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
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Page
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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
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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
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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
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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
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Table of Schedules
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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 ▇▇▇▇ 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
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XII Form of Equity Commitment Letter Agreement
XIII Debt Commitment Letter
XIV Highly Confident Letter
XV ChipPAC Korea Note
XVI Intellectual Property Note
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Table of Exhibits
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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
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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).
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"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 ▇▇▇▇
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 ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇,
▇▇ ▇▇▇▇▇ 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 ▇▇▇▇ 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).
"▇▇▇▇ 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 ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ 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
▇▇▇▇ 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 ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ (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 ▇▇▇▇ 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 ▇▇▇▇▇▇▇
▇▇▇▇▇▇ & ▇▇▇▇▇, 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 ▇▇▇▇▇▇ ▇▇▇▇▇ to a ▇▇▇▇▇ ▇▇▇▇▇ (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 ▇▇▇▇ Corporation and
HEI, as amended by Amendment No. 1 thereto dated November 22/30, 1994 and
Amendment ▇▇. ▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇/▇▇▇▇▇ ▇▇, ▇▇▇▇ (▇▇ 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 ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ (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 ▇▇▇▇
▇▇▇ (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 ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, (B) the Management Incentive Agreement
dated as of August 1, 1998 and extended as of March 5, 1999 by and between
ChipPAC, Inc. and ▇▇▇▇ ▇▇▇, 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, ▇▇▇▇ 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, ▇▇▇▇ 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 ▇▇▇▇ 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 ▇▇▇▇▇▇▇ ▇▇▇▇▇ & 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. ▇▇▇▇ 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 ▇▇▇ 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 ▇▇▇▇ 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", ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, the estate of ▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇▇ (the "Lemelson Estate") or any entity to which the Lemelson
Foundation, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ 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 ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ 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, ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇
c/o Bain Capital, Inc.
Two ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇
67
c/o Citicorp Venture Capital, Ltd.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇
and in each case with a copy to: ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
and to: Dechert Price & ▇▇▇▇▇▇
4000 ▇▇▇▇ Atlantic Tower
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: G. ▇▇▇▇▇▇ ▇'▇▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, 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.: ▇▇-▇-▇▇▇▇▇▇▇
Attn: ▇.▇. ▇▇▇, Chief Executive Officer
if to HEA, or, prior to the Closing, Hyundai Electronics America
to the Company, to: ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile No.: ▇▇▇-▇▇▇-▇▇▇▇
Attn: ▇▇. ▇.▇. ▇▇▇▇
and in each case with a copy to: ▇▇▇▇ ▇▇▇▇ ▇▇▇▇ & Freidenrich LLP
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
▇▇▇ ▇. ▇▇▇▇▇▇, 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, ▇▇▇▇ 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 ▇▇▇▇ 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 ▇▇▇▇▇ ▇▇ 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 ▇▇▇▇▇ ▇▇ plating facility,
HEI hereby covenants and agrees to place not less than ninety percent (90%) of
its third-party plating requirements with the ▇▇▇▇▇ ▇▇ 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/ ▇.▇. ▇▇▇
------------------------------------
Name: ▇.▇. ▇▇▇
Title: President
HYUNDAI ELECTRONICS AMERICA
By: /s/ ▇▇. ▇.▇. ▇▇▇▇
------------------------------------
Name: ▇▇. ▇.▇. ▇▇▇▇
Title: President
CHIPPAC, INC.
By: /s/ ▇▇. ▇.▇. ▇▇▇▇
------------------------------------
Name: ▇▇. ▇.▇. ▇▇▇▇
Title: Chairman of the Board
CHIPPAC MERGER CORP.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: Chief Executive Officer
76