Indebtedness if such Indebtedness is subordinate or junior in ranking in any respect to any Senior Indebtedness of the Issuer, the Company or such Subsidiary Guarantor, as applicable, unless such Indebtedness is Senior Subordinated Indebtedness or is expressly subordinated in right of payment to Senior Subordinated Indebtedness or (2) any Secured Indebtedness (other than trade payables incurred in the ordinary course of business) that is not Senior Indebtedness unless contemporaneously therewith effective provision is made to secure the Securities or the relevant Guaranty, as applicable, equally and ratably with such Secured Indebtedness for so long as such Secured Indebtedness is secured by a Lien. (f) For purposes of determining compliance with any U.S. dollar denominated restriction on the Incurrence of Indebtedness where the Indebtedness Incurred is denominated in a different currency, the amount of such Indebtedness will be the U.S. Dollar Equivalent determined on the date of the Incurrence of such Indebtedness, provided, however, that -------- ------- 45 if any such Indebtedness denominated in a different currency is subject to a Currency Agreement with respect to U.S. dollars, covering all principal, premium, if any, and interest payable on such Indebtedness, the amount of such Indebtedness expressed in U.S. dollars will be as provided in such Currency Agreement. The principal amount of any Refinancing Indebtedness Incurred in the same currency as the Indebtedness being Refinanced will be the U.S. Dollar Equivalent of the Indebtedness Refinanced, except to the extent that (i) such U.S. Dollar Equivalent was determined based on a Currency Agreement, in which case the Refinancing Indebtedness will be determined in accordance with the preceding sentence, and (ii) the principal amount of the Refinancing Indebtedness exceeds the principal amount of the Indebtedness being Refinanced, in which case the U.S. Dollar Equivalent of such excess will be determined on the date such Refinancing Indebtedness is Incurred. SECTION 4.04. Limitation on Restricted Payments. (a) The Company ---------------------------------- shall not, and shall not permit any Restricted Subsidiary, directly or indirectly, to make a Restricted Payment if at the time the Company or such Restricted Subsidiary makes such Restricted Payment: (1) a Default shall have occurred and be continuing (or would result therefrom); (2) the Company is not able to Incur an additional $1.00 of Indebtedness under Section 4.03(a); or (3) the aggregate amount of such Restricted Payment and all other Restricted Payments since the Issue Date would exceed the sum (without duplication) of: (A) 50% of the Consolidated Net Income accrued during the period (treated as one accounting period) from the beginning of the fiscal quarter immediately following the fiscal quarter during which the Securities are originally issued to the end of the most recent fiscal quarter for which internal financial statements are available on or prior to the date of such Restricted Payment (or, in case such Consolidated Net Income shall be a deficit, minus 100% of such deficit); (B) the aggregate Net Cash Proceeds received by the Company from the issuance or sale of, or capital contribution in respect of, its Capital Stock (other than Disqualified Stock) subsequent to the Issue Date (other than an issuance or sale 46 to a Subsidiary of the Company and other than an issuance or sale to an employee stock ownership plan or to a trust established by the Company or any of its Subsidiaries for the benefit of their employees to the extent that the purchase by such plan or trust is financed by Indebtedness of such plan or trust to the Company or any Subsidiary or Indebtedness Guaranteed by the Company or any Subsidiary); and the fair market value (as determined in good faith by resolution of the Board of Directors of the Company) of property (other than cash that would constitute Temporary Cash Equivalents or a Related Business) received by the Company or a Restricted Subsidiary subsequent to the Issue Date as a contribution to its common equity capital (other than from a Subsidiary or that was financed with loans from the Company or any Restricted Subsidiary); (C) the amount by which Indebtedness of the Company or any Restricted Subsidiary is reduced on the Company's consolidated balance sheet upon the conversion or exchange (other than by a Subsidiary of the Company) subsequent to the Issue Date of any Indebtedness of the Company or any Restricted Subsidiary convertible or exchangeable for Capital Stock (other than Disqualified Stock) of the Company (less the amount of any cash, or the fair value of any other property, distributed by the Company or any Restricted Subsidiary upon such conversion or exchange); and (D) an amount equal to the sum of (i) the net reduction in Investments in any Person resulting from dividends, repayments of loans or advances or other transfers of assets subsequent to the Issue Date, in each case to the Company or any Restricted Subsidiary from such Person, and (ii) the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of an Unrestricted Subsidiary at the time such Unrestricted Subsidiary is designated a Restricted Subsidiary; provided, however, -------- ------- that the foregoing sum shall not exceed, in the case of any Person, the amount of Investments previously made (and treated as a Restricted Payment) by the Company or any Restricted Subsidiary in such Person. 47 (b) The provisions of the foregoing paragraph (a) shall not prohibit: (1) any Restricted Payment made by exchange for, or out of the proceeds of the substantially concurrent sale of, or capital contribution in respect of, Capital Stock of the Company (other than Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary of the Company or an employee stock ownership plan or to a trust established by the Company or any of its Subsidiaries for the benefit of their employees to the extent that the purchase by such plan or trust is financed by Indebtedness of such plan or trust to the Company or any Subsidiary of the Company or Indebtedness Guaranteed by the Company or any Subsidiary of the Company); provided, however, that (A) such Restricted Payment shall be -------- ------- excluded in the calculation of the amount of Restricted Payments and (B) the Net Cash Proceeds from such sale shall be excluded from the calculation of amounts under clause (3)(B) of paragraph (a) above; (2) any purchase, repurchase, redemption, defeasance or other acquisition or retirement for value of Subordinated Obligations made by exchange for, or out of the proceeds of the substantially concurrent sale of, Indebtedness which is permitted to be Incurred pursuant to the covenant described under Section 4.03; provided, however, that such purchase, -------- ------- repurchase, redemption, defeasance or other acquisition or retirement for value shall be excluded in the calculation of the amount of Restricted Payments; (3) any purchase or redemption of Disqualified Stock of the Company or a Restricted Subsidiary made by exchange for, or out of the proceeds of the substantially concurrent sale of, Disqualified Stock of the Company or a Restricted Subsidiary which is permitted to be Incurred pursuant to the covenant described under Section 4.03; provided, however, that such -------- ------- purchase or redemption shall be excluded in the calculation of the amount of Restricted Payments; (4) any purchase or redemption of Subordinated Obligations from Net Available Cash to the extent permitted by Section 4.06; provided, however, -------- ------- that such purchase or redemption shall be excluded in the calculation of the amount of Restricted Payments; 48 (5) upon the occurrence of a Change of Control and within 60 days after the completion of the offer to repurchase the Securities pursuant to Section 4.08 herein (including the purchase of the Securities tendered), any purchase or redemption of Subordinated Obligations required pursuant to the terms thereof as a result of such Change of Control at a purchase or redemption price not to exceed the outstanding principal amount thereof, plus any accrued and unpaid interest; provided, however, that (A) at the -------- ------- time of such purchase or redemption no Default shall have occurred and be continuing (or would result therefrom), (B) the Company would be able to Incur an additional $1.00 of Indebtedness pursuant to paragraph (a) of the covenant described under Section 4.03 after giving pro forma effect to such Restricted Payment and (C) such purchase or redemption shall be included in the calculation of the amount of Restricted Payments; (6) dividends paid within 60 days after the date of declaration thereof if at such date of declaration such dividend would have complied with this covenant; provided, however, that such dividend shall be included -------- ------- in the calculation of the amount of Restricted Payments; (7) the repurchase or other acquisition of shares of, or options to purchase shares of, common stock of the Company or any of its Subsidiaries from employees, former employees, consultants, former consultants, directors or former directors of the Company or any of its Subsidiaries (or permitted transferees of such employees, former employees, consultants, former consultants, directors or former directors), pursuant to the terms of the agreements (including employment and consulting agreements) or plans (or amendments thereto) approved by the Board of Directors under which such individuals purchase or sell or are granted the option to purchase or sell, shares of such common stock; provided, however, that the aggregate amount -------- ------- of such repurchases shall not exceed the sum of (x) $5.0 million, (y) the Net Cash Proceeds from the sale of Capital Stock to members of management or directors of the Company and its Subsidiaries that occurs after the Issue Date (to the extent the Net Cash Proceeds from the sale of such Capital Stock have not otherwise been applied to the payment of Restricted Payments by virtue of clause (3)(B) of paragraph (a) above and (z) the cash proceeds of any "Key man" life insurance policies that are used to make such 49 repurchases); provided further, however, that (A) such repurchases shall -------- ------- ------- be excluded in the calculation of the amount of Restricted Payments and (B) the Net Cash Proceeds from such sale shall be excluded from the calculation of amounts under clause (3)(B) of paragraph (a) above; (8) payments required pursuant to the terms of the Recapitalization Agreement to consummate the Recapitalization pursuant to the terms of the Recapitalization Agreement; provided, however, that such payments shall be -------- ------- excluded in the calculation of the amount of Restricted Payments; (9) payments in respect of the Hyundai Earn-out pursuant to the terms of the Recapitalization Agreement as in effect on the Issue Date; provided, -------- however, that such payments shall be excluded in the calculation of the ------- amount of Restricted Payments; (10) payments of in-kind dividends when due on the Hyundai Preferred Stock pursuant to the terms of such Hyundai Preferred Stock as in effect on the Recapitalization Closing Date; provided, however, that such payments -------- ------- shall be excluded in the calculation of the amount of Restricted Payments; (11) payments of cash dividends when due on and after 5 /1/2/ years from the Recapitalization Closing Date on the Hyundai Preferred Stock pursuant to the terms of such Hyundai Preferred Stock as in effect on the Recapitalization Closing Date; provided, however, that such payments shall -------- ------- be included in the calculation of the amount of Restricted Payments; (12) repurchases of Capital Stock deemed to occur upon the exercise of stock options if such Capital Stock represents a portion of the exercise price thereof; provided, however, that such payments shall be excluded in -------- ------- the calculation of the amount of Restricted Payments; (13) payments not to exceed $200,000 in the aggregate solely to enable the Company to make payments to holders of its Capital Stock in lieu of the issuance of fractional shares of its Capital Stock; provided, however, that -------- ------- such payments shall be excluded in the calculation of the amount of Restricted Payments; 50 (14) Restricted Payments not to exceed $15.0 million payable on Capital Stock (including Disqualified Stock) issued to customers, clients, suppliers or purchasers or sellers of goods or services of the Company or a Restricted Subsidiary in connection with a strategic investment in the Company or a Restricted Subsidiary by such customers, clients, suppliers or purchasers or sellers of goods or services; provided, however, that such -------- ------- payments shall be included in the calculation of the amount of Restricted Payments; or (15) Restricted Payments not exceeding $15.0 million in the aggregate for any purchase, repurchase, redemption, defeasance or other acquisition or retirement for value of Subordinated Obligations, provided, however, -------- ------- that (A) at the time of such Restricted Payments, no Default shall have occurred and be continuing (or result therefrom) and (B) such Restricted Payments shall be included in the calculation of the amount of Restricted Payments; or (16) the distribution, as a dividend or otherwise, of shares of Capital Stock or assets of an Unrestricted Subsidiary provided that the fair market value (as determined in good faith by the Board of Directors of the Company) of such shares of Capital Stock or assets shall not exceed the amount of the Investments that were made (and not subsequently reduced pursuant to clause (3)(D) of paragraph (a) above) by the Company in such Unrestricted Subsidiary and were treated as Restricted Payments or were included in the calculation of the amount of Restricted Payments previously made; provided, however, that (A) such distributions shall be excluded in -------- ------- the calculation of the amount of Restricted Payments and (B) any net reduction in Investments in such Unrestricted Subsidiary resulting from such distribution shall be excluded from the calculation of amounts under clause (3)(D) of paragraph (a) above; (17) Restricted Payments not exceeding $7.5 million in the aggregate; provided, however, that (A) at the time of such Restricted Payments, no -------- ------- Default shall have occurred and be continuing (or result therefrom) and (B) such Restricted Payments shall be included in the calculation of the amount of Restricted Payments. 51 SECTION 4.05. Limitation on Restrictions on Distributions from ------------------------------------------------ Restricted Subsidiaries. The Company shall not, and shall not permit any - ------------------------ Restricted Subsidiary to, create or otherwise cause or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to (a) pay dividends or make any other distributions on its Capital Stock to the Company or a Restricted Subsidiary or pay any Indebtedness owed to the Company, (b) make any loans or advances to the Issuer or the Company or (c) transfer any of its property or assets to the Issuer or the Company, except: (1) any encumbrance or restriction pursuant to an agreement in effect at or entered into on the Issue Date (including the Indenture, the Securities and the Guaranties), or, in the case of the Credit Agreement, as in effect on the Recapitalization Closing Date; (2) any encumbrance or restriction with respect to a Restricted Subsidiary pursuant to an agreement relating to any Indebtedness Incurred by such Restricted Subsidiary on or prior to the date on which such Restricted Subsidiary was acquired by the Company (other than Indebtedness Incurred as consideration in, or to provide all or any portion of the funds or credit support utilized to consummate, the transaction or series of related transactions pursuant to which such Restricted Subsidiary became a Restricted Subsidiary or was acquired by the Company) and outstanding on such date; (3) any encumbrance or restriction pursuant to an agreement (A) evidencing Indebtedness Incurred without violation of the Indenture or (B) effecting a Refinancing of Indebtedness Incurred pursuant to an agreement referred to in clause (1) or (2) of this covenant or this clause (3) or contained in any amendment to an agreement referred to in clause (1) or (2) of this covenant or this clause (3); provided, -------- however, that in the case of clauses (A) and (B), the encumbrances and ------- restrictions with respect to such Restricted Subsidiary contained in any such refinancing agreement or amendment are, in the good faith judgment of the Board of Directors, no more restrictive in any material respect than the encumbrances and restrictions with respect to such Restricted Subsidiary contained in agreements of 52 such Restricted Subsidiary in effect at, or entered into on, the Issue Date or the Recapitalization Closing Date; (4) any such encumbrance or restriction consisting of customary non- assignment provisions in leases governing leasehold interests to the extent such provisions restrict the transfer of the lease or the property leased thereunder or in licenses entered into in the ordinary course of business to the extent such licenses restrict the transfer of the license or the property licensed thereunder; (5) in the case of clause (c) above, restrictions contained in security agreements or mortgages securing Indebtedness of a Restricted Subsidiary to the extent such restrictions restrict the transfer of the property subject to such security agreements or mortgages; (6) restrictions on the transfer of assets subject to any Lien permitted under the Indenture imposed by the holder of such Lien; (7) purchase money obligations for property acquired in the ordinary course of business that impose restrictions on the property so acquired of the nature described in clause (c) above; (8) provisions with respect to the disposition or distribution of assets or property in joint venture agreements and other similar agreements entered into in the ordinary course of business; (9) any restriction with respect to a Restricted Subsidiary imposed pursuant to an agreement entered into for the sale or disposition of all or substantially all the Capital Stock or assets of such Restricted Subsidiary pending the closing of such sale or disposition; (10) any restriction arising under applicable law, regulation or order; (11) any agreement or instrument governing Capital Stock (other than Disqualified Stock) of any Person that is in effect on the date such Person is acquired by the Company or a Restricted Subsidiary; 53 (12) any restriction on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business; and (13) any restriction in any agreement that is not more restrictive than the restrictions under the terms of the Credit Agreement as in effect on the Recapitalization Closing Date. SECTION 4.06. Limitation on Sales of Assets and Subsidiary Stock. --------------------------------------------------- (a) The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, consummate any Asset Disposition unless: (1) the Company or such Restricted Subsidiary receives consideration at the time of such Asset Disposition at least equal to the fair market value (including as to the value of all non-cash consideration), as determined in good faith by the Board of Directors, of the shares and assets subject to such Asset Disposition; (2) at least 75% of the consideration thereof received by the Company or such Restricted Subsidiary is in the form of cash or cash equivalents; and (3) an amount equal to 100% of the Net Available Cash from such Asset Disposition is applied by the Company or such Restricted Subsidiary, as the case may be, pursuant to one or more of the following: (A) to the extent the Company elects (or is required by the terms of any Indebtedness), to prepay, repay, redeem or purchase Senior Indebtedness of the Issuer or Indebtedness (other than any Disqualified Stock) of the Company or another Restricted Subsidiary of the Company (in each case other than Indebtedness owed to the Company or an Affiliate of the Company) within one year from the later of the closing date of such Asset Disposition and the receipt of such Net Available Cash; (B) to the extent the Company elects, to acquire Additional Assets within one year from (or enter into a binding commitment to acquire Additional Assets, provided that such commitment shall be subject only to customary conditions (other than financing) and such 54 acquisition shall be consummated within two years from) the later of the closing date of such Asset Disposition and the receipt of such Net Available Cash; and (C) to the extent the Company elects, or to the extent of the balance of such Net Available Cash after application in accordance with clauses (A) and (B), to make an offer to the holders of the Securities (and to holders of other Senior Subordinated Indebtedness of the Issuer designated by the Issuer) to purchase Securities (and such other Senior Subordinated Indebtedness) pursuant to and subject to the conditions contained in the Indenture; provided, however, that in connection with any prepayment, repayment or purchase - -------- ------- of Indebtedness pursuant to clause (A) or (C) above, the Company or such Restricted Subsidiary shall permanently retire such Indebtedness and, in the case of any revolving facility, shall cause the related loan commitment, if any, to be permanently reduced in an amount equal to the principal amount so prepaid, repaid or purchased. Notwithstanding the foregoing provisions of this paragraph, the Company and the Restricted Subsidiaries shall not be required to apply any Net Available Cash in accordance with this paragraph except to the extent that the aggregate Net Available Cash from all Asset Dispositions which are not applied in accordance with this paragraph exceeds $10.0 million. Pending application of Net Available Cash pursuant to this covenant, such Net Available Cash shall be invested in Permitted Investments or used to temporarily reduce loans outstanding under any revolving credit facility. For the purposes of this covenant, the following are deemed to be cash or cash equivalents: (x) the assumption of Indebtedness of the Company or any Restricted Subsidiary and the release of the Company or such Restricted Subsidiary from all liability on such Indebtedness in connection with such Asset Disposition, (y) securities, notes or other obligations received by the Company or any Restricted Subsidiary from the transferee that are promptly converted by the Company or such Restricted Subsidiary into cash and (z) any Additional Assets (so long as such Additional Assets were acquired for fair market value in connection with the transaction giving rise to such Asset Disposition, as determined in good faith by the Board of Directors of the Company of such Restricted Subsidiary, as 55 applicable), which Additional Assets shall be deemed to have been acquired pursuant to clause (A) of the preceding paragraph in connection with such Asset Disposition. (b) In the event of an Asset Disposition that requires the purchase of the Securities (and other Senior Subordinated Indebtedness) pursuant to clause (a)(3)(C) above, the Issuer will be required to purchase Securities tendered pursuant to an offer by the Issuer for the Securities (and other Senior Subordinated Indebtedness) at a purchase price of 100% of their principal amount (without premium) plus accrued but unpaid interest (or, in respect of such other Senior Subordinated Indebtedness, such lesser price, if any, as may be provided for by the terms of such Senior Subordinated Indebtedness) in accordance with the procedures (including prorating in the event of oversubscription) set forth in the Indenture. If the aggregate purchase price of the Securities (and any other Senior Subordinated Indebtedness) tendered exceeds the Net Available Cash allotted to the purchase thereof, the Issuer will select the Securities (and any other Senior Subordinated Indebtedness) to be purchased on a pro rata basis but in denominations of $1,000 or multiples thereof. The Issuer shall not be required to make such an offer to purchase Securities (and other Senior Subordinated Indebtedness) pursuant to this covenant if the Net Available Cash available therefor is less than $10.0 million (which lesser amount shall be carried forward for purposes of determining whether such an offer is required with respect to the Net Available Cash from any subsequent Asset Disposition). (c) (1) Promptly, and in any event within 10 days after the Issuer becomes obligated to make an Offer, the Issuer shall be obligated to deliver to the Trustee and send, by first-class mail to each Holder, a written notice stating that the Holder may elect to have his Securities purchased by the Issuer either in whole or in part (subject to prorating as hereinafter described in the event the Offer is oversubscribed) in integral multiples of $1,000 of principal amount, at the applicable purchase price. The notice shall specify a purchase date not less than 30 days nor more than 60 days after the date of such notice (the "Purchase Date") and shall contain such information concerning the business of the Issuer which the Issuer in good faith believes will enable such Holders to make an informed decision (which at a minimum will include (i) the most recently filed Annual Report on Form 10-K (including audited consolidated financial statements) of the Issuer, the most recent subsequently filed Quarterly Report on Form 56 10-Q and any Current Report on Form 8-K of the Issuer filed subsequent to such Quarterly Report, other than Current Reports describing Asset Dispositions otherwise described in the offering materials (or corresponding successor reports), (ii) a description of material developments in the Company's business subsequent to the date of the latest of such Reports, and (iii) if material, appropriate pro forma financial information) and all instructions and materials necessary to tender Securities pursuant to the Offer, together with the information contained in clause (3). (2) Not later than the date upon which written notice of an Offer is delivered to the Trustee as provided below, the Issuer shall deliver to the Trustee an Officers' Certificate as to (i) the amount of the Offer (the "Offer Amount"), (ii) the allocation of the Net Available Cash from the Asset Dispositions pursuant to which such Offer is being made and (iii) the compliance of such allocation with the provisions of Section 4.06(a). On such date, the Issuer shall also irrevocably deposit with the Trustee or with a paying agent (or, if the Issuer is acting as its own paying agent, segregate and hold in trust) in Temporary Cash Investments, maturing on the last day prior to the Purchase Date or on the Purchase Date if funds are immediately available by open of business, an amount equal to the Offer Amount to be held for payment in accordance with the provisions of this Section. Upon the expiration of the period for which the Offer remains open (the "Offer Period"), the Issuer shall deliver to the Trustee for cancellation the Securities or portions thereof which have been properly tendered to and are to be accepted by the Issuer. The Trustee shall, on the Purchase Date, mail or deliver payment to each tendering Holder in the amount of the purchase price. In the event that the aggregate purchase price of the Securities delivered by the Issuer to the Trustee is less than the Offer Amount applicable to the Securities, the Trustee shall deliver the excess to the Issuer immediately after the expiration of the Offer Period for application in accordance with this Section. (3) Holders electing to have a Security purchased shall be required to surrender the Security, with an appropriate form duly completed, to the Issuer at the address specified in the notice at least three Business Days prior to the Purchase Date. Holders shall be entitled to withdraw their election if the Trustee or the Issuer receives not later than one Business Day prior to the Purchase Date, a telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Security which was delivered for purchase by the Holder and a 57 statement that such Holder is withdrawing his election to have such Security purchased. If at the expiration of the Offer Period the aggregate principal amount of Securities (and any other Senior Subordinated Indebtedness included in the Offer) surrendered by holders thereof exceeds the Offer Amount, the Issuer shall select the Securities other Senior Subordinated Indebtedness to be purchased on a pro rata basis (with such adjustments as may be deemed appropriate by the Issuer so that only Securities and the other Senior Subordinated Indebtedness in denominations of $1,000, or integral multiples thereof, shall be purchased). Holders whose Securities are purchased only in part shall be issued new Securities equal in principal amount to the unpurchased portion of the Securities surrendered. (4) At the time the Issuer delivers Securities to the Trustee which are to be accepted for purchase, the Issuer shall also deliver an Officers' Certificate stating that such Securities are to be accepted by the Issuer pursuant to and in accordance with the terms of this Section. A Security shall be deemed to have been accepted for purchase at the time the Trustee, directly or through an agent, mails or delivers payment therefor to the surrendering Holder. (d) The Issuer shall comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Securities pursuant to this covenant. To the extent that the provisions of any securities laws or regulations conflict with provisions of this covenant, the Issuer shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this covenant by virtue thereof. SECTION 4.07. Limitation on Affiliate Transactions. (a) The Company ------------------------------------- shall not, and shall not permit any Restricted Subsidiary to, enter into or permit to exist any transaction (including the purchase, sale, lease or exchange of any property, employee compensation arrangements or the rendering of any service) with any Affiliate of the Company involving aggregate consideration in excess of $2.5 million (an "Affiliate Transaction") unless the terms thereof: (1) are no less favorable to the Company or such Restricted Subsidiary than those that could be obtained at the time of such transaction in arm's- 58 length dealings with a Person who is not such an Affiliate; (2) have been approved by a majority of the disinterested members of the Board of Directors; and (3) if such Affiliate Transaction involves an amount in excess of $10.0 million, have been determined by (A) a nationally recognized investment banking firm to be fair, from a financial standpoint, to the Company and its Restricted Subsidiaries or (B) an accounting or appraisal firm nationally recognized in making such determinations to be on terms that are not less favorable to the Company and its Restricted Subsidiaries than the terms that could be obtained in an arms-length transaction from a Person that is not an Affiliate of the Company. (b) The provisions of the foregoing paragraph (a) shall not prohibit: (1) any Restricted Payment permitted to be paid pursuant to Section 4.04; (2) any issuance of securities, or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment arrangements, stock options and stock ownership plans approved by the Board of Directors; (3) the grant of stock options or similar rights to employees and directors of the Company or its Restricted Subsidiaries pursuant to plans approved by the Board of Directors; (4) loans or advances to employees, directors, officers or consultants (A) in the ordinary course of business or (B) otherwise in an aggregate amount not to exceed $5.0 million in the aggregate outstanding at any one time; (5) reasonable fees, compensation or employee benefit arrangements to and indemnity provided for the benefit of employees, directors, officers or consultants of the Company or any Subsidiary in the ordinary course of business; 59 (6) any transaction exclusively between or among the Company and its Restricted Subsidiaries or between or among Restricted Subsidiaries; provided, however, that such transactions are not otherwise prohibited -------- ------- by the Indenture; (7) the payment of management, consulting and advisory fees and related expenses made pursuant to the Advisory Agreements as in effect on the Recapitalization Closing Date and the payment of other customary management, consulting and advisory fees and related expenses to the Principals and their Affiliates made pursuant to any financial advisory, financing, underwriting or placement agreement or in respect of other investment banking activities, including, without limitation, in connection with acquisitions or divestitures which fees and expenses are made pursuant to arrangements approved by the Board of Directors of the Company or such Restricted Subsidiary in good faith; (8) pursuant to written agreements in effect on the Recapitalization Closing Date and as amended, renewed or extended from time to time; provided, however, that any such amendment, renewal or extension shall -------- ------- not contain terms which are materially less favorable to the Company and its Restricted Subsidiaries than those in the agreements in effect on the Recapitalization Closing Date; (9) any agreement with the Company or any Restricted Subsidiary as in effect as of the Recapitalization Closing Date or any amendment or replacement thereto or any transaction contemplated thereby (including pursuant to any amendment or replacement thereto) so long as any such amendment or replacement agreement is not more disadvantageous to the Company or such Restricted Subsidiary in any material respect than the original agreement as in effect on the Recapitalization Closing Date; (10) the existence of, or the performance by the Company or any of its Restricted Subsidiaries of its obligations under the terms of, the Shareholders Agreement and any similar agreements which it may enter into thereafter; provided, -------- 60 however, that the existence of, or the performance by the Company or ------- any of its Restricted Subsidiaries of obligations under, any future amendment to any such existing agreement or under any similar agreement entered into after the Recapitalization Closing Date shall only be permitted by this clause (10) to the extent that the terms of any such amendment or new agreement are not disadvantageous to the Company or any such Restricted Subsidiary in any material respect; (11) transactions with customers, clients, suppliers, joint venture partners or purchasers or sellers of goods or services, in each case in the ordinary course of business (including, without limitation, pursuant to joint venture agreements) and otherwise in compliance with the terms of the applicable Indenture which are fair to the Company and its Restricted Subsidiaries, in the reasonable determination of the Board of Directors of the Company or the senior management thereof, or are on terms at least as favorable as might reasonably have been obtained at such time from an unaffiliated party; and (12) the issuance or sale of any Capital Stock (other than Disqualified Stock) of the Company. SECTION 4.08. Change of Control. (a) Upon the occurrence of a ------------------ Change of Control, each Holder shall have the right to require that the Issuer repurchase such Holder's Securities at a purchase price in cash equal to 101% of the principal amount thereof plus any accrued and unpaid interest to the date of purchase (subject to the right of holders of record on the relevant record date to receive interest on the relevant interest payment date), in accordance with the terms contemplated in Section 4.08(b). In the event that at the time of such Change of Control the terms of the Senior Indebtedness of the Issuer restrict or prohibit the repurchase of Securities pursuant to this Section, then prior to the mailing of the notice to Holders provided for in Section 4.08(b) below but in any event within 30 days following any Change of Control, the Issuer shall (i) repay in full all such Senior Indebtedness or offer to repay in full all such Senior Indebtedness and repay such Senior Indebtedness of each lender who has accepted such offer or (ii) obtain the requisite consent under the agreements governing such Senior Indebtedness to permit the repurchase of the Securities as provided for in Section 4.08(b). 61 (b) Within 30 days following any Change of Control, the Issuer shall mail a notice to each Holder with a copy to the Trustee (the "Change of Control Offer") stating: (1) that a Change of Control has occurred and that such Holder has the right to require the Issuer to purchase such Holder's Securities at a purchase price in cash equal to 101% of the principal amount thereof plus any accrued and unpaid interest to the date of purchase (subject to the right of Holders of record on the relevant record date to receive interest on the relevant interest payment date); (2) the circumstances and relevant facts regarding such Change of Control; (3) the repurchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed); and (4) the instructions determined by the Issuer, consistent with this Section, that a Holder must follow in order to have its Securities purchased. (c) Holders electing to have a Security purchased will be required to surrender the Security, with an appropriate form duly completed, to the Issuer at the address specified in the notice at least three Business Days prior to the purchase date. Holders will be entitled to withdraw their election if the Trustee or the Issuer receives not later than one Business Day prior to the purchase date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Security which was delivered for purchase by the Holder and a statement that such Holder is withdrawing his election to have such Security purchased. (d) On the purchase date, all Securities purchased by the Issuer under this Section shall be delivered by the Trustee for cancellation, and the Issuer shall pay the purchase price plus accrued and unpaid interest, if any, to the Holders entitled thereto. (e) Notwithstanding the foregoing provisions of this Section, the Issuer will not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in Section applicable to a Change of Control Offer 62 made by the Company and purchases all Securities validly tendered and not withdrawn under such Change of Control Offer. (f) The Issuer shall comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Securities pursuant to this Section. To the extent that the provisions of any securities laws or regulations conflict with provisions of this Section, the Issuer shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this Section by virtue thereof. SECTION 4.09. Limitation on Assets of Non-Subsidiary Guarantors. The -------------------------------------------------- Company shall not permit its Restricted Subsidiaries that are not Subsidiary Guarantors, excluding ChipPAC Assembly and Test (Shanghai) Company, Ltd. and ChipPAC (Shanghai) Company Ltd. or any successors thereto, to collectively hold at any one time more than 33 1/3% of the consolidated assets of the Company and its Restricted Subsidiaries. SECTION 4.10. Limitation on Sale of the Capital Stock of the Issuer. ------------------------------------------------------ For so long as any of the Securities are outstanding, the Issuer will continue to be, directly or indirectly, a Wholly Owned Subsidiary of the Company. SECTION 4.11. Future Guarantors. In the event that, after the Issue ------------------ Date, the Company forms or otherwise acquires, directly or indirectly, any Restricted Subsidiary, the Company shall cause such Restricted Subsidiary to Guarantee the Notes pursuant to a Subsidiary Guaranty on the terms and conditions set forth in the Indenture and the Subsidiary Guaranty Agreement; provided, however, in the event the Company or a Restricted Subsidiary forms or - -------- ------- otherwise acquires, directly or indirectly, a Restricted Subsidiary organized under the laws of a jurisdiction other than the United States and such jurisdiction prohibits by law, regulation or order such Restricted Subsidiary from providing a Guarantee, the Company shall use all commercially reasonable efforts (including pursuing required waivers) over a period up to one year, to provide such Guarantee; provided further, however, that the Company shall not be -------- ------- ------- required to use such commercially reasonable efforts with respect to such subsidiaries for more than a one-year period or such shorter period as the Company shall determine in good faith that it has used all commercially reasonable efforts. If the Company or such Restricted Subsidiary is 63 unable during such period to obtain an enforceable Guarantee in such jurisdiction, then such Restricted Subsidiary shall not be required to provide a Guarantee of the Securities pursuant to the Subsidiary Guaranty so long as such Restricted Subsidiary does not Guarantee any other Indebtedness of the Company and its Restricted Subsidiaries. SECTION 4.12. Withholding Taxes. All payments made under or with ------------------ respect to the Securities or under or with respect to the Company Guaranty must be made free and clear of and without withholding or deduction for or on account of any present or future tax, duty, levy, impost, assessment or other governmental charge of whatever nature (including penalties, interest and other liabilities related thereto) imposed or levied by or on behalf of any jurisdiction from or through which payment is made or in which the payor is organized, resident or engaged in business for tax purposes or any province or territory thereof or by any taxing authority therein (hereinafter "Taxes"), unless the Issuer or the Company is required to withhold or deduct such Taxes by law or by the interpretation or administration thereof. If the Issuer or the Company is so required to withhold or deduct any amount for or on account of Taxes from any payment made under or with respect to the Securities or under or with respect to the Company Guaranty, the Issuer or the Company, as the case may be, will pay such additional amounts ("Additional Amounts") as may be necessary so that the net amount received by each Holder after such withholding or deduction (including any withholding or deduction with respect to Additional Amounts) will not be less than the amount the Holder would have received if such Taxes had not been withheld or deducted; provided, however, that no Additional Amounts will be payable with respect to payments made to a Holder (an "Excluded Holder") to the extent such Holder is subject to such Taxes by reason of its being connected with the British Virgin Islands or any province or territory thereof otherwise than by the mere holding of the Securities or the receipt of payments thereunder or the enforcement of its rights and obligations under the Securities or the Company Guaranty. The Issuer and the Company will make such withholding or deduction and remit the full amount deducted or withheld to the relevant authority as and when required in accordance with applicable law. The Issuer or the Company will furnish to the Holder, within 30 days after the payment of any Taxes, certified copies of tax receipts evidencing such payment by the Issuer or the Company. The Issuer will upon written request of each Holder (other than an Excluded Holder), reimburse each such Holder for the amount of (i) any Taxes (including penalties, interest and 64 expenses arising therefrom or with respect thereto) imposed or levied and paid by such Holder as a result of payments made under or with respect to the Securities or under or with respect to the Company Guaranty and (ii) any Taxes so levied or imposed and paid by such Holder with respect to any reimbursement under the foregoing clause (i), but excluding any such Taxes on such Holder's net income, so that the net amount received by such Holder after such reimbursement will not be less than the net amount the Holder would have received if Taxes (other than such Taxes on such Holder's net income) on such reimbursement had not been imposed. At least 30 days prior to each date on which payment under or with respect to the Securities or the Company Guaranty is due and payable (unless such obligation to pay Additional Amounts arises shortly before or after the 30th day prior to such date, in which case promptly thereafter), if the Issuer or the Company is obligated to pay Additional Amounts with respect to such payment, the Issuer or the Company will deliver to the Trustee an Officers' Certificate stating the fact that such Additional Amounts will be payable and the amounts so payable and setting forth such other information as necessary to enable the Trustee to pay such Additional Amounts to Holders of the Securities on the payment date. The Issuer or the Company will pay any present or future stamp, court or documentary taxes or any other excise or property taxes, charges or similar levies that arise in any jurisdiction from the execution, delivery, enforcement or registration of the Securities or the Company Guaranty, the Indenture or any other document or instrument in relation thereof, or the receipt of any payments with respect to the Securities or the Company Guaranty, excluding such taxes, charges or similar levies imposed by any jurisdiction other than (i) the British Virgin Islands, (ii) any other jurisdiction in which any of the Issuer or the Company is organized, resident or engaged in business for tax purposes, (iii) any jurisdiction in which any successor to the Issuer or the Company is organized, resident or engaged in business for tax purposes or (iv) any jurisdiction in which a paying agent is located. In addition, the Issuer and the Company will agree to indemnify the Holders (on an after-tax basis) for any such taxes paid by such Holders. The obligations described under this heading shall survive any termination, defeasance or discharge of the Indenture. 65 SECTION 4.13. Compliance Certificate. The Company shall deliver to ----------------------- the Trustee within 120 days after the end of each fiscal year of the Company an Officers' Certificate stating that in the course of the performance by the signers of their duties as Officers of the Company they would normally have knowledge of any Default and whether or not the signers know of any Default that occurred during such period. If they do, the certificate shall describe the Default, its status and what action the Company is taking or proposes to take with respect thereto. The Company also shall comply with TIA (S) 314(a)(4). SECTION 4.14. Further Instruments and Acts. Upon request of the ----------------------------- Trustee, the Company will execute and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the purpose of this Indenture. ARTICLE 5 Successor Company ----------------- SECTION 5.01. When Company, Issuer, and Subsidiary Guarantors May --------------------------------------------------- Merge or Transfer Assets. (a) Neither the Issuer nor the Company shall - ------------------------- consolidate with or merge with or into, or convey, transfer or lease, in one transaction or a series of related transactions, all or substantially all its assets to, any Person, unless: (1) the resulting, surviving or transferee Person (the "Successor Company") shall be a Person organized and existing under the laws of the British Virgin Islands or the United States of America, any State thereof or the District of Columbia and the Successor Company (if not the Company or the Issuer) shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of the Issuer or Company, as applicable, under the Indenture and the Company Guaranty or the Securities, as applicable; (2) immediately after giving effect to such transaction (and treating any Indebtedness which becomes an obligation of the Successor Company or any Subsidiary as a result of such transaction as having been Incurred by such Successor Company or such Subsidiary at the time of such transaction), no Default shall have occurred and be continuing; 66 (3) immediately after giving effect to such transaction, (A) the Successor Company would be able to Incur an additional $1.00 of Indebtedness pursuant to Section 4.03(a) or (B) the Consolidated Coverage Ratio for the Successor Company and its Restricted Subsidiaries would be greater than such ratio for the Company and its Restricted Subsidiaries immediately prior to such transaction; (4) the Issuer or Company, as applicable, shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and any supplemental indenture comply with this Indenture; (5) In the event that the merging corporation (i.e., the Company or the Issuer, as applicable) is organized and existing under the laws of the British Virgin Islands and the Successor Company is organized and existing under the laws of the United States of America, any State thereof or the District of Columbia or in the event that the merging corporation is organized and existing under the laws of the United States of America, any State thereof or the District of Columbia and the Successor Company is organized and existing under the laws of the British Virgin Islands (any of the foregoing events are referred to herein as a "Foreign Jurisdiction Merger"), the Issuer or the Company, as applicable, shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders will not recognize income, gain or loss for U.S. Federal income tax purposes as a result of such transaction and will be subject to U.S. Federal income tax on the same amounts and at the same times as would have been the case if such transactions had not occurred; and (6) In the event of a Foreign Jurisdiction Merger, the Issuer or the Company, as applicable, shall have delivered to the Trustee an Opinion of Counsel in the British Virgin Islands (or other applicable jurisdiction) to the effect that (A) any payment of interest or principal under or with respect to the Notes or the Guaranties will, after the consolidation, merger, conveyance, transfer or lease of assets, be exempt from the Taxes described under Section 4.12, and prepared by the Issuer and (B) no other taxes on income (including capital gains) will be payable under the laws of the British Virgin Islands or any other jurisdiction where the Successor Company is or becomes 67 organized, resident or engaged in business for tax purposes in respect of the acquisition, ownership or disposition of the Notes, including the receipt of interest or principal thereon, provided that such Holder does not use or hold, and is not deemed to use or hold the Notes in carrying on a business in the British Virgin Islands or other jurisdiction where the Successor Company is or becomes organized, resident or engaged in business for tax purposes. provided, however, that clause (3) above shall not apply (X) if, in the good - -------- ------- faith determination of the Board of Directors, whose determination shall be evidenced by a resolution of the Board of Directors, the principal purpose and effect of such transaction is to change the jurisdiction of incorporation of the Issuer or the Company or (y) in the case of a merger of the Issuer or the Company with or into a Wholly Owned Subsidiary of the Company. In addition, notwithstanding clauses (2)-(6) above, the Issuer may merge into ChipPAC Operating Limited and the Company may merge into ChipPAC, Inc, in each case on the Recapitalization Closing Date. The Successor Company shall be the successor to the Company or the Issuer, as the case may be, and shall succeed to, and be substituted for, and may exercise every right and power of, the Issuer or the Company under the Indenture, and the predecessor Issuer or Company, except in the case of a lease, shall be automatically released from its obligations under the Company Guaranty, the Securities and this Indenture. (b) The Company will not permit any Subsidiary Guarantor to consolidate with or merge with or into, or convey, transfer or lease, in one transaction or a series of transactions, all or substantially all of its assets to any Person unless: (1) the resulting, surviving or transferee Person (if not such Subsidiary) shall be a Person organized and existing under the laws of the jurisdiction under which such Subsidiary was organized or under the laws of the United States of America, or any State thereof or the District of Columbia, and such Person shall expressly assume, by executing a supplemental indenture or Guaranty Agreement, as applicable, all the obligations of such Subsidiary under the Indenture or its Subsidiary Guaranty and under the Securities and this Indenture; 68 (2) immediately after giving effect to such trans action or transactions on a pro forma basis (and treating any Indebtedness which becomes an obligation of the resulting, surviving or transferee Person as a result of such transaction as having been issued by such Person at the time of such transaction), no Default shall have occurred and be continuing; and (3) the Company delivers to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such supplemental indenture or Guaranty Agreement, if any, complies with this Indenture. The provisions of clauses (1) and (2) above shall not apply to any one or more transactions involving a Subsidiary Guarantor which constitute an Asset Disposition if the Company has complied with the applicable provisions of Section 4.06. ARTICLE 6 Defaults and Remedies --------------------- SECTION 6.01. Events of Default. An "Event of Default" occurs if: ------------------ (1) the Issuer defaults in any payment of interest or any Additional Amounts on any Security when the same becomes due and payable, whether or not such payment shall be prohibited by Article 10, and such default continues for a period of 30 days; (2) the Issuer (i) defaults in the payment of the principal of any Security when the same becomes due and payable at its Stated Maturity, upon redemption, upon declaration or otherwise, whether or not such payment shall be prohibited by Article 10 or (ii) fails to redeem or purchase Securities when required pursuant to this Indenture or the Securities, whether or not such redemption or purchase shall be prohibited by Article 10; (3) the Company, the Issuer or any Subsidiary Guarantor fails to comply with Section 5.01; (4) the Company or any Restricted Subsidiary fails to comply with Section 4.02, 4.03, 4.04, 4.05, 4.06, 4.07, 4.08, 4.09, 4.10 or 4.11 (other than a failure to 69 purchase Securities when required under Section 4.06 or 4.08) and such failure continues for 30 days after the notice specified below; (5) the Company or any Restricted Subsidiary fails to comply with any of its agreements in the Securities or this Indenture (other than those referred to in clause (1), (2), (3) or (4) above) and such failure continues for 60 days after the notice specified below; (6) Indebtedness of the Company, the Issuer or any Significant Subsidiary is not paid within any applicable grace period after final maturity or is accelerated by the holders thereof because of a default and the total amount of such Indebtedness unpaid or accelerated exceeds $10.0 million, or its foreign currency equivalent at the time; (7) the Company, the Issuer or any Significant Subsidiary pursuant to or within the meaning of any Bankruptcy Law: (A) commences a voluntary case; (B) consents to the entry of an order for relief against it in an involuntary case; (C) consents to the appointment of a Custodian of it or for any substantial part of its property; or (D) makes a general assignment for the benefit of its creditors; or takes any comparable action under any foreign laws relating to insolvency; (8) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (A) is for relief against the Company, the Issuer or any Significant Subsidiary in an involuntary case; (B) appoints a Custodian of the Company, the Issuer or any Significant Subsidiary or for any substantial part of its property; or 70 (C) orders the winding up or liquidation of the Company, the Issuer or any Significant Subsidiary; or any similar relief is granted under any foreign laws and the order or decree remains unstayed and in effect for 60 days; (9) any judgment or decree for the payment of money in excess of $10.0 million or its foreign currency equivalent at the time is entered against the Company or any Significant Subsidiary, remains outstanding for a period of 60 days following the entry of such judgment or decree and is not discharged, waived or the execution thereof stayed within 10 days after the notice specified below; or (10) the Company Guaranty or any Subsidiary Guaranty of a Significant Subsidiary ceases to be in full force and effect (other than in accordance with the terms of the Company Guaranty or such Subsidiary Guaranty) or any Significant Subsidiary that is a Subsidiary Guarantor denies or disaffirms its obligations under its Subsidiary Guaranty. The foregoing will constitute Events of Default whatever the reason for any such Event of Default and whether it is voluntary or involuntary or is effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body. The term "Bankruptcy Law" means Title 11, United States Code, or any ------------------ similar Federal, state or foreign law for the relief of debtors. The term "Custodian" means any receiver, trustee, assignee, liquidator, custodian or similar official under any Bankruptcy Law. A Default under clauses (4), (5), or (9) is not an Event of Default until the Trustee or the holders of at least 25% in principal amount of the outstanding Securities notify the Issuer and the Company of the Default and the Issuer or the Company does not cure such Default within the time specified after receipt of such notice. Such notice must specify the Default, demand that it be remedied and state that such notice is a "Notice of Default". The Issuer or the Company shall deliver to the Trustee, within 30 days after the occurrence thereof, written notice in the form of an Officers' Certificate of 71 any Event of Default under clause (6) or (10) and any event which with the giving of notice or the lapse of time would become an Event of Default under clause (4), (5) or (9), its status and what action the Company is taking or proposes to take with respect thereto. SECTION 6.02. Acceleration. If an Event of Default (other than an ------------- Event of Default specified in Section 6.01(7) or (8) with respect to the Company or the Issuer) occurs and is continuing, the Trustee by notice to the Company or the Issuer, or the Holders of at least 25% in principal amount of the Securities by notice to the Company or the Issuer and the Trustee, may declare the principal of and accrued but unpaid interest on all the Securities to be due and payable. Upon such a declaration, such principal and interest shall be due and payable immediately. If an Event of Default specified in Section 6.01(7) or (8) with respect to the Company or the Issuer occurs, the principal of and interest on all the Securities shall ipso facto become and be immediately due and payable ---- ----- without any declaration or other act on the part of the Trustee or any Securityholders. The Holders of a majority in principal amount of the Securities by notice to the Trustee may rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default have been cured or waived except nonpayment of principal or interest that has become due solely because of acceleration. No such rescission shall affect any subsequent Default or impair any right consequent thereto. SECTION 6.03. Other Remedies. If an Event of Default occurs and is --------------- continuing, the Trustee may pursue any available remedy to collect the payment of principal of or interest on the Securities or to enforce the performance of any provision of the Securities or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Securityholder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative. SECTION 6.04. Waiver of Past Defaults. The Holders of a majority in ------------------------ principal amount of the Securities by notice to the Trustee may waive an existing Default and its consequences except (i) a Default in the payment of the 72 principal of or interest on a Security (ii) a Default arising from the failure to redeem or purchase any Security when required pursuant to this Indenture or (iii) a Default in respect of a provision that under Section 9.02 cannot be amended without the consent of each Securityholder affected. When a Default is waived, it is deemed cured, but no such waiver shall extend to any subsequent or other Default or impair any consequent right. SECTION 6.05. Control by Majority. The Holders of a majority in -------------------- principal amount of the Securities may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture or, subject to Section 7.01, that the Trustee determines is unduly prejudicial to the rights of other Securityholders or would involve the Trustee in personal liability; provided, however, that the Trustee may take any other action deemed -------- ------- proper by the Trustee that is not inconsistent with such direction. Prior to taking any action hereunder, the Trustee shall be entitled to indemnification reasonably satisfactory to it in its sole discretion against all losses and expenses caused by taking or not taking such action. SECTION 6.06. Limitation on Suits. Except to enforce the right to -------------------- receive payment of principal, premium (if any) or interest when due, no Securityholder may pursue any remedy with respect to this Indenture or the Securities unless: (1) the Holder gives to the Trustee written notice stating that an Event of Default is continuing; (2) the Holders of at least 25% in principal amount of the Securities make a written request to the Trustee to pursue the remedy; (3) such Holder or Holders offer to the Trustee reasonable security or indemnity against any loss, liability or expense; (4) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of security or indemnity; and (5) the Holders of a majority in principal amount of the Securities do not give the Trustee a direction 73 inconsistent with the request during such 60-day period. A Securityholder may not use this Indenture to prejudice the rights of another Securityholder or to obtain a preference or priority over another Securityholder. SECTION 6.07. Rights of Holders to Receive Payment. Notwithstanding ------------------------------------ any other provision of this Indenture, the right of any Holder to receive payment of principal of and interest on the Securities held by such Holder, on or after the respective due dates expressed in the Securities, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder. SECTION 6.08. Collection Suit by Trustee. If an Event of Default -------------------------- specified in Section 6.01(1) or (2) occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Issuer for the whole amount then due and owing (together with interest on any unpaid interest to the extent lawful) and the amounts provided for in Section 7.07. SECTION 6.09. Trustee May File Proofs of Claim. The Trustee may file -------------------------------- such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee and the Securityholders allowed in any judicial proceedings relative to the Issuer, its creditors or its property and, unless prohibited by law or applicable regulations, may vote on behalf of the Holders in any election of a trustee in bankruptcy or other Person performing similar functions, and any Custodian in any such judicial proceeding is hereby authorized by each Holder to make payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and its counsel, and any other amounts due the Trustee under Section 7.07. SECTION 6.10. Priorities. If the Trustee collects any money or ---------- property pursuant to this Article 6, it shall pay out the money or property in the following order: FIRST: to the Trustee for amounts due under Section 7.07; 74 SECOND: to holders of Senior Indebtedness of the Issuer to the extent required by Article 10; THIRD: to Securityholders for amounts due and unpaid on the Securities for principal and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for principal and interest, respectively; and FOURTH: to the Issuer. The Trustee may fix a record date and payment date for any payment to Securityholders pursuant to this Section. At least 15 days before such record date, the Issuer shall mail to each Securityholder and the Trustee a notice that states the record date, the payment date and amount to be paid. SECTION 6.11. Undertaking for Costs. In any suit for the enforcement --------------------- of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07 or a suit by Holders of more than 10% in principal amount of the Securities. SECTION 6.12. Waiver of Stay or Extension Laws. The Issuer (to the -------------------------------- extent it may lawfully do so) shall not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Issuer (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and shall not hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law had been enacted. 75 ARTICLE 7 Trustee ------- SECTION 7.01. Duties of Trustee. (a) If an Event of Default has ----------------- occurred and is continuing, the Trustee shall exercise the rights and powers vested in it by this Indenture and use the same degree of care and skill in their exercise as a prudent Person would exercise or use under the circumstances in the conduct of such Person's own affairs. (b) Except during the continuance of an Event of Default: (1) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own wilful misconduct, except that: (1) this paragraph does not limit the effect of paragraph (b) of this Section; (2) the Trustee shall not be liable for any error of judgement made in good faith by a Trust Officer unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (3) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05. (d) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b) and (c) of this Section. 76 (e) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Issuer. (f) Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. (g) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers, if it shall have reasonable grounds to believe that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (h) Every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section and to the provisions of the TIA. SECTION 7.02. Rights of Trustee. (a) The Trustee may rely on any ----------------- document believed by it to be genuine and to have been signed or presented by the proper per son. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on the Officers' Certificate or Opinion of Counsel. (c) The Trustee may act through agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers; provided, however, that the Trustee's conduct does not constitute wilful -------- ------- misconduct or negligence. (e) The Trustee may consult with counsel, and the advice or opinion of counsel with respect to legal matters relating to this Indenture and the Securities shall be full and complete authorization and protection from liability in respect to any action taken, omitted or suffered by it here under in good faith and in accordance with the advice or opinion of such counsel. 77 SECTION 7.03. Individual Rights of Trustee. The Trustee in its ---------------------------- individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Issuer or its Affiliates with the same rights it would have if it were not Trustee. Any Paying Agent, Registrar, co-registrar or co-paying agent may do the same with like rights. However, the Trustee must comply with Sections 7.10 and 7.11. SECTION 7.04. Trustee's Disclaimer. The Trustee shall not be -------------------- responsible for and makes no representation as to the validity or adequacy of this Indenture or the Securities, it shall not be accountable for the Issuer's use of the proceeds from the Securities, and it shall not be responsible for any statement of the Issuer or the Company in the Indenture or in any document issued in connection with the sale of the Securities or in the Securities other than the Trustee's certificate of authentication. SECTION 7.05. Notice of Defaults. If a Default occurs and is ------------------ continuing and if it is known to the Trustee, the Trustee shall mail to each Securityholder notice of the Default within 90 days after it occurs. Except in the case of a Default in payment of principal of or interest on any Security (including payments pursuant to the mandatory redemption provisions of such Security, if any), the Trustee may withhold the notice if and so long as a committee of its Trust Officers in good faith determines that withholding the notice is in the interests of Securityholders. SECTION 7.06. Reports by Trustee to Holders. As promptly as ----------------------------- practicable after each May 15 beginning with the May 15 following the date of this Indenture, and in any event prior to May 15 in each year, the Trustee shall mail to each Securityholder a brief report dated as May 15 that complies with TIA (S) 313(a). The Trustee also shall comply with TIA (S) 313(b). A copy of each report at the time of its mailing to Securityholders shall be filed with the SEC and each stock exchange (if any) on which the Securities are listed. The Issuer agrees to notify promptly the Trustee whenever the Securities become listed on any stock exchange and of any delisting thereof. SECTION 7.07. Compensation and Indemnity. The Issuer shall pay to -------------------------- the Trustee from time to time reasonable compensation for its services. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Issuer shall reimburse the Trustee 78 upon request for all reasonable out-of-pocket expenses incurred or made by it, including costs of collection, in addition to the compensation for its services. Such expenses shall include the reasonable compensation and expenses, disbursements and advances of the Trustee's agents, counsel, accountants and experts. The Issuer shall indemnify the Trustee against any and all loss, liability or expense (including attorneys' fees) incurred by it in connection with the administration of this trust and the performance of its duties hereunder. The Trustee shall notify the Issuer promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Issuer shall not relieve the Issuer of its obligations hereunder. The Issuer shall defend the claim and the Trustee may have separate counsel and the Issuer shall pay the fees and expenses of such counsel. The Issuer need not reimburse any expense or indemnify against any loss, liability or expense incurred by the Trustee through the Trustee's own wilful misconduct, negligence or bad faith. To secure the Issuer's payment obligations in this Section, the Trustee shall have a lien prior to the Securities on all money or property held or collected by the Trustee other than money or property held in trust to pay principal of and interest on particular Securities. The Issuer's payment obligations pursuant to this Section shall survive the discharge of this Indenture. When the Trustee incurs expenses after the occurrence of a Default specified in Section 6.01(7) or (8) with respect to the Issuer, the expenses are intended to constitute expenses of administration under the Bankruptcy Law. SECTION 7.08. Replacement of Trustee. The Trustee may resign at any ---------------------- time by so notifying the Issuer. The Holders of a majority in principal amount of the Securities may remove the Trustee by so notifying the Trustee and may appoint a successor Trustee. The Issuer shall remove the Trustee if: (1) the Trustee fails to comply with Section 7.10; (2) the Trustee is adjudged bankrupt or insolvent; (3) a receiver or other public officer takes charge of the Trustee or its property; or (4) the Trustee otherwise becomes incapable of acting. 79 If the Trustee resigns, is removed by the Issuer or by the Holders of a majority in principal amount of the Securities and such Holders do not reasonably promptly appoint a successor Trustee, or if a vacancy exists in the office of Trustee for any reason (the Trustee in such event being referred to herein as the retiring Trustee), the Issuer shall promptly appoint a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Issuer. Thereupon the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Securityholders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, subject to the lien provided for in Section 7.07. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee or the Holders of 10% in principal amount of the Securities may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee fails to comply with Section 7.10, any Securityholder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. Notwithstanding the replacement of the Trustee pursuant to this Section, the Issuer's obligations under Section 7.07 shall continue for the benefit of the retiring Trustee. SECTION 7.09. Successor Trustee by Merger. If the Trustee --------------------------- consolidates with, merges or converts into, or transfers all or substantially all its corporate trust business or assets to, another corporation or banking association, the resulting, surviving or transferee corporation without any further act shall be the successor Trustee. In case at the time such successor or successors by merger, conversion or consolidation to the Trustee shall succeed to the trusts created by this Indenture any of the Securities shall have been authenticated but not delivered, any such successor to the Trustee may adopt the certificate of authentication of any predecessor trustee, and deliver such Securities so authenticated; and in case at that time any of the Securities shall not have been authenticated, any 80 successor to the Trustee may authenticate such Securities either in the name of any predecessor hereunder or in the name of the successor to the Trustee; and in all such cases such certificates shall have the full force which it is anywhere in the Securities or in this Indenture provided that the certificate of the Trustee shall have. SECTION 7.10. Eligibility; Disqualification. The Trustee shall at ----------------------------- all times satisfy the requirements of TIA (S) 310(a). The Trustee shall have a combined capital and surplus of at least $50,000,000 as set forth in its most recent published annual report of condition. The Trustee shall comply with TIA (S) 310(b); provided, however, that there shall be excluded from the operation -------- ------- of TIA (S) 310(b)(1) any indenture or indentures under which other securities or certificates of interest or participation in other securities of the Issuer are out standing if the requirements for such exclusion set forth in TIA (S) 310(b)(1) are met. SECTION 7.11. Preferential Collection of Claims Against Company. The ------------------------------------------------- Trustee shall comply with TIA (S) 311(a), excluding any creditor relationship listed in TIA (S) 311(b). A Trustee who has resigned or been removed shall be subject to TIA (S) 311(a) to the extent indicated. ARTICLE 8 Discharge of Indenture; Defeasance ---------------------------------- SECTION 8.01. Discharge of Liability on Securities; Defeasance. (a) ------------------------------------------------- When (i) the Issuer delivers to the Trustee all outstanding Securities (other than Securities replaced pursuant to Section 2.07) for cancellation or (ii) all outstanding Securities have become due and payable, whether at maturity or as a result of the mailing of a notice of redemption pursuant to Article 3 hereof and the Issuer or the Company irrevocably deposits with the Trustee funds sufficient to pay at maturity or upon redemption all outstanding Securities, including interest thereon to maturity or such redemption date (other than Securities replaced pursuant to Section 2.07), and if in either case the Issuer pays all other sums payable hereunder by the Issuer, then this Indenture shall, subject to Sections 8.01(c), cease to be of further effect. The Trustee shall acknowledge satisfaction and discharge of this Indenture on demand of the Issuer accompanied by an Officers' Certificate and an Opinion of Counsel and at the cost and expense of the Issuer. 81 (b) Subject to Sections 8.01(c) and 8.02, the Issuer or the Company at any time may terminate (i) all the obligations of the Issuer and the Company under the Securities and this Indenture ("legal defeasance option") or (ii) the Company's obligations under Sections 4.02, 4.03, 4.04, 4.05, 4.06, 4.07, 4.08, 4.09, 4.10 and 4.11 and the operation of Sections 6.01(4), 6.01(6), 6.01(7), 6.01(8) and 6.01(9) (but, in the case of Sections 6.01(7) and (8), with respect only to Significant Subsidiaries) and the limitations contained in Sections 5.01(a)(3) ("covenant defeasance option"). The Issuer and the Company may exercise the legal defeasance option notwithstanding any prior exercise of the covenant defeasance option. If the Issuer or the Company exercises the legal defeasance option, payment of the Securities may not be accelerated because of an Event of Default with respect thereto. If the Issuer or the Company exercises the covenant defeasance option, payment of the Securities may not be accelerated because of an Event of Default specified in Sections 6.01(4), 6.01(6), 6.01(7), 6.01(8) and 6.01(9) (but, in the case of Sections 6.01(7) and (8), with respect only to Significant Subsidiaries) or because of the failure of the Company to comply with Section 5.01(a)(3). If the Issuer or the Company exercises the legal defeasance option or the covenant defeasance option, the Company and each Subsidiary Guarantor shall be released from all their obligations with respect to the Company Guaranty or its Subsidiary Guaranty, as the case may be. Upon satisfaction of the conditions set forth herein and upon request of the Issuer, the Trustee shall acknowledge in writing the discharge of those obligations that the Company terminates. (c) Notwithstanding clauses (a) and (b) above, the Issuer's obligations in Sections 2.03, 2.04, 2.05, 2.06, 2.07, 2.08, 7.07 and 7.08 and in this Article 8 shall survive until the Securities have been paid in full. Thereafter, the Issuer's obligations in Sections 7.07, 8.04 and 8.05 shall survive. SECTION 8.02. Conditions to Defeasance. Each of the Issuer and the ------------------------ Company may exercise its legal defeasance option or its covenant defeasance option only if: (1) the Issuer or the Company irrevocably deposits in trust with the Trustee money or U.S. Government Obligations for the payment of principal of and 82 interest on the Securities to maturity or redemption, as the case may be; (2) the Issuer or the Company delivers to the Trustee a certificate from a nationally recognized firm of independent accountants expressing their opinion that the payments of principal and interest when due and without reinvestment on the deposited U.S. Government Obligations plus any deposited money without investment will provide cash at such times and in such amounts as will be sufficient to pay principal and interest when due on all the Securities to maturity or redemption, as the case may be; (3) 123 days pass after the deposit is made and during the 123-day period no Default specified in Sections 6.01(7) or (8) with respect to the Issuer occurs which is continuing at the end of the period; (4) the deposit does not constitute a default under any other agreement binding on the Issuer and is not prohibited by Article 10; (5) the Issuer or the Company delivers to the Trustee an Opinion of Counsel to the effect that the trust resulting from the deposit does not constitute, or is qualified as, a regulated investment company under the Investment Company Act of 1940; (6) in the case of the legal defeasance option, the Issuer or the Company shall have delivered to the Trustee an Opinion of Counsel stating that (i) the Issuer or the Company has received from, or there has been published by, the Internal Revenue Service a ruling, or (ii) since the date of this Indenture there has been a change in the applicable Federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Securityholders will not recognize income, gain or loss for Federal income tax purposes as a result of such defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred (and, in the case of legal defeasance only, such Opinion of Counsel must be based on a ruling of the Internal Revenue Service or other change in applicable U.S. Federal income tax law) and (iii) an Opinion of Counsel in each of the British Virgin Islands and any other jurisdiction in which the Issuer or the Company is organized, resident or engaged in 83 business for tax purposes to the effect that (A) Holders of the Notes will not recognize income gain or loss for purposes of the tax laws of such jurisdiction as a result of such legal defeasance or covenant defeasance, as applicable, and will be subject for purposes of the tax laws of such jurisdiction to income tax on the same amounts, in the same manner and at the same times as would have been the case if such legal defeasance or covenant defeasance had not occurred and (B) payments from the defeasance trust will be free of exempt from any and all withholding and other taxes of whatever nature of such jurisdiction or any political subdivision or taxing authority thereof or therein, except in the case of a payment made to a Holder which is subject to such tax by reason of its carrying on a business in the British Virgin Islands or such other jurisdiction; (7) in the case of the covenant defeasance option, the Issuer or the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Securityholders will not recognize income, gain or loss for Federal income tax purposes as a result of such covenant defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred; and (8) the Issuer or the Company delivers to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent to the defeasance and discharge of the Securities as contemplated by this Article 8 have been complied with. Before or after a deposit, the Issuer may make arrangements satisfactory to the Trustee for the redemption of Securities at a future date in accordance with Article 3. SECTION 8.03. Application of Trust Money. The Trustee shall hold in -------------------------- trust money or U.S. Government Obligations deposited with it pursuant to this Article 8. It shall apply the deposited money and the money from U.S. Government Obligations through the Paying Agent and in accordance with this Indenture to the payment of principal of and interest on the Securities. Money and securities so held in trust are not subject to Article 10. SECTION 8.04. Repayment to Issuer. The Trustee and the Paying Agent ------------------- shall promptly turn over to the Issuer 84 upon request any excess money or securities held by them at any time. Subject to any applicable abandoned property law, the Trustee and the Paying Agent shall pay to the Issuer upon request any money held by them for the payment of principal or interest that remains unclaimed for two years, and, thereafter, Securityholders entitled to the money must look to the Issuer for payment as general creditors. SECTION 8.05. Indemnity for Government Obligations. The Issuer ------------------------------------- shall pay and shall indemnify the Trustee against any tax, fee or other charge imposed on or assessed against deposited U.S. Government Obligations or the principal and interest received on such U.S. Government Obligations. SECTION 8.06. Reinstatement. If the Trustee or Paying Agent is ------------- unable to apply any money or U.S. Government Obligations in accordance with this Article 8 by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Issuer's obligations under this Indenture and the Securities and the Company's obligations under this Indenture and the Company Guaranty shall be revived and reinstated as though no deposit had occurred pursuant to this Article 8 until such time as the Trustee or Paying Agent is permitted to apply all such money or U.S. Government Obligations in accordance with this Article 8; provided, however, that, if the Issuer has made -------- ------- any payment of interest on or principal of any Securities because of the reinstatement of its obligations, the Issuer shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money or U.S. Government Obligations held by the Trustee or Paying Agent. ARTICLE 9 Amendments ---------- SECTION 9.01. Without Consent of Holders. The Company, the Issuer -------------------------- and the Trustee may amend this Indenture or the Securities without notice to or consent of any Securityholder: (1) to cure any ambiguity, omission, defect or inconsistency; 85 (2) to comply with Article 5; (3) to provide for uncertificated Securities in addition to or in place of certificated Securities; provided, however, that the -------- ------- uncertificated Securities are issued in registered form for purposes of Section 163(f) of the Code or in a manner such that the uncertificated Securities are described in Section 163(f)(2)(B) of the Code; (4) to add guarantees with respect to the Securities, including any Guaranties, or to secure the Securities; (5) to add to the covenants of the Company and the Restricted Subsidiaries of the Company for the benefit of the Holders or to surrender any right or power herein conferred upon the Company and the Restricted Subsidiaries of the Company; (6) to comply with any requirements of the SEC in connection with qualifying, or maintaining the qualification of, this Indenture under the TIA; (7) to secure the Notes; or (8) to make any change that does not adversely affect the rights of any Securityholder. An amendment under this Section may not make any change that adversely affects the rights under Article 10 or 12 (or Article 3 of the Subsidiary Guaranty Agreement) of any holder of Senior Indebtedness then outstanding unless the holders of such Senior Indebtedness (or any group or representative thereof authorized to give a consent) consent to such change. After an amendment under this Section becomes effective, the Issuer shall mail to Securityholders a notice briefly describing such amendment. Notwithstanding the foregoing sentence, the Issuer shall not be required to mail to Securityholders a notice with respect to the First Supplemental Indenture, dated as of the Recapitalization Closing Date, by and among ChipPAC International Company Limited, ChipPAC, Inc. and the Trustee, pursuant to which each of ChipPAC International Company Limited and ChipPAC, Inc. assume obligations under this Indenture. The failure to give such notice to all Securityholders, or any defect therein, shall not impair or affect the validity of an amendment under this Section. 86 SECTION 9.02. With Consent of Holders. The Company, the Issuer and ----------------------- the Trustee may amend this Indenture or the Securities without notice to any Securityholder but with the written consent of the Holders of at least a majority in principal amount of the Securities then outstanding (including consents obtained in connection with a tender offer or exchange for the Securities). However, without the consent of each Securityholder affected thereby, an amendment may not: (1) reduce the amount of Securities whose Holders must consent to an amendment; (2) reduce the rate of or extend the time for payment of interest on any Security; (3) reduce the principal of or extend the Stated Maturity of any Security; (4) reduce the premium payable upon the redemption of any Security or change the time at which any Security may or shall be redeemed in accordance with Article 3; (5) make any Security payable in money other than that stated in the Security; (6) make any change in Section 6.04 or 6.07 or the second sentence of this Section; (7) make any change in any Guaranty (including the subordination provisions of such Guaranty) that would adversely affect the Securityholders; or (8) make any change in the provisions of paragraph 6 of the Securities. It shall not be necessary for the consent of the Holders under this Section to approve the particular form of any proposed amendment, but it shall be sufficient if such consent approves the substance thereof. Notwithstanding this Section 9.02, any amendment to Article 10 or 12 (or Article 3 of the Subsidiary Guaranty Agreement) that adversely affects the rights of any Securityholder under Article 10 or 12 (or Article 3 of the Subsidiary Guaranty Agreement) will require the consent of Holders of at least 75% in aggregate principal amount of the Securities then outstanding. An amendment under this Section may not make any change that adversely affects the 87 rights under Article 10 or 12 (or Article 3 of the Subsidiary Guaranty Agreement) of any holder of Senior Indebtedness then outstanding unless the holders of such Senior Indebtedness (or any group or representative thereof authorized to give a consent) consent to such change. After an amendment under this Section becomes effective, the Issuer shall mail to Securityholders a notice briefly describing such amendment. The failure to give such notice to all Securityholders, or any defect therein, shall not impair or affect the validity of an amendment under this Section. SECTION 9.03. Compliance with Trust Indenture Act. Every amendment to ----------------------------------- this Indenture or the Securities shall comply with the TIA as then in effect. SECTION 9.04. Revocation and Effect of Consents and Waivers. A --------------------------------------------- consent to an amendment or a waiver by a Holder of a Security shall bind the Holder and every subsequent Holder of that Security or portion of the Security that evidences the same debt as the consenting Holder's Security, even if notation of the consent or waiver is not made on the Security. However, any such Holder or subsequent Holder may revoke the consent or waiver as to such Holder's Security or portion of the Security if the Trustee receives the notice of revocation before the date the amendment or waiver becomes effective. After an amendment or waiver becomes effective, it shall bind every Securityholder. An amendment or waiver becomes effective upon the execution of such amendment or waiver by the Trustee. The Issuer may, but shall not be obligated to, fix a record date for the purpose of determining the Securityholders entitled to give their consent or take any other action described above or required or permitted to be taken pursuant to this Indenture. If a record date is fixed, then notwithstanding the immediately preceding paragraph, those Persons who were Securityholders at such record date (or their duly designated proxies), and only those Persons, shall be entitled to give such consent or to revoke any consent previously given or to take any such action, whether or not such Persons continue to be Holders after such record date. No such consent shall be valid or effective for more than 120 days after such record date. SECTION 9.05. Notation on or Exchange of Securities. If an amendment ------------------------------------- changes the terms of a Security, the Trustee may require the Holder of the Security to deliver it to the Trustee. The Trustee may place an appropriate 88 notation on the Security regarding the changed terms and return it to the Holder. Alternatively, if the Company, the Issuer or the Trustee so determines, the Issuer in exchange for the Security shall issue and the Trustee shall authenticate a new Security that reflects the changed terms. Failure to make the appropriate notation or to issue a new Security shall not affect the validity of such amendment. SECTION 9.06. Trustee To Sign Amendments. The Trustee shall sign any -------------------------- amendment authorized pursuant to this Article 9 if the amendment does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may but need not sign it. In signing such amendment the Trustee shall be entitled to receive indemnity reasonably satisfactory to it and to receive, and (subject to Section 7.01) shall be fully protected in relying upon, an Officers' Certificate and an Opinion of Counsel stating that such amendment is authorized or permitted by this Indenture. SECTION 9.07. Payment for Consent. Neither the Issuer nor any ------------------- Affiliate of the Company shall, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of this Indenture or the Securities unless such consideration is offered to be paid to all Holders that so consent, waive or agree to amend in the time frame set forth in solicitation documents relating to such consent, waiver or agreement. ARTICLE 10 Subordination ------------- SECTION 10.01. Agreement To Subordinate. The Issuer agrees, and each ------------------------ Securityholder by accepting a Security agrees, that the Indebtedness evidenced by the Securities is subordinated in right of payment, to the extent and in the manner provided in this Article 10, to the prior payment of all Obligations with respect to Senior Indebtedness of the Issuer and that the subordination is for the benefit of and enforceable by the holders of such Senior Indebtedness. The Securities shall in all respects rank pari passu with all other Senior ---- ----- Subordinated Indebtedness of the Issuer and only Indebtedness of the Issuer which is Senior Indebtedness shall rank senior to the Securities in accordance with the provisions set forth herein. All 89 provisions of this Article 10 shall be subject to Section 10.12. SECTION 10.02. Liquidation, Dissolution, Bankruptcy. Upon any payment ------------------------------------ or distribution of the assets of the Issuer to creditors upon a total or partial liquidation or a total or partial dissolution of the Issuer or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Issuer or its property: (1) the holders of Senior Indebtedness of the Issuer shall be entitled to receive payment in full in cash of all Obligations with respect to such Senior Indebtedness (including all interest accruing subsequent to the filing of a petition in bankruptcy at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) before Securityholders shall be entitled to receive any payment or distribution with respect to the Securities; and (2) until such Senior Indebtedness is paid in full in cash, any payment or distribution to which Securityholders would be entitled but for this Article 10 shall be made to holders of such Senior Indebtedness as their interests may appear, except that Securityholders may receive shares of stock and any debt securities that are subordinated to such Senior Indebtedness, and to any debt securities received by holders of Senior Indebtedness, to at least the same extent as the Securities are subordinated to Senior Indebtedness of the Issuer. SECTION 10.03. Default on Senior Indebtedness. The Issuer may not pay ------------------------------ (in cash, property or other assets) the principal of or interest on the Securities or make any deposit pursuant to Section 8.01 and may not repurchase, redeem or (except for Securities delivered to the Trustee pursuant to the second sentence of paragraph 6 of the Securities) otherwise retire any Securities (collectively, "pay the Securities") if either of the following occurs (each, a "Payment Default") (i) any Obligations with respect to Senior Indebtedness of the Issuer are not paid in full when due or (ii) any other default on Senior Indebtedness of the Issuer occurs and the maturity of such Designated Senior Indebtedness is accelerated in accordance with its terms unless, in either case, (x) the default has been cured or waived and any such acceleration has been rescinded in writing or (y) such Senior Indebtedness has been paid in full in cash; provided, however, that the Issuer may pay the Securities without regard -------- ------- to the foregoing if the Issuer and 90 the Trustee receive written notice approving such payment from the Representative of such Senior Indebtedness. During the continuance of any default (other than a default described in clause (i) or (ii) of the preceding sentence) with respect to any Designated Senior Indebtedness pursuant to which the maturity thereof may be accelerated immediately without further notice (except such notice as may be required to effect such acceleration) or the expiration of any applicable grace periods, the Issuer may not pay the Securities for a period (a "Payment Blockage Period") commencing upon the receipt by the Company and the Trustee of written notice (a "Blockage Notice") of such default from the Representative of such Designated Senior Indebtedness specifying an election to effect a Payment Blockage Period and ending 179 days thereafter (or earlier if such Payment Blockage Period is terminated (i) by written notice to the Trustee and the Company from the Person or Persons who gave such Blockage Notice, (ii) because no defaults continue in existence which would permit the acceleration of the Designated Senior Indebtedness at such time) or (iii) because such Designated Senior Indebtedness has been repaid in full in cash. Notwithstanding the provisions described in the immediately preceding sentence, unless the holders of such Designated Senior Indebtedness or the Representative of such holders shall have accelerated the maturity of such Designated Senior Indebtedness, or any Payment Default otherwise exists, the Issuer may resume payments on the Securities after termination of such Payment Blockage Period. Not more than one Blockage Notice may be given in any consecutive 360-day period, irrespective of the number of defaults with respect to Designated Senior Indebtedness during such period; provided, however, that if -------- ------- any Blockage Notice within such 360-day period is given by or on behalf of any holders of Designated Senior Indebtedness (other than the Bank Indebtedness), the Representative of the Bank Indebtedness may give another Blockage Notice within such period; provided further, however, that in no event may the total ---------------- ------- number of days during which any Payment Blockage Period or Periods is in effect exceed 179 days in the aggregate during any 360-consecutive-day period. For purposes of this Section, no default or event of default which existed or was continuing on the date of the commencement of any Payment Blockage Period with respect to the Designated Senior Indebtedness initiating such Payment Blockage Period shall be, or be made, the basis of the commencement of a subsequent Payment Blockage Period by the Representative of such Designated Senior Indebtedness, whether or not within a period of 360 consecutive days, unless such default or event of default shall have been 91 cured or waived for a period of not less than 90 consecutive days. SECTION 10.04. Acceleration of Payment of Securities. If payment of ------------------------------------- the Securities is accelerated because of an Event of Default, the Issuer or the Trustee shall promptly notify the holders of the Designated Senior Indebtedness (or their Representatives) of the acceleration. If any Designated Senior Indebtedness is outstanding at the time of such acceleration, neither the Company nor any Subsidiary Guarantor may pay the Securities until five Business Days after the Representatives of all the issues of Designated Senior Indebtedness receive notice of such acceleration and, thereafter, may pay the Securities only if the Indenture otherwise permits payment at that time. SECTION 10.05. When Distribution Must Be Paid Over. If a distribution ----------------------------------- is made to Securityholders that because of this Article 10 should not have been made to them, the Securityholders who receive the distribution shall hold it in trust for holders of Senior Indebtedness of the Issuer and pay it over to them as their interests may appear. SECTION 10.06. Subrogation. After all Senior Indebtedness of the ----------- Issuer is paid in full and until the Securities are paid in full, Securityholders shall be subrogated to the rights of holders of such Senior Indebtedness to receive distributions applicable to such Senior Indebtedness. A distribution made under this Article 10 to holders of such Senior Indebtedness which otherwise would have been made to Securityholders is not, as between the Issuer and Securityholders, a payment by the Issuer on such Senior Indebtedness. SECTION 10.07. Relative Rights. This Article 10 defines the relative --------------- rights of Securityholders and holders of Senior Indebtedness of the Issuer. Nothing in this Indenture shall: (1) impair, as between the Issuer and Securityholders, the obligation of the Issuer, which is absolute and unconditional, to pay principal of and interest on the Securities in accordance with their terms; or (2) prevent the Trustee or any Securityholder from exercising its available remedies upon a Default, subject to the rights of holders of Senior Indebtedness of 92 the Issuer to receive distributions otherwise payable to Securityholders. SECTION 10.08. Subordination May Not Be Impaired. No right of any --------------------------------- holder of Senior Indebtedness of the Issuer to enforce the subordination of the Indebtedness evidenced by the Securities shall be impaired by any act or failure to act by the Issuer or by its failure to comply with this Indenture. SECTION 10.09. Rights of Trustee and Paying Agent. Notwithstanding ---------------------------------- Section 10.03, the Trustee or Paying Agent may continue to make payments on the Securities and shall not be charged with knowledge of the existence of facts that would prohibit the making of any such payments unless, not less than two Business Days prior to the date of such payment, a Trust Officer of the Trustee receives notice satisfactory to it that payments may not be made under this Article 10. The Issuer, the Registrar or co-registrar, the Paying Agent, a Representative or a holder of Senior Indebtedness may give the notice; provided, -------- however, that, if an issue of Senior Indebtedness of the Issuer has a - ------- Representative, only the Representative may give the notice. The Trustee in its individual or any other capacity may hold Senior Indebtedness of the Issuer with the same rights it would have if it were not Trustee. The Registrar and co-registrar and the Paying Agent may do the same with like rights. The Trustee shall be entitled to all the rights set forth in this Article 10 with respect to any Senior Indebtedness of the Issuer which may at any time be held by it, to the same extent as any other holder of such Senior Indebtedness; and nothing in Article 7 shall deprive the Trustee of any of its rights as such holder. Nothing in this Article 10 shall apply to claims of, or payments to, the Trustee under or pursuant to Section 7.07. SECTION 10.10. Distribution or Notice to Representative. Whenever a ---------------------------------------- distribution is to be made or a notice given to holders of Senior Indebtedness of the Issuer, the distribution may be made and the notice given to their Representative (if any). SECTION 10.11. Article 10 Not To Prevent Events of Default or Limit ---------------------------------------------------- Right To Accelerate. The failure to make a payment pursuant to the Securities - ------------------- by reason of any provision in this Article 10 shall not be construed as preventing the occurrence of a Default. Nothing in this Article 10 shall have any effect on the right of the Secu- 93 rityholders or the Trustee to accelerate the maturity of the Securities. SECTION 10.12. Trust Moneys Not Subordinated. Notwithstanding ----------------------------- anything contained herein to the contrary, payments from money or the proceeds of U.S. Government Obligations held in trust under Article 8 by the Trustee for the payment of principal of and interest on the Securities shall not be subordinated to the prior payment of any Senior Indebtedness or subject to the restrictions set forth in this Article 10, and none of the Securityholders shall be obligated to pay over any such amount to the Issuer or any holder of Senior Indebtedness of the Issuer or any other creditor of the Issuer. SECTION 10.13. Trustee Entitled To Rely. Upon any payment or ------------------------ distribution pursuant to this Article 10, the Trustee and the Securityholders shall be entitled to rely (i) upon any order or decree of a court of competent jurisdiction in which any proceedings of the nature referred to in Section 10.02 are pending, (ii) upon a certificate of the liquidating trustee or agent or other Person making such payment or distribution to the Trustee or to the Securityholders or (iii) upon the Representatives for the holders of Senior Indebtedness of the Issuer for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of such Senior Indebtedness and other Indebtedness of the Issuer, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 10. In the event that the Trustee determines, in good faith, that evidence is required with respect to the right of any Person as a holder of Senior Indebtedness of the Issuer to participate in any payment or distribution pursuant to this Article 10, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of such Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and other facts pertinent to the rights of such Person under this Article 10, and, if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. The provisions of Sections 7.01 and 7.02 shall be applicable to all actions or omissions of actions by the Trustee pursuant to this Article 10. SECTION 10.14. Trustee To Effectuate Subordination. Each ----------------------------------- Securityholder by accepting a Security author- 94 izes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination between the Securityholders and the holders of Senior Indebtedness of the Issuer as provided in this Article 10 and appoints the Trustee as attorney-in-fact for any and all such purposes. SECTION 10.15. Trustee Not Fiduciary for Holders of Senior ------------------------------------------- Indebtedness. The Trustee shall not be deemed to owe any fiduciary duty to the - ------------ holders of Senior Indebtedness and shall not be liable to any such holders if it shall mistakenly pay over or distribute to Securityholders or the Issuer or any other Person, money or assets to which any holders of Senior Indebtedness of the Issuer shall be entitled by virtue of this Article 10 or otherwise. SECTION 10.16. Reliance by Holders of Senior Indebtedness on --------------------------------------------- Subordination Provisions. Each Securityholder by accepting a Security - ------------------------ acknowledges and agrees that the foregoing subordination provisions are, and are intended to be, an inducement and a consideration to each holder of any Senior Indebtedness of the Issuer, whether such Senior Indebtedness was created or acquired before or after the issuance of the Securities, to acquire and continue to hold, or to continue to hold, such Senior Indebtedness and such holder of such Senior Indebtedness shall be deemed conclusively to have relied on such subordination provisions in acquiring and continuing to hold, or in continuing to hold, such Senior Indebtedness. ARTICLE 11 Company Guaranty ---------------- SECTION 11.01. Guaranty. The Company hereby unconditionally and -------- irrevocably guarantees to each Holder and to the Trustee and its successors and assigns (a) the full and punctual payment of principal of and interest on the Securities when due, whether at maturity, by acceleration, by redemption or otherwise, and all other monetary obligations of the Issuer under this Indenture and the Securities and (b) the full and punctual performance within applicable grace periods of all other obligations of the Issuer under this Indenture and the Securities (all the foregoing being hereinafter collectively called the "Obligations"). The Company further agrees that the Obligations may be extended or renewed, in whole or in part, without notice or further assent from the Company and that 95 the Company will remain bound under this Article 11 notwithstanding any extension or renewal of any Obligation. The Company waives presentation to, demand of, payment from and protest to the Issuer of any of the Obligations and also waives notice of protest for nonpayment. The Company waives notice of any default under the Securities or the Obligations. The obligations of the Company hereunder shall not be affected by (a) the failure of any Holder or the Trustee to assert any claim or demand or to enforce any right or remedy against the Issuer or any other Person under this Indenture, the Securities or any other agreement or otherwise; (b) any extension or renewal of any such claim, demand, right or remedy; (c) any rescission, waiver, amendment or modification of any of the terms or provisions of this Indenture, the Securities or any other agreement; (d) the release of any security held by any Holder or the Trustee for the Obligations or any of them; (e) the failure of any Holder or the Trustee to exercise any right or remedy against any other guarantor of the Obligations; or (f) any change in the ownership of the Company. The Company further agrees that its Guaranty herein constitutes a guarantee of payment, performance and compliance when due (and not a guarantee of collection) and waives any right to require that any resort be had by any Holder or the Trustee to any security held for payment of the Obligations. The Company Guaranty is, to the extent and in the manner set forth in Article 12, subordinated and subject in right of payment to the prior payment in full of the principal of and premium, if any, and interest on all Senior Indebtedness of the Company, and the Company Guaranty is made subject to such provisions of this Indenture. Except as expressly set forth in Section 8.01(b) the obligations of the Company hereunder shall not be subject to any reduction, limitation, impairment or termination for any reason, including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to any defense of setoff, counterclaim, recoupment or termination whatsoever or by reason of the invalidity, illegality or unenforceability of the Obligations or otherwise. Without limiting the generality of the foregoing, the obligations of the Company herein shall not be discharged or impaired or otherwise affected by the failure of any Holder or the Trustee to assert any claim or demand or to enforce any remedy under this Indenture, the 96 Securities or any other agreement, by any waiver or modification of any thereof, by any default, failure or delay, willful or otherwise, in the performance of the obligations, or by any other act or thing or omission or delay to do any other act or thing which may or might in any manner or to any extent vary the risk of the Company or would otherwise operate as a discharge of the Company as a matter of law or equity. The Company further agrees that its Guaranty herein shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of principal of or interest on any Obligation is rescinded or must otherwise be restored by any Holder or the Trustee upon the bankruptcy or reorganization of the Issuer or otherwise. In furtherance of the foregoing and not in limitation of any other right which any Holder or the Trustee has at law or in equity against the Company by virtue hereof, upon the failure of the Issuer to pay the principal of or interest on any Obligation when and as the same shall become due, whether at maturity, by acceleration, by redemption or otherwise, or to perform or comply with any other Obligation, the Company hereby promises to and will, upon receipt of written demand by the Trustee, forthwith pay, or cause to be paid, in cash, to the Holders or the Trustee an amount equal to the sum of (i) the unpaid amount of such Obligations, (ii) accrued and unpaid interest on such Obligations (but only to the extent not prohibited by law) and (iii) all other monetary Obligations of the Company to the Holders and the Trustee. The Company agrees that it shall not be entitled to any right of subrogation in respect of any Obligations guaranteed hereby until payment in full of all Obligations and all obligations to which the Obligations are subordinated as provided in Article 12 further agrees that, as between it, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the Obligations Guaranteed hereby may be accelerated as provided in Article 6 for the purposes of the Company's Guaranty, herein, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the Obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such obligations as provided in Article 6, such Obligations (whether or not due and payable) shall forthwith become due and payable by the Company for the purposes of this Section. 97 The Company also agrees to pay any and all costs and expenses (including reasonable attorneys' fees) incurred by the Trustee or any Holder in enforcing any rights under this Section. SECTION 11.02. Successors and Assigns. This Article 11 shall be ---------------------- binding upon the Company and its successors and assigns and shall enure to the benefit of the successors and assigns of the Trustee and the Holders and, in the event of any transfer or assignment of rights by any Holder or the Trustee, the rights and privileges conferred upon that party in this Indenture and in the Securities shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions of this Indenture. SECTION 11.03. No Waiver. Neither a failure nor a delay on the part of --------- either the Trustee or the Holders in exercising any right, power or privilege under this Article 11 shall operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any other or further exercise of any right, power or privilege. The rights, remedies and benefits of the Trustee and the Holders herein expressly specified are cumulative and not exclusive of any other rights, remedies or benefits which either may have under this Article 11 at law, in equity, by statute or otherwise. SECTION 11.04. Modification. No modification, amendment or waiver of ------------ any provision of this Article 11, nor the consent to any departure by the Company therefrom, shall in any event be effective unless the same shall be in writing and signed by the Trustee, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on the Company in any case shall entitle the Company to any other or further notice or demand in the same, similar or other circumstances. ARTICLE 12 Subordination of Company Guaranty --------------------------------- SECTION 12.01. Agreement To Subordinate. The Company agrees, and each ------------------------ Securityholder by accepting a Security agrees, that the Obligations of the Company are subordinated in right of payment, to the extent and in the manner provided in this Article 12, to the prior payment of 98 all Obligations with respect to Senior Indebtedness of the Company and that the subordination is for the benefit of and enforceable by the holders of such Senior Indebtedness. The Obligations of the Company shall in all respects rank pari passu with all other Senior Subordinated Indebtedness of the Company and - ---- ----- only Senior Indebtedness of the Company (including the Company's Guaranty of Senior Indebtedness of the Issuer) shall rank senior to the Obligations of the Company in accordance with the provisions set forth herein. SECTION 12.02. Liquidation, Dissolution, Bankruptcy. Upon any payment ------------------------------------ or distribution of the assets of the Company to creditors upon a total or partial liquidation or a total or partial dissolution of the Company or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or its property: (1) the holders of Senior Indebtedness of the Company shall be entitled to receive payment in full in cash of all Obligations with respect to such Senior Indebtedness (including all interest accruing subsequent to the filing of a petition in bankruptcy at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) before Securityholders shall be entitled to receive any payment or distribution with respect to any Obligations of the Company; and (2) until the Senior Indebtedness of the Company is paid in full in cash, any payment or distribution to which Securityholders would be entitled but for this Article 12 shall be made to holders of such Senior Indebtedness as their interests may appear, except that Securityholders may receive shares of stock and any debt securities of the Company that are subordinated to Senior Indebtedness, and to any debt securities received by holders of Senior Indebtedness, of the Company to at least the same extent as the Obligations of the Company are subordinated to Senior Indebtedness of the Company. SECTION 12.03. Default on Senior Indebtedness of the Company. The --------------------------------------------- Company may not make any payment (in cash, property or other assets) pursuant to any of its Obligations or repurchase, redeem or otherwise retire or defease any Securities or other Obligations (collectively, "pay its Guaranty") if either of the following Payment Defaults occurs: (i) any Obligations with respect to Senior Indebtedness of the Company are not paid in full when due or 99 (ii) any other default on Senior Indebtedness of the Company occurs and the maturity of such Senior Indebtedness is accelerated in accordance with its terms unless, in either case, (x) the default has been cured or waived and any such acceleration has been rescinded in writing or (y) such Senior Indebtedness has been paid in full in cash; provided, however, that the Company may pay its -------- ------- Guaranty without regard to the foregoing if the Company and the Trustee receive written notice approving such payment from the Representatives of such Senior Indebtedness. The Company may not pay its Guaranty during the continuance of any Payment Blockage Period after receipt by the Company and the Trustee of a Payment Notice under Section 10.03. Notwithstanding the provisions described in the immediately preceding sentence (but subject to the provisions contained in the first sentence of this Section), unless the holders of Designated Senior Indebtedness giving such Payment Notice or the Representative of such holders shall have accelerated the maturity of such Designated Senior Indebtedness, the Company may resume payments pursuant to its Guaranty after termination of such Payment Blockage Period. SECTION 12.04. Demand for Payment. If a demand for payment is made on ------------------ the Company pursuant to Article 11, the Trustee shall promptly notify the holders of the Designated Senior Indebtedness (or their Representatives) of such demand. SECTION 12.05. When Distribution Must Be Paid Over. If a distribution ----------------------------------- is made to Securityholders that because of this Article 12 should not have been made to them, the Securityholders who receive the distribution shall hold it in trust for holders of the relevant Senior Indebtedness and pay it over to them or their Representatives as their interests may appear. SECTION 12.06. Subrogation. After all Senior Indebtedness of the ----------- Company is paid in full and until the Securities are paid in full, Securityholders shall be subrogated to the rights of holders of such Senior Indebtedness to receive distributions applicable to Senior Indebtedness. A distribution made under this Article 12 to holders of such Senior Indebtedness which otherwise would have been made to Securityholders is not, as between the Company and Securityholders, a payment by the Company on such Senior Indebtedness. 100 SECTION 12.07. Relative Rights. This Article 12 defines the relative --------------- rights of Securityholders and holders of Senior Indebtedness of the Company. Nothing in this Indenture shall: (1) impair, as between the Company and Securityholders, the obligation of the Company, which is absolute and unconditional, to pay the Obligations to the extent set forth in Article 11 or the Company Guaranty; or (2) prevent the Trustee or any Securityholder from exercising its available remedies upon a default by the Company under the Obligations, subject to the rights of holders of Senior Indebtedness of the Company to receive distributions otherwise payable to Securityholders. SECTION 12.08. Subordination May Not Be Impaired by Issuer. No right ------------------------------------------- of any holder of Senior Indebtedness of the Company to enforce the subordination of the Obligations of the Company shall be impaired by any act or failure to act by the Company or by its failure to comply with this Indenture. SECTION 12.09. Rights of Trustee and Paying Agent. Notwithstanding ---------------------------------- Section 12.03, the Trustee or Paying Agent may continue to make payments on the Company Guaranty and shall not be charged with knowledge of the existence of facts that would prohibit the making of any such payments unless, not less than two Business Days prior to the date of such payment, a Trust Officer of the Trustee receives written notice satisfactory to it that payments may not be made under this Article 12. The Issuer, the Company, the Registrar or co-registrar, the Paying Agent, a Representative or a holder of Senior Indebtedness of the Company may give the notice; provided, however, that, if an issue of Senior -------- ------- Indebtedness of the Company has a Representative, only the Representative may give the notice. The Trustee in its individual or any other capacity may hold Senior Indebtedness with the same rights it would have if it were not the Trustee. The Registrar and co-registrar and the Paying Agent may do the same with like rights. The Trustee shall be entitled to all the rights set forth in this Article 12 with respect to any Senior Indebtedness of the Company which may at any time be held by it, to the same extent as any other holder of Senior Indebtedness; and nothing in Article 7 shall deprive the Trustee of any of its rights as such holder. Nothing in 101 this Article 12 shall apply to claims of, or payments to, the Trustee under or pursuant to Section 7.07. SECTION 12.10. Distribution or Notice to Representative. Whenever a ---------------------------------------- distribution is to be made or a notice given to holders of Senior Indebtedness of the Company, the distribution may be made and the notice given to their Representative (if any). SECTION 12.11. Article 12 Not To Prevent Defaults Under a Guaranty or ------------------------------------------------------ Limit Right To Demand Payment. The failure to make a payment pursuant to a - ----------------------------- Guaranty by reason of any provision in this Article 12 shall not be construed as preventing the occurrence of a default under such Guaranty. Nothing in this Article 12 shall have any effect on the right of the Securityholders or the Trustee to make a demand for payment on the Company pursuant to Article 11 or the relevant Guaranty. SECTION 12.12. Trustee Entitled To Rely. Upon any payment or ------------------------ distribution pursuant to this Article 12, the Trustee and the Securityholders shall be entitled to rely (i) upon any order or decree of a court of competent jurisdiction in which any proceedings of the nature referred to in Section 12.02 are pending, (ii) upon a certificate of the liquidating trustee or agent or other Person making such payment or distribution to the Trustee or to the Securityholders or (iii) upon the Representatives for the holders of Senior Indebtedness of the Company for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of such Senior Indebtedness and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 12. In the event that the Trustee determines, in good faith, that evidence is required with respect to the right of any Person as a holder of Senior Indebtedness of the Company to participate in any payment or distribution pursuant to this Article 12, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness of the Company held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and other facts pertinent to the rights of such Person under this Article 12, and, if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. The provisions of Sections 7.01 and 7.02 shall be applicable to 102 all actions or omissions of actions by the Trustee pursuant to this Article 12. SECTION 12.13. Trustee To Effectuate Subordination. Each ----------------------------------- Securityholder by accepting a Security authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination between the Securityholders and the holders of Senior Indebtedness of the Company as provided in this Article 12 and appoints the Trustee as attorney-in-fact for any and all such purposes. SECTION 12.14. Trustee Not Fiduciary for Holders of Senior ------------------------------------------- Indebtedness of the Company. The Trustee shall not be deemed to owe any - --------------------------- fiduciary duty to the holders of Senior Indebtedness of the Company and shall not be liable to any such holders if it shall mistakenly pay over or distribute to Securityholders or the Company or any other Person, money or assets to which any holders of such Senior Indebtedness shall be entitled by virtue of this Article 12 or otherwise. SECTION 12.15. Reliance by Holders of Senior Indebtedness on --------------------------------------------- Subordination Provisions. Each Securityholder by accepting a Security - ------------------------ acknowledges and agrees that the foregoing subordination provisions are, and are intended to be, an inducement and a consideration to each holder of any Senior Indebtedness of the Company, whether such Senior Indebtedness was created or acquired before or after the issuance of the Securities, to acquire and continue to hold, or to continue to hold, such Senior Indebtedness and such holder of Senior Indebtedness shall be deemed conclusively to have relied on such subordination provisions in acquiring and continuing to hold, or in continuing to hold, such Senior Indebtedness. ARTICLE 13 Miscellaneous ------------- SECTION 13.01. Trust Indenture Act Controls. If any provision of ---------------------------- this Indenture limits, qualifies or conflicts with another provision which is required to be included in this Indenture by the TIA, the required provision shall control. SECTION 13.02. Notices. Any notice or communication shall be in ------- writing and delivered in person or mailed by first-class mail or by telex, telecopier or overnight air 103 courier guaranteeing next day delivery, addressed as follows: if to the Issuer or any Guarantor: ChipPAC, Inc. 3151 Coronado Drive Santa Clara, CA 95054 Attention of Chief Financial Officer Telecopy: 408-486-5900 if to the Trustee: Firstar Bank of Minnesota, N.A. 101 East Fifth Street St. Paul, MN 55101 Attention of Corporation Trust Department The Issuer or the Trustee by notice to the other may designate additional or different addresses for subsequent notices or communications. Any notice or communication mailed to a Securityholder shall be mailed to the Securityholder at the Securityholder's address as it appears on the registration books of the Registrar and shall be sufficiently given if so mailed within the time prescribed. Failure to mail a notice or communication to a Securityholder or any defect in it shall not affect its sufficiency with respect to other Securityholders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. SECTION 13.03. Communication by Holders with Other Holders. ------------------------------------------- Securityholders may communicate pursuant to TIA (S) 312(b) with other Securityholders with respect to their rights under this Indenture or the Securities. The Issuer, the Trustee, the Registrar and anyone else shall have the protection of TIA (S) 312(c). SECTION 13.04. Certificate and Opinion as to Conditions Precedent. -------------------------------------------------- Upon any request or application by the Issuer to the Trustee to take or refrain from taking any action under this Indenture, the Issuer shall furnish to the Trustee: 104 (1) an Officers' Certificate in form and substance reasonably satisfactory to the Trustee stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and (2) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee stating that, in the opinion of such counsel, all such conditions precedent have been complied with. SECTION 13.05. Statements Required in Certificate or Opinion. Each --------------------------------------------- certificate or opinion with respect to compliance with a covenant or condition provided for in this Indenture shall include: (1) a statement that the individual making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of such individual, such covenant or condition has been complied with. SECTION 13.06. When Securities Disregarded. In determining whether --------------------------- the Holders of the required principal amount of Securities have concurred in any direction, waiver or consent, Securities owned by the Issuer, the Company or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Issuer or the Company shall be disregarded and deemed not to be outstanding, except that, for the purpose of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Securities which the Trustee knows are so owned shall be so disregarded. Also, subject to the foregoing, only Securities outstanding at the time shall be considered in any such determination. 105 SECTION 13.07. Rules by Trustee, Paying Agent and Registrar. The -------------------------------------------- Trustee may make reasonable rules for action by or a meeting of Securityholders. The Registrar and the Paying Agent may make reasonable rules for their functions. SECTION 13.08. Legal Holidays. A "Legal Holiday" is a Saturday, a -------------- Sunday or a day on which banking institutions are not required to be open in the State of New York. If a payment date is a Legal Holiday, payment shall be made on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. If a regular record date is a Legal Holiday, the record date shall not be affected. SECTION 13.09. Governing Law. This Indenture and the Securities shall ------------- be governed by, and construed in accordance with, the laws of the State of New York but without giving effect to applicable principles of conflicts of law to the extent that the application of the laws of another jurisdiction would be required thereby. SECTION 13.10. No Recourse Against Others. A director, officer, -------------------------- employee or stockholder, as such, of the Issuer or the Company shall not have any liability for any obligations of the Issuer or the Company under the Securities or this Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Securityholder shall waive and release all such liability. The waiver and release shall be part of the consideration for the issue of the Securities. SECTION 13.11. Successors. All agreements of the Issuer and the ---------- Company in this Indenture and the Securities shall bind their successors. All agreements of the Trustee in this Indenture shall bind its successors. SECTION 13.12. Multiple Originals. The parties may sign any number ------------------ of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. One signed copy is enough to prove this Indenture. SECTION 13.13. Table of Contents; Headings. The table of contents, --------------------------- cross-reference sheet and headings of the Articles and Sections of this Indenture have been inserted 106 for convenience of reference only, are not intended to be 107 considered a part hereof and shall not modify or restrict any of the terms or provisions hereof. SECTION 13.14. Agent for Service; Submission to Jurisdiction; Waiver ----------------------------------------------------- of Immunities. By the execution and delivery of this Indenture, the Issuer and - ------------- the Company each (i) acknowledges that it has, by separate written instrument, irrevocably designated and appointed CT Corporation System (and any successor entity) ("CT"), 1633 Broadway, New York, New York 10019, as its authorized agent upon which process may be served in any suit or proceeding arising out of or relating to this Indenture, the Securities or the Guaranties that may be instituted in any Federal or state court located in the Borough of Manhattan in The City of New York or brought by the Trustee (whether in its individual capacity or in its capacity as Trustee hereunder) or any Holder, and acknowledges that CT has accepted such designation, (ii) submits to the jurisdiction of any such court in any such suit or proceeding, and (iii) agrees that service of process upon CT and written notice of said service to the Issuer or the Company, shall be deemed in every respect effective service of process upon the Issuer or the Company, as the case may be, in any such suit or proceeding. The Issuer and the Company each further agree to take any and all action, including the execution and filing of any and all such documents and instruments, as may be necessary to continue such designation and appointment of CT in full force and effect so long as this Indenture shall be in full force and effect. The Issuer and the Company each hereby irrevocably and unconditionally waive, to the fullest extent they may legally effectively do so, any objection which they may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Indenture, the Securities or the Guaranties in any Federal or state court located in the Borough of Manhattan in The City of New York. The Issuer and the Company each hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. To the extent that the Issuer and the Company has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether through service of notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself or its property, it hereby irrevocably waives such immunity 108 in this Indenture and the Securities, to the extent permitted by law. IN WITNESS WHEREOF, the parties have caused this Indenture to be duly executed as of the date first written above. CHIPPAC INTERNATIONAL LIMITED, by /s/ Tony Lin ________________________ Name: Tony Lin Title: Chief Financial Officer CHIPPAC MERGER CORP., by /s/ David Dominik ________________________ Name: David Dominik Title: Chief Executive Officer FIRSTAR BANK OF MINNESOTA, N.A., by /s/ Frank Leslie ________________________ Name: Frank Leslie Title: Vice President EX-4.3 19 FIRST SUPPLEMENTAL INDENTURE Exhibit 4.3 EXECUTION COPY ================================================================================ CHIPPAC INTERNATIONAL COMPANY LIMITED, Issuer CHIPPAC, INC., Guarantor 12 3/4% Senior Subordinated Notes Due 2009 FIRST SUPPLEMENTAL INDENTURE Dated as of August 5, 1999 FIRSTAR BANK OF MINNESOTA, N.A. as Trustee ================================================================================ THIS FIRST SUPPLEMENTAL INDENTURE, dated as of August 5, 1999, between ChipPAC International Company Limited, a British Virgin Islands corporation (the "Issuer"), ChipPAC, Inc., a California corporation (the "Company") and Firstar Bank of Minnesota, N.A., as trustee (the "Trustee"), amends and supplements the Indenture (as defined below). RECITALS 1. ChipPAC International Limited (the "Predecessor Issuer"), ChipPAC Merger Corp. ("MergerCo") and the Trustee entered into the Indenture, dated as of July 29, 1999 (the "Indenture), relating to the Predecessor Issuer's 12 3/4% Senior Subordinated Notes Due 2009 (the "Notes"); and 2. The Predecessor Issuer has merged with and into a wholly owned subsidiary of ChipPAC, Inc. as contemplated by the Indenture (the "First Merger"), and the surviving corporation has been renamed ChipPAC International Company Limited; and 3. MergerCo has merged with and into the Company as contemplated by the Indenture (the "Second Merger"). AGREEMENT NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained and intending to be legally binding, the parties hereto hereby agree as follows: Section 1. Capitalized terms used herein and not otherwise defined herein are used as defined in the Indenture. Section 2. The Issuer hereby acknowledges and agrees that, by virtue of the First Merger and by operation of law, it has become a party to the Indenture and has assumed all of the liabilities and obligations of the Predecessor Issuer under the Indenture and the Notes in accordance with Article 5 of the Indenture. Section 3. The Company hereby acknowledges and agrees that, by virtue of the Second Merger and by operation of law, it has become a party to the Indenture and has assumed all of the liabilities and obligations of MergerCo under the Indenture, the Company Guaranty contained therein and the Notes in accordance 2 with Article 5 of the Indenture. Section 4. Pursuant to Section 9.05 of the Indenture, the Issuer and the Company shall issue and the Trustee shall authenticate new Notes that reflect this First Supplemental Indenture. Section 5. This First Supplemental Indenture shall be governed by, and construed in accordance with, the laws of the State of New York but without giving effect to applicable principles of conflicts of law to the extent that the application of the laws of another jurisdiction would be required thereby. Section 6. This First Supplemental Indenture may be executed in any number of counterparts, each of which, when so executed, shall be deemed to be an original, but all of which shall together constitute but one and the same instrument. Section 7. This First Supplemental Indenture is an amendment supplemental to the Indenture and said Indenture and this First Supplemental Indenture to the Indenture shall henceforth be read together. 3 IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental Indenture to be executed as of the day and year first above written. CHIPPAC INTERNATIONAL COMPANY LIMITED, by /s/ P. J. Kim ________________________ Name: /s/ P. J. Kim Title: Secretary CHIPPAC, INC., by /s/ Tony Lin ________________________ Name: Tony Lin Title: Chief Financial Officer FIRSTAR BANK OF MINNESOTA, N.A., as Trustee, by /s/ Frank Leslie ________________________ Name: Frank Leslie Title: Vice President EX-4.4 20 FORM OF 12 3/4% SENIOR SUBORDINATED NOTES Exhibit 4.4 UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF. THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION, UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE ISSUER THAT (A) THIS SECURITY MAY BE OFFERED, RESOLD, PLEDGED OR OTHER WISE TRANSFERRED, ONLY (I) IN THE UNITED STATES TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (II) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE SECURITIES ACT, (III) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (IV) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH OF CASES (I) THROUGH (IV) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS SECURITY FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE. 2 No. 001 $150,000,000 CUSIP NO.: 169659AA7 ISIN NO.: US169659AA70 12 3/4% Senior Subordinated Notes Due 2009 ChipPAC International Company Limited , a British Virgin Islands corporation, promises to pay to CEDE & CO., or registered assigns, the principal sum of ONE HUNDRED AND FIFTY MILLION UNITED STATES DOLLARS on August 1, 2009. Interest Payment Dates: August 1 and February 1. Record Dates: July 15 and January 15. Additional provisions of this Security are set forth on the other side of this Security. Dated: August 5, 1999 CHIPPAC INTERNATIONAL COMPANY LIMITED, by /s/ P.J. Kim ------------------------ Name: P.J. Kim Title: TRUSTEE'S CERTIFICATE OF AUTHENTICATION FIRSTAR BANK OF MINNESOTA, N.A. as Trustee, certifies that this is one of the Securities referred to in the Indenture. by /s/ Frank Leslie ---------------------------------- Authorized Signatory 3 12 3/4% Senior Subordinated Note Due 2009 1. Interest -------- ChipPAC International Company Limited, a British Virgin Islands corporation (such corporation, and its successors and assigns under the Indenture hereinafter referred to, being herein called the "Issuer"), promises to pay interest on the principal amount of this Security at the rate per annum shown above; provided, however, that if a Registration Default (as defined in ----------------- the Registration Rights Agreement) occurs, additional interest will accrue on this Security at a rate of 0.50% per annum from and including the date on which any such Registration Default shall occur to but excluding the date on which all Registration Defaults have been cured. The Issuer will pay interest semiannually on August 1 and February 1 of each year. Interest on the Securities will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from July 29, 1999. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Issuer shall pay interest on overdue principal at the rate borne by the Securities plus 1% per annum, and it shall pay interest on overdue installments of interest at the same rate to the extent lawful. 2. Method of Payment ----------------- The Issuer will pay interest on the Securities (except defaulted interest) to the Persons who are registered holders of Securities at the close of business on the July 15 or January 15 next preceding the interest payment date even if Securities are canceled after the record date and on or before the interest payment date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Issuer will pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. Payments in respect of the Securities represented by a Global Security (including principal, premium and interest) will be made by wire transfer of immediately available funds to the accounts specified by The Depository Trust Company. The Issuer will make all payments in respect of a certificated Security (including principal, premium and interest) by mailing a check to the registered address of each Holder thereof; provided, however, that -------- ------- payments on a certificated 4 Security will be made by wire transfer to a U.S. dollar account maintained by the payee with a bank in the United States if such Holder elects payment by wire transfer by giving written notice to the Trustee or the Paying Agent to such effect designating such account no later than 30 days immediately preceding the relevant due date for payment (or such other date as the Trustee may accept in its discretion). 3. Paying Agent and Registrar -------------------------- Initially, Firstar Bank of Minnesota, N.A., a Delaware banking corporation (the "Trustee"), will act as Paying Agent and Registrar. The Issuer may appoint and change any Paying Agent, Registrar or co-registrar without notice. The Issuer or any of its domestically incorporated Wholly Owned Subsidiaries may act as Paying Agent, Registrar or co-registrar. 4. Indenture --------- The Issuer issued the Securities under an Indenture dated as of July 29, 1999 (the "Indenture"), among the Issuer, the Company and the Trustee. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-77bbbb) as in effect on the date of the Indenture (the - ------ "Act"). Terms defined in the Indenture and not defined herein have the meanings ascribed thereto in the Indenture. The Securities are subject to all such terms, and Securityholders are referred to the Indenture and the Act for a statement of those terms. The Issuer's obligations under the Securities are guaranteed by the Company and each of the Subsidiary Guarantors. The Securities are general unsecured obligations of the Issuer. The Issuer shall be entitled, subject to its compliance with Section 4.03 of the Indenture, to issue Additional Securities pursuant to Section 2.13 of the Indenture. The Initial Securities issued on the Issue Date, any Additional Securities and all Exchange Securities or Private Exchange Securities issued in exchange therefor will be treated as a single class for all purposes under the Indenture. The Indenture limits, among other things (i) the incurrence of additional debt by the Company and its Restricted Subsidiaries, (ii) the payment of dividends on capital stock of the Company and the purchase, redemption or retirement of capital stock or subordinated indebtedness, (iii) certain transactions with affiliates, (iv) sales of 5 assets, including capital stock of subsidiaries, and (v) certain consolidations, mergers and transfers of assets. The Indenture also prohibits certain restrictions on distributions from subsidiaries. All of these limitations and prohibitions, however, are subject to a number of important qualifications contained in the Indenture. 5. Optional Redemption ------------------- Except as set forth in the next paragraph of this Section 5 and in Section 6, the Securities may not be redeemed prior to August 1, 2004. On and after that date, the Issuer may redeem the Securities in whole at any time or in part from time to time at the following redemption prices (expressed in percentages of principal amount), plus accrued interest to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the related interest payment date): if redeemed during the 12-month period beginning August 1, Period Percentage ------ ---------- 2004......................................... 106.375% 2005......................................... 104.250 2006......................................... 102.125 2007 and thereafter.......................... 100.000% In addition, at any time prior to August 1, 2002, the Issuer may at its option on one or more occasions redeem up to 35% of the aggregate principal amount of Securities with the proceeds of one or more Equity Offerings, at any time or from time to time, at a redemption price (expressed as a percentage of principal amount) of 112 3/4% of the principal amount thereof, plus accrued interest to redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the related interest payment date); provided, however, that: -------- ------- (1) at least 65% of such aggregate principal amount of Securities (which includes Additional Securities, if any) remains outstanding immediately after the occurrence of each such redemption (other than the Securities held, directly or indirectly, by the Issuer or its Affiliates); and (2) each such redemption occurs within 60 days after the date of the related Equity Offering. 6 The Securities may be redeemed, at the option of the Issuer, at any time as a whole but not in part, on not less than 30 nor more than 60 days' notice, at 100% of the principal amount thereof, plus accrued and unpaid interest (if any) to the date of redemption (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date), in the event the Issuer has become or would become obligated to pay, on the next date on which any amount would be payable with respect to the Securities, any Additional Amounts as a result of a change in or an amendment to the laws (including any regulations promulgated thereunder) of the British Virgin Islands (or any political subdivision or taxing authority thereof or therein), or any change in or amendment to any official position regarding the application or interpretation of such laws or regulations, which change or amendment is announced or becomes effective on or after the Issue Date; provided, however, that (i) no such notice of redemption may be given -------- ------- earlier than 60 days prior to the earliest date on which Additional Amounts are due and payable in respect of the Notes and (ii) at the time any such redemption notice is given, such obligation to pay Additional Amounts remains in effect. Prior to giving any notice of redemption pursuant to this provision, the Issuer will deliver to the applicable Trustee (i) an Officers' Certificate stating that it is entitled to effect such redemption and setting forth a statement of facts showing that the conditions precedent to its right to so redeem have occurred and (ii) an Opinion of Counsel in the British Virgin Islands to the effect that the Issuer has or will become obligated to pay Additional Amounts as a result of such amendment or change. In the case of any partial redemption, selection of the Securities for redemption will be made by the Trustee, on a pro rata basis, by lot or by such --- ---- other method as the Trustee in its sole discretion shall deem to be fair and appropriate, although no Security of U.S. $1,000 in original principal amount or less shall be redeemed in part. If any Security is to be redeemed in part only, the notice of redemption relating to such Security shall state the portion of the principal amount thereof to be redeemed. A new Security in principal amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon cancellation of the original Security. 6. Special Mandatory Redemption ---------------------------- In the event the Recapitalization is not consummated on or prior to August 9, 1999, the Issuer will redeem the Securities (the "Special Redemption") at a 7 redemption price of 100% of the aggregate principal amount thereof, plus accrued and unpaid interest thereon (subject to the right of holders of record on the relevant date to receive interest due on such date) to the date of redemption. The Issuer will cause the notice of the special mandatory redemption to be mailed no later than the next business day following August 9, 1999, and will redeem the Securities three business days following the date of notice of redemption. 7. Notice of Redemption -------------------- Except as set forth in paragraph 6 above, notice of optional redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder of Securities to be redeemed at his registered address. Securities in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000. If money sufficient to pay the redemption price of and accrued interest on all Securities (or portions thereof) to be redeemed on the redemption date is deposited with the Paying Agent on or before the redemption date and certain other conditions are satisfied, on and after such date interest ceases to accrue on such Securities (or such portions thereof) called for redemption. 8. Put Provisions -------------- Upon a Change of Control, any Holder of Securities will have the right, subject to certain conditions, to cause the Issuer to repurchase all or any part of the Securities of such Holder at a repurchase price equal to 101% of the principal amount of the Securities to be repurchased plus accrued interest to the date of repurchase (subject to the right of holders of record on the relevant record date to receive interest due on the related interest payment date) as provided in, and subject to the terms of, the Indenture. 9. Subordination ------------- The Securities are subordinated to Senior Indebtedness, as defined in the Indenture. To the extent provided in the Indenture, Senior Indebtedness must be paid before the Securities may be paid. The Issuer agrees, and each Securityholder by accepting a Security agrees, to the subordination provisions contained in the Indenture and authorizes the Trustee to give it effect and appoints the Trustee as attorney-in-fact for such purpose. 8 10. Denominations; Transfer; Exchange --------------------------------- The Securities are in registered form without coupons in denominations of $1,000 and whole multiples of $1,000. A Holder may transfer or exchange Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements or transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not register the transfer of or exchange any Securities selected for redemption (except, in the case of a Security to be redeemed in part, the portion of the Security not to be redeemed) or any Securities for a period of 15 days before a selection of Securities to be redeemed or 15 days before an interest payment date. 11. Persons Deemed Owners --------------------- The registered Holder of this Security may be treated as the owner of it for all purposes. 12. Unclaimed Money --------------- If money for the payment of principal or interest remains unclaimed for two years, the Trustee or Paying Agent shall pay the money back to the Issuer at its request unless an abandoned property law designates another Person. After any such payment, Holders entitled to the money must look only to the Issuer and not to the Trustee for payment. 13. Discharge and Defeasance ------------------------ Subject to certain conditions, the Issuer at any time may terminate some or all of its obligations under the Securities and the Indenture if the Issuer deposits with the Trustee money or U.S. Government Obligations for the payment of principal and interest on the Securities to redemption or maturity, as the case may be. 14. Amendment, Waiver ----------------- Subject to certain exceptions set forth in the Indenture, (i) the Indenture or the Securities may be amended with the written consent of the Holders of at least a majority in principal amount outstanding of the Securities and (ii) any default or noncompliance with any provision may be waived with the written consent of the Holders of a 9 majority in principal amount outstanding of the Securities. Subject to certain exceptions set forth in the Indenture, without the consent of any Securityholder, the Issuer and the Trustee may amend the Indenture or the Securities to cure any ambiguity, omission, defect or inconsistency, or to comply with Article 5 of the Indenture, or to provide for uncertificated Securities in addition to or in place of certificated Securities, or to add guarantees with respect to the Securities or to secure the Securities, or to add additional covenants or surrender rights and powers conferred on the Issuer, or to comply with any request of the SEC in connection with qualifying the Indenture under the Act, or to make any change that does not adversely affect the rights of any Securityholder. 15. Defaults and Remedies --------------------- Under the Indenture, Events of Default include (i) default for 30 days in payment of interest on the Securities; (ii) default in payment of principal on the Securities at maturity, upon redemption pursuant to paragraph 5 or 6 of the Securities, upon acceleration or otherwise, or failure by the Issuer to redeem or purchase Securities when required; (iii) failure by the Issuer and the Company to comply with other agreements in the Indenture or the Securities, in certain cases subject to notice and lapse of time; (iv) certain accelerations (including failure to pay within any grace period after final maturity) of other Indebtedness of the Issuer if the amount accelerated (or so unpaid) exceeds $10.0 million; (v) certain events of bankruptcy or insolvency with respect to the Company and its Significant Subsidiaries; (vi) certain judgments or decrees for the payment of money in excess of $10.0 million; and (vii) failure of the Company Guaranty or any Subsidiary Guaranty to be in full force and effect, or the failure of the Company or a Significant Subsidiary that is a Subsidiary Guarantor to honor its obligations under the Company Guaranty or its Subsidiary Guaranty, as the case may be. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the Securities may declare all the Securities to be due and payable immediately. Certain events of bankruptcy or insolvency are Events of Default which will result in the Securities being due and payable immediately upon the occurrence of such Events of Default. Securityholders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may refuse to enforce the Indenture or the Securities unless it receives reasonable indemnity or security. 10 Subject to certain limitations, Holders of a majority in principal amount of the Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Securityholders notice of any continuing Default (except a Default in payment of principal or interest) if it determines that withholding notice is in the interest of the Holders. 16. Trustee Dealings with the Issuer -------------------------------- Subject to certain limitations imposed by the Act, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with and collect obligations owed to it by the Issuer or its Affiliates and may otherwise deal with the Issuer or its Affiliates with the same rights it would have if it were not Trustee. 17. No Recourse Against Others -------------------------- A director, officer, employee or stockholder, as such, of the Issuer or the Trustee shall not have any liability for any obligations of the Issuer under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Securityholder waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities. 18. Authentication -------------- This Security shall not be valid until an authorized signatory of the Trustee (or an authenticating agent) manually signs the certificate of authentication on the other side of this Security. 19. Abbreviations ------------- Customary abbreviations may be used in the name of a Securityholder or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the entireties), JT TEN (=joint tenants with rights of survivorship and not as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors Act). 11 20. Holders' Compliance with Registration Rights Agreement. ------------------------------------------------------ Each Holder of a Security, by acceptance hereof, acknowledges and agrees to the provisions of the Registration Rights Agreement, including, without limitation, the obligations of the Holders with respect to a registration and the indemnification of the Issuer to the extent provided therein. 21. Governing Law. -------------- THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. The Issuer will furnish to any Securityholder upon written request and without charge to the Security holder a copy of the Indenture which has in it the text of this Security in larger type. Requests may be made to: CHIPPAC INTERNATIONAL COMPANY LIMITED c/o CHIPPAC, INC. 3151 CORONADO DRIVE SANTA CLARA, CA 95054 12 ________________________________________________________________________________ ASSIGNMENT FORM To assign this Security, fill in the form below: I or we assign and transfer this Security to (Print or type assignee's name, address and zip code) (Insert assignee's soc. sec. or tax I.D. No.) and irrevocably appoint agent to transfer this Security on the books of the Issuer. The agent may substitute another to act for him. ________________________________________________________________________________ Date: ________________ Your Signature:______________________ ________________________________________________________________________________ Sign exactly as your name appears on the other side of this Security. In connection with any transfer of any of the Securities evidenced by this certificate occurring prior to the expiration of the period referred to in Rule 144(k) under the Securities Act after the later of the date of original issuance of such Securities and the last date, if any, on which such Securities were owned by the Issuer or any Affiliate of the Issuer, the undersigned confirms that such Securities are being transferred in accordance with its terms: CHECK ONE BOX BELOW (1) [ ] to the Issuer; or (2) [ ] pursuant to an effective registration statement under the Securities Act of 1933; or (3) [ ] inside the United States to a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act of 1933) that 13 purchases for its own account or for the account of a qualified institutional buyer to whom notice is given that such transfer is being made in reliance on Rule 144A, in each case pursuant to and in compliance with Rule 144A under the Securities Act of 1933; or (4) [ ] outside the United States in an offshore transaction within the meaning of Regulation S under the Securities Act in compliance with Rule 904 under the Securities Act of 1933; or (5) [ ] pursuant to another available exemption from registration provided by Rule 144 under the Securities Act of 1933. Unless one of the boxes is checked, the Trustee will refuse to register any of the Securities evidenced by this certificate in the name of any person other than the registered holder thereof; provided, however, that if box -------- ------- (4) or (5) is checked, the Trustee may require, prior to registering any such transfer of the Securities, such legal opinions, certifications and other information as the Issuer has reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933, such as the exemption provided by Rule 144 under such Act. ________________________ Signature Signature Guarantee: ____________________________ ________________________ Signature must be guaranteed Signature 14 ________________________________________________________________________________ TO BE COMPLETED BY PURCHASER IF (3) ABOVE IS CHECKED. The undersigned represents and warrants that it is purchasing this Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act of 1933, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Issuer as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated: ________________ ______________________________ NOTICE: To be executed by an executive officer 15 SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY The following increases or decreases in this Global Security have been made:
Principal amount Signature of Amount of decrease Amount of increase of this Global authorized officer in Principal in Principal Security following of Trustee or Date of Amount of this Amount of this such decrease or Securities Exchange Global Security Global Security increase) Custodian
16 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Security purchased by the Issuer pursuant to Section 4.06 or 4.09 of the Indenture, check the box: [ ] If you want to elect to have only part of this Security purchased by the Issuer pursuant to Section 4.06 or 4.09 of the Indenture, state the amount in principal amount: $ Date: _______________ Your Signature: ___________________________ (Sign exactly as your name appears on the other side of this Security.) Signature Guarantee: _______________________________________ (Signature must be guaranteed) EX-4.6 21 REGISTRATION RIGHTS AGREEMENT EXHIBIT 4.6 EXECUTION COPY $150,000,000 CHIPPAC INTERNATIONAL LIMITED 12 3/4% Senior Subordinated Notes Due 2009 REGISTRATION RIGHTS AGREEMENT ----------------------------- July 29, 1999 CREDIT SUISSE FIRST BOSTON CORPORATION DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION c/o CREDIT SUISSE FIRST BOSTON CORPORATION Eleven Madison Avenue New York, N.Y. 10010 Ladies and Gentlemen: ChipPAC International Limited, a British Virgin Islands corporation (the "Issuer"), proposes to issue and sell to Credit Suisse First Boston Corporation and Donaldson, Lufkin & Jenrette Securities Corporation (the "Initial Purchasers"), upon the terms set forth in a purchase agreement dated July 22, 1999 (the "Purchase Agreement"), $150,000,000 aggregate principal amount of its 12 3/4% Senior Subordinated Notes Due 2009 (the "Initial Securities") to be unconditionally guaranteed (the "Initial Guaranty") by ChipPAC Merger Corp. (the "Initial Guarantor" and together with the Issuer, the "Company"). The Initial Securities will be issued pursuant to an Indenture, dated as of July 29, 1999 (the "Indenture"), among the Company, the Initial Guarantor and Firstar Bank of Minnesota, N.A., as trustee (the "Trustee"). Concurrently or within seven business days following consummation of the sale of the Initial Securities, pursuant to an agreement and plan of recapitalization and merger (the "Recapitalization Agreement") dated as of March 13, 1999, as amended, among Hyundai Electronics Industries Company, Ltd., a republic of Korea corporation, Hyundai Electronics America, a California corporation, ChipPAC, Inc., a California corporation ("ChipPAC, Inc.") and the Initial Guarantor, (1) the Initial Guarantor will be merged with and into ChipPAC, Inc., with ChipPAC, Inc. as the surviving corporation in such merger, and (2) the Issuer will be merged with and into a wholly owned subsidiary of ChipPAC, Inc. with such subsidiary as the surviving corporation, which surviving corporation will be renamed ChipPAC International Company Limited (the mergers described in clauses (1) and (2) are collectively referred to herein as the "Merger"). Upon consummation of the Merger, ChipPAC, Inc. and ChipPAC International Company Limited will assume, by operation of law, all of, respectively, the Initial Guarantor's and the Issuer's obligations under this Agreement and the Purchase Agreement, and by operation of law and by execution of a supplemental indenture (the "Supplemental Indenture"), the Indenture and the Initial Securities. As used herein, the Initial Guarantor means ChipPAC Merger Corp. and, after the Merger, ChipPAC, Inc., and the Issuer means ChipPAC International Limited and, after the Recapitalization, ChipPAC International Company Limited. As an inducement to the Initial Purchasers to enter into the Purchase Agreement, the Company agrees with the Initial Purchasers, for the benefit of the holders of the Initial Securities (including, without limitation, the Initial Purchasers), the Exchange Securities (as defined below) and the Private Exchange Securities (as defined below) (collectively, the "Holders"), as follows: 1. Registered Exchange Offer. The Company shall, at its own cost, prepare and, not later than 150 days after (or if the 150th day is not a business day, the first business day thereafter) the date of original issue of the Initial Securities (the "Issue Date"), file with the Securities and Exchange Commission (the "Commission") a registration statement (the "Exchange Offer Registration Statement") on an appropriate form under the Securities Act of 1933, as amended (the "Securities Act"), with respect to a proposed offer (the "Registered Exchange Offer") to the Holders of Transfer Restricted Securities (as defined in Section 6 hereof), who are not prohibited by any law or policy of the Commission from participating in the Registered Exchange Offer, to issue and deliver to such Holders, in exchange for the Initial Securities, a like aggregate principal amount of debt securities (together with the Initial Guaranty and the Subsidiary Guaranties, the "Exchange Securities") of the Company issued under the Indenture and substantially identical in all material respects to the Initial Securities (except for the transfer restrictions relating to the Initial Securities and the provisions relating to the matters described in Section 6 hereof) that would be registered under the Securities Act. The Company shall use its reasonable best efforts to cause such Exchange Offer Registration Statement to be declared effective under the Securities Act within 210 days (or if the 210th day is not a business day, the first business day thereafter) after the Issue Date of the Initial Securities and shall keep the Exchange Offer Registration Statement effective for not less than 30 days (or longer, if required by applicable law) after the date notice of the Registered Exchange Offer is mailed to the Holders (such period being called the "Exchange Offer Registration Period"). If the Company effects the Registered Exchange Offer, the Company will be entitled to close the Registered Exchange Offer 30 days after the commencement thereof provided that the Company has accepted all the Initial Securities theretofore validly tendered in accordance with the terms of the Registered Exchange Offer. Following the declaration of the effectiveness of the Exchange Offer Registration Statement, the Company shall promptly commence the Registered Exchange Offer, it being the objective of such Registered Exchange Offer to enable each Holder of Transfer Restricted Securities (as defined in Section 6 hereof) electing to 2 exchange the Initial Securities for Exchange Securities (assuming that such Holder is not an affiliate of the Company within the meaning of the Securities Act, acquires the Exchange Securities in the ordinary course of such Holder's business and has no arrangements with any person to participate in the distribution of the Exchange Securities and is not prohibited by any law or policy of the Commission from participating in the Registered Exchange Offer) to trade such Exchange Securities from and after their receipt without any limitations or restrictions under the Securities Act and without material restrictions under the securities laws of the several states of the United States. The Company acknowledges that, pursuant to current interpretations by the Commission's staff of Section 5 of the Securities Act, in the absence of an applicable exemption therefrom, (i) each Holder which is a broker-dealer electing to exchange Initial Securities, acquired for its own account as a result of market making activities or other trading activities, for Exchange Securities (an "Exchanging Dealer"), is required to deliver a prospectus containing the information substantially in the form set forth in (a) Annex A hereto on the cover, (b) Annex B hereto in the "Exchange Offer Procedures" section and the "Purpose of the Exchange Offer" section, and (c) Annex C hereto in the "Plan of Distribution" section of such prospectus in connection with a sale of any such Exchange Securities received by such Exchanging Dealer pursuant to the Registered Exchange Offer and (ii) an Initial Purchaser that elects to sell Securities (as defined below) acquired in exchange for Initial Securities constituting any portion of an unsold allotment is required to deliver a prospectus containing the information required by Items 507 or 508 of Regulation S-K under the Securities Act, as applicable, in connection with such sale. The Company shall use its reasonable best efforts to keep the Exchange Offer Registration Statement effective and to amend and supplement the prospectus contained therein, in order to permit such prospectus to be lawfully delivered by all persons subject to the prospectus delivery requirements of the Securities Act for such period of time as such persons must comply with such requirements in order to resell the Exchange Securities; provided, however, that (i) in the case where such prospectus and any amendment or supplement thereto must be delivered by an Exchanging Dealer or an Initial Purchaser, such period shall be the lesser of 180 days and the date on which all Exchanging Dealers and the Initial Purchasers have sold all Exchange Securities held by them (unless such period is extended pursuant to Section 3(j) below) and (ii) the Company shall make such prospectus and any amendment or supplement thereto available to any broker-dealer for use in connection with any resale of any Exchange Securities for a period of not less than 180 days after the consummation of the Registered Exchange Offer. If, upon consummation of the Registered Exchange Offer, any Initial Purchaser holds Initial Securities acquired by it as part of its initial distribution, the Company, simultaneously with the delivery of the Exchange Securities pursuant to the Registered Exchange Offer, shall issue and deliver to such Initial Purchaser 3 upon the written request of such Initial Purchaser, in exchange (the "Private Exchange") for the Initial Securities held by such Initial Purchaser a like principal amount of debt securities of the Company issued under the Indenture and identical in all material respects (including the existence of restrictions on transfer under the Securities Act and the securities laws of the several states of the United States, but excluding provisions relating to the matters described in Section 6 hereof) to the Initial Securities (the "Private Exchange Securities"). The Initial Securities, the Exchange Securities and the Private Exchange Securities are herein collectively called the "Securities". In connection with the Registered Exchange Offer, the Company shall: (a) mail to each Holder a copy of the prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal and related documents; (b) keep the Registered Exchange Offer open for not less than 30 days (or longer, if required by applicable law) after the date notice thereof is mailed to the Holders; (c) utilize the services of a depositary for the Registered Exchange Offer with an address in the Borough of Manhattan, The City of New York, which may be the Trustee or an affiliate of the Trustee; (d) permit Holders to withdraw tendered Securities at any time prior to the close of business, New York time, on the last business day on which the Registered Exchange Offer shall remain open; and (e) otherwise comply with all applicable laws. As soon as practicable after the close of the Registered Exchange Offer or the Private Exchange, as the case may be, the Company shall: (x) accept for exchange all the Securities validly tendered and not withdrawn pursuant to the Registered Exchange Offer and the Private Exchange; (y) deliver to the Trustee for cancelation all the Initial Securities so accepted for exchange; and (z) cause the Trustee to authenticate and deliver promptly to each Holder of the Initial Securities, Exchange Securities or Private Exchange Securities, as the case may be, equal in principal amount to the Initial Securities of such Holder so accepted for exchange. The Indenture will provide that the Exchange Securities will not be subject to the transfer restrictions set forth in the 4 Indenture and that all the Securities will vote and consent together on all matters as one class and that none of the Securities will have the right to vote or consent as a class separate from one another on any matter. Interest on each Exchange Security and Private Exchange Security issued pursuant to the Registered Exchange Offer and in the Private Exchange will accrue from the last interest payment date on which interest was paid on the Initial Securities surrendered in exchange therefor or, if no interest has been paid on the Initial Securities, from the date of original issue of the Initial Securities. Each Exchange Security and Private Exchange Security will bear interest at the rate set forth thereon; provided, that interest with respect to the period prior to the issuance thereof shall accrue at the rate or rates borne by the Initial Securities from time to time during such period. Each Holder participating in the Registered Exchange Offer shall be required to represent to the Company that at the time of the consummation of the Registered Exchange Offer (i) any Exchange Securities received by such Holder will be acquired in the ordinary course of business, (ii) such Holder will have no arrangements with any person to participate in the distribution of the Securities or the Exchange Securities within the meaning of the Securities Act, (iii) such Holder is not an "affiliate," as defined in Rule 405 of the Securities Act, of the Company or if it is an affiliate, such Holder will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable, (iv) if such Holder is not a broker-dealer, that it is not engaged in, and does not intend to engage in, the distribution of the Exchange Securities and (v) if such Holder is a broker-dealer, that it will receive Exchange Securities for its own account in exchange for Initial Securities that were acquired as a result of market-making activities or other trading activities and that it will be required to acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. Notwithstanding any other provisions hereof, the Company will ensure that (i) any Exchange Offer Registration Statement and any amendment thereto and any prospectus forming part thereof and any supplement thereto complies in all material respects with the Securities Act and the rules and regulations thereunder, (ii) any Exchange Offer Registration Statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (iii) any prospectus forming part of any Exchange Offer Registration Statement, and any supplement to such prospectus, does not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. 2. Shelf Registration. If, (i) because of any change in law or in applicable interpretations thereof by the staff of the 5 Commission, the Company is not permitted to effect a Registered Exchange Offer, as contemplated by Section 1 hereof, (ii) the Registered Exchange Offer is not consummated within 240 days of the Issue Date, (iii) any Initial Purchaser so requests with respect to the Initial Securities (or the Private Exchange Securities) not eligible to be exchanged for Exchange Securities in the Registered Exchange Offer and held by it following consummation of the Registered Exchange Offer or (iv) any Holder (other than an Exchanging Dealer) is not eligible to participate in the Registered Exchange Offer or, in the case of any Holder (other than an Exchanging Dealer) that participates in the Registered Exchange Offer, such Holder does not receive freely tradeable Exchange Securities on the date of the exchange, the Company shall take the following actions: (a) The Company shall, at its cost, as promptly as practicable (but in no event more than 60 days after so required or requested pursuant to this Section 2) file with the Commission and thereafter shall use its reasonable best efforts to cause to be declared effective on or prior to the 60th day after the date so required or requested pursuant to this Section 2 a registration statement (the "Shelf Registration Statement" and, together with the Exchange Offer Registration Statement, a "Registration Statement") on an appropriate form under the Securities Act relating to the offer and sale of the Transfer Restricted Securities (as defined in Section 6 hereof) by the Holders thereof from time to time in accordance with the methods of distribution set forth in the Shelf Registration Statement and Rule 415 under the Securities Act (hereinafter, the "Shelf Registration"); provided, however, that no Holder (other than an Initial Purchaser) shall be entitled to have the Securities held by it covered by such Shelf Registration Statement unless such Holder agrees in writing to be bound by all the provisions of this Agreement applicable to such Holder. (b) The Company shall use its reasonable best efforts to keep the Shelf Registration Statement continuously effective in order to permit the prospectus included therein to be lawfully delivered by the Holders of the relevant Securities, for a period of two years (or for such longer period if extended pursuant to Section 3(j) below) from the Issue Date or such shorter period that will terminate when all the Securities covered by the Shelf Registration Statement (i) have been sold pursuant thereto or (ii) are no longer restricted securities (as defined in Rule 144 under the Securities Act, or any successor rule thereof) (the "Shelf Registration Period"). The Company shall be deemed not to have used its reasonable best efforts to keep the Shelf Registration Statement effective during the requisite period if it voluntarily takes any action that would result in Holders of Securities covered thereby not being able to offer and sell such Securities during that period, unless such action is required by applicable law. 6 (c) Notwithstanding any other provisions of this Agreement to the contrary, the Company shall cause the Shelf Registration Statement and the related prospectus and any amendment or supplement thereto, as of the effective date of the Shelf Registration Statement, amendment or supplement, (i) to comply in all material respects with the applicable requirements of the Securities Act and the rules and regulations of the Commission and (ii) not to contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. 3. Registration Procedures. In connection with any Shelf Registration contemplated by Section 2 hereof and, to the extent applicable, any Registered Exchange Offer contemplated by Section 1 hereof, the following provisions shall apply: (a) The Company shall (i) furnish to each Initial Purchaser, prior to the filing thereof with the Commission, a copy of the Registration Statement and each amendment thereof and each supplement, if any, to the prospectus included therein and, in the event that an Initial Purchaser (with respect to any portion of an unsold allotment from the original offering) is participating in the Registered Exchange Offer or the Shelf Registration Statement, the Company shall use its best efforts to reflect in each such document, when so filed with the Commission, such comments as such Initial Purchaser reasonably may propose; (ii) include the information substantially in the form set forth in Annex A hereto on the cover, in Annex B hereto in the "Exchange Offer Procedures" section and the "Purpose of the Exchange Offer" section and in Annex C hereto in the "Plan of Distribution" section of the prospectus forming a part of the Exchange Offer Registration Statement and include the information substantially in the form set forth in Annex D hereto in the Letter of Transmittal delivered pursuant to the Registered Exchange Offer; (iii) if requested by an Initial Purchaser, include the information required by Items 507 or 508 of Regulation S-K under the Securities Act, as applicable, in the prospectus forming a part of the Exchange Offer Registration Statement; (iv) include within the prospectus contained in the Exchange Offer Registration Statement a section entitled "Plan of Distribution," reasonably acceptable to the Initial Purchasers, which shall contain a summary statement of the positions taken or policies made by the staff of the Commission with respect to the potential "underwriter" status of any broker-dealer that is the beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of Exchange Securities received by such broker-dealer in the Registered Exchange Offer (a "Participating Broker-Dealer"), whether such positions or policies have been publicly disseminated by the staff of the Commission or such positions or policies, in the reasonable judgment of the Initial Purchasers based upon advice of 7 counsel (which may be in-house counsel), represent the prevailing views of the staff of the Commission; and (v) in the case of a Shelf Registration Statement, include the names of the Holders who propose to sell Securities pursuant to the Shelf Registration Statement as selling securityholders. (b) The Company shall give written notice to the Initial Purchasers, the Holders of the Securities and any Participating Broker-Dealer from whom the Company has received prior written notice that it will be a Participating Broker-Dealer in the Registered Exchange Offer (which notice pursuant to clauses (ii)-(v) hereof shall be accompanied by an instruction to suspend the use of the prospectus until the requisite changes have been made): (i) when the Registration Statement or any amendment thereto has been filed with the Commission and when the Registration Statement or any post-effective amendment thereto has become effective; (ii) of any request by the Commission for amendments or supplements to the Registration Statement or the prospectus included therein or for additional information; (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose; (iv) of the receipt by the Company or its legal counsel of any notification with respect to the suspension of the qualification of the Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; and (v) of the happening of any event that requires the Company to make changes in the Registration Statement or the prospectus in order that the Registration Statement or the prospectus do not contain an untrue statement of a material fact nor omit to state a material fact required to be stated therein or necessary to make the statements therein (in the case of the prospectus, in light of the circumstances under which they were made) not misleading. (c) The Company shall make every reasonable effort to obtain the withdrawal at the earliest possible time, of any order suspending the effectiveness of the Registration Statement. (d) The Company shall furnish to each Holder of Securities included within the coverage of the Shelf Registration, without charge, at least one copy of the Shelf Registration Statement and any post-effective amendment 8 thereto, including financial statements and schedules, and, if the Holder so requests in writing, all exhibits thereto (including those, if any, incorporated by reference). (e) The Company shall deliver to each Exchanging Dealer and each Initial Purchaser, and to any other Holder who so requests, without charge, at least one copy of the Exchange Offer Registration Statement and any post-effective amendment thereto, including financial statements and schedules, and, if any Initial Purchaser or any such Holder requests, all exhibits thereto (including those incorporated by reference). (f) The Company shall, during the Shelf Registration Period, deliver to each Holder of Securities included within the coverage of the Shelf Registration, without charge, as many copies of the prospectus (including each preliminary prospectus) included in the Shelf Registration Statement and any amendment or supplement thereto as such person may reasonably request. The Company consents, subject to the provisions of this Agreement, to the use of the prospectus or any amendment or supplement thereto by each of the selling Holders of the Securities in connection with the offering and sale of the Securities covered by the prospectus, or any amendment or supplement thereto, included in the Shelf Registration Statement. (g) The Company shall deliver to each Initial Purchaser, any Exchanging Dealer, any Participating Broker-Dealer and such other persons required to deliver a prospectus following the Registered Exchange Offer, without charge, as many copies of the final prospectus included in the Exchange Offer Registration Statement and any amendment or supplement thereto as such persons may reasonably request. The Company consents, subject to the provisions of this Agreement, to the use of the prospectus or any amendment or supplement thereto by any Initial Purchaser, if necessary, any Exchange Dealer, any Participating Broker-Dealer and such other persons required to deliver a prospectus following the Registered Exchange Offer in connection with the offering and sale of the Exchange Securities covered by the prospectus, or any amendment or supplement thereto, included in such Exchange Offer Registration Statement. (h) Prior to any public offering of the Securities pursuant to any Registration Statement the Company shall register or qualify or cooperate with the Holders of the Securities included therein and their respective counsel in connection with the registration or qualification of the Securities for offer and sale under the securities or "blue sky" laws of such states of the United States or such provinces of Canada as any Holder of the Securities reasonably requests in writing and do any and all other acts or things necessary or advisable to enable the offer and sale in such jurisdictions of the Securities covered by such Registration Statement; provided, however, that the Company shall not be required to (i) qualify generally to do business in any jurisdiction where it is not then so qualified or (ii) take any action which would subject it to general service of process or to taxation in any jurisdiction where it is not then so subject. (i) The Company shall cooperate with the Holders of the Securities to facilitate the timely preparation and delivery of certificates representing the Securities to be sold pursuant to any Registration Statement free of any restrictive legends and in such denominations and registered in such names as the Holders may request a reasonable period of time prior to sales of the Securities pursuant to such Registration Statement. (j) Upon the occurrence of any event contemplated by paragraphs (ii) through (v) of Section 3(b) above during the period for which the Company is required to maintain an effective Registration Statement, the Company shall promptly prepare and file a post-effective amendment to the Registration Statement or a supplement to the related prospectus and any other required document so that, as thereafter delivered to Holders of the Securities or purchasers of Securities, the prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. If the Company notifies the Initial Purchasers, the Holders of the Securities and any known Participating Broker-Dealer in accordance with paragraphs (ii) through (v) of Section 3(b) above to suspend the use of the prospectus until the requisite changes to the prospectus have been made, then the Initial Purchasers, the Holders of the Securities and any such Participating Broker-Dealers shall suspend use of such prospectus, and the period of effectiveness of the Shelf Registration Statement provided for in Section 2(b) above and the Exchange Offer Registration Statement provided for in Section 1 above shall each be extended by the number of days from and including the date of the giving of such notice to and including the date when the Initial Purchasers, the Holders of the Securities and any known Participating Broker-Dealer shall have received such amended or supplemented prospectus pursuant to this Section 3(j). Notwithstanding the foregoing, the Company shall not be required to amend or supplement a Registration Statement, any related prospectus or any document incorporated by reference, for a period not to exceed an aggregate of 30 days in any calendar year, if (i) an event occurs and is continuing as a result of which the Registration Statement would, in the Company's good faith judgment, contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances in which they were made, not misleading and (ii) the board of directors of the Company determines in its good faith judgment that the disclosure of such event at such time 10 would have a material adverse effect on the business or operations of the Company. (k) Not later than the effective date of the applicable Registration Statement, the Company will provide a CUSIP number for the Initial Securities, the Exchange Securities or the Private Exchange Securities, as the case may be, and provide the applicable trustee with printed certificates for the Initial Securities, the Exchange Securities or the Private Exchange Securities, as the case may be, in a form eligible for deposit with The Depository Trust Company. (l) The Company will comply with all rules and regulations of the Commission to the extent and so long as they are applicable to the Registered Exchange Offer or the Shelf Registration and will make generally available to its security holders (or otherwise provide in accordance with Section 11(a) of the Securities Act) an earnings statement satisfying the provisions of Section 11(a) of the Securities Act, no later than 45 days after the end of a 12-month period (or 90 days, if such period is a fiscal year) beginning with the first month of the Company's first fiscal quarter commencing after the effective date of the Registration Statement, which statement shall cover such 12-month period. (m) The Company shall cause the Indenture to be qualified under the Trust Indenture Act of 1939, as amended, in a timely manner and containing such changes, if any, as shall be necessary for such qualification. In the event that such qualification would require the appointment of a new trustee under the Indenture, the Company shall appoint a new trustee thereunder pursuant to the applicable provisions of the Indenture. (n) The Company may require each Holder of Securities to be sold pursuant to the Shelf Registration Statement to furnish to the Company such information regarding the Holder and the distribution of the Securities as the Company may from time to time reasonably require for inclusion in the Shelf Registration Statement, and the Company may exclude from such registration the Securities of any Holder that fails to furnish all or any material portion of such information which the Company reasonably requires, in the reasonable opinion of its counsel, in order to insure the compliance of the Shelf Registration Statement with applicable law and Commission policy within a reasonable time after receiving such written request, and shall be under no obligation to compensate any such seller for any lost income, interest or other opportunity foregone, or any liability incurred, as a result of the Company's decision to exclude such seller. (o) The Company shall enter into such customary agreements (including, if requested, an underwriting agreement in customary form) and take all such other action, if any, as 11 any, Holder of the Securities shall reasonably request in order to facilitate the disposition of the Securities pursuant to any Shelf Registration. (p) In the case of any Shelf Registration, the Company shall (i) make reasonably available for inspection by the Holders of the Securities, any underwriter participating in any disposition pursuant to the Shelf Registration Statement and any attorney, accountant or other agent retained by the Holders of the Securities or any such underwriter (collectively, the "Inspectors") all relevant financial and other records, pertinent corporate documents and properties of the Company and (ii) cause the Company's officers, directors, employees, accountants and auditors to supply all relevant information reasonably requested by the Holders of the Securities or any such underwriter, attorney, accountant or agent in connection with the Shelf Registration Statement, in each case, as shall be reasonably necessary to enable such persons, to conduct a reasonable investigation within the meaning of Section 11 of the Securities Act; provided, however, that the foregoing inspection and information gathering shall be coordinated on behalf of the Initial Purchasers by you and on behalf of the other parties, by one counsel designated by and on behalf of such other parties as described in Section 4 hereof. Records which the Company reasonably determines, in good faith, to be confidential and any records which they notify the Inspectors are confidential shall not be disclosed by the Inspectors unless (i) the disclosure of such records is necessary to avoid or correct a material misstatement or omission in such Registration Statement after a failure by the Company to make such disclosure for a period of 5 business days after receiving written notice from any Inspector of the need to make such disclosure, (ii) the release of such records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction or (iii) the information in such records has been made generally available to the public. Each selling Holder of such Registrable Securities and each such Participating Broker-Dealer will be required to agree that information obtained by it as a result of such inspections shall be deemed confidential and shall not be used by it as the basis for any market transactions in the securities of the Company unless and until such is made generally available to the public. Each selling Holder of such Registrable Securities and each such Participating Broker-Dealer will be required to further agree that it will, upon learning that disclosure of such records is sought in a court of competent jurisdiction, give notice to the Company and allow the Company at its expense to undertake appropriate action to prevent disclosure of the records deemed confidential. (q) In the case of any Shelf Registration, the Company, if requested by any Holder of Securities covered thereby, shall cause (i) its counsel to deliver an opinion and updates thereof relating to the Securities in customary form 12 addressed to such Holders and the managing underwriters, if any, thereof and dated, in the case of the initial opinion, the effective date of such Shelf Registration Statement (it being agreed that the matters to be covered by such opinion shall include, without limitation, the due incorporation and good standing of the Company and its subsidiaries; the qualification of the Company and its subsidiaries to transact business as foreign corporations; the due authorization, execution and delivery of the relevant agreement of the type referred to in Section 3(o) hereof; the due authorization, execution, authentication and issuance, and the validity and enforceability, of the applicable Securities; the absence of material legal or governmental proceedings involving the Company and its subsidiaries; the absence of governmental approvals required to be obtained in connection with the Shelf Registration Statement, the offering and sale of the applicable Securities, or any agreement of the type referred to in Section 3(o) hereof; the compliance as to form of such Shelf Registration Statement and any documents incorporated by reference therein and of the Indenture with the requirements of the Securities Act and the Trust Indenture Act, respectively; and, as of the date of the opinion and as of the effective date of the Shelf Registration Statement or most recent post-effective amendment thereto, as the case may be, the absence from such Shelf Registration Statement and the prospectus included therein, as then amended or supplemented, and from any documents incorporated by reference therein of an untrue statement of a material fact or the omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading (in the case of any such documents, in the light of the circumstances existing at the time that such documents were filed with the Commission under the Exchange Act); (ii) its officers to execute and deliver all customary documents and certificates and updates thereof requested by any underwriters of the applicable Securities and (iii) its independent public accountants and the independent public accountants with respect to any other entity for which financial information is provided in the Shelf Registration Statement to provide to the selling Holders of the applicable Securities and any underwriter therefor a comfort letter in customary form and covering matters of the type customarily covered in comfort letters in connection with primary underwritten offerings, subject to receipt of appropriate documentation as contemplated, and only if permitted, by Statement of Auditing Standards No. 72. (r) In the case of the Registered Exchange Offer, if requested by any Initial Purchaser or any known Participating Broker-Dealer, the Company shall cause (i) its counsel to deliver to such Initial Purchaser or such Participating Broker-Dealer a signed opinion in the forms set forth in Section 6(c)-(h) of the Purchase Agreement with such changes as are customary in connection with the preparation of a Registration Statement and (ii) its independent public 13 accountants and the independent public accountants with respect to any other entity for which financial information is provided in the Registration Statement to deliver to such Initial Purchaser or such Participating Broker-Dealer a comfort letter, in customary form, meeting the requirements as to the substance thereof as set forth in Section 6(a) of the Purchase Agreement, with appropriate date changes. (s) If a Registered Exchange Offer or a Private Exchange is to be consummated, upon delivery of the Initial Securities by Holders to the Company (or to such other Person as directed by the Company) in exchange for the Exchange Securities or the Private Exchange Securities, as the case may be, the Company shall mark, or caused to be marked, on the Initial Securities so exchanged that such Initial Securities are being canceled in exchange for the Exchange Securities or the Private Exchange Securities, as the case may be; in no event shall the Initial Securities be marked as paid or otherwise satisfied. (t) The Company will use its best efforts to (i) if the Initial Securities have been rated prior to the initial sale of such Initial Securities, confirm such ratings will apply to the Securities covered by a Registration Statement, or (ii) if the Initial Securities were not previously rated, cause the Securities covered by a Registration Statement to be rated with the appropriate rating agencies, if so requested by Holders of a majority in aggregate principal amount of Securities covered by such Registration Statement, or by the managing underwriters, if any. (u) In the event that any broker-dealer registered under the Exchange Act shall underwrite any Securities or participate as a member of an underwriting syndicate or selling group or "assist in the distribution" (within the meaning of the Conduct Rules (the "Rules") of the National Association of Securities Dealers, Inc. ("NASD")) thereof, whether as a Holder of such Securities or as an underwriter, a placement or sales agent or a broker or dealer in respect thereof, or otherwise, the Company will assist such broker-dealer in complying with the requirements of such Rules, including, without limitation, by (i) if such Rules, including Rule 2720, shall so require, engaging a "qualified independent underwriter" (as defined in Rule 2720) to participate in the preparation of the Registration Statement relating to such Securities, to exercise usual standards of due diligence in respect thereto and, if any portion of the offering contemplated by such Registration Statement is an underwritten offering or is made through a placement or sales agent, to recommend the yield of such Securities, (ii) indemnifying any such qualified independent underwriter to the extent of the indemnification of underwriters provided in Section 5 hereof and (iii) providing such information to such broker-dealer as may be required in order for such broker-dealer to comply with the requirements of the Rules. 14 (v) The Company shall use its best efforts to take all other steps necessary to effect the registration of the Securities covered by a Registration Statement contemplated hereby. 4. Registration Expenses. The Company shall bear all fees and expenses incurred in connection with the performance of its obligations under Sections 1 through 3 hereof (including the reasonable fees and expenses, if any, of Cravath, Swaine & Moore, counsel for the Initial Purchasers, incurred in connection with the Registered Exchange Offer), whether or not the Registered Exchange Offer or a Shelf Registration is filed or becomes effective, and, in the event of a Shelf Registration, shall bear or reimburse the Holders of the Securities covered thereby for the reasonable fees and disbursements of one firm of counsel designated by the Holders of a majority in principal amount of the Securities covered thereby to act as counsel for the Holders of the Securities in connection therewith. Except as provided in the preceding sentence, each Holder shall pay all expenses of its counsel, underwriting discounts and commissions, and transfer taxes, if any, relating to the sale or disposition of such Holder's Transfer Restricted Securities pursuant to a Shelf Registration Statement. 5. Indemnification. (a) The Company agrees to indemnify and hold harmless each Holder of the Securities, any Participating Broker-Dealer and each person, if any, who controls such Holder or such Participating Broker-Dealer within the meaning of the Securities Act or the Exchange Act (each Holder, any Participating Broker-Dealer and such controlling persons are referred to collectively as the "Indemnified Parties") from and against any losses, claims, damages or liabilities, joint or several, or any actions in respect thereof (including, but not limited to, any losses, claims, damages, liabilities or actions relating to purchases and sales of the Securities) to which each Indemnified Party may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such losses, claims, damages, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in a Registration Statement or prospectus or in any amendment or supplement thereto or in any preliminary prospectus relating to a Shelf Registration, or arise out of, or are based upon, the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and shall reimburse, as incurred, the Indemnified Parties for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action in respect thereof; provided, however, that (i) the Company shall not be liable in any such case to the extent that such loss, claim, damage or liability arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged 15 omission made in a Registration Statement or prospectus or in any amendment or supplement thereto or in any preliminary prospectus relating to a Shelf Registration in reliance upon and in conformity with written information pertaining to such Holder and furnished to the Company by or on behalf of such Holder specifically for inclusion therein and (ii) with respect to any untrue statement or omission or alleged untrue statement or omission made in any preliminary prospectus relating to a Shelf Registration Statement, the indemnity agreement contained in this subsection (a) shall not inure to the benefit of any Holder or Participating Broker-Dealer from whom the person asserting any such losses, claims, damages or liabilities purchased the Securities concerned, to the extent that a prospectus relating to such Securities was required to be delivered by such Holder or Participating Broker-Dealer under the Securities Act in connection with such purchase and any such loss, claim, damage or liability of such Holder or Participating Broker-Dealer results from the fact that there was not sent or given to such person, at or prior to the written confirmation of the sale of such Securities to such person, a copy of the final prospectus if the Company had previously furnished copies thereof to such Holder or Participating Broker-Dealer; provided further, however, that this indemnity agreement will be in addition to any liability which the Company may otherwise have to such Indemnified Party. The Company shall also indemnify underwriters, their officers and directors and each person who controls such underwriters within the meaning of the Securities Act or the Exchange Act to the same extent as provided above with respect to the indemnification of the Holders of the Securities if requested by such Holders. (b) Each Holder of the Securities, severally and not jointly, will indemnify and hold harmless the Company and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act from and against any losses, claims, damages or liabilities or any actions in respect thereof, to which the Company or any such controlling person may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such losses, claims, damages, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in a Registration Statement or prospectus or in any amendment or supplement thereto or in any preliminary prospectus relating to a Shelf Registration, or arise out of or are based upon the omission or alleged omission to state therein a material fact necessary to make the statements therein not misleading, but in each case only to the extent that the untrue statement or omission or alleged untrue statement or omission was made in reliance upon and in conformity with written information pertaining to such Holder and furnished to the Company by or on behalf of such Holder specifically for inclusion therein; and, subject to the limitation set forth immediately preceding this clause, shall reimburse, as incurred, the Company for any legal or other 16 expenses reasonably incurred by the Company or any such controlling person in connection with investigating or defending any loss, claim, damage, liability or action in respect thereof. This indemnity agreement will be in addition to any liability which such Holder may otherwise have to the Company or any of its controlling persons. (c) Promptly after receipt by an indemnified party under this Section 5 of notice of the commencement of any action or proceeding (including a governmental investigation), such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 5, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not, in any event, relieve the indemnifying party from any obligations to any indemnified party (a) other than to the extent such indemnifying party is materially prejudiced by such omission and (b) other than the indemnification obligation provided in paragraph (a) or (b) above. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof the indemnifying party will not be liable to such indemnified party under this Section 5 for any legal or other expenses, other than reasonable costs of investigation, subsequently incurred by such indemnified party in connection with the defense thereof. In no event shall an indemnifying party be liable for fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened action in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party unless such settlement includes an unconditional release of such indemnified party from all liability on any claims that are the subject matter of such action. (d) If the indemnification provided for in this Section 5 is unavailable or insufficient to hold harmless an indemnified party under subsections (a) or (b) above, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) 17 referred to in subsection (a) or (b) above (i) in such proportion as is appropriate to reflect the relative benefits received by the indemnifying party or parties on the one hand and the indemnified party on the other from the exchange of the Securities, pursuant to the Registered Exchange Offer, or (ii) if the allocation provided by the foregoing clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the indemnifying party or parties on the one hand and the indemnified party on the other in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities (or actions in respect thereof) as well as any other relevant equitable considerations. The relative fault of the parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by such indemnifying party on the one hand or such indemnified party, on the other, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any action or claim which is the subject of this subsection (d). Notwithstanding any other provision of this Section 5(d), the Holders of the Securities shall not be required to contribute any amount in excess of the amount by which the net proceeds received by such Holders from the sale or other disposition of the Securities pursuant to a Registration Statement exceeds the amount of damages which such Holders have otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. For purposes of this paragraph (d), each person, if any, who controls an indemnified party within the meaning of the Securities Act or the Exchange Act shall have the same rights to contribution as such indemnified party. (e) The agreements contained in this Section 5 shall survive the sale of the Securities pursuant to a Registration Statement and shall remain in full force and effect, regardless of any termination or cancelation of this Agreement or any investigation made by or on behalf of any indemnified party. 6. Additional Interest Under Certain Circumstances. (a) Additional interest (the "Additional Interest") with respect to the Initial Securities and the Private Exchange Securities shall be assessed as follows if any of the following events occur (each such event in clauses (i) through (iii) below a "Registration Default": 18 (i) If by December 26, 1999 (or if such day is not a business day, the first business day thereafter), neither the Exchange Offer Registration Statement nor a Shelf Registration Statement has been filed with the Commission; (ii) If by March 25, 2000 (or if such day is not a business day, the first business day thereafter), neither the Registered Exchange Offer is consummated nor, if required in lieu thereof, the Shelf Registration Statement is declared effective by the Commission; or (iii) If after either the Exchange Offer Registration Statement or the Shelf Registration Statement is declared effective (A) such Registration Statement thereafter ceases to be effective or (B) such Registration Statement or the related prospectus ceases to be usable (except as permitted in paragraph (b)) in connection with resales of Transfer Restricted Securities during the periods specified herein because either (1) any event occurs as a result of which the related prospectus forming part of such Registration Statement would include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein in the light of the circumstances under which they were made not misleading, or (2) it shall be necessary to amend such Registration Statement or supplement the related prospectus, to comply with the Securities Act or the Exchange Act or the respective rules thereunder. Additional Interest shall accrue on the Initial Securities and the Private Exchange Securities at a rate of 0.50% per annum over and above the interest set forth in the title of the Securities from and including the date on which any such Registration Default shall occur to but excluding the date on which all such Registration Defaults have been cured, at which time Additional Interest shall cease to accrue (but any accrued amount shall be payable) and the interest rate on the Notes will revert to the original rate. (b) A Registration Default referred to in Section 6(a)(iii)(B) hereof shall be deemed not to have occurred and be continuing in relation to a Shelf Registration Statement or the related prospectus if (i) such Registration Default has occurred solely as a result of (x) the filing of a post-effective amendment to such Shelf Registration Statement to incorporate annual audited financial information with respect to the Company where such post-effective amendment is not yet effective and needs to be declared effective to permit Holders to use the related prospectus or (y) other material events, with respect to the Company that would need to be described in such Shelf Registration Statement or the related 19 prospectus and (ii) in the case of clause (y), the Company is proceeding promptly and in good faith to amend or supplement such Shelf Registration Statement and related prospectus to describe such events; provided, however, that in any case if such Registration Default occurs for a continuous period in excess of 30 days, Additional Interest shall be payable in accordance with the above paragraph from the day such Registration Default occurs until such Registration Default is cured, at which time Additional Interest shall cease to accrue (but any accrued amount shall be payable) and the interest rate on the Notes will revert to the original rate. (c) Any amounts of Additional Interest due pursuant to clause (i), (ii) or (iii) of Section 6(a) above will be payable in cash on the regular interest payment dates with respect to the Securities. The amount of Additional Interest will be determined by multiplying the applicable Additional Interest rate by the principal amount of the Initial Securities or Private Exchange Securities, as the case may be, multiplied by a fraction, the numerator of which is the number of days such Additional Interest rate was applicable during such period (determined on the basis of a 360-day year comprised of twelve 30-day months), and the denominator of which is 360. (d) "Transfer Restricted Securities" means each Security until (i) the date on which such Security has been exchanged by a person other than a broker-dealer for a freely transferable Exchange Security in the Registered Exchange Offer, (ii) following the exchange by a broker-dealer in the Registered Exchange Offer of an Initial Security for an Exchange Security, the date on which such Exchange Security is sold to a purchaser who receives from such broker-dealer on or prior to the date of such sale a copy of the prospectus contained in the Exchange Offer Registration Statement, (iii) the date on which such Security has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement, (iv) the date on which such Security is distributed to the public pursuant to Rule 144 under the Securities Act or is saleable pursuant to Rule 144(k) under the Securities Act (or other substantially similar resale exemption promulgated in the future under the Securities Act, but not Rule 144A under the Securities Act), (v) the date such Security or Private Exchange Security, as the case may be, shall have been otherwise transferred by the holder thereof and a new Security not bearing a legend restricting further transfer shall have been delivered by the Company and subsequent disposition of such Security shall not require registration or qualification under, and shall not otherwise be restricted under, the Securities Act or any similar state law then in force or (vi) such Security or Private Exchange Security, as the case may be, ceases to be outstanding. 20 7. Rules 144 and 144A. The Company shall use its best efforts to file the reports required to be filed by it under the Securities Act and the Exchange Act in a timely manner and, if at any time the Company is not required to file such reports, it will, upon the request of any Holder of Securities, make publicly available other information so long as necessary to permit sales of their securities pursuant to Rules 144 and 144A. The Company covenants that it will take such further action as any Holder of Securities may reasonably request, all to the extent required from time to time to enable such Holder to sell Securities without registration under the Securities Act within the limitation of the exemptions provided by Rules 144 and 144A (including the requirements of Rule 144A(d)(4)). The Company will provide a copy of this Agreement to prospective purchasers of Initial Securities or Private Exchange Securities identified to the Company by the Initial Purchasers upon request. Upon the request of any Holder of Initial Securities or Private Exchange Securities, the Company shall deliver to such Holder a written statement as to whether it has complied with such requirements. Notwithstanding the foregoing, nothing in this Section 7 shall be deemed to require the Company to register any of its securities pursuant to the Exchange Act. 8. Underwritten Registrations. If any of the Transfer Restricted Securities covered by any Shelf Registration are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will administer the offering ("Managing Underwriters") will be selected by the Holders of a majority in aggregate principal amount of such Transfer Restricted Securities to be included in such offering. No person may participate in any underwritten registration hereunder unless such person (i) agrees to sell such person's Transfer Restricted Securities on the basis reasonably provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. 9. Miscellaneous. (a) Amendments and Waivers. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, except by the Company and the written consent of the Holders of a majority in principal amount of the Securities affected by such amendment, modification, supplement, waiver or consents. (b) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand delivery, first-class mail, facsimile transmission, or air courier which guarantees overnight delivery: 21 (1) if to a Holder of the Securities, at the most current address given by such Holder to the Company. (2) if to the Initial Purchasers; Credit Suisse First Boston Corporation Eleven Madison Avenue New York, New York 10010-3629 Fax No.: (212) 325-8278 Attention: Transactions Advisory Group with a copy to: Cravath, Swaine & Moore Worldwide Plaza 825 Eighth Avenue New York, New York 10019 Fax No.: (212) 474-3700 Attention: Stephen L. Burns, Esq. (3) if to the Company, at its address as follows: ChipPAC, Inc. 3151 Coronado Drive Santa Clara, California 95054 Fax No.: (408) 486-5914 Attention: Chief Financial Officer with a copy to: Kirkland & Ellis 300 South Grand Avenue, Suite 3000 Los Angeles, California 90071 Fax No.: 213-626-0010 Attention: Eva Herbst Davis, Esq. All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; three business days after being deposited in the mail, postage prepaid, if mailed; when receipt is acknowledged by recipient's facsimile machine operator, if sent by facsimile transmission; and on the day delivered, if sent by overnight air courier guaranteeing next day delivery. (c) No Inconsistent Agreements. The Company hereby agrees that any Registration Statement shall, unless otherwise agreed upon by the Initial Purchasers, include only those Securities required to be included thereunder pursuant to the terms of this Agreement. The Company has not, as of the date hereof, entered into, nor shall it, on or after the date hereof, enter into, any agreement with respect to its 22 securities that is inconsistent with the rights granted to the Holders herein or otherwise conflicts with the provisions hereof. (d) Successors and Assigns. This Agreement shall be binding upon the Company and its successors and assigns. (e) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (f) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (g) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. (h) Severability. If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. (i) Securities Held by the Company. Whenever the consent or approval of Holders of a specified percentage of principal amount of Securities is required hereunder, Securities held by the Company or its affiliates (other than subsequent Holders of Securities if such subsequent Holders are deemed to be affiliates solely by reason of their holdings of such Securities) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. (j) Agent for Service; Submission to Jurisdiction; Waiver of Immunities. By the execution and delivery of this Agreement, the Company (i) acknowledges that it has, by separate written instrument, irrevocably designated and appointed CT Corporation System (and any successor entity), with offices at 1633 Broadway, New York, NY 10019, as its authorized agent upon which process may be served in any suit or proceeding arising out of or relating to this Agreement that may be instituted in any federal or state court in the State of New York or brought under federal or state securities laws, and acknowledges that CT Corporation System has accepted such designation, (ii) submits to the nonexclusive jurisdiction of any such court in any such suit or proceeding, and (iii) agrees that service of process upon CT Corporation System and written notice of said service to the Company shall be deemed in every respect effective service of process upon it in any such suit or proceeding. The Company further agrees 23 to take any and all action, including the execution and filing of any and all such documents and instruments, as may be necessary to continue such designation and appointment of CT Corporation System in full force and effect so long as any of the Securities shall be outstanding. To the extent that the Company may acquire any immunity from jurisdiction of any court or from any legal process (whether through service of notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself or its property, it hereby irrevocably waives such immunity in respect of this Agreement, to the fullest extent permitted by law. 24 If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement among the several Initial Purchasers and the Issuer and the Guarantors in accordance with its terms. Very truly yours, CHIPPAC INTERNATIONAL LIMITED, by: /s/ Tony Lin ---------------------------------- Name: Tony Lin Title: Chief Financial Officer CHIPPAC MERGER CORP., by: /s/ Paul C. Schorr IV ---------------------------------- Name: Paul C. Schorr IV Title: Vice President The foregoing Registration Rights Agreement is hereby confirmed and accepted as of the date first above written. CREDIT SUISSE FIRST BOSTON CORPORATION DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION By: CREDIT SUISSE FIRST BOSTON CORPORATION /s/ David Wah _______________________________________________ Name: David Wah Title: Director By: DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION /s/ Edward Biggins _______________________________________________ Name: Edward Biggins Title: Vice President 26 ANNEX A Each broker-dealer that receives Exchange Securities for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Securities received in exchange for Initial Securities where such Initial Securities were acquired by such broker- dealer as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the Expiration Date (as defined herein), it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." 27 ANNEX B Each broker-dealer that receives Exchange Securities for its own account in exchange for Initial Securities, where such Initial Securities were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. See "Plan of Distribution." 28 ANNEX C PLAN OF DISTRIBUTION Each broker-dealer that receives Exchange Securities for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Securities received in exchange for Initial Securities where such Initial Securities were acquired as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the Expiration Date, it will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until , , all dealers effecting transactions in the Exchange Securities may be required to deliver a prospectus./1/ In addition, the legend required by item 502(b) of Regulation S-K will appear on the back cover page of the Exchange Offer pro spectus. The Company will not receive any proceeds from any sale of Exchange Securities by broker-dealers. Exchange Securities received by broker-dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the Exchange Securities or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer or the purchasers of any such Exchange Securities. Any broker-dealer that resells Exchange Securities that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Securities may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of Exchange Securities and any commission or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker- dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of 180 days after the Expiration Date the Company will promptly send additional copies of this Prospectus and any _________________________ /1/ In addition, the legend required by item 502(b) of Regulation S-K will appear on the back cover page of the Exchange Offer prospectus. 29 amendment or supplement to this Prospectus to any broker-dealer that requests such documents in the Letter of Transmittal. The Company has agreed to pay all expenses incident to the Exchange Offer (including the expenses of one counsel for the Holders of the Securities) other than commissions or concessions of any brokers or dealers and will indemnify the Holders of the Securities (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act. 30 ANNEX D [ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name: Address: If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of Exchange Securities. If the undersigned is a broker-dealer that will receive Exchange Securities for its own account in exchange for Initial Securities that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus in connection with any resale of such Exchange Securities; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. 31 EX-5.1 22 OPINION OF KIRKLAND & ELLIS EXHIBIT 5.1 KIRKLAND & ELLIS PARTNERSHIPS INCLUDING PROFESSIONAL CORPORATIONS 200 East Randolph Drive Chicago, Illinois 60601 To Call Writer Direct: 312 861-2000 Facsimile: 312 861-2000 312 861-2200 November 19, 1999 ChipPAC International Company Limited ChipPAC, Inc. ChipPAC (Barbados) Ltd. ChipPAC Limited ChipPAC Korea Company Ltd. ChipPAC Luxembourg S.a.R.L. ChipPAC Liquidity Management Hungary Limited Liability Company 3151 Coronado Drive Santa Clara, California 95404 Re: ChipPAC International Company Limited ChipPAC, Inc. ChipPAC (Barbados) Ltd. ChipPAC Limited ChipPAC Korea Company Ltd. ChipPAC Luxembourg S.a.R.L. ChipPAC Liquidity Management Hungary Limited Liability Company Registration Statement on Form S-4 ---------------------------------- Ladies and Gentlemen: We are issuing this opinion letter in our capacity as special legal counsel to ChipPAC International Company Limited, a British Virgin Islands corporation (the "Issuer"), and ChipPAC, Inc., a California corporation, ChipPAC (Barbados) Ltd., a corporation formed under the laws of Barbados, ChipPAC Limited, a British Virgin Islands corporation, ChipPAC Korea Company Ltd., a company formed under the laws of the Republic of Korea, ChipPAC Luxembourg S.a.R.L., a company formed under the laws of Luxembourg, and ChipPAC Liquidity Management Hungary Limited Liability Company, a company formed under the laws of Hungary (collectively, the "Guarantors" and, together with the Issuer, the "Registrants") in connection with the proposed KIRKLAND & ELLIS ChipPAC International Company Limited ChipPAC, Inc. ChipPAC (Barbados) Ltd. ChipPAC Limited ChipPAC Korea Company Ltd. ChipPAC Luxembourg S.a.R.L. ChipPAC Liquidity Management Hungary Limited Liability Company November 19, 1999 Page 2 registration by the Issuer of up to $150,000,000 in aggregate principal amount of the Issuer's 12 3/4% Series B Senior Subordinated Notes Due 2009 (the "Exchange Notes"), pursuant to a Registration Statement on Form S-4 filed with the Securities and Exchange Commission (the "Commission") on November 19, 1999, under the Securities Act of 1933, as amended (the "Act") (such Registration Statement, as amended or supplemented, is hereinafter referred to as the "Registration Statement"). The obligations of the Issuer under the Exchange Notes will be guaranteed by the Guarantors (the "Guarantees"). The Exchange Notes and the Guarantees are to be issued pursuant to the Indenture (the "Indenture"), dated as of July 29, 1999 (and as amended on August 5, 1999), by and among the Registrants and Firstar Bank of Minnesota, N.A., as Trustee, in exchange for and in replacement of the Issuer's outstanding 12 3/4% Senior Subordinated Notes Due 2009 (the "Old Notes"). We have been informed that $150,000,000 in aggregate principal amount of Old Notes was outstanding as of November 19, 1999. In that connection, we have examined originals, or copies certified or otherwise identified to our satisfaction, of such documents, corporate records and other instruments as we have deemed necessary for the purposes of this opinion, including (i) Amended and Restated Articles of Incorporation of ChipPAC, Inc., (ii) Amended and Restated Bylaws of ChipPAC, Inc., (iii) minutes, dated as of July 21, 1999, of the Board of Directors of ChipPAC, Inc. with respect to the issuance of the Exchange Notes and the Guarantees, (iv) the Registration Statement and (v) the Notes Registration Rights Agreement, dated as of July 29, 1999, by and among the Registrants, Credit Suisse First Boston Corporation and Donaldson, Lufkin & Jenrette Securities Corporation. For purposes of this opinion, we have assumed the authenticity of all documents submitted to us as originals, the conformity to the originals of all documents submitted to us as copies and the authenticity of the originals of all documents submitted to us as copies. We have also assumed the genuineness of the signatures of persons signing all documents in connection with which this opinion is rendered, the authority of such persons signing on behalf of the parties thereto other than ChipPAC, Inc. and the due authorization, execution and delivery of all documents, including the KIRKLAND & ELLIS ChipPAC International Company Limited ChipPAC, Inc. ChipPAC (Barbados) Ltd. ChipPAC Limited ChipPAC Korea Company Ltd. ChipPAC Luxembourg S.a.R.L. ChipPAC Liquidity Management Hungary Limited Liability Company November 19, 1999 Page 3 Exchange Notes, the Indenture and Guarantees, by the parties thereto other than ChipPAC, Inc. As to any facts material to the opinions expressed herein which we have not independently established or verified, we have relied upon statements and representations of officers and other representatives of the Registrants and others. Our opinion expressed below is subject to the qualifications that we express no opinion as to the applicability of, compliance with, or effect of (i) any bankruptcy, insolvency, reorganization, fraudulent transfer, fraudulent conveyance, moratorium or other similar law affecting the enforcement of creditors' rights generally, (ii) general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law), (iii) public policy considerations which may limit the rights of parties to obtain certain remedies and (iv) any laws except the internal laws of the States of New York and California, the General Corporation Law of the State of Delaware and the federal laws of the United States of America. Based upon and subject to the assumptions, qualifications, exclusions and other limitations contained in this letter, we are of the opinion that when (i) the Registration Statement becomes effective, (ii) the Indenture has been duly qualified under the Trust Indenture Act of 1939, as amended and (iii) the Exchange Notes and the Guarantees have been duly executed and authenticated in accordance with the provisions of the Indenture and duly delivered to the purchasers thereof in exchange for the Old Notes, the Exchange Notes and the Guarantees will be validly issued and will be legal and binding obligations of the Registrants. We hereby consent to the filing of this opinion with the Commission as Exhibit 5.1 to the Registration Statement. We also consent to the reference to our firm under the heading "Legal Matters" in the Registration Statement. In giving this consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Act or the rules and regulations of the Commission. KIRKLAND & ELLIS ChipPAC International Company Limited ChipPAC, Inc. ChipPAC (Barbados) Ltd. ChipPAC Limited ChipPAC Korea Company Ltd. ChipPAC Luxembourg S.a.R.L. ChipPAC Liquidity Management Hungary Limited Liability Company November 19, 1999 Page 4 This opinion is limited to the specific issues addressed herein, and no opinion may be inferred or implied beyond that expressly stated herein. We assume no obligation to revise or supplement this opinion should the present laws of the States of New York or California or the General Corporation Law of the State of Delaware or the federal law of the United States be changed by legislative action, judicial decision or otherwise. This opinion is furnished to you in connection with the filing of the Registration Statement and is not to be used, circulated, quoted or otherwise relied upon for any other purpose. Sincerely, /s/ Kirkland & Ellis Kirkland & Ellis EX-8.1 23 OPINION OF KIRKLAND & ELLIS EXHIBIT 8.1 KIRKLAND & ELLIS PARTNERSHIPS INCLUDING PROFESSIONAL CORPORATIONS 200 East Randolph Drive Chicago, Illinois 60601 To Call Writer Direct: 312 861-2000 Facsimile: 312 861-2000 312 861-2200 November 19, 1999 ChipPAC International Company Limited ChipPAC, Inc. ChipPAC (Barbados) Ltd. ChipPAC Limited ChipPAC Korea Company Ltd. ChipPAC Luxembourg S.a.R.L. ChipPAC Liquidity Management Hungary Limited Liability Company Re: Offer by ChipPAC International Company Limited to Exchange any --------------------------------------------------------------- and all of its outstanding 12 3/4% Senior Subordinated Notes Due ---------------------------------------------------------------- 2009 for its 12 3/4% Series B Senior Subordinated Notes Due 2009 ---------------------------------------------------------------- Ladies and Gentlemen: We have acted as special legal counsel to (i) ChipPAC International Company Limited, a British Virgin Islands corporation (the "Issuer"), and (ii) ChipPAC, Inc., a California corporation, ChipPAC (Barbados) Ltd., a corporation formed under the laws of Barbados, ChipPAC Limited, a British Virgin Islands corporation, ChipPAC Korea Company Ltd., a company formed under the laws of the Republic of Korea, ChipPAC Luxembourg S.a.R.L., a company formed under the laws of Luxembourg, and ChipPAC Liquidity Management Hungary Limited Liability Company, a company formed under the laws of Hungary (collectively, the "Guarantors" and, together with the Issuer, the "Registrants") in connection with the Issuer's offer (the "Exchange Offer") to exchange any and all of its 12 -------------- 3/4% Senior Subordinated Notes Due 2009 (the "Old Securities") for their 12 -------------- 3/4%Series B Senior Subordinated Notes Due 2009 (the "New Securities"). -------------- You have requested our opinion as to certain United States federal income tax consequences of the Exchange Offer. In preparing our opinion, we have reviewed and relied upon the Registrants' Registration Statement on Form S-4, originally filed with the Securities and KIRKLAND & ELLIS ChipPAC International Company Limited ChipPAC, Inc. ChipPAC (Barbados) Ltd. ChipPAC Limited ChipPAC Korea Company Ltd. ChipPAC Luxembourg S.a.R.L. ChipPAC Liquidity Management Hungary Limited Liability Company November 19, 1999 Page 2 Exchange Commission on the date hereof (the "Registration Statement"), and such ---------------------- other documents as we deemed necessary. On the basis of the foregoing, it is our opinion that the exchange of the Old Securities for the New Securities pursuant to the Exchange Offer will not be treated as an "exchange" for United States federal income tax purposes. The opinion set forth above is based upon the applicable provisions of the Internal Revenue Code of 1986, as amended, the Treasury Regulations promulgated or proposed thereunder, current positions of the Internal Revenue Service (the "IRS") contained in published revenue rulings, revenue procedures, --- and announcements, existing judicial decisions and other applicable authorities. No tax ruling has been sought from the IRS with respect to any of the matters discussed herein. Unlike a ruling from the IRS, an opinion of counsel is not binding on the IRS. Hence, no assurance can be given that the opinion stated in this letter will not be successfully challenged by the IRS or by a court. We express no opinion concerning any tax consequences of the Exchange Offer except as expressly set forth above. We hereby consent to the filing of this opinion as Exhibit 8.1 to the Registration Statement. We also consent to the reference to our firm under the heading "Certain Federal Income Tax Consequences." In giving this consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, or the rules and regulations of the Securities and Exchange Commission promulgated thereunder. Very truly yours, /s/ Kirkland & Ellis Kirkland & Ellis EX-10.1 24 CREDIT AGREEMENT, DATED AS OF 8/5/1999 Exhibit 10.1 CONFORMED COPY ================================================================================ CREDIT AGREEMENT DATED AS OF AUGUST 5, 1999 AMONG CHIPPAC INTERNATIONAL COMPANY LIMITED, CHIPPAC, INC., THE LENDERS LISTED HEREIN, as Lenders, AND CREDIT SUISSE FIRST BOSTON, as Administrative Agent, Sole Lead Arranger and Collateral Agent ================================================================================ TABLE OF CONTENTS
Page ---- SECTION 1. DEFINITIONS...................................................................................... 1 1.1 Certain Defined Terms.............................................................. 1 1.2 Accounting Terms; Utilization of GAAP for Purposes of Calculations Under Agreement....................................................... 38 1.3 Other Definitional Provisions...................................................... 38 SECTION 2. AMOUNTS AND TERMS OF COMMITMENTS AND LOANS....................................................... 39 2.1 Commitments; Loans................................................................. 39 2.2 Interest on the Loans.............................................................. 46 2.3 Fees............................................................................... 50 2.4 Repayments, Prepayments and Reductions in Commitments; General Provisions Regarding Payments................................. 50 2.5 Use of Proceeds.................................................................... 60 2.6 Special Provisions Governing Eurodollar Rate Loans................................. 60 2.7 Increased Costs; Taxes; Capital Adequacy........................................... 63 2.8 Obligation of Lenders and Issuing Bank to Mitigate................................. 66 SECTION 3. LETTERS OF CREDIT................................................................................ 67 3.1 Issuance of Letters of Credit and Lenders' Purchase of Participations Therein............................................................. 67 3.2 Letter of Credit Fees.............................................................. 69 3.3 Drawings and Payments and Reimbursement of Amounts Drawn or Paid Under Letters of Credit.............................................. 70 3.4 Obligations Absolute............................................................... 72 3.5 Indemnification; Nature of Issuing Bank's Duties................................... 72 3.6 Increased Costs and Taxes Relating to Letters of Credit............................ 74 SECTION 4. CONDITIONS TO LOANS AND LETTERS OF CREDIT........................................................ 75 4.1 Conditions to Loans................................................................ 75 4.2 Conditions to All Loans............................................................ 80 4.3 Conditions to Letters of Credit.................................................... 80 SECTION 5. REPRESENTATIONS AND WARRANTIES................................................................... 81 5.1 Organization, Powers, Qualification, Good Standing, Business and Subsidiaries.......................................................... 81 5.2 Authorization of Borrowing, etc.................................................... 82 5.3 Financial Condition; Projections................................................... 83 5.4 No Material Adverse Change......................................................... 84 5.5 Title to Properties; Liens; Real Property; Intellectual Property........................................................................... 84 5.6 Litigation; Adverse Facts.......................................................... 85 5.7 Payment of Taxes................................................................... 85
Page ---- 5.8 Performance of Agreements.......................................................... 85 5.9 Governmental Regulation............................................................ 85 5.10 Securities Activities.............................................................. 86 5.11 Employee Benefit Plans............................................................. 86 5.12 Certain Fees....................................................................... 86 5.14 Employee Matters................................................................... 87 5.15 Solvency........................................................................... 87 5.16 Disclosure......................................................................... 87 5.17 Year 2000 Matters.................................................................. 88 SECTION 6. AFFIRMATIVE COVENANTS............................................................................ 88 6.1 Financial Statements and Other Reports............................................. 88 6.2 Corporate Existence................................................................ 92 6.3 Payment of Taxes and Claims; Tax Consolidation..................................... 93 6.4 Maintenance of Properties; Insurance............................................... 93 6.5 Inspection; Lender Meeting......................................................... 93 6.6 Compliance with Laws, etc.......................................................... 94 6.7 Environmental Disclosure and Inspection............................................ 94 6.8 ChipPAC's Remedial Action Regarding Hazardous Materials.......................................................................... 95 6.9 Execution of Guaranty and Collateral Documents by Future Subsidiaries....................................................................... 95 6.10 Interest Rate Protection........................................................... 96 6.11 Further Assurances................................................................. 96 6.12 Year 2000 Matters.................................................................. 97 SECTION 7. NEGATIVE COVENANTS............................................................................... 97 7.1 Indebtedness....................................................................... 97 7.2 Liens and Related Matters.......................................................... 99 7.3 Investments; Joint Ventures........................................................ 101 7.4 Contingent Obligations............................................................. 102 7.5 Restricted Payments................................................................ 103 7.6 Financial Covenants................................................................ 105 7.7 Restriction on Fundamental Changes; Asset Sales.................................... 108 7.8 Sales and Lease-Backs.............................................................. 109 7.9 Transactions with Shareholders and Affiliates...................................... 109 7.10 Ownership of Subsidiary Stock...................................................... 110 7.11 Amendments or Waivers of Certain Agreements........................................ 110 7.12 Fiscal Year........................................................................ 111 7.13 Conduct of Business................................................................ 111 SECTION 8. EVENTS OF DEFAULT................................................................................ 111 8.1 Failure to Make Payments When Due.................................................. 111 8.2 Default in Other Agreements........................................................ 112 8.3 Breach of Certain Covenants........................................................ 112 8.4 Breach of Warranty................................................................. 112 8.5 Other Defaults Under Loan Documents................................................ 112 8.6 Involuntary Bankruptcy; Appointment of Receiver, etc............................... 113
Page ---- 8.7 Voluntary Bankruptcy; Appointment of Receiver, etc................................. 113 8.8 Judgments and Attachments.......................................................... 113 8.9 Dissolution........................................................................ 114 8.10 Employee Benefit Plans............................................................. 114 8.11 Change in Control.................................................................. 114 8.12 Invalidity of Guaranties........................................................... 114 8.13 Failure of Security................................................................ 114 SECTION 9. AGENTS........................................................................................... 115 9.1 Appointment........................................................................ 115 9.2 Powers; General Immunity........................................................... 117 9.3 Representations and Warranties; No Responsibility for Appraisal of Creditworthiness................................................................... 118 9.4 Right to Indemnity................................................................. 118 9.5 Successor Administrative Agent and Swing Line Lender............................... 119 9.6 Collateral Documents; Successor Collateral Agent................................... 119 SECTION 10. MISCELLANEOUS.................................................................................... 120 10.1 Assignments and Participations in Loans and Letters of Credit............................................................................. 120 10.2 Expenses........................................................................... 123 10.3 Indemnity.......................................................................... 123 10.4 Set-Off; Security Interest in Deposit Accounts..................................... 124 10.5 Ratable Sharing.................................................................... 124 10.6 Amendments and Waivers............................................................. 125 10.7 Independence of Covenants.......................................................... 126 10.8 Notices............................................................................ 127 10.9 Survival of Representations, Warranties and Agreements............................. 127 10.10 Failure or Indulgence Not Waiver; Remedies Cumulative.............................. 127 10.11 Marshalling; Payments Set Aside.................................................... 127 10.12 Severability....................................................................... 128 10.13 Obligations Several; Independent Nature of the Lenders' Rights..................... 128 10.14 Maximum Amount..................................................................... 128 10.15 Headings........................................................................... 129 10.16 Applicable Law..................................................................... 129 10.17 Successors and Assigns............................................................. 129 10.18 Consent to Jurisdiction and Service of Process..................................... 129 10.19 Waiver of Jury Trial............................................................... 130 10.20 Judgment Currency.................................................................. 130 10.21 Confidentiality.................................................................... 131 10.22 Counterparts; Effectiveness........................................................ 132
EXHIBITS I FORM OF NOTICE OF BORROWING II FORM OF NOTICE OF CONVERSION/CONTINUATION III FORM OF NOTICE OF ISSUANCE OF LETTER OF CREDIT IV FORM OF GUARANTY V FORM OF PRINCIPAL PLEDGE AGREEMENT VI FORM OF PRINCIPAL SECURITY AGREEMENT VII FORM OF COMPLIANCE CERTIFICATE VIII FORMS OF OPINIONS OF COUNSEL TO LOAN PARTIES IX FORM OF ASSIGNMENT AGREEMENT X FORM OF COLLATERAL ACCOUNT AGREEMENT XI FORM OF PERMITTED SELLER PAPER SUBORDINATION PROVISIONS XII-A CHINESE PLEDGE AGREEMENT (SHANGHAI I) XII-B CHINESE PLEDGE AGREEMENT (SHANGHAI II) XIII-A CHINESE SECURITY AGREEMENT (RECEIVABLES) XIII-B CHINESE SECURITY AGREEMENT (LAND USE AND BUILDING) XIV HEI PREFERRED STOCK XV HUNGARIAN PLEDGE AGREEMENT XVI KOREAN PLEDGE AGREEMENT XVII KOREAN SECURITY AGREEMENT XVIII INTEL PREFERRED STOCK XIX OTHER RECAPITALIZATION SECURITY AGREEMENTS SCHEDULES 1.1(i) CERTAIN ADJUSTMENTS TO EBITDA/CONSOLIDATED INTEREST EXPENSE 1.1(ii) INTERCOMPANY NOTES 2.1 LENDERS' COMMITMENTS AND PRO RATA SHARES 4.1G PERFECTION OF SECURITY INTERESTS 4.1P CORPORATE STRUCTURE; CAPITAL STRUCTURE; OWNERSHIP 5.1 SUBSIDIARIES OF CHIPPAC 5.5B CERTAIN REAL PROPERTY MATTERS 5.5C CERTAIN INTELLECTUAL PROPERTY MATTERS 5.12 CERTAIN FEES 7.1 CERTAIN EXISTING INDEBTEDNESS 7.2A CERTAIN EXISTING LIENS 7.3 CERTAIN EXISTING INVESTMENTS 7.4 CERTAIN EXISTING CONTINGENT OBLIGATIONS 7.8 CERTAIN SALES AND LEASE-BACKS CONFORMED COPY CHIPPAC INTERNATIONAL COMPANY LIMITED CREDIT AGREEMENT This CREDIT AGREEMENT is dated as of August 5, 1999 and entered into by and among CHIPPAC INTERNATIONAL COMPANY LIMITED, a British Virgin Islands company ("Company"), CHIPPAC, INC., a California corporation ("ChipPAC"), THE ------- ------- BANKS, FINANCIAL INSTITUTIONS AND OTHER ENTITIES LISTED ON THE SIGNATURE PAGES HEREOF (each individually referred to herein as a "Lender" and collectively as ------ "Lenders"), CREDIT SUISSE FIRST BOSTON ("CSFB"), as administrative agent for the - -------- ---- Lenders (in such capacity, the "Administrative Agent"), as sole lead arranger -------------------- (in such capacity, the "Sole Lead Arranger"), and as collateral agent for the ------------------ Administrative Agent and the Lenders (in such capacity, the "Collateral Agent"). ---------------- R E C I T A L S --------------- WHEREAS, Bain (capitalized terms used herein having the meanings assigned to those terms in subsection 1.1), the SXI Holders and the Existing Investors propose to engage in a series of Recapitalization Transactions, whereby ChipPAC will be recapitalized on the Closing Date; WHEREAS, ChipPAC and Company have requested Lenders to extend, and Lenders have agreed to extend, certain credit facilities in an aggregate principal amount of up to $220,000,000 to Company, the proceeds of which will be used, together with proceeds from the Equity Contribution and not less than $150,000,000 in gross cash proceeds from the issuance and sale of Subordinated Debt, to permit the consummation of the Recapitalization Transactions, to pay related fees and expenses, and to provide financing for working capital and other general corporate purposes of the Operating Subsidiaries; and WHEREAS, the Lenders are willing to make such credit facilities available upon and subject to the terms and conditions contained herein. NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, the parties hereto hereby agree as follows: SECTION 1. DEFINITIONS 1.1 Certain Defined Terms. --------------------- The following terms used in this Agreement shall have the following meanings: "Acquired Business" has the meaning assigned to such term in the ----------------- definition of the term "Acquired Capital Expenditures". "Acquired Capital Expenditures" means, on the date of any Permitted ----------------------------- Acquisition and with respect to the Person or business (the "Acquired -------- Business") acquired in such Permitted Acquisition, an amount equal to the -------- greater of (i) 8% of the net sales of such Acquired Business for the twelve-month period most recently ended and (ii) the average historical capital expenditures made with respect to such Acquired Business for the last two fiscal years applicable to such Acquired Business ending prior to the consummation of such Permitted Acquisition. "Acquired Capital Expenditures Percentage" means, with respect to any ---------------------------------------- Acquired Business on the date of the related Permitted Acquisition, the quotient (expressed as a percentage) obtained by dividing the Acquired Capital Expenditures of such Acquired Business by the Maximum Consolidated Capital Expenditures Amount (without giving effect to any previous increase to such amount as a result of previous Permitted Acquisitions or by application of the Carryforward) for the Fiscal Year in which such Permitted Acquisition occurs. "Additional Subordinated Debt" means subordinated, unsecured ---------------------------- Indebtedness of Company the proceeds of which are used solely to finance one or more Permitted Acquisitions and to pay related expenses; provided -------- that (i) such Indebtedness does not require any scheduled payment of principal prior to the maturity date of the Subordinated Debt issued on or prior to the Closing Date and (ii) the subordination provisions and other non-pricing terms and conditions thereof are no less favorable to ChipPAC and its Subsidiaries and the Lenders than the analogous provisions of the Subordinated Debt Documents executed on or prior to the Closing Date. "Administrative Agent" has the meaning assigned to that term in the -------------------- Preamble to this Agreement and shall include any successor Administrative Agent appointed pursuant to subsection 9.5. "Affected Class" has the meaning assigned to that term in subsection -------------- 10.6A. "Affected Lender" has the meaning assigned to that term in subsection --------------- 2.6C. "Affected Loans" has the meaning assigned to that term in subsection -------------- 2.6C. "Affiliate" means, as applied to any Person, any other Person directly --------- or indirectly controlling, controlled by, or under common control with that Person. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities or by contract or otherwise. 2 "Agents" means, collectively, the Administrative Agent, the Collateral ------ Agent and the Sole Lead Arranger. "Agreement" means this Credit Agreement dated as of August 5, 1999, as --------- it may be amended, restated, supplemented or otherwise modified from time to time. "Anniversary" means a date that is an anniversary of the Closing Date. ----------- "Applicable Base Rate Margin" means (i) with respect to Term B Loans, --------------------------- 3.00% per annum, and (ii) with respect to Term A Loans, Term Delayed Draw Loans and Revolving Loans, a percentage per annum determined by reference to the Applicable Leverage Ratio as set forth below: ====================================================== Applicable Base Rate Margin for Term A Applicable Loans, Term Delayed Leverage Draw Loans and Ratio Revolving Loans ------------------------------------------------------ Greater than 3.5:1.0 2.25% ------------------------------------------------------ Less than or equal to 3.5:1.0 2.00% ------------------------------------------------------ Less than or equal to 3.0:1.0 1.75% ------------------------------------------------------ Less than 2.5:1.0 1.50% ====================================================== ; provided, however, that the Applicable Base Rate Margin shall be 2.25% in -------- ------- the case of Term A Loans, Term Delayed Draw Loans and Revolving Loans, in each case for so long (but only for so long) as an Event of Default has occurred and is continuing or Company has not submitted to the Administrative Agent the information as and when required under subsection 6.1(ii) or (iii), as applicable. "Applicable Eurodollar Rate Margin" means (i) with respect to Term B --------------------------------- Loans, 4.00% per annum, and (ii) with respect to Term A Loans, Term Delayed Draw Loans and Revolving Loans, a percentage per annum determined by reference to the Applicable Leverage Ratio as set forth below: ======================================================== Applicable Eurodollar Rate Margin for Term A Applicable Loans, Term Delayed Leverage Draw Loans and Ratio Revolving Loans -------------------------------------------------------- Greater than 3.5:1.0 3.25% -------------------------------------------------------- Less than or equal to 3.5:1.0 3.00% -------------------------------------------------------- Less than or equal to 3.0:1.0 2.75% -------------------------------------------------------- Less than 2.5:1.0 2.50% ======================================================== 3 ; provided, however, that the Applicable Eurodollar Rate Margin shall be -------- ------- 3.25% in the case of Term A Loans, Term Delayed Draw Loans and Revolving Loans, in each case for so long (but only for so long) as an Event of Default has occurred and is continuing or Company has not submitted to the Administrative Agent the information as and when required under subsection 6.1(ii) or (iii), as applicable. "Applicable Laws" means, collectively, all statutes, laws, rules, --------------- regulations, ordinances, decisions, writs, judgments, decrees, and injunctions of any Governmental Authority affecting ChipPAC or any of its Subsidiaries or any Collateral or any of their other assets, whether now or hereafter enacted and in force, and all Governmental Authorizations relating thereto. "Applicable Leverage Ratio" means, with respect to any date of ------------------------- determination, the Leverage Ratio set forth in the Pricing Certificate (as defined below) in effect for the Pricing Period (as defined below) in which such date of determination occurs. For purposes of this definition, (i) "Pricing Certificate" means an Officer's Certificate of ChipPAC certifying -------------------- as to the Leverage Ratio as of the last day of any Fiscal Quarter and setting forth the calculation of such Leverage Ratio in reasonable detail, which Officer's Certificate may be delivered to Administrative Agent at any time on or after the date of delivery by ChipPAC of the Compliance Certificate (the "Related Compliance Certificate") with respect to the ------------------------------ period ending on the last day of such Fiscal Quarter pursuant to subsection 6.1(iv), and (ii) "Pricing Period" means each period commencing on the -------------- first Business Day after the delivery to Administrative Agent of a Pricing Certificate and ending on the first Business Day after the next Pricing Certificate is delivered to Administrative Agent; provided that, anything contained in this definition to the contrary notwithstanding, (a) the Applicable Leverage Ratio for the period from the Closing Date to but excluding the First Adjustment Date shall be deemed to be greater than 3.50:1.00 for purposes of making the relevant calculation referred to above, and (b) in the event that, after the First Adjustment Date, (X) ChipPAC fails to deliver a Pricing Certificate to Administrative Agent setting forth the Leverage Ratio as of the last day of any Fiscal Quarter on or before the last day on which ChipPAC is required to deliver the Related Compliance Certificate (such last day being the "Cutoff Date") and ----------- (Y) Administrative Agent determines (each such determination being an "Agent Determination") on or after the Cutoff Date (on the basis of the -------------------- Related Compliance Certificate or a Pricing Certificate delivered after the Cutoff Date) that the Applicable Leverage Ratio that would have been in effect if ChipPAC had delivered a Pricing Certificate on the Cutoff Date is greater than the Leverage Ratio set forth in the most recent Pricing Certificate actually delivered by ChipPAC, then (1) the Applicable Leverage Ratio in effect for purposes of making the relevant calculation referred to above for the period from the Cutoff Date to the date of delivery by ChipPAC of the next Pricing Certificate (or, if earlier, the next date on which an Agent Determination is made) shall be the Leverage Ratio determined pursuant to the Agent Determination and (2) on the first Business Day after Administrative Agent delivers written notice to ChipPAC and Company of any Agent Determination, Company shall pay to Administrative Agent, for distribution (as appropriate) to Lenders, an aggregate amount equal to the additional interest and letter of credit fees Company would have been required to pay in respect of all applicable Loans and Letters of Credit in respect of which any interest or fees have been paid by Company during the period from the Cutoff 4 Date to the date such notice is given by Administrative Agent to ChipPAC and Company if the amount of such interest and fees had been calculated using the Applicable Leverage Ratio based on such Agent Determination. "Approved Fund" with respect to any Lender that is a fund that invests ------------- in bank loans, any other fund or trust or entity that invests in bank loans and is advised or managed by the same investment advisor as such Lender or by an Affiliate of such investment advisor property. "Asian Letters of Credit" means Commercial Letters of Credit, in an ----------------------- aggregate face amount outstanding at any time not to exceed $50,000,000, issued by one or more local banks for the account of the Operating Subsidiaries. "Asset Sale" means the sale, lease, sale and leaseback, assignment, ---------- conveyance, transfer or other disposition by ChipPAC or any of its Subsidiaries to any Person (other than ChipPAC or any of its wholly owned Subsidiaries) of any right or interest in or to property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible, including, without limitation, Capital Stock (including, without limitation, of any of ChipPAC's Subsidiaries), but excluding (a) sales of assets in a single transaction or a series of related transactions equal to $2,000,000 or less, (b) sales or other disposals of obsolete, uneconomical, negligible, worn out or surplus equipment or other assets, and (c) sales and other disposals of assets in the ordinary course of business, including sales or discounts of accounts receivable in connection with the collection or compromise thereof, the sale or exchange of equipment or other personal property, including intellectual property, for the functional equivalent thereof, and leasing or licensing of real or personal property (including intellectual property). "Assignment Agreement" means an assignment agreement in substantially -------------------- the form of Exhibit IX annexed hereto or in such other form as may be ---------- approved by the Administrative Agent. "Bain" means Bain Capital, Inc. and/or one or more of its Affiliates. ---- "Bankruptcy Law" means Title 11 of the United States Code entitled -------------- "Bankruptcy", as now and hereafter in effect, or any successor statute, or any similar state or foreign law for the relief of debtors. "Base Rate" means, at any time, the higher of (x) the Prime Rate and --------- (y) the rate which is 1/2 of 1% in excess of the Federal Funds Effective Rate. "Base Rate Loans" means Loans bearing interest at rates determined by --------------- reference to the Base Rate as provided in subsection 2.2A. "Business Day" means a day other than a Saturday, Sunday or other day ------------ on which commercial banks in New York City are authorized or required by law to close; provided that, with respect to matters relating to Eurodollar -------- Rate Loans, the term "Business Day" shall mean a day other than a Saturday, ------------ Sunday or other day on which commercial banks in New York City or London, England, are authorized or required by law to close. 5 "Calculation Date" has the meaning assigned to that term in subsection ---------------- 7.6B. "Calculation Period" has the meaning assigned to that term in ------------------ subsection 7.6A. "Capital Lease" means, as applied to any Person, any lease of any ------------- property (whether real, personal or mixed) by that Person as lessee that, in conformity with GAAP, is or should be accounted for as a capital lease on the balance sheet of that Person. "Capital Stock" means any and all shares, interests, participations or ------------- other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation), including, without limitation, partnership interests and membership interests, and any and all warrants, rights or options to purchase or other arrangements or rights to acquire any of the foregoing. "Carryforward" has the meaning assigned to that term in subsection ------------ 7.6C. "Cash" means money, currency or a credit balance in a Deposit Account. ---- "Cash Equivalents" means (i) marketable securities issued or directly ---------------- and unconditionally guaranteed by the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition thereof; (ii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition, having the highest rating obtainable from either S&P or Moody's; (iii) commercial paper maturing no more than one year from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv) certificates of deposit or bankers' acceptances maturing within one year from the date of acquisition thereof and, at the time of acquisition, having a rating of at least A-1 from S&P or at least P-1 from Moody's, issued by any Lender or any commercial bank organized under the laws of the United States of America or any state thereof or the District of Columbia, any member of the European Economic Community, Korea, the People's Republic of China and Hong Kong or any U.S. branch of a foreign bank having combined capital and surplus of not less than $250,000,000 (each Lender and each such commercial bank being herein called a "Cash Equivalent Bank"); (v) Eurodollar time deposits having a -------------------- maturity of less than one year purchased directly from any Cash Equivalent Bank (provided such deposit is with such Cash Equivalent Bank or any other Cash Equivalent Bank); (vi) repurchase obligations for underlying securities of the types described in clauses (i) through (v); (vii) investments in money market funds which invest their assets in the types of Cash Equivalents described in clauses (i) through (v) above; and (viii) other short-term investments utilized by foreign Subsidiaries in accordance with normal investment practices for cash management in investments of a type and with financial institutions analogous to the foregoing. 6 "Cash Proceeds" means, with respect to any Asset Sale, Cash payments ------------- (including any Cash received by way of deferred payment pursuant to, or monetization of, a note receivable or otherwise (other than the portion of such deferred payment constituting interest), but only as and when so received) received from such Asset Sale. "Chinese Agreements" means, the agreements related to the ChipPAC ------------------ Shanghai I Loan, the Chinese Security Agreements and the Chinese Pledge Agreements. "Chinese Pledge Agreements" means, collectively, the ChipPAC Shanghai ------------------------- I pledge agreement and the ChipPAC Shanghai II pledge agreement, substantially in the form of Exhibits XII-A and XII-B annexed hereto, as ------------------------ such Chinese Pledge Agreements may hereafter be amended, restated, supplemented or otherwise modified from time to time. "Chinese Security Agreements" means, collectively, the receivables --------------------------- security agreement and the land use right and building mortgage agreement, substantially in the form of Exhibits XIII-A and XIII-B annexed hereto, as -------------------------- such Chinese Security Agreements may hereafter be amended, restated, supplemented or otherwise modified from time to time. "Chinese Security Effective Date" has the meaning assigned to that ------------------------------- term in subsection 6.11. "ChipPAC" has the meaning assigned to that term in the Preamble to ------- this Agreement. "ChipPAC Barbados" means ChipPAC (Barbados) Ltd., a corporation ---------------- organized under the laws of Barbados. "ChipPAC Hungary" means ChipPAC Liquidity Management Hungary Limited --------------- Liability Company, a limited liability company organized under the laws of Hungary. "ChipPAC Hungary Capital Contribution" means the $29,000,000 capital ------------------------------------ contribution to be made by Company to ChipPAC Hungary on or prior to the Closing Date. "ChipPAC Hungary Loan" means the $116,000,000 loan to be made by -------------------- ChipPAC Luxembourg to ChipPAC Hungary on the Closing Date. "ChipPAC Korea" means ChipPAC Korea Company Ltd., a corporation ------------- organized under the laws of the Republic of Korea. "ChipPAC Korea Loan" means the $145,000,000 loan to be made by ChipPAC ------------------ Hungary to ChipPAC Korea on the Closing Date. "ChipPAC Limited" means ChipPAC Limited, a corporation organized --------------- under the laws of the British Virgin Islands. 7 "ChipPAC Limited Loan" means the $121,000,000 loan to be made by -------------------- Company to ChipPAC Limited on the Closing Date. "ChipPAC Luxembourg" means ChipPAC Luxembourg S.a.r.l., a corporation ------------------ organized under the laws of Luxembourg. "ChipPAC Luxembourg Loan" means the $116,000,000 loan to be made by ----------------------- Company to ChipPAC Luxembourg on the Closing Date. "ChipPAC Shanghai I" means ChipPAC (Shanghai) Company Limited, a ------------------ limited liability company established and organized under the laws of the People's Republic of China. "ChipPAC Shanghai I Loan" means the $34,000,000 loan to be made by ----------------------- Company to ChipPAC Shanghai I on the Closing Date. "ChipPAC Shanghai II" means ChipPAC Assembly & Test (Shanghai) Co., ------------------- Ltd., a limited liability company established and organized under the laws of the People's Republic of China. "Class" means each of the following classes of the Lenders: (i) the ----- Lenders having Term A Loan Exposure, (ii) the Lenders having Term B Loan Exposure, (iii) the Lenders having Term Delayed Draw Loan Exposure and (iv) the Lenders having Revolving Loan Exposure. "Cleanup" means all actions required to: (1) clean up, remove, treat ------- or remediate Hazardous Materials in the indoor or outdoor environment; (2) prevent the Release of Hazardous Materials so that they do not migrate, endanger or threaten to endanger public health or welfare or the indoor or outdoor environment; or (3) perform pre-remedial studies and investigations and post-remedial monitoring and care. "Closing Date" means the date on which the Term Loans (other than the ------------ Term Delayed Draw Loans) are made, but in any event not later than August 15, 1999. "Collateral" means all of the properties and assets (including Capital ---------- Stock) in which Liens are purported to be granted by the Collateral Documents as security for the Obligations. "Collateral Account" has the meaning assigned to that term in the ------------------ Collateral Account Agreement. "Collateral Account Agreement" means the Collateral Account Agreement ---------------------------- executed and delivered by Company, ChipPAC and the Collateral Agent as of the Closing Date, substantially in the form of Exhibit X annexed hereto, as --------- such Collateral Account Agreement may be amended, restated, supplemented or otherwise modified from time to time. 8 "Collateral Agent" means CSFB, in its capacity as collateral agent ---------------- hereunder and under the Collateral Documents, and any successor in such capacity. "Collateral Documents" means (i) the Intercompany Security Documents -------------------- and (ii) the Pledge Agreements, the Security Agreements, the Collateral Account Agreement, and any other documents, instruments or agreements delivered by any Loan Party pursuant to this Agreement or any of the other Loan Documents in order to grant to Collateral Agent, on behalf of the Lenders, Liens and to perfect such Liens on any assets of such Loan Party as security for all or any of the Obligations. "Commercial Letter of Credit" means any letter of credit or similar --------------------------- instrument issued for the purpose of providing the primary payment mechanism in connection with the purchase of any materials, goods or services by ChipPAC or any Operating Subsidiary in the ordinary course of its business. "Commitments" means the commitments of the Lenders to make Loans as ----------- set forth in subsection 2.1A of this Agreement. "Company" has the meaning assigned to that term in the Preamble to ------- this Agreement. "Compliance Certificate" means a certificate substantially in the form ---------------------- of Exhibit VII annexed hereto delivered to the Administrative Agent by ----------- ChipPAC pursuant to subsection 6.1(iv). "Condemnation Proceeds" has the meaning assigned to that term in --------------------- subsection 2.4B(iii)(d). "Consolidated Adjusted EBITDA" means, for any period, without ---------------------------- duplication, the sum of the amounts for such period (as determined for ChipPAC and its Subsidiaries on a consolidated basis) of (i) Consolidated Net Income, (ii) Consolidated Interest Expense (excluding the cash portion of any payments made pursuant to subsection 2.3 to the Agent or Lenders on or before the Closing Date, but including the non-cash amortization of such amounts after the Closing Date), (iii) provisions for taxes based on income (including, without duplication, foreign withholding taxes and any state single business, unitary or similar taxes), (iv) total depreciation expense, (v) total amortization expense, (vi) to the extent deducted in determining Consolidated Net Income, those items described in subdivision A of Schedule 1.1(i) annexed hereto, and (vii) other non-cash items reducing --------------- Consolidated Net Income (excluding accruals of expenses and establishment of reserves in the ordinary course of business) to the extent reflected as a charge or otherwise deducted from the determination of Consolidated Net Income, less non-cash items increasing Consolidated Net Income (other than ---- accruals of revenue or reversals of reserves), all of the foregoing (except as otherwise provided in the definition of any term used herein) as determined on a consolidated basis in conformity with GAAP; provided that, for purposes of determining Consolidated Adjusted EBITDA for any period (or portion thereof) that includes the Fiscal Quarters ended December 31, 1999, March 31, 2000 and/or June 30, 2000, 9 Consolidated Adjusted EBITDA shall be determined pursuant to the methodology set forth in subdivision B of Schedule 1.1(i). "Consolidated Capital Expenditures" means, for any period, the --------------------------------- aggregate of all expenditures (whether paid in cash or other consideration or accrued as a liability (including that portion of Capital Leases which is capitalized on a consolidated balance sheet in accordance with GAAP), by ChipPAC and its Subsidiaries during that period that, in conformity with GAAP, are or should be included in "purchases of property, plant or equipment" or comparable items reflected in the consolidated statement of cash flows of ChipPAC and its Subsidiaries; provided, however, that the -------- ------- following shall in any event be excluded from the definition of Consolidated Capital Expenditures: (a) any such expenditures made with, or subsequently reimbursed out of, the proceeds of insurance, condemnation awards (or payments in lieu thereof), indemnity payments or payments in respect of judgments or settlements received from third parties for purposes of replacing or repairing the assets in respect of which such proceeds, awards or payments were received, so long as such expenditures are commenced (or are contractually committed to commence) within 365 days of the later of the occurrence of the damage to or loss of the assets being replaced or repaired and the receipt of such proceeds, awards or payments in respect thereof, (b) any such expenditures constituting the reinvestment of proceeds from the sales of assets in equipment or other productive assets of ChipPAC and its Subsidiaries, so long as such expenditures are commenced (or are contractually committed to commence) within 365 days of the receipt of such proceeds, (c) if made on or prior to December 31, 2001, Micro BGA Capital Expenditures and (d) any such expenditures made with the proceeds of the HEI Unspent Amount and/or the Intel Preferred Stock and identified as such on an Officer's Certificate pursuant to Section 6.1(iv); and provided further, however, that Consolidated Capital Expenditures shall -------- ------- ------- not include any expenditures made by ChipPAC or any of its Subsidiaries to acquire in a Permitted Acquisition the business, property or assets of any Person, or the stock or other evidence of beneficial ownership of any Person that, as a result of such acquisition, becomes a Subsidiary of ChipPAC. "Consolidated Current Assets" means, as at any date of determination, --------------------------- the total assets of ChipPAC and its Subsidiaries on a consolidated basis which may properly be classified as current assets in conformity with GAAP, excluding Cash, Cash Equivalents and deferred income taxes to the extent otherwise included in current assets. "Consolidated Current Liabilities" means, as at any date of -------------------------------- determination, the total liabilities of ChipPAC and its Subsidiaries on a consolidated basis which may properly be classified as current liabilities in conformity with GAAP, other than (i) any liabilities that are the current portion of Indebtedness (including Capital Lease obligations) classified as long term liabilities in conformity with GAAP (including accrued but unpaid interest) and (ii) deferred income taxes to the extent otherwise included in current liabilities. "Consolidated Excess Cash Flow" means, for any period, an amount (if ----------------------------- positive) equal to (i) the sum, without duplication, of the amounts for such period of (a) Consolidated Adjusted EBITDA, and (b) the Consolidated Working Capital Adjustment (which may be a negative number) minus (ii) the ----- sum, without 10 duplication, of the amounts for such period of (a) voluntary and scheduled cash principal repayments made in respect of Consolidated Total Debt (excluding repayments of Revolving Loans or loans under similar revolving lines of credit except to the extent the Revolving Loan Commitments or similar commitments to lend, respectively, are permanently reduced in connection with such repayments), (b) Consolidated Capital Expenditures plus, to the extent not included therein, the Micro BGA Capital ---- Expenditures (net of any proceeds of any related financings with respect to such Capital Expenditures and net of any portion of the HEI Unspent Amount used to finance such Capital Expenditures) plus (or minus, if negative) the ---- ------ Carryforward for such period to be carried forward to the next period less ---- the Carryforward (if any) for the preceding period carried forward to the current period, (c) Consolidated Interest Expense paid in cash during such period, (d) the provision for taxes (including, without duplication, foreign withholding taxes and any single business, unitary or similar taxes) based on income of ChipPAC and its Subsidiaries and paid in cash with respect to such period (including taxes payable in cash within 90 days following such period), (e) any cash payments made during such period with respect to items set forth in subdivision A of Schedule 1.1(i) annexed --------------- hereto, (f) non-cash charges added in calculating Consolidated Adjusted EBITDA in a prior period to the extent such non-cash charges are or will be paid in cash in the current period, (g) to the extent not otherwise deducted in determining Consolidated Net Income, fees and expenses associated with any exchange of Subordinated Debt contemplated under the terms of the Subordinated Debt Documents, (h) to the extent not otherwise deducted in determining Consolidated Excess Cash Flow, cash payments made during such period with respect to non-current liabilities and cash payments made during such period with respect to restructuring reserves and expenditures with respect to Permitted Acquisitions, and (i) to the extent not otherwise deducted in determining Consolidated Net Income, Restricted Payments and Investments made pursuant to subsection 7.3 or 7.5 made during such period (including any payments made related to the Earnout and the Intel Preferred Stock). "Consolidated Interest Expense" means, for any period (as determined ----------------------------- for ChipPAC and its Subsidiaries on a consolidated basis), total cash or non-cash interest expense (including that portion attributable to capital leases in accordance with GAAP), including, without limitation, all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing and net costs under Interest Rate Agreements and other Hedge Agreements, commitment fees accrued under subsection 2.3A and any Administrative Agent's fees payable to Administrative Agent, provided that Consolidated Interest Expense for any period (or portion thereof) that includes the Fiscal Quarters ended December 31, 1999, March 31, 2000 and June 30, 2000 shall be determined in accordance with subdivision B of Schedule 1.1(i). --------------- "Consolidated Net Income" means, for any period, the net income (or ----------------------- loss) of ChipPAC and its Subsidiaries on a consolidated basis for such period taken as a single accounting period determined in conformity with GAAP; provided that there shall be excluded therefrom (i) the income (or -------- loss) of any Person other than a Subsidiary of ChipPAC in which any other person (other than ChipPAC or any of its Subsidiaries) has a joint interest, except to the extent of the amount of dividends or other distributions actually paid to ChipPAC or any Subsidiary of ChipPAC by such Person during such period, (ii) the income (or 11 loss) of any Person accrued prior to the date it becomes a Subsidiary of ChipPAC or is merged into or consolidated with ChipPAC or any Subsidiary of ChipPAC or that Person's assets are acquired by ChipPAC or any Subsidiary of ChipPAC, (iii) the amount of income of any Subsidiary of ChipPAC only to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of such amount of income is not at the time permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary, (iv) any after-tax gains or losses attributable to Asset Sales, (v) Transaction Costs, and (vi) to the extent not included in clauses (i) through (v) above, any net extraordinary unusual or nonrecurring gains or net unusual or nonrecurring extraordinary losses and any write-offs of deferred financing costs associated with Indebtedness of ChipPAC or any Subsidiary of ChipPAC repaid on the Closing Date. "Consolidated Total Debt" means, as at any date of determination, the ----------------------- aggregate amount, without duplication, of all outstanding Indebtedness of, and Contingent Obligations consisting of the guarantee of Indebtedness by ChipPAC and its Subsidiaries on a consolidated basis; provided that the -------- term "Consolidated Total Debt" shall exclude any Indebtedness with respect to outstanding Permitted Seller Paper so long as the terms and conditions of such Permitted Seller Paper do not require any cash payments to be made to the holder of such Permitted Seller Paper prior to the payment in full of all Obligations. "Consolidated Working Capital" means, as at any date of determination, ---------------------------- the excess of Consolidated Current Assets over Consolidated Current Liabilities. "Consolidated Working Capital Adjustment" means, for any period on a --------------------------------------- consolidated basis, the amount (which may be a negative number) by which Consolidated Working Capital as of the beginning of such period exceeds (or is less than) Consolidated Working Capital as of the end of such period. "Contingent Obligation" means, as applied to any Person, any direct or --------------------- indirect liability, contingent or otherwise, of that Person (i) with respect to any Indebtedness, lease, dividend or other obligation of another if the primary purpose or intent thereof by the Person incurring the Contingent Obligation is to provide assurance to the obligee of such obligation of another that such obligation of another will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such obligation will be protected (in whole or in part) against loss in respect thereof, (ii) with respect to any letter of credit issued for the account of that Person or as to which that Person is otherwise liable for reimbursement of drawings, or (iii) under Interest Rate Agreements or other Hedge Agreements. Contingent Obligations shall include, without limitation, (a) the direct or indirect guaranty, endorsement (otherwise than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of the obligation of another, (b) the obligation to make take-or-pay or similar payments if required regardless of non- performance by any other party or parties to an agreement, and (c) any liability of such Person for the obligation of another through any agreement (contingent or otherwise) (X) to purchase, repurchase or otherwise acquire such obligation or any security therefor, or to provide funds for the payment or discharge of such 12 obligation (whether in the form of loans, advances, stock purchases, capital contributions or otherwise) or (Y) to maintain the solvency or any balance sheet item, level of income or financial condition of another if, in the case of any agreement described under subclause (X) or (Y) of this sentence, the primary purpose or intent thereof is as described in the preceding sentence. The amount of any Contingent Obligation shall be equal to (A) the amount of the obligation so guaranteed or otherwise supported or, if less, the amount to which such Contingent Obligation is specifically limited (including netting of Interest Rate Agreements of Hedge Agreements) or (B) if neither amount in clause (A) is stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform) as determined by such Person in good faith. Contingent Obligations shall not include standard contractual indemnities entered into in the ordinary course of business, endorsements of instruments for deposit or collection in the ordinary course of business or any product warranties in the ordinary course of business. "Continuing Director" shall mean, as of any date of determination, any ------------------- member of the Board of Directors of ChipPAC who (i) was a member of such Board of Directors on the Closing Date or (ii) was nominated for election or elected to such Board of Directors with the affirmative vote (directly or indirectly) of Bain and the SXI Holders. "Contractual Obligation" means, as applied to any Person, any ---------------------- provision of any material indenture, mortgage, deed of trust, contract, undertaking or other material agreement or instrument to which such Person is a party or to which such Person or any of its assets is subject. "CSFB" means Credit Suisse First Boston. ---- "Default" means a condition or event that, after notice or after any ------- applicable grace period has lapsed, or both, would constitute an Event of Default. "Defaulting Lender" means any Lender with respect to which a Lender ----------------- Default is in effect. "Deposit Account" means a demand, time, savings, passbook or like --------------- account with a bank, savings and loan association, credit union or like organization, other than an account evidenced by a negotiable certificate of deposit. "Dollars" and the sign "$" mean the lawful money of the United States ------- - of America. "Earnout" means amounts payable to HEI, either through a redemption of ------- a portion of the HEI Preferred Stock, direct cash payments or a combination thereof, during the four-and-one-half year period following the closing of the Recapitalization Transactions if ChipPAC and its Subsidiaries attain certain financial performance objectives as set forth in the Recapitalization Agreement. "Eligible Assignee" means (A) (i) a commercial bank organized under ----------------- the laws of the United States or any state thereof; (ii) a commercial bank 13 organized under the laws of any other country or a political subdivision thereof; provided that (x) such bank is acting through a branch or agency -------- located in the United States or (y) such bank is organized under the laws of a country that is a member of the Organization for Economic Cooperation and Development or a political subdivision of such country; and (iii) any other financial institution or entity which is an "accredited investor" (as defined in Regulation D under the Securities Act) which extends credit or buys loans as one of its businesses including, but not limited to, insurance companies, mutual funds, investment funds and lease financing companies; (B) any Lender and any Affiliate of any Lender; provided that -------- neither Company nor any Affiliate of Company shall be an Eligible Assignee (other than by assignment within 30 days of the Closing Date to an investment fund controlled by or under common control with Bain) and (C) an Approved Fund. "Employee Benefit Plan" means "employee benefit plan" as defined in --------------------- Section 3(3) of ERISA which is subject to ERISA and which is maintained or contributed to by Company or any of its ERISA Affiliates. "Environmental Claim" means any written claim, action, or notice by ------------------- any Person alleging potential liability (including, without limitation, potential liability for investigatory costs, Cleanup costs, governmental response costs, natural resources damages, property damages, personal injuries, or penalties) arising out of, based on or resulting from (a) the presence or Release of any Hazardous Materials at any location, whether or not owned, leased or operated by Company or any of its Subsidiaries, or (b) any violation, or alleged violation, of any Environmental Law. "Environmental Laws" means all present and future treaties, ------------------ international conventions and federal, state, local, and foreign laws, regulations, Governmental Authorizations, codes, ordinances, orders, decrees, judgments and binding agreements issued, promulgated or entered into by or with any Governmental Authority relating to pollution or protection of the environment, including, without limitation, laws relating to Releases or threatened Releases of Hazardous Materials or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, Release, disposal, transport or handling of Hazardous Materials, laws and regulations with regard to recordkeeping, notification, disclosure and reporting requirements respecting Hazardous Materials and laws relating to the management or use of natural resources. "Environmental Liabilities" means all liabilities, obligations to ------------------------- conduct Cleanup, and all Environmental Claims against any Loan Party or its Subsidiaries or against any Person whose liability for any Environmental Claim any Loan Party or its Subsidiaries may have retained or assumed contractually or by operation of law arising from (a) the presence, Release or threatened Release of Hazardous Materials at any location, owned, leased, occupied or operated by Company or its Subsidiaries, or (b) any violation, or alleged violation, of any Environmental Law. "Equity Contribution" means, collectively, (i) the contribution by the ------------------- Sponsors to ChipPAC Merger Corp. of approximately $87,000,000 in cash in exchange for all of the outstanding common stock of ChipPAC Merger Corp. and 14 (ii) approximately $10,000,000 of rollover equity contribution by the Existing Investors, all as contemplated by the Recapitalization Transactions. "Equity Proceeds" means the cash proceeds (net of underwriting --------------- discounts and commissions and other costs and expenses (including legal costs) associated therewith) from the issuance of any Capital Stock or other equity Securities of, or the making of any capital contribution to, ChipPAC or any of its Subsidiaries after the Closing Date. "ERISA" means the Employee Retirement Income Security Act of 1974, as ----- amended from time to time, and any successor statute, and the regulations promulgated and rulings issued thereunder. "ERISA Affiliate" means, as applied to any Person, (i) any corporation --------------- which is a member of a controlled group of corporations within the meaning of Section 414(b) of the Internal Revenue Code of which that Person is a member; (ii) any trade or business (whether or not incorporated) which is a member of a group of trades or businesses under common control within the meaning of Section 414(c) of the Internal Revenue Code of which that Person is a member; and (iii) solely for purposes of obligations under Section 412 of the Internal Revenue Code or under the applicable sections set forth in Section 414(t)(2) of the Internal Revenue Code, any member of an affiliated service group within the meaning of Section 414(m) or (o) of the Internal Revenue Code of which that Person, any corporation described in clause (i) above or any trade or business described in clause (ii) above is a member. "ERISA Event" means (i) a "reportable event" within the meaning of ----------- Section 4043(c) of ERISA and the regulations issued thereunder with respect to any Pension Plan (excluding those for which the provision for 30-day notice to the PBGC has been waived by regulation or with respect to which no penalty will be assessed by the PBGC for failure to satisfy such notice requirements); (ii) the failure to meet the minimum funding standard of Section 412 of the Internal Revenue Code with respect to any Pension Plan (whether or not waived in accordance with Section 412(d) of the Internal Revenue Code) or the failure to make by its due date a required installment under Section 412(m) of the Internal Revenue Code with respect to any Pension Plan or the failure to make any required contribution to a Multiemployer Plan; (iii) the provision by the administrator of any Pension Plan pursuant to Section 4041(a)(2) of ERISA of a notice of intent to terminate such plan in a distress termination described in Section 4041(c) of ERISA; (iv) the withdrawal by Company or any of its ERISA Affiliates from any Pension Plan with two or more contributing sponsors or the termination of any such Pension Plan resulting, in either case, in liability pursuant to Section 4063 or 4064 of ERISA, respectively; (v) the institution by the PBGC of proceedings to terminate any Pension Plan pursuant to Section 4042 of ERISA; (vi) the imposition of liability on Company or any of its ERISA Affiliates pursuant to Section 4062(e) or 4069 of ERISA or by reason of the application of Section 4212(c) of ERISA; (vii) the withdrawal by Company or any of its ERISA Affiliates in a complete or partial withdrawal (within the meaning of Sections 4203 and 4205 of ERISA) from any Multiemployer Plan resulting in withdrawal liability pursuant to Section 4201 of ERISA, or the receipt by Company or any of its ERISA Affiliates of written notice from any Multiemployer Plan that it is in 15 reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA, or that it intends to terminate or has terminated under Section 4042 of ERISA or under Section 4041A of ERISA if such termination would result in liability to Company or any of its ERISA Affiliates; (viii) the imposition on Company or any of its ERISA Affiliates of fines, penalties or taxes under Chapter 43 of the Internal Revenue Code or under Section 409 or 502(c), (i) or (l) or 4071 of ERISA in respect of any Employee Benefit Plan; (ix) the disqualification by the Internal Revenue Service of any Pension Plan (or any other Employee Benefit Plan intended to be qualified under Section 401(a) of the Internal Revenue Code) under Section 401(a) of the Internal Revenue Code, or the determination by the Internal Revenue Service that any trust forming part of any Pension Plan fails to qualify for exemption from taxation under Section 501(a) of the Internal Revenue Code; or (x) the imposition of a Lien pursuant to Section 401(a)(29) or 412(n) of the Internal Revenue Code or pursuant to ERISA with respect to any Pension Plan. "Eurocurrency Reserve Requirements" means, for each Interest Period --------------------------------- for each Eurodollar Rate Loan, the highest reserve percentage applicable to any Lender during such Interest Period under regulations issued from time to time by the Board of Governors of the Federal Reserve System or any successor for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement), with respect to liabilities or assets consisting of or including Eurocurrency liabilities having a term equal to such Interest Period. "Eurodollar Base Rate" means the rate per annum determined by the -------------------- Administrative Agent at approximately 11:00 A.M. (London time) on the date which is two Business Days prior to the beginning of the relevant Interest Period (as specified in the applicable Notice of Borrowing) by reference to the British Bankers' Association Interest Settlement Rates for deposits in Dollars (as set forth by any service selected by the Administrative Agent which has been nominated by the British Bankers' Association as an authorized information vendor for the purpose of displaying such rates) for a period equal to such Interest Period; provided that, to the extent that -------- an interest rate is not ascertainable pursuant to the foregoing provisions of this definition, the "Eurodollar Base Rate" shall be the interest rate per annum determined by the Administrative Agent to be the average of the rates per annum at which deposits in Dollars are offered for such relevant Interest Period to major banks in the London interbank market in London, England by the Reference Lenders at approximately 11:00 A.M. (London time) on the date which is two Business Days prior to the beginning of such Interest Period. If any of the Reference Lenders shall be unable or shall otherwise fail to supply such rates to the Administrative Agent upon its request, the rate of interest shall be determined on the basis of the quotations of the remaining Reference Lender. "Eurodollar Rate Loans" means Loans bearing interest at rates --------------------- determined by reference to the Reserve Adjusted Eurodollar Rate as provided in subsection 2.2A. "Event of Default" means each of the events set forth in Section 8. ---------------- "Excess Proceeds Amount" means, initially, $0, which amount shall be ---------------------- (i) increased (a) on the date of delivery in any Fiscal Year of an --------- Officer's 16 Certificate setting forth the calculation of Consolidated Excess Cash Flow for the preceding Fiscal Year pursuant to subsection 2.4B(iii)(e) (each such date being an "Excess Cash Payment Date"), so long as any prepayment ------------------------ required pursuant to subsection 2.4B(iii)(e) has been made, by an amount equal to the amount of such Consolidated Excess Cash Flow which is not so prepaid, and (b) on the date of the receipt by ChipPAC or any Subsidiary of ChipPAC of any Equity Proceeds, so long as any prepayment required pursuant to subsection 2.4B(iii)(c) has been made, by an amount equal to such Equity Proceeds and such other proceeds which are not so prepaid, and (ii) reduced ------- (a) on each Excess Cash Payment Date where Consolidated Excess Cash Flow for the immediately preceding Fiscal Year is a negative number, by such amount, (b) at the time any Consolidated Capital Expenditures are made pursuant to subsection 7.6D(iii), by the amount of such Consolidated Capital Expenditures, (c) at the time any time a Permitted Acquisition is funded pursuant to subsection 7.7(v)(z) with an amount attributable to the Excess Proceeds Amount, by the portion of the purchase price paid with the Excess Proceeds Amount and (d) at the time Investments are made pursuant to subsection 7.3(xii), by the amount of such Investments in excess of $20,000,000 it being understood that the Excess Proceeds Amount may be reduced to an amount below $0 after giving effect to the reductions enumerated in clause (ii)(a) above. "Exchange Act" means the Securities Exchange Act of 1934, as amended ------------ from time to time, and any successor statute. "Existing Investors" means HEA and HEI. ------------------ "Facilities" means any and all real property (including, without ---------- limitation, all buildings, fixtures or other improvements located thereon) now, hereafter or (for purposes of Sections 5.13 and 10.3 only) heretofore owned, leased, operated or used by ChipPAC or any of its Subsidiaries (but only as to portions thereof actually owned, leased, operated or used) or any of their respective predecessors or any of their respective Affiliates that are directly or indirectly controlled by ChipPAC. "Federal Funds Effective Rate" means, for any period, a fluctuating ---------------------------- interest rate equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by the Administrative Agent. "First Adjustment Date" means the later of (a) six months from the --------------------- Closing Date and (b) the date of the delivery of the first set of quarterly financial statements pursuant to subsection 6.1(ii) following the Closing Date. "First Priority" means, with respect to any Lien purported to be -------------- created in any Collateral pursuant to any Collateral Document, that such Lien is the most senior Lien (other than Permitted Encumbrances and other Liens permitted 17 pursuant to subsection 7.2A to the extent not perfected by filing of any UCC financing statements) to which such Collateral is subject. "Fiscal Quarter" means a fiscal quarter of a Fiscal Year. -------------- "Fiscal Year" means the fiscal year of ChipPAC and its Subsidiaries ----------- ending on December 31 of each calendar year. For purposes of this Agreement, any particular Fiscal Year shall be designated by reference to the calendar year in which such Fiscal Year ends. "Fixed Charge Coverage Ratio" has the meaning assigned to that term in --------------------------- subsection 7.6E. "Foreign Benefit Event" means with respect to any Foreign Pension --------------------- Plan, (a) the existence of unfunded liabilities in excess of the amount permitted under any applicable law, or in excess of the amount that would be permitted absent a waiver from a Governmental Authority, (b) the failure to make the required contributions or payments, under any applicable law, on or before the due date for such contributions or payments, (c) the receipt of a notice by a Governmental Authority relating to the intention to terminate any such Foreign Pension Plan or to appoint a trustee or similar official to administer any such Foreign Pension Plan, or alleging the insolvency of any such Foreign Pension Plan and (d) the incurrence of any liability in excess of $5,000,000 which is unfunded or for which a reserve has not been established in the financial statements of ChipPAC and its subsidiaries (or the Dollar equivalent thereof in another currency) by Company or any of its Subsidiaries under applicable law on account of the complete or partial termination of such Foreign Pension Plan or the complete or partial withdrawal of any participating employer therein, or (e) the occurrence of any transaction that is prohibited under any applicable law and could reasonably be expected to result in the incurrence of any liability by Company or any of its Subsidiaries, or the imposition on Company or any of its Subsidiaries of any fine, excise tax or penalty resulting from any noncompliance with any applicable law, in each case in excess of $5,000,000 (or the Dollar equivalent thereof in another currency). "Foreign Pension Plan" shall mean any plan, fund (including any -------------------- superannuation fund) or other similar program established or maintained outside the United States by ChipPAC or any one or more of its Subsidiaries primarily for the benefit of employees of ChipPAC or such Subsidiaries residing outside the United States, which plan, fund or other similar program provides, or results in, retirement income, a deferral of income in contemplation of retirement or payments to be made upon termination of employment, and which plan is not subject to ERISA or the Code. "Funding and Payment Office" means the office of the Administrative -------------------------- Agent located at 11 Madison Avenue, New York, NY 10010 (or such office of the Administrative Agent or any successor Administrative Agent specified by the Administrative Agent or such successor Administrative Agent in a written notice to the Loan Parties and the Lenders). 18 "Funding Date" means the date of the funding of a Loan, which, in the ------------ case of the Term A Loans and Term B Loans, shall be the Closing Date. "GAAP" means, subject to the limitations on the application thereof ---- set forth in subsection 1.2, generally accepted accounting principles set forth in opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession, in each case as the same are applicable to the circumstances as of the date of determination and specifically, terms used herein applicable to Company and its Subsidiaries defined by reference to GAAP shall give effect to the subtraction of minority interests. "Governmental Acts" has the meaning assigned to that term in ----------------- subsection 3.5A. "Governmental Authority" means any nation or government, any state or ---------------------- any political subdivision of any of the foregoing and any entity exercising executive, legislative, judicial or regulatory functions of or pertaining to government. "Governmental Authorization" means any permit, license, authorization, -------------------------- plan, directive, consent order or consent decree of or from any Governmental Authority. "Granting Bank" has the meaning assigned to that term in subsection ------------- 10.1F. "Guaranty" means, individually, the Guaranty, substantially in the -------- form of Exhibit IV annexed hereto, executed and delivered by ChipPAC and ---------- the Subsidiary Guarantors as of the Closing Date or by any additional Subsidiary Guarantor from time to time thereafter pursuant to subsection 6.9, as such Guaranty may heretofore have been or hereafter may be amended, restated, supplemented or otherwise modified from time to time, or any other guaranty of the Obligations, and "Guaranties" means, collectively, ---------- the Guaranty and each other guaranty of the Obligations. "Guarantor" means, individually, ChipPAC, the Subsidiary Guarantors or --------- any other guarantor of the Obligations, and "Guarantors" means, ---------- collectively, ChipPAC, the Subsidiary Guarantors and each other guarantor of the Obligations. "Hazardous Materials" means all substances defined as Hazardous ------------------- Substances, Oils, Pollutants or Contaminants in the National Oil and Hazardous Substances Pollution Contingency Plan, 40 C.F.R. (S) 300.5, or defined as such by, or regulated as such under, any Environmental Law. "HEA" means Hyundai Electronics America, a California corporation. --- 19 "Hedge Agreements" means all swaps, caps or collar agreements or ---------------- similar arrangements entered into by ChipPAC or any of its Subsidiaries providing for protection against fluctuations in currency exchange rates or the exchange of nominal interest obligations, either generally or under specific contingencies. "HEI" means Hyundai Electronics Industries Co., Ltd., a corporation --- incorporated under the laws of the Republic of Korea. "HEI Preferred Stock" means a series of senior pay-in-kind preferred ------------------- stock of ChipPAC issued to HEI in connection with the Recapitalization Transactions having an initial liquidation preference of $70,000,000 and the other terms and conditions set forth in Exhibit XIV annexed hereto. ----------- "HEI Unspent Amount" means $12,295,000, which is the amount by which ------------------ the cash consideration payable to HEI pursuant to the Recapitalization Agreement is reduced as a result of ChipPAC's actual capital expenditures for the period from January 1, 1999, through the Closing Date being less than budgeted capital expenditures for such period. "Hungarian Pledge Agreement" means the Quota Lien Agreement by and -------------------------- between the Company and the Collateral Agent, substantially in the form of Exhibit XV annexed hereto, as such Hungarian Pledge Agreement may hereafter ---------- be amended, restated, supplemented or otherwise modified from time to time. "Immaterial Subsidiaries" means one or more Subsidiaries of ChipPAC, ----------------------- designated in writing to the Administrative Agent from time to time; provided that (x) the assets of all such designated Subsidiaries -------- constitute, in the aggregate, less than or equal to 5% of the total assets of ChipPAC and its Subsidiaries on a consolidated basis and (y) all such designated Subsidiaries contribute, individually or in the aggregate, less than or equal to 5% of Consolidated Adjusted EBITDA. "Indebtedness" means, as applied to any Person, (i) all indebtedness ------------ for borrowed money, (ii) that portion of obligations with respect to Capital Leases that is properly classified as a liability on a balance sheet in conformity with GAAP, (iii) notes payable and drafts accepted representing extensions of credit whether or not representing obligations for borrowed money (other than current accounts payable incurred in the ordinary course of business and accrued expenses incurred in the ordinary course of business), (iv) any obligation owed for all or any part of the deferred purchase price of property or services (excluding the Earnout, any such obligations incurred under ERISA or any Foreign Pension Plan, any obligation under employment or consulting agreements of ChipPAC or its Subsidiaries and current trade payables incurred in the ordinary course of business) which obligation in accordance with GAAP would be shown as a liability on the balance sheet of such Person, (v) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to any property or assets acquired by such Person (unless the rights and remedies of the seller or the lender under such agreement in the event of default are limited to repossession or sale of such property or assets), (vi) all obligations, contingent or otherwise, as an account party under any Letter of Credit or under acceptance, letter of credit or similar facilities to the extent not reflected as trade liabilities on 20 the balance sheet of such Person in accordance with GAAP, and (vii) all indebtedness secured by any Lien on any property or asset owned or held by that Person regardless of whether the indebtedness secured thereby shall have been assumed by that Person or is nonrecourse to the credit of that Person. The amount of Indebtedness which is non-recourse to the obligor thereunder or to any other obligor and for which recourse is limited to an identified asset or assets shall be equal to the lesser of (1) the stated amount of such obligation and (2) the fair market value of such asset or assets. Obligations under Interest Rate Agreements and Hedge Agreements constitute (X) in the case of Hedge Agreements, Contingent Obligations, and (Y) in all other cases, Investments, and in neither case constitute Indebtedness. "Indemnitee" has the meaning assigned to that term in subsection 10.3. ---------- "Information Memorandum" means the Confidential Information Memorandum ---------------------- dated July 1999, that was used in connection with the syndication of the credit facilities set forth herein. "Initial Period" means the period commencing on and including the -------------- Closing Date and ending on the earlier of (i) the date on which the Sole Lead Arranger notifies Company that it has concluded its primary syndication of the Loans and the Commitments, and (ii) thirty (30) days after the Closing Date. "Insurance Proceeds" has the meaning assigned to that term in ------------------ subsection 2.4B(iii)(d). "Intel" means Intel Corporation, a Delaware corporation. ----- "Intel Preferred Stock" means the 10% convertible preferred stock of --------------------- ChipPAC issued to Intel in connection with the Recapitalization Transactions having an initial liquidation preference of $10,000,000 and on the other terms and conditions set forth in Exhibit XVIII annexed hereto. ------------- "Intellectual Property" has the meaning assigned to that term in --------------------- subsection 5.5C. "Intercompany Note" means any note evidencing Indebtedness of ChipPAC ----------------- or any Subsidiary of ChipPAC to ChipPAC or any other Subsidiary of ChipPAC (including the Recapitalization Notes) set forth on Schedule 1.1(ii) ---------------- annexed hereto, and "Intercompany Notes" means, collectively, all such ------------------ notes. "Intercompany Security Documents" means the Recapitalization Security ------------------------------ Agreements and the Recapitalization Notes. "Interest Coverage Ratio" has the meaning assigned to that term in ----------------------- subsection 7.6A. "Interest Payment Date" means (i) with respect to any Base Rate Loan, --------------------- the last Business Day in each of March, June, September and December of each year, commencing September 1999, and (ii) with respect to any Eurodollar Rate 21 Loan, the last day of each Interest Period applicable to such Loan; provided that in the case of each Interest Period of longer than three -------- months, "Interest Payment Date" shall also include the date that is three months or integral multiple thereof after the commencement of such Interest Period. "Interest Period" has the meaning assigned to that term in subsection --------------- 2.2B. "Interest Rate Agreement" means any interest rate swap agreement, ----------------------- interest rate cap agreement, interest rate collar agreement or other similar agreement or arrangement designed to hedge ChipPAC or any of its Subsidiaries against fluctuations in interest rates. "Interest Rate Determination Date" means each date for calculating the -------------------------------- Reserve Adjusted Eurodollar Rate, for purposes of determining the interest rate in respect of an Interest Period. The Interest Rate Determination Date for purposes of calculating the Reserve Adjusted Eurodollar Rate shall be the second Business Day prior to the first day of the related Interest Period. "Internal Revenue Code" means the Internal Revenue Code of 1986, as --------------------- amended to the date hereof and from time to time hereafter and any successor statute and the regulations promulgated by the Internal Revenue Service thereunder. "Investment" means (i) any direct or indirect purchase or other ---------- acquisition by ChipPAC or any of its Subsidiaries of, or of a beneficial interest in, stock or other Securities of any other Person, (ii) any direct or indirect loan, advance (other than advances to employees for moving, entertainment and travel expenses, drawing accounts and similar expenditures in the ordinary course of business) or capital contribution by ChipPAC or any of its Subsidiaries to any other Person, including all indebtedness and accounts receivable acquired from that other Person that are not current assets or did not arise from sales to that other Person in the ordinary course of business or (iii) Interest Rate Agreements; provided, however, that the term "Investment" shall not include (a) current -------- ------- trade and customer accounts receivable for goods furnished or services rendered in the ordinary course of business and payable in accordance with customary trade terms, (b) advances and prepayments to suppliers for goods and services in the ordinary course of business, (c) stock or other securities acquired in connection with the satisfaction or enforcement of Indebtedness or claims due or owing to ChipPAC or any of its Subsidiaries (whether in bankruptcy of customers or suppliers or otherwise) or as security for any such Indebtedness or claims, (d) Cash, and (e) deposits to secure the performance of leases. The amount of any Investment shall be the original cost of such Investment plus the cost of all additions thereto, without any adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment "Investors" means Bain, the SXI Holders and the Existing Investors. --------- "Issuing Bank" means, with respect to any Letter of Credit, CSFB, in ------------ its capacity as issuer of Letters of Credit, and, any other Lender, reasonably 22 acceptable to Company and the Administrative Agent, having a Letter of Credit Subfacility Commitment. "Judgment Currency" has the meaning assigned to that term in ----------------- subsection 10.20. "Judgment Currency Conversion Date" has the meaning assigned to that --------------------------------- term in subsection 10.20. "Korean Pledge Agreement" means that certain Pledge (Jil-Kwon) ----------------------- Agreement entered into by and between ChipPAC Korea and ChipPAC Hungary on or prior to the Closing Date, substantially in the form of Exhibit XVI ----------- annexed hereto, as such Korean Pledge Agreement may hereafter be amended, restated, supplemented or otherwise modified from time to time with the consent of the Requisite Lenders. "Korean Security Agreement" means that certain Yangdo Dambo Agreement ------------------------- entered into by and between ChipPAC Korea and the Collateral Agent on or prior to the Closing Date, substantially in the form of Exhibit XVII ------------ annexed hereto, as such Korean Security Agreement may hereafter be amended, restated, supplemented or otherwise modified from time to time. "Lender" and "Lenders" means the Persons identified as "Lenders" and ------ ------- listed on the signature pages of this Agreement, together with their successors and permitted assigns pursuant to subsection 10.1, and the term "Lenders" shall include the Swing Line Lender unless the context otherwise requires; provided that the term "Lenders", when used in the context of a -------- particular Commitment, shall mean the Lenders having that Commitment. "Lender Default" means (i) the refusal (which has not been retracted) -------------- of a Lender to make available its portion of any Loans (including any Revolving Loans made to pay Refunded Swing Line Loans or to reimburse drawings under Letters of Credit) in accordance with subsection 2.1A or its portion of any unreimbursed drawing or payment under a Letter of Credit in accordance with subsection 3.3C or (ii) a Lender having notified Company and/or the Administrative Agent in writing that it does not intend to comply with its obligations under subsection 2.1 or subsection 3.1C, 3.3B or 3.3C. "Lending Office" means, as to any Lender, the office or offices of -------------- such Lender specified as the "Lending Office" in Schedule 2.1, or such ------------ other office or offices as such Lender may from time to time notify Company and the Administrative Agent. "Letter of Credit" or "Letters of Credit" means Commercial Letters of ---------------- ----------------- Credit and Standby Letters of Credit issued or to be issued by the Issuing Bank pursuant to subsection 3.1. "Letter of Credit Issuing Office" means, as to any Issuing Bank, the ------------------------------- address from time to time specified by such Issuing Bank to Company and the Administrative Agent as its letter of credit issuing office. The initial "Letter of 23 Credit Issuing Office" for CSFB shall be 5 World Trade Center, 8/th/ Floor, New York, New York, 10048. "Letter of Credit Subfacility Commitment" means, with respect to any --------------------------------------- Issuing Bank at any time, the commitment of such Issuing Bank to issue Letters of Credit pursuant to subsection 3.1A; provided that the aggregate -------- amount of the Letter Credit Subfacility Commitments shall in no event exceed $10,000,000; provided, further, that any reduction in the Revolving -------- ------- Loan Commitments to a level that is below the then aggregate amount of the Letter of Credit Subfacility Commitments shall result in the pro rata reduction of the aggregate Letter of Credit Subfacility Commitments pro rata to each Issuing Bank. "Letter of Credit Usage" means, as at any date of determination, the ---------------------- sum of (i) the maximum aggregate amount which is or at any time thereafter may become available for drawing under all Letters of Credit then outstanding plus (ii) the aggregate amount of all drawings under Letters of ---- Credit honored by the Issuing Bank and not theretofore reimbursed by Company (including any such reimbursement out of the proceeds of Revolving Loans pursuant to subsection 3.3B). "Leverage Ratio" has the meaning assigned to that term in subsection -------------- 7.6. "Lien" means any lien, mortgage, pledge, assignment, security ---- interest, fixed or floating charge or encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, and any agreement to give any security interest) and any option, trust or deposit or other preferential arrangement having the practical effect of any of the foregoing. "Loan" or "Loans" means, as the context requires, one or more of the ---- ----- Term Loans, Revolving Loans, Swing Line Loans or any combination thereof. "Loan Documents" means this Agreement, any notes issued pursuant to -------------- subsection 2.1E(ii), the Letters of Credit (and any applications for, or reimbursement agreements or other documents or certificates executed by ChipPAC or Company in favor of the Issuing Bank relating to, the Letters of Credit), the Guaranties and the Collateral Documents. "Loan Parties" means Company, ChipPAC Shanghai I, ChipPAC Shanghai II ------------ and each Guarantor. "Local Lines of Credit" means (a) the lines of credit in an aggregate --------------------- principal amount outstanding at any time not to exceed $25,000,000 (or the equivalent), to provide working capital financing for the Operating Subsidiaries and (b) additional lines of credit in an aggregate principal amount outstanding at any time not to exceed $5,000,000 (or the equivalent), to provide working capital financing for the Operating Subsidiaries in connection with a Permitted Acquisition. 24 "Margin Stock" has the meaning assigned to that term in Regulation U ------------ of the Board of Governors of the Federal Reserve System as in effect from time to time. "Material Adverse Effect" means a material adverse effect upon (i) the ----------------------- business, results of operations, financial condition or prospects of ChipPAC and its Subsidiaries, taken as a whole, or (ii) the validity or enforceability of any of the Transaction Documents (to the extent adverse to ChipPAC or its Subsidiaries) or the Loan Documents against the Loan Parties (other than Immaterial Subsidiaries, except to the extent any such invalidity or unenforceability would adversely affect the Collateral Agent's ability to realize upon any Collateral) or the rights, remedies and benefits available to the parties thereunder. "Material Contracts" means any indenture, mortgage, deed of trust, ------------------ contract, undertaking, agreement or other instrument to which ChipPAC or any of its Subsidiaries is a party for which breach, nonperformance, cancellation or failure to renew would constitute an Event of Default or could reasonably be expected to have a Material Adverse Effect. "Maximum Consolidated Capital Expenditures Amount" has the meaning ------------------------------------------------ assigned to that term in subsection 7.6C(i). "Merger Corp" means ChipPAC Merger Corp., a Delaware corporation. ----------- "Micro BGA Capital Expenditures" means expenditures that would ------------------------------ constitute Consolidated Capital Expenditures (but for clause (c) in the proviso to the definition of such term) made with respect to the provision of Micro BGA packaging services pursuant to the Services Agreement dated as of the Closing Date by and between HEI and ChipPAC Limited. "Moody's" means Moody's Investors Service, Inc. ------- "Multiemployer Plan" means a "multiemployer plan", as defined in ------------------ Section 4001(a)(3) of ERISA which is subject to Title IV of ERISA, to which Company or any of its ERISA Affiliates is contributing or to which Company or any of its ERISA Affiliates has an obligation to contribute. "Net Cash Proceeds" means, with respect to any Asset Sale, Cash ----------------- Proceeds of such Asset Sale net of costs of sale including, without limitation, (i) income taxes estimated to be payable as a result of such Asset Sale within two years of the date of receipt of such Cash Proceeds, (ii) transfer, sales, use and other taxes payable in connection with such Asset Sale, (iii) payment of the outstanding principal amount of, premium or penalty, if any, and interest on any Indebtedness (other than the Loans) that is secured by a Lien on the stock or assets in question and that is required to be repaid under the terms thereof as a result of such Asset Sale, and (iv) financial advisor's commissions and fees and expenses of counsel and other advisors in connection with such Asset Sale. "Non-Defaulting Lender" means and includes each Lender other than a --------------------- Defaulting Lender. 25 "Notice of Borrowing" means a notice in the form of Exhibit I annexed ------------------- --------- hereto delivered by Company to the Administrative Agent pursuant to subsection 2.1B with respect to a proposed borrowing. "Notice of Conversion/Continuation" means a notice substantially in --------------------------------- the form of Exhibit II annexed hereto delivered by Company to the ---------- Administrative Agent pursuant to subsection 2.2D with respect to a proposed conversion or continuation of the applicable basis for determining the interest rate with respect to the Loans specified therein. "Notice of Issuance of Letter of Credit" means a notice in the form of -------------------------------------- Exhibit III annexed hereto delivered by Company to the Administrative Agent ----------- pursuant to subsection 3.1B(i) with respect to the proposed issuance of a Letter of Credit. "Obligations" means all obligations of every nature of each Loan Party ----------- from time to time owed to the Agents, the Lenders or any of them or their respective Affiliates under the Loan Documents, whether for principal, interest, reimbursement of amounts drawn under Letters of Credit or payments for early termination of Interest Rate Agreements, fees, expenses, indemnification or otherwise. "Obligation Currency" has the meaning assigned to that term in ------------------- subsection 10.20. "Officer's Certificate" means, with respect to any Person, a --------------------- certificate executed on behalf of such Person (x) if such Person is a partnership or limited liability company, by its chairman of the Board (if an officer) or chief executive officer or by the chief financial officer, vice president, treasurer or a principal financial officer of its general partner or managing member or other Person authorized to do so by its Organizational Documents, (y) if such Person is a corporation, on behalf of such corporation by its chairman of the board (if an officer) or chief executive officer or its chief financial officer, vice president, treasurer or a principal financial officer and (z) if such person is ChipPAC or a Subsidiary of ChipPAC, a Responsible Officer; provided that every Officer's -------- Certificate with respect to the compliance with a condition precedent to the making of any Loans hereunder shall include (i) a statement that the officer or officers making or giving such Officer's Certificate have read such condition and any definitions or other provisions contained in this Agreement relating thereto, (ii) a statement that, in the opinion of the signer or signers, they have made or have caused to be made such examination or investigation as is necessary to enable them to express an informed opinion as to whether or not such condition has been complied with, and (iii) a statement as to whether, in the opinion of the signer or signers, such condition has been complied with. "Operating Lease" means, as applied to any Person, any lease --------------- (including, without limitation, leases that may be terminated by the lessee at any time) of any property (whether real, personal or mixed) that is not a Capital Lease other than any such lease under which that Person is the lessor. 26 "Operating Subsidiaries" means ChipPAC Limited, ChipPAC Korea, ChipPAC ---------------------- Shanghai I, ChipPAC Shanghai II and each other Subsidiary of ChipPAC (other than Company, ChipPAC Barbados, ChipPAC Luxembourg and ChipPAC Hungary) that conducts packaging and testing services, sales or distribution functions. "Organizational Authorizations" means, with respect to any Person, ----------------------------- resolutions of its Board of Directors, general partners or members of such Person, and such other Persons, groups or committees (including, without limitation, managers and managing committees), if any, required by the Organizational Certificate or Organization Documents of such Person to authorize or approve the taking of any action or the entering into of any transaction. "Organizational Certificate" means, with respect to any Person, the -------------------------- certificate or articles of incorporation, partnership or limited liability company or any other similar or equivalent organizational, charter or constitutional certificate or document filed with the applicable Governmental Authority in the jurisdiction of its incorporation, organization or formation. "Organizational Documents" means, with respect to any Person, the by- ------------------------ laws, partnership agreement, limited liability company agreement, operating agreement, management agreement or other similar or equivalent organizational, charter or constitutional agreement or arrangement. "PBGC" means the Pension Benefit Guaranty Corporation established ---- pursuant to Section 4002 of ERISA (or any successor thereto). "Pension Plan" means any Employee Benefit Plan, other than a ------------ Multiemployer Plan, which is subject to Section 412 of the Internal Revenue Code or Section 302 of ERISA. "Permitted Acquisitions" means an acquisition made pursuant to ---------------------- subsection 7.7(v). "Permitted Encumbrances" means the following types of Liens: ---------------------- (i) Liens for taxes, assessments or governmental charges or claims the payment of which is not, at the time, required by subsection 6.3; (ii) statutory or contractual Liens of landlords, statutory Liens of banks and rights of setoff, statutory Liens of carriers, warehousemen, mechanics and materialmen and other Liens imposed by law (other than any such Lien imposed pursuant to Section 401(a)(29) or 412(n) of the Internal Revenue Code or by ERISA) incurred in the ordinary course of business for sums not yet delinquent or being contested in good faith pursuant to appropriate proceedings, if such reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made therefor; (iii) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment 27 insurance and other types of social security, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, trade contracts, performance and return-of-money bonds and other similar obligations (exclusive, in each case, of obligations for the payment of borrowed money or other Indebtedness); (iv) any attachment or judgment Lien not constituting an Event of Default under subsection 8.8; (v) leases or subleases granted to others (in the ordinary course of business consistent with past practices) not interfering in any material respect with the ordinary conduct of the business or operations of ChipPAC or any of its Subsidiaries; (vi) easements, rights-of-way, restrictions, defects, encroachments or irregularities in title and other similar charges or encumbrances not interfering in any material respect with the ordinary conduct of the business of Company or any of its Subsidiaries and encumbrances set forth on the title reports delivered to the Administrative Agent; (vii) any (a) interest or title of a lessor or sublessor under any Capital Lease permitted by subsection 7.1(v) or any operating lease not prohibited by this Agreement, (b) restriction or encumbrance that the interest or title of such lessor or sublessor may be subject to, or (c) subordination of the interest of the lessee or sublessee under such lease to any restriction or encumbrance referred to in the preceding clause (b); (viii) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; (ix) Liens arising from filing UCC financing statements relating solely to leases permitted by this Agreement; (x) deposits in the ordinary course of business to secure liabilities to insurance carriers, lessors, utilities and other service providers; (xi) bankers' liens and rights of setoff with respect to customary depository arrangements entered into in the ordinary course of business; (xii) any zoning or similar law or right reserved to or vested in any governmental office or agency to control or regulate the use of any real property; and (xiii) licenses of patents, trademarks and other intellectual property rights granted by ChipPAC or any of its Subsidiaries in the ordinary course of business and not interfering in any material respect with the ordinary conduct of the business of ChipPAC or such Subsidiary. 28 "Permitted Seller Paper" means any unsecured Indebtedness of ChipPAC ---------------------- or its Subsidiaries that is not guaranteed by any Subsidiary of ChipPAC and that is incurred in connection with any acquisition consummated in accordance with the provisions of subsection 7.7(v) and payable to the seller in connection therewith and containing the subordination provisions set forth on Exhibit XI hereto. ----------------- "Person" means and includes natural persons, corporations, limited ------ partnerships, limited liability companies, general partnerships, joint stock companies, joint ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts or other organizations, whether or not legal entities, and governments and agencies and political subdivisions thereof and any other entities of whatever nature. "Pledge Agreements" means, collectively, the Principal Pledge ----------------- Agreement, the Korean Pledge Agreement, the Hungarian Pledge Agreement and the Chinese Pledge Agreements. "Prime Rate" means the rate of interest per annum publicly announced ---------- from time to time by CSFB as its prime commercial lending rate in effect at its principal office in New York City. The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. CSFB or any other Lender may make commercial loans or other loans at rates of interest at, above or below the Prime Rate. "Principal Pledge Agreement" means that certain Pledge Agreement -------------------------- entered into by and among ChipPAC, certain of the Guarantors and the Collateral Agent as of the Closing Date, or pursuant to subsection 6.9, substantially in the form of Exhibit V annexed hereto, as such Principal --------- Pledge Agreement may hereafter be amended, restated, supplemented or otherwise modified from time to time. "Principal Security Agreement" means the Security Agreement entered ---------------------------- into by and among ChipPAC, certain of the Guarantors and the Collateral Agent on and as of the Closing Date, or pursuant to subsection 6.9, substantially in the form of Exhibit VI annexed hereto, as such Security ---------- Agreement may hereafter be amended, restated, supplemented or otherwise modified from time to time. "Pro Forma Basis" means, with respect to compliance with any test or --------------- covenant hereunder, compliance with such covenant or test after giving effect to any proposed acquisition or other action (including cost reduction actions taken as a result thereof) which requires compliance on a pro forma basis (including pro forma adjustments arising out of events which are directly attributable to a specific transaction, are factually supportable and are expected to have a continuing impact, in each case determined on a basis consistent with Article 11 of Regulation S-X of the Securities Act and as interpreted by the Staff of the Securities and Exchange Commission which (to the extent consistent therewith) may include cost savings resulting from head count reductions, closure of facilities and similar restructuring charges or integration activities or other adjustments certified by a financial officer of ChipPAC, together with such other pro forma adjustments certified by a financial officer of ChipPAC as being 29 reasonable and having been made in good faith as may be reasonably acceptable to the Administrative Agent) using, for purposes of determining such compliance, the historical financial statements of all entities or assets so acquired or to be acquired and the consolidated financial statements of ChipPAC and its Subsidiaries which shall be reformulated as if such acquisition or other action, and any other acquisitions which have been consummated during the period, and any Indebtedness or other liabilities incurred in connection with any such acquisition had been consummated at the beginning of such period and assuming that such Indebtedness bears interest during any portion of the applicable measurement period prior to the relevant acquisition at the weighted average of the interest rates applicable to outstanding Loans during such period. "Pro Forma Compliance" means, at any date of determination, ChipPAC -------------------- shall be in pro forma compliance with the covenants set forth in --- ----- subsections 7.6A, B, C and D as of the last day of the most recent Fiscal Quarter end (computed on the basis of (i) balance sheet amounts as of the most recently completed Fiscal Quarter, and (ii) income statement amounts for the most recently completed period of four consecutive Fiscal Quarters, in each case, for which financial statements shall have been delivered to the Administrative Agent and calculated on a Pro Forma Basis in respect of the event giving rise to such determination). "Pro Rata Share" means (i) with respect to all payments, computations -------------- and other matters relating to the Term A Loan Commitment or the Term A Loans of any Lender, the percentage obtained by dividing (x) the Term A -------- Loan Exposure of that Lender by (y) the aggregate Term A Loan Exposure of -- all the Lenders; (ii) with respect to all payments, computations and other matters relating to the Term B Loan Commitment or the Term B Loans of any Lender, the percentage obtained by dividing (x) the Term B Loan Exposure of -------- that Lender by (y) the aggregate Term B Loan Exposure of all the Lenders; -- (iii) with respect to all payments, computations and other matters relating to the Term Delayed Draw Loan Commitment or the Term Delayed Draw Loans of any Lender, the percentage obtained by dividing (x) the Term Delayed Draw -------- Loan Exposure of that Lender by (y) the aggregate Term Delayed Draw Loan -- Exposure of all the Lenders; (iv) with respect to all payments, computations and other matters relating to the Revolving Loan Commitment or the Revolving Loans of any Lender or any Letters of Credit issued by any Lender or any participations purchased by any Lender therein or in any Swing Line Loans, the percentage obtained by dividing (x) the Revolving -------- Loan Exposure of that Lender by (y) the aggregate Revolving Loan Exposure -- of all the Lenders; and (v) for all other purposes with respect to each Lender, the percentage obtained by dividing (x) the sum of the Term Loan -------- Exposure of that Lender and the Revolving Loan Exposure of that Lender by -- (y) the sum of the aggregate Term Loan Exposure of all the Lenders and the aggregate Revolving Loan Exposure of all the Lenders; in any such case as the applicable percentage may be adjusted by assignments permitted pursuant to subsection 10.1. The initial Pro Rata Share of each Lender for purposes of each of clauses (i), (ii), (iii) and (iv) of the preceding sentence is set forth opposite the name of that Lender in Schedule 2.1 annexed hereto. ------------ "Projections" has the meaning assigned to that term in subsection ----------- 5.3B. 30 "Qualified Public Equity Offering" means an underwritten public -------------------------------- offering of common stock of, and by, ChipPAC pursuant to a registration statement filed with the Securities and Exchange Commission in accordance with the Securities Act. "Recapitalization Agreement" means the Agreement and Plan of -------------------------- Recapitalization and Merger dated as of March 13, 1999, as amended to date, entered into by HEI, HEA, ChipPAC and Merger Corp, as the same may thereafter be amended, restated, supplemented or otherwise modified from time to time to the extent permitted under subsection 7.11A. "Recapitalization Loans" means, collectively, the ChipPAC Luxembourg ---------------------- Loan, the ChipPAC Limited Loan, the ChipPAC Hungary Loan, the ChipPAC Korea Loan and the ChipPAC Shanghai I Loan. "Recapitalization Note" means a note evidencing a Recapitalization --------------------- Loan, and "Recapitalization Notes" means, collectively, all such notes. ---------------------- "Recapitalization Security Agreement" means the Chinese Security ----------------------------------- Agreements, the Korean Pledge Agreement and each other pledge or security agreement entered into by a Subsidiary to secure a Recapitalization Loan, and "Recapitalization Security Agreements" means, collectively, all such ------------------------------------ agreements. The Recapitalization Security Agreements, other than the Chinese Pledge and Security and the Korean Pledge and Security Agreements, are substantially in the form of Exhibit XIX annexed hereto. ----------- "Recapitalization Transactions" means the transactions contemplated by ----------------------------- the Recapitalization Agreement (including the Recapitalization Loans) and the payment of Transaction Costs, in each case occurring on or about the Closing Date. "Recovery Event" has the meaning assigned to that term in subsection -------------- 2.4B(iii)(d). "Reference Lenders" means (i) CSFB and (ii) another Lender determined ----------------- by the Administrative Agent with the consent of Company. "Refunded Swing Line Loans" has the meaning assigned to that term in ------------------------- subsection 2.1A(v). "Register" has the meaning assigned to that term in subsection 2.1D. -------- "Regulation D" means Regulation D of the Board of Governors of the ------------ Federal Reserve System, as in effect from time to time. "Reimbursement Date" has the meaning assigned to that term in ------------------ subsection 3.3B. "Reinvestment Assets" means, in the case of any Reinvestment Event, ------------------- any assets which are either (i) in replacement of the assets subject to the 31 Reinvestment Event, or (ii) long term assets (including Capital Stock) useful in the business of ChipPAC or its Subsidiary whose assets were subject to the Reinvestment Event. "Reinvestment Deferred Amount" means, with respect to any Reinvestment ---------------------------- Event, the aggregate Net Cash Proceeds, Insurance Proceeds or Condemnation Proceeds, as the case may be, received by ChipPAC or any of its Subsidiaries in connection therewith which are not applied to prepay the Loans (and/or reduce the Revolving Loan Commitments) in accordance with subsection 2.4B(iii)(a) or (d) as a result of the delivery of a Reinvestment Notice. "Reinvestment Event" means any Asset Sale or Recovery Event in respect ------------------ of which ChipPAC has delivered a Reinvestment Notice. "Reinvestment Notice" means a written notice executed by a Responsible ------------------- Officer stating that no Default or Event of Default has occurred and is continuing and that ChipPAC (directly or indirectly through a Subsidiary) intends and expects to use all or a specified portion of the Net Cash Proceeds, Insurance Proceeds or Condemnation Proceeds, as the case may be, of an Asset Sale or Recovery Event to acquire Reinvestment Assets within 365 days of the receipt of such Net Cash Proceeds, Insurance Proceeds or Condemnation Proceeds, as the case may be. "Reinvestment Prepayment Amount" means, with respect to any ------------------------------ Reinvestment Event, the Reinvestment Deferred Amount, if any, relating thereto less any amount expended prior to the relevant Reinvestment Prepayment Date to acquire Reinvestment Assets. "Reinvestment Prepayment Date" means, with respect to any Reinvestment ---------------------------- Event, the earlier of (a) the date occurring 365 days after such Reinvestment Event and (b) the date on which ChipPAC shall have determined not to, or shall have otherwise ceased to, acquire Reinvestment Assets with all or any portion of the relevant Reinvestment Deferred Amount. "Release" means any release, spill, emission, leaking, pumping, ------- pouring, injection, escaping, deposit, disposal, discharge, dispersal, dumping, leaching or migration of Hazardous Materials into the environment. "Requisite Class Lenders" means, at any time of determination (i) for ----------------------- the Class of the Lenders having Term A Loan Exposure, Non-Defaulting Lenders having or holding more than 50% of the aggregate Term A Loan Exposure of all Non-Defaulting Lenders, (ii) for the Class of Lenders having Term B Loan Exposure, Non-Defaulting Lenders having or holding more than 50% of the aggregate Term B Loan Exposure of all Non-Defaulting Lenders, (iii) for the Class of Lenders having Term Delayed Draw Loan Exposure, Non-Defaulting Lenders having or holding more than 50% of the aggregate Term Delayed Draw Loan Exposure of all Non-Defaulting Lenders, and (iv) for the Class of Lenders having Revolving Loan Exposure, Non- Defaulting Lenders having or holding more than 50% of the aggregate Revolving Loan Exposure of all Non-Defaulting Lenders. 32 "Requisite Lenders" means Non-Defaulting Lenders having or holding ----------------- more than 50% of the sum of the aggregate Term Loan Exposure of all Non- Defaulting Lenders and the aggregate Revolving Loan Exposure of all Non- Defaulting Lenders. "Reserve Adjusted Eurodollar Rate" means, with respect to each day -------------------------------- during each Interest Period pertaining to a Eurodollar Rate Loan, a rate per annum determined for such day in accordance with the following formula: Eurodollar Base Rate ---------------------------------------- 1.00 - Eurocurrency Reserve Requirements "Responsible Officer" means the chairman of the board of directors (if ------------------- an officer), chief executive officer, president, executive vice president, general counsel, chief financial officer, assistant treasurer, assistant secretary, principal financial or accounting officer or the secretary of ChipPAC, or as applicable, a Subsidiary of ChipPAC or another officer designated by the board of ChipPAC or any of its Subsidiaries but, in any event, with respect to financial reporting matters, the chief executive officer, chief financial officer or treasurer of ChipPAC. "Restricted Payment" means (i) any dividend or other distribution, ------------------ direct or indirect, on account of any shares of any class of stock (or of any other Capital Stock) of ChipPAC or any of its Subsidiaries now or hereafter outstanding, except a dividend payable solely in shares of that class of stock to the holders of that class, (ii) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of stock (or of any other Capital Stock) of ChipPAC or any of its Subsidiaries now or hereafter outstanding, (iii) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of stock (or of any other Capital Stock) of ChipPAC or any of its Subsidiaries now or hereafter outstanding, and (iv) any payment or prepayment of principal of, premium, if any, or interest on, or redemption, purchase, retirement, defeasance (including in substance or legal defeasance), sinking fund or similar payment with respect to, Subordinated Debt. "Revolving Loan Commitment" means the commitment of a Lender to make ------------------------- Revolving Loans to Company pursuant to subsection 2.1A(iv), and "Revolving --------- Loan Commitments" means such commitments of all Lenders in the aggregate. ---------------- "Revolving Loan Commitment Termination Date" means July 31, 2005. ------------------------------------------ "Revolving Loan Exposure" means, with respect to any Lender as of any ----------------------- date of determination (i) prior to the termination of the Revolving Loan Commitments, that Lender's Revolving Loan Commitment and (ii) after the termination of the Revolving Loan Commitments, the sum of (a) the aggregate outstanding principal amount of the Revolving Loans of that Lender plus (b) ---- in the event that Lender is an Issuing Bank, the aggregate Letter of Credit Usage in respect of all Letters of Credit issued by that Lender (net of any participations 33 purchased by other Lenders in such Letters of Credit) plus (c) the ---- aggregate amount of all participations purchased by that Lender in any outstanding Letters of Credit or any unreimbursed drawings under any Letters of Credit plus (d) the aggregate amount of all participations ---- purchased by that Lender in any outstanding Swing Line Loans plus (e) in ---- the case of the Swing Line Lender, the sum of the aggregate outstanding principal amount of all Swing Line Loans (in each case net of any participations therein purchased by other Lenders). "Revolving Loans" means the Loans made by the Lenders to Company --------------- pursuant to subsection 2.1A(iv). "S&P" means Standard & Poor's Ratings Services. --- "Securities" means any stock, shares, partnership interests, voting ---------- trust certificates, certificates of interest or participation in any profit-sharing agreement or arrangement, options, warrants, bonds, debentures, notes, or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or in general any instruments commonly known as "securities" or any certificates of interest, shares or participations in temporary or interim certificates for the purchase or acquisition of, or any right to subscribe to, purchase or acquire, any of the foregoing. "Securities Act" means the Securities Act of 1933, as amended from -------------- time to time, and any successor statute. "Security Agreements" means, collectively, the Principal Security ------------------- Agreement, the Korean Security Agreement, the Chinese Security Agreements and the Recapitalization Security Agreements. "Shareholders Agreement" means that certain Shareholders Agreement to ---------------------- be entered into on or prior to the Closing Date by and among ChipPAC and certain shareholders of ChipPAC which Shareholders Agreement shall be in the form delivered to the Administrative Agent on or prior to the Closing Date and as such Shareholders Agreement may hereafter be amended, restated, supplemented or otherwise modified from time to time to the extent permitted under subsection 7.11A. "Sole Lead Arranger" has the meaning assigned to that term in the ------------------ Preamble to this Agreement. "Solvent" means, with respect to any Person, that as of the date of ------- determination both (i) (a) the then fair saleable value of the property sold as a going concern of such Person is (y) greater than the total amount of liabilities (including contingent liabilities but excluding amounts payable under intercompany promissory notes) of such Person and (z) not less than the amount that will be required to pay the probable liabilities on such Person's then existing debts as they become absolute and matured considering all financing alternatives and potential asset sales reasonably available to such Person; (b) such Person's capital is not unreasonably small in relation to its business or any contemplated or undertaken transaction; and (c) such Person does not intend to incur, or believe that it will incur, debts beyond its ability to pay such debts as they become due; 34 and (ii) such Person is "solvent" within the meaning given that term and similar terms under applicable laws relating to fraudulent transfers and conveyances. For purposes of this definition, the amount of any contingent liability at any time shall be computed as the amount that, in light of all of the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. "SPC" has the meaning assigned to that term in subsection 10.1F. --- "Sponsor Advisory Services Agreements" means each of the Advisory ------------------------------------ Services Agreements by and between ChipPAC and each of the Sponsors, dated on or about the Closing Date, in form delivered to the Administrative Agent on or prior to the Closing Date, as the same may thereafter be amended, restated, supplemented or otherwise modified from time to time to the extent permitted under subsection 7.11A. "Sponsor Management Fees" means the fees (including one-time fees ----------------------- payable in connection with acquisitions, divestitures and financings) and expenses payable to the Sponsors pursuant to the Sponsor Advisory Services Agreements. "Sponsors" means Bain and the SXI Holders. -------- "Standby Letter of Credit" means any standby letter of credit or ------------------------ similar instrument, issued for the purpose of supporting obligations of ChipPAC and its Subsidiaries incurred or arising in the ordinary course of business; provided that Standby Letters of Credit may not be issued for the -------- purpose of supporting trade payables. "Subordinated Debt" means (i) subordinated, unsecured Indebtedness of ----------------- Company evidenced by the Subordinated Debt Documents and issued on or prior to the Closing Date (and any Indebtedness issued in exchange for such Indebtedness as contemplated by the Subordinated Debt Documents) in any aggregate principal amount of not less than $150,000,000 and (ii) any Additional Subordinated Debt. "Subordinated Debt Documents" means the documents pursuant to which --------------------------- the Subordinated Debt is issued (or exchanged) in the form delivered to Administrative Agent on or prior to the Closing Date, as such documents may be amended, restated, supplemented or otherwise modified from time to time to the extent permitted under Subsection 7.11A. "Subsidiary" means, with respect to any Person, any corporation, ---------- partnership, association, joint venture or other business entity of which more than 50% of the total voting power of shares of stock or other ownership interests entitled (without regard to the occurrence of any contingency) to vote in the election of the Person or Persons (whether directors, managers, trustees or other Persons performing similar functions) having the power to direct or cause the direction of the management and policies thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof. 35 "Subsidiary Guarantor" means any Subsidiary of ChipPAC that is a party -------------------- to the Guaranty on the Closing Date (which shall be each such Subsidiary (other than Company, ChipPAC Shanghai I and ChipPAC Shanghai II) existing as of the Closing Date) or at any time after the Closing Date pursuant to subsection 6.9. "Swing Line Lender" means CSFB, or any Person serving as a successor ----------------- Administrative Agent hereunder, in its capacity as Swing Line Lender hereunder. "Swing Line Loan Commitment" means the commitment of the Swing Line -------------------------- Lender to make Swing Line Loans to Company pursuant to subsection 2.1A(v). "Swing Line Loans" means the Loans made by the Swing Line Lender ---------------- pursuant to subsection 2.1A(v). "SXI Holders" means (a) Citicorp Venture Capital, Ltd., (b) any ----------- officers, employees or directors of the foregoing or any trust partnership or entity established solely for the benefit or such officers, employees or directors and (c) any Affiliates (including SXI Group LLC) of the foregoing. "Systems" has the meaning assigned to that term in the definition of ------- Year 2000 Problems. "Tax" or "Taxes" means any present or future tax, levy, impost, duty, --- ----- charge, fee, deduction or withholding of any nature and whatever called, by whomsoever, on whomsoever and wherever imposed, levied, collected, withheld or assessed; provided that "Tax on the overall net income" of a Person -------- ----------------------------- shall be construed as a reference to a tax on all or part of the net income, profits or gains of that Person (whether worldwide, or only insofar as such income, profits or gains are considered to arise in or to relate to a particular jurisdiction, or otherwise) including a franchise tax imposed in lieu of a net income tax. "Term A Loan Commitment" means the commitment of a Lender to make a ---------------------- Term A Loan to Company pursuant to subsection 2.1A(i), and "Term A Loan ----------- Commitments" means such commitments of all Lenders in the aggregate. ----------- "Term A Loan Exposure" means, with respect to any Lender, as of any -------------------- date of determination (i) prior to the funding of the Term A Loans, that Lender's Term A Loan Commitment and (ii) after the funding of the Term A Loans, the outstanding principal amount of the Term A Loans of that Lender. "Term A Loans" means the Loans made by the Lenders pursuant to ------------ subsection 2.1A(i). "Term B Loan Commitment" means the commitment of a Lender to make a ---------------------- Term B Loan to Company pursuant to subsection 2.1A(ii), and "Term B Loan ----------- Commitments" means such commitments of all Lenders in the aggregate. ----------- 36 "Term B Loan Exposure" means, with respect to any Lender, as of any -------------------- date of determination (i) prior to the funding of the Term B Loans, that Lender's Term B Loan Commitment and (ii) after the funding of the Term B Loans, the outstanding principal amount of the Term B Loans of that Lender. "Term B Loans" means the Loans made by the Lenders pursuant to ------------ subsection 2.1A(ii). "Term Delayed Draw Loan Commitment" means the commitment of a Lender --------------------------------- to make a Term Delayed Draw Loan to Company pursuant to subsection 2.1A(iii), and "Term Delayed Draw Loan Commitments" means such commitments ---------------------------------- of all Lenders in the aggregate. "Term Delayed Draw Loan Commitment Termination Date" means July 31, -------------------------------------------------- 2001. "Term Delayed Draw Loan Exposure" means, with respect to any Lender, ------------------------------- as of any date of determination, (i) prior to the Term Delayed Draw Loan Commitment Termination Date, that Lender's Term Delayed Draw Loan Commitment and (ii) after the Term Delayed Draw Loan Commitment Termination Date, the outstanding principal amount of the Term Delayed Draw Loans of that Lender. "Term Delayed Draw Loans" means the Loans made by the Lenders pursuant ----------------------- to subsection 2.1A(iii). "Term Loan Commitment" means the Term A Loan Commitment, the Term B -------------------- Loan Commitment or the Term Delayed Draw Loan Commitment of a Lender, and "Term Loan Commitments" means such commitments of all Lenders in the --------------------- aggregate. "Term Loan Exposure" means, with respect to any Lender as of any date ------------------ of determination, the aggregate Term A Loan Exposure, Term B Loan Exposure and Term Delayed Draw Loan Exposure of that Lender. "Term Loans" means, collectively, the Term A Loans, the Term B Loans ---------- and the Term Delayed Draw Loans. "Total Utilization of Revolving Loan Commitments" means, as at any ----------------------------------------------- date of determination, the sum of (i) the aggregate principal amount of all outstanding Revolving Loans (other than Revolving Loans made for the purpose of repaying any Refunded Swing Line Loans or reimbursing the applicable Issuing Bank for any amount drawn under any Letter of Credit but not yet so applied) plus (ii) the aggregate principal amount of all ---- outstanding Swing Line Loans plus (iii) the Letter of Credit Usage. ---- "Transaction Costs" means the fees, costs and expenses payable by ----------------- ChipPAC and its Subsidiaries in connection with the transactions contemplated by the Transaction Documents including, without limitation, amounts payable to the Agents and the Lenders. 37 "Transaction Documents" means, collectively, (i) any documentation --------------------- related to the Equity Contribution, (ii) the Recapitalization Agreement, (iii) the Shareholders Agreement, (iv) the Sponsor Advisory Services Agreements, (v) the Subordinated Debt Documents, (vi) the Subordinated Debt, and (vii) any and all other documents, agreements, instruments and arrangements related to or in connection with the Recapitalization Transactions. "Year 2000 Problems" means limitations in the capacity or readiness to ------------------ handle date information (including, without limitation, calculations based on date information) for the Year 1999 or years beginning January 1, 2000 of any of the hardware, firmware or software systems ("Systems") associated ------- with information processing and delivery, operations or services (e.g., security and alarms, elevators, communications, and HVAC), including, without limitation, equipment containing embedded microchips, in each case necessary to the business or operations of ChipPAC and its Subsidiaries taken as a whole. 1.2 Accounting Terms; Utilization of GAAP for Purposes of Calculations Under ------------------------------------------------------------------------ Agreement. ---------- Except as otherwise expressly provided in this Agreement, (a) all accounting terms not otherwise defined herein shall have the meanings assigned to them in conformity with GAAP; and (b) financial statements and other information required to be delivered by ChipPAC to the Lenders pursuant to clauses (i), (ii), (iii) and (xiii) of subsection 6.1 shall be prepared in accordance with GAAP without giving effect to Accounting Principles Board Opinions 16 and 17 with respect to any Permitted Acquisition. In the event that a change in GAAP or other accounting principles and policies after the date hereof affects in any material respect the calculations of the compliance by ChipPAC and its Subsidiaries with the covenants contained herein, the Lenders and ChipPAC agree to negotiate in good faith to amend the affected covenants (and related definitions) to compensate for the effect of such changes so that the restrictions, limitations and performance standards effectively imposed by such covenants, as so amended, are substantially identical to the restrictions, limitations and performance standards imposed by such covenants as in effect on the date hereof; provided that if the Requisite Lenders and ChipPAC fail to -------- reach agreement with respect to such amendment within a reasonably period of time following the date of effectiveness of any such change, calculation of compliance by ChipPAC and its Subsidiaries with the covenants contained herein shall be determined in accordance with GAAP as in effect immediately prior to such change. 1.3 Other Definitional Provisions. ----------------------------- References to "Sections" and "subsections" shall be to Sections and subsections, respectively, of this Agreement unless otherwise specifically provided. Any of the terms defined in subsection 1.1 may, unless the context otherwise requires, be used in the singular or the plural, depending on the reference. The words "includes," "including" and similar forms used in any Loan Document shall be construed as if followed by the words "without limitation." 38 SECTION 2. AMOUNTS AND TERMS OF COMMITMENTS AND LOANS 2.1 Commitments; Loans. ------------------ A. Commitments. Subject to the terms and conditions of this Agreement and in reliance upon the representations and warranties of Loan Parties set forth herein and in the other Loan Documents, each Lender hereby severally agrees to make the Loans described in subsections 2.1A(i), 2.1A(ii), 2.1A(iii) and 2.1A(iv) and the Swing Line Lender hereby agrees to make the Swing Line Loans as described in subsection 2.1A(v). (i) Term A Loans. Each Lender severally agrees to make Loans to ------------ Company on the Closing Date in an aggregate amount not exceeding its Pro Rata Share of the aggregate amount of the Term A Loan Commitments, to be used for the purposes identified in subsection 2.5A. The amount of each Lender's Term A Loan Commitment is set forth opposite its name in Schedule -------- 2.1 annexed hereto; provided that the Term A Loan Commitments of the --- -------- Lenders shall be adjusted to give effect to any assignments of the Term A Loan Commitments pursuant to subsection 10.1B. The aggregate original principal amount of the Term A Loan Commitments is $70,000,000. Each Lender's Term A Loan Commitment shall expire immediately and without further action on August 15, 1999 if the Term A Loans are not made on or before that date. Company may make only one borrowing under the Term A Loan Commitments. Amounts borrowed under this subsection 2.1A(i) and subsequently repaid or prepaid may not be reborrowed. (ii) Term B Loans. Each Lender severally agrees to make Loans to ------------ Company on the Closing Date in an aggregate amount not exceeding its Pro Rata Share of the aggregate amount of the Term B Loan Commitments, to be used for the purposes identified in subsection 2.5A. The amount of each Lender's Term B Loan Commitment is set forth opposite its name in Schedule -------- 2.1 annexed hereto; provided that the Term B Loan Commitments of the --- -------- Lenders shall be adjusted to give effect to any assignments of the Term Loan Commitments pursuant to subsection 10.1B. The aggregate original principal amount of the Term B Loan Commitments is $80,000,000. Each Lender's Term B Loan Commitment shall expire immediately and without further action on August 15, 1999 if the Term B Loans are not made on or before that date. Company may make only one borrowing under the Term B Loan Commitments. Amounts borrowed under this subsection 2.1A(ii) and subsequently repaid or prepaid may not be reborrowed. (iii) Term Delayed Draw Loans. Each Lender severally agrees, subject ----------------------- to the limitations set forth below with respect to the maximum amount of Term Delayed Draw Loans, to lend to Company from time to time during the period from the Closing Date to but excluding the Term Delayed Draw Loan Commitment Termination Date an aggregate amount not exceeding its Pro Rata Share of the aggregate amount of the Term Delayed Draw Loan Commitments, to be used for the purposes identified in subsection 2.5B. The original amount of each Lender's Term Delayed Draw Loan Commitment is set forth opposite its name in Schedule 2.1 annexed hereto and the aggregate original ------------ amount of the Term Delayed Draw Loan Commitments is $20,000,000; provided -------- that the Term Delayed Draw Loan Commitments of the Lenders shall be adjusted to give effect to any assignments of the Term Delayed Draw Loan Commitments pursuant to 39 subsection 10.1B; provided further that the amount of the Term Delayed Draw -------- ------- Loan Commitments shall be reduced from time to time by the amount of any reductions thereto made pursuant to subsection 2.4B. Each Lender's Term Delayed Draw Loan Commitment shall expire on the Term Delayed Draw Loan Commitment Termination Date to the extent that Term Delayed Draw Loans have not been made on or before that date. Amounts borrowed under this subsection 2.1A(iii) may be repaid and reborrowed, subject to the limitations and conditions set forth herein, to but excluding the Term Delayed Draw Loan Commitment Termination Date. (iv) Revolving Loans. Each Lender severally agrees, subject to the --------------- limitations set forth below with respect to the maximum amount of Revolving Loans permitted to be outstanding from time to time, to lend to Company from time to time during the period from the Closing Date to but excluding the Revolving Loan Commitment Termination Date Revolving Loans, to be used for the purposes identified in subsection 2.5C, provided that after giving effect to such Loans its Revolving Loan Exposure shall not exceed its Pro Rata Share of the aggregate amount of the Revolving Loan Commitments. The original amount of each Lender's Revolving Loan Commitment is set forth opposite its name in Schedule 2.1 annexed hereto and the aggregate original ------------ amount of the Revolving Loan Commitments is $50,000,000 less the aggregate amount of the Local Lines of Credit; provided that the Revolving Loan -------- Commitments of the Lenders shall be adjusted to give effect to any assignments of the Revolving Loan Commitments pursuant to subsection 10.1B; provided further that the amount of the Revolving Loan Commitments shall be -------- ------- reduced from time to time by the amount of any reductions thereto made pursuant to subsection 2.4C. Each Lender's Revolving Loan Commitment shall expire on the Revolving Loan Commitment Termination Date and all Revolving Loans and all other amounts owed hereunder with respect to the Revolving Loans and the Revolving Loan Commitments shall be paid in full no later than that date. Amounts borrowed under this subsection 2.1A(iv) may be repaid and reborrowed, subject to the limitations and conditions set forth herein, to but excluding the Revolving Loan Commitment Termination Date. Notwithstanding anything contained herein to the contrary, (i) in no event shall the Total Utilization of Revolving Loan Commitments at any time exceed the Revolving Loan Commitments then in effect and (ii) prior to the Chinese Security Effective Date, in no event shall the Total Utilization of Revolving Loan Commitments at any time exceed $15,000,000. (v) Swing Line Loans. The Swing Line Lender hereby agrees, subject to ---------------- the limitations set forth below with respect to the maximum aggregate amount of all Swing Line Loans outstanding from time to time, to make a portion of the Revolving Loan Commitments available to Company from time to time during the period from the Closing Date to but excluding the Revolving Loan Commitment Termination Date by making Base Rate Loans as Swing Line Loans to Company in an aggregate amount not to exceed the amount of the Swing Line Loan Commitment, to be used for the purposes identified in subsection 2.5C, notwithstanding the fact that such Swing Line Loans, when aggregated with the sum of the Swing Line Lender's outstanding Revolving Loans and the Swing Line Lender's Pro Rata Share of the Letter of Credit Usage then in effect, may exceed the Swing Line Lender's Revolving Loan Commitment. The original amount of 40 the Swing Line Loan Commitment is $10,000,000; provided that the amounts of -------- the Swing Line Loan Commitment are subject to reduction as provided in clause (b) of the next paragraph. The Swing Line Loan Commitment shall expire on the Revolving Loan Commitment Termination Date and all Swing Line Loans and all other amounts owed hereunder with respect to the Swing Line Loans shall be paid in full no later than that date. Amounts borrowed under this subsection 2.1A(v) may be repaid and reborrowed to but excluding the Revolving Loan Commitment Termination Date. Notwithstanding anything contained herein to the contrary, the Swing Line Loans and the Swing Line Loan Commitment shall be subject to the following limitations: (a) in no event shall the Total Utilization of Revolving Loan Commitments at any time exceed the Revolving Loan Commitments then in effect; (b) prior to the Chinese Security Effective Date, in no event shall the Total Utilization of Revolving Loan Commitments exceed $15,000,000; and (c) any reduction of the Revolving Loan Commitments made pursuant to subsection 2.4B which reduces the aggregate Revolving Loan Commitments to an amount less than the then current amount of the Swing Line Loan Commitment shall result in an automatic corresponding reduction of the Swing Line Loan Commitment such that the amount thereof equals the amount of the Revolving Loan Commitments, as so reduced, without any further action on the part of Company, the Administrative Agent or the Swing Line Lender. With respect to any Swing Line Loans which have not been voluntarily prepaid by Company pursuant to subsection 2.4B(i), the Swing Line Lender may, at any time in its sole and absolute discretion, deliver to the Administrative Agent (with a copy to Company), no later than 11:00 a.m. (New York time) at least one (1) Business Day in advance of the proposed Funding Date, a notice (which shall be deemed to be a Notice of Borrowing given by Company) requesting the Lenders to make Revolving Loans that are Base Rate Loans to Company on such Funding Date in an amount equal to the amount of such Swing Line Loans (the "Refunded Swing Line Loans") ------------------------- outstanding on the date such notice is given which the Swing Line Lender requests the Lenders to prepay. Anything contained in this Agreement to the contrary notwithstanding, (i) the proceeds of such Revolving Loans made by the Lenders other than the Swing Line Lender shall be immediately delivered by the Administrative Agent to the Swing Line Lender (and not to Company) and applied to repay a corresponding portion of the Refunded Swing Line Loans and (ii) on the day such Revolving Loans are made, the Swing Line Lender's Pro Rata Share of the Refunded Swing Line Loans shall be deemed to be paid with the proceeds of a Revolving Loan made by the Swing Line Lender to Company, and such portion of the Swing Line Loans deemed to be so paid shall no longer be outstanding as Swing Line Loans but shall instead constitute part of the Swing Line Lender's outstanding Revolving Loans to Company. Company hereby authorizes the Administrative Agent and the Swing Line Lender to charge 41 Company's accounts with the Administrative Agent and the Swing Line Lender (up to the amount available in each such account) in order to immediately pay the Swing Line Lender the amount of the Refunded Swing Line Loans to the extent the proceeds of such Revolving Loans made by the Lenders, including the Revolving Loan deemed to be made by the Swing Line Lender, are not sufficient to repay in full the Refunded Swing Line Loans. If any portion of any such amount paid (or deemed to be paid) to the Swing Line Lender should be recovered by or on behalf of Company from the Swing Line Lender in bankruptcy, by assignment for the benefit of creditors or otherwise, the loss of the amount so recovered shall be ratably shared among all Lenders in the manner contemplated by subsection 10.5. If for any reason Revolving Loans are not made pursuant to this subsection 2.1A(v) in an amount sufficient to repay any amounts owed to the Swing Line Lender in respect of any outstanding Swing Line Loans on or before the third Business Day after demand for payment thereof by the Swing Line Lender, each Lender shall be deemed to, and hereby agrees to, have purchased a participation in such outstanding Swing Line Loans, and in an amount equal to its Pro Rata Share of the applicable unpaid amount together with accrued interest thereon. Upon one (1) Business Day's notice from the Swing Line Lender, each Lender shall deliver to the Swing Line Lender an amount equal to its respective participation in the applicable unpaid amount in same day funds at the office of the Swing Line Lender located at the Funding and Payment Office. In order to evidence such participation each Lender agrees to enter into a participation agreement at the request of the Swing Line Lender in form and substance satisfactory to the Swing Line Lender. In the event any Lender fails to make available to the Swing Line Lender the amount of such Lender's participation as provided in this paragraph, the Swing Line Lender shall be entitled to recover such amount on demand from such Lender together with interest thereon at the rate customarily used by the Swing Line Lender for the correction of errors among banks for three Business Days and thereafter at the Base Rate, as applicable. Notwithstanding anything contained herein to the contrary, (i) each Lender's obligation to make Revolving Loans for the purpose of repaying any Refunded Swing Line Loans pursuant to the second preceding paragraph and each Lender's obligation to purchase a participation in any unpaid Swing Line Loans pursuant to the immediately preceding paragraph shall be absolute and unconditional and shall not be affected by any circumstance, including without limitation (a) any setoff, counterclaim, recoupment, defense or other right which such Lender may have against the Swing Line Lender, Company or any other Person for any reason whatsoever; (b) the occurrence or continuation of a Default or Event of Default; (c) any adverse change in the business, operations, properties, assets, condition (financial or otherwise) or prospects of Company or any of its Subsidiaries; (d) any breach of this Agreement or any other Loan Document by any party thereto; or (e) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing; provided that -------- such obligations of each Lender are subject to the condition that the Swing Line Lender believed in good faith that all conditions under Section 4 to the making of the applicable Refunded Swing Line Loans or other unpaid Swing Line Loans, were satisfied at the time such Refunded Swing Line Loans or unpaid Swing Line Loans were made, or the satisfaction of any such condition not satisfied had been waived by 42 Requisite Lenders prior to or at the time such Refunded Swing Line Loans or other unpaid Swing Line Loans were made; and (ii) the Swing Line Lender shall not be obligated to make any Swing Line Loans if it has elected not to do so after the occurrence and during the continuation of a Default or Event of Default. B. Borrowing Mechanics. Term Loans or Revolving Loans (including any such Loans made as Eurodollar Rate Loans with a particular Interest Period) made on any Funding Date (other than Revolving Loans made pursuant to a request by the Swing Line Lender pursuant to subsection 2.1A(v) for the purpose of repaying any Refunded Swing Line Loans and Revolving Loans made pursuant to subsection 3.3B for the purpose of reimbursing the Issuing Bank for the amount of a drawing or payment under a Letter of Credit issued by it) shall be in an aggregate minimum amount of $500,000 and integral multiples of $100,000 in excess of that amount; provided that any Eurodollar Rate Loan shall be in a minimum amount of -------- $1,000,000 and integral multiples of $100,000 in excess of that amount. Swing Line Loans made on any Funding Date shall be in an aggregate minimum amount of $100,000 and integral multiples of $50,000 in excess of that amount. Whenever Company desires that the Lenders make Term Loans or Revolving Loans it shall deliver to the Administrative Agent a Notice of Borrowing no later than 1:00 p.m. (New York time), at least three (3) Business Days in advance of the proposed Funding Date in the case of a Eurodollar Rate Loan, or at least one (1) Business Day in advance of the proposed Funding Date in the case of a Base Rate Loan. Whenever Company desires that the Swing Line Lender make a Swing Line Loan, it shall deliver to Administrative Agent a Notice of Borrowing no later than 1:00 p.m. (New York time) on the proposed Funding Date. The Notice of Borrowing shall specify (i) the proposed Funding Date (which shall be a Business Day), (ii) the amount and type of Loans requested, (iii) in the case of Swing Line Loans, that such Loans shall be Base Rate Loans, (iv) in the case of any Loans other than Swing Line Loans, whether such Loans shall be Base Rate Loans or Eurodollar Rate Loans, and (v) in the case of any Loans requested to be made as Eurodollar Rate Loans, the initial Interest Period requested therefor. Term Loans and Revolving Loans may be continued as or converted into Base Rate Loans and Eurodollar Rate Loans in the manner provided in subsection 2.2D. In lieu of delivering the above-described Notice of Borrowing, Company may give the Administrative Agent telephonic notice by the required time of any proposed borrowing under this subsection 2.1B; provided that such notice shall be -------- promptly confirmed in writing by delivery of a Notice of Borrowing to the Administrative Agent on or before the applicable Funding Date. Neither the Administrative Agent nor any Lender shall incur any liability to Company in acting upon any telephonic notice referred to above that the Administrative Agent believes in good faith to have been given by a duly authorized officer authorized to borrow on behalf of Company or for otherwise acting in good faith under this subsection 2.1B, and upon funding of Loans by the Lenders in accordance with this Agreement pursuant to any such telephonic notice, Company shall have effected Loans hereunder. Company shall notify the Administrative Agent prior to the funding of any Loans in the event that any of the matters to which Company is required to certify in the applicable Notice of Borrowing are no longer true and correct (with such materiality qualifications as is set forth in a particular matter to which Company is required to certify) as of the applicable Funding Date, and the acceptance by Company of the proceeds of any Loans shall constitute a re- certification by Company, as of the applicable 43 Funding Date, as to the matters to which Company is required to certify in the applicable Notice of Borrowing. Except as otherwise provided in subsections 2.6B, 2.6C and 2.6G, a Notice of Borrowing for a Eurodollar Rate Loan (or telephonic notice in lieu thereof) shall be irrevocable on and after the related Interest Rate Determination Date, and Company shall be bound to make a borrowing in accordance therewith. C. Disbursement of Funds. All Term Loans and all Revolving Loans under this Agreement shall be made by the Lenders simultaneously and proportionately to their respective Pro Rata Shares, it being understood that no Lender shall be responsible for any default by any other Lender in that other Lender's obligation to make a Loan requested hereunder nor shall the Commitment of any Lender to make the particular type of Loan requested be increased or decreased as a result of a default by any other Lender in that other Lender's obligation to make a Loan requested hereunder. Promptly after receipt by the Administrative Agent of a Notice of Borrowing pursuant to subsection 2.1B (or telephonic notice in lieu thereof), the Administrative Agent shall notify each Lender or the Swing Line Lender, as the case may be, of the proposed borrowing and of the amount of such Lender's Pro Rata Share of the applicable Loans. Each Lender shall make the amount of its Loan available to the Administrative Agent not later than 1:00 P.M. (New York time) on the applicable Funding Date and the Swing Line Lender shall make the amount of its Swing Line Loan available to the Administrative Agent not later than 2:00 P.M. (New York time) on the applicable Funding Date, in each case in same day funds, at the Funding and Payment Office. Except as provided in subsection 2.1A(v) or subsection 3.3B with respect to Revolving Loans used to repay Refunded Swing Line Loans or to reimburse the Issuing Bank for the amount of an honored drawing or payment under a Letter of Credit issued by it, upon satisfaction or waiver of the conditions precedent specified in subsections 4.1 (in the case of Loans made on the Closing Date) and 4.2 (in the case of all Loans), the Administrative Agent shall make the proceeds of such Loans available to Company on the applicable Funding Date by causing an amount of same day funds equal to the proceeds of all such Loans received by the Administrative Agent from the Lenders or the Swing Line Lender, as the case may be, to be credited to the account of Company at the Funding and Payment Office. Unless the Administrative Agent shall have been notified by any Lender prior to the Funding Date for any Loans that such Lender does not intend to make available to the Administrative Agent the amount of such Lender's Loan requested on such Funding Date, the Administrative Agent may assume that such Lender has made such amount available to the Administrative Agent on such Funding Date and the Administrative Agent may, in its sole discretion, but shall not be obligated to, make available to Company a corresponding amount on such Funding Date. If such corresponding amount is not in fact made available to the Administrative Agent by such Lender, the Administrative Agent shall be entitled to recover such corresponding amount on demand from such Lender together with interest thereon, for each day from such Funding Date until the date such amount is paid to the Administrative Agent, at the customary rate set by the Administrative Agent for the correction of errors among banks for three Business Days and thereafter at the Base Rate. If such Lender does not pay such corresponding amount forthwith upon the Administrative Agent's demand therefor, the Administrative Agent shall promptly notify Company and Company shall immediately pay such corresponding 44 amount to the Administrative Agent, together with interest thereon for each day from such Funding Date until the date such amount is paid to the Administrative Agent at the rate applicable to such Loan. Nothing in this subsection 2.1C shall be deemed to relieve any Lender from its obligation to fulfill its Commitments hereunder or to prejudice any rights that Company may have against any Lender as a result of any default by such Lender hereunder. D. The Register. (i) The Administrative Agent shall maintain, at its address referred to in subsection 10.8, a register for the recordation of the names and addresses of the Lenders and the Commitments and Loans of each Lender from time to time (the "Register"). The Register shall be available for -------- inspection by Company or any Lender at any reasonable time and from time to time upon reasonable prior notice. (ii) The Administrative Agent shall record in the Register the Commitments and the outstanding Loans from time to time of each Lender and each repayment or prepayment in respect of the principal amount of the outstanding Loans of each Lender. Any such recordation shall be conclusive and binding on Company and each Lender, absent manifest error; provided -------- that failure to make any such recordation, or any error in such recordation, shall not affect Company's Obligations in respect of the applicable Loans. (iii) Each Lender shall record on its internal records the amount of each Loan made by it and each payment in respect thereof. Any such recordation shall be conclusive and binding on Company, absent manifest error; provided that failure to make any such recordation, or any error in -------- such recordation, shall not affect Company's Obligations in respect of the applicable Loans; and provided, further, that in the event of any -------- ------- inconsistency between the Register and any Lender's records, the recordations in the Register shall govern absent manifest error with respect to the Register. (iv) Company, the Administrative Agent and the Lenders shall deem and treat the Persons listed as the Lenders in the Register as the holders and owners of the corresponding Commitments and Loans listed therein for all purposes hereof, and no assignment or transfer of any Commitment or Loan shall be effective, in each case unless and until an Assignment Agreement effecting the assignment or transfer thereof shall have been accepted by the Administrative Agent and recorded in the Register as provided in subsection 10.1B(ii). Prior to such recordation, all amounts owed with respect to the applicable Commitment or Loan shall be owed to the Lender listed in the Register as the owner thereof, and any request, authority or consent of any Person who, at the time of making such request or giving such authority or consent, is listed in the Register as a Lender shall be conclusive and binding on any subsequent holder, assignee or transferee of the corresponding Commitments or Loans. (v) Company hereby designates CSFB and any financial institution serving as a successor Administrative Agent to serve as Company's agent solely for purposes of maintaining the Register as provided in this subsection 2.1D, and Company hereby agrees that, to the extent CSFB serves in such capacity, CSFB 45 and its officers, directors, employees, agents and affiliates shall constitute Indemnitees for all purposes under subsection 10.3. E. Evidence of Debt; Repayment of Loans. (i) Company hereby unconditionally promises to pay to the Administrative Agent (a) for the account of the Swingline Lender, the then unpaid principal amount of each Swingline Loan, on the date of each borrowing of a Revolving Loan or, if earlier, on the Revolving Loan Commitment Termination Date, (b) for the account of each Lender holding Term Loans, the principal amount of each Term Loan of such Lender as provided in subsection 2.4A and (c) for the account of each Lender holding Revolving Loans, the then unpaid principal amount of each Revolving Loan of such Lender on the Revolving Loan Commitment Termination Date. (ii) Any Lender may request that the Loans made by it hereunder be evidenced by a promissory note. In such event, Company shall execute and deliver to such Lender a promissory note payable to such Lender and its registered assigns and in a form and substance reasonably acceptable to the Administrative Agent and Company. Notwithstanding any other provision of this Agreement, in the event any Lender shall request and receive such a promissory note, the interests represented by such note shall at all times (including after any assignment of all or part of such interests pursuant to subsection 10.1) be represented by one or more promissory notes payable to the payee named therein or its registered assigns. 2.2 Interest on the Loans. --------------------- A. Rate of Interest. Subject to the provisions of subsections 2.6 and 2.7, each Term Loan and each Revolving Loan shall bear interest on the unpaid principal amount thereof from the date made to maturity (whether by acceleration or otherwise) at a rate determined by reference to the Base Rate or the Reserve Adjusted Eurodollar Rate, as the case may be. Subject to the provisions of subsection 2.7, each Swing Line Loan shall bear interest on the unpaid principal amount thereof from the date made to maturity (whether by acceleration or otherwise) at a rate determined by reference to the Base Rate. The applicable basis for determining the rate of interest with respect to any Loan shall be selected by Company initially at the time a telephonic notice or Notice of Borrowing is given with respect to such Loan pursuant to subsection 2.1B (so long as Company delivers to Administrative Agent a Notice of Borrowing within one Business Day prior thereto). The basis for determining the interest rate with respect to any Term Loan or any Revolving Loan may be changed from time to time pursuant to subsection 2.2D. If on any day any Term Loan or Revolving Loan is outstanding with respect to which notice has not been delivered to the Administrative Agent in accordance with the terms of this Agreement specifying the applicable basis for determining the rate of interest, then for that day that Loan shall bear interest determined by reference to the Base Rate. Subject to the provisions of subsections 2.2E and 2.7, the Term Loans and the Revolving Loans shall bear interest through maturity as follows: (i) if a Base Rate Loan, then at the sum of the Base Rate plus ---- the Applicable Base Rate Margin; or 46 (ii) if a Eurodollar Rate Loan, then at the sum of the Reserve Adjusted Eurodollar Rate plus the Applicable Eurodollar Rate Margin. ---- Subject to the provisions of subsections 2.2E and 2.7, the Swing Line Loans shall bear interest to maturity at the sum of the Base Rate plus the Applicable ---- Base Rate Margin for Revolving Loans less 0.50% per annum. B. Interest Periods. In connection with each Eurodollar Rate Loan, Company may, pursuant to the applicable Notice of Borrowing or Notice of Conversion/Continuation, as the case may be, on behalf of Company select an interest period (each an "Interest Period") to be applicable to such Loan, which --------------- Interest Period shall be, at Company's option, either a one, two, three or six month period (or, provided that any such interest period is available from all the Lenders in a particular tranche for which an Interest Period is being selected, a two- week, nine- month, twelve- month or other period as requested by Company); provided that: -------- (i) the initial Interest Period for any Eurodollar Rate Loan shall commence on the Funding Date in respect of such Loan, in the case of a Loan initially made as a Eurodollar Rate Loan, or on the date specified in the applicable Notice of Conversion/Continuation, in the case of a Loan converted to a Eurodollar Rate Loan; (ii) in the case of immediately successive Interest Periods applicable to a Eurodollar Rate Loan continued as such pursuant to a Notice of Conversion/Continuation, each successive Interest Period shall commence on the day on which the next preceding Interest Period expires; (iii) if an Interest Period would otherwise expire on a day that is not a Business Day, such Interest Period shall expire on the next succeeding Business Day; provided that, if any Interest Period would -------- otherwise expire on a day that is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the next preceding Business Day; (iv) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (v) of this subsection 2.2B, end on the last Business Day of a calendar month; (v) no Interest Period with respect to any portion of the Term A Loans or Term Delayed Draw Loans shall extend beyond the sixth Anniversary of the Closing Date, no Interest Period with respect to any portion of the Term B Loans shall extend beyond the seventh Anniversary of the Closing Date and no Interest Period with respect to any portion of the Revolving Loans shall extend beyond the Revolving Loan Commitment Termination Date; (vi) no Interest Period with respect to any portion of the Term Loans shall extend beyond a date on which Company is required to make a scheduled payment of principal of the Term A Loans, the Term B Loans or the Term Delayed Draw Loans, as the case may be, unless the aggregate principal amount of Term A Loans, Term B Loans or Term Delayed Draw Loans, as the case may be, 47 that are Base Rate Loans plus the aggregate principal amount of Term A ---- Loans, Term B Loans or Term Delayed Draw Loans, as the case may be, that are Eurodollar Rate Loans with Interest Periods expiring on or before such date equals or exceeds the principal amount required to be paid on the Term A Loans or Term B Loans or Term Delayed Draw Loans, as the case may be, on such date; (vii) Company may not select an Interest Period of longer than one month prior to the end of the Initial Period; (viii) there shall be no more than one Interest Period outstanding at any time during the Initial Period, and thereafter no more than twenty Interest Periods shall be outstanding at any time; and (ix) in the event Company fails to specify an Interest Period for any Eurodollar Rate Loan in the applicable Notice of Borrowing or Notice of Conversion/Continuation, Company shall be deemed to have selected an Interest Period of one month. C. Interest Payments. Subject to the provisions of subsection 2.2E, interest on each Loan shall be payable in arrears on and to each Interest Payment Date applicable to that Loan, upon any prepayment of that Loan (to the extent accrued on the amount being prepaid) and at maturity (including final maturity, by acceleration or otherwise); provided that in the event that any -------- Swing Line Loans, Revolving Loans or any Term Loans that are Base Rate Loans are prepaid pursuant to subsection 2.4B(i), interest accrued on such Loans through the date of such prepayment shall be payable on the next succeeding Interest Payment Date applicable to Base Rate Loans (or, if earlier, at final maturity). D. Conversion or Continuation. Subject to the provisions of subsection 2.6, Company shall have the option (i) to convert at any time all or any part of its outstanding Term Loans or Revolving Loans equal to $500,000 and integral multiples of $100,000 in excess of that amount from Loans bearing interest at a rate determined by reference to one basis to Loans bearing interest at a rate determined by reference to an alternative basis (provided that any Loan being converted to a Eurodollar Rate Loan shall be in a minimum amount of $1,000,000 and integral multiples of $100,000 in excess of such amount) or (ii) upon the expiration of any Interest Period applicable to a Eurodollar Rate Loan, to continue all or any portion of such Loan equal to $1,000,000 and integral multiples of $100,000 in excess of that amount as a Eurodollar Rate Loan; provided, however, that a Eurodollar Rate Loan may only be converted into a Base - -------- ------- Rate Loan on the expiration date of an Interest Period applicable thereto. Company shall deliver a Notice of Conversion/Continuation to the Administrative Agent no later than 12:00 Noon at least one Business Day in advance of the proposed conversion date (in the case of a conversion to a Base Rate Loan), and at least three Business Days in advance of the proposed conversion/continuation date (in the case of a conversion to, or a continuation of, a Eurodollar Rate Loan). A Notice of Conversion/ Continuation shall specify (i) the proposed conversion/continuation date (which shall be a Business Day), (ii) the amount and type of the Loan to be converted/continued, (iii) the nature of the proposed conversion/continuation, (iv) in the case of a conversion to, or a continuation of, a Eurodollar Rate Loan, the requested Interest Period, and (v) in the case of a conversion to, or a continuation of, a Eurodollar Rate Loan, that no Default or Event 48 of Default has occurred and is continuing. In lieu of delivering the above-described Notice of Conversion/Continuation, Company may give the Administrative Agent telephonic notice by the required time of any proposed conversion/continuation under this subsection 2.2D; provided that such notice -------- shall be promptly confirmed in writing by delivery of a Notice of Conversion/Continuation to the Administrative Agent within one Business Day prior to the proposed conversion/continuation date. Neither the Administrative Agent nor any Lender shall incur any liability to Company in acting upon any telephonic notice referred to above that the Administrative Agent believes in good faith to have been given by a duly authorized officer authorized to act on behalf of Company or for otherwise acting in good faith under this subsection 2.2D, and upon conversion or continuation of the applicable basis for determining the interest rate with respect to any Loans in accordance with this Agreement pursuant to any such telephonic notice Company shall have effected a conversion or continuation, as the case may be, hereunder. Except as otherwise provided in subsections 2.6B, 2.6C and 2.6G, a Notice of Conversion/Continuation for conversion to, or continuation of, a Eurodollar Rate Loan (or telephonic notice in lieu thereof) shall be irrevocable on and after the related Interest Rate Determination Date, and Company shall be bound to effect a conversion or continuation in accordance therewith. E. Post-Default Interest. The outstanding principal amount of Loans not paid when due and, to the extent permitted by applicable law, any interest payments thereon not paid when due, and any fees and other amounts then due and payable hereunder and not paid, shall thereafter bear interest (including post- petition interest in any proceeding under any Bankruptcy Law) payable upon demand at a rate that is 2% per annum in excess of the interest rate otherwise payable under this Agreement with respect to the applicable Loans (or, in the case of any such fees and other amounts, at a rate which is 2% per annum in excess of the interest rate otherwise payable under this Agreement for Revolving Loans that are Base Rate Loans); provided that, in the case of Eurodollar Rate -------- Loans, upon the expiration of the Interest Period in effect at the time any such increase in interest rate is effective such Eurodollar Rate Loans shall thereupon become Base Rate Loans and shall thereafter bear interest payable upon demand at a rate equal to 2% per annum in excess of the interest rates otherwise payable under this Agreement for Base Rate Loans that are Term A Loans, Term B Loans, Term Delayed Draw Loans or Revolving Loans, as applicable. Payment or acceptance of the increased rates of interest provided for in this subsection 2.2E is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of the Administrative Agent or any Lender. F. Computation of Interest. Interest on Loans shall be computed on the basis of a 360-day year (or a 365- or 366-day year, as applicable, in the case of Base Rate Loans based on the Prime Rate) and for the actual number of days elapsed in the period during which it accrues. In computing interest on any Loan, the date of the making of such Loan or the first day of an Interest Period applicable to such Loan or, with respect to a Base Rate Loan being converted from a Eurodollar Rate Loan, the date of conversion of such Eurodollar Rate Loan to such Base Rate Loan, as the case may be, shall be included, and the date of payment of such Loan or the expiration date of an Interest Period applicable to such Loan or, with respect to a Base Rate Loan being converted to a Eurodollar Rate Loan, the date of conversion of such Base Rate Loan to such Eurodollar 49 Rate Loan, as the case may be, shall be excluded; provided that if a Loan is -------- repaid on the same day on which it is made, one day's interest shall be paid on that Loan. 2.3 Fees. ---- A. Commitment Fees. (i) Revolving Loan Commitments. Company agrees to pay to the -------------------------- Administrative Agent, for distribution to each Lender in proportion to that Lender's Pro Rata Share of the Revolving Loan Commitments, commitment fees for the period from and including the date hereof to and excluding the Revolving Loan Commitment Termination Date equal to the sum of (x) the average of the daily excess of the Revolving Loan Commitments over the sum of the aggregate principal amount of Revolving Loans outstanding (but not any Swing Line Loans outstanding) plus (y) the Letter of Credit Usage ---- multiplied by 0.50% per annum. ------------- (ii) Term Delayed Draw Loan Commitments. Company agrees to pay to the ---------------------------------- Administrative Agent, for distribution to each Lender in proportion to that Lender's Pro Rata Share of the Term Delayed Draw Loan Commitments, commitment fees for the period from and including the date hereof to and excluding the Term Delayed Draw Loan Commitment Termination Date equal to the daily Term Delayed Draw Loan Commitments multiplied by 1.00% per annum. ------------- (iii) Calculation and Payment. All of the foregoing commitment fees ----------------------- shall be calculated on the basis of a 360-day year and the actual number of days elapsed and shall be payable quarterly in arrears on the last Business Day in each of March, June, September and December of each year, commencing in September 1999, and on the Revolving Loan Commitment Termination Date and the Term Delayed Draw Loan Commitment Termination Date. B. Other Fees. Company agrees to pay to Sole Lead Arranger and Administrative Agent such fees in the amounts and at the times separately agreed upon between Company, Sole Lead Arranger and Administrative Agent. 2.4 Repayments, Prepayments and Reductions in Commitments; General Provisions ------------------------------------------------------------------------- Regarding Payments. ------------------ A. Scheduled Payments of Term Loans. (i) Scheduled Payments of Term A Loans. Company shall make principal ---------------------------------- payments on the Term A Loans in installments on the dates set forth below, each such installment to be in an amount equal to the corresponding amount set forth below: 50 =============================================== SCHEDULED REPAYMENT DATE OF TERM A LOANS =============================================== June 30, 2000 $1,000,000 September 30, 2000 $1,000,000 December 31, 2000 $2,000,000 March 31, 2001 $2,500,000 ----------------------------------------------- June 30, 2001 $2,500,000 September 30, 2001 $3,000,000 December 31, 2001 $3,000,000 March 31, 2002 $3,000,000 ----------------------------------------------- June 30, 2002 $3,000,000 September 30, 2002 $3,000,000 December 31, 2002 $3,000,000 March 31, 2003 $3,000,000 ----------------------------------------------- June 30, 2003 $3,000,000 September 30, 2003 $3,750,000 December 31, 2003 $3,750,000 March 31, 2004 $3,750,000 ----------------------------------------------- June 30, 2004 $3,750,000 September 30, 2004 $5,500,000 December 31, 2004 $5,500,000 March 31, 2005 $5,500,000 ----------------------------------------------- July 31, 2005 $5,500,000 =============================================== ; provided that the scheduled installments of principal of the Term A Loans -------- set forth above shall be reduced in connection with any voluntary or mandatory prepayments of the Term A Loans in accordance with subsection 2.4C; and provided, further, that the final installment specified above for -------- ------- the repayment by Company of the Term A Loans shall be in an amount, if such amount is different from that specified above, sufficient to repay all amounts owing by Company under this Agreement with respect to the Term A Loans. (ii) Scheduled Payments of Term B Loans. Company shall make principal ---------------------------------- payments on the Term B Loans in 25 consecutive installments on the last Business Day of March, June, September and December of each year, commencing on the last Business Day of March 2000; provided, however, that -------- ------- Company shall make the final installment payment on July 31, 2006. Each such installment shall be in an amount equal to $200,000, with the balance due and payable on the July 31, 2006; provided that the scheduled -------- installments of principal of the Term B Loans set forth above shall be reduced in connection with any voluntary or mandatory prepayments of the Term B Loans in accordance with subsection 2.4C. (iii) Scheduled Payments of Term Delayed Draw Loans. Company shall --------------------------------------------- make principal payments on the Term Delayed Draw Loans in installments on the 51 dates set forth below, each such installment to be in an amount equal to the corresponding percentages set forth below of the principal amount of the Term Delayed Draw Loans outstanding on the Term Delayed Draw Loan Commitment Termination Date: =============================================== SCHEDULED REPAYMENT DATE OF TERM A LOANS =============================================== September 30, 2001 3.75% December 31, 2001 3.75% March 31, 2002 3.75% June 30, 2002 3.75% ----------------------------------------------- September 30, 2002 5.63% December 31, 2002 5.63% March 31, 2003 5.63% June 30, 2003 5.63% ----------------------------------------------- September 30, 2003 6.25% December 31, 2003 6.25% March 31, 2004 6.25% June 30, 2004 6.25% ----------------------------------------------- September 30, 2004 9.38% December 31, 2004 9.38% March 31, 2005 9.38% July 31, 2005 9.38% =============================================== ; provided that the scheduled installments of principal of the Term Delayed -------- Draw Loans set forth above shall be reduced in connection with any voluntary or mandatory prepayments of the Term Delayed Draw Loans in accordance with subsection 2.4C; and provided, further, that the final -------- ------- installment specified above for the repayment by Company of the Term Delayed Draw Loans shall be in an amount, if such amount is different from that specified above, sufficient to repay all amounts owing by Company under this Agreement with respect to the Term Delayed Draw Loans. B. Prepayments and Reductions in Commitments. (i) Voluntary Prepayments. Company may, upon written or telephonic --------------------- notice to the Administrative Agent on or prior to 1:00 P.M. (New York time) on the date of prepayment, which notice, if telephonic, shall be promptly confirmed in writing, at any time and from time to time prepay, without premium or penalty, any Swing Line Loan on any Business Day in whole or in part in an aggregate minimum amount of $100,000 and integral multiples of $50,000 in excess of that amount. In addition, Company may, upon not less than one (1) Business Day's, in the case of Base Rate Loans, and upon not less than three (3) Business Days', in the case of Eurodollar Rate Loans, prior written or telephonic notice, promptly confirmed in writing to the Administrative Agent (which notice 52 the Administrative Agent will promptly transmit by facsimile or telephone to each Lender), at any time and from time to time prepay, without premium or penalty, the Loans (other than Swing Line Loans) on any Business Day in whole or in part in an aggregate minimum amount of $500,000 and integral multiples of $100,000 in excess of that amount; provided, however, that in -------- ------- the event Company shall prepay a Eurodollar Rate Loan other than on the expiration of the Interest Period applicable thereto, Company shall, at the time of such prepayment, also pay any amounts payable under subsection 2.6D hereof. Notice of prepayment having been given as aforesaid, the Loans shall become due and payable on the prepayment date specified in such notice and in the aggregate principal amount specified therein. Any voluntary prepayments pursuant to this subsection 2.4B(i) shall be applied as specified in subsection 2.4C. (ii) Voluntary Reductions of Commitments. Company may, upon not less ----------------------------------- than three (3) Business Days' prior written or telephonic notice, promptly confirmed in writing to the Administrative Agent (which notice the Administrative Agent will promptly transmit by facsimile or telephone to each Lender), at any time and from time to time terminate in whole or permanently reduce in part, without premium or penalty, (x) the Revolving Loan Commitments in an amount up to the amount by which the Revolving Loan Commitments exceed the Total Utilization of Revolving Loan Commitments at the time of such proposed termination or reduction or (y) the Term Delayed Draw Loan Commitments; provided that any such partial reduction of the -------- Revolving Loan Commitments or the Term Delayed Draw Loan Commitments shall be in an aggregate minimum amount of $1,000,000 and integral multiples of $100,000 in excess of that amount. Company's notice to the Administrative Agent shall designate the date (which shall be a Business Day) of such termination or reduction and the amount of any partial reduction, and such termination or reduction of the Revolving Loan Commitments or the Term Delayed Draw Loan Commitments shall be effective on the date specified in such notice and shall reduce the Revolving Loan Commitment or the Term Delayed Draw Loan Commitment, respectively, of each Lender proportionately to its respective Pro Rata Share. Any such voluntary reduction of the Revolving Loan Commitment or the Term Delayed Draw Loan Commitments shall be applied as specified in subsection 2.4C. (iii) Mandatory Prepayments and Mandatory Reductions of Commitments. ------------------------------------------------------------- The Loans shall be prepaid and/or the Revolving Loan Commitments and Term Delayed Draw Loan Commitments shall be reduced in the manner provided in subsection 2.4C upon the occurrence of the following circumstances: (a) Asset Sales. No later than the fifth (5/th/) Business Day ----------- following the date of receipt by ChipPAC or any of its Subsidiaries of Cash Proceeds of any Asset Sale, Company shall prepay the Loans (and/or the Revolving Loan Commitments or Term Delayed Draw Loan Commitments shall be reduced) in an amount equal to the Net Cash Proceeds received with respect thereto; provided that, if ChipPAC -------- shall have delivered a Reinvestment Notice to the Administrative Agent no later than the fifth (5/th/) Business Day following the consummation of such Asset Sale, Company shall not be required to make any prepayment with 53 the proceeds of such Asset Sale to the extent that any of such proceeds are reinvested (or as to which a contract has been entered into to reinvest) in Reinvestment Assets within 365 days from the date of receipt of such proceeds; provided further that the aggregate -------- ------- amount of Net Cash Proceeds that may be reinvested pursuant to the immediately preceding proviso shall not exceed $15,000,000 in any Fiscal Year (or $30,000,000 in any Fiscal Year at any time the Leverage Ratio, determined on a Pro Forma Basis after giving effect to such Asset Sale, is less than 3.50:1.00); and provided still further -------- ----- ------- that, on each Reinvestment Prepayment Date, an amount equal to the Reinvestment Prepayment Amount with respect to the relevant Reinvestment Event shall be applied to prepay the Loans (and/or the Revolving Loan Commitments or Term Delayed Draw Loan Commitments shall be reduced). Concurrently with any prepayment of Loans (and/or any reduction in the Revolving Loan Commitments or Term Delayed Draw Loan Commitments) pursuant to this subsection 2.4B(iii)(a), ChipPAC shall deliver to the Administrative Agent an Officer's Certificate demonstrating in detail reasonably satisfactory to the Administrative Agent the derivation of the Net Cash Proceeds of the correlative Asset Sale from the gross sales price thereof. In addition, in the event that ChipPAC shall, at any time after receipt of proceeds of any Reinvestment Event requiring a prepayment (and/or a reduction in the Revolving Loan Commitments) pursuant to this subsection 2.4B(iii)(a), determine that the prepayments (and/or a reduction in the Revolving Loan Commitments) previously made in respect of such Reinvestment Event were in an aggregate amount less than that required by the terms of this subsection 2.4B(iii)(a), Company shall promptly cause to be made an additional prepayment of the Loans (and/or reduction in the Revolving Loan Commitments) in an amount equal to the amount of any such deficit, and ChipPAC shall concurrently therewith deliver to the Administrative Agent an Officer's Certificate demonstrating the derivation of the additional proceeds resulting in such deficit. If Company is otherwise required to apply any portion of Net Cash Proceeds to prepay Indebtedness evidenced by the Subordinated Debt then, notwithstanding anything contained in this Agreement to the contrary, ChipPAC shall cause such Net Cash Proceeds to be applied to the prepayment of the Loans so as to eliminate or minimize any obligation to be applied to prepay the Subordinated Debt. (b) Issuances of Debt. On or prior to the first (1/st/) Business ----------------- Day after receipt by ChipPAC or any of its Subsidiaries of any proceeds (net of any payment of underwriting discounts, commission and other costs and expenses associated therewith (including legal costs and expenses)) of any Indebtedness (other than the Loans, the Subordinated Debt and any other Indebtedness permitted by this Agreement), Company shall prepay the Loans (and/or the Revolving Loan Commitments or Term Delayed Draw Loan Commitments shall be reduced) in an amount equal to the amount of such proceeds; provided that payment -------- or acceptance of the amounts provided for in this subsection 2.4B(iii)(b) shall not constitute a waiver of any Event of Default resulting from the incurrence of such Indebtedness or otherwise prejudice any rights or remedies of the Administrative Agent or any Lender. If Company is otherwise required to 54 apply any portion of such proceeds to prepay Indebtedness evidenced by the Subordinated Debt then, notwithstanding anything contained in this Agreement to the contrary, ChipPAC shall cause such proceeds to be applied to the prepayment of the Loans so as to eliminate or minimize any obligation to prepay the Subordinated Debt. (c) Issuances of Equity Securities. On or prior to the first ------------------------------ (1/st/) Business Day after receipt by ChipPAC or any of its Subsidiaries of any Equity Proceeds (net of any payment of underwriting discounts, commission and other costs and expenses associated therewith (including legal costs and expenses)) other than (w) capital contributions made by ChipPAC or any of its Subsidiaries, (x) Equity Proceeds received by ChipPAC as payment for any shares of Capital Stock purchased by, or of the exercise price under any option for any shares of Capital Stock of ChipPAC held by, any officer, director, employee or consultant of ChipPAC or any of its Subsidiaries, (y) Equity Proceeds received from the Investors or their respective Affiliates or customers or suppliers of ChipPAC or its Subsidiaries, and (z) Equity Proceeds received by ChipPAC or any of its Subsidiaries solely to the extent that such Equity Proceeds are used to finance a Permitted Acquisition), Company shall prepay the Loans (and/or the Revolving Loan Commitments or Term Delayed Draw Loan Commitments shall be reduced) in an amount equal to (i) 75% of all such Equity Proceeds, if at such time the Leverage Ratio, on a Pro Forma basis, is greater than or equal to 3.50:1.00 or (ii) 50% of all such Equity Proceeds, if at such time the Leverage Ratio, on a Pro Forma Basis, is less than 3.50:1.00; provided, however, that notwithstanding the foregoing, ChipPAC may use the first $50,000,000 of Equity Proceeds of a Qualified Public Equity Offering, at its option, (i) to redeem HEI Preferred Stock, (ii) to redeem Intel Preferred Stock and/or (iii) to repurchase Subordinated Debt. If Company is otherwise required to apply any portion of such Equity Proceeds to prepay Indebtedness evidenced by the Subordinated Debt then, notwithstanding anything contained in this Agreement to the contrary, ChipPAC shall cause such Equity Proceeds to be applied to the prepayment of the Loans so as to eliminate or minimize any obligation to repurchase the Subordinated Debt. (d) Insurance and Condemnation Proceeds. No later than the fifth ----------------------------------- (5/th/) Business Day following the date of receipt by ChipPAC or any of its Subsidiaries of any cash payments under any insurance policy as a result of any damage to or loss of all or any portion of the Collateral or any other tangible asset (net of actual costs incurred and any taxes paid or payable by ChipPAC or any of its Subsidiaries in connection with adjustment and settlement thereof, "Insurance --------- Proceeds") or any proceeds resulting from the taking of assets by the power of eminent domain, condemnation or otherwise (net of actual costs incurred and any taxes paid or payable by ChipPAC or any of its Subsidiaries in connection with adjustment and settlement thereof, "Condemnation Proceeds") (any such event resulting in the recovery of --------------------- Insurance Proceeds or Condemnation Proceeds, a "Recovery Event"), -------------- Company shall prepay the Loans (and/or the Revolving Loan Commitments or Term Delayed Draw Loan Commitments shall be reduced) in an amount equal to the 55 Insurance Proceeds or Condemnation Proceeds, as the case may be, received; provided that, if ChipPAC shall have delivered a -------- Reinvestment Notice to the Administrative Agent no later than five (5) Business Days prior to the consummation of such Recovery Event and no Event of Default exists at the time of such consummation and the time of delivery of such notice, Company shall not be required to make any prepayment (and/or reduction in the Revolving Loan Commitments or Term Delayed Draw Loan Commitments) with the proceeds of such Recovery Event to the extent that (x) all or any portion of such proceeds are reinvested (or a contract has been entered into to reinvest) in Reinvestment Assets within 365 days from the date of receipt of such proceeds, and (y) after giving effect thereto, the aggregate amount of proceeds not used to make mandatory prepayments of Loans (and/or reduce the Revolving Loan Commitments or Term Delayed Draw Loan Commitments) pursuant to this proviso does not exceed $10,000,000 during any Fiscal Year; provided, further, that, on each Reinvestment -------- ------- Prepayment Date, an amount equal to the Reinvestment Prepayment Amount with respect to the relevant Reinvestment Event shall be applied to prepay the Loans (and/or the Revolving Loan Commitments or Term Delayed Draw Loan Commitments shall be reduced). In addition, in the event that ChipPAC shall, at any time after receipt of proceeds of any Reinvestment Event requiring a prepayment (and/or reduction in the Revolving Loan Commitments or Term Delayed Draw Loan Commitments) pursuant to this subsection 2.4B(iii)(d), determine that the prepayments (and/or reduction in the Revolving Loan Commitments or Term Delayed Draw Loan Commitments) previously made in respect of such Reinvestment Event were in an aggregate amount less than that required by the terms of this subsection 2.4B(iii)(d), Company shall promptly cause to be made an additional prepayment of the Loans (and/or reduce the Revolving Loan Commitments or Term Delayed Draw Loan Commitments) in an amount equal to the amount of any such deficit, and ChipPAC shall concurrently therewith deliver to the Administrative Agent an Officer's Certificate demonstrating the derivation of the additional proceeds resulting in such deficit. If Company is otherwise required to apply any portion of such proceeds to prepay Indebtedness evidenced by the Subordinated Debt then, notwithstanding anything contained in this Agreement to the contrary, ChipPAC shall cause such Insurance Proceeds and Condemnation Proceeds to be applied to the prepayment of the Loans so as to eliminate or minimize any obligation to prepay the Subordinated Debt. (e) Consolidated Excess Cash Flow. In the event that there shall ----------------------------- be Consolidated Excess Cash Flow for any Fiscal Year (commencing with the Fiscal Year ending December 31, 2000), Company shall, no later than ninety-five (95) days after the end of such Fiscal Year, prepay the Loans (and/or the Revolving Loan Commitments or Term Delayed Draw Loan Commitments shall be reduced) in an aggregate amount equal to (i) 75% of such Consolidated Excess Cash Flow if the Leverage Ratio at the end of such Fiscal Year was greater than or equal to 3.50:1.00 or (ii) 50% of such Consolidated Excess Cash Flow if the Leverage Ratio at the end of such Fiscal Year was less than 3.50:1.00; provided, however, -------- ------- that no such 56 payment shall be required if the Leverage Ratio at the end of such Fiscal Year was less than or equal to 2.75:1.00. (f) Reductions or Restrictions of Revolving Loan Commitments. -------------------------------------------------------- Company shall prepay the Swing Line Loans and/or Revolving Loans from time to time to the extent necessary so that (1) the Total Utilization of Revolving Loan Commitments shall not at any time exceed the Revolving Loan Commitments then in effect, and (2) the aggregate principal amount of all outstanding Swing Line Loans shall not at any time exceed the Swing Line Loan Commitment then in effect. All Swing Line Loans shall be prepaid in full prior to the prepayment of any Revolving Loans pursuant to this subsection 2.4B(iii)(f). If at any time that there are no Revolving Loans and Swing Line Loans outstanding (whether after giving effect to any prepayment thereof pursuant to this subclause (f) or otherwise) the Total Utilization of Revolving Loan Commitments exceeds the Revolving Loan Commitment, Company shall deposit into the Collateral Account such amounts as are necessary so that, after giving effect thereto, the amount on deposit in the Collateral Account pursuant to this subclause (f) is at least equal to such excess. C. Application of Prepayments and Unscheduled Reductions of Commitments. (i) Application of Prepayments by Type of Loans. Any voluntary ------------------------------------------- prepayments pursuant to subsection 2.4B(i) shall be applied as specified by Company in the applicable notice of prepayment; provided that in the event -------- Company fails to specify the Loans to which any such prepayment shall be applied, such prepayment shall be applied first to repay outstanding Swing ----- Line Loans to the full extent thereof, second to repay outstanding ------ Revolving Loans to the full extent thereof, and third to repay outstanding ----- Term Loans to the full extent thereof. Any amount required to be applied as a prepayment of Loans or Revolving Loan Commitment or Term Delayed Draw Loan Commitment reduction pursuant to any of subsections 2.4B(iii)(a) through (e) or this subsection 2.4C(i) shall be applied first to repay Term ----- Loans as selected by Company in an amount not in excess of an amount equal to the scheduled amortization payments on such Term Loans selected for the immediately succeeding twelve-month period, second to further prepay the ------ Term Loans ratably to the full extent thereof, third to prepay Swing Line ----- Loans to the full extent thereof and to permanently reduce the Revolving Loan Commitments by the amount of such prepayment, fourth to prepay ------ Revolving Loans to the full extent thereof and to further permanently reduce the Revolving Loan Commitments by the amount of such prepayment, fifth to prepay outstanding reimbursement obligations with respect to ----- Letters of Credit, sixth to cash collateralize Letters of Credit as ----- provided in the Collateral Account Agreement, seventh to reduce the Term ------- Delayed Draw Loan Commitment and eighth, to the extent of any remaining ------ amount, to further reduce the Revolving Loan Commitments. Anything contained herein to the contrary notwithstanding, so long as any Term A Loans or Term Delayed Draw Loans are outstanding, in the case of any voluntary or mandatory prepayments of Term Loans pursuant to subsection 2.4A or 2.4B or this subsection 2.4C, (a) Company shall use reasonable efforts to notify the Lenders of such prepayment in advance of payment to the Administrative Agent of such 57 amount, (b) upon receipt of such payment, the Administrative Agent shall notify the Lenders of such payment, (c) in the event any Lender with Term B Loans elects to waive such Lender's right to receive such prepayment in respect of any such Loans, such Lender shall so advise the Administrative Agent in writing no later than the close of business on the date it receives such notice from the Administrative Agent and (d) upon receipt of such written advice from such Lender, the Administrative Agent shall apply the amount waived by such Lender to prepay Term A Loans and Term Delayed Draw Loans. (ii) Application of Prepayments of Term Loans to Installments. The -------------------------------------------------------- amount of any prepayments of Term A Loans, Term B Loans or Term Delayed Draw Loans, as applicable, shall be applied first to reduce each scheduled ----- installment thereof set forth in subsection 2.4A(i), 2.4A(ii) or 2.4A(iii), as applicable, that is unpaid and due within the next twelve months of the date of such prepayment in the order that such installments are scheduled to occur, and second to ratably reduce each scheduled installment of ------ principal thereof set forth in subsection 2.4A(i), 2.4A(ii) or 2.4A(iii), as applicable. (iii) Application of Prepayments of Loans to Base Rate Loans and ---------------------------------------------------------- Eurodollar Rate Loans. Considering Loans constituting Term A Loans, Term B --------------------- Loans, Term Delayed Draw Loans and Revolving Loans being prepaid separately, any prepayment thereof shall be applied first to Base Rate Loans to the full extent thereof before application to Eurodollar Rate Loans, in each case in a manner which minimizes the amount of any payments required to be made by Company pursuant to subsection 2.6D. D. Application of Proceeds of Collateral and Payments Under Guaranties. (i) Application of Proceeds of Collateral. All proceeds received by ------------------------------------- the Administrative Agent or the Collateral Agent, as the case may be, in respect of any sale of, collection from, or other realization upon all or any part of the Collateral under any Collateral Document may, in the discretion of the Collateral Agent, be held by the Collateral Agent as Collateral for, and applied in full by the Administrative Agent against, the applicable Secured Obligations (as defined in such Collateral Document) in the following order of priority: (a) to the payment of all costs and expenses of such sale, collection or other realization, including all other reasonable expenses, liabilities and advances made or incurred by such Agents in connection therewith, and all amounts for which such Agents are entitled to indemnification under such Collateral Document and all advances made by the Collateral Agent thereunder for the account of the applicable Loan Party, and to the payment of all reasonable costs and expenses paid or incurred by the Collateral Agent in connection with the exercise of any right or remedy under such Collateral Document, all in accordance with the terms of this Agreement and such Collateral Document; (b) thereafter, to the extent of any excess proceeds, to the payment of all other such Secured Obligations for the ratable benefit of the holders thereof; and 58 (c) thereafter, to the extent of any excess proceeds, to the payment to or upon the order of such Loan Party or to whosoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct. (ii) Application of Payments Under Guaranties. All payments received ---------------------------------------- by the Administrative Agent under any Guaranty shall be applied promptly from time to time by the Administrative Agent in the following order of priority: (a) to the payment of the reasonable costs and expenses of any collection or other realization under such Guaranty, including all reasonable expenses, liabilities and advances made or incurred by the Administrative Agent in connection therewith, all in accordance with the terms of this Agreement and such Guaranty; (b) thereafter, to the extent of any excess such payments, to the payment of all other Obligations (as defined in such Guaranty) for the ratable benefit of the holders thereof; and (c) thereafter, to the extent of any excess such payments, to the payment to the applicable Guarantor or to whosoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct. E. General Provisions Regarding Payments. (i) Manner and Time of Payment. All payments by Company of -------------------------- principal, interest, fees and other Obligations hereunder shall be made in same day funds and without defense, setoff or counterclaim, free of any restriction or condition, and delivered to the Administrative Agent not later than 12:00 Noon (New York time) on the date due at the Funding and Payment Office for the account of the Lenders; funds received by the Administrative Agent after that time on such due date shall be deemed to have been paid by Company on the next succeeding Business Day. Company hereby authorizes the Administrative Agent to charge its accounts with the Administrative Agent in order to cause timely payment to be made to the Administrative Agent of all principal, interest, fees and expenses due hereunder (subject to sufficient funds being available in its accounts for that purpose). (ii) Application of Payments to Principal and Interest. Except as ------------------------------------------------- provided in subsection 2.2C, all payments in respect of the principal amount of any Loan shall include payment of accrued interest, on the principal amount being repaid or prepaid, and all such payments (and in any event any payments made in respect of any Loan on a date when interest is due and payable with respect to such Loan) shall be applied to the payment of interest before application to principal. (iii) Apportionment of Payments. Aggregate principal and interest ------------------------- payments shall be apportioned among all outstanding Loans to which such payments relate, in each case proportionately to the Lenders' respective Pro Rata Shares. The Administrative Agent shall promptly distribute to each Lender, at its 59 applicable Lending Office specified in Schedule 2.1 or at such other ------------ address as such Lender may request, its Pro Rata Share of all such payments received by the Administrative Agent and the commitment fees of such Lender when received by the Administrative Agent pursuant to subsection 2.3. Notwithstanding the foregoing provisions of this subsection 2.4E(iii) if, pursuant to the provisions of subsection 2.6C, any Notice of Conversion/Continuation is withdrawn as to any Affected Lender or if any Affected Lender makes Base Rate Loans in lieu of its Pro Rata Share of any Eurodollar Rate Loans, the Administrative Agent shall give effect thereto in apportioning payments received thereafter. (iv) Payments on Business Days. Except if expressly provided ------------------------- otherwise, whenever any payment to be made hereunder shall be stated to be due on a day that is not a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall be included in the computation of the payment of interest hereunder or of the commitment fees hereunder, as the case may be. 2.5 Use of Proceeds. --------------- A. Term Loans Made on the Closing Date. The proceeds of the Term Loans to be made to Company on the Closing Date shall be applied, together with the net cash proceeds of the issuance and sale of the Subordinated Debt to fund the ChipPAC Hungary Capital Contribution and the Recapitalization Loans. B. Term Delayed Draw Loans. The proceeds of any Term Delayed Draw Loans shall be applied by Company only for the purpose of acquiring equipment or making other capital expenditures required in connection with the performance by the Operating Subsidiaries with respect to Micro BGA Capital Expenditures. C. Revolving Loans; Swing Line Loans. The proceeds of any Revolving Loans and any Swing Line Loans shall be applied for working capital and general corporate purposes of the Operating Subsidiaries. D. Margin Regulations. No portion of the proceeds of any borrowing under this Agreement shall be used by Company or any of its Subsidiaries in any manner that might cause the borrowing or the application of such proceeds to violate Regulation U, Regulation T or Regulation X of the Board of Governors of the Federal Reserve System or any other regulation of such Board or to violate the Exchange Act, in each case as in effect on the date or dates of such borrowing and such use of proceeds. 2.6 Special Provisions Governing Eurodollar Rate Loans. -------------------------------------------------- Notwithstanding any other provision of this Agreement to the contrary, the following provisions shall govern with respect to Eurodollar Rate Loans as to the matters covered: A. Determination of Applicable Interest Rate. As soon as practicable after 11:00 A.M. (New York time) on each Interest Rate Determination Date, the Administrative Agent shall determine (which determination shall, absent manifest error, 60 be final, conclusive and binding upon all parties) the interest rate that shall apply to the Eurodollar Rate Loans for which an interest rate is then being determined for the applicable Interest Period and shall promptly give notice thereof (in writing or by telephone confirmed in writing) to Company and each Lender. B. Inability to Determine Applicable Interest Rate. In the event that the Administrative Agent shall have reasonably determined (which determination shall be final and conclusive and binding upon all parties hereto), on any Interest Rate Determination Date with respect to any Eurodollar Rate Loans, that by reason of circumstances arising after the date of this Agreement affecting the London interbank market, adequate and fair means do not exist for ascertaining the interest rate applicable to such Loans on the basis provided for in the definition of Reserve Adjusted Eurodollar Rate the Administrative Agent shall on such date give notice (by telecopy or by telephone confirmed in writing) to Company and each Lender of such determination, whereupon (i) no Loans may be made or continued as, or converted to, Eurodollar Rate Loans, until such time as the Administrative Agent notifies Company and the Lenders that the circumstances giving rise to such notice no longer exist (such notification not to be unreasonably withheld or delayed) and (ii) any Notice of Borrowing or Notice of Conversion/Continuation given by Company with respect to the Loans in respect of which such determination was made shall be deemed to be rescinded by Company. C. Illegality or Impracticability of Eurodollar Rate Loans. In the event that on any date any Lender shall have reasonably determined (which determination shall be final and conclusive and binding upon all parties hereto but shall be made only after consultation with Company and the Administrative Agent) that the making, maintaining or continuation of its Eurodollar Rate Loans (i) has become unlawful as a result of compliance by such Lender in good faith with any law, treaty, governmental rule, regulation, guideline or order (or would conflict with any such treaty, governmental rule, regulation, guideline or order not having the force of law even though the failure to comply therewith would not be unlawful) or (ii) has become impracticable, or would cause such Lender material hardship, as a result of contingencies occurring after the date of this Agreement which materially and adversely affect the London interbank market, then, and in any such event, such Lender shall be an "Affected Lender" --------------- and it shall on that day give notice (by telecopy or by telephone confirmed in writing) to Company and the Administrative Agent of such determination (which notice the Administrative Agent shall promptly transmit to each other Lender). Thereafter (a) the obligation of the Affected Lender to make Loans as, or to convert Loans to, Eurodollar Rate Loans, shall be suspended until such notice shall be withdrawn by the Affected Lender, (b) to the extent such determination by the Affected Lender relates to a Eurodollar Rate Loan then being requested by Company pursuant to a Notice of Borrowing or a Notice of Conversion/ Continuation, the Affected Lender shall make such Loan as (or convert such Loan to, as the case may be) a Base Rate Loan, (c) the Affected Lender's obligation to maintain its outstanding Eurodollar Rate Loans, as the case may be (the "Affected Loans"), shall be terminated at the earlier to occur of the expiration -------------- of the Interest Period then in effect with respect to the Affected Loans or when required by law, and (d) the Affected Loans shall automatically convert into Base Rate Loans on the date of such termination. Notwithstanding the foregoing, to the extent a determination by an Affected Lender as described above relates to a Eurodollar Rate Loan then being requested by Company pursuant to a Notice of Borrowing or a Notice of Conversion/Continuation, Company shall have the option, subject to the provisions of subsection 2.6D, to rescind such Notice of Borrowing or Notice of Conversion/Continuation as to all Lenders by 61 giving notice (by telecopy or by telephone confirmed in writing) to the Administrative Agent of such rescission on the date on which the Affected Lender gives notice of its determination as described above (which notice of rescission the Administrative Agent shall promptly transmit to each other Lender). Except as provided in the immediately preceding sentence, nothing in this subsection 2.6C shall affect the obligation of any Lender other than an Affected Lender to make or maintain Loans as, or to convert Loans to, Eurodollar Rate Loans in accordance with the terms of this Agreement. D. Compensation for Breakage or Non-Commencement of Interest Periods. Company shall compensate each Lender, upon written request by that Lender (which request shall set forth the basis for requesting such amounts), for all reasonable losses, expenses and liabilities (including, without limitation, any interest paid by that Lender to the lenders of funds borrowed by it to make or carry its Eurodollar Rate Loans and any loss, expense or liability sustained by that Lender in connection with the liquidation or re-employment of such funds) which that Lender may sustain: (i) if for any reason (other than a default by that Lender) a borrowing of any Eurodollar Rate Loan does not occur on a date specified therefor in a Notice of Borrowing or a telephonic request for borrowing, or a conversion to or continuation of any Eurodollar Rate Loan does not occur on a date specified therefor in a Notice of Conversion/Continuation or a telephonic request for conversion or continuation, (ii) if any prepayment (including any prepayment pursuant to subsection 2.4B) or conversion of any of its Eurodollar Rate Loans occurs on a date that is not the last day of an Interest Period applicable to that Loan, (iii) if any prepayment of any of its Eurodollar Rate Loans is not made on any date specified in a notice of prepayment given by Company, or (iv) as a consequence of any other default by Company in the repayment of its Eurodollar Rate Loans when required by the terms of this Agreement. E. Booking of Eurodollar Rate Loans. Subject to its obligations under subsection 2.8, any Lender may make, carry or transfer Eurodollar Rate Loans at, to, or for the account of any of its branch offices or the office of an Affiliate of that Lender. F. Assumptions Concerning Funding of Eurodollar Rate Loans. Calculation of all amounts payable to a Lender under this subsection 2.6 and under subsection 2.7A shall be made as though that Lender had actually funded each of its relevant Eurodollar Rate Loans through the purchase of a Eurodollar deposit bearing interest at the rate obtained pursuant to clause (i) of the definition of Reserve Adjusted Eurodollar Rate in an amount equal to the amount of such Eurodollar Rate Loan and having a maturity comparable to the relevant Interest Period and, through the transfer of such Eurodollar deposit from an offshore office of that Lender to a domestic office of that Lender in the United States of America; provided, however, that each Lender may fund each of its Eurodollar -------- ------- Rate Loans in any manner it sees fit and the foregoing assumptions shall be utilized only for the purposes of calculating amounts payable under this subsection 2.6 and under subsection 2.7A. G. Eurodollar Rate Loans After Default. After the occurrence of and during the continuation of an Event of Default, unless the Requisite Lenders otherwise consent, (i) Company may not elect to have a Loan be made or maintained as, or converted to, a Eurodollar Rate Loan after the expiration of any Interest Period then in effect for that Loan and (ii) subject to the provisions of subsection 2.6D, any Notice of Borrowing or Notice of Conversion/Continuation given by Company with respect to a 62 requested borrowing or conversion/continuation that has not yet occurred shall be deemed to be rescinded by Company. 2.7 Increased Costs; Taxes; Capital Adequacy. ---------------------------------------- A. Compensation for Increased Costs and Taxes. Subject to the provisions of subsection 2.7B (which shall be controlling with respect to the matters covered thereby), in the event that any Lender shall determine (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto) that any law, treaty or governmental rule, regulation or order, or any change therein or in the interpretation, administration or application thereof (including the introduction of any new law, treaty or governmental rule, regulation or order), or any determination of a court or governmental authority, in each case that becomes effective after the Closing Date, or compliance by such Lender with any guideline, request or directive issued or made after the date hereof by any central bank or other governmental or quasi-governmental authority (whether or not having the force of law): (i) results in a change in the basis of taxation of such Lender (or its applicable lending office) (other than a change with respect to any Tax on the overall net income of such Lender or franchise tax in lieu thereof) with respect to this Agreement or any of its obligations hereunder or any payments to such Lender (or its applicable lending office) of principal, interest, fees or any other amount payable hereunder; (ii) imposes, modifies or holds applicable any reserve (including without limitation any marginal, emergency, supplemental, special or other reserve), special deposit, compulsory loan, FDIC insurance or similar requirement against assets held by, or deposits or other liabilities in or for the account of, or advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of such Lender (other than any such reserve or other requirements with respect to Eurodollar Rate Loans that are reflected in the definition of Reserve Adjusted Eurodollar Rate); or (iii) imposes any other condition (other than with respect to a Tax matter) on or affecting such Lender (or its applicable lending office) or its obligations hereunder, or the London interbank market; and the result of any of the foregoing is to increase the cost to such Lender of agreeing to make, making or maintaining Eurodollar Rate Loans hereunder or to reduce any amount received or receivable by such Lender (or its applicable lending office) with respect thereto; then, in any such case, the Lender shall promptly notify Company and the Administrative Agent thereof and Company shall promptly pay to such Lender, upon receipt of the statement referred to in the next sentence, such additional amount or amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Lender shall reasonably determine) as may be necessary to compensate such Lender for any such increased cost or reduction in amounts received or receivable hereunder, provided that notwithstanding anything to the contrary contained in -------- this subsection 2.7A, unless a Lender gives notice to Company that it is obligated to pay an amount under this subsection within six months after the later of (x) the date such Lender incurs such increased cost or suffers such reduction in amounts received or receivable and (y) the date such Lender has actual knowledge of such costs or reduction 63 in amounts received or receivable, then such Lender shall only be entitled to be compensated for such amount to the extent of the increased cost or reduction in amounts received or receivable that is incurred or suffered on or after the date which occurs six months prior to such Lender giving notice to Company that it is obligated to repay the respective amounts pursuant to this subsection 2.7A. Such Lender shall deliver to Company (with a copy to the Administrative Agent) a written statement, setting forth in reasonable detail the basis for calculating the additional amounts owed to such Lender under this subsection 2.7A, which statement shall be conclusive and binding upon all parties hereto absent manifest error. B. Withholding of Taxes. (i) Payments to Be Free and Clear. All sums payable by Company under ----------------------------- this Agreement and the other Loan Documents shall (except to the extent required by law) be paid free and clear of, and without any deduction or withholding on account of, any Tax (other than a Tax on the overall net income of the Administrative Agent or any Lender imposed, levied, collected or assessed by any jurisdiction from or through which a payment is made by or on behalf of Company. (ii) Withholding of Taxes. If Company or any other Person is required -------------------- by law to make any deduction or withholding on account of any Tax (other than a Tax on the overall net income of the Administrative Agent or any Lender) from any sum paid or payable by Company to the Administrative Agent or any Lender under any of the Loan Documents: (a) Company shall notify the Administrative Agent of any such requirement or any change in any such requirement as soon as practicable; (b) Company shall pay any such Tax before the date on which penalties attach thereto, such payment to be made (if the liability to pay is imposed on Company) for its own account or (if that liability is imposed on the Administrative Agent or such Lender, as the case may be) on behalf of and in the name of the Administrative Agent or such Lender; (c) the sum payable by Company in respect of which the relevant deduction, withholding or payment is required shall be increased to the extent necessary to ensure that, after the making of that deduction, withholding or payment (including deduction, withholding or payment with respect to additional sums payable under this subsection 2.7B(ii)), the Administrative Agent or such Lender, as the case may be, receives on the due date a net sum equal to what it would have received had no such deduction, withholding or payment of such tax been required or made; provided that no such additional amount shall be required to be paid to any Lender under this clause (c) except to the extent that any change after the Closing Date or after the date of the Assignment Agreement pursuant to which such Lender became a Lender (in the case of each other Lender) in any such requirement for a deduction, withholding or payment shall result in the imposition, or an increase in the rate, of such deduction, withholding or payment in respect of payments to such Lender. Notwithstanding the preceding clause, additional sums shall be required to be paid to any 64 Lender to the extent that such Lender (or its assignor) was entitled, at the time of designation of a new lending office (or assignment), to receive additional amounts from Company in respect of payments to such Lender (or its assignor); (d) within 30 days after paying any sum from which it is required by law to make any deduction or withholding, and within 30 days after the due date of payment of any Tax which it is required by clause (b) above to pay, Company shall deliver to the Administrative Agent evidence satisfactory to the other affected parties of such deduction, withholding or payment and of the remittance thereof to the relevant taxing or other authority; and (e) Company shall indemnify the Administrative Agent or any Lender for the full amount of any such Tax paid by the Administrative Agent or any Lender on or with respect to any payment on account of any obligation of Company under this subsection 2.7B(ii) and any penalties, interest and reasonable expenses with respect thereto, whether or not such Tax was legally imposed or asserted by the relevant governmental authority, within 15 Business Days after written request for such indemnification. A certificate as to the amount of such payment or liability delivered to Company by the Administrative Agent or any Lender shall be conclusive absent manifest error. (iii) Other Taxes. Company shall also pay any and all present or ----------- future recording, stamp, documentary, excise, transfer, sales, property or similar Taxes arising from any payment made hereunder or from the execution, delivery or enforcement or registration of, or otherwise with respect to, this Agreement and the other Loan Documents. In the case of any such payments made by the Administrative Agent or any Lender, Company shall reimburse the Administrative Agent or such Lender for the full amount of such Taxes paid by the Administrative Agent or any Lender within 15 Business Days following receipt by Company of a written statement or invoice setting forth in reasonable detail the basis for such reimbursement request. C. Tax Refunds. If any Lender receives a refund or otherwise would have received a refund but for the offset of the amount of such refund against such Lender's Taxes (a "Tax Refund"), which in the good faith judgment of ---------- such Lender is allocable to Company, it shall promptly pay such refund net of all out-of-pocket expenses of the Lender and without interest (other than any interest paid by the relevant jurisdiction with respect to such refund) to Company; provided, however, that Company agrees to promptly -------- ------- return such Tax Refund (plus any penalties, interest or other charges imposed by the relevant jurisdiction) to the applicable Lender if it receives notice from such Lender that such Lender is required to repay such Tax Refund. Nothing contained in this subsection 2.7C shall require any Lender to make available its Tax returns (or any other information relating to its Taxes which it deems confidential) to Company or any other Person. D. Capital Adequacy Adjustment. If any Lender shall have determined that the adoption, effectiveness, phase-in or applicability after the Closing Date of any 65 law, rule or regulation (or any provision thereof) regarding capital adequacy, or any change therein or in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender (or its applicable lending office) with any guideline, request or directive regarding capital adequacy (whether or not having the force of law) of any such governmental authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on the capital of such Lender or any corporation controlling such Lender as a consequence of, or with reference to, such Lender's Loans or Commitments or Letters of Credit or participations therein or other obligations hereunder with respect to the Loans or the Letters of Credit to a level below that which such Lender reasonably determines such Lender or such controlling corporation could have achieved but for such adoption, effectiveness, phase-in, applicability, change or compliance (taking into consideration the policies of such Lender or such controlling corporation with regard to capital adequacy), then, within fifteen Business Days after receipt by Company from such Lender of the statement referred to in the next sentence, Company shall pay to such Lender such additional amount or amounts as will compensate such Lender or such controlling corporation on an after-tax basis for such reduction. Such Lender shall deliver to Company (with a copy to the Administrative Agent) a written statement, setting forth in reasonable detail the basis of the calculation of such additional amounts, which statement shall be conclusive and binding upon all parties hereto absent manifest error. E. Substitute Lenders. In the event (i) Company is required under the provisions of this subsection 2.7 or subsection 3.6 to make payments to any Lender or in the event any Lender fails to lend to Company in accordance with this Agreement, or (ii) any Lender fails to consent to a proposed change, waiver, discharge or termination under the Loan Documents otherwise approved by Requisite Lenders, then, in either case, Company may elect to terminate such Lender as a party to this Agreement; provided that, -------- concurrently with such termination, (i) Company shall pay that Lender all principal, interest and fees and other amounts (including without limitation amounts, if any, owed under this subsection 2.7) due to be paid to such Lender with respect to all periods through such date of termination, (ii) another financial institution satisfactory to Company and the Administrative Agent (or, in the event the Administrative Agent is also the Lender to be terminated, the successor Administrative Agent) shall agree, as of such date, to become a Lender for all purposes under this Agreement (whether by assignment or amendment) and to assume all obligations of the Lender to be terminated as of such date, and (iii) all documents and supporting materials necessary, in the reasonable judgment of the Administrative Agent (or, in the event the Administrative Agent is also the Lender to be terminated, the successor Administrative Agent) to evidence the substitution of such Lender shall have been received and approved by the Administrative Agent as of such date. 2.8 Obligation of Lenders and Issuing Bank to Mitigate. -------------------------------------------------- Each of the Lender and the Issuing Bank agrees that, as promptly as practicable after the officer of such Lender or the Issuing Bank responsible for administering the Loans or Letters of Credit of such Lender or the Issuing Bank, as the case may be, becomes aware of the occurrence of an event or the existence of a condition that would 66 cause such Lender to become an Affected Lender or that would entitle such Lender or the Issuing Bank to receive payments under subsection 2.7 or subsection 3.6, it will, to the extent not inconsistent with the internal policies of such Lender or the Issuing Bank and any applicable legal or regulatory restrictions, use reasonable efforts to (i) make, issue, fund or maintain the Commitments of such Lender or the affected Loans or Letters of Credit of such Lender or the Issuing Bank through another lending or letter of credit office of such Lender or the Issuing Bank, or (ii) take such other measures as such Lender or the Issuing Bank may deem reasonable, if as a result thereof the circumstances which would cause such Lender to be an Affected Lender would cease to exist or the additional amounts which would otherwise be required to be paid to such Lender or the Issuing Bank pursuant to subsection 2.7 or subsection 3.6 would be reduced and if, as determined by such Lender or the Issuing Bank in its reasonable discretion, the making, issuing, funding or maintaining of such Commitments or Loans or Letters of Credit through such other lending or letter of credit office or in accordance with such other measures, as the case may be, would not otherwise materially adversely affect such Commitments or Loans or Letters of Credit or the interests of such Lender or the Issuing Bank; provided -------- that such Lender or the Issuing Bank will not be obligated to utilize such other lending or letter of credit office pursuant to this subsection 2.8 unless Company agrees to pay all incremental expenses incurred by such Lender or the Issuing Bank as a result of utilizing such other lending or letter of credit office. A certificate as to the amount of any such expenses payable by Company pursuant to this subsection 2.8 (setting forth in reasonable detail the basis for requesting such amount) submitted by such Lender or the Issuing Bank to Company (with a copy to the Administrative Agent) shall be conclusive absent manifest error. SECTION 3. LETTERS OF CREDIT 3.1 Issuance of Letters of Credit and Lenders' Purchase of Participations --------------------------------------------------------------------- Therein. ------- A. Letters of Credit. In addition to Company requesting that Lenders make Revolving Loans pursuant to subsection 2.1A(iv) and that the Swing Line Lender make Swing Line Loans pursuant to subsection 2.1A(v), Company may request, in accordance with the provisions of this subsection 3.1, from time to time during the period from the Closing Date to but excluding the date which is five (5) Business Days before the Revolving Loan Commitment Termination Date, that the Issuing Bank issue Letters of Credit for the account of ChipPAC or any of its Subsidiaries to the extent and for the purposes specified in the definitions of Commercial Letters of Credit and Standby Letters of Credit. Subject to and upon the terms and conditions of this Agreement and in reliance upon the representations and warranties of Loan Parties herein set forth, the Issuing Bank agrees to issue such Letters of Credit in accordance with the provisions of this subsection 3.1; provided that Company shall not request that the Issuing -------- Bank issue (and the Issuing Bank shall not issue): (i) any Letter of Credit if, after giving effect to such issuance, the Total Utilization of Revolving Loan Commitments would exceed the Revolving Loan Commitments then in effect; 67 (ii) any Letter of Credit if, after giving effect to such issuance, the Letter of Credit Usage would exceed the Letter of Credit Subfacility Commitment; (iii) any Letter of Credit prior to the Chinese Security Effective Date, if, after giving effect to such issuance, the Total Utilization of Revolving Loan Commitments would exceed $15,000,000; (iv) any Standby Letter of Credit having an expiration date later than the earlier of (a) five (5) Business Days prior to the Revolving Loan Commitment Termination Date and (b) the date which is one year from the date of issuance of such Standby Letter of Credit; provided that the -------- immediately preceding clause (b) shall not prevent the Issuing Bank from agreeing that a Standby Letter of Credit will automatically be extended for one or more successive periods absent a Default or Event of Default, subject to the immediately preceding clause (a), not to exceed one year each unless the Issuing Bank elects not to extend for any such additional period; provided, further, that, unless the Requisite Lenders otherwise -------- ------- consent, the Issuing Bank shall give notice that it will not extend such Standby Letter of Credit if it has knowledge that a Default or Event of Default has occurred and is continuing (and has not been waived in accordance with subsection 10.6) on the last day on which such Issuing Bank may give notice to the beneficiary that it will not extend such Standby Letter of Credit; or (v) any Commercial Letter of Credit (a) having an expiration date later than the earlier of (x) thirty (30) days prior to the Revolving Loan Commitment Termination Date and (y) the date which is one hundred eighty (180) days from the date of issuance of such Commercial Letter of Credit or (b) that is otherwise unacceptable to the Issuing Bank in its reasonable discretion. B. Mechanics of Issuance. (i) Notice of Issuance. Whenever Company desires the issuance of a ------------------ Letter of Credit, it shall deliver to the Issuing Bank, at the Letter of Credit Issuing Office, and the Administrative Agent, at the Funding and Payment Office, a Notice of Issuance of Letter of Credit no later than 12:00 Noon (New York time) at least three (3) Business Days (in the case of Standby Letters of Credit) and five (5) Business Days (in the case of Commercial Letters of Credit), or such shorter period as may be agreed to by the Issuing Bank in any particular instance, in advance of the proposed date of issuance. The Notice of Issuance of Letter of Credit shall specify (a) the proposed date of issuance (which shall be a Business Day), (b) the face amount of or maximum aggregate liability under, as applicable, the Letter of Credit, (c) the expiration date of the Letter of Credit, (d) the name and address of the account party and beneficiary, and (e) either the verbatim text of the proposed Letter of Credit or the proposed terms and conditions thereof, including a precise description of any documents and the verbatim text of any certificates to be presented by the beneficiary which, if presented by the beneficiary prior to the expiration date of the Letter of Credit, would require the Issuing Bank to make payment thereunder; and provided that the Issuing Bank, in its reasonable -------- discretion, may require changes in the text of the proposed Letter of Credit or any such documents or certificates; provided further that no -------- ------- Letter of Credit shall require payment against a conforming draft or other request for 68 payment to be made thereunder on the same business day (under the laws of the jurisdiction in which the office of the Issuing Bank to which such draft or other request for payment is required to be presented is located) that such draft or other request for payment is presented if such presentation is made after 10:00 A.M. (in the time zone of such office of the Issuing Bank) on such Business Day. Company shall notify the Issuing Bank (and the Administrative Agent, if not such Issuing Bank) prior to the issuance of any Letter of Credit in the event that any of the matters to which Company is required to certify in the applicable Notice of Issuance of Letter of Credit is no longer true and correct as of the proposed date of issuance of such Letter of Credit, and upon the issuance of any Letter of Credit, Company shall be deemed to have re-certified, as of the date of such issuance, as to the matters to which Company is required to certify in the applicable Notice of Issuance of Letter of Credit. (ii) Issuance of Letter of Credit. Upon satisfaction or waiver (in ---------------------------- accordance with subsection 10.6) of the conditions set forth in subsection 4.3, the Issuing Bank shall issue the requested Letter of Credit in accordance with the Issuing Bank's standard procedures, and upon its issuance of such Letter of Credit the Issuing Bank shall promptly notify the Administrative Agent and each Lender of such issuance, which notice shall be accompanied by a copy of such Letter of Credit. (iii) Reports to Lenders. Within thirty (30) days after the end of ------------------ each calendar quarter ending after the Closing Date, so long as any Letter of Credit shall have been outstanding during such calendar quarter, the Issuing Bank shall deliver to the Administrative Agent and the Administrative Agent shall deliver to each Lender a report setting forth for such calendar quarter the daily maximum amount available to be drawn under the Letters of Credit that were outstanding during such calendar quarter. C. Lenders' Purchase of Participations in Letters of Credit. Immediately upon the issuance of each Letter of Credit, each Lender shall be deemed to, and hereby agrees to, have irrevocably purchased from the Issuing Bank a participation in such Letter of Credit and any drawings honored or payments made thereunder in an amount equal to such Lender's Pro Rata Share (with respect to the Revolving Loan Commitments) of the maximum amount which is or at any time may become available to be drawn or required to be paid thereunder. 3.2 Letter of Credit Fees. --------------------- Company agrees to pay the following amounts to the Issuing Bank with respect to Letters of Credit issued by it for the account of Company: (i) with respect to each Letter of Credit, (a) a fronting fee equal to 0.250% per annum of the daily maximum amount available to be drawn under such Letter of Credit and (b) a Letter of Credit fee equal to the product of (x) the then Applicable Eurodollar Rate Margin with respect to Revolving Loans and (y) the daily maximum amount available to be drawn under such Letter of Credit, in each case payable in arrears on and to the last Business Day in each of March, June, September and December of each year, commencing September 1999, and 69 on the Revolving Loan Commitment Termination Date and computed on the basis of a 360-day year for the actual number of days elapsed; and (ii) with respect to the issuance, amendment or transfer of each Letter of Credit (without duplication of the fees payable under clause (i) above), documentary and processing charges in accordance with such Issuing Bank's standard schedule for such charges in effect at the time of such issuance, amendment or transfer, as the case may be. Promptly upon receipt by such Issuing Bank of any amount described in clause (i)(b) of this subsection 3.2, such Issuing Bank shall distribute to each other Lender having Revolving Loan Exposure its Pro Rata Share of such amount. 3.3 Drawings and Payments and Reimbursement of Amounts Drawn or Paid Under ---------------------------------------------------------------------- Letters of Credit. ----------------- A. Responsibility of Issuing Bank With Respect to Requests for Drawings and Payments. In determining whether to honor any drawing or request for payment under any Letter of Credit by the beneficiary thereof, the Issuing Bank shall be responsible only to determine that the documents and certificates required to be delivered under such Letter of Credit have been delivered and to use reasonable care so that they comply on their face with the requirements of such Letter of Credit. B. Reimbursement by Company of Amounts Drawn or Paid Under Letters of Credit. In the event an Issuing Bank has determined to honor a drawing or request for payment under a Letter of Credit issued by it, the Issuing Bank shall immediately notify Company and the Administrative Agent, and Company shall reimburse such Issuing Bank on or before the Business Day immediately following the date on which such drawing is honored or such payment is made (the applicable "Reimbursement Date") in an amount in same day funds equal to the ------------------ amount of such honored drawing; provided that, anything contained in this -------- Agreement to the contrary notwithstanding, (i) unless Company shall have notified the Administrative Agent and the Issuing Bank prior to 12:00 Noon (New York time) on the date immediately following the date of such honored drawing or request for payment that Company intends to reimburse such Issuing Bank for the amount of such honored drawing or payment with funds other than the proceeds of Revolving Loans, Company shall be deemed to have given a timely Notice of Borrowing to the Administrative Agent requesting the Lenders to make Revolving Loans which are Base Rate Loans on the applicable Reimbursement Date in an amount equal to the amount of such honored drawing or payment and (ii) subject to satisfaction or waiver of the conditions specified in subsection 4.2B, the Lenders shall, on the applicable Reimbursement Date, make Revolving Loans in the amount of such honored drawing or payment, the proceeds of which shall be applied directly by the Administrative Agent to reimburse the Issuing Bank for the amount of such honored drawing or payment; provided further that if for any -------- ------- reason proceeds of Revolving Loans are not received by the Issuing Bank on the applicable Reimbursement Date in an amount equal to the amount of such honored drawing or payment, Company shall reimburse the Issuing Bank, on demand, in an amount in same day funds equal to the excess of the amount of such honored drawing or payment over the aggregate amount of such Revolving Loans, if any, which are so received. Nothing in this subsection 3.3B shall be deemed to relieve any Lender from its obligation to make Revolving Loans on the terms and conditions set forth in this Agreement, and Company shall retain any and all rights it 70 may have against any Lender resulting from the failure of such Lender to make such Revolving Loans under this subsection 3.3B. C. Payment by Lenders of Unreimbursed Drawings or Payments Under Letters of Credit. (i) Payment by Lenders. In the event that Company shall fail for any ------------------ reason to reimburse any Issuing Bank as provided in subsection 3.3B in an amount equal to the amount of any honored drawing or payment made by such Issuing Bank under a Letter of Credit issued by it, such Issuing Bank shall promptly notify each other Lender of the unreimbursed amount of such honored drawing or payment and of such other Lender's respective participation therein based on such Lender's Pro Rata Share of the Revolving Loan Commitments. Each Lender shall make available to such Issuing Bank an amount equal to its respective participation, in same day funds, at the office of such Issuing Bank specified in such notice, not later than 2:00 P.M. (New York time) on the first business day (under the laws of the jurisdiction in which such office of such Issuing Bank is located) after the date notified by such Issuing Bank. In the event that any Lender fails to make available to such Issuing Bank on such business day the amount of such Lender's participation in such Letter of Credit as provided in this subsection 3.3C, such Issuing Bank shall be entitled to recover such amount on demand from such Lender together with interest thereon at the rate customarily used by such Issuing Bank for the correction of errors among banks for three Business Days and thereafter at the Base Rate. Nothing in this subsection 3.3C shall be deemed to prejudice the right of any Lender to recover from any Issuing Bank any amounts made available by such Lender to such Issuing Bank pursuant to this subsection 3.3C in the event that it is determined by the final judgment of a court of competent jurisdiction that the payment with respect to a Letter of Credit by such Issuing Bank in respect of which payment was made by such Lender constituted gross negligence or willful misconduct on the part of such Issuing Bank. (ii) Distribution to Lenders of Reimbursements Received From Company. --------------------------------------------------------------- In the event any Issuing Bank shall have been reimbursed by other Lenders pursuant to subsection 3.3C(i) for all or any portion of any honored drawing or payment made by such Issuing Bank under a Letter of Credit issued by it, such Issuing Bank shall distribute to each other Lender which has paid all amounts payable by it under subsection 3.3C(i) with respect to such honored drawing or payment such other Lender's Pro Rata Share of all payments subsequently received by such Issuing Bank from Company in reimbursement of such honored drawing or payment when such payments are received. Any such distribution shall be made to a Lender at its primary address set forth below its name on the appropriate signature page hereof or at such other address as such Lender may request. D. Interest on Amounts Drawn or Paid Under Letters of Credit. (i) Payment of Interest by Company. Company agrees to pay to each ------------------------------ Issuing Bank, with respect to drawings or payments made under any Letters of Credit issued by it, interest on the amount paid by such Issuing Bank in respect of each such drawing or payment from the date such drawing is honored or payment 71 is made to but excluding the date such amount is reimbursed by Company (including any such reimbursement out of the proceeds of Revolving Loans pursuant to subsection 3.3B) at a rate equal to (a) for the period from the date such drawing is honored or payment is made to but excluding the applicable Reimbursement Date, the Base Rate plus the Applicable Base Rate ---- Margin with respect to Revolving Loans, and (b) thereafter, a rate which is 2% per annum in excess of the rate of interest described in the foregoing clause (a). Interest payable pursuant to this subsection 3.3D(i) shall be computed on the basis of a 360-day year for the actual number of days elapsed in the period during which it accrues and shall be payable on demand or, if no demand is made, on the date on which the related drawing or payment under a Letter of Credit is reimbursed in full. (ii) Distribution of Interest Payments by Issuing Bank. Promptly upon ------------------------------------------------- receipt by any Issuing Bank of any payment of interest pursuant to subsection 3.3D(i), (a) such Issuing Bank shall distribute to each other Lender, out of the interest received by such Issuing Bank in respect of the period from the date of the applicable honored drawing or payment under a Letter of Credit issued by such Issuing Bank to but excluding the date on which such Issuing Bank is reimbursed for the amount of such drawing or payment (including any such reimbursement out of the proceeds of Revolving Loans pursuant to subsection 3.3B), the amount that such other Lender would have been entitled to receive in respect of the Letter of Credit fee that would have been payable in respect of such Letter of Credit for such period pursuant to subsection 3.2 if no drawing had been honored or payment had been made under such Letter of Credit, and (b) in the event such Issuing Bank shall have been reimbursed by other Lenders pursuant to subsection 3.3C(i) for all or any portion of such drawing or payment, such Issuing Bank shall distribute to each other Lender which has paid all amounts payable by it under subsection 3.3C(i) with respect to such drawing or payment such other Lender's Pro Rata Share of any interest received by such Issuing Bank in respect of that portion of such drawing or payment so reimbursed by other Lenders for the period from the date on which such Issuing Bank was so reimbursed by other Lenders to and including the date on which such portion of such drawing or payment is reimbursed by Company. Any such distribution shall be made to a Lender at its Lending Office set forth in Schedule 2.1 or at such other address as such Lender may request. ------------ 3.4 Obligations Absolute. -------------------- The obligation of Company to reimburse each Issuing Bank for drawings honored or payments made under the Letters of Credit issued by it and to repay any Revolving Loans made by the Lenders pursuant to subsection 3.3B and the obligations of the Lenders under subsection 3.3C(i) shall be unconditional and irrevocable and shall be paid strictly in accordance with the terms of this Agreement under all circumstances including, without limitation, the following circumstances: (i) any lack of validity or enforceability of any Letter of Credit; (ii) the existence of any claim, setoff, defense or other right which Company or any Lender may have at any time against a beneficiary or any transferee of any Letter of Credit (or any Persons for whom any such transferee may be acting), any Issuing Bank or other Lender or any other Person or, in the 72 case of a Lender, against Company whether in connection with this Agreement, the transactions contemplated herein or any unrelated transaction (including any underlying transaction between ChipPAC or one of its Subsidiaries and the beneficiary for which any Letter of Credit was procured); (iii) any draft, demand, certificate or other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (iv) payment by the applicable Issuing Bank under any Letter of Credit against presentation of a demand, draft or certificate or other document which appears to substantially comply with the terms of such Letter of Credit; (v) any adverse change in the business, operations, properties, assets, condition (financial or otherwise) or prospects of ChipPAC or any of its Subsidiaries; (vi) any breach of this Agreement or any other Loan Document by any party thereto; (vii) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing; or (viii) the fact that Default or Event of Default shall have occurred and be continuing; provided, in each case, that payment by the applicable Issuing Bank under the - -------- applicable Letter of Credit shall not have constituted bad faith, gross negligence or willful misconduct of such Issuing Bank under the circumstances in question. 3.5 Indemnification; Nature of Issuing Bank's Duties. ------------------------------------------------ A. Indemnification. In addition to amounts payable as provided in subsection 3.6, Company hereby agrees to protect, indemnify, pay and save harmless each Issuing Bank from and against any and all claims, demands, liabilities, damages, losses, costs, charges and expenses (including reasonable fees, expenses and disbursements of counsel and allocated costs of internal counsel) which such Issuing Bank may incur or be subject to as a consequence, direct or indirect, of (i) the issuance of any Letter of Credit by such Issuing Bank, other than as a result of (a) the bad faith, gross negligence or willful misconduct of such Issuing Bank or (b) subject to the following clause (ii), the wrongful dishonor by such Issuing Bank of a proper demand for payment made under any Letter of Credit issued by it or (ii) the failure of such Issuing Bank to honor a drawing or other request for payment under any such Letter of Credit as a result of any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or governmental authority (all such acts or omissions herein called "Governmental Acts"). ----------------- B. Nature of Issuing Bank's Duties. As between Company and any Issuing Bank, Company assumes all risks of the acts and omissions of, or misuse of the Letters of Credit issued by such Issuing Bank by, the respective beneficiaries of such Letters of Credit. In furtherance and not in limitation of the foregoing, such Issuing Bank shall not 73 be responsible for: (i) the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any party in connection with the application for and issuance of any such Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any such Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (iii) failure of the beneficiary of any such Letter of Credit to comply fully with any conditions required in order to draw upon such Letter of Credit; (iv) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher; (v) errors in interpretation of technical terms; (vi) any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any such Letter of Credit or of the proceeds thereof; (vii) the misapplication by the beneficiary of any such Letter of Credit of the proceeds of any drawing or payment under such Letter of Credit; or (viii) any consequences arising from causes beyond the control of such Issuing Bank, including without limitation any Governmental Acts, and none of the above shall affect or impair, or prevent the vesting of, any of such Issuing Bank's rights or powers hereunder. In furtherance and extension and not in limitation of the specific provisions set forth in the first paragraph of this subsection 3.5B, any action taken or omitted by any Issuing Bank under or in connection with the Letters of Credit issued by it or any documents and certificates delivered thereunder, if taken or omitted in good faith, shall not put such Issuing Bank under any resulting liability to Company. Notwithstanding anything to the contrary contained in this subsection 3.5, Company shall retain any and all rights it may have against any Issuing Bank for any liability arising out of the bad faith, gross negligence or willful misconduct of such Issuing Bank. 3.6 Increased Costs and Taxes Relating to Letters of Credit. ------------------------------------------------------- Subject to the provisions of subsection 2.7B (which shall be controlling with respect to matters covered thereby), in the event that any Issuing Bank or any Lender shall determine (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto) that any law, treaty or governmental rule, regulation or order, or any change therein or in the interpretation, administration or application thereof (including the introduction of any new law, treaty or governmental rule, regulation or order), or any determination of a court or governmental authority, in each case that becomes effective after the Closing Date, or compliance by any Issuing Bank or Lender with any guideline, request or directive issued or made after the Closing Date by any central bank or other governmental or quasi-governmental authority (whether or not having the force of law): (i) subject to any additional Tax such Issuing Bank or any Lender (or its applicable lending or letter of credit office) (other than a change with respect to any Tax on the overall net income of such Issuing Bank or Lender) with respect to the issuing or maintaining of any Letters of Credit or the purchasing or maintaining of any participations therein or any other obligations under this Section 3, whether directly or by such being imposed on or suffered by any particular Issuing Bank; 74 (ii) imposes, modifies or holds applicable any reserve (including without limitation any marginal, emergency, supplemental, special or other reserve), special deposit, compulsory loan, FDIC insurance or similar requirement in respect of any Letters of Credit issued by any Issuing Bank or participations therein purchased by any Lender; or (iii) imposes any other condition (other than with respect to a Tax matter) on or affecting such Issuing Bank or Lender (or its applicable lending or letter of credit office) regarding this Section 3 or any Letter of Credit or any participation therein; and the result of any of the foregoing is to increase the cost to such Issuing Bank or Lender of agreeing to issue, issuing or maintaining any Letter of Credit or agreeing to purchase, purchasing or maintaining any participation therein or to reduce any amount received or receivable by such Issuing Bank or Lender (or its applicable lending or letter of credit office) with respect thereto; then, in any case, Company shall promptly pay to such Issuing Bank or Lender, upon receipt of the statement referred to in the next sentence, such additional amount or amounts (reasonably determined by such Issuing Bank or Lender) as may be necessary to compensate such Issuing Bank or Lender for any such increased cost or reduction in amounts received or receivable hereunder. Such Issuing Bank or Lender shall deliver to Company a written statement, setting forth in reasonable detail the basis for calculating the additional amounts owed to such Issuing Bank or Lender under this subsection 3.6, which statement shall be conclusive and binding upon all parties hereto absent manifest error. SECTION 4. CONDITIONS TO LOANS AND LETTERS OF CREDIT The obligations of the Lenders to make Loans and of the Issuing Bank to issue Letters of Credit hereunder are subject to the satisfaction (or waiver) of the following conditions. 4.1 Conditions to Loans. ------------------- The obligations of the Lenders to make the Loans to be made on the Closing Date are, in addition to the conditions precedent specified in subsection 4.2, subject to prior or concurrent satisfaction (or waiver) of the following conditions: A. Company Documents. On or before the Closing Date, each of ChipPAC and Company shall deliver to the Administrative Agent the following, each, unless otherwise noted, dated the Closing Date: (i) Certified copies of its Organizational Certificate, together with a good standing certificate from the Secretary of State of the State of Delaware or the appropriate Governmental Authority of the British Virgin Islands, as applicable, and each other jurisdiction in which it is qualified as a foreign corporation to do business (except any such jurisdiction in which failure to be qualified could not reasonably be expected to have a Material Adverse Effect), each dated a recent date prior to the Closing Date; 75 (ii) Copies of its Organizational Documents, certified as of the Closing Date by its corporate secretary or an assistant secretary; (iii) Resolutions of its Board of Directors approving and authorizing the execution, delivery and performance of this Agreement and the other Loan Documents and the Transaction Documents to which it is a party, certified as of the Closing Date by its corporate secretary or an assistant secretary as being in full force and effect without modification or amendment; (iv) Incumbency certificates of its officers executing this Agreement and the other Loan Documents to which it is a party as of the Closing Date; (v) Executed originals of this Agreement and the other Loan Documents to which it is a party; (vi) Certified copies of each of the Transaction Documents to which it is a party; and (vii) Such other documents as the Administrative Agent may reasonably request. B. Subsidiary Documents. On or before the Closing Date, ChipPAC shall deliver or cause to be delivered to the Administrative Agent for the Lenders the following for each of its Subsidiaries other than Company (which may be waived by the Agents for any Subsidiaries of ChipPAC with respect to the items described in clause (i) below) after giving effect to the Recapitalization Transactions, each, unless otherwise noted, dated the Closing Date: (i) Certified copies of the Organizational Certificate, together with a good standing certificate (to the extent such a certificate is applicable and available in the relevant jurisdiction) from the applicable Governmental Authority of its jurisdiction of incorporation, organization or formation and each other jurisdiction in which it is qualified as a foreign corporation or other entity to do business (except any such state in which failure to be qualified could not reasonably be expected to have a Material Adverse Effect), each dated a recent date prior to the Closing Date; (ii) Copies of the Organizational Documents of such Subsidiary, certified as of the Closing Date by its corporate secretary or an assistant secretary; (iii) Copies of the Organizational Authorizations of such Subsidiary approving and authorizing the execution, delivery and performance of the Guaranty, as applicable, and the other Loan Documents and the Transaction Documents to which such Subsidiary is party, certified as of the Closing Date by its corporate secretary or an assistant secretary as being in full force and effect without modification or amendment; (iv) Incumbency certificates of its officers executing the Guaranty, as applicable, and the other Loan Documents to which such Subsidiary is party; 76 (v) Executed originals of the Guaranty and the other Loan Documents to which such Subsidiary is party; and (vi) Such other documents as the Administrative Agent may reasonably request. C. Consummation of the Recapitalization Transactions. (i) (a) Each of the material terms and conditions of the Transaction Documents shall be in form and substance reasonably satisfactory to the Administrative Agent and each such Transaction Document shall be in full force and effect and (b) all conditions to the Recapitalization Transactions set forth in the Transaction Documents shall have been satisfied or the fulfillment of any such conditions shall have been waived with the reasonable consent of the Requisite Lenders (such consent not to be unreasonably withheld); (ii) on or before the Closing Date, the Investors shall have made the Equity Contribution; (iii) on or before the Closing Date, the Recapitalization Transactions shall have been consummated in accordance with the Recapitalization Agreement and the Administrative Agent shall have received evidence reasonably satisfactory to it of the foregoing; and (iv) on or before the Closing Date, Company shall have issued and sold for Cash not less than $150,000,000 in gross aggregate principal amount of Subordinated Debt in accordance with the terms and conditions of the Subordinated Debt Documents. D. Loan Documents. Each of the Loan Documents shall have been duly executed by the parties thereto, shall have been delivered to the Administrative Agent and shall be in full force and effect. E. Necessary Consents. ChipPAC shall have obtained all consents of Governmental Authorities and other Persons necessary in connection with the Recapitalization Transactions, and each of the foregoing shall be in full force and effect and in form and substance reasonably satisfactory to the Administrative Agent (other than any such consents, the failure to obtain which, either individually or in the aggregate, is not reasonably likely to have a Material Adverse Effect). All applicable waiting periods shall have expired without any action being taken or threatened by any competent authority which would restrain, prevent or otherwise impose adverse conditions on the Recapitalization Transactions or the financing thereof and no action, request for stay, petition for review or rehearing, reconsideration or appeal shall be pending and any time for agency action to set aside its consent on its own motion has expired. F. Indebtedness. After giving effect to the Recapitalization Transactions and the other transactions contemplated hereby, on the Closing Date, neither ChipPAC nor any of its Subsidiaries shall have outstanding any Indebtedness or preferred stock other than (i) the Loans and extensions of credit hereunder, (ii) the Subordinated Debt, (iii) the Preferred Stock, (iv) the Intercompany Notes, (v) the Local Lines of Credit, (vi) the Asian Letters of Credit and (vii) Indebtedness listed in Schedule 7.1. ------------ 77 G. Perfection of Security Interests. Except with respect to such actions set forth on Schedule 4.1G, which shall be taken as promptly as practicable ------------- following the Closing Date, ChipPAC shall have taken or caused to be taken such actions in such a manner so that the Collateral Agent upon filing and recording has a valid and perfected First Priority security interest in the entire personal property (both tangible and intangible) constituting Collateral. Such actions shall include, without limitation: (i) the delivery pursuant to the applicable Collateral Documents of (a) such certificates or other instruments (each of which shall be registered in the name of the Collateral Agent or properly endorsed in blank for transfer or accompanied by irrevocable undated stock or equivalent powers duly endorsed in blank, all in form and substance reasonably satisfactory to the Collateral Agent) representing all of the shares or other interests of Capital Stock required to be pledged pursuant to the Collateral Documents and (b) all promissory notes or other instruments (duly endorsed, where appropriate, in a manner reasonably satisfactory to the Collateral Agent) evidencing any Collateral; (ii) the delivery to the Collateral Agent of (a) the results of a recent search, by a Person reasonably satisfactory to the Collateral Agent, of all effective UCC financing statements and fixture filings and all judgment and tax lien filings which may have been made with respect to any personal or mixed property of any Loan Party, together with copies of all such filings disclosed by such search; (iii) the delivery to the Collateral Agent of Uniform Commercial Code financing statements executed by the applicable Loan Parties as to all such Collateral granted by such Loan Parties for all jurisdictions as may be reasonably necessary to perfect the Administrative Agent's security interest in such Collateral; (iv) the delivery to the Collateral Agent of evidence reasonably satisfactory to the Collateral Agent that all other filings (including, without limitation, Uniform Commercial Code termination statements and releases), recordings and other actions the Collateral Agent deems reasonably necessary to establish, preserve and perfect the First Priority Liens granted to the Collateral Agent in personal (both tangible and intangible) and mixed property shall have been made; and (v) such other filings, registrations, recordings and other actions the Collateral Agent deems reasonably necessary to establish, preserve and perfect the First Priority Liens granted to the Collateral Agent in any Collateral, which by the nature, location or pledgor thereof, should be made or taken in or with respect to any foreign jurisdiction. H. Solvency Opinion. The Lenders shall have received a written opinion of Valuation Research Corporation, in form and substance reasonably satisfactory to the Administrative Agent, that ChipPAC and its Subsidiaries after giving effect to the Recapitalization Transactions and the financing transactions contemplated hereby are Solvent. I. Transaction Costs. The Transaction Costs shall not exceed approximately $30,000,000. J. Opinions of Loan Parties' Counsel. The Agent and its counsel shall have received originally executed copies for each Agent and Lenders of one or more favorable written opinions of Kirkland & Ellis, special New York counsel for the Loan Parties, (ii) Kim, Shin & Yu, special Korean counsel to the Loan Parties, (iii) King & Wood, special Chinese counsel to the Loan Parties, (iv) PricewaterhouseCoopers Kft., special Hungarian counsel to the Loan Parties, (v) Harney Westwood & Riegels, special British Virgin Islands counsel to the Loan Parties, (vi) Chancery Chambers, special Barbados counsel to the Loan Parties and (vii) PricewaterhouseCoopers Societe a responsabilite limitee, special Luxembourg counsel to the Loan Parties, setting forth 78 substantially the opinions designated in Exhibit VIII annexed hereto and ------------ otherwise in form and substance reasonably satisfactory to the Administrative Agent. K. Opinions of Counsel in the Recapitalization Transactions. The Administrative Agent and its counsel shall have received copies of each legal opinion, if any, delivered by any counsel for any Loan Party pursuant to the Transaction Documents, together with a letter from counsel rendering each such opinion authorizing the Agents and the Lenders to rely upon the applicable opinion to the same extent as though it were addressed to the Agents and the Lenders. L. Fees and Expenses. Company shall have paid to the Administrative Agent, for distribution (as appropriate) to the Agents and the Lenders, the fees payable on the Closing Date referred to in subsection 2.3 and all reasonable expenses owing to any such Person by Company as of the Closing Date for which invoices have been presented prior to the Closing Date. M. Financial Statements. On or before the Closing Date, the Administrative Agent and the Lenders shall have received from ChipPAC, the financial information and projections described in subsection 5.3 hereof (which, in the case of the financial statements provided pursuant to subsection 5.3B, shall not be materially inconsistent with the estimated financial statements previously provided by ChipPAC to the Administrative Agent), all in form and substance reasonably satisfactory to the Administrative Agent. N. Evidence of Insurance. The Administrative Agent shall have received satisfactory certificates of insurance with respect to each of the insurance policies required pursuant to subsection 6.4, and the Administrative Agent shall be reasonably satisfied with the nature and scope of these insurance policies. O. No Material Adverse Effect. (i) Since December 31, 1998, no Material Adverse Effect shall have occurred. P. Corporate and Capital Structure, Ownership, Management, Etc. (i) Corporate Structure. The corporate organizational structure of ------------------- ChipPAC and its Subsidiaries, both before and after giving effect to the Recapitalization Transactions, shall be as set forth in Schedule 4.1P ------------- annexed hereto. (ii) Capital Structure and Ownership. The capital structure and ------------------------------- ownership of ChipPAC after giving effect to the Recapitalization Transactions, shall be as set forth in Schedule 4.1P annexed hereto. ------------- Q. Representations and Warranties. Each of ChipPAC and Company shall have delivered to the Administrative Agent (with a sufficient number of originally executed counterparts for the Lenders) an Officer's Certificate, in form and substance reasonably satisfactory to the Administrative Agent, to the effect that the representations and warranties in Section 5 hereof are true and correct in all material respects on and as of the Closing Date, and both before and after giving effect to the Recapitalization Transactions, to the same extent as though made on and as of that date. 79 R. Completion of Proceedings. All corporate and other proceedings taken or to be taken in connection with the transactions contemplated hereby and all documents incidental thereto shall be reasonably satisfactory in form and substance to the Administrative Agent and its counsel, and the Administrative Agent and such counsel shall have received all such counterpart originals or certified copies of such documents, instruments and legal opinions as the Administrative Agent may reasonably request. 4.2 Conditions to All Loans. ----------------------- The obligations of the Lenders to make Loans on each Funding Date are subject to the following further conditions precedent: A. The Administrative Agent shall have received before that Funding Date, in accordance with the provisions of subsection 2.1B, an originally executed Notice of Borrowing, in each case signed by a Responsible Officer on behalf of Company and delivered to the Administrative Agent. B. As of that Funding Date: (i) The representations and warranties contained herein and in the other Loan Documents shall be true and correct in all material respects on and as of that Funding Date to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case such representations and warranties shall have been true and correct in all material respects on and as of such earlier date; (ii) No event shall have occurred and be continuing or would result from the consummation of the borrowing contemplated by such Notice of Borrowing that would constitute a Default or Event of Default; (iii) No order, judgment or decree of any court, arbitrator or governmental authority shall purport to enjoin or restrain any Lender from making the Loans to be made by it, on that Funding Date; and (iv) The making of the Loans requested on such Funding Date shall not violate any law including, without limitation, Regulation T, Regulation U or Regulation X of the Board of Governors of the Federal Reserve System. 4.3 Conditions to Letters of Credit. ------------------------------- The issuance of any Letter of Credit hereunder (whether or not the applicable Issuing Bank is obligated to issue such Letter of Credit) is subject to the following additional conditions precedent: A. On or before the date of issuance of such Letter of Credit, the Issuing Bank and the Administrative Agent shall have received, in accordance with the provisions of subsection 3.1B(i), an originally executed Notice of Issuance of Letter of Credit, signed by a Responsible Officer of Company on behalf of Company and delivered to the Administrative Agent, together with all other information specified in subsection 3.1B(i) and such other documents or information as the applicable Issuing Bank may reasonably require in connection with the issuance of such Letter of Credit. 80 B. On the date of issuance of such Letter of Credit, all conditions precedent described in subsection 4.2B shall be satisfied to the same extent as if the issuance of such Letter of Credit were the making of a Loan and the date of issuance of such Letter of Credit were a Funding Date. SECTION 5. REPRESENTATIONS AND WARRANTIES In order to induce the Lenders to enter into this Agreement and to make the Loans, to induce the Issuing Bank to issue Letters of Credit and to induce the other Lenders to purchase participations therein, each of ChipPAC and Company represents and warrants to each Lender and the Issuing Bank, on the date of this Agreement, on the Closing Date, on each Funding Date, and on the date of issuance of each Letter of Credit, that the following statements are true and correct. 5.1 Organization, Powers, Qualification, Good Standing, Business and ---------------------------------------------------------------- Subsidiaries. - ------------ A. Organization and Powers. Each Loan Party which is a corporation is organized, existing and in good standing (to the extent such concept is relevant in the jurisdiction of organization of such Loan Party) under the laws of its respective jurisdiction of organization. Each Subsidiary Guarantor which is a partnership or limited liability company is a duly organized and validly existing limited partnership or limited liability company under the laws of its jurisdiction of formation and is in good standing in such jurisdiction. ChipPAC, Company and each Subsidiary has all requisite corporate, partnership or limited liability company (as applicable) power and authority to own and operate their respective properties, to carry on their respective business as now conducted and as proposed to be conducted, to enter into the Loan Documents, to carry out the transactions contemplated thereby and, in the case of Company, to borrow hereunder. B. Qualification and Good Standing. ChipPAC, Company and each Loan Party is qualified or authorized to do business and in good standing (to the extent such concept is relevant in such jurisdiction) in every jurisdiction where their respective assets are located and wherever necessary to carry out their respective businesses and operations, except in jurisdictions where the failure to be so qualified or in good standing has not had and would not reasonably be expected to have a Material Adverse Effect. C. Conduct of Business. ChipPAC and its Subsidiaries are engaged only in the businesses permitted to be engaged in pursuant to subsection 7.13. D. ChipPAC and Subsidiaries. All of the Subsidiaries of ChipPAC as of the Closing Date (after giving effect to the Recapitalization Transactions) are identified in Schedule 5.1 annexed hereto, as it may be supplemented from time ------------ to time in accordance with the provisions of subsection 6.9. The Capital Stock or other equity interests of ChipPAC and each of the Subsidiaries identified in Schedule 5.1 annexed hereto is duly authorized, validly issued, fully paid and - ------------ nonassessable (except in the case of any limited liability company or partnership interests) and none of such Capital Stock or other equity interests constitutes Margin Stock. Schedule 5.1 annexed hereto correctly sets forth the ------------ direct or indirect ownership interest of ChipPAC in each of its Subsidiaries identified therein. 81 5.2 Authorization of Borrowing, etc. -------------------------------- A. Authorization of Borrowing. The execution, delivery and performance of the Loan Documents have been duly authorized by all necessary corporate and/or partnership (as applicable) action on the part of each of the Loan Parties party thereto. B. No Conflict. After giving effect to the consummation of the transactions contemplated hereby to occur on the Closing Date, the execution, delivery and performance by each of the applicable Loan Parties of the Loan Documents, and the consummation of the transactions contemplated by the Loan Documents, do not and will not (i) violate any provision of any law or any governmental rule or regulation applicable to any Loan Party, the Organizational Certificate or any other Organizational Documents of any Loan Party or any order, judgment or decree of any court or other agency of government binding on any Loan Party, which violation would reasonably be expected to have a Material Adverse Effect, (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any Contractual Obligation of any Loan Party, (iii) result in or require the creation or imposition of any Lien upon any of the properties or assets of any Loan Party (other than any Liens created under any of the Loan Documents), or (iv) require any approval of shareholders, partners or members or any approval or consent of any Person under any Contractual Obligation of any Loan Party, except for such approvals or consents which will be obtained on or before the Closing Date, approvals or consents with respect to the Chinese Agreements (or, with respect to certain other notifications to be made pursuant to foreign security arrangements, on or within 20 days after the Closing Date) or where failure to obtain or make the foregoing would not reasonably be expected to have a Material Adverse Effect. C. Governmental Consents. The execution, delivery and performance by the Loan Parties of the Loan Documents and the consummation of the transactions contemplated by the Loan Documents and the Transaction Documents do not require any registration with, consent or approval of, or notice to, or other action to, with or by, any federal, state or other governmental authority or regulatory body except to the extent obtained on or before the Closing Date (or, with respect to certain filings to be made in various foreign jurisdictions to create and perfect Liens, other than with respect to the Chinese Agreements, on or within 20 days after the Closing Date) or where the failure to obtain or make the foregoing would not reasonably be expected to have a Material Adverse Effect. D. Binding Obligation. Each of the Loan Documents has been duly executed and delivered by each of the Loan Parties party thereto and is the legally valid and binding obligation of each such Loan Party, enforceable against such Loan Party in accordance with its respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. E. Valid Issuance of the Subordinated Debt. Company has the power and authority to issue the Subordinated Debt. The Subordinated Debt, when issued and paid for, will be the legally valid and binding obligation of Company, enforceable against Company in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. The Subordinated Debt, when issued and sold in the manner contemplated by the Transaction Documents 82 on the Closing Date, will either (a) have been registered or qualified under applicable federal and state securities laws or (b) be exempt therefrom. 5.3 Financial Condition; Projections. -------------------------------- A. Financial Statements. ChipPAC has heretofore delivered to the Administrative Agent, the following financial statements and information: (i) pro forma consolidated balance sheet of ChipPAC and its Subsidiaries as at (a) March 31, 1999, together with the related pro forma consolidated statements of income for the twelve month period then ended, and (b) the three month period ended March 31, 1999, and the year ended December 31, 1998, in each case reflecting pro forma adjustments that give effect to the consummation of the Recapitalization Transactions; and (ii) (a) unaudited consolidated balance sheet of ChipPAC and its Subsidiaries as at March 31, 1999, together with the related consolidated statements of income for the three month period then ended, and (b) audited consolidated balance sheets for ChipPAC and its Subsidiaries as at December 31, 1996, December 31, 1997 and December 31, 1998, together with the related audited consolidated statements of operations and cash flows for each Fiscal Year then ended. All such statements in clause (ii) hereof were prepared in conformity with GAAP and fairly present, in all material respects, the financial position (on a consolidated basis) of the entities described in such financial statements as at the respective dates thereof and the results of operations and cash flows (on a consolidated basis) of the entities described therein for each of the periods then ended, subject, in the case of any such unaudited financial statements, to changes resulting from audit and normal year-end adjustments and the absence of footnote disclosure required in accordance with GAAP. On the Closing Date and after giving effect to the transactions contemplated by the Loan Documents and the Transaction Documents to occur on such date, neither ChipPAC nor any of its Subsidiaries has any Contingent Obligation, contingent liability or liability for taxes, long-term lease or unusual forward or long-term commitment that is not reflected in the financial statements referred to in the preceding clauses of this subsection (except for the one-time charges related to HEI's union change in control in Korea), or the notes thereto and which in any such case is material in relation to the business, results of operations or financial condition of ChipPAC and its Subsidiaries taken as a whole. B. Projections. On and as of the Closing Date, the projections of ChipPAC and its Subsidiaries for the period from the Closing Date through the seventh anniversary of the Closing Date previously delivered to the Lenders (the "Projections") are based on good faith estimates and assumptions made by the ----------- management of ChipPAC, and on the Closing Date are reasonable, it being recognized, however, that projections as to future events are not to be viewed as facts and that the actual results during the period or periods covered by the Projections may differ from the projected results and that the differences may be material. 83 5.4 No Material Adverse Change. -------------------------- 84 Since December 31, 1998, there shall not have occurred or become known to the Collateral Agent any event or events, adverse condition or change in or affecting ChipPAC that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. 5.5 Title to Properties; Liens; Real Property; Intellectual Property. ---------------------------------------------------------------- A. Title to Properties; Liens. After giving effect to the transactions contemplated by the Loan Documents and the Transaction Documents to occur on the Closing Date, ChipPAC and its Subsidiaries have good title to or a valid leasehold interest in or license in all of their respective material properties and assets reflected in the financial statements referred to in subsection 5.3 or in the most recent financial statements delivered pursuant to subsection 6.1, in each case subject to Permitted Encumbrances and Liens permitted under subsection 7.2, except for assets disposed of since the date of such financial statements or as otherwise permitted under subsection 7.7 and except for such defects that neither individually nor in the aggregate could reasonably be expected to have a Material Adverse Effect. Except as permitted by this Agreement, all such properties and assets are free and clear of Liens. B. Real Property. As of the Closing Date, Schedule 5.5B annexed hereto ------------- contains a true, accurate and complete list of all fee interests and leasehold properties of any Loan Party. Except as specified in Schedule 5.5B annexed ------------- hereto, each lease or sublease, as applicable, for each such Leasehold Property is in full force and effect and neither ChipPAC nor Company has knowledge of any material default by any party thereto that has occurred and is continuing thereunder (except where the consequences of any such default would not reasonably be expected to have a Material Adverse Effect), and each such agreement constitutes the legally valid and binding obligation of each applicable Loan Party, enforceable against such Loan Party in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles. C. Intellectual Property. ChipPAC and its Subsidiaries own or have the valid right to use all trademarks and service marks, tradenames, patents, copyrights, trade secrets and technology used in or necessary to conduct ChipPAC's and its Subsidiaries' business (collectively, the "Intellectual Property"), free and clear of any and all Liens other than --------------------- Permitted Encumbrances except where the failure to so own or have the right to use could not reasonably be expected to have a Material Adverse Effect. All currently existing registrations of Intellectual Property owned by ChipPAC or any of its Subsidiaries are in full force and effect and, to the best of ChipPAC's and its Subsidiaries' knowledge, are valid and enforceable. The conduct of ChipPAC's and its Subsidiaries' business as currently conducted, including, but not limited to, all processes or services, provided, offered or sold by ChipPAC and its Subsidiaries, does not infringe upon, violate, misappropriate or dilute any intellectual property of any third party which infringement, violation, misappropriation or dilution could reasonably be expected to have a Material Adverse Effect. To the best of ChipPAC's and its Subsidiaries' knowledge, no third party is infringing upon the Intellectual Property in any material respect. Except as set forth in Schedule 5.5C on the ------------- Closing Date, there is no pending or, to the best of ChipPAC's and its Subsidiaries' knowledge, threatened claim or litigation contesting ChipPAC's or any Subsidiary of ChipPAC's right to own or use any material Intellectual Property or the validity or enforceability thereof. 85 5.6 Litigation; Adverse Facts. ------------------------- There is no action, suit, proceeding, arbitration or governmental investigation (whether or not purportedly on behalf of ChipPAC or any of its Subsidiaries) at law or in equity or before or by any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, pending or, to the knowledge of ChipPAC or any of its Subsidiaries (after due inquiry), threatened against or affecting ChipPAC or any of ChipPAC's Subsidiaries or any property of ChipPAC or any of ChipPAC's Subsidiaries that, individually or in the aggregate, could reasonably be expected to result in, a Material Adverse Effect. Neither ChipPAC nor any of ChipPAC's Subsidiaries is (i) in violation of any applicable law that has had, or could reasonably be expected to result in, a Material Adverse Effect or (ii) subject to or in default with respect to any final judgment, writ, injunction, decree, rule or regulation of any court or any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, that has had, or could reasonably be expected to result in, a Material Adverse Effect. 5.7 Payment of Taxes. ---------------- Except to the extent permitted by subsection 6.3, all material tax returns and reports of ChipPAC and its Subsidiaries required to be filed by any of them have been timely filed and all material taxes, assessments, fees and other governmental charges upon ChipPAC and its Subsidiaries and upon their respective properties, assets, income, businesses and franchises which are due and payable have been paid when due and payable. Neither ChipPAC nor any of its Subsidiaries knows of any proposed material tax assessment against ChipPAC or any of its Subsidiaries other than those which are being actively contested by ChipPAC or such Subsidiary in good faith and by appropriate proceedings and for which reserves or other appropriate provisions, if any, as may be required in conformity with GAAP shall have been made or provided therefor. 5.8 Performance of Agreements. ------------------------- Neither ChipPAC nor any of its Subsidiaries is in default in the performance, observance or fulfillment of any of the material obligations, covenants or conditions contained in any of its Contractual Obligations, and no condition exists that, with the giving of notice or the lapse of time or both, would constitute such a material default, except, in each case, individually or in the aggregate, where the consequences, direct or indirect, of such default or defaults, if any, would not have a Material Adverse Effect. 5.9 Governmental Regulation. ----------------------- Neither ChipPAC nor any of its Subsidiaries is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act or the Investment Company Act of 1940 or under any other federal, state or local statute or regulation which may limit its ability to incur the Indebtedness to be incurred by it in connection with the Recapitalization Transactions or which may otherwise render all or any portion of the Obligations unenforceable. 86 5.10 Securities Activities. --------------------- Neither Company nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any Margin Stock. 5.11 Employee Benefit Plans. ---------------------- A. Company and each of its ERISA Affiliates are in material compliance with all applicable provisions and requirements of ERISA with respect to each Employee Benefit Plan, and have performed in all material respects all their obligations under each Employee Benefit Plan, except to the extent that any non- compliance with ERISA or any such failure to perform would not have a Material Adverse Effect on Company or any of its ERISA Affiliates. ChipPAC and each of its Subsidiaries are in material compliance with all requirements of law with respect to each Foreign Pension Plan, and have performed in all material respects all their obligations under each Foreign Pension Plan, except to the extent that any noncompliance with any requirements of law applicable to such Foreign Pension Plans would not have a Material Adverse Effect on ChipPAC or any of its Subsidiaries. B. No ERISA Event or Foreign Benefit Event has occurred which has resulted or to the knowledge of ChipPAC or its Subsidiaries is reasonably expected to occur which has or would reasonably be expected to have a Material Adverse Effect. C. Except to the extent required under Section 4980B of the Internal Revenue Code and/or Section 601 of ERISA, neither ChipPAC nor any of its Subsidiaries maintains or contributes to any employee welfare benefit plan (as defined in Section 3(1) of ERISA) that provides health or welfare benefits (through the purchase of insurance or otherwise) for any retired or former employees of ChipPAC or any of its Subsidiaries that would be reasonably expected to have a Material Adverse Effect. 5.12 Certain Fees. ------------ Except as set forth in Schedule 5.12, no broker's or finder's fee or ------------- commission will be payable with respect to this Agreement or any of the transactions contemplated hereby, and ChipPAC and Company hereby jointly and severally indemnify the Lenders against, and agree that they will hold the Lenders harmless from, any claim, demand or liability for any such broker's or finder's fees alleged to have been incurred in connection herewith or therewith and any expenses (including reasonable fees, expenses and disbursements of counsel) arising in connection with any such claim, demand or liability. 5.13 Environmental Matters. --------------------- (i) ChipPAC, each of its Subsidiaries (including without limitation, all operations and conditions at or in the Facilities presently owned and operated by ChipPAC or its Subsidiaries), and, to the knowledge of ChipPAC and its Subsidiaries, each of the tenants under any leases or occupancy agreements governing any portion of any Facilities presently owned or operated by ChipPAC or its Subsidiaries, are in compliance with all applicable Environmental Laws (which compliance includes, but is not limited to, the possession by ChipPAC, each of its Subsidiaries and each of such tenants of all permits and other 87 Governmental Authorizations required under applicable Environmental Laws, and compliance with the terms and conditions thereof), except where failure to be in compliance would not reasonably be expected to have a Material Adverse Effect. (ii) There is no Environmental Claim pending or, to ChipPAC's and its Subsidiaries' knowledge, threatened against ChipPAC or any of its Subsidiaries or, to the best knowledge of ChipPAC and its Subsidiaries, against any Person whose liability for any Environmental Claim ChipPAC or any of its Subsidiaries has retained or assumed contractually or by operation of law in each such case which, individually or in the aggregate, would have a Material Adverse Effect. (iii) There are no past or present (or to the best knowledge of ChipPAC and its Subsidiaries, future) actions, activities, circumstances, conditions, events or incidents, including, without limitation, the Release or presence of any Hazardous Material at, from, under or onto any Facility or any other location, which could reasonably be expected to form the basis of any Environmental Claim against ChipPAC or any of its Subsidiaries, or to the best knowledge of ChipPAC and its Subsidiaries, against any Person whose liability for any Environmental Claim ChipPAC or any of its Subsidiaries has retained or assumed contractually or by operation of law in each such case which would have a Material Adverse Effect. (iv) Except as would not reasonably be expected to have a Material Adverse Effect, none of the Facilities contain any: underground storage tanks; asbestos; polychlorinated biphenyls ("PCBs"); underground injection ---- wells; radioactive materials; or septic tanks or waste disposal pits in which process wastewater or any Hazardous Materials have been discharged or disposed. 5.14 Employee Matters. ---------------- There is no strike or work stoppage in existence or threatened involving ChipPAC or any of its Subsidiaries that could reasonably be expected to have a Material Adverse Effect. 5.15 Solvency. -------- ChipPAC and its Subsidiaries, taken as a whole, are, and, upon the incurrence of any Obligations by any Loan Party (including, without limitation, the making of the Loans, the delivery of the Guaranties and the Liens created by the Collateral Documents) on any date on which this representation is made, and after giving effect to the Recapitalization Transactions and the incurrence of Indebtedness in connection therewith, will be, Solvent. 5.16 Disclosure. ---------- The representations and warranties of ChipPAC and its Subsidiaries contained in the Loan Documents and the information contained in the other documents, certificates and written statements furnished to any of the Agents or the Lenders (including, without limitation, the Information Memorandum) by or on behalf of ChipPAC or any of its Subsidiaries for use in connection with the transactions contemplated by this Agreement or any other Loan Document, when taken together, do not contain any untrue statement of 88 a material fact or omit to state a material fact (known to ChipPAC or the applicable Subsidiary, in the case of any document not furnished by it) necessary in order to make the statements contained herein or therein not misleading in light of the circumstances in which the same were made. Any projections and pro forma financial information contained in such materials are based upon good faith estimates and assumptions believed by ChipPAC to be reasonable at the time made, it being recognized by the Agents and the Lenders that such projections as to future events are not to be viewed as facts and that actual results during the period or periods covered by any such projections may differ from the projected results and that the differences may be material. There is no fact known to ChipPAC or any of its Subsidiaries (other than matters of a general economic nature) that has had, or could reasonably be expected to result in, a Material Adverse Effect and that has not been disclosed herein or in such other documents, certificates and statements furnished to the Lenders for use in connection with the transactions contemplated hereby. 5.17 Year 2000 Matters. ----------------- ChipPAC reasonably believes that, as relating to ChipPAC and its Subsidiaries, taken as a whole, (x) the assessment and correction of any Year 2000 Problems, in each case, which, individually or in the aggregate, if not corrected could reasonably be expected to have a Material Adverse Effect, will be substantially completed on or prior to September 30, 1999, (y) a Material Adverse Effect will not occur as a result of any Year 2000 Problem, and (z) the aggregate costs and expenses incurred and reasonably expected to be incurred in connection with the assessment and correction of Year 2000 Problems, including, without limitation, a plan of correction ("Plan of Correction"), with respect to ------------------ any Year 2000 Problems, and the testing and monitoring of all Systems and the correction of Year 2000 Problems, could not reasonably be expected to have a Material Adverse Effect. SECTION 6. AFFIRMATIVE COVENANTS Each of ChipPAC and Company covenants and agrees that, so long as any of the Commitments hereunder shall remain in effect and until payment in full of all of the Loans and other Obligations (other than indemnification obligations not due and payable), and the cancellation or expiration of all Letters of Credit, unless the Requisite Lenders shall otherwise give prior written consent, ChipPAC and Company shall perform, and shall cause each of its Subsidiaries to perform, all covenants in this Section 6. 6.1 Financial Statements and Other Reports. -------------------------------------- ChipPAC will maintain, and cause each of its Subsidiaries to maintain, a system of accounting established and administered in accordance with sound business practices to permit preparation of financial statements in conformity with GAAP. ChipPAC will deliver to the Administrative Agent (and the Administrative Agent shall deliver to each Lender): (i) Monthly Financials: as soon as available and in any event within ------------------ thirty (30) days after the end of each month, commencing September 30, 1999 (but not, in any case, for any month in which a Fiscal Quarter ends), the 89 consolidated balance sheet of ChipPAC and its Subsidiaries as at the end of such month and the related consolidated statements of income, stockholders' equity and cash flows of ChipPAC for such month and for the period from the beginning of the then current Fiscal Year to the end of such month, all in reasonable detail and certified by a principal financial officer of ChipPAC that they fairly present, in all material respects, the financial condition of ChipPAC and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated, subject to changes resulting from audit and normal year-end adjustments and the absence of footnotes; (ii) Quarterly Financials: as soon as available and in any event -------------------- within forty-five (45) days after the end of each Fiscal Quarter commencing with the Fiscal Quarter ending September 30, 1999, (a) the consolidated balance sheets of ChipPAC and its Subsidiaries as at the end of such Fiscal Quarter and the related consolidated statements of income and consolidated statement of cash flows of ChipPAC and its Subsidiaries for such Fiscal Quarter and for the period from the beginning of the then current Fiscal Year to the end of such Fiscal Quarter, setting forth, in the case of statements of income only, in comparative form the corresponding figures for the corresponding periods of the previous Fiscal Year (except to the extent such comparative information is not available for the one-year period prior to the Closing Date) and the corresponding figures from the consolidated plan and financial forecast for the current Fiscal Year delivered pursuant to subsection 6.1(xiii), all prepared in accordance with the GAAP and in reasonable detail and certified by the chief executive officer or chief financial officer of ChipPAC that they fairly present, in all material respects, the financial condition of ChipPAC and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated, subject to changes resulting from audit and normal year-end adjustments and the absence of footnotes; and (b) a narrative report; (iii) Year-End Financials: as soon as available and in any event ------------------- within ninety (90) days after the end of each Fiscal Year, (a) the consolidated balance sheets of ChipPAC and its Subsidiaries as at the end of such Fiscal Year and the related consolidated statements of income and consolidated statement of cash flows of ChipPAC and its Subsidiaries for such Fiscal Year, setting forth, in the case of statements of income only, in comparative form the corresponding figures for the previous Fiscal Year (except to the extent such comparative information is not available for the one-year period prior to the Closing Date) and the corresponding figures from the consolidated plan and financial forecast delivered pursuant to subsection 6.1(xiii) for the Fiscal Year covered by such financial statements, all prepared in accordance with the GAAP and in reasonable detail and certified by the chief executive officer or chief financial officer of ChipPAC that they fairly present, in all material respects, the financial condition of ChipPAC and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated; (b) a narrative report describing the operations of ChipPAC and its Subsidiaries in the form prepared for presentation to senior management for such Fiscal Year; provided, however, that ChipPAC may -------- ------- deliver to Administrative Agent in lieu of such narrative report, copies of the report filed by ChipPAC with the Securities and Exchange Commission on Form 10-K in respect of such Fiscal Year; and (c) in the case of such consolidated financial statements, a report thereon of independent certified 90 public accountants of recognized national standing selected by ChipPAC and reasonably satisfactory to the Administrative Agent, which report shall be unqualified as to going concern and scope of audit, and shall state that such consolidated financial statements fairly present, in all material respects, the consolidated financial position of ChipPAC and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated in conformity with GAAP applied on a basis consistent with prior years (except as otherwise disclosed in such financial statements) and that the audit by such accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards; (iv) Officer's and Compliance Certificates: together with each ------------------------------------- delivery of financial statements of ChipPAC and its Subsidiaries pursuant to subdivisions (ii) and (iii) above, (a) an Officer's Certificate of ChipPAC stating that the signer has reviewed the terms of this Agreement and has made, or caused to be made under his or her supervision, a review in reasonable detail of the transactions and condition of ChipPAC and its Subsidiaries during the accounting period covered by such financial statements and that such review has not disclosed the existence during or at the end of such accounting period, and that the signer did not have knowledge of the existence as at the date of such Officer's Certificate of any condition or event that constitutes a Default or Event of Default, or, if any such condition or event existed or exists, specifying the nature and period of existence thereof and what action ChipPAC has taken, is taking and proposes to take with respect thereto; (b) a Compliance Certificate (which may be delivered after the applicable Fiscal Quarter or Fiscal Year end but prior to the date of delivery of such financial statements for purposes of determining the Applicable Leverage Ratio) demonstrating in reasonable detail compliance during and at the end of the applicable accounting periods with the restrictions contained in Section 7 (but only to the extent compliance with such restrictions is required to be tested at the end of the applicable accounting period); provided, that ChipPAC shall -------- deliver to Administrative Agent a Compliance Certificate and an Officer's Certificate upon and together with the delivery of a Pricing Certificate; and (c) if any portion of the proceeds of the Intel Preferred Stock or the HEI Unspent Amount was used during the preceding Fiscal Quarter, an Officer's Certificate of ChipPAC to such effect, showing the amount so used and the amount that may be used in subsequent periods; (v) [Intentionally Omitted]; (vi) Accountants' Certification: together with each delivery of -------------------------- consolidated financial statements of ChipPAC and its Subsidiaries pursuant to subdivision (iii) above, a written statement by the independent certified public accountants giving the report thereon (a) stating that their audit has included a reading of the terms of this Agreement and the other Loan Documents as they relate to the covenants set forth in subsection 7.6 and accounting matters, and (b) stating whether, in connection with their audit examination, any condition or event, insofar as such condition or event relates to the covenants set forth in subsection 7.6 or accounting matters, that constitutes a Default or Event of Default has come to their attention and, if such a condition or event has come to their attention, specifying the nature and period of existence thereof; provided that such accountants shall not be liable by reason of any failure -------- to obtain knowledge 91 of any such Default or Event of Default that would not be disclosed in the course of their audit examination; (vii) Accountants' Reports: promptly upon receipt thereof (unless -------------------- restricted by applicable professional standards), copies of all reports submitted to ChipPAC by national independent certified public accountants in connection with each annual, interim or special audit of the financial statements of ChipPAC and its Subsidiaries made by such accountants, including, without limitation, any comment letter submitted by such accountants to management in connection with their annual audit; (viii) SEC Filings and Press Releases: promptly upon their becoming ------------------------------ available, copies of (a) all financial statements, reports, notices and proxy statements sent or made available generally by ChipPAC to its security holders (but only in their capacity as security holders), (b) all regular and periodic reports and all registration statements (other than on Form S-8 or a similar form) and prospectuses, if any, filed by ChipPAC or any of its Subsidiaries with any securities exchange or with the Securities and Exchange Commission or any governmental or private regulatory authority, and (c) all press releases and other statements made available generally by ChipPAC or any of its Subsidiaries to the public concerning material developments in the business of ChipPAC or any of its Subsidiaries; (ix) Events of Default, etc.: promptly upon any Responsible Officer ----------------------- of ChipPAC or Company obtaining knowledge (a) of any condition or event that constitutes a Default or an Event of Default, or becoming aware that any Lender has given any notice (other than to the Administrative Agent) or taken any other action with respect to a claimed Default or Event of Default, (b) that any Person has given any notice to ChipPAC or any of its Subsidiaries or taken any other action with respect to a claimed default or event or condition of the type referred to in subsection 8.2, or (c) of the occurrence of any event or change that has caused or evidences or could be reasonably expected to cause, either in any case or in the aggregate, a Material Adverse Effect, an Officer's Certificate specifying the nature and period of existence of such condition, event or change, or specifying the notice given or action taken by any such Person and the nature of such claimed Default, Event of Default, default, event or condition, and what action ChipPAC (or applicable Subsidiary) has taken, is taking and proposes to take with respect thereto; (x) Litigation or Other Proceedings: promptly upon any Responsible ------------------------------- Officer of ChipPAC or Company obtaining knowledge of (x) the institution of, or nonfrivolous threat of, any material action, suit, proceeding (whether administrative, judicial or otherwise), Environmental Claim, governmental investigation or arbitration against or affecting ChipPAC or any of its Subsidiaries or any property of ChipPAC or any of its Subsidiaries (collectively, "Proceedings") not previously disclosed in ----------- writing by Company to the Administrative Agent or (y) any material development in any Proceeding that, in any case: (a) could reasonably be expected to have a Material Adverse Effect; or 92 (b) seeks to enjoin or otherwise prevent the consummation of, or to recover any damages or obtain relief as a result of, the transactions contemplated hereby; written notice thereof together with such other information as may be reasonably available to ChipPAC to enable the Lenders and their counsel to evaluate such matters; (xi) ERISA Events and Foreign Benefit Events: promptly upon --------------------------------------- ChipPAC or Company becoming aware of the occurrence of any ERISA Event or Foreign Benefit Event that would reasonably be expected to result in a material liability of ChipPAC or any of its Subsidiaries, a written notice specifying the nature thereof, what action ChipPAC or any of its Subsidiaries has taken, is taking or proposes to take with respect thereto and, when known, any action taken or threatened by the Internal Revenue Service, the Department of Labor, the PBGC or any comparable Governmental Authority with respect thereto; (xii) ERISA and Foreign Benefit Notices: with reasonable --------------------------------- promptness, copies of (a) all written notices received by ChipPAC or any of its Subsidiaries from a Multiemployer Plan or Foreign Benefit Plan sponsor concerning an ERISA Event or a Foreign Benefit Event which would reasonably be expected to result in a material liability; and (b) such other documents or governmental reports or filings relating to any Multiemployer Plan or Foreign Benefit Plan as the Administrative Agent shall reasonably request; (xiii) Financial Plans: as soon as practicable and in any event no --------------- later than 45 days after the beginning of each Fiscal Year, a consolidated plan and financial forecast for the next succeeding Fiscal Year, including without limitation (a) a forecasted consolidated balance sheet and forecasted consolidated statements of income and consolidated statement of cash flows of ChipPAC and its Subsidiaries for such Fiscal Year, together with a pro forma Compliance Certificate for such Fiscal Year and an --- ----- explanation of the assumptions on which such forecasts are based, and (b) such other information and projections as the Administrative Agent may reasonably request: (xiv) Insurance: as soon as practicable and in any event by the --------- last day of each Fiscal Year, a report in form and substance reasonably satisfactory to the Administrative Agent outlining all material changes made to insurance coverage maintained as of the date of such report by ChipPAC and its Subsidiaries; and (xv) Other Information: with reasonable promptness, such other ----------------- information and data with respect to ChipPAC or any of ChipPAC's Subsidiaries as from time to time may be reasonably requested by the Administrative Agent or the Requisite Lenders. 6.2 Corporate Existence ------------------- Except as otherwise permitted under subsection 7.7, ChipPAC will, and will cause each of its Subsidiaries to, at all times preserve and keep in full force and effect its corporate existence and all rights and franchises material to the business of ChipPAC and its Subsidiaries (on a consolidated basis) or the Loan Parties, taken as a whole; provided, -------- 93 however that neither ChipPAC nor any of its Subsidiaries shall be required to - ------- preserve any such right or franchise if the Board of Directors of ChipPAC or such Subsidiary shall determine that the preservation thereof is no longer desirable in the conduct of business of such entity. 6.3 Payment of Taxes and Claims; Tax Consolidation. ---------------------------------------------- A. Company will, and will cause each of its Subsidiaries to, pay all material taxes, assessments and other governmental charges imposed upon it or any of its properties or assets or in respect of any of its income, businesses or franchises before any material penalty accrues thereon, and all claims (including, without limitation, claims for labor, services, materials and supplies) for sums that have become due and payable which, if unpaid, might become a Lien (other than a Permitted Encumbrance) upon any of its properties or assets, prior to the time when any penalty or fine shall be incurred with respect thereto; provided that no such tax, charge or claim need be paid if -------- being contested in good faith by appropriate proceedings promptly instituted and diligently conducted and if such reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made therefor. B. ChipPAC will not, nor will it permit any of its Subsidiaries to, file or consent to the filing of any consolidated income tax return with any Person (other than ChipPAC and Subsidiaries of ChipPAC). 6.4 Maintenance of Properties; Insurance. ------------------------------------ ChipPAC will, and will cause each of its Subsidiaries to, maintain or cause to be maintained in good repair, working order and condition, ordinary wear and tear and damage by casualty or condemnation excepted, all material properties used or useful in the business of ChipPAC and its Subsidiaries and from time to time will make or cause to be made all appropriate repairs, renewals and replacements thereof. ChipPAC will maintain or cause to be maintained, with financially sound and reputable insurers, insurance with respect to its properties and business and the properties and businesses of its Subsidiaries against loss or damage of the kinds and with respect to liability customarily carried or maintained under similar circumstances by corporations of established reputation engaged in similar businesses. Each such policy of casualty insurance covering damage to or loss of property shall name the Collateral Agent for the benefit of the Lenders as additional insured and as the loss payee thereunder for all losses, subject to application of proceeds as required by subsection 2.4B(iii)(d), each such policy of liability insurance coverage shall name the Collateral Agent for the benefit of the Lenders as additional insured, and all such policies of insurance shall provide for at least thirty (30) days' prior written notice to the Collateral Agent of any modification or cancellation of such policy. 6.5 Inspection; Lender Meeting. -------------------------- ChipPAC shall, and shall cause each of its Subsidiaries to, permit the Administrative Agent and any authorized representatives designated by any Lender to visit and inspect any of the properties of ChipPAC or any of ChipPAC's Subsidiaries, including its and their financial and accounting records, and to make copies and take extracts therefrom, and to discuss its and their affairs, finances and accounts with its and their officers and independent public accountants, provided ChipPAC may be present at 94 these discussions upon reasonable advance notice and at such reasonable times during normal business hours and as often as may be reasonably requested; provided, further, that each Lender shall coordinate with the Administrative - -------- ------- Agent the frequency and timing of any such visits, inspections and discussions so as to reasonably minimize the burden imposed on ChipPAC and its Subsidiaries; provided still further that, unless an Event of Default has occurred, no single - -------- ----- ------- Lender shall be entitled to more than one inspection during any twelve month period. Without in any way limiting the foregoing, ChipPAC will, upon the reasonable request of the Administrative Agent, participate in a meeting of the Administrative Agent and the Lenders once during each Fiscal Year to be held at ChipPAC's corporate offices (or such other location as may be agreed to by ChipPAC and the Administrative Agent) at such time as may be agreed to by ChipPAC and the Administrative Agent. 6.6 Compliance with Laws, etc. -------------------------- ChipPAC shall, and shall cause each of its Subsidiaries to, comply with the requirements of all applicable laws, rules, regulations and orders of any governmental authority, noncompliance with which, individually or in the aggregate with other non-compliances, could reasonably be expected to cause a Material Adverse Effect. 6.7 Environmental Disclosure and Inspection. --------------------------------------- A. ChipPAC agrees that the Administrative Agent may retain, at ChipPAC's expense, an independent professional consultant reasonably acceptable to ChipPAC to review any report relating to Hazardous Materials prepared by or for ChipPAC and to conduct its own investigation (reasonable in scope under the circumstances) of any Facility currently owned, leased, operated or used by ChipPAC or any of its Subsidiaries, if (x) a Default or an Event of Default related to environmental matters shall have occurred and be continuing, or (y) the Administrative Agent reasonably believes that a violation of an Environmental Law on or around such Facility has occurred or is likely to occur, which could, in either such case, reasonably be expected to result in a Material Adverse Effect. In the event that the conditions specified in (x) or (y) above exist, ChipPAC shall use its commercially reasonable efforts to obtain for the Administrative Agent and its agents, employees, consultants and contractors the right, upon reasonable notice to ChipPAC, to enter into or on to the Facilities currently owned, leased, operated or used by ChipPAC or any of its Subsidiaries to perform such tests on such property as are reasonably necessary to conduct a review and/or investigation of the matters giving rise to the request. Any such investigation of any Facility shall be conducted, unless otherwise agreed to by ChipPAC and the Administrative Agent, during normal business hours, and shall be conducted so as not to interfere with the ongoing operations at any such Facility or to cause any damage or loss to any property at such Facility. ChipPAC and the Administrative Agent hereby acknowledge and agree that any report of any investigation conducted at the request of the Administrative Agent pursuant to this subsection 6.7A will be obtained and shall be used by the Administrative Agent and the Lenders for the purposes of the Lenders' internal credit decisions, to monitor and police the Loans and to protect the Lenders' security interests, if any, created by the Loan Documents. The Administrative Agent agrees, upon request by ChipPAC, to deliver a copy of any such report to Company with the understanding that ChipPAC acknowledges and agrees that (i) consistent with the terms of subsection 10.3 hereof, it will indemnify and hold harmless the Administrative Agent and each Lender from any costs, losses or liabilities relating to ChipPAC's use of or reliance on such report, (ii) neither Agent nor 95 any Lender makes any representation or warranty with respect to such report, and (iii) by delivering such report to ChipPAC, neither the Administrative Agent nor any Lender is requiring or recommending the implementation of any suggestions or recommendations contained in such report. B. ChipPAC shall promptly notify the Administrative Agent of (i) any proposed acquisition of stock, assets, or property by ChipPAC or any of its Subsidiaries that could reasonably be expected to expose ChipPAC or any of its Subsidiaries to, or result in, Environmental Liability that could have a Material Adverse Effect and (ii) any proposed action to be taken by ChipPAC or any of its Subsidiaries to modify current operations in a manner that could reasonably be expected to subject ChipPAC or any of its Subsidiaries to material additional obligations under Environmental Laws where such obligations would reasonably be expected to have a Material Adverse Effect. C. ChipPAC shall, at its own expense, provide copies of such documents or information as the Administrative Agent may reasonably request in relation to any matters disclosed pursuant to this subsection 6.7. 6.8 ChipPAC's Remedial Action Regarding Hazardous Materials. ------------------------------------------------------- ChipPAC shall promptly take, and shall cause each of its Subsidiaries promptly to take, any and all necessary remedial action in connection with the presence, handling, storage, use, disposal, transportation or Release or threatened Release of any Hazardous Materials on, under or affecting any Facility in order to comply with all applicable Environmental Laws and Governmental Authorizations unless the failure to so comply could not reasonably be expected to have a Material Adverse Effect. In the event ChipPAC or any of its Subsidiaries undertakes any Cleanup action with respect to the presence, Release or threatened Release of any Hazardous Materials on or affecting any Facility, Company or such Subsidiary shall conduct and complete such Cleanup action in compliance with all applicable Environmental Laws where failure to do so would reasonably be expected to have a Material Adverse Effect. 6.9 Execution of Guaranty and Collateral Documents by Future Subsidiaries. --------------------------------------------------------------------- In the event that any Person becomes a Subsidiary of ChipPAC (including any Subsidiary created in accordance with subsection 7.7(vi)), ChipPAC will promptly notify the Administrative Agent of that fact and cause such Subsidiary to execute and deliver to the Administrative Agent and the Collateral Agent a counterpart of the Guaranty and such of the Pledge Agreements and the Security Agreements (except to the extent that any such guarantee, pledge or security arrangements are not permissible under the applicable law of such Subsidiary's jurisdiction of organization or incorporation) as the Collateral Agent may request, and to take all such further action and execute all such further documents and instruments as may be required to grant and perfect in favor of the Collateral Agent, for the benefit of the Lenders, a First Priority Lien in all (subject to exceptions for assets in which a security interest cannot be granted) of the real, mixed and personal property assets of such Subsidiary. In addition, ChipPAC shall pledge (if it is the direct owner of Capital Stock of such Subsidiary) or shall cause each of its applicable Subsidiaries to pledge (if any of such other Subsidiaries is the direct owner of Capital Stock of such Subsidiary, each such owner, whether Company or any of its other Subsidiaries, the "Pledging Parent") all of the Capital Stock of such Subsidiary to the --------------- Collateral Agent pursuant to the applicable Collateral Documents and to take all such further action and 96 execute all such further documents and instruments as may be reasonably required to grant and perfect in favor of the Collateral Agent, for the benefit of the Lenders, a First Priority security interest in such Capital Stock. ChipPAC shall deliver to the Administrative Agent, together with such Loan Documents, in the case of each such Subsidiary that is required to be a party to any Loan Document: (i) (a) certified copies of such Subsidiary's Organizational Certificate together, if applicable, with a good standing certificate from the jurisdiction of its incorporation, formation or organization, as applicable, each to be dated a recent date prior to their delivery to the Administrative Agent to the extent such concept is relevant in such jurisdiction, (b) a copy of such Subsidiary's Organizational Documents, certified by its secretary or an assistant corporate secretary (or Person holding an equivalent title or having equivalent duties and responsibilities) as of a recent date prior to their delivery to the Administrative Agent, (c) a certificate executed by the secretary or an assistant secretary of such Subsidiary as to (x) the incumbency and signatures of the officers of such Subsidiary executing such Guaranty, the Collateral Documents and the other Loan Documents to which such Subsidiary is a party and (y) the fact that the attached Organizational Authorizations of such Subsidiary authorizing the execution, delivery and performance of such Guaranty, such Collateral Documents and such other Loan Documents are in full force and effect and have not been modified or rescinded, and (ii) to the extent reasonably requested by the Administrative Agent, an opinion of counsel to such Subsidiary, that is reasonably satisfactory to the Administrative Agent and its counsel, as to (a) the due organization and good standing of such Subsidiary to the extent such concept in relevant is such jurisdiction, (b) the due authorization, execution and delivery by such Subsidiary of such Guaranty, the Collateral Documents and any other Loan Documents to which it is a party and (c) the enforceability of such Guaranty and such Collateral Documents against such Subsidiary, (d) the validity and perfection of the security interests granted by such Subsidiary (and by the Pledging Parent of such Subsidiary in respect of the Capital Stock of such Subsidiary) in favor of the Collateral Agent pursuant to the Collateral Documents, and (e) such other matters as any Agent may reasonably request, all of the foregoing to be reasonably satisfactory in form and substance to the Administrative Agent and its counsel. 6.10 Interest Rate Protection. ------------------------ Within 90 days following the Closing Date, ChipPAC (or its Subsidiaries, as applicable) shall maintain in effect one or more Interest Rate Agreements in form and substance reasonably satisfactory to the Administrative Agent and the Borrower to the extent necessary so that, for a period of at least two years following the Closing Date, interest on the portion of the aggregate outstanding principal amount of funded Indebtedness of ChipPAC and its Subsidiaries equal to at least 50% of the aggregate outstanding principal amount of such Indebtedness is covered by such Interest Rate Agreements. 6.11 Further Assurances. ------------------ At any time or from time to time upon the reasonable request of the Administrative Agent or the Collateral Agent, ChipPAC will, at its expense, promptly execute, acknowledge and deliver such further documents and do such other acts and things as the Administrative Agent or the Collateral Agent may reasonably request in order to effect fully the purposes of the Loan Documents and to provide for payment of the Obligations in accordance with the terms of this Agreement and the other Loan 97 Documents. In furtherance and not in limitation of the foregoing, ChipPAC shall take, and cause each of its Subsidiaries to take, such actions as the Administrative Agent or the Collateral Agent may reasonably request from time to time (including the execution and delivery (where permitted by applicable law) of guaranties, security agreements and pledge agreements, mortgages and deeds of trust with respect to real property with a fair market value of at least $5,000,000, landlord's consents and estoppels for leased properties with an annual rent of at least $500,000, or stock powers, financing statements and other documents, the filing or recording of any of the foregoing, title insurance with respect to any of the foregoing that relates to an interest in real property, and the delivery of stock certificates and other collateral with respect to which perfection is obtained by possession) to ensure that the Obligations are guarantied by the Guarantors and are secured, directly or indirectly, by substantially all of the assets of ChipPAC and its Subsidiaries and all of the outstanding Capital Stock of the Subsidiaries of ChipPAC. In addition to the foregoing, ChipPAC will use commercially reasonable efforts to obtain, as promptly as practicable after the Closing Date, all necessary approvals for the Chinese Agreements and shall cause the Liens to be created thereunder to be granted and to become effective. Promptly upon obtaining such approvals and causing all such Liens and security interests to be effective, ChipPAC shall provide written notice thereof to the Administrative Agent, together with certified copies of such approvals (if such approvals are issued in writing) and the Chinese Agreements (the date of such notice being referred to herein as the "Chinese Security Effective Date"). ------------------------------- 6.12 Year 2000 Matters. ----------------- ChipPAC shall (i) promptly advise the Administrative Agent of any material (A) disruption or delay in the implementation of the Plan of Correction, as the same may be updated from time to time; and (ii) periodically report to the Administrative Agent, in such form as the Administrative Agent may reasonably request but in no event no more frequently than once per calendar quarter, on (a) the progress of ChipPAC and its Subsidiaries in implementing the Plan of Correction, (b) the budget for, and actual financial performance with respect to, implementation of the Plan of Correction and (c) the assessment of ChipPAC, any senior manager of ChipPAC or any Subsidiary of ChipPAC, or any consultant of the adequacy of the Plan of Correction or the related implementation budget. SECTION 7. NEGATIVE COVENANTS Each of ChipPAC and Company covenants and agrees that, so long as any of the Commitments hereunder shall remain in effect and until payment in full of all of the Loans and other Obligations (other than indemnification obligations not due and payable) and the cancellation or expiration of all Letters of Credit, unless the Requisite Lenders shall otherwise give prior written consent, each of ChipPAC and Company shall perform, and shall cause each of its Subsidiaries to perform, all covenants in this Section 7. 7.1 Indebtedness. ------------ ChipPAC shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or guaranty, or otherwise become or remain directly or indirectly liable with respect to, any Indebtedness except: 98 (i) Each of the Loan Parties may become and remain liable with respect to its respective Obligations; (ii) Company may become and remain liable with respect to Indebtedness evidenced by, and with respect to guaranties of, the Subordinated Debt; (iii) ChipPAC and the Operating Subsidiaries may remain liable with respect to Indebtedness described in Schedule 7.1 annexed hereto, and any ------------ refinancing, modification replacement or renewal thereof that does not increase the principal amount thereof; (iv) ChipPAC and the Operating Subsidiaries may become and remain liable with respect to Contingent Obligations permitted by subsection 7.4 and, upon any matured obligations actually arising pursuant thereto, the Indebtedness corresponding to the Contingent Obligations so extinguished; (v) ChipPAC and the Operating Subsidiaries may become and remain liable with respect to (i) Indebtedness under Capital Leases, (ii) Indebtedness to customers and suppliers that enables the Operating Subsidiaries to acquire assets from, or to be used to provide services to, such customers and suppliers, and (iii) other Indebtedness secured by Liens permitted under subsection 7.2A(iii); provided, that the aggregate amount -------- of all Indebtedness outstanding under this clause (v) at any time shall not exceed $20,000,000; (vi) ChipPAC may become and remain liable with respect to Indebtedness owed to (on an intercompany basis) any of its Subsidiaries, and any Subsidiary may become and remain liable with respect to Indebtedness to (on an intercompany basis) ChipPAC or any other Subsidiary; provided that, in each case, (a) all intercompany Indebtedness shall be -------- evidenced by promissory notes or loan agreements which shall have been pledged to the Collateral Agent pursuant to the Collateral Documents, (b) all intercompany Indebtedness owed by ChipPAC or Company to any of its respective Subsidiaries shall be unsecured (except for the Recapitalization Loans) and subordinated in right of payment to the payment in full of the Obligations pursuant to the terms of the applicable promissory notes or an intercompany subordination agreement that in any such case are reasonably satisfactory to the Administrative Agent, and (c) any payment by any Subsidiary of ChipPAC under any Guaranty shall result in a pro tanto --- ----- reduction of the amount of any intercompany Indebtedness owed by such Subsidiary to ChipPAC or to any of its Subsidiaries for whose benefit such payment is made; (vii) ChipPAC and its Subsidiaries may become and remain liable with respect to Permitted Seller Paper with respect to any Permitted Acquisition; provided that any cash payments individually or in the -------- aggregate of principal, interest or other amounts with respect thereto required to be made prior to the payment in full of the Obligations shall not exceed $20,000,000; (viii) The Operating Subsidiaries may become and remain liable with respect to Indebtedness under the Local Lines of Credit; 99 (ix) Any Subsidiary of to a ChipPAC acquired pursuant to a Permitted Acquisition may become and remain liable with respect to Indebtedness existing at the time of consummation of the Permitted Acquisition; provided -------- that (a) such Indebtedness was not incurred in connection with or in anticipation of such Permitted Acquisition, (b) such Indebtedness does not constitute debt for borrowed money (other than debt for borrowed money incurred in connection with industrial revenue or industrial development bond or similar financings), it being understood and agreed that Capital Lease obligations shall not constitute debt for borrowed money for purposes of this clause (ix), and (c) at the time of such Permitted Acquisition such Indebtedness does not exceed 50% of the total purchase price paid (including, for purposes of determining the total purchase price paid, Indebtedness assumed in connection with such Permitted Acquisition) with respect to the assets acquired in the related Permitted Acquisition; (x) ChipPAC and its Subsidiaries may become and remain liable with respect to Indebtedness consisting of the financing in the ordinary course of business of insurance premiums with respect to coverage required to be maintained under subsection 6.4; (xi) Subsidiaries of ChipPAC may become and remain liable with respect to Indebtedness consisting of a converted equity Investment by ChipPAC or another Subsidiary of ChipPAC in such Subsidiaries; provided -------- that the underlying equity Investment was permitted hereunder at the time of such conversion; (xii) ChipPAC and the Operating Subsidiaries may become and remain liable with respect to other Indebtedness in an aggregate principal amount not to exceed at any time outstanding $20,000,000; and (xiii) ChipPAC and its Subsidiaries may become and remain liable with respect to Indebtedness in respect of performance bonds, completion guarantees and surety and appeal bonds entered into by ChipPAC and its Subsidiaries in the ordinary course of business. 7.2 Liens and Related Matters. ------------------------- A. Prohibition on Liens. ChipPAC shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or permit to exist any Lien on or with respect to any property or asset of any kind (including any document or instrument in respect of goods or accounts receivable) of ChipPAC or any of its Subsidiaries, whether now owned or hereafter acquired, or any income or profits therefrom, or file or permit the filing of, or permit to remain in effect, any financing statement, or other similar notice of any Lien with respect to any such property, asset, income or profits under the Uniform Commercial Code of any state or under any similar recording or notice statute, domestic or foreign, except: (i) Permitted Encumbrances; (ii) Liens described in Schedule 7.2A annexed hereto; ------------- 100 (iii) Purchase money security interests (including mortgages, conditional sales, Capital Leases and any other title retention, deferred purchase devices or consignments) in real or tangible personal property of ChipPAC or any Operating Subsidiary acquired after the Closing Date and existing or created at the time of acquisition thereof or within one hundred eighty (180) days thereafter, and the renewal, extension and refunding of any such security interest in an amount not exceeding the amount thereof remaining unpaid immediately prior to such renewal, extension or refunding; provided, that the Indebtedness secured by such -------- Lien is permitted by subsection 7.1(v); provided, further, that such Liens -------- ------- do not at any time (including, without limitation, in connection with any renewal, extension and refunding) cover or encumber any assets or property other than the assets or property financed by such Indebtedness; (iv) Liens on the working capital assets and equipment of ChipPAC Korea, ChipPAC Shanghai I or ChipPAC Shanghai II that secure only the Indebtedness permitted pursuant to Section 7.1(viii); (v) Liens on assets of the Operating Subsidiaries not otherwise permitted under this subsection 7.2A, to the extent attaching to properties and assets with an aggregate fair market value not in excess of, and securing liabilities not in excess of, an aggregate amount not to exceed $7,500,000 at any time outstanding; (vi) Liens securing any Indebtedness permitted pursuant to Section 7.1(ix); provided that such Liens only encumber the assets acquired in the -------- related Permitted Acquisition; and provided further that such Liens were -------- ------- not granted in contemplation of the related Permitted Acquisition; and (vii) Liens in favor of the Collateral Agent granted pursuant to the Collateral Documents or granted in favor of any Agent or Lender pursuant to subsection 10.4 hereof. B. No Further Negative Pledges. Except with respect to specific property encumbered by a Lien permitted under this Agreement or to secure payment of particular Indebtedness or to be sold pursuant to an executed agreement with respect to an Asset Sale or the sale of all or substantially all of the stock (or assets) of a Subsidiary permitted under this Agreement, neither ChipPAC nor any of its Subsidiaries shall enter into any agreement (other than any documents of a type described in subdivisions (c) through (f) of subsection 7.2C, the Loan Documents and the Subordinated Debt Documents) prohibiting the creation or assumption of any Lien upon any of its properties or assets, whether now owned or hereafter acquired. C. No Restrictions on Subsidiary Distributions to ChipPAC or Other Subsidiaries. Except as otherwise provided herein, ChipPAC will not, and will not permit any of its Subsidiaries to, create or otherwise cause or suffer to exist or become effective any consensual encumbrance, limitation or restriction of any kind on the ability of any such Subsidiary to (i) pay dividends or make any other distributions on any of such Subsidiary's Capital Stock owned by ChipPAC or any other Subsidiary of ChipPAC, (ii) repay or prepay any Indebtedness owed by such Subsidiary to ChipPAC or any other Subsidiary of ChipPAC, (iii) make loans or advances to ChipPAC or any other Subsidiary of ChipPAC, or (iv) transfer any of its property or assets to ChipPAC or any other 101 Subsidiary of ChipPAC, except for such encumbrances or restrictions existing under or by reason of (a) applicable law, (b) this Agreement and the other Loan Documents, (c) customary provisions restricting subletting or assignment of any lease governing a leasehold interest of ChipPAC or any of its Subsidiaries, (d) customary provisions restricting assignment of any licensing agreement entered into by ChipPAC or any of its Subsidiaries in the ordinary course of business, (e) customary provisions restricting the transfer of assets subject to Liens permitted under subsection 7.2A(iii) or (iv), (f) joint ventures entered into pursuant to subsection 7.3, and (g) the Subordinated Debt Documents. 7.3 Investments; Joint Ventures. --------------------------- ChipPAC shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, make or own any Investment except: (i) ChipPAC and its Subsidiaries may (x) continue to own the Investments owned by them as of the Closing Date in any Subsidiaries of ChipPAC, and (y) make and own additional Investments in any Loan Party; (ii) ChipPAC and its Subsidiaries may make and own intercompany loans to the extent permitted by subsection 7.1(vi); (iii) ChipPAC and its Subsidiaries may make and own Investments in Cash Equivalents; (iv) ChipPAC and its Subsidiaries may make and own Consolidated Capital Expenditures and Micro BGA Capital Expenditures permitted by subsection 7.6D; (v) ChipPAC and its Subsidiaries may make and own Investments consisting of notes received in connection with any Asset Sale permitted under subsection 7.7(iv); (vi) ChipPAC and its Subsidiaries may make loans to officers, employees, directors, executives or consultants of ChipPAC and its Subsidiaries (a) in the ordinary course of business for travel, moving, entertainment or similar expenses, or (b) otherwise in an aggregate amount not to exceed $2,000,000 outstanding at any time; (vii) ChipPAC and its Subsidiaries may make and own Permitted Acquisitions; (viii) ChipPAC and its Subsidiaries may continue to own the Investments described in Schedule 7.3 annexed hereto; ------------ (ix) ChipPAC and its Subsidiaries may make loans and advances to employees, officers, executives or consultants to Company and its Subsidiaries in the ordinary course of business of ChipPAC and its Subsidiaries as presently conducted for the purpose of purchasing capital stock of ChipPAC so long as the proceeds of such loans or advances are used in their entirety to purchase such capital stock; 102 (x) ChipPAC and its Subsidiaries may make and own Investments in Subsidiaries pursuant to subsection 7.7(vi) or Permitted Acquisitions under subsection 7.7(v) and other Investments owned by entities acquired pursuant to such Permitted Acquisitions to the extent owned as at the time of consummation of such Permitted Acquisitions; (xi) ChipPAC and its Subsidiaries may make and own Investments in wholly owned Subsidiaries of ChipPAC consisting of intercompany Indebtedness (other than the Recapitalization Notes) of such Subsidiaries converted to equity Investments; provided that (a) the underlying -------- intercompany Indebtedness was permitted hereunder at the time of such conversion and (b) up to $7,000,000 aggregate principal amount of the ChipPAC Shanghai I Loan may be converted to equity at the time and to the extent required by applicable law so long as (x) Company gives prior notice thereof to the Administrative Agent, (y) at the time of such conversion no Default or Event of Default shall have occurred and be continuing and (z) Company complies with the applicable provisions of Section 6.11 with respect to the resulting equity interest; (xii) ChipPAC and its Subsidiaries may make and own Investments not otherwise permitted under this subsection 7.3 in an aggregate amount not in excess of $20,000,000, plus the Excess Proceeds Amount; ---- (xiii) ChipPAC and its Subsidiaries may consummate the Recapitalization Transactions; and (xiv) ChipPAC and its Subsidiaries may enter into Interest Rate Agreements entered into pursuant to this Agreement or otherwise in the ordinary course of its business, and not for speculative purposes. 7.4 Contingent Obligations. ---------------------- ChipPAC shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create or become or remain liable with respect to any Contingent Obligation, except: (i) ChipPAC and its Subsidiaries may become and remain liable with respect to Contingent Obligations in respect of Letters of Credit; the Subsidiary Guarantors may become and remain liable with respect to Contingent Obligations arising under the Guaranties; and ChipPAC Korea, ChipPAC Shanghai I and ChipPAC Shanghai II may become and remain liable with respect to Asian Letters of Credit; (ii) ChipPAC and the Subsidiary Guarantors may become and remain liable with respect to Contingent Obligations arising under their guaranties of the Subordinated Debt as are required under the Subordinated Debt Documents; (iii) ChipPAC and the Operating Subsidiaries may become and remain liable with respect to Contingent Obligations in respect of customary indemnification and purchase price adjustment obligations of any such Person incurred in connection with Asset Sales or other sales of assets; 103 (iv) ChipPAC and the Operating Subsidiaries may become and remain liable with respect to Contingent Obligations under guarantees in the ordinary course of business of the obligations of suppliers, landlords, customers, franchisees, workers' compensation providers and licensees of ChipPAC and its Subsidiaries; (v) ChipPAC and the Operating Subsidiaries, as applicable, may remain liable with respect to Contingent Obligations described in Schedule 7.4 annexed hereto and any modifications, extensions or renewal of ------------ such Contingent Obligations; (vi) ChipPAC and the Operating Subsidiaries may become and remain liable with respect to other Contingent Obligations; provided, that the -------- maximum aggregate liability, contingent or otherwise, of ChipPAC and its Subsidiaries in respect of all such Contingent Obligations shall at no time exceed $7,500,000; (vii) ChipPAC and the Operating Subsidiaries may become and remain liable with respect to Hedge Agreements entered into pursuant to this Agreement or otherwise in the ordinary course of business, and not for speculative purposes; (viii) ChipPAC and the Operating Subsidiaries may become and remain liable with respect to guaranties of Indebtedness assumed in connection with a Permitted Acquisition pursuant to subsection 7.1(ix); provided, -------- that, such guaranties were existing at the time of consummation of the Permitted Acquisition and not incurred in connection with, or in an anticipation of, such Permitted Acquisition; (ix) ChipPAC and the Operating Subsidiaries may become and remain liable with respect to Contingent Obligations arising out of the indemnity obligations under the Recapitalization Agreement; and (x) ChipPAC and the Operating Subsidiaries may become and remain liable with respect to Contingent Obligations arising out of any guaranties of Indebtedness of any Subsidiary permitted under this Agreement; provided -------- that if such indebtedness is subordinated to the Obligations, any such guaranties shall be subordinated to the same extent. 7.5 Restricted Payments. ------------------- ChipPAC shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, declare, order, pay, make or set apart any sum for any Restricted Payment; provided that ChipPAC and its Subsidiaries may make the -------- following the Restricted Payments: (i) any Subsidiary of ChipPAC or its Subsidiaries may pay dividends to ChipPAC or a Subsidiary of ChipPAC; (ii) Company may make regularly scheduled payments (but, except as contemplated by subsection 2.4B(iii)(c) with respect to the proceeds of a Qualified Public Equity Offering, not prepayments) of principal and interest in 104 respect of the Subordinated Debt in accordance with the terms of, and subject to the subordination provision contained in, the Subordinated Debt Documents; (iii) ChipPAC or any Subsidiary may make regularly scheduled principal and interest payments in respect of Permitted Seller Paper to the extent permitted under subsection 7.1(vii) in accordance with the terms of, and subject to the subordination provisions contained in, such Permitted Seller Paper; (iv) so long as no Default or Event of Default shall have occurred and be continuing or would result therefrom, then ChipPAC and its Subsidiaries, collectively, may make cash Restricted Payments in an aggregate amount not to exceed $2,500,000 in any Fiscal Year, plus an ---- amount equal to any cash Restricted Payments permitted to be made during one or more preceding Fiscal Years under this clause (iv) but not made during such preceding Fiscal Year(s) in an aggregate amount not in excess of $10,000,000; (v) ChipPAC and its Subsidiaries, collectively, may make cash Restricted Payments in any Fiscal Year to the extent necessary to make repurchases of Securities (and options or warrants to purchase such Securities) of ChipPAC from employees, officers or directors upon termination (including by reason of death, disability or retirement) of such employees, officers or directors in an aggregate amount not to exceed $5,000,000 plus cash proceeds of any "key man" life insurance policies used to make such repurchases and the proceeds from any resales of such stock; (vi) ChipPAC may make Restricted Payments in connection with repurchases of equity Securities, including Capital Stock, deemed to occur upon the exercise of stock options if such Securities represent a portion of the exercise price thereof; (vii) ChipPAC may make Restricted Payments (other than payments in cash in respect of the HEI Preferred Stock and the Intel Preferred Stock, in each case except to the extent expressly permitted hereby) contemplated by the Recapitalization Transactions; (viii) So long as no Default or Event of Default has occurred and is continuing, ChipPAC may make Restricted Payments in respect of the Earnout; (ix) So long as no Default or Event of Default has occurred and is continuing, ChipPAC may make Restricted Payments in connection with payments of cash dividends when due on and after five and one-half years from the closing of the Recapitalization Transactions on the HEI Preferred Stock pursuant to the terms thereof; (x) So long as (a) no Default or Event of Default has occurred and is continuing and (b) the Leverage Ratio is less than or equal to 2.00:1.00, ChipPAC may make Restricted Payments in connection with (i) any mandatory or voluntary redemption of the Intel Preferred Stock and (ii) any required payment of accrued and unpaid dividends on the Intel Preferred Stock at any time such stock is converted into Capital Stock of ChipPAC, both pursuant to the terms of the Intel Preferred Stock; and 105 (xi) ChipPAC may redeem the HEI Preferred Stock and or the Intel Preferred Stock to the extent contemplated by subsection 2.4B(iii)(c) with the proceeds of a Qualified Public Equity Offering. 7.6 Financial Covenants. ------------------- A. Minimum Interest Coverage Ratio. The ratio (the "Interest Coverage Ratio") of (i) Consolidated Adjusted EBITDA to (ii) ----------------------- Consolidated Interest Expense payable in cash (excluding, to the extent Consolidated Interest Expense, (i) fees paid to the Administrative Agent on and after the Closing Date; (ii) cash payments made under consulting agreements; and (iii) cash payments made under Hedge Agreements or Interest Rate Agreements) for (w) the five month period ending December 31, 1999, (x) the eight month period ending March 31, 2000, (y) the eleven month period ending June 30, 2000 or (z) any four-Fiscal Quarter period thereafter ending during or at the end of any of the periods set forth below (each applicable period being a "Calculation Period") shall not be less than the correlative ratio indicated ------------------ below: ===================================================================== Period During Which Minimum Interest Calculation Period Ends Coverage Ratio ===================================================================== December 31, 1999 through September 30, 2000 2.00:1.00 --------------------------------------------------------------------- December 31, 2000 through September 30, 2001 2.25:1.00 --------------------------------------------------------------------- Thereafter 2.50:1.00 ===================================================================== B. Maximum Leverage Ratio. The ratio (the "Leverage Ratio") of (i) -------------- Consolidated Total Debt as of the last day (any such day being a "Calculation Date") of any Fiscal Quarter ending during any of the periods set ---------------- forth below, to (ii) Consolidated Adjusted EBITDA for (w) the five month period ending December 31, 1999, (x) the eight month period ending March 31, 2000, (y) the eleven month period ending June 30, 2000 or (z) any four-Fiscal Quarter period thereafter ending on such Calculation Date shall not exceed the correlative ratio indicated below: ===================================================================== Period During Which Maximum Calculation Date Occurs Leverage Ratio --------------------------------------------------------------------- December 31, 1999 through June 30, 2000 4.75:1.0 --------------------------------------------------------------------- September 30, 2000 4.50:1.0 --------------------------------------------------------------------- December 31, 2000 4.25:1.0 --------------------------------------------------------------------- March 31, 2001 through September 30, 2001 4.00:1.0 --------------------------------------------------------------------- December 31, 2001 through September 30, 2002 3.50:1.0 --------------------------------------------------------------------- December 31, 2002 through September 30, 2003 3.00:1.0 --------------------------------------------------------------------- Thereafter 2.50:1.0 ===================================================================== 106 C. Consolidated Capital Expenditures. (i) Except as provided below, Company shall not, and shall not permit its Subsidiaries to, make or incur Consolidated Capital Expenditures in any Fiscal Year (or specified portion thereof) in an aggregate amount in excess of the corresponding amount (the "Maximum Consolidated Capital Expenditures Amount") set forth below ------------------------------------------------ opposite such Fiscal Year (or such portion thereof) as indicated below; provided, that the Maximum Consolidated Capital Expenditures Amount for any -------- Fiscal Year shall be increased by an amount equal to the excess, if any, of (x) the Maximum Consolidated Capital Expenditures Amount (excluding, and without giving effect to, any increases thereto from any prior carryover of amounts pursuant to this clause for the previous Fiscal Year (or specified portion thereof) but including any increases thereto as a result of the application of the further proviso to this clause (i)) over (y) the actual amount of Consolidated Capital Expenditures for such previous Fiscal Year (or specified portion thereof) (the amount of such increase described in this proviso being the "Carryforward" from such preceding Fiscal Year): ------------ ============================================================== Fiscal Year Maximum Consolidated (or Portion Thereof) Capital Expenditures Amount ============================================================== Fiscal Year 1999 $20,000,000 - -------------------------------------------------------------- Fiscal Year 2000 $30,000,000 - -------------------------------------------------------------- Fiscal Year 2001 $50,000,000 - -------------------------------------------------------------- Fiscal Year 2002 $55,000,000 - -------------------------------------------------------------- Fiscal Year 2003 $60,000,000 - -------------------------------------------------------------- Fiscal Year 2004 and thereafter $60,000,000 ============================================================== ; provided further that, the Maximum Consolidated Capital Expenditure -------- ------- Amount for each period during or after a Permitted Acquisition occurs shall be increased by an amount equal to the Acquired Capital Expenditures Percentage of such Maximum Capital Expenditure Amount for such period. (ii) Except as provided below, Company shall not, and shall not permit its Subsidiaries to, make or incur Micro BGA Capital Expenditures in any Fiscal Year (or specified portion thereof) in an aggregate amount (the "Maximum Micro BGA Capital Expenditures Amount") in excess of the --------------------------------------------- corresponding amount set forth below opposite such Fiscal Year (or such portion thereof) as indicated below; provided that the Maximum Micro BGA -------- Capital Expenditures Amount for any Fiscal Year ending on or prior to December 31, 2001, shall be increased by an amount equal to the excess, if any, of (x) the Maximum Micro BGA Capital Expenditures Amount (excluding, and without giving effect to, any increases thereto from any prior carry over of amounts pursuant to this clause for the previous Fiscal Year (or specified portion thereof) over (y) the actual amount of Micro BGA Capital Expenditures for such previous Fiscal Year (or specified portion thereof): 107 ============================================================== Fiscal Year Maximum Micro BGA (or Portion Thereof) Capital Expenditures Amount ============================================================== Fiscal Year 1999 $ 5,000,000 - -------------------------------------------------------------- Fiscal Year 2000 $30,000,000 - -------------------------------------------------------------- Fiscal Year 2001 The amount, if any earned forward from Fiscal Year 2000 ============================================================== (iii) In addition to the Consolidated Capital Expenditures made pursuant to the foregoing clause (i) of the subsection 7.6C, ChipPAC and its Subsidiaries may make additional Consolidated Capital Expenditures not in excess of the Excess Proceeds Amount. D. Minimum Fixed Charge Coverage Ratio. The ratio (the "Fixed Charge Coverage Ratio") of (i) Consolidated Adjusted EBITDA to (ii) --------------------------- the sum, without duplication, of (a) Consolidated Interest Expense payable in cash (excluding, to the extent otherwise included in Consolidated Interest Expense, (i) fees paid to the Administrative Agent after the Closing Date; (ii) cash payments made under consulting agreements; and (iii) cash payments made under Hedge Agreements or Interest Rate Agreements), plus (b) Consolidated Capital Expenditures, plus (c) the ---- ---- provision for taxes (including, without duplication, foreign withholding taxes and any single business, unitary or similar taxes) based on income of ChipPAC and its Subsidiaries and paid or payable in cash, plus (d) the ---- principal amount of all Indebtedness scheduled to be paid during such period (calculated as of the first day of such period), plus (e) Cash ---- dividends and distributions paid by ChipPAC, in each case for (1) the five month period ending December 31, 1999, (2) the eight month period ending March 31, 2000, (3) the eleven month period ending June 30, 2000 or (4) any four-Fiscal Quarter period thereafter ending during or at the end of any of the periods set forth below (each applicable four-Fiscal Quarter period being a "Calculation Period") (all amounts in the preceeding lettered ------------------ lettered clauses (a) through (e) referred to collectively as the "Fixed Charges") shall not be less than the correlative ratio indicated below: ====================================================================== Period During Which Minimum Fixed Calculation Period Ends Charge Coverage Ratio ====================================================================== December 31, 1999 through September 30, 2000 1.00:1.00 ---------------------------------------------------------------------- December 31, 2000 through December 31, 2002 1.05:1.00 ---------------------------------------------------------------------- Thereafter 1.10:1.00 ====================================================================== 108 E. Certain Calculations. With respect to any period during which any Permitted Acquisition occurs or any business of any other Person is acquired by ChipPAC or any of its Subsidiaries as permitted pursuant to the terms hereof, for purposes of determining compliance or Pro Forma Compliance with the financial covenants set forth in this subsection 7.6, Consolidated Adjusted EBITDA, Consolidated Interest Expense and Fixed Charges shall be calculated with respect to such periods and such Permitted Acquisition or business on a Pro Forma Basis. 7.7 Restriction on Fundamental Changes; Asset Sales. ----------------------------------------------- ChipPAC shall not, and shall not permit any of its Subsidiaries to, alter the corporate, capital or legal structure of ChipPAC or any of its Subsidiaries or enter into any transaction of merger or consolidation, or liquidate, wind-up or dissolve itself (or suffer any liquidation or dissolution), or convey, sell, lease, sub-lease, transfer or otherwise dispose of all or any portion of its business or assets, whether now owned or hereafter acquired, or acquire by purchase or otherwise all or a substantial part of the business or assets of, or Capital Stock or other evidence of beneficial ownership of, any Person or any unit or division thereof, except: (i) Any Subsidiary of ChipPAC (other than Company) may be merged with or into ChipPAC or any wholly owned Subsidiary, or be liquidated, wound up or dissolved, or all or any part of its business, property or assets may be conveyed, sold, leased, transferred or otherwise disposed of, in one transaction or a series of transactions, to ChipPAC or any wholly owned Subsidiary; provided that, in the case of such a merger involving -------- ChipPAC, ChipPAC shall be the continuing or surviving corporation and in the case of any other merger involving a Loan Party, a Loan Party shall be the continuing or surviving corporation; (ii) ChipPAC and its Subsidiaries may acquire inventory, equipment and other assets in the ordinary course of business; (iii) ChipPAC and its Subsidiaries may sell or otherwise dispose of assets in transactions that do not constitute Asset Sales; provided that -------- the consideration received for such assets shall be in an amount at least equal to the fair market value thereof (determined in good faith by the board of directors of ChipPAC or its Subsidiaries, as the case may be); (iv) ChipPAC and its Subsidiaries may make Asset Sales of assets having a fair market value (determined in good faith by the board of directors of ChipPAC or its Subsidiaries, as the case may be) not in excess of $15,000,000 (or $30,000,000 if, after giving effect to such Asset Sale, the Leverage Ratio determined on a Pro Forma Basis is less than 3.50:1.00) for any Fiscal Year; provided that, in each such case, (x) the -------- consideration received for such assets shall be in an amount at least equal to the fair market value thereof (determined in good faith by the board of directors of ChipPAC); and (y) the proceeds of such Asset Sales shall be applied as required by subsection 2.4B(iii)(a); (v) ChipPAC and its Subsidiaries may acquire the stock or other equity Securities of any Person that, as a result of such acquisition, becomes a wholly 109 owned Subsidiary of ChipPAC or any of its Subsidiaries or is merged into ChipPAC or its Subsidiaries, or may acquire the business, property or assets of any Person; provided, that (x) on a Pro Forma Basis, ChipPAC -------- shall be in compliance with each of the covenants set forth in subsection 7.6, (y) no Default or Event of Default shall have occurred and be continuing or result therefrom and (z) after giving effect to such Acquisition, if the Leverage Ratio determined on a Pro Forma Basis shall exceed 2.75:1.00, then the aggregate consideration paid or assumed in respect of all Permitted Acquisitions under this Agreement shall not exceed the sum of $50,000,000 and the Excess Proceeds Amount; (vi) ChipPAC or its Subsidiaries may create or, if permitted by clause (v) above, acquire new Subsidiaries; provided that, (a) promptly -------- after the formation or acquisition of each such Subsidiary, ChipPAC or such Subsidiary, as applicable, shall deliver or cause to be delivered each of the items and execute each of the documents, if any, required pursuant to subsection 6.9; and (vii) ChipPAC may consummate the Recapitalization Transactions. 7.8 Sales and Lease-Backs. --------------------- Except for the transactions described in Schedule 7.8, ChipPAC shall not, ------------ and shall not permit any of its Subsidiaries to, directly or indirectly, become or remain liable as lessee or as a guarantor or other surety with respect to any lease, whether an Operating Lease or a Capital Lease, of any property (whether real, personal or mixed), whether now owned or hereafter acquired, (i) which ChipPAC or any of its Subsidiaries has sold or transferred or is to sell or transfer to any other Person (other than ChipPAC or any of its Subsidiaries) or (ii) which ChipPAC or any of its Subsidiaries intends to use for substantially the same purpose as any other property which has been or is to be sold or transferred by ChipPAC or any of its Subsidiaries to any Person (other than ChipPAC or any of its Subsidiaries) in connection with such lease. 7.9 Transactions with Shareholders and Affiliates. --------------------------------------------- ChipPAC shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, enter into or permit to exist any transaction (including, without limitation, the purchase, sale, lease or exchange of any property or the rendering of any service) with any holder of 5% or more of any class of equity Securities of ChipPAC or such Subsidiary or with any Affiliate of ChipPAC or of any such Subsidiary or holder involving consideration in excess of $1,500,000, on terms that are less favorable to ChipPAC or that Subsidiary, as the case may be, than those that might be obtained at the time from Persons who are not such a holder or Affiliate; provided that the foregoing restriction -------- shall not apply to (i) transactions between ChipPAC and any Subsidiary or between Subsidiaries; (ii) reasonable and customary fees paid to members of the boards of directors of ChipPAC and its Subsidiaries; (iii) management and one- time transaction (acquisitions, divestitures and financings) fees paid by ChipPAC pursuant to the Sponsor Advisory Services Agreements, plus reasonable ---- out-of-pocket expenses related thereto; provided, in no event shall any -------- management fees be paid (but may accrue) under the Sponsor Advisory Services Agreements at any time an Event of Default under any of subsection 8.1, 8.6, or 8.7 has occurred and is continuing; (iv) loans and advances permitted to be made under subsections 7.3(vi) or (ix); (v) Restricted Payments permitted to be made under subsection 7.5; (vi) issuance of capital stock and/or grants of stock 110 options to any Affiliates, including employees and consultants of ChipPAC pursuant to employment or consulting arrangements; (vii) employment and consulting arrangements entered into in the ordinary course of business; (viii) the Recapitalization Transactions (including performance under the terms of the Transaction Documents); (ix) any agreement with ChipPAC or any Subsidiary as in effect on the Closing Date or any amendment or replacement thereto or any transaction contemplated thereby (including pursuant to any amendment or replacement thereto) so long as any amendment or replacement agreement is not more disadvantageous to ChipPAC or such Subsidiary in any material respect than the original agreement as in effect on the Closing Date; and (x) transactions with customers, clients, suppliers, joint venture partners or purchasers or sellers of goods or services, in each case in the ordinary course of business (including, without limitation, pursuant to joint venture agreements) and otherwise in compliance with the terms of this Agreement which are fair to ChipPAC and its Subsidiaries, in the reasonable determination of the applicable board of directors or the senior management thereof, or are on terms at least as favorable as might reasonably have been obtained at such time from an unaffiliated party. 7.10 Ownership of Subsidiary Stock. ----------------------------- ChipPAC shall not: (i) directly or indirectly sell, assign, pledge or otherwise encumber or dispose of any shares of Capital Stock or other equity Securities of any of its Subsidiaries, except as permitted under this Agreement and the Collateral Documents or to qualify directors or for nominee holders if required by applicable law; or (ii) except as a result of a sale permitted hereby of all of the outstanding Capital Stock of a Loan Party to a third party, permit any Capital Stock of any Loan Party to be directly or indirectly owned by any person other than ChipPAC, Company or a Subsidiary Guarantor; (iii) permit any of its Subsidiaries directly or indirectly to sell, assign, pledge or otherwise encumber or dispose of any shares of Capital Stock or other equity Securities of any of its Subsidiaries (including such Subsidiary), except as permitted under this Agreement and the Collateral Documents, to ChipPAC or another Subsidiary of ChipPAC or to qualify directors or for nominee holders, if required by applicable law. 7.11 Amendments or Waivers of Certain Agreements. ------------------------------------------- A. Amendments or Waivers of Transaction Documents. None of ChipPAC nor any of its Subsidiaries shall terminate or agree to any amendment, restatement, supplement or other modification to, or waive any of its rights under, any Transaction Document (other than any document relating to the Subordinated Debt) if such termination, amendment, restatement, supplement, modification or waiver would reasonably be expected to be materially adverse to the Lenders without obtaining the prior written consent of the Requisite Lenders to such amendment or waiver. B. Amendments of Documents Relating to Subordinated Debt. ChipPAC shall not, and shall not permit any of its Subsidiaries to, amend or otherwise change the 111 terms of any Subordinated Debt, or make any payment consistent with an amendment thereof or change thereto, if the effect of such amendment or change is (i) to increase the interest rate on such Subordinated Debt, (ii) change (to earlier dates) any dates upon which payments of principal or interest are due thereon, (iii) change any event of default or condition to an event of default with respect thereto (other than to eliminate any such event of default or increase any grace period related thereto), (iv) change the redemption, prepayment or defeasance provisions thereof, (v) change the subordination provisions of such Subordinated Debt or any guaranty of any Subordinated Debt, or (vi) if the effect of such amendment or change, together with all other amendments or changes made, is to increase materially the obligations of the obligor thereunder or to confer any additional rights on the holders of such Subordinated Debt (or a trustee or other representative on their behalf) which would reasonably be expected to be materially adverse to the Lenders without obtaining the prior written consent of the Requisite Lenders to such amendment or waiver. C. Amendments or Waivers of Certain Intercompany Documents. ChipPAC shall not, and shall not permit any of its Subsidiaries to, terminate or agree to any amendment, restatement, supplement or other modification to, or waiver of any of its rights under, the Korean Pledge Agreement, any Intercompany Note or any other intercompany document pursuant to which any property, assets or rights of a Subsidiary are pledged to ChipPAC or another Subsidiary and further pledged by such latter Person to the Collateral Agent to secure the Obligations if such termination, amendment, restatement, supplement, modification or waiver would reasonably be expected to be adverse to the Lenders without obtaining the prior written consent of the Requisite Lenders to such amendment or waiver. 7.12 Fiscal Year. ----------- Neither ChipPAC nor any of its Subsidiaries shall change its Fiscal Year- end from December 31 of each calendar year. 7.13 Conduct of Business. ------------------- ChipPAC shall not, nor shall it permit any of its Subsidiaries to, engage in any business or activities other than of the type engaged in as of the Closing Date or similar, related or supportive businesses or those consented to by the Requisite Lenders, including the performance of its obligations hereunder, under the other Loan Documents and under the Transaction Documents. SECTION 8. EVENTS OF DEFAULT IF any of the following conditions or events ("Events of Default") shall ----------------- occur: 8.1 Failure to Make Payments When Due. --------------------------------- Failure by Company to pay any installment of principal of any Loan when due, whether at stated maturity, by acceleration, by notice of prepayment or otherwise; failure by Company to pay when due any amount payable to an Issuing Bank in reimbursement of any drawing honored or payment made under a Letter of Credit; or failure by Company 112 to pay any interest on any Loan or any fee or any other amount due under this Agreement or any other Loan Document within five (5) Business Days after the date due; or 8.2 Default in Other Agreements. --------------------------- (i) Failure of ChipPAC or any of its Subsidiaries to pay when due (a) any principal of or interest on any Indebtedness (other than Indebtedness referred to in subsection 8.1) in an individual principal amount of $2,500,000 or more or any items of Indebtedness with an aggregate principal amount of $7,500,000 or more, in each case beyond the end of any grace period provided therefor; or (b) any Contingent Obligation in an individual principal amount of $2,500,000 or more or any Contingent Obligations with an aggregate principal amount of $7,500,000 or more, in each case beyond the end of any grace period provided therefor; or (ii) breach or default by ChipPAC or any of its Subsidiaries with respect to any other material term of (a) any evidence of any Indebtedness in an individual principal amount of $2,500,000 or more or any items of Indebtedness with an aggregate principal amount of $7,500,000 or more or any Contingent Obligation in an individual principal amount of $2,500,000 or more or any Contingent Obligations with an aggregate principal amount of $7,500,000 or more, in each case beyond the end of any grace period provided thereof; or (b) any loan agreement, mortgage, indenture or other agreement relating to such Indebtedness or Contingent Obligation(s), or the occurrence of any other event, condition or circumstance in respect of any such Indebtedness or Contingent Obligations if in any case under this clause (ii) the effect of such breach or default or event, condition or circumstance is to cause, or to permit the holder or holders of that Indebtedness or Contingent Obligation(s) (or a trustee on behalf of such holder or holders) to cause, that Indebtedness or Contingent Obligation(s) to become or be declared due and payable (or redeemable) prior to its stated maturity or the stated maturity of any underlying obligation, as the case may be (upon the giving or receiving of notice, lapse of time, both, or otherwise); or 8.3 Breach of Certain Covenants. --------------------------- Failure of any Loan Party to perform or comply with any term or condition contained in subsection 2.5, 6.2, or Section 7 of this Agreement; provided, -------- however, that such failure with respect to the covenants contained in - ------- subsections 7.1 through 7.5 shall not constitute an Event of Default for ten (10) days after such failure so long as such Loan Party is diligently pursuing the cure of such failure; or 8.4 Breach of Warranty. ------------------ Any representation, warranty, certification or other statement made by ChipPAC or any of its Subsidiaries in any Loan Document or in any statement or certificate at any time given by ChipPAC or any of its Subsidiaries in writing pursuant hereto or thereto or in connection herewith or therewith shall be false in any material respect on the date as of which made; or 8.5 Other Defaults Under Loan Documents. ----------------------------------- Any Loan Party shall default in the performance of or compliance with any term contained in this Agreement or any of the other Loan Documents, other than any such term referred to in any other subsection of this Section 8, and such default shall not have been remedied or waived within thirty (30) days after the earlier of (i) a Responsible 113 Officer of ChipPAC or Company becoming aware of the occurrence of such default or (ii) receipt by ChipPAC or Company of notice from the Administrative Agent of such default; or 8.6 Involuntary Bankruptcy; Appointment of Receiver, etc. ----------------------------------------------------- (i) A court having jurisdiction in the premises shall enter a decree or order for relief in respect of ChipPAC or any of its Subsidiaries (other than Immaterial Subsidiaries) in an involuntary case under any Bankruptcy Law, which decree or order is not stayed; or any other similar relief shall be granted under any applicable Bankruptcy Law; or (ii) an involuntary case shall be commenced against ChipPAC or any of its Subsidiaries (other than Immaterial Subsidiaries) under any Bankruptcy Law; or a decree or order of a court having jurisdiction in the premises for the appointment of a receiver, liquidator, sequestrator, trustee, custodian or other officer having similar powers over ChipPAC or any of its Subsidiaries (other than Immaterial Subsidiaries), or over all or a substantial part of its property, shall have been entered; or there shall have occurred the involuntary appointment of an interim receiver, trustee or other custodian of ChipPAC or any of its Subsidiaries (other than Immaterial Subsidiaries) for all or a substantial part of its property; or a warrant of attachment, execution or similar process shall have been issued against any substantial part of the property of ChipPAC or any of its Subsidiaries (other than Immaterial Subsidiaries), and any such event described in this clause (ii) shall continue for sixty (60) days unless dismissed, bonded or discharged; or 8.7 Voluntary Bankruptcy; Appointment of Receiver, etc. --------------------------------------------------- (i) ChipPAC or any of its Subsidiaries (other than Immaterial Subsidiaries) shall have an order for relief entered with respect to it or commence a voluntary case under any Bankruptcy Law now or hereafter in effect, or shall consent to the entry of an order for relief in an involuntary case, or to the conversion of an involuntary case to a voluntary case, under any such law, or shall consent to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of its property; or ChipPAC or any of its Subsidiaries (other than Immaterial Subsidiaries) shall make any assignment for the benefit of creditors; or (ii) ChipPAC or any of its Subsidiaries (other than Immaterial Subsidiaries) shall be unable, or shall fail generally, or shall admit in writing its inability, to pay its debts as such debts become due; or the Board of Directors of ChipPAC or any of its Subsidiaries (other than Immaterial Subsidiaries) (or any committee thereof) shall adopt any resolution or otherwise authorize any action to approve any of the actions referred to in clause (i) above or this clause (ii); or 8.8 Judgments and Attachments. ------------------------- Any money judgment, writ or warrant of attachment or similar process involving (i) in any individual case an amount in excess of $2,500,000 or (ii) in the aggregate at any time an amount in excess of $7,500,000 (in either case not adequately covered by insurance) shall be entered or filed against ChipPAC or any of its Subsidiaries or any of their respective assets and shall remain undischarged, unvacated, unbonded or unstayed for a period of sixty (60) days (or in any event later than five days prior to the date of any proposed sale thereunder); or 114 8.9 Dissolution. ----------- Any order, judgment or decree shall be entered against ChipPAC or any of its Subsidiaries decreeing the dissolution or split-up of ChipPAC or that Subsidiary and such order shall remain undischarged or unstayed for a period in excess of thirty (30) days; or 8.10 Employee Benefit Plans. ---------------------- (i) Company or one of its ERISA Affiliates shall have engaged in a transaction which is prohibited under Section 4975 of the Internal Revenue Code or Section 406 of ERISA which results in the imposition of a liability which has a material adverse effect on Company or any of its Subsidiaries; or (ii) there shall occur any Foreign Benefit Events which, individually or in the aggregate, results in the imposition of a liability which has a Material Adverse Effect on ChipPAC or any of its Subsidiaries; or 8.11 Change in Control. ----------------- (i) The Sponsors shall beneficially own less than, in the aggregate, any other Person or "group" (within meaning of 13d-3 or 13d-5 of the Exchange Act) of all issued and outstanding equity securities of ChipPAC representing economic and voting interests in ChipPAC; (ii) the Sponsors shall cease to beneficially own less than, in the aggregate, 51% of the outstanding equity securities of ChipPAC (excluding equity securities issued to management pursuant to management stock option plans or similar arrangements) representing economic interests in ChipPAC; (iii) a majority of the members of the Board of Directors of ChipPAC shall not be Continuing Directors; (iv) Company or any Operating Subsidiary shall cease to be a wholly owned Subsidiary of ChipPAC or (v) any "Change of Control" shall occur under the Subordinated Debt Documents; or 8.12 Invalidity of Guaranties. ------------------------ At any time after the execution and delivery thereof, any Guaranty of the Obligations of Company for any reason, other than the satisfaction in full of all Obligations (other than indemnification obligations not due and payable), ceases to be in full force and effect (other than in accordance with its terms) or is declared to be null and void, or any Loan Party denies in writing that it has any further liability, including without limitation with respect to future advances by the Lenders, under any Loan Document to which it is a party; or 8.13 Failure of Security. ------------------- Any Collateral Document shall, at any time, cease to be in full force and effect (other than by reason of a release of Collateral thereunder in accordance with the terms hereof or thereof, the satisfaction in full of the Obligations (other than indemnification obligations not due and payable) or any other termination of such Collateral Document in accordance with the terms hereof or thereof) or shall be declared null and void, or the validity or enforceability thereof shall be contested in writing by any Loan Party, or the Collateral Agent shall not have or shall cease to have a valid security interest in any Collateral purported to be covered thereby having a fair market value exceeding $1,000,000, perfected and with the priority required by the relevant Collateral Document, for any reason other than the failure of the Collateral Agent, the Administrative Agent or 115 any Lender to take any action within its control, subject only to Liens permitted under the applicable Collateral Documents; THEN (i) upon the occurrence of any Event of Default described in subsection 8.6 or 8.7, each of (a) the unpaid principal amount of and accrued interest on the Loans, (b) an amount equal to the maximum amount that may at any time be drawn under all Letters of Credit then outstanding (whether or not any beneficiary under any such Letter of Credit shall have presented, or shall be entitled at such time to present, the drafts or other documents or certificates required to draw under such Letter of Credit) and (c) all other Obligations, shall automatically become immediately due and payable, without presentment, demand, protest or other requirements of any kind, all of which are hereby expressly waived by ChipPAC and Company, and the obligation of each Lender to make any Loan and the obligation of the Issuing Bank to issue any Letter of Credit shall thereupon terminate, and (ii) upon the occurrence and during the continuation of any other Event of Default, the Administrative Agent shall, upon the written request of the Requisite Lenders, by written notice to Company, declare all or any portion of the amounts described in clauses (a) through (c) above to be, and the same shall forthwith become, immediately due and payable, and the obligation of each Lender to make any Loan and the obligation of the Issuing Bank to issue any Letter of Credit shall thereupon terminate; provided that the foregoing -------- shall not affect in any way the obligations of the Lenders under subsection 3.3C(i). Notwithstanding anything contained in the preceding paragraph, if at any time within sixty (60) days after an acceleration of the Loans pursuant to such paragraph Company shall pay all arrears of interest and all payments on account of principal which shall have become due otherwise than as a result of such acceleration (with interest on principal and, to the extent permitted by law, on overdue interest, at the rates specified in this Agreement) and all Defaults and Events of Default (other than non-payment of the principal of and accrued interest on the Loans, in each case which is due and payable solely by virtue of acceleration) shall be remedied or waived pursuant to subsection 10.6, then the Requisite Lenders, by written notice to Company, may at their option rescind and annul such acceleration and its consequences; but such action shall not affect any subsequent Default or Event of Default or impair any right consequent thereon. The provisions of this paragraph are intended merely to bind the Lenders to a decision which may be made at the election of the Requisite Lenders and are not intended to benefit Company and do not grant Company the right to require the Lenders to rescind or annul any acceleration hereunder or preclude the Agents or the Lenders from exercising any of the rights or remedies available to them under any of the Loan Documents, even if the conditions set forth in this paragraph are met. SECTION 9. AGENTS 9.1 Appointment. ----------- A. CSFB is hereby appointed the Administrative Agent and Sole Lead Arranger hereunder and under the other Loan Documents. CSFB is also hereby appointed the Collateral Agent hereunder and under the Collateral Documents. Each Lender hereby authorizes each Agent to act as its agent in accordance with the terms of this Agreement and the other Loan Documents. Each Agent agrees to act upon the express conditions 116 contained in this Agreement and the other Loan Documents, as applicable. The provisions of this Section 9 are solely for the benefit of the Agents and the Lenders and neither ChipPAC nor Company shall have any rights as a third party beneficiary of any of the provisions thereof. In performing its functions and duties under this Agreement, each Agent shall act solely as an agent of the Lenders and does not assume and shall not be deemed to have assumed any obligation towards or relationship of agency or trust with or for ChipPAC or any of its Subsidiaries. Upon the conclusion of the Initial Period, all obligations of the Sole Lead Arranger hereunder shall terminate and thereafter the Sole Lead Arranger shall have no obligations or liabilities under any of the Loan Documents. B. Appointment of Supplemental Collateral Agents. It is the purpose of this Agreement and the other Loan Documents that there shall be no violation of any law of any jurisdiction denying or restricting the right of banking corporations or associations to transact business as agent or trustee in such jurisdiction. It is recognized that in case of litigation under this Agreement or any of the other Loan Documents, and in particular in case of the enforcement of any of the Loan Documents, or in case the Administrative Agent or the Collateral Agent deems that by reason of any present or future law of any jurisdiction the Administrative Agent or the Collateral Agent may not exercise any of the rights, powers or remedies granted herein or in any of the other Loan Documents or take any other action which may be desirable or necessary in connection therewith, it may be necessary that the Administrative Agent or the Collateral Agent appoint an additional individual or institution as a separate trustee, co-trustee, collateral agent or collateral co-agent (any such additional individual or institution being referred to herein individually as a "Supplemental Collateral Agent" and collectively as "Supplemental Collateral ----------------------------- ----------------------- Agents"). - ------ In the event that the Administrative Agent or the Collateral Agent appoints a Supplemental Collateral Agent with respect to any Collateral, (i) each and every right, power, privilege or duty expressed or intended by this Agreement or any of the other Loan Documents to be exercised by or vested in or conveyed to the Administrative Agent or the Collateral Agent with respect to such Collateral shall be exercisable by and vest in such Supplemental Collateral Agent to the extent, and only to the extent, necessary to enable such Supplemental Collateral Agent to exercise such rights, powers and privileges with respect to such Collateral and to perform such duties with respect to such Collateral, and every covenant and obligation contained in the Loan Documents and necessary to the exercise or performance thereof by such Supplemental Collateral Agent shall run to and be enforceable by either the Administrative Agent or the Collateral Agent or such Supplemental Collateral Agent, and (ii) the provisions of this Section 9 and of subsections 10.2 and 10.3 that refer to the Administrative Agent or the Collateral Agent shall inure to the benefit of such Supplemental Collateral Agent and all references therein to the Administrative Agent or the Collateral Agent shall be deemed to be references to the Administrative Agent or the Collateral Agent and/or such Supplemental Collateral Agent, as the context may require. Should any instrument in writing from ChipPAC, Company or any other Loan Party be required by any Supplemental Collateral Agent so appointed by the Administrative Agent or the Collateral Agent for more fully and certainly vesting in and confirming to him or it such rights, powers, privileges and duties, ChipPAC shall, or shall cause such Loan Party to, execute, acknowledge and deliver any and all such instruments promptly upon request by the Administrative Agent or the Collateral Agent. In case any Supplemental Collateral Agent, or a successor thereto, shall die, become incapable of 117 acting, resign or be removed, all the rights, powers, privileges and duties of such Supplemental Collateral Agent, to the extent permitted by law, shall vest in and be exercised by the Administrative Agent or the Collateral Agent until the appointment of a new Supplemental Collateral Agent. 9.2 Powers; General Immunity. ------------------------ A. Duties Specified. Each Lender irrevocably authorizes each Agent to take such action on such Lender's behalf and to exercise such powers hereunder and under the other Loan Documents as are specifically delegated to such Agent by the terms hereof and thereof, together with such powers as are reasonably incidental thereto. Each Agent shall have only those duties and responsibilities that are expressly specified in this Agreement and the other Loan Documents and it may perform such duties by or through its agents or employees. No Agent shall have, by reason of this Agreement or any of the other Loan Documents, a fiduciary relationship in respect of any Lender, and nothing in this Agreement or any of the other Loan Documents, expressed or implied, is intended to or shall be so construed as to impose upon any Agent any obligations in respect of this Agreement or any of the other Loan Documents except as expressly set forth herein or therein. B. No Responsibility for Certain Matters. No Agent shall be responsible to any Lender for the execution, effectiveness, genuineness, validity, enforceability, collectibility or sufficiency of this Agreement or any other Loan Document or for any representations, warranties, recitals or statements made herein or therein or made in any written or oral statement or in any financial or other statements, instruments, reports or certificates or any other documents furnished by any Agent to the Lenders or by or on behalf of ChipPAC and/or its Subsidiaries to any Agent or any Lender in connection with the Loan Documents and the transactions contemplated thereby or for the financial condition or business affairs of ChipPAC, Company or any other Person liable for the payment of any Obligations, nor shall any Agent be required to ascertain or inquire as to the performance or observance of any of the terms, conditions, provisions, covenants or agreements contained in any of the Loan Documents or as to the use of the proceeds of the Loans or the use of the Letters of Credit or as to the existence or possible existence of any Default or Event of Default. Anything contained in this Agreement to the contrary notwithstanding, the Administrative Agent shall not have any liability arising from confirmations of the amount of outstanding Loans or the Total Utilization of Revolving Loan Commitments or the component amounts thereof. C. Exculpatory Provisions. Neither any Agent nor any of such Agent's respective officers, directors, employees or agents shall be liable to the Lenders for any action taken or omitted by such Agent under or in connection with any of the Loan Documents except to the extent caused by such Agent's gross negligence or willful misconduct. If any Agent shall request instructions from the Lenders with respect to any act or action (including the failure to take an action) in connection with this Agreement or any of the other Loan Documents, such Agent shall be entitled to refrain from such act or taking such action unless and until such Agent shall have received instructions from the Requisite Lenders (or such other Lenders as may be required to give such instructions under subsection 10.6). Without prejudice to the generality of the foregoing, (i) such Agent shall be entitled to rely, and shall be fully protected in relying, upon any communication, instrument or document believed by it to be genuine and correct and to have been signed or sent by the proper person or persons, and shall be entitled to rely and 118 shall be protected in relying on opinions and judgments of attorneys (who may be attorneys for ChipPAC and its Subsidiaries), accountants, experts and other professional advisors selected by it; and (ii) no Lender shall have any right of action whatsoever against such Agent as a result of such Agent acting or (where so instructed) refraining from acting under this Agreement or any of the other Loan Documents in accordance with the instructions of the Requisite Lenders (or such other Lenders as may be required to give such instructions under subsection 10.6). Such Agent shall be entitled to refrain from exercising any power, discretion or authority vested in it under this Agreement or any of the other Loan Documents unless and until it has obtained the instructions of the Requisite Lenders (or such other Lenders as may be required to give such instructions under subsection 10.6). D. Agents Entitled to Act as the Lender. The agency hereby created shall in no way impair or affect any of the rights and powers of, or impose any duties or obligations upon, any Agent in its individual capacity as a Lender hereunder. With respect to its participation in the Loans and the Letters of Credit, each Agent shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not performing the duties and functions delegated to it hereunder, and the term "Lender" or "Lenders" or any similar term shall, unless the context clearly otherwise indicates, include such Agent in its individual capacity. Each Agent and its Affiliates may accept deposits from, lend money to and generally engage in any kind of banking, trust, financial advisory or other business with ChipPAC or any of its Affiliates as if it were not performing the duties specified herein, and may accept fees and other consideration from ChipPAC and/or its Subsidiaries for services in connection with this Agreement and otherwise without having to account for the same to the Lenders. 9.3 Representations and Warranties; No Responsibility for Appraisal of ------------------------------------------------------------------ Creditworthiness. ---------------- Each Lender represents and warrants that it has made its own independent investigation of the financial condition and affairs of ChipPAC and its Subsidiaries in connection with the making of the Loans and the issuance of Letters of Credit hereunder and that it has made and shall continue to make its own appraisal of the creditworthiness of ChipPAC and its Subsidiaries. No Agent shall have any duty or responsibility, either initially or on a continuing basis, to make any such investigation or any such appraisal on behalf of the Lenders or, except as expressly provided elsewhere in this Agreement, to provide any Lender with any credit or other information with respect thereto (except as provided in Section 4 or subsection 6.1), whether coming into its possession before the making of the Loans or at any time or times thereafter, and no Agent shall have any responsibility with respect to the accuracy of or the completeness of any information provided to the Lenders. 9.4 Right to Indemnity. ------------------ Each Lender, in proportion to its Pro Rata Share, severally agrees to indemnify each Agent, to the extent that such Agent shall not have been reimbursed by Company, for and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including, without limitation, reasonable counsel fees and disbursements) or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against such Agent in performing its duties hereunder or under the other Loan Documents or otherwise in its capacity as such Agent in any way 119 relating to or arising out of this Agreement or the other Loan Documents; provided that no Lender shall be liable for any portion of such liabilities, - -------- obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from such Agent's gross negligence or willful misconduct. If any indemnity furnished to any Agent for any purpose shall, in the opinion of such Agent, be insufficient or become impaired, such Agent may call for additional indemnity and cease, or not commence, to do the acts indemnified against until such additional indemnity is furnished. 9.5 Successor Administrative Agent and Swing Line Lender. ---------------------------------------------------- A. Successor Administrative Agent. The Administrative Agent may resign at any time by giving thirty (30) days' prior written notice thereof to the Lenders, ChipPAC and Company. Upon any such notice of resignation, the Requisite Lenders shall have the right, upon five (5) Business Days' notice to ChipPAC and Company, to appoint a successor Administrative Agent with the consent of ChipPAC and Company. Upon the acceptance of any appointment as the Administrative Agent hereunder by a successor Administrative Agent, that successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent and the retiring Administrative Agent shall be discharged from its duties and obligations under this Agreement. After any retiring Administrative Agent's resignation hereunder as the Administrative Agent, the provisions of this Section 9 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Administrative Agent under this Agreement. B. Successor Swing Line Lender. Any resignation of the Administrative Agent pursuant to subsection 9.5A shall also constitute the resignation of CSFB or its successor as the Swing Line Lender, and any successor Administrative Agent appointed pursuant to subsection 9.5A shall, upon its acceptance of such appointment, become the successor Swing Line Lender for all purposes hereunder. In such event any outstanding Swing Line Loans made by the retiring Administrative Agent in its capacity as Swing Line Lender shall be transferred to the successor Swing Line Lender. 9.6 Collateral Documents; Successor Collateral Agent. ------------------------------------------------- Each Lender hereby further authorizes the Collateral Agent to enter into each Collateral Document as secured party on behalf of and for the benefit of the Lenders and the other beneficiaries named therein and agrees to be bound by the terms of each Collateral Document; provided that the Collateral Agent shall -------- not enter into or consent to any material amendment, modification, termination or waiver of any provision contained in any Collateral Document without the prior consent of the Requisite Lenders (or, if required pursuant to subsection 10.6, all the Lenders); provided further, however, that, without further written -------- ------- ------- consent or authorization from any Lender, the Collateral Agent may execute any documents or instruments necessary to effect the release of any asset constituting Collateral from the Lien of the applicable Collateral Document in the event that such asset is sold in a transaction to which the Requisite Lenders have consented or otherwise disposed of in a transaction permitted by this Agreement, or to the extent otherwise permitted or required by any Collateral Document. Anything contained in any of the Loan Documents to the contrary notwithstanding, each Lender agrees that no Lender shall have any right individually to realize upon any of the Collateral under any Collateral Document (including without limitation through the exercise of a right of set-off against call deposits of such Lender in which any funds on deposit in the Collateral 120 Account may from time to time be invested), it being understood and agreed that all rights and remedies under the Collateral Documents may be exercised solely by the Collateral Agent for the benefit of the Lenders and the other beneficiaries named therein in accordance with the terms thereof. The Collateral Agent may resign at any time, and a successor Collateral Agent may be appointed, in accordance with subsection 9.5 as if such subsection 9.5 applied to the Collateral Agent in lieu of the Administrative Agent. SECTION 10. MISCELLANEOUS 10.1 Assignments and Participations in Loans and Letters of Credit. ------------------------------------------------------------- A. General. Subject to subsection 10.1B or 10.1C, as applicable, each Lender shall have the right at any time to (i) sell, assign, transfer or negotiate to any Eligible Assignee, or (ii) sell participations to any Person in, all or any part of its Commitments (together with its Letters of Credit or participations therein made or arising pursuant to its Revolving Loan Commitment) or any Loan or Loans made by it or any other interest herein or in any other Obligations owed to it; provided that no such sale, assignment, -------- transfer or participation shall, without the consent of ChipPAC or Company, require Company to file a registration statement with the Securities and Exchange Commission or apply to qualify such sale, assignment, transfer or participation under the securities laws of any state; provided further that no -------- ------- such sale, assignment or transfer described in clause (i) above shall be effective unless and until an Assignment Agreement effecting such sale, assignment or transfer shall have been accepted by the Administrative Agent and recorded in the Register as provided in subsection 10.1B(ii); provided, further -------- ------- that no such sale, assignment, transfer or participation of any Letter of Credit or any participation therein may be made separately from a sale, assignment, transfer or participation of a corresponding interest in the Revolving Loan Commitment and the Revolving Loans of the Lender effecting such sale, assignment, transfer or participation. Except as otherwise provided in this subsection 10.1, no Lender shall, as between Company and such Lender, be relieved of any of its obligations hereunder as a result of any sale, assignment, transfer or negotiation of, or any granting of participations in, all or any part of its Commitments or the Loans, the Letters of Credit or participations therein or the other Obligations owed to such Lender. B. Assignments. (i) Amounts and Terms of Assignments. Each Commitment, Loan, Letter -------------------------------- of Credit, or participation therein or other Obligation may (a) be assigned in any amount to another Lender who is a Non-Defaulting Lender, or to an Approved Fund or an Affiliate of the assigning Lender or another Lender who, in either such case, is a Non-Defaulting Lender, with the giving of notice to Company and the Administrative Agent or (b) be assigned in an aggregate amount of not less than $5,000,000 (or such lesser amount (1) as shall constitute the aggregate amount of the Commitments, Loans, Letters of Credit, and participations therein and other Obligations of the assigning Lender, or (2) as may be agreed to by Company and the Administrative Agent) to any other Eligible Assignee with the consent of the Administrative Agent (such consent not to be unreasonably withheld) and so long as no Event of Default shall have occurred and be continuing with the consent of Company (such consent not to be unreasonably withheld). To the extent of any 121 such assignment in accordance with either clause (a) or (b) above, the assigning Lender shall be relieved of its obligations with respect to its Commitments, Loans, Letters of Credit, or participations therein or other Obligations or the portion thereof so assigned. The parties to each such assignment shall execute and deliver to the Administrative Agent, for its acceptance and recording in the Register, an Assignment Agreement, together with a processing fee of $3,500 payable by the assigning Lender, and, if requested by the Administrative Agent, a completed administrative questionnaire in the Administrative Agent's customary form with respect to the assignee under such Assignment Agreement. Upon such execution, delivery, acceptance and recordation, from and after the effective date specified in such Assignment Agreement, (y) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment Agreement, shall have the rights and obligations of a Lender hereunder and (z) the assigning Lender thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment Agreement, relinquish its rights and be released from its obligations under this Agreement (and, in the case of an Assignment Agreement covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto); provided -------- that, anything contained in any of the Loan Documents to the contrary notwithstanding, if such Lender is the Issuing Bank such Lender shall continue to have all rights and obligations of the Issuing Bank with respect to outstanding Letters of Credit until the cancellation or expiration of such Letters of Credit and the reimbursement of any amounts drawn thereunder. The Commitments hereunder shall be modified to reflect the Commitments of such assignee and any remaining Commitments of such assigning Lender. (ii) Acceptance by the Administrative Agent; Recordation in Register. --------------------------------------------------------------- Upon its receipt of an Assignment Agreement executed by an assigning Lender and an assignee representing that it is an Eligible Assignee, together with the processing fee referred to in subsection 10.1B(i), the Administrative Agent shall, if such Assignment Agreement has been completed and is in substantially the form of Exhibit IX hereto and if the Administrative Agent ---------- has consented to the assignment evidenced thereby (to the extent such consent is required pursuant to subsection 10.1B(i)), (a) accept such Assignment Agreement by executing a counterpart thereof as provided therein (which acceptance shall evidence any required consent of the Administrative Agent to such assignment), (b) record the information contained therein in the Register, and (c) give prompt notice thereof to Company. The Administrative Agent shall maintain a copy of each Assignment Agreement delivered to and accepted by it as provided in this subsection 10.1B(ii). C. Participations. The holder of any participation, other than an Affiliate of the Lender granting such participation, shall not be entitled to require such Lender to take or omit to take any action hereunder except action (i) effecting the extension of the final maturity of the Loan allocated to such participation or (ii) effecting a reduction of the principal amount of or affecting the rate of interest payable on any Loan or any fee allocated to such participation. ChipPAC, Company and each Lender hereby acknowledge and agree that, solely for purposes of subsections 2.6D, 2.7, 3.6, 10.2, 10.3, 10.4 and 10.5, (a) any participation will give rise to a direct obligation of ChipPAC and Company to the participant and (b) the participant shall be considered to be a "Lender". 122 D. Assignments to Federal Reserve Banks. In addition to the assignments and participations permitted under the foregoing provisions of this subsection 10.1, any Lender may assign and pledge all or any portion of its Loans and the other Obligations owed to such Lender to any Federal Reserve Bank as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any operating circular issued by such Federal Reserve Bank; and any Lender which is an investment fund may pledge all or any portion of its Loans to its trustee in support of its obligations to such trustee; provided -------- that (i) no Lender shall, as between Company and such Lender, be relieved of any of its obligations hereunder as a result of any such assignment and pledge and (ii) in no event shall such Federal Reserve Bank be considered to be a "Lender" or be entitled to require the assigning Lender to take or omit to take any action hereunder. E. Information. Each Lender may furnish any information concerning ChipPAC and its Subsidiaries in the possession of that Lender from time to time to assignees and participants (including prospective assignees and participants), subject to subsection 10.21. F. Special Purpose Funding Vehicle. Notwithstanding anything to the contrary contained herein, any Lender (a "Granting Bank") may grant to a special ------------- purpose funding vehicle (a "SPC"), identified as such in writing from time to --- time by the Granting Bank to the Administrative Agent, ChipPAC and Company, the option to provide to Company all or any part of any Loan that such Granting Bank would otherwise be obligated to make to Company pursuant to this Agreement; provided that (i) nothing herein shall constitute a commitment by any SPC to - -------- make any Loan, and (ii) if an SPC elects not to exercise such option or otherwise fails to provide all or any part of such Loan, the Granting Bank shall be obligated to make such Loan pursuant to the terms hereof. The making of a Loan by an SPC hereunder shall utilize the Commitment of the Granting Bank to the same extent, and as if, such Loan were made by such Granting Bank. Each party hereto hereby agrees that no SPC shall be liable for any indemnity or similar payment obligation under this Agreement (all liability for which shall remain with the Granting Bank). In furtherance of the foregoing, each party hereto hereby agrees (which agreement shall survive the termination of this Agreement) that, prior to the date that is one year and one day after the payment in full of all outstanding commercial paper or other senior indebtedness of any SPC, it will not institute against, or join any other person in instituting against, such SPC any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings under the laws of the United States or any State thereof. In addition, notwithstanding anything to the contrary contained in this subsection 10.1F, any SPC may (i) with notice to, but without the prior written consent of, Company, ChipPAC and the Administrative Agent and without paying any processing fee therefor, assign all or a portion of its interests in any Loans to the Granting Bank or to any financial institutions (consented to by Company, ChipPAC and the Administrative Agent) providing liquidity and/or credit support to or for the account of such SPC to support the funding or maintenance of Loans and (ii) disclose on a confidential basis any non-public information relating to its Loans to any rating agency, commercial paper dealer or provider of any surety, guarantee or credit or liquidity enhancement to such SPC. This section may not be amended without the written consent of the SPC. G. Limitation. No assignee, participant or other transferee of any Lender's rights shall be entitled to receive any greater payment under subsection 2.7 than such Lender would have been entitled to receive with respect to the rights transferred, unless 123 such transfer is made with Company's prior written consent or at a time when the circumstances giving rise to such greater payment did not exist. 10.2 Expenses. -------- ChipPAC and Company agree, jointly and severally, to pay promptly (i) all the actual and reasonable costs and out-of-pocket expenses of the Agents in connection with the preparation of the Loan Documents; (ii) all costs of furnishing all opinions by counsel for ChipPAC and its Subsidiaries (including without limitation any opinions requested by the Lenders or Agents as to any legal matters arising hereunder) and of each of ChipPAC's and Company's performance of and compliance with all agreements and conditions on its part to be performed or complied with under this Agreement and the other Loan Documents including, without limitation, with respect to confirming compliance with environmental and insurance requirements; (iii) the reasonable fees, expenses and disbursements of counsel to the Agents (including allocated costs of internal counsel) in connection with the negotiation, preparation, execution and administration of the Loan Documents and the Loans and any consents, amendments, waivers or other modifications hereto or thereto, in each case, requested by or for the benefit of ChipPAC or Company and any other documents or matters requested by Company; (iv) all other reasonable costs and expenses incurred by the Agents in connection with the negotiation, preparation and execution of the Loan Documents and the transactions contemplated hereby and thereby and the syndication of the Loans and Commitments; and (v) after the occurrence of a Default or Event of Default, all the respective reasonable costs and expenses, including reasonable attorneys' fees (including allocated costs of internal counsel) and costs of settlement, incurred by the Agents and the Lenders in enforcing any Obligations of or in collecting any payments due from ChipPAC or Company hereunder or under the other Loan Documents by reason of such Default or Event of Default or in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement in the nature of a "work-out" or pursuant to any insolvency or bankruptcy proceedings. 10.3 Indemnity. --------- In addition to the payment of expenses pursuant to subsection 10.2, whether or not the transactions contemplated hereby shall be consummated, ChipPAC and Company agree, jointly and severally, to defend (subject to Indemnitees' selection of counsel), indemnify, pay and hold harmless on an after-tax basis the Agents and the Lenders, and the officers, directors, employees, agents, attorneys and affiliates of the Agents and the Lenders (collectively called the "Indemnitees") from and against any and all other liabilities, obligations, ----------- losses, damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature whatsoever (including without limitation the reasonable fees and disbursements of counsel for such Indemnitees, and all such fees and disbursements, as well as other costs and expenses, incurred by Indemnitees in connection with any investigative, administrative or judicial proceeding commenced or threatened by any Person, whether or not any such Indemnitee shall be designated as a party or a potential party thereto), whether direct, indirect or consequential and whether based on any federal, state or foreign laws, statutes, rules or regulations (including without limitation securities and commercial laws, statutes, rules or regulations and Environmental Laws), on common law or equitable cause or on contract or otherwise, that may be imposed on, incurred by, or asserted against any such Indemnitee, in any manner relating to or arising out of this Agreement or the other Loan Documents or the 124 transactions contemplated hereby or thereby (including without limitation the Lenders' agreement to make the Loans hereunder or the use or intended use of the proceeds of any of the Loans or the issuance of Letters of Credit hereunder or the use or intended use of any of the Letters of Credit) or any Environmental Liabilities that arise from or relate to the management, use, control, ownership, occupancy or operation of any Facility or assets of any Loan Party or its Subsidiaries (including without limitation, all on-site and off-site activities involving Hazardous Materials), or the Release or threatened Release of any Hazardous Materials (or allegations of the same) on or from any of the Facilities or on or from any other property where Hazardous Materials are or were (or are or were alleged to be) Released or threatened to be Released in connection with any of the Facilities or the business of any of the Loan Parties, their Subsidiaries, or any predecessor in interest to the Loan Parties or their Subsidiaries (collectively called the "Indemnified Liabilities"); ----------------------- provided that neither ChipPAC nor Company shall have any obligation to any - -------- Indemnitee hereunder with respect to any Indemnified Liabilities to the extent that such Indemnified Liabilities arose from the bad faith, gross negligence or willful misconduct of that Indemnitee. To the extent that the undertaking to defend, indemnify, pay and hold harmless set forth in the preceding sentence may be unenforceable because it is violative of any law or public policy, each of ChipPAC and Company shall contribute the maximum portion that it is permitted to pay and satisfy under applicable law to the payment and satisfaction of all Indemnified Liabilities incurred by the Indemnitees or any of them. 10.4 Set-Off; Security Interest in Deposit Accounts. ---------------------------------------------- In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence and during the continuance of any Event of Default, each Lender is hereby authorized by each of ChipPAC and Company at any time or from time to time, without notice to ChipPAC or Company or to any other Person, any such notice being hereby expressly waived, to set off and to appropriate and to apply any and all deposits (general or special, including, but not limited to, Indebtedness evidenced by certificates of deposit, whether matured or unmatured, but not including trust accounts) and any other Indebtedness at any time held or owing by that Lender (at any office of that Lender wherever located) to or for the credit or the account of ChipPAC or Company against and on account of the obligations and liabilities of ChipPAC or Company to that Lender under this Agreement, the Letters of Credit and participations therein, including, but not limited to, all claims of any nature or description arising out of or connected with this Agreement, the Letters of Credit and participations therein or any other Loan Document, irrespective of whether or not (i) that Lender shall have made any demand hereunder or (ii) the principal of or the interest on the Loans or any amounts in respect of the Letters of Credit or any other amounts due hereunder shall have become due and payable pursuant to Section 8 and although said obligations and liabilities, or any of them, may be contingent or unmatured. Each of ChipPAC and Company hereby further grants to the Administrative Agent and each Lender a security interest in all deposits and accounts maintained with the Administrative Agent or such Lender as security for the Obligations. 10.5 Ratable Sharing. --------------- The Lenders hereby agree among themselves that if any of them shall, whether by voluntary payment (other than a voluntary prepayment of Loans made and applied in accordance with the terms of this Agreement), by realization upon security, through the 125 exercise of any right of set-off or banker's lien, by counterclaim or cross action or by the enforcement of any right under the Loan Documents or otherwise, or as adequate protection of a deposit treated as cash collateral under any Bankruptcy Law, receive payment or reduction of a proportion of the aggregate amount of principal, interest, amounts payable in respect of Letters of Credit, fees and other amounts then due and owing to that Lender hereunder or under the other Loan Documents (collectively, the "Aggregate Amounts Due" to such Lender) --------------------- which is greater than the proportion received by any other Lender in respect of the Aggregate Amounts Due to such other Lender, then the Lender receiving such proportionately greater payment shall (i) notify the Administrative Agent and each other Lender of the receipt of such payment and (ii) apply a portion of such payment to purchase participations (which it shall be deemed to have purchased from each seller of a participation simultaneously upon the receipt by such seller of its portion of such payment) in the Aggregate Amounts Due to the other Lenders so that all such recoveries of Aggregate Amounts Due shall be shared by all the Lenders in proportion to the Aggregate Amounts Due to them; provided that if all or part of such proportionately greater payment received by - -------- such purchasing Lender is thereafter recovered from such Lender upon the bankruptcy, reorganization or insolvency proceeding of ChipPAC or Company or otherwise, those purchases shall be rescinded and the purchase prices paid for such participations shall be returned to such purchasing Lender ratably to the extent of such recovery, but without interest. Each of ChipPAC and Company expressly consents to the foregoing arrangement and agrees that any holder of a participation so purchased may exercise any and all rights of banker's lien, set-off or counterclaim with respect to any and all monies owing by ChipPAC or Company to that holder with respect thereto as fully as if that holder were owed the amount of the participation held by that holder. 10.6 Amendments and Waivers. ---------------------- A. No amendment, modification, termination or waiver of any provision of this Agreement, or consent to any departure by ChipPAC, Company or any other Loan Party therefrom, shall in any event be effective without the written consent of the Requisite Lenders; provided that any such amendment, -------- modification, termination, waiver or consent which: (a) reduces the principal amount of any of the Loans; (b) changes in any manner any provision of this Agreement which, by its terms, expressly requires the approval or consent of all the Lenders; (c) postpones the scheduled final maturity date of any of the Loans; (d) reduces the percentage specified in the definition of the "Requisite Lenders" (it being understood that, with the consent of the Requisite Lenders, additional extensions of credit pursuant to this Agreement may be included in the definition of the "Requisite Lenders" on substantially the same basis as the Term A Loans, Term A Loan Commitments, Term B Loans, Term B Loan Commitments, Term Delayed Draw Loans, Term Delayed Draw Loan Commitments, Revolving Loans and Revolving Loan Commitments are included on the Closing Date); (e) postpones the date or reduces the amount of any scheduled payment (but not prepayment) of principal of any of the Loans or of any scheduled reduction of the Revolving Credit Commitments or Term Delayed Draw Loan Commitments; (f) postpones the date on which any interest or any fees are payable; (g) decreases the interest rate borne by any of the Loans (other than any waiver of any increase in the interest rate applicable to any of the Loans pursuant to subsection 2.2E) or the amount of any fees payable hereunder; (h) releases all or substantially all of the Collateral; (i) except as permitted by this Agreement (subsection 7.7) or any Guaranty, releases any of the Guarantors from their obligations under the Guaranties; (j) reduces the amount or postpones the due date of any amount 126 payable in respect of, or extends the required expiration date of, any Letter of Credit; or (k) changes in any manner the provisions contained in this subsection 10.6, shall be effective only if evidenced by a writing signed by or on behalf of all the Lenders to whom Obligations are owed or who have Commitments outstanding being directly affected by such amendment, modification, termination, waiver or consent. In addition, (i) any amendment, modification, termination or waiver of any of the provisions contained in Section 4 shall be effective only if evidenced by a writing signed by or on behalf of the Administrative Agent, (ii) no increase in the Commitments of any Lender over the amount thereof then in effect shall be effective without the written concurrence of that Lender, it being understood and agreed that in no event shall waivers or modifications of conditions precedent, covenants, Defaults, Events of Default or of a mandatory prepayment or a reduction of any or all of the Commitments be deemed to constitute an increase of the Commitment of any Lender and that an increase in the available portion of any Commitment of any Lender shall not be deemed to constitute an increase in the Commitment of such Lender, (iii) no amendment, modification, termination or waiver of any provision of subsection 2.1A(v) or any other provision of this Agreement relating to the Swing Line Loan Commitment or the Swing Line Loans shall be effective without the written concurrence of the Swing Line Lender, (iv) no amendment, modification, termination or waiver of any provision of Section 3 relating to the rights or obligations of the Issuing Bank shall be effective without the written concurrence of the Issuing Bank with respect to any Letter of Credit then outstanding, and (v) no amendment, modification, termination or waiver of any provision of Section 9 or of any other provision of this Agreement which, by its terms, expressly requires the approval or concurrence of any Agent shall be effective without the written concurrence of such Agent. The Administrative Agent may, but shall have no obligation to, with the concurrence of any Lender, execute amendments, modifications, waivers or consents on behalf of that Lender and no amendment, modification, termination or waiver of any provision of subsection 2.4 which has the effect of changing any voluntary or mandatory prepayments or Commitment reductions applicable to any Class (the "Affected Class") in a manner that disproportionately disadvantages such Class -------------- relative to any other Class shall be effective without the written concurrence of the Requisite Class Lenders of the Affected Class (it being understood and agreed that any amendment, modification, termination or waiver of any such provision which only postpones or reduces any voluntary or mandatory prepayment or Commitment reduction from those set forth in subsection 2.4 with respect to one Class but not the other Classes shall be deemed to disproportionately disadvantage such one Class but not to disproportionately disadvantage such other Classes for purposes of this clause). Any waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. No notice to or demand on ChipPAC or Company in any case shall entitle ChipPAC or Company to any other or further notice or demand in similar or other circumstances. Any amendment, modification, termination, waiver or consent effected in accordance with this subsection 10.6 shall be binding upon each Lender at the time outstanding, each future Lender and, if signed by ChipPAC or Company, on ChipPAC or Company. 10.7 Independence of Covenants. ------------------------- All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or would otherwise be within the limitations of, another 127 such covenant shall not avoid the occurrence of an Default or Event of Default if such action is taken or condition exists. 10.8 Notices. ------- Unless otherwise specifically provided herein, any notice or other communication herein required or permitted to be given shall be in writing and may be personally served, telecopied, telexed or sent by United States mail or courier service and shall be deemed to have been given when delivered in person or by courier service, upon receipt of telecopy or telex, or four Business Days after depositing it in the United States mail, registered or certified, with postage prepaid and properly addressed. For the purposes hereof, the address of each party hereto shall be as set forth on the signature pages hereof attached hereto, or such other address as shall be designated by such party in a written notice delivered to the Administrative Agent, ChipPAC and Company. 10.9 Survival of Representations, Warranties and Agreements. ------------------------------------------------------ A. All representations, warranties and agreements made herein shall survive the execution and delivery of this Agreement and the making of the Loans and the issuance of the Letters of Credit hereunder. B. Notwithstanding anything in this Agreement or implied by law to the contrary, the respective agreements of ChipPAC and Company set forth in subsections 2.6D, 2.7, 3.5A, 3.6, 10.2, 10.3 and 10.4, as applicable and the agreements of the Lenders set forth in subsections 9.2C, 9.4, 10.4, 10.5 and 10.21 shall survive the payment of the Loans, the cancellation or expiration of the Letters of Credit and the reimbursement of any amounts drawn or paid thereunder, and the termination of this Agreement. 10.10 Failure or Indulgence Not Waiver; Remedies Cumulative. ----------------------------------------------------- No failure or delay on the part of any Agent or any Lender in the exercise of any power, right or privilege hereunder or under any other Loan Document shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other power, right or privilege. All rights and remedies existing under this Agreement and the other Loan Documents are cumulative to, and not exclusive of, any rights or remedies otherwise available. 10.11 Marshalling; Payments Set Aside. ------------------------------- Neither any Agent nor any Lender shall be under any obligation to marshal any assets in favor of ChipPAC, Company or any other party or against or in payment of any or all of the Obligations. To the extent that ChipPAC or Company makes a payment or payments to the Administrative Agent or the Lenders (or to the Administrative Agent or Collateral Agent for the benefit of the Lenders), or any Agent or the Lenders enforce any security interests or exercise their rights of setoff, and such payment or payments or the proceeds of such enforcement or setoff or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, any other state or federal law, common law or any equitable cause, then, to the extent of such recovery, the obligation or part thereof originally intended to be satisfied, and all Liens, rights and remedies therefor 128 or related thereto, shall be revived and continued in full force and effect as if such payment or payments had not been made or such enforcement or setoff had not occurred. 10.12 Severability. ------------ In case any provision in or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. 10.13 Obligations Several; Independent Nature of the Lenders' Rights. -------------------------------------------------------------- The obligations of the Lenders hereunder are several and no Lender shall be responsible for the obligations or Commitments of any other Lender hereunder. Nothing contained herein or in any other Loan Document, and no action taken by the Lenders pursuant hereto or thereto, shall be deemed to constitute the Lenders as a partnership, an association, a joint venture or any other kind of entity. The amounts payable at any time hereunder to each Lender shall be a separate and independent debt, and each Lender shall be entitled to protect and enforce its rights arising out of this Agreement and it shall not be necessary for any other Lender to be joined as an additional party in any proceeding for such purpose. 10.14 Maximum Amount. -------------- A. It is the intention of ChipPAC, Company and the Lenders to conform strictly to the usury and similar laws relating to interest from time to time in force, and all agreements between the Loan Parties and their respective Subsidiaries and the Lenders, whether now existing or hereafter arising and whether oral or written, are hereby expressly limited so that in no contingency or event whatsoever, whether by acceleration of maturity hereof or otherwise, shall the amount paid or agreed to be paid in the aggregate to the Lenders as interest (whether or not designated as interest, and including any amount otherwise designated but deemed to constitute interest by a court of competent jurisdiction) hereunder or under the other Loan Documents or in any other agreement given to secure the Indebtedness or obligations of ChipPAC or Company to the Lenders, or in any other document evidencing, securing or pertaining to the Indebtedness evidenced hereby, exceed the maximum amount permissible under applicable usury or such other laws (the "Maximum Amount"). If under any -------------- circumstances whatsoever fulfillment of any provision hereof, or any of the other Loan Documents, at the time performance of such provision shall be due, shall involve exceeding the Maximum Amount, then, ipso facto, the obligation to be fulfilled shall be reduced to the Maximum Amount. For the purposes of calculating the actual amount of interest paid and/or payable hereunder in respect of laws pertaining to usury or such other laws, all sums paid or agreed to be paid to the holder hereof for the use, forbearance or detention of the Indebtedness of ChipPAC or Company evidenced hereby, outstanding from time to time shall, to the extent permitted by Applicable Law, be amortized, pro-rated, allocated and spread from the date of disbursement of the proceeds of the Loans until payment in full of all of such Indebtedness, so that the actual rate of interest on account of such Indebtedness is uniform through the term hereof. The terms and provisions of this subsection shall control and supersede every other provision of all agreements between ChipPAC, Company and the Lenders. 129 B. If under any circumstances any Lender shall ever receive an amount which would exceed the Maximum Amount, such amount shall be deemed a payment in reduction of the principal amount of the Loans and shall be treated as a voluntary prepayment under subsection 2.4B(i) and shall be so applied in accordance with subsection 2.4 hereof or, if such excessive interest exceeds the unpaid balance of the Loans and any other Indebtedness of ChipPAC or Company in favor of such Lender, the excess shall be deemed to have been a payment made by mistake and shall be refunded to ChipPAC or Company, as applicable. 10.15 Headings. -------- Section and subsection headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or be given any substantive effect. 10.16 Applicable Law. -------------- THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. 10.17 Successors and Assigns. ---------------------- This Agreement shall be binding upon the parties hereto and their respective successors and assigns and shall inure to the benefit of the parties hereto and the successors and assigns of the Lenders (it being understood that the Lenders' rights of assignment are subject to subsection 10.1). Neither ChipPAC's or Company's respective rights or obligations hereunder nor any interest therein may be assigned or delegated by ChipPAC or Company without the prior written consent of all Lenders. 10.18 Consent to Jurisdiction and Service of Process. ---------------------------------------------- ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST CHIPPAC OR COMPANY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY OBLIGATIONS THEREUNDER, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY EXECUTING AND DELIVERING THIS AGREEMENT, COMPANY FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY (I) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS; (II) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS; (III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO COMPANY AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SUBSECTION 10.8; 130 (IV) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER COMPANY IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT; (V) AGREES THAT LENDERS RETAIN THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST COMPANY IN THE COURTS OF ANY OTHER JURISDICTION; AND (VI) AGREES THAT THE PROVISIONS OF THIS SUBSECTION 10.18 RELATING TO JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1402 OR OTHERWISE. 10.19 Waiver of Jury Trial. -------------------- EACH OF THE PARTIES TO THIS AGREEMENT HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION OR THE LENDER/BORROWER RELATIONSHIP OR OTHER RELATIONSHIP THAT IS BEING ESTABLISHED. The scope of this waiver is intended to be all-encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of this transaction, including, without limitation, contract claims, tort claims, breach of duty claims and all other common law and statutory claims. Each party hereto acknowledges that this waiver is a material inducement to enter into a business relationship, that each has already relied on this waiver in entering into this Agreement, and that each will continue to rely on this waiver in their related future dealings. Each party hereto further warrants and represents that it has reviewed this waiver with its legal counsel and that it knowingly and voluntarily waives its jury trial rights following consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SUBSECTION 10.19 AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS MADE HEREUNDER. In the event of litigation, this Agreement may be filed as a written consent to a trial by the court. 10.20 Judgment Currency. ------------------ A. The obligations of Company and the other Loan Parties hereunder and under the other Loan Documents to make payments in dollars (the "Obligation ---------- Currency") shall not be discharged or satisfied by any tender or recovery - -------- pursuant to any judgment expressed in or converted into any currency other than the Obligation Currency, 131 except to the extent that such tender or recovery results in the effective receipt by the Administrative Agent or a Lender or the Issuing Bank of the full amount of the Obligation Currency expressed to be payable to the Administrative Agent or such Lender or the Issuing Bank under this Agreement or the other Loan Documents. If, for the purpose of obtaining or enforcing judgment against Company or any other Loan Party or in any court or in any jurisdiction, it becomes necessary to convert into or from any currency other than the Obligation Currency (such other currency being hereinafter referred to as the "Judgment Currency") an amount due in the Obligation Currency, the conversion ----------------- shall be made at the rate of exchange (as quoted by the Administrative Agent or if the Administrative Agent does not quote a rate of exchange on such currency, by a known dealer in such currency designated by the Administrative Agent) determined, in each case, as of the date immediately preceding the day on which the judgment is given (such Business Day being hereinafter referred to as the "Judgment Currency Conversion Date"). --------------------------------- B. If there is a change in the rate of exchange prevailing between the Judgment Currency Conversion Date and the date of actual payment of the amount due, Company covenants and agrees to pay, or cause to be paid, as a separate obligation and notwithstanding any judgment, such additional amounts, if any (but in any event not a lesser amount), as may be necessary to ensure that the amount paid in the Judgment Currency, when converted at the rate of exchange prevailing on the date of payment, will produce the amount of the Obligation Currency which could have been purchased with the amount of Judgment Currency stipulated in the judgment or judicial award at the rate of exchange prevailing on the Judgment Currency Conversion Date. C. For purposes of determining the rate of exchange for this Section, such amounts shall include any premium and costs payable in connection with the purchase of the Obligation Currency. 10.21 Confidentiality. --------------- Each Lender shall hold all non-public information obtained pursuant to the requirements of this Agreement in accordance with such Lender's customary procedures for handling confidential information of this nature and in accordance with safe and sound banking and investing practices, it being understood and agreed by ChipPAC and Company that in any event a Lender may make disclosures reasonably required by any bona fide assignee, transferee or participant in connection with the contemplated assignment or transfer by such Lender of any Loans or any participation therein or as required or requested by any governmental agency or representative thereof or pursuant to legal process; provided that nothing herein shall prevent any Agent or any Lender from - -------- disclosing any such information (i) to the Administrative Agent or any other Lender, (ii) any of its employees, directors, officers, agents or affiliates who need to know such information in accordance with customary safe and sound banking or commercial lending practices who receive such information having been made aware of the confidential nature thereof, (iii) upon the request or demand of any Governmental Authority having jurisdiction over it, (iv) in response to any order of any court or other Governmental Authority or as may otherwise be required pursuant to any Applicable Laws, (v) if required to do so in connection with any litigation or similar proceeding, (vi) which has been publicly disclosed other than in breach of this subsection 10.21 or (vii) to the National Association of Insurance Commissioners or any securities exchange or any similar organization, or any nationally recognized rating agency that requires access to 132 information about a Lender's investment portfolio in connection with ratings issued with respect to such Lender. In the event that any Lender discloses any information pursuant to clauses (iv) or (v) of the preceding sentence, such Lender will, before such disclosure, give notice thereof to ChipPAC and Company if such Lender is lawfully permitted to do so; and provided, further that in no -------- ------- event shall any Lender be obligated or required to return any materials furnished by ChipPAC or any of its Subsidiaries unless requested by ChipPAC or any of its Subsidiaries to do so. 10.22 Counterparts; Effectiveness. --------------------------- This Agreement and any amendments, waivers, consents or supplements hereto or in connection herewith may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 133 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above. CHIPPAC INTERNATIONAL COMPANY LIMITED By: /s/ P.J. Kim ---------------------------------------- Name: P.J. Kim Title: Senior Manager Notice Address: c/o HWR Services Limited Craigmuir Chambers, P.O. Box 71 Road Town, Tortola British Virgin Islands and ChipPAC, Inc. 3151 Coronado Drive Santa Clara, CA 95054 Attn: Chief Financial Officer Telephone: (408) 486-5900 Facsimile: (408) 486-5911 with a copy to: Bain Capital, Inc. II One Embarcadero Suite 2260 San Francisco, CA 94111 Attn: David Dominik Prescott Ashe Telephone: (415) 627-1330 Facsimile: (415) 627-1333 and Bain Capital, Inc. Two Copley Place Boston, MA 02116 Attn: Marshall Haines Telephone: (617) 572-3000 Facsimile: (617) 572-3274 and Kirkland & Ellis 200 East Randolph Drive Chicago, IL 60601 Attn: Linda Myers Telephone: (312) 861-2000 Facsimile: (312) 861-2200 and Citicorp Venture Capital, Ltd. 399 Park Avenue New York, NY 10043 Attn: Paul C. Schorr IV Telephone: (212) 559-2056 Facsimile: (212) 888-2940 and Dechert Price & Rhoads 4000 Bell Atlantic Tower 1717 Arch Street Philadelphia, PA 19103 Attn: G. Daniel O'Donnell Telephone: (215) 994-4000 Facsimile: (215) 994-2222 CHIPPAC, INC. By: /s/ Gary Breton -------------------------------------- Name: Gary Breton Title: Managing Director and Vice President Notice Address: 3151 Coronado Drive Santa Clara, CA 95054 Attn: Chief Financial Officer Telephone: (408) 486-5900 Facsimile: (408) 486-5911 with a copy to: Bain Capital, Inc. II One Embarcadero Suite 2260 San Francisco, CA 94111 Attn: David Dominik Prescott Ashe Telephone: (415) 627-1330 Facsimile: (415) 627-1333 and Bain Capital, Inc. Two Copley Place Boston, MA 02116 Attn: Marshall Haines Telephone: (617) 572-3000 Facsimile: (617) 572-3274 and Kirkland & Ellis 200 East Randolph Drive Chicago, IL 60601 Attn: Linda Myers Telephone: (312) 861-2000 Facsimile: (312) 861-2200 and Citicorp Venture Capital, Ltd. 399 Park Avenue New York, NY 10043 Attn: Paul C. Schorr IV Telephone: (212) 559-2056 Facsimile: (212) 888-2940 and Dechert Price & Rhoads 4000 Bell Atlantic Tower 1717 Arch Street Philadelphia, PA 19103 Attn: G. Daniel O'Donnell Telephone: (215) 994-4000 Facsimile: (215) 994-2222 AGENTS AND LENDERS: CREDIT SUISSE FIRST BOSTON, individually and as the Administrative Agent, Sole Lead Arranger and the Collateral Agent By: /s/ Chris Horgan --------------------------------------- Name: Chris Horgan Title: Vice President By: /s/ Wm. Matthew Carter --------------------------------------- Name: Wm. Matthew Carter Title: Assistant Vice President BANKBOSTON N.A., By: /s/ Anthony B. Kwee --------------------------------------- Name: Anthony B. Kwee Title: Vice President STATE STREET BANK AND TRUST COMPANY, By: /s/ William S. Rowe --------------------------------------- Name: William S. Rowe Title: Assistant Vice President BALANCED HIGH-YIELD FUND II LIMITED, By: BHF (USA) Capital Corporation, as attorney-in-fact By: /s/ Hans J. Scholz --------------------------------------- Name: Hans J. Scholz Title: Vice President By: /s/ Anthony Heyman --------------------------------------- Name: Anthony Heyman Title: Assistant Vice President CIBC Inc., By: /s/ Dean J. Decker --------------------------------------- Name: Dean J. Decker Title: Executive Director CIBC World Markets Corp., AS AGENT FIRST SOURCE FINANCIAL LLP By First Source Financial, Inc., Its Agent/Manager By: /s/ David C. Wagner --------------------------------------- Name: David C. Wagner Title: Vice President HELLER FINANCIAL, INC., By: /s/ Robert M. Reeg --------------------------------------- Name: Robert M. Reeg Title: Assistant Vice President THE FIRST NATIONAL BANK OF CHICAGO, By: /s/ Stephanie Mack --------------------------------------- Name: Stephanie Mack Title: Associate Underwriter IBM CREDIT CORPORATION, By: /s/ Ronald J. Bachner --------------------------------------- Name: Ronald J. Bachner Title: Manager, Commercial Financing Solutions Americas North Castle Drive Armonk, NY 10504 SCHEDULE 1.1(i) Certain Adjustments to EBITDA/Consolidated Interest Expense ----------------------------------------------------------- A. Without duplication and to the extent otherwise deducted in determining Consolidated Net Income: (i) items classified as unusual or nonrecurring gains and losses (including restructuring costs, severance and relocation costs, any one-time expenses related to (or resulting from) any merger, recapitalization or Permitted Acquisition); (ii) one-time compensation charges, including any arising from any recapitalization of Company's bonus program or existing stock options, performance share or restricted stock plans resulting from any merger or recapitalization transaction or expended in any period prior to the consummation of the transactions contemplated by the Transaction Documents; (iii) non-recurring cash charges and transaction expenses incurred in connection with the transactions contemplated by the Transaction Documents to the extent deducted in determining Consolidated Net Income; (iv) non-recurring cash charges and transaction expenses incurred in connection with Permitted Acquisitions to the extent deducted in determining Consolidated Net Income; (v) any translation gains and losses due solely to fluctuations in currency values and the related tax effect in accordance with GAAP; (vi) one-time charges related to HEI's union change in control in Korea, to the extent paid by HEI; (vii) non-cash charges associated with Intel's warrant to purchase $5,000,000 of ChipPAC's common stock at a 20.0% discount to the initial public offering price; and (viii) the payment of management, consulting and advisory fees and related expenses made pursuant to the Sponsor Advisory Services Agreements. B. For purposes of calculating the Interest Coverage Ratio, the Leverage Ratio and the Fixed Charge Coverage Ratio at or for the periods ended December 31, 1999, March 31, 2000, and June 30, 2000, Consolidated Adjusted EBITDA and Consolidated Interest Expense shall be deemed to be (i) Consolidated Adjusted EBITDA and Consolidated Interest Expense, respectively, for the period from July 31, 1999, to December 31, 1999, multiplied by 12/5, (ii) Consolidated Adjusted EBITDA and Consolidated Interest Expense, respectively, for the period from July 31, 1999, to March 31, 2000, multiplied by 3/2, and (iii) Consolidated Adjusted EBITDA and Consolidated Interest Expense, respectively, for the period from July 31, 1999, to June 30, 2000, multiplied by 12/11. EX-10.2 25 GUARANTY, DATED AS OF 8/5/1999 1 EXHIBIT 10.2 GUARANTY This GUARANTY is entered into as of August 5, 1999, by CHIPPAC, INC., a California corporation ("ChipPAC"), and THE UNDERSIGNED DIRECT AND INDIRECT ------- SUBSIDIARIES of CHIPPAC (each such undersigned Subsidiary, a "Subsidiary ---------- Guarantor", and all such Subsidiaries, collectively, the "Subsidiary - --------- ---------- Guarantors"; the Subsidiary Guarantors and ChipPAC being referred to herein - ---------- collectively as the "Guarantors"; provided that, Guarantors shall be deemed to -------- include any Additional Guarantors (as hereinafter defined)), in favor of CREDIT SUISSE FIRST BOSTON ("CSFB"), as administrative agent (in such capacity, the ---- "Administrative Agent") for the banks, financial institutions and other entities -------------------- (collectively, the "Lenders") from time to time party to the Credit Agreement ------- referred to below, any Interest Rate Exchangers (as hereinafter defined), any Indemnitees (as defined in the Credit Agreement) and any other Beneficiaries (as defined below). RECITALS A. ChipPAC International Company Limited, a British Virgin Islands company (the "Company") has entered into that certain Credit Agreement dated as ------- of August 5, 1999 (as amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement") with the Lenders and CSFB, as the ---------------- Administrative Agent, the Sole Lead Arranger and the Collateral Agent (collectively, the "Agents"), pursuant to which the Lenders have severally ------ agreed to make Loans to the Company and to issue (or participate in) Letters of Credit for the account of ChipPAC and its Subsidiaries upon, and subject to, the terms and conditions set forth therein. B. ChipPAC and its Subsidiaries may from time to time enter, or may from time to time have entered, into one or more Interest Rate Agreements the "Lender ------ Interest Rate Agreements") with one or more Lenders or their Affiliates (in such - ------------------------ capacity, collectively, the "Interest Rate Exchangers") in accordance with the ------------------------ terms of the Credit Agreement, and it is desired that the obligations of ChipPAC and its Subsidiaries under the Lender Interest Rate Agreements, including without limitation the obligation of ChipPAC and its Subsidiaries to make payments thereunder in the event of early termination thereof, be guarantied hereunder. C. A portion of the proceeds of the Loans may be advanced to the Subsidiary Guarantors such that the Guarantied Obligations (as hereinafter defined) are otherwise being incurred for and will inure to the benefit of the Guarantors, and each Guarantor will derive substantial direct and indirect benefit from the making of the Loans to, and the issuance of the Letters of Credit for the account of, the Company. D. It is a condition precedent to the obligations of each Lender to make its respective Loans and to issue (or participate in) the Letters of Credit under the Credit Agreement that each of the Guarantors guaranty the Guarantied Obligations and execute and deliver this Guaranty to the Administrative Agent for the ratable benefit of the Beneficiaries. E. Each of the Guarantors is willing irrevocably and unconditionally to guaranty such obligations pursuant to the terms hereof. NOW, THEREFORE, based upon the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and 2 in order to induce the Lenders to enter into the Credit Agreement and to make the Loans and other extensions of credit thereunder (including without limitation the issuance of (and participation in) the Letters of Credit) and to induce the Interest Rate Exchangers to enter into the Lender Interest Rate Agreements, each of the Guarantors hereby agrees as follows: SECTION 1. DEFINITIONS 1.1 Defined Terms. ------------- Capitalized terms used herein (including in the Recitals hereto) and not defined herein shall have the meanings assigned to such terms in the Credit Agreement. As used in this Guaranty, the following terms shall have the following meanings unless the context otherwise requires: "Additional Guarantors" has the meaning assigned to that term in subsection --------------------- 3.12. "Beneficiaries" means the Lenders, the Agents, any Interest Rate Exchangers ------------- and any Indemnitees and their respective successors, transferees, assigns and endorsees. "Company" has the meaning assigned to that term in the first recital. ------- "CSFB" has the meaning assigned to that term in the preamble. ---- "Guarantied Obligations" means, collectively, at any time: ---------------------- (a) (i) all unpaid principal of and interest on (including, without limitation, interest accruing after the maturity of the Loans and interest accruing after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Company, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding) the Loans, (ii) all reimbursement obligations and unpaid drawings in respect of Letters of Credit and (iii) all other obligations and liabilities of every nature owing by the Company or any other Loan Party to any Beneficiary arising under, out of or in connection with the Credit Agreement, any other Loan Document, the Loans or the Letters of Credit; (b) all obligations and liabilities of every nature owing by ChipPAC or any of its Subsidiaries to any Interest Rate Exchangers arising under, out of or in connection with the Lender Interest Rate Agreements; all of the foregoing, whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter arising, created or incurred, as may be changed, modified or altered from time to time, howsoever arising; and all of the foregoing obligations shall include obligations which, but for any automatic stay under any applicable Bankruptcy Law, including Section 362(a) of Title 11 of the United States Code, would be, or would have become, due. "Guarantors" has the meaning assigned to that term in the preamble. ---------- 3 "Guaranty" means this Guaranty as it may be amended, restated, supplemented -------- or otherwise modified from time to time in accordance with the provisions hereof and the Credit Agreement. "Interest Rate Exchangers" has the meaning assigned to that term in the ------------------------ second recital. "Lender Interest Rate Agreements" has the meaning assigned to that term in ------------------------------- the second recital. "Obligee Guarantor" has the meaning assigned to that term in ----------------- subsection 2.7. "payment in full," "paid in full" or any similar term means payment in --------------- ------------ full, in cash, of the Guarantied Obligations (other than indemnification obligations not due and payable), including, without limitation, all principal, interest, costs, fees and expenses (including, without limitation, reasonable legal fees and expenses) of the Beneficiaries as required under the Loan Documents and the Lender Interest Rate Agreements. "Requisite Obligees" means (i) prior to the Guarantied Obligation described ------------------ in clause (a) of the definition thereof having been satisfied or paid in full (other than indemnification obligations not due and payable) and the Commitments having been terminated and all Letters of Credit having expired or been canceled, the Requisite Lenders, and (ii) thereafter, the holders of a majority of the aggregate notional amount under all Lender Interest Rate Agreements (or, with respect to any Lender Interest Rate Agreement that has been terminated in accordance with its terms, the amount then due and payable (exclusive of expenses and similar payments but including any early termination payments then due) under such Lender Interest Rate Agreement). 1.2 Interpretation. -------------- (a) References to "Sections" and "subsections" shall be to Sections and subsections, respectively, of this Guaranty unless otherwise specifically provided. (b) In the event of any conflict or inconsistency between the terms, conditions and provisions of this Guaranty and the terms, conditions and provisions of the Credit Agreement, the terms, conditions and provisions of the Credit Agreement shall prevail. SECTION 2. THE GUARANTY 2.1 Guaranty of the Guarantied Obligations. -------------------------------------- Subject to the provisions of subsection 2.2(a), each of the Guarantors hereby jointly and severally, irrevocably and unconditionally, guaranties to the Administrative Agent for the ratable benefit of the Beneficiaries, the prompt, complete and punctual performance, compliance and payment in full of all Guarantied Obligations when the same shall become due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise. 4 2.2 Limitation on Amount Guarantied; Contribution by Guarantors. ----------------------------------------------------------- (a) Anything contained in this Guaranty to the contrary notwithstanding, (i) this Agreement shall not constitute a guarantee by any Subsidiary Guarantor which is not organized under the laws of the United States or any political subdivision thereof of the Obligations of any Loan Party which is organized under the laws of the United States or any political subdivision thereof and (ii) the maximum liability of each Subsidiary Guarantor hereunder shall in no event exceed the amount which can be guarantied by such Subsidiary Guarantor pursuant hereto under applicable federal, state and foreign laws relating to the insolvency of debtors and fraudulent conveyances or transfers. Each Guarantor agrees that the Guarantied Obligations may at any time, and from time to time, exceed the amount of the liability of such Guarantor hereunder without impairing the guaranty of such Guarantor contained in subsection 2.1 or affecting the rights and remedies of the Administrative Agent or any Beneficiary hereunder. (b) Each Guarantor hereby agrees that to the extent that a Guarantor shall have paid more than its proportionate share of any payment made hereunder, such Guarantor shall be entitled to seek and receive contribution from and against any other Guarantor hereunder which has not paid its proportionate share of such payment and each other Guarantor agrees that it will contribute its proportionate share of such payment to the applicable Guarantor. Each Guarantor's right of contribution shall be subject to the terms and conditions of subsections 2.6 and 2.7. The provisions of this subsection 2.2(b) shall in no respect limit the obligations and liabilities of any Guarantor to any Beneficiary, and each Guarantor shall remain liable to any Beneficiary for the full amount guarantied by such Guarantor hereunder, subject only to subsection 2.2(a). 2.3 Payment by Guarantors; Application of Payments. ---------------------------------------------- Subject to the provisions of subsection 2.2(a), each of the Guarantors hereby jointly and severally agrees, in furtherance of the foregoing and not in limitation of any other right which any Beneficiary may have at law or in equity against any Guarantor by virtue hereof, that upon the failure of the Company to pay or perform any of the Guarantied Obligations when and as the same shall become due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise, each Guarantor will promptly, following written demand, pay, or cause to be paid, to the Administrative Agent for the ratable benefit of the Beneficiaries, all Guarantied Obligations then due. All payments made hereunder shall be made on the same basis as, and in accordance with, subsection 2.4E of the Credit Agreement and shall be applied promptly from time to time as provided in subsection 2.4D of the Credit Agreement. 2.4 Liability of Guarantors Absolute. -------------------------------- Each Guarantor agrees that its obligations hereunder are irrevocable, absolute, independent and unconditional and shall not be affected by any event, condition or circumstance whatsoever including, without limitation, any which constitutes, a legal or equitable discharge of the Company for the underlying Guarantied Obligations or of any Guarantor of its guaranty hereunder or otherwise of a guarantor or surety other than payment in full of the Guarantied Obligations. In furtherance of the foregoing and without limiting the generality thereof, each Guarantor agrees as follows: 5 (a) This Guaranty is a guaranty of payment when due and not of collectibility. This Guaranty is a primary obligation of each Guarantor and not merely a contract of surety. (b) The obligations of each Guarantor hereunder are exclusive and independent of (i) the obligations of the Company under the Loan Documents or the Lender Interest Rate Agreements, (ii) the obligations of any other guarantor (including any other Guarantor) of the obligations of the Company under the Loan Documents or the Lender Interest Rate Agreements, and (iii) any security or collateral for such obligations of the Company or any guaranties thereof, whether granted by the Company, any Guarantor or any other Person; and a separate action or actions may be brought and prosecuted against such Guarantor whether or not any action is brought against the Company or any of such other guarantors, security or collateral and whether or not the Company is joined in any such action or actions. (c) Payment by any Guarantor of a portion, but not all, of the Guarantied Obligations shall in no way limit, affect, modify or abridge any Guarantor's liability for any portion of the Guarantied Obligations which has not been paid or performed. Without limiting the generality of the foregoing, if the Administrative Agent or any Beneficiary is awarded a judgment in any suit brought to enforce the obligations of any Guarantor in respect of the Guarantied Obligations then, to the maximum extent permitted by applicable law, such judgment shall not be deemed to release such Guarantor from its obligation to pay the portion of the Guarantied Obligations that is not the subject of such suit, and such judgment shall not, except to the extent satisfied by such Guarantor, limit, affect, modify or abridge any other Guarantor's liability hereunder in respect of the Guarantied Obligations. (d) Any Beneficiary, upon such terms as it deems appropriate, without notice, demand, consent or incurring responsibility to any Guarantor and without affecting the validity or enforceability of this Guaranty or giving rise to any reduction, limitation, impairment, discharge or termination of any Guarantor's obligations or liability hereunder, from time to time may (i) renew, alter, extend, accelerate, increase the rate of interest on or otherwise change or modify the time, place, manner or terms of payment of the Guarantied Obligations; (ii) settle, compromise, release or discharge, or accept or refuse any offer of performance with respect to, or substitutions for, the Guarantied Obligations or any agreement relating thereto and/or subordinate the payment of the same to the payment of any other obligations; (iii) request and accept other guaranties of the Guarantied Obligations and take and hold security for the payment of this Guaranty or the Guarantied Obligations; (iv) release, surrender, exchange, substitute, compromise, settle, rescind, waive, alter, subordinate or modify, with or without consideration, any security for payment of the Guarantied Obligations, any other guaranties of the Guarantied Obligations, or any other obligation of any Person (including any other Guarantor) with respect to the Guarantied Obligations; (v) sell, exchange, release, surrender, realize or foreclose, enforce and apply or otherwise deal with in any manner and in any order any security now or hereafter held by or on behalf of, or for the benefit of, such Beneficiary in respect of this Guaranty or the Guarantied Obligations; (vi) apply any sums by whomsoever paid or howsoever realized to any of the Guarantied Obligations; (vii) consent to or waive any breach of, or any act, omission or default under, any of the Loan Documents, the Lender Interest Rate Agreements or any of the instruments or agreements in connection therewith, or otherwise amend, modify 6 or supplement any of the Loan Documents, the Lender Interest Rate Agreements or any of the instruments or agreements in connection therewith; and (viii) exercise or refrain from exercising any other rights available to it under the Loan Documents or the Lender Interest Rate Agreements. (e) This Guaranty and the obligations of the Guarantors hereunder shall be valid and enforceable and shall not be subject to any reduction, limitation, impairment, discharge or termination for any reason (other than payment in full of the Guarantied Obligations), including, without limitation, the occurrence of any of the following, whether or not any Guarantor shall have had notice or knowledge of any of them: (i) any failure or omission to assert or enforce, or agreement or election not to assert or enforce, or the stay or enjoining, by order of court, by operation of law or otherwise, of the exercise or enforcement of, any claim or demand or any right, power or remedy (whether arising under the Loan Documents, the Lender Interest Rate Agreements, at law, in equity or otherwise) with respect to the Guarantied Obligations or any agreement or instrument relating thereto, or with respect to any other guaranty of, or security for the payment of, the Guarantied Obligations; (ii) any rescission, waiver, amendment or modification of, or any consent to departure from, any of the terms or provisions (including, without limitation, provisions relating to events of default) of the Credit Agreement, any of the other Loan Documents, any of the Lender Interest Rate Agreements or any agreement or instrument relating thereto, or of any other guaranty or security for the Guarantied Obligations, in each case whether or not in accordance with the terms of the Credit Agreement or such Loan Document, such Lender Interest Rate Agreement or any agreement relating to such other guaranty or security; (iii) the application of payments received from any source (other than payments received pursuant to other Loan Documents or any Lender Interest Rate Agreements or from the proceeds of any security for the Guarantied Obligations) to the payment of indebtedness other than the Guarantied Obligations, even though any Beneficiary might have elected to apply such payment to any part or all of the Guarantied Obligations; (iv) except as permitted pursuant to subsection 7.7 of the Credit Agreement, any Beneficiary's consent to the change, reorganization or termination of the corporate structure or existence of the Company or any of its Subsidiaries and to any corresponding restructuring of the Guarantied Obligations; (v) any failure to perfect or continue perfection of a security interest in any collateral which secures any of the Guarantied Obligations; (vi) any defenses, set-offs or counterclaims which the Company, any Guarantor or any other Person may allege or assert against any Beneficiary in respect of the Guarantied Obligations, including, but not limited to, failure of consideration, breach of warranty, payment, statute of frauds, statute of limitations, accord and satisfaction and usury; and (vii) any other act or thing or omission, or delay to do any other act or thing, which may or might in any manner or to any extent vary the risk of any Guarantor as an obligor in respect of the Guarantied Obligations. 2.5 Waivers by Guarantors. --------------------- Each Guarantor hereby waives, for the benefit of the Beneficiaries: (a) any right to require any Beneficiary, as a condition of payment by such Guarantor, to (i) proceed against the Company, any other guarantor (including any other Guarantor) of the Guarantied Obligations or any other Person, (ii) proceed against or exhaust any security held from the Company, any such other 7 guarantor or any other Person, (iii) proceed against or have resort to any balance of any deposit account or credit on the books of any Beneficiary in favor of the Company or any other Person, or (iv) pursue any other remedy in the power of any Beneficiary whatsoever; (b) any defense based on or arising out of the Company or any other guarantor (including any other Guarantor) or any other Person, including, without limitation, any defense arising by reason of the incapacity, lack of authority or any disability or other defense of the Company, any other guarantor (including any other Guarantor) or any other Person, any defense based on or arising out of the lack of validity or the unenforceability of the Guarantied Obligations or any agreement or instrument relating thereto or by reason of the cessation of the liability of the Company from any cause other than payment in full of the Guarantied Obligations; (c) any defense based upon any statute or rule of law which provides that the obligation of a surety must be neither larger in amount nor in other respects more burdensome than that of the principal; (d) (i) any principles or provisions of law, statutory or otherwise, which are or might be in conflict with the terms of this Guaranty, (ii) the benefit of any statute of limitations affecting such Guarantor's liability hereunder or the enforcement hereof, (iii) any rights to set-offs, recoupments and counterclaims, and (iv) any requirement that any Beneficiary protect, secure, perfect or insure any security interest or lien or any property subject thereto; and (e) promptness, diligence, notices, demands, presentments, protests, notices of protest, notices of dishonor and notices of any action or inaction, including acceptance of this Guaranty, notices of default under the Credit Agreement, any other Loan Document, the Lender Interest Rate Agreements or any agreement or instrument related thereto, notices of any renewal, extension or modification of the Guarantied Obligations or any agreement related thereto, notices of any extension of credit to Company, notices of the existence, creation or incurrence of any additional Indebtedness and notices of any of the matters referred to in subsection 2.4 and any right to consent to any thereof. 2.6 Guarantors' Rights of Subrogation, Contribution, etc. ---------------------------------------------------- Until the Guarantied Obligations (other than indemnification obligations not due and payable) have been satisfied or paid in full and the Commitments terminated and all Letters of Credit shall have expired or been canceled, each Guarantor hereby waives and agrees that it shall not assert or seek or be entitled to any claim, right or remedy, direct or indirect, that such Guarantor now has or may hereafter have against the Company or any of its assets in connection with this Guaranty or the performance by such Guarantor of its obligations hereunder, in each case whether such claim, right or remedy arises in equity, under contract, by statute, under common law or otherwise and including, without limitation, (a) any right of subrogation, reimbursement, contribution or indemnification that such Guarantor now has or may hereafter have against the Company with respect to the Guarantied Obligations, (b) any right to enforce, or to participate in, any claim, right or remedy that any Beneficiary now has or may hereafter have against the Company and (c) any benefit of, and any right to participate in, any collateral or security now or hereafter held by, on behalf of or for any Beneficiary. In addition, until the Guarantied Obligations (other than 8 indemnification obligations not due and payable) shall have been satisfied or paid in full and the Commitments shall have terminated and all Letters of Credit shall have expired or been canceled, each Guarantor shall withhold exercise of any right of contribution such Guarantor may have against any other guarantor (including any other Guarantor) of the Guarantied Obligations (including, without limitation, any such right of contribution under subsection 2.2(b)). Each Guarantor further agrees that, to the extent the waiver or agreement to withhold the exercise of its rights of subrogation, reimbursement, indemnification and contribution with respect to the Guarantied Obligations as set forth herein is found by a court of competent jurisdiction to be void or voidable for any reason, any rights of subrogation, reimbursement, contribution or indemnification such Guarantor may have against the Company, any such other guarantor or against any collateral or security, shall be junior and subordinate to any rights any Beneficiary may have against the Company, to all right, title and interest any Beneficiary may have in any such collateral or security, and to any right any Beneficiary may have against such other guarantor. If any amount shall be paid to any Guarantor on account of any such subrogation, reimbursement, indemnification or contribution rights with respect to the Guarantied Obligations at any time when all of the Guarantied Obligations (other than indemnification obligations not due and payable) shall not have been satisfied or paid in full and the Commitments shall not have terminated and all Letters of Credit shall have not expired or been canceled, such amount shall be held in trust for and on behalf of Beneficiaries and shall forthwith be paid over to the Administrative Agent for the benefit of Beneficiaries to be credited and applied against the Guarantied Obligations, whether matured or unmatured, in accordance with the terms hereof. 2.7 Subordination of Other Obligations. ---------------------------------- Any indebtedness of the Company now or hereafter held by any Guarantor (the "Obligee Guarantor") is hereby subordinated in right of payment to the ----------------- Guarantied Obligations, and any such indebtedness collected or received by the Obligee Guarantor after an Event of Default has occurred and is continuing shall be held in trust for the Administrative Agent on behalf of Beneficiaries and shall forthwith be paid over to the Administrative Agent for the benefit of Beneficiaries to be credited and applied against the Guarantied Obligations but without affecting, impairing or limiting in any manner the liability of the Obligee Guarantor under any other provision of this Guaranty. 2.8 Expenses. -------- Guarantors jointly and severally agree to pay, or cause to be paid, promptly upon written demand, and to save the Beneficiaries harmless against liability for, any and all reasonable costs and reasonable expenses (including reasonable fees and disbursements of counsel and allocated costs of internal counsel) incurred or expended by the Administrative Agent or any Beneficiary in connection with this Guaranty, including, without limitation, any enforcement, or, if requested by or for the benefit of the Company or any Guarantor any amendment, consent or waiver. 2.9 Continuing Guaranty. ------------------- This Guaranty is a continuing guaranty and shall remain in effect until all of the Guarantied Obligations (other than indemnification obligations not due and payable) shall have been satisfied or paid in full and the Commitments shall have terminated and all Letters of Credit shall have expired or been canceled. Each Guarantor hereby irrevocably 9 waives any right to revoke this Guaranty as to future transactions giving rise to any Guarantied Obligations. 2.10 Authority of Guarantors or Company. ---------------------------------- It is not necessary for any Beneficiary to inquire into the capacity or powers of any Guarantor or the Company or the officers, directors or any agents acting or purporting to act on behalf of any of them. 2.11 Financial Condition of Company. ------------------------------ Any Loans may be granted to the Company or continued from time to time, and any Lender Interest Rate Agreement may be entered into from time to time, in each case without notice to or authorization from any Guarantor regardless of the financial or other condition of the Company at the time of any such grant or continuation or at the time such Lender Interest Rate Agreement is entered into, as the case may be. No Beneficiary shall have any obligation to disclose or discuss with any Guarantor its assessment, or any Guarantor's assessment, of the financial condition of the Company. Each Guarantor has adequate means to obtain information from the Company on a continuing basis concerning the financial condition of the Company and its ability to perform its obligations under the Loan Documents and the Lender Interest Rate Agreements, and each Guarantor assumes the responsibility for being and keeping informed of the financial condition of the Company and of all circumstances bearing upon the risk of nonpayment of the Guarantied Obligations. Each Guarantor hereby waives and relinquishes any duty on the part of any Beneficiary to disclose any matter, fact or thing relating to the business, operations or conditions of the Company now known or hereafter known by any Beneficiary. 2.12 Rights Cumulative. ----------------- The rights, powers, privileges and remedies given to the Administrative Agent for the ratable benefit of the Beneficiaries by this Guaranty are cumulative and shall be in addition to and independent of, and may be exercised singly or concurrently, and are exclusive of, all rights, powers and remedies given to the Agents and the Beneficiaries by virtue of any statute or rule of law or in any of the other Loan Documents, any of the Lender Interest Rate Agreements or any agreement between any Guarantor and any Beneficiary or Beneficiaries or between the Company and any Beneficiary or Beneficiaries. Any forbearance, indulgence or failure to exercise, and any delay by the Administrative Agent or any Beneficiary in exercising, any right, power, privilege or remedy hereunder shall not impair any such right, power, privilege or remedy or be construed to be a waiver thereof nor shall it preclude the future or further exercise of any such or other right, power, privilege or remedy. No single or partial exercise of any right, power, privilege or remedy hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power, privilege or remedy. A waiver by the Administrative Agent or any Beneficiary of any right, power, privilege or remedy hereunder on any one occasion shall not be construed to be a bar to any right, power, privilege or remedy which the Administrative Agent or any Beneficiary would otherwise have on any future occasion. No notice to or demand on any Guarantor in any case shall entitle such Guarantor or any other Guarantor to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of any Beneficiary to any other or further action in any circumstances without notice or demand. 10 2.13 Bankruptcy; Post-Petition Interest; Reinstatement of Guaranty. ------------------------------------------------------------- (a) So long as any Guarantied Obligations (other than indemnification obligations not due and payable) remain outstanding, no Guarantor shall, without the prior written consent of the Administrative Agent acting pursuant to the instructions of Requisite Obligees, commence or join with any other Person in commencing any bankruptcy, reorganization or insolvency proceedings of, or against, the Company. The obligations of the Guarantors under this Guaranty shall not be reduced, limited, impaired, discharged, deferred, suspended or terminated by any proceeding, voluntary or involuntary, involving the bankruptcy, insolvency, receivership, reorganization, liquidation or arrangement of the Company, or by any defense which the Company may have by reason of the order, decree or decision of any court or administrative body resulting from any such proceeding. (b) To the extent permitted by applicable law, each Guarantor acknowledges and agrees that any interest on any portion of the Guarantied Obligations which accrues after the commencement of any proceeding referred to in clause (a) above (or, if interest on any portion of the Guarantied Obligations ceases to accrue by operation of law by reason of the commencement of said proceeding, such interest as would have accrued on such portion of the Guarantied Obligations if said proceedings had not been commenced) shall be included in the Guarantied Obligations, because it is the intention of the Guarantors and the Beneficiaries that the Guarantied Obligations which are guarantied by the Guarantors pursuant to this Guaranty should be determined without regard to any rule of law or order which may relieve the Company of any portion of such Guarantied Obligations. The Guarantors will permit any trustee in bankruptcy, receiver, debtor in possession, assignee for the benefit of creditors or similar person to pay the Administrative Agent, or allow the claim of the Administrative Agent in respect of, any such interest accruing after the date on which such proceeding is commenced. (c) In the event that all or any portion of the Guarantied Obligations are paid by any Person or Persons, the obligations of Guarantors hereunder shall be reinstated but only in the event that all or any part of such payment(s) are rescinded or recovered directly or indirectly from any Beneficiary, or otherwise are repaid, returned or restored by, any Agent or any Beneficiary for the following (or similar) reasons (i) the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Company or any Guarantor, (ii) the appointment of a receiver, intervenor, conservator, trustee or similar officer of, for or on behalf of the Company or any Guarantor or any of its property, (iii) any judgment, decree or order of any court or administrative body having jurisdiction over any Beneficiary or any of its property, or (iv) any settlement or compromise of any such claim effected by such Beneficiary with any such claimant (including the Company or any Guarantor)), and any such payments which are so rescinded or recovered shall constitute Guarantied Obligations for all purposes under this Guaranty and each Guarantor shall be and remain liable hereunder for the amount so repaid, returned, restored, rescinded or recovered to the same extent as if such amount had never originally been received by any such Beneficiary. 2.14 Set Off. ------- In addition to any other rights any Beneficiary may have under law or in equity, if any amount shall at any time be due and owing by any Guarantor to any Beneficiary under this Guaranty, such Beneficiary is authorized at any time or from time to time upon the occurrence and during the continuation of any Event of Default or any payment default under 11 any Lender Interest Rate Agreement, without notice to any Guarantor or any other Person (any such notice being hereby expressly waived), to set off and to appropriate and to apply any and all deposits (general or special, including, but not limited to, indebtedness evidenced by certificates of deposit, whether matured or unmatured) and any other indebtedness of such Beneficiary owing to such Guarantor and any other property of such Guarantor held by any Beneficiary to, or for the credit or the account of, such Guarantor against and on account of the Guarantied Obligations and liabilities of such Guarantor to any Beneficiary under this Guaranty. 2.15 Discharge of Guaranty Upon Sale of Guarantor. -------------------------------------------- If all of the stock or assets of any Subsidiary Guarantor or any of its successors in interest under this Guaranty shall be sold or otherwise disposed of (including by merger or consolidation) in an Asset Sale permitted by, and in compliance with the provisions of subsections 7.7 and 2.4B(iii)(a) of the Credit Agreement or otherwise consented to by Requisite Lenders, the guaranty of such Subsidiary Guarantor or such successor in interest, as the case may be, hereunder shall automatically be discharged and released without any further action by any Beneficiary or any other Person effective as of the time of such Asset Sale. SECTION 3. MISCELLANEOUS 3.1 Survival of Warranties. ---------------------- All agreements, representations and warranties made herein shall survive the execution and delivery of this Guaranty and the other Loan Documents and the Lender Interest Rate Agreements and any increase in the Commitments under the Credit Agreement. 3.2 Notices. ------- Any notice or other communication herein required or permitted to be given shall be in writing and may be personally served, telecopied, telexed or sent by United States mail or courier service and shall be deemed to have been given when delivered in person or by courier service, upon receipt of telecopy or telex, or four (4) Business Days after depositing it in the United States mail, registered or certified, with postage prepaid and properly addressed. For the purposes hereof, the address of each party hereto shall be as provided in subsection 10.8 of the Credit Agreement or as set forth under such party's name on the signature pages hereof or, as to any party, such other address as shall be designated by such party in a written notice delivered to the other parties hereto. 3.3 Severability. ------------ In case any provision in or obligation under this Guaranty shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. 12 3.4 Amendments and Waivers. ---------------------- No amendment, modification, termination or waiver of any provision of this Guaranty, and no consent to any departure by any Guarantor therefrom, shall in any event be effective without the written concurrence of the Administrative Agent (with the consent or at the direction of the Requisite Obligees) and, in the case of any such amendment or modification, each Guarantor against whom enforcement of such amendment or modification is sought. Any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. 3.5 Headings. -------- Section and subsection headings in this Guaranty are included herein for convenience of reference only and shall not constitute a part of this Guaranty for any other purpose or be given any substantive effect. 3.6 Applicable Law; Rules of Construction. ------------------------------------- THIS GUARANTY SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. The rules of construction set forth in subsection 1.3 of the Credit Agreement shall be applicable to this Guaranty mutatis mutandis. 3.7 Successors and Assigns. ---------------------- This Guaranty is a continuing guaranty and shall be binding upon each Guarantor and its respective successors and assigns. This Guaranty shall inure to the benefit of the Beneficiaries and their respective successors and assigns. No Guarantor shall assign this Guaranty or any of the rights or obligations of such Guarantor hereunder without the prior written consent of all Lenders. Subject to subsection 10.1 of the Credit Agreement, any Beneficiary may, without notice or consent, assign its interest in this Guaranty in whole or in part. The terms and provisions of this Guaranty shall inure to the benefit of any transferee or assignee of any Loan, and in the event of such transfer or assignment the rights and privileges herein conferred upon such Beneficiary shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions hereof. 3.8 Consent to Jurisdiction and Service of Process. ---------------------------------------------- ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY GUARANTOR ARISING OUT OF OR RELATING TO THIS GUARANTY, OR ANY OBLIGATIONS HEREUNDER, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY EXECUTING AND DELIVERING THIS GUARANTY, EACH GUARANTOR IRREVOCABLY (I) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS; (II) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS; (III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO SUCH GUARANTOR AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SUBSECTION 3.2; (IV) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS /s/ P.J. Kim for ChipPAC(Luxembourg) S.a.r.l. 13 SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER SUCH GUARANTOR IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT; (V) AGREES THAT BENEFICIARIES RETAIN THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST SUCH GUARANTOR IN THE COURTS OF ANY OTHER JURISDICTION; AND (VI) AGREES THAT THE PROVISIONS OF THIS SUBSECTION 3.8 RELATING TO JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1402 OR OTHERWISE. 3.9 Waiver of Trial by Jury. ----------------------- EACH GUARANTOR AND, BY ITS ACCEPTANCE OF THE BENEFITS HEREOF, EACH BENEFICIARY HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS GUARANTY. EACH GUARANTOR WARRANTS AND REPRESENTS THAT EACH HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SUBSECTION 3.9 AND EXECUTED BY THE ADMINISTRATIVE AGENT AND EACH GUARANTOR), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS GUARANTY. In the event of litigation, this Guaranty may be filed as a written consent to a trial by the court. 3.10 No Other Writing. ---------------- This writing is intended by the Guarantors and the Beneficiaries as the final expression of this Guaranty and is also intended as a complete and exclusive statement of the terms of their agreement with respect to the matters covered hereby. No course of dealing, course of performance or trade usage, and no parol evidence of any nature, shall be used to supplement or modify any terms of this Guaranty. There are no conditions to the full effectiveness of this Guaranty. 3.11 Further Assurances. ------------------ At any time or from time to time, upon the reasonable request of the Administrative Agent, Guarantors shall execute and deliver such further documents and do such other acts and things as the Administrative Agent may reasonably request in order to effect fully the purposes of this Guaranty. 3.12 Additional Guarantors. --------------------- The initial Guarantors hereunder shall be ChipPAC and all of the Subsidiaries of ChipPAC as on the date hereof (other than the Company, ChipPAC Shanghai I and ChipPAC Shanghai II). From time to time subsequent to the date hereof, additional 14 Subsidiaries of ChipPAC may (or shall if required pursuant to subsection 6.9 of the Credit Agreement) become parties hereto as additional Guarantors (each an "Additional Guarantor"), by executing a counterpart of this Guaranty. Upon -------------------- delivery of any such counterpart to the Administrative Agent, notice of which is hereby waived by each of the Guarantors, each such Additional Guarantor shall be a Guarantor and shall be as fully a party hereto as if such Additional Guarantor were an original signatory hereof. Each Guarantor expressly agrees that its obligations arising hereunder shall not be affected or diminished by the addition or release of any other Guarantor hereunder, nor by any election of the Administrative Agent not to cause any Subsidiary of ChipPAC to become an Additional Guarantor hereunder. This Guaranty shall be fully effective as to any Guarantor that is or becomes a party hereto regardless of whether any other Person becomes or fails to become or ceases to be a Guarantor hereunder. 3.13 Counterparts; Effectiveness. --------------------------- This Guaranty may be executed in any number of counterparts and by the different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original for all purposes; but all such counterparts together shall constitute but one and the same instrument. This Guaranty shall become effective as to each Guarantor upon the execution of a counterpart hereof by such Guarantor (whether or not a counterpart hereof shall have been executed by any other Guarantor) and receipt by the Administrative Agent (or its counsel or other representatives) of written or telephonic notification of such execution and authorization or an original or copy of an executed counterpart hereof. 3.14 Authority of Administrative Agent. --------------------------------- Each Guarantor acknowledges that the rights and responsibilities of the Administrative Agent under this Guaranty with respect to any action taken by the Administrative Agent or the exercise or non-exercise by the Administrative Agent of any option, voting right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Guaranty shall, as between the Administrative Agent and the Beneficiaries, be governed by the Credit Agreement and by such other agreements with respect thereto as may exist from time to time among them, but, as between the Administrative Agent and the Guarantor, the Administrative Agent shall be conclusively presumed to be acting as agent for the Beneficiaries with full and valid authority so to act or refrain from acting, and no Guarantor shall be under any obligation, or entitlement, to make any inquiry respecting such authority. 3.15 Documents. --------- Each Guarantor acknowledges that an executed (or conformed) copy of each of the Loan Documents and the Lender Interest Rate Agreements has been made available to its principal executive officers and such officers are familiar with the contents thereof. [Remainder of page intentionally left blank] 15 IN WITNESS WHEREOF, each of the undersigned Guarantors has caused this Guaranty to be duly executed and delivered by its officer thereunto duly authorized as of the date first written above. CHIPPAC, INC. By: /s/ Gary Breton --------------------- Name: Gary Breton Title: Vice President Notice Address: 311 Coronado Drive Santa Clara, CA 95054 Attention: Chief Financial Officer Telephone: (408) 486-5900 Facsimile: (408) 486-5911 16 Each of the entities listed on Schedule -------- A annexed hereto - By: /s/ P.J. Kim ----------------------- on behalf of each of the entities listed on Schedule A annexed hereto ---------- Name: P.J. Kim Title: Secretary and Power of Attorney Notice Address: See Schedule A ---------- 17 SCHEDULE A Name Notice Address for Each Guarantor - ---- --------------------------------- ChipPAC, Inc. 3151 Coronado Drive Santa Clara, CA 95054 ChipPAC (Barbados) Ltd. Chancery House, High Street Bridgetown, Barbados, West Indies ChipPAC Limited c/o HWR Services Limited Craigmuir Chambers P.O. Box 71 Road Town, Tortola, British Virgin Islands ChipPAC International c/o HWR Services Limited Company Limited Craigmuir Chambers P.O. Box 71 Road Town, Tortola, British Virgin Islands ChipPAC Luxembourg 16 rue Eugene Ruppert B.P. 1443 L-1014 S.a.R.L. Luxembourg ChipPAC Liquidity Wesselenyi u. 16 H-1077 Budapest, Hungary Management Hungary Limited Liability Company ChipPAC Korea Company Ltd. San 136-1, Ami-ri, Bubal-EUB, Ischon-Si Kyoungki-Do 467-701 Korea EX-10.3 26 SUBSIDIARY GUARANTY AGREEMENT Exhibit 10.3 SUBSIDIARY GUARANTY AGREEMENT, dated as of August 5, 1999, made by ChipPAC Korea Company Ltd., ChipPAC Limited, ChipPAC (Barbados) Ltd., ChipPAC Luxembourg S.a.R.L. and ChipPAC Liquidity Management Hungary Limited Liability Company (collectively, the "Subsidiary Guarantors"), the undersigned subsidiaries of ChipPAC, Inc., ("ChipPAC") and ChipPAC International Company Limited (the "Issuer"), in favor of the Holders and the Trustee (as defined below). Reference is made to the Indenture (as the same may be amended, restated, supplemented or modified from time to time, the "Indenture") entered into among ChipPAC International Limited, ChipPAC Merger Corp. ("MergerCo"), and Firstar Bank of Minnesota, N.A., as trustee (the "Trustee"), dated as of July 29, 1999 relating to the Securities. WHEREAS, MergerCo agreed pursuant to the Indenture to Guarantee the Securities pursuant to the terms of the Indenture. WHEREAS, ChipPAC and the Issuer shall become parties to the Indenture through execution of a Supplemental Indenture (the "Supplemental Indenture") to be dated as of the date of this Subsidiary Guaranty Agreement; WHEREAS, either ChipPAC or the Issuer owns directly or indirectly all or a majority of interest in each Subsidiary Guarantor; and WHEREAS, ChipPAC and the Issuer will agree to cause the Subsidiary Guarantors to Guarantee the Securities pursuant to the terms of the Indenture, the Supplemental Indenture and this Subsidiary Guaranty Agreement, NOW, THEREFORE, in consideration of the promises thereby, the Subsidiary Guarantors hereby agree with and for the benefit of the Holders as follows: 2 ARTICLE 1 Definitions ----------- SECTION 1.01. Defined Terms. As used in this Subsidiary Guaranty -------------- Agreement, terms that shall be defined in the Indenture (to the extent not otherwise defined herein) or in the preamble or recitals hereto are used herein as shall therein be defined. ARTICLE 2 Guaranties ---------- SECTION 2.01. Guaranties. Each Subsidiary Guarantor hereby ----------- unconditionally and irrevocably guarantees, jointly and severally, to each Holder and to the Trustee and its successors and assigns (a) the full and punctual payment of principal of and interest on the Securities when due, whether at maturity, by acceleration, by redemption or otherwise, and all other obligations of the Issuer under the Indenture and the Securities to pay amounts to the Trustee or the Holders in respect of the Securities and (b) the full and punctual performance within applicable grace periods of all other obligations of the Issuer under the Indenture and the Securities (all the foregoing being hereinafter collectively called the "Indenture Obligations"). Each Subsidiary Guarantor further agrees that the Indenture Obligations may be extended or renewed, in whole or in part, without notice or further assent from such Subsidiary Guarantor and that such Subsidiary Guarantor will remain bound under the Indenture notwithstanding any extension or renewal of any Indenture Obligation. Each Subsidiary Guarantor waives presentation to, demand of, payment from and protest to the Issuer of any of the Indenture Obligations and also waives notice of protest for nonpayment. Each Subsidiary Guarantor waives notice of any default under the Securities or the Indenture Obligations. The obligations of each Subsidiary Guarantor hereunder shall not be affected by (a) the failure of any Holder or the Trustee to assert any claim or demand or to enforce any right or remedy against the Issuer or any other Person under the Indenture, the Securities or any other agreement or otherwise; (b) any extension or renewal of any such claim, demand, right or remedy; (c) any rescission, waiver, amendment or modification of any of the terms or provisions of the Indenture, the Securities or any other agreement; (d) the release of any security held by any 3 Holder or the Trustee for the Indenture Obligations or any of them; (e) the failure of any Holder or the Trustee to exercise any right or remedy against any other guarantor of the Indenture Obligations; or (f) subject to Section 2.06 of this Subsidiary Guaranty Agreement, any change in the ownership of such Subsidiary Guarantor. Each Subsidiary Guarantor further agrees that its Subsidiary Guaranty herein constitutes a guarantee of payment, performance and compliance when due (and not a guarantee of collection) and waives any right to require that any resort be had by any Holder or the Trustee to any security held for payment of the Indenture Obligations. Each Subsidiary Guaranty is, to the extent and in the manner set forth in Article 3, subordinated and subject in right of payment to the prior payment in full in cash of all obligations with respect to all Senior Indebtedness of the Subsidiary Guarantor giving such Subsidiary Guaranty and each Subsidiary Guaranty is made subject to such provisions of the Indenture. Except as shall be expressly set forth in Section 8.01(b) of the Indenture and as expressly set forth in Sections 2.02 and 2.06 of this Subsidiary Guaranty Agreement, the obligations of each Subsidiary Guarantor hereunder shall not be subject to any reduction, limitation, impairment or termination for any reason, including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to any defense of setoff, counterclaim, recoupment or termination whatsoever or by reason of the invalidity, illegality or unenforceability of the Indenture Obligations or otherwise. Without limiting the generality of the foregoing, the obligations of each Subsidiary Guarantor herein shall not be discharged or impaired or otherwise affected by the failure of any Holder or the Trustee to assert any claim or demand or to enforce any remedy under the Indenture, the Securities or any other agreement, by any waiver or modification of any thereof, by any default, failure or delay, willful or otherwise, in the performance of the obligations, or by any other act or thing or omission or delay to do any other act or thing which may or might in any manner or to any extent vary the risk of such Subsidiary Guarantor or would otherwise operate as a discharge of such Subsidiary Guarantor as a matter of law or equity. Each Subsidiary Guarantor further agrees that its Subsidiary Guaranty herein shall continue to be effective or be reinstated, as the case may be, if at any time payment, 4 or any part thereof, of principal of or interest on any Indenture Obligation is rescinded or must otherwise be restored by any Holder or the Trustee upon the bankruptcy or reorganization of the Issuer or otherwise. In furtherance of the foregoing and not in limitation of any other right which any Holder or the Trustee has at law or in equity against any Subsidiary Guarantor by virtue hereof, upon the failure of the Issuer to pay the principal of or interest on any Indenture Obligation when and as the same shall become due, whether at maturity, by acceleration, by redemption or otherwise, or to perform or comply with any other Indenture Obligation, each Subsidiary Guarantor hereby promises to and will, upon receipt of written demand by the Trustee, forthwith pay, or cause to be paid, in cash, to the Holders or the Trustee an amount equal to the sum of (i) the unpaid amount of such Indenture Obligations and (ii) accrued and unpaid interest on such Indenture Obligations (but only to the extent not prohibited by law). Each Subsidiary Guarantor agrees that it shall not be entitled to any right of subrogation in respect of any Indenture Obligations guaranteed hereby until payment in full of all Indenture Obligations and all obligations to which the Indenture Obligations are subordinated as provided in Article 3. Each Subsidiary Guarantor further agrees that, as between it, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the Indenture Obligations Guaranteed hereby may be accelerated as provided in Article 6 of the Indenture for the purposes of such Subsidiary Guarantor's Subsidiary Guaranty herein, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the Indenture Obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such obligations as provided in Article 6 of the Indenture, such Indenture Obligations (whether or not due and payable) shall forthwith become due and payable by such Subsidiary Guarantor for the purposes of this Section. SECTION 2.02. Limitation on Liability. Any term or provision of the ------------------------ Indenture to the contrary notwithstanding, the maximum, aggregate amount of the Indenture Obligations guaranteed hereunder by any Subsidiary Guarantor shall not exceed the maximum amount that can be hereby guaranteed without rendering the Indenture, as it relates to such Subsidiary Guarantor, voidable under applicable law relating to fraudulent conveyance or 5 fraudulent transfer or similar laws affecting the rights of creditors generally. Each Subsidiary Guarantor that makes a payment under its Subsidiary Guaranty will be entitled to a contribution from each other Subsidiary Guarantor in an amount equal to such other Subsidiary Guarantor's pro rata portion of such --- ---- payment based on the respective net assets of all the Subsidiary Guarantors at the time of such payment determined in accordance with GAAP. SECTION 2.03. Successors and Assigns. This Article 2 shall be ----------------------- binding upon each Subsidiary Guarantor and its successors and assigns and shall enure to the benefit of the successors and assigns of the Trustee and the Holders and, in the event of any transfer or assignment of rights by any Holder or the Trustee, the rights and privileges conferred upon that party in the Indenture and in the Securities shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions of the Indenture. SECTION 2.04. No Waiver. Neither a failure nor a delay on the part ---------- of either the Trustee or the Holders in exercising any right, power or privilege under this Article 2 shall operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any other or further exercise of any right, power or privilege. The rights, remedies and benefits of the Trustee and the Holders herein expressly specified are cumulative and not exclusive of any other rights, remedies or benefits which either may have under this Article 2 at law, in equity, by statute or otherwise. SECTION 2.05. Modification. No modification, amendment or waiver of ------------- any provision of this Article 2, nor the consent to any departure by any Subsidiary Guarantor therefrom, shall in any event be effective unless the same shall be in writing and signed by the Trustee, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on any Subsidiary Guarantor in any case shall entitle such Subsidiary Guarantor to any other or further notice or demand in the same, similar or other circumstances. SECTION 2.06. Release of Subsidiary Guarantor. Upon the sale -------------------------------- (including any sale pursuant to any exercise of remedies by a holder of Senior Indebtedness) or other disposition (including by way of consolidation or merger) of 6 all or substantially all of the capital stock of a Subsidiary Guarantor or the sale, assignment, transfer or disposition of all or substantially all the assets of such Subsidiary Guarantor in each case in one or more related transactions (in each case (i) other than to the Issuer or an Affiliate of the Issuer and (ii) in accordance with Section 5.01 to be included in the Indenture), such Subsidiary Guarantor shall be deemed automatically released from all obligations under this Subsidiary Guaranty Agreement (including this Article 2) without any further action required on the part of the Trustee or any Holder. At the request of the Issuer or any Subsidiary Guarantor, the Trustee shall execute and deliver an appropriate instrument evidencing such release. SECTION 2.07. Withholding Taxes. (a) All payments made by a ----------------- Subsidiary Guarantor under or with respect to its Subsidiary Guaranty shall be made free and clear of and without withholding or deduction for or on account of any present or future tax, duty, levy, impost, assessment or other governmental charge (including penalties, interest and other liabilities related thereto) imposed or levied by or on behalf of any jurisdiction from or through which payment is made or where the payor is located or any province or territory thereof or by any authority or agency therein or thereof having power to tax (hereinafter "Taxes"), unless such Subsidiary Guarantor is required to withhold or deduct Taxes by law or by the interpretation or administration thereof by the relevant government authority or agency. If such Subsidiary Guarantor is so required to withhold or deduct any amount for or on account of Taxes from any payment made under or with respect to a Subsidiary Guaranty, such Subsidiary Guarantor will be required to pay such additional amounts ("Additional Amounts") as may be necessary so that the net amount received by each Holder after such withholding or deduction (including with respect to such Additional Amounts) will not be less than the amount the Holder would have received if such Taxes had not been withheld or deducted; provided, however, that no Additional Amounts -------- ------- will be payable with respect to payments made to a Holder (an "Excluded Holder") in respect of a beneficial owner to the extent such beneficial owner is subject to such Taxes by reason of its being connected with the British Virgin Islands or any province or territory thereof otherwise than by the mere holding of Securities or the receipt of payments thereunder or the enforcement of a Subsidiary Guaranty. The Subsidiary Guarantors will also make such withholding or deduction and remit the full amount deducted or withheld to the relevant authority as and when required in accordance 7 with applicable law. The Subsidiary Guarantors will furnish to the Holder of the Securities, within 30 days after the date the payment of any Taxes is due pursuant to applicable law, certified copies of tax receipts evidencing such payment by the Subsidiary Guarantors. The Subsidiary Guarantors will upon written request of each Holder (other than an Excluded Holder), reimburse each such Holder for the amount of any Taxes so levied or imposed and paid by such Holder with respect to any reimbursement referred to above, but excluding any such Taxes on such Holder's net income, so that the net amount received by such Holder after such reimbursement will not be less than the net amount the Holder would have received if Taxes (other than such Taxes on such Holder's net income) on such reimbursement had not been imposed. (b) Whenever in this Subsidiary Guaranty Agreement or the Indenture there is mentioned, in any context, (a) the payment of principal, (b) purchase prices in connection with a purchase of Securities, (c) interest or (d) any other amount payable on or with respect to any of the Securities or a Subsidiary Guaranty, such reference shall be deemed to include payment of Additional Amounts provided for in Section 2.07(a) to the extent that, in such context, Additional Amounts are, were or would be payable in respect thereof. (c) At least 10 days prior to the first interest payment date for the Securities and at least 10 days prior to each date of payment of principal of or interest on the Securities if there has been a change with respect to the matters set forth in the below-mentioned Officers' Certificate or Certificates, the Subsidiary Guarantors will furnish the Trustee and the principal Paying Agent, if other than the Trustee, with an Officers' Certificate of each of the Subsidiary Guarantors instructing the Trustee and such Paying Agent whether any payment with respect to a Subsidiary Guaranty shall be made to Holders of the Securities subject to withholding or deduction for, or on account of, any Taxes. If any such withholding or deduction shall be required, then such Officers' Certificate or Certificates shall specify by country, the amount, if any, required to be withheld or deducted on such payments to the Holders, and the Subsidiary Guarantors will pay to the Trustee or such Paying Agent the Additional Amounts required by this Section. The Subsidiary Guarantors, jointly and severally, agree to indemnify the Trustee and any Paying Agent for, and to hold them harmless against, any loss, liability or expense reasonably incurred without negligence or bad faith on their part arising out of or in connection 8 with actions taken or omitted by any of them in reliance on any Officers' Certificate furnished pursuant to this Section. ARTICLE 3 Subordination of Subsidiary Guaranties -------------------------------------- SECTION 3.01. Agreement To Subordinate. Each Subsidiary Guarantor ------------------------- agrees, and each Securityholder by accepting a Security agrees, that the Indenture Obligations of such Subsidiary Guarantor are subordinated in right of payment, to the extent and in the manner provided in this Article 3, to the prior payment in full in cash of all Senior Indebtedness of such Subsidiary Guarantor and that the subordination is for the benefit of and enforceable by the holders of such Senior Indebtedness. The Indenture Obligations of a Subsidiary Guarantor shall in all respects rank pari passu with all other Senior ---- ----- Subordinated Indebtedness of such Subsidiary Guarantor and only Senior Indebtedness of such Subsidiary Guarantor (including such Subsidiary Guarantor's Guarantee of Senior Indebtedness of the Issuer) shall rank senior to the Indenture Obligations of such Subsidiary Guarantor in accordance with the ] provisions set forth herein. SECTION 3.02. Liquidation, Dissolution, Bankruptcy. Upon any ------------------------------------- payment or distribution of the assets of any Subsidiary Guarantor to creditors upon a total or partial liquidation or a total or partial dissolution of such Subsidiary Guarantor or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to such Subsidiary Guarantor or its property: (1) the holders of Senior Indebtedness of such Subsidiary Guarantor shall be entitled to receive payment in full in cash of all obligations with respect to such Senior Indebtedness (including all interest accruing subsequent to the filing of a petition in bankruptcy at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) before Securityholders shall be entitled to receive any payment or distribution with respect to any Indenture Obligations of such Subsidiary Guarantor; and (2) until all obligations with respect to the Senior Indebtedness of any Subsidiary Guarantor is paid in full in cash, any payment or distribution to which 9 Securityholders would be entitled but for this Article 3 shall be made to holders of such Senior Indebtedness as their interests may appear, except that Securityholders may receive shares of stock and any debt securities of such Subsidiary Guarantor that are subordinated to Senior Indebtedness, and to any debt securities received by holders of Senior Indebtedness, of such Subsidiary Guarantor to at least the same extent as the Indenture Obligations of such Subsidiary Guarantor are subordinated to Senior Indebtedness of such Subsidiary Guarantor. SECTION 3.03. Default on Senior Indebtedness of Subsidiary Guarantor. ------------------------------------------------------- No Subsidiary Guarantor may make any payment (in cash, property or other assets) pursuant to any of its Indenture Obligations or repurchase, redeem or otherwise retire or defease any Securities or other Indenture Obligations (collectively, "pay its Subsidiary Guaranty") if either of the following Payment Default occurs: (1) any obligations with respect to Senior Indebtedness of such Subsidiary Guarantor is not paid in full when due or (2) any other default on Senior Indebtedness of such Subsidiary Guarantor occurs and the maturity of such Senior Indebtedness is accelerated in accordance with its terms unless, in either case, (x) the default has been cured or waived and any such acceleration has been rescinded in writing or (y) such Senior Indebtedness has been paid in full in cash; provided, however, that any Subsidiary Guarantor may pay its -------- ------- Subsidiary Guaranty without regard to the foregoing if such Subsidiary Guarantor and the Trustee receive written notice approving such payment from the Representatives of such Senior Indebtedness. No Subsidiary Guarantor may pay its Subsidiary Guaranty during the continuance of any Payment Blockage Period after receipt by the Issuer and the Trustee (with a copy to the Issuer) of a Blockage Notice under Section 10.03 of the Indenture. Notwithstanding the provisions described in the immediately preceding sentence (but subject to the provisions contained in the first sentence of this Section), unless the holders of Designated Senior Indebtedness giving such Blockage Notice or the Representative of such holders shall have accelerated the maturity of such Designated Senior Indebtedness, any Subsidiary Guarantor may resume payments pursuant to its Subsidiary Guaranty after termination of such Payment Blockage Period. SECTION 3.04. Demand for Payment. If a demand for payment is made on ------------------- a Subsidiary Guarantor pursuant to Article 2, the Trustee shall promptly notify the holders of 10 the Designated Senior Indebtedness (or their Representatives) of such demand. If any Designated Senior Indebtedness is outstanding at the time of such acceleration, neither the Issuer nor any Subsidiary Guarantor may pay the Securities until five Business Days after the Representatives of all the issues of Designated Senior Indebtedness receive notice of such acceleration and, thereafter, may pay the Securities only if the Indenture otherwise permits payment at that time. SECTION 3.05. When Distribution Must Be Paid Over. If a distribution ------------------------------------ is made to Securityholders that because of this Article 3 should not have been made to them, the Securityholders who receive the distribution shall hold it in trust for holders of the relevant Senior Indebtedness and pay it over to them or their Representatives as their interests may appear. SECTION 3.06. Subrogation. After all Senior Indebtedness of a ------------ Subsidiary Guarantor is paid in full and until the Securities are paid in full, Securityholders shall be subrogated to the rights of holders of such Senior Indebtedness to receive distributions applicable to Senior Indebtedness. A distribution made under this Article 3 to holders of such Senior Indebtedness which otherwise would have been made to Securityholders is not, as between the relevant Subsidiary Guarantor and Securityholders, a payment by such Subsidiary Guarantor on such Senior Indebtedness. SECTION 3.07. Relative Rights. This Article 3 defines the relative ---------------- rights of Securityholders and holders of Senior Indebtedness of a Subsidiary Guarantor. Nothing in this Agreement or the Indenture shall: (1) impair, as between a Subsidiary Guarantor and Securityholders, the obligation of such Subsidiary Guarantor, which is absolute and unconditional, to pay the Indenture Obligations to the extent set forth in Article 2; or (2) prevent the Trustee or any Securityholder from exercising its available remedies upon a default by such Subsidiary Guarantor under the Indenture Obligations, subject to the rights of holders of Senior Indebtedness of such Subsidiary Guarantor to receive distributions otherwise payable to Securityholders. SECTION 3.08. Subordination May Not Be Impaired by the Issuer. No ------------------------------------------------ right of any holder of Senior Indebtedness of any Subsidiary Guarantor to enforce the 11 subordination of the Indenture Obligations of such Subsidiary Guarantor shall be impaired by any act or failure to act by such Subsidiary Guarantor or by its failure to comply with the Indenture. SECTION 3.09. Rights of Trustee and Paying Agent. Notwithstanding ----------------------------------- Section 3.03, the Trustee or Paying Agent may continue to make payments on any Subsidiary Guaranty and shall not be charged with knowledge of the existence of facts that would prohibit the making of any such payments unless, not less than two Business Days prior to the date of such payment, a Trust Officer of the Trustee receives written notice satisfactory to it that payments may not be made under this Article 3. The Issuer, the relevant Subsidiary Guarantor, the Registrar or co-registrar, the Paying Agent, a Representative or a holder of Senior Indebtedness of any Subsidiary Guarantor may give the notice. The Trustee in its individual or any other capacity may hold Senior Indebtedness with the same rights it would have if it were not the Trustee. The Registrar and co-registrar and the Paying Agent may do the same with like rights. The Trustee shall be entitled to all the rights set forth in this Article 3 with respect to any Senior Indebtedness of any Subsidiary Guarantor which may at any time be held by it, to the same extent as any other holder of Senior Indebtedness; and nothing in Article 7 of the Indenture shall deprive the Trustee of any of its rights as such holder. Nothing in this Article 3 shall apply to claims of, or payments to, the Trustee under or pursuant to Section 7.07 of the Indenture. SECTION 3.10. Distribution or Notice to Representative. Whenever a ----------------------------------------- distribution is to be made or a notice given to holders of Senior Indebtedness of any Subsidiary Guarantor, the distribution may be made and the notice given to their Representative (if any). SECTION 3.11. Article 3 Not To Prevent Defaults Under a Subsidiary ---------------------------------------------------- Guaranty or Limit Right To Demand Payment. The failure to make a payment - ------------------------------------------ pursuant to a Subsidiary Guaranty by reason of any provision in this Article 3 shall not be construed as preventing the occurrence of a default under such Subsidiary Guaranty. Nothing in this Article 3 shall have any effect on the right of the Securityholders or the Trustee to make a demand for payment on any Subsidiary Guarantor pursuant to Article 2. 12 SECTION 3.12. Trustee Entitled To Rely. Upon any payment or ------------------------- distribution pursuant to this Article 3, the Trustee and the Securityholders shall be entitled to rely (i) upon any order or decree of a court of competent jurisdiction in which any proceedings of the nature referred to in Section 3.02 are pending, (ii) upon a certificate of the liquidating trustee or agent or other Person making such payment or distribution to the Trustee or to the Securityholders or (iii) upon the Representatives for the holders of Senior Indebtedness of any Subsidiary Guarantor for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of such Senior Indebtedness and other indebtedness of such Subsidiary Guarantor, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 3. In the event that the Trustee determines, in good faith, that evidence is required with respect to the right of any Person as a holder of Senior Indebtedness of any Subsidiary Guarantor to participate in any payment or distribution pursuant to this Article 3, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness of such Subsidiary Guarantor held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and other facts pertinent to the rights of such Person under this Article 3, and, if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. The provisions of Sections 7.01 and 7.02 of the Indenture shall be applicable to all actions or omissions of actions by the Trustee pursuant to this Article 3. SECTION 3.13. Trustee To Effectuate Subordination. Each ------------------------------------ Securityholder by accepting a Security authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination between the Securityholders and the holders of Senior Indebtedness of any Subsidiary Guarantor as provided in this Article 3 and appoints the Trustee as attorney-in-fact for any and all such purposes. SECTION 3.14. Trustee Not Fiduciary for Holders of Senior ------------------------------------------- Indebtedness of Subsidiary Guarantor. The Trustee shall not be deemed to owe - ------------------------------------- any fiduciary duty to the holders of Senior Indebtedness of any Subsidiary Guarantor and shall not be liable to any such holders if it shall mistakenly pay over or distribute to Securityholders or the Issuer or any 13 other Person, money or assets to which any holders of such Senior Indebtedness shall be entitled by virtue of this Article 3 or otherwise. SECTION 3.15. Reliance by Holders of Senior Indebtedness on --------------------------------------------- Subordination Provisions. Each Securityholder by accepting a Security - ------------------------- acknowledges and agrees that the foregoing subordination provisions are, and are intended to be, an inducement and a consideration to each holder of any Senior Indebtedness of any Subsidiary Guarantor, whether such Senior Indebtedness was created or acquired before or after the issuance of the Securities, to acquire and continue to hold, or to continue to hold, such Senior Indebtedness and such holder of Senior Indebtedness shall be deemed conclusively to have relied on such subordination provisions in acquiring and continuing to hold, or in continuing to hold, such Senior Indebtedness. ARTICLE 4 Miscellaneous ------------- SECTION 4.02. Notices. All notices and other communications -------- pertaining to this Subsidiary Guaranty Agreement shall be deemed to have been duly given (a) at the time delivered by hand, if personally delivered, (b) five Business Days after being deposited in the mail, postage prepaid, if mailed, (c) when answered back, if telexed, (d) when receipt is acknowledged, if telecopied, and (e) the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. Such notices shall be delivered by hand, or mailed, certified or registered mail with postage prepaid (x) if to the Subsidiary Guarantor, at the Issuer's address set forth in the Indenture, and (y) if to the Holders or the Trustee, as provided in the Indenture. The Issuer, any Subsidiary Guarantor and the Trustee may, by notice to the others, designate additional or different addresses for subsequent notices or communications. SECTION 4.02. Parties. Nothing expressed or mentioned in this -------- Subsidiary Guaranty Agreement is intended or shall be construed to give any Person, firm or corporation, other than the Holders and the Trustee, any legal or equitable right, remedy or claim under or in respect of this Subsidiary Guaranty Agreement or any provision herein contained. 14 SECTION 4.03. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, -------------- AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THESE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. SECTION 4.04. Severability Clause. In case any provision of this -------------------- Subsidiary Guaranty Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be ineffective only to the extent of such invalidity, illegality or unenforceability. SECTION 4.05. Waivers, Amendments and Remedies. The failure to insist --------------------------------- in any one or more instances upon strict performance of any of the provisions of this Subsidiary Guaranty Agreement or to take advantage of any of its rights hereunder shall not be construed as a waiver of any such provisions or the relinquishment of any such rights, but the same shall continue and remain in full force and effect. Except as otherwise expressly limited in this Subsidiary Guaranty Agreement, all remedies under this Subsidiary Guaranty Agreement shall be cumulative and in addition to every other remedy provided for herein or by law. SECTION 4.06. Headings. The headings of the Articles and the --------- sections in this Subsidiary Guaranty Agreement are for convenience of reference only and shall not be deemed to alter or affect the meaning or interpretation of any provisions thereof. SECTION 4.07. Effectiveness. Notwithstanding anything herein to the -------------- contrary, this Agreement shall not take effect until the Closing Date, the representations and warranties set forth in this Agreement shall be deemed to be made solely as of the Closing Date, and the covenants, agreements and other obligations created by this Agreement shall only apply prospectively from the Closing Date and shall have no retroactive effect. SECTION 4.08. Agent for Service; Submission to Jurisdiction; Waiver ----------------------------------------------------- of Immunities. By the execution and delivery of this Indenture, each Subsidiary - -------------- Guarantor (i) acknowledges that it has, by separate written instrument, irrevocably designated and appointed CT Corporation System (and any successor entity) ("CT"), 1633 Broadway, New York, New York 10019, as its authorized agent upon which process may be served in any suit or proceeding arising out of or 15 relating to the Indenture, the Securities or the Guaranties that may be instituted in any Federal or state court located in the Borough of Manhattan in The City of New York or brought by the Trustee (whether in its individual capacity or in its capacity as Trustee hereunder) or any Holder, and acknowledges that CT has accepted such designation, (ii) submits to the jurisdiction of any such court in any such suit or proceeding, and (iii) agrees that service of process upon CT and written notice of said service to a Subsidiary Guarantor, shall be deemed in every respect effective service of process upon such Subsidiary Guarantor in any such suit or proceeding. The Subsidiary Guarantors further agree to take any and all action, including the execution and filing of any and all such documents and instruments, as may be necessary to continue such designation and appointment of CT in full force and effect so long as this Indenture shall be in full force and effect. Each Subsidiary Guarantor hereby irrevocably and unconditionally waives, to the fullest extent it may legally effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to the Indenture or this Agreement, the Securities or the Guaranties in any Federal or state court located in the Borough of Manhattan in The City of New York. Each Subsidiary Guarantor hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. To the extent that any Subsidiary Guarantor has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether through service of notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself or its property, it hereby irrevocably waives such immunity in this Agreement to the extent permitted by law. 16 IN WITNESS WHEREOF, the Subsidiary Guarantors have duly executed this Subsidiary Guaranty Agreement as of the date first above written. CHIPPAC KOREA COMPANY LTD., by /s/ P. J. Kim -------------------- Name: P. J. Kim Title: Secretary CHIPPAC LIMITED, by /s/ P. J. Kim -------------------- Name: P. J. Kim Title: Secretary CHIPPAC (BARBADOS) LTD., by /s/ P. J. Kim -------------------- Name: P. J. Kim Title: Secretary CHIPPAC LUXEMBOURG S.A.R.L., by /s/ P. J. Kim -------------------- Name: P. J. Kim Title: Secretary CHIPPAC LIQUIDITY MANAGEMENT HUNGARY LIMITED LIABILITY COMPANY, by /s/ P. J. Kim -------------------- Name: P. J. Kim Title: Secretary 17 Acknowledged: CHIPPAC, INC., by /s/ Tony Lin _______________________ Name: Tony Lin Title: Chief Financial Officer CHIPPAC INTERNATIONAL COMPANY LIMITED, by /s/ P. J. Kim _______________________ Name: P. J. Kim Title: Secretray EX-10.4 27 AMENDED AND RESTATED SHAREHOLDERS AGREEMENT EXHIBIT 10.4 ------------ AMENDED & RESTATED SHAREHOLDERS AGREEMENT ---------------------- THIS SHAREHOLDERS AGREEMENT (this "Agreement") is made as of August 5, 1999, by and among ChipPAC, Inc., a California corporation (the "Company"), the Persons listed on Schedule I attached hereto (the "Hyundai Group"), the Persons listed on Schedule II attached hereto (the "Bain Group"), the SXI Group (as defined in Section 8 hereof), Intel Corporation, a Delaware corporation ("Intel"), ChipPAC Equity Investors LLC ("CSFB"), an affiliate of Credit Suisse First Boston Corporation and Sankaty High Yield Asset Partners, L.P. ("Sankaty"). The Hyundai Group, the Bain Group, the SXI Group, Intel, CSFB and Sankaty are collectively referred to herein as the "Shareholders"; each of the Hyundai Group, the Bain Group and the SXI Group is sometimes referred to as a "Group"; and each member of each such Group, Intel, CSFB and Sankaty as a "Shareholder." Except as otherwise indicated herein, capitalized terms used herein are defined in Section 8 hereof. WHEREAS, the parties hereto desire to establish the composition of the Company's Board of Directors (the "Board"), to restrict the sale, assignment, transfer, encumbrance or other disposition of the Capital Stock and to provide for certain rights and obligations in respect thereto as hereinafter provided. NOW, THEREFORE, the parties to this Agreement hereby agree as follows: 1. Voting Agreement. (a) From and after the date of this Agreement and until the provisions of this Section 1 cease to be effective, each holder of Shareholder Shares shall vote all of its Shareholder Shares which are voting shares and any other voting securities of the Company over which such holder has voting control and shall take all other necessary or desirable actions within its control (whether in its capacity as a shareholder, or through any of its representatives serving as a director, member of a board committee or officer of the Company or any of its Subsidiaries or otherwise, and including, without limitation, attendance at meetings in person or by proxy for purposes of obtaining a quorum and execution of written consents in lieu of meetings), and the Company and its Subsidiaries shall take all necessary and desirable actions within its control (including, without limitation, calling special board and shareholder meetings), so that: (i) the authorized number of directors on the Board shall be established and maintained at no less than eight and no more than ten directors; (ii) the following individuals shall be nominated and elected to the Board: (A) one (1) representative (the "Hyundai Director") designated by the holders of a majority of the Hyundai Shares; (B) three (3) representatives (the "Bain Directors") designated by the holders of a majority of the Bain Shares; (C) three (3) representatives (the "SXI Directors") designated by the holders of a majority of the SXI Shares; (D) one (1) representative (the "Management Director") of management, who shall be the Company's chief executive officer, but only so long as such person serves as the Company's chief executive officer; (E) in the event of and during the continuation of an Event of Default (as defined in the Articles of Incorporation) with respect to any shares of Senior Preferred Stock in accordance with the terms thereof, one (1) additional representative (the "Additional Hyundai Director") which the holders of the Senior Preferred Stock are entitled to appoint in accordance with the terms of the Articles of Incorporation; (F) upon the mutual agreement of the holders of a majority of the Bain Shares and the holders of a majority of the SXI Shares to fill any remaining vacancies on the Board, all remaining members of the Board shall be an equal number of representatives designated by the holders of a majority of the Bain Shares and the holders of a majority of the SXI Shares, unless an Event of Default shall have occurred and be continuing, in which case the provisions of clause (a)(ii)(E) of this Section 1 shall govern and no other directors shall be elected pursuant to this clause (F) and any directors then in office pursuant to this clause (F) shall forthwith resign or be removed until such time as there is no longer any Event of Default in existence, at which time the special right of the holders of Senior Preferred Stock to appoint the Additional Hyundai Director shall terminate subject to revesting upon the occurrence and continuation of any Event of Default; (ii) the size of the board of directors of each of the Company's Subsidiaries (a "Sub Board") shall be no greater than that of the Board and shall have at least one (1) representative designated pursuant to Section 1(a)(ii)(A), if so desired by the holders of the Hyundai Shares, at least one Bain Director and at least one SXI Director, and if more than one Bain Director or one SXI Director, then an equal number of both; (iv) except with respect to the Additional Hyundai Director, who shall automatically be removed at such time as there is no longer any Event of Default in existence, at which time the special right of the holders of Senior Preferred Stock to appoint the Additional Hyundai Director shall terminate subject to revesting upon the occurrence and continuation of any Event of Default, any Bain Director, SXI Director, Hyundai Director or Additional Hyundai Director shall be removed forthwith from the Board or any Sub Board (with or without cause) prior to the expiration of such director's term at the written request of the holders of a majority of the shares of the Group which designated such director 2 pursuant to Section 1(a)(ii) (and under no other circumstances, except as provided above with respect to the Additional Hyundai Director), and no Bain Director, SXI Director, Hyundai Director or Additional Hyundai Director shall be removed from the Board or any Sub Board prior to the expiration of such director's term except at the prior written request of the holders of a majority of the shares of the Group which designated such director pursuant to Section 1(a)(ii) and except as provided above with respect to the Additional Hyundai Director; and (v) in the event that any director designated pursuant to Section 1(a)(ii) by the holders of a majority of the Hyundai Shares, the holders of a majority of the Bain Shares or the holders of a majority of the SXI Shares for any reason ceases to serve as a member of the Board or a Sub Board during his or her term of office, the resulting vacancy on the Board or Sub Board shall be filled by a person designated by the same Group (in the manner provided hereunder) that designated the director that will no longer serve on the Board or Sub Board. (vi) the Bylaws of the Company will require that the vote or action of a majority of the directors present at any meeting at which a quorum is present shall be the vote or action of the Board; provided, however, that no action shall be taken without the affirmative vote of a majority of the Bain Directors and a majority of the SXI Directors with respect to: (A) any merger of the Company into any other corporation or merger of any other corporation into the Company, or any consolidation of the Company with any other corporation (other than the merger of a wholly-owned Subsidiary into the Company), the liquidation or dissolution of the Company, or the sale, assignment, lease, transfer or other disposition of all or substantially all of the assets of the Company as, or substantially as, an entirety to any other corporation or other entity or person; (B) the amendment or repeal of any provision of, or the addition of any provision to the Articles of Incorporation of the Company or its Bylaws; (C) the expenditure by the Company of an amount of funds in excess of $5,000,000 for a purpose which is not within the then current strategic and operating plan referred to in clause (H) hereof; (D) any declaration or payment of any dividend on, or other distribution in respect of, the Company's capital stock, or any payment in cash of interest on indebtedness that by its terms may be paid in kind or accrued; (E) any issuance, redemption, repurchase or other transaction involving the capital stock of the Company (other than in connection with the exercise of stock options granted pursuant to any plan or arrangement approved under clause (N) 3 hereof, or the issuance of no more than $3,000,000 in shares of Common Stock (determined for this purpose by the price allocated to shares of Common Stock acquired pursuant to the Recapitalization Agreement) issued to members of the Company's management within 120 days after the date hereof); (F) any borrowings (or guarantees thereof) in excess of $5,000,000 from any bank or other person or entity, other than drawings on borrowings or lines of credit existing as of the date hereof (or any extensions, renewals or refinancings thereof) or as previously approved as provided herein; (G) any loans to any persons or entities by the Company, other than advances to employees of the Company or its Subsidiaries for ordinary and necessary business expenses consistent with past practice or to purchase Common Stock described in the parenthetical in clause (E) above; (H) the annual strategic and operating plan of the Company, which shall be prepared by the officers of the Company and shall include a summary of expected capital expenditures and expenditures in respect of acquisitions, and any material departures from such plan; (I) any sale or encumbrance of assets in excess of $5,000,000; (J) any business acquisition by the Company, by purchase of assets, capital stock, merger or otherwise, for purchase consideration exceeding $5,000,000; (K) the selection of commercial or investment bankers for the Company; (L) the selection of the public accountants for the Company; (M) the selection of the Chief Executive Officer of the Company; (N) the approval of compensation payable to the corporate officers of the Company, including executive bonus and incentive plans and arrangements of such officers; or (O) the approval of any action by a Subsidiary of the Company in respect of any matter of the nature set forth in this Section 1(a)(vi) with respect to such Subsidiary. (b) The Company (and it Subsidiaries, as the case may be) shall pay or promptly reimburse the actual reasonable out-of-pocket expenses incurred by each director in connection with attending meetings of the Board, any Sub Board or any committee of the Board or any Sub Board. 4 (c) The provisions of this Section 1 shall terminate automatically and be of no further force and effect upon the consummation of a Initial Public Offering in which the net proceeds to the Company exceed $25 million (a "Qualifying IPO"). (d) If any Group fails to designate a representative to fill a directorship pursuant to the terms of this Section 1 or any Group ceases to have such right hereunder, the election of an individual to such directorship shall be accomplished in accordance with the Articles of Incorporation and Bylaws or comparable governing documents of the Company (in the case of the Board) and the applicable Subsidiary of the Company (in the case of a Sub Board) and applicable law. (e) The rights of any Group under this Agreement to designate one or more directors hereunder shall terminate at such time as such Group ceases to own, either directly or indirectly through one or more Affiliates, fifty percent (50%) of the Shareholder Shares owned by such Group immediately following the Effective Time as defined in the Recapitalization Agreement; provided that the provisions of this Section 1(e) shall not apply to the Hyundai Group if any member of the Hyundai Group is required by any provision of applicable law in the Republic of Korea (as evidenced by the written opinion of a reputable Korean law firm addressed to the Company's Board) to maintain Board representation as a condition to its direct or indirect ownership of Capital Stock. (f) Each director shall be given advance notice of any meeting of the Board of Directors in accordance with the Bylaws (or, in the case of any Sub Board, the comparable governing document). 2. Restrictions on Transfer of Shareholder Shares. (a) Transfer of Shareholder Shares. No holder of Shareholder Shares (other than the Bain Group or the SXI Group) shall sell, transfer, assign, pledge or otherwise dispose of (whether directly or indirectly, whether with or without consideration and whether voluntarily or involuntarily or by operation of law) any interest in any Shareholder Shares (a "Transfer"), except Transfers pursuant to and in accordance with the provisions of Section 2(b), 2(c), 2(d), 2(e) or 3 of this Agreement; it being agreed and understood that nothing in this Section 2(a) shall relieve any member of the Bain Group or the SXI Group from any of their obligations in Section 2(b) below. (b) Participation Rights. (i) Except as otherwise specifically set forth in this Agreement, at least thirty (30) days prior to any Transfer of shares of any class of Capital Stock by any member of the Bain Group or the SXI Group (the "Transferring Shareholder") (other than a Transfer among the members of the Bain Group or their Affiliates, among the members of the SXI Group or their Affiliates or to an employee or director of the Company or its Subsidiaries), the Transferring Shareholder will deliver a written notice (the "Sale Notice") to the Company and the other Shareholders (the "Other 5 Shareholders"), specifying in reasonable detail the identity of the prospective transferee(s) and the terms and conditions of the Transfer. Notwithstanding the restrictions contained in this Section 2, any or all of the Other Shareholders may elect to participate in the contemplated Transfer by delivering written notice to the Transferring Shareholder within ten (10) days after delivery of the Sale Notice. If any Other Shareholder has elected to participate in such Transfer (each such Other Shareholder, a "Participating Shareholder"), each of the Transferring Shareholder and the Participating Shareholders will be entitled to sell in the contemplated Transfer, at the same price and on the same terms, a number of shares of such class of Capital Stock equal to the product of (A) the quotient determined by dividing the number of shares of such class of Capital Stock owned by such Participating Shareholder by the aggregate number of shares of such class of Capital Stock owned by the Transferring Shareholder and all Participating Shareholders and (B) the number of shares of such class of Capital Stock to be sold in the contemplated Transfer. Notwithstanding the foregoing, in the event that the Transferring Shareholder intends to Transfer shares of more than one class of Capital Stock, the Participating Shareholders shall be required to sell in the contemplated Transfer a pro rata portion of shares of all such classes of Capital Stock (to the extent the Participating Shareholders own any shares of such other classes of Capital Stock), which portion shall be determined in the manner set forth in the immediately preceding sentence. For example (by way of illustration only), if the Sale Notice contemplated a sale of 100 shares of Class A Common by the Transferring Shareholder, and if the Transferring Shareholder at such time owns 30% of the Class A Common and if one Participating Shareholder elects to participate and owns 20% of the Class A Common (and all other Shareholders choose not to participate), then the Transferring Shareholder would be entitled to sell 60 shares (30% / 50% x 100 shares) and the Participating Shareholder would be entitled to sell 40 shares (20% / 50% x 100 shares). (ii) The Transferring Shareholder will use reasonable best efforts to obtain the agreement of the prospective transferee(s) to the participation of the Participating Shareholders in any contemplated Transfer, and the Transferring Shareholder will not effect any Transfer of any of its shares of Capital Stock to the prospective transferee(s) unless (A) simultaneously with such Transfer, the prospective transferee or transferees purchase from each Participating Shareholder the shares of Capital Stock which such Participating Shareholder is entitled to sell to such prospective transferee(s) pursuant to Section 2(b)(i) above or (B) simultaneously with such Transfer, the Transferring Shareholder purchases (on the same terms and conditions on which such shares were sold to the transferee(s)) the number of shares of such class of Capital Stock from each Participating Shareholder which such Participating Shareholder would have been entitled to sell pursuant to Section 2(b)(i) above. (c) Right of First Refusal. 6 (i) From and after the fifth anniversary of the date of this Agreement, in the event that the Hyundai Shares represent five percent (5%) or less of the Company's outstanding shares of Common Stock, any member of the Hyundai Group shall have the right to Transfer all or any portion of the Hyundai Shares held by any such Person to any third Person other than a Competitor (as defined below) in accordance with this Section 2(c). For purposes of this Section 2(c), the term "Competitor" means any Person that, directly or indirectly, either for itself or for any other Person, participates in providing products or services in the semiconductor business or any other business in which the Company or any of its Subsidiaries are engaged in at the time of such proposed Transfer anywhere in the world. For purposes of this Section 2(c), the term "participates" includes any direct or indirect interest in any enterprise, whether as an officer, director, employee, partner, sole proprietor, agent, representative, independent contractor, consultant, owner or otherwise; provided that the passive ownership of 5% or less of the outstanding stock of any publicly traded corporation shall not constitute "participation" in any such business. (ii) At least fifteen (15) days prior to any Transfer of any Hyundai Shares pursuant to this Section 2(c), the member of the Hyundai Group proposing to make such Transfer (the "Transferring Hyundai Shareholder") shall deliver a written notice (the "Hyundai Sale Notice") to the Bain Group and the SXI Group (the "Recipient Shareholders") and to the Company, specifying in reasonable detail the identity of the prospective transferee(s), the number of Hyundai Shares to be transferred and the terms and conditions of the proposed Transfer. First, each Recipient Shareholder may elect to purchase all or any portion of such holder's Pro Rata Share (as defined below) of the Hyundai Shares specified in the Hyundai Sale Notice at the price and on the other terms specified therein by delivering written notice of such election to the Transferring Hyundai Shareholder and the Company within fifteen (15) days after receipt of the Hyundai Sale Notice by the Company. For purposes of Section 2(c) and 2(d), each Recipient Shareholder's "Pro Rata Share" shall be based upon such Shareholder's proportionate ownership of all Shareholder Shares owned by all Recipient Shareholders. Any Hyundai Shares not elected to be purchased by the end of such 15-day period shall be reoffered during the five-day period immediately following the expiration of the aforementioned 15-day period by the Transferring Hyundai Shareholder on a pro rata basis to the Recipient Shareholders who have elected to purchase their Pro Rata Share. If the Recipient Shareholders have not elected to purchase all of the Hyundai Shares specified in the Hyundai Sale Notice within such twenty (20) day period (i.e., the sum of the previously aforementioned fifteen and five day periods), the Company may elect to purchase all or any portion of the remaining Hyundai Shares specified in the Hyundai Sale Notice at the price and on the other terms specified therein by delivering written notice of such election to the Transferring Hyundai Shareholder within 30 days after receipt of the Hyundai Sale Notice by the Company. If the Company or any Recipient Shareholders have elected to purchase Hyundai Shares from the Transferring Hyundai Shareholder, the transfer of such shares shall be consummated as soon as practical after the delivery of the election notice(s) to the Transferring Hyundai Shareholder, but in any event within 30 days after receipt of the Hyundai Sale Notice by the Company. If prior to the expiration of such 30 day period the Company and the Recipient Shareholders have not elected to purchase all of the Hyundai Shares being offered, the Transferring Hyundai Shareholder may, within 90 days after the Company's 7 receipt of the Hyundai Sale Notice, transfer such remaining Hyundai Shares to one or more third Persons (other than a Competitor) at a price no less than the price per share specified in the Hyundai Sale Notice and on other terms no more favorable to the transferees thereof than offered to the Company and the Recipient Shareholders in the Hyundai Sale Notice. Any Hyundai Shares not transferred within such 90-day period shall be reoffered to the Recipient Shareholders and the Company in accordance with this Section 2(c) prior to any subsequent Transfer. (d) Regulatory First Offer Right. (i) In the event that it becomes necessary or desirable for Intel to make a Transfer of Intel Shares in order to comply with any applicable law or any rule or regulation of any governmental or regulatory authority or in the event the Company fails to make any redemption of any Class A Preferred Stock, par value $.01 per share, held by Intel required pursuant to Section 4 of Attachment I to the Company's Articles of Incorporation (irrespective of any legal or contractual restrictions prohibiting any such redemption), Intel shall have the right to Transfer all or any portion of the Intel Shares to any third Person other than a Packaging Competitor (as defined below) in accordance with this Section 2(d). For purposes of this Section 2(d), the term "Packaging Competitor" means any Person that, directly or indirectly, either for itself or for any other Person, participates to a significant extent in the semiconductor merchant assembly or test business anywhere in the world (i.e., 40% or more of its annual revenues are derived from such business). For purposes of this Section 2(d), the term "participates" includes any direct or indirect interest in any enterprise, whether as an officer, director, employee, partner, sole proprietor, agent, representative, independent contractor, consultant, owner or otherwise; provided that neither (i) the passive ownership of 10% or less of the outstanding stock of any publicly traded corporation nor (ii) being a customer or supplier of any person or entity shall constitute "participation" in any such business. (ii) At least 20 business days prior to making any such Transfer of Intel Shares pursuant to this Section 2(d), Intel shall deliver a written notice (the "Intel Offer Notice") to the Recipient Shareholders (as defined in Section 2(c) above) and the Company. The Intel Offer Notice shall disclose in reasonable detail the proposed number of Intel Shares to be transferred and the proposed sale price, terms and conditions of the Transfer. First, each Recipient Shareholder may elect to purchase all or any portion of such holder's Pro Rata Share of the Intel Shares specified in the Intel Offer Notice at the price and on the other terms specified therein by delivering written notice of such election to Intel and the Company within ten (10) business days after receipt of the Intel Offer Notice by the Company. Any Intel Shares not elected to be purchased by the end of such ten (10) business day period shall be reoffered during the five business day period immediately following the expiration of the aforementioned ten (10) business day period by Intel on a pro rata basis to the Recipient Shareholders who have elected to purchase their Pro Rata Share. If the Recipient Shareholders have not elected to purchase all of the Intel Shares specified in the Intel Offer Notice within such fifteen (15) business day period (i.e., the sum of the previously aforementioned ten (10) and five (5) business day periods), the Company may elect to purchase all or any portion of the remaining Intel Shares specified in the Intel Offer Notice at the price and on the other terms 8 specified therein by delivering written notice of such election to Intel within 20 business days after receipt of the Intel Offer Notice by the Company, it being understood that Intel shall not be obligated to sell such Intel Shares to the Company and the Recipient Shareholders unless the Company and the Recipient Shareholders, in the aggregate, have elected to purchase all of the Intel Shares specified in such Intel Offer Notice. If the Company or any Recipient Shareholders have elected to purchase Intel Shares from Intel, the transfer of such shares shall be consummated as soon as practical after the delivery of the election notice(s) to Intel, but in any event within 30 business days after receipt of the Intel Offer Notice by the Company (or such longer period of time as may be required pursuant to applicable law). If the Company and the Recipient Shareholders do not elect within the aforementioned 20 business day period to purchase all of the Intel Shares being offered, Intel may, within 60 days after the Company's receipt of the Intel Offer Notice, transfer such Intel Shares to one or more third Persons (other than a Packaging Competitor) at a price no less than 95% of the price per share specified in the Intel Offer Notice and on other terms no more favorable to the transferees thereof than offered to the Company and the Recipient Shareholders in the Intel Offer Notice. Any Intel Shares not transferred within such 60-day period shall be reoffered to the Recipient Shareholders and the Company in accordance with this Section 2(d) prior to any subsequent Transfer. (e) Certain Permitted Transfers. The restrictions contained in Section 2(a) will not apply to any Transfer of Shareholder Shares by any Shareholder (i) among its Affiliates, (ii) pursuant to an Approved Sale, (iii) pursuant to the applicable laws of descent and distribution or among such Shareholder's Family Group or (iv) pursuant to Section 2(b), 2(c) or 2(d) hereof; provided that the restrictions contained in this Agreement will continue to apply to the Shareholder Shares after any Transfer pursuant to clause (i), (iii) or (iv) above and each transferee of such Shareholder Shares shall agree in writing, prior to and as a condition to the effectiveness of such Transfer, to be bound by the provisions of this Agreement, without modification or condition, subject only to the consummation of the Transfer. Upon the Transfer of Shareholder Shares pursuant to this Section 2(e), the transferor will deliver a written notice to the Company and the other parties to this Agreement, which notice will disclose in reasonable detail the identity of such transferee(s) and shall include an original counterpart of the agreement of such transferee(s) to be bound by this Agreement. (f) Termination of Restrictions. The restrictions set forth in this Section 2 shall continue with respect to each Shareholder Share until the earlier of (i) the consummation of an Approved Sale and (ii) the consummation of a Qualifying IPO. 3. Sale of the Company. (a) If the holders of at least a majority of the Bain Shares and the holders of at least a majority of the SXI Shares (the "Requisite Holders") approve (and, in the case of any sale or other fundamental change or extraordinary transaction which requires the approval of the board of directors of a California corporation pursuant to the California Corporations Code, the Board shall 9 have approved such sale) a sale of all or substantially all (as defined in the Revised Model Business Corporation Act) of the Company's assets determined on a consolidated basis or a sale of all or substantially all of the Company's outstanding capital stock (whether by merger, recapitalization, consolidation, reorganization, combination or otherwise) to any Independent Third Party or group of Independent Third Parties, and the Board shall have received a written opinion of an internationally recognized investment banking firm (which firm shall have been selected by the Board), acting as an independent financial advisor to the Board, to the effect that the consideration to be received by the Company or its shareholders (as the case may be) in such transaction is fair to the Company or its shareholders (as the case may be), from a financial point of view (collectively an "Approved Sale"), each holder of Shareholder Shares will consent to and raise no objections against such Approved Sale. If the Approved Sale is structured as (i) a merger or consolidation, each holder of Shareholder Shares will waive any dissenter's rights, appraisal rights or similar rights in connection with such merger or consolidation or (ii) a sale of stock, each holder of Shareholder Shares will agree to sell all of its Shareholder Shares and rights to acquire Shareholder Shares on the terms and conditions approved by the Board and the Requisite Holders; it being understood and agreed that in the event one of the terms of such sale provides for joint and several liability for post-closing indemnification obligations, the Bain Group and the SXI Group shall enter into a contribution agreement with Intel and the members of the Hyundai Group which provides that each party to such contribution agreement shall bear any such indemnification obligations pro rata according to each such party's percentage interest in the proceeds of such Approved Sale. Each holder of Shareholder Shares will take all necessary or desirable actions in connection with the consummation of the Approved Sale as requested by the Requisite Holders and the Company. (b) The obligations of the holders of Capital Stock with respect to an Approved Sale are subject to the satisfaction of the following conditions: (i) upon the consummation of the Approved Sale, each holder of Capital Stock will receive the same form of consideration and the same portion of the aggregate consideration that such holders of Capital Stock would have received if such aggregate consideration had been distributed by the Company in complete liquidation pursuant to the rights and preferences set forth in the Company's Articles of Incorporation as in effect immediately prior to such Approved Sale, (ii) if any holder of a class of Capital Stock is given an option as to the form and amount of consideration to be received, each holder of such class of Capital Stock will be given the same option; (iii) each holder of then currently exercisable rights to acquire shares of a class of Capital Stock will be given an opportunity to exercise such rights prior to the consummation of the Approved Sale and participate in such sale as holders of such class of Capital Stock; (iv) neither Intel nor (except to the knowledge of the Hyundai Director or the Additional Hyundai Director, if any) any member of the Hyundai Group shall be obligated to make any general representations and warranties concerning the business and affairs of the Company (but each shall bear a portion of the indemnification obligations with respect thereto, subject to the other terms and conditions of this Section 3), it being understood that Intel and the Hyundai Group would be expected to make customary representations and warranties with respect to its ownership of their respective Shareholder Shares (e.g., title to stock, authorization, etc.); (v) Intel's and the Hyundai Group's indemnification obligations in connection with an Approved Sale shall not exceed their 10 respective distributable proceeds in connection with such transaction; and (vi) neither Intel nor any member of the Hyundai Group shall be obligated to amend or take any other actions with respect to its then existing contractual relationships with the Company or the purchaser of the Company. (c) If the Company or the holders of the Company's securities enter into any negotiation or transaction for which Rule 506 (or any similar rule then in effect) promulgated by the Securities and Exchange Commission may be available with respect to such negotiation or transaction (including a merger, consolidation or other reorganization), the holders of Shareholder Shares will, at the request of the Company, appoint a purchaser representative (as such term is defined in Rule 501 promulgated by the Securities and Exchange Commission) reasonably acceptable to the Company. If any holder of Shareholder Shares appoints a purchaser representative designated by the Company, the Company will pay the fees of such purchaser representative, but if any holder of Shareholder Shares declines to appoint the purchaser representative designated by the Company, such holder will appoint another purchaser representative, and such holder will be responsible for the fees of the purchaser representative so appointed. (d) Each holder of Shareholder Shares will bear a pro-rata share (based upon the number of shares of Common Stock sold by such holder in relation to the number of shares of Common Stock sold by all holders in such Approved Sale) of the costs paid to any third party in connection with any sale of Shareholder Shares pursuant to an Approved Sale to the extent such costs are incurred for the benefit of all holders of Capital Stock and are not otherwise paid by the Company or the acquiring party. Costs incurred by holders of Shareholder Shares on their own behalf will not be considered costs of the transaction hereunder. (e) The provisions of this Section 3 shall terminate upon the consummation of a Qualifying IPO. 4. Preemptive Rights. (a) If the Company proposes to issue and sell any of its shares of Capital Stock or any securities containing options or rights to acquire any shares of Capital Stock or any securities convertible into shares of Capital Stock to any member of the Bain Group or the SXI Group or their respective Affiliates, the Company will first offer to each of the other Shareholders a portion of the number or amount of such securities proposed to be sold in any such transaction or series of related transactions equal to the product of the percentage each such other Shareholder holds of all shares of Common Stock (including for purposes hereof, any shares of Common Stock then issuable with respect to the Company's Class A Preferred Stock, par value $.01 per share) then held by all of the Company's Shareholders by the number of shares proposed to be issued and sold by the Company in any such transaction or series of related transactions, all for the same price and upon the same terms and conditions as the securities that are being offered to any member of the Bain Group or the SXI Group and their respective Affiliates in such transaction or series of transactions; provided that if all Shareholders entitled to purchase or receive such stock or securities are required to also 11 purchase other securities of the Company, the Shareholders exercising their rights pursuant to this Section 4 shall also be required to purchase the same strip of securities (on the same terms and conditions) that such other Shareholders are required to purchase. For purposes of this Section 4 only, the term Capital Stock shall include any capital stock of any Subsidiary of the Company and any other securities convertible into or exercisable for shares of the Company's or its Subsidiaries' capital stock. (b) Notwithstanding the foregoing, the provisions of this Section 4 shall not be applicable to the issuance of shares of Capital Stock (i) upon the conversion of shares of one class of Capital Stock into shares of another class, (ii) as a dividend on the outstanding shares of Capital Stock, (iii) in any transaction in respect of a security that is available to all holders of such security on a pro rata basis, (iv) in connection with the grant or exercise of stock or options to employees or directors of the Company or (v) in a public offering pursuant to a registration statement filed with, and declared effective by, the Securities and Exchange Commission pursuant to the Securities Act; and further, the provisions of this Section 4 shall terminate upon the occurrence of a Qualifying IPO. (c) The Company will cause to be given to the Shareholders a written notice setting forth the terms and conditions upon which the Shareholders may purchase such shares or other securities (the "Preemptive Notice"). After receiving a Preemptive Notice, a Shareholder wishing to exercise the preemptive rights granted by this Section 4 must give notice to the Company in writing, within fifteen (15) days after the date that such Preemptive Notice is deemed given pursuant to Section 19, that such Shareholder irrevocably agrees to purchase the shares or other securities offered pursuant to this Section 4 on the date of sale to any member of the Bain Group or the SXI Group or any of such member's respective Affiliates (the "Preemptive Reply"). If any Shareholder fails to make a Preemptive Reply in accordance with this Section 4, shares or other securities offered to such Shareholder in accordance with this Section 4 may thereafter, for a period not exceeding six months following the expiration of such 15-day period, be issued, sold or subjected to rights or options to any member of the Bain Group or the SXI Group or any of such member's respective Affiliates at a price not less than ninety percent (90%) of the price at which they were offered to the Shareholders. Any such shares or other securities not so issued, sold or subjected to rights or options to any member of the Bain Group or the SXI Group or any of such member's respective Affiliates during such six-month period will thereafter again be subject to the preemptive rights provided for in this Section 4. 5. Affiliate Transactions. Until the earlier of (i) the consummation of a Qualifying IPO and (ii) the first date on which neither the Bain Group nor the SXI Group holds twenty-five percent (25%) or more of the Company's outstanding common stock and no member of the Bain Group or the SXI Group has the right to designate directors pursuant to Section 1(a)(ii), the Company shall not, and shall cause its Subsidiaries not to, enter into any transaction with any member of the Bain Group or the SXI Group or any of their respective Affiliates, except for any transaction with any such Person which is not substantially less favorable to the Company or such Subsidiary as would be obtainable by the Company or such Subsidiary at the time in a comparable 12 arm's-length transaction with an unaffiliated Person; provided that any transaction contemplated by (i) those certain advisory agreements dated the date hereof between the Company and/or its Subsidiaries and each of Bain Capital, Inc. and SXI Group LLC or their respective designees (it being agreed and understood that the advisory fees paid or payable pursuant to paragraph 3 thereof which are not subject to the other terms and conditions of this Section 5 shall be capped in an amount equal to those described in the proviso to the first sentence of paragraph 3 of each such advisory agreement) and (ii) that certain Registration Agreement dated the date hereof between the Company and certain of its stockholders, in any such case, shall not be subject to this Section 5. 6. Legend; Securities Law Matters. (a) Each certificate evidencing Shareholder Shares and each certificate issued in exchange for or upon the Transfer of any Shareholder Shares (if such shares remain Shareholder Shares as defined herein after such Transfer) shall be stamped or otherwise imprinted with a legend in substantially the following form (which legend shall be removed and new unlegended certificates issued in the event that the shares represented thereby have been registered pursuant to an effective registration statement filed under the Securities Act): "THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED ON AUGUST __, 1999 AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN TRANSFER AND VOTING RESTRICTIONS PURSUANT TO A SHAREHOLDERS AGREEMENT, DATED AS OF AUGUST __, 1999, AMONG THE ISSUER OF SUCH SECURITIES (THE "COMPANY") AND CERTAIN OF THE COMPANY'S SHAREHOLDERS. A COPY OF SUCH SHAREHOLDERS AGREEMENT WILL BE FURNISHED WITHOUT CHARGE BY THE COMPANY TO THE HOLDER HEREOF UPON WRITTEN REQUEST." The Company shall imprint such legend on certificates evidencing Shareholder Shares outstanding prior to the date hereof. The legend set forth above shall be removed from the certificates evidencing any shares which cease to be Shareholder Shares in accordance with Section 8 hereof. (b) In connection with the Transfer of any Shareholder Shares, the holder thereof shall deliver written notice to the Company describing in reasonable detail the Transfer or proposed Transfer, together with, if so requested by the Company, an opinion of counsel which (to the Company's reasonable satisfaction) is knowledgeable in securities law matters to the effect that such Transfer of Shareholder Shares may be effected without registration of such Shareholder Shares under the Securities Act. In addition, if the holder of the Shareholder Shares delivers to the 13 Company an opinion of such counsel that no subsequent Transfer of such Shareholder Shares shall require registration under the Securities Act, the Company shall promptly upon such contemplated Transfer deliver new certificates for such securities which do not bear the Securities Act legend set forth in subparagraph (a). If the Company is not required to deliver new certificates for such Shareholder Shares not bearing such legend, the holder thereof shall not effect any Transfer of the same until the prospective transferee has confirmed to the Company in writing its agreement to be bound by the conditions contained in this subparagraph and subparagraph (a). (c) Upon the request of any Shareholder, the Company shall promptly supply to such Shareholder or its prospective transferees all information regarding the Company required to be delivered in connection with a Transfer pursuant to Rule 144A of the Securities and Exchange Commission. (d) If any Shareholder Shares become eligible for sale pursuant to Rule 144(k) of the Securities and Exchange Commission or no longer constitute "restricted securities" (as defined under Rule 144(a) of the Securities and Exchange Commission), the Company shall, upon the request of the holder of such Shareholder Shares, remove the legend set forth in subparagraph (a) from the certificates for such securities. 7. Transfer. Prior to Transferring any Shareholder Shares (other than in a Public Sale permitted pursuant to the terms and conditions of this Agreement or in an Approved Sale) to any Person, the transferring Shareholder shall cause the prospective transferee to execute and deliver to the Company and the other Shareholders a counterpart of this Agreement and thereafter all references to the transferring Shareholder shall be deemed to refer to the transferee and all references to the transferring Shareholder's Group shall be deemed to include the transferee, except that (i) the rights of the Hyundai Group set forth in Section 1 and Section 2(c) shall only inure to the benefit of Hyundai Electronics America and its Affiliates and shall not be transferable or otherwise assignable and (ii) the rights of Intel set forth in Section 2(d) shall only inure to the benefit of Intel and its Affiliates and shall not be transferable or otherwise assignable. 8. Definitions. "Affiliate" of a Shareholder means any other Person, entity or investment fund controlling, controlled by or under common control with the Shareholder and, in the case of a Shareholder which is a partnership or a limited liability company, any partner or member, respectively, of the Shareholder. "Articles of Incorporation" means the Company's Articles of Incorporation in effect at the time as of which any determination is being made. "Bain Shares" means (i) any Capital Stock issued to the Bain Group pursuant to the Recapitalization Agreement (whether directly or indirectly through Merger Corp. or otherwise), (ii) any shares of Capital Stock otherwise acquired by the Bain Group and (iii) any equity securities issued or issuable directly or indirectly with respect to the Capital Stock referred to in clauses (i) or (ii) by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization, or, in each case, any comparable transaction. "Capital Stock" means each class of the Company's capital stock. "Common Stock" means the Company's Class L Common Stock, par value $.01 per share, Class A Common Stock, par value $.01 per share, Class B Common Stock, par value $.01 per share and/or any other class or series of common stock hereafter created by the Company, as the context may require. "Family Group" means a Shareholder's spouse and descendants (whether or not adopted) and any trust solely for the benefit of the Shareholder and/or the Shareholder's spouse and/or the Shareholder's descendants (by birth or adoption), parents or dependents, any charitable trust the grantor of which is a Shareholder and/or member of a Shareholder's Family Group, or any corporation or partnership in which the direct and beneficial owner of all of the equity interest is such Shareholder and/or a member of such Shareholder's Family Group. "Financing Shares" means (i) any Capital Stock issued to CSFB or Sankaty pursuant to that certain Stock Purchase Agreement, dated as of August 5, 1999, by and among the Company, CSFB and Sankaty, (ii) any shares of Capital Stock otherwise acquired by CSFB or Sankaty and (iii) any equity securities issued or issuable directly or indirectly with respect to the Capital Stock referred to in clauses (i) or (ii) by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization, or, in each case, any comparable transaction. "GAAP" means U.S. generally accepted accounting principles, consistently applied. "Hyundai Shares" means (i) any Capital Stock issued to the Hyundai Group pursuant to the Recapitalization Agreement, (ii) any shares of Capital Stock otherwise acquired by the Hyundai Group and (iii) any equity securities issued or issuable directly or indirectly with respect to the Capital Stock referred to in clauses (i) or (ii) by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization, or, in each case, any comparable transaction. "Independent Third Party" means any Person who (together with its Affiliates), immediately prior to the contemplated transaction, does not own in excess of ten percent (10%) of the Common Stock on a fully-diluted basis (a "10% Owner"), who is not controlling, controlled by or under common control with any such 10% Owner and who is not the spouse, descendant (by birth 15 or adoption), parent or dependent of any such 10% Owner or a trust for the benefit of such 10% Owner and/or such other Persons. "Initial Public Offering" means a public offering and sale of the Common Stock pursuant to an effective registration statement under the Securities Act of 1933, if immediately thereafter the Company has publicly held Common Stock listed on a national securities exchange or the NASD automated quotation system. "Intel Shares" means (i) any Capital Stock issued to Intel pursuant to that certain Stock Purchase Agreement, dated as of August 5, 1999, by and among the Company and Intel (the "Purchase Agreement"), (ii) any shares of Capital Stock otherwise acquired by Intel and (iii) any equity securities issued or issuable directly or indirectly with respect to the Capital Stock referred to in clauses (i) or (ii) by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization, or, in each case, any comparable transaction. "Merger Corp." means ChipPAC Merger Corp., a Delaware corporation. "Person" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization or other entity, or a government or any branch, department, agency, political subdivision or official thereof. "Public Sale" means any sale of Shareholder Shares to the public pursuant to an offering registered under the Securities Act or to the public through a broker, dealer or market maker pursuant to the provisions of Rule 144 (other than Rule 144(k)), adopted under the Securities Act. "Qualifying IPO" has the meaning assigned in Section 1(c). "Recapitalization Agreement" means that certain Agreement and Plan of Recapitalization and Merger, dated as of March 13, 1999, as amended, by and among the Company, Hyundai Electronics Industries Co., Ltd., Hyundai Electronics America and Merger Corp. "Securities Act" means the Securities Act of 1933, as amended from time to time. "Senior Preferred Stock" means the Company's Series B Preferred Stock, par value $.01 per share. "Shareholder Shares" means the Bain Shares, the SXI Shares, the Intel Shares, the Hyundai Shares and the Financing Shares. For purposes of this Agreement, each Shareholder who holds options or warrants to acquire shares of Capital Stock shall be deemed to be the holder of all Shareholder Shares issuable (at the time of such determination) upon the exercise of such options or warrants. As to any particular shares constituting Shareholder Shares, such shares will cease to 16 be Shareholder Shares when they have been (x) effectively registered under the Securities Act and disposed of in accordance with the registration statement covering them, or (y) sold to the public through a broker, dealer or market maker pursuant to Rule 144 (or by any similar provision then in force) under the Securities Act, in each case in conformity with the terms and conditions of this Agreement. "Subsidiary" means with respect to any Person, any corporation, partnership, limited liability company, association or other business entity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, or (ii) if a partnership, association, limited liability company or other business entity, a majority of the partnership, membership or other similar ownership interests thereof is at the time owned or controlled, directly or indirectly, by any Person or one or more Subsidiaries of that Person or a combination thereof. For purposes hereof, a Person or Persons shall be deemed to have a majority ownership interest in a partnership, association or other business entity if such Person or Persons shall be allocated a majority of partnership, association or other business entity gains or losses or shall be or control the managing director or general partner of such partnership, association or business entity. "Sub Board" has the meaning assigned in Section 1(a)(iii). "SXI" means SXI Group LLC, a Delaware limited liability company. "SXI Group" means SXI; Billig Family Limited Partnership; Frederick K. Minturn; Citicorp Venture Capital, Ltd.; their respective Affiliates; their co- investment partnerships; in connection with a co-investment, their respective employees, directors, and internal, full-time consultants, any member of any of their respective Family Groups, and any trust or partnership of which their respective employees, directors, and internal, full-time consultants are the sole beneficiaries in connection with a co-investment (any such trust or partnership, a "Co-Investment Vehicle"), and the partners and beneficiaries of such Co-Investment Vehicle as a distribution in-kind; any transferee of any of the foregoing in order to resolve a Regulatory Problem if, (x) after taking commercially reasonable actions with the cooperation of the Company, such person is unable to restructure its ownership of Shareholder Shares in a manner that avoids a Regulatory Problem and in a manner which is not adverse to such person, and (y) giving notice to the Company, such person has determined that such Regulatory Problem may not be avoided; and any other transferee of any of the foregoing so long as the aggregate SXI Shares held by all such transferees pursuant to this clause do not exceed 10% of the SXI Shares. "Regulatory Problem" means, with respect to any person, any set of facts or circumstances wherein it has been asserted by any governmental authority (or such person or any of its Affiliates believes in good faith that there is a substantial risk of such assertion) that such person is not entitled to hold, or exercise any significant right, with respect to, the Shareholder Shares held by such person because of such person's regulatory status. 17 "SXI Shares" means (i) any Capital Stock issued to the SXI Group pursuant to the Recapitalization Agreement (whether directly or indirectly through Merger Corp. or otherwise), (ii) any shares of Capital Stock otherwise acquired by the SXI Group and (iii) any equity securities issued or issuable directly or indirectly with respect to the Capital Stock referred to in clauses (i) or (ii) by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization, or, in each case, any comparable transaction. 9. Financial Statements and Other Information. (a) The Company will deliver to each holder of Shareholder Shares (provided that for purposes of this Section 9, delivery to Hyundai Electronics America (in the case of the Hyundai Group), Bain Capital, Inc. (in the case of the Bain Group), Citicorp Venture Capital, Ltd. (in the case of the SXI Group), Credit Suisse First Boston Corporation (in the case of CSFB) and Sankaty High Yield Asset Partners, L.P. (in the case of Sankaty) shall be deemed effective delivery to each member of such Group): (i) no later than forty-five (45) days after the end of each quarterly accounting period of the Company in each fiscal year, unaudited consolidated statements of income and cash flows of the Company and its Subsidiaries for such quarterly period and for the period from the beginning of the fiscal year to the end of such quarter, and unaudited consolidated balance sheets of the Company and its Subsidiaries as of the end of such quarterly period, setting forth in each case comparisons to the Company's annual budget, and to the corresponding period in the preceding fiscal year (all of which statements shall be prepared in accordance with GAAP); and (ii) no later than one hundred twenty (120) days after the end of each fiscal year of the Company, consolidated statements of income and cash flows of the Company for such fiscal year, and consolidated balance sheets of the Company as of the end of such fiscal year, setting forth in each case comparisons to the Company's annual budget, and to the preceding fiscal year, all prepared in accordance with GAAP, and accompanied by an unqualified opinion of PriceWaterhouseCoopers or such other independent accounting firm of recognized national standing approved by the Board. (b) As long as any member of the SXI Group owns any Capital Stock, the Company shall notify the SXI Group (i) at least fifteen (15) days prior to taking any action after which the number of record holders of the Company's voting stock would be increased from fewer than fifty (50) to fifty (50) or more, and (ii) of any other action or occurrence after which the number of record holders of the Company's voting stock was increased (or would increase) from fewer than fifty (50) to fifty (50) or more, as soon as practicable after the Company becomes aware that such other action or occurrence has occurred or is proposed to occur. 18 (c) Promptly after the end of each fiscal year (but in any event prior to August 31 of each year) the Company shall deliver to the SXI Group a written assessment of the economic impact of the SXI Group's investment in the Company, specifying the full-time equivalent jobs created or retained in connection with the investment, the impact of the investment on the businesses of the Company in terms of expanded revenue and taxes, and other economic benefits resulting from the investment, including but not limited to, technology development or commercialization, minority business development, urban or rural business development, expansion or exports. (d) Prior to or after the Closing, the Company shall, if requested by the SXI Group, execute Forms 480 ("Size Status Declaration") and 652-D ("Assurance of Compliance") of the Small Business Administration and any other documents that may be required by the Small Business Administration or any other governmental agency having jurisdiction over the activities of a member of the SXI Group, or which a member of the SXI Group may reasonably require in connection therewith. 10. Inspection Rights. The Company shall permit any representatives designated by any holder of Shareholder Shares, upon reasonable notice and during normal business hours, to examine all Board minutes of the Company and its Subsidiaries (including all minutes of all Board committees of the Board of Directors of the Company and its Subsidiaries), shareholder meeting minutes and stock ledgers of the Company and its Subsidiaries. 11. Transfers in Violation of Agreement. Any Transfer or attempted Transfer of any Shareholder Shares in violation of any provision of this Agreement shall be void, and the Company shall not record such Transfer on its books or treat any purported transferee of such Shareholder Shares as the owner of such shares for any purpose. 12. Funding Obligations. No provision of this Agreement shall require any Shareholder or Group or any of their respective Affiliates to provide any future funding or any other financial support to the Company or any of its Subsidiaries. 13. Amendment and Waiver. Except as otherwise provided herein, the provisions of this Agreement may be amended or waived only upon the prior written consent of the Company and (i) the holders of a majority of the Bain Shares, (ii) the holders of a majority of the SXI Shares, (iii) the holders of a majority of the Hyundai Shares and (iv) the holders of a majority of Intel Shares; provided that in the event that such amendment or waiver would adversely treat a Shareholder or Group in a manner different from any other holders of Shareholder Shares, then such amendment or waiver will require the consent of such adversely treated holder or the holders of a majority of the Shareholders Shares of such adversely treated Group. The failure of any party to enforce any of the provisions of this Agreement shall in no way be construed as a waiver of such provisions and shall not affect the right of such party thereafter to enforce each and every provision of this Agreement in accordance with its terms. 19 14. Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or the effectiveness or validity of any provision in any other jurisdiction, and this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. 15. Entire Agreement. Except as otherwise expressly set forth herein, this Agreement embodies the complete agreement and understanding among the parties hereto with respect to the subject matter hereof and supersedes and preempts any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way. 16. Successors and Assigns. Except as otherwise provided herein, this Agreement shall bind and inure to the benefit of and be enforceable by the Company and its successors and assigns and the Shareholders and any subsequent holders of Shareholder Shares and the respective successors and assigns of each of them, so long as they hold Shareholder Shares. If a party hereto ceases to own any Shareholder Shares, such party will no longer be deemed to be a Shareholder for purposes of this Agreement. 17. Counterparts. This Agreement may be executed in one or more counterparts each of which shall be an original and all of which taken together shall constitute one and the same agreement. 18. Remedies. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of this Agreement and that the Company and any Shareholder shall have the right to injunctive relief, in addition to all of its rights and remedies at law or in equity, to enforce the provisions of this Agreement. Nothing contained in this Agreement shall be construed to confer upon any Person who is not a signatory hereto or any successor or assign of a signatory hereto any rights or benefits, as a third party beneficiary or otherwise. 19. Notices. All notices, demands and other communications to be given or delivered under or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been given when personally delivered, sent by telecopy (with receipt confirmed) on a business day during regular business hours of the recipient (or, if not, on the next succeeding business day) or three business days after sent by reputable overnight express courier (charges prepaid), at the address listed below or at any address listed in the Company's records in case of any Shareholder not so listed herein. 20 If to the Company: ChipPAC, Inc. 3151 Coronado Drive Santa Clara, California 95054 U.S.A. Attention: CEO Facsimile: (408) 486-5914 If to HEA: c/o Hyundai Electronics America 3101 North First Street San Jose, California 95134 U.S.A. Attention: Dr. C.S. Park Facsimile: (408) 232-8101 With a copy to: Brobeck Phleger & Harrison LLP Two Embarcadero Place 2200 Geng Road Palo Alto, California 94303 U.S.A. Attention: Rod J. Howard Facsimile: (650) 496-2777 21 If to Intel: ----------- c/o Intel Corporation 2200 Mission College Boulevard RN6-46 Santa Clara, California 95052 U.S.A. Attention: M&A Portfolio Manager Facsimile: (408) 765-0569 With a copy to: -------------- Gibson, Dunn & Crutcher LLP 1530 Page Mill Road Palo Alto, California 94304-1125 Attention: Lawrence Calof Facsimile: (650) 849-5333 If to any member of the Bain Group: c/o Bain Capital, Inc. Two Copley Place Boston, Massachusetts 02116 U.S.A. Attention: David Dominik Edward Conard Prescott Ashe Facsimile: (617) 572-3274 With a copy to: Kirkland & Ellis 200 East Randolph Drive Chicago, Illinois 60601 U.S.A. Attention: Jeffrey C. Hammes, P.C. Gary M. Holihan Facsimile: (312) 861-2200 22 If to any member of the SXI Group: c/o Citicorp Venture Capital, Ltd. 399 Park Avenue New York, New York 10043 U.S.A. Attention: Michael A. Delaney Paul C. Schorr Facsimile: (212) 888-2940 With a copy to: Dechert Price & Rhoads 4000 Bell Atlantic Tower 1717 Arch Street Philadelphia, Pennsylvania 19103 U.S.A. Attention: G. Daniel O'Donnell Geraldine A. Sinatra Facsimile: (215) 994-2222 20. GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE. THE CORPORATE LAW OF THE STATE OF CALIFORNIA WILL GOVERN ALL ISSUES CONCERNING THE RELATIVE RIGHTS OF THE COMPANY AND ITS SHAREHOLDERS. ALL OTHER ISSUES CONCERNING THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF CALIFORNIA OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAW OF ANY JURISDICTION OTHER THAN THE STATE OF CALIFORNIA. EACH PARTY HERETO HEREBY SUBMITS TO THE CO- EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA, AND OF ANY CALIFORNIA STATE COURT SITTING IN SAN FRANCISCO, CALIFORNIA OVER ANY LAWSUIT UNDER THIS AGREEMENT AND WAIVES ANY OBJECTION BASED ON VENUE OR FORUM NON CONVENIENS WITH RESPECT TO ANY ACTION INSTITUTED THEREIN. EACH PARTY HERETO HEREBY WAIVES THE NECESSITY FOR PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL (RETURN RECEIPT REQUESTED), WITH A COPY ALSO BEING SENT BY FACSIMILE (WITH RECEIPT CONFIRMED), IN EACH CASE DIRECTED TO SUCH PARTY AT ITS ADDRESS SET FORTH IN, AND WITH COPIES SENT AS REQUIRED BY, SECTION 19 ABOVE, AND SERVICE SO 23 MADE SHALL BE DEEMED TO BE COMPLETED ON THE DATE OF ACTUAL RECEIPT. EACH PARTY HERETO HEREBY CONSENTS TO SERVICE OF PROCESS AS AFORESAID. NOTHING IN THIS SECTION 20 WILL PROHIBIT PERSONAL SERVICE IN LIEU OF THE SERVICE BY MAIL CONTEMPLATED HEREIN. 21. Delivery by Facsimile. This Agreement and any signed agreement or instrument entered into in connection herewith or contemplated hereby, and any amendments hereto or thereto, to the extent signed and delivered by means of a facsimile machine, shall be treated in all manner and respects as an original agreement or instrument and shall be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person. At the request of any party hereto or to any such agreement or instrument, each other party hereto or thereto shall re-execute original forms thereof and deliver them to all other parties. No party hereto or to any such agreement or instrument shall raise the use of a facsimile machine to deliver a signature or the fact that any signature or agreement or instrument was transmitted or communicated through the use of a facsimile machine as a defense to the formation of a contract and each such party forever waives any such defense. 22. Arbitration Procedure. (a) The parties agree that they will attempt to settle any claim or controversy arising out of this Agreement through good faith negotiations in the spirit of mutual cooperation between senior business executives with authority to resolve the controversy. (b) Any dispute that cannot be resolved by the parties through good faith negotiations within 30 days of the commencement of the controversy will then, upon the written request of any party, be resolved by binding arbitration conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association by a sole arbitrator who is a retired federal judge resident in the State of California. To the extent not governed by such rules, such arbitrator shall be directed by the parties to set a schedule for determination of such dispute that is reasonable under the circumstances. Such arbitrator shall be directed by the parties to determine the dispute in accordance with this Agreement and the substantive rules of law (but not the rules of procedure or evidence) that would be applied by a federal court. The arbitration will be conducted in the English language in San Francisco, California. Judgment upon the award rendered by the arbitrator may be entered by any court having jurisdiction. (c) Nothing contained in this Section 22 shall prevent any party from resorting to judicial process if injunctive or other equitable relief from a court is available to prevent irreparable injury to one party or to others or to the extent no adequate remedy is available at law. The use of arbitration procedures will not be construed under the doctrine of laches, waiver or estoppel to affect adversely any party's right to assert any claim or defense. 24 23. Descriptive Headings. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. 24. No Strict Construction. The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement. 25. Additional Hyundai Information and Inspection Rights. In addition to any other rights set forth in this Agreement, during the Earn-Out Period (as defined in Section 2.5 of the Recapitalization Agreement) (subject to early termination of the rights set forth in this Section 25 upon payment of the Earn-Out Maximum (as defined in the Recapitalization Agreement)): (i) the Company will deliver to Hyundai Electronics America, copies of the Company's annual operating and annual capital budgets and all material modifications thereto, after review and approval of such budgets by the Board; and (ii) the Company shall permit representatives designated by Hyundai Electronics America, upon reasonable notice and during normal business hours, and in a manner which will not materially disrupt the conduct of the Company's business, to examine the Company's books of account and records, to discuss the affairs, finances and accounts of the Company with its officers, and to inspect and receive such other information as Hyundai Electronics America may reasonably request. All documents and information furnished by or on behalf of the Company to Hyundai Electronics America shall be subject to the terms of the confidentiality agreement set forth in Section 12.5 of the Recapitalization Agreement as if fully set forth in this Agreement. [the rest of this page is intentionally left blank] 25 IN WITNESS WHEREOF, the parties hereto have executed this Shareholders Agreement on the day and year first above written. CHIPPAC, INC. By: /s/ Gary Breton _______________________________ Its: _______________________________ THE HYUNDAI GROUP: HYUNDAI ELECTRONICS AMERICA By: /s/ Baxon S. Kim _______________________________ Its: _______________________________ INTEL: INTEL CORPORATION By: /s/ Arvind Sodhani _______________________________ Its: Vice President and Treasurer _______________________________ FINANCING SOURCES: CSFB: CHIPPAC EQUITY INVESTORS LLC By: Merchant Capital, Inc. Its: Managing Member By: _______________________________ Its: Vice President _______________________________ SANKATY: SANKATY HIGH YIELD ASSET PARTNERS, L.P. By: _______________________________ Its: Managing Director _______________________________ THE BAIN GROUP: BAIN CAPITAL FUND VI, L.P. By: Bain Capital Partners VI, L.P. Its: General Partner By: Bain Capital Investors, Inc. Its: General Partner By: /s/ David Dominik _______________________________ A Managing Director BCIP ASSOCIATES II By: /s/ David Dominik _______________________________ A General Partner BCIP ASSOCIATES II-B By: /s/ David Dominik ________________________________ A General Partner BCIP ASSOCIATES II-C By: /s/ David Dominik ________________________________ A General Partner BCIP TRUST ASSOCIATES II By: Bain Capital, Inc. Its: General Partner By: /s/ David Dominik ________________________________ A Managing Director BCIP TRUST ASSOCIATES II-B By: Bain Capital, Inc. Its: General Partner By: /s/ David Dominik ________________________________ A Managing Director PEP INVESTMENTS PTY. LTD By: /s/ David Dominik _______________________________ Its: _______________________________ RANDOLPH STREET PARTNERS II By: /s/ Jeffrey Hammes ____________________________________ A General Partner RANDOLPH STREET PARTNERS 1998 DIF, LLC By: /s/ Jeffrey Hammes _______________________________________ Its: _______________________________________ THE SXI GROUP: SXI GROUP LLC By: /s/ Paul C. Schorr IV _______________________________________ Its: Vice President and Assistant Secretary _______________________________________ BILLIG FAMILY LIMITED PARTNERSHIP By: /s/ William Billig _______________________________________ Its: _______________________________________ /s/ Frederick K. Minturn _______________________________________ Frederick K. Minturn SCHEDULE I The Hyundai Group ----------------- Hyundai Electronics America; Hyundai Electronics Industries Co., Ltd. (to the extent that it becomes the holder of any shares of Capital Stock pursuant to Section 2.3 or 2.5 of the Recapitalization Agreement); and their respective permitted transferees pursuant to Section 2(e)(i) of this Agreement. SCHEDULE II The Bain Group -------------- Bain Capital Fund VI, L.P. BCIP Associates II BCIP Associates II-B BCIP Trust Associates II-C BCIP Trust Associates II BCIP Trust Associates II-B PEP Investments Pty., Ltd. Randolph Street Partners II Randolph Street Partners 1999 DIF, LLC EX-10.5 28 AMENDED AND RESTATED SHAREHOLDERS AGREEMENT EXHIBIT 10.5 ------------ AMENDED & RESTATED REGISTRATION AGREEMENT ---------------------- THIS REGISTRATION AGREEMENT (this "Agreement") is made and entered into as of August 5, 1999, by and among ChipPAC, Inc., a California corporation (the "Company"), each of the Persons listed on Schedule I attached hereto (the "Hyundai Shareholders"), each of the Persons listed on Schedule II attached hereto (the "Bain Shareholders"), the SXI Shareholders (as defined in Section 9 hereof), Intel Corporation, a Delaware corporation ("Intel"), ChipPAC Equity Investors LLC ("CSFB"), an affiliate of Credit Suisse First Boston and Sankaty High Yield Asset Partners, L.P. ("Sankaty"). The Hyundai Shareholders, the Bain Shareholders, the SXI Shareholders, Intel, CSFB and Sankaty are collectively referred to herein as the "Shareholders," and each as a "Shareholder". Unless otherwise provided in this Agreement, capitalized terms used herein shall have the meanings set forth in paragraph 9 hereof. The Hyundai Shareholders, the Company and ChipPAC Merger Corp., a Delaware corporation ("MergerCorp."), are parties to that certain Agreement and Plan of Recapitalization and Merger, dated as of March 13, 1999, as amended (the "Recapitalization Agreement"). Intel and the Company are parties to that certain Stock Purchase Agreement, dated as of August 5, 1999 (the "Purchase Agreement"). CSFB, Sankaty and the Company are parties to that certain Stock Purchase Agreement dated as of August 5, 1999 (the "CSFB Purchase Agreement"). In connection with the transactions contemplated by each of the Recapitalization Agreement, the Purchase Agreement and the CSFB Purchase Agreement, the Company has agreed to provide the registration rights set forth in this Agreement. The execution and delivery of this Agreement is a condition to the closing of the transactions contemplated by each of the Recapitalization Agreement, the Purchase Agreement and the CSFB Purchase Agreement. The parties hereto agree as follows: 1. Demand Registrations. -------------------- (a) Requests for Registration. At any time, the holders of a majority of the Bain Registrable Securities and the holders of a majority of the SXI Registrable Securities may request registration under the Securities Act of all or part of their Registrable Securities on Form S-1 or any similar long-form registration ("Long-Form Registrations") or, if available, on Form S-2 or S-3 or any similar short-form registration ("Short-Form Registrations"). The holders of a majority of the Hyundai Registrable Securities may request registration under the Securities Act of all or part of the Hyundai Registrable Securities pursuant to a Long-Form Registration or a Short-Form Registration under the circumstances and as set forth in paragraph 1(d) below. The holders of a majority of the Intel Registrable Securities may request registration under the Securities Act of all or part of the Intel Registrable Securities pursuant to a Long-Form Registration or a Short-Form Registration under the circumstances and as set forth in paragraph 1(e) below. Each request for a Demand Registration shall specify the approximate number of Registrable Securities requested to be registered and the anticipated per share price range for such offering. Within ten days after receipt of any such request, the Company shall give written notice of such requested registration to all other holders of Registrable Securities and, subject to paragraph 1(f) below, will include in such registration all Registrable Securities with respect to which the Company has received written requests for inclusion therein within 15 days after the receipt of the Company's notice. All registrations requested pursuant to this paragraph 1(a) are referred to herein as "Demand Registrations." (b) Long-Form Registrations. The holders of a majority of the Bain Registrable Securities and the holders of a majority of the SXI Registrable Securities will be entitled to request unlimited Long-Form Registrations in which the Company will pay all Registration Expenses. The Company will pay all Registration Expenses in connection with any registration initiated as a Long- Form Registration whether or not it has become effective. All Long-Form Registrations shall be underwritten registrations. (c) Short-Form Registrations. In addition to the Long-Form Registrations provided pursuant to paragraph 1(b), the holders of a majority of the Bain Registrable Securities and the holders of a majority of the SXI Registrable Securities will be entitled to request unlimited Short-Form Registrations in which the Company will pay all Registration Expenses. Demand Registrations will be Short-Form Registrations whenever the Company is permitted to use any applicable short form. After the Company has become subject to the reporting requirements of the Securities Exchange Act, the Company will use its best efforts to make Short-Form Registrations available for the sale of Registrable Securities. (d) Hyundai Demand Registration Rights. At any time after the Company's Common Stock is publicly traded on any national securities exchange or quoted as a NASDAQ "National Market Security" and prior to the seventh anniversary of the closing of the transactions contemplated by the Recapitalization Agreement, the holders of a majority of the Hyundai Registrable Securities will be entitled to request one Long-Form Registration in which the Company will pay all Registration Expenses (the "Hyundai Demand Registration"); provided that the Company will not be obligated to effect such Hyundai Demand Registration unless the holders of the Hyundai Registrable Securities request to include at least 50% of the Hyundai Registrable Securities. The Hyundai Demand Registration will be a Short-Form Registration if the Company is permitted to use any applicable short form. A registration shall not count as the one permitted Hyundai Demand Registration until it has become effective (unless such registration has not become effective due solely to the fault of the holders requesting such registration) and unless the holders of Hyundai Registrable Securities are able to register and sell at least 75% of the Hyundai Registrable Securities requested to be included in such registration; provided, however, that the holders of Hyundai Registrable Securities shall not be entitled to request more than one such registration in any six month period even if the previous registration did not count as the one permitted Hyundai Demand Registration. Nevertheless, the Company shall pay all Registration Expenses in connection with any registration that was initiated as an Hyundai Demand Registration whether or not it has become effective and whether or not such registration has counted as the one permitted Hyundai Demand Registration. (e) Intel Demand Registration Rights. At any time after the Company's Common Stock is publicly traded on any national securities exchange or quoted as a NASDAQ "National Market Security" and prior to the seventh anniversary of the closing of the transactions contemplated by the Purchase Agreement, the holders of a majority of the Intel Registrable Securities will be -2- entitled to request one Long-Form Registration in which the Company will pay all Registration Expenses (the "Intel Demand Registration"); provided that the Company will not be obligated to effect such Intel Demand Registration unless the holders of the Intel Registrable Securities request to include at least 50% of the Intel Registrable Securities. The Intel Demand Registration will be a Short-Form Registration if the Company is permitted to use any applicable short form. A registration shall not count as Intel's one permitted Intel Demand Registration until it has become effective (unless such registration has not become effective due solely to the fault of the holders requesting such registration) and unless the holders of Intel Registrable Securities are able to register and sell at least 75% of the Intel Registrable Securities requested to be included in such registration; provided, however, that the holders of Intel Registrable Securities shall not be entitled to request more than one such registration in any six month period even if the previous registration did not count as Intel's one permitted Intel Demand Registration. Nevertheless, the Company shall pay all Registration Expenses in connection with any registration that was initiated as an Intel Demand Registration whether or not it has become effective and whether or not such registration has counted as Intel's one permitted Intel Demand Registration. (f) Priority on Demand Registrations. The Company will not include in any Demand Registration any securities which are not Registrable Securities without the prior written consent of (i) the holders of a majority of the Registrable Securities included in such registration, in the case of any Demand Registration other than a Hyundai Demand Registration or an Intel Demand Registration, (ii) the holders of a majority of the Hyundai Registrable Securities in the case of a Hyundai Demand Registration and (iii) the holders of a majority of the Intel Registrable Securities in the case of an Intel Demand Registration. If a Demand Registration is an underwritten offering and the managing underwriters advise the Company in writing that in their opinion the number of Registrable Securities and, if permitted hereunder, other securities requested to be included in such offering exceeds the number of Registrable Securities and other securities, if any, which can be sold therein without adversely affecting the marketability of the offering, (i) in the case of any Demand Registration other than a Hyundai Demand Registration or an Intel Demand Registration, the Company will include in such registration prior to the inclusion of any securities which are not Registrable Securities the number of Registrable Securities requested to be included which in the opinion of such underwriters can be sold without adversely affecting the marketability of the offering, pro rata among the respective holders thereof on the basis of the number of shares of Registrable Securities owned by each such holder, (ii) in the case of a Hyundai Demand Registration, the Company will include in such registration (A) first, the securities the holders of the Hyundai Registrable Securities propose to sell, pro rata among the respective holders thereof on the basis of the number of shares of Registrable Securities owned by each such holder, (B) second, the Registrable Securities requested to be included in such registration by the other holders of Registrable Securities, pro rata among such other holders on the basis of the number of shares of Registrable Securities owned by each such holder and (C) third, other securities requested to be included in such registration and (iii) in the case of an Intel Demand Registration, the Company will include in such registration (A) first, the securities the holders of the Intel Registrable Securities propose to sell, pro rata among the respective holders thereof on the basis of the number of shares of Registrable Securities owned by each such holder, (B) second, the Registrable Securities requested to be included in such registration by the other holders of Registrable Securities, pro rata among such other holders on the basis of the number of shares of Registrable Securities owned by each such holder and (C) third, other securities requested to be included in such registration. -3- (g) Restrictions on Demand Registrations. The Company may postpone for up to ninety days the filing or the effectiveness of a registration statement for a Demand Registration if the Company and the holders of at least a majority of the Registrable Securities agree that such Demand Registration would reasonably be expected to have a material adverse effect on any proposal or plan by the Company or any of its Subsidiaries to engage in any acquisition of assets (other than in the ordinary course of business) or any merger, consolidation, tender offer, reorganization or similar transaction; provided that in such event, the holders of a majority of Registrable Securities requesting such Demand Registration will be entitled to withdraw such request and, if such request is withdrawn, the Company will pay all Registration Expenses in connection with such registration; and provided further, that in the case of any Intel Demand Registration, the Company shall only be permitted to effect two (2) such non-consecutive postponements during any twelve-month period. (h) Selection of Underwriters. The holders of a majority of the Bain Registrable Securities and the holders of a majority of the SXI Registrable Securities included in any Demand Registration (other than a Hyundai Demand Registration or an Intel Demand Registration) will have the right to select the investment banker(s) and manager(s) to administer the offering, subject to the Company's approval, which will not be unreasonably withheld. The Company will have the right to select the investment banker(s) and manager(s) to administer any Hyundai Demand Registration, subject to the approval of a majority of the Hyundai Registrable Securities included in any Hyundai Demand Registration, which will not be unreasonably withheld. The Company will have the right to select the investment banker(s) and manager(s) to administer any Intel Demand Registration, subject to the approval of a majority of the Intel Registrable Securities included in any Intel Demand Registration, which will not be unreasonably withheld. (i) Other Registration Rights. Except as provided in this Agreement, the Company will not grant to any Persons the right to request the Company to register any equity securities of the Company, or any securities convertible or exchangeable into or exercisable for such securities, without the prior written consent of the holders of a majority of the Registrable Securities. 2. Piggyback Registrations. ----------------------- (a) Right to Piggyback. Whenever the Company proposes to register any of its securities (including any proposed registration of the Company's securities by any third party) under the Securities Act (other than pursuant to a Demand Registration or a registration on Form S-4 or S-8 or any successor or similar forms) and the registration form to be used may be used for the registration of Registrable Securities (a "Piggyback Registration"), whether or not for sale for its own account, the Company will give prompt written notice to all holders of Registrable Securities of its intention to effect such a registration and, subject to paragraph 2(c) and (d) below, will include in such registration all Registrable Securities with respect to which the Company has received written requests for inclusion therein within 15 days after the receipt of the Company's notice. (b) Piggyback Expenses. The Registration Expenses of the holders of Registrable Securities will be paid by the Company in all Piggyback Registrations. -4- (c) Priority on Primary Registrations. If a Piggyback Registration is an underwritten primary registration on behalf of the Company, and the managing underwriters advise the Company in writing (with a copy to each party hereto requesting registration of Registrable Securities) that in their opinion the number of securities requested to be included in such registration exceeds the number which can be sold in such offering without adversely affecting the marketability of such offering, the Company will include in such registration (i) first, the securities the Company proposes to sell, (ii) second, the Registrable Securities requested to be included in such registration, pro rata among the holders of such Registrable Securities on the basis of the number of shares owned by each such holder and (iii) third, other securities requested to be included in such registration. (d) Priority on Secondary Registrations. If a Piggyback Registration is an underwritten secondary registration on behalf of holders of the Company's securities, and the managing underwriters advise the Company in writing that in their opinion the number of securities requested to be included in such registration exceeds the number which can be sold in such offering without adversely affecting the marketability of the offering, the Company will include in such registration (i) first, the securities requested to be included therein by the holders requesting such registration and the Registrable Securities requested to be included in such registration, pro rata among the holders of such securities on the basis of the number of shares owned by each such holder and (ii) second, other securities requested to be included in such registration. (e) Selection of Underwriters. If any Piggyback Registration is an underwritten offering, the selection of investment banker(s) and manager(s) for the offering shall be made by the Company and must be approved by the holders of a majority of the Bain Registrable Securities and the holders of a majority of the SXI Registrable Securities included in such Piggyback Registration. Such approval shall not be unreasonably withheld. (f) Other Registrations. If the Company has previously filed a registration statement with respect to Registrable Securities pursuant to paragraph 1 or pursuant to this paragraph 2, and if such previous registration has not been withdrawn or abandoned, the Company will not file or cause to be effected any other registration of any of its equity securities or securities convertible or exchangeable into or exercisable for its equity securities under the Securities Act (except on Form S-4 or S-8 or any successor form), whether on its own behalf or at the request of any holder or holders of such securities, until a period of at least ninety days has elapsed from the effective date of such previous registration. 3. Holdback Agreements. ------------------- (a) Each holder of Registrable Securities agrees not to effect any public sale or distribution (including sales pursuant to Rule 144) of equity securities of the Company, or any securities, options or rights convertible into or exchangeable or exercisable for such securities, during the seven days prior to and the 180-day period beginning on the effective date of any underwritten Demand Registration or any underwritten Piggyback Registration (except as part of such underwritten registration), unless the underwriters managing the registered public offering otherwise agree; it being agreed that, with respect to Intel, in the case of any underwritten Demand Registration or underwritten Piggyback Registration other than the Company's Initial Public Offering, Intel shall only be obligated to a lock-up during the seven days prior to and the 90- day -5- period beginning on the effective date of any such underwritten offering if Intel then holds 5% or more of the Company's outstanding common stock (and, if Intel then holds less than 5% of the Company's common stock, no such lock-up shall be required in connection with any such underwritten offering, unless Intel otherwise agrees). (b) The Company agrees (i) not to effect any public sale or distribution of its equity securities, or any securities convertible into or exchangeable or exercisable for such securities, during the seven days prior to and during the 180-day period beginning on the effective date of any underwritten Demand Registration or any underwritten Piggyback Registration (except as part of such underwritten registration or pursuant to registrations on Form S-4 or S-8 or any successor form), unless the underwriters managing the registered public offering otherwise agree, and (ii) to cause each holder of its Common Stock, or any securities convertible into or exchangeable or exercisable for Common Stock, purchased from the Company at any time after the date of this Agreement (other than in a registered public offering) to agree not to effect any public sale or distribution (including sales pursuant to Rule 144) of any such securities during such period (except as part of such underwritten registration, if otherwise permitted), unless the underwriters managing the registered public offering otherwise agree. 4. Registration Procedures. Whenever the holders of Registrable Securities have requested that any Registrable Securities be registered pursuant to this Agreement, the Company will use its best efforts to effect the registration and the sale of such Registrable Securities in accordance with the intended method of disposition thereof (including the registration of Class A Common and Class L Common held by a holder of Registrable Securities requesting registration as to which the Company has received reasonable assurances that only Registrable Securities will be distributed to the public), and pursuant thereto the Company will as expeditiously as possible: (a) prepare and (within 60 days after the end of the period within which requests for registration may be given to the Company) file with the Securities and Exchange Commission a registration statement with respect to such Registrable Securities and thereafter use its best efforts to cause such registration statement to become effective (provided that before filing a registration statement or prospectus or any amendments or supplements thereto, the Company will furnish to the counsel selected by the holders of a majority of the Registrable Securities covered by such registration statement copies of all such documents proposed to be filed, which documents will be subject to review and comment of such counsel); (b) notify each holder of Registrable Securities of the effectiveness of each registration statement filed hereunder and prepare and file with the Securities and Exchange Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for a period of either (i) not less than six months (subject to extension pursuant to paragraph 7(b)) or, if such registration statement relates to an underwritten offering, such longer period as in the opinion of counsel for the underwriters a prospectus is required by law to be delivered in connection with sales of Registrable Securities by an underwriter or dealer or (ii) such shorter period as will terminate when all of the securities covered by such registration statement have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof set forth in such registration statement (but in any event not before the expiration of any longer period required under the -6- Securities Act), and to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement until such time as all of such securities have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof set forth in such registration statement; (c) furnish to each seller of Registrable Securities such number of copies of such registration statement, each amendment and supplement thereto, the prospectus included in such registration statement (including each preliminary prospectus) and such other documents as such seller may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such seller; (d) use its best efforts to register or qualify such Registrable Securities under such other securities or blue sky laws of such jurisdictions as any seller reasonably requests and do any and all other acts and things which may be reasonably necessary or advisable to enable such seller to consummate the disposition in such jurisdictions of the Registrable Securities owned by such seller (provided that the Company will not be required to (i) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this subparagraph (d), (ii) subject itself to taxation in any such jurisdiction or (iii) consent to general service of process in any such jurisdiction); (e) notify each seller of such Registrable Securities, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, upon discovery that, or upon the discovery of the happening of any event as a result of which, the prospectus included in such registration statement contains an untrue statement of a material fact or omits any fact necessary to make the statements therein not misleading in the light of the circumstances under which they were made, and, at the request of any such seller, the Company will prepare and furnish to such seller a reasonable number of copies of a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus will not contain an untrue statement of a material fact or omit to state any fact necessary to make the statements therein not misleading in the light of the circumstances under which they were made; (f) cause all such Registrable Securities to be listed on each securities exchange on which similar securities issued by the Company are then listed and, if not so listed, to be listed on the NASD automated quotation system; (g) provide a transfer agent and registrar for all such Registrable Securities not later than the effective date of such registration statement; (h) enter into such customary agreements (including underwriting agreements in customary form) and take all such other actions as the holders of a majority of the Registrable Securities being sold or the underwriters, if any, reasonably request in order to expedite or facilitate the disposition of such Registrable Securities (including, without limitation, effecting a stock split or a combination of shares); (i) make available for inspection by any seller of Registrable Securities, any underwriter participating in any disposition pursuant to such registration statement and any attorney, -7- accountant or other agent retained by any such seller or underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors, employees and independent accountants to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such registration statement; (j) otherwise use its best efforts to comply with all applicable rules and regulations of the Securities and Exchange Commission, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months beginning with the first day of the Company's first full calendar quarter after the effective date of the registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder; (k) in the event of the issuance of any stop order suspending the effectiveness of a registration statement, or of any order suspending or preventing the use of any related prospectus or suspending the qualification of any securities included in such registration statement for sale in any jurisdiction, the Company will use its reasonable best efforts promptly to obtain the withdrawal of such order; (l) obtain one or more comfort letters, dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, dated the date of the closing under the underwriting agreement), signed by the Company's independent public accountants in customary form and covering such matters of the type customarily covered by comfort letters as the holders of a majority of the Registrable Securities being sold reasonably request (so long as such Registrable Securities constitute at least 10% of the securities covered by such registration statement); and (m) provide a legal opinion of the Company's outside counsel, dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, dated the date of the closing under the underwriting agreement), with respect to the registration statement, each amendment and supplement thereto, the prospectus included therein (including the preliminary prospectus) and such other documents relating thereto in customary form and covering such matters of the type customarily covered by legal opinions of such nature. The Company may require each seller of Registrable Securities as to which any registration is being effected to furnish the Company such information regarding such seller and the distribution of such securities as the Company may from time to time reasonably request in writing. 5. Registration Expenses. --------------------- (a) All expenses incident to the Company's performance of or compliance with this Agreement, including, without limitation, all registration and filing fees, fees and expenses of compliance with securities or blue sky laws, printing expenses, messenger and delivery expenses, fees and disbursements of custodians, and fees and disbursements of counsel for the Company and all independent certified public accountants, underwriters (excluding discounts and commissions) and other Persons retained by the Company (all such expenses being herein called "Registration -8- Expenses"), will be borne as provided in this Agreement, except that the Company will, in any event, pay its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit or quarterly review, the expense of any liability insurance and the expenses and fees for listing the securities to be registered on each securities exchange on which similar securities issued by the Company are then listed or on the NASD automated quotation system. (b) In connection with each Demand Registration and each Piggyback Registration, the Company will reimburse the holders of Registrable Securities covered by such registration for the reasonable fees and disbursements of one counsel chosen by the holders of a majority of the Registrable Securities included in such registration (or two counsels, if such registration includes holders of both Bain Registrable Securities and SXI Registrable Securities). (c) To the extent Registration Expenses are not required to be paid by the Company, each holder of securities included in any registration hereunder will pay those Registration Expenses allocable to the registration of such holder's securities so included, and any Registration Expenses not so allocable will be borne by all sellers of securities included in such registration in proportion to the aggregate selling price of the securities to be so registered for each seller. 6. Indemnification. --------------- (a) The Company agrees to indemnify and hold harmless, to the extent permitted by law, each holder of Registrable Securities, its officers and directors and each Person that controls such holder (within the meaning of the Securities Act) against any losses, claims, damages, liabilities, joint or several, to which such holder or any such director or officer or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon (i) any untrue or alleged untrue statement of material fact contained (A) in any registration statement, prospectus or preliminary prospectus or any amendment thereof or supplement thereto or (B) in any application or other document or communication (in this paragraph 6 collectively called an "application") executed by or on behalf of the Company or based upon written information furnished by or on behalf of the Company filed in any jurisdiction in order to qualify any securities covered by such registration statement under the "blue sky" or securities laws thereof, or (ii) any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, and the Company will reimburse such holder and each such director, officer and controlling person for any legal or any other expenses incurred by them in connection with investigating or defending any such loss, claim, liability, action or proceeding; provided that the Company will not be liable in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of or is based upon an untrue statement or alleged untrue statement, or omission or alleged omission, made in such registration statement, any such prospectus or preliminary prospectus or any amendment or supplement thereto, or in any application, in reliance upon, and in conformity with, written information prepared and furnished to the Company by such holder expressly for use therein or by such holder's failure to deliver a copy of the registration statement or prospectus or any amendments or supplements thereto after the Company has furnished such holder with a sufficient number of copies of the same. In connection with an underwritten offering, the Company will -9- indemnify such underwriters, their officers and directors and each Person that controls such underwriters (within the meaning of the Securities Act) to the same extent as provided above with respect to the indemnification of the holders of Registrable Securities. (b) In connection with any registration statement in which a holder of Registrable Securities is participating, each such holder will furnish to the Company in writing such information and affidavits as the Company reasonably requests for use in connection with any such registration statement or prospectus and, to the extent permitted by law, will indemnify and hold harmless the Company, its directors and officers and each other Person who controls the Company (within the meaning of the Securities Act) against any losses, claims, damages, liabilities, joint or several, to which such holder or any such director or officer or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon (i) any untrue or alleged untrue statement of material fact contained in the registration statement, prospectus or preliminary prospectus or any amendment thereof or supplement thereto or in any application or (ii) any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, but only to the extent that such untrue statement or omission is made in such registration statement, any such prospectus or preliminary prospectus or any amendment or supplement thereto, or in any application, in reliance upon and in conformity with written information prepared and furnished to the Company by such holder expressly for use therein, and such holder will reimburse the Company and each such director, officer and controlling Person for any legal or any other expenses incurred by them in connection with investigating or defending any such loss, claim, liability, action or proceeding; provided that the obligation to indemnify will be individual to each holder and will be limited to the net amount of proceeds received by such holder from the sale of Registrable Securities pursuant to such registration statement. (c) Any Person entitled to indemnification hereunder will (i) give prompt written notice to the indemnifying party of any claim with respect to which it seeks indemnification and (ii) unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party. If such defense is assumed, the indemnifying party will not be subject to any liability for any settlement made by the indemnified party without its consent (but such consent will not be unreasonably withheld). An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim will not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim. (d) The indemnification provided for under this Agreement will remain in full force and effect regardless of any investigation made by or on behalf of the indemnified party or any officer, director or controlling Person of such indemnified party and will survive the transfer of securities. The Company also agrees to make such provisions, as are reasonably requested by any indemnified party, for contribution to such party in the event the Company's indemnification is unavailable for any reason. -10- 7. Participation in Underwritten Registrations. ------------------------------------------- (a) No Person may participate in any registration hereunder which is underwritten unless such Person (i) agrees to sell such Person's securities on the basis provided in any underwriting arrangements approved by the Person or Persons entitled hereunder to approve such arrangements (including, without limitation, pursuant to the terms of any over-allotment or "green shoe" option requested by the managing underwriter(s), provided that no holder of Registrable Securities will be required to sell more than the number of Registrable Securities that such holder has requested the Company to include in any registration) and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. (b) Each Person that is participating in any registration hereunder agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in paragraph 4(e) above, such Person will forthwith discontinue the disposition of its Registrable Securities pursuant to the registration statement until such Person's receipt of the copies of a supplemented or amended prospectus as contemplated by such paragraph 4(e). If the Company gives any such notice, the applicable time period mentioned in paragraph 4(b) during which a Registration Statement is to remain effective will be extended by the number of days during the period from and including the date of the giving of such notice pursuant to this paragraph to and including the date when each seller of a Registrable Security covered by such registration statement has received the copies of the supplemented or amended prospectus contemplated by paragraph 4(e). 8. Current Public Information. At all times after the Company has filed a registration statement with the Securities and Exchange Commission pursuant to the requirements of either the Securities Act or the Securities Exchange Act, the Company will file all reports required to be filed by it under the Securities Act and the Securities Exchange Act and the rules and regulations adopted by the Securities and Exchange Commission thereunder, and will take such further action as any holder or holders of Registrable Securities may reasonably request, all to the extent required to enable such holders to sell Registrable Securities pursuant to Rule 144 adopted by the Securities and Exchange Commission under the Securities Act (as such rule may be amended from time to time) or any similar rule or regulation hereafter adopted by the Securities and Exchange Commission. Upon request, the Company shall deliver to any holder of Registrable Securities a written statement confirming the Company's compliance with such requirements. 9. Definitions. ----------- "Affiliate" shall have the meaning assigned to such term in the Shareholders Agreement. "Bain Registrable Securities" means (i) any shares of Common Stock issued to the Bain Shareholders pursuant to the Recapitalization Agreement (whether directly or indirectly through Merger Corp. or otherwise), (ii) any equity securities issued or issuable directly or indirectly with respect to the securities referred to in clause (i) by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other -11- reorganization, including a recapitalization or exchange and (iii) any other shares of Common Stock held by Persons holding securities described in clause (i) or (ii) above; provided that in the event that pursuant to such recapitalization or exchange, equity securities are issued which do not participate in the residual equity of the Company ("Non-Participating Securities"), such Non-Participating Securities will not be Registrable Securities. As to any particular shares constituting Bain Registrable Securities, such shares will cease to be Bain Registrable Securities when they have been (x) effectively registered under the Securities Act and disposed of in accordance with the registration statement covering them, or (y) sold to the public through a broker, dealer or market maker pursuant to Rule 144 (or by similar provision then in force) under the Securities Act. "Class A Common" means the Class A Common Stock, par value $.01 per share, of the Company. "Class L Common" means the Class L Common Stock, par value $.01 per share, of the Company. "Common Stock" means both Class A Common and Class L Common. "Family Group" shall have the meaning assigned to such term in the Shareholders Agreement. "Financing Source Registrable Securities" means (i) any shares of Common Stock issued to CSFB or Sankaty pursuant to the CSFB Purchase Agreement, (ii) any equity securities issued or issuable directly or indirectly with respect to the securities referred to in clause (i) by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization, including a recapitalization or exchange and (iii) any other shares of Common Stock held by Persons holding securities described in clause (i) or (ii) above; provided that in the event that pursuant to such recapitalization or exchange, Non-Participating Securities are issued, such Non-Participating Securities will not be Registrable Securities. Notwithstanding anything in this Agreement to the contrary, shares of Common Stock or other equity securities of the Company that would otherwise constitute Financing Source Registrable Securities shall not be considered Financing Source Registrable Securities (and thus, not Registrable Securities) if the holder thereof can sell, in any three (3) month period, all of such holder's shares or securities, as applicable, without registration pursuant to Rule 144 under the Securities Act. As to any particular shares constituting Financing Source Registrable Securities, such shares will cease to be Financing Source Registrable Securities when they have been (x) effectively registered under the Securities Act and disposed of in accordance with the registration statement covering them, or (y) sold to the public through a broker, dealer or market maker pursuant to Rule 144 (or by similar provision then in force) under the Securities Act. "Hyundai Registrable Securities" means (i) any shares of Common Stock received by the Hyundai Shareholders pursuant to the Recapitalization Agreement, (ii) any equity securities issued or issuable directly or indirectly with respect to the securities referred to in clause (i) by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization, including a recapitalization or exchange and (iii) any other shares of Common Stock held by Persons holding securities described in clause (i) or (ii) -12- above; provided that in the event that pursuant to such recapitalization or exchange, Non-Participating Securities are issued, such Non-Participating Securities will not be Registrable Securities. As to any particular shares constituting Hyundai Registrable Securities, such shares will cease to be Hyundai Registrable Securities when they have been (x) effectively registered under the Securities Act and disposed of in accordance with the registration statement covering them, or (y) sold to the public through a broker, dealer or market maker pursuant to Rule 144 (or by similar provision then in force) under the Securities Act. "Initial Public Offering" means a public offering and sale of the Common Stock pursuant to an effective registration statement under the Securities Act, if immediately thereafter the Company has publicly held Common Stock listed on a national securities exchange of the NASD automated quotation system. "Intel Registrable Securities" means (i) any shares of Common Stock issued upon conversion of the Class A Preferred Stock, par value $.01 per share issued pursuant to the Purchase Agreement, (ii) any shares of Common Stock issued upon exercise of all or any portion of the Warrant issued pursuant to the Purchase Agreement, (iii) any equity securities issued or issuable directly or indirectly with respect to the securities referred to in clause (i) or (ii) by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization, including a recapitalization or exchange and (iv) any other shares of Common Stock held by Persons holding securities described in clause (i), (ii) or (iii) above; provided that in the event that pursuant to such recapitalization or exchange, Non-Participating Securities are issued, such Non-Participating Securities will not be Registrable Securities. Notwithstanding anything in this Agreement to the contrary, shares of Common Stock or other equity securities of the Company that would otherwise constitute Intel Registrable Securities shall not be considered Intel Registrable Securities (and thus, not Registrable Securities) if the holder thereof can sell, in any three (3) month period, all of such holder's shares or securities, as applicable, without registration pursuant to Rule 144 under the Securities Act. As to any particular shares constituting Intel Registrable Securities, such shares will cease to be Intel Registrable Securities when they have been (x) effectively registered under the Securities Act and disposed of in accordance with the registration statement covering them, or (y) sold to the public through a broker, dealer or market maker pursuant to Rule 144 (or by similar provision then in force) under the Securities Act. "Person" means an individual, a partnership, a joint venture, a corporation, a trust, an unincorporated organization and a government or any department or agency thereof. "Registrable Securities" means collectively the Hyundai Registrable Securities, the Intel Registrable Securities, the Bain Registrable Securities, the SXI Registrable Securities and the Financing Source Registrable Securities. For purposes of this Agreement, a Person will be deemed to be a holder of Registrable Securities whenever such Person has the right to acquire such Registrable Securities (upon conversion or exercise in connection with a transfer of securities or otherwise, but disregarding any restrictions or limitations upon the exercise of such right), whether or not such acquisition has actually been effected. "Securities Act" means the Securities Act of 1933, as amended, or any similar federal law then in force. -13- "Securities and Exchange Commission" includes any governmental body or agency succeeding to the functions thereof. "Securities Exchange Act" means the Securities Exchange Act of 1934, as amended, or any similar federal law then in force. "Shareholder Shares" shall have the meaning assigned to such term in the Shareholders Agreement. "Shareholders Agreement" means the Shareholders Agreement, dated of even date herewith, by and among the Company and the Shareholders. "SXI Registrable Securities" means (i) any shares of Common Stock issued to the SXI Shareholders pursuant to the Recapitalization Agreement (whether directly or indirectly through Merger Corp. or otherwise), (ii) any equity securities issued or issuable directly or indirectly with respect to the securities referred to in clause (i) by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization, including a recapitalization or exchange and (iii) any other shares of Common Stock held by Persons holding securities described in clause (i) or (ii) above; provided that in the event that pursuant to such recapitalization or exchange, Non-Participating Securities are issued, such Non-Participating Securities will not be Registrable Securities. As to any particular shares constituting SXI Registrable Securities, such shares will cease to be SXI Registrable Securities when they have been (x) effectively registered under the Securities Act and disposed of in accordance with the registration statement covering them, or (y) sold to the public through a broker, dealer or market maker pursuant to Rule 144 (or by similar provision then in force) under the Securities Act. "SXI Shareholders" means SXI Group LLC, a Delaware limited liability company; Billig Family Limited Partnership; Frederick K. Minturn; Citicorp Venture Capital, Ltd.; their respective Affiliates; their co-investment partnerships; in connection with a co-investment, their respective employees, directors, and internal, full-time consultants, any member of any of their respective Family Groups, and any trust or partnership of which their respective employees, directors, and internal, full-time consultants are the sole beneficiaries in connection with a co-investment (any such trust or partnership, a "Co-Investment Vehicle"), and the partners and beneficiaries of such Co- Investment Vehicle as a distribution in-kind; any transferee of any of the foregoing in order to resolve a Regulatory Problem if, (x) after taking commercially reasonable actions with the cooperation of the Company, such person is unable to restructure its ownership of Shareholder Shares in a manner that avoids a Regulatory Problem and in a manner which is not adverse to such person, and (y) giving notice to the Company, such person has determined that such Regulatory Problem may not be avoided; and any other transferee of any of the foregoing so long as the aggregate SXI Registrable Securities held by all such transferees pursuant to this clause do not exceed 10% of the SXI Registrable Securities. "Regulatory Problem" means, with respect to any person, any set of facts or circumstances wherein it has been asserted by any governmental authority (or such person or any of its Affiliates believes in good faith that there is a substantial risk of such assertion) that such person is not entitled to hold, or exercise any significant right, with respect to, the Shareholder Shares held by such person because of such person's regulatory status. -14- 10. Miscellaneous. ------------- (a) No Inconsistent Agreements. The Company will not hereafter enter into any agreement with respect to its securities which is inconsistent with or violates the rights granted to the holders of Registrable Securities in this Agreement. (b) Adjustments Affecting Registrable Securities. The Company will not take any action, or permit any change to occur, with respect to its securities which would materially and adversely affect the ability of the holders of Registrable Securities to include such Registrable Securities in a registration undertaken pursuant to this Agreement or which would adversely affect the marketability of such Registrable Securities in any such registration (including, without limitation, effecting a stock split or a combination of shares). (c) Remedies. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of this Agreement and that any party hereto will have the right to injunctive relief, in addition to all of its other rights and remedies at law or in equity, to enforce the provisions of this Agreement. (d) Amendments and Waivers. Except as otherwise provided herein, the provisions of this Agreement may be amended or waived only upon the prior written consent of the Company and holders of a majority of the Registrable Securities; but if such amendment or waiver would treat a holder or group of holders of Registrable Securities in a manner different from any other holders of Registrable Securities, then such amendment or waiver will require the consent of such holder or the holders of a majority of the Registrable Securities of such group adversely treated. (e) Successors and Assigns. This Agreement will be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors and assigns. In addition, and whether or not any express assignment has been made, the provisions of this Agreement that are for the benefit of the holders of Registrable Securities (or any portion thereof) as such will be for the benefit of and enforceable by any subsequent holder of any Registrable Securities (or of such portion thereof), subject to the provisions respecting the minimum numbers or percentages of shares of Registrable Securities (or of such portion thereof) required in order to be entitled to certain rights, or take certain actions, contained herein. (f) Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or the effectiveness or validity of any provision in any other jurisdiction, and this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. (g) Counterparts. This Agreement may be executed simultaneously in two or more counterparts, any one of which need not contain the signatures of more than one party, but all such counterparts taken together will constitute one and the same Agreement. -15- (h) Descriptive Headings. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. (i) Governing Law. All issues concerning the enforceability, validity and binding effect of this Agreement will be governed by and construed in accordance with the laws of the State of California, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of California or any other jurisdiction) that would cause the application of the law of any jurisdiction other than the State of California. (j) Notices. All notices, demands or other communications to be given or delivered under or by reason of the provisions of this Agreement will be in writing and will be deemed to have been given when personally delivered or received by certified mail, return receipt requested, or sent by guaranteed overnight courier service. Such notices, demands and other communications shall be sent to the addresses indicated below or, if no address is so indicated for any particular Shareholder, at the address listed in the Company's records: If to the Company: ----------------- ChipPAC, Inc. 3151 Coronado Drive Santa Clara, California 95054 U.S.A. Attention: CEO Facsimile: (408) 486-5914 If to any of the Hyundai Shareholders: ------------------------------------- c/o Hyundai Electronics America 3101 North First Street San Jose, California 95134 U.S.A. Attention: Dr. C.S. Park Facsimile: (408) 232-8101 With a copy to: -------------- Brobeck Phleger & Harrison LLP Two Embarcadero Place 2200 Geng Road Palo Alto, California 94303 U.S.A. Attention: Rod J. Howard Facsimile: (650) 496-2777 -16- If to Intel: ----------- c/o Intel Corporation 2200 Mission College Boulevard RN6-46 Santa Clara, California 95052 U.S.A. Attention: M&A Portfolio Manager Facsimile: (408) 765-0569 With a copy to: -------------- Gibson, Dunn & Crutcher LLP 1530 Page Mill Road Palo Alto, California 94304-1125 Attention: Lawrence Calof Facsimile: (650) 849-5333 If to any of the Bain Shareholders: ---------------------------------- c/o Bain Capital II, Inc. One Embarcadero, Suite 2260 San Francisco, California 94111 Attention David Dominik Prescott Ashe Facsimile: (415) 627-1333 and to: ------ c/o Bain Capital, Inc. Two Copley Place Boston, Massachusetts 02116 U.S.A. Attention: Edward Conard Facsimile: (617) 572-3274 With a copy to: -------------- Kirkland & Ellis 200 East Randolph Drive Chicago, Illinois 60601 Attention: Jeffrey C. Hammes, P.C. Gary M. Holihan Facsimile: (312) 861-2200 -17- If to any of the SXI Shareholders: --------------------------------- c/o Citicorp Venture Capital, Ltd. 399 Park Avenue New York, New York 10043 U.S.A. Attention: Michael A. Delaney Paul C. Schorr IV Facsimile: (212) 888-2940 With a copy to: -------------- Dechert Price & Rhoads 4000 Bell Atlantic Tower 1717 Arch Street Philadelphia, Pennsylvania 19103 U.S.A. Attention: G. Daniel O'Donnell Geraldine A. Sinatra Facsimile: (215) 994-2222 or to such other address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party. * * * * * -18- IN WITNESS WHEREOF, the parties have executed this Registration Agreement on the day and year first above written. CHIPPAC, INC. By: /s/ Gary Breton __________________________________ Its:__________________________________ THE HYUNDAI SHAREHOLDERS: HYUNDAI ELECTRONICS AMERICA By: /s Baxon S. Kim __________________________________ Its:__________________________________ INTEL: INTEL CORPORATION By: /s/ Arvind Sodhani __________________________________ Its: Vice President and Treasurer __________________________________ FINANCING SOURCES: CSFB: CHIPPAC EQUITY INVESTORS LLC By: Merchant Capital, Inc. Its: Managing Member By: __________________________________ Its: Vice President __________________________________ SANKATY: SANKATY HIGH YIELD ASSET PARTNERS, L.P. By: __________________________________ Its: Managing Director __________________________________ THE BAIN SHAREHOLDERS: BAIN CAPITAL FUND VI, L.P. By: Bain Capital Partners VI, L.P. Its: General Partner By: Bain Capital Investors, Inc. Its: General Partner By: /s/ David Dominik __________________________________ A Managing Director BCIP ASSOCIATES II By: /s/ David Dominik __________________________________ A General Partner BCIP ASSOCIATES II-B By: /s/ David Dominik __________________________________ A General Partner BCIP ASSOCIATES II-C By: /s/ David Dominik __________________________________ A General Partner BCIP TRUST ASSOCIATES II By: Bain Capital, Inc. Its: General Partner By: /s/ David Dominik __________________________________ A Managing Director BCIP TRUST ASSOCIATES II-B By: Bain Capital, Inc. Its: General Partner By: /s/ David Dominik __________________________________ A Managing Director PEP INVESTMENTS PTY., LTD. By: /s/ David Dominik __________________________________ Its:_________________________________ RANDOLPH STREET PARTNERS II By: /s/ Jeffrey Hammes __________________________________ A General Partner RANDOLPH STREET PARTNERS 1998 DIF, LLC By: /s/ Jeffrey Hammes __________________________________ Its:_________________________________ THE SXI SHAREHOLDERS: SXI GROUP LLC By: /s/ Paul C. Schorr IV ________________________________________ Its: Vice President and Assistant Secretary _______________________________________ BILLIG FAMILY LIMITED PARTNERSHIP By: /s/ William Billig ________________________________________ Its: _______________________________________ /s/ Frederick Minturn _____________________________________ Frederick K. Minturn SCHEDULE I The Hyundai Shareholders ------------------------ Hyundai Electronics America and its permitted transferees pursuant to Section 2(e)(i) of the Shareholders Agreement Hyundai Electronics Industries Co., Ltd. to the extent that it becomes the holder of any shares of Hyundai Registrable Securities pursuant to Section 2.3 of the Recapitalization Agreement and its permitted transferees pursuant to Section 2(e)(i) of the Shareholders Agreement SCHEDULE II The Bain Shareholders --------------------- Bain Capital Fund VI, L.P. BCIP Associates II BCIP Associates II-B BCIP Trust Associates II-C BCIP Trust Associates II BCIP Trust Associates II-B PEP Investments Pty., Ltd. Randolph Street Partners II Randolph Street Partners 1999 DIF, LLC EX-10.6 29 TRANSITION SERVICES AGREEMENT Exhibit 10.6 ------------ TRANSITION SERVICES AGREEMENT ----------------------------- THIS TRANSITION SERVICES AGREEMENT (this "Agreement") is entered into as of August 5, 1999, by and among Hyundai Electronics Industries Co., Ltd., a corporation incorporated under the laws of the Republic of Korea ("HEI"), Hyundai Electronics America, a California corporation ("HEA," and collectively with HEI, "Hyundai"), ChipPAC, Inc., a California corporation ("CPI"), ChipPAC Korea Company Ltd., a corporation incorporated under the laws of the Republic of Korea ("CPK"), Hyundai Electronics Company (Shanghai) Ltd., a company limited under the laws of the People's Republic of China ("ChipPAC Shanghai I"), ChipPAC Assembly and Test (Shanghai) Company, Ltd., a company limited under the laws of the People's Republic of China ("ChipPAC Shanghai II," and collectively with ChipPAC Shanghai I, "CPC"), ChipPAC Barbados Limited, a corporation incorporated under the laws of Barbados ("Barbados"), ChipPAC Limited, a corporation incorporated under the laws of the Territory of the British Virgin Islands ("BVI"). CPI, CPK, CPC, Barbados and BVI are collectively referred to herein as the "Companies" and individually as a "Company." Capitalized terms used in this Agreement and not otherwise defined herein shall have the meaning given such terms in the Recapitalization Agreement (as defined in the Recitals below). RECITALS: -------- WHEREAS, HEI was the owner of all of the issued and outstanding shares of capital stock of CPK and all of the outstanding equity interests of ChipPAC Shanghai I; CPI was the owner of all of the outstanding equity interests of ChipPAC Shanghai II; and HEA was the owner of all of the issued and outstanding capital stock of CPI; WHEREAS, pursuant to the transactions contemplated by that certain Agreement and Plan of Recapitalization and Merger, dated as of March 13, 1999, by and among HEI, HEA, CPI and ChipPAC Merger Corp., a Delaware corporation (as amended, supplemented or otherwise modified from time to time in accordance with its terms, the "Recapitalization Agreement"), the capital structure of each of CPK, CPC and CPI was reconstituted such that (i) each of CPK, CPC, Barbados and BVI is now a direct or indirect wholly owned subsidiary of CPI and (ii) HEA now holds a minority interest in CPI; WHEREAS, prior to the consummation of the Recapitalization Transactions, Hyundai and certain of its Affiliates provided certain administrative and other services to the Companies in connection with the Companies' worldwide semiconductor packaging and testing businesses (the "Business"); and WHEREAS, Hyundai and the Companies recognize that it is advisable for Hyundai and/or certain of its Affiliates to continue to provide certain administrative and other services to the Companies for a transition period. NOW, THEREFORE, the Companies and Hyundai hereby agree as follows: ARTICLE 1 SERVICES PROVIDED ----------------- 1.1 Transition Services. Upon the terms and subject to the conditions set forth in this Agreement, Hyundai will, or will cause its Affiliates to, provide to the Companies for the Business each of the services listed in Exhibit A, which is attached hereto and made part of this Agreement (hereinafter referred to individually as a "Transition Service," and collectively as the "Transition Services"), during the time period for each Transition Service set forth on Exhibit A (hereinafter referred to as the "Time Periods" for all of the Transition Services, and the "Time Period" for each Transition Service). 1.2 Personnel. In providing the Transition Services, Hyundai and its Affiliates, as they deem necessary or appropriate in their sole discretion, may (a) use such personnel of Hyundai or its Affiliates and (b) employ the services of third parties to the extent such third party services are routinely used to provide similar services to Hyundai's or its Affiliates' business operations or are reasonably necessary for the efficient performance of any of such Transition Services. 1.3 Level of Transition Services. ---------------------------- (a) Hyundai and its Affiliates shall perform the Transition Services exercising the same degree of care as they exercise in performing the same or similar services for their own account, with priority equal to that provided to their own business operations. Nothing in this Agreement shall require Hyundai or any of its Affiliates to favor the Business over its own business operations. (b) Unless otherwise specifically set forth in the Exhibits attached hereto, it is the intention of the parties that a Company's level of use of any Transition Service that such Company elects to use shall not be higher than the level of use required by the Business prior to the date hereof. In no event shall any Company be entitled to any new service or to increase its use of any of the Transition Services above that level of use without the prior written consent of Hyundai, which consent may be withheld by Hyundai in its sole discretion. 1.4 No Obligation to Continue to Use Services. ----------------------------------------- (a) Except as otherwise expressly set forth in the Exhibits attached hereto, none of the Companies shall have any obligation to continue to use any of the Transition Services, and any Company may delete any Transition Service from the Transition Services that Hyundai is providing to such Company by giving Hyundai not less than ten (10) business days' prior written notice of its desire to delete any or all Transition Services provided to such Company. (b) If any Transition Service is terminated by a Company, such Company may not elect to reinstate such Transition Service. -2- ARTICLE 2 COMPENSATION ------------ 2.1 Consideration. As consideration for the Transition Services, the Company to whom the Transition Service is provided (the "Receiving Company") shall pay to Hyundai the amount specified for each Transition Service as set forth in Exhibit A. Upon the deletion of any Transition Service in accordance with paragraph 1.4 above, the compensation to be paid under this paragraph 2.1 shall be reduced by the amount specified for such deleted Transition Service. 2.2 Invoices. Each month during the term of this Agreement, Hyundai shall submit one invoice (containing itemized entries) to the Receiving Company for all Transition Services provided to such Company during that month. Such monthly invoices shall be issued as promptly as practicable following the month in which such services were rendered. Each invoice shall include itemization in reasonable detail of the invoiced amounts. Upon request by the appropriate Receiving Company, Hyundai will provide such further detail regarding any amounts invoiced pursuant to this paragraph 2.1 as such Company may from time to time reasonably request, including, without limitation, detail with respect to any third party billing information relating to the Transition Services provided under this Agreement. All invoices shall be sent to the appropriate Receiving Company with a copy to CPI at the following address: ChipPAC, Inc. 3151 Coronado Drive Santa Clara, California 95054 U.S.A. Attention: Chief Financial Officer Facsimile: (408) 486-5914 2.3 Payment of Invoices. The appropriate Receiving Company will pay all amounts due pursuant to this Agreement within thirty (30) days after receipt of each such invoice hereunder. ARTICLE 3 CONFIDENTIALITY --------------- 3.1 Obligations. The obligations of confidentiality set forth in Section 12.5 of the Recapitalization Agreement are hereby incorporated herein by reference. 3.2 Effectiveness. The foregoing obligations of confidentiality shall be in effect during the term of this Agreement and any extensions thereof and for a period of three (3) years after the termination or expiration of this Agreement. ARTICLE 4 TERM AND TERMINATION -------------------- -3- 4.1 Term. This Agreement shall become effective on the date hereof and shall remain in force until the expiration of the longest Time Period unless all of the Transition Services are deleted by the Companies in accordance with paragraph 1.4 above, or this Agreement is terminated under paragraph 4.2 below prior to the end of such period. 4.2 Termination. ----------- (a) If any of Hyundai or its Affiliates, on the one hand, or any of the Companies, on the other hand (hereafter called the "Defaulting Party"), shall fail to perform or default in the performance of any of its obligations under this Agreement, the other party (hereinafter called the "Non-Defaulting Party") may give written notice to the Defaulting Party specifying the nature of such failure or default and stating that the Non-Defaulting Party intends to terminate this Agreement if such failure or default is not cured within thirty (30) days of such written notice. If any failure or default so specified is not cured within such thirty (30) day period, the Non-Defaulting Party may elect to immediately terminate this Agreement or any portion of the Transition Services described on Exhibit A; provided that if the failure or default relates to a dispute made in good faith by the Defaulting Party, the Non-Defaulting Party may not terminate this Agreement pending the resolution of such dispute. (b) Either Hyundai or the Companies may immediately terminate this Agreement by a written notice to the other without any prior notice upon the occurrence of any of the following events: (i) the other party enters into proceedings in bankruptcy or insolvency; (ii) the other party shall make an assignment for the benefit of creditors; (iii) a petition shall be filed against the other party under a bankruptcy law, a corporate reorganization law, or any other law for relief of debtors (or similar law in purpose or effect), which petition has not been dismissed or discharged within sixty (60) days after the filing thereof; (iv) the other party enters into liquidation or dissolution proceedings; or (v) sale or transfer to an unaffiliated third party of a majority of the assets or capital stock or voting power of CPI, whether by merger, stock or asset purchase or otherwise. In addition, the Companies may terminate the Export and Consulting Services on the terms and subject to the conditions set forth in Exhibit A. 4.3 Survival of Certain Obligations. Without prejudice to the survival of the other agreements of the parties, the following obligations shall survive the termination of this Agreement: (a) for the period set forth therein, the obligations of each party under Articles 3 and 4 and (b) Hyundai's right to receive the compensation for the Transition Services delivered to the Companies (as described in paragraph 2.1 above) incurred prior to the date of termination. ARTICLE 5 MISCELLANEOUS ------------- 5.1 Amendments. This Agreement shall not be amended or modified except in writing signed by the parties hereto. -4- 5.2 Successors and Assignment. This Agreement shall be binding and shall inure to the benefit of the parties hereto and their respective successors and assigns. No party may assign any of its rights or duties pursuant to this Agreement without the prior written consent of the other party hereto; provided that any Company may assign its rights under this Agreement as collateral security to any Company's or its Affiliates' financing sources. 5.3 Entire Agreement. This Agreement and the schedules and exhibits hereto embody the entire agreement and understanding of the parties hereto and supersede any and all prior agreements, arrangements and understandings relating to the matters provided for herein. 5.4 Notices. Except as otherwise provided in paragraph 2.1 hereof (with respect to delivery of invoices), any notice, demand or request required or permitted to be given under the provisions of this Agreement shall be in writing, including by facsimile, and shall be deemed to have been duly delivered and received on the date of personal delivery, on the day after delivery to a nationally recognized overnight courier service if sent by an overnight delivery service for next morning delivery or when dispatched by facsimile transmission (with the facsimile transmission confirmation being deemed conclusive evidence of such dispatch) and shall be addressed to the following address, or to such other address as any party may request, in the case of Hyundai, by notifying the Companies, and in the case of the Companies, by notifying Hyundai: To the Companies: ChipPAC Limited Craigmuir Chambers P.O. Box 71 Road Town, Tortola British Virgin Islands Attention: Richard Parsons Facsimile: (284) 494-7906 ChipPAC, Inc. 3151 Coronado Drive Santa Clara, California 95054 U.S.A. Attention: Chief Financial Officer Facsimile: (408) 486-5914 and --- Copy to: Kirkland & Ellis 200 East Randolph Drive Chicago, IL 60601 Attention: Jeffrey C. Hammes, P.C. Gary M. Holihan Fax: (312) 861-2200 -5- To Hyundai: Hyundai Electronics America 3101 North First Street San Jose, California 95134 U.S.A. Attention: Dr. C.S. Park Facsimile: (408) 232-8101 and --- Hyundai Electronic Industries, Co., Ltd. San 136-1 Amri-ri, Bubal-eub Ichon-si Kyoungki-do, 467-71 Korea Attention: Y.H. Kim, Chief Executive Officer Copy to: Brobeck Phleger & Harrison LLP Two Embarcadero Place 2200 Geng Road Palo Alto, CA 94303 U.S.A. Attention: Rod J. Howard Facsimile: (650) 496-2777 5.5 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California applicable to a contract executed and performed entirely in such state, without giving effect to the conflicts of laws principles thereof and each of the parties hereto submits to jurisdiction in any state or federal court located in the State of California and waives any claim of improper jurisdiction or lack of venue in connection with any claim or controversy which may be brought in connection with this Agreement. 5.6 Headings. The headings set forth in this Agreement are for convenience only and will not control or affect the meaning or construction of the provisions of this Agreement. 5.7 Severability. The parties agree that if one or more provisions contained in this Agreement shall be deemed or held to be invalid, illegal or unenforceable in any respect under any applicable law, this Agreement shall be construed with the invalid, illegal or unenforceable provision deleted, and the validity, legality and enforceability of the remaining provisions contained herein shall not be affected or impaired thereby. 5.8 Counterparts. This Agreement may be executed in two or more counterparts (any one of which may be by facsimile), each of which will be deemed an original and all of which together will constitute one and the same instrument. -6- 5.9 No Third Party Beneficiaries. Nothing herein expressed or implied is intended or shall be construed to confer upon or give to any person or entity other than the parties hereto and their permitted successors or permitted assigns, any rights or remedies under or by reason of this Agreement. 5.10 Reservation of Rights. Either party's waiver of any of its remedies afforded hereunder or at law is without prejudice and shall not operate to waive any other remedies which that party shall have available to it, nor shall such waiver operate to waive the party's rights to any remedies due to a future breach, whether of a similar or different nature. 5.11 Dealings with Third Parties. Neither party is, nor shall hold itself out to others to be, vested with any power, authority, or right to bind contractually or to act on behalf of the other party as its broker, agent, or otherwise for the purpose of committing, selling, conveying, or transferring any of the other party's assets or property, contracting for or in the name of the other party, or making any representation binding upon such other party. 5.12 Conflict. In case of conflict between the terms and conditions of this Agreement and any schedule or exhibit hereto, the terms and conditions of such exhibit or schedule shall control and govern as it relates to the Transition Service to which those terms and conditions apply. 5.13 Remedies. Each of the parties to this Agreement acknowledges and agrees that the Companies would be damaged irreparably in the event any of the covenants or agreements of Hyundai under this Agreement are not performed in accordance with their specific terms or otherwise are breached. Accordingly, each of the parties hereto agrees that the Companies shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement by Hyundai and to enforce specifically this Agreement and the terms and provisions hereof in any competent court having jurisdiction over the parties. 5.14 Arbitration. The terms and conditions of the arbitration provisions of paragraph 10.8 of the Recapitalization Agreement are incorporated herein by reference. * * * * * -7- IN WITNESS WHEREOF, the parties hereto have executed this Transition Services Agreement as of the date first above written. HYUNDAI ELECTRONICS INDUSTRIES CO., LTD. /s/ Dr. C.S. Park By: ____________________________________ Name: Dr. C.S. Park Title: Executive Vice President HYUNDAI ELECTRONICS AMERICA /s/ Dr. C.S. Park By: ____________________________________ Name: Dr. C.S. Park Title: President CHIPPAC LIMITED /s/ P.J. Kim By: ____________________________________ P.J. Kim Name: __________________________________ Title: _________________________________ CHIPPAC, INC. /s/ Gary Breton By: ____________________________________ Gary Breton Name: __________________________________ Title: _________________________________ CHIPPAC KOREA COMPANY LTD. /s/ P.J. Kim By: ____________________________________ P.J. Kim Name: __________________________________ Title: _________________________________ HYUNDAI ELECTRONICS COMPANY (SHANGHAI) LTD. /s/ P.J. Kim By: ____________________________________ P.J. Kim Name: __________________________________ Title: _________________________________ CHIPPAC ASSEMBLY AND TEST (SHANGHAI) COMPANY, LTD. /s/ P.J. Kim By: ____________________________________ P.J. Kim Name: __________________________________ Title: _________________________________ CHIPPAC BARBADOS LIMITED /s/ P.J. Kim By: ____________________________________ P.J. Kim Name: __________________________________ Title: _________________________________ -9- EXHIBIT A --------- SEE ATTACHED SERVICE TO BE PROVIDED: Transit Insurance. DESCRIPTION OF SERVICES: HEI shall use commercially reasonable efforts to cause Hyundai Fire & Marine to provide to the Companies transit insurance on inventory and capital equipment shipped by CPK or CPC. TIME PERIOD: These Transition Services shall be made available during the twelve month period following the date of this Agreement. COST OF SERVICE: In consideration of the Transit Insurance to be provided, the Receiving Company shall pay Hyundai Fire & Marine on a transaction basis at Hyundai Fire & Marine's prevailing market insurance rates. SERVICE TO BE PROVIDED: Water Freight Services. DESCRIPTION OF SERVICES: HEI shall use commercially reasonable efforts to cause Hyundai Merchant Marine to provide to the Companies water freight service for transport of raw materials and fixed assets between CPK and CPC. TIME PERIOD: These Transition Services shall be made available during the twelve month period following the date of this Agreement. COST OF SERVICE: In consideration of the Water Freight Services to be provided, the Receiving Company shall pay Hyundai Merchant Marine on a transaction basis at Hyundai Merchant Marine's prevailing market freight rates. -12- SERVICE TO BE PROVIDED: Uniforms and Travel Services DESCRIPTION OF SERVICES: HEI shall use commercially reasonable efforts to cause Hyundai Department Store to provide uniforms and travel services for CPK's employees. TIME PERIOD: These Transition Services shall be made available during the twelve month period following the date of this Agreement. COST OF SERVICE: In consideration of the Uniform and Travel Services to be provided, CPK shall pay Hyundai Department Store the purchase order value (which shall not be greater than market value) of the uniforms and the prevailing market value of the travel services. -13- SERVICE TO BE PROVIDED: Office Space in Japan DESCRIPTION OF SERVICES: Hyundai shall cause Hyundai Electronics Japan to share its current office space (or any replacement therefor) to house the Companies' operation of the Business in Japan. TIME PERIOD: These Transition Services shall be made available during the twelve month period following the date of this Agreement. COST OF SERVICE: The Office Space in Japan shall be made available based on the Prorated Facility Cost. "Prorated Facility Cost" means Hyundai Electronics Japan's actual out-of-pocket costs for (i) rent of the premises, (ii) electric, gas and water utility charges for the premises and (iii) janitorial charges for the premises, each prorated based upon a fraction, the numerator of which shall be the number of employees performing services (on a full time basis) in connection with the Business at the end of the preceding month and the denominator of which shall be the number of total employees working at the Office Space. -14- SERVICE TO BE PROVIDED: Services of Employees in Japan DESCRIPTION OF SERVICES: So long as the employees of Hyundai Electronics Japan currently performing services for the Business remain employees of Hyundai Electronics Japan, Hyundai shall cause Hyundai Electronics Japan to make such persons available on a full time basis to perform services for the Business. At the Companies' request, Hyundai shall further cause Hyundai Electronics Japan to hire and retain up to three more employees to perform, on a full time basis, other services for the Business as the Companies may designate; provided that the obligation of Hyundai Electronics Japan in such capacity shall be limited solely to serve as the employer of such employees and will not include the obligation to recruit any such employee. Any work required in connection with the recruitment of employees to perform services for the Business shall be the responsibility of the Companies. TIME PERIOD: These Transition Services shall be made available during the twelve month period following the date of this Agreement. COST OF SERVICE: In consideration of the services to be provided by the employees mentioned above, the Receiving Company or its designee shall reimburse Hyundai Electronics Japan an amount equal to the Employment Costs for each such employee. "Employment Costs" means the actual out-of-pocket employment costs incurred by Hyundai Electronics Japan with respect such employee with respect to (i) salary and wages, (ii) employee reimbursement expenses and (iii) the employer's portion of (A) all payroll taxes, (B) all retirement plan contributions and (C) medical insurance premiums. -15- SERVICE TO BE PROVIDED: Export and Consulting Services DESCRIPTION OF SERVICES: During the term set forth below, the Companies shall engage HEI (and/or an HEI Affiliate designated by HEI) to act as the exporter of record for all of the Companies' exports out of Korea and, in connection therewith, the Companies shall (and HEI and/or its Affiliates shall permit the Companies to) use the Hyundai name for purposes of obtaining export permits and customs certificates and reporting exports to government agencies and to third parties (the "Export Reporting Services"), it being understood and agreed that nothing in this sentence shall require HEI or any of its Affiliates to provide greater Export Reporting Services than heretofore provided to ChipPAC, Inc., ChipPAC Korea and ChipPAC Shanghai by Hyundai Corporation. In addition, at the Companies' request, HEI shall provide to the Companies (i) additional Export Reporting Services (greater than those heretofore provided) and (ii) other export-related consulting services through its headquarters and worldwide overseas branches with respect to promotion, financing, advertising, collection of payments, products repair service arrangements, local practices and other functions related to the Business as the Companies may reasonably request (the services in clauses (i) and (ii) collectively, the "Other Export-Related Services"). The Export Reporting Services and the Other Export-Related Services may be provided by HEI either directly or, in HEI's discretion, through one or more of its Affiliates, at the direction of HEI, but HEI shall have responsibility for seeing that such services are performed. TIME PERIOD: Export Reporting Services: HEI shall provide, and the Companies hereby engage HEI to provide, the Export Reporting Services for the thirty-six (36) month period commencing on the date of this Agreement, such period to be automatically extended from year to year thereafter unless written notice of termination is given not less than six (6) months prior to the end of such year; provided that if the Companies reasonably determine that the continuation of such services will deprive the Companies of an economic benefit with a value to the Companies of more than one hundred thousand dollars ($100,000) per year (the "Threshold Amount") that cannot otherwise be obtained as long as such services are provided through HEI or its Affiliates, then prior to the expiration of such thirty-six (36) month period or any extension thereof, (i) the Companies may give written notice of such loss (which notice shall include the amount of such loss) to HEI; (ii) HEI shall have the right (but not the obligation) to agree to compensate the Companies for the full amount of such loss (without regard to the Threshold Amount) and any ongoing losses that may be incurred by the Companies as a result of continuing to receive such services from HEI or its Affiliates and shall notify the Companies of its election within sixty (60) days after receipt of notice from the Companies described in clause (i); and (iii) if HEI declines to compensate the Companies for any such loss, then the Companies shall have the right to terminate the Export Reporting Services upon three (3) months' written notice to HEI. Other Export-Related Services: HEI shall make available to the Companies, upon request, the Other Export Related Services during the twelve (12) month period following the date of this Agreement. -16- COST OF SERVICE: In consideration of the Export and Consulting Services (including both the Export Reporting Services and the Other Export-Related Services) and upon presentation of a detailed invoice itemizing each service provided and the time charges and out-of-pocket expenses incurred in providing such service, the Receiving Company shall pay HEI an amount equal to the lesser of (i) the actual cost of the Other Export-Related Services (consisting of the prorated salary cost of employees devoted to providing such Other Export-Related Services, plus actual out-of-pocket expenses incurred in providing such Other Export-Related Services) and (ii) 0.25% of the declared value of the exported goods with respect to which the Other Export-Related Services were provided. -17- SERVICE TO BE PROVIDED: Other Services DESCRIPTION OF SERVICES: Hyundai will, and will cause its Affiliates to, provide to the Companies, upon the request of the Companies, any other services not specifically set forth in this Agreement, to the extent such services were provided by Hyundai or any of its Affiliates to the Business at any time during the twelve month period ended on the Closing Date. TIME PERIOD: These Transition Services shall be made available during the twelve month period following the date of this Agreement. COST OF SERVICE: In consideration of the Other Services to be provided, the Receiving Company shall reimburse Hyundai an amount equal to the out-of-pocket costs paid by Hyundai to any third party in providing such services. -18- EX-10.7 30 LEASE AGREEMENT DATED 6/30/1998 Exhibit 10.7 ------------ [Translation] Lease Agreement This Real Estate Agreement, entered on June 30, 1998 by and between the Lessor, Hyundai Electronics Industries Co., Ltd. (the "Lessor"), and the Lessee, ChipPAC Korea ("Lessee"), as follows: Article 1. Description of Leased Premises The real estate which is to be leased by the Lessor to the Lessee under this Agreement ("Leased Premises") shall be as follows. The details and location are indicated in particulars of the area of use and each drawing described in the Attachment 1 through Attachment 3: 1. 32,250m/2/ of area which is described in the Attachment 1 within the building of the semiconductor assembly factory locating in Ami-ri San 136-1. Pubal-eup, Icheon, Kyunggi-do. (area for exclusive use: 26,870m/2/, common area: 5,380m/2/) 2. 4,212m/2/ of area which is described in the Attachment 2 within the Test House locating in Ami-ri San 136-1, Pubal-eup, Icheon, Kyunggi- do. (area for exclusive use: 3,445m/2/, common area: 767m/2/) 3. Total 7,545m/2/ of the area which is described in the Attachment 3 within the Main Building locating in Bongmyung 2 dong 37-21, Heungduk- ku, Chungju, Choongchungbuk-do and the area of the ancillary building. 4. 20,467m/2/ of area of the entire buildings 3, 4 and 5 of Chungwoon Dormitory locating in Ami-ri San 136-1. Pubal-eup, Icheon, Kyunggi-do. 5. 2,855m/2/ of area of the dormitory building locating Bongmyung 2 dong 37-21, Heungduk-ku, Chungju, Choongchungbuk-do. Article 2. Effect (1) This Agreement shall become effective as of the Transfer Date under the Business Transfer Agreement dated ____________, 1998 which has been executed between the Lessor and the Lessee ("Effective Date"). (2) Notwithstanding the foregoing provision, if all the licenses and approvals necessary for the Lessee's use of the Leased Premises under this Agreement (including all the licenses and approvals for registration of factory under the Industrial Placement and Factory Construction Act) has not been obtained by the Transfer Date under the Business Transfer Agreement, this Agreement shall became effective from the date of completion of obtaining of such licenses and approvals, and such date of completion of obtaining of such licenses and approvals shall be deemed to be the Effective Date under this Agreement. Article 3. Term of Lease (1) The term of lease under this Agreement shall be five (5) years from the Effective Date of this Agreement. (2) If the Lessor wishes to terminate this Agreement in the middle of the term of this Agreement, it shall give a written notice to the Lessee twelve (12) months prior to the date of the termination of this Agreement. If the Lessee wishes to terminate this Agreement in the middle of the term of this Agreement or the extended term, it shall give a written notice to the Lessor six (6) months prior to the date of the termination of this Agreement. However, despite this provision, the Lessor shall not terminate this Agreement within three (3 )) years from the Effective Date of this Agreement. (3) The term of this lease as described in the previous Paragraph shall be automatically renewed for one (1) year unless there is notice of rejecting the renewal from a party three (3) months prior to the expiration of the term. The conditions of the renewed lease during the renewed lease term shall be the same as those of this Agreement unless there is any separate agreement between the parties. Article 4. Security Deposit and Monthly Rent (1) The Parties shall agree not to give nor to receive any security deposit. (2) The Lessee shall agree to pay Lessor a monthly rent calculated as provided in the "Standards for Calculation of Monthly Rent" which is attached hereto as the Attachment 4 by a separate agreement between both parties. However, monthly rent is exclusive of the value added tax, and the value added tax shall be borne by the Lessee. (3) The monthly rent as provided in the previous Paragraph shall be deposited to the account designated by the Lessor by the fifteenth (15th) day of each month in cash. However, if the date of payment is a holiday, the monthly rent shall be paid on the following day. In case that the term of the first payment date after execution of this Agreement and the last monthly term of this Lease is less than one (1) month, the monthly rent for the above term shall be calculated and paid on the number of days. (4) If the Lessee fails to pay by the date of payment provided in the foregoing Paragraph (3), the Lessee shall pay the default interest at the average default interest rate of general loan of general commercial banks additionally. (5) Adjustment of Rent 1. Regular adjustment: The parties shall adjust monthly rent to be paid in the following year by applying the "Standards for Calculation of Monthly Rent" described in the Attachment 4 one (1) month prior to the completion of each one (1) year period during the term of this Lease. 2. Irregular adjustment: In case of any of the following events, both parties may from time to time adjust monthly rent through agreement by both parties. A. If any and all taxes and public imposts to be borne by the Lessor in connection with the Leased Premises is changed by 20% or more in comparison with any and all taxes and public imposts at the time of the calculation of final rent. B. If interest rate of fixed deposit with maturity of one (1) year of commercial banks is changed by 20% or more in comparison with the interest rate at the time of the calculation of final rent. C. If the consumer price index published by the Bank of Korea is changed by 20% or more in comparison with the consumer price index at the time of the calculation of final rent. D. If the value of the Leased Premises is changed by 20% or more through change of publicly notified land price and revaluation of assets by the Lessor. 3. If both parties fail to reach an agreement on the adjusted amount of the rent in accordance with the foregoing Paragraphs (1) and (2), the adjusted amount shall be based on appraisal by the Korea Appraisal Board or professional appraisal institution agreed by the parties. Article 5. Transfer, Sub-lease, Disposition and Registration of Lease Right (1) The Lessee shall not assign its rights and obligations under this Agreement to any third party and shall not sublease the whole or any part of the Leased Premises to any third party without prior consent from the Lessor. (2) The Lessor shall not sell or transfer the Leased Premises to any third party during the term of this Lease. The Lessor shall not additionally establish kun-mortgage, "yangdo dambo" and any other security (hereinafter "Mortgage") on the Leased Premised without the Lessee's prior consent, except for security, such as kun-mortgage which has already been established on the Leased Premises. (3) Notwithstanding the Lessor's covenant as described in the Paragraph (2), if title of the Leased Premises is transferred, the Lessor shall take all steps which is necessary for it to cause new owner to assume all obligations as the Lessor under this Agreement. In addition, the Lessor shall bear all expenses and costs arising in performing such obligations. (4) If requested by the Lessee, the Lessor shall agree to complete the registration for establishment of lease right upon the Leased Premises in the name of the Lessee. Article 6. Alteration in the Leased Premises (1) The Lessee may, at its expense, alter the Leased Premises during the term of this lease with prior consent of Lessor. In the event of any minor alteration in which the original structure undergoes no change, the Lessee may notify the Lessor thereof later. A. Lay-out, installation or alteration which is necessary for the business operation, such as installing partitions or lighting facilities; B. Installation of utilities such as telecommunications including telephone, electricity, water supply or drainage; C. Installation or attachment of signs and advertising materials within the scope permitted by the relevant laws and regulations; D. Other work which are necessary for the business activities within the scope resulting in no significant change to the original structure of the Leased Premises. (2) The Lessee shall preserve, use and realize profit from, the Leased Premises with due care during the term of this lease. In addition, upon altering the Leased Premises, the Lessee shall comply with the relevant laws and regulations. Article 7. Maintenance of the Leased Premises (1) The Lessor shall be liable for maintenance of any basic properties of the Leased Premises (structure, fire preventive area, rooftop water proofing and exterior decoration). In the event that such properties are to be repaired due to their wear and tear, discoloration or functional difficulty, the Lessor shall, at its expense, repair them. The expenses for repair and maintenance of the building interior materials shall be borne by the Lessee. (2) The Lessor shall be liable to maintain, preserve and repair the electricity, water, air conditioning, sewage and waste water facilities, steam related facilities and piping facilities all of which are installed outside the Leased Premises since those facilities are essential for use of the Leased Premises. The Lessee shall be liable to maintain, preserve and repair the facilities which are installed inside the Leased Premises. (3) The Lessee shall be liable to maintain, preserve and repair any facilities which it has installed into or altered on the Leased Premises upon its necessity. (4) The Lessee may use the land owned by the Lessor for the purpose of use as parking lot and other facilities attached to the Leased Premises within a reasonable scope. However, the Lessee shall separately consult with the Lessor on the terms and conditions of the use. (5) In regard to the same building shared between Lessee and Lessor, the Lessee shall permit the Lessor to use (have access to, store or load) the portion of the Leased Premises leased by the Lessee to the extent that the Lessor has a need to use the area. Article 8. Insurance and Taxes and Public Imposts (1) The Lessor shall, at its expense, take out an insurance in order to protect the building used as factory, warehouse, dormitory and laboratory, and its interior fixtures and facilities from fire, flood and other risks as the Lessor deems necessary. However, at the Lessee's request, the Lessor shall cause the Lessee to be the co-insured of the insurance, and the Lessee shall bear the additional insurance premium incurred therefrom. The Lessee shall, at its expense, take out the insurance in order to protect any materials, products, machinery, equipment, furniture and other fixtures which Lessee has installed or stored in the Leased Premises from fire, flood or other risks which the Lessee deems necessary. (2) The Lessor shall pay all taxes and public imposts imposed on the Leased Premises. Any tax imposed on the business place shall be borne by the Lessee. Upon a separate consultation, the Lessee shall pay for the utilities and facilities related to use of the Leased Premises, including that of telephone, electricity, heating, water and other similar facilities. Article 9. Indemnity The Lessee shall not be liable for all losses and damage to the Lessor due to Acts of God or any force majeure cause, including destruction, damage or loss of the Leased Premises. The Lessor shall not be liable for all losses and damage to the Lessee due to the same cause indicated above including destruction, damage or loss of the Lessee's belongings installed or stored by the Lessee in the Leased Premises. Article 10. Termination (1) In any of the following cases, the Lessor may terminate this Agreement by giving two (2) week prior written notice to the Lessee: A. When the Lessee delays payment of the monthly rent hereunder twice or more, or when the Lessee commits a breach of any of its obligations under this Agreement that is not remedied within 30 days from the giving of written notice requiring said breach to be remedied; B. When attachment, preliminary attachment, preliminary injunction or coercive collection is executed against the Lessee or its properties; C. When the Lessee transfers any significant portion of its assets or businesses to a third party or such portion is merged into or undertaken by a third party; D. When the procedures of reorganization, composition, bankruptcy or liquidation are executed against the Lessee, or when the Lessee or its creditors apply for execution of such procedure; E. When the relevant financial institutions have rejected to pay or suspended the payment of, promissory notes or checks issued, endorsed, undertaken or guaranteed the payment by the Lessee. (2) Upon occurrence of any of the following causes, the Lessee may terminate this Agreement by giving two (2) week prior written notice to the Lessor: A. When the Lessor commits a breach of any of its obligations under this Agreement that is not remedied within 30 days from giving a written notice requiring said breach to be remedied; B . When the procedures of reorganization, composition, bankruptcy or liquidation are executed against the Lessor, or when the Lessor or its creditors apply for execution of such procedure; C. When the relevant financial institutions have rejected to pay or suspended the payment by, promissory notes or checks issued, endorsed, undertaken or guaranteed for payment by the Lessor. (3) Upon termination or expiration of this Agreement, the Lessee shall, at the Lessor's request, immediately restore the Leased Premises to their original condition and shape at its expense and then surrender them to the Lessor. In addition, the Lessee shall deregister the registration of leasehold right which has been established on the Leased Premises. If the Lessee delays to surrender the Leased Premises, the Lessee agrees to pay the amount equal to three times the monthly rent as set forth in Article 4 for the delayed time as penalty. (4) Upon termination or expiration of this Agreement, the Lessor shall not be liable to purchase any and all portions of the Leased Premises newly installed, altered or changed by the Lessee, nor to reimburse the expenses to the Lessee. Article 11. Compensation for Damage (1) When either party breaches its obligation hereunder and causes damage to the other party, the breaching party shall compensate the damage directly incurred by the other party. (2) When the Lessee, its employee, supplier or customer causes damage to the Leased Premises or other property of the Lessor, the Lessee shall forthwith notify the Lessor of it and compensate such damage incurred therefrom. (3) When a third party requires to surrender the Leased Premises or when there exist any encumbrances on the Leased Premises, the Lessor shall protect it against such request or encumbrances at its own expense and under its responsibility in order for the Lessee to continuously use the Leased Premises. Article 12. Governing Law The laws of the Republic of Korea shall apply to the execution, enforcement and interpretation of this Agreement. Any and all disputes arising from or in connection with this Agreement shall be settled by submitting them to the competent court of the Seoul District Court. Article 13. General Provisions Any matters which are not specified in this Agreement shall be determined under mutual agreement of the parties in accordance with the relevant laws and regulations and general commercial practices. IN WITNESS WHEREOF, this Agreement shall be executed in duplicates and the Lessor and the Lessee shall sign and affix their seals on this Agreement and keep one copy each. June 30, 1998 Lessor: Hyundai Electronics Industries Co., Ltd. San 136-1, Ami-ri, Bubal-eup, Echon-si, Kyunggi-do Representative Director Young Hwan Kim (seal) Lessee: ChipPAC Korea San 136-1, Ami-ri, Bubal-eup, Echon-si, Kyunggi-do Representative Director (seal) Officer's Certification - ----------------------- I, Tony Lin, hereby represent that this English translation is a fair and accurate translation. By: /s/ Tony Lin ------------------ Title: Chief Financial Officer ChipPAC, Inc. Attachment 1 Area of Use and Location of Semiconductor Assembly Factory Unit: Square Meter
- ---------------------------------------------------------------------------------------- Area for Area for Total Exclusive Use Common Use -------------------------------------------------------------------- Leased Total area Rate Leased Total area area of use area* - ---------------------------------------------------------------------------------------- IF 8,628 15,002 58% 5,307 9.228 13,935 - ---------------------------------------------------------------------------------------- 2F 3,385 5,98l 57% 40 70 3,425 - ---------------------------------------------------------------------------------------- 3F 14,857 22,414 66% 33 50 14,890 - ---------------------------------------------------------------------------------------- Total 26,870 43,397 62% 5,380 9,348 32,250 - ----------------------------------------------------------------------------------------
* Area for common use is calculated by multiplying total area for common use by the rate of area for exclusive use. Attachment 2 Area of Use and Location of Test House Attachment 3 Area of Use and Location of Chungju Factory and Ancillary Facilities Attachment 4 Standard for Calculation of Monthly Rent The parties agree with the following standard of calculation of monthly rent in accordance with Article 4, Paragraph (2) of the Lease Agreement: 1. The monthly rent shall be the total amount of the land rental fee for the area of land deemed to be used plus the rent of the leased building: 2. The rental fee for the area of land deemed to be used shall be calculated as follows: Land use fee = (Interest to be paid per square meter + general land tax per square meter) x the area of land deemed to be used (in the unit of square meter) - Interest to be paid = The price of the land deemed to be used x average interest rate of a time deposit with maturity of one year of the commercial banks However, with respect to the initial term of lease of one (1) year, the average interest rate of a time deposit with maturity of one Year of the commercial banks shall be 18%. - The price of the land deemed to be used shall be the higher one between the book value and publicly notified land price of the land deemed to be used. - General land tax = Publicly notified land price x tax exemption rate (31%) x tax rate (0.36%) The tax exemption rate shall refer to the rate applied under the municipal ordinance of Icheon-si. - Area of land deemed to be used: When the Lessee leases the entire building, the area of land deemed to be used shall refer to the area of the ground of the Leased Premises. When the Lessee leases a part of the building, it shall refer to the area calculated by multiplying the rate of use (calculated by multiplying the area of Leased Premises total area of the relevant building) by the area of ground of the building. The area of land deemed to be used for each Leased Premises shall be as follows: i) Semiconductor assembly factory: 34,185m/2/ (28,482m/2/ for exclusive use, 5,703m/2/ for common use) ii) Test House: 4,464m/2/ (3,651m/2/ for exclusive use, 813m/2/ for common use) iii) Chungju factory and ancillary facilities: 7,997m/2/ iv) Buildings No. 3, No. 4 and No. 5 of Chungwoon Dormitory: 21,695m/2/ v) Chungju Dormitory: 3,026m/2/ 3. The rent of the Leased Premises shall be calculated as follows: Rent of the Leased Premises = (Total area of the Leased Premises including area for common use x interest to be paid for each square meter of the building) + (depreciation cost + taxes and dues + maintenance cost) x rate of use - Interest to be paid = The Book value of the building x average interest rate of a time deposit with maturity of one year of the commercial banks However, with respect to the initial term of lease of one (1) year, the average interest rate of a time deposit with maturity of one year of the commercial banks shall be 18%. - Depreciation cost = Acquisition price of the building to which the Leased Premises belong number of years of depreciation - Taxes and dues: Exhibit 10.7.1 -------------- Amendment Agreement Hyundai Electronics Industries Co., Ltd. (the "Hyundai") and ChipPAC Korea, Ltd. (the "ChipPAC") agrees to amend the lease agreement (the "Agreement") executed between the parties as of June 30, 1999 as follows. A. Paragraph 2 of Article 3 of the Agreement (Term of Lease) shall be amended as follows. (2) If one of the parties to the Agreement wishes to terminate the Agreement in the middle of the term or the extended term of the Agreement, such party shall give a written notice to the other party twelve (12) months prior to the date of termination of the Agreement. However, no party shall terminate the Agreement within two (2) years from the Effective Date of this Agreement. B. Paragraph 2 and 5 of Article 4 of the Agreement (Security Deposit and Monthly Rent) shall be amended as follows. (2) The Lessee shall pay the Lessor three hundred ninety seven million four hundred thirteen thousand Won (397,413,000 Won) on a monthly basis for the one (1) year term as a monthly rent in consideration of the use of the land as set forth in Paragraph 4 of Article 7 of the Agreement and the lease of Leased Premises as set forth in Article 1 of the Agreement. However, the monthly rent is exclusive of the value added tax, and the value added tax shall be borne by the Lessee. (5) A monthly rent to be paid to the Lessor by the Lessee shall be adjusted upward on a yearly basis, whereby a monthly rent shall be the amount of the monthly rent of the previous year plus five (5) percent of such a monthly rent according to the Agreement. C. The entire Appendix 4 of the Agreement (Standard for Calculation of Monthly Rent) shall be removed. D. The terms of the Agreement which are not explicitly amended or altered herein shall be deemed to have the same effects as in the Agreement. EX-10.7.1 31 AMENDMENT AGREEMENT DATED 9/30/1998 Property tax = The book value of the building to which the Leased Premises belong x tax rate (0.36%) Facilities tax = The book value of the building to which the Leased Premises belong x tax rate (0.32%) - Maintenance cost = The book value of the building to which the Leased Premises x 1% - Rate of use = Total area of the Leased Premises including area for common use / total area of the building to which the Leased Premises belong including area for common use 4. Inintial monthly rent: Total amount of monthly rents for one (l) year from Effective Date shall be 397,413,000 Won and the details are as follows;
- ----------------------------------------------------------------------------------------------------- Ichoen Test House Chungju Chungju Cunng- Total Factory Factory Dorm. woon Dorm. - ----------------------------------------------------------------------------------------------------- Monthly 166,832 47,099 77,683 27,700 78,144 397,413 Rent (1,000won) - -----------------------------------------------------------------------------------------------------
IN WITNESS WHEREOF, two (2) copies of the agreement are executed, and sealed by Hyundai and ChipPAC who shall keep one (1) copy in their custody. September 30, 1998 "Hyundai" Hyundai Electronics Co., Ltd. Ami-ri San 136-1 Pubal-eup, Icheon-si, Kyongki-do Representative Director Young Whan Kim, (Seal) "ChipPAC" ChipPAC Korea, Ltd. Ami-ri San 136-1 Pubal-eup, Icheon-si, Kyongki-do Representative Director Su Nam Lee, (Seal) Officer's Certification: - ----------------------- I, Tony Lin, hereby represent that this English translation is a fair and accurate translation. By: /s/ Tony Lin ------------------ Title: Chief Financial Officer ChipPAC, Inc. EX-10.7.2 32 AMENDMENT AGREEMENT 2 DATED 9/30/1999 Exhibit 10.7.2 -------------- Amendment Agreement 2 Hyundai Electronics Industries Co., Ltd. (the "HEI") and ChipPAC Korea, Ltd. (the "CPK") agrees to amend the lease agreement ("the Agreement") executed between the parties as of June 30, 1998 and the Amendment Agreement (the "Amendment 1") as of September 30, 1998 as follows A. Paragraph 1 and 2 of Article 3 of the Agreement and Paragraph 2 of the Amendment shall be amended as follows 1. The term of lease under this Agreement shall be five years from the Effective Date of this Amendment 2. However, CPK shall have an option to extend the Agreement for an additional five year term ("the extended term"), exercisable by CPK at any time prior to the expiration of the initial term. 2. Lessor may not terminate in the middle of the term of this agreement or extended term. However, it is understood and agreed that nothing herein shall limit HEI's termination rights under Article 10 of this Agreement and applicable laws. If lessee wishes to terminate the agreement fully or partially (the "partial termination") in the middle of the term or the extended term of the agreement, the lessee shall give a written notice to lessor six months prior to the date of termination. However, lessee may not terminate the agreement within three years from the Effective Date of this Amendment 2. B. Paragraph 6 and 7 shall be added to Article 4 of the Agreement as follows 6. The monthly rent during the extended term shall be adjusted as set forth in Article 4 Section 5 of the Agreement. 7. In the case of any partial termination, the monthly rent shall be proportionately reduced based on the reduction in the amount of rentable square meters. C. The term of the Agreement and Amendment 1 which are not explicitly amended or altered herein shall be deemed to have the same effects as set forth in the Agreement and Amendment 1 IN WITNESS whereof, two copies of the agreement are executed and sealed by HEI and CPK who shall keep one copy in their custody. July 31, 1999 HEI /seal/ __________________ CPK /seal/ __________________ Officer's Certification: - ----------------------- I, Tony Lin, hereby represent that this English translation is a fair and accurate translation. By: /s/ Tony Lin ------------------ Title: Chief Financial Officer ChipPAC, Inc. EX-10.8 33 AGREEMENT - SUPPLY OF UTILITIES Exhibit 10.8 ------------ Agreement Concerning Supply of Utilities, Use of Welfare Facilities and Management Services for Real Estate Hyundai Electronics Industries Co., Ltd. ("HEI") and ChipPAC Korea, ("CPK") hereby execute the Agreement concerning the supply of Utilities, use of welfare facilities, and management services for real estate (hereinafter referred to as "the Agreement") with the following conditions, pursuant to Article 9 of the Business Transfer Agreement (hereinafter referred to as "the Business Transfer Agreement") executed as of June 30, 1998 between the parties. Article 1. Purpose 1. The purpose of the Agreement is to support CPK's success in the semiconductor assembly business transferred from HEI under the Business Transfer Agreement, by prescribing the rights and obligations between HEI and CPK with respect to the supply of utilities, such as electric power, water, heating and air conditioning, etc. ("Utilities") necessary for the use of the real estate which CPK leased from HEI under the Lease Agreement ("Lease Agreement") executed on , 1998, the use of the welfare facilities, such as cafeteria, etc. ("Welfare Facilities") and the provision of management services accompanied with the use of the leased real estate, such as the treatment of wastes, prevention of disasters, and perimeter security, etc. ("the Management Services"). 2. The details of the Utilities, Welfare Facilities, Management Services which HEI supplies or provides CPK under the terms and conditions of the Agreement shall be as set forth in Attachment 1 through Attachment 3. Article 2. Standard for Calculating the Usage Fee 1. The usage fee ("the Usage Fee") which CPK shall pay HEI in consideration of the provision of Utilities, Welfare Facilities and Management Services from HEI under Article 1 above shall be decided in accordance with the calculation standard, such as the unit price, etc. (hereinafter referred to as "the Standard for Calculating the Usage Fee") as set forth in Attachment 1 through Attachment 3. 2. The Standard for Calculating the Usage Fee in Paragraph 1 above shall be effective for one (1) year on a yearly basis and both parties shall consult and adjust the Standard for Calculating the Usage Fee to be applied for the following one (1) year, two (2) months prior to the expiration of the effective period. In the event of a failure to adjust the Standard for Calculating the Usage Fee between the parties, it shall be settled in accordance with the methods as set forth in proviso of Article 13, Paragraph 1. However, by the time the award of arbitration is made, the Usage Fee shall be paid in accordance with the Standard for Calculating the Usage Fee which applied for the immediate preceding one (1) year. Upon the award of the arbitration, it shall be settled according to the results thereof. Article 3. Determination and Payment of the Monthly Usage Fee 1. Unless otherwise agreed by both parties, CPK shall submit the details of the Utilities, Welfare Facilities and Management Services used for the immediate preceding month by the 5th day (if it falls on a holiday, the following day) of each month. HEI shall calculate CPK's Usage Fee for the immediate preceding month in accordance with the Standard for Calculating the Usage Fee based on the details above and then invoice CPK in writing by the 8th day of the current month (if it is a holiday, the following day). If CPK fails to submit the details of the use above by the 7th day of each month, HEI may invoice after calculating the Usage Fee of CPK for the immediate preceding month based on HEI's own data. However, if HEI raises any objection over the contents of the details submitted by CPK or if CPK raises any objection in the future with respect to the invoice for the Usage fee calculated by HEI without the submission of the above details from CPK, it shall be resolved through mutual consultation between the parties. In the event of any change of the usage fee thereafter, it shall be settled upon the payment of the Usage Fee for the month in which such objection was raised. 2. CPK shall make fall payment of the Usage Fee to HEI in cash, within 15 days from the date of invoice from HEI under the foregoing Paragraph. 3. If CPK delays the whole or a part of the payment of the Usage Fee, CPK shall pay HEI the default interest at the average default interest rate of a general loan of general commercial banks for the delayed Usage Fee plus the principal of the Usage Fee. Article 4. Maintenance and Repair HEI shall maintain and repair the relevant facilities and procure the necessary personnel and expenses under its own responsibilities and at its own cost, for the purpose of CPK's smooth use of the Utilities, Welfare Facilities and Management Services, unless otherwise specified in the Lease Agreement or the Standard for Calculating the Usage Fee. Article 5. CPK's Obligations With respect to the use of the Utilities, Welfare Facilities and Management Services, CPK shall perform its obligations as a prudent custodian and comply with the relevant laws and regulations, rules established by HEI in connection with such Utilities, Welfare Facilities or Management Services and other instructions of HEI. Article 6. Transfer or Increase of Communication Related Facilities 1. In cases where HEI transfers or increases communication related facilities upon the request of CPK, the expense needed therefor shall be borne by CPK in accordance with (Attachment 3). 2. The transferred or increased communication related facilities in accordance with the foregoing Paragraph shall be deemed to be changed by CPK under Article 6 of the Lease Agreement. Article 7. Suspension of the Performance of Obligations 1. In the case that CPK delays payment of the monthly Usage Fee under Article 3 two or more times, and a written notice from HEI granting a period of 15 days or more to make payment has been sent, if CPK fails to make full payment within such period, HEI may suspend the whole or a part of the supply of all services under the Agreement. 2. After HEI suspends the whole or a part of the supply of the services under the Agreement, CPK shall not use the suspended Utilities, Welfare Facilities and Management Services till the full payment of any and all delayed Usage Fees. The suspension of the supply of the services made by HEI in accordance with Paragraph 1 above shall not constitute the non-performance of HEI's obligations under the Lease Agreement and HEI shall not take responsibility for any damages incurred on CPK due to the suspension of the supply of the relevant services. Article 8. Government Approval, etc. In connection with the performance of the Agreement, if any approval, permit or report to the government and other relevant authority is necessary, the relevant party shall take the necessary measures under its own responsibility and at its own expense. Article 9. Duration and Termination of the Agreement, etc. 1. The Agreement shall be effective from the effective date of the Lease Agreement to the expiration date of the Lease Agreement. 2. In cases where the other party commits a breach of any of its obligations under this Agreement, in connection with the provision or use of Welfare Facilities or Management Services, that is not remedied within sixty (60) days from the giving of a written notice requiring said breach to be remedied, the Agreement, to the extent of the relevant part, shall be terminable forthwith by either party hereto. In cases where CPK breaches its obligation to pay the Usage Fee as set forth in Article 7, Paragraph 1, HEI may exercise both the rights of suspension of the supply of services under Article 7, Paragraph 1 and the termination of the Agreement under this Paragraph. 3. Notwithstanding Paragraph 2 above, unless otherwise agreed by both parties, the termination of the Utilities parts in the Agreement shall not be permitted, prior to the expiration of the Lease Agreement. 4. In cases where the period for the payment of the Usage Fee is less than one (1) month to be settled at the time of the termination of the Agreement and the Standard for Calculating Usage Fee is determined on a monthly basis, the Usage Fee shall be calculated and paid on the number of days used. 5. With respect to the procedures for settlement prescribed in Paragraph 4 above, Article 3 shall apply mutatis mutandis. Article 10. Compensation for Damage In cases where a party causes damage to the other party by breaching its obligations under the Agreement, by its intention or negligence, the breaching party shall compensate the direct damages incurred on the other party. However, with respect to the damages incurred on CPK in connection with the power supply of HEI to CPK, HEI shall be exempted from any and all liabilities unless it was caused by HEI's intention or gross negligence. Article 11. Confidentiality Each party shall not divulge to a third party any and all technical information, trade secret and other business confidential matters of the other party obtained in connection with the Agreement and the performance thereof for the duration of the Agreement and three (3) years thereafter, without the prior written consent of the other party. Article 12. Force Majeure In cases where a party is unable to perform its obligations under the Agreement due to the amendment or abolishment of the relevant laws and regulations, acts of God, fire, war, actions of the government, strike or other force majeure events after the execution of the Agreement, it shall immediately report thereof to the other party. While such force majeure event exists, a party shall not take any responsibility for any non-performance of the Agreement against the other party. Article 13. Miscellaneous 1. The execution, performance and interpretation of the Agreement shall be governed by the laws of the Republic of Korea. Any dispute arising from or in relation to the Agreement shall be settled in the competent court of Seoul District Court. However, in the case of a failure to adjust the Standard for Calculating Usage Fee under Article 2, Paragraph 2 or in cases where the parties fail to reach an agreement to determine the Usage Fee under Article 3, Paragraph 1, it shall be resolved by the commercial arbitration of the Korean Chamber of Commerce. 2. Any matters not specified in the Agreement shall be decided through mutual agreement in accordance with the relevant laws and regulations and general business practices. 3. Each party shall not transfer the whole or a part of its rights and obligations under this Agreement nor cause a third party to act for its rights and obligations, without the prior written consent of the other party. 4. The terms and conditions of the Agreement may be revised by the written agreement with affixed seals and names (or signatures) of both parties. In Witness Whereof, the parties shall prepare the Agreement in duplicate, set their names and seals thereof and keep each copy hereof respectively. June 30, 1998 HEI: Hyundai Electronics Industries Co., Ltd. Address: San 136-1, Ami-ri, Bubal-eub, Ichon-ku, Kyongki-do, 467-860, Korea Representative Director: Young Hwan Kim (seal) CPK: ChipPAC Korea San 136-1, Ami-ri, Bubal-eub, Ichon-ku, Kyongki-do, 467-860, Korea Representative Director: ________________ (seal) Officer's Certification - ----------------------- I, Tony Lin, hereby represent that this English translation is a fair and accurate translation. By: /s/ Tony Lin ------------------ Title: Chief Financial Officer ChipPAC, Inc. Utility Supply, Use of Welfare Facilities and Management Services for Real Estate 1) Utility Supply - ------------------------------------------------------------------------------ (1) Scope: Electricity, Water Supply, Sewage & Waste Water, Steam etc (2) Usage Fee
(Unit: Won) - --------------------------------------------------------------------------------------------------------------------------------- Item Unit Contract Price Calculation of Usage Fee ------------------ Unit Price - --------------------------------------------------------------------------------------------------------------------------------- Electricity KWH monthly usage x 54 .U/price = KEPCO supply cost in of the month x 1.13 unit price (overhead, interest on facility value, etc) /54 = /47.68 (KEPCO supply cost in Apr 98) x 1.13 - --------------------------------------------------------------------------------------------------------------------------------- Water Water m* monthly usage x 183 1. Based on average actual cost -house use m* unit price 2. Unit Price = water cost + purification cost -industrial . purification cost = labor + depreciation + expenses use + direct cost ------------------------ ------------------------------------------------------------------------ Sewage m* 773 1. Based on average actual cost ------------------------ ------------------ Waste Water m* 741 2. Unit Price = labor + depreciation + expenses + direct cost - -------------------------------------------------------------------------------------------------------------------------------- Steam TON monthly usage x 24445 . Unit Price = gas price per liter x 80 + 7,551Won unit price - --------------------------------------------------------------------------------------------------------------------------------
(3) Maintenance: 1) HEI to be responsible for maintenance/repair of utilities outside A&T building 2) CPK to be responsible for maintenance/repair of utilities inside A&T building 3) HEI shall not be responsible for damages or losses caused to CPK unless intentional or by negligence. - -------------------------------------------------------------------------------- 2) Use of Welfare Facilities - ------------------------------------------------------------------------------- (1) Scope: Canteen, Guest house, Company Newspaper, educational facility, others (2) Usage Fee
(Unit: Won) - ----------------------------------------------------------------------------------------------------------------------------------- Item Contract Price Details of Contract Price ------------------------ Unit Price - ----------------------------------------------------------------------------------------------------------------------------------- 1) Welfare Canteen number of meal 2,000/cupon same price as for visitors facilities coupon x u/price ---------------------------------------------------------------------------------------------------------------- Vision21, Ami Art Hall, Fixed Cost 5,000,000/mon 1. Allocation of HEI's total cost as Gym., swimming pool, per number of total CPK employees shuttle bus 2. HEI total cost: labor, depreciation, expenses ---------------------------------------------------------------------------------------------------------------- Legal service Fixed Cost 100,000/mon Allocation of HEI's total cost as per number of total CPK employees ---------------------------------------------------------------------------------------------------------------- Civil affair service actual cost per service CPK employees personally pay for the service. ---------------------------------------------------------------------------------------------------------------- Wedding Hall 100,000/wedding same rate as for Hyundai subsidiaries (personally pay 40,000KRW, CPK supports 60,000KRW) ---------------------------------------------------------------------------------------------------------------- Guest house as charged per use same rate as for Hyundai Elevator - ----------------------------------------------------------------------------------------------------------------------------------- 2) Parking Car Parking Fixed Cost 4,500,000/mon Allocation of HEI's total cost as per number of CPK office workers - ----------------------------------------------------------------------------------------------------------------------------------- 3) commuter Bus for Ichon and Fixed Cost 18,400,000/mon Allocation of HEI's total cost as per bus other cities number of CPK office workers - ----------------------------------------------------------------------------------------------------------------------------------- 4) Company HEI Newspapers Fixed Cost 1,000,000/mon @ 180/copy x 5,400 copies publications - ----------------------------------------------------------------------------------------------------------------------------------- 5) Education Educational cost as charged per class direct cost per class x 1.4 ('96, '97 actual overhead, indirect, expenses, etc) - -----------------------------------------------------------------------------------------------------------------------------------
(3) Others 1) HEI employees Rental APT : CPK employees can reside for the remaining term of contract which was personally executed with HEI. 2) HEI employees Clinic : CPK employees can use HEI clinic. Price is as per the guideline set by Gov't. 3) Commuter Bus (not included in this Agreement) : CPK and HEI agrees how to allocate the cost. CPK will directly pay its portion to bus companies. - ------------------------------------------------------------------------------- 3) Management Services for Real Estate - -------------------------------------------------------------------------------- (1) Scope: waste disposal, dangerous article warehouse, fire brigade, guard, telecommunication facilities, road (2) Usage Fee 1) Number of CPK employee in Ichon premise as of month end x 11,500 Won -- Number of A&T employees in May 98 x 11,500 Won = 24,679 thousand Won 2) Reference: Calculation Details per Item (per month)
(Unit : Won) - ----------------------------------------------------------------------------------------------------------------------------------- Item Allocated by Estimates Remark - ----------------------------------------------------------------------------------------------------------------------------------- 1. Waste disposal Total 4,204,000 ------------------------------------------------------------------------------------------------------ general waste quantity of 2,163,000 Fixed cost based on wastes happened designated waste wastes in the past extinguishable waste ------------------------------------------------------------------------------------------------------ street dust nbr of employees 900,000 Allocation of HEI's total cost as per number of total CPK employees ------------------------------------------------------------------------------------------------------ use of road quantity of water, 388,000 Allocation of HEI's total cost as per waste water usage of water, waste water ------------------------------------------------------------------------------------------------------ legal management quantity of wastes 753,000 labor + expenses - ----------------------------------------------------------------------------------------------------------------------------------- 2. Dangerous article chemicals, etc. quantity 141,000 depreciation cost of warehouse X CPK warehouse area rate - ----------------------------------------------------------------------------------------------------------------------------------- 3. Fire Brigade rent area 684,000 (labor + expenses) x ratio of CPK employees - ----------------------------------------------------------------------------------------------------------------------------------- 4. Guard and Reception nbr of employees 14,563,000 (direct cost + depreciation of security system) x ratio of number of CPK employees - ----------------------------------------------------------------------------------------------------------------------------------- 5. Telecommunication Total 4,883,000 facilities ----------------------------------------------------------------------------------------------------- tie line nbr of lines Ichon - Seoul 149,000 HEI's total cost X ratio of nbr of Ichon - overseas (excluding Sanghai) 1,998,000 CPK line ----------------------------------------------------------------------------------------------------- Maintenance nbr of lines 2,500,000 HEI's total cost X ratio of nbr of CPK line ----------------------------------------------------------------------------------------------------- switch board/operator nbr of lines 236,000 HEI's total cost X ratio of nbr of CPK line - ----------------------------------------------------------------------------------------------------------------------------------- Grand Total 24,475,000 - -----------------------------------------------------------------------------------------------------------------------------------
* The following won't be included in the agreement. - telephone (other than mobile/tie line): CPK to have a direct contract with KT. HEI to allow CPK to use HEI's switching facilities. - Mobile: CPK to change the name of subscriber from HEI to CPK, directly pay to telephone company. - Ichon-HECS, Ichon-Chung Joo tie line: HEI to change the name of subscriber from HEI to CPK, directly pay to KT. * Additional Cost: CPK to pay 8000KRW/line to HEI for expansion of tel facilities, line move, increase of nbr of line, etc. - -------------------------------------------------------------------------------- II. Amendment Agreement 1. Additional items which are not included in the Original Agreement . Contact parties: CPK (ChipPAC Korea) HEI (Hyundai Electronics Industries) . Scope of supply: HEI's supply of Cool water, CDA, Nitrogen to CPK . Calculation method of the Usage Fee
Item Unit Contract Price Unit Price ----------------------------------------------------------------- Cool water m/3/ Monthly usage x unit price 34 Won ----------------------------------------------------------------- CDA m/3/ Monthly usage x unit price 4 Won ----------------------------------------------------------------- Nitrogen m/3/ Monthly usage x unit price 42 Won -----------------------------------------------------------------
* The same unit price was applied as in the Utility Supply Agreement. 2. Modification on the "Use of Welfare" part in the Original Agreement: HEI's Intramural hospital . Contract parties: CPK (ChipPAC Korea) HEI (Hyundai Electronics Industries) . Related Article in the Original Agreement - HEI shall request a lump-sum payment to CPK for the medical treatment fee on CPK's employees - The medical treatment fee will be decided in accordance with the Standard Fee set by the Government. . The above article shall be modified and replaced as below. - CPK's employees shall receive free medical treatment service from HEI's intramural hospital for the items on which HEI's employees receive free medical treatment service. As a compensation for this, CPK will pay 3.5 million Korean won to HEI every month. However, for the regular health check-up service, CPK shall pay monthly lump-sum charges separately at HEI's request. EX-10.10 34 SUBLEASE AGREEMENT DATED 5/01/1998 Exhibit 10.10 ------------- SUBLEASE TO 3151 Coronado Drive, Santa Clara, CA 95054 1. PARTIES. This Sublease, dated, for reference purposes only, May 1, 1998, is made by and between Hyundai Electronics America, a California Corporation (herein called "Sublessor") and ChipPAC, Inc., a California Corporation (herein called "Sublessee"). 2. PREMISES. Sublessor hereby subleases and Sublessee hereby subleases from Sublessor for the term, at the rental, and upon all of the conditions set forth herein, a forty-one thousand, eight hundred fifty (41,850) square foot portion of that certain real property situated in the County of Santa Clara, State of California commonly known described as 3151 Coronado Drive, Santa Clara, California 95054. Said real property, including the land and all improvements thereon, is hereinafter called the "Premises". 3. TERM. 3.1 Length. The term of this Sublease shall be for three (3) years and one (1) month commencing on May 1, 1998 and ending on May 31, 2001 unless sooner terminated pursuant to any provision hereof. 3.2 Delay In Commencement. Notwithstanding said commencement date, if for any reason Sublessor cannot deliver possession of the Premises to Sublessee on said date, Sublessor shall not be subject to any liability therefore, nor shall such failure affect the validity of this Sublease or the obligations of the Sublessee hereunder or extend the term hereof, but in such case Sublessee shall not be obligated to pay rent until possession of the Premises is tendered to Sublessee; provided, however, that if Sublessor shall not have delivered possession of the Premises within sixty (60) days from said commencement date, Sublessee may, at Sublessee's option, by notice in writing to Sublessor within ten (10) days thereafter, cancel this Sublease, in which event the parties shall be discharged from all obligations thereunder. If Sublessee occupies the Premises prior to said commencement date, such occupancy shall be subject to all provisions hereof, such occupancy shall not advance the termination date and Sublessee shall pay rent for such period at the initial monthly rates set forth below. 4. RENT. Sublessee shall pay to Sublessor as rent for the Premises for May through December, 1998 the sum of three hundred seventy-four thousand, seventy-six dollars and sixteen cents ($374,076.16), of which ninety-two thousand, five hundred forty-three dollars and four cents ($92,543.04) is designated as operating expenses. Any shortfalls of pro rata operating expenses allocable to Sublessee will be paid by the Sublessee to the Sublessor. The Sublessor's allocations of operating expenses between Sublessees shall be made in accordance with the provisions of Section 7.2 "Basic Operating Cost" of the Master Lease. Beginning January 1, 1999, through the end of the Sublease, Sublessee shall pay the Sublessor in advance on the first day of each month of the term hereof thirty-five thousand, five hundred seventy-two dollars and fifty cents ($35,572.50) plus its prorated share of any other rents which Sublessor may owe to Master Lessor pursuant to the Master Lease which at this time are calculated to be twelve thousand, seven hundred eighty-eight dollars and ninety-nine cents ($12,788.99) per month for operating costs and eight hundred, eighty dollars and nineteen cents ($880.19) per month for Tenant improvement amortization. Rent for any period during the term hereof which is for less than one month shall be a prorated portion of the monthly installment; provided, however, that if Sublessee uses a disproportionate amount of any utility, Sublessee shall pay for that additional share. Rent shall be payable in lawful money of the United States to Sublessor at the address stated herein or to such other persons or at such other places as Sublessor may designate in writing. Any rent paid by Sublessee to Sublessor shall be used exclusively to pay rent to Master Lessor. Rent for any period during the term hereof which is for less than one month shall be a prorated portion of the monthly installment; provided, however, that if Sublessee uses a 1 disproportionate amount of any utility, Sublessee shall pay for that additional share. Rent shall be payable in lawful money of the United States to Sublessor at the address stated herein or to such other persons or at such other places as Sublessor may designate in writing. Any rent paid by Sublessee to Sublessor shall be used exclusively to pay rent to Master Lessor. 5. SECURITY DEPOSIT. Sublessee shall deposit with Sublessor upon execution hereof the sum of twenty-eight thousand, two hundred seventy six dollars ($28,276.00) as security for Sublessee's faithful performance of Sublessee's obligations hereunder. If Sublessee fails to pay rent or other charges due hereunder, or otherwise defaults with respect to any provision of this Sublease, Sublessor may use, apply or retain all or any portion of said deposit for the payment of any rent or other charge in default or for the payment of any other sum to which Sublessor may become obligated by reason of Sublessee's default, or to compensate Sublessor for any loss or damage which Sublessor may suffer thereby. If Sublessor so uses or applies all or any portion of said deposit, Sublessee shall within ten (10) days after written demand therefore, deposit cash with Sublessor in an amount sufficient to restore said deposit to the full amount herein above stated and Sublessee's failure to do so shall be a material breach of this Sublease. Sublessor shall not be required to keep said deposit separate from its general accounts. If Sublessee performs all of Sublessee's obligations hereunder. said deposit, or so much thereof as has not theretofore been applied by Sublessor, shall be returned, without payment of interest or other increment for its use to Sublessee (or at Sublessor's option, to the last assignee, if any, of Sublessee's interest hereunder) at the expiration of the term hereof, and after Sublessee has vacated the Premises. No trust relationship is created herein between Sublessor and Sublessee with respect to said Security Deposit. 6. USE. 6.1 Use. The Premises shall be used and occupied only for general office business and assembly and test and for no other purpose. 6.2 Compliance with Law. (a) Sublessor warrants to Sublessee that the Premises, in its existing state, but without regard to the use for which Sublessee will use the Premises, does not violate any applicable building code, regulation or ordinance at the time that this Sublease is executed. In the event that it is determined that this warranty his been violated, then it shall be the obligation of the Sublessor, after written notice from Sublessee, to promptly, at Sublessor's sole cost and expense, rectify any such violation. In the event that Sublessee does not give to Sublessor written notice of the violation of this warranty within one year from the commencement of the term of this Sublease, it shall be conclusively deemed that such violation did not exist and the correction of the same shall be the obligation of the Sublessee. (b) Except as provided in paragraph 6.2(a), Sublessee shall, at Sublessee's expense, comply promptly with all applicable statutes, ordinances, rules, regulations, orders, restrictions of record and requirements in effect during the term or any part of the term hereof regulating the use by Sublessee of the Premises. Sublessee shall not use or permit 2 the use of the Premises in any manner that will tend to create waste or a nuisance or, if there shall be more than one tenant of the building containing the Premises, which shall tend to disturb such other tenants. 6.3 Condition of Premises. Except as provided in paragraph 6.2(a) Sublessee hereby accepts the premises in their condition existing as of the date of the execution hereof, subject to all applicable zoning, municipal, county and state laws, ordinances and regulations governing and regulating the use of the Premises, and accepts this Sublease subject thereto and to all matters disclosed thereby and by any exhibits attached hereto. Sublessee acknowledges that neither Sublessor nor Sublessor's agents have made any representation or warranty as to the suitability of the Premises for the conduct of Sublessee's business. 7. MASTER LEASE. 7.1 Sublessor is the lessee of the Premises by virtue of a lease, hereinafter referred to as the "Master Lease", a copy of which is attached hereto marked Exhibit A, dated February 16, 1998 wherein Spieker -- French #86, Limited Partnership is the lessor hereinafter referred to as the "Master Lessor". 7.2 This Sublease is and shall be at all times subject and subordinate to the Master Lease. 7.3 The terms, conditions and respective obligations of Sublessor and Sublessee to each other under this Sublease shall be the terms and conditions of the Master Lease except for those provisions of the Master Lease which are directly contradicted by this Sublease in which event the terms of this Sublease document shall control over the Master Lease. Therefore, for the purposes of this Sublease, wherever in the Master Lease the word "Lessor" is used it shall be deemed to mean the Sublessor herein and wherever in the Master Lease the word "Lessee" is used it shall be deemed to mean the Sublessee herein. 7.4 During the term of this Sublease and for all periods subsequent for obligations which have arisen prior to the termination of this Sublease, Sublessee does hereby expressly assume and agree to perform and comply with, for the benefit of Sublessor and Master Lessor, each and every obligation of Sublessor under the Master Lease except for the following paragraphs which are excluded therefrom: none. 7.5 The obligations that Sublessee has assumed under Paragraph 7.4 hereof are hereinafter referred to as the "Sublessee's Assumed Obligations". The obligations that Sublessee has not assumed under paragraph 7.4 hereof are hereinafter referred to as the "Sublessor's Remaining Obligations". 7.6 Sublessee shall hold Sublessor free and harmless of and from all liability, judgments, costs, damages, claims or demands, including reasonable attorneys fees, arising out of Sublessee's failure to comply with or perform Sublessee's Assumed Obligations. 7.7 Sublessor agrees to maintain the Master Lease during the entire term of this Sublease, subject, however, to any earlier termination of the Master Lease without the fault of the Sublessor, and to comply with or perform Sublessor's Remaining Obligations and to hold Sublessor free and harmless of and from all liability, judgments, costs, damages, claims or 3 demands arising out of Sublessor's failure to comply with or perform Sublessor's Remaining Obligations. 7.8 Sublessor represents to Sublessee that the Master Lease is in full force and effect and that no default exists on the part of any party to the Master Lease. 8. ASSIGNMENT OF SUBLEASE AND DEFAULT. 8.1 Sublessor hereby assigns and transfers to Master Lessor the Sublessor's interest in this Sublease and all rentals and income arising therefrom, subject, however, to the terms of paragraph 8.2 hereof. 8.2 Master Lessor, by executing this document, agrees that until a default shall occur in the performance or Sublessor's Obligations under the Master Lease, that Sublessor may receive, collect and enjoy the rents accruing under this Sublease. However, if Sublessor shall default in the performance of its obligations to Master Lessor, then Master Lessor may, at its option, receive and collect, directly from Sublessee, all rent owing and to be owed under this Sublease. Master Lessor shall not, by reason of this assignment of the Sublease or by reason of the collection of the rents from the Sublessee, be deemed liable to Sublessee for any failure of the Sublessor to perform and comply with Sublessor's Remaining Obligations. 8.3 Sublessor hereby irrevocably authorizes and directs Sublessee, upon receipt of any written notice from the Master Lessor stating that a default exists in the performance of Sublessor's obligations under the Master Lease, to pay to Master Lessor the rents due and to become due under the Sublease. Sublessor agrees that Sublessee shall have the right to rely upon any such statement and request from Master Lessor, and that Sublessee shall pay such rents to Master Lessor without any obligation or right to inquire as to whether such default exists and notwithstanding any notice from or claim from Sublessor to the contrary and Sublessor shall have no right or claim against Sublessee for any such rents so paid by Sublessee. 8.4 No changes or modifications shall be made to this Sublease without the consent of Master Lessor. 9. CONSENT OF MASTER LESSOR. 9.1 In the event that the Master Lease requires that Sublessor obtain the consent of Master Lessor to any subletting by Sublessor then, this Sublease shall not be effective unless, within ten (10) days of the date hereof, Master Lessor signs this Sublease thereby giving its consent to this Subletting. 9.2 In the event that the obligations of the Sublessor under the Master Lease have been guaranteed by third parties then this Sublease, nor the Master Lessor's consent, shall not be effective unless, within ten (10) days of the date hereof, said guarantors sign this Sublease thereby giving guarantors consent to this Sublease and the terms thereof. 9.3 In the event that Master Lessor does give such consent then: 4 (a) Such consent will not release Sublessor of its obligations or alter the primary liability of Sublessor to pay the rent and perform and comply with all of the obligations of Sublessor to be performed under the Master Lease. (b) The acceptance of rent by Master Lessor from Sublessee or any one else liable under the Master Lease shall not be deemed a waiver by Master Lessor of any provision of the Master Lease. (c) The consent to this Sublease shall not constitute a consent to any subsequent subletting or assignment. (d) In the event of any default of Sublessor under the Master Lease, Master Lessor may proceed directly against Sublessor, any guarantors or any one else liable under the Master Lease or this Sublease without first exhausting Master Lessor's remedies against any other person or entity liable thereon to Master Lessor. (e) Master Lessor may consent to subsequent subletting and assignments of the Master Lease or this Sublease or any amendments or modifications thereto without notifying Sublessor nor any one else liable under the Master Lease and without obtaining their consent and such action shall not relieve such persons from liability. (f) In the event that Sublessor shall default in its obligations under the Master Lease, then Sublessee, at its option and without being obligated to do so, may require attorn to Master Lessor in which event Master Lessor shall undertake the obligations of Sublessor under this Sublease from the time of the exercise of said option to termination of this Sublease but Master Lessor shall not be liable for any prepaid rents nor any security deposit paid by Sublessee, nor shall Master Lessor be liable for any other defaults of the Sublessor under the Sublease. 9.4 The signatures of the Master Lessor and any Guarantors of Sublessor at the end of this document shall constitute their consent to the terms of this Sublease. 9.5 Master Lessor acknowledges that, to the best of Master Lessor's knowledge, no default presently exists under the Master Lease of obligations to be performed by Sublessor and that the Master Lease is in full force and effect. 9.6 In the event that Sublessor defaults under its obligations to be performed under the Master Lease by Sublessor, Master Lessor agrees to deliver to Sublessee a copy of any such notice of default. Sublessee shall have the right to cure any default of Sublessor described in any notice of default within ten (10) days after service of such notice of default on Sublessee. If such default is cured by Sublessee than Sublessee shall have the right of reimbursement and offset from and against Sublessor. 10. ATTORNEY'S FEES. If any party or the Broker named herein brings an action to enforce the terms hereof or to declare rights hereunder, the prevailing party in such action, shall be entitled to its reasonable attorney's fees and costs to be paid by the losing party as fixed by the Court. The provision of this paragraph shall inure to the benefit of the Broker named herein who seeks to enforce a right hereunder 5 SUBLESSOR Executed at San Jose _______________________________ on 3/12/99 By ___________________________ Address 3101 North 1st St. By /s/ T.J. Thomas Hyundai Electronics America San Jose, CA SUBLESSEE Executed at Santa Clara, CA 95054 _______________________________ on March 19, 1999 By /s/ Dennis McKenna Address 3151 Coronado Drive By /s/ Tony Lin ChipPAC, Inc. Santa Clara, CA 95054 6 EX-10.17 35 BAIN CAPITAL ADVISORY AGREEMENT Exhibit 10.17 ADVISORY AGREEMENT ------------------ This Advisory Agreement (this "Agreement") is made and entered into as of August 5, 1999, by and between ChipPAC, Inc., a California corporation, ChipPAC Limited, a corporation incorporated under the laws of the Territory of the British Virgin Islands, ChipPAC Operating Limited (name to be changed to ChipPAC International Company Limited), a corporation incorporated under the laws of the Territory of the British Virgin Islands (collectively, the "Companies," and individually, the "Company"), and Bain Capital, Inc., a Delaware corporation ("Bain"). Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Agreement and Plan of Merger and Recapitalization, dated as of March 13, 1999, as amended, by and among the ChipPAC, Inc., Hyundai Electronics Industries Co., Ltd., Hyundai Electronics America and ChipPAC Merger Corp. WHEREAS, the Companies desire to retain Bain and Bain desires to perform for the Companies and/or their subsidiaries certain services; NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties agree as follows: 1. Term. This Agreement shall be in effect for an initial term of ten (10) years commencing on the date hereof (the "Term"), and shall be automatically extended thereafter on a year to year basis unless the Companies provide or Bain provides written notice of its or their desire to terminate this Agreement to the other party 90 days prior to the expiration of the Term or any extension thereof. 2. Services. Bain shall perform or cause to be performed such services for any of the Companies and/or their subsidiaries as directed by such Company's board of directors, which may include, without limitation, the following: (a) executive and management services; (b) identification, support and analysis of acquisitions and dispositions by such Company or its subsidiaries; (c) support and analysis of financing alternatives, including, without limitation, in connection with acquisitions, capital expenditures and refinancing of existing indebtedness; (d) finance functions, including assistance in the preparation of financial projections, and monitoring of compliance with financing agreements; (e) human resource functions, including searching and hiring of executives; and (f) other services for such Company or its subsidiaries upon which such Company's board of directors and Bain agree. Notwithstanding any provision in this Agreement to the contrary, each of the parties hereto acknowledges and agrees that there are no minimum levels of services required to be provided to the Companies pursuant to this Agreement. 3. Advisory Fee. Payment for services rendered by Bain and/or its affiliates incurred in connection with the performance of services pursuant to this Agreement shall be billed on an hourly basis for actual services rendered (it being agreed that no minimum services levels shall be required), plus reasonable out-of-pocket expenses incurred by Bain and/or its affiliates; provided that, commencing with the calendar quarter ended March 31, 2000, when and if ChipPAC, Inc. and its subsidiaries achieve LTM Period EBITDA, as defined below, as calculated at the end of such calendar quarter or any succeeding calendar quarter, in excess of $81.2 million, in lieu of the aforementioned fees and expenses, Bain and/or its affiliates will be entitled to an annual advisory fee, the amount of which shall be the greater of (i) $1,000,000 per annum and (ii) 0.3% per annum of the annual consolidated revenue of ChipPAC, Inc. and its subsidiaries (determined on a trailing twelve month basis), plus reasonable out- of-pocket expenses of Bain and/or its affiliates. All fees and expenses described in this paragraph 3 shall be payable to Bain or its designees on a quarterly basis in advance (based on the parties' estimate of the amount of fees and expenses which shall become due and payable for such quarter) commencing as of the date hereof. "LTM Period EBITDA" means, for ChipPAC, Inc. and its consolidated subsidiaries, for any trailing twelve month period ending on the date of any measurement, operating income, plus depreciation, amortization, any non-cash charges related to write-downs of impaired assets and, to the extent deducted in determining operating income, any fees and expenses incurred pursuant to this Agreement and pursuant to that certain Advisory Agreement dated as of the date hereof between the Companies and SXI Group LLC, as the same may be amended, replaced or modified from time to time. 4. Transaction Fees. (a) The Companies hereby agree to pay to Bain or its designees on the Closing Date a fee for services rendered in connection with the structuring of the financing for the Recapitalization Transactions and certain other management services. Such fees shall be payable to Bain or its designees by wire transfer in an amount not to exceed 1% of the aggregate value of the financing for the Recapitalization Transactions plus reasonable out-of- pocket expenses. (b) In addition, during the term of this Agreement, the Companies shall pay to Bain or its designees a transaction fee in connection with the consummation of each acquisition, divestiture or financing by any of the Companies or their subsidiaries in an amount equal to 1% of the aggregate value of such transaction. 5. Personnel. Bain shall provide and devote to the performance of this Agreement such partners, employees and agents of Bain as Bain shall deem appropriate to the furnishing of the services required. -2- 6. Liability. Neither Bain nor any other Indemnitee (as defined in Section 7 below) shall be liable to any of the Companies or any of their subsidiaries or affiliates for any loss, liability, damage or expense arising out of or in connection with the performance of services contemplated by this Agreement, unless such loss, liability, damage or expense shall be proven to result directly from gross negligence, willful misconduct or bad faith on the part of an Indemnitee acting within the scope of such person's employment or authority. Bain makes no representations or warranties, express or implied, in respect of the services to be provided by Bain or any of the other Indemnitees. Except as Bain may otherwise agree in writing after the date hereof: (i) Bain shall have the right to, and shall have no duty (contractual or otherwise) not to, directly or indirectly: (A) engage in the same or similar business activities or lines of business as any of the Companies or any of their subsidiaries, including those competing with any of the Companies or any of their subsidiaries and (B) do business with any client or customer of any of the Companies or any of their subsidiaries; (ii) neither Bain nor any officer, director, employee, partner, affiliate or associated entity thereof shall be liable to any of the Companies or any of their subsidiaries or affiliates for breach of any duty (contractual or otherwise) by reason of any such activities of or of such person's participation therein; and (iii) in the event that Bain acquires knowledge of a potential transaction or matter that may be a corporate opportunity for both any of the Companies or any of their subsidiaries, on the one hand, and Bain, on the other hand, or any other person, Bain shall have no duty (contractual or otherwise) to communicate or present such corporate opportunity to any of the Companies or any of their subsidiaries and, notwithstanding any provision of this Agreement to the contrary, shall not be liable to any of the Companies or any of their affiliates for breach of any duty (contractual or otherwise) by reasons of the fact that Bain directly or indirectly pursues or acquires such opportunity for itself, directs such opportunity to another person, or does not present such opportunity to any of the Companies. In no event will any of the parties hereto be liable to any other party hereto for any indirect, special, incidental or consequential damages, including lost profits or savings, whether or not such damages are foreseeable, or in respect of any liabilities relating to any third party claims (whether based in contract, tort or otherwise) other than the Claims (as defined in Section 7 below) relating to the service to be provided by Bain hereunder. 7. Indemnity. Each of the Companies and their subsidiaries shall defend, indemnify and hold harmless each of Bain, its affiliates, partners, employees and agents (collectively, the "Indemnitees") from and against any and all loss, liability, damage or expenses arising from any claim by any person with respect to, or in any way related to, the performance of services contemplated by this Agreement (including attorneys' fees) (collectively, "Claims") resulting from any act or omission of any of the Indemnitees, other than for Claims which shall be proven to be the direct result of gross negligence, bad faith or willful misconduct by an Indemnitee. Each of the Companies and their subsidiaries shall defend at its own cost and expense any and all suits or actions (just or unjust) which may be brought against such Company, any of its subsidiaries or any of the Indemnitees or in which any of the Indemnitees may be impleaded with others upon any Claims, or upon any matter, directly or indirectly, related to or arising out of this Agreement or the performance hereof by any of the Indemnitees, except that if such damage shall be proven to be the direct result of gross negligence, bad faith or willful misconduct by an Indemnitee, then Bain shall reimburse the Companies and their subsidiaries for the costs of defense and other costs incurred by the Companies and their subsidiaries. -3- 8. Notices. All notices hereunder shall be in writing and shall be delivered personally or mailed by United States mail, postage prepaid, addressed to the parties as follows: To the Companies, as appropriate: -------------------------------- ChipPAC, Inc. 3151 Coronado Drive Santa Clara, California 95054 Attention: Chief Executive Officer Facsimile: (408) 486-5914 ChipPAC Limited Road Town Tortola, British Virgin Islands Facsimile: (284) 494-3547 ChipPAC Operating Limited (name to be changed to ChipPAC International Company Limited) Road Town Tortola, British Virgin Islands Facsimile: (284) 494-3547 To Bain: ------- Bain Capital II, Inc. One Embarcadero, Suite 2260 San Francisco, CA 94111 Facsimile: (415) 627-1333 Attn: David Dominik Prescott Ashe and --- c/o Bain Capital, Inc. Two Copley Place Boston, MA 02116 Facsimile: (617) 572-3274 Attn: Edward Conard 9. Assignment. None of the Companies may assign any obligations hereunder to any other party without the prior written consent of Bain (which consent shall not be unreasonably withheld), and Bain may not assign any obligations hereunder to any other party without the prior written consent of the Companies (which consent shall not be unreasonably withheld); provided that Bain may, without consent of the Companies, assign its rights and obligations under this Agreement to any of its affiliates (but only if such affiliate is a person or entity (excluding any Bain portfolio companies) controlled by Bain, or in the case of an affiliate which is a partnership, only if Bain is -4- the ultimate general partner of such partnership). The assignor shall remain liable for the performance of any assignee. 10. Successors. This Agreement and all the obligations and benefits hereunder shall inure to the successors and assigns of the parties. 11. Counterparts. This Agreement may be executed and delivered by each party hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original and all of which taken together shall constitute but one and the same agreement. 12. Entire Agreement; Modification; Governing Law. The terms and conditions hereof constitute the entire agreement between the parties hereto with respect to the subject matter of this Agreement and supersede all previous communications, either oral or written, representations or warranties of any kind whatsoever, except as expressly set forth herein. No modifications of this Agreement nor waiver of the terms or conditions thereof shall be binding upon either party unless approved in writing by an authorized representative of such party. All issues concerning this agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdiction) that would cause the application of the law of any jurisdiction other than the State of New York. * * * * * -5- IN WITNESS WHEREOF, the parties have executed this Advisory Agreement as of the date first written above. CHIPPAC, INC. By: /s/ Gary Breton Its:____________________________________ CHIPPAC LIMITED By: /s/ P. J. Kim Its:____________________________________ CHIPPAC OPERATING LIMITED (NAME TO BE CHANGED TO CHIPPAC INTERNATIONAL COMPANY LIMITED) By: /s/ P. J. Kim Its:____________________________________ BAIN CAPITAL, INC. By: /s/ David Dominik Its:____________________________________ EX-10.18 36 SXI GROUP LLC ADVISORY AGREEMENT Exhibit 10.18 ADVISORY AGREEMENT ------------------ This Advisory Agreement (this "Agreement") is made and entered into as of August 5, 1999, by and between ChipPAC, Inc., a California corporation, ChipPAC Limited, a corporation incorporated under the laws of the Territory of the British Virgin Islands, ChipPAC Operating Limited (name to be changed to ChipPAC International Company Limited), a corporation incorporated under the laws of the Territory of the British Virgin Islands (collectively, the "Companies," and individually, the "Company"), and SXI Group LLC ("SXI"). Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Agreement and Plan of Merger and Recapitalization, dated as of March 13, 1999, as amended, by and among the ChipPAC, Inc., Hyundai Electronics Industries Co., Ltd., Hyundai Electronics America and ChipPAC Merger Corp. WHEREAS, the Companies desire to retain SXI and SXI desires to perform for the Companies and/or their subsidiaries certain services; NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties agree as follows: 1. Term. This Agreement shall be in effect for an initial term of ten (10) years commencing on the date hereof (the "Term"), and shall be automatically extended thereafter on a year to year basis unless the Companies provide or SXI provides written notice of its or their desire to terminate this Agreement to the other party 90 days prior to the expiration of the Term or any extension thereof. 2. Services. SXI shall perform or cause to be performed such services for any of the Companies and/or their subsidiaries as directed by such Company's board of directors, which may include, without limitation, the following: (a) executive and management services; (b) identification, support and analysis of acquisitions and dispositions by such Company or its subsidiaries; (c) support and analysis of financing alternatives, including, without limitation, in connection with acquisitions, capital expenditures and refinancing of existing indebtedness; (d) finance functions, including assistance in the preparation of financial projections, and monitoring of compliance with financing agreements; (e) human resource functions, including searching and hiring of executives; and (f) other services for such Company or its subsidiaries upon which such Company's board of directors and SXI agree. Notwithstanding any provision in this Agreement to the contrary, each of the parties hereto acknowledges and agrees that there are no minimum levels of services required to be provided to the Companies pursuant to this Agreement. 3. Advisory Fee. Payment for services rendered by SXI and/or its affiliates incurred in connection with the performance of services pursuant to this Agreement shall be billed on an hourly basis for actual services rendered (it being agreed that no minimum services levels shall be required), plus reasonable out-of-pocket expenses incurred by SXI and/or its affiliates; provided that, commencing with the calendar quarter ended March 31, 2000, when and if ChipPAC, Inc. and its subsidiaries achieve LTM Period EBITDA, as defined below, as calculated at the end of such calendar quarter or any succeeding calendar quarter, in excess of $81.2 million, in lieu of the aforementioned fees and expenses, SXI and/or its affiliates will be entitled to an annual advisory fee, the amount of which shall be the greater of (i) $1,000,000 per annum and (ii) 0.3% per annum of the annual consolidated revenue of ChipPAC, Inc. and its subsidiaries (determined on a trailing twelve month basis), plus reasonable out- of-pocket expenses of SXI and/or its affiliates. All fees and expenses described in this paragraph 3 shall be payable to SXI or its designees on a quarterly basis in advance (based on the parties' estimate of the amount of fees and expenses which shall become due and payable for such quarter) commencing as of the date hereof. "LTM Period EBITDA" means, for ChipPAC, Inc. and its consolidated subsidiaries, for any trailing twelve month period ending on the date of any measurement, operating income, plus depreciation, amortization, any non-cash charges related to write-downs of impaired assets and, to the extent deducted in determining operating income, any fees and expenses incurred pursuant to this Agreement and pursuant to that certain Advisory Agreement dated as of the date hereof between the Companies and Bain Capital, Inc. as the same may be amended, replaced or modified from time to time. 4. Transaction Fees. (a) The Companies hereby agree to pay to SXI or its designees on the Closing Date a fee for services rendered in connection with the structuring of the financing for the Recapitalization Transactions and certain other management services. Such fees shall be payable to SXI or its designees by wire transfer in an amount not to exceed 1% of the aggregate value of the financing for the Recapitalization Transactions plus reasonable out-of- pocket expenses. (b) In addition, during the term of this Agreement, the Companies shall pay to SXI or its designees a transaction fee in connection with the consummation of each acquisition, divestiture or financing by any of the Companies or their subsidiaries in an amount equal to 1% of the aggregate value of such transaction. 5. Personnel. SXI shall provide and devote to the performance of this Agreement such partners, employees and agents of SXI as SXI shall deem appropriate to the furnishing of the services required. -2- 6. Liability. Neither SXI nor any other Indemnitee (as defined in Section 7 below) shall be liable to any of the Companies or any of their subsidiaries or affiliates for any loss, liability, damage or expense arising out of or in connection with the performance of services contemplated by this Agreement, unless such loss, liability, damage or expense shall be proven to result directly from gross negligence, willful misconduct or bad faith on the part of an Indemnitee acting within the scope of such person's employment or authority. SXI makes no representations or warranties, express or implied, in respect of the services to be provided by SXI or any of the other Indemnitees. Except as SXI may otherwise agree in writing after the date hereof: (i) SXI shall have the right to, and shall have no duty (contractual or otherwise) not to, directly or indirectly: (A) engage in the same or similar business activities or lines of business as any of the Companies or any of their subsidiaries, including those competing with any of the Companies or any of their subsidiaries and (B) do business with any client or customer of any of the Companies or any of their subsidiaries; (ii) neither SXI nor any officer, director, employee, partner, affiliate or associated entity thereof shall be liable to any of the Companies or any of their subsidiaries or affiliates for breach of any duty (contractual or otherwise) by reason of any such activities of or of such person's participation therein; and (iii) in the event that SXI acquires knowledge of a potential transaction or matter that may be a corporate opportunity for both any of the Companies or any of their subsidiaries, on the one hand, and SXI, on the other hand, or any other person, SXI shall have no duty (contractual or otherwise) to communicate or present such corporate opportunity to any of the Companies or any of their subsidiaries and, notwithstanding any provision of this Agreement to the contrary, shall not be liable to any of the Companies or any of their affiliates for breach of any duty (contractual or otherwise) by reasons of the fact that SXI directly or indirectly pursues or acquires such opportunity for itself, directs such opportunity to another person, or does not present such opportunity to any of the Companies. In no event will any of the parties hereto be liable to any other party hereto for any indirect, special, incidental or consequential damages, including lost profits or savings, whether or not such damages are foreseeable, or in respect of any liabilities relating to any third party claims (whether based in contract, tort or otherwise) other than the Claims (as defined in Section 7 below) relating to the service to be provided by SXI hereunder. 7. Indemnity. Each of the Companies and their subsidiaries shall defend, indemnify and hold harmless each of SXI, its affiliates, members, partners, employees and agents (collectively, the "Indemnitees") from and against any and all loss, liability, damage or expenses arising from any claim by any person with respect to, or in any way related to, the performance of services contemplated by this Agreement (including attorneys' fees) (collectively, "Claims") resulting from any act or omission of any of the Indemnitees, other than for Claims which shall be proven to be the direct result of gross negligence, bad faith or willful misconduct by an Indemnitee. Each of the Companies and their subsidiaries shall defend at its own cost and expense any and all suits or actions (just or unjust) which may be brought against such Company, any of its subsidiaries or any of the Indemnitees or in which any of the Indemnitees may be impleaded with others upon any Claims, or upon any matter, directly or indirectly, related to or arising out of this Agreement or the performance hereof by any of the Indemnitees, except that if such damage shall be proven to be the direct result of gross negligence, bad faith or willful misconduct by an Indemnitee, then SXI shall reimburse the Companies and their subsidiaries for the costs of defense and other costs incurred by the Companies and their subsidiaries. -3- 8. Notices. All notices hereunder shall be in writing and shall be delivered personally or mailed by United States mail, postage prepaid, addressed to the parties as follows: To the Companies, as appropriate: -------------------------------- ChipPAC, Inc. 3151 Coronado Drive Santa Clara, California 95054 Attention: Chief Executive Officer Facsimile: (408) 486-5914 ChipPAC Limited Road Town Tortola, British Virgin Islands Facsimile: (284) 494-3547 ChipPAC Operating Limited (Name to be changed to ChipPAC International Company Limited) Road Town Tortola, British Virgin Islands Facsimile: (284) 494-3547 To SXI: ------ c/o Citicorp Venture Capital, Ltd. 399 Park Avenue New York, New York 10043 U.S.A. Attention: Michael A. Delaney Paul C. Schorr IV Facsimile: (212) 888-2940 9. Assignment. None of the Companies may assign any obligations hereunder to any other party without the prior written consent of SXI (which consent shall not be unreasonably withheld), and SXI may not assign any obligations hereunder to any other party without the prior written consent of the Companies (which consent shall not be unreasonably withheld); provided that SXI may, without consent of the Companies, assign its rights and obligations under this Agreement to any of its affiliates (but only if such affiliate is a person or entity (excluding any SXI portfolio companies) controlled by SXI, or in the case of an affiliate which is a partnership, only if SXI is the ultimate general partner of such partnership) or to Citicorp Venture Capital Ltd. The assignor shall remain liable for the performance of any assignee. 10. Successors. This Agreement and all the obligations and benefits hereunder shall inure to the successors and assigns of the parties. -4- 11. Counterparts. This Agreement may be executed and delivered by each party hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original and all of which taken together shall constitute but one and the same agreement. 12. Entire Agreement; Modification; Governing Law. The terms and conditions hereof constitute the entire agreement between the parties hereto with respect to the subject matter of this Agreement and supersede all previous communications, either oral or written, representations or warranties of any kind whatsoever, except as expressly set forth herein. No modifications of this Agreement nor waiver of the terms or conditions thereof shall be binding upon either party unless approved in writing by an authorized representative of such party. All issues concerning this agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdiction) that would cause the application of the law of any jurisdiction other than the State of New York. * * * * * -5- IN WITNESS WHEREOF, the parties have executed this Advisory Agreement as of the date first written above. CHIPPAC, INC. By: /s/ Gary Breton ----------------------------- Its: ---------------------------- CHIPPAC LIMITED By: /s/ P.J. Kim ----------------------------- Its: ---------------------------- CHIPPAC OPERATING LIMITED (NAME TO BE CHANGED TO CHIPPAC INTERNATIONAL COMPANY LIMITED) By: /s/ P.J. Kim ----------------------------- Its: ---------------------------- SXI GROUP LLC By: /s/ Paul C. Schorr IV ----------------------------- Its: ---------------------------- EX-10.20 37 STOCK PURCHASE AND OPTION PLAN Exhibit 10.20 ------------- CHIPPAC, INC. ------------- 1999 STOCK PURCHASE AND OPTION PLAN ----------------------------------- 1. Purpose of Plan. This 1999 Stock Purchase and Option Plan (the --------------- "Plan") of ChipPAC, Inc., a California corporation (the "Company") is designed ---- ------- to provide incentives to such present and future employees, directors, consultants or advisers of the Company or its subsidiaries ("Participants"), as ------------ may be selected in the sole discretion of the Committee (as defined below), through the grant of Options by the Company to Participants or through the sale of Common Stock to Participants. Only those Participants who are employees of the Company and its Subsidiaries shall be eligible to receive incentive stock options. This Plan is a compensatory benefit plan within the meaning of Rule 701 of the Securities Act of 1933, as amended, and, unless and until the Company's common stock is publicly traded, the issuance of stock purchase options for shares of Common Stock (as defined below) pursuant to the Plan, the issuance of shares of Common Stock pursuant to such stock purchase options and the issuance of any other shares of Common Stock pursuant to this Plan are, to the extent permitted by applicable federal securities laws, intended to qualify for the exemption from registration under Rule 701 of the Securities Act of 1933, as amended and Section 25102(o) of the California Securities Law of 1968. 2. Definitions. Certain terms used in this Plan have the meanings ----------- set forth below: "Board" means the Company's board of directors. ----- "Code" means the Internal Revenue Code of 1986, as it may be amended ---- from time to time. "Class A Common" means the Company's Class A Common Stock, par value -------------- $.01 per share. "Class L Common" means the Company's Class L Common Stock, par value -------------- $.01 per share. "Committee" shall mean the committee of the Board which may be --------- designated by the Board to administer the Plan. The Committee shall be composed of two or more directors as appointed from time to time to serve by the Board. In the absence of the appointment of any such Committee, any action permitted or required to be taken hereunder shall be deemed to refer to the Board. "Common Stock" means the Class A Common and the Class L Common. ------------ "Fair Market Value" of a share of Common Stock means the market value ----------------- as determined in good faith by the Committee or, in the absence of the Committee, by the Board. "Option" means any option enabling the holder thereof to purchase any ------ class of Common Stock from the Company granted by the Committee pursuant to the provisions of this Plan. Options to be granted under this Plan may be incentive stock options within the meaning of Section 422 of the Code ("Incentive Stock --------------- Options") or in such other form, consistent with this Plan, as the Committee may - ------- determine. "Subsidiary" means any corporation of which shares of stock having a ---------- majority of the general voting power in electing the board of directors are, at the time as of which any determination is being made, owned by the Company either directly or through its Subsidiaries. 3. Grant of Options. The Committee shall have the right and power ---------------- to grant to any Participant such Options at any time prior to the termination of this Plan in such quantity, at such price, on such terms and subject to such conditions that are consistent with this Plan and established by the Committee; provided that (i) the exercise price for any Options shall be not less than 85% of the Fair Market Value of the underlying Common Stock at the time the Options are granted, except that the exercise price shall be 110% of the Fair Market Value of the underlying Common Stock in the case of any person who owns capital stock possessing more than 10% of the total combined voting power of all classes of capital stock of the Company or its Subsidiaries, (ii) the exercise period of such Options may not be more than 120 months from the date such Options are granted, (iii) such Options shall not be transferable other than by will or under the laws of descent and distribution, (iv) Participants shall have the right to exercise Options at the rate of at least 20% per year over five (5) years from the date the Options are granted, subject to reasonable conditions such as continued employment, except that in the case of Options granted to officers, directors or consultants of the Company or any of its Subsidiaries, the Options may become fully exercisable, subject to reasonable conditions such as continued employment, at any time or during any period established by the Company and (v) unless a Participant's employment is terminated for cause, as defined by applicable law or the terms of any agreement evidencing any grant of Options or a contract of employment, a Participant shall have the right to exercise in the event of termination of employment, to the extent that the Participant is otherwise entitled to exercise on the date employment terminates, for a period of (A) not less than six (6) months from the date of termination if termination was caused by death or disability and (B) not less than 30 days from the date of termination if termination was caused by other than death or disability. Options granted under this Plan shall be subject to such terms and conditions and evidenced by agreements as shall be determined from time to time by the Committee. 4. Sale of Common Stock. The Committee shall have the power and -------------------- authority to sell to any Participant any class or classes of Common Stock at any time prior to the termination of this Plan in such quantity, at such price, on such terms and subject to such conditions that are consistent with this Plan and established by the Committee; provided that (i) the purchase price for any shares of Common Stock to be sold pursuant to this Plan shall be at least 85% of the Fair Market -2- Value thereof at the time the Participant is granted the right to purchase shares of Common Stock under this Plan or at the time the purchase is consummated, except that the purchase price shall be 100% of the Fair Market Value thereof at the time the Participant is granted the right to purchase shares of Common Stock under this Plan or at the time the purchase is consummated, in the case of any person who owns capital stock possessing more than 10% of the total combined voting power of all classes of capital stock of the Company or its Subsidiaries and (ii) such Participant's rights to purchase shares of Common Stock under this Plan shall not be transferable other than by will or under the laws of descent and distribution. Common Stock sold under this Plan shall be subject to such terms and evidenced by agreements as shall be determined from time to time by the Committee. 5. Administration of the Plan. The Committee shall have the power -------------------------- and authority to prescribe, amend and rescind rules and procedures governing the administration of this Plan, including, but not limited to the full power and authority (i) to interpret the terms of this Plan, the terms of any Options granted under this Plan, and the rules and procedures established by the Committee governing any such Options and (ii) to determine the rights of any person under this Plan, or the meaning of requirements imposed by the terms of this Plan or any rule or procedure established by the Committee. Each action of the Committee which shall be binding on all persons. In administering the Plan, the Committee shall provide the Participants with such financial statements as may be required pursuant to applicable law. 6. Limitation on the Aggregate Number of Shares. The number of -------------------------------------------- shares of Common Stock issued under this Plan (including the number of shares of Common Stock with respect to which Options may be granted under this Plan (and which may be issued upon the exercise or payment thereof)) shall not exceed, in the aggregate, 500,000 shares of Class L Common and 15,500,000 shares of Class A Common (as such numbers are equitably adjusted pursuant to paragraph 9 hereof). If any Options expire unexercised or unpaid or are canceled, terminated or forfeited in any manner without the issuance of Common Stock or payment thereunder, the shares with respect to which such Options were granted shall again be available under this Plan. Similarly, if any shares of Common Stock issued hereunder upon exercise of Options are repurchased hereunder, such shares shall again be available under this Plan for reissuance as Options. Shares of Common Stock to be issued upon exercise of the Options or shares of Common Stock to be sold directly hereunder may be either authorized and unissued shares, treasury shares, or a combination thereof, as the Committee shall determine. 7. Incentive Stock Options. All Incentive Stock Options shall ----------------------- comport with all requirements set forth in Section 422 of the Code and the regulations promulgated thereunder. To the extent that the aggregate fair market value of stock with respect to which Incentive Stock Options are exercisable for the first time by any individual during any calendar year exceeds $100,000 (measured as of the date such options are granted), such options shall be treated as options which are not Incentive Stock Options. 8. Listing, Registration and Compliance with laws and Regulations. -------------------------------------------------------------- Each Option shall be subject to the requirement that if at any time the Committee shall determine, in its -3- discretion, that the listing, registration or qualification of the shares subject to the Option upon any securities exchange or under any state or federal securities or other law or regulation, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition to or in connection with the granting of such Option or the issue or purchase of shares thereunder, no such Option may be exercised or paid in Common Stock in whole or in part unless such listing, registration, qualification, consent or approval (a "Required Listing") shall have been effected or obtained, and the holder of the ---------------- Option will supply the Company with such certificates, representations and information as the Company shall request which are reasonably necessary or desirable in order for the Company to obtain such Required Listing, and shall otherwise cooperate with the Company in obtaining such Required Listing. In the case of officers and other persons subject to Section 16(b) of the Securities Exchange Act of 1934, as amended, the Committee may at any time impose any limitations upon the exercise of an Option which, in the Committee's discretion, are necessary or desirable in order to comply with Section 16(b) and the rules and regulations thereunder. If the Company, as part of an offering of securities or otherwise, finds it desirable because of federal or state regulatory requirements to reduce the period during which any Options may be exercised, the Committee may, in its discretion and without the consent of the holders of any such Options, so reduce such period on not less than 15 days' written notice to the holders thereof. 9. Adjustment for Change in Common Stock. In the event of a ------------------------------------- reorganization, recapitalization, stock split, stock dividend, combination of shares, merger, consolidation or other change in the Common Stock, the Committee shall make appropriate changes in the number and type of shares authorized by this Plan, the number and type of shares covered by outstanding Options and the prices specified therein. 10. Taxes. The Company shall be entitled, if necessary or desirable, ----- to withhold (or secure payment from the Plan participant in lieu of withholding) the amount of any withholding or other tax due from the Company with respect to any amount payable and/or shares issuable under this Plan, and the Company may defer such payment or issuance unless indemnified to its satisfaction. 11. Termination and Amendment. The Committee at any time may suspend ------------------------- or terminate this Plan and make such additions or amendments as it deems advisable under this Plan, except that they may not, without further approval by the Company's stockholders, (a) increase the maximum number of shares as to which Options may be granted under this Plan, except pursuant to paragraph 9 above or (b) extend the term of this Plan; provided that, subject to paragraph 8 hereof, the Committee may not change any of the terms of a written agreement with respect to an Option between the Company and the holder of such Option without the approval of the holder of such Option. No Options shall be granted or shares of Common Stock issued hereunder after November 1, 2009; provided that, if the term of this Plan is otherwise extended, no Incentive Stock Options shall be granted hereunder after November 1, 2009. * * * * * -4- EX-10.21 38 FORM OF PURCHASED STOCK AGREEMENT Exhibit 10.21 KEY EMPLOYEE PURCHASED STOCK AGREEMENT -------------------------------------- KEY EMPLOYEE PURCHASED STOCK AGREEMENT (this "Agreement") dated as of --------- _________ __, 1999, by and between ChipPAC, Inc., a California corporation (the "Company") and _______ ("Employee"). ------- -------- Pursuant to the Company's 1999 Stock Purchase and Option Plan (the "Plan"), a copy of which is attached hereto as Exhibit A, the Company and ---- --------- Employee desire to enter into an agreement pursuant to which Employee will purchase and the Company will sell certain shares of the Company's Class L Common Stock, par value $.01 per share (the "Class L Common") and certain shares -------------- of the Company's Class A Common Stock, par value $.01 per share (the "Class A ------- Common" and together with the Class L Common, the "Common Stock"). All of such - ------ ------------ shares of Common Stock and all shares of the Company's capital stock hereafter acquired by Employee are referred to herein as "Employee Stock." -------------- The parties hereto agree as follows: STOCK PROVISIONS 1. Purchase and Sale of Stock. -------------------------- (a) Upon execution of this Agreement, Employee will purchase, and the Company will sell, ________ shares of Class L Common at a price of $9.00 per share and ______ shares of Class A Common at a price of $0.1111 per share, for an aggregate purchase price of ______. All of the shares of Employee Stock issued to Employee pursuant to this Section 1(a) shall constitute "Time Vesting ------------ Shares." - ------ (b) The Company will deliver to Employee copies of certificates representing the shares of Employee Stock purchased pursuant to this Agreement, and, upon receipt of such copies, Employee will deliver to the Company (i) a certified bank check, wire transfer of funds or a personal check in the amount of the aggregate purchase price under Section 1(a) above and (ii) an executed consent from Employee's spouse (if any) in the form of Exhibit B attached --------- hereto. If, at any time subsequent to the date hereof and prior to the occurrence of a Termination Event (as defined in Section 3(g) hereof), Employee becomes legally married (whether in the first instance or to a different spouse), Employee shall cause Employee's spouse to execute and deliver a consent in the form of Exhibit B attached hereto. Employee's failure to deliver the --------- Company an executed consent in the form of Exhibit B at any time when Employee --------- would otherwise be required to deliver such consent shall constitute Employee's continuing representation and warranty that Employee is not legally married as of such date. (c) Representations and Warranties. In connection with the purchase ------------------------------ and sale of the Employee Stock hereunder, Employee represents and warrants to the Company that: (i) The Employee Stock to be acquired by Employee pursuant to this Agreement will be acquired for Employee's own account and not with a view to, or intention of, distribution thereof in violation of the Securities Act of 1933, as amended (the "1933 Act"), or any applicable -------- state securities laws, and the Employee Stock will not be disposed of in contravention of the 1933 Act or any applicable state securities laws. (ii) Employee is an executive officer or management employee of the Company or its Subsidiaries, is sophisticated in financial matters and is able to evaluate the risks and benefits of the investment in the Employee Stock. (iii) Employee is able to bear the economic risk of his or her investment in the Employee Stock for an indefinite period of time because the Employee Stock has not been registered under the 1933 Act and, therefore, cannot be sold unless subsequently registered under the 1933 Act or an exemption from such registration is available. (iv) Employee has had an opportunity to ask questions and receive answers concerning the terms and conditions of the offering of Employee Stock and has had full access to such other information concerning the Company and its Subsidiaries as he or she has requested. The Company has provided to Employee, and Employee has reviewed, or has had an opportunity to review, a copy of that certain Offering Circular of ChipPAC International Limited dated July 22, 1999, and Employee is familiar with each of the transactions contemplated thereby. Employee has also reviewed a copy of the Plan (a copy of which is attached hereto as Exhibit A). --------- (v) This Agreement constitutes the legal, valid and binding obligation of Employee, enforceable in accordance with its terms, and the execution, delivery and performance of this Agreement by Employee does not and will not conflict with, violate or cause a breach of any agreement, contract or instrument to which Employee is a party or any judgment, order or decree to which Employee is subject. (vi) Employee has consulted, or has had an opportunity to consult with, independent legal counsel regarding his or her rights and obligations under this Agreement and he or she fully understands the terms and conditions contained herein. (d) Acknowledgment. As an inducement to the Company to sell the -------------- Employee Stock to Employee, and as a condition thereto, Employee acknowledges and agrees that: (i) the Company will have no duty or obligation to disclose to Employee, and Employee will have no right to be advised of, any material information regarding the Company or its Subsidiaries at any time prior to, upon or in connection with the repurchase of Employee Stock upon the termination of Employee's employment with the Company or its Subsidiaries or as otherwise provided hereunder; and -2- (ii) neither the issuance of the Employee Stock to Employee nor any provision contained herein shall entitle Employee to remain in the employment of the Company or its Subsidiaries or affect the right of the Company to terminate Employee's employment at any time for any reason. (e) Plan Acknowledgment. The Company and Employee acknowledge and ------------------- agree that this Agreement has been executed and delivered, and the Employee Stock has been issued hereunder, in connection with and as part of the compensation and incentive arrangements between the Company and Employee. The issuance of Employee Stock hereunder is pursuant to, and subject to all the terms and conditions of the Plan, attached hereto as Exhibit A. --------- (f) 83(b) Election. Within 30 days after the date hereof, each -------------- Employee that is subject to United States federal income tax will make an effective election (in the form of Exhibit C attached hereto) with the Internal --------- Revenue Service under Section 83(b) of the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder (the "Code") relative to the ---- Employee Stock purchased pursuant to this Agreement. 2. Vesting of Time Vesting Shares. ------------------------------ (a) Definitions. The following terms are defined as follows: ----------- "Independent Third Party" means any Person who, immediately prior to ----------------------- the contemplated transaction, does not own in excess of 10% of the Company's common stock on a fully diluted basis, who is not controlling, controlled by or under common control with any such 10% owner of the Company's common stock and who is not the spouse or descendant (by birth or adoption) of any such 10% owner of the Company's common stock. "Investors" means Bain Capital Fund VI, L.P., BCIP Associates II, BCIP --------- Associates II-B, BCIP Associates II-C, BCIP Trust Associates II, BCIP Trust Associates II-B, PEP Investments Pty., Ltd., Randolph Street Partners 1998 DIF, LLC, Randolph Street Partners II and SXI Group LLC and any of their transferees. "Person" means an individual, a partnership, a joint venture, a ------ corporation, a trust, an unincorporated organization and a government or any department or agency thereof. "Sale of the Company" means any transaction involving the Company and ------------------- an Independent Third Party or affiliated group of Independent Third Parties pursuant to which such party or parties acquire (i) a majority of the outstanding shares of capital stock of the Company entitled to vote generally in the election of Company's board of directors (whether by merger, consolidation or sale or transfer of the Company's capital stock) or (ii) all or substantially all of the Company's assets determined on a consolidated basis (for purposes hereof "all or substantially all" shall have the meaning given such phrase in the Revised Model Business Corporation Act). -3- (b) Vesting. On each date set forth below the Time Vesting Shares ------- shall become vested with respect to the cumulative percentage of Time Vesting Shares set forth opposite such date if Employee is, and has been, continuously employed by the Company or its Subsidiaries from the date of this Agreement through such date: Cumulative Percentage of Time Vesting Date Shares Vested ---- ------------- August 5, 2000 20% August 5, 2001 40% August 5, 2002 70% August 5, 2003 100% ; provided that, if Employee's Termination Date (as defined in paragraph 3(b) hereof) occurs at any time after August 5, 2000 and prior to August 5, 2003, the cumulative percentage of Time Vesting Shares to become vested shall be determined on a pro rata basis according to the number of fiscal quarters (i.e., fiscal quarters ending November 1, February 1, May 1 and August 1) elapsed since the prior annual vesting date and provided further, that upon any Change in Control (as defined below), so long as Employee was employed by the Company or any of its Subsidiaries on the day immediately prior to such Change in Control, all of the Time Vesting Shares shall become vested. For purposes hereof, a "Change in Control" shall be deemed to occur upon the first date that the ----------------- Investors and their affiliates collectively cease to own at least 35% of the aggregate number of shares of common stock of the Company that they own on the date hereof (as adjusted for stock splits, stock dividends and recapitalization and for exchanges in connection with a merger, consolidation, reorganization or sale). Time Vesting Shares which have become vested are referred to herein as "Vested Shares" and all other Time Vesting Shares are referred to herein as ------------- "Unvested Shares." --------------- 3. Repurchase Option. ----------------- (a) Definitions. The following terms are defined as follows: ----------- "Cause" shall have the meaning assigned to such term in Employee's ----- written employment arrangements with the Company or any of its Subsidiaries or, in the absence of any such written employment arrangements, "Cause" shall mean (i) the commission of a felony or any other act or omission involving dishonesty, disloyalty or fraud with respect to the Company or any of its Subsidiaries or any of their customers or suppliers, (ii) conduct tending to bring the Company or any of its Subsidiaries into substantial public disgrace or disrepute, (iii) substantial and repeated failure to perform duties as reasonably directed by the Company's board of directors or management, (iv) gross negligence or willful misconduct with respect to the Company or any of its Subsidiaries or (v) any other material breach of this Agreement. -4- "Fair Market Value" of each share of Employee Stock means the market ----------------- value as determined in good faith by the Company's board of directors. "Original Cost" of each share of Employee Stock will be equal to the ------------- price paid by the Employee for each share of Common Stock (as proportionally adjusted for all stock splits, stock dividends and other recapitalizations affecting the Common Stock subsequent to the date hereof). "Subsidiary" means any corporation of which shares of stock having a ---------- majority of the general voting power in electing the board of directors are, at the time as of which any determination is being made, owned by the Company either directly or through its Subsidiaries. (b) Repurchase Option. In the event that Employee is no longer ----------------- employed by the Company or any of its Subsidiaries for any reason (the date of such termination being referred to herein as the "Termination Date"), the ---------------- Employee Stock, whether held by Employee or one or more transferees, will be subject to repurchase by the Company and the Investors (each of the aforementioned, solely at their option) pursuant to the terms and conditions set forth in this paragraph 3 (the "Repurchase Option"). ----------------- (c) Repurchase Price. If Employee is no longer employed by the ---------------- Company or any of its Subsidiaries for any reason, then on or after the Termination Date, the Company and the Investors may elect to purchase (i) in the case of Employee's termination for Cause or in the case of Employee's participation in any Competitive Activity during the Noncompete Period (as each such term is defined in Section 12 hereof), all or any portion of the Employee Stock at a price per share equal to the lower of Original Cost or Fair Market Value (as of the Termination Date) and (ii) in any other case, all or any portion of the Unvested Shares at a price per share equal to Fair Market Value (as of the Termination Date). (d) Repurchase Procedures. The Company may elect to exercise the --------------------- right to purchase all or any portion of the shares of Employee Stock pursuant to the Repurchase Option by delivering written notice (the "Repurchase Notice") to ----------------- the holder or holders of the Employee Stock within 45 days of the Termination Date (or in the case of Employee's participation in any Competitive Activity during the Noncompete Period, within 45 days of the date the Company becomes aware of any such participation, but in no event later than the 45/th/ day after the expiration of the Noncompete Period). The Repurchase Notice will set forth the number of shares of Employee Stock to be acquired from such holder(s), the aggregate consideration to be paid for such shares and the time and place for the closing of the transaction. If any Employee Stock is held by any transferees of Employee, the Company shall purchase the shares elected to be purchased from such holder(s) of Employee Stock, pro rata according to the number of shares of Employee Stock held by such holder(s) at the time of delivery of such Repurchase Notice (determined as nearly as practicable to the nearest share). If Employee Stock of different classes is to be purchased by the Company and Employee Stock is held by any transferees of Employee, the number of shares of each class of Employee Stock to be purchased will be allocated among such holders, pro rata according to the total number of shares of Employee Stock to be purchased from such persons. -5- (e) Investor Rights. --------------- (i) If for any reason the Company does not elect to purchase all of the Employee Stock pursuant to the Repurchase Option prior to the 45/th/ day following the Termination Date (or in the case of Employee's participation in any Competitive Activity during the Noncompete Period, within 45 days of the date the Company becomes aware of any such participation, but in no event later than the 45/th/ day after the expiration of the Noncompete Period), the Investors will be entitled to exercise the Repurchase Option, in the manner set forth in this paragraph 3, for the Employee Stock the Company has not elected to purchase (the "Available Shares"). As soon as practicable, but in any event ---------------- within thirty (30) days after the Company determines that there will be any Available Shares (and in no event later than the 45/th/ day following the Termination Date (or the 45/th/ day following the date the Company becomes aware of Employee's participation in any Competitive Activity, but in no event later than the 45/th/ day after the expiration of the Noncompete Period)), the Company will deliver written notice (the "Option Notice") to the Investors setting forth ------------- the number of Available Shares and the price for each Available Share. (ii) Each of the Investors will initially be permitted to purchase its pro rata share (based upon the number of shares of Common Stock then held by such Investors) of the Available Shares. Each Investor may elect to purchase any number of the Available Shares (subject to the preceding sentence) by delivering written notice to the Company within 30 days after receipt of the Option Notice from the Company (such 30-day period being referred to herein as the "Election -------- Period"). - ------ (iii) As soon as practicable but in any event within five (5) days after the expiration of the Election Period, the Company will, if necessary, notify the Investors electing to purchase Available Shares of any Available Shares which Investors have elected not to purchase and each of the electing Investors will be entitled to purchase the remaining Available Shares on the same terms as described above (the "Second Option Notice"); provided that if in -------------------- the aggregate such Investors elect to purchase more than the remaining Available Shares, such remaining Available Shares purchased by each such Investor will be reduced on a pro rata basis based upon the number of shares of Common Stock then held by such Investors. Each Investor may elect to purchase any of the remaining Available Shares available to such Investor by delivering written notice to the Company within 5 days after the delivery of the Second Option Notice (with such 5-day period referred to herein as the "Second Election --------------- Period"). - ------ (iv) As soon as practicable but in any event within five (5) days after the expiration of the Election Period or the Second Election Period (if any) the Company will, if necessary, notify the holder(s) of Employee Stock as to the number of shares of Employee Stock being purchased from the holder(s) by the Investors (the "Supplemental Repurchase Notice"). At the time the Company ------------------------------ delivers a Supplemental Repurchase Notice to the holder(s) of Employee Stock, the Company will also deliver to each electing Investor written notice setting forth the number of shares of Employee Stock the Company and each Investor will acquire, the aggregate purchase price to be paid and the time and place of the closing of the transaction. -6- (f) Closing. The closing of the transactions contemplated by this ------- paragraph 3 will take place on the date designated by the Company in the Repurchase Notice or the Supplemental Repurchase Notice, as the case may be, which date will not be more than 90 days after the delivery of such notice. The Company and/or the Investors, as the case may be, will pay for the Employee Stock to be purchased pursuant to the Repurchase Option by delivery of, in the case of each Investor, a check payable to the holder of such Employee Stock, and in the case of the Company (i) first, by cancellation of any amounts due and owing under any promissory note issued by Employee to the Company, (ii) second, by a check payable to the holder of such Employee Stock up to the amount of the Original Cost therefor paid in cash by Employee and (iii) a note or notes payable in one installment on the first anniversary of the closing of such purchase and bearing interest at a rate per annum equal to 8% (it being agreed that the Company may, in its sole discretion, elect to make any payment under this clause (iii) in cash), in any case in the aggregate amount of the purchase price for such shares. Any notes issued by the Company pursuant to this paragraph 3(f) shall be subject to any restrictive covenants to which the Company is subject at the time of such purchase. Notwithstanding anything to the contrary contained in this Agreement, all repurchases of Employee Stock by the Company will be subject to applicable restrictions contained in the California General Corporation Law and in the Company's and its Subsidiaries' debt and equity financing agreements. If any such restrictions prohibit the repurchase of Employee Stock hereunder which the Company is otherwise entitled to make, the Company may make such repurchases as soon as it is permitted to do so under such restrictions. The Company and/or the Investors, as the case may be, will receive customary representations and warranties from each seller regarding the sale of the Employee Stock, including, but not limited to, the representation that such seller has good and marketable title to the Employee Stock to be transferred free and clear of all liens, claims and other encumbrances. (g) Termination of Repurchase Option. The provisions of this -------------------------------- paragraph 3 will terminate upon the first to occur of (i) a Sale of the Company and (ii) the first date subsequent to the date that the Company sells any shares of its common stock pursuant to a registration statement filed under the 1933 Act (collectively, a "Termination Event"). ----------------- 4. Restrictions on Transfer. ------------------------ (a) Transfer of Employee Stock. Employee will not sell, pledge or -------------------------- otherwise transfer any interest in any shares of Employee Stock, except pursuant to the provisions of para graphs 3, 4(b), 4(c), 7 or 8 hereof. (b) Certain Permitted Transfers. The restrictions contained in this --------------------------- paragraph 4 will not apply with respect to transfers of Employee Stock (i) pursuant to applicable laws of descent and distribution or (ii) among Employee's Family Group (as defined below), provided that the restrictions contained in this paragraph 4 will continue to be applicable to the Employee Stock after any such transfer and the transferees of such Employee Stock shall agree in writing to be bound by the provisions of this Agreement. "Family Group" means ------------ Employee's spouse and descendants (whether natural or adopted) and any trust solely for the benefit of Employee and/or Employee's -7- spouse and/or descendants. Any transferee of Employee Stock pursuant to a transfer in accordance with the provisions of this subparagraph 4(b) is herein referred to as a "Permitted Transferee." Upon the transfer of Employee Stock -------------------- pursuant to this paragraph 4(b), Employee will deliver a written notice (the "Transfer Notice") to the Company. The Transfer Notice will disclose in --------------- reasonable detail the identity of the Permitted Transferee(s). (c) Participation Rights. -------------------- (i) At least 30 days prior to any transfer of shares of any class of Common Stock by an Investor (other than a transfer among the Investors or their affiliates or to an employee or director of the Company or its Subsidiaries), the transferring Investor will deliver written notice (the "Sale Notice") to the Company, Employee and all other holders of such class ----------- of Common Stock that have been granted participation rights similar to the participation rights granted herein (Employee and such other holders of Common Stock with participation rights collectively referred to as the "Other Stockholders"), specifying in reasonable detail the identity of the ------------------ prospective transferee(s) and the terms and conditions of the transfer. Notwithstanding the restrictions contained in this paragraph 4, the Other Stockholders may elect to participate in the contemplated transfer by delivering written notice to the transferring Investor within 10 days after delivery of the Sale Notice. If any Other Stockholders have elected to participate in such transfer, each of the transferring Investor and such Other Stockholders will be entitled to sell in the contemplated transfer, at the same price and on the same terms, a number of shares of such class of Common Stock equal to the product of (A) the quotient determined by dividing the number of shares of such class of Common Stock owned by such person by the aggregate number of shares of such class of Common Stock owned by the transferring Investor and the Other Stockholders participating in such sale and (B) the number of shares of such class of Common Stock to be sold in the contemplated transfer. Notwithstanding the foregoing, in the event that the transferring Investor(s) intend to transfer shares of more than one class of Common Stock, the Other Stockholders participating in such transfer shall be required to sell in the contemplated transfer a pro rata portion of shares of all such classes of Common Stock, which portion shall be determined in the manner set forth immediately above. For example (by way of illustration only), if the Sale Notice contemplated ----------------------------------------- a sale of 100 shares of Class L Common by the transferring Investor, and if the transferring Investor at such time owns 30% of the Class L Common and if one Other Stockholder elects to participate and owns 20% of the Class L Common, the transferring Investor would be entitled to sell 60 shares (30% / 50% x 100 shares) and the Other Stockholder would be entitled to sell 40 shares (20% / 50% x 100 shares). (ii) The transferring Investor will use reasonable efforts to obtain the agreement of the prospective transferee(s) to the participation of the Other Stockholders in any contemplated transfer, and the transferring Investor will not transfer any of its shares of Common Stock -8- to the prospective transferee(s) unless (A) simultaneously with such transfer, the prospective transferee or transferees purchase from the Other Stockholders the shares of Common Stock which the Other Stockholders are entitled to sell to such prospective transferee(s) pursuant to paragraph 4(c)(i) above or (B) simultaneously with such transfer, the transferring Investor purchases the number of shares of such class of Common Stock from the Other Stockholders which the Other Stockholders would have been entitled to sell pursuant to paragraph 4(c)(i) above. (d) Termination of Transfer Restrictions. The provisions of this ------------------------------------ paragraph 4 will terminate upon the occurrence of a Termination Event. 5. Additional Restrictions on Transfer. ----------------------------------- (a) The certificates representing the Employee Stock will bear the following legend: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION THEREUNDER. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE OPTIONS AND CERTAIN OTHER AGREEMENTS SET FORTH IN AN EMPLOYEE STOCK AGREEMENT BETWEEN THE ISSUER (THE "COMPANY") AND AN EMPLOYEE OF THE COMPANY DATED AS OF _________ __, 1999, A COPY OF WHICH MAY BE OBTAINED BY THE HOLDER HEREOF AT THE COMPANY'S PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE." (b) No holder of Employee Stock may sell, transfer or dispose of any Employee Stock (except pursuant to an effective registration statement under the Securities Act of 1933) without first delivering to the Company an opinion of counsel reasonably acceptable in form and substance to the Company (which counsel shall be reasonably acceptable to the Company) that registration under the 1933 Act is not required in connection with such transfer. 6. Definition of Employee Stock. For all purposes of this Agreement, ---------------------------- Employee Stock will continue to be Employee Stock in the hands of any holder other than Employee (except for the Company, the Investors or purchasers pursuant to an offering registered under the 1933 Act or purchasers pursuant to a Rule 144 transaction (other than a Rule 144(k) transaction occurring prior to the time of a closing of a Public Offering (as defined in Section 8 below)), and each such other -9- holder of Employee Stock will succeed to all rights and obligations attributable to Employee as a holder of Employee Stock hereunder. Employee Stock will also include shares of the Company's capital stock issued with respect to shares of Employee Stock by way of a stock split, stock dividend or other recapitalization. 7. Sale of the Company ------------------- (a) If the holders of a majority of the shares of the Company's common stock held by the Investors approve (and, in the case of any sale or other fundamental change which requires the approval of the board of directors of a California corporation pursuant to the California General Corporation Law, the Company's board of directors shall have approved such sale) a sale of all or substantially all of the Company's assets determined on a consolidated basis or a sale of all or substantially all of the Company's outstanding capital stock (whether by merger, recapitalization, consolidation, reorganization, combination or otherwise) to an Independent Third Party or group of Independent Third Parties (an "Approved Sale"), each holder of Employee Stock will vote for, ------------- consent to and raise no objections against such Approved Sale. If the Approved Sale is structured as (i) a merger or consolidation, each holder of Employee Stock will waive any dissenters' rights, appraisal rights or similar rights in connection with such merger or consolidation or (ii) sale of stock, each holder of Employee Stock will agree to sell all of his or her shares of Employee Stock and rights to acquire shares of Employee Stock on the terms and conditions approved by the Company's board of directors and the holders of a majority of the Company's common stock then outstanding. Each holder of Employee Stock will take all necessary or desirable actions in connection with the consummation of the Approved Sale as requested by the Company. (b) The obligations of the holders of Common Stock with respect to the Approved Sale of the Company are subject to the satisfaction of the following conditions: (i) upon the consummation of the Approved Sale, each holder of Common Stock will receive the same form of consideration and the same portion of the aggregate consideration that such holders of Common Stock would have received if such aggregate consideration had been distributed by the Company in complete liquidation pursuant to the rights and preferences set forth in the Company's Articles of Incorporation as in effect immediately prior to such Approved Sale; (ii) if any holders of a class of Common Stock are given an option as to the form and amount of consideration to be received, each holder of such class of Common Stock will be given the same option; and (iii) each holder of then currently exercisable rights to acquire shares of a class of Common Stock will be given an opportunity to exercise such rights prior to the consummation of the Approved Sale and participate in such sale as holders of such class of Common Stock. (c) If the Company or the holders of the Company's securities enter into any negotiation or transaction for which Rule 506 (or any similar rule then in effect) promulgated by the Securities Exchange Commission may be available with respect to such negotiation or transaction (including a merger, consolidation or other reorganization), the holders of Employee Stock will, at the request of the Company, appoint a purchaser representative (as such term is defined in Rule 501) reasonably acceptable to the Company. If any holder of Employee Stock appoints a purchaser -10- representative designated by the Company, the Company will pay the fees of such purchaser representative, but if any holder of Employee Stock declines to appoint the purchaser representative designated by the Company, such holder will appoint another purchaser representative, and such holder will be responsible for the fees of the purchaser representative so appointed. (d) Employee and the other holders of Employee Stock (if any) will bear their pro-rata share (based upon the number of shares sold) of the costs of any sale of Employee Stock pursuant to an Approved Sale to the extent such costs are incurred for the benefit of all holders of Common Stock and are not otherwise paid by the Company or the acquiring party. Costs incurred by Employee and the other holders of Employee Stock on their own behalf will not be considered costs of the transaction hereunder. (e) The provisions of this paragraph 7 will terminate upon the closing of a Public Offering (as defined below). 8. Public Offering. In the event that the Company's board of --------------- directors and the holders of a majority of the Company's shares of common stock then outstanding approve an initial public offering and sale of the Company's common stock (a "Public Offering") pursuant to an effective registration --------------- statement under the 1933 Act, the holders of Employee Stock will take all necessary or desirable actions in connection with the consummation of the Public Offering. In the event that such Public Offering is an underwritten offering and the managing underwriters advise the Company in writing that in their opinion the Common Stock structure will adversely affect the marketability of the offering, each holder of Employee Stock will consent to and vote for a recapitalization, reorganization and/or exchange of the Common Stock into securities that the managing underwriters, the Company's board of directors and holders of a majority of the shares of Common Stock then outstanding find acceptable and will take all necessary or desirable actions in connection with the consummation of the recapitalization, reorganization and/or exchange. 9. Voting Agreement. Each holder of Employee Stock hereby agrees to ---------------- vote all of his or her shares of Employee Stock (and, in the event such holder is entitled to vote any of the Company's other securities for the election of directors, such holder shall vote all such securities) and take all other necessary actions (whether in such holder's capacity as a stockholder, director or officer of the Company), and the Company shall take all necessary or desirable actions as are requested by the Investors, in order to cause any representatives designated by the Investors to be elected as members of the Company's board of directors. In addition, no holder shall vote his or her shares of Employee Stock (or such other securities) in connection with the removal of any of the Investors' designees as a director unless and until the Investors direct such holder how to vote on such removal. Except as otherwise provided herein, each holder of Employee Stock shall at all times retain the right to vote his or her Employee Stock (and such other securities) in his or her sole discretion on all other matters presented to the Company's stockholders for a vote. All Investor determinations under this paragraph 9 shall be made by the Investors holding a majority of the Common Stock held by all Investors (in each case determined on a fully-diluted basis). The provisions of this paragraph 9 shall terminate upon the occurrence of a Termination Event. -11- 10. Confidential Information. Employee acknowledges that the ------------------------ information, observations and data obtained by him or her while employed by the Company and its Subsidiaries concerning the business or affairs of the Company or any of its Subsidiaries ("Confidential Information") are the property of the ------------------------ Company or such Subsidiary. Therefore, Employee agrees that he or she shall not disclose to any unauthorized person or use for his or her own purposes any Confidential Information without the prior written consent of the Company's board of directors, unless and to the extent that the aforementioned matters become generally known to and available for use by the public other than as a result of Employee's acts or omissions. Employee shall deliver to the Company as of the Termination Date, or at any other time the Company may request, all memoranda, notes, plans, records, reports, computer tapes, printouts and software and other documents and data (and copies thereof) relating to the Confidential Information, Work Product (as defined below) or the business of the Company or any Subsidiary which he or she may then possess or have under his or her control. 11. Inventions and Patents. Employee acknowledges that all ---------------------- inventions, innovations, improvements, developments, methods, designs, analyses, drawings, reports and all similar or related information (whether or not patentable) which relate to the Company's or any of its Subsidiaries' actual or anticipated business, research and development or existing or future products or services and which are conceived, developed or made by Employee while employed by the Company or its Subsidiaries ("Work Product") belong to the Company or ------------ such Subsidiary. Employee shall promptly disclose such Work Product to the Company's board of directors and perform all actions reasonably requested by the Company's board of directors (whether during or after the period of Employee's employment with the Company or its Subsidiaries) to establish and confirm such ownership (including, without limitation, assignments, consents, powers of attorney and other instruments). 12. Non-Compete, Non-Solicitation. ----------------------------- (a) In further consideration of the sale and purchase of the Company's stock hereunder and the other stock sales and stock options made available to Employee pursuant to separate agreements, Employee acknowledges that in the course of his or her employment with the Company or its Subsidiaries he or she shall become familiar with the Company's and its Subsidiaries' trade secrets and with other Confidential Information concerning the Company and its Subsidiaries and that his or her services shall be of special, unique and extraordinary value to the Company and its Subsidiaries. Therefore, Employee agrees that, during the period of his or her employment with the Company or its Subsidiaries and, at the Company's option, so long as the Company elects to pay Employee's monthly base salary during any such month (it being agreed that the Company's payment of any severance or other termination payments pursuant to any separate employment or other agreement between the Company and Employee which provides Employee with severance or other termination payments (whether on a periodic basis or in a lump sum) not less than Employee's monthly base salary shall be deemed to satisfy the aforementioned requirement), on a month to month basis thereafter for a period not to exceed twelve months (the "Noncompete ---------- Period"), he or she shall not directly or indirectly own any interest in, - ------ manage, control, participate in, consult with, -12- render services for, or in any manner engage in any business competing with the businesses of the Company or its Subsidiaries, as such businesses exist or are in process on the date of the termination of Employee's employment, anywhere in the world (any of the foregoing, a "Competitive Activity"). Nothing herein shall -------------------- prohibit Employee from being a passive owner of not more than 2% of the outstanding stock of any class of a corporation which is publicly traded, so long as Employee has no active participation in the business of such corporation. (b) During the Noncompete Period, Employee shall not directly or indirectly through another entity (i) induce or attempt to induce any employee of the Company or any Subsidiary to leave the employ of the Company or such Subsidiary, or in any way interfere with the relationship between the Company or any Subsidiary and any employee thereof, (ii) hire any person who was an employee of the Company or any Subsidiary at any time during Employee's period of employment with the Company or its Subsidiaries or (iii) induce or attempt to induce any customer, supplier, licensee, licensor, franchisee or other business relation of the Company or any Subsidiary to cease doing business with the Company or such Subsidiary, or in any way interfere with the relationship between any such customer, supplier, licensee, licensor, franchisee or business relation and the Company or any Subsidiary (including, without limitation, making any negative statements or communications about the Company or its Subsidiaries). 13. Enforcement. If, at the time of enforcement of paragraph 10, 11 ----------- or 12 of this Agreement, a court holds that the restrictions stated herein are unreasonable under circumstances then existing, the parties hereto agree that the maximum period, scope or geographical area reason able under such circumstances shall be substituted for the stated period, scope or area. Because Employee's services are unique and because Employee has access to Confidential Information and Work Product, the parties hereto agree that money damages would not be an adequate remedy for any breach of this Agreement. Therefore, in the event a breach or threatened breach of this Agreement, the Company or its successors or assigns may, in addition to other rights and remedies existing in their favor, apply to any court of competent jurisdiction for specific performance and/or injunctive or other relief in order to enforce, or prevent any violations of, the provisions hereof (without posting a bond or other security). In addition, in the event of an alleged breach or violation by Employee of paragraph 12, the Noncompete Period shall be tolled until such breach or violation has been duly cured. Employee agrees that the restrictions contained in paragraph 12 are reasonable. 14. Other Businesses. As long as Employee is employed by the Company ---------------- or any of its Subsidiaries, Employee agrees that he or she will not, except with the express written consent of the Company's board of directors, become engaged in, or render services for, any business other than the business of the Company or any of its Subsidiaries. 15. Holdback Agreement. No holder of Employee Stock will effect any ------------------ public sale or distribution (including sales pursuant to Rule 144 of the 1933 Act) of any Employee Stock or of any other capital stock or equity securities of the Company, or any securities, options or rights convertible into or exchangeable or exercisable for such stock or securities, during the seven days prior to and the 180-day period beginning on the effective date of any underwritten public offering -13- of the Company's common stock, except as part of such underwritten public offering. The restrictions on the transfer set forth in this Section 15 shall continue with respect to each share of Employee Stock until the date on which such share has been transferred pursuant to an offering registered under the 1933 Act or to the public through a broker, dealer or market maker pursuant to the provisions of Rule 144 (other than Rule 144(k)), adopted under the 1933 Act. 16. Employee's Representations. Employee hereby represents and -------------------------- warrants to the Company that (i) the execution, delivery and performance of this Agreement by Employee do not and will not conflict with, breach, violate or cause a default under any contract, agreement, instrument, order, judgment or decree to which Employee is a party or by which he or she is bound, (ii) Employee is not a party to or bound by any employment agreement, noncompete agreement or confidentiality agreement with any other person or entity and (iii) upon the execution and delivery of this Agreement by the Company, this Agreement shall be the valid and binding obligation of Employee, enforceable in accordance with its terms. 17. Survival. Paragraphs 10, 11 and 12 shall survive and continue in -------- full force in accordance with their terms notwithstanding any termination of Employee's employment. 18. Notices. Any notice provided for in this Agreement must be in ------- writing and must be personally delivered or sent by guaranteed overnight delivery service, to the Investors and Employee at the addresses indicated in the Company's records and to the Company at the address indicated below: To the Company: ChipPAC, Inc. 3151 Coronado Drive Santa Clara, California 95054 Attn: CEO With a copy to: Kirkland & Ellis 200 East Randolph Drive Chicago, Illinois 60601 Attn: Jeffrey C. Hammes, P.C. Gary M. Holihan or such other address or to the attention of such other person as the recipient party shall have specified by prior written notice to the sending party. Any notice under this Agreement will be deemed to have been given when so delivered or deposited with such delivery service. -14- 19. Severability. Whenever possible, each provision of this ------------ Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. In the event that any ruling of any court or governmental authority calls into question the validity of any portion of this Agreement, the parties hereto shall consult with each other concerning such matters and shall negotiate in good faith a modification to this Agreement which would obviate any such questions as to validity while preserving, to the extent possible, the intent of the parties and the economic and other benefits of this Agreement and the portion thereof whose validity is called into question. 20. Complete Agreement. This Agreement embodies the complete ------------------ agreement and understanding among the parties and supersedes and preempts any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way. 21. Counterparts. This Agreement may be executed in separate ------------ counterparts (any one of which may be delivered by facsimile), each of which will be deemed to be an original and all of which taken together will constitute one and the same agreement. 22. Successors and Assigns. This Agreement is intended to bind and ---------------------- inure to the benefit of and be enforceable by Employee, the Company, the Investors and their respective successors and assigns, provided that Employee may not assign any of his or her rights or obligations, except as expressly provided by the terms of this Agreement. 23. GOVERNING LAW. ALL ISSUES CONCERNING THE ENFORCEABILITY, ------------- VALIDITY AND BINDING EFFECT OF THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF CALIFORNIA OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAW OF ANY JURISDICTION OTHER THAN THE STATE OF CALIFORNIA. EACH OF THE PARTIES HERETO SUBMITS TO THE JURISDICTION IN ANY STATE OR FEDERAL COURT LOCATED IN THE STATE OF CALIFORNIA AND WAIVES ANY CLAIM OF IMPROPER JURISDICTION OR LACK OF VENUE IN CONNECTION WITH ANY CLAIM OR CONTROVERSY WHICH MAY BE BROUGHT IN CONNECTION WITH THIS AGREEMENT. EACH OF THE PARTIES HERETO MAINTAINS SUBSTANTIAL CONTACTS WITH THE STATE OF CALIFORNIA, AND A SIGNIFICANT PORTION OF THE PARTIES' RELATIONSHIP SHALL BE CARRIED OUT IN THE STATE OF CALIFORNIA, BY REASON OF THE COMPANY'S SANTA CLARA, CALIFORNIA FACILITY. EACH PARTY AGREES THAT THE COVENANTS -15- PROVIDED IN THIS SECTION 23 ARE A MATERIAL INDUCEMENT TO EACH PARTY TO ENTER INTO THIS AGREEMENT, AND EACH PARTY RELIED ON SUCH COVENANTS IN ENTERING INTO THIS AGREEMENT. 24. Remedies. The parties hereto acknowledge and agree that money -------- damages may not be an adequate remedy for any breach of the provisions of this Agreement and that any party hereto will have the right to injunctive relief, in addition to all of its other rights and remedies at law or in equity, to enforce the provisions of this Agreement. 25. Effect of Transfers in Violation of Agreement. The Company will ---------------------------------------------- not be required (a) to transfer on its books any shares of Employee Stock which have been sold or transferred in violation of any of the provisions set forth in this Agreement or (b) to treat as owner of such shares, to accord the right to vote as such owner or to pay dividends to any transferee to whom such shares have been transferred in violation of this Agreement. 26. Amendments and Waivers. Any provision of this Agreement may be ---------------------- amended or waived only with the prior written consent of the board of directors of the Company, the Investors who hold 70% of the Common Stock held by the Investors, and Employee; provided that in the event that such amendment or waiver would adversely affect an Investor or a group of Investors in a manner different than any other Investor, then such amendment or waiver will require the consent of such Investor or a majority of the Common Shares held by such group of Investors adversely affected. 27. Third Party Beneficiaries. The parties hereto acknowledge and ------------------------- agree that the Investors are third party beneficiaries of this Agreement. This Agreement will inure to the benefit of and be enforceable by the Investors and their respective successors and assigns. * * * * * -16- IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first above written. CHIPPAC, INC. By: _______________________________ Its: _______________________________ ____________________________________ Employee Name -17- Exhibit B --------- CONSENT The undersigned spouse hereby acknowledges that I have read the following agreements to which my spouse is a party: . 1999 ChipPAC, Inc. Stock Purchase and Option Plan . Key Employee Purchased Stock Agreement and that I understand their contents. I am aware that the such agreements provide for the repurchase of my spouse's shares of capital stock of ChipPAC, Inc. (the "Company") under certain circumstances and impose other restrictions ------- on such capital stock. I agree that my spouse's interest in the capital stock is subject to the agreements referred to above and the other agreements referred to therein and any interest I may have in such capital stock shall be irrevocably bound by these agreements and the other agreements referred to therein and further that my community property interest (if any) shall be similarly bound by these agreements. The undersigned spouse irrevocably constitutes and appoints Employee N ame, who is the spouse of the undersigned spouse (the "Shareholder") as the ----------- undersigned's true and lawful attorney and proxy in the undersigned's name, place and stead to sign, make, execute, acknowledge, deliver, file and record all documents which may be required, and to manage, vote, act and make all decisions with respect to (whether necessary, incidental, convenient or otherwise), any and all shares of capital stock of the Company in which the undersigned now has or hereafter acquires any interest and in any and all shares of the Company now or hereafter held of record by the Shareholder (including but not limited to the right, without further signature, consent or knowledge of the undersigned spouse, to exercise or not to exercise any and all options under any appropriate agreements and to exercise amendments and modifications of and to terminate the foregoing agreements and to dispose of any and all such shares of capital stock and options), with all powers the undersigned spouse would possess if personally present, it being expressly understood and intended by the undersigned that the foregoing power of attorney and proxy is coupled with an interest; and this power of attorney is a durable power of attorney and will not be affected by disability, incapacity or death of the Shareholder, or dissolution of marriage and this proxy will not terminate without consent of the Shareholder and the Company: Shareholder: Spouse of Shareholder: - ----------- --------------------- __________________________ __________________________________ Signature Signature __________________________ __________________________________ Printed Name Printed Name __________________________ __________________________________ Dated Dated Exhibit C --------- ELECTION TO INCLUDE STOCK IN GROSS INCOME PURSUANT TO SECTION 83(b) OF THE INTERNAL REVENUE CODE The undersigned acquired shares of Class L Common Stock, par value $.01 per share and shares of Class A Common Stock, par value $.01 per share (collectively, the "Shares"), of ChipPAC, Inc., a California corporation (the ------ "Company"), on _________ __, 1999. The Company and certain of its shareholders ------- have the right to repurchase certain of the Shares at cost from the undersigned (or from the holder of the Shares, if different from the undersigned) should the undersigned cease to be employed by the Company or its subsidiaries. Hence, the Shares are subject to a substantial risk of forfeiture. The Shares are also non-transferable. The undersigned desires to make an election to have the Shares taxed under (S)83(b) of the Internal Revenue Code of 1986, as amended (the "Code"), at the time he or she acquired the Shares. ---- Therefore, pursuant to Code (S)83(b) and Treasury Regulation (S)1.83-2 promulgated thereunder, the undersigned hereby makes an election with respect to the Shares, to report as taxable income in 1999 the excess of the Shares' fair market value on _________ __, 1999 over the acquisition price thereof. The following information is supplied in accordance with Treasury Regulation (S)1.83-2(e): 1. The name, address and social security number of the undersigned: __________________ __________________ __________________ Social Security No.: ____________ 2. A description of the property, with respect to which the election is being made: _______ shares of the Company's Class L Common Stock, par value $.01 per share and _________ shares of the Company's Class A Common Stock, par value $.01 per share. 3. The date on which the property was transferred: _________ __, 1999. The taxable year for which such election is made: Calendar 1999. 4. The restrictions to which the property is subject: If, at any time prior to the first to occur of (i) a sale of the Company and (ii) the first date subsequent to the date that the Company sells any shares of its common stock pursuant to a registration statement filed under the Securities Act of 1933, as amended, the undersigned ceases to be employed by the Company or any of its subsidiaries, the unvested portion of the Shares shall be subject to repurchase by the Company at fair market value, except in the case of the undersigned's termination for cause or in the event that the undersigned participates in any competitive activity during the period not to exceed 12 months from the date of the undersigned's termination of employment with the Company or any of its subsidiaries, in which event all of the Shares shall be subject to repurchase by the Company at the lower of original cost or fair market value. Twenty percent of the Shares shall become vested as of August 5, 2000, an additional 20% of the Shares shall become vested as of August 5, 2001, an additional 30% of the Shares shall become vested as of August 5, 2002 and the final 30% of the Shares shall become vested on August 5, 2003; provided that if the undersigned's termination of employment with the Company or its subsidiaries occurs at any time after August 5, 2000 and prior to August 5, 2003, the percentages of Shares to become vested shall be determined on a pro-rata fiscal quarter basis; provided further, that upon any change in control, all of the Shares shall become vested. 5. The fair market value on _________ __, 1999 of the property with respect to which the election is being made, determined without regard to any lapse restrictions: _______. 6. The amount paid for such property: _________. A copy of this election has been furnished to the Secretary of the Company pursuant to Treasury Regulations (S)1.83-2(e)(7). Dated: _________ __, 1999 ___________________________________ Employee Name -2- EX-10.22 39 FORM OF PURCHASED STOCK AGREEMENT (WITH LOAN) Exhibit 10.22 ------------- KEY EMPLOYEE PURCHASED STOCK AGREEMENT (WITH LOAN) -------------------------------------------------- KEY EMPLOYEE PURCHASED STOCK AGREEMENT (WITH LOAN) (this "Agreement") --------- dated as of _________ __, 1999, by and between ChipPAC, Inc., a California corporation (the "Company") and ________ ("Employee"). ------- -------- Pursuant to the Company's 1999 Stock Purchase and Option Plan (the "Plan"), a copy of which is attached hereto as Exhibit A, the Company and ---- --------- Employee desire to enter into an agreement pursuant to which Employee will purchase and the Company will sell certain shares of the Company's Class L Common Stock, par value $.01 per share (the "Class L Common") and certain shares -------------- of the Company's Class A Common Stock, par value $.01 per share (the "Class A ------- Common" and together with the Class L Common, the "Common Stock"). All of such - ------ ------------ shares of Common Stock and all shares of the Company's capital stock hereafter acquired by Employee are referred to herein as "Employee Stock." -------------- The parties hereto agree as follows: STOCK PROVISIONS 1. Purchase and Sale of Stock. -------------------------- (a) Upon execution of this Agreement, Employee will purchase, and the Company will sell, _______ shares of Class L Common at a price of $9.00 per share and ________ shares of Class A Common at a price of $0.1111 per share, for an aggregate purchase price of ________. All of the shares of Employee Stock issued to Employee pursuant to this Section 1(a) shall constitute "Time Vesting ------------ Shares." - ------ (b) The Company will deliver to Employee copies of certificates representing the shares of Employee Stock purchased pursuant to this Agreement, and, upon receipt of such copies, Employee will deliver to the Company (i) a certified bank check, wire transfer of funds or a personal check in the amount of the aggregate purchase price under Section 1(a) above, (ii) an executed consent from Employee's spouse (if any) in the form of Exhibit B attached hereto --------- and (iii) a promissory note in the form of Annex 1 attached hereto in the ------- principal amount of ______ (the "Note"). If, at any time subsequent to the date ---- hereof and prior to the occurrence of a Termination Event (as defined in Section 3(g) hereof), Employee becomes legally married (whether in the first instance or to a different spouse), Employee shall cause Employee's spouse to execute and deliver a consent in the form of Exhibit B attached hereto. Employee's failure --------- to deliver the Company an executed consent in the form of Exhibit B at any time --------- when Employee would otherwise be required to deliver such consent shall constitute Employee's continuing representation and warranty that Employee is not legally married as of such date. Employee's obligations under the Note shall be secured by a pledge in favor of the Company of all of the shares of Employee Stock, and in connection therewith, Employee shall enter into a pledge agreement in the form of Annex 2 attached hereto. ------- (c) Representations and Warranties. In connection with the purchase ------------------------------ and sale of the Employee Stock hereunder, Employee represents and warrants to the Company that: (i) The Employee Stock to be acquired by Employee pursuant to this Agreement will be acquired for Employee's own account and not with a view to, or intention of, distribution thereof in violation of the Securities Act of 1933, as amended (the "1933 Act"), or any applicable -------- state securities laws, and the Employee Stock will not be disposed of in contravention of the 1933 Act or any applicable state securities laws. (ii) Employee is an executive officer or management employee of the Company or its Subsidiaries, is sophisticated in financial matters and is able to evaluate the risks and benefits of the investment in the Employee Stock. (iii) Employee is able to bear the economic risk of his or her investment in the Employee Stock for an indefinite period of time because the Employee Stock has not been registered under the 1933 Act and, therefore, cannot be sold unless subsequently registered under the 1933 Act or an exemption from such registration is available. (iv) Employee has had an opportunity to ask questions and receive answers concerning the terms and conditions of the offering of Employee Stock and has had full access to such other information concerning the Company and its Subsidiaries as he or she has requested. The Company has provided to Employee, and Employee has reviewed, or has had an opportunity to review, a copy of that certain Offering Circular of ChipPAC International Limited dated July 22, 1999, and Employee is familiar with each of the transactions contemplated thereby. Employee has also reviewed a copy of the Plan (a copy of which is attached hereto as Exhibit A). --------- (v) This Agreement constitutes the legal, valid and binding obligation of Employee, enforceable in accordance with its terms, and the execution, delivery and performance of this Agreement by Employee does not and will not conflict with, violate or cause a breach of any agreement, contract or instrument to which Employee is a party or any judgment, order or decree to which Employee is subject. (vi) Employee has consulted, or has had an opportunity to consult with, independent legal counsel regarding his or her rights and obligations under this Agreement and he or she fully understands the terms and conditions contained herein. (d) Acknowledgment. As an inducement to the Company to sell the -------------- Employee Stock to Employee, and as a condition thereto, Employee acknowledges and agrees that: (i) the Company will have no duty or obligation to disclose to Employee, and Employee will have no right to be advised of, any material information regarding the Company or its Subsidiaries at any time prior to, upon or in connection with the repurchase of Employee Stock upon the termination of Employee's employment with the Company or its Subsidiaries or as otherwise provided hereunder; and -2- (ii) neither the issuance of the Employee Stock to Employee nor any provision contained herein shall entitle Employee to remain in the employment of the Company or its Subsidiaries or affect the right of the Company to terminate Employee's employment at any time for any reason. (e) Plan Acknowledgment. The Company and Employee acknowledge and ------------------- agree that this Agreement has been executed and delivered, and the Employee Stock has been issued hereunder, in connection with and as part of the compensation and incentive arrangements between the Company and Employee. The issuance of Employee Stock hereunder is pursuant to, and subject to all the terms and conditions of the Plan, attached hereto as Exhibit A. --------- (f) 83(b) Election. Within 30 days after the date hereof, each -------------- Employee that is subject to United States federal income tax will make an effective election (in the form of Exhibit C attached hereto) with the Internal --------- Revenue Service under Section 83(b) of the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder (the "Code") relative to the ---- Employee Stock purchased pursuant to this Agreement. 2. Vesting of Time Vesting Shares. ------------------------------ (a) Definitions. The following terms are defined as follows: ----------- "Independent Third Party" means any Person who, immediately prior to ----------------------- the contemplated transaction, does not own in excess of 10% of the Company's common stock on a fully diluted basis, who is not controlling, controlled by or under common control with any such 10% owner of the Company's common stock and who is not the spouse or descendant (by birth or adoption) of any such 10% owner of the Company's common stock. "Investors" means Bain Capital Fund VI, L.P., BCIP Associates II, BCIP --------- Associates II-B, BCIP Associates II-C, BCIP Trust Associates II, BCIP Trust Associates II-B, PEP Investments Pty., Ltd., Randolph Street Partners 1998 DIF, LLC, Randolph Street Partners II and SXI Group LLC and any of their transferees. "Person" means an individual, a partnership, a joint venture, a ------ corporation, a trust, an unincorporated organization and a government or any department or agency thereof. "Sale of the Company" means any transaction involving the Company and ------------------- an Independent Third Party or affiliated group of Independent Third Parties pursuant to which such party or parties acquire (i) a majority of the outstanding shares of capital stock of the Company entitled to vote generally in the election of Company's board of directors (whether by merger, consolidation or sale or transfer of the Company's capital stock) or (ii) all or substantially all of the Company's assets determined on a consolidated basis (for purposes hereof "all or substantially all" shall have the meaning given such phrase in the Revised Model Business Corporation Act). (b) Vesting. On each date set forth below the Time Vesting Shares ------- shall become vested with respect to the cumulative percentage of Time Vesting Shares set forth opposite such date -3- if Employee is, and has been, continuously employed by the Company or its Subsidiaries from the date of this Agreement through such date: Cumulative Percentage of Time Vesting Date Shares Vested ---- ------------- August 5, 2000 20% August 5, 2001 40% August 5, 2002 70% August 5, 2003 100% ; provided that, if Employee's Termination Date (as defined in paragraph 3(b) hereof) occurs at any time after August 5, 2000 and prior to August 5, 2003, the cumulative percentage of Time Vesting Shares to become vested shall be determined on a pro rata basis according to the number of fiscal quarters (i.e., fiscal quarters ending November 1, February 1, May 1 and August 1) elapsed since the prior annual vesting date and provided further, that upon any Change in Control (as defined below), so long as Employee was employed by the Company or any of its Subsidiaries on the day immediately prior to such Change in Control, all of the Time Vesting Shares shall become vested. For purposes hereof, a "Change in Control" shall be deemed to occur upon the first date that the ----------------- Investors and their affiliates collectively cease to own at least 35% of the aggregate number of shares of common stock of the Company that they own on the date hereof (as adjusted for stock splits, stock dividends and recapitalization and for exchanges in connection with a merger, consolidation, reorganization or sale). Time Vesting Shares which have become vested are referred to herein as "Vested Shares" and all other Time Vesting Shares are referred to herein as ------------- "Unvested Shares." --------------- 3. Repurchase Option. ----------------- (a) Definitions. The following terms are defined as follows: ----------- "Cause" shall have the meaning assigned to such term in Employee's ----- written employment arrangements with the Company or any of its Subsidiaries or, in the absence of any such written employment arrangements, "Cause" shall mean (i) the commission of a felony or any other act or omission involving dishonesty, disloyalty or fraud with respect to the Company or any of its Subsidiaries or any of their customers or suppliers, (ii) conduct tending to bring the Company or any of its Subsidiaries into substantial public disgrace or disrepute, (iii) substantial and repeated failure to perform duties as reasonably directed by the Company's board of directors or management, (iv) gross negligence or willful misconduct with respect to the Company or any of its Subsidiaries or (v) any other material breach of this Agreement. "Fair Market Value" of each share of Employee Stock means the market ----------------- value as determined in good faith by the Company's board of directors. -4- "Original Cost" of each share of Employee Stock will be equal to the ------------- price paid by the Employee for each share of Common Stock (as proportionally adjusted for all stock splits, stock dividends and other recapitalizations affecting the Common Stock subsequent to the date hereof). "Subsidiary" means any corporation of which shares of stock having a ---------- majority of the general voting power in electing the board of directors are, at the time as of which any determination is being made, owned by the Company either directly or through its Subsidiaries. (b) Repurchase Option. In the event that Employee is no longer ----------------- employed by the Company or any of its Subsidiaries for any reason (the date of such termination being referred to herein as the "Termination Date"), the ---------------- Employee Stock, whether held by Employee or one or more transferees, will be subject to repurchase by the Company and the Investors (each of the aforementioned, solely at their option) pursuant to the terms and conditions set forth in this paragraph 3 (the "Repurchase Option"). ----------------- (c) Repurchase Price. If Employee is no longer employed by the ---------------- Company or any of its Subsidiaries for any reason, then on or after the Termination Date, the Company and the Investors may elect to purchase (i) in the case of Employee's termination for Cause or in the case of Employee's participation in any Competitive Activity during the Noncompete Period (as each such term is defined in Section 12 hereof), all or any portion of the Employee Stock at a price per share equal to the lower of Original Cost or Fair Market Value (as of the Termination Date) and (ii) in any other case, all or any portion of the Unvested Shares at a price per share equal to Fair Market Value (as of the Termination Date). (d) Repurchase Procedures. The Company may elect to exercise the --------------------- right to purchase all or any portion of the shares of Employee Stock pursuant to the Repurchase Option by delivering written notice (the "Repurchase Notice") to ----------------- the holder or holders of the Employee Stock within 45 days of the Termination Date (or in the case of Employee's participation in any Competitive Activity during the Noncompete Period, within 45 days of the date the Company becomes aware of any such participation, but in no event later than the 45/th/ day after the expiration of the Noncompete Period). The Repurchase Notice will set forth the number of shares of Employee Stock to be acquired from such holder(s), the aggregate consideration to be paid for such shares and the time and place for the closing of the transaction. If any Employee Stock is held by any transferees of Employee, the Company shall purchase the shares elected to be purchased from such holder(s) of Employee Stock, pro rata according to the number of shares of Employee Stock held by such holder(s) at the time of delivery of such Repurchase Notice (determined as nearly as practicable to the nearest share). If Employee Stock of different classes is to be purchased by the Company and Employee Stock is held by any transferees of Employee, the number of shares of each class of Employee Stock to be purchased will be allocated among such holders, pro rata according to the total number of shares of Employee Stock to be purchased from such persons. (e) Investor Rights. --------------- (i) If for any reason the Company does not elect to purchase all of the Employee Stock pursuant to the Repurchase Option prior to the 45/th/ day following the Termination Date (or -5- in the case of Employee's participation in any Competitive Activity during the Noncompete Period, within 45 days of the date the Company becomes aware of any such participation, but in no event later than the 45/th/ day after the expiration of the Noncompete Period), the Investors will be entitled to exercise the Repurchase Option, in the manner set forth in this paragraph 3, for the Employee Stock the Company has not elected to purchase (the "Available Shares"). ---------------- As soon as practicable, but in any event within thirty (30) days after the Company determines that there will be any Available Shares (and in no event later than the 45/th/ day following the Termination Date (or the 45/th/ day following the date the Company becomes aware of Employee's participation in any Competitive Activity, but in no event later than the 45/th/ day after the expiration of the Noncompete Period)), the Company will deliver written notice (the "Option Notice") to the Investors setting forth the number of Available ------------- Shares and the price for each Available Share. (ii) Each of the Investors will initially be permitted to purchase its pro rata share (based upon the number of shares of Common Stock then held by such Investors) of the Available Shares. Each Investor may elect to purchase any number of the Available Shares (subject to the preceding sentence) by delivering written notice to the Company within 30 days after receipt of the Option Notice from the Company (such 30-day period being referred to herein as the "Election -------- Period"). - ------ (iii) As soon as practicable but in any event within five (5) days after the expiration of the Election Period, the Company will, if necessary, notify the Investors electing to purchase Available Shares of any Available Shares which Investors have elected not to purchase and each of the electing Investors will be entitled to purchase the remaining Available Shares on the same terms as described above (the "Second Option Notice"); provided that if in -------------------- the aggregate such Investors elect to purchase more than the remaining Available Shares, such remaining Available Shares purchased by each such Investor will be reduced on a pro rata basis based upon the number of shares of Common Stock then held by such Investors. Each Investor may elect to purchase any of the remaining Available Shares available to such Investor by delivering written notice to the Company within 5 days after the delivery of the Second Option Notice (with such 5-day period referred to herein as the "Second Election --------------- Period"). - ------ (iv) As soon as practicable but in any event within five (5) days after the expiration of the Election Period or the Second Election Period (if any) the Company will, if necessary, notify the holder(s) of Employee Stock as to the number of shares of Employee Stock being purchased from the holder(s) by the Investors (the "Supplemental Repurchase Notice"). At the time the Company ------------------------------ delivers a Supplemental Repurchase Notice to the holder(s) of Employee Stock, the Company will also deliver to each electing Investor written notice setting forth the number of shares of Employee Stock the Company and each Investor will acquire, the aggregate purchase price to be paid and the time and place of the closing of the transaction. (f) Closing. The closing of the transactions contemplated by this ------- paragraph 3 will take place on the date designated by the Company in the Repurchase Notice or the Supplemental Repurchase Notice, as the case may be, which date will not be more than 90 days after the delivery of such notice. The Company and/or the Investors, as the case may be, will pay for the Employee Stock to be purchased pursuant to the Repurchase Option by delivery of, in the case of each Investor, -6- a check payable to the holder of such Employee Stock, and in the case of the Company (i) first, by cancellation of any amounts due and owing under any promissory note issued by Employee to the Company, (ii) second, by a check payable to the holder of such Employee Stock up to the amount of the Original Cost therefor paid in cash by Employee and (iii) a note or notes payable in one installment on the first anniversary of the closing of such purchase and bearing interest at a rate per annum equal to 8% (it being agreed that the Company may, in its sole discretion, elect to make any payment under this clause (iii) in cash), in any case in the aggregate amount of the purchase price for such shares. Any notes issued by the Company pursuant to this paragraph 3(f) shall be subject to any restrictive covenants to which the Company is subject at the time of such purchase. Notwithstanding anything to the contrary contained in this Agreement, all repurchases of Employee Stock by the Company will be subject to applicable restrictions contained in the California General Corporation Law and in the Company's and its Subsidiaries' debt and equity financing agreements. If any such restrictions prohibit the repurchase of Employee Stock hereunder which the Company is otherwise entitled to make, the Company may make such repurchases as soon as it is permitted to do so under such restrictions. The Company and/or the Investors, as the case may be, will receive customary representations and warranties from each seller regarding the sale of the Employee Stock, including, but not limited to, the representation that such seller has good and marketable title to the Employee Stock to be transferred free and clear of all liens, claims and other encumbrances. (g) Termination of Repurchase Option. The provisions of this -------------------------------- paragraph 3 will terminate upon the first to occur of (i) a Sale of the Company and (ii) the first date subsequent to the date that the Company sells any shares of its common stock pursuant to a registration statement filed under the 1933 Act (collectively, a "Termination Event"). ----------------- 4. Restrictions on Transfer. ------------------------ (a) Transfer of Employee Stock. Employee will not sell, pledge or -------------------------- otherwise transfer any interest in any shares of Employee Stock, except pursuant to the provisions of paragraphs 3, 4(b), 4(c), 7 or 8 hereof. (b) Certain Permitted Transfers. The restrictions contained in this --------------------------- paragraph 4 will not apply with respect to transfers of Employee Stock (i) pursuant to applicable laws of descent and distribution or (ii) among Employee's Family Group (as defined below), provided that the restrictions contained in this paragraph 4 will continue to be applicable to the Employee Stock after any such transfer and the transferees of such Employee Stock shall agree in writing to be bound by the provisions of this Agreement. "Family Group" means ------------ Employee's spouse and descendants (whether natural or adopted) and any trust solely for the benefit of Employee and/or Employee's spouse and/or descendants. Any transferee of Employee Stock pursuant to a transfer in accordance with the provisions of this subparagraph 4(b) is herein referred to as a "Permitted --------- Transferee." Upon the transfer of Employee Stock pursuant to this paragraph - ---------- 4(b), Employee will deliver a written notice (the "Transfer Notice") to the --------------- Company. The Transfer Notice will disclose in reasonable detail the identity of the Permitted Transferee(s). (c) Participation Rights. -------------------- -7- (i) At least 30 days prior to any transfer of shares of any class of Common Stock by an Investor (other than a transfer among the Investors or their affiliates or to an employee or director of the Company or its Subsidiaries), the transferring Investor will deliver written notice (the "Sale Notice") to the Company, Employee and all other holders of such class ----------- of Common Stock that have been granted participation rights similar to the participation rights granted herein (Employee and such other holders of Common Stock with participation rights collectively referred to as the "Other Stockholders"), specifying in reasonable detail the identity of the ------------------ prospective transferee(s) and the terms and conditions of the transfer. Notwithstanding the restrictions contained in this paragraph 4, the Other Stockholders may elect to participate in the contemplated transfer by delivering written notice to the transferring Investor within 10 days after delivery of the Sale Notice. If any Other Stockholders have elected to participate in such transfer, each of the transferring Investor and such Other Stockholders will be entitled to sell in the contemplated transfer, at the same price and on the same terms, a number of shares of such class of Common Stock equal to the product of (A) the quotient determined by dividing the number of shares of such class of Common Stock owned by such person by the aggregate number of shares of such class of Common Stock owned by the transferring Investor and the Other Stockholders participating in such sale and (B) the number of shares of such class of Common Stock to be sold in the contemplated transfer. Notwithstanding the foregoing, in the event that the transferring Investor(s) intend to transfer shares of more than one class of Common Stock, the Other Stockholders participating in such transfer shall be required to sell in the contemplated transfer a pro rata portion of shares of all such classes of Common Stock, which portion shall be determined in the manner set forth immediately above. For example (by way of illustration only), if the Sale Notice contemplated ----------------------------------------- a sale of 100 shares of Class L Common by the transferring Investor, and if the transferring Investor at such time owns 30% of the Class L Common and if one Other Stockholder elects to participate and owns 20% of the Class L Common, the transferring Investor would be entitled to sell 60 shares (30% / 50% x 100 shares) and the Other Stockholder would be entitled to sell 40 shares (20% / 50% x 100 shares). (ii) The transferring Investor will use reasonable efforts to obtain the agreement of the prospective transferee(s) to the participation of the Other Stockholders in any contemplated transfer, and the transferring Investor will not transfer any of its shares of Common Stock to the prospective transferee(s) unless (A) simultaneously with such transfer, the prospective transferee or transferees purchase from the Other Stockholders the shares of Common Stock which the Other Stockholders are entitled to sell to such prospective transferee(s) pursuant to paragraph 4(c)(i) above or (B) simultaneously with such transfer, the transferring Investor purchases the number of shares of such class of Common Stock from the Other Stockholders which the Other Stockholders would have been entitled to sell pursuant to paragraph 4(c)(i) above. (d) Termination of Transfer Restrictions. The provisions of this ------------------------------------ paragraph 4 will terminate upon the occurrence of a Termination Event. -8- 5. Additional Restrictions on Transfer. ----------------------------------- (a) The certificates representing the Employee Stock will bear the following legend: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION THEREUNDER. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE OPTIONS AND CERTAIN OTHER AGREEMENTS SET FORTH IN AN EMPLOYEE STOCK AGREEMENT BETWEEN THE ISSUER (THE "COMPANY") AND AN EMPLOYEE OF THE COMPANY DATED AS OF _________ __, 1999, A COPY OF WHICH MAY BE OBTAINED BY THE HOLDER HEREOF AT THE COMPANY'S PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE." (b) No holder of Employee Stock may sell, transfer or dispose of any Employee Stock (except pursuant to an effective registration statement under the Securities Act of 1933) without first delivering to the Company an opinion of counsel reasonably acceptable in form and substance to the Company (which counsel shall be reasonably acceptable to the Company) that registration under the 1933 Act is not required in connection with such transfer. 6. Definition of Employee Stock. For all purposes of this Agreement, ---------------------------- Employee Stock will continue to be Employee Stock in the hands of any holder other than Employee (except for the Company, the Investors or purchasers pursuant to an offering registered under the 1933 Act or purchasers pursuant to a Rule 144 transaction (other than a Rule 144(k) transaction occurring prior to the time of a closing of a Public Offering (as defined in Section 8 below)), and each such other holder of Employee Stock will succeed to all rights and obligations attributable to Employee as a holder of Employee Stock hereunder. Employee Stock will also include shares of the Company's capital stock issued with respect to shares of Employee Stock by way of a stock split, stock dividend or other recapitalization. 7. Sale of the Company ------------------- (a) If the holders of a majority of the shares of the Company's common stock held by the Investors approve (and, in the case of any sale or other fundamental change which requires the approval of the board of directors of a California corporation pursuant to the California General Corporation Law, the Company's board of directors shall have approved such sale) a sale of all or substantially all of the Company's assets determined on a consolidated basis or a sale of all or substantially all of the Company's outstanding capital stock (whether by merger, recapitalization, -9- consolidation, reorganization, combination or otherwise) to an Independent Third Party or group of Independent Third Parties (an "Approved Sale"), each holder of ------------- Employee Stock will vote for, consent to and raise no objections against such Approved Sale. If the Approved Sale is structured as (i) a merger or consolidation, each holder of Employee Stock will waive any dissenters' rights, appraisal rights or similar rights in connection with such merger or consolidation or (ii) sale of stock, each holder of Employee Stock will agree to sell all of his or her shares of Employee Stock and rights to acquire shares of Employee Stock on the terms and conditions approved by the Company's board of directors and the holders of a majority of the Company's common stock then outstanding. Each holder of Employee Stock will take all necessary or desirable actions in connection with the consummation of the Approved Sale as requested by the Company. (b) The obligations of the holders of Common Stock with respect to the Approved Sale of the Company are subject to the satisfaction of the following conditions: (i) upon the consummation of the Approved Sale, each holder of Common Stock will receive the same form of consideration and the same portion of the aggregate consideration that such holders of Common Stock would have received if such aggregate consideration had been distributed by the Company in complete liquidation pursuant to the rights and preferences set forth in the Company's Articles of Incorporation as in effect immediately prior to such Approved Sale; (ii) if any holders of a class of Common Stock are given an option as to the form and amount of consideration to be received, each holder of such class of Common Stock will be given the same option; and (iii) each holder of then currently exercisable rights to acquire shares of a class of Common Stock will be given an opportunity to exercise such rights prior to the consummation of the Approved Sale and participate in such sale as holders of such class of Common Stock. (c) If the Company or the holders of the Company's securities enter into any negotiation or transaction for which Rule 506 (or any similar rule then in effect) promulgated by the Securities Exchange Commission may be available with respect to such negotiation or transaction (including a merger, consolidation or other reorganization), the holders of Employee Stock will, at the request of the Company, appoint a purchaser representative (as such term is defined in Rule 501) reasonably acceptable to the Company. If any holder of Employee Stock appoints a purchaser representative designated by the Company, the Company will pay the fees of such purchaser representative, but if any holder of Employee Stock declines to appoint the purchaser representative designated by the Company, such holder will appoint another purchaser representative, and such holder will be responsible for the fees of the purchaser representative so appointed. (d) Employee and the other holders of Employee Stock (if any) will bear their pro-rata share (based upon the number of shares sold) of the costs of any sale of Employee Stock pursuant to an Approved Sale to the extent such costs are incurred for the benefit of all holders of Common Stock and are not otherwise paid by the Company or the acquiring party. Costs incurred by Employee and the other holders of Employee Stock on their own behalf will not be considered costs of the transaction hereunder. (e) The provisions of this paragraph 7 will terminate upon the closing of a Public Offering (as defined below). -10- 8. Public Offering. In the event that the Company's board of --------------- directors and the holders of a majority of the Company's shares of common stock then outstanding approve an initial public offering and sale of the Company's common stock (a "Public Offering") pursuant to an effective registration --------------- statement under the 1933 Act, the holders of Employee Stock will take all necessary or desirable actions in connection with the consummation of the Public Offering. In the event that such Public Offering is an underwritten offering and the managing underwriters advise the Company in writing that in their opinion the Common Stock structure will adversely affect the marketability of the offering, each holder of Employee Stock will consent to and vote for a recapitalization, reorganization and/or exchange of the Common Stock into securities that the managing underwriters, the Company's board of directors and holders of a majority of the shares of Common Stock then outstanding find acceptable and will take all necessary or desirable actions in connection with the consummation of the recapitalization, reorganization and/or exchange. 9. Voting Agreement. Each holder of Employee Stock hereby agrees to ---------------- vote all of his or her shares of Employee Stock (and, in the event such holder is entitled to vote any of the Company's other securities for the election of directors, such holder shall vote all such securities) and take all other necessary actions (whether in such holder's capacity as a stockholder, director or officer of the Company), and the Company shall take all necessary or desirable actions as are requested by the Investors, in order to cause any representatives designated by the Investors to be elected as members of the Company's board of directors. In addition, no holder shall vote his or her shares of Employee Stock (or such other securities) in connection with the removal of any of the Investors' designees as a director unless and until the Investors direct such holder how to vote on such removal. Except as otherwise provided herein, each holder of Employee Stock shall at all times retain the right to vote his or her Employee Stock (and such other securities) in his or her sole discretion on all other matters presented to the Company's stockholders for a vote. All Investor determinations under this paragraph 9 shall be made by the Investors holding a majority of the Common Stock held by all Investors (in each case determined on a fully-diluted basis). The provisions of this paragraph 9 shall terminate upon the occurrence of a Termination Event. 10. Confidential Information. Employee acknowledges that the ------------------------ information, observations and data obtained by him or her while employed by the Company and its Subsidiaries concerning the business or affairs of the Company or any of its Subsidiaries ("Confidential Information") are the property of the ------------------------ Company or such Subsidiary. Therefore, Employee agrees that he or she shall not disclose to any unauthorized person or use for his or her own purposes any Confidential Information without the prior written consent of the Company's board of directors, unless and to the extent that the aforementioned matters become generally known to and available for use by the public other than as a result of Employee's acts or omissions. Employee shall deliver to the Company as of the Termination Date, or at any other time the Company may request, all memoranda, notes, plans, records, reports, computer tapes, printouts and software and other documents and data (and copies thereof) relating to the Confidential Information, Work Product (as defined below) or the business of the Company or any Subsidiary which he or she may then possess or have under his or her control. 11. Inventions and Patents. Employee acknowledges that all ---------------------- inventions, innovations, improvements, developments, methods, designs, analyses, drawings, reports and all -11- similar or related information (whether or not patentable) which relate to the Company's or any of its Subsidiaries' actual or anticipated business, research and development or existing or future products or services and which are conceived, developed or made by Employee while employed by the Company or its Subsidiaries ("Work Product") belong to the Company or such Subsidiary. ------------ Employee shall promptly disclose such Work Product to the Company's board of directors and perform all actions reasonably requested by the Company's board of directors (whether during or after the period of Employee's employment with the Company or its Subsidiaries) to establish and confirm such ownership (including, without limitation, assignments, consents, powers of attorney and other instruments). 12. Non-Compete, Non-Solicitation. ----------------------------- (a) In further consideration of the sale and purchase of the Company's stock hereunder and the other stock sales and stock options made available to Employee pursuant to separate agreements, Employee acknowledges that in the course of his or her employment with the Company or its Subsidiaries he or she shall become familiar with the Company's and its Subsidiaries' trade secrets and with other Confidential Information concerning the Company and its Subsidiaries and that his or her services shall be of special, unique and extraordinary value to the Company and its Subsidiaries. Therefore, Employee agrees that, during the period of his or her employment with the Company or its Subsidiaries and, at the Company's option, so long as the Company elects to pay Employee's monthly base salary during any such month (it being agreed that the Company's payment of any severance or other termination payments pursuant to any separate employment or other agreement between the Company and Employee which provides Employee with severance or other termination payments (whether on a periodic basis or in a lump sum) not less than Employee's monthly base salary shall be deemed to satisfy the aforementioned requirement), on a month to month basis thereafter for a period not to exceed twelve months (the "Noncompete Period"), he or she shall not directly or indirectly own any ----------------- interest in, manage, control, participate in, consult with, render services for, or in any manner engage in any business competing with the businesses of the Company or its Subsidiaries, as such businesses exist or are in process on the date of the termination of Employee's employment, anywhere in the world (any of the foregoing, a "Competitive Activity"). Nothing herein shall prohibit -------------------- Employee from being a passive owner of not more than 2% of the outstanding stock of any class of a corporation which is publicly traded, so long as Employee has no active participation in the business of such corporation. (b) During the Noncompete Period, Employee shall not directly or indirectly through another entity (i) induce or attempt to induce any employee of the Company or any Subsidiary to leave the employ of the Company or such Subsidiary, or in any way interfere with the relationship between the Company or any Subsidiary and any employee thereof, (ii) hire any person who was an employee of the Company or any Subsidiary at any time during Employee's period of employment with the Company or its Subsidiaries or (iii) induce or attempt to induce any customer, supplier, licensee, licensor, franchisee or other business relation of the Company or any Subsidiary to cease doing business with the Company or such Subsidiary, or in any way interfere with the relationship between any such customer, supplier, licensee, licensor, franchisee or business relation -12- and the Company or any Subsidiary (including, without limitation, making any negative statements or communications about the Company or its Subsidiaries). 13. Enforcement. If, at the time of enforcement of paragraph 10, 11 ----------- or 12 of this Agreement, a court holds that the restrictions stated herein are unreasonable under circumstances then existing, the parties hereto agree that the maximum period, scope or geographical area reasonable under such circumstances shall be substituted for the stated period, scope or area. Because Employee's services are unique and because Employee has access to Confidential Information and Work Product, the parties hereto agree that money damages would not be an adequate remedy for any breach of this Agreement. Therefore, in the event a breach or threatened breach of this Agreement, the Company or its successors or assigns may, in addition to other rights and remedies existing in their favor, apply to any court of competent jurisdiction for specific performance and/or injunctive or other relief in order to enforce, or prevent any violations of, the provisions hereof (without posting a bond or other security). In addition, in the event of an alleged breach or violation by Employee of paragraph 12, the Noncompete Period shall be tolled until such breach or violation has been duly cured. Employee agrees that the restrictions contained in paragraph 12 are reasonable. 14. Other Businesses. As long as Employee is employed by the Company ---------------- or any of its Subsidiaries, Employee agrees that he or she will not, except with the express written consent of the Company's board of directors, become engaged in, or render services for, any business other than the business of the Company or any of its Subsidiaries. 15. Holdback Agreement. No holder of Employee Stock will effect any ------------------ public sale or distribution (including sales pursuant to Rule 144 of the 1933 Act) of any Employee Stock or of any other capital stock or equity securities of the Company, or any securities, options or rights convertible into or exchangeable or exercisable for such stock or securities, during the seven days prior to and the 180-day period beginning on the effective date of any underwritten public offering of the Company's common stock, except as part of such underwritten public offering. The restrictions on the transfer set forth in this Section 15 shall continue with respect to each share of Employee Stock until the date on which such share has been transferred pursuant to an offering registered under the 1933 Act or to the public through a broker, dealer or market maker pursuant to the provisions of Rule 144 (other than Rule 144(k)), adopted under the 1933 Act. 16. Employee's Representations. Employee hereby represents and -------------------------- warrants to the Company that (i) the execution, delivery and performance of this Agreement by Employee do not and will not conflict with, breach, violate or cause a default under any contract, agreement, instrument, order, judgment or decree to which Employee is a party or by which he or she is bound, (ii) Employee is not a party to or bound by any employment agreement, noncompete agreement or confidentiality agreement with any other person or entity and (iii) upon the execution and delivery of this Agreement by the Company, this Agreement shall be the valid and binding obligation of Employee, enforceable in accordance with its terms. 17. Survival. Paragraphs 10, 11 and 12 shall survive and continue in -------- full force in accordance with their terms notwithstanding any termination of Employee's employment. -13- 18. Notices. Any notice provided for in this Agreement must be in ------- writing and must be personally delivered or sent by guaranteed overnight delivery service, to the Investors and Employee at the addresses indicated in the Company's records and to the Company at the address indicated below: To the Company: ChipPAC, Inc. 3151 Coronado Drive Santa Clara, California 95054 Attn: CEO With a copy to: Kirkland & Ellis 200 East Randolph Drive Chicago, Illinois 60601 Attn: Jeffrey C. Hammes, P.C. Gary M. Holihan or such other address or to the attention of such other person as the recipient party shall have specified by prior written notice to the sending party. Any notice under this Agreement will be deemed to have been given when so delivered or deposited with such delivery service. 19. Severability. Whenever possible, each provision of this ------------ Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. In the event that any ruling of any court or governmental authority calls into question the validity of any portion of this Agreement, the parties hereto shall consult with each other concerning such matters and shall negotiate in good faith a modification to this Agreement which would obviate any such questions as to validity while preserving, to the extent possible, the intent of the parties and the economic and other benefits of this Agreement and the portion thereof whose validity is called into question. 20. Complete Agreement. This Agreement embodies the complete ------------------ agreement and understanding among the parties and supersedes and preempts any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way. 21. Counterparts. This Agreement may be executed in separate ------------ counterparts (any one of which may be delivered by facsimile), each of which will be deemed to be an original and all of which taken together will constitute one and the same agreement. -14- 22. Successors and Assigns. This Agreement is intended to bind and ---------------------- inure to the benefit of and be enforceable by Employee, the Company, the Investors and their respective successors and assigns, provided that Employee may not assign any of his or her rights or obligations, except as expressly provided by the terms of this Agreement. 23. GOVERNING LAW. ALL ISSUES CONCERNING THE ENFORCEABILITY, ------------- VALIDITY AND BINDING EFFECT OF THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF CALIFORNIA OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAW OF ANY JURISDICTION OTHER THAN THE STATE OF CALIFORNIA. EACH OF THE PARTIES HERETO SUBMITS TO THE JURISDICTION IN ANY STATE OR FEDERAL COURT LOCATED IN THE STATE OF CALIFORNIA AND WAIVES ANY CLAIM OF IMPROPER JURISDICTION OR LACK OF VENUE IN CONNECTION WITH ANY CLAIM OR CONTROVERSY WHICH MAY BE BROUGHT IN CONNECTION WITH THIS AGREEMENT. EACH OF THE PARTIES HERETO MAINTAINS SUBSTANTIAL CONTACTS WITH THE STATE OF CALIFORNIA, AND A SIGNIFICANT PORTION OF THE PARTIES' RELATIONSHIP SHALL BE CARRIED OUT IN THE STATE OF CALIFORNIA, BY REASON OF THE COMPANY'S SANTA CLARA, CALIFORNIA FACILITY. EACH PARTY AGREES THAT THE COVENANTS PROVIDED IN THIS SECTION 23 ARE A MATERIAL INDUCEMENT TO EACH PARTY TO ENTER INTO THIS AGREEMENT, AND EACH PARTY RELIED ON SUCH COVENANTS IN ENTERING INTO THIS AGREEMENT. 24. Remedies. The parties hereto acknowledge and agree that money -------- damages may not be an adequate remedy for any breach of the provisions of this Agreement and that any party hereto will have the right to injunctive relief, in addition to all of its other rights and remedies at law or in equity, to enforce the provisions of this Agreement. 25. Effect of Transfers in Violation of Agreement. The Company will ---------------------------------------------- not be required (a) to transfer on its books any shares of Employee Stock which have been sold or transferred in violation of any of the provisions set forth in this Agreement or (b) to treat as owner of such shares, to accord the right to vote as such owner or to pay dividends to any transferee to whom such shares have been transferred in violation of this Agreement. 26. Amendments and Waivers. Any provision of this Agreement may be ---------------------- amended or waived only with the prior written consent of the board of directors of the Company, the Investors who hold 70% of the Common Stock held by the Investors, and Employee; provided that in the event that such amendment or waiver would adversely affect an Investor or a group of Investors in a manner different than any other Investor, then such amendment or waiver will require the consent of such Investor or a majority of the Common Shares held by such group of Investors adversely affected. -15- 27. Third Party Beneficiaries. The parties hereto acknowledge and ------------------------- agree that the Investors are third party beneficiaries of this Agreement. This Agreement will inure to the benefit of and be enforceable by the Investors and their respective successors and assigns. * * * * * -16- IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first above written. CHIPPAC, INC. By: _______________________________ Its: _______________________________ ____________________________________ Employee Name -17- Exhibit B --------- CONSENT The undersigned spouse hereby acknowledges that I have read the following agreements to which my spouse is a party: . 1999 ChipPAC, Inc. Stock Purchase and Option Plan . Key Employee Purchased Stock Agreement and that I understand their contents. I am aware that the such agreements provide for the repurchase of my spouse's shares of capital stock of ChipPAC, Inc. (the "Company") under certain circumstances and impose other restrictions ------- on such capital stock. I agree that my spouse's interest in the capital stock is subject to the agreements referred to above and the other agreements referred to therein and any interest I may have in such capital stock shall be irrevocably bound by these agreements and the other agreements referred to therein and further that my community property interest (if any) shall be similarly bound by these agreements. The undersigned spouse irrevocably constitutes and appoints Employee N ame, who is the spouse of the undersigned spouse (the "Shareholder") as the ----------- undersigned's true and lawful attorney and proxy in the undersigned's name, place and stead to sign, make, execute, acknowledge, deliver, file and record all documents which may be required, and to manage, vote, act and make all decisions with respect to (whether necessary, incidental, convenient or otherwise), any and all shares of capital stock of the Company in which the undersigned now has or hereafter acquires any interest and in any and all shares of the Company now or hereafter held of record by the Shareholder (including but not limited to the right, without further signature, consent or knowledge of the undersigned spouse, to exercise or not to exercise any and all options under any appropriate agreements and to exercise amendments and modifications of and to terminate the foregoing agreements and to dispose of any and all such shares of capital stock and options), with all powers the undersigned spouse would possess if personally present, it being expressly understood and intended by the undersigned that the foregoing power of attorney and proxy is coupled with an interest; and this power of attorney is a durable power of attorney and will not be affected by disability, incapacity or death of the Shareholder, or dissolution of marriage and this proxy will not terminate without consent of the Shareholder and the Company: Shareholder: Spouse of Shareholder: - ----------- --------------------- __________________________ __________________________________ Signature Signature __________________________ __________________________________ Printed Name Printed Name __________________________ __________________________________ Dated Dated Exhibit C --------- ELECTION TO INCLUDE STOCK IN GROSS INCOME PURSUANT TO SECTION 83(b) OF THE INTERNAL REVENUE CODE The undersigned acquired shares of Class L Common Stock, par value $.01 per share and shares of Class A Common Stock, par value $.01 per share (collectively, the "Shares"), of ChipPAC, Inc., a California corporation (the ------ "Company"), on _________ __, 1999. The Company and certain of its shareholders ------- have the right to repurchase certain of the Shares at cost from the undersigned (or from the holder of the Shares, if different from the undersigned) should the undersigned cease to be employed by the Company or its subsidiaries. Hence, the Shares are subject to a substantial risk of forfeiture. The Shares are also non-transferable. The undersigned desires to make an election to have the Shares taxed under (S)83(b) of the Internal Revenue Code of 1986, as amended (the "Code"), at the time he or she acquired the Shares. ---- Therefore, pursuant to Code (S)83(b) and Treasury Regulation (S)1.83-2 promulgated thereunder, the undersigned hereby makes an election with respect to the Shares, to report as taxable income in 1999 the excess of the Shares' fair market value on _________ __, 1999 over the acquisition price thereof. The following information is supplied in accordance with Treasury Regulation (S)1.83-2(e): 1. The name, address and social security number of the undersigned: __________________ __________________ __________________ Social Security No.: ____________ 2. A description of the property, with respect to which the election is being made: ________ shares of the Company's Class L Common Stock, par value $.01 per share and ________ shares of the Company's Class A Common Stock, par value $.01 per share. 3. The date on which the property was transferred: _________ __, 1999. The taxable year for which such election is made: Calendar 1999. 4. The restrictions to which the property is subject: If, at any time prior to the first to occur of (i) a sale of the Company and (ii) the first date subsequent to the date that the Company sells any shares of its common stock pursuant to a registration statement filed under the Securities Act of 1933, as amended, the undersigned ceases to be employed by the Company or any of its subsidiaries, the unvested portion of the Shares shall be subject to repurchase by the Company at fair market value, except in the case of the undersigned's termination for cause or in the event that the undersigned participates in any competitive activity during the period not to exceed 12 months from the date of the undersigned's termination of employment with the Company or any of its subsidiaries, in which event all of the Shares shall be subject to repurchase by the Company at the lower of original cost or fair market value. Twenty percent of the Shares shall become vested as of August 5, 2000, an additional 20% of the Shares shall become vested as of August 5, 2001, an additional 30% of the Shares shall become vested as of August 5, 2002 and the final 30% of the Shares shall become vested on August 5, 2003; provided that if the undersigned's termination of employment with the Company or its subsidiaries occurs at any time after August 5, 2000 and prior to August 5, 2003, the percentages of Shares to become vested shall be determined on a pro-rata fiscal quarter basis; provided further, that upon any change in control, all of the Shares shall become vested. 5. The fair market value on _________ __, 1999 of the property with respect to which the election is being made, determined without regard to any lapse restrictions: ________. 6. The amount paid for such property: _______________. A copy of this election has been furnished to the Secretary of the Company pursuant to Treasury Regulations (S)1.83-2(e)(7). Dated: _________ __, 1999 ___________________________________ Employee Name -2- Annex 1 ------- PROMISSORY NOTE --------------- $__________________ _________ __, 1999 For value received, ______ ("Employee") promises to pay to the order -------- of ChipPAC, Inc., a California corporation (the "Company"), at its offices at ------- 3151 Coronado Drive, Santa Clara, California 95054, or such other place as designated in writing by the holder hereof, the aggregate principal sum of _______________. This Note was issued pursuant to and is subject to the terms of the Key Employee Purchased Stock Agreement, dated as of the date hereof (the "Employee Stock Agreement"), between the Company and Employee. ------------------------ Employee shall pay the then outstanding principal amount of this Note, together with interest accrued thereon, to the holder of this Note on the earlier of (a) the fifth anniversary of the date hereof, (b) the date on which Employee is no longer employed by the Company or any subsidiaries, (c) upon the liquidation, dissolution or winding up of the Company (whether voluntary or involuntary), including, without limitation, any such deemed liquidation, dissolution or winding up of the Company pursuant to the Company's Articles of Incorporation and (d) Employee's bankruptcy, insolvency or petition for relief (whether voluntary or involuntary) under any bankruptcy or insolvency law (collectively, the "Maturity Date"). In addition, Employee shall pay, to the ------------- extent of any proceeds received in connection with any sale, pledge or transfer of the Employee Stock (as defined in the Employee Stock Agreement), the then outstanding principal amount of this Note, together with interest accrued thereon, to the holder of this Note, on the date on which Employee sells, pledges or otherwise transfers any interest in any shares of Employee Stock. Employee may prepay all or any portion of the outstanding principal amount of this Note, together with the full amount of any accrued interest on this Note through the date of prepayment, at any time without premium or penalty. No such prepayment shall relieve Employee of his obligation to repay in full the outstanding principal amount of this Note, together with all accrued interest thereon, on the Maturity Date. Any prepayment of this Note shall be applied first to accrued interest and then to the principal amount of this Note. Interest will accrue on the outstanding principal amount of this Note at a rate equal to eight percent per annum, and shall be compounded semi- annually, commencing at the end of the first six month anniversary subsequent to the date of this Note and shall be due and payable at the end of each six month period thereafter so long as all or any portion of this Note remains unpaid, commencing at the end of the first six month anniversary subsequent to the date of this Note. The amounts due under this Note are secured by a pledge of certain shares of Employee Stock (as defined in the Employee Stock Agreement) purchased by Employee pursuant to the Employee Stock Agreement. In addition to any other remedies set forth in this Note or the pledge agreement, the Company shall be entitled to set-off any amounts due or payable to Employee from the Company or any of its subsidiaries against any amount due or payable to the Company by Employee pursuant to this Note. In the event Employee fails to pay any amounts due hereunder when due, Employee shall pay to the holder hereof, in addition to such amounts due, all costs of collection, including reasonable attorneys' fees. Employee, and his successors and assigns, hereby waive diligence, presentment, protest and demand and notice of protest, demand, dishonor and nonpayment of this Note, and expressly agree that this Note, or any payment hereunder, may be extended from time to time and that the holder hereof may accept security for this Note or release security for this Note, all without in any way affecting the liability of Employee hereunder. This Note shall be governed by the internal laws, not the laws of conflicts, of the State of California. ___________________________ Employee Name -2- Annex 2 ------- STOCK PLEDGE AGREEMENT ---------------- THIS STOCK PLEDGE AGREEMENT (this "Agreement") is made as of _________ --------- __, 1999, between ______ ("Pledgor") and ChipPAC, Inc., a California corporation ------- (the "Company"). ------- The Company and Pledgor are parties to a Key Employee Purchased Stock Agreement, dated as of the date hereof (the "Employee Stock Agreement"), ------------------------ pursuant to which Pledgor purchased certain shares of Employee Stock (as defined in the Employee Stock Agreement) (the "Pledged Shares"), which Pledged Shares -------------- have been financed (in whole or in part) by delivery to the Company of Pledgor's promissory note dated as of the date hereof (the "Note"). This Pledge Agreement ---- provides the terms and conditions upon which the Note is secured by a pledge to the Company of the Pledged Shares. NOW, THEREFORE, in consideration of the premises contained herein and other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, and in order to induce the Company to finance (in whole or in part) Pledgor's purchase of the Pledged Shares, Pledgor and the Company hereby agree as follows: 1. Pledge. Pledgor hereby pledges to the Company, and grants to the ------ Company a security interest in, the Pledged Shares as security for the prompt and complete payment when due of the unpaid principal of and interest on the Note. 2. Delivery of Pledged Shares. Upon the execution of this Pledge -------------------------- Agreement, Pledgor shall deliver to the Company the certificate(s) representing the Pledged Shares, together with duly executed forms of assignment sufficient to transfer title thereto to the Company. 3. Voting Rights; Cash Dividends. Notwithstanding anything to the ----------------------------- contrary contained herein, during the term of this Pledge Agreement until such time as there exists a default in the payment of principal or interest on the Note or any other default under the Note, Pledgor shall be entitled to all voting rights with respect to the Pledged Shares and shall be entitled to receive all cash dividends paid in respect of the Pledged Shares. Upon the occurrence of and during the continuance of any such default, the Company shall retain all such cash dividends payable on the Pledged Shares as additional security hereunder. 4. Stock Dividends; Distributions, etc. If, while this Pledge ------------------------------------ Agreement is in effect, Pledgor becomes entitled to receive or receives any securities or other property in addition to, in substitution of, or in exchange for any of the Pledged Shares (whether as a distribution in connection with any recapitalization, reorganization or reclassification, a stock dividend or otherwise), Pledgor shall accept such securities or other property on behalf of and for the benefit of the Company as additional security for Pledgor's obligations under the Note and shall promptly deliver such additional security to the Company together with duly executed forms of assignment, and such additional security shall be deemed to be part of the Pledged Shares hereunder. 5. Default. If Pledgor defaults in the payment of the principal or ------- interest under the Note as it becomes due (whether upon demand, maturity, acceleration or otherwise) or any other event of default under the Note occurs (including the bankruptcy or insolvency of Pledgor), the Company may exercise any and all the rights, powers and remedies of any owner of the Pledged Shares (including the right to vote the shares and receive dividends and distributions with respect to such shares) and shall have and may exercise without demand any and all of the rights and remedies granted to a secured party upon default under the Uniform Commercial Code of the State of California or otherwise available to the Company under applicable law. Without limiting the foregoing, the Company is authorized to sell, assign and deliver at its discretion, from time to time, all or any part of the Pledged Shares at any private sale or public auction, on not less than ten days written notice to Pledgor, at such price or prices and upon such terms as the Company may deem advisable. Pledgor shall have no right to redeem the Pledged Shares after any such sale or assignment. At any such sale or auction, the Company may bid for, and become the purchaser of, the whole or any part of the Pledged Shares offered for sale. In case of any such sale, after deducting the costs, attorneys' fees and other expenses of sale and delivery, the remaining proceeds of such sale shall be applied to the principal of and accrued interest on the Note; provided, however, that after payment in full of the indebtedness evidenced by the Note, the balance of the proceeds of sale then remaining shall be paid to Pledgor and Pledgor shall be entitled to the return of any of the Pledged Shares remaining in the hands of the Company. Pledgor shall be liable for any deficiency if the remaining proceeds are insufficient to pay the indebtedness under the Note in full, including the fees of any attorneys employed by the Company to collect such deficiency. 6. Costs and Attorneys' Fees. All costs and expenses, including ------------------------- reasonable attorneys' fees, incurred in exercising any right, power or remedy conferred by this Pledge Agreement or in the enforcement thereof, shall become part of the indebtedness secured hereunder and shall be paid by Pledgor or repaid from the proceeds of the sale of the Pledged Shares hereunder. 7. Further Assurances. Pledgor agrees that at any time and from ------------------ time to time upon the written request of the Company, Pledgor will execute and deliver such further documents and do such further acts and things as the Company may reasonably request in order to effect the purposes of this Pledge Agreement. 8. Severability. Any provision of this Pledge Agreement which is ------------ prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 9. No Waiver; Cumulative Remedies. The Company shall not by any ------------------------------ act, delay, omission or otherwise be deemed to have waived any of its rights or remedies hereunder, and no waiver shall be valid unless in writing, signed by the Company, and then only to the extent therein set forth. A waiver by the Company of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Company would otherwise have on any future occasion. No failure to exercise nor any delay in exercising on the part of the Company, any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of -2- any other right, power or privilege. The rights and remedies herein provided are cumulative and may be exercised singly or concurrently, and are not exclusive of any rights or remedies provided by law. 10. Waivers, Amendments; Applicable Law. None of the terms or ----------------------------------- provisions of this Pledge Agreement may be waived, altered, modified or amended except by an instrument in writing, duly executed by the parties hereto. This Agreement and all obligations of the Pledgor hereunder shall together with the rights and remedies of the Company hereunder, inure to the benefit of the Company and its successors and assigns. This Pledge Agreement shall be governed by, and be construed and interpreted in accordance with, the laws of the State of California. * * * * * IN WITNESS WHEREOF, this Pledge Agreement has been executed as of the date first above written. CHIPPAC, INC. By: _______________________________ Its: ______________________________ ______________________________ Employee Name -3- EX-10.23 40 FORM OF DIRECTORS STOCK OPTION AGREEMENT Exhibit 10.23 ------------- TRANCHE I STOCK OPTION AGREEMENT -------------------------------- TRANCHE I STOCK OPTION AGREEMENT (this "Agreement") dated as of --------- _________ __, 1999, by and between ChipPAC, Inc., a California corporation (the "Company") and _________ ("Director"). ------- -------- Pursuant to the Company's 1999 Stock Purchase and Option Plan (the "Plan"), a copy of which is attached hereto as Exhibit A, the Company and ---- --------- Director desire to enter into an agreement pursuant to which the Company shall grant to Director certain options to acquire certain shares of the Company's Class A Common Stock, par value $.01 per share (the "Class A Common"), which -------------- will be referred to herein as the "Tranche I Option." The Tranche I Option is ---------------- sometimes hereinafter referred to individually as an "Option" and collectively ------ as the "Options." The Company's Class L Common Stock, par value $.01 per share ------- and the Class A Common are collectively referred to herein as the "Common ------ Stock." All of such shares of Common Stock issuable upon the exercise of any portion of the Options and all shares of the Company's capital stock hereafter acquired by Director are referred to herein as "Director Stock." -------------- The parties hereto agree as follows: OPTION PROVISIONS 1. Representations and Warranties. ------------------------------ (a) In connection with the grant of the Options hereunder, Director represents and warrants to the Company that: (i) The Director Stock which may be acquired by Director pursuant to this Agreement will be acquired for Director's own account and not with a view to, or intention of, distribution thereof in violation of the Securities Act of 1933, as amended (the "1933 Act"), or any applicable -------- state securities laws, and the Director Stock will not be disposed of in contravention of the 1933 Act or any applicable state securities laws. (ii) This Agreement constitutes the legal, valid and binding obligation of Director, enforceable in accordance with its terms, and the execution, delivery and performance of this Agreement by Director does not and will not conflict with, violate or cause a breach of any agreement, contract or instrument to which Director is a party or any judgment, order or decree to which Director is subject. (iii) Director has consulted, or has had an opportunity to consult with, independent legal counsel regarding his or her rights and obligations under this Agreement and he or she fully understands the terms and conditions contained herein. (b) Acknowledgment. As an inducement to the Company to grant the -------------- Option to Director, and as a condition thereto, Director acknowledges and agrees that: (i) the Company will have no duty or obligation to disclose to Director, and Director will have no right to be advised of, any material information regarding the Company or its Subsidiaries at any time prior to, upon or in connection with the repurchase of Director Stock upon the termination of Director's service with the board of directors of the Company or its Subsidiaries or as otherwise provided hereunder; and (ii) neither the issuance of the Director Stock to Director nor any provision contained herein shall entitle Director to remain a member of the board of directors of the Company or its Subsidiaries. (c) Plan Acknowledgment. The Company and Director acknowledge and ------------------- agree that this Agreement has been executed and delivered, and the Director Stock which may be issued hereunder will be issued, in connection with and as part of the compensation and incentive arrangements between the Company and Director. The grant of the Options hereunder is pursuant to, and subject to all the terms and conditions of the Plan, attached hereto as Exhibit A. --------- 2. Stock Options. ------------- (a) Definitions. The following terms are defined as follows: ----------- "Independent Third Party" means any Person who, immediately prior to ----------------------- the contemplated transaction, does not own in excess of 10% of the Company's common stock on a fully diluted basis, who is not controlling, controlled by or under common control with any such 10% owner of the Company's common stock and who is not the spouse or descendant (by birth or adoption) of any such 10% owner of the Company's common stock. "Investors" means Bain Capital Fund VI, L.P., BCIP Associates II, BCIP --------- Associates II-B, BCIP Associates II-C, BCIP Trust Associates II, BCIP Trust Associates II-B, PEP Investments Pty., Ltd., Randolph Street Partners 1998 DIF, LLC, Randolph Street Partners II and SXI Group LLC and any of their transferees. "Person" means an individual, a partnership, a joint venture, a ------ corporation, a trust, an unincorporated organization and a government or any department or agency thereof. "Sale of the Company" means any transaction involving the Company and ------------------- an Independent Third Party or affiliated group of Independent Third Parties pursuant to which such party or parties acquire (i) a majority of the outstanding shares of capital stock of the Company entitled to vote generally in the election of Company's board of directors (whether by merger, consolidation or sale or transfer of the Company's capital stock) or (ii) all or substantially all of the Company's assets determined on a consolidated basis (for purposes hereof "all or substantially all" shall have the meaning given such phrase in the Revised Model Business Corporation Act). -2- (b) Tranche I Option. ---------------- (i) Tranche I Option Grant. The Company hereby grants to Director, ---------------------- pursuant to the Plan, the Tranche I Option to purchase up to _________ shares of Class A Common ("Tranche I Option Shares"), at a price per share of $0.1111 (the ----------------------- "Tranche I Option Price"). The Tranche I Option Price and the number of Tranche ---------------------- I Option Shares will be equitably adjusted for any stock split, stock dividend, reclassification or recapitalization of the Company which occurs subsequent to the date of this Agreement. The Tranche I Option will expire on the close of business on the tenth anniversary of the date hereof (the "Expiration Date"), --------------- subject to earlier expiration as provided in Section 2(c) below. The Tranche I Option is intended to be an "incentive stock option" within the meaning of Section 422A of the Internal Revenue Code of 1986, as amended and the regulations promulgated thereunder (the "Code"). ---- (ii) Exercisability. On each date set forth below the Tranche I -------------- Option will have vested and become exercisable with respect to the cumulative percentage of Tranche I Option Shares set forth opposite such date if Director is, and has been, continuously a member of the Company's board of directors from the date of this Agreement through such date: Cumulative Percentage of Tranche I Option Date Shares Vested ---- ------------- August 5, 2000 20% August 5, 2001 40% August 5, 2002 70% August 5, 2003 100% ; provided that, if Director's Termination Date (as defined in paragraph 3(b) hereof) occurs at any time after August 5, 2000 and prior to August 5, 2003, the cumulative percentage of Tranche I Option Shares to become vested shall be determined on a pro rata basis according to the number of fiscal quarters (i.e., fiscal quarters ending November 1, February 1, May 1 and August 1) elapsed since the prior annual vesting date and provided further, that upon any Change in Control (as defined below), so long as Director was a member of the Company's board of directors on the day immediately prior to such Change in Control, all of the Tranche I Options granted to Director shall become vested and immediately exercisable. For purposes hereof, a "Change in Control" shall be deemed to ----------------- occur upon the first date that the Investors and their affiliates collectively cease to own at least 35% of the aggregate number of shares of common stock of the Company that they own on the date hereof (as adjusted for stock splits, stock dividends and recapitalization and for exchanges in connection with a merger, consolidation, reorganization or sale). (c) Early Expiration of Options. Any portion of the Options that has --------------------------- not vested and become exercisable prior to the Termination Date (as defined in Section 3(b) below) will expire on the Termination Date and may not be exercised under any circumstance. Any portion of the Options that has vested and become exercisable prior to the Termination Date will expire on the earlier of -3- (i) 30 days after the Termination Date (provided that such period shall be extended to six (6) months after the Termination Date, in the event of Director's termination due to death or "disability" (as defined in Code Section 22(a)(3))) and (ii) the Expiration Date. Notwithstanding any provision in this Agreement to the contrary, any portion of the Options which has not been exercised prior to or in connection with a Sale of the Company shall expire upon the consummation of any such transaction. (d) Procedure for Exercise. At any time after all or any portion of ---------------------- the Options have become exercisable with respect to any Option Shares (as defined in Section 3(a) hereof) and prior to the Expiration Date (except as provided for in Section 2(c) above), Director may exercise all or a portion of the Options with respect to Option Shares vested pursuant to paragraph 2(b)(ii) above by delivering written notice of exercise to the Company, together with (i) a written acknowledgment that Director has read and has been afforded an opportunity to ask questions of management of the Company regarding all financial and other information provided to Director regarding the Company, (ii) an executed consent from Director's spouse (if any) in the form of Exhibit B --------- attached hereto and (iii) payment in full by delivery of a certified bank check, wire transfer of immediately available funds or a personal check in the amount (the "Option Price") equal to the product of the Tranche I Option Price ------------ multiplied by the number of Tranche I Option Shares to be acquired. As a condition to any exercise of the Options, Director will permit the Company to deliver to him or her all financial and other information regarding the Company and its Subsidiaries which it believes necessary to enable Director to make an informed investment decision. If, at any time subsequent to the date Director exercises any portion of the Options and prior to the occurrence of a Termination Event (as defined in Section 3(g) hereof), Director becomes legally married (whether in the first instance or to a different spouse), Director shall cause Director's spouse to execute and deliver a consent in the form of Exhibit ------- B attached hereto. Director's failure to deliver the Company an executed - - consent in the form of Exhibit B at any time when Director would otherwise be --------- required to deliver such consent shall constitute Director's continuing representation and warranty that Director is not legally married as of such date. (e) Securities Laws Restrictions. Director represents that when ---------------------------- Director exercises any of the Options he or she will be purchasing Option Shares for Director's own account and not on behalf of others. Director understands and acknowledges that federal and state securities laws govern and restrict Director's right to offer, sell or otherwise dispose of any Option Shares unless Director's offer, sale or other disposition thereof is registered under the 1933 Act and state securities laws or, in the opinion of the Company's counsel, such offer, sale or other disposition is exempt from registration thereunder. Director agrees that he or she will not offer, sell or otherwise dispose of any Option Shares in any manner which would: (i) require the Company to file any registration statement (or similar filing under state law) with the Securities and Exchange Commission or to amend or supplement any such filing or (ii) violate or cause the Company to violate the 1933 Act, the rules and regulations promulgated thereunder or any other state or federal law. Director further understands that the certificates for any Option Shares which Director purchases will bear the legend set forth in paragraph 5 hereof or such other legends as the Company deems necessary or desirable in connection with the 1933 Act or other rules, regulations or laws. -4- (f) Non-Transferability of Options. The Options are personal to ------------------------------ Director and are not transferable by Director except by will or pursuant to the laws of descent or distribution. Only Director or his legal guardian or representative may exercise the Options. 3. Repurchase Option. ----------------- (a) Definitions. The following terms are defined as follows: ----------- "Fair Market Value" of each share of Director Stock means the market ----------------- value as determined in good faith by the Company's board of directors. "Option Shares" means the Tranche I Option Shares. For purposes of ------------- this paragraph 3 and paragraph 4, Option Shares issued upon exercise of any Options will be deemed to be Director Stock. "Original Cost" of each share of Director Stock will be equal to the ------------- price paid by the Director for each share of Common Stock (as proportionally adjusted for all stock splits, stock dividends and other recapitalizations affecting the Common Stock subsequent to the date hereof). "Subsidiary" means any corporation of which shares of stock having a ---------- majority of the general voting power in electing the board of directors are, at the time as of which any determination is being made, owned by the Company either directly or through its Subsidiaries. (b) Repurchase Option. In the event that Director is no longer a ----------------- member of the Company's board of directors for any reason (the date of such termination being referred to herein as the "Termination Date"), the Director ---------------- Stock, whether held by Director or one or more transferees, will be subject to repurchase by the Company and the Investors (each of the aforementioned, solely at their option) pursuant to the terms and conditions set forth in this paragraph 3 (the "Repurchase Option"). ----------------- (c) Repurchase Price. If Director is no longer a member of the ---------------- Company's board of directors for any reason, then on or after the Termination Date, the Company and the Investors may elect to purchase up to 50% of the Director Stock at a price per share equal to Fair Market Value (as of the Termination Date). (d) Repurchase Procedures. The Company may elect to exercise the --------------------- right to purchase all or any portion of the shares of Director Stock pursuant to the Repurchase Option by delivering written notice (the "Repurchase Notice") to ----------------- the holder or holders of the Director Stock within 45 days of the Termination Date (provided that such notice may be delivered in the case of any Director Stock issued after the Termination Date, within 45 days of the date any such Director Stock is issued). The Repurchase Notice will set forth the number of shares of Director Stock to be acquired from such holder(s), the aggregate consideration to be paid for such shares and the time and place for the closing of the transaction. If any Director Stock is held by any transferees of Director, the Company shall purchase the shares elected to be purchased from such holder(s) of Director Stock, pro rata according to the number of shares of Director Stock held by such holder(s) at the time of -5- delivery of such Repurchase Notice (determined as nearly as practicable to the nearest share). If Director Stock of different classes is to be purchased by the Company and Director Stock is held by any transferees of Director, the number of shares of each class of Director Stock to be purchased will be allocated among such holders, pro rata according to the total number of shares of Director Stock to be purchased from such persons. (e) Investor Rights. --------------- (i) If for any reason the Company does not elect to purchase all of the Director Stock pursuant to the Repurchase Option prior to the last to occur of (i) the 45/th/ day following the Termination Date or (ii) the 45/th/ day following the date any Director Stock is issued, in the case of any Director Stock issued after the Termination Date, the Investors will be entitled to exercise the Repurchase Option, in the manner set forth in this paragraph 3, for the Director Stock the Company has not elected to purchase (the "Available --------- Shares"). As soon as practicable, but in any event within thirty (30) days - ------ after the Company determines that there will be any Available Shares (and in no event later than the last to occur of (i) the 45/th/ day following the Termination Date or (ii) the 45/th/ day following the date any Director Stock is issued, in the case of any Director Stock issued after the Termination Date), the Company will deliver written notice (the "Option Notice") to the Investors ------------- setting forth the number of Available Shares and the price for each Available Share. (ii) Each of the Investors will initially be permitted to purchase its pro rata share (based upon the number of shares of Common Stock then held by such Investors) of the Available Shares. Each Investor may elect to purchase any number of the Available Shares (subject to the preceding sentence) by delivering written notice to the Company within 30 days after receipt of the Option Notice from the Company (such 30-day period being referred to herein as the "Election -------- Period"). - ------ (iii) As soon as practicable but in any event within five (5) days after the expiration of the Election Period, the Company will, if necessary, notify the Investors electing to purchase Available Shares of any Available Shares which Investors have elected not to purchase and each of the electing Investors will be entitled to purchase the remaining Available Shares on the same terms as described above (the "Second Option Notice"); provided that if in -------------------- the aggregate such Investors elect to purchase more than the remaining Available Shares, such remaining Available Shares purchased by each such Investor will be reduced on a pro rata basis based upon the number of shares of Common Stock then held by such Investors. Each Investor may elect to purchase any of the remaining Available Shares available to such Investor by delivering written notice to the Company within 5 days after the delivery of the Second Option Notice (with such 5-day period referred to herein as the "Second Election --------------- Period"). - ------ (iv) As soon as practicable but in any event within five days after the expiration of the Election Period or the Second Election Period (if any) the Company will, if necessary, notify the holder(s) of Director Stock as to the number of shares of Director Stock being purchased from the holder(s) by the Investors (the "Supplemental Repurchase Notice"). At the time the Company ------------------------------ delivers a Supplemental Repurchase Notice to the holder(s) of Director Stock, the Company will also deliver to each electing Investor written notice setting forth the number of shares of Director Stock -6- the Company and each Investor will acquire, the aggregate purchase price to be paid and the time and place of the closing of the transaction. (f) Closing. The closing of the transactions contemplated by this ------- paragraph 3 will take place on the date designated by the Company in the Repurchase Notice or the Supplemental Repurchase Notice, as the case may be, which date will not be more than 90 days after the delivery of such notice. The Company and/or the Investors, as the case may be, will pay for the Director Stock to be purchased pursuant to the Repurchase Option by delivery of, in the case of each Investor, a check payable to the holder of such Director Stock, and in the case of the Company (i) first, by cancellation of any amounts due and owing under any promissory note issued by Director to the Company, (ii) second, by a check payable to the holder of such Director Stock up to the amount of the Original Cost therefor paid in cash by Director and (iii) a note or notes payable in one installment on the first anniversary of the closing of such purchase and bearing interest at a rate per annum equal to 8% (it being agreed that the Company may, in its sole discretion, elect to make any payment under this clause (iii) in cash), in any case in the aggregate amount of the purchase price for such shares. Any notes issued by the Company pursuant to this paragraph 3(f) shall be subject to any restrictive covenants to which the Company is subject at the time of such purchase. Notwithstanding anything to the contrary contained in this Agreement, all repurchases of Director Stock by the Company will be subject to applicable restrictions contained in the California General Corporation Law and in the Company's and its Subsidiaries' debt and equity financing agreements. If any such restrictions prohibit the repurchase of Director Stock hereunder which the Company is otherwise entitled to make, the Company may make such repurchases as soon as it is permitted to do so under such restrictions. The Company and/or the Investors, as the case may be, will receive customary repre sentations and warranties from each seller regarding the sale of the Director Stock, including, but not limited to, the representation that such seller has good and marketable title to the Director Stock to be transferred free and clear of all liens, claims and other encumbrances. (g) Termination of Repurchase Option. The provisions of this -------------------------------- paragraph 3 will terminate upon the first to occur of (i) a Sale of the Company and (ii) the first date subsequent to the date that the Company sells any shares of its common stock pursuant to a registration statement filed under the 1933 Act (collectively, a "Termination Event"). ----------------- 4. Restrictions on Transfer. ------------------------ (a) Transfer of Director Stock. Director will not sell, pledge or -------------------------- otherwise transfer any interest in any shares of Director Stock, except pursuant to the provisions of paragraphs 3, 4(b), 7 or 8 hereof. (b) Certain Permitted Transfers. The restrictions contained in this --------------------------- paragraph 4 will not apply with respect to transfers of Director Stock (i) pursuant to applicable laws of descent and distribution or (ii) among Director's Family Group (as defined below), provided that the restrictions contained in this paragraph 4 will continue to be applicable to the Director Stock after any such transfer and the transferees of such Director Stock shall agree in writing to be bound by the provisions of this Agreement. "Family Group" means ------------ Director's spouse and descendants (whether natural or adopted) and any trust solely for the benefit of Director and/or Director's spouse and/or -7- descendants. Any transferee of Director Stock pursuant to a transfer in accordance with the provisions of this subparagraph 4(b) is herein referred to as a "Permitted Transferee." Upon the transfer of Director Director Stock -------------------- pursuant to this paragraph 4(b), Director will deliver a written notice (the "Transfer Notice") to the Company. The Transfer Notice will disclose in --------------- reasonable detail the identity of the Permitted Transferee(s). (c) Termination of Transfer Restrictions. The provisions of this ------------------------------------ paragraph 4 will terminate upon the occurrence of a Termination Event. 5. Additional Restrictions on Transfer. ----------------------------------- (a) The certificates representing the Director Stock and Option Shares will bear the following legend: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION THEREUNDER. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE OPTIONS AND CERTAIN OTHER AGREEMENTS SET FORTH IN A STOCK OPTION AGREEMENT BETWEEN THE ISSUER (THE "COMPANY") AND A DIRECTOR OF THE COMPANY DATED AS OF _________ __, 1999, A COPY OF WHICH MAY BE OBTAINED BY THE HOLDER HEREOF AT THE COMPANY'S PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE." (b) No holder of Director Stock or Options Shares may sell, transfer or dispose of any Director Stock or Option Shares (except pursuant to an effective registration statement under the Securities Act of 1933) without first delivering to the Company an opinion of counsel reasonably acceptable in form and substance to the Company (which counsel shall be reasonably acceptable to the Company) that registration under the 1933 Act is not required in connection with such transfer. 6. Definition of Director Stock and Option Shares. For all purposes ---------------------------------------------- of this Agreement, Director Stock and Option Shares will continue to be Director Stock and Option Shares in the hands of any holder other than Director (except for the Company, the Investors or purchasers pursuant to an offering registered under the 1933 Act or purchasers pursuant to a Rule 144 transaction (other than a Rule 144(k) transaction occurring prior to the time of a closing of a Public Offering (as defined in Section 8 below)), and each such other holder of Director Stock and Option Shares will succeed to all rights and obligations attributable to Director as a holder of Director Stock and Option Shares hereunder. Director Stock and Option Shares will also include shares of the -8- Company's capital stock issued with respect to shares of Director Stock and Option Shares by way of a stock split, stock dividend or other recapitalization. 7. Sale of the Company ------------------- (a) If the holders of a majority of the shares of the Company's common stock held by the Investors approve (and, in the case of any sale or other fundamental change which requires the approval of the board of directors of a California corporation pursuant to the California General Corporation Law, the Company's board of directors shall have approved such sale) a sale of all or substantially all of the Company's assets determined on a consolidated basis or a sale of all or substantially all of the Company's outstanding capital stock (whether by merger, recapitalization, consolidation, reorganization, combination or otherwise) to an Independent Third Party or group of Independent Third Parties (an "Approved Sale"), each holder of Director Stock and Option Shares ------------- will vote for, consent to and raise no objections against such Approved Sale. If the Approved Sale is structured as (i) a merger or consolidation, each holder of Director Stock and Options Shares will waive any dissenters' rights, appraisal rights or similar rights in connection with such merger or consolidation or (ii) sale of stock, each holder of Director Stock and Option Shares will agree to sell all of his or her shares of Director Stock and Options Shares and rights to acquire shares of Director Stock and Option Shares on the terms and conditions approved by the Company's board of directors and the holders of a majority of the Company's common stock then outstanding. Each holder of Director Stock and Option Shares will take all necessary or desirable actions in connection with the consummation of the Approved Sale as requested by the Company. (b) The obligations of the holders of Common Stock with respect to the Approved Sale of the Company are subject to the satisfaction of the following conditions: (i) upon the consummation of the Approved Sale, each holder of Common Stock will receive the same form of consideration and the same portion of the aggregate consideration that such holders of Common Stock would have received if such aggregate consideration had been distributed by the Company in complete liquidation pursuant to the rights and preferences set forth in the Company's Articles of Incorporation as in effect immediately prior to such Approved Sale; (ii) if any holders of a class of Common Stock are given an option as to the form and amount of consideration to be received, each holder of such class of Common Stock will be given the same option; and (iii) each holder of then currently exercisable rights to acquire shares of a class of Common Stock will be given an opportunity to exercise such rights prior to the consummation of the Approved Sale and participate in such sale as holders of such class of Common Stock. (c) If the Company or the holders of the Company's securities enter into any negotiation or transaction for which Rule 506 (or any similar rule then in effect) promulgated by the Securities Exchange Commission may be available with respect to such negotiation or transaction (including a merger, consolidation or other reorganization), the holders of Director Stock and Option Shares will, at the request of the Company, appoint a purchaser representative (as such term is defined in Rule 501) reasonably acceptable to the Company. If any holder of Director Stock or Option Shares appoints a purchaser representative designated by the Company, the Company will pay the fees of such purchaser representative, but if any holder of Director Stock or Option Shares declines to appoint the purchaser representative designated by the Company, such holder will -9- appoint another purchaser representative, and such holder will be responsible for the fees of the purchaser representative so appointed. (d) Director and the other holders of Director Stock and Option Shares (if any) will bear their pro-rata share (based upon the number of shares sold) of the costs of any sale of Director Stock and Option Shares pursuant to an Approved Sale to the extent such costs are incurred for the benefit of all holders of Common Stock and are not otherwise paid by the Company or the acquiring party. Costs incurred by Director and the other holders of Director Stock and Option Shares on their own behalf will not be considered costs of the transaction hereunder. (e) The provisions of this paragraph 7 will terminate upon the closing of a Public Offering (as defined below). 8. Public Offering. In the event that the Company's board of --------------- directors and the holders of a majority of the Company's shares of common stock then outstanding approve an initial public offering and sale of the Company's common stock (a "Public Offering") pursuant to an effective registration --------------- statement under the 1933 Act, the holders of Director Stock and Option Shares will take all necessary or desirable actions in connection with the consummation of the Public Offering. In the event that such Public Offering is an underwritten offering and the managing underwriters advise the Company in writing that in their opinion the Common Stock structure will adversely affect the marketability of the offering, each holder of Director Stock and Option Shares will consent to and vote for a recapitalization, reorganization and/or exchange of the Common Stock into securities that the managing underwriters, the Company's board of directors and holders of a majority of the shares of Common Stock then outstanding find acceptable and will take all necessary or desirable actions in connection with the consummation of the recapitalization, reorganization and/or exchange. 9. Holdback Agreement. No holder of Director Stock or Option Shares ------------------ will effect any public sale or distribution (including sales pursuant to Rule 144 of the 1933 Act) of any Director Stock or Option Shares or of any other capital stock or equity securities of the Company, or any securities, options or rights convertible into or exchangeable or exercisable for such stock or securities, during the seven days prior to and the 180-day period beginning on the effective date of any underwritten public offering of the Company's common stock, except as part of such underwritten public offering. The restrictions on the transfer set forth in this Section 9 shall continue with respect to each share of Director Stock and Option Shares until the date on which such share has been transferred pursuant to an offering registered under the 1933 Act or to the public through a broker, dealer or market maker pursuant to the provisions of Rule 144 (other than Rule 144(k)), adopted under the 1933 Act. 10. Notices. Any notice provided for in this Agreement must be in ------- writing and must be personally delivered or sent by guaranteed overnight delivery service, to the Investors and Director at the addresses indicated in the Company's records and to the Company at the address indicated below: -10- To the Company: ChipPAC, Inc. 3151 Coronado Drive Santa Clara, California 95054 Attn: CEO With a copy to: Kirkland & Ellis 200 East Randolph Drive Chicago, Illinois 60601 Attn: Jeffrey C. Hammes, P.C. Gary M. Holihan or such other address or to the attention of such other person as the recipient party shall have specified by prior written notice to the sending party. Any notice under this Agreement will be deemed to have been given when so delivered or deposited with such delivery service. 11. Severability. Whenever possible, each provision of this Agreement ------------ shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. In the event that any ruling of any court or governmental authority calls into question the validity of any portion of this Agreement, the parties hereto shall consult with each other concerning such matters and shall negotiate in good faith a modification to this Agreement which would obviate any such questions as to validity while preserving, to the extent possible, the intent of the parties and the economic and other benefits of this Agreement and the portion thereof whose validity is called into question. 12. Complete Agreement. This Agreement embodies the complete ------------------ agreement and understanding among the parties and supersedes and preempts any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way. 13. Counterparts. This Agreement may be executed in separate ------------ counterparts (any one of which may be delivered by facsimile), each of which will be deemed to be an original and all of which taken together will constitute one and the same agreement. 14. Successors and Assigns. This Agreement is intended to bind and ---------------------- inure to the benefit of and be enforceable by Director, the Company, the Investors and their respective successors and assigns, provided that Director may not assign any of his or her rights or obligations, except as expressly provided by the terms of this Agreement. -11- 15. GOVERNING LAW. ALL ISSUES CONCERNING THE ENFORCEABILITY, VALIDITY ------------- AND BINDING EFFECT OF THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF CALIFORNIA OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAW OF ANY JURISDICTION OTHER THAN THE STATE OF CALIFORNIA. EACH OF THE PARTIES HERETO SUBMITS TO THE JURISDICTION IN ANY STATE OR FEDERAL COURT LOCATED IN THE STATE OF CALIFORNIA AND WAIVES ANY CLAIM OF IMPROPER JURISDICTION OR LACK OF VENUE IN CONNECTION WITH ANY CLAIM OR CONTROVERSY WHICH MAY BE BROUGHT IN CONNECTION WITH THIS AGREEMENT. EACH OF THE PARTIES HERETO MAINTAINS SUBSTANTIAL CONTACTS WITH THE STATE OF CALIFORNIA, AND A SIGNIFICANT PORTION OF THE PARTIES' RELATIONSHIP SHALL BE CARRIED OUT IN THE STATE OF CALIFORNIA, BY REASON OF THE COMPANY'S SANTA CLARA, CALIFORNIA FACILITY. EACH PARTY AGREES THAT THE COVENANTS PROVIDED IN THIS SECTION 15 ARE A MATERIAL INDUCEMENT TO EACH PARTY TO ENTER INTO THIS AGREEMENT, AND EACH PARTY RELIED ON SUCH COVENANTS IN ENTERING INTO THIS AGREEMENT. 16. Remedies. The parties hereto acknowledge and agree that money -------- damages may not be an adequate remedy for any breach of the provisions of this Agreement and that any party hereto will have the right to injunctive relief, in addition to all of its other rights and remedies at law or in equity, to enforce the provisions of this Agreement. 17. Effect of Transfers in Violation of Agreement. The Company will --------------------------------------------- not be required (a) to transfer on its books any shares of Director Stock or Option Shares which have been sold or transferred in violation of any of the provisions set forth in this Agreement or (b) to treat as owner of such shares, to accord the right to vote as such owner or to pay dividends to any transferee to whom such shares have been transferred in violation of this Agreement. 18. Amendments and Waivers. Any provision of this Agreement may be ---------------------- amended or waived only with the prior written consent of the board of directors of the Company, the Investors who hold 70% of the Common Stock held by the Investors, and Director; provided that in the event that such amendment or waiver would adversely affect an Investor or a group of Investors in a manner different than any other Investor, then such amendment or waiver will require the consent of such Investor or a majority of the Common Shares held by such group of Investors adversely affected. 19. Third Party Beneficiaries. The parties hereto acknowledge and ------------------------- agree that the Investors are third party beneficiaries of this Agreement. This Agreement will inure to the benefit of and be enforceable by the Investors and their respective successors and assigns. * * * * * -12- IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first above written. CHIPPAC, INC. By: _______________________________ Its: _______________________________ ____________________________________ Employee Name -13- Exhibit B --------- CONSENT The undersigned spouse hereby acknowledges that I have read the following agreements to which my spouse is a party: . 1999 ChipPAC, Inc. Stock Purchase and Option Plan . Tranche I Stock Option Agreement and that I understand their contents. I am aware that the such agreements provide for the repurchase of my spouse's shares of capital stock of ChipPAC, Inc. (the "Company") under certain circumstances and impose other restrictions ------- on such capital stock. I agree that my spouse's interest in the capital stock is subject to the agreements referred to above and the other agreements referred to therein and any interest I may have in such capital stock shall be irrevocably bound by these agreements and the other agreements referred to therein and further that my community property interest (if any) shall be similarly bound by these agreements. The undersigned spouse irrevocably constitutes and appoints Employee Name, who is the spouse of the undersigned spouse (the "Shareholder") as the ----------- undersigned's true and lawful attorney and proxy in the undersigned's name, place and stead to sign, make, execute, acknowledge, deliver, file and record all documents which may be required, and to manage, vote, act and make all decisions with respect to (whether necessary, incidental, convenient or otherwise), any and all shares of capital stock of the Company in which the undersigned now has or hereafter acquires any interest and in any and all shares of the Company now or hereafter held of record by the Shareholder (including but not limited to the right, without further signature, consent or knowledge of the undersigned spouse, to exercise or not to exercise any and all options under any appropriate agreements and to exercise amendments and modifications of and to terminate the foregoing agreements and to dispose of any and all such shares of capital stock and options), with all powers the undersigned spouse would possess if personally present, it being expressly understood and intended by the undersigned that the foregoing power of attorney and proxy is coupled with an interest; and this power of attorney is a durable power of attorney and will not be affected by disability, incapacity or death of the Shareholder, or dissolution of marriage and this proxy will not terminate without consent of the Shareholder and the Company: Shareholder: Spouse of Shareholder: - ----------- --------------------- __________________________ __________________________________ Signature Signature __________________________ __________________________________ Printed Name Printed Name __________________________ __________________________________ Dated Dated EX-10.24 41 FORM OF EMPLOYEES STOCK OPTION AGREEMENT Exhibit 10.24 ------------- TRANCHE I STOCK OPTION AGREEMENT -------------------------------- TRANCHE I STOCK OPTION AGREEMENT (this "Agreement") dated as of --------- _________ __, 1999, by and between ChipPAC, Inc., a California corporation (the "Company") and ___________ ("Employee"). ------- -------- Pursuant to the Company's 1999 Stock Purchase and Option Plan (the "Plan"), a copy of which is attached hereto as Exhibit A, the Company and ---- --------- Employee desire to enter into an agreement pursuant to which the Company shall grant to Employee certain options to acquire certain shares of the Company's Class A Common Stock, par value $.01 per share (the "Class A Common"), which -------------- will be referred to herein as the "Tranche I Option." The Tranche I Option is ---------------- sometimes hereinafter referred to individually as an "Option" and collectively ------ as the "Options." The Company's Class L Common Stock, par value $.01 per share ------- and the Class A Common are collectively referred to herein as the "Common ------ Stock." All of such shares of Common Stock issuable upon the exercise of any - ----- portion of the Options and all shares of the Company's capital stock hereafter acquired by Employee are referred to herein as "Employee Stock." -------------- The parties hereto agree as follows: OPTION PROVISIONS 1. Representations and Warranties. ------------------------------ (a) In connection with the grant of the Options hereunder, Employee represents and warrants to the Company that: (i) The Employee Stock which may be acquired by Employee pursuant to this Agreement will be acquired for Employee's own account and not with a view to, or intention of, distribution thereof in violation of the Securities Act of 1933, as amended (the "1933 Act"), or any applicable -------- state securities laws, and the Employee Stock will not be disposed of in contravention of the 1933 Act or any applicable state securities laws. (ii) This Agreement constitutes the legal, valid and binding obligation of Employee, enforceable in accordance with its terms, and the execution, delivery and performance of this Agreement by Employee does not and will not conflict with, violate or cause a breach of any agreement, contract or instrument to which Employee is a party or any judgment, order or decree to which Employee is subject. (iii) Employee has consulted, or has had an opportunity to consult with, independent legal counsel regarding his or her rights and obligations under this Agreement and he or she fully understands the terms and conditions contained herein. (b) Acknowledgment. As an inducement to the Company to grant the -------------- Option to Employee, and as a condition thereto, Employee acknowledges and agrees that: (i) the Company will have no duty or obligation to disclose to Employee, and Employee will have no right to be advised of, any material information regarding the Company or its Subsidiaries at any time prior to, upon or in connection with the repurchase of Employee Stock upon the termination of Employee's employment with the Company or its Subsidiaries or as otherwise provided hereunder; and (ii) neither the issuance of the Employee Stock to Employee nor any provision contained herein shall entitle Employee to remain in the employment of the Company or its Subsidiaries or affect the right of the Company to terminate Employee's employment at any time for any reason. (c) Plan Acknowledgment. The Company and Employee acknowledge and ------------------- agree that this Agreement has been executed and delivered, and the Employee Stock which may be issued hereunder will be issued, in connection with and as part of the compensation and incentive arrangements between the Company and Employee. The grant of the Options hereunder is pursuant to, and subject to all the terms and conditions of the Plan, attached hereto as Exhibit A. --------- 2. Stock Options. ------------- (a) Definitions. The following terms are defined as follows: ----------- "Independent Third Party" means any Person who, immediately prior to ----------------------- the contemplated transaction, does not own in excess of 10% of the Company's common stock on a fully diluted basis, who is not controlling, controlled by or under common control with any such 10% owner of the Company's common stock and who is not the spouse or descendant (by birth or adoption) of any such 10% owner of the Company's common stock. "Investors" means Bain Capital Fund VI, L.P., BCIP Associates II, BCIP --------- Associates II-B, BCIP Associates II-C, BCIP Trust Associates II, BCIP Trust Associates II-B, PEP Investments Pty., Ltd., Randolph Street Partners 1998 DIF, LLC, Randolph Street Partners II and SXI Group LLC and any of their transferees. "Person" means an individual, a partnership, a joint venture, a ------ corporation, a trust, an unincorporated organization and a government or any department or agency thereof. "Sale of the Company" means any transaction involving the Company and ------------------- an Independent Third Party or affiliated group of Independent Third Parties pursuant to which such party or parties acquire (i) a majority of the outstanding shares of capital stock of the Company entitled to vote generally in the election of Company's board of directors (whether by merger, consolidation or sale or transfer of the Company's capital stock) or (ii) all or substantially all of the Company's assets determined on a consolidated basis (for purposes hereof "all or substantially all" shall have the meaning given such phrase in the Revised Model Business Corporation Act). -2- (b) Tranche I Option. ---------------- (i) Tranche I Option Grant. The Company hereby grants to Employee, ---------------------- pursuant to the Plan, the Tranche I Option to purchase up to __________ shares of Class A Common ("Tranche I Option Shares"), at a price per share of $0.1111 ----------------------- (the "Tranche I Option Price"). The Tranche I Option Price and the number of ---------------------- Tranche I Option Shares will be equitably adjusted for any stock split, stock dividend, reclassification or recapitalization of the Company which occurs subsequent to the date of this Agreement. The Tranche I Option will expire on the close of business on the tenth anniversary of the date hereof (the "Expiration Date"), subject to earlier expiration as provided in Section 2(c) --------------- below. The Tranche I Option is intended to be an "incentive stock option" within the meaning of Section 422A of the Internal Revenue Code of 1986, as amended and the regulations promulgated thereunder (the "Code"). ---- (ii) Exercisability. On each date set forth below the Tranche I -------------- Option will have vested and become exercisable with respect to the cumulative percentage of Tranche I Option Shares set forth opposite such date if Employee is, and has been, continuously employed by the Company or its Subsidiaries from the date of this Agreement through such date: Cumulative Percentage of Tranche I Option Date Shares Vested ---- ------------- August 5, 2000 20% August 5, 2001 40% August 5, 2002 70% August 5, 2003 100% ; provided that, if Employee's Termination Date (as defined in paragraph 3(b) hereof) occurs at any time after August 5, 2000 and prior to August 5, 2003, the cumulative percentage of Tranche I Option Shares to become vested shall be determined on a pro rata basis according to the number of fiscal quarters (i.e., fiscal quarters ending November 1, February 1, May 1 and August 1) elapsed since the prior annual vesting date and provided further, that upon any Change in Control (as defined below), so long as Employee was employed by the Company or any of its Subsidiaries on the day immediately prior to such Change in Control, all of the Tranche I Options granted to Employee shall become vested and immediately exercisable. For purposes hereof, a "Change in Control" shall be ----------------- deemed to occur upon the first date that the Investors and their affiliates collectively cease to own at least 35% of the aggregate number of shares of common stock of the Company that they own on the date hereof (as adjusted for stock splits, stock dividends and recapitalization and for exchanges in connection with a merger, consolidation, reorganization or sale). (c) Early Expiration of Options. Any portion of the Options that has --------------------------- not vested and become exercisable prior to the Termination Date (as defined in Section 3(b) below) will expire on the Termination Date and may not be exercised under any circumstance. Any portion of the Options -3- that has vested and become exercisable prior to the Termination Date will expire on the earlier of (i) 30 days after the Termination Date (provided that such period shall be extended to six (6) months after the Termination Date, in the event of Employee's termination due to death or "disability" (as defined in Code Section 22(a)(3))) and (ii) the Expiration Date. Notwithstanding any provision in this Agreement to the contrary, any portion of the Options which has not been exercised prior to or in connection with a Sale of the Company shall expire upon the consummation of any such transaction. (d) Procedure for Exercise. At any time after all or any portion of ---------------------- the Options have become exercisable with respect to any Option Shares (as defined in Section 3(a) hereof) and prior to the Expiration Date (except as provided for in Section 2(c) above), Employee may exercise all or a portion of the Options with respect to Option Shares vested pursuant to paragraph 2(b)(ii) above by delivering written notice of exercise to the Company, together with (i) a written acknowledgment that Employee has read and has been afforded an opportunity to ask questions of management of the Company regarding all financial and other information provided to Employee regarding the Company, (ii) an executed consent from Employee's spouse (if any) in the form of Exhibit B --------- attached hereto and (iii) payment in full by delivery of a certified bank check, wire transfer of immediately available funds or a personal check in the amount (the "Option Price") equal to the product of the Tranche I Option Price ------------ multiplied by the number of Tranche I Option Shares to be acquired. As a condition to any exercise of the Options, Employee will permit the Company to deliver to him or her all financial and other information regarding the Company and its Subsidiaries which it believes necessary to enable Employee to make an informed investment decision. If, at any time subsequent to the date Employee exercises any portion of the Options and prior to the occurrence of a Termination Event (as defined in Section 3(g) hereof), Employee becomes legally married (whether in the first instance or to a different spouse), Employee shall cause Employee's spouse to execute and deliver a consent in the form of Exhibit ------- B attached hereto. Employee's failure to deliver the Company an executed - - consent in the form of Exhibit B at any time when Employee would otherwise be --------- required to deliver such consent shall constitute Employee's continuing representation and warranty that Employee is not legally married as of such date. (e) Securities Laws Restrictions. Employee represents that when ---------------------------- Employee exercises any of the Options he or she will be purchasing Option Shares for Employee's own account and not on behalf of others. Employee understands and acknowledges that federal and state securities laws govern and restrict Employee's right to offer, sell or otherwise dispose of any Option Shares unless Employee's offer, sale or other disposition thereof is registered under the 1933 Act and state securities laws or, in the opinion of the Company's counsel, such offer, sale or other disposition is exempt from registration thereunder. Employee agrees that he or she will not offer, sell or otherwise dispose of any Option Shares in any manner which would: (i) require the Company to file any regi stration statement (or similar filing under state law) with the Securities and Exchange Commission or to amend or supplement any such filing or (ii) violate or cause the Company to violate the 1933 Act, the rules and regulations promulgated thereunder or any other state or federal law. Employee further understands that the certificates for any Option Shares which Employee purchases will bear the legend set forth in paragraph 5 hereof or such other legends as the Company deems necessary or desirable in connection with the 1933 Act or other rules, regulations or laws. -4- (f) Non-Transferability of Options. The Options are personal to ------------------------------ Employee and are not transferable by Employee except by will or pursuant to the laws of descent or distribution. Only Employee or his legal guardian or representative may exercise the Options. 3. Repurchase Option. ----------------- (a) Definitions. The following terms are defined as follows: ----------- "Cause" shall have the meaning assigned to such term in Employee's ----- written employment arrangements with the Company or any of its Subsidiaries or, in the absence of any such written employment arrangements, "Cause" shall mean (i) the commission of a felony or any other act or omission involving dishonesty, disloyalty or fraud with respect to the Company or any of its Subsidiaries or any of their customers or suppliers, (ii) conduct tending to bring the Company or any of its Subsidiaries into substantial public disgrace or disrepute, (iii) substantial and repeated failure to perform duties as reasonably directed by the Company's board of directors or management, (iv) gross negligence or willful misconduct with respect to the Company or any of its Subsidiaries or (v) any other material breach of this Agreement. "Competitive Activity" shall have the meaning assigned to such term in -------------------- any separate employee stock agreement between the Company and Employee. "Fair Market Value" of each share of Employee Stock means the market ----------------- value as determined in good faith by the Company's board of directors. "Noncompete Period" shall have the meaning assigned to such term in ----------------- any separate employee stock agreement between the Company and Employee. "Option Shares" means the Tranche I Option Shares. For purposes of ------------- this paragraph 3 and paragraph 4, Option Shares issued upon exercise of any Options will be deemed to be Employee Stock. "Original Cost" of each share of Employee Stock will be equal to the ------------- price paid by the Employee for each share of Common Stock (as proportionally adjusted for all stock splits, stock dividends and other recapitalizations affecting the Common Stock subsequent to the date hereof). "Subsidiary" means any corporation of which shares of stock having a ---------- majority of the general voting power in electing the board of directors are, at the time as of which any determination is being made, owned by the Company either directly or through its Subsidiaries. (b) Repurchase Option. In the event that Employee is no longer ----------------- employed by the Company or any of its Subsidiaries for any reason (the date of such termination being referred to herein as the "Termination Date"), the ---------------- Employee Stock, whether held by Employee or one or more transferees, will be subject to repurchase by the Company and the Investors (each of the aforementioned, solely at their option) pursuant to the terms and conditions set forth in this paragraph 3 (the "Repurchase Option"). ----------------- -5- (c) Repurchase Price. If Employee is no longer employed by the ---------------- Company or any of its Subsidiaries for any reason, then on or after the Termination Date, the Company and the Investors may elect to purchase (i) in the case of Employee's termination for Cause or in the case of Employee's participation in any Competitive Activity during the Noncompete Period, all or any portion of the Employee Stock at a price per share equal to the lower of Original Cost or Fair Market Value (as of the Termination Date) and (ii) in any other case, up to 50% of the Employee Stock at a price per share equal to Fair Market Value (as of the Termination Date). (d) Repurchase Procedures. The Company may elect to exercise the --------------------- right to purchase all or any portion of the shares of Employee Stock pursuant to the Repurchase Option by delivering written notice (the "Repurchase Notice") to ----------------- the holder or holders of the Employee Stock within 45 days of the Termination Date (provided that such notice may be delivered (i) in the case of any Employee Stock issued after the Termination Date, within 45 days of the date any such Employee Stock is issued or (ii) in the case of Employee's participation in any Competitive Activity during the Noncompete Period, within 45 days of the date the Company becomes aware of any such participation, but in no event later than the 45/th/ day after the expiration of the Noncompete Period). The Repurchase Notice will set forth the number of shares of Employee Stock to be acquired from such holder(s), the aggregate consideration to be paid for such shares and the time and place for the closing of the transaction. If any Employee Stock is held by any transferees of Employee, the Company shall purchase the shares elected to be purchased from such holder(s) of Employee Stock, pro rata according to the number of shares of Employee Stock held by such holder(s) at the time of delivery of such Repurchase Notice (determined as nearly as practicable to the nearest share). If Employee Stock of different classes is to be purchased by the Company and Employee Stock is held by any transferees of Employee, the number of shares of each class of Employee Stock to be purchased will be allocated among such holders, pro rata according to the total number of shares of Employee Stock to be purchased from such persons. (e) Investor Rights. --------------- (i) If for any reason the Company does not elect to purchase all of the Employee Stock pursuant to the Repurchase Option prior to the last to occur of (i) the 45/th/ day following the Termination Date, (ii) the 45/th/ day following the date any Employee Stock is issued, in the case of any Employee Stock issued after the Termination Date or (iii) the 45/th/ day after the date the Company becomes aware of Employee's participation in any Competitive Activity during the Noncompete Period (but in no event later than the 45/th/ day after the expiration of the Noncompete Period), in the case of any such participation, the Investors will be entitled to exercise the Repurchase Option, in the manner set forth in this paragraph 3, for the Employee Stock the Company has not elected to purchase (the "Available Shares"). As soon as practicable, ---------------- but in any event within thirty (30) days after the Company determines that there will be any Available Shares (and in no event later than the last to occur of (i) the 45/th/ day following the Termination Date, (ii) the 45/th/ day following the date any Employee Stock is issued, in the case of any Employee Stock issued after the Termination Date or (iii) the 45/th/ day after the date the Company becomes aware of Employee's participation in any Competitive Activity during the Noncompete Period (but in no event later than the 45/th/ day after the expiration of the Noncompete Period), in the case of any such participation), -6- the Company will deliver written notice (the "Option Notice") to the Investors ------------- setting forth the number of Available Shares and the price for each Available Share. (ii) Each of the Investors will initially be permitted to purchase its pro rata share (based upon the number of shares of Common Stock then held by such Investors) of the Available Shares. Each Investor may elect to purchase any number of the Available Shares (subject to the preceding sentence) by delivering written notice to the Company within 30 days after receipt of the Option Notice from the Company (such 30-day period being referred to herein as the "Election -------- Period"). - ------ (iii) As soon as practicable but in any event within five (5) days after the expiration of the Election Period, the Company will, if necessary, notify the Investors electing to purchase Available Shares of any Available Shares which Investors have elected not to purchase and each of the electing Investors will be entitled to purchase the remaining Available Shares on the same terms as described above (the "Second Option Notice"); provided that if in -------------------- the aggregate such Investors elect to purchase more than the remaining Available Shares, such remaining Available Shares purchased by each such Investor will be reduced on a pro rata basis based upon the number of shares of Common Stock then held by such Investors. Each Investor may elect to purchase any of the remaining Available Shares available to such Investor by delivering written notice to the Company within 5 days after the delivery of the Second Option Notice (with such 5-day period referred to herein as the "Second Election --------------- Period"). - ------ (iv) As soon as practicable but in any event within five days after the expiration of the Election Period or the Second Election Period (if any) the Company will, if necessary, notify the holder(s) of Employee Stock as to the number of shares of Employee Stock being purchased from the holder(s) by the Investors (the "Supplemental Repurchase Notice"). At the time the Company ------------------------------ delivers a Supplemental Repurchase Notice to the holder(s) of Employee Stock, the Company will also deliver to each electing Investor written notice setting forth the number of shares of Employee Stock the Company and each Investor will acquire, the aggregate purchase price to be paid and the time and place of the closing of the transaction. (f) Closing. The closing of the transactions contemplated by this ------- paragraph 3 will take place on the date designated by the Company in the Repurchase Notice or the Supplemental Repurchase Notice, as the case may be, which date will not be more than 90 days after the delivery of such notice. The Company and/or the Investors, as the case may be, will pay for the Employee Stock to be purchased pursuant to the Repurchase Option by delivery of, in the case of each Investor, a check payable to the holder of such Employee Stock, and in the case of the Company (i) first, by cancellation of any amounts due and owing under any promissory note issued by Employee to the Company, (ii) second, by a check payable to the holder of such Employee Stock up to the amount of the Original Cost therefor paid in cash by Employee and (iii) a note or notes payable in one installment on the first anniversary of the closing of such purchase and bearing interest at a rate per annum equal to 8% (it being agreed that the Company may, in its sole discretion, elect to make any payment under this clause (iii) in cash), in any case in the aggregate amount of the purchase price for such shares. Any notes issued by the Company pursuant to this paragraph 3(f) shall be subject to any restrictive covenants to which the Company is subject at the time of such purchase. -7- Notwithstanding anything to the contrary contained in this Agreement, all repurchases of Employee Stock by the Company will be subject to applicable restrictions contained in the California General Corporation Law and in the Company's and its Subsidiaries' debt and equity financing agreements. If any such restrictions prohibit the repurchase of Employee Stock hereunder which the Company is otherwise entitled to make, the Company may make such repurchases as soon as it is permitted to do so under such restrictions. The Company and/or the Investors, as the case may be, will receive customary representations and warranties from each seller regarding the sale of the Employee Stock, including, but not limited to, the representation that such seller has good and marketable title to the Employee Stock to be transferred free and clear of all liens, claims and other encumbrances. (g) Termination of Repurchase Option. The provisions of this -------------------------------- paragraph 3 will terminate upon the first to occur of (i) a Sale of the Company and (ii) the first date subsequent to the date that the Company sells any shares of its common stock pursuant to a registration statement filed under the 1933 Act (collectively, a "Termination Event"). ----------------- 4. Restrictions on Transfer. ------------------------ (a) Transfer of Employee Stock. Employee will not sell, pledge or -------------------------- otherwise transfer any interest in any shares of Employee Stock, except pursuant to the provisions of para graphs 3, 4(b), 7 or 8 hereof. (b) Certain Permitted Transfers. The restrictions contained in this --------------------------- paragraph 4 will not apply with respect to transfers of Employee Stock (i) pursuant to applicable laws of descent and distribution or (ii) among Employee's Family Group (as defined below), provided that the restrictions contained in this paragraph 4 will continue to be applicable to the Employee Stock after any such transfer and the transferees of such Employee Stock shall agree in writing to be bound by the provisions of this Agreement. "Family Group" means ------------ Employee's spouse and descendants (whether natural or adopted) and any trust solely for the benefit of Employee and/or Employee's spouse and/or descendants. Any transferee of Employee Stock pursuant to a transfer in accordance with the provisions of this subparagraph 4(b) is herein referred to as a "Permitted --------- Transferee." Upon the transfer of Employee Stock pursuant to this paragraph - ---------- 4(b), Employee will deliver a written notice (the "Transfer Notice") to the --------------- Company. The Transfer Notice will disclose in reasonable detail the identity of the Permitted Transferee(s). (c) Termination of Transfer Restrictions. The provisions of this ------------------------------------ paragraph 4 will terminate upon the occurrence of a Termination Event. 5. Additional Restrictions on Transfer. ----------------------------------- (a) The certificates representing the Employee Stock and Option Shares will bear the following legend: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE -8- SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION THEREUNDER. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE OPTIONS AND CERTAIN OTHER AGREEMENTS SET FORTH IN A STOCK OPTION AGREEMENT BETWEEN THE ISSUER (THE "COMPANY") AND AN EMPLOYEE OF THE COMPANY DATED AS OF _________ __, 1999, A COPY OF WHICH MAY BE OBTAINED BY THE HOLDER HEREOF AT THE COMPANY'S PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE." (b) No holder of Employee Stock or Options Shares may sell, transfer or dispose of any Employee Stock or Option Shares (except pursuant to an effective registration statement under the Securities Act of 1933) without first delivering to the Company an opinion of counsel reasonably acceptable in form and substance to the Company (which counsel shall be reasonably acceptable to the Company) that registration under the 1933 Act is not required in connection with such transfer. 6. Definition of Employee Stock and Option Shares. For all purposes ---------------------------------------------- of this Agreement, Employee Stock and Option Shares will continue to be Employee Stock and Option Shares in the hands of any holder other than Employee (except for the Company, the Investors or purchasers pursuant to an offering registered under the 1933 Act or purchasers pursuant to a Rule 144 transaction (other than a Rule 144(k) transaction occurring prior to the time of a closing of a Public Offering (as defined in Section 8 below)), and each such other holder of Employee Stock and Option Shares will succeed to all rights and obligations attributable to Employee as a holder of Employee Stock and Option Shares hereunder. Employee Stock and Option Shares will also include shares of the Company's capital stock issued with respect to shares of Employee Stock and Option Shares by way of a stock split, stock dividend or other recapitalization. 7. Sale of the Company ------------------- (a) If the holders of a majority of the shares of the Company's common stock held by the Investors approve (and, in the case of any sale or other fundamental change which requires the approval of the board of directors of a California corporation pursuant to the California General Corporation Law, the Company's board of directors shall have approved such sale) a sale of all or substantially all of the Company's assets determined on a consolidated basis or a sale of all or substantially all of the Company's outstanding capital stock (whether by merger, recapitalization, consolidation, reorganization, combination or otherwise) to an Independent Third Party or group of Independent Third Parties (an "Approved Sale"), each holder of Employee Stock and Option Shares ------------- will vote for, consent to and raise no objections against such Approved Sale. If the Approved Sale is structured as (i) a merger or consolidation, each holder of Employee Stock and Options Shares will waive any dissenters' rights, appraisal rights or similar rights in connection with such merger or -9- consolidation or (ii) sale of stock, each holder of Employee Stock and Option Shares will agree to sell all of his or her shares of Employee Stock and Options Shares and rights to acquire shares of Employee Stock and Option Shares on the terms and conditions approved by the Company's board of directors and the holders of a majority of the Company's common stock then outstanding. Each holder of Employee Stock and Option Shares will take all necessary or desirable actions in connection with the consummation of the Approved Sale as requested by the Company. (b) The obligations of the holders of Common Stock with respect to the Approved Sale of the Company are subject to the satisfaction of the following conditions: (i) upon the consummation of the Approved Sale, each holder of Common Stock will receive the same form of consideration and the same portion of the aggregate consideration that such holders of Common Stock would have received if such aggregate consideration had been distributed by the Company in complete liquidation pursuant to the rights and preferences set forth in the Company's Articles of Incorporation as in effect immediately prior to such Approved Sale; (ii) if any holders of a class of Common Stock are given an option as to the form and amount of consideration to be received, each holder of such class of Common Stock will be given the same option; and (iii) each holder of then currently exercisable rights to acquire shares of a class of Common Stock will be given an opportunity to exercise such rights prior to the consummation of the Approved Sale and participate in such sale as holders of such class of Common Stock. (c) If the Company or the holders of the Company's securities enter into any negotiation or transaction for which Rule 506 (or any similar rule then in effect) promulgated by the Securities Exchange Commission may be available with respect to such negotiation or transaction (including a merger, consolidation or other reorganization), the holders of Employee Stock and Option Shares will, at the request of the Company, appoint a purchaser representative (as such term is defined in Rule 501) reasonably acceptable to the Company. If any holder of Employee Stock or Option Shares appoints a purchaser representative designated by the Company, the Company will pay the fees of such purchaser representative, but if any holder of Employee Stock or Option Shares declines to appoint the purchaser representative designated by the Company, such holder will appoint another purchaser representative, and such holder will be responsible for the fees of the purchaser representative so appointed. (d) Employee and the other holders of Employee Stock and Option Shares (if any) will bear their pro-rata share (based upon the number of shares sold) of the costs of any sale of Employee Stock and Option Shares pursuant to an Approved Sale to the extent such costs are incurred for the benefit of all holders of Common Stock and are not otherwise paid by the Company or the acquiring party. Costs incurred by Employee and the other holders of Employee Stock and Option Shares on their own behalf will not be considered costs of the transaction hereunder. (e) The provisions of this paragraph 7 will terminate upon the closing of a Public Offering (as defined below). 8. Public Offering. In the event that the Company's board of --------------- directors and the holders of a majority of the Company's shares of common stock then outstanding approve an initial public offering and sale of the Company's common stock (a "Public Offering") pursuant to an --------------- -10- effective registration statement under the 1933 Act, the holders of Employee Stock and Option Shares will take all necessary or desirable actions in connection with the consummation of the Public Offering. In the event that such Public Offering is an underwritten offering and the managing underwriters advise the Company in writing that in their opinion the Common Stock structure will adversely affect the marketability of the offering, each holder of Employee Stock and Option Shares will consent to and vote for a recapitalization, reorganization and/or exchange of the Common Stock into securities that the managing underwriters, the Company's board of directors and holders of a majority of the shares of Common Stock then outstanding find acceptable and will take all necessary or desirable actions in connection with the consummation of the recapitalization, reorganization and/or exchange. 9. Voting Agreement. Each holder of Employee Stock and Option Shares ---------------- hereby agrees to vote all of his or her shares of Employee Stock and Option Shares (and, in the event such holder is entitled to vote any of the Company's other securities for the election of directors, such holder shall vote all such securities) and take all other necessary actions (whether in such holder's capacity as a stockholder, director or officer of the Company), and the Company shall take all necessary or desirable actions as are requested by the Investors, in order to cause any representatives designated by the Investors to be elected as members of the Company's board of directors. In addition, no holder shall vote his or her shares of Employee Stock and Option Shares (or such other securities) in connection with the removal of any of the Investors' designees as a director unless and until the Investors direct such holder how to vote on such removal. Except as otherwise provided herein, each holder of Employee Stock and Option Shares shall at all times retain the right to vote his or her Employee Stock and Option Shares (and such other securities) in his or her sole discretion on all other matters presented to the Company's stockholders for a vote. All Investor determinations under this paragraph 9 shall be made by the Investors holding a majority of the Common Stock held by all Investors (in each case determined on a fully-diluted basis). The provisions of this paragraph 9 shall terminate upon the occurrence of a Termination Event. 10. Other Businesses. As long as Employee is employed by the Company ---------------- or any of its Subsidiaries, Employee agrees that he or she will not, except with the express written consent of the Company's board of directors, become engaged in, or render services for, any business other than the business of the Company or any of its Subsidiaries. 11. Holdback Agreement. No holder of Employee Stock or Option Shares ------------------ will effect any public sale or distribution (including sales pursuant to Rule 144 of the 1933 Act) of any Employee Stock or Option Shares or of any other capital stock or equity securities of the Company, or any securities, options or rights convertible into or exchangeable or exercisable for such stock or securities, during the seven days prior to and the 180-day period beginning on the effective date of any underwritten public offering of the Company's common stock, except as part of such underwritten public offering. The restrictions on the transfer set forth in this Section 11 shall continue with respect to each share of Employee Stock and Option Shares until the date on which such share has been transferred pursuant to an offering registered under the 1933 Act or to the public through a broker, dealer or market maker pursuant to the provisions of Rule 144 (other than Rule 144(k)), adopted under the 1933 Act. -11- 12. Employee's Representations. Employee hereby represents and -------------------------- warrants to the Company that (i) the execution, delivery and performance of this Agreement by Employee do not and will not conflict with, breach, violate or cause a default under any contract, agreement, instrument, order, judgment or decree to which Employee is a party or by which he or she is bound, (ii) Employee is not a party to or bound by any employment agreement, noncompete agreement or confidentiality agreement with any other person or entity and (iii) upon the execution and delivery of this Agreement by the Company, this Agreement shall be the valid and binding obligation of Employee, enforceable in accordance with its terms. 13. Notices. Any notice provided for in this Agreement must be in ------- writing and must be personally delivered or sent by guaranteed overnight delivery service, to the Investors and Employee at the addresses indicated in the Company's records and to the Company at the address indicated below: To the Company: ChipPAC, Inc. 3151 Coronado Drive Santa Clara, California 95054 Attn: CEO With a copy to: Kirkland & Ellis 200 East Randolph Drive Chicago, Illinois 60601 Attn: Jeffrey C. Hammes, P.C. Gary M. Holihan or such other address or to the attention of such other person as the recipient party shall have specified by prior written notice to the sending party. Any notice under this Agreement will be deemed to have been given when so delivered or deposited with such delivery service. 14. Severability. Whenever possible, each provision of this Agreement ------------ shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. In the event that any ruling of any court or governmental authority calls into question the validity of any portion of this Agreement, the parties hereto shall consult with each other concerning such matters and shall negotiate in good faith a modification to this Agreement which would obviate any such questions as to validity while preserving, to the extent possible, the intent of the parties and the economic and other benefits of this Agreement and the portion thereof whose validity is called into question. -12- 15. Complete Agreement. This Agreement embodies the complete ------------------ agreement and understanding among the parties and supersedes and preempts any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way. 16. Counterparts. This Agreement may be executed in separate ------------ counterparts (any one of which may be delivered by facsimile), each of which will be deemed to be an original and all of which taken together will constitute one and the same agreement. 17. Successors and Assigns. This Agreement is intended to bind and ---------------------- inure to the benefit of and be enforceable by Employee, the Company, the Investors and their respective successors and assigns, provided that Employee may not assign any of his or her rights or obligations, except as expressly provided by the terms of this Agreement. 18. GOVERNING LAW. ALL ISSUES CONCERNING THE ENFORCEABILITY, VALIDITY ------------- AND BINDING EFFECT OF THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF CALIFORNIA OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAW OF ANY JURISDICTION OTHER THAN THE STATE OF CALIFORNIA. EACH OF THE PARTIES HERETO SUBMITS TO THE JURISDICTION IN ANY STATE OR FEDERAL COURT LOCATED IN THE STATE OF CALIFORNIA AND WAIVES ANY CLAIM OF IMPROPER JURISDICTION OR LACK OF VENUE IN CONNECTION WITH ANY CLAIM OR CONTROVERSY WHICH MAY BE BROUGHT IN CONNECTION WITH THIS AGREEMENT. EACH OF THE PARTIES HERETO MAINTAINS SUBSTANTIAL CONTACTS WITH THE STATE OF CALIFORNIA, AND A SIGNIFICANT PORTION OF THE PARTIES' RELATIONSHIP SHALL BE CARRIED OUT IN THE STATE OF CALIFORNIA, BY REASON OF THE COMPANY'S SANTA CLARA, CALIFORNIA FACILITY. EACH PARTY AGREES THAT THE COVENANTS PROVIDED IN THIS SECTION 18 ARE A MATERIAL INDUCEMENT TO EACH PARTY TO ENTER INTO THIS AGREEMENT, AND EACH PARTY RELIED ON SUCH COVENANTS IN ENTERING INTO THIS AGREEMENT. 19. Remedies. The parties hereto acknowledge and agree that money -------- damages may not be an adequate remedy for any breach of the provisions of this Agreement and that any party hereto will have the right to injunctive relief, in addition to all of its other rights and remedies at law or in equity, to enforce the provisions of this Agreement. 20. Effect of Transfers in Violation of Agreement. The Company will ---------------------------------------------- not be required (a) to transfer on its books any shares of Employee Stock or Option Shares which have been sold or transferred in violation of any of the provisions set forth in this Agreement or (b) to treat as owner of such shares, to accord the right to vote as such owner or to pay dividends to any transferee to whom such shares have been transferred in violation of this Agreement. -13- 21. Amendments and Waivers. Any provision of this Agreement may be ---------------------- amended or waived only with the prior written consent of the board of directors of the Company, the Investors who hold 70% of the Common Stock held by the Investors, and Employee; provided that in the event that such amendment or waiver would adversely affect an Investor or a group of Investors in a manner different than any other Investor, then such amendment or waiver will require the consent of such Investor or a majority of the Common Shares held by such group of Investors adversely affected. 22. Third Party Beneficiaries. The parties hereto acknowledge and ------------------------- agree that the Investors are third party beneficiaries of this Agreement. This Agreement will inure to the benefit of and be enforceable by the Investors and their respective successors and assigns. * * * * * -14- IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first above written. CHIPPAC, INC. By: _______________________________ Its: _______________________________ ____________________________________ Employee Name -15- Exhibit B --------- CONSENT The undersigned spouse hereby acknowledges that I have read the following agreements to which my spouse is a party: . 1999 ChipPAC, Inc. Stock Purchase and Option Plan . Tranche I Stock Option Agreement and that I understand their contents. I am aware that the such agreements provide for the repurchase of my spouse's shares of capital stock of ChipPAC, Inc. (the "Company") under certain circumstances and impose other restrictions ------- on such capital stock. I agree that my spouse's interest in the capital stock is subject to the agreements referred to above and the other agreements referred to therein and any interest I may have in such capital stock shall be irrevocably bound by these agreements and the other agreements referred to therein and further that my community property interest (if any) shall be similarly bound by these agreements. The undersigned spouse irrevocably constitutes and appoints ________, who is the spouse of the undersigned spouse (the "Shareholder") as the ----------- undersigned's true and lawful attorney and proxy in the undersigned's name, place and stead to sign, make, execute, acknowledge, deliver, file and record all documents which may be required, and to manage, vote, act and make all decisions with respect to (whether necessary, incidental, convenient or otherwise), any and all shares of capital stock of the Company in which the undersigned now has or hereafter acquires any interest and in any and all shares of the Company now or hereafter held of record by the Shareholder (including but not limited to the right, without further signature, consent or knowledge of the undersigned spouse, to exercise or not to exercise any and all options under any appropriate agreements and to exercise amendments and modifications of and to terminate the foregoing agreements and to dispose of any and all such shares of capital stock and options), with all powers the undersigned spouse would possess if personally present, it being expressly understood and intended by the undersigned that the foregoing power of attorney and proxy is coupled with an interest; and this power of attorney is a durable power of attorney and will not be affected by disability, incapacity or death of the Shareholder, or dissolution of marriage and this proxy will not terminate without consent of the Shareholder and the Company: Shareholder: Spouse of Shareholder: - ----------- --------------------- __________________________ __________________________________ Signature Signature __________________________ __________________________________ Printed Name Printed Name __________________________ __________________________________ Dated Dated -16- EX-10.25 42 FORM OF STOCK OPTION AGREEMENT Exhibit 10.25 ------------- TRANCHE II STOCK OPTION AGREEMENT --------------------------------- TRANCHE II STOCK OPTION AGREEMENT (this "Agreement") dated as of --------- _________ __, 1999, by and between ChipPAC, Inc., a California corporation (the "Company") and _________ ("Employee"). ------- -------- Pursuant to the Company's 1999 Stock Purchase and Option Plan (the "Plan"), a copy of which is attached hereto as Exhibit A, the Company and ---- --------- Employee desire to enter into an agreement pursuant to which the Company shall grant to Employee certain options to acquire certain shares of the Company's Class A Common Stock, par value $.01 per share (the "Class A Common"), which -------------- will be referred to herein as the "Tranche II Option." The Tranche II Option is ----------------- sometimes hereinafter referred to individually as an "Option" and collectively ------ as the "Options." The Company's Class L Common Stock, par value $.01 per share ------- and the Class A Common are collectively referred to herein as the "Common ------ Stock." All of such shares of Common Stock issuable upon the exercise of any - ----- portion of the Options and all shares of the Company's capital stock hereafter acquired by Employee are referred to herein as "Employee Stock." -------------- The parties hereto agree as follows: OPTION PROVISIONS 1. Representations and Warranties. ------------------------------ (a) In connection with the grant of the Options hereunder, Employee represents and warrants to the Company that: (i) The Employee Stock which may be acquired by Employee pursuant to this Agreement will be acquired for Employee's own account and not with a view to, or intention of, distribution thereof in violation of the Securities Act of 1933, as amended (the "1933 Act"), or any applicable -------- state securities laws, and the Employee Stock will not be disposed of in contravention of the 1933 Act or any applicable state securities laws. (ii) This Agreement constitutes the legal, valid and binding obligation of Employee, enforceable in accordance with its terms, and the execution, delivery and performance of this Agreement by Employee does not and will not conflict with, violate or cause a breach of any agreement, contract or instrument to which Employee is a party or any judgment, order or decree to which Employee is subject. (iii) Employee has consulted, or has had an opportunity to consult with, independent legal counsel regarding his or her rights and obligations under this Agreement and he or she fully understands the terms and conditions contained herein. (b) Acknowledgment. As an inducement to the Company to grant the -------------- Option to Employee, and as a condition thereto, Employee acknowledges and agrees that: (i) the Company will have no duty or obligation to disclose to Employee, and Employee will have no right to be advised of, any material information regarding the Company or its Subsidiaries at any time prior to, upon or in connection with the repurchase of Employee Stock upon the termination of Employee's employment with the Company or its Subsidiaries or as otherwise provided hereunder; and (ii) neither the issuance of the Employee Stock to Employee nor any provision contained herein shall entitle Employee to remain in the employment of the Company or its Subsidiaries or affect the right of the Company to terminate Employee's employment at any time for any reason. (c) Plan Acknowledgment. The Company and Employee acknowledge and ------------------- agree that this Agreement has been executed and delivered, and the Employee Stock which may be issued hereunder will be issued, in connection with and as part of the compensation and incentive arrangements between the Company and Employee. The grant of the Options hereunder is pursuant to, and subject to all the terms and conditions of the Plan, attached hereto as Exhibit A. --------- 2. Stock Options. ------------- (a) Definitions. The following terms are defined as follows: ----------- "Independent Third Party" means any Person who, immediately prior to ----------------------- the contemplated transaction, does not own in excess of 10% of the Company's common stock on a fully diluted basis, who is not controlling, controlled by or under common control with any such 10% owner of the Company's common stock and who is not the spouse or descendant (by birth or adoption) of any such 10% owner of the Company's common stock. "Investors" means Bain Capital Fund VI, L.P., BCIP Associates II, BCIP --------- Associates II-B, BCIP Associates II-C, BCIP Trust Associates II, BCIP Trust Associates II-B, PEP Investments Pty., Ltd., Randolph Street Partners 1998 DIF, LLC, Randolph Street Partners II and SXI Group LLC and any of their transferees. "Person" means an individual, a partnership, a joint venture, a ------ corporation, a trust, an unincorporated organization and a government or any department or agency thereof. "Sale of the Company" means any transaction involving the Company and ------------------- an Independent Third Party or affiliated group of Independent Third Parties pursuant to which such party or parties acquire (i) a majority of the outstanding shares of capital stock of the Company entitled to vote generally in the election of Company's board of directors (whether by merger, consolidation or sale or transfer of the Company's capital stock) or (ii) all or substantially all of the Company's assets determined on a consolidated basis (for purposes hereof "all or substantially all" shall have the meaning given such phrase in the Revised Model Business Corporation Act). -2- (b) Tranche II Option. ----------------- (i) Tranche II Option Grant. The Company hereby grants to Employee, ----------------------- pursuant to the Plan, the Tranche II Option to purchase up to _____________ shares of Class A Common ("Tranche II Option Shares"), at a price per share of ------------------------ $2.10 (the "Tranche II Option Price"). The Tranche II Option Price and the ----------------------- number of Tranche II Option Shares will be equitably adjusted for any stock split, stock dividend, reclassification or recapitalization of the Company which occurs subsequent to the date of this Agreement. The Tranche II Option will expire on the close of business on the tenth anniversary of the date hereof (the "Expiration Date"), subject to earlier expiration as provided in Section 2(c) --------------- below. The Tranche II Option is intended to be an "incentive stock option" within the meaning of Section 422A of the Internal Revenue Code of 1986, as amended and the regulations promulgated thereunder (the "Code"). ---- (ii) Exercisability. On each date set forth below the Tranche II -------------- Option will have vested and become exercisable with respect to the cumulative percentage of Tranche II Option Shares set forth opposite such date if Employee is, and has been, continuously employed by the Company or its Subsidiaries from the date of this Agreement through such date: Cumulative Percentage of Tranche II Option Date Shares Vested ---- ------------- August 5, 2000 20% August 5, 2001 40% August 5, 2002 70% August 5, 2003 100% ; provided that, if Employee's Termination Date (as defined in paragraph 3(b) hereof) occurs at any time after August 5, 2000 and prior to August 5, 2003, the cumulative percentage of Tranche II Option Shares to become vested shall be determined on a pro rata basis according to the number of fiscal quarters (i.e., fiscal quarters ending November 1, February 1, May 1 and August 1) elapsed since the prior annual vesting date and provided further, that upon any Change in Control (as defined below), so long as Employee was employed by the Company or any of its Subsidiaries on the day immediately prior to such Change in Control, all of the Tranche II Options granted to Employee shall become vested and immediately exercisable. For purposes hereof, a "Change in Control" shall be ----------------- deemed to occur upon the first date that the Investors and their affiliates collectively cease to own at least 35% of the aggregate number of shares of common stock of the Company that they own on the date hereof (as adjusted for stock splits, stock dividends and recapitalization and for exchanges in connection with a merger, consolidation, reorganization or sale). (c) Early Expiration of Options. Any portion of the Options that has --------------------------- not vested and become exercisable prior to the Termination Date (as defined in Section 3(b) below) will expire on the Termination Date and may not be exercised under any circumstance. Any portion of the Options -3- that has vested and become exercisable prior to the Termination Date will expire on the earlier of (i) 30 days after the Termination Date (provided that such period shall be extended to six (6) months after the Termination Date, in the event of Employee's termination due to death or "disability" (as defined in Code Section 22(a)(3))) and (ii) the Expiration Date. Notwithstanding any provision in this Agreement to the contrary, any portion of the Options which has not been exercised prior to or in connection with a Sale of the Company shall expire upon the consummation of any such transaction. (d) Procedure for Exercise. At any time after all or any portion of ---------------------- the Options have become exercisable with respect to any Option Shares (as defined in Section 3(a) hereof) and prior to the Expiration Date (except as provided for in Section 2(c) above), Employee may exercise all or a portion of the Options with respect to Option Shares vested pursuant to paragraph 2(b)(ii) above by delivering written notice of exercise to the Company, together with (i) a written acknowledgment that Employee has read and has been afforded an opportunity to ask questions of management of the Company regarding all financial and other information provided to Employee regarding the Company, (ii) an executed consent from Employee's spouse (if any) in the form of Exhibit B --------- attached hereto and (iii) payment in full by delivery of a certified bank check, wire transfer of immediately available funds or a personal check in the amount (the "Option Price") equal to the product of the Tranche II Option Price ------------ multiplied by the number of Tranche II Option Shares to be acquired. As a condition to any exercise of the Options, Employee will permit the Company to deliver to him or her all financial and other information regarding the Company and its Subsidiaries which it believes necessary to enable Employee to make an informed investment decision. If, at any time subsequent to the date Employee exercises any portion of the Options and prior to the occurrence of a Termination Event (as defined in Section 3(g) hereof), Employee becomes legally married (whether in the first instance or to a different spouse), Employee shall cause Employee's spouse to execute and deliver a consent in the form of Exhibit ------- B attached hereto. Employee's failure to deliver the Company an executed - - consent in the form of Exhibit B at any time when Employee would otherwise be --------- required to deliver such consent shall constitute Employee's continuing representation and warranty that Employee is not legally married as of such date. (e) Securities Laws Restrictions. Employee represents that when ---------------------------- Employee exercises any of the Options he or she will be purchasing Option Shares for Employee's own account and not on behalf of others. Employee understands and acknowledges that federal and state securities laws govern and restrict Employee's right to offer, sell or otherwise dispose of any Option Shares unless Employee's offer, sale or other disposition thereof is registered under the 1933 Act and state securities laws or, in the opinion of the Company's counsel, such offer, sale or other disposition is exempt from registration thereunder. Employee agrees that he or she will not offer, sell or otherwise dispose of any Option Shares in any manner which would: (i) require the Company to file any regi stration statement (or similar filing under state law) with the Securities and Exchange Commission or to amend or supplement any such filing or (ii) violate or cause the Company to violate the 1933 Act, the rules and regulations promulgated thereunder or any other state or federal law. Employee further understands that the certificates for any Option Shares which Employee purchases will bear the legend set forth in paragraph 5 hereof or such other legends as the Company deems necessary or desirable in connection with the 1933 Act or other rules, regulations or laws. -4- (f) Non-Transferability of Options. The Options are personal to ------------------------------ Employee and are not transferable by Employee except by will or pursuant to the laws of descent or distribution. Only Employee or his legal guardian or representative may exercise the Options. 3. Repurchase Option. ----------------- (a) Definitions. The following terms are defined as follows: ----------- "Cause" shall have the meaning assigned to such term in Employee's ----- written employment arrangements with the Company or any of its Subsidiaries or, in the absence of any such written employment arrangements, "Cause" shall mean (i) the commission of a felony or any other act or omission involving dishonesty, disloyalty or fraud with respect to the Company or any of its Subsidiaries or any of their customers or suppliers, (ii) conduct tending to bring the Company or any of its Subsidiaries into substantial public disgrace or disrepute, (iii) substantial and repeated failure to perform duties as reasonably directed by the Company's board of directors or management, (iv) gross negligence or willful misconduct with respect to the Company or any of its Subsidiaries or (v) any other material breach of this Agreement. "Competitive Activity" shall have the meaning assigned to such term in -------------------- any separate employee stock agreement between the Company and Employee. "Fair Market Value" of each share of Employee Stock means the market ----------------- value as determined in good faith by the Company's board of directors. "Noncompete Period" shall have the meaning assigned to such term in ----------------- any separate employee stock agreement between the Company and Employee. "Option Shares" means the Tranche II Option Shares. For purposes of ------------- this paragraph 3 and paragraph 4, Option Shares issued upon exercise of any Options will be deemed to be Employee Stock. "Original Cost" of each share of Employee Stock will be equal to the ------------- price paid by the Employee for each share of Common Stock (as proportionally adjusted for all stock splits, stock dividends and other recapitalizations affecting the Common Stock subsequent to the date hereof). "Subsidiary" means any corporation of which shares of stock having a ---------- majority of the general voting power in electing the board of directors are, at the time as of which any determination is being made, owned by the Company either directly or through its Subsidiaries. (b) Repurchase Option. In the event that Employee is no longer ----------------- employed by the Company or any of its Subsidiaries for any reason (the date of such termination being referred to herein as the "Termination Date"), the ---------------- Employee Stock, whether held by Employee or one or more transferees, will be subject to repurchase by the Company and the Investors (each of the aforementioned, solely at their option) pursuant to the terms and conditions set forth in this paragraph 3 (the "Repurchase Option"). ----------------- -5- (c) Repurchase Price. If Employee is no longer employed by the ---------------- Company or any of its Subsidiaries for any reason, then on or after the Termination Date, the Company and the Investors may elect to purchase (i) in the case of Employee's termination for Cause or in the case of Employee's participation in any Competitive Activity during the Noncompete Period, all or any portion of the Employee Stock at a price per share equal to the lower of Original Cost or Fair Market Value (as of the Termination Date) and (ii) in any other case, up to 50% of the Employee Stock at a price per share equal to Fair Market Value (as of the Termination Date). (d) Repurchase Procedures. The Company may elect to exercise the --------------------- right to purchase all or any portion of the shares of Employee Stock pursuant to the Repurchase Option by delivering written notice (the "Repurchase Notice") to ----------------- the holder or holders of the Employee Stock within 45 days of the Termination Date (provided that such notice may be delivered (i) in the case of any Employee Stock issued after the Termination Date, within 45 days of the date any such Employee Stock is issued or (ii) in the case of Employee's participation in any Competitive Activity during the Noncompete Period, within 45 days of the date the Company becomes aware of any such participation, but in no event later than the 45/th/ day after the expiration of the Noncompete Period). The Repurchase Notice will set forth the number of shares of Employee Stock to be acquired from such holder(s), the aggregate consideration to be paid for such shares and the time and place for the closing of the transaction. If any Employee Stock is held by any transferees of Employee, the Company shall purchase the shares elected to be purchased from such holder(s) of Employee Stock, pro rata according to the number of shares of Employee Stock held by such holder(s) at the time of delivery of such Repurchase Notice (determined as nearly as practicable to the nearest share). If Employee Stock of different classes is to be purchased by the Company and Employee Stock is held by any transferees of Employee, the number of shares of each class of Employee Stock to be purchased will be allocated among such holders, pro rata according to the total number of shares of Employee Stock to be purchased from such persons. (e) Investor Rights. --------------- (i) If for any reason the Company does not elect to purchase all of the Employee Stock pursuant to the Repurchase Option prior to the last to occur of (i) the 45/th/ day following the Termination Date, (ii) the 45/th/ day following the date any Employee Stock is issued, in the case of any Employee Stock issued after the Termination Date or (iii) the 45/th/ day after the date the Company becomes aware of Employee's participation in any Competitive Activity during the Noncompete Period (but in no event later than the 45/th/ day after the expiration of the Noncompete Period), in the case of any such participation, the Investors will be entitled to exercise the Repurchase Option, in the manner set forth in this paragraph 3, for the Employee Stock the Company has not elected to purchase (the "Available Shares"). As soon as practicable, ---------------- but in any event within thirty (30) days after the Company determines that there will be any Available Shares (and in no event later than the last to occur of (i) the 45/th/ day following the Termination Date, (ii) the 45/th/ day following the date any Employee Stock is issued, in the case of any Employee Stock issued after the Termination Date or (iii) the 45/th/ day after the date the Company becomes aware of Employee's participation in any Competitive Activity during the Noncompete Period (but in no event later than the 45/th/ day after the expiration of the Noncompete Period), in the case of any such participation), -6- the Company will deliver written notice (the "Option Notice") to the Investors ------------- setting forth the number of Available Shares and the price for each Available Share. (ii) Each of the Investors will initially be permitted to purchase its pro rata share (based upon the number of shares of Common Stock then held by such Investors) of the Available Shares. Each Investor may elect to purchase any number of the Available Shares (subject to the preceding sentence) by delivering written notice to the Company within 30 days after receipt of the Option Notice from the Company (such 30-day period being referred to herein as the "Election -------- Period"). - ------ (iii) As soon as practicable but in any event within five (5) days after the expiration of the Election Period, the Company will, if necessary, notify the Investors electing to purchase Available Shares of any Available Shares which Investors have elected not to purchase and each of the electing Investors will be entitled to purchase the remaining Available Shares on the same terms as described above (the "Second Option Notice"); provided that if in -------------------- the aggregate such Investors elect to purchase more than the remaining Available Shares, such remaining Available Shares purchased by each such Investor will be reduced on a pro rata basis based upon the number of shares of Common Stock then held by such Investors. Each Investor may elect to purchase any of the remaining Available Shares available to such Investor by delivering written notice to the Company within 5 days after the delivery of the Second Option Notice (with such 5-day period referred to herein as the "Second Election --------------- Period"). - ------ (iv) As soon as practicable but in any event within five days after the expiration of the Election Period or the Second Election Period (if any) the Company will, if necessary, notify the holder(s) of Employee Stock as to the number of shares of Employee Stock being purchased from the holder(s) by the Investors (the "Supplemental Repurchase Notice"). At the time the Company ------------------------------ delivers a Supplemental Repurchase Notice to the holder(s) of Employee Stock, the Company will also deliver to each electing Investor written notice setting forth the number of shares of Employee Stock the Company and each Investor will acquire, the aggregate purchase price to be paid and the time and place of the closing of the transaction. (f) Closing. The closing of the transactions contemplated by this ------- paragraph 3 will take place on the date designated by the Company in the Repurchase Notice or the Supplemental Repurchase Notice, as the case may be, which date will not be more than 90 days after the delivery of such notice. The Company and/or the Investors, as the case may be, will pay for the Employee Stock to be purchased pursuant to the Repurchase Option by delivery of, in the case of each Investor, a check payable to the holder of such Employee Stock, and in the case of the Company (i) first, by cancellation of any amounts due and owing under any promissory note issued by Employee to the Company, (ii) second, by a check payable to the holder of such Employee Stock up to the amount of the Original Cost therefor paid in cash by Employee and (iii) a note or notes payable in one installment on the first anniversary of the closing of such purchase and bearing interest at a rate per annum equal to 8% (it being agreed that the Company may, in its sole discretion, elect to make any payment under this clause (iii) in cash), in any case in the aggregate amount of the purchase price for such shares. Any notes issued by the Company pursuant to this paragraph 3(f) shall be subject to any restrictive covenants to which the Company is subject at the time of such purchase. -7- Notwithstanding anything to the contrary contained in this Agreement, all repurchases of Employee Stock by the Company will be subject to applicable restrictions contained in the California General Corporation Law and in the Company's and its Subsidiaries' debt and equity financing agreements. If any such restrictions prohibit the repurchase of Employee Stock hereunder which the Company is otherwise entitled to make, the Company may make such repurchases as soon as it is permitted to do so under such restrictions. The Company and/or the Investors, as the case may be, will receive customary representations and warranties from each seller regarding the sale of the Employee Stock, including, but not limited to, the representation that such seller has good and marketable title to the Employee Stock to be transferred free and clear of all liens, claims and other encumbrances. (g) Termination of Repurchase Option. The provisions of this -------------------------------- paragraph 3 will terminate upon the first to occur of (i) a Sale of the Company and (ii) the first date subsequent to the date that the Company sells any shares of its common stock pursuant to a registration statement filed under the 1933 Act (collectively, a "Termination Event"). ----------------- 4. Restrictions on Transfer. ------------------------ (a) Transfer of Employee Stock. Employee will not sell, pledge or -------------------------- otherwise transfer any interest in any shares of Employee Stock, except pursuant to the provisions of para graphs 3, 4(b), 7 or 8 hereof. (b) Certain Permitted Transfers. The restrictions contained in this --------------------------- paragraph 4 will not apply with respect to transfers of Employee Stock (i) pursuant to applicable laws of descent and distribution or (ii) among Employee's Family Group (as defined below), provided that the restrictions contained in this paragraph 4 will continue to be applicable to the Employee Stock after any such transfer and the transferees of such Employee Stock shall agree in writing to be bound by the provisions of this Agreement. "Family Group" means ------------ Employee's spouse and descendants (whether natural or adopted) and any trust solely for the benefit of Employee and/or Employee's spouse and/or descendants. Any transferee of Employee Stock pursuant to a transfer in accordance with the provisions of this subparagraph 4(b) is herein referred to as a "Permitted --------- Transferee." Upon the transfer of Employee Stock pursuant to this paragraph - ---------- 4(b), Employee will deliver a written notice (the "Transfer Notice") to the --------------- Company. The Transfer Notice will disclose in reasonable detail the identity of the Permitted Transferee(s). (c) Termination of Transfer Restrictions. The provisions of this ------------------------------------ paragraph 4 will terminate upon the occurrence of a Termination Event. 5. Additional Restrictions on Transfer. ----------------------------------- (a) The certificates representing the Employee Stock and Option Shares will bear the following legend: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE -8- SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION THEREUNDER. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE OPTIONS AND CERTAIN OTHER AGREEMENTS SET FORTH IN A STOCK OPTION AGREEMENT BETWEEN THE ISSUER (THE "COMPANY") AND AN EMPLOYEE OF THE COMPANY DATED AS OF _________ __, 1999, A COPY OF WHICH MAY BE OBTAINED BY THE HOLDER HEREOF AT THE COMPANY'S PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE." (b) No holder of Employee Stock or Options Shares may sell, transfer or dispose of any Employee Stock or Option Shares (except pursuant to an effective registration statement under the Securities Act of 1933) without first delivering to the Company an opinion of counsel reasonably acceptable in form and substance to the Company (which counsel shall be reasonably acceptable to the Company) that registration under the 1933 Act is not required in connection with such transfer. 6. Definition of Employee Stock and Option Shares. For all purposes ---------------------------------------------- of this Agreement, Employee Stock and Option Shares will continue to be Employee Stock and Option Shares in the hands of any holder other than Employee (except for the Company, the Investors or purchasers pursuant to an offering registered under the 1933 Act or purchasers pursuant to a Rule 144 transaction (other than a Rule 144(k) transaction occurring prior to the time of a closing of a Public Offering (as defined in Section 8 below)), and each such other holder of Employee Stock and Option Shares will succeed to all rights and obligations attributable to Employee as a holder of Employee Stock and Option Shares hereunder. Employee Stock and Option Shares will also include shares of the Company's capital stock issued with respect to shares of Employee Stock and Option Shares by way of a stock split, stock dividend or other recapitalization. 7. Sale of the Company ------------------- (a) If the holders of a majority of the shares of the Company's common stock held by the Investors approve (and, in the case of any sale or other fundamental change which requires the approval of the board of directors of a California corporation pursuant to the California General Corporation Law, the Company's board of directors shall have approved such sale) a sale of all or substantially all of the Company's assets determined on a consolidated basis or a sale of all or substantially all of the Company's outstanding capital stock (whether by merger, recapitalization, consolidation, reorganization, combination or otherwise) to an Independent Third Party or group of Independent Third Parties (an "Approved Sale"), each holder of Employee Stock and Option Shares ------------- will vote for, consent to and raise no objections against such Approved Sale. If the Approved Sale is structured as (i) a merger or consolidation, each holder of Employee Stock and Options Shares will waive any dissenters' rights, appraisal rights or similar rights in connection with such merger or -9- consolidation or (ii) sale of stock, each holder of Employee Stock and Option Shares will agree to sell all of his or her shares of Employee Stock and Options Shares and rights to acquire shares of Employee Stock and Option Shares on the terms and conditions approved by the Company's board of directors and the holders of a majority of the Company's common stock then outstanding. Each holder of Employee Stock and Option Shares will take all necessary or desirable actions in connection with the consummation of the Approved Sale as requested by the Company. (b) The obligations of the holders of Common Stock with respect to the Approved Sale of the Company are subject to the satisfaction of the following conditions: (i) upon the consummation of the Approved Sale, each holder of Common Stock will receive the same form of consideration and the same portion of the aggregate consideration that such holders of Common Stock would have received if such aggregate consideration had been distributed by the Company in complete liquidation pursuant to the rights and preferences set forth in the Company's Articles of Incorporation as in effect immediately prior to such Approved Sale; (ii) if any holders of a class of Common Stock are given an option as to the form and amount of consideration to be received, each holder of such class of Common Stock will be given the same option; and (iii) each holder of then currently exercisable rights to acquire shares of a class of Common Stock will be given an opportunity to exercise such rights prior to the consummation of the Approved Sale and participate in such sale as holders of such class of Common Stock. (c) If the Company or the holders of the Company's securities enter into any negotiation or transaction for which Rule 506 (or any similar rule then in effect) promulgated by the Securities Exchange Commission may be available with respect to such negotiation or transaction (including a merger, consolidation or other reorganization), the holders of Employee Stock and Option Shares will, at the request of the Company, appoint a purchaser representative (as such term is defined in Rule 501) reasonably acceptable to the Company. If any holder of Employee Stock or Option Shares appoints a purchaser representative designated by the Company, the Company will pay the fees of such purchaser representative, but if any holder of Employee Stock or Option Shares declines to appoint the purchaser representative designated by the Company, such holder will appoint another purchaser representative, and such holder will be responsible for the fees of the purchaser representative so appointed. (d) Employee and the other holders of Employee Stock and Option Shares (if any) will bear their pro-rata share (based upon the number of shares sold) of the costs of any sale of Employee Stock and Option Shares pursuant to an Approved Sale to the extent such costs are incurred for the benefit of all holders of Common Stock and are not otherwise paid by the Company or the acquiring party. Costs incurred by Employee and the other holders of Employee Stock and Option Shares on their own behalf will not be considered costs of the transaction hereunder. (e) The provisions of this paragraph 7 will terminate upon the closing of a Public Offering (as defined below). 8. Public Offering. In the event that the Company's board of --------------- directors and the holders of a majority of the Company's shares of common stock then outstanding approve an initial public offering and sale of the Company's common stock (a "Public Offering") pursuant to an --------------- -10- effective registration statement under the 1933 Act, the holders of Employee Stock and Option Shares will take all necessary or desirable actions in connection with the consummation of the Public Offering. In the event that such Public Offering is an underwritten offering and the managing underwriters advise the Company in writing that in their opinion the Common Stock structure will adversely affect the marketability of the offering, each holder of Employee Stock and Option Shares will consent to and vote for a recapitalization, reorganization and/or exchange of the Common Stock into securities that the managing underwriters, the Company's board of directors and holders of a majority of the shares of Common Stock then outstanding find acceptable and will take all necessary or desirable actions in connection with the consummation of the recapitalization, reorganization and/or exchange. 9. Voting Agreement. Each holder of Employee Stock and Option Shares ---------------- hereby agrees to vote all of his or her shares of Employee Stock and Option Shares (and, in the event such holder is entitled to vote any of the Company's other securities for the election of directors, such holder shall vote all such securities) and take all other necessary actions (whether in such holder's capacity as a stockholder, director or officer of the Company), and the Company shall take all necessary or desirable actions as are requested by the Investors, in order to cause any representatives designated by the Investors to be elected as members of the Company's board of directors. In addition, no holder shall vote his or her shares of Employee Stock and Option Shares (or such other securities) in connection with the removal of any of the Investors' designees as a director unless and until the Investors direct such holder how to vote on such removal. Except as otherwise provided herein, each holder of Employee Stock and Option Shares shall at all times retain the right to vote his or her Employee Stock and Option Shares (and such other securities) in his or her sole discretion on all other matters presented to the Company's stockholders for a vote. All Investor determinations under this paragraph 9 shall be made by the Investors holding a majority of the Common Stock held by all Investors (in each case determined on a fully-diluted basis). The provisions of this paragraph 9 shall terminate upon the occurrence of a Termination Event. 10. Other Businesses. As long as Employee is employed by the Company ---------------- or any of its Subsidiaries, Employee agrees that he or she will not, except with the express written consent of the Company's board of directors, become engaged in, or render services for, any business other than the business of the Company or any of its Subsidiaries. 11. Holdback Agreement. No holder of Employee Stock or Option Shares ------------------ will effect any public sale or distribution (including sales pursuant to Rule 144 of the 1933 Act) of any Employee Stock or Option Shares or of any other capital stock or equity securities of the Company, or any securities, options or rights convertible into or exchangeable or exercisable for such stock or securities, during the seven days prior to and the 180-day period beginning on the effective date of any underwritten public offering of the Company's common stock, except as part of such underwritten public offering. The restrictions on the transfer set forth in this Section 11 shall continue with respect to each share of Employee Stock and Option Shares until the date on which such share has been transferred pursuant to an offering registered under the 1933 Act or to the public through a broker, dealer or market maker pursuant to the provisions of Rule 144 (other than Rule 144(k)), adopted under the 1933 Act. -11- 12. Employee's Representations. Employee hereby represents and -------------------------- warrants to the Company that (i) the execution, delivery and performance of this Agreement by Employee do not and will not conflict with, breach, violate or cause a default under any contract, agreement, instrument, order, judgment or decree to which Employee is a party or by which he or she is bound, (ii) Employee is not a party to or bound by any employment agreement, noncompete agreement or confidentiality agreement with any other person or entity and (iii) upon the execution and delivery of this Agreement by the Company, this Agreement shall be the valid and binding obligation of Employee, enforceable in accordance with its terms. 13. Notices. Any notice provided for in this Agreement must be in ------- writing and must be personally delivered or sent by guaranteed overnight delivery service, to the Investors and Employee at the addresses indicated in the Company's records and to the Company at the address indicated below: To the Company: ChipPAC, Inc. 3151 Coronado Drive Santa Clara, California 95054 Attn: CEO With a copy to: Kirkland & Ellis 200 East Randolph Drive Chicago, Illinois 60601 Attn: Jeffrey C. Hammes, P.C. Gary M. Holihan or such other address or to the attention of such other person as the recipient party shall have specified by prior written notice to the sending party. Any notice under this Agreement will be deemed to have been given when so delivered or deposited with such delivery service. 14. Severability. Whenever possible, each provision of this Agreement ------------ shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. In the event that any ruling of any court or governmental authority calls into question the validity of any portion of this Agreement, the parties hereto shall consult with each other concerning such matters and shall negotiate in good faith a modification to this Agreement which would obviate any such questions as to validity while preserving, to the extent possible, the intent of the parties and the economic and other benefits of this Agreement and the portion thereof whose validity is called into question. -12- 15. Complete Agreement. This Agreement embodies the complete ------------------ agreement and understanding among the parties and supersedes and preempts any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way. 16. Counterparts. This Agreement may be executed in separate ------------ counterparts (any one of which may be delivered by facsimile), each of which will be deemed to be an original and all of which taken together will constitute one and the same agreement. 17. Successors and Assigns. This Agreement is intended to bind and ---------------------- inure to the benefit of and be enforceable by Employee, the Company, the Investors and their respective successors and assigns, provided that Employee may not assign any of his or her rights or obligations, except as expressly provided by the terms of this Agreement. 18. GOVERNING LAW. ALL ISSUES CONCERNING THE ENFORCEABILITY, VALIDITY ------------- AND BINDING EFFECT OF THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF CALIFORNIA OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAW OF ANY JURISDICTION OTHER THAN THE STATE OF CALIFORNIA. EACH OF THE PARTIES HERETO SUBMITS TO THE JURISDICTION IN ANY STATE OR FEDERAL COURT LOCATED IN THE STATE OF CALIFORNIA AND WAIVES ANY CLAIM OF IMPROPER JURISDICTION OR LACK OF VENUE IN CONNECTION WITH ANY CLAIM OR CONTROVERSY WHICH MAY BE BROUGHT IN CONNECTION WITH THIS AGREEMENT. EACH OF THE PARTIES HERETO MAINTAINS SUBSTANTIAL CONTACTS WITH THE STATE OF CALIFORNIA, AND A SIGNIFICANT PORTION OF THE PARTIES' RELATIONSHIP SHALL BE CARRIED OUT IN THE STATE OF CALIFORNIA, BY REASON OF THE COMPANY'S SANTA CLARA, CALIFORNIA FACILITY. EACH PARTY AGREES THAT THE COVENANTS PROVIDED IN THIS SECTION 18 ARE A MATERIAL INDUCEMENT TO EACH PARTY TO ENTER INTO THIS AGREEMENT, AND EACH PARTY RELIED ON SUCH COVENANTS IN ENTERING INTO THIS AGREEMENT. 19. Remedies. The parties hereto acknowledge and agree that money -------- damages may not be an adequate remedy for any breach of the provisions of this Agreement and that any party hereto will have the right to injunctive relief, in addition to all of its other rights and remedies at law or in equity, to enforce the provisions of this Agreement. 20. Effect of Transfers in Violation of Agreement. The Company will ---------------------------------------------- not be required (a) to transfer on its books any shares of Employee Stock or Option Shares which have been sold or transferred in violation of any of the provisions set forth in this Agreement or (b) to treat as owner of such shares, to accord the right to vote as such owner or to pay dividends to any transferee to whom such shares have been transferred in violation of this Agreement. -13- 21. Amendments and Waivers. Any provision of this Agreement may be ---------------------- amended or waived only with the prior written consent of the board of directors of the Company, the Investors who hold 70% of the Common Stock held by the Investors, and Employee; provided that in the event that such amendment or waiver would adversely affect an Investor or a group of Investors in a manner different than any other Investor, then such amendment or waiver will require the consent of such Investor or a majority of the Common Shares held by such group of Investors adversely affected. 22. Third Party Beneficiaries. The parties hereto acknowledge and ------------------------- agree that the Investors are third party beneficiaries of this Agreement. This Agreement will inure to the benefit of and be enforceable by the Investors and their respective successors and assigns. * * * * * -14- IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first above written. CHIPPAC, INC. By: _______________________________ Its: _______________________________ ____________________________________ Employee Name -15- Exhibit B --------- CONSENT The undersigned spouse hereby acknowledges that I have read the following agreements to which my spouse is a party: . 1999 ChipPAC, Inc. Stock Purchase and Option Plan . Tranche II Stock Option Agreement and that I understand their contents. I am aware that the such agreements provide for the repurchase of my spouse's shares of capital stock of ChipPAC, Inc. (the "Company") under certain circumstances and impose other restrictions ------- on such capital stock. I agree that my spouse's interest in the capital stock is subject to the agreements referred to above and the other agreements referred to therein and any interest I may have in such capital stock shall be irrevocably bound by these agreements and the other agreements referred to therein and further that my community property interest (if any) shall be similarly bound by these agreements. The undersigned spouse irrevocably constitutes and appoints Employee Name, who is the spouse of the undersigned spouse (the "Shareholder") as the ----------- undersigned's true and lawful attorney and proxy in the undersigned's name, place and stead to sign, make, execute, acknowledge, deliver, file and record all documents which may be required, and to manage, vote, act and make all decisions with respect to (whether necessary, incidental, convenient or otherwise), any and all shares of capital stock of the Company in which the undersigned now has or hereafter acquires any interest and in any and all shares of the Company now or hereafter held of record by the Shareholder (including but not limited to the right, without further signature, consent or knowledge of the undersigned spouse, to exercise or not to exercise any and all options under any appropriate agreements and to exercise amendments and modifications of and to terminate the foregoing agreements and to dispose of any and all such shares of capital stock and options), with all powers the undersigned spouse would possess if personally present, it being expressly understood and intended by the undersigned that the foregoing power of attorney and proxy is coupled with an interest; and this power of attorney is a durable power of attorney and will not be affected by disability, incapacity or death of the Shareholder, or dissolution of marriage and this proxy will not terminate without consent of the Shareholder and the Company: Shareholder: Spouse of Shareholder: - ----------- --------------------- __________________________ __________________________________ Signature Signature __________________________ __________________________________ Printed Name Printed Name __________________________ __________________________________ Dated Dated EX-12.1 43 STATEMENT RE COMPUTATION OF EARNINGS TO FIXED CHARGES Exhibit 12.1 ChipPAC Inc. Computation of Ratio of Earnings to Fixed Charges (in thousands)
Nine Months Years Ended December 31, Ended September 30, -------------------------------------------------- ------------------- 1994 1995 1996 1997 1998 1998 1999 -------- -------- -------- --------- --------- -------- --------- Pre-tax income (loss) from continuing operations (A) $ 3,879 $ 2,075 $ (2,742) $ (55,789) $ 52,867 $ 47,081 $ (3,690) ======== ======== ========= ========== ========= ========= ========= Fixed Charges: Capitalized interest (B) - 152 510 1,122 - - - Interest expense 2,423 3,151 5,780 10,972 13,340 10,037 12,089 Rentals: Rental expenses (C) 1,619 1,730 1,667 1,445 2,532 1,526 3,138 Preferred stock dividend accretion (A) - - - - - - 2,787 -------- -------- --------- ---------- --------- --------- --------- Total fixed charges $ 4,042 $ 5,003 $ 7,957 $ 13,539 $ 15,872 $ 11,563 $ 18,014 ======== ======== ========= ========== ========= ========= ========= Pre-tax income (loss) from continuing charges, dividend accretion $ 7,921 $ 7,108 $ 5,215 $ (42,250) $ 68,739 $ 58,644 $ 11,537 ======== ======== ========= ========== ========= ========= ========= Ratio of earnings to fixed charges 2.0x 1.4x (D) (D) 4.3x 5.1x (D)(E) ======== ======== ========= ========== ========= ========= =========
(A) The mandatorily redeemable preferred stock dividend accretion is excluded from the numerator of the ratio calculation for the nine months ended September 30, 1999 because such amount was not deducted in arriving at ChipPAC's pre-tax Income (loss) from continuing operations. (B) Capitalized interest relates to the costs of plant and building improvements in China and building improvements in Korea. (C) Amounts represented one-third operating lease rental expense as a reasonable approximation of the interest portion thereof. (D) Due to ChipPAC's losses in the twelve months ended December 31, 1996 and 1997 and the nine months ended September 30, 1999, the ratio coverage was less than 1:1. In order to achieve a coverage ratio of 1:1 for those periods, ChipPAC had to generate additional earnings of $2,742, $55,789, and $6,477, respectively. The amount of additional earnings for the nine months ended September 30, 1999 differs from the pre-tax loss from continuing operations of $3,690 because the preferred stock dividend accretion requirement was not deducted in arriving at such amount. (E) Included in earnings for the nine months ended September 30, 1999 was a non-recurring loss of $11,842 before income taxes relating to the change of control expenses. If these expenses had not occurred, the ratio of earnings to fixed charges would have been 1.5x. EX-21.1 44 SUBSIDIARIES EXHIBIT 21.1 State or other jurisdiction of ------------------------------ Subsidiaries of ChipPAC, Inc. incorporation or organization ----------------------------- ----------------------------- ChipPAC International Company Limited British Virgin Islands ChipPAC Liquidity Management Hungary Limited Liability Company Hungary ChipPAC Luxembourg S.a.R.L. Luxembourg ChipPAC (Barbados) Ltd. Barbados ChipPAC Limited British Virgin Islands ChipPAC Assembly and Test (Shanghai) Company Ltd. China ChipPAC (Shanghai) Company Ltd. China ChipPAC Korea Company Ltd. South Korea Subsidiaries of ChipPAC International State or other jurisdiction of ------------------------------------- ----------------------------- Company Limited incorporation or organization --------------- ----------------------------- ChipPAC Liquidity Management Hungary Hungary Limited Liability Company ChipPAC Luxembourg S.a.R.L. Luxembourg Subsidiaries of ChipPAC (Barbados) State or other jurisdiction of ---------------------------------- ------------------------------ Ltd. incorporation or organization ---- ----------------------------- ChipPAC Limited British Virgin Islands ChipPAC Assembly and Test (Shanghai) China Company Ltd. ChipPAC (Shanghai) Company Ltd. China ChipPAC Korea Company Ltd. South Korea
State or other jurisdiction of ------------------------------ Subsidiaries of ChipPAC Limited incorporation or organization ------------------------------- ----------------------------- ChipPAC Assembly and Test (Shanghai) China Company Ltd. ChipPAC (Shanghai) Company Ltd. China ChipPAC Korea Company Ltd. South Korea Subsidiaries of ChipPAC Korea State or other jurisdiction of ----------------------------- ------------------------------ Company Ltd. incorporation or organization ------------ ----------------------------- None. N/A
State or other jurisdiction of ------------------------------ Subsidiaries of ChipPAC Luxembourg S.a.R.L. incorporation or organization ------------------------------------------- ----------------------------- None. N/A Subsidiaries of ChipPAC Liquidity State or other jurisdiction of ------------------------------------ ------------------------------ Management Hungary Limited Liability incorporation or organization ------------------------------------ ----------------------------- Company ------- None. N/A
EX-23.1 45 CONSENT OF PRICEWATERHOUSECOOPERS LLP EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in this Registration Statement on form S-4 of ChipPAC International Company Limited, ChipPAC, Inc., ChipPAC Liquidity Management Hungary Limited Liability Company, ChipPAC Luxembourg S.a.R.L., ChipPAC Korea Company Limited, ChipPAC Limited, ChipPAC (Barbados) Ltd. of our report dated May 17, 1999 relating to the combined financial statements of ChipPAC, which appears in such Registration Statement. We also consent to the reference to us under the heading "Experts" in such Registration Statement. /s/ PRICEWATERHOUSECOOPERS LLP PricewaterhouseCoopers LLP San Jose, California November 23, 1999 EX-25.1 46 STATEMENT OF ELIGIBILITY ON FORM T-1 EXHIBIT 25.1 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 _______________________________ FORM T-1 STATEMENT OF ELIGIBILITY AND QUALIFICATION UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE _______________________________ FIRSTAR BANK, N.A. f/k/a FIRSTAR BANK OF MINNESOTA, N.A. (Exact name of Trustee as specified in its charter) A National Banking Association 41-0122055 (State of incorporation if (IRS Employer not a national bank) Identification No.) 101 East Fifth Street Corporate Trust Department St. Paul, Minnesota 55101 (Address of principal executive offices) (Zip Code) FIRSTAR BANK, N.A. 101 East Fifth Street St. Paul, Minnesota 55101 (651) 229-2600 (Exact name, address and telephone number of agent for service) _______________________________ ChipPAC International Company Limited (Exact name of registrant as specified in its charter) British Virgin Islands 66-0573152 (State of incorporation or (IRS Employer other jurisdiction) Identification No.) Craigmuir Chambers Road Town Tortola, British Virgin Islands (Address of principal executive offices) (Zip Code) ___________________________________________________ 12 3/4% Series B Senior Subordinated Notes due 2009 (Title of Indenture Securities) ChipPAC, Inc. California 77-0463-48 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) ChipPAC Liquidity Management Hungary Limited Liability Company Hungary 98-0209814 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) ChipPAC Luxembourg S.a.R.L Luxembourg 98-0209817 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) ChipPAC Korea Company, Ltd. Republic of Korea 98-0209695 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) ChipPAC Limited British Virgin Islands 98-0209699 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) ChipPAC (Barbados) Ltd. Barbados 98-0209821 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.)
Item 1. General Information. Furnish the following information as to the ------------------- trustee: (a) Name and address of each examining or supervising authority to which it is subject. Comptroller of the Currency Treasury Department Washington, DC Federal Deposit Insurance Corporation Washington, DC The Board of Governors of the Federal Reserve System Washington, DC (b) The Trustee is authorized to exercise corporate trust powers. GENERAL Item 2. Affiliations with Obligor and Underwriters. If the obligor or any ------------------------------------------ underwriter for the obligor is an affiliate of the Trustee, describe each such affiliation. None See Note following Item 16. Items 3-15 are not applicable because to the best of the Trustee's knowledge the --------------------------------------------------------------------- obligor is not in default under any Indenture for which the Trustee acts as - --------------------------------------------------------------------------- Trustee. - ------- Item 16. List of Exhibits. Listed below are all the exhibits filed as a part of ---------------- this statement of eligibility and qualification. Exhibits 1-4 are incorporated by reference from filing 333-48849. Exhibit 7 is incorporated by reference from filing 333-79659. Exhibit 1. Copy of Articles of Association of the trustee now in effect. Exhibit 2. a. A copy of the certificate of the Comptroller of Currency dated June 1, 1965, authorizing Firstar Bank, N.A. to act as fiduciary. b. A copy of the certificate of authority of the trustee to commence business issued June 9, 1903 by the Comptroller of the Currency to Firstar Bank, N.A. Exhibit 3. A copy of the authorization of the trustee to exercise corporate trust powers issued by the Federal Reserve Board. Exhibit 4. Copy of the By-Laws of the trustee as now in effect. Exhibit 5. Copy of each Indenture referred to in Item 4. Exhibit 6. The consent of the trustee required by Section 321(b) of the Act. Exhibit 7. A copy of the latest report of condition of the trustee published pursuant to law or the requirements of its supervising or examining authority. NOTE The answers to this statement insofar as such answers relate to what persons have been underwriters for any securities of the obligor within three years prior to the date of filing this statement, or what persons are owners of 10% or more of the voting securities of the obligor, or affiliates, are based upon information furnished to the Trustee by the obligor. While the Trustee has no reason to doubt the accuracy of any such information, it cannot accept any responsibility therefor. SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939, the Trustee, a national banking association organized and existing under the laws of the United States, has duly caused this statement of eligibility and qualification to be signed on its behalf by the undersigned, thereunto duly authorized, and its seal to be hereunto affixed and attested, all in the City of Saint Paul and State of Minnesota on the 27th day of September, 1999. FIRSTAR BANK, N.A. (Seal) /s/ Angela M. Weidell-LaBathe ----------------------------- Angela M. Weidell-LaBathe Assistant Vice President EXHIBIT 6 CONSENT In accordance with Section 321(b) of the Trust Indenture Act of 1939, the undersigned, Firstar Bank, N.A., hereby consents that reports of examination of the undersigned by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon its request therefor. Dated: September 27, 1999 FIRSTAR BANK, N.A. /s/ Angela M. Weidell-LaBathe ----------------------------- Angela M. Weidell-LaBathe Assistant Vice President EX-27.1 47 FINANCIAL DATA SCHEDULE
5 0001097583 CHIPPAC INTERNATIONAL COMPANY LIMITED 1,000 YEAR 9-MOS DEC-31-1998 DEC-31-1999 JAN-01-1998 JAN-01-1999 DEC-31-1998 SEP-30-1999 68,767 33,142 0 0 43,813 35,680 (1,162) (1,001) 10,325 12,420 125,469 90,489 375,143 394,379 (146,141) (181,110) 359,472 322,461 (145,789) (60,392) 0 (150,000) 0 (71,366) 0 (10,000) (173,417) (109,069) 60,226 228,818 (359,472) (322,461) (334,081) (267,671) (334,081) (267,671) 270,365 227,792 293,652 262,678 (25,778) (3,406) 0 0 13,340 12,089 (52,867) 3,690 20,564 (1,823) (32,303) 1,867 0 0 0 1,372 0 0 (32,303) 3,239 0 0 0 0
EX-99.1 48 FORM OF LETTER OF TRANSMITTAL Exhibit 99.1 LETTER OF TRANSMITTAL To Tender for Exchange 12 3/4% Senior Subordinated Notes due 2009 of CHIPPAC INTERNATIONAL COMPANY LIMITED Pursuant to the Prospectus Dated , 2000 THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 2000 UNLESS EXTENDED. If you desire to accept the Exchange Offer, this Letter of Transmittal should be completed, signed and submitted to the Exchange Agent: By Overnight Courier & By Hand up to By Registered or Certified Mail: 4:30 p.m. on the expiration date only: Firstar Bank of Minnesota, N.A. 101 Firstar Bank of Minnesota, N.A. 101 East Fifth Street St. Paul, Minnesota East Fifth Street St. Paul, Minnesota 55101-1860 Attn: Frank P. Leslie, III 55101-1860 Attn: Frank P. Leslie, III Facsimile Transmission: 651-229-6415 Confirm by Telephone: 651-229-2600 Attn: Frank P. Leslie, III DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. The instructions accompanying this Letter of Transmittal should be read carefully before this Letter of Transmittal is completed. The undersigned acknowledges receipt of the Prospectus, dated , 2000 (as it may be supplemented and amended from time to time the "Prospectus") of ChipPAC International Limited (the "Company") and this Letter of Transmittal (the "Letter of Transmittal"), which together describe the Company's offer (the "Exchange Offer") to exchange $1,000 principal amount of its 12 3/4% Series B Senior Subordinated Notes due 2009 (the "Exchange Notes"), which have been registered under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a Registration Statement, for each $1,000 principal amount of its outstanding 12 3/4% Senior Subordinated Notes due 2009 (the "Notes"), of which $150,000,000 principal amount is outstanding. The term "Expiration Date" shall mean 5:00 p.m., New York City time, on , 2000, unless the Company, in its sole discretion, extends the Exchange Offer, in which case the term shall mean the latest date and time to which the Exchange Offer is extended. The term "Holder" with respect to the Exchange Offer means any person in whose name Notes are registered on the books of the Company or any other person who has obtained a properly completed bond power from the registered holder. Capitalized terms used but not defined herein have the respective meanings set forth in the Prospectus. This Letter of Transmittal is to be used by holders of Notes if (i) certificates representing the Notes are to be physically delivered to the Exchange Agent herewith, (ii) tender of the Notes is to be made by book-entry transfer to the Exchange Agent's account at The Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedures set forth in the Prospectus under the caption "The Exchange Offer--Procedures for Tendering" by any financial institution that is a participant in the Book-Entry Transfer Facility and whose name appears on a security position listing as the owner of Notes to the extent provided herein or (iii) tender of the Notes is to be made according to the guaranteed delivery procedures described in the Prospectus under the caption "The Exchange Offer--Guaranteed Delivery Procedures." See Instruction 2 below. Delivery of documents to the Book-Entry Transfer Facility does not constitute delivery to the Exchange Agent. Notwithstanding the foregoing, valid acceptance of the terms of the Exchange Offer may be effected by a participant in the Book-Entry Transfer Facility tendering Notes through the Book-Entry Transfer Facility's Automated Tender Offer Program ("ATOP") where the Exchange Agent receives an Agent's Message prior to the Expiration Date. Accordingly, such participant must electronically transmit its acceptance to the Book-Entry Transfer Facility through ATOP, and then the Book-Entry Transfer Facility will edit and verify the acceptance, execute a book-entry delivery to the Exchange Agent's account at the Book-Entry Transfer Facility and send an Agent's Message to the Exchange Agent for its acceptance. By tendering through ATOP, participants in the Book-Entry Transfer Facility will expressly acknowledge receipt of this Letter of Transmittal and agree to be bound by its terms and the Company will be able to enforce such agreement against such Book-Entry Transfer Facility participants. The undersigned has completed, executed and delivered this Letter of Transmittal to indicate the action the undersigned desires to take with respect to the Exchange Offer. Holders who wish to tender their Notes must complete this letter in its entirety. [_]CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING: Name of Tendering Institution: _____________________________________________ Account Number: ____________________________________________________________ Transaction Code Number: ___________________________________________________ Principal Amount of Tendered Notes: ________________________________________ If Holders desire to tender Notes pursuant to the Exchange Offer and (i) time will not permit this Letter of Transmittal, certificates representing Notes, an Agent's Message or other required documents to reach the Exchange Agent prior to the Expiration Date, or (ii) the procedures for book-entry transfer cannot be completed prior to the Expiration Date, such Holders may effect a tender of such Notes in accordance with the guaranteed delivery procedures set forth in the Prospectus under the caption "The Exchange Offer-- Guaranteed Delivery Procedures." See Instruction 2 below. [_]CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY DELIVERED TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING (See Instruction 2): Name of Registered or Acting Holder(s): ____________________________________ Window Ticket No. (if any): ________________________________________________ Date of Execution of Notice of Guaranteed Delivery: ________________________ Name of Eligible Institution that Guaranteed Delivery: __________________________________________________ 2 BOX 2 SPECIAL REGISTRATION INSTRUCTIONS (See Instructions 4, 5 and 6) To be completed ONLY if certificates for Notes in a principal amount not tendered, or Exchange Notes issued in exchange for Notes accepted for exchange, are to be issued in a name other than the name appearing in Box 1 above. Issue certificate(s) to: Name ___________________________________________________________________________ (Please Print) Address ________________________________________________________________________ (Include Zip Code) - -------------------------------------------------------------------------------- (Tax Identification or Social Security Number) BOX 3 SPECIAL DELIVERY INSTRUCTIONS (See Instructions 4, 5 and 6) To be completed ONLY if certificates for Notes in a principal amount not tendered, or Exchange Notes issued in exchange for Notes accepted for exchange, are to be sent to an address other than the address appearing in Box 1 above, or if Box 2 is filled in, to an address other than the address appearing in Box 2. Deliver certificate(s) to: Name ___________________________________________________________________________ (Please Print) Address ________________________________________________________________________ (Include Zip Code) - -------------------------------------------------------------------------------- (Tax Identification or Social Security Number) BOX 4 BROKER-DEALER STATUS [_]Check this box if the Beneficial Owner of the Notes is a Participating Broker-Dealer and such Participating Broker-Dealer acquired the Notes for its own account as a result of market-making activities or other trading activities. If this box is checked, a copy of this Letter of Transmittal must be received within five business days after the Expiration Date to Tony Lin, Chief Financial Officer, ChipPAC, Inc., via facsimile: (408) 486-5914. 3 NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ ACCOMPANYING INSTRUCTIONS CAREFULLY Ladies and Gentlemen: Subject to the terms and conditions of the Exchange Offer, the undersigned hereby tenders to the Company, the principal amount of Notes indicated above. Subject to and effective upon the acceptance for exchange of the principal amount of Notes tendered in accordance with this Letter of Transmittal, the undersigned sells, assigns and transfers to, or upon the order of, the Company all right, title and interest in and to the Notes tendered hereby. The undersigned hereby irrevocably constitutes and appoints the Exchange Agent its agent and attorney-in-fact (with full knowledge that the Exchange Agent also acts as the agent of the Company) with respect to the tendered Notes with the full power of substitution to (i) present such Notes and all evidences of transfer and authenticity to, or transfer ownership of, such Notes on the account books maintained by the Book-Entry Transfer Facility to, or upon the order of, the Company, (ii) deliver certificates for such Notes to the Company and deliver all accompanying evidences of transfer and authenticity to, or upon the order of, the Company and (iii) present such Notes for transfer on the books of the Company and receive all benefits and otherwise exercise all rights of beneficial ownership of such Notes, all in accordance with the terms of the Exchange Offer. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the Notes tendered hereby and that the Company will acquire good, valid and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claims, when the same are acquired by the Company. The undersigned hereby further represents that any Exchange Notes acquired in exchange for Notes tendered hereby will have been acquired in the ordinary course of business of the person receiving such Exchange Notes, whether or not such person is the undersigned, that neither the undersigned nor any other such person has any arrangement or understanding with any person to participate in the distribution of such Exchange Notes and that neither the undersigned nor any such other person is an "affiliate," as defined in Rule 405 under the Securities Act, of the Company. In addition, the undersigned and any such person acknowledge that (a) any person participating in the Exchange Offer for the purpose of distributing the Exchange Notes must, in the absence of an exemption therefrom, comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale of the Exchange Notes and cannot rely on the position of the staff of the Securities and Exchange Commission enunciated in no-action letters and (b) failure to comply with such requirements in such instance could result in the undersigned or such person incurring liability under the Securities Act for which the undersigned or such person is not indemnified by the Company. The undersigned will, upon request, execute and deliver any additional documents deemed by the Exchange Agent or the Company to be necessary or desirable to complete the assignment, transfer and purchase of the Notes tendered hereby. If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in and does not intend to engage in, a distribution of Exchange Notes. If the undersigned is a broker-dealer that will receive Exchange Notes for its own account in exchange for Notes that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a Prospectus in connection with any resale of such Exchange Notes, however, by so acknowledging and by delivering a Prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. Unless otherwise notified in accordance with the instructions set forth herein in Box 4 under "Broker-Dealer Status," the Company will assume that the undersigned is not a Participating Broker-Dealer. For purposes of the Exchange Offer, the Company shall be deemed to have accepted validly tendered Notes when, as and if the Company has given notice thereof to the Exchange Agent (such notice if given orally, to be confirmed in writing). If any Notes tendered herewith are not accepted for exchange pursuant to the Exchange Offer for any reason, certificates for any such unaccepted Notes will be returned, without expense, to the undersigned at the address shown below or to a different address as may be indicated herein in Box 3 under "Special Delivery Instructions" as promptly as practicable after the Expiration Date. 4 All authority conferred or agreed to be conferred by this Letter of Transmittal shall survive the death, incapacity or dissolution of the undersigned, and every obligation of the undersigned under this Letter of Transmittal shall be binding upon the undersigned's heirs, personal representative, successors and assigns. The undersigned understands that tenders of Notes pursuant to the procedures described under the caption "The Exchange Offer--Procedures for Tendering" in the Prospectus and in the instructions hereto will constitute a binding agreement between the undersigned and the Company upon the terms and subject to the conditions of the Exchange Offer, subject only to withdrawal of such tenders on the terms set forth in the Prospectus under the caption "The Exchange Offer--Withdrawal of Tenders." Unless otherwise indicated in Box 2 under "Special Registration Instructions," please issue the certificates representing the Exchange Notes issued in exchange for the Notes accepted for exchange and any certificates for Notes not tendered or not exchanged, in the name(s) of the registered holder of the Notes appearing in Box 1 above. Similarly, unless otherwise indicated in Box 3 under "Special Delivery Instructions," please send the certificates, if any, representing the Exchange Notes issued in exchange for the Notes accepted for exchange and any certificates for Notes not tendered or not exchanged (and accompanying documents, as appropriate) to the undersigned at the address shown below in the undersigned's signature(s). In the event that the box entitled "Special Registration Instructions" and the box entitled "Special Delivery Instructions" both are completed, please issue the certificates representing the Exchange Notes issued in exchange for the Notes accepted for exchange in the name(s) of, and return any certificates for Notes not tendered or not exchanged to, the person(s) so indicated. The undersigned understands that the Company has no obligation pursuant to the "Special Registration Instructions" and "Special Delivery Instructions" to transfer any Notes from the name of the registered Holder(s) thereof if the Company does not accept for exchange any of the Notes so tendered. Holders who wish to tender their Notes and (i) whose Notes are not immediately available or (ii) who cannot deliver the Notes, an Agent's Message, this Letter of Transmittal or any other documents required hereby to the Exchange Agent prior to the Expiration Date, may tender their Notes according to the guaranteed delivery procedures set forth in the Prospectus under the caption "The Exchange Offer--Guaranteed Delivery Procedures." See Instruction 2 below. 5 The lines below must be signed by the registered holder(s) exactly as their name(s) appear(s) on the Notes or by person(s) authorized to become registered holder(s) by a properly completed bond power from the registered holder(s), a copy of which must be transmitted with this Letter of Transmittal. If Notes to which this Letter of Transmittal relates are held of record by two or more joint holders, then all such holders must sign this Letter of Transmittal. SIGNATURES x -------------------------------------------------------- ---------------- Date x -------------------------------------------------------- ---------------- Date Area Code and Telephone Number: If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, then such person must (i) set forth his or her full title below and (ii) submit evidence satisfactory to the Company of such person's authority so to act. See Instruction 5. Name(s): ____________________________________________________________________ (Please Print) Capacity: ___________________________________________________________________ Address: ____________________________________________________________________ (Include Zip Code) MEDALLION SIGNATURE GUARANTEE (If required by Instruction 5) Certain Signatures must be Guaranteed by an Eligible Institution Signature(s) Guaranteed by an Eligible Institution: __________________________ (Authorized Signature) ----------------------------------------------------------------------------- (Title) ----------------------------------------------------------------------------- (Name of Firm) ----------------------------------------------------------------------------- (Address, Include Zip Code) ----------------------------------------------------------------------------- (Area Code and Telephone Number) Dated _______________________________________________________________________ 6 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER 1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES FOR NOTES OR BOOK-ENTRY CONFIRMATIONS. Certificates representing the tendered Notes (or a confirmation of book-entry transfer of such Notes into the Exchange Agent's account with the Book-Entry Transfer Facility), as well as a properly completed and duly executed copy of this Letter of Transmittal (or, in the case of a book-entry transfer, an Agent's Message), a Substitute Form W-9 and any other documents required by this Letter of Transmittal must be received by the Exchange Agent at its address set forth herein prior to the Expiration Date. The method of delivery of certificates for Notes and all other required documents is at the election and sole risk of the tendering holder and delivery will be deemed made only when actually received by the Exchange Agent. If delivery is by mail, registered mail with return receipt requested, properly insured, is recommended. As an alternative to delivery by mail, the holder may wish to use an overnight or hand delivery service. In all cases, sufficient time should be allowed to assure timely delivery. Neither the Company nor the Exchange Agent is under an obligation to notify any tendering holder of the Company's acceptance of tendered Notes prior to the completion of the Exchange Offer. 2. GUARANTEED DELIVERY PROCEDURES. Holders who wish to tender their Notes but whose Notes are not immediately available and who cannot deliver their certificates for Notes (or comply with the procedures for book-entry transfer prior to the Expiration Date), the Letter of Transmittal and any other documents required by the Letter of Transmittal to the Exchange Agent prior to the Expiration Date must tender their Notes according to the guaranteed delivery procedures set forth below. Pursuant to such procedures: (i) such tender must be made by or through a firm which is a member of a registered national securities exchange or of the National Association of Securities Dealers, Inc., or a commercial bank or trust company having an office or correspondent in the United States (an "Eligible Institution"); (ii) prior to the Expiration Date, the Exchange Agent must have received from the holder and the Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery (by facsimile transmission, mail, or hand delivery) setting forth the name and address of the holder, the certificate number or numbers of the tendered Notes, and the principal amount of tendered Notes and stating that the tender is being made thereby and guaranteeing that, within three New York Stock Exchange trading days after the Expiration Date, the Letter of Transmittal (or facsimile thereof) (or, in the case of a book-entry transfer, an Agent's Message), together with the tendered Notes (or a confirmation of book-entry transfer of such Notes into the Exchange Agent's account with the Book-Entry Transfer Facility) and any other required documents will be deposited by the Eligible Institution with the Exchange Agent; and (iii) the certificates representing the tendered Notes in proper form for transfer (or a confirmation of book-entry transfer of such Notes into the Exchange Agent's account with the Book-Entry Transfer Facility), together with this Letter of Transmittal (or facsimile thereof), properly completed and duly executed, with any required signature guarantees (or, in the case of a book-entry transfer, an Agent's Message) and all other documents required by the Letter of Transmittal must be received by the Exchange Agent within three New York Stock Exchange trading days after the Expiration Date. Failure to complete the guaranteed delivery procedures outlined above will not, of itself, affect the validity or effect a revocation of any Letter of Transmittal form properly completed and executed by a Holder who attempted to use the guaranteed delivery procedure. 3. TENDER BY HOLDER. Only a registered holder of Notes may tender such Notes in the Exchange Offer. Any beneficial owner of Notes who is not the registered holder and who wishes to tender should arrange with such Holder to execute and deliver this Letter of Transmittal on such owner's behalf or must, prior to completing and executing this Letter of Transmittal and delivering such Notes, either make appropriate arrangements to register ownership of the Notes in such owner's name or obtain a properly completed bond power from the registered holder. 7 4. PARTIAL TENDERS. Tenders of Notes will be accepted only in integral multiples of $1,000 in principal amount. If less than the entire principal amount of Notes is tendered, the tendering holder should fill in the principal amount tendered in the column labeled "Principal Amount Tendered" of the box entitled "Description of Notes" (Box 1) above. The entire principal amount of Notes delivered to the Exchange Agent will be deemed to have been tendered unless otherwise indicated. If the entire principal amount of Notes is not tendered, Notes for the principal amount of Notes not tendered and Exchange Notes exchanged for any Notes tendered will be sent to the holder at his or her registered address, unless a different address is provided in the appropriate box on this Letter of Transmittal, as soon as practicable following the Expiration Date. 5. SIGNATURES ON THE LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS; MEDALLION GUARANTEE OF SIGNATURE. If this Letter of Transmittal is signed by the registered holder(s) of the Notes tendered herewith, the signatures must correspond with the name(s) as written on the face of the tendered Notes without alteration, enlargement, or any change whatsoever. If any of the tendered Notes are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal. If any tendered Notes are held in different names on several Notes, it will be necessary to complete, sign, and submit as many separate copies of the Letter of Transmittal documents as there are names in which tendered Notes are held. If this Letter of Transmittal is signed by the registered holder, and Exchange Notes are to be issued and any untendered or unaccepted principal amount of Notes are to be reissued or returned to the registered holder, then, the registered holder need not and should not endorse any tendered Notes nor provide a separate bond power. In any other case, the registered holder must either properly endorse the Notes tendered or transmit a properly completed separate bond power with this Letter of Transmittal (executed exactly as the name(s) of the registered holder(s) appear(s) on such Notes), with the signature(s) on the endorsement or bond power guaranteed by an Eligible Institution unless such certificates or bond powers are signed by an Eligible Institution. If this Letter of Transmittal or any Notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations, or others acting in a fiduciary or representative capacity, such persons should so indicate when signing and evidence satisfactory to the Company of their authority to so act must be submitted with this Letter of Transmittal. No medallion signature guarantee is required if this Letter of Transmittal is signed by the registered holder(s) of the Notes tendered herewith and the Exchange Notes (and any Notes not tendered or not accepted) are to be issued directly to such registered holder(s) and neither the "Special Registration Instructions" (Box 2) nor the "Special Delivery Instructions" (Box 3) has been completed. In all other cases, all signatures on this Letter of Transmittal must be guaranteed by an Eligible Institution. 6. SPECIAL REGISTRATION AND DELIVERY INSTRUCTIONS. Tendering holders should indicate, in the applicable box, the name and address in which the Exchange Notes and/or substitute Notes for principal amounts not tendered or not accepted for exchange are to be sent, if different from the name and address or account of the person signing this Letter of Transmittal. In the case of issuance in a different name, the employer identification number or social security number of the person named must also be indicated and the tendering holders should complete the applicable box. If no such instructions are given, the Exchange Notes (and any Notes not tendered or not accepted) will be issued in the name of and sent to the registered holder of the Notes. 7. TRANSFER TAXES. The Company will pay all transfer taxes, if any, applicable to the sale and transfer of Notes to it or its order pursuant to the Exchange Offer. If, however, a transfer tax is imposed for any reason other than the transfer and sale of Notes to the Company or its order pursuant to the Exchange Offer, then the amount of any such transfer taxes (whether imposed on the registered holder or on any other person) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption from taxes therefrom is not submitted with this Letter of Transmittal, the amount of transfer taxes will be billed directly to such tendering holder. 8 Except as provided in this Instruction 7, it will not be necessary for transfer tax stamps to be affixed to the Notes listed in this Letter of Transmittal. 8. TAX IDENTIFICATION NUMBER. Federal income tax law required that a holder of any Notes which are accepted for exchange must provide the Company (as payer) with its correct taxpayer identification number ("TIN"), which, in the case of a holder who is an individual, is his or her social security number. If the Company is not provided with the correct TIN, the Holder may be subject to a $50 penalty imposed by Internal Revenue Service. (If withholding results in an over-payment of taxes, a refund may be obtained.) Certain holders (including, among other, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. See the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional instructions. To prevent backup withholding, each tendering holder must provide such holder's correct TIN by completing the Substitute Form W-9 set forth herein, certifying that the TIN provided is correct (or that such holder is awaiting a TIN), and that (i) the holder has not been notified by the Internal Revenue Service that such holder is subject to backup withholding as a result of failure to report all interest or dividends or (ii) the Internal Revenue Service has notified the holder that such holder is no longer subject to backup withholding. If the Notes are registered in more than one name or are not in the name of the actual owner, see the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for information on which TIN to report. The Company reserves the right in its sole discretion to take whatever steps are necessary to comply with the Company's obligation regarding backup withholding. 9. VALIDITY OF TENDERS. All questions as to the validity, form, eligibility (including time of receipt), and acceptance of tendered Notes will be determined by the Company, in its sole discretion, which determination will be final and binding. The Company reserves the right to reject any and all Notes not validly tendered or any Notes, the Company's acceptance of which would, in the opinion of the Company or its counsel, be unlawful. The Company also reserves the right to waive any conditions of the Exchange Offer or defects or irregularities in tenders of Notes as to any ineligibility of any holder who seeks to tender Notes in the Exchange Offer. The interpretation of the terms and conditions of the Exchange Offer (including this Letter of Transmittal and the instructions hereto) by the Company shall be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Notes must be cured within such time as the Company shall determine. The Company will use reasonable efforts to give notification of defects or irregularities with respect to tenders of Notes, but shall not incur any liability for failure to give such notification. 10. WAIVER OF CONDITIONS. The Company reserves the absolute right to amend, waive, or modify specified conditions in the Exchange Offer in the case of any tendered Notes. 11. NO CONDITIONAL TENDER. No alternative, conditional, irregular, or contingent tender of Notes will be accepted. 12. MUTILATED, LOST, STOLEN, OR DESTROYED NOTES. Any tendering holder whose Notes have been mutilated, lost, stolen, or destroyed should contact the Exchange Agent at the address indicated above for further instruction. 13. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Requests for information and for additional copies of the Prospectus may be directed to the Exchange Agent at the address set forth on the first page of this Letter of Transmittal. Holders may also contact their broker, dealer, commercial bank, trust company, or other nominee for assistance concerning the Exchange Offer. 14. ACCEPTANCE OF TENDERED NOTES AND ISSUANCE OF EXCHANGE NOTES; RETURN OF NOTES. Subject to the terms and conditions of the Exchange Offer, the Company will accept for exchange all validly tendered Notes as soon as practicable after the Expiration Date and will issue Exchange Notes therefor as soon as practicable thereafter. For purposes of the Exchange Offer, the Company shall be deemed to have accepted tendered Notes when, as and if the Company has given notice thereof to the Exchange Agent (such 9 notice if given orally, to be confirmed in writing). If any tendered Notes are not exchanged pursuant to the Exchange Offer for any reason, such unexchanged Notes will be returned, without expense, to the undersigned at the address shown above or at a different address as may be indicated under "Special Delivery Instructions." 15. WITHDRAWAL. Tenders may be withdrawn only pursuant to the limited withdrawal rights set forth in the Prospectus under the caption "The Exchange Offer--Withdrawal of Tenders." PAYER'S NAME: ChipPAC International Company Limited - ------------------------------------------------------------------------------- Part 1--PLEASE PROVIDE YOUR Social Security Number TAXPAYER IDENTIFICATION or TIN NUMBER ("TIN") IN THE BOX AT RIGHT AND CERTIFY BY SIGNING AND DATING BELOW. / / ----------------------------------------------------------- Part 2--Check the box if you are NOT subject to backup withholding under the provisions of section 3408(a)(1)(C) of the Internal Revenue Code because (1) you have not been notified that you are subject to backup withholding as a result of failure to report all interest or dividends or (2) the Internal Revenue Service has notified you that you are no longer subject to backup withholding. ----------------------------------------------------------- CERTIFICATION--UNDER THE PENALTIES OF Part 3-- SUBSTITUTE PERJURY, I CERTIFY THAT THE INFORMATION Awaiting TIN PROVIDED ON THIS FORM IS TRUE, CORRECT (right AND COMPLETE. arrow) [_] Form W-9 SIGNATURE __________________________ DATE ----------------------------------------------------------- Department of the TreasuryInternal Revenue Service Name (if joint names, list first and circle the name of the person or entity whose number you enter in Part I below. See instructions if your name has changed.) Payer's Request for Taxpayer Identification Number (TIN) Note:FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. ----------------------------------------------------------- Address ----------------------------------------------------------- City, State and ZIP Code ----------------------------------------------------------- List account number(s) here (optional) 10 EX-99.2 49 FORM OF NOTICE OF GUARANTEED DELIVERY EXHIBIT 99.2 NOTICE OF GUARANTEED DELIVERY With Respect to CHIPPAC INTERNATIONAL COMPANY LIMITED 12 3/4% Senior Subordinated Notes due 2009 This form must be used by a holder of 12 3/4% Senior Subordinated Notes due 2009 (the "Notes") of ChipPAC International Company Limited (the "Company"), who wishes to tender Notes to the Exchange Agent pursuant to the guaranteed delivery procedures described in the section of the Prospectus entitled "The Exchange Offer--Guaranteed Delivery Procedures," and in Instruction 2 to the related Letter of Transmittal. Any holder who wishes to tender Notes pursuant to such guaranteed delivery procedures must ensure that the Exchange Agent receives this Notice of Guaranteed Delivery prior to the Expiration Date of the Exchange Offer. Capitalized terms not defined herein have the meanings ascribed to them in the Letter of Transmittal. THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 2000, UNLESS EXTENDED (THE "EXPIRATION DATE"). To: Firstar Bank of Minnesota, N.A. (the "Exchange Agent") By Overnight Courier & By Hand up to By Registered or Certified Mail: 4:30 p.m. on the expiration date only: Firstar Bank of Minnesota, N.A. Firstar Bank of Minnesota, N.A. 101 East Fifth Street 101 East Fifth Street St. Paul, Minnesota 55101-1860 St. Paul, Minnesota 55101-1860 Attn: Frank P. Leslie, III Attn: Frank P. Leslie, III Facsimile Transmission: 651-229-6415 Confirm by Telephone: 651-229-2600 Attn: Frank P. Leslie, III DELIVERY OF THIS FORM TO AN ADDRESS, OR TRANSMISSION VIA FACSIMILE, OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE VALID DELIVERY. This form is not to be used to guarantee signatures. If a signature on the Letter of Transmittal is required to be guaranteed by an "Eligible Institution" under the instructions thereto, such signature guarantee must appear in the applicable space provided in the signature box on the Letter of Transmittal. LADIES AND GENTLEMEN: The undersigned hereby tenders to the Company, upon the terms and subject to the conditions set forth in the Prospectus and the related Letter of Transmittal, receipt of which is hereby acknowledged, the principal amount at maturity of Notes set forth below pursuant to the guaranteed delivery procedures set forth in the Prospectus and in Instruction 2 of the Letter of Transmittal. The undersigned hereby tenders the Notes listed below:
Certificate Number(s) (if known) of Notes or Account Aggregate Principal Aggregate Principal Number at the Book-Entry Transfer Facility Amount Represented Amount Tendered - ----------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------
PLEASE SIGN AND COMPLETE - -------------------------------------------------------------------------------- Signature of Registered Holder(s) or Date: ________________________ , 2000 Authorized Signatory: _______________ Address: ____________________________ ------------------------------------- ------------------------------------- ------------------------------------- Area Code and Telephone No.: ________ Name of Registered Holder(s): _______ ------------------------------------- ------------------------------------- This Notice of Guaranteed Delivery must be signed by the Holder(s) exactly as their name(s) appear on certificates for Notes or on a security position listing as the owner of Notes, or by person(s) authorized to become Holder(s) by endorsements and documents transmitted with this Notice of Guaranteed Delivery. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer or other person acting in a fiduciary or representative capacity, such person must provide the following information: Please print name(s) and address(es) Name(s): ____________________________________________________________________ ----------------------------------------------------------------------------- Capacity: ___________________________________________________________________ Address(es): ________________________________________________________________ ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- 2 GUARANTEE (Not to be used for signature guarantee) The undersigned, a firm which is a member of a registered national securities exchange or of the National Association of Securities Dealers, Inc., or is a commercial bank or trust company having an office or correspondent in the United States, or is otherwise an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended, guarantees that either the Notes tendered hereby in proper form for transfer (or confirmation of the book-entry transfer of such Notes into the Exchange Agent's account at the Book-Entry Transfer Facility as described in the Prospectus under the caption "The Exchange Offer--Guaranteed Delivery Procedures"), together with a properly completed Letter of Transmittal (or facsimile thereof) (or, in the case of a book-entry transfer, an Agent's Message) and any other required documents will be received by the Exchange Agent by 5:00 p.m., New York City time, on the third New York Stock Exchange trading day following the Expiration Date. Name of Firm: _______________________ ------------------------------------- Authorized Signature Address: ____________________________ Name: _______________________________ ------------------------------------- Title: ______________________________ Area Code and Telephone No.: ________ Date: ________________________ , 1999 DO NOT SEND NOTES WITH THIS FORM. ACTUAL SURRENDER OF NOTES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, AN EXECUTED LETTER OF TRANSMITTAL. 3 INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY 1. Delivery of this Notice of Guaranteed Delivery. A properly completed and duly executed copy of this Notice of Guaranteed Delivery and any other documents required by this Notice of Guaranteed Delivery must be received by the Exchange Agent at its address set forth herein prior to the Expiration Date. The method of delivery of this Notice of Guaranteed Delivery and any other required documents to the Exchange Agent is at the election and sole risk of the holder, and the delivery will be deemed made only when actually received by the Exchange Agent. If delivery is by mail, registered mail with return receipt requested, properly insured, is recommended. As an alternative to delivery by mail, the holders may wish to consider using an overnight or hand delivery service. In all cases, sufficient time should be allowed to assure timely delivery. For a description of the guaranteed delivery procedures, see Instruction 2 of the Letter of Transmittal. 2. Signatures on this Notice of Guaranteed Delivery. If this Notice of Guaranteed Delivery is signed by the registered holder(s) of the Notes referred to herein, the signature must correspond with the name(s) written on the face of the Notes without alteration, enlargement, or any change whatsoever. If this Notice of Guaranteed Delivery is signed by a participant of the Book-Entry Transfer Facility whose name appears on a security position listing as the owner of Notes, the signature must correspond with the name shown on the security position listing as the owner of the Notes. If this Notice of Guaranteed Delivery is signed by a person other than the registered holder(s) of any Notes listed or a participant of the Book-Entry Transfer Facility, this Notice of Guaranteed Delivery must be accompanied by appropriate bond powers, signed as the name of the registered holder(s) appears on the Notes or signed as the name of the participant shown on the Book-Entry Transfer Facility's security position listing. If this Notice of Guaranteed Delivery is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation, or other person acting in a fiduciary or representative capacity, such person should so indicate when signing and submit with the Letter of Transmittal evidence satisfactory to the Company of such person's authority to so act. 3. Requests for Assistance or Additional Copies. Requests for information and additional copies of the Prospectus may be directed to the Exchange Agent at the address set forth on the first page of this Notice of Guaranteed Delivery. Holders may also contact their broker, dealer, commercial bank, trust company, or other nominee for assistance concerning the Exchange Offer. 4 EX-99.3 50 FORM OF TENDER INSTRUCTIONS Exhibit 99.3 INSTRUCTIONS TO REGISTERED HOLDER AND/OR BOOK-ENTRY TRANSFER FACILITY PARTICIPANT FROM BENEFICIAL OWNER OF CHIPPAC INTERNATIONAL COMPANY LIMITED 12 3/4% Senior Subordinated Notes due 2009 THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 2000, UNLESS EXTENDED (THE "EXPIRATION DATE"). To Registered Holder and/or Participant of the Book-Entry Transfer Facility: The undersigned hereby acknowledges receipt of the Prospectus, dated , 2000 (the "Prospectus"), of ChipPAC International Company Limited (the "Company"), and the accompanying Letter of Transmittal (the "Letter of Transmittal"), that together constitute the Company's offer (the "Exchange Offer") to exchange $1,000 principal amount of its 12 3/4% Series B Senior Subordinated Notes due 2009 (the "Exchange Notes"), for each $1,000 principal amount of its outstanding 12 3/4% Senior Subordinated Notes due 2009 (the "Notes"). Capitalized terms used but not defined herein have the meanings ascribed to them in the Prospectus. This will instruct you, the registered holder and/or book-entry transfer facility participant, as to the action to be taken by you relating to the Exchange Offer with respect to the Notes held by you for the account of the undersigned. The aggregate face amount of the Notes held by you for the account of the undersigned is (FILL IN AMOUNT): $ of the 12 3/4% Senior Subordinated Notes due 2009. With respect to the Exchange Offer, the undersigned hereby instructs you (CHECK APPROPRIATE BOX): [_] TO TENDER the following Notes held by you for the account of the undersigned (INSERT PRINCIPAL AMOUNT OF NOTES TO BE TENDERED): $ [_] NOT TO TENDER any Notes held by you for the account of the undersigned. If the undersigned instructs you to tender the Notes held by you for the account of the undersigned, it is understood that you are authorized (a) to make, on behalf of the undersigned (and the undersigned, by its signature below, hereby makes to you), the representations and warranties contained in the Letter of Transmittal that are to be made with respect to the undersigned as a beneficial owner, including but not limited to the representations that (i) the undersigned's principal residence is in the state of (fill in state) , (ii) the undersigned is acquiring the Exchange Notes in the ordinary course of business of the undersigned, (iii) the undersigned is not participating, does not intend to participate, and has no arrangement or understanding with any person to participate in the distribution of the Exchange Notes, (iv) the undersigned acknowledges that any person participating in the Exchange Offer for the purpose of distributing the Exchange Notes must comply with the registration and prospectus delivery requirements of the Securities Act of 1933, as amended (the "Act"), in connection with a secondary resale transaction of the Exchange Notes acquired by such person and cannot rely on the position of the staff of the Securities and Exchange Commission set forth in no-action letters that are discussed in the section of the Prospectus entitled "The Exchange Offer--Resale of the Exchange Notes," and (v) the undersigned is not an "affiliate," as defined in Rule 405 under the Act, of the Company; (b) to agree, on behalf of the undersigned, as set forth in the Letter of Transmittal; and (c) to take such other action as necessary under the Prospectus or the Letter of Transmittal to effect the valid tender of such Notes. PLEASE NOTE: THE COMPANY HAS AGREED THAT, FOR A PERIOD OF 180 DAYS AFTER THE EXPIRATION DATE, IT WILL MAKE COPIES OF THE PROSPECTUS AVAILABLE TO ANY PARTICIPATING BROKER-DEALER FOR USE IN CONNECTION WITH RESALES OF THE EXCHANGE NOTES. [_] Check this box if the Beneficial Owner of the Notes is a Participating Broker-Dealer and such Participating Broker-Dealer acquired the Notes for its own account as a result of market-making activities or other trading activities. IF THIS BOX IS CHECKED, PLEASE SEND A COPY OF THESE INSTRUCTIONS TO TONY LIN, CHIEF FINANCIAL OFFICER, CHIPPAC, INC., VIA FACSIMILE: (408) 486-5914. SIGN HERE Name of beneficial owner(s): ________________________________________________ Signature(s): _______________________________________________________________ Name (please print): ________________________________________________________ Address: ____________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ Telephone number: ___________________________________________________________ Taxpayer Identification or Social Security Number: __________________________ Date: _______________________________________________________________________ 2 -----END PRIVACY-ENHANCED MESSAGE-----