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PSI TECHNOLOGIES HOLDINGS INC - 20-F - 20040630 - NOTES_TO_FINANCIAL_STATEMENT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unless Otherwise Indicated Reference to $ Refers to U. S. Dollars)
(With Comparative Figures for 2001)
1. Corporate Information
Nature of Business
PSi Technologies Holdings, Inc. (PSi Holdings) is the holding company of
the following entities: PSi Technologies, Inc. (PSi Technologies), PSi
Technologies Laguna, Inc. (PSi Laguna) and Pacsem Technologies (Pacsem),
all wholly-owned subsidiaries, and Pacsem Realty, Inc. (Pacsem Realty, see
Note 2), collectively herein referred to as "the Company" or "the PSi
Companies." Through PSi Technologies and PSi Laguna, PSi Holdings provides
semiconductor assembly and test services primarily for power applications.
It is also engaged in semiconductor packaging and test services for
non-power applications, including plastics and hermetics. Approximately
94%, 89% and 83% of the Company's consolidated revenue in 2003, 2002 and
2001, respectively, relate to power packages.
The PSi Companies are interdependent companies involved in related
businesses. PSi Holdings was incorporated in the Philippines and registered
with the Philippine Securities and Exchange Commission (SEC) on December
10, 1999 as part of a reorganization to facilitate its equity offering. On
November 19, 1999, to organize PSi Holdings, the then principal
shareholders of PSi Technologies transferred to PSi Holdings all their PSi
Technologies common and preferred shares (except for nominee director
qualifying shares) in exchange for 15,440,876 PSi Holdings common shares.
The proportionate ownership amongst shareholders remained identical. The
creation of PSi Holdings and the issuance of shares to the existing
shareholders of PSi Technologies are collectively referred to as the
"Reorganization."
The Reorganization described in the foregoing paragraph was accounted for
at historical cost in a manner similar to a pooling of interests as it
represents an exchange of equity interests between companies under common
control. The Reorganization was reflected in the Company's books as if the
Reorganization occurred at the beginning of calendar year 1999.
The Reorganization entailed the following:
. Exchange by the principal shareholders of PSi Technologies of all
their existing common and preferred shares in PSi Technologies for
original common shares of PSi Holdings pursuant to a deed of
assignment (with the exception of nominee director qualifying shares)
executed among the parties on November 19,1999 at a ratio of one PSi
Holdings share for every 25 diluted PSi Technologies shares held; and,
. Recognition of the difference between the par value of PSi Holdings
shares issued and the net assets of PSi Technologies at the date of
exchange as additional paid-in capital.
On March 15, 2000, PSi Holdings offered to the public 4,025,000 American
Depositary Shares (ADSs) at $16 per ADS representing its 4,025,000 common
shares. The ADSs have been approved for quotation on the Nasdaq National
Market.
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On December 7, 2003, PSi Technologies entered into an Investment Agreement
with the Management Committee of the Chengdu Hi-Tech Zone (CHTZ), a
government entity of Chengdu City, Sichuan Province, People's Republic of
China. The Investment Agreement specifies the location and government
support contracted by and provided to the Company. Such Investment
Agreement is one of the primary and key steps towards fulfilling the legal
and regulatory requirements necessary for PSi Technologies to organize a
100% owned assembly and test facility in Chengdu City, Sichuan Province,
People's Republic of China. On December 22, 2003, the Company incorporated
PSi Technologies China Holdings, Co., Limited (PSi Mauritius) in the
Republic of Mauritius as a wholly owned subsidiary of PSi Technologies. On
January 15, 2004, PSi Mauritius incorporated PSi Technologies Chengdu Co.
Ltd., a company registered in People's Republic of China, to service the
proposed Supply Agreement with a customer (see Note 27). As of June 15,
2004, the China facility has not commenced commercial operations.
The terms of the Investment Agreement include leases for a period of three
years with option to purchase two pre-fabricated buildings for the purpose
of providing assembly and test services in the Chengdu Sichuan Export
Processing Zone, Chengdu City, Sichuan Province, People's Republic of China
and two adjacent parcels of land each measuring 17,500 square meters. Each
building has a covered area of approximately 2,592 square meters sited on
approximately 4,117 square meters of land.
On November 3, 2003, PSi Technologies and PSi Laguna jointly incorporated
PSi Technologies China Holdings Co., Limited, a Hong Kong registered
company, for the establishment of a Joint Venture Company with Tak Cheong
Electronics (Holdings) Co. Ltd (Tak Cheong). Discussions with Tak Cheong
were later terminated due to the parties' inability to enter into a
definitive joint venture agreement. In January 2004, the Boards of
Directors of PSi Technologies and PSi Technologies Laguna authorized the
deregistration of PSi Technologies China Holdings Co., Limited, which had
never commenced business subsequent to its incorporation, from the
Companies Registry of Hong Kong.
PSi Holdings is 54% owned by Merrill Lynch Global Emerging Markets
Partners, L. P. (Merrill Lynch), a U. S. based entity.
Significant Customers
The Company's customers are located in the United States of America, Europe
and Asia. The Company's top five customers collectively accounted for 80%,
76% and 56% of its revenue in 2003, 2002 and 2001, respectively. The
Company anticipates that significant customer concentration will continue
for the foreseeable future but the companies which constitute the Company's
largest customers may change.
Risks and Uncertainties
The Company's future results of operations involve a number of risks and
uncertainties. Factors that could affect the Company's future operating
results include, but are not limited to, dependence on the highly cyclical
nature of the semiconductor industry, competitive pricing and declines in
average selling prices, risks associated with reliance on a group of
principal customers, timing and volume of orders relative to the Company's
production capacity, availability of manufacturing capacity and
fluctuations in manufacturing yields, availability of financing,
competition, dependence on raw materials and equipment suppliers, exchange
rate
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fluctuations, dependence on key personnel, difficulties of managing growth,
and enforcement of intellectual property rights and environmental
regulations.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. Since 2001, the Company has
incurred losses. In 2003, the Company recognized provision for impairment
losses on certain property and equipment amounting to $11.4 million. This
resulted in a retained earnings deficit of $16.2 million as of December 31,
2003. Further, the Company has negative working capital of $12.1 million as
of December 31, 2003. Provisions for impairment losses were recognized
primarily due to declining business prospects of certain power packages as
a result of the discontinuance of production of certain existing power
packages with erratic or lower sales volume. As of December 31, 2003, the
Company has not complied with the current ratio covenant of a credit
facility from the Singapore Branch of Raiffeisen Zentralbank Oesterreich AG
(RZB-Austria). However, it has obtained a one-time waiver covering such
non-compliance as of December 31, 2003.
The foregoing conditions, risks and uncertainties could affect the
Company's ability to develop advanced technology and expanded services,
compete against companies with greater operating capacity and financial
resources, increase production capacity and obtain assembly and test
equipment to meet the demand for the Company's products and services,
obtain favorable terms from suppliers, and repay and obtain additional bank
credit facilities. The Company's continued operations as a going concern is
dependent upon its ability to generate sufficient cash flows to meet its
maturing obligations on a timely basis and to comply with the provisions of
the financing agreements.
To address the foregoing conditions, the Company is undertaking measures to
lower the variability of customer loadings through new captive businesses
such as the transfer and outsource by Electronics Devices Limited-Philips
Semiconductors (Philips) of its internal assembly and test facility to the
Company's facility in China; manage customer and package mix toward higher
average selling price and margin packages; reduce operating costs by
sourcing lower cost raw materials and overheads; improve productivity,
manufacturing efficiency and equipment capabilities; rationalize capital
expenditures to minimum level, develop and enter into partnerships with
suppliers and customers for access to and use of intellectual property,
production equipment and materials at beneficial terms and conditions; and,
dispose impaired assets to recover value. The Company has plans of raising
medium or long-term financing. In 2004, a portion of the FTI Complex where
PSi Technologies' facilities are located was proclaimed a Philippine
Economic Zone Area (PEZA) with PSi Technologies registering as a PEZA
enterprise as part of the Company's tax planning strategies. Under the
terms of its registration, PSi Technologies shall be subject to a final
tax, in lieu of all taxes, computed at 5% of gross income less allowable
deductions as defined in Republic Act (RA) No. 8748, with respect to its
existing operations which had availed of income tax holiday incentives as a
Philippine Board of Investments (BOI)-registered enterprise, and enjoy
certain other tax benefits. Also, industry conditions have improved,
according to data from the Semiconductor Industry Association. Global
semiconductor revenues were higher by 18.3% and 1.3% in 2003 and 2002,
respectively, and forecasted to grow by 28.6% in 2004. Global power
semiconductor revenues were higher by 11.75% and 5.4% in 2003 and 2002,
respectively, and forecasted to grow by 23.2% in 2004.
2. Summary of Significant Accounting Policies
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Accounting Principles
The consolidated financial statements are prepared in conformity with U. S.
generally accepted accounting principles (U.S. GAAP) consistently applied
for all years.
Principles of Consolidation
The consolidated financial statements include the accounts of PSi Holdings
and its controlled subsidiaries, where PSi Holdings owns, directly or
indirectly, more than one-half of the outstanding voting shares, as
follows:
. PSi Technologies, a Philippine corporation engaged in the design,
assembly and test of power semiconductor devices, and packaging and
test services for non-power applications, including plastics and
hermetics;
. PSi Laguna (wholly owned through PSi Technologies), a PEZA-registered
enterprise, engaged in the manufacture, assembly and test of power
semiconductor devices;
. Pacsem (wholly owned through PSi Technologies), a U.S. corporation
engaged exclusively in marketing activities on behalf of PSi
Technologies and PSi Laguna outside the Philippines; and,
. Pacsem Realty [40%-owned through PSi Technologies and 24%-owned
through PSi Technologies' investee, PSitech Realty, Inc. (PSitech
Realty)], a Philippine corporation organized to hold real estate
properties, which is controlled by PSi Holdings.
Consolidated financial statements are prepared using uniform accounting
policies for like transactions and other events in similar circumstances.
Intercompany balances and transactions, including intercompany profits and
unrealized profits and losses are eliminated.
Foreign Currency Translations and Transactions
The Company uses the U.S. dollar as its functional currency because all of
its revenues and substantially all of its costs are denominated in U.S.
dollars. Accordingly, monetary assets and liabilities denominated in
Philippine pesos and other foreign currencies have been remeasured into
U.S. dollars using the exchange rate at balance sheet date. Nonmonetary
items are remeasured at historical rates. Gains and losses from such
remeasurement are credited or charged to current operations. Likewise,
gains and losses from foreign currency transactions are credited or charged
to current operations.
Dividends are declared in Philippine pesos, the currency of the country in
which the Company is incorporated except with respect to Pacsem, which is a
U.S. corporation. These are translated in the U.S. dollar financial
statements at historical rates. The U.S. dollar proceeds of the peso
dividends will be based on the prevailing Philippine peso to U.S. dollar
exchange rate at the time of payment.
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Inventories
Inventories are stated at the lower of cost (using moving average method)
or market, after provision for obsolete items. Work in process includes all
direct materials, direct labor, depreciation and other overhead costs
relating to the assembly and testing process at the Company's premises.
Property, Plant and Equipment
Property, plant and equipment, including equipment under capital lease
presented under office, furniture, fixtures and equipment, are carried at
cost less accumulated depreciation and any impairment in value.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, as follows:
Machinery, equipment and accessories 4-8 years
Leasehold improvements 5 years or the term of the lease agreement,
whichever is shorter
Office furniture, fixtures and equipment 3-5 years
Transportation equipment 5 years
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The useful lives and depreciation method are reviewed periodically to
ensure that the periods and method of depreciation are consistent with the
expected pattern of economic benefits from items of property, plant and
equipment.
The initial cost of property, plant and equipment comprises its purchase
price, including import duties, taxes and any directly attributable costs
of bringing the asset to its working condition and location for its
intended use. Expenditures which are not material in amount, incurred after
the fixed assets have been put into operation, such as repairs and
maintenance, are charged to current operations. In situations where it can
be clearly demonstrated that the expenditures have resulted in an increase
in the future economic benefits expected to be obtained from the use of an
item of property, plant and equipment beyond its originally assessed
standard of performance, the expenditures are capitalized as additional
costs of property, plant and equipment.
No depreciation is provided on property, plant and equipment under
construction or awaiting qualification or technical completion.
When assets are retired or otherwise disposed of, the cost and the related
accumulated depreciation and any impairment loss are removed from the
accounts and any resulting gain or loss is credited or charged to current
operations.
Investment in Shares of Stock
The Company carries its 40% ownership in shares of stock of PSitech Realty
using the equity method. Under this method, the investment is increased or
decreased by the Company's equity in net earnings or losses of the investee
and reduced by any dividend received since the date of acquisition.
Unrealized intercompany profits and losses are eliminated to the extent of
the Company's proportionate share thereof.
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Income Tax
The Company accounts for income tax in accordance with the provisions
of Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting
for Income Taxes," which require the use of the liability method. The
Company calculates its deferred income tax by comparing the U.S. GAAP book
basis (excluding any effects of indexing for inflation) to the Philippine
tax basis (excluding any effects of changes in exchange rates), applying
the appropriate tax rate to any temporary difference and translating such
deferred tax at the balance sheet exchange rate.
The Company reports certain income and expense items for income tax
purposes on a basis different from that reflected in the accompanying
consolidated financial statements. The principal differences relate to: (i)
provisions for inventory obsolescence and doubtful accounts, recognition of
accrued retirement benefit costs, and provision for impairment losses which
are not deductible until actually incurred or realized; (ii) stock
compensation costs; and (iii) use of the amortization method for
preoperating expenses for income tax reporting purposes while these are
charged off in the U. S. GAAP consolidated financial statements. The
applicable tax effects of: (a) recognition of net operating loss
carryforward (NOLCO) benefit and (b) carryforward benefit of minimum
corporate income tax (MCIT) were also calculated and included among
deferred tax asset items.
A valuation allowance is provided if it is more likely than not that
some portion or all of the deferred tax assets will not be realized in the
future. As discussed in Notes 1 and 27, as a result of its registration
with PEZA, PSi Technologies shall be subject to tax at 5% of gross income
in lieu of all taxes. Consequently, any unapplied NOLCO and MCIT as of May
1, 2004 shall be written off.
Earnings Per Share
Basic earnings per share is computed using the weighted average number
of common shares outstanding during the year, while diluted earnings per
share is computed assuming conversion of all dilutive securities, such as
stock options and exchangeable note. Outstanding stock options will have a
dilutive effect under the treasury stock method only when the average
market price of the underlying common share during the period exceeds the
exercise price of the option. Where the effect of the assumed exercise of
all outstanding stock options and conversion of the exchangeable note is
anti-dilutive, basic and diluted earnings per share amounts are the same.
Revenue Recognition
Revenues from assembly and test services are recognized upon shipment
of packaged semiconductors to the customers. The Company does not take
ownership of customer-supplied raw materials. Title and risk of loss remain
with the customers for these materials at all times. Accordingly, the cost
of the customer-supplied materials is not included in the consolidated
financial statements. The U.S. Securities and Exchange Commission's Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition" provides guidance
on the application of generally accepted accounting principles to selected
revenue recognition issues. The Company's revenue recognition policy is
appropriate and in conformity with U.S. GAAP and SAB No. 101.
Research and Development Costs
Research and development expenses include costs directly attributable
to the conduct of research and development programs primarily related to
the development of new package designs. Such costs include salaries,
payroll taxes, employee benefit costs, materials, supplies, depreciation
and maintenance of research equipment, services provided by outside
contractors, and the
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allocable portions of facility costs such as rent, utilities, insurance,
repairs and maintenance, depreciation and general support services. All
costs associated with research and development are expensed as incurred.
Software Development Costs
External direct costs of materials and services, and payroll and
payroll related costs of employees directly associated with the development
of computer software incurred during the development stage of computer
software for internal use (included under "Other noncurrent assets - net"
account in the consolidated balance sheets) are capitalized in accordance
with the Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." Software development
costs are classified under "Property, Plant and Equipment" account in the
consolidated balance sheets when the computer software is ready for its
intended use and amortized over five years thereafter.
Allowance for Doubtful Accounts
The Company maintains an allowance for doubtful accounts at a level
considered adequate to provide for potential uncollectibility of its
receivables. Management, on the basis of factors that affect the
collectibility of the accounts, evaluates the level of this allowance. A
review of the age and status of receivables, designed to identify accounts
to be provided with an allowance, is made by the Company on a continuing
basis.
Allowance for Unrecoverable Input Taxes
Input value added tax (VAT) claimed from the Philippine Bureau of
Internal Revenue (BIR) and Bureau of Customs (BOC) are received in the form
of Tax Credit Certificates (TCCs). The Company maintains an allowance for
unrecoverable net input VAT claims at a level considered adequate to
provide for potential uncollectibility of these claims in the form of TCCs
from the BIR and BOC. Management, on the basis of factors that affect the
collectibility of the claims, evaluates the level of this allowance. A
review of the status of the claims, designed to identify claims to be
provided with allowance, is made by the Company on a continuing basis. When
such claims are collected from the BIR/BOC, the net amount received is
recorded as TCCs and the unrecovered portion is recorded as a reduction of
the related allowance.
Pension Plan
The Company has a trusteed, noncontributory defined benefit pension
plan covering substantially all of its regular employees in the
Philippines. The annual expense is determined in accordance with the
provisions of SFAS No. 87, "Employers' Accounting for Pension" and is
charged to current operations. Any additional pension liability adjustment
not yet recognized as net periodic pension cost is reported as other
comprehensive income in the statements of changes in stockholders' equity.
Impairment of Long-lived Assets
The Company reviews long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to undiscounted
future net cash flows expected to be generated by the assets. If such
assets are considered to be impaired, the impairment loss to be recognized,
if any, is measured by
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the amount by which the carrying amount of the assets exceeds the fair
value of the assets. The assets are then carried at a new cost basis.
Operating Leases
Rental payments under operating leases are charged to operations on a
straight-line basis over the periods of the respective leases.
Capital Lease
Leases which meet any one of the following criteria: (a) provisions
for bargain purchase option, (b) transfer of ownership at the end of the
lease terms, (c) lease term is equal to 75% or more of the estimated
economic life of the leased property, and (d) present value at the
beginning of the lease term of the minimum lease payments approximate the
fair market value of the property, are capitalized. The capitalized asset
is recognized at the lower of the fair value of the leased asset or the
present value of the minimum lease payments at the inception of the lease,
under "Property, Plant and Equipment" account and the related obligations
recognized as liabilities, under "Obligations under capital lease" account
in the consolidated balance sheets. The related depreciation for equipment
under capital lease is computed on the basis of the Company's depreciation
policy for owned assets.
Shipping and Handling Costs
Costs incurred in preparing the finished products for shipment and
physically moving the finished products from the Company's place of
business to the customer's designated location are included in the selling
and marketing expenses and, presented under "Operating Expenses" in the
consolidated statements of operations.
Employee Stock Options
The Company uses the intrinsic value method to account for employee
stock options in accordance with the provisions of Accounting Principles
Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees."
Under the intrinsic value method, compensation cost is measured as the
difference between the price an employee is required to pay to purchase
equity securities of the Company and the fair value or market price of the
equity securities acquired at measurement date.
Had compensation cost for the Company's Stock Option (SO) Plan been
determined based on the fair value at the grant date consistent with the
method of SFAS No. 123, "Accounting for Stock-based Compensation," the
Company's net loss and earnings per share would have been stated at the
following pro forma amounts:
2003 2002 2001
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Net loss as reported ($21,003,522) ($6,918,082) ($5,507,877)
Total stock-based employee compensation
expense determined using APB Opinion
No. 25, net of related tax effects 235,110 197,331 239,953
Total stock-based employee compensation
expense determined under fair value
based method for all awards, net of
related tax effects (934,577) (1,433,198) (2,588,463)
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Pro forma net loss ($21,702,989) ($8,153,949) ($7,856,387)
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Earnings per share - as reported ($1.58) ($0.52) ($0.41)
Earnings per share - proforma (1.63) (0.61) (0.59)
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Equity and Debt Issuance Expenses
Direct costs incurred relative to PSi Holding's initial public
offering (IPO) of ADSs (representing common shares) and the beneficial
conversion feature of the Exchangeable Note were charged against the
corresponding additional paid-in capital arising therefrom. The difference
between the reported estimated amount pertaining to legal fees in 2000 and
the actual legal fees related to the IPO paid in 2001 was charged against
the corresponding additional paid-in capital in 2001.
Direct costs incurred in connection with the issuance of debt
securities are reported as deferred financing costs (included under "Other
noncurrent assets - net" account in the 2003 consolidated balance sheet).
Debt issuance costs are recognized as additional interest expense over the
life of the debt instrument under the effective interest method. Upon
redemption or conversion of the Note prior to June 1, 2008, any remaining
unamortized discount will be charged to operations on the year of
redemption or conversion. The embedded beneficial conversion feature
recognized as additional paid-in capital amounted to $2.8 million as of
December 31, 2003.
Recently Issued Accounting Standards
In May 2003, the Financial Accounting Standards Board (FASB) issued
SFAS No. 150, "Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity." This Statement establishes
standards for the classification and measurement by an issuer of certain
financial instruments with characteristics of both liabilities and equity.
This statement is effective for financial instruments entered into or
modified after May 31, 2003, and otherwise, is effective at the beginning
of the first interim beginning after June 15, 2003. In November 2003, FASB
issued "FASB Staff Position No. FAS No. 150-3," which deferred indefinitely
the measurement provisions of SFAS No. 150 for certain mandatorily
redeemable noncontrolling interests that were issued before November 5,
2003. The adoption of SFAS No. 150 did not have a material effect on the
Company's financial position, results of operations, or cash flows.
In May 2003, Emerging Issue Task Force (EITF) Issue No. 00-21,
"Accounting for Revenue Arrangements with Multiple Deliverables" was
finalized. EITF No. 00-21 provides guidance on accounting for arrangements
that involve the delivery or performance of multiple products, services
and/or rights to use assets. The provisions of EITF No. 00-21 apply to
revenue arrangements entered into in fiscal periods beginning after June
15, 2003. In December 2003, the U. S. SEC issued SAB No. 104, "Revenue
Recognition," which codifies and rescinds certain sections of SAB No. 101,
"Revenue Recognition," in order to make this interpretive guidance
consistent with EITF No. 00-21. The adoption of EITF No. 00-21 is not
expected to have a material effect on the Company's financial position,
results of operations, or cash flows.
In December 2003, the FASB issued SFAS No. 132 (revised 2003),
"Employers' Disclosures about Pensions and Other Postretirement Benefits."
This statement requires additional disclosures about the assets,
obligations, cash flows, and net periodic benefit cost of defined benefit
pension plans and other post retirement plans. The statement does not
change the measurement or recognition of pension plans and other
postretirement benefit plans. For domestic plans, the new disclosures are
generally effective for periods ending after December 15,
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2003. For foreign plans, the new disclosures are generally effective for
periods ending after June 15, 2004. The requirements under SFAS No. 132
(revised 2003) are included in Note 18 to the consolidated financial
statements.
Use of Estimates in the Preparation of Consolidated Financial Statements
The preparation of the consolidated financial statements in
conformity with U.S. GAAP requires the Company's management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. The more
significant estimates with regard to these consolidated financial
statements relate to impairment losses, allowance for inventory
obsolescence, allowance for doubtful accounts, valuation allowance for
deferred tax assets, assumptions used in pension, contingencies,
depreciation and other accruals. Actual results could differ from these
estimates.
3. Cash
Cash in banks includes cash held in escrow bank accounts maintained by the
Company with its creditor bank amounting to $0.78 million as of December
31, 2003. Such cash held in escrow bank accounts is available to the
Company for withdrawal subject to the adequacy of assigned outstanding
trade receivables to cover the Company's debt obligations (See Notes 4, 6
and 10).
4. Trade and Other Receivables
Trade and other receivables consist of:
2003 2002
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Trade $11,158,486 $13,683,085
Others 517,178 420,894
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11,675,664 14,103,979
Less allowance for doubtful accounts 226,652 220,327
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$11,449,012 $13,883,652
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As of December 31, 2003 and 2002, trade receivables include certain
customer accounts with total carrying amount of $7.5 million and $6.6
million, respectively, the proceeds from collections of which will be
remitted directly into the escrow bank accounts. As of December 31, 2003,
the assigned trade receivables sufficiently cover the outstanding loans
payable to the RZB-Austria (see Note 10).
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5. Inventories
Inventories consist of the following work in process, raw materials and
purchased components used in the semiconductor packaging process:
2003 2002
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Work in process $ 809,657 $1,652,902
Materials, spare parts and supplies net of allowance
for inventory obsolescence of $1,348,800 in
2003 and $467,564 in 2002 5,058,964 6,818,154
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$5,868,621 $8,471,056
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Included in the inventories are raw materials and supplies, and spare parts
totaling $2.3 million in 2003 and $3.7 million in 2002 purchased under
trust receipt arrangements with its banks. The Company holds these
inventories under a "trust arrangement" with the banks, evidenced by trust
receipts. The Company is accountable to the banks for the items entrusted
or the proceeds generated from any sale of such inventories until such time
as the amounts supplied by the banks had been paid. The corresponding trust
receipts payable to the banks are reported under current liabilities in the
consolidated balance sheets and bear weighted average annual interest rate
of 5.55% in 2003 and 3.70% in 2002.
The movement in allowance for inventory obsolescence amounting to $881,236
pertains to provision for inventory obsolescence in 2003.
6. Other Current Assets
Other current assets consist of:
2003 2002
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Input tax - net of allowance for unrecoverable $1,149,884 $1,043,847
input tax of $108,000 in 2002
TCCs 278,163 468,042
Deposits 107,564 268,737
Deferred tax assets (see Note 17) 60,166 167,965
Cash held in escrow bank account -- 209,764
(see Notes 3, 4 and 10)
Prepayments and others 183,928 318,641
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$1,779,705 $2,476,996
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Input tax represents the balance of unapplied input VAT paid on purchases,
for which claims for refund from the BIR and BOC have not yet been filed.
TCCs were issued by the BIR and BOC, which may be used for payment of all
internal revenue taxes except withholding taxes and BOC duties,
respectively.
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Deposits include advance payments to suppliers for the acquisition of raw
materials.
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7. Investment and Advances
The details of investment and advances follow:
2003 2002
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Investment in shares of stock of PSitech Realty
Acquisition cost $146,933 $146,933
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Accumulated equity in net losses:
Balance at beginning of year (8,074) (7,987)
Equity in net losses of an investee (112) (87)
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Balance at end of year (8,186) (8,074)
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138,747 138,859
Advances 4,596 4,442
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$143,343 $143,301
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8. Property, Plant and Equipment
Property, plant and equipment consist of:
2003 2002
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Land $ 3,146,370 $ 3,146,370
Machinery, equipment and accessories 114,469,551 122,255,617
Leasehold improvements 5,294,148 5,011,735
Office furniture, fixtures and equipment 4,406,858 4,255,564
Transportation equipment 774,612 762,930
---------------------------------------------------------------------------
128,091,539 135,432,216
Less accumulated depreciation 62,190,566 53,586,243
---------------------------------------------------------------------------
65,900,973 81,845,973
Construction in progress 2,507,810 3,309,419
---------------------------------------------------------------------------
$ 68,408,783 $ 85,155,392
===========================================================================
|
Office furniture, fixtures and equipment include computer equipment
acquired in 2003 and 2002 under capital lease arrangements (see Note 12).
The related depreciation of the leased equipment, amounting to $69,597 in
2003 and $106,206 in 2002, was computed on the basis of the Company's
depreciation policy for owned assets.
Office furniture, fixtures and equipment include software costs with net
carrying amount of $526,617 in 2003 and $590,288 in 2002.
The total depreciation of property, plant and equipment amounted to
$15,500,325, $13,839,161 and $12,034,970 in 2003, 2002 and 2001,
respectively.
-20-
Although there was a noted recovery in most of the Company's power and
non-power package assembly and test services during the first two quarters
of 2003, the assets related to certain power packages remained at low
utilization rates relative to the Company's projections and are no longer
expected to reach previously anticipated utilization levels. Operating
margins on such products were negative. These events triggered an
impairment review which included a company-wide evaluation of underutilized
and/or unutilized assets and a detailed update of operating and cash flow
projections. As a result of such analysis, management decided to exit
certain power package products. Further, management decided that the
construction of a third facility will no longer be continued until
additional assembly and test facilities in the Philippines are necessary,
which is largely dependent on the demand of the global electronics market.
The Company took an asset impairment charge of $10.5 million in 2003 based
on forecast discounted cash flows from continued use of these assets. The
cash flows were discounted at a nominal rate of 15% on a pre-tax basis. The
provision for impairment losses on property and equipment in 2003 is
included as part of "Special charges" in the 2003 consolidated statement of
operations.
In 2003, an independent firm of appraisers was engaged to assist in the
determination of the fair value of the construction in progress owned by
PSi Laguna. The determination of fair value was based on the use of cost
approach. Under this approach, an estimate is made of the current cost of
reproduction, new buildings and other land improvements in accordance with
the prevailing market prices for materials, labor and contractors overhead,
profit and fees. Adjustments are then made to reflect depreciation
resulting from physical deterioration, functional and economic obsolescence
based on personal inspection of the buildings and other land improvements
and in comparison with similar new properties. The corresponding impairment
loss of $891,754 was recognized in 2003 and included as part of "Special
charges" in the 2003 consolidated statement of operations.
The impairment loss of $146,965 in 2002 represents the write-down of Pacsem
Realty's construction in progress to zero. Such construction has been
discontinued as a result of the downturn in the worldwide electronics
industry. There has been no plan to resume the construction until
additional assembly and test facilities are required. Provision for
impairment loss is included as part of "General and administrative
expenses" in the 2002 consolidated statement of operations.
Certain of the Company's non-power customers provide equipment on
consignment basis. The value of the consigned equipment is not reflected
among the Company's property, plant and equipment. Risk of loss and
insurance for such assets are borne by the customers.
-21-
9. Other Noncurrent Assets
Other noncurrent assets consist of:
2003 2002
---------------------------------------------------------------------------
Deposits $ 465,334 $ 950,224
Deferred financing charges - net of accumulated
amortization of $15,391 in 2003 81,970 --
Deferred tax assets (see Note 17) 444,689 168,515
Others 9,000 12,820
---------------------------------------------------------------------------
$1,000,993 $1,131,559
===========================================================================
|
Deposits include advance payments to suppliers for acquisition of certain
property and equipment amounting to $32,069 in 2003 and $506,128 in 2002.
10. Loans Payable
Loans payable represent unsecured U.S. dollar-denominated loans from
Philippine banks and a U.S. dollar-denominated Credit Facility obtained
from RZB-Austria. The weighted average interest rates in 2003 and 2002 were
4.13% and 4.21%, respectively.
Under the terms of the Credit Facility Agreement, PSi Technologies and PSi
Laguna are required to maintain separate escrow bank accounts and to ensure
that certain trade receivables are capable of being assigned by PSi
Technologies and PSi Laguna to RZB-Austria and that collections of such
trade receivables are remitted directly to the escrow bank accounts. Also,
PSi Technologies and PSi Laguna shall ensure the payments on certain
Eligible Receivables (trade receivables from third parties denominated in
U.S. dollars outstanding for no longer than 90 days from date of invoice)
under the Borrowing Base (equivalent to 90% of the value of the outstanding
Eligible Receivables) to the escrow bank accounts. Further, PSi
Technologies shall maintain a Borrowing Base to cover outstanding principal
drawings under the Credit Facility at all times. In case of shortfall, PSi
Technologies and PSi Laguna shall have three business days to rectify such
shortfall based on the Credit Facility Agreement. Withdrawals from the
escrow bank accounts are allowable after the creditor bank checks the
adequacy of the Borrowing Base (see Note 4).
PSi Holdings and PSi Technologies are required to comply with certain
financial ratios and covenants which shall be calculated based on
consolidated and standalone financial statements, respectively, prepared in
conformity with U.S. GAAP. As of December 31, 2003, PSi Technologies is in
compliance with the provisions of the Credit Facility, except with respect
to current ratio requirement. As mentioned in Note 1, the Company has
obtained a one-time waiver with respect to its compliance with the current
ratio covenant from RZB-Austria as of December 31, 2003.
-22-
11. Trade and Other Payables
Trade and other payables consist of:
2003 2002
---------------------------------------------------------------------------
Trade $16,619,347 $23,518,750
Accrued expenses:
Employee salaries and benefits (see Note 18) 1,461,171 1,199,581
Utilities 232,240 385,311
Interest and others 791,525 973,878
Withholding taxes 323,099 289,342
---------------------------------------------------------------------------
$19,427,382 $26,366,862
===========================================================================
|
Trade payables include liabilities to equipment suppliers amounting to
$3,967,002 million in 2003 and $10,806,346 in 2002.
Accrued employee salaries and benefits include accruals for compensated
absences.
12. Obligations Under Capital Lease
In 2003 and 2002, the Company acquired computer equipment under capital
lease arrangements. These are included in the balance of office furniture,
fixtures and equipment under "Property, Plant and Equipment" account in the
consolidated balance sheets. The details are as follows:
2003 2002
---------------------------------------------------------------------------
Office equipment under capital lease $421,617 $380,725
Less accumulated depreciation 200,235 130,638
---------------------------------------------------------------------------
Net book value $221,382 $250,087
===========================================================================
|
The future minimum payments under the lease as of December 31, 2003 are as
follows:
Years ending December 31 Amount
---------------------------------------------------------------------------
2004 $133,354
2005 22,227
---------------------------------------------------------------------------
Total minimum lease obligation 155,581
Less amount representing interest 3,015
---------------------------------------------------------------------------
Present value of minimum lease payments 152,566
Less current portion 135,403
---------------------------------------------------------------------------
Long-term portion $ 17,163
===========================================================================
|
-23-
--------------------------------------------------------------------------------
13. Long-term Liability Due to a Customer
|
On December 11, 2001, the Company entered into an Equipment Purchase
Agreement (Agreement) with one of its customers (the Customer). Under the
Agreement, the Company purchased from the Customer certain equipment
(Equipment) for a total contract price of $3.5 million, with estimated fair
value of $3.1 million using a 5.054% imputed interest. A downpayment of
$350,000 was made upon delivery of the Equipment in 2001 and a series of
installment amounts is payable over 24 months beginning January 1, 2002
based on the pre-agreed production volume from such Equipment. Any
remaining liability after the said installments should be fully settled on
December 14, 2003. However, the Customer was unable to meet the pre-agreed
production volume. Consequently, the Company did not pay the liability.
Also, under the terms of the Agreement, upon conclusion of the purchase and
installation of the Equipment, the Customer shall designate the Company as
its key supplier for a power package (the Package). As a key supplier, the
Company shall receive preferential treatment for the loading of the Package
production demands. The liability of the Customer and the Company under the
agreement is limited to the delivery, installation and payment of the
acquisition cost of the Equipment.
In 2003, the Company entered into an agreement with the Customer to
restructure the outstanding liability. Instead of a final balloon payment
in December 2003, the restructuring allows the Company to pay down the
liability on a monthly basis at an amount based on the production volume
provided by the Customer, interest-free and with final payment due in June
2005. On the basis of the actual volume loaded as of May 2004 and projected
production volume to be provided by the Customer, the Company expects that
the estimated liability of $1.6 million as of December 31, 2003 will be
settled in 2004.
14. Exchangeable Note
The Note represents a $4.0 million exchangeable senior subordinated note
payable to Merrill Lynch in 2008, net of calculated debt discount of $3.1
million as of December 31, 2003. The debt discount represents the value of
the beneficial conversion feature calculated in accordance with the
provisions of EITF 98-5, Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable Conversion
Ratios. Interest on unpaid principal amount of the Note is at a rate of 10%
per annum, payable semi-annually in arrears on each Interest Payment Date;
provided that if (a) upon any interest payment date, the Company is
prohibited from paying cash interest due to restriction in its senior
credit facility or (b) PSi Holding's Earnings Before Interest Taxes
Depreciation and Amortization (EBITDA) for the two consecutive fiscal
quarters ending immediately prior to any interest payment date is less than
$1.0 million, then the Company may, by notice to the Note holder, elect to
pay all or any portion of such interest by adding it to the principal
amount of the Note, whenever such amount shall bear interest at the rate
aforesaid and shall no longer be considered to be interest due. Following
are the significant terms of the Note:
-24-
--------------------------------------------------------------------------------
Grant of Exchange Right PSi Holdings grants Merrill Lynch an
irrevocable right to exchange Right all or
part of its Note to PSi Holdings' common
stock (Common Stock) at a price per share of
Common Stock initially equal to $1.47 (Note
Exercise Price), provided however that:
i. If PSi Holdings' EBITDA for the
three-month period ending September 30,
2003 was less than $3.89 million, then
the Exercise Price shall be reduced to
$1.29 per share; and
ii. If PSi Holdings' EBITDA for the
three-month period ending December 31,
2003 is less than $3.92 million, then
the Note Exercise Price shall be reduced
to (a) $1.15 per share if the Note
Exercise Price was reduced pursuant to
clause (i) above, and (b) $1.29 per
share, if the Note Exercise Price was not
reduced pursuant to clause (i) above.
The EBITDA for the three-month periods ended
September 30, 2003 and December 31, 2003 is
less than $3.89 million and $3.92 million,
respectively. As of December 31, 2003, the
Note Exercise Price was reduced to $1.15 per
share.
At any time after July 3, 2004, the Exchange
Right may be exercised by Merrill Lynch at
its sole discretion, in whole or in part
until such time as all of the Note is
exchanged for Common Stock, paid at maturity
or redeemed in accordance with its terms.
The Company shall not be permitted to prepay
the Note in whole or in part.
--------------------------------------------------------------------------------
Mandatory Issuance Rights Merrill Lynch, at its discretion, may elect
to replace all of its Exchange Rights with
the right to (i) assign a portion or all of
the Note to PSi Technologies; provided
however, that prior to such assignment, PSi
Technologies shall redeem a portion of such
Note and (ii) subscribe for shares of Common
Stock (Mandatory Issuance) at a price per
share equal to the then par value of one
share of Common Stock (Stock Issuance Price).
--------------------------------------------------------------------------------
Redemption Simultaneously with the consummation of the
Mandatory Issuance, PSi Technologies shall
redeem from Merrill Lynch for a cash payment
(including accrued and unpaid interest)
relating to such redeemed Note, a portion of
the conversion principal amount of the Note
equal to the Issuance Purchase Price of the
shares being issued in the Mandatory
Issuance.
--------------------------------------------------------------------------------
|
The Exercise Price of the Note is below the prevailing share price of PSi
Holdings common share as of July 3, 2003, the commitment date, which is $2.08
per share. Under EITF 98-5, such beneficial
-25-
conversion feature has to be valued separately at issuance date. The embedded
beneficial conversion feature should be recognized and measured by allocating a
portion of the proceeds equal to the intrinsic value of that feature to
additional paid-in capital. That amount should be calculated at the commitment
date as the difference between the conversion price and the fair value of the
common stock into which the Note is convertible, multiplied by the number of
shares into which it is convertible. Any adjustment made to the Exercise Price
of the Note upon the occurrence of the stated future event should also be given
accounting recognition on a prospective basis.
As of December 31, 2003, the Note has a carrying amount of $0.9 million (net of
discount of $3.1 million). Upon redemption or conversion of the Note prior to
June 1, 2008, any remaining unamortized discount will be charged to operations
on the year of redemption or conversion. The embedded beneficial conversion
feature recognized as additional paid-in capital amounted to $2.9 million as of
December 31, 2003.
In 2003, the Company recognized debt discount amortization of $0.1 million
presented as part of "Interest and bank charges" in the 2003 consolidated
statement of operations.
15. Retained Earnings
The carryover of the retained earnings from PSi Technologies is consistent
with the accounting of the Company's Reorganization at historical cost in a
manner similar to a pooling of interests. This account includes inherited
retained earnings from PSi Technologies.
The retained earnings determined for Philippine statutory reporting
purposes, expressed in Philippine pesos, shall be the basis of any dividend
declaration. As of December 31, 1999, the amount of the inherited retained
earnings was 385.8 million (converted to U.S. dollars as of December 31,
2003 exchange rate as $6.9 million). However, with special approval by the
Philippine SEC, the inherited retained earnings was carried forward to the
holding company and will be available for distribution as dividends once
declared as such by PSi Technologies.
The retained earnings balance as of December 31, 2003 and 2002 of PSi
Holdings included accumulated equity in net earnings of subsidiaries and
PSitech Realty of (Pesos) 772.9 million and (Pesos)145.2 million (as
restated), respectively, computed at the Philippine GAAP parent company
financial statements level of PSi Holdings. The Philippine GAAP financial
statements of PSi Holdings were restated to give effect to a change in
Philippine accounting policy. The accumulated equity in net earnings of
subsidiaries and PSitech Realty is not available for dividend declaration
until declared as dividends by PSi Technologies to PSi Holdings.
As of December 31, 2003, the Company has not declared dividends since its
incorporation.
-26-
16. Special Charges
Special charges in 2003 consist of the following:
Provision for impairment losses on property and
equipment (see Note 8) $11,367,649
Provision for inventory losses 881,236
Write-off of inventories 521,884
Write-off of deposit 125,000
---------------------------------------------------------------------------
$12,895,769
===========================================================================
--------------------------------------------------------------------------------
17. Income Tax
|
The components of the Company's deferred tax assets, which are all
Philippine income tax components, are as follows:
2003 2002
---------------------------------------------------------------------------
Deferred tax assets - current:
Allowance for:
Inventory obsolescence $ 67,440 $ 97,460
Doubtful accounts -- 70,505
---------------------------------------------------------------------------
67,440 167,965
Less valuation allowance 7,274 --
---------------------------------------------------------------------------
$ 60,166 $ 167,965
===========================================================================
Deferred tax assets - noncurrent:
Provision for impairment losses $570,824 $ 47,029
NOLCO 91,877 1,564,039
Accrual for retirement benefits 29,777 168,515
MCIT 4,531 27,238
Stock compensation -- 211,159
Preoperating expenses -- 9,521
---------------------------------------------------------------------------
697,009 2,027,501
Less valuation allowance 252,320 1,858,986
---------------------------------------------------------------------------
$444,689 $ 168,515
===========================================================================
|
Deferred tax assets - current and deferred tax assets - noncurrent are
included in the "Other current assets" and "Other noncurrent assets"
accounts, respectively, in the consolidated balance sheets.
The net decrease in the valuation allowance amounted to $1,606,666 in 2003
and the net increase in the valuation allowance amounted to $1,120,773 in
2002.
NOLCO can be claimed as deduction from regular taxable income as follows:
-27-
Year Incurred Expiry Date
------------------------------------------------
December 31, 2003 December 31, 2006 $ 9,177
December 31, 2002 December 31, 2005 54,276
December 31, 2001 December 31, 2004 223,662
------------------------------------------------
$287,115
================================================
|
The NOLCO can only be used to offset against any income from non-registered
activities while MCIT can only be carried forward and credited against any
normal income tax due for the three immediately succeeding taxable periods.
In May 2004, the area within the FTI Complex where the facilities of PSi
Technologies are located was declared as an export zone (see Note 27). As
part of the Company's tax planning strategies, PSi Technologies registered
as PEZA enterprise. All of its operations which have previously been
entitled to income tax holiday(ITH) incentives or subjected to 32% income
tax on net income shall be taxed at 5% of gross income in lieu of all
taxes. Gross income is defined as net sales less cost of sales.
Consequently, certain deferred tax benefits shall no longer be deductible
items of PSi Technologies. The deferred tax assets have been reduced to the
extent that such will not be of benefit to PSi Technologies.
All of the Company's revenues are generated from Philippine operations.
The reconciliation between the Company's Philippine statutory income tax
rate and effective income tax rates is as follows:
2003 2002 2001
--------------------------------------------------------------------------
Statutory income tax rate (32%) (32%) (32%)
Income tax effects of:
Foreign exchange adjustments 12 15 17
Change in tax rate due to approval of PEZA
registration 9 -- --
Lower tax rate of PEZA registered activities 2 -- --
ITH on registered activities -- (13) (11)
Losses of registered activities subject to
ITH -- 14 16
Interest income subjected to final
withholding tax -- -- (1)
Valuation allowance 8 16 11
--------------------------------------------------------------------------
Effective income tax rates (1%) 0% 0%
==========================================================================
|
Foreign exchange adjustments represent a nondeductible tax item for
Philippine tax reporting purposes which is a permanent difference on the
U.S. GAAP book basis.
PSi Technologies has registrations with the BOI. Such registrations entitle
the registered activities of PSi Technologies to tax and nontax incentives
such as ITH, NOLCO, additional deduction for incremental labor expense, and
exemption from taxes and duties on imported
-28-
supplies and spare parts. Under such registrations, PSi Technologies is
also subject to certain conditions imposed by the BOI, principally relating
to exportation of certain percentage of its production output.
Except for sales of voltage regulators and testing of certain semiconductor
devices which are still subject to ITH incentive, income derived from sales
of products moved from the Taguig Plant is subject to the regular
Philippine corporate income tax rate of 32%. PSi Technologies has
registrations with the BOI as (1) new export producer of voltage regulator
on a preferred non-pioneer status until June 2003, and (2) service exporter
in the field of testing semiconductor devices on a non-pioneer status until
August 2003. Under the terms of these registrations, PSi Technologies is
entitled to ITH for a period of four years until June 2003 as new export
producer of voltage regulator and until August 2003 as service exporter in
the field of testing semiconductor devices.
Had PSi Technologies not been entitled to the ITH incentive, the reported
net losses for the years ended December 31, 2002 and 2001 would have been
higher by $920,626 ($0.07 per share) in 2002 and $602,274 ($0.05 per share)
in 2001. No income tax holiday incentive was availed for the year ended
December 31, 2003.
As a result of PSi Technologies' registration with PEZA (see Notes 1 and
27) in May 2004, it voluntarily returned its registration as an export
enterprise to the BOI.
As discussed in a previous paragraph, PSi Technologies shall henceforth be
subject to a final tax, in lieu of all taxes, computed at 5% of gross
income less allowable deductions as defined in RA No. 8748, which shall be
paid and remitted in accordance with the amendments contained therein, as
follows:
a. Three percent to the National Government; and
b. Two percent which shall be directly remitted to the treasurer's office
of the municipality or city where the enterprise is located.
Accordingly, the change in the Company's tax rate and basis were applied in
the determination of the Company's deferred tax assets and liabilities as
of December 31, 2003. PSi Technologies' MCIT and estimated NOLCO that will
not be applied by May 1, 2004 were written off.
PSi Laguna is registered with the PEZA as a nonpioneer Economic Zone
(ECOZONE) Export Enterprise for the manufacture, assembly and test of
semiconductor devices (smart alphanumeric, rectifier devices and small
signal transistor). The registration of PSi Laguna as a special ECOZONE
Export Enterprise entitle it to, among others, certain rights, privileges
and incentives granted by the Omnibus Investments Code of 1987.
-29-
Under the terms of the PEZA registration, PSi Laguna is entitled to ITH as
follows:
Power Devices ITH Period
-------------------------------------------------------------------------
Smart alphanumeric December 1999 - November 2003
Rectifier devices May 2000 - April 2004
Small signal transistor December 2000 - November 2004
|
After the ITH period, PSi Laguna is subject to a final tax, in lieu of all
taxes. The final tax is computed at 5% of gross income less allowable
deductions as defined under RA No. 8748.
18. Retirement Benefit Plan
The Company has a defined retirement benefit plan that covers all of its
officers and full-time employees in the Phillipines. Retirement costs are
charged to operations and are based on amounts computed by an independent
actuary.
The components of net periodic pension cost for the defined benefit plan
are as follows:
2003 2002 2001
------------------------------------------------------------------------------
Service cost of current year $237,804 $134,495 $132,780
Interest cost on projected benefit obligation 79,274 67,627 61,366
Actuarial adjustments -- 13,782 --
Expected return on plan assets (16,690) (20,319) (9,882)
Net amortization and deferrals 26,958 7,449 15,047
------------------------------------------------------------------------------
Total pension expense $327,346 $203,034 $199,311
==============================================================================
|
The following table sets forth the funded status and the amounts recognized
in the consolidated balance sheets for the defined benefit retirement plan:
2003 2002
---------------------------------------------------------------------------
Change in benefit obligation
Benefit obligation, beginning of year $1,389,210 $ 709,154
Service cost 243,452 138,887
Interest cost 81,157 69,835
Benefits paid (1,585) --
Actuarial adjustment (92,429) 514,507
Translation adjustment (61,569) (43,173)
---------------------------------------------------------------------------
Benefit obligation, end of year $1,558,236 $1,389,210
===========================================================================
|
-30-
Change in plan assets
Fair value of plan assets, beginning of year $ 141,535 $ 131,639
Actual return on plan assets 9,422 8,388
Employer contribution -- 5,813
Translation adjustment (5,946) (4,305)
-----------------------------------------------------------------------------
Fair value of plan assets, end of year $ 145,011 $ 141,535
=============================================================================
Funded status ($1,413,225) ($1,247,675)
Unamortized transition obligation 314,748 342,932
Unrecognized net actuarial loss 352,232 467,632
-----------------------------------------------------------------------------
Accrued benefit cost ($746,245) ($437,111)
=============================================================================
|
The accumulated benefits obligation amounted to $620,232 and $540,590 in
2003 and 2002, respectively.
It is the Company's policy to invest pension fund assets in fixed income
debt securities. In determining the overall expected long-term
rate-of-return-on assets assumption, due consideration was given to the
historical performance of plan investments. As of December 31, 2003 and
2002, 100% of the fair value of plan assets consisted of investment in debt
securities.
The Company expects to make approximately $27 thousand of cash
contributions to its pension plan in 2004. The significant assumptions used
in determining the actuarial present value of the projected benefits
obligations as of December 31, 2003 and 2002 are as follows:
2003 2002
---------------------------------------------------------------------------
Weighted average assumptions:
Discount rate 6% 6%
Expected return on plan assets 6% 6%
Rate of compensation increase 5% 5%
|
The table below presents the expected compulsory pension benefits of the
Company to be paid out of the fund for the next ten years:
Year Amount
---------------------------------------------------------------------------
2004 $ 15,500
2005 20,100
2006 25,400
2007 31,400
2008 38,200
2009 to 2013 263,400
|
-31-
In 2001, the Company offered a voluntary early retirement program to
selected employees. A total of 225 employees availed of the program and the
total employee benefits accrued and paid amounted to $679,884.
Accrued retirement benefit costs of $746,245 in 2003 and $437,111 in 2002
are included in the "Trade and other payables" account in the consolidated
balance sheets.
The measurement date of the Company's December 31, 2003 actuarial valuation
is March 16, 2004.
19. Stock Option (SO) Plan
On February 22, 2000, the Company's stockholders approved the SO Plan.
Under the SO Plan, the total number of shares of the Company that may be
distributed shall not exceed 741,162 common shares, and participation shall
be limited to certain directors, officers and employees. On the same date,
627,100 options were granted at a weighted average exercise price of $13.30
per share. Another 10,000 shares with the same terms as the initial award
was granted on June 16, 2000 to include another officer. On a calendar year
basis, these options vest over 5 to 7 years and will expire 3 years from
the vesting date.
The SO Plan is being administered by a committee (the "Committee") who
established the exercise price at the time any SO is granted at such amount
as the Committee determines, except that such exercise price shall not be
less than 90% of the fair market value which is defined as the latest
available price of the underlying shares of common stock on the day such SO
is granted.
The vesting period shall in no event be beyond 10 years from the date of
grant of such SO. Each SO granted shall be exercisable within 3 years from
the time the right to such SO becomes vested, unless the necessary approval
for such extension is first secured from the Philippine SEC.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its plans. For each of the years ended December 31, 2003,
2002 and 2001, total stock compensation expense amounted to $235,110,
$197,331 and $239,953, respectively. A summary of the status of the
Company's SO Plan as of December 31, 2003, 2002 and 2001, and changes
during the years then ended are presented below:
2003 2002 2001
-----------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Number Exercise Number Exercise Number Exercise
of Shares Price of Shares Price of Shares Price
-----------------------------------------------------------------------------------------------------
Outstanding at beginning of year 596,350 $13.30 635,850 $13.30 637,100 $13.30
Granted -- -- --
Exercised -- -- --
Forfeited (16,000) 13.30 (39,500) 13.30 (1,250) 13.30
Outstanding at end of year 580,350 13.30 596,350 13.30 635,850 13.30
Options exercisable at yearend 348,210 232,140 116,070
|
The weighted average remaining contractual life of the options as of
December 31, 2003 and 2002 is 4.2 years and 5.2 years, respectively.
The Company uses the Black-Scholes option pricing model to calculate the
value of the options
-32-
at date of grant using the following assumptions: volatility of 1.2%,
risk-free interest rate of 2.1%, at the date of grant, dividend yield of 0%
and an expected term of ten years.
20. Related Party Transactions
On September 10, 1999, PSi Technologies and Pacsem Realty entered into a
loan agreement, whereby PSi Technologies extended Philippine peso advances
to Pacsem Realty of 50.8 million ($0.92 million at the December 31, 2003
exchange rate of 55.5 to $1). The proceeds of the loan were used by Pacsem
Realty to acquire a parcel of land from Philippine Township, Inc. The loan
is for a period of 10 years from the date of the initial availment and is
subject to 15% interest per annum. Under the terms of the loan agreement,
beginning on the 61st month after the date of the initial availment, PSi
Technologies may, at its option and only to the extent permitted under
Philippine law, elect to convert the principal amount of the loan to shares
of stock of Pacsem Realty at the ratio of one common share with a par value
of 5 for every 5 worth of unpaid principal.
Advances to officers represent outstanding market rate loans to certain
officers granted in December 1998 and November 2000.
21. Operating Lease Commitments
The Company leases certain of its office spaces until 2004, land until 2008
and warehouse until 2015. The leases are renewable at the end of the
respective lease terms under such terms and conditions the parties may
mutually agree upon.
The Investment Agreement between PSi Technologies and the Management
Committee of CHTZ signed on December 7, 2003 contains provisions for leases
of two pre-fabricated factories and two adjacent parcels of land in the
Sichuan Chengdu Export Processing Zone. The term of both leases is three
years from the date the lease is to begin. The leases also contain option
to purchase the factories and the right to use the land.
The following is a schedule of future annual minimum rental payments
(converted at 55.50 to US$1, the exchange rate as of December 31, 2003) as
of December 31, 2003:
Years Ending December 31 Amount
---------------------------------------------------------------------------
2004 $ 532,035
2005 416,768
2006 456,524
2007 434,760
2008 136,872
2009 and thereafter 300,883
---------------------------------------------------------------------------
$2,277,842
===========================================================================
|
Rent expense amounted to $646,159, $681,804 and $648,041, for the years
ended December 31, 2003, 2002 and 2001, respectively.
-33-
22. Fair Value of Financial Instruments
The estimated fair value of financial instruments had been determined by
the Company using available market information and standard discounting
methodologies. However, considerable judgment was required in interpreting
market data to develop the estimates for fair value. Accordingly, these
estimates are not necessarily indicative of the amounts that the Company
could realize in a current market exchange. Certain of these financial
instruments are with major financial institutions and expose the Company to
market and credit risks and may at times be concentrated with certain
counterparties or groups of counterparties. The creditworthiness of
counterparties is continually reviewed, and full performance is
anticipated.
The methods and assumptions used to estimate the fair value of significant
classes of financial instruments are as follows:
Cash. The carrying amount approximates fair value because of the short
maturity of the instruments.
Short-term borrowings (loans payable and trust receipts payable).
Short-term borrowings bear interest at variable rates that reflect
currently available terms and conditions for similar borrowings. The
carrying amount of this debt is a reasonable estimate of the fair value.
Long-term liability due to a customer. Long-term liability due to a
customer bears imputed interest at rates that reflect currently available
terms and conditions for similar debt. The carrying amount of this debt is
a reasonable estimate of the fair value.
Exchangeable note. The exchangeable note includes a beneficial conversion
option. The carrying amount of this debt is discounted at 11% effective
interest rate taking into account the value of the beneficial conversion
option.
23. Reporting Segment
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," requires that a public business enterprise report financial
and descriptive information about its reportable segments. Operating
segments are components of an enterprise about which separate financial
information is available and is evaluated regularly by management in
deciding how to allocate resources and in assessing performance. Generally,
financial information is required to be reported on the basis that it is
used internally for evaluating segment performance and deciding how to
allocate resources to segments.
-34-
The Company is primarily engaged in one industry segment, semiconductor
assembly and test services. Revenues summarized by geographic region (by
customer domicile), are as follows:
2003 2002 2001
--------------------------------------------------------------------------
United States 37.97% 48.20% 53.44%
Europe 51.09% 39.49% 27.11%
Asia 10.94% 12.31% 19.45%
|
The Company's top five customers, as a percentage of its total revenues,
are as follows:
Percentage to
Total Revenue
---------------------------------------------------------------------------
2003
Infineon Technologies, Inc. 33.9
Texas Instruments, Inc. 18.6
Semiconductor Components Industries, Ltd. 12.7
Philips Components Philippines, Inc. 8.6
Fairchild Semiconductor International, Inc. 7.0
---------------------------------------------------------------------------
2002
Infineon Technologies, Inc. 21.9
Semiconductor Components Industries, Ltd. 19.9
Texas Instruments, Inc. 18.5
Philips Components Philippines, Inc. 9.0
Fairchild Semiconductor International, Inc. 7.0
---------------------------------------------------------------------------
2001
Semiconductor Components Industries, Ltd. 17.0
Infineon Technologies, Inc. 10.8
Philips Components Philippines, Inc. 10.8
Fairchild Semiconductor International, Inc. 10.0
Power Integrations 7.3
As a result of such concentration of the customer base, loss or
cancellation of business from, or significant changes in scheduled
|
deliveries or decreases in the prices of products sold to, any of these
customers could materially and adversely affect the Company's results of
operations and financial position.
-35-
24. Denomination of Monetary Assets and Liabilities
The Company's monetary assets and liabilities and their U.S. dollar
equivalents follow:
In Philippine Pesos
(Translated into
U.S. Dollars
2003 In U.S. Dollars at P55.50 to $1) Total
--------------------------------------------------------------------------
Assets $ 15,735,725 $ 1,969,309 $ 17,705,034
Liabilities 23,782,113 3,694,619 27,476,732
--------------------------------------------------------------------------
Net Liabilities ($8,046,388) ($1,725,310) ($9,771,698)
==========================================================================
In Philippine Pesos
(Translated into
U.S. Dollars
2002 In U.S. Dollars at P53.254 to $1) Total
--------------------------------------------------------------------------
Assets $ 15,086,101 $2,720,267 $ 17,806,368
Liabilities 35,962,131 2,893,415 38,855,546
--------------------------------------------------------------------------
Net Liabilities ($20,876,030) ($173,148) ($21,049,178)
==========================================================================
|
25. Computation of Earnings Per Share
2003 2002 2001
--------------------------------------------------------------------------------------------
Net loss ($21,003,522) ($6,918,082) ($5,507,877)
Adjusted weighted average number of common shares
issued and outstanding during the year 13,289,525 13,289,525 13,289,525
--------------------------------------------------------------------------------------------
Earnings per share ($1.58) ($0.52) ($0.41)
============================================================================================
|
For the year ended December 31,2003, potentially dilutive Note and stock
options which would have antidilutive effect on earnings per share were
excluded from the computation of earnings per share.
26. Contingencies and Other Matters
a. In September 2001, two substantially identical class action complaints
alleging violations of the federal securities laws were filed in the
United States District Court for the Southern District of New York
naming as defendants, in the aggregate, PSi Holdings, certain of
its current or former officers and directors, and certain underwriters
of its IPO. Similar complaints have been filed against over 300 other
issuers that have had IPOs
-36-
since 1998 and all such actions have been included in a single
coordinated proceeding. A consolidated amended complaint was filed on
April 24, 2002. The amended complaint alleges, among other things,
that the underwriters of PSi Holdings' IPO violated the securities
laws by failing to disclose certain alleged compensation arrangements
(such as undisclosed commissions or stock stabilization practices) in
the offering's registration statement and by engaging in manipulative
practices to artificially inflate the price of PSi Holdings' stock in
the after-market subsequent to the IPO. PSi Holdings, together with
certain of its officers and directors, and underwriters of the IPO are
named in the amended complaint pursuant to Section 11 of the
Securities Exchange Act of 1933, and Section 10(b) and Rule 10b-5 of
the Securities Exchange Act of 1934 on the basis of an alleged failure
to disclose the underwriters' alleged compensation arrangements and
manipulative practices. The complaint seeks unspecified damages. On
July 1, 2002, the underwriter defendants in the consolidated actions
moved to dismiss all of the IPO Allocation Litigations, including the
action involving PSi Holdings. On July 15, 2002, PSi Holdings, along
with other non-underwriter defendants in the coordinated cases, also
moved to dismiss the litigation. Those motions were fully briefed on
September 13, 2002 and September 27, 2002, respectively, and argument
on the motions was heard on November 1, 2002. On February 19, 2003,
the Court ruled on the motions. The Court granted PSi Holdings' motion
to dismiss the claims against it under Rule 10b-5, due to the
insufficiency of the allegations against PSi Holdings. The Court also
granted the motion of the individual defendants to dismiss the claims
against them under Rule 10b-5 and Section 20 of the Exchange Act. The
motions to dismiss the claims under Section 11 of the Securities Act
were denied as to virtually all of the defendants in the consolidated
cases, including PSi Holdings. On or about July 22, 2003, a committee
of PSi Holdings' BOD conditionally approved a proposed partial
settlement with the plaintiffs in this matter. The settlement would
provide, among other things, a release of PSi Holdings and of the
individual defendants for the conduct alleged in the amended complaint
to be wrongful. PSi Holdings would agree to undertake other
responsibilities under the partial settlement, including agreeing to
assign away, not assert, or release certain potential claims PSi
Holdings may have against its underwriters. Any direct financial
impact of the proposed settlement is expected to be borne by PSi
Holdings' insurance carriers. The committee agreed to approve the
settlement subject to a number of conditions, including the
participation of a substantial number of other Issuer Defendants in
the proposed settlement, the consent of PSi Holdings' insurers to the
settlement, and the completion of acceptable final settlement
documentation. Furthermore, the settlement is subject to a hearing on
fairness and approval by the Court overseeing the IPO Litigations. Any
unfavorable outcome of this litigation could have an adverse impact on
PSi Holdings' business, liquidity, financial condition and results of
operations. Due to the inherent uncertainties of litigation, PSi
Holdings cannot accurately predict the ultimate outcome of the
litigation.
b. On November 19, 2003, PSi Holdings filed an injunction complaint
against Manila Electric Company (Meralco) to enjoin it from
disconnecting its supply of electric service on account of a billing
differential in the amount of 21.2 million ($400 thousand, translated
using the exchange rate of $55.50 to $1) reckoned from April 1, 1998
to July 12, 2002. The billing differential came about from a defective
meter installation by Meralco. Claiming negligence on the part of
Meralco, PSi Holdings refused to pay the full amount and offered
settlement of 2 million ($36 thousand, translated using the exchange
rate of $55.50 to $1). Meralco insisted on full payment, hence the
filing of the complaint. On December 17, 2003, the court granted PSi
Holdings' application for the issuance of a writ of preliminary
injunction and approved the injunction bond. Meralco has already filed
its
-37-
answer to the complaint. Meralco also filed a motion for
reconsideration from the order granting the injunction, which incident
is now submitted for resolution. The Company does not believe that the
ultimate outcome of these proceedings will have a material adverse
effect on the Company's overall financial position or results of
operations.
c. As of December 31, 2003, the Company has outstanding letters of credit
amounting to $1.9 million.
d. Shipping and handling costs incurred in 2003, 2002 and 2001 amounted
to $443,565, $254,147 and $215,449, respectively.
27. Subsequent Events
Supply Agreement
On January 14, 2004, the Company signed a long-term Supply Agreement with
Philips, a division of Philips Electronics UK Ltd., to provide outsourced
power semiconductor assembly and test services through the Company's
facility in Chengdu, China (see Note 1).
PEZA Registration
On March 19, 2004, PSi Technologies, together with two other semiconductor
assembly and test locators (collectively referred to as "Semicon Locators")
in the FTI Complex signed a Memorandum of Agreement with the management of
FTI and the local government of the Municipality of Taguig whereby the
location of such Semicon Locators shall be proclaimed as a PEZA zone. In
line with this, the Semicon Locators have also filed their individual
applications for registration as PEZA enterprises. On May 1, 2004, the
President of the Republic of the Philippines signed the proclamation
creating and designating the location of the Semicon Locators as a PEZA
zone. In May 2004, PSi Technologies was registered as a PEZA entity.
Henceforth, it shall be entitled to the incentives under RA No. 8748 (see
Notes 2 and 17).
EXHIBIT 4.2
EXECUTION COPY
PURCHASE AGREEMENT
This Purchase Agreement (this "Agreement"), dated July 3, 2003, is by and
among PSi Technologies Holdings, Inc., a corporation organized and existing
under the laws of the Philippines ("Holdings"), PSi Technologies, Inc., a
corporation organized and existing under the laws of the Philippines and the
principal operating subsidiary of Holdings (the "Company"), and Merrill Lynch
Global Emerging Markets Partners, LLC, a limited liability company organized and
existing under the laws of the State of Delaware, USA ("MLGEMP" or the
"Purchaser").
WHEREAS:
The authorized capital of Holdings is Sixty-One Million Seven Hundred
Sixty-Three Thousand and Five Hundred Pesos (P61,763,500.00) divided into
Thirty-Seven Million Fifty Eight Thousand and One Hundred (37,058,100) shares of
common stock with a par value of one peso and two-thirds centavos (P1 2/3) per
share;
As of even date, 13,289,525 shares of common stock of Holdings have been
issued and are outstanding;
The Company desires to sell, and MLGEMP desires to buy, USD$4 million
aggregate principal amount of 10.00% Exchangeable Senior Subordinated Notes due
2008 (the "Notes"), a form of which is attached hereto as Exhibit A; and
In connection with and by virtue of the purchase of the Notes by MLGEMP and
the sale of the Notes by the Company, which redounds to the derivative benefit
of Holdings, MLGEMP, Holdings and the Company will enter into the Exchange
Agreement;
NOW, THEREFORE, for and in consideration of the foregoing premises and the
terms and conditions hereinafter set forth, the parties hereto agree as follows:
Section 1. Definitions and Interpretation
1.1 Unless otherwise defined herein, the following terms used in this
Agreement shall have the meanings specified below:
"Affiliate" means, with respect to any specified Person, any other Person
that directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such specified Person.
"Agreement" shall have the meaning set forth in the Preamble.
"Applicable Law" means, with respect to any Person, any statute, law,
regulation, ordinance, rule, judgment, rule of common law, order, decree, award,
Governmental Approval, concession, grant, franchise, license, agreement,
directive, guideline, policy, requirement, or other governmental restriction or
any similar form of decision of, or determination by, or any interpretation or
administration of any of the foregoing by, any Governmental Authority, in effect
as of the date hereof and applicable to such Person or its subsidiaries or their
respective assets.
"BSP" means the Bangko Sentral ng Pilipinas or the central monetary
authority of the Philippines or any Governmental Authority of the Philippines
which assumes the functions thereof.
"BSRD" means the Bangko Sentral Registration Document issued by the BSP,
which allows the holder to source foreign exchange from the Philippine banking
system.
"Closing Date" shall have the meaning set forth in Section 3.1.
"Company" shall have the meaning set forth in the Preamble.
"Company Board Approval" shall have the meaning set forth in Section
5.5(a).
"Consolidated Financial Statement" means the audited consolidated balance
sheet of Holdings for the fiscal year ended December 31, 2002 and the related
audited consolidated statements of income, retained earnings, stockholders'
equity and changes in financial position, together with the related notes and
schedules thereto, accompanied by the reports of accountants.
"Disclosure Schedule" means the Disclosure Schedule attached hereto, dated
as of the date hereof, delivered by Holdings and the Company to the Purchaser in
connection with this Agreement.
"Encumbrance" means any lien, mortgage, pledge, collateral assignment,
security interest, hypothecation or other encumbrance other than as established
by, under or in connection with the terms of this Agreement, the Notes and the
Exchange Agreement, and the Subscription Agreement and Note Assignment, if
applicable, or the transactions contemplated thereby.
"Exchange Act" means the Securities Exchange Act of 1934 of the United
States, as amended.
"Exchange Agreement" means the Exchange Agreement to be entered into by and
among the Purchaser, the Company and Holdings, substantially in the form of
Exhibit B hereto.
"Exchange Notice" shall have the meaning specified in the Exchange
Agreement.
"FCPA" shall have the meaning set forth in Section 4.1(o).
2
"Final Order" means action taken by the relevant regulatory authority
relating to this Agreement or the transactions contemplated hereby that has not
been reversed, stayed, enjoined, set aside, annulled or suspended, with respect
to which any waiting period prescribed by law before the transactions
contemplated hereby may be consummated has expired, and as to which all
conditions to the consummation of such transactions prescribed by law,
regulation or order have been satisfied.
"Form 20-F" means the Form 20-F for the fiscal year ended December 31, 2002
filed by Holdings with the US SEC on June 30, 2003.
"Governmental Approval" shall mean any action, order, authorization,
consent, approval, license, lease, ruling, permit, tariff, rate, certification,
exemption, filing or registration by or with any Governmental Authority.
"Governmental Authority" shall mean any government or political subdivision
thereof, governmental department, commission, board, bureau, agency, regulatory
authority, instrumentality, judicial or administrative body having jurisdiction
over the matter or matters in question.
"Holdings" shall have the meaning set forth in the Preamble.
"Holdings Board Approval" shall have the meaning set forth in Section
5.5(b).
"Indemnified Party" shall have the meaning set forth in Section 6.1.
"Losses" shall have the meaning set forth in Section 6.1.
"Mandatory Issuance Rights" shall have the meaning specified in the
Exchange Agreement.
"Material Adverse Effect" means, with respect to any Person, any event,
circumstance, change or effect that, individually or in the aggregate with all
other events, circumstances, changes or effects on such Person and its
Subsidiaries, is or is reasonably likely to be materially adverse to the
business, operations, assets or liabilities (including, without limitation,
contingent liabilities), results of operations or the financial condition of
such Person and its Subsidiaries, taken as a whole.
"MLGEMP" or "Purchaser" shall have the meaning set forth in the Preamble.
"NASDAQ" means the Nasdaq National Market.
"Note Assignment" shall have the meaning specified in the Exchange
Agreement.
"Notes" shall have the meaning set forth in the Recitals.
"Notes BSRD" shall have the meaning set forth in Section 4.1(g).
3
"Organizational Documents" shall mean, with respect to any Person, the
memorandum of association, articles of association, articles of incorporation,
certificate of incorporation, bylaws and any charter, partnership agreements,
joint venture agreements or other organizational documents of such entity and
any amendments thereto.
"Person" means any individual, partnership, firm, corporation, limited
liability company, association, trust, unincorporated organization or other
entity, as well as any syndicate or group that would be deemed to be a person
under Section 13(d)(3) of the Exchange Act.
"Pesos" or the sign "P" shall mean the lawful currency of the Republic of
the Philippines.
"Philippine SEC" means the Securities and Exchange Commission of the
Philippines.
"Purchase Price" shall have the meaning set forth in Section 2.1(a).
"Reports" has the meaning set forth in Section 4.1(j).
"Securities Act" means the Securities Act of 1933 of the United States, as
amended.
"Securities Regulation Code" means the Securities Regulation Code of the
Philippines.
"Shareholder Approval" shall mean the approval, by a majority of the total
votes cast in person or by proxy by the holders of the outstanding Shares
entitled to vote at a duly called meeting of the shareholders of Holdings, of
the issuance of the Shares issuable pursuant to the Exchange Agreement.
"Shares" means the shares of common stock of Holdings.
"Shares BSRD" shall have the meaning set forth in Section 4.1(g).
"Subscription Agreement" shall have the meaning specified in the Exchange
Agreement.
"Subsidiary" means, with respect to any Person, any corporation, limited
liability company, partnership, association or other business entity of which
(a) if a corporation, a majority of the total voting power of shares of stock
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by such Person or one or more of the other
Subsidiaries of such Person or a combination thereof, or (b) if a limited
liability company, partnership, association or other business entity, a majority
of the partnership or other similar ownership interest thereof is at the time
owned or controlled,
4
directly or indirectly, by any Person or one or more Subsidiaries of such Person
or entity or a combination thereof.
"Taxes" means any and all taxes, fees, levies, duties, tariffs, imposts,
and other charges of any kind (together with any and all interest, penalties,
additions to tax and additional amounts imposed with respect thereto) imposed by
any government or taxing authority.
"Tax Returns" shall have the meaning set forth in Section 4.1(p).
"Transaction Expenses" has the meaning set forth in Section 7.1.
"US GAAP" means United States generally accepted accounting principles and
practices in effect from time to time applied consistently throughout the
periods involved.
"US SEC" means the Securities and Exchange Commission of the United States
of America.
1.2 The words "hereof", "herein" and "hereunder" and words of similar
import shall refer to this Agreement as a whole and not to any particular
provision of this Agreement. The terms defined in the singular shall have a
comparable meaning in the plural and vice versa.
1.3 References herein to Sections are to Sections of this Agreement. The
titles of the Sections and paragraphs of this Agreement are for convenience of
reference only and are not to be considered in construing this Agreement.
Section 2. Purchase of Notes
2.1 Purchase and Payment.
(a) The Company hereby agrees to issue and sell to the Purchaser, and
the Purchaser agrees to purchase from the Company, USD$4 million aggregate
principal amount of the Notes, for an aggregate price of USD$4 million (the
"Purchase Price").
(b) On the Closing Date (as defined in Section 3.1 hereof), the
Purchaser will pay for the Notes in accordance with Section 3.2 hereof.
Section 3. Closing
3.1 The closing of the transactions contemplated hereby shall take place at
the offices of Holdings located at FTI Complex, Electronics Avenue, Taguig City,
Metro Manila, Philippines, as soon as practicable following the satisfaction or
waiver of all of the conditions set forth in Sections 3.3 and 3.4 hereof, but in
no event later than July , 2003 (or on such other date as shall be mutually
agreed upon by the parties in writing). The time and date upon which the closing
occurs is herein called the "Closing Date".
5
3.2 At the closing, (a) the Purchaser shall deliver to the Company the
Purchase Price for the Notes by interbank transfer of immediately available
funds to the Company's Account No. 400-935309 with JPMorgan Chase Bank, New York
and such documents as may be required to be delivered in accordance with Section
3.4 below and (b) the Company shall deliver to the Purchaser the Notes and such
documents as may be required to be delivered in accordance with Section 3.3
below.
3.3 The obligation of the Purchaser to purchase and pay for the Notes shall
be subject to the satisfaction or waiver, at or prior to the Closing Date, of
the following conditions:
(a) Representations, Warranties and Covenants. The representations and
warranties of Holdings and the Company contained in this Agreement shall be
(without regard to any materiality qualifiers contained therein) true and
correct in all respects on and as of the Closing Date, unless the failure of
such representations and warranties to be so true and correct has not had or is
not reasonably likely to have a Material Adverse Effect on Holdings or the
Company and the covenants and agreements contained in this Agreement to be
complied with by Holdings and the Company on or before the Closing Date shall
have been complied with in all material respects, and the Purchaser shall have
received a certificate of each of Holdings and the Company to such effect signed
by a duly authorized officer thereof;
(b) Shareholder Approval. The Shareholder Approval shall have been
obtained;
(c) Certificate from BSP. The Company shall have received a letter of
approval from the BSP approving the issuance of the Notes by the Company;
(d) Notice to the Philippine SEC. Prior to the Closing Date, the
Company shall have notified the Philippine SEC of its exemption from the
registration requirements under the Securities Regulation Code with respect to
the issuance of the Notes by the Company;
(e) Exchange Agreement. Each of Holdings and the Company shall have
executed and delivered to the Purchaser the Exchange Agreement;
(f) No Events. There shall not be in effect any statute, regulation,
order, decree or judgment of any Governmental Authority which makes illegal or
enjoins or prevents the consummation of the transactions contemplated by this
Agreement;
(g) No Proceeding or Litigation by any Governmental Authority. Except
as set forth on Section 3.3(g) of the Disclosure Schedule, there shall not have
been any action, suit, investigation or proceeding by any Governmental Authority
pending, or to the best of its knowledge, threatened against or affecting
Holdings or any of its Subsidiaries, any of its properties, revenues or assets,
or this Agreement;
6
(h) No Proceeding or Litigation by a Third Party. Except as set forth
on Section 3.3(h) of the Disclosure Schedule, there shall not have been any
action, suit, investigation or proceeding by any third party before any court,
administrative agency or other Governmental Authority pending or, to the best of
its knowledge, threatened against or affecting Holdings or any of its
Subsidiaries, any of their properties, revenues or assets, or this Agreement,
which could reasonably be expected to have a Material Adverse Effect on the
Company;
(i) Board Resolutions. Each of Holdings and the Company shall have
delivered to the Purchaser the resolutions of the Board of Directors, certified
by the Corporate Secretary of Holdings and the Company, as the case may be,
authorizing Holdings or the Company, as the case may be, to enter into this
Agreement, the Notes and the Exchange Agreement, and the Subscription Agreement
and Note Assignment, if applicable, and to consummate all the transactions
contemplated by this Agreement, the Notes and the Exchange Agreement, and the
Subscription Agreement and Note Assignment, if applicable, and in the case of
Holdings, authorizing Holdings to reserve and issue the Shares issuable pursuant
to the terms of the Exchange Agreement out of its authorized capital; and
(j) Opinions of Counsel. The Purchaser shall have received opinions of
H.G. Tiu Law Offices and Akin Gump Strauss Hauer & Feld LLP, counsel to Holdings
and the Company addressed to the Purchaser, dated as of the Closing Date and in
form and substance reasonably satisfactory to the Purchaser, with respect to
matters of Philippine law and the United States law respectively, applicable to
this Agreement.
3.4 The obligation of Holdings and the Company to sell the Notes on the
Closing Date shall be subject to the satisfaction or waiver, at or prior to the
Closing Date, of the following conditions:
(a) Representations and Warranties. The representations and warranties
of the Purchaser contained in this Agreement shall be (without regard to any
materiality qualifiers contained therein) true and correct in all respects on
and as of the Closing Date, unless the failure of such representations and
warranties to be so true and correct has not had or is not reasonably likely to
have a Material Adverse Effect on the Purchaser and the covenants and agreements
contained in this Agreement to be complied with by the Purchaser on or before
the Closing Date shall have been complied with in all material respects, and
each of Holdings and the Company shall have received a certificate of the
Purchaser to such effect signed by a duly authorized officer thereof;
(b) Shareholder Approval. The Shareholder Approval shall have been
obtained; and
(c) Exchange Agreement. The Purchaser shall have executed and
delivered to Holdings and the Company the Exchange Agreement.
7
Section 4. Representations and Warranties
4.1 Representations and Warranties of Holdings and the Company. As of the
date hereof, Holdings and the Company hereby jointly and severally represent and
warrant to the Purchaser as follows:
(a) Each of Holdings and the Company is a corporation, duly organized,
validly existing and in good standing under the laws of the jurisdiction of the
Philippines, and each has all necessary power and authority to enter into this
Agreement, the Notes and the Exchange Agreement, as applicable, and the
Subscription Agreement and Note Assignment, if applicable, to carry out its
obligations hereunder and thereunder and to consummate the transactions
contemplated by this Agreement, the Notes and the Exchange Agreement, and the
Subscription Agreement and Note Assignment, if applicable.
(b) The authorized capital stock of Holdings consists of 37,058,100
shares of common stock with par value of one Peso and two-thirds centavos per
share. As of the date hereof, 13,289,525 shares of common stock of Holdings were
issued and outstanding, all of which are validly issued, fully paid and
nonassessable. Other than employee stock options to acquire 591,850 Shares,
there are no options, warrants, convertible securities or other rights,
agreements, arrangements or commitments of any character relating to the
issuance of additional shares of common stock by Holdings. Holdings is the owner
of 99.99% of the issued and outstanding shares of common stock of the Company.
The authorized capital stock of the Company consists of 400,000,000 shares of
capital stock consisting of 270,000,000 shares of common stock with par value of
one Peso per share and 130,000,000 shares of 12% cumulative convertible
non-participating preferred stock with par value of one Peso per share. As of
the date hereof, 387,000,000 shares of capital stock of the Company were issued
and outstanding consisting of 257,000,000 shares of common stock and 130,000,000
shares of 12% cumulative convertible non-participating preferred stock. Except
as set forth on Section 4.1(b) of the Disclosure Schedule, there are no options,
warrants, convertible securities or other rights, agreements, arrangements or
commitments of any character relating to the issuance of additional shares of
capital stock or other equity interests of the Company, or obligating Holdings,
the Company or any of their respective Subsidiaries to issue or sell any shares
of capital stock of, or any other interest in, any Subsidiary of Holdings.
(c) Holdings will reserve such number of Shares as would be required,
in the event the Purchaser exercises its rights under the Exchange Agreement,
for issuance of Shares upon an exchange of the Notes or pursuant to the
Purchaser's Mandatory Issuance Rights. Holdings will not issue or agree to issue
any Shares or options, rights or warrants to purchase Shares or securities
convertible into or exchangeable for Shares or take any other action if, after
giving effect thereto, the number of Shares remaining unissued and duly reserved
for issuance upon exchange of the Notes or pursuant to the Purchaser's Mandatory
Issuance Rights shall be insufficient to permit the issuance of the Shares
pursuant to the terms of the Exchange Agreement.
8
(d) The execution and delivery of this Agreement, the Notes and the
Exchange Agreement, and the Subscription Agreement and Note Assignment, if
applicable, by each of Holdings and the Company, the performance by each of
Holdings and the Company of its respective obligations hereunder and thereunder
and the consummation by each of Holdings and the Company of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
action on the part of each of Holdings and the Company other than the Company
Board Approval and the Holdings Board Approval, and no other proceedings
(corporate or otherwise) on the part of each of Holdings and the Company or any
other Person are necessary to authorize this Agreement, the Notes and the
Exchange Agreement, and the Subscription Agreement and Note Assignment, if
applicable, or to consummate the transactions contemplated hereby and thereby
other than as provided by Section 4.1(g).
(e) This Agreement has been, and upon their execution and delivery the
Exchange Agreement and the Notes, and the Subscription Agreement and Note
Assignment, if applicable, shall be, duly executed and delivered by Holdings and
the Company, and (assuming due authorization, execution and delivery by the
Purchaser) this Agreement, the Exchange Agreement and the Notes, and the
Subscription Agreement and Note Assignment, if applicable, shall constitute
legal, valid and binding obligations of Holdings and the Company, enforceable
against Holdings and the Company in accordance with their terms.
(f) The execution, delivery and consummation of this Agreement, the
Notes and the Exchange Agreement, and the Subscription Agreement and Note
Assignment, if applicable, do not and will not (i) conflict with, or result in a
breach of or default under, any terms or conditions of Holdings' or the
Company's Organizational Documents; (ii) conflict with or violate any Applicable
Laws; (iii) result in the creation of any Encumbrance on the Notes, the Shares
issuable upon exchange of the Notes or exercise of the Purchaser's Mandatory
Issuance Rights or the assets of Holdings and the Company; or (iv) result in any
breach of, or constitute a default (or event which with the giving of notice or
lapse of time, or both, would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation pursuant to any
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument to which Holdings or the Company is a party.
(g) The execution, delivery and performance of this Agreement by
Holdings and the Company, including, without limitation, the issuance and the
sale of the Notes and the issuance of the Shares pursuant to the terms of the
Exchange Agreement, do not and will not require any consent, approval,
authorization, Governmental Approval or other action by, or filing with or
notification or payment to, any third party or any Governmental Authority other
than (i) receipt of the letter of approval from the BSP approving the issuance
of the Notes by the Company (subject to the conditions set forth therein), (ii)
notification to the Philippine SEC regarding the exemption from the registration
requirements under the Securities Regulation Code with respect to the issuance
of the Notes, (iii) receipt of a BSRD from the BSP certifying registration with
the BSP of the Notes as a foreign currency loan to allow for the purchase of
U.S. dollars
9
from the Philippine banking system (the "Notes BSRD"), (iv) (A) confirmation
from the Philippine SEC regarding the exemption from the registration
requirements under the Securities Regulation Code with respect to the issuance
of the Shares issuable upon exchange of the Notes and approval by the Philippine
SEC of the issuance of the Shares issuable upon exchange of the Notes or (B)
notification to the Philippine SEC regarding the exemption from the registration
requirements under the Securities Regulation Code with respect to the issuance
of the Shares pursuant to an exercise of the Purchaser's Mandatory Issuance
Rights, (v) receipt of a BSRD from the BSP certifying registration with the BSP
of the Shares issuable pursuant to the terms of the Exchange Agreement to allow
for the purchase of U.S. dollars from the Philippine banking system (the "Shares
BSRD"), (vi) payment by the Company of the documentary stamp taxes due on the
issuance of the Notes, (vii) payment by Holdings of the documentary stamp taxes
due on the issuance of the Shares issuable upon exchange of the Notes, (viii)
payment of filing fees with the Philippine SEC in connection with the
confirmatory ruling request to be filed in accordance with clause (iv)(A) above,
(ix) filing by the Company of Form 1601F with the Philippine Bureau of Internal
Revenue and payment of withholding taxes on the interest on the Notes, (x)
payment of Transaction Expenses in accordance with Section 7.1 hereof and (xi)
filing by the Company of a tax treaty relief application to avail itself of
rates available under the applicable tax treaty.
(h) The Shares issued by Holdings pursuant to the terms of the
Exchange Agreement (i) will be, upon issuance, free and clear of any security
interests, liens, claims or other Encumbrances, (ii) have been duly and validly
authorized by Holdings and upon issuance in accordance with the Exchange
Agreement will be duly and validly issued and non-assessable, (iii) will not
have been individually or collectively issued or sold in violation of any
preemptive or other similar rights of the holders of any securities of Holdings,
(iv) will not subject the holders thereof to personal liability by reason of
being such holders and (v) will be, upon issuance, registerable with the BSP to
allow for the purchase of foreign exchange needed to service the repatriation of
dividends, distributions or proceeds from the sale of the Shares to be sourced
from the Philippine banking system in accordance with the laws and regulations
implemented by the BSP.
(i) There is no action, suit, investigation or proceeding by or before
any court, arbitrator, administrative agency or other Governmental Authority
pending or, to the best of knowledge of Holdings or the Company, threatened
against Holdings or the Company that would materially affect the execution by
Holdings or the Company of, or the performance by Holdings or the Company of
their respective obligations under this Agreement or affecting the Shares that
would be issued pursuant to the terms of the Exchange Agreement.
(j) Since January 1, 2001, Holdings has made all the requisite filings
(the "Reports"), under the Securities Act and the Exchange Act with the US SEC,
including all forms, statements, reports, written agreements and all documents,
exhibits, amendments and supplements appertaining thereto, and Holdings has
complied in all material respects with all applicable requirements of the
Exchange Act and the rules and regulations thereunder. As of their respective
dates, the Reports did not contain any
10
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Form 20-F filed by
Holdings with the US SEC does not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading. To the extent applicable, the statutory certification
requirements of Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002
have been complied with in all respects by Holdings.
(k) The Consolidated Financial Statements of Holdings (i) were
prepared in accordance with the books of account and other financial records of
Holdings and its consolidated Subsidiaries, (ii) present fairly the consolidated
financial condition and results of operations of Holdings and its consolidated
Subsidiaries as of the dates thereof or for the periods covered thereby, and
(iii) have been prepared in accordance with US GAAP applied on a basis
consistent with past practices and (iv) include all adjustments (consisting only
of normal recurring accruals) that are necessary for a fair presentation of
consolidated financial condition and results of the operations as of the dates
thereof or for the periods covered thereby.
(l) The Company has duly authorized the Notes and upon issuance
pursuant to this Agreement the Notes will be legally valid and binding
obligations of the Company, enforceable against the Company in accordance with
their terms, except as the enforceability thereof may be (i) subject to
applicable bankruptcy, insolvency, moratorium, fraudulent conveyance,
reorganization or similar laws in effect which affect the enforcement of
creditors' rights generally and (ii) limited by general principles of equity
(whether considered in a proceeding at law or equity).
(m) The representations and warranties of Holdings and the Company in
this Agreement and all written statements and certificates furnished or to be
furnished to the Purchaser pursuant to this Agreement, or in connection with the
transactions contemplated by this Agreement, taken as a whole do not contain or
will not contain any untrue statement of a material fact, or do not or will not
omit to state a material fact necessary to make the statements contained herein
or therein not misleading.
(n) The issuance of the Notes hereunder and the issuance of the Shares
pursuant to the terms of the Exchange Agreement are not required to be
registered under the Securities Act or the Securities Regulation Code, subject
to compliance with Section 6.01 of the Note, and the issuance of the Shares
pursuant to the terms of the Exchange Agreement will not violate any applicable
rules or regulations of the NASDAQ.
(o) Holdings and the Company are familiar with the purposes and
provisions of the Foreign Corrupt Practices Act of 1977, as amended by the
Omnibus Trade and Competitiveness Act of 1988, and the rules and regulations
promulgated thereunder (the "FCPA"), and will take no action and make no payment
in violation of, or which is likely to cause Holdings, the Company, any
Subsidiary of Holdings or the Company or the Purchaser to be in violation of,
the FCPA. In connection with the
11
performance of its obligations under this Agreement, the Notes and the Exchange
Agreement, and the Subscription Agreement and Note Assignment, if applicable,
each of Holdings and the Company further represents and warrants, that no person
employed by it or any of its Subsidiaries is an official of the government of
any country, or of any agency or instrumentality thereof. Each of Holdings and
the Company further covenants, represents and warrants that it has not and will
not offer, promise, authorize or make, directly or indirectly, any payments,
contributions or gifts to any government official, political party, any
candidate for political office or any officer, director or employee of any
governmental instrumentality in violation of any Applicable Law. Notwithstanding
any other provision of this Agreement, Holdings and the Company expressly agree
that in no event shall it request the Purchaser to take any action or provide
any information which is prohibited under any United States antiboycott law or
regulation or provision of the Internal Revenue Code, or which, under any such
law, regulation or provision, would be reportable, and that any such apparent
request will be deemed null and void. Nothing in this Agreement or in any other
related document will be construed to require or to constitute an agreement by
the Purchaser to take any action or provide any information which is prohibited
under any United States antiboycott law or regulation or provision of the
Internal Revenue Code. Neither Holdings, the Company nor any of their respective
representatives or any other Person, in connection with operating their
respective business entered into any contract, agreement or transaction with any
Governmental Authority, agent, representative or Person based or resident in,
any country that now or at the time of such contract, agreement or transaction
was the subject of regulations of the United States Treasury Department set
forth under 31 CFR, Subtitle B, Chapter V, as amended, or any enabling
legislation or executive order relating thereto.
(p) (i) All returns and reports in respect of Taxes ("Tax Returns")
required to be filed by or with respect to Holdings and the Company have been
timely filed; (ii) all Taxes required to be shown on such Tax Returns or
otherwise due have been timely paid and (iii) all such Tax Returns are true,
correct and complete in all material respects.
(q) Holdings has obtained the Shareholder Approval.
4.2 Representations and Warranties of the Purchaser. As of the date hereof,
the Purchaser hereby represents and warrants to Holdings and the Company as
follows:
(a) The Purchaser is a limited liability company duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has all necessary power and authority to enter into this Agreement and the
Exchange Agreement , and the Subscription Agreement and the Note Assignment, if
applicable, to which it is a party, to carry out its obligations hereunder and
thereunder and to consummate the transactions contemplated by this Agreement.
(b) The Purchaser has the full power and authority and has taken all
action necessary to authorize and permit it to execute and deliver this
Agreement and the Exchange Agreement, and the Subscription Agreement and the
Note Assignment, if
12
applicable, and to carry out the terms of this Agreement and the Exchange
Agreement, and the Subscription Agreement and the Note Assignment, if
applicable, and none of such actions will violate any provision of the
Purchaser's Organizational Documents or any Applicable Law, or result in the
breach of, or constitute a default (or event which, with notice or lapse of time
or both, would constitute a default) under, any agreement, instrument or
understanding to which the Purchaser is a party or by which it is bound. This
Agreement has been, and upon its execution and delivery the Exchange Agreement,
and the Subscription Agreement and the Note Assignment, if applicable, shall be
duly executed and delivered by the Purchaser, and (assuming due authorization,
execution and delivery by Holdings and the Company) this Agreement and the
Exchange Agreement, and the Subscription Agreement and Note Assignment, if
applicable, shall constitute legal, valid and binding obligations of the
Purchaser, enforceable against the Purchaser in accordance with its terms,
except to the extent limited by (i) applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws of general application related to
the enforcement of creditor's rights generally and (ii) general principles of
equity.
(c) The Purchaser has or will have at the closing sufficient funds to
consummate the transactions contemplated in this Agreement.
(d) The Purchaser understands that the offering and sale of the Notes
and the issuance of Shares pursuant to the Notes is intended to be exempt from
registration under the Securities Act. The Purchaser is an "accredited investor"
as such term is defined in Rule 501(a) of Regulation D under the Securities Act.
The Purchaser is acquiring the Notes to be acquired hereunder (and will acquire
the Shares pursuant to the Exchange Agreement) for its own account, for
investment and not with a view to the public resale or distribution thereof, in
violation of any United States or Philippine securities law.
Section 5. Agreements
5.1 Filings with the Philippine SEC.
(a) Within fifteen (15) days from the Closing Date, Holdings shall
file with the Philippine SEC any and all notices, documents and papers as may be
necessary to obtain (i) the confirmation from the Philippine SEC that the
issuance of the Shares in exchange for the Notes in the event of an exercise of
the Purchaser's Exchange Rights is exempt from the registration requirements of
the Securities Regulation Code and (ii) the unqualified approval of the
Philippine SEC of the issuance of the Shares in exchange for the Notes.
(b) In the event of an exercise of the Purchaser's Mandatory Issuance
Rights on or prior to the date of any closing or subsequent closing pursuant to
the Exchange Agreement, Holdings shall file a notification with the Philippine
SEC of its exemption from the registration requirements under the Securities
Regulation Code with respect to the issuance of the Shares issuable pursuant to
the exercise of the Mandatory Issuance Rights.
13
5.2 Filings with the BSP.
(a) Holdings and the Company agree that, on or prior to September 1,
2003, they shall have (i) taken all action necessary to register the full amount
of the Notes as a foreign currency loan with the BSP and (ii) obtained the
related Notes BSRD; provided, however, that if the Purchaser delivers to
Holdings an Exchange Notice prior to September 1, 2003, Holdings and the Company
shall promptly take all action necessary to register the amount of Notes subject
to such Exchange Notice and obtain the related Notes BSRD. Such action shall
include filing of proof of receipt of the Purchase Price, documents pertaining
to the use of proceeds from the Purchase Price and all other documents that may
be required by the BSP to register the Notes and issue the Notes BSRD.
(b) Holdings and the Company agree that, for the benefit of the
Purchaser or any transferee of the Purchaser they shall have, (i) within 5 days
of any closing or subsequent closing pursuant to the Exchange Agreement, taken
all action necessary to register the Shares issuable pursuant to the terms of
the Exchange Agreement with the BSP and (ii) within 30 days of any closing or
subsequent closing pursuant to the Exchange Agreement, obtained the related
Shares BSRD, provided, however, that in the event that both (A) the Purchaser
exercises an Exchange Right prior to September 1, 2003 and (B) the Philippine
SEC has not approved the confirmatory ruling requested in accordance with
Section 5.1(a) hereof, all actions set forth in this Section 5.2(b) shall be
completed within 60 days of such closing or subsequent closing pursuant to the
Exchange Agreement instead of 30 days. Such action shall include filing of the
requisite Notes BSRD, if applicable, and all other documents that may be
required by the BSP to register the Shares and issue the Shares BSRD.
5.3 Payment of Documentary Stamp Taxes.
(a) The Company further agrees that it shall pay the documentary stamp
taxes due upon the issuance of the Notes pursuant to this Agreement by the fifth
day of the month immediately following the month on which the closing occurs.
(b) Holdings agrees that is shall pay the documentary stamp taxes due
upon the issuance of the Shares issuable pursuant to the terms of the Exchange
Agreement prior to the closing date of such issuance pursuant to the terms of
the Exchange Agreement.
5.4 Tax Information.
For such time as any Shares or Notes are held by the Purchaser, Holdings
and the Company shall promptly provide the Purchaser with such information as
shall be required or reasonably requested by the Purchaser for purposes of
allowing the Purchaser to prepare and file its Tax Returns.
5.5 Approval of the Company Board and the Holdings Board.
14
(a) The Company agrees that it shall take all action necessary to
obtain the approval of the Board of Directors of the Company (the "Company Board
Approval"), if the Company is required to make interest payments on the Notes in
kind pursuant to the terms of the Notes, in the event the Company meets the
financial criteria set forth in Section 2.01 of the Notes. The Board of
Directors of the Company may not obtain the Company Board Approval, however, if
the Board of Directors of the Company in its good faith judgment and after
receiving the written advice of independent legal counsel that obtaining such
Company Board Approval would cause the Board of Directors of the Company to
breach its fiduciary duties to the Company and the shareholders of the Company
under Applicable Law, provided, however, that such failure to pay the interest
required pursuant to the terms of the Notes shall constitute an Event of Default
(as defined in the Notes) under the Notes.
(b) Holdings agrees that it shall take all action necessary to obtain
the approval of the Board of Directors of Holdings (the "Holdings Board
Approval") to treat the Purchaser's contribution of the Notes upon an exchange
of such Notes for Shares of Holdings as additional paid-in capital of Holdings'
equity in the Company.
Section 6. Indemnification
6.1 Indemnification by Holdings and the Company.
Holdings and the Company shall jointly and severally indemnify, defend and
hold harmless the Purchaser and its shareholders, directors, officers,
employees, controlling persons, agents, representatives, successors and assigns
(each an "Indemnified Party") from and after the closing, from and against any
and all losses, claims, damages, liabilities, obligations, penalties, judgments,
awards, reasonable and documented costs, expenses and disbursements as incurred
(and any and all actions, suits, proceedings and investigations in respect
thereof and any and all reasonable and documented legal and other costs,
expenses or disbursements in giving testimony or furnishing documents in
response to a subpoena or otherwise), including, without limitation, the
reasonable and documented costs, expenses and disbursements as and when
incurred, of investigating, preparing or defending any such action, suit,
proceeding or investigation (whether or not such Indemnified Party is a party)
(the "Losses"), directly or indirectly, caused by, relating to, based upon,
arising out of or in connection with any facts or circumstances that constitute
(i) breach of any representation or warranty of Holdings or the Company
contained herein, or in any agreement, certificate or instrument delivered
pursuant hereto set forth therein and (ii) breach of any agreement or covenant
of Holdings or the Company contained herein. To the extent that Holdings' and
the Company's undertakings set forth in this Section 6.1 may be unenforceable,
Holdings and the Company shall contribute the maximum amount that they are
permitted to contribute under Applicable Law to the payment and satisfaction of
all Losses incurred by the Indemnified Parties (including any Schedule or
Exhibit attached hereto), (provided that Holdings or the Company, as the case
may be, is given written notice of such Loss).
6.2 Indemnification Procedures; Third Party Claims.
15
An Indemnified Party shall give Holdings or the Company, as the case may
be, prompt written notice of any claim, assertion, event or proceeding
concerning any liability or damage as to which it may request indemnification
from Holdings or the Company hereunder; provided, however, that any failure by
an Indemnified Party to notify Holdings or the Company shall not relieve
Holdings or the Company from its obligations hereunder except to the extent
Holdings or the Company is materially prejudiced by such failure and shall not
relieve Holdings or the Company from any other obligation or liability that it
may have to any Indemnified Party otherwise than under this Section 6. If
Holdings or the Company, as the case may be, so elects or is requested by an
Indemnified Party, Holdings or the Company, as the case may be, will assume the
defense of such action or proceeding including the employment of counsel
reasonably satisfactory to such Indemnified Party and the payment of the fees
and expenses of such counsel. In the event, however, such Indemnified Party
reasonably determines in its judgment that having common counsel would present
such counsel with a conflict of interest or if Holdings or the Company, as the
case may be, (a) fails to assume the defense of the action or proceeding in a
timely manner, (b) in the reasonable judgment of the Indemnified Party, the
defense is being handled in such a manner that the Indemnified Party's
reputation or future business prospects will be damaged or (c) a court of
competent jurisdiction rules that Holdings or the Company, as the case may be,
has failed or is failing to prosecute or defend vigorously such claim, then such
Indemnified Party may employ separate counsel to represent or defend it in any
such action or proceeding and Holdings or the Company, as the case may be, will
pay the fees and expenses of such counsel. In any action or proceeding the
defense of which Holdings or the Company assumes, the Indemnified Party will
have the right to participate in such litigation and to retain its own counsel
at such Indemnified Party's own expense.
Holdings and the Company agree that, without the prior written consent of
the Purchaser, it will not settle, compromise or consent to entry of any
judgment in any pending or threatened claim, action or proceeding in respect of
which indemnification could be sought under the indemnification provision of
this Agreement (whether or not the Purchaser or any other Indemnified Party is
an actual or potential party to such claim, action or proceeding), unless such
settlement, compromise or consent includes an unconditional release of each
Indemnified Party from all liability arising out of such claim, action or
proceeding and does not include a statement as to an admission of fault,
culpability or a failure to act on behalf of an Indemnified Party.
Section 7. Miscellaneous
7.1 Expenses.
Except as otherwise specified in this Agreement, all reasonable costs and
expenses, including, without limitation, fees and disbursements of counsel,
financial advisors, accountants, and filing fees and documentary stamp and
similar taxes incurred in connection with this Agreement, the Notes, the
Exchange Agreement, the Subscription Agreement, the Note Assignment and the
transactions contemplated hereby and thereby (the "Transaction Expenses") shall
be paid by Holdings and the Company. To the extent
16
that the Purchaser pays any Transaction Expenses, Holdings shall, as promptly as
reasonably practicable, reimburse the Purchaser for the full amount of the
Transaction Expenses paid by the Purchaser.
7.2 Waivers and Amendments.
This Agreement may only be modified with the written consent of the parties
hereto. Neither this Agreement nor any provision hereof may be changed, waived,
discharged or terminated orally, but only by a statement in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought.
7.3 Notices.
Except as otherwise provided in this Agreement, all notices and other
communications pursuant to this Agreement shall be in writing and shall be
delivered in person, by courier or by facsimile transmission (with written
confirmation of receipt) to the respective parties at the following addresses
(or at such other address for a party as shall be specified in a notice given in
accordance with this Section 7.3):
(a) if to Holdings or the Company,
PSi Technologies Holdings, Inc.
Electronic Avenue
FTI Industrial Complex
Taguig City
Metro Manila 1604
Philippines
Attention: Arthur J. Young, Jr.
Fax: (632) 816-2180
with a copy to:
Akin Gump Strauss Hauer & Feld LLP
1333 New Hampshire Avenue, N.W.
Washington, D.C. 20036-1564
Attention: Prakash H. Mehta
Fax: (202) 887-4288
H.G. Tiu Law Offices
No. 48, SMC Court
Celery Drive, Valle Verde 5
Pasig City, Metro Manila
Philippines
Attention: Helen Go Tiu
Fax: (632) 637-6724
17
(b) if to the Purchaser:
Merrill Lynch Global Emerging Markets Partners, LLC
World Financial Center - North Tower
250 Vesey Street - 23rd floor
New York, New York 10080
Attention: Frank J. Marinaro
Fax: (212) 449-7902
with a copy to:
Shearman & Sterling LLP
599 Lexington Avenue
New York, New York 10022
Attention: Stephen M. Besen
Fax: (212) 848-7179
7.4 Severability.
In the event that any one or more provisions contained herein, or the
application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the parties shall negotiate in good
faith with a view to the substitution therefor of a suitable and equitable
solution in order to carry out, so far as may be valid and enforceable, the
intent and purpose of such invalid provision; provided, however, that the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions contained herein shall not be in any way
impaired thereby, it being intended that all of the rights and privileges of the
parties hereto shall be enforceable to the fullest extent permitted by law.
7.5 Governing Law; Jurisdiction.
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of New York.
(a) Any claim, action, suit or proceeding seeking to enforce any provision
of, or based on any matter arising out of or in connection with, this Agreement
or the transactions contemplated hereby may be heard and determined in any New
York State or federal court sitting in The City of New York, County of
Manhattan, and each of the parties hereto consents to the exclusive jurisdiction
of such courts (and of the appropriate appellate courts therefrom in any such
claim, action, suit or proceeding) and irrevocably waives, to the fullest extent
permitted by law, any objection that it may now or hereafter have to the laying
of venue of any such claim, action, suit or proceeding in any such court or that
any such claim, action, suit or proceeding that is brought in any such court has
been brought in an inconvenient forum.
18
(b) Subject to Applicable Law, process in any such claim, action, suit or
proceeding may be served on any party anywhere in the world, whether within or
without the jurisdiction of any such court. Nothing herein shall affect the
right of any party to serve legal process in any manner permitted by law or at
equity. WITH RESPECT TO ANY SUCH CLAIM, ACTION, SUIT OR PROCEEDING IN ANY SUCH
COURT, EACH OF THE PARTIES IRREVOCABLY WAIVES AND RELEASES TO THE OTHER ITS
RIGHT TO A TRIAL BY JURY, AND AGREES THAT IT WILL NOT SEEK A TRIAL BY JURY IN
ANY SUCH PROCEEDING.
7.6 No Strict Construction.
The parties hereto have participated jointly in the negotiation and
drafting of this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties hereto, and no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of the authorship of any provisions
of this Agreement.
7.7 Counterparts.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all such counterparts shall together constitute
one and the same instrument.
7.8 Assignment.
This Agreement may not be assigned by operation of law or otherwise without
the express written consent of Holdings or the Company, as the case may be, or
the Purchaser (which consent may be granted or withheld in the sole discretion
of Holdings or the Company, as the case may be, or the Purchaser); provided,
however, that the Purchaser may assign this Agreement or any of its rights and
obligations hereunder to one or more Affiliates without the consent of Holdings
or the Company. The rights of any Purchaser with respect to the Notes shall be
transferred to any Person who is a transferee of such Notes; provided that such
transferees shall have assumed the obligations of the Purchaser hereunder in a
form satisfactory to Holdings or the Company. All obligations of Holdings and
the Company hereunder shall survive any such transfer.
7.9 Third Party Beneficiaries and Transfers.
Except for the provisions of Section 6 relating to Indemnified Parties,
this Agreement shall be binding upon and inure solely to the benefit of the
parties hereto and their permitted assigns and nothing herein, express or
implied, is intended to or shall confer upon any other Person, any legal or
equitable right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement.
7.10 Entire Agreement.
19
This Agreement, the Notes and the Exchange Agreement constitute the entire
agreement of the parties hereto with respect to the subject matter hereof and
thereof and supersede all prior agreements and undertakings, both written and
oral, among Holdings, the Company and the Purchaser with respect to the subject
matter hereof and thereof.
7.11 Public Announcements.
Subject to its legal obligations (including requirements of any
Governmental Authorities, stock exchanges and other similar regulatory bodies
and other than as may be required pursuant to the Exchange Act, the Securities
Regulation Code or any other Applicable Law), no party shall make any
announcement regarding the entering into of this Agreement or the closing to the
financial community, governmental entities, employees, customers or the general
public without the prior consent of the other party, which shall not be
unreasonably withheld, and the parties shall cooperate with each other as to the
timing and contents of any such announcement. Notwithstanding anything herein to
the contrary, each party and its representatives may consult any tax advisor
regarding the tax treatment and tax structure of the transactions contemplated
by this Agreement, the Notes and the Exchange Agreement, and the Subscription
Agreement and the Note Assignment, if applicable, and, from and after the date
of execution of this Agreement, the Notes and the Exchange Agreement, and the
Subscription Agreement and the Note Assignment, if applicable, (or, if earlier,
the date of public announcement of the transactions contemplated by this
Agreement, the Notes and the Exchange Agreement, and the Subscription Agreement
and the Note Assignment, if applicable, or public announcement of discussions
between the parties relating to the transactions contemplated by this Agreement,
the Notes and the Exchange Agreement, and the Subscription Agreement and the
Note Assignment, if applicable,), may disclose to any Person, without limitation
of any kind, the tax treatment and tax structure of the transactions
contemplated by this Agreement, the Notes and the Exchange Agreement, and the
Subscription Agreement and the Note Assignment, if applicable, and all materials
(including opinions or other tax analyses) that are provided relating to such
treatment or structure; provided, however, that each party and its
representatives, shall not disclose the identities of the parties to this
Agreement, the Notes and the Exchange Agreement, and the Subscription Agreement
and the Note Assignment, if applicable, in such communications, without the
prior consent of the other party.
20
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first written above.
Merrill Lynch Global Emerging
Markets Partners, LLC
By: Merrill Lynch Global Emerging Markets
Partners, L.P., as its Managing Member
By: Merrill Lynch Global Capital, L.L.C., as
its General Partner
By: Merrill Lynch Global Partners, Inc., as
its Managing Member
By: /s/ Brian A. Renaud
--------------------------------------------------
Name: Brian A. Renaud
Title: Vice President
|
PSi Technologies Holdings, Inc.
By: /s/ Arthur J. Young
--------------------------------------------------
Name: Arthur J. Young, Jr.
Title: Chairman of the Board and
Chief Executive Officer
|
PSi Technologies, Inc.
By: /s/ Arthur J. Young
--------------------------------------------------
Name:
Title:
|
Exhibit A
FORM OF NOTES
A-1
EXECUTION COPY
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT
BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM
REGISTRATION THEREUNDER.
THE NOTE HAS NOT BEEN REGISTERED WITH THE PHILIPPINE
SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES
REGULATION CODE (THE "CODE"). ANY FUTURE OFFER OR SALE
THEREOF IS SUBJECT TO REGISTRATION REQUIREMENTS UNDER THE
CODE UNLESS SUCH OFFER OR SALE QUALIFIES AS AN EXEMPT
TRANSACTION.
PSI TECHNOLOGIES, INC.
USD$4,000,000 10.00% Exchangeable Senior Subordinated Note
Dated as of July 3, 2003
FOR VALUE RECEIVED, the undersigned, PSi Technologies, Inc., a
corporation organized and existing under the laws of the Philippines (the
"Company"), HEREBY PROMISES TO PAY MERRILL LYNCH GLOBAL EMERGING MARKETS
PARTNERS, LLC or its permitted registered assigns ("MLGEMP" or as further
defined herein, the "Holder") the aggregate principal amount of USD$4,000,000
plus all accrued and unpaid interest on June 1, 2008 (the "Maturity Date").
The Company hereby promises to pay interest on the unpaid principal
amount hereof from the date hereof until such principal amount is paid in full,
payable on the dates and at the rates hereinafter set forth.
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions.
The following terms used in this Note shall have the following
meanings (unless otherwise expressly provided in this Note):
"ADSs" means the American Depository Shares of Holdings, each
representing one share of Common Stock.
"Affiliate" means with respect to any Person, any other Person
controlling, controlled by, or under common control with such first Person. For
the avoidance of doubt, the Company and its Affiliates shall be considered
Affiliates of the Company and the Holders and their Affiliates shall not be
considered Affiliates of the Company.
"Bankruptcy" means, with respect to a Person, (a) that such Person has
(i) made an assignment for the benefit of creditors; (ii) filed a voluntary
petition in bankruptcy; (iii) been adjudged bankrupt, or insolvent; or had
entered against such Person an order of relief in any bankruptcy or insolvency
proceeding; (iv) filed a petition or an answer seeking for such Person any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under any statute, law or regulation or filed an answer or
other pleading admitting or failing to contest the material allegations of a
petition filed against such Person in any proceeding of such nature; or (v)
sought, consented to, or acquiesced in the appointment of a trustee, receiver or
liquidator of such Person or of all or any substantial part of such Person's
properties; (b) 60 days have elapsed after the commencement of any proceeding
against such Person seeking reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any statute, law
or regulation and such proceeding has not been dismissed; or (c) 60 days have
elapsed since the appointment without such Person's consent or acquiescence of a
trustee, receiver or liquidator of such Person or of all or any substantial part
of such Person's properties and such appointment has not been vacated or stayed
or the appointment is not vacated within 60 days after the expiration of such
stay.
"Board of Directors" means the Board of Directors of the Company.
"Business Day" means any day other than a Saturday, Sunday or any
other day that is a legal holiday under the laws of the State of New York or
Taguig, Philippines or a day on which national banking associations in New York
or Taguig, Philippines are authorized or required by law or other governmental
action to close.
"Common Stock" means the common stock, par value PHP 1 2/3 per share,
of Holdings.
"Company" has the meaning set forth in the Preamble.
"Conversion Principal Amount" shall have the meaning set forth in the
Exchange Agreement.
"Default Interest" shall have the meaning set forth in Section 2.04.
"Director" means a director of the Board of Directors.
"EBITDA" means, without duplication, the consolidated Net Income of
Holdings and its Subsidiaries determined in accordance with GAAP consistently
applied, plus any amounts subtracted in calculating Net Income in respect of net
interest expense, income taxes, depreciation and amortization, less (i) any gain
plus any loss realized in connection with the sale of any assets or disposition
of any securities, other than those included in cash flow from operations, (ii)
any extraordinary or non-recurring gain plus any loss or (iii) any non-cash
extraordinary gain, plus (iv) any non-cash extraordinary loss; provided,
however, that all expenses arising directly out of the transactions contemplated
by the Purchase Agreement, the Exchange Agreement and this Note, and the
Subscription Agreement and Note Agreement, if applicable, and expenses arising
directly out of future capital-raising transactions shall be deemed
extraordinary expenses and excluded from EBITDA for purposes of this definition.
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"Encumbrance" means any lien, mortgage, pledge, collateral assignment,
security interest, hypothecation or other encumbrance, other than as established
by, under or in connection with the terms of this Note, the Purchase Agreement
or the Exchange Agreement, and the Subscription Agreement and Note Assignment,
if applicable, or the transactions contemplated thereby.
"Exchange Agreement" means the Exchange Agreement, dated as of July
[3], 2003, by and among the Company, Holdings and the Holder, as amended,
restated, supplemented or otherwise modified pursuant to the terms thereof from
time to time.
"Events of Default" shall have the meaning set forth in Section 4.01.
"Fiscal Quarter" means any three-month accounting period of the
Company in the Fiscal Year.
"Fiscal Year" means the annual accounting period of the Company, which
shall be the calendar year or such portion of a calendar year during which the
Company is in existence.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect from time to time, consistently applied.
"Holder" means any Person identified as the registered holder of this
Note in the Register.
"Holdings" means PSi Technologies Holdings, Inc., a corporation
organized and existing under the laws of the Philippines.
"Holdings Common Stock" means the common stock of Holdings, par value
PHP 1 2/3 per share.
"Indebtedness" of any Person means, without duplication, (a) all
indebtedness of such Person for borrowed money, (b) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (c)
all obligations of such Person to pay the deferred purchase price of property or
services (other than trade and non-trade payables and accrued liabilities
arising in the ordinary course of business), (d) all indebtedness created or
arising under any conditional sale or other title retention agreement with
respect to property acquired by such Person (even though the rights and remedies
of the seller or lender under such agreement in the event of default are limited
to repossession or sale of such property), (e) all capitalized lease obligations
of such Person, (f) all obligations, contingent or otherwise, of such Person
under acceptance, letter of credit or similar facilities securing Indebtedness
and all interest rate or foreign exchange hedging transactions, (g) all
unconditional obligations of such Person to purchase, redeem, retire, defease or
otherwise acquire for value any capital stock of such Person or any warrants,
rights or options to acquire such capital stock, (h) all Indebtedness of any
other Person of the type referred to in clauses (a) through (g) guaranteed by
such Person or for which such Person shall otherwise (including pursuant to any
keepwell, makewell or similar arrangement) become directly or indirectly liable
(other than indirectly as a result of a performance guarantee not entered into
with respect to Indebtedness), and (i) all third party
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Indebtedness of the type referred to in clauses (a) through (h) above secured by
any lien or security interest on property (including accounts and contract
rights) owned by the Person whose Indebtedness is being measured, even though
such Person has not assumed or become liable for the payment of such third party
Indebtedness, the amount of such obligation being deemed to be the lesser of the
net book value of such property or the amount of the obligation so secured;
provided that true sales of accounts receivable shall not constitute
"Indebtedness" hereunder.
"Interest Payment Date" means each June 30 and December 31, and if
such day is not a Business Day, then the next succeeding Business Day, until the
Maturity Date.
"Invested Principal Amount" shall have the meaning set forth in the
Exchange Agreement.
"Investment" in any Person means any direct or indirect advance, loan
or other extension of credit (including, without limitation, by way of guarantee
or similar arrangement; but excluding advances to customers in the ordinary
course of business that are, in conformity with GAAP, recorded as accounts
receivable on the balance sheet of the Company or its Subsidiaries) or capital
contribution to (by means of any transfer of cash or other property to others or
any payment for property or services for the account or use of others), or any
purchase or acquisition of capital stock, bonds, notes, debentures or other
similar instruments issued by, such Person.
"Mandatory Issuance" shall have the meaning set forth in the Exchange
Agreement.
"Nasdaq" means the Nasdaq National Market.
"Net Income" means with respect to any Fiscal Year, or part thereof,
the net income (or net loss) of the Company for such period as determined on a
consolidated basis and in accordance with GAAP.
"Note" means this 10.00% Exchangeable Senior Subordinated Note, each
other Note and each additional Note issued upon any transfer of an interest in
all or any part of this Note; and "Notes" means, collectively, all of the
foregoing.
"Note Assignment" shall have the meaning set forth in the Exchange
Agreement.
"Officer" means an officer of the Company.
"Person" means any individual, corporation, partnership, limited
liability company, trust, joint venture, governmental entity or other
unincorporated entity, association or group.
"PHP" means the lawful currency of the Philippines.
"Purchase Agreement" means the Purchase Agreement, dated as of July
[3], 2003, by and between the Company, Holdings and the Holder, as amended,
restated, supplemented or otherwise modified pursuant to the terms thereof from
time to time.
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"Redemption Date" shall have the meaning set forth in Section 2.05(a).
"Redemption Notice" shall have the meaning set forth in Section
2.05(a).
"Redemption Price" shall have the meaning set forth in Section
2.05(a).
"Register" has the meaning set forth in Section 6.03.
"Registration Rights Agreement" means the Registration Rights
Agreement among Holdings, the Holder and JAFCO Investment (Asia Pacific) Ltd.,
dated May 29, 2001.
"Senior Credit Facility" means (a) the Revolving Facility Agreement
among the Company and PSi Technologies Laguna, Inc., as Borrowers, and
Raiffeisen Zentralbank Oesterreich AG (RZB-Austria), Singapore Branch, as Bank,
dated September 24, 2002, including any extensions, renewals or refinancings
thereof on the same terms that currently exist; provided, however, that the
credit facility may be increased from $5 million to $10 million; (b) the LC/TR
Credit Facility between the Company and KBC Bank N.V. (Manila Branch), dated
October 30, 2002, including any extensions, renewals or refinancings thereof on
the same terms and for the same amount that currently exist; (c) the Onmibus
Line (Import LC/TR Credit Facility) between the Company and Rizal Commercial
Banking Corporation, dated August 14, 2002, including any extensions, renewals
or refinancings thereof on the same terms and for the same amount that currently
exist; (d) the Import LC/TR Credit Facility between the Company and Bank of
Commerce, dated April 16, 2003, including any extensions, renewals or
refinancings thereof on the same terms and for the same amount that currently
exist; (e) the Short Term Advances Credit Facility between the Company and KBC
Bank N.V. (Manila Branch), dated October 30, 2002, including any extensions,
renewals or refinancings thereof on the same terms and for the same amount that
currently exist; and (f) the Short Term Omnibus Line-Loan Facility between the
Company and Rizal Commercial Banking Corporation, dated August 14, 2002,
including any extensions, renewals or refinancings thereof on the same terms and
for the same amount that currently exist.
"Shareholder" means a shareholder of the Company.
"Subscription Agreement" shall have the meaning set forth in the
Exchange Agreement.
"Subsidiary" means, with respect to any Person, any corporation,
limited liability company, partnership, association or other business entity of
which (a) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by such Person or one or more of the other
Subsidiaries of such Person or a combination thereof, or (b) if a limited
liability company, partnership, association or other business entity, a majority
of the partnership or other similar ownership interest thereof is at the time
owned or controlled, directly or indirectly, by any Person or one or more
Subsidiaries of such Person or entity or a combination thereof. For purposes of
this Note, a Person or Persons shall be deemed to have a majority ownership
interest in a limited liability company, partnership, association or other
business entity if such Person or Persons shall be allocated a majority of
limited liability company, partnership, association or
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other business entity gains or losses or shall be or control any managing
director, managing member, or general partner of such limited liability company,
partnership, association or other business entity.
"Taxes" means any and all taxes, fees, levies, duties, tariffs,
imposts, and other charges of any kind (together with any and all interest,
penalties, additions to tax and additional amounts imposed with respect thereto)
imposed by any government or taxing authority.
"Transfer" means (a) as a noun, the transfer of ownership by sale,
exchange, assignment, gift, donation, grant or other conveyance of any kind,
whether voluntary or involuntary, including Transfers by operation of law or
legal process (and hereby expressly including, with respect to a Holder,
assignee or other Person, any voluntary or involuntary appointment of a
receiver, trustee, liquidator, custodian or other similar official for such
Holder or all or any part of such Holder, assignee or other Person or all or any
part of the property of such Holder, assignee or other Person under any
Bankruptcy, reorganization or insolvency law) and (b) as a verb, the act of
making any voluntary or involuntary Transfer.
SECTION 1.02. Other Definitional Provisions.
(a) All terms in this Note shall have the defined meanings when used
in any certificate or other document made or delivered pursuant hereto unless
otherwise defined therein.
(b) As used in this Note and in any certificate or other documents
made or delivered pursuant hereto or thereto, accounting terms not defined in
this Note or in any such certificate or other document, and accounting terms
partly defined in this Note or in any such certificate or other document to the
extent not defined, shall have the respective meanings given to them under GAAP.
To the extent that the definitions of accounting terms in this Note or in any
such certificate or other document are inconsistent with the meanings of such
terms under GAAP, the definitions contained in this Note or in any such
certificate or other document shall control.
(c) The words "hereof," "herein," "hereunder," and words of similar
import when used in this Note shall refer to this Note as a whole and not to any
particular provision of this Note; Section references contained in this Note are
references to Sections in this Note unless otherwise specified; and the term
"including" shall mean "including without limitation."
(d) The definitions contained in this Note are applicable to the
singular as well as the plural forms of such terms.
(e) Common nouns and pronouns and any variations thereof shall be
deemed to refer to masculine, feminine, or neuter, singular or plural, as the
identity of the Person, Persons or other reference in the context requires.
Whenever used herein, "or" shall include both the conjunctive and disjunctive,
"any" shall mean "one or more."
(f) Any agreement, instrument or statute defined or referred to
herein or in any instrument or certificate delivered in connection herewith
means such agreement, instrument or statute as from time to time amended,
modified or supplemented and includes (in the case of
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agreements or instruments) references to all attachments thereto and instruments
incorporated therein; references to a Person are also to its permitted
successors and assigns.
ARTICLE II
TERMS OF PAYMENT
SECTION 2.01. Interest Payment. The Company shall pay interest on the
unpaid principal amount of this Note at a rate per annum equal to 10.00%,
payable semi-annually in arrears on each Interest Payment Date; provided,
however, that, if (a) upon any Interest Payment Date the Company is prohibited
from paying cash interest due to restrictions in its Senior Credit Facility or
(b) the Holdings' EBITDA for the two consecutive Fiscal Quarters ending
immediately prior to any Interest Payment Date is less than USD$1,000,000, then
the Company may, by notice to the Holder, elect to pay all or any portion of
such interest by adding it to the principal amount of this Note, whereupon such
amount shall bear interest at the rate aforesaid and shall no longer be
considered to be interest due under this Section 2.01. Upon the receipt by the
Holder of a notice of such election by the Company, the Holder shall record the
amount, the date such amount is added to the principal amount of this Note and
the aggregate principal amount of this Note in accordance with its usual
practice and, prior to any transfer of this Note, such information shall be
endorsed on the grid attached hereto, which is a part of this Note.
SECTION 2.02. No Prepayment. The Company shall not be permitted to
prepay this Note in whole or in part.
SECTION 2.03. Payments and Computations. The Company shall make each
payment hereunder not later than 1:00 p.m. (New York City time) on the day when
due in U.S. dollars to the Holder at the account or accounts referred to on
Schedule I attached hereto in same day funds. All computations of interest shall
be made on the basis of a year of 360 days comprised of two 180-day halves;
provided, however, that in the case of the first interest payment under this
Note, interest shall be computed on the basis of the actual number of days
elapsed from the date of the initial funding under this Note to such first
Interest Payment Date. Whenever any payment shall be stated to be due on a day
other than a Business Day, such payment shall be made on the next succeeding
Business Day, and such extension of time shall not in such case be included in
the computation of payment of interest.
SECTION 2.04. Default Interest. Upon the occurrence and during the
continuance of any Event of Default, the Company shall pay interest on (i) the
unpaid principal amount of this Note owing to the Holder, payable in arrears on
the dates referred to in Section 2.01 above and on demand, at a rate per annum
equal at all times to 2% per annum above the rate per annum required to be paid
on such principal amount pursuant to Section 2.01 above and (ii) to the fullest
extent permitted by law, the amount of any interest payable under this Note that
is not paid when due, from the date such amount shall be due until such amount
shall be paid in full, payable in arrears on the date such amount shall be paid
in full and on demand, at a rate per annum equal at all times to 2% per annum
above the rate per annum required to be paid pursuant to Section 2.01 above
("Default Interest").
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SECTION 2.05. Redemption. (a) In the event that, at any time after July
[3], 2006, for a 30-consecutive trading day period the ADSs trading on the
Nasdaq, or any other trading facility on which the ADSs are listed, (i) shall
have traded at an average closing price of at least $3.00 per ADS and (ii) the
daily average trading volume of the ADSs shall have been equal to at least
33.33% of the number of shares of Common Stock issuable pursuant to the Exchange
Agreement, the Company may at its option send written notice (the "Redemption
Notice") to the Holders indicating that the Company desires to redeem all but
not less than all of the outstanding Notes, specifying the date of such
redemption, which shall be not earlier than 30 days after the date of the
Redemption Notice (the "Redemption Date"), the redemption price, which shall be
equal to the aggregate principal amount outstanding on the Note plus all accrued
and unpaid interest thereon (the "Redemption Price"), and the fulfillment of
clauses (i) and (ii) above.
(b) Prior to the Redemption Date, the Holders may exchange or assign
any or all of the Notes held by such Holders pursuant to the terms of the
Exchange Agreement. All Notes that have not been exchanged or assigned and are
outstanding as of the Redemption Date shall be redeemed by the Company on the
Redemption Date, subject to the terms and conditions herein.
(c) From and after the Redemption Date, interest on the Notes so
redeemed shall cease to accrue, such Notes shall no longer be deemed to be
outstanding, and all rights of the Holders thereof as holders of the Company
with respect to Notes so redeemed (except the right to receive from the Company
the Redemption Price, upon surrender at the Company's principal office (or other
place within the United States of America or the Philippines identified in the
applicable notice for surrender of Notes) of such Notes) shall cease (including
any right to receive interest otherwise payable on any record date that would
have occurred thereafter); provided, however, that to the extent the Company
defaults in the payment in full for any Notes, including unpaid interest in
respect thereof accrued to the date of redemption, such Notes shall remain
outstanding and all rights of the holders thereof as holders of the Company with
respect to such Notes shall continue until the Company has made such payment in
full for such Notes.
(d) In the event of a redemption by the Company, MLGEMP shall have one
additional demand registration right pursuant to the Registration Rights
Agreement, on the same terms and conditions set forth in the Registration Rights
Agreement, solely for the shares of Common Stock held by MLGEMP or its
Affiliates issuable pursuant to the terms of the Exchange Agreement. MLGEMP may
require that such registration be filed as a "shelf" registration statement
pursuant to Rule 415 of the Securities Act of 1933, as amended.
e) Notwithstanding the foregoing, in the event of a Mandatory Issuance
pursuant to the terms of the Exchange Agreement, simultaneously with the
consummation of such Mandatory Issuance, the Company shall redeem from the
Holder for a cash payment (including any accrued and unpaid interest (other than
accrued and unpaid interest added to the Invested Principal Amount pursuant to
Section 2.01 hereof) relating to such redeemed Notes) a portion of the
Conversion Principal Amount of the Notes specified in the notice to the Company
relating to such Mandatory Issuance equal to the purchase price of the shares of
Common Stock being issued in the Mandatory Issuance. Such cash payment shall be
paid to the Holder at the closing of such Mandatory Issuance.
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SECTION 2.06. Taxes. (a) All payments (including additions to principal
under Section 2.01) by the Company to or for the account of the Holder hereunder
shall be made free and clear of and without deduction for present or future
Taxes (other than Taxes imposed on overall net income of the Holder by the
jurisdiction of its organization). If the Company is required under applicable
law to deduct any such Taxes, the amount payable by the Company shall be
increased so that, after the Company has made all required deductions (including
deductions applicable to additional amounts payable under this Section 2.06),
the Holder receives an amount equal to the amount it would have received had no
such deductions been made. The Company shall furnish to the Holder within 30
days after payment of such Taxes an original or certified copy of a receipt
evidencing payment thereof (or other evidence of payment reasonably satisfactory
to the Holder).
(b) In addition, the Company shall pay any present or future
documentary stamp, transfer or similar Taxes that arise from any payment made
hereunder or from the execution, delivery or registration of, performance under
or otherwise with respect to, this Note.
(c) The Company shall indemnify the Holder for the full amount of
Taxes covered by subsections (a) and (b), and for the full amount of Taxes of
any kind imposed or asserted by any jurisdiction on amounts payable under this
Section 2.06, imposed on or paid by the Holder, and any liability (including
penalties, additions to Tax, interest and expenses) arising therefrom or with
respect thereto. Amounts payable by the Company under this subsection (c) shall
be paid within 30 days after the date on which the Holder makes written demand
therefor.
(d) For the purpose of filing a tax treaty relief application, if
available, with the Philippine Bureau of Internal Revenue, the Company may
request a Holder to provide proof of residence and other documents necessary for
and relevant to such a filing. The Company shall provide such request, at least
six months prior to the date of any payment to which treaty relief will be
sought, to the Holder at the time of such request. A Holder in receipt of such a
request shall take commercially reasonable efforts to comply with such a request
(it being agreed and understood that any delay in the provision of a proof of
residence due to a lengthy review of the request for such proof by any taxing
authority shall in no event result in the actions of Holder being unreasonable).
ARTICLE III
COVENANTS, REPRESENTATIONS AND WARRANTIES
SECTION 3.01. Reports.
(a) Periodic and Other Reports. The Company shall cause to be
delivered to the Holder, so long as it directly or indirectly holds any interest
in the Notes, financial statements, reports and notices referred to below. The
financial statements listed in clause (i) below shall be prepared, in each case
on a consolidated basis in accordance with GAAP, and such other reports as any
Holder, so long as it directly or indirectly holds any interest in the Notes,
may reasonably request from time to time.
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(i) As soon as practicable following the end of each Fiscal Year (and
in any event not later than 181 days after the end of such Fiscal Year, or
such earlier date as may be required by law), an audited balance sheet of
Holdings as of the end of such Fiscal Year and the related statements of
operations, Shareholders' capital accounts and changes therein, and cash
flows for such Fiscal Year, together with appropriate notes to such
financial statements and supporting schedules, and in each case, to the
extent Holdings was in existence, setting forth in comparative form the
corresponding figures for the immediately preceding Fiscal Year end (in the
case of the balance sheet) and the two immediately preceding Fiscal Years
(in the case of the statements).
The statements described in clause (i) above shall be accompanied by written
certification of an Officer that such statements have been prepared in
accordance with GAAP.
(ii) As soon as practicable following the end of each month (and in
any event not later than 30 days after the end of each month), management
reports in a form agreed upon between the Holder and the Company.
(iii) A notice of the occurrence of any Event of Default, or to the
extent actually known by the Company, of any event that with notice, the
passage of time or both would become an Event of Default promptly, but in
any event no later than two Business Days, after an Officer of the Company
has actual knowledge of such occurrence, and a notice setting forth details
of the actions that the Company has taken or proposes to take with respect
thereto, as promptly as practicable, but in any event within ten Business
Days after such Officer obtains actual knowledge of such event.
(iv) Promptly following any such request, such other information as is
reasonably requested by any Holder.
(b) The Holder agrees to keep any non-public information provided to
the Holder by the Company confidential and not to disclose such information
unless required by law and acknowledges that the receipt of such information by
the Holder may restrict the ability of the Holder to trade in securities of the
Company, Holdings or their Affiliates; provided that such information may be
disclosed to the Holder's advisors, members or partners as long as they agree to
keep such information confidential.
SECTION 3.02. Restricted Actions. The Company shall not, and shall
cause its Subsidiaries not to, without the prior written consent of the Holder:
(a) Amalgamate, merge, consolidate or enter into a business
combination, including any joint venture arrangements, with another Person
or acquire (including by merger, consolidation or acquisition of stock or
assets or any other business combination) any Person or any division thereof
or any material amount of assets (other than in the ordinary course of
business);
(b) Other than in the ordinary course of business and consistent with
past practice, enter into, renew or extend any transaction (including,
without limitation, the purchase, sale, lease or exchange of property or
assets, or the rendering of any service) with any Affiliate, other than
Merrill Lynch Global Emerging Market Partners, LLC or
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its Affiliates, except upon fair and reasonable terms no less favorable to
the Company than could be obtained, at the time of such transaction or, if
such transaction is pursuant to a written agreement, at the time of the
execution of the agreement providing therefor in a comparable arm's length
transaction with a Person that is not an Affiliate;
(c) Sell or otherwise dispose (including pursuant to any
recapitalization or spin-off) of any Subsidiary or material assets of the
Company or any of its Subsidiaries that would result in the disposition of
more than 5% of the book value of the Company;
(d) Declare, set aside, make or pay any dividend or make any
distribution, payable in cash, stock, property or otherwise, on or with
respect to any of its capital stock; purchase, redeem, retire or otherwise
acquire value for any shares of capital stock of the Company or any of its
Subsidiaries; make any voluntary or optional principal payment, or
voluntary or optional redemption, repurchase, defeasance or other
acquisition or retirement for value, of Indebtedness of the Company that is
pari passu or subordinate in right of payment to this Note; or make any
Investment in any Person other than PSi Technologies Laguna, Inc. or any
wholly-owned Subsidiary of the Company;
(e) Create, incur, assume or otherwise suffer to exist any Indebtedness
other than (i) Indebtedness outstanding as of the date hereof and (ii)
Indebtedness under the Senior Credit Facility;
(f) Create, incur, assume or suffer to exist any Encumbrance on any of
its assets or properties of any character without making effective
provision for this Note and all other amounts due hereunder to be directly
secured equally and ratably with (or, if the obligation or liability to be
secured by such Encumbrance is subordinated in right of payment to this
Note, prior to) the obligation or liability secured by such Encumbrance,
other than (i) Encumbrances existing on the date hereof and (ii)
Encumbrances incurred in connection with the Senior Credit Facility;
(g) Cause or otherwise permit any Subsidiary of the Company, to issue,
sell, pledge, dispose of, grant or encumber, or authorize the issuance,
sale, pledge, disposition, grant or encumbrance of (i) any shares of any
class of its capital stock or any options, warrants, convertible securities
or other rights of any kind to acquire any shares of its capital stock or
any other ownership interest in such Subsidiary other than to the Company,
PSi Technologies Laguna, Inc. or any wholly-owned Subsidiary of the Company
or (ii) any assets of such Subsidiary; and
(h) Enter into any formal or informal agreement or otherwise make a
commitment to do any of the foregoing.
ARTICLE IV
EVENTS OF DEFAULT
SECTION 4.01. Events of Default. If any of the following events
("Events of Default") shall occur and be continuing:
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(a) The Company shall fail to pay any installment of principal of, or
interest on, this Note when the same becomes due and payable which in the
case of a failure to pay interest continues for five days; or
(b) The Company shall fail to perform or observe (i) any term, covenant
or agreement contained in Section 3.02 or (ii) any other term covenant or
agreement contained in this Note if such failure of clause (ii) hereof
shall remain unremedied for 30 days after written notice thereof shall have
been given to the Company by any Holder; or
(c) (i) The Company or any of its Subsidiaries shall generally not pay
its debts as such debts become due, or shall admit in writing its inability
to pay its debts generally, or shall make a general assignment for the
benefit of creditors; provided, however, that (A) the $2.5 million of
outstanding Indebtedness owed to Semiconductor Components Industries, LLC
and (B) all long-term non-interest bearing payables owed by the Company and
its Subsidiaries to equipment suppliers shall not be deemed due pursuant to
this subsection (c)(i) until the receipt by the Company or any of its
Subsidiaries of a letter from Semiconductor Components Industries, LLC or
an equipment supplier notifying the Company or its Subsidiary of its
intention to commence legal proceedings with respect to such nonpayment of
Indebtedness or payables, as applicable, except that if such nonpayment to
an equipment supplier is only the result of a dispute between the Company
and such equipment supplier regarding the quality of equipment for which
such supplier has not received payment, such nonpayment shall not
constitute a default hereunder until a court of competent jurisdiction
shall have determined such payment is legally owed by the Company to such
equipment supplier; provided, further that each of (x) the tax assessment
currently owed to Taguig City authorities and (y) the disputed electrical
bills related to the underbilling by Meralco Electric Company shall not
constitute a default hereunder until a court of competent jurisdiction
shall have determined such tax assessment or electrical bills, as
applicable, are legally owed by the Company to the Taguig City authorities
or Meralco Electrical Company, as applicable, and either such determination
is not appealable by the Company or the Company does not appeal such
determination; (ii) any proceeding shall be instituted by or against the
Company or any of its Subsidiaries seeking to adjudicate it a bankrupt or
insolvent, or seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief, or composition of it or its debts under any
law relating to Bankruptcy, insolvency or reorganization or relief of
debtors, or seeking the entry of an order for relief or the appointment of
a receiver, trustee, custodian or other similar official for it or for any
substantial part of its property and, in the case of any such proceeding
instituted against it (but not instituted by it), either such proceeding
shall remain undismissed or unstayed for a period of 60 days, or any of the
actions sought in such proceeding (including, without limitation, the entry
of an order for relief against, or the appointment of a receiver, trustee,
custodian or other similar official for, it or for any substantial part of
its property) shall occur; or (iii) the Company or any of its Subsidiaries
shall take any corporate action to authorize any of the actions set forth
above in this subsection (c);
then, and in any such event, the Holder may, by notice to the Company, declare
the Notes, all interest hereon and all other amounts payable thereunder to be
forthwith due and payable, whereupon the Notes, all such interest and all such
amounts shall become and be forthwith due
12
and payable, without presentment, demand, protest or further notice of any kind,
all of which are hereby expressly waived by the Company; provided, however, that
in the event of an actual or deemed entry of an order for relief with respect to
the Company under the Federal Bankruptcy Code and Philippine bankruptcy law, the
Notes, all such interest and all such amounts shall automatically become and be
due and payable, without presentment, demand, protest or any notice of any kind,
all of which are hereby expressly waived by the Company.
ARTICLE V
SUBORDINATION
SECTION 5.01. Note Subordinate to Senior Indebtedness. The Company
agrees, and each Holder, by his acceptance of this Note, also agrees, that this
Note is and shall be subordinate, to the extent and in the manner hereinafter
set forth, to the prior payment in full of all obligations of the Company now or
hereafter existing under the Senior Credit Facility, the $2.5 million of the
currently outstanding Indebtedness owed to Semiconductor Components Industries,
LLC and any other Indebtedness of the Company that is permitted to be incurred
pursuant to Section 3.02(e) and the terms of which expressly provide it is
senior in right of payment to the Notes, whether for principal, interest
(including, without limitation, interest, as provided in such Indebtedness,
accruing after the filing of a petition initiating any proceeding referred to in
Section 5.02, whether or not such interest accrues after the filing of such
petition for purposes of the Bankruptcy Code or is an allowed claim in such
proceeding), fees, expenses or otherwise (all such obligations being the "Senior
Indebtedness").
SECTION 5.02. Events of Subordination. In the event of any dissolution,
winding up, liquidation, arrangement, reorganization, adjustment, protection,
relief or composition of the Company or its debts, whether voluntary or
involuntary, in any Bankruptcy, insolvency, arrangement, reorganization,
receivership, relief or other similar case or proceeding under any federal or
state Bankruptcy or similar law or upon an assignment for the benefit of
creditors or any other marshalling of the assets and liabilities of the Company
or otherwise, Senior Indebtedness shall first be paid in full before the Holder
shall be entitled to receive any payment of this Note, and any payment or
distribution of any kind (whether in cash, property or securities) that
otherwise would be payable or deliverable upon or with respect to this Note in
any such case, proceeding, assignment, marshalling or otherwise (including any
payment that may be payable by reason of any other indebtedness of the Company
being subordinated to payment of this Note) shall be paid or delivered directly
to the holders or representatives of the Senior Indebtedness for application (in
the case of cash) to, or as collateral (in the case of non-cash property or
securities) for, the payment or prepayment of the Senior Indebtedness until the
Senior Indebtedness shall have been paid in full.
SECTION 5.03. In Furtherance of Subordination.
(a) All payments or distributions upon or with respect to this Note
that are received by the Holder contrary to the provisions of this Article shall
be received in trust for the benefit of the Holder and owners of Senior
Indebtedness, shall be segregated from other funds and property held by the
Holder and shall be forthwith paid over to the holders and owners of Senior
Indebtedness in the same form as so received (with any necessary endorsement) to
be
13
applied (in the case of cash) to, or held as collateral (in the case of non-cash
property or securities) for, the payment or prepayment of the Senior
Indebtedness in accordance with its terms.
(b) The holders and owners of Senior Indebtedness are hereby authorized
to demand specific performance of the provisions of this Article, whether or not
the Company shall have complied with any of the provisions hereof applicable to
it, at any time when the Holder shall have failed to comply with any of the
provisions of this Article applicable to it. The Holder of this Note hereby
irrevocably waives any defense based on the adequacy of a remedy at law that
might be asserted as a bar to such remedy of specific performance.
SECTION 5.04. No Commencement of Any Proceeding. So long as payments or
distributions for or on account of this Note are not permitted pursuant to
Section 5.02, the Holder will not commence, or join with any creditor other than
the holders and owners of Senior Indebtedness in commencing, directly or
indirectly cause the Company to commence, or assist the Company in commencing,
any proceeding referred to in Section 5.02.
SECTION 5.05. Rights of Subrogation. No payment or distribution to the
holders and owners of Senior Indebtedness pursuant to the provisions of this
Article shall entitle the Holder to exercise any right of subrogation in respect
thereof until the Senior Indebtedness shall have been paid in full.
SECTION 5.06. Further Assurances. The Holder and the Company each will,
at the Company's expense and at any time and from time to time, promptly execute
and deliver all further instruments and documents, and take all further action,
that may be necessary or desirable, or that any holder or owner of Senior
Indebtedness may request, in order to protect any right or interest granted or
purported to be granted hereby or to enable any holder or owner of Senior
Indebtedness to exercise and enforce its rights and remedies hereunder.
SECTION 5.07. Agreements in Respect of Subordinated Debt. No amendment,
waiver or other modification of this Note, and no agreement supplemental to this
Note, may adversely affect the rights or interests of any holder or owner of
Senior Indebtedness hereunder.
SECTION 5.08. Agreement by the Company. The Company agrees that it will
not make any payment of this Note, or take any other action, in contravention of
the provisions of this Article.
SECTION 5.09. Obligations Hereunder Not Affected. All rights and
interests of the holders and owners of Senior Indebtedness hereunder, and all
agreements and obligations of the Holder of this Note and the Company under this
Article, shall remain in full force and effect irrespective of:
(i) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Senior Indebtedness, or any other
amendment or waiver of or any consent to any departure from any Senior
Indebtedness, including, without limitation, any increase in the Company's
obligations resulting from the extension of additional credit to the
Company or any of its subsidiaries or otherwise;
14
(ii) any taking, exchange, release or non-perfection of any
collateral, or any taking, release or amendment or waiver of or consent to
departure from any guaranty, for all or any of the Senior Indebtedness;
(iii) any manner of application of collateral, or proceeds thereof, to
all or any of the Senior Indebtedness, or any manner of sale or other
disposition of any collateral for all or any of the Senior Indebtedness or
any other assets of the Company or any of its subsidiaries;
(iv) any change, restructuring or termination of the corporate
structure or existence of the Company or any of its subsidiaries; or
(v) any other circumstance that might otherwise constitute a defense
available to, or a discharge of, the Company or a subordinated creditor.
The provisions of this Article V shall continue to be effective or be
reinstated, as the case may be, if at any time any payment of any of the Senior
Indebtedness is rescinded or must otherwise be returned by any holder or owner
of Senior Indebtedness upon the Bankruptcy, insolvency or reorganization of the
Company or otherwise, all as though such payment had not been made.
SECTION 5.10. Waiver. The Holder of this Note and the Company each
hereby waives promptness, diligence, notice of acceptance and any other notice
with respect to any of the Senior Indebtedness and this Article and any
requirement that any holder or owner of Senior Indebtedness protect, secure,
perfect or insure any security interest or lien or any property subject thereto
or exhaust any right or take any action against the Company or any other person
or entity or any collateral.
SECTION 5.11. No Waiver; Remedies. No failure on the part of any holder
or owner of Senior Indebtedness to exercise, and no delay in exercising, any
right hereunder shall operate as a waiver thereof; nor shall any single or
partial exercise of any right hereunder preclude any other or further exercise
thereof or the exercise of any other right. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.
SECTION 5.12. Continuing Agreement. The provisions of this Article V
constitute a continuing agreement and shall (i) remain in full force and effect
until the payment in full of all Senior Indebtedness, (ii) be binding upon the
Holder of this Note, the Company and their respective successors and assigns,
and (iii) inure to the benefit of, and be enforceable by, the holders and owners
of Senior Indebtedness and their respective successors, transferees and assigns.
ARTICLE VI
TRANSFER OF NOTE
SECTION 6.01. Restrictions. The Holder acknowledges and agrees that (a)
it shall not Transfer this Note in violation of either of the Securities Act of
1933 of the United States, as amended, or the Securities Regulation Code of the
Philippines and (b) during the term of this Note, there shall not be more than
an aggregate of 19 Holders of Notes at any one time.
15
Any attempted Transfer in violation of the preceding sentence shall be deemed
void ab initio and of no force or effect whatsoever, and the Company will not
record any such Transfer on its books or treat any purported transferee as the
owner of this Note for any purpose. Except as specifically set forth in this
Section 6.01, the Holder shall not be restricted from any Transfer of the Note.
SECTION 6.02. Legend.
(a) Each certificate or instrument evidencing this Note and the
Holdings Common Stock issuable pursuant to the terms of the Exchange Agreement
shall be stamped or otherwise imprinted with legends in substantially the
following forms:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND
MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION THEREUNDER."
"THE NOTE HAS NOT BEEN REGISTERED WITH THE PHILIPPINE SECURITIES AND
EXCHANGE COMMISSION UNDER THE SECURITIES REGULATION CODE (THE "CODE"). ANY
FUTURE OFFER OR SALE THEREOF IS SUBJECT TO REGISTRATION REQUIREMENTS UNDER
THE CODE UNLESS SUCH OFFER OR SALE QUALIFIES AS AN EXEMPT TRANSACTION."
(b) In addition, each certificate or instrument evidencing this Note
and the Holdings Common Stock issuable pursuant to the terms of the Exchange
Agreement shall be stamped or otherwise imprinted with any additional legends as
may be required by the Company, as applicable to the holder of such certificate
or instrument.
SECTION 6.03. Registration of Notes. The Company shall keep at its
principal executive office a register (the "Register") for the registration and
registration of transfers of Notes. The name and address of each Holder of one
or more Notes, each transfer thereof and the name and address of each transferee
of one or more Notes shall be registered in the Register. Prior to due
presentation for registration of transfer, the Person in whose name any Note
shall be registered shall be deemed and treated as the owner and Holder thereof
for all purposes hereof, and the Company shall not be affected by any notice to
the contrary.
SECTION 6.04. New Notes. (i) Upon surrender of any Note for
registration of Transfer, exchange or assignment (and in the case of a surrender
for registration of transfer, duly endorsed or accompanied by a written
instrument of transfer duly executed by the registered Holder of such Note or
such Holder's attorney duly authorized in writing and accompanied by the address
for notices of each transferee of such Note or part thereof), the Company shall
execute and deliver, at the Company's expense, subject to Section 6.04(ii)
hereof, one or more new Notes (as requested by the Holder thereof) in exchange
therefor, in an aggregate principal amount equal to the unpaid principal amount
of the surrendered Note. Each such new Note shall
16
be payable to such Person as such Holder may request. Each such new Note shall
be dated and bear interest from the date to which interest shall have been paid
on the surrendered Note or dated the date of the surrendered Note if no interest
shall have been paid thereon.
(ii) All stamp taxes due as a result of the issuance of new Notes shall
be paid by the Company by the fifth day of the month immediately following the
month during which the new Notes are issued; provided, however, that if any new
Notes are issued because of a transfer of a Note or a portion of a Note by a
Holder, the stamp taxes due as a result of such issuance shall be payable by
such transferring Holder by the fifth day of the month immediately following the
month during which such new Notes are issued.
ARTICLE VII
MISCELLANEOUS
SECTION 7.01. Notices.
(a) All notices, requests, claims, demands and other communications
under or in connection with this Note shall be given to or made upon: (i) the
Holder, at the Holder's address set forth on Schedule I attached hereto and (ii)
the Company at the following addresses (or in any case to such other address as
the addressee may from time to time designate in writing to the sender):
PSi Technologies, Inc.
Electronics Avenue
FTI Complex, Taguig
Metro Manila
Philippines
Attention: Arthur J. Young, Jr.
Facsimile: (632) 816-2180
with copies to:
Akin Gump Strauss Hauer & Feld LLP
1333 New Hampshire Avenue, N.W.
Washington, D.C. 20036-1564
Attention: Prakash H. Mehta
Facsimile: (202) 887-4288
and
H.G. Tiu Law Offices
No. 48, SMC Court
Celery Drive, Valle Verde 5
Pasig City, Metro Manila
Philippines 1600
17
Attention: Helen Go Tiu
Facsimile: (632) 637-6724
(b) All notices, requests, claims, demands and other communications
under or in connection with this Note shall be in writing and shall be deemed
effectively given: (i) upon personal delivery or delivery by courier to the
party to be notified, and (ii) one Business Day after receipt of confirmation if
such notice is sent by facsimile.
SECTION 7.02. Headings and Sections. The descriptive headings in this
Note are inserted for convenience only and are in no way intended to describe,
interpret, define, or limit the scope, extent or intent of this Note or any
provision of this Note. Unless the context requires otherwise, all references in
this Note to Sections, Articles, Exhibits or Schedules shall be deemed to mean
and refer to Sections, Articles, Exhibits or Schedules of or to this Note.
SECTION 7.03. Amendments. This Note may not be amended, supplemented,
modified or restated nor may any provision herein be waived without the express
unanimous written consent of the Holders of a majority of the principal amount
of the Notes outstanding at such time, voting together as a single class;
provided, however, that no amendment, supplement or modification can be made to
the amount, term, interest rate or other economic term of the Notes without the
written consent of each Holder affected thereby. Any waiver of any term or
condition shall not be construed as a waiver of any subsequent breach or a
subsequent waiver of the same term or condition, or a waiver of any other term
or condition of this Note. The failure of any Holder to assert any of its rights
hereunder shall not constitute a waiver of any of such rights. All rights and
remedies existing under this Note are cumulative to, and not exclusive of, any
rights or remedies otherwise available.
SECTION 7.04. Binding Effect. Except as otherwise provided in this
Note, every covenant, term and provision of this Note shall be binding upon the
Company and shall inure to the benefit of the Holder and its distributees,
heirs, legal representatives, executors, administrators, successors and
permitted assigns and designees.
SECTION 7.05. Remedies. The Holder shall be entitled to enforce its
rights under this Note specifically, to recover damages and costs (including
reasonable attorneys' fees) caused by any breach of any provision of this Note
and to exercise all other rights existing in its favor. The Company agrees and
acknowledges that money damages may not be an adequate remedy for any breach of
the provisions of this Note and that the Holder may in its sole discretion apply
to any court of law or equity of competent jurisdiction (without posting any
bond or deposit) for specific performance or other injunctive relief in order to
enforce or prevent any violations of the provisions of this Note. If any time
period for giving notice or taking action under this Note expires on a day that
is not a Business Day, the time period shall be extended automatically to the
immediately succeeding Business Day.
SECTION 7.06. Waiver of Jury Trial. THE COMPANY AND, BY ACCEPTING THE
BENEFITS OF THIS NOTE, THE HOLDER HEREBY WAIVE, TO THE FULLEST EXTENT PERMITTED
BY APPLICABLE LAW, ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO
ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF UNDER OR, IN CONNECTION
WITH THIS NOTE.
18
SECTION 7.07. Interpretation. The Holder and the Company have
participated jointly in the negotiation and drafting of this Note. In the event
an ambiguity or question of intent or interpretation arises, this Note shall be
construed as if drafted jointly by the Holder and the Company, and no
presumption or burden of proof shall arise favoring or disfavoring the Holder or
the Company by virtue of the authorship of any of the provisions of this Note.
SECTION 7.08. Governing Law; Consent to Jurisdiction. This Note will be
governed by, and construed in accordance with, the laws of the State of New
York. In any action or proceeding arising out of, related to, or in connection
with this Note, the Company consents to be subject to the jurisdiction and venue
of (a) the Supreme Court of the State of New York in and for the County of New
York, and (b) the United States District Court for the Southern District of New
York. The Company consents to the service of process in any action commenced
hereunder by any method or service acceptable under federal law or the laws of
the State of New York.
SECTION 7.09. Additional Documents and Acts. The Company agrees to
execute and deliver such additional documents and instruments and to perform
such additional acts as may be reasonably necessary or appropriate to
effectuate, carry out and perform all of the terms, provisions and conditions of
this Note and the transactions contemplated hereby.
SECTION 7.10. No Third Party Beneficiaries. This Note shall inure
solely to the benefit of the Holder and its successors, assigns and designees,
nothing herein, express or implied, is intended to or shall confer upon any
other Person any legal or equitable right, interest, claim or benefit, of any
nature whatsoever, under or on account of this Note.
19
IN WITNESS WHEREOF, the Company has caused this Note to be executed by
its officers or other representatives thereunto duly authorized, as of the date
first above written.
PSI TECHNOLOGIES, INC.
By: /s/ Arthur J. Young, Jr.
------------------------
Name: Arthur J. Young, Jr.
Title: Chairman & CEO
|
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Amount Added to Principal Date Added to Principal Aggregate Principal Amount
Amount of Note Under Amount of Note of Note
Section 2.01
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SCHEDULE I
HOLDERS
ADMINISTRATIVE DETAILS
Merrill Lynch Global Emerging Markets Partners, LLC
World Financial Center, North Tower
250 Vesey Street Bank: Merrill Lynch CMA
New York, NY 10080 Account No.: 896-07677
Attention: Frank J. Marinaro ABA No.: 043000261
Facsimile: (212) 449-7902 Contact: Marco Urli
with a copy to:
Shearman & Sterling LLP
599 Lexington Avenue
New York, NY 10022
Attention: Stephen Besen
Facsimile: (212) 848-7179
S-1
|
FORM OF EXCHANGE AGREEMENT
B-1
EXECUTION COPY
EXCHANGE AGREEMENT
This EXCHANGE AGREEMENT (this "Agreement"), dated as of July 3, 2003,
is among PSi Technologies Holdings, Inc., a corporation organized and existing
under the laws of the Philippines ("Holdings"), PSi Technologies, Inc., a
corporation organized and existing under the laws of the Philippines and the
principal operating subsidiary of Holdings (the "Company"), and Merrill Lynch
Global Emerging Markets Partners, LLC ("Purchaser").
WHEREAS, any benefit to the Company is deemed a benefit to Holdings,
and in consideration for the Invested Principal Amount (as defined below) paid
to the Company, Purchaser received 10.00% Exchangeable Senior Subordinated Notes
Due 2008 of the Company (the "Notes"), pursuant to the Purchase Agreement, dated
as of the date hereof (the "Purchase Agreement"), among Holdings, the Company
and Purchaser; and
WHEREAS, the parties have agreed that the Notes owned by Purchaser are
to be exchangeable into Common Stock (as defined below) at any time and from
time to time.
NOW THEREFORE, in consideration of the premises and the covenants
hereinafter contained and for other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, and intending to be legally
bound hereby, it is agreed by the parties as follows:
1. Definitions
(a) Unless otherwise defined herein, the terms below shall have the
following meanings (such meanings being equally applicable to singular and
plural forms of the terms defined):
"ADSs" means the American Depositary Shares of Holdings, each ADS
representing one share of Common Stock.
"Affiliate" shall mean, with respect to any specified Person, any
other Person that directly, or indirectly through one or more
intermediaries, Controls, is Controlled by, or is under common Control
with, such specified Person.
"Aggregate Converted Principal" means, at a specified date, the sum of
all the Conversion Principal Amounts in respect of which Holdings issued
shares of Common Stock to Purchaser from the date hereof to such specified
date.
"Board" means the board of directors of Holdings.
"BSP" means the Bangko Sentral ng Pilipinas or the central monetary
authority of the Philippines or any Governmental Authority of the
Philippines that assumes the functions thereof.
"BSRD" means the Bangko Sentral Registration Document issued by the
BSP, which allows the holder to source foreign exchange from the Philippine
banking system.
"Business Day" means any day other than a Saturday, Sunday or any
other day that is a legal holiday under the laws of the State of New York
or Taguig, Philippines or a day on which national banking associations in
New York or Taguig, Philippines are authorized or required by law or other
governmental action to close.
"Common Stock" means the common stock, par value PHP 1 2/3 per share
of Holdings.
"Controls" means (including the terms "Controlled by" and "under
common Control with") means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, as trustee or
executor, by contract or otherwise, including, without limitation, the
ownership, directly or indirectly, of securities having the power to elect
a majority of the board of directors or similar body governing the affairs
of such Person.
"Conversion Principal Amount" means, at a specified date, (a) an
amount set forth in an Exchange Notice that represents the portion of the
Current Invested Principal Amount of the Notes that Purchaser is requesting
to be converted into Common Stock pursuant to such Exchange Notice or (b)
an amount set forth in a Mandatory Issuance Notice that represents the
portion of the Current Invested Principal Amount of the Notes that the
Purchaser is requesting to be used to calculate the number of shares of
Common Stock to be issued in the Mandatory Issuance relating to such
Mandatory Issuance Notice.
"Current Invested Principal Amount" means, at a specified date, an
amount equal to the Invested Principal Amount less the Aggregate Converted
Principal, in each case, from the date hereof to such specified date.
"Current Market Price" means in respect of any share of Common Stock
on any date herein specified the average of the daily market prices of the
Common Stock or ADSs for five consecutive trading days commencing ten
trading days before the public announcement of any sale or other issuance
of Common Stock or Common Stock Equivalents. The daily market price for
each such trading day shall be the last reported sale price on such day on
the Nasdaq National Market (the "Nasdaq") or, if the Common Stock or ADSs
are not so listed or admitted, the last reported sale price on such day on
the Nasdaq or any other trading facility on which such Common Stock or ADSs
are then listed; provided, however, that if no sale takes place on such day
on any such exchange, market or trading facility, the average of the last
reported closing bid and ask prices on such day as officially quoted on
such exchange, market or trading facility shall be the daily market price
for such trading day. If the Common Stock or ADSs are not listed on
2
Nasdaq or any other trading facility at the time of such calculation, the
"Current Market Price" of one share of Common Stock shall be determined by
the Board in good faith.
"EBITDA" shall mean, without duplication, the consolidated net income
of Holdings and its subsidiaries determined in accordance with generally
accepted accounting principles in the United States consistently applied,
plus any amounts subtracted in calculating Net Income in respect of net
interest expense, income taxes, depreciation and amortization, less (i) any
gain plus any loss realized in connection with the sale of any assets or
disposition of any securities, other than those included in cash flow from
operations, (ii) any extraordinary or non-recurring gain plus any loss or
(iii) any non-cash extraordinary gain, plus (iv) any non-cash extraordinary
loss; provided, however, that all expenses arising directly out of the
transactions contemplated by the Purchase Agreement, this Agreement and the
Notes, and the Subscription Agreement and Note Assignment, if applicable,
and expenses arising directly out of future capital raising transactions
shall be deemed extraordinary expenses and excluded from EBITDA for
purposes of this definition.
"Encumbrance" means any lien, mortgage, pledge, collateral assignment,
security interest, hypothecation or other encumbrance, other than as
established by, under or in connection with, the terms of this Agreement,
the Notes or the Purchase Agreement, and the Subscription Agreement and the
Note Assignment, if applicable, or the transactions contemplated thereby.
"Governmental Agency" means any supranational, multinational,
municipal, provincial, federal, state, local, foreign or other governmental
agency, instrumentality, commission, authority, board or body.
"Holder" shall mean Purchaser and any transferee of Purchaser.
"Invested Principal Amount" means USD$4,000,000, plus any accreted
interest added to the Invested Principal Amount pursuant to Section 2.01 of
the Notes.
"Law" means all laws, statutes and ordinances of the United States,
any state of the United States, any foreign country, any foreign state and
any political subdivision thereof, including all decisions, orders,
judgments or decrees of courts having the effect of law in each such
jurisdiction.
"Net Income" shall mean with respect to any fiscal year, or part
thereof, the net income (or net loss) of Holdings for such period as
determined on a consolidated basis and in accordance with generally
accepted accounting principles in the United States consistently applied.
"Person" shall mean any individual, corporation, partnership, joint
venture, firm, trust, unincorporated organization, government or any agency
or political subdivision thereof or other entity.
"Philippine SEC" means the Securities and Exchange Commission of the
Philippines.
3
"PHP" shall mean the lawful currency of the Philippines.
"Regulation" means any rule or regulation of any Governmental Agency
having the effect of Law or any rule or regulation of any self-regulatory
organization.
(a) The following terms have the meanings set forth in the section set
forth opposite such term:
"Agreement".............................................................Preamble
"Closing"...............................................................3(e)
"Closing Date"..........................................................2(e)
"Common Stock Equivalents"..............................................5(b)
"Company"...............................................................Preamble
"Exchange Closing"......................................................2(e)
"Exchange Notice".......................................................2(c)
"Exchange Right"........................................................2(a)
"Exchange Shares".......................................................2(i)
"Exchange Subsequent Closing"...........................................2(c)
"Extraordinary Common Stock Event"......................................5(e)
"Holdings"..............................................................Preamble
"Issuance Purchase Price"...............................................3(a)
"Mandatory Issuance"....................................................3(a)
"Mandatory Issuance Closing"............................................3(e)
"Mandatory Issuance Closing Date".......................................3(e)
"Mandatory Issuance Notice".............................................3(b)
"Mandatory Issuance Rights".............................................3(a)
"Mandatory Issuance Shares".............................................3(f)(i)
"Mandatory Issuance Subsequent Closing".................................3(d)
"Net Consideration Per Share"...........................................5(c)
"Note Assignment".......................................................3(f)(i)
"Note Exercise Price"...................................................2(a)
"Notes".................................................................Recitals
"Notes BSRD"............................................................6(e)(i)
"Purchase Agreement"....................................................Recitals
"Purchaser".............................................................Preamble
"Redemption Payment"....................................................3(c)
"Shares BSRD"...........................................................6(e)(ii)
"Subscription Agreement"................................................3(f)(i)
"Subsequent Closing"....................................................3(d)
|
2. Exchange of Notes for Common Stock
(a) Grant of Exchange Right. Subject to the terms and conditions set
forth herein, Holdings hereby grants Purchaser an irrevocable right to exchange
all or part of its Notes for Common Stock (an "Exchange Right") at a price per
share of Common Stock initially equal to USD$1.47 (the "Note Exercise Price");
provided, however, that:
4
(i) if Holdings' EBITDA for the three-month period ending September 30,
2003 is less than USD$3.89 million, then the Note Exercise Price shall
be reduced to USD$1.29; and
(ii) if Holdings' EBITDA for the three-month period ending December 31,
2003 is less than USD$3.92 million, then the Note Exercise Price shall
be reduced to (A) USD$1.15, if the Note Exercise Price was reduced
pursuant to clause (i) above and, (B) USD$1.29, if the Note Exercise
Price was not reduced pursuant to clause (i) above;
provided further that if Purchaser exercises an Exchange Right prior to the
occurrence of either or both of clauses (i) and (ii) above, any subsequent
reduction in the Note Exercise Price shall not retroactively apply to such
previous exercise of Exchange Rights and Purchaser shall not be entitled to any
additional shares of Common Stock or other compensation as a result of such
subsequent reduction in the Note Purchase Price.
The Note Exercise Price is subject to adjustment as set forth in Section 5.
(b) Exercise Period of Exchange Right. At any time after the date
hereof and from time to time, the Exchange Right may be exercised by Purchaser
in its sole discretion, in whole or in part until such time as all of the Notes
are exchanged for Common Stock, paid at maturity or redeemed in accordance with
their terms.
(c) Exercise of Exchange Right. The Exchange Right shall be exercised
by written notice from Purchaser to Holdings (an "Exchange Notice") stating that
Purchaser desires to exercise an Exchange Right and setting forth: (i) the
proposed closing date, which (subject to the earlier satisfaction or waiver of
the condition set forth in Section 7) shall be within three days after the date
of delivery of such notice; provided, however, if Holdings has not received the
Notes BSRD described in Section 6(d) by such third day after the delivery of the
Exchange Notice, the Closing shall occur as soon as practicable following the
receipt of such Notes BSRD by Holdings, and (ii) the amount of Notes to be
exchanged expressed as a Conversion Principal Amount and such Conversion
Principal Amount shall be in multiples of $25,000.
(d) Exchange of Notes. (i) The Exchange Right will be deemed to be
exercised on the date of delivery of the Exchange Notice. The number of shares
of Common Stock to be issued and delivered to Purchaser in connection with the
delivery of the Exchange Notice shall be determined by dividing the Conversion
Principal Amount as set forth in such Exchange Notice by the Note Exercise Price
then in effect.
(ii) Any accrued and unpaid interest (other than accrued and unpaid
interest added to the Invested Principal Amount pursuant to Section 2.01 of the
Notes) in respect of any Notes to be exchanged into shares of Common Stock
pursuant to an Exchange Notice shall be paid in cash at the time such Notes are
exchanged.
(iii) No fractional shares of Common Stock or scrip representing
fractional shares of Common Stock shall be issued upon the exchange of the Note.
In lieu of any fractional share of Common Stock to which the Holder would
otherwise be entitled, the Company shall make a cash payment equal to the Note
Exercise Price multiplied by such fraction.
5
(e) Closing. The consummation of the exchange of Notes for Common
Stock contemplated by this Agreement (the "Exchange Closing") shall occur within
3 days after the date (a "Closing Date") of delivery of an Exchange Notice;
provided, however, if Holdings has not received the Notes BSRD described in
Section 6(d) by such third day after the delivery of the Exchange Notice, the
Closing shall occur as soon as practicable following the receipt of such Notes
BSRD by Holdings and the Company. In the event that all of Purchaser's Notes are
not exchanged pursuant to this Agreement at the Closing, Purchaser may engage in
successive closings (each, an "Exchange Subsequent Closing") with respect to the
completion of the exchange of its Notes for Common Stock.
(f) Closing Deliveries.
(i) At the Exchange Closing or any Exchange Subsequent Closing, as the
case may be, Holdings shall deliver to Purchaser (A) certificates
evidencing such number of shares of Common Stock (as calculated in
accordance with Section 2(d) above) (the "Exchange Shares"), pursuant to
the Exchange Notice to which the Exchange Closing or such Exchange
Subsequent Closing relates, in definitive form and registered in the name
of Purchaser and/or such assigns permitted pursuant to the Note and in such
denominations as Purchaser shall reasonably request, (B) proof of the
payment prior to such Closing Date of applicable documentary stamp taxes
and any other fees or costs imposed on the issuance of the Exchange Shares
by any Governmental Agency having jurisdiction over such issuance, and (C)
one or more of the Notes BSRDs, covering such amounts as necessary to cause
the registration of the Exchange Shares with the BSP and any other
document, certificate or report that may be required by the BSP in respect
of such registration.
(ii) At the Exchange Closing or any Exchange Subsequent Closing, as
the case may be, the Company shall deliver to Purchaser (A) an amount in
cash equal to any accrued and unpaid interest (other than accrued and
unpaid interest added to the Invested Principal Amount pursuant Section
2.01 of the Notes) in respect of the Notes exchanged into Common Stock
pursuant to the Exchange Notice delivered to Holdings under Section 2(d)
above and (B) a new Note representing the Current Invested Principal
Amount, if any.
(iii) At the Exchange Closing or any Exchange Subsequent Closing, as
the case may be, Purchaser shall deliver to Holdings such number of Notes
owned by Purchaser with an aggregate principal amount equal to the
Conversion Principal Amount as set forth in the Exchange Notice to which
the Exchange Closing or such Exchange Subsequent Closing relates, together
with an instrument of transfer reasonably satisfactory to Holdings duly
executed by Purchaser. Upon such delivery, and subject to Section 2(d)(ii)
above, Holdings shall receive the relevant Notes and all the rights
pertaining to a holder thereof other than the Exchange Rights.
3. Mandatory Issuance of Common Stock
(a) Mandatory Issuance Rights. Subject to the terms and conditions set
forth herein, at any time after the date hereof and from time to time,
Purchaser, in its sole discretion,
6
may elect to replace all of its Exchange Rights with the right (the "Mandatory
Issuance Rights") to (i) assign a portion or all of the Notes to the Company;
provided, however, that prior to such assignment, the Company shall redeem a
portion of such Notes pursuant to Section 3(c) hereof, and (ii) subscribe for
shares of Common Stock (the "Mandatory Issuance") at a price per share equal to
the then par value of one share of Common Stock (the "Issuance Purchase Price").
(b) Exercise of Mandatory Issuance Rights. The Mandatory Issuance
Right shall be exercised by written notice from Purchaser to Holdings (a
"Mandatory Issuance Notice") stating that Purchaser desires to exercise a
Mandatory Issuance Right and setting forth: (i) the proposed closing date, which
(subject to the earlier satisfaction or waiver of the condition set forth in
Section 7) shall be within three days after the date of delivery of such notice,
and (ii) the number of shares of Common Stock to be issued to Purchaser in
connection with the delivery of the Mandatory Issuance Notice, which shall be
determined by dividing (A) the Conversion Principal Amount specified in the
Mandatory Issuance Notice by (B) the Note Exercise Price then in effect;
provided, however, that if the Holder would receive any fractional share of
Common Stock pursuant to this calculation, Holdings shall make a cash payment to
Purchaser equal to the Note Exercise Price then in effect multiplied by such
fraction.
(c) Redemption of Notes. Simultaneously with the consummation of the
Mandatory Issuance, the Company shall redeem from Purchaser for a cash payment
(including any accrued and unpaid interest (other than accrued and unpaid
interest added to the Invested Principal Amount pursuant to Section 2.01 of the
Notes) relating to such redeemed Notes, the "Redemption Payment") a portion of
the Conversion Principal Amount of the Notes specified in the Mandatory Issuance
Notice equal to the Issuance Purchase Price of the Shares being issued in the
Mandatory Issuance. Such redemption shall not be taken into account in
calculating the number of Mandatory Issuance Shares to be issued pursuant to
Section 3(b)(ii) above.
(d) Payment of Interest. Any accrued and unpaid interest (other than
accrued and unpaid interest added to the Invested Principal Amount pursuant to
Section 2.01 of the Notes) on the assigned Notes shall be paid in cash at the
time such Notes are assigned.
(e) Closing. The consummation of the Mandatory Issuance contemplated
by this Agreement (the " Mandatory Issuance Closing", together with the Exchange
Closing, the "Closing") shall occur within three days after the date (a
"Mandatory Issuance Closing Date") of delivery of a Mandatory Issuance Notice.
In the event that all of Purchaser's Notes are not assigned pursuant to this
Agreement at the Mandatory Issuance Closing, Purchaser may engage in successive
closings (each, a "Mandatory Issuance Subsequent Closing", together with an
Exchange Subsequent Closing, a "Subsequent Closing") with respect to the
completion of the Mandatory Issuance.
(f) Closing Deliveries.
(i) At the Mandatory Issuance Closing or any Mandatory Issuance
Subsequent Closing, as the case may be, Holdings shall deliver to Purchaser
(A) certificates evidencing such number of shares of Common Stock (as
calculated in accordance with Section 3(b)(ii) above) (the "Mandatory
Issuance Shares"), pursuant to the Mandatory Issuance Notice to which the
Mandatory Issuance Closing or such
7
Mandatory Issuance Subsequent Closing relates, in definitive form and
registered in the name of Purchaser and/or such assigns permitted pursuant
to the Note and in such denominations as Purchaser shall reasonably
request, (B) proof of the payment prior to such Mandatory Issuance Closing
Date of applicable documentary stamp taxes and any other fees or costs
imposed on the issuance of the Mandatory Issuance Shares by any
Governmental Agency having jurisdiction over such issuance, (C) an executed
signature page of the Subscription Agreement, a form of which is attached
hereto as Exhibit A (the "Subscription Agreement") and (D) an executed
signature page of the Note Assignment, a form of which is attached hereto
as Exhibit B (the "Note Assignment").
(ii) At the Mandatory Issuance Closing or any Mandatory Issuance
Subsequent Closing, as the case may be, the Company shall deliver to
Purchaser (A) an amount in cash equal to the sum of (x) any accrued and
unpaid interest (other than accrued and unpaid interest added to the
Invested Principal Amount pursuant Section 2.01 of the Notes) in respect of
the Notes assigned pursuant to the Mandatory Issuance Notice delivered to
Holdings under Section 3(b)(ii) above, (y) any cash payment in lieu of any
fractional share of Common Stock pursuant to Section 3(b)(ii) above, and
(z) the Redemption Payment, and (B) a new Note representing the Current
Invested Principal Amount, if any.
(iii) At the Mandatory Issuance Closing or any Mandatory Issuance
Subsequent Closing, as the case may be, Purchaser shall deliver to Holdings
(A) an executed signature page of the Subscription Agreement, (B) an
executed signature page of the Note Assignment, (C) such number of Notes
owned by Purchaser with an aggregate principal amount equal to the
Conversion Principal Amount as set forth in the Mandatory Issuance Notice
to which the Mandatory Issuance Closing or such Mandatory Issuance
Subsequent Closing relates, together with an instrument of transfer
reasonably satisfactory to Holdings duly executed by Purchaser, and (D) the
Issuance Purchase Price for the Mandatory Issuance Shares. Upon such
delivery, and subject to Section 3(c) above, Holdings shall receive the
relevant Notes and all the rights pertaining to a holder thereof other than
the Exchange Rights.
4. Representations and Warranties of Holdings and Purchaser
(a) As of the date hereof and as of the date of the Closing and each
Subsequent Closing, Holdings hereby represents and warrants to Purchaser as
follows:
(i) Existence. Holdings is a corporation duly organized, validly
existing and in good standing under the laws of the Philippines and has
full corporate power and authority to conduct its business and own and
operate its properties as now conducted, owned and operated.
(ii) Authorization and Enforceability. Holdings has the full power and
authority and has taken all required corporate and other action necessary
to authorize and permit Holdings to execute and deliver this Agreement and
to carry out the terms hereof and to issue and deliver the Common Stock,
and none of such actions will violate any provision of Holdings' Articles
of Incorporation or any applicable Law, or rule of any
8
stock exchange where the ADSs are listed, or result in the breach of, or
constitute a default (or event which, with notice or lapse of time or both,
would constitute a default) under, any agreement, instrument or
understanding to which Holdings is a party or by which it is bound. This
Agreement constitutes a legal, valid and binding obligation of Holdings,
enforceable against Holdings in accordance with its terms, except to the
extent limited by (i) applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance and similar laws of general application
related to the enforcement of creditor's rights generally and (ii) general
principles of equity.
(iii) Issuance of Common Stock. The shares of Common Stock that may be
issued pursuant to this Agreement have been duly authorized and, when
issued and delivered in accordance with this Agreement, will be validly
issued and outstanding and will be fully paid, nonassessable and
registrable with the BSP.
(b) As of the date hereof and as of the date of the Closing and each
Subsequent Closing, Purchaser hereby represents and warrants to Holdings and the
Company as follows:
(i) Existence. Purchaser is a limited liability company, duly
organized and validly existing and in good standing under the laws of the
State of Delaware.
(ii) Authorization and Enforceability. Purchaser has the full power
and authority and has taken all action necessary to authorize and permit it
to execute and deliver this Agreement and to carry out the terms hereof and
none of such actions will violate any provision of Purchaser's
organizational documents or any applicable Law, or result in the breach of,
or constitute a default (or event which, with notice or lapse of time or
both, would constitute a default) under, any agreement, instrument or
understanding to which Purchaser is a party or by which it is bound. This
Agreement constitutes a legal, valid and binding obligation of Purchaser,
enforceable against Purchaser in accordance with its terms, except to the
extent limited by (i) applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws of general application related to the
enforcement of creditor's rights generally and (ii) general principles of
equity.
5. Anti-Dilution Adjustments
(a) If Holdings shall, while Purchaser's Exchange Rights or Mandatory
Issuance Rights under this Agreement are outstanding, issue or sell shares of
Common Stock or Common Stock Equivalents (as defined below) without
consideration or at a price per share or Net Consideration Per Share (as defined
below) less than the Current Market Price in effect immediately prior to such
issuance or sale then in such case the Note Exercise Price, except as
hereinafter provided, shall be lowered so as to be equal to an amount determined
by multiplying such Note Exercise Price by the following fraction:
9
N//0// + N//1//
N//0// + N//2//
Where:
N//0// = the number of shares of Common Stock outstanding
immediately prior to the issuance of such additional shares of Common Stock
or Common Stock Equivalents (calculated on a fully diluted basis assuming
the exercise or conversion of all then exercisable or convertible options,
warrants, purchase rights and convertible securities).
N//1// = the number of shares of Common Stock which the aggregate
consideration (without giving effect to any underwriter's discounts or
commissions) if any (including the Net Consideration Per Share with respect
to the issuance of Common Stock Equivalents), received or receivable by
Holdings for the total number of such additional shares of Common Stock so
issued or deemed to be issued would purchase at the Current Market Price in
effect immediately prior to such issuance.
N//2// = the number of such additional shares of Common Stock so
issued or deemed to be issued.
(b) For purposes of this Section 5, if a part or all of the
consideration received by Holdings in connection with the issuance of any
securities described in this Section 5 consists of property other than cash,
such consideration shall be deemed to have a fair market value as is reasonably
determined in good faith by the Board or a committee thereof. For the purposes
of this Section 5, the issuance of any warrants, options or subscription or
purchase rights with respect to shares of Common Stock and the issuance of any
securities convertible into or exchangeable for shares of Common Stock,
including the ADSs, and the issuance of any warrants, options or subscription or
purchase rights with respect to such convertible or exchangeable securities
(collectively, "Common Stock Equivalents") shall be deemed an issuance of Common
Stock. For the avoidance of doubt, if a Common Stock Equivalent is issued or
sold as part of a unit with any other security of Holdings or its Affiliates
that is not independent of a Common Stock Equivalent, such other security shall
not constitute a Common Stock Equivalent. Any obligation, agreement or
undertaking to issue Common Stock Equivalents at any time in the future shall be
deemed to be an issuance at the time such obligation, agreement or undertaking
is made or arises and no additional adjustment of the Note Exercise Price shall
be made upon issuance of the Common Stock pertaining thereto.
(c) For purposes of this Section 5, the "Net Consideration Per Share"
which shall be receivable by Holdings for any Common Stock issued upon the
exercise or conversion of any Common Stock Equivalents shall be determined as
follows:
(i) The amount equal to the total amount of consideration, if any,
received by Holdings for the issuance of such Common Stock Equivalents
(without giving effect to any underwriting discounts or commissions), plus
the minimum amount of consideration, if any, payable to Holdings upon
exercise, or conversion or exchange thereof, divided by
10
the aggregate number of shares of Common Stock that would be issued if all
such Common Stock Equivalents were exercised, exchanged or converted.
(ii) In each instance such determination shall be made as of the date
of issuance of Common Stock Equivalents without giving effect to any
possible future upward price adjustments or rate adjustments which may be
applicable with respect to such Common Stock Equivalents.
(d) Section 5(a) shall not apply under any of the circumstances that
would constitute an Extraordinary Common Stock Event (as described below).
Further, Section 5(a) shall not apply with respect to the issuance or sale of
shares of Common Stock, or the grant of options or other Common Stock
Equivalents exercisable therefor, to current or former directors, officers,
employees and consultants of Holdings or any subsidiary pursuant to any
qualified or non-qualified stock option plan or agreement, stock purchase plan
or agreement, stock restriction agreement, employee stock ownership plan,
consulting agreement, or such other options, issuances, arrangements, agreements
or plans intended principally as a means of providing compensation for
employment or services, provided that in each such case such plan, agreement, or
other arrangement or issuance is approved by the vote or consent of the Board.
(e) Upon the happening of an Extraordinary Common Stock Event (as
described below), simultaneously with the happening of such Extraordinary Common
Stock Event, the Note Exercise Price shall be adjusted by multiplying the Note
Exercise Price by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such Extraordinary
Common Stock Event and the denominator of which shall be the number of shares of
Common Stock outstanding immediately after such Extraordinary Common Stock
Event, and the product so obtained shall thereafter be the Note Exercise Price.
An "Extraordinary Common Stock Event" shall mean (i) the issue of
additional shares of Common Stock as a dividend or other distribution on
outstanding shares of Common Stock, (ii) a subdivision of outstanding shares of
Common Stock into a greater number of shares of Common Stock, or (iii) a
combination or reverse stock split of outstanding shares of Common Stock into a
smaller number of shares of the Common Stock.
(f) If the Common Stock shall be changed into the same or a different
number of shares of any other class or classes of capital stock, whether by
capital reorganization, recapitalization, reclassification or consolidation or
merger of Holdings with another corporation, or the sale of all or substantially
all of its assets to another corporation or otherwise (other than an
Extraordinary Common Stock Event), then in each such event Purchaser shall have
the right thereafter to receive upon exercise hereof, in lieu of the number of
shares of Common Stock which Purchaser would otherwise have been entitled to
receive, the kind and amount of shares of capital stock and other securities and
property which it would have received upon such reorganization,
recapitalization, reclassification or consolidation or merger of Holdings with
another corporation, or the sale of all or substantially all of its assets or
other change had Purchaser exercised the Exchange Right immediately prior to
such reorganization, recapitalization, reclassification or consolidation or
merger of Holdings with another corporation, or the sale of all or substantially
all of its assets or change, all subject to further adjustment as
11
provided herein. The provision for such adjustments shall be a condition
precedent to the consummation by Holdings of any such transaction.
(g) Whenever on or after the date of this Agreement the number of
shares of Common Stock for which this Exchange Right is exercisable or the Note
Exercise Price is adjusted, as herein provided, Holdings shall promptly give
notice thereof to Purchaser, in accordance with Section 9(b), by delivering a
certificate which sets forth the Note Exercise Price after such adjustment and a
brief statement of the facts requiring such adjustment. Such certificate shall
also set forth the kind and amount of stock or other securities or property for
which this Exchange Right shall be exercisable following the occurrence of any
of the events specified above. The foregoing anti-dilution adjustments shall not
apply to any securities outstanding prior to the date hereof.
6. Covenants
(a) Holdings Reservation of the Common Stock. Holdings shall at all
times reserve and keep available out of its authorized but unissued shares of
Common Stock, solely for the purposes of issuance upon exchange of the Notes or
pursuant to a Mandatory Issuance in accordance with this Agreement, such number
of shares of the Common Stock as are issuable upon the exchange of all then
outstanding Notes or pursuant to a Mandatory Issuance pursuant to this
Agreement. All shares of Common Stock that are so issuable shall, when issued,
be duly and validly issued, fully paid and non-assessable and free from all
taxes, charges and Encumbrances. Holdings shall take all such actions as may be
necessary to assure that all such shares of Common Stock may be so issued
without violation of any applicable Law or Regulation or of any requirements of
any domestic securities exchange upon which shares of Common Stock may be listed
(except for official notice of issuance, which shall be immediately transmitted
by Holdings upon issuance).
(b) Filings; Etc. Subject to the terms and conditions herein provided,
Purchaser, Holdings and the Company shall:
(i) make any required filings, and obtain the consents, approvals,
permits or authorizations, required to be made or obtained prior to the
Closing or a Subsequent Closing, as the case may be, with or from any
Governmental Agency;
(ii) to the extent permitted by Law and Regulation, agree not to
participate in any meeting or discussion with any Governmental Agency in
respect of any filings, investigation or other inquiry concerning this
Agreement or the transactions contemplated hereby unless they consult with
the other parties in advance and, to the extent permitted by such
Governmental Agency, gives the other parties the opportunity to attend and
participate in such meeting or discussion;
(iii) to the extent permitted by Law and Regulation, furnish the other
parties with copies of all correspondence, filings and communications (and
memoranda setting forth the substance thereof) between them and their
subsidiaries and their respective representatives on the one hand, and any
Governmental Agency or members of any such
12
agency's staff on the other hand, with respect to this Agreement and the
transactions contemplated hereby; and
(iv) furnish the other parties with such necessary information and
reasonable assistance as such other parties and their Affiliates may
reasonably request in connection with their preparation of necessary
filings, registrations or submissions of information to any governmental or
regulatory authorities.
(c) Without limiting Section 6(b), Purchaser, Holdings and the Company
shall:
(i) each use reasonable best efforts to avoid the entry of, or to have
vacated, terminated or modified, any decree, order or judgment that would
restrain, prevent or delay the consummation of the transactions
contemplated by this Agreement; and
(ii) each use reasonable best efforts to take any and all steps
necessary to obtain any consents and approvals or make any required filings
under Section 6(b) above or eliminate any impediments to the consummation
of the transactions contemplated by this Agreement.
(d) SEC Notification. In the event of a Mandatory Issuance, on or
prior to the Closing Date or any Subsequent Closing Date, Holdings shall have
notified the Philippine SEC of its exemption from registration requirements
under the Securities Regulation Code with respect to the issuance of the
Mandatory Issuance Shares by Holdings.
(e) BSP Filings. (i) Holdings and the Company agree that, on or prior
to September 1, 2003, they shall have (A) taken all action necessary to register
the full amount of the Notes as a foreign currency loan with the BSP and (B)
obtained the related BSRD (the "Notes BSRD"); provided, however, that if
Purchaser delivers to Holdings an Exchange Notice prior to September 1, 2003,
Holdings and the Company shall promptly take all action necessary to register
the amount of Notes subject to such Exchange Notice and obtain the related Notes
BSRD. Such action shall include filing of proof of receipt of the Purchase
Price, documents pertaining to the use of proceeds from the Purchase Price and
all other documents that may be required by the BSP to register the Notes and
issue the Notes BSRD.
(ii) Holdings and the Company agree that, for the benefit of Purchaser
or any transferee of Purchaser, they shall have (A) within 5 days of the Closing
or any Subsequent Closing, taken all action necessary to register the shares of
Common Stock issuable upon exchange of the Notes or pursuant to Mandatory
Issuance with the BSP and (B) within 30 days of the Closing or the Subsequent
Closing obtained the related BSRD (the "Shares BSRD"); provided, however, that
in the event that both (x) Purchaser exercises an Exchange Right prior to
September 1, 2003 and (y) the Philippine SEC has not approved the confirmatory
ruling, all actions set forth in this Section 7(e)(ii) shall be completed within
60 days of such Closing or Subsequent Closing instead of 30 days. Such action
shall include filing of the requisite Notes BSRD, if applicable, and all other
documents that may be required by the BSP to register the shares of Common Stock
and issue the Shares BSRD.
13
7. Conditions.
The obligations of Holdings and Purchaser to complete the exchange of
Notes for Common Stock upon the exercise of an Exchange Right or to consummate a
Mandatory Issuance upon exercise of a Mandatory Issuance Right shall be subject
to the condition that none of the parties hereto shall be subject to any Law,
decree, order or injunction that prohibits the consummation of the transactions
contemplated hereby issued by a court of competent jurisdiction of (i) the
United States or any state or other jurisdiction in the United States or (ii)
the Republic of the Philippines; provided, however, that, prior to invoking this
condition, each party shall have complied with Section 6(b), and with respect to
other matters not covered by Section 6(b), shall have used its reasonable best
efforts to have any such decree, order or injunction lifted or vacated; and no
Law or Regulation shall have been enacted by any Governmental Agency which
prohibits or makes unlawful the consummation of the transactions contemplated by
this Agreement.
8. Owners of Notes Not Deemed Shareholders.
No owner of Notes shall, as such, be entitled to vote or be deemed the
holder of Common Stock that may at any time be issuable upon exercise of
Exchange Rights or Mandatory Issuance Rights for any purpose whatsoever, nor
shall anything contained herein be construed to confer upon the owner of the
Notes, as such, any of the rights of a shareholder of Holdings or any right to
vote for the election of directors or upon any matter submitted to shareholders
at any meeting thereof, or to give or withhold consent to any corporate action
(whether upon any recapitalization, issue or reclassification of stock, change
of par value, consolidation, merger or conveyance or otherwise), or to receive
notice of meetings until such owner shall have exercised Exchange Rights or
Mandatory Issuance Rights in accordance with the provisions hereof.
9. General Provisions
(a) Survival of Representation and Warranties. The representations and
warranties of Holdings and Purchaser shall survive the Closing and each
Subsequent Closing until all of the Notes have been exchanged into shares of
Common Stock or assigned to Holdings, as applicable, paid at maturity or are
redeemed in accordance with their terms and all of the Mandatory Issuance Shares
have been issued, if applicable.
(b) Notice Generally. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by courier
service or by facsimile transmission (with written confirmation of receipt) to
the respective parties at the following addresses (or at such other address for
a party as shall be specified by notice given in accordance with this Section
9(b)):
(i) If to Purchaser, at
Merrill Lynch Global Emerging Markets Partners, LLC
World Financial Center, North Tower
250 Vesey Street
New York, NY 10080
14
Attention: Frank J. Marinaro
Facsimile: (212) 449-7902
and to any Holder, at the address
provided by such Holder
with a copy to:
Shearman & Sterling LLP
599 Lexington Avenue
New York, NY 10022
Attention: Stephen Besen
Facsimile: (212) 848-7179
(ii) If to Holdings or the Company, at
PSi Technologies, Inc.
Electronics Avenue
FTI Complex, Taguig
Metro Manila
Philippines
Attention: Arthur J. Young, Jr.
Facsimile: (632) 816-2180
with a copy to:
Akin Gump Strauss Hauer & Feld LLP
1333 New Hampshire Avenue
Washington, DC 20036-1564
Attention: Prakash H. Mehta
Facsimile: (202) 887-4288
and to:
H.G. Tiu Law Offices
No. 48, SMC Court
Celery Drive, Valle Verde 5
Pasig City, Metro Manila
Philippines 1600
Attention: Helen Go Tiu
Facsimile: (632) 637-6724
(c) Successors and Assigns; Third Party Beneficiaries. This Agreement
shall inure to the benefit of and be binding upon the successors and permitted
assigns of the parties hereto as hereinafter provided. The rights of Purchaser
with respect to the Notes shall be transferred to any Person who is a transferee
of such Notes. All obligations of Holdings hereunder shall survive any such
transfer. No person other than the parties hereto and their successors and
permitted assigns is intended to be a beneficiary of this Agreement.
15
(d) Headings. The headings and subheadings in this Agreement are
included for convenience and identification only and are in no way intended to
describe, interpret, define or limit the scope, extent or intent of this
Agreement or any provision hereof.
(e) Governing Law; Jurisdiction. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of New York.
(i) Any claim, action, suit or proceeding seeking to enforce any
provision of, or based on any matter arising out of or in connection with,
this Agreement or the transactions contemplated hereby may be heard and
determined in any New York State or federal court sitting in The City of
New York, County of Manhattan, and each of the parties hereto hereby
consents to the exclusive jurisdiction of such courts (and of the
appropriate appellate courts therefrom in any such claim, action, suit or
proceeding) and irrevocably waives, to the fullest extent permitted by law,
any objection that it may now or hereafter have to the laying of venue of
any such claim, action, suit or proceeding in any such court or that any
such claim, action, suit or proceeding that is brought in any such court
has been brought in an inconvenient forum.
(ii) Subject to applicable law, process in any such claim, action,
suit or proceeding may be served on any party anywhere in the world,
whether within or without the jurisdiction of any such court. Nothing
herein shall affect the right of any party to serve legal process in any
manner permitted by law or at equity. WITH RESPECT TO ANY SUCH CLAIM,
ACTION, SUIT OR PROCEEDING IN ANY SUCH COURT, EACH OF THE PARTIES
IRREVOCABLY WAIVES AND RELEASES TO THE OTHER ITS RIGHT TO A TRIAL BY JURY,
AND AGREES THAT IT WILL NOT SEEK A TRIAL BY JURY IN ANY SUCH PROCEEDING.
(f) Severability. If any term or other provision of this Agreement is
held to be invalid, illegal or incapable of being enforced by any rule of Law or
public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions is not affected in any manner materially adverse
to any party. Upon a determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in a mutually acceptable manner in order that the
transactions contemplated hereby be consummated as originally contemplated to
the fullest extent possible.
(g) Amendments. This Agreement may not be amended, supplemented,
modified or restated nor may any provision herein be waived without the express
unanimous written consent of the Holders of a majority of the principal amount
of the Notes outstanding at such time, voting together as a single class;
provided, however, that no amendment, supplement or modification can be made to
the terms of the Exchange Right, including the Note Exercise Price, or the
Mandatory Issuance Rights, without the written consent of each Holder affected
thereby. Any waiver of any term or condition shall not be construed as a waiver
of any subsequent breach or a subsequent waiver of the same term or condition,
or a waiver of any other term or condition of this Agreement. The failure of any
Holder to assert any of its rights hereunder shall not constitute a waiver of
any of such rights. All rights and remedies existing
16
under this Agreement are cumulative to, and not exclusive of, any rights or
remedies otherwise available.
(h) Entire Agreement. This Agreement constitutes the entire agreement
among the parties hereto pertaining to the subject matter hereof and supersedes
all prior agreements and understandings pertaining thereto.
(i) Cumulative Remedies. The rights and remedies provided by this
Agreement are cumulative and the use of any one right or remedy by any party
shall not preclude or waive its right to use any or all other remedies. Said
rights and remedies are given in addition to any other rights the parties may
have by law, statute, ordinance or otherwise.
(j) Construction. Each party hereto acknowledges and agrees that it
has had the opportunity to draft, review and edit the language of this Agreement
and that no presumption for or against any party arising out of drafting all or
any part of this Agreement will be applied in any dispute relating to, in
connection with or involving this Agreement. Accordingly, the parties hereto
hereby waive the benefit of any rule of Law or any legal decision that would
require, in cases of uncertainty, that the language of a contract should be
interpreted most strongly against the party who drafted such language.
(k) Counterparts. This Agreement may be executed by the parties hereto
in separate counterparts, each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute one and the
same instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all of the parties hereto.
17
IN WITNESS WHEREOF, the parties have executed this Agreement and
caused the same to be duly delivered on their behalf on the day and year first
written above.
PSI TECHNOLOGIES HOLDINGS, INC.
By:
Name: Arthur J. Young, Jr.
Title: Chairman of the Board and Chief
Executive Officer
PSI TECHNOLOGIES, INC.
By:
Name:
Title:
MERRILL LYNCH GLOBAL EMERGING
MARKETS PARTNERS, LLC
By: Merrill Lynch Global Emerging Markets
Partners, L.P.
as its Managing Member
By: Merrill Lynch Global Capital, L.L.C.
as its General Partner
By: Merrill Lynch Global Partners, Inc.
as its Managing Member
By:
Name: Brian A. Renaud
Title: Vice President
Exhibit 4.3
Investment Cooperation Agreement
This Agreement is entered on December 7, 2003 by and between:
PSi Technologies, Inc. ("PSi"), a corporation registered and existing under the
laws of the Republic of the Philippines, having registered address at
Electronics Ave., FTI Complex, Taguig, Metro Manila, Philippines; and
Management Committee of Chengdu Hi-Tech Zone ("CDHT"), a PRC government entity,
located at 18 Chuangye Road, Chengdu Hi-Tech Zone, Chengdu 610041, Sichuan
Province.
Whereas:
1. PSi is contemplating an investment ("Investment"), the first phase ("Phase
No. 1") will commence within three (3) months from the execution of this
Agreement and the issuance of the Company's Business License, Customs
permits and other approvals necessary to establish an Assembly and Test
Facility Factory (the "Company") in Chengdu, Sichuan Province, the Peoples'
Republic of China;
2. PSi's Phase No. 1 investment is anticipated to be USD$20 million within
three years.
3. In support of the Investment by PSi, CDHT will provide support to PSi, its
affiliated companies and the Company in accordance with the terms and
conditions contained herein.
THEREFORE, upon friendly negotiations, the parties hereto reached agreement as
follows:
1. Lease of Factory and Land
(1) Factory A and Land A
i. Description
The area of Factory A is 2,592 sqm located on Land A with an area of
4,117.5 sqm. The property has been installed with seven (7)
connections such as water, power, gas, drainage, sewage,
telecommunications, internet and other accessory facilities
ii. Lease Terms and Conditions
a. The rent of Factory A is RMB8/sqm/month, which shall not be
changed during the lease term (including any extension of the
initial lease term). The rent shall be calculated on such basis
that the area of Factory A is 2,592 sqm. CDHT will not charge any
rent to the Company for Land A.
b. During the lease term, CDHT will charge a management fee for
garbage disposal and security services in an amount of
RMB1/sqm/month. The management fee is calculated on such basis
that the area of Factory A is 2,592 sqm.
c. The term of the lease for Factory A and Land A is 3 years from
the date on which the lease is to commence.
(2) Factory B and Land B
i. Description
The area of Factory B is 2,592 sqm located on Land B with an area of
4,117.5 sqm. The property has been installed with seven (7)
connections such as water, power, gas, drainage, sewage,
telecommunications, internet and other accessory facilities
ii. Lease Terms and Conditions
a. The rent for Factory B is RMB4/sqm/month until the Company
installs facilities in Factory B. Once the facilities are
installed in Factory B, the rent shall be increased to
RMB8/sqm/month. The rent is not subject to any change during the
term of the lease (including any extension of the initial lease
term). The rent is calculated based on the area of Factory B of
2,592 sqm. CDHT will not charge any rent to the Company for Land
B.
b. Once PSi or its affiliated companies or Company installs
facilities during the lease term, CDHT will charge a management
fee for garbage disposal and security services equivalent to
RMB1/sqm/month. The management fee is calculated on such basis
that the area of Factory B is 2,592 sqm.
c. The term of lease for Factory B and Land B is 3 years from the
date on which the lease is to commence.
(3) Expansion Land C and D
i. Description
a. The area of Land C is 17,500 sqm adjacent to Land A and B. The
area of Land D is 17,500 sqm adjacent to Land C. Both Land C and
Land D are installed with seven (7) connections, such as water,
power, gases, drainage, sewage, telecommunications, internet and
other accessory facilities
b. CDHT guarantees that at its own expense, the Land C and D will be
free and clear of all structures and occupants, that Land C and D
will be level with Lands A and B, and that the Land C and D will
be properly compacted so that it is fit to construct a building
without having to compact the soil further.
c. CDHT acknowledges and agrees that at the option of PSi and in
accordance with the Company's needs, a road may be constructed at
the expense of CDHT to run through Lands C and D as drawn in the
site map attached to this Agreement. The Company is entitled to
exclusive use of the road by fencing and blocking access that
road.
2
ii. Purchase
a. Within the 3-year term commencing from date on which the lease is
to begin with respect to Factory A, Land A and Factory B, Land B
between the Company and the CDHT, the Company has an option to
purchase the use right to Land C and / or Land D. During the
above-mentioned 3-year term, the purchase price for the land is
RMB80/sqm.
b. At any time after the 3-year term, the Company has the right of
first refusal for purchase the use right of Land C and/or Land D
at the market price. The market price shall be evidenced by a
formal offer to purchase from a third party.
c. The use right to Land C and/or Land D is for a period of not less
than 50 years.
(4) General Terms
i. The site map of the aforesaid factories and pieces of land ("Factory
and Land") is attached to this Agreement as Annex A.
ii. CDHT hereby guarantees that it has full authorizations, power and
rights to lease the Factory and Land to the Company and sell the use
right of the Land. In addition, it has full rights and authorizations
to represent all and any owner of the factories (if any), or relevant
governmental authorities in charge of management of real estate and
land, to execute and deliver this Agreement.
iii. CDHT guarantees that no litigation, arbitration, disputes or other
legal administrative procedures is pending or threatening, which is
related to all the pieces of Land or Factories leased or sold to
Company. Nor is there any mortgage created in favor of any bank,
company or person, or lease or any other interest held by any third
parties attached to the Factories and the Lands.
iv. CDHT shall assume and pay all taxes and fees with respect to CDHT's
acquisition and lease of the use right of every piece of Land.
v. CDHT guarantees that every piece of Factory and Land is vacant from
all and any occupants when the Land is turned over to the Company.
Should there be any occupant on the Land, CDHT shall clear the land at
its own cost prior to the start of the lease or effectivity of
purchase.
vi. Unless otherwise expressly provided herein, Company may use the
Factory and Land freely and legally without any other additional
charges or taxes, unless in the case of taxes, mandated by future
government regulation or law.
vii. All terms and conditions with respect to any lease of factories and
land to the Company other than those provided herein shall be
determined by the definitive lease agreement executed by the Company
and CDHT or owner of factories or relevant governmental authorities.
viii. During the 3-year lease term, Company has the option to purchase
Factory A and the use right of Land A, Factory B and the use right of
Land B. CDHT shall provide sufficient assistance to Company to handle
all governmental procedures.
3
(a) The purchase price for either Factory A or Factory B is
RMB880/sqm and for either Land A or Land B is RMB80/sqm.
(b) The rents paid by Company during the 3-year lease term will be
deducted from the purchase cost of the land and factory.
(c) The use right to Land A and Land B is for a period of not less
than 50 years.
ix. CDHT guarantees that the Company will obtain the right to use each
piece of Land for a term of at least 50 year should Company decide to
purchase use right of any of the Land.
x. Where the land is at the border of the Hi-Tech Zone, CDHT shall built
fence at its own expense.
xi. The address for Factory A and B shall be Sichuan Chengdu Export
Processing Zone, #1 New Century West Road, Tianfu Boulevard, Chengdu
610041, Sichuan Province.
2. Supply of Power
CDHT will cause the power supplier to provide the following services in
relation to the power supply:
i. CDHT will cause the relevant power bureau to provide lighting power to
Company. The Company shall pay for the consumed electricity based on
the standard electricity charge announced by the power bureau. The
current rate is as follows:
(a) Commercial Rate (current average price of RMB0.57 per kwh):
Applies to electricity usage for the office lighting;
(b) Industrial Rate (current average price of RMB0.47 per kwh):
Applies to all other usages except those stated above.
iii. CDHT will provide, at the Company's option, an electricity capacity of
300 kva with the necessary cables for the startup period of the
Company for no less than 1 year from the date on which the Company
starts its business operating in factories. The electricity
consumption will be charged at the Commercial Rate. The CDHT will, at
the Company's option, provide an additional 200 kva transformer.
However, the cost of necessary cables shall be borne by the Company.
iv. The Company has the option of building or sourcing a transformer(s)
from external sources or from CDHT. Should the Company decide to
source a transformer(s) from CDHT, CDHT shall ensure the completion of
the construction of such transformer within one month. In all
instances, CDHT shall connect the transformer within the red-line
border of the land.
v. The cost of electricity, water and gas consumed for the manufacture of
product for export, is subject to a tax rebate of 13%. Should the tax
rebate not be reflected in the bills issued to Company, CDHT shall
coordinate with the relevant service provider and/or relevant
governmental authority to ensure that the tax rebate is
4
refunded to the Company. Further, CDHT will provide all assistance
required to obtain the refund from the service provider and/or
relevant governmental authority.
vi. CDHT will provide a power subsidy of 10% based on the actual power
consumption expenses (gross amount before tax rebate) to the Company
for the first five (5) years from the date of issuance of the
Company's business license; the rate of subsidy will be changed to 5%
for the following five years afterwards. Such subsidy will be payable
within one (1) month from the payment of the bill to the power bureau.
In the event the subsidy has not been paid within the one (1) month
period, the Company shall deduct the outstanding subsidy from the
lease payment or purchase price of the land and factories. Such
deduction shall not form part of the calculation for the purchase
amount of the land and factory, as specified in 1.4.viii.
3. Dormitories for Managers
(a) CDHT will lease to the Company dormitory units for the managers of the
Company at a rate of RMB500/unit/month. Such rate shall remain unchanged
for a period of three (3) years and any price increase thereafter shall be
in accordance with or lower than the changing rate of the PRC price index.
(b) Each unit has two (2) bedrooms, a toilet and a bathroom.
(c) Power, gas and water fees shall be borne by the Company. The CDHT will
install power meters to each unit and renovate the bathrooms for the use by
Company personnel.
(d) The full cost of all facilities such as bed, chairs and desks shall be
borne by the Company.
(e) All residents shall follow the property management regulations.
(f) CDHT will guarantee the availability of dormitory units to the Company upon
request by the Company within a one (1) week period if there are units
available in the dormitory building. In the event that there are no
available units, CDHT will construct another dormitory building, at no
expense to PSi, within a six (6) month period and at the originally agreed
lease rate and terms.
4. Dormitories for Operators
(a) CDHT will lease to the Company, dormitory units for the operators of the
Company at a rate of RMB160/unit/month. Such rate shall remain unchanged
for a period of three (3) years and any price increase thereafter shall be
in accordance with or lower than the change rate of the PRC price index.
(b) Each unit contains one (1) bedroom for 8 persons, and includes access to
common areas and facilities including toilet, bathroom and public kitchen.
(c) Power, gas and water fees shall be borne by the Company.
(d) The full cost of all facilities such as bed, chairs and desks shall be
borne by the Company.
5
(e) All residents shall follow the property management regulations.
(f) CDHT will guarantee the availability of dormitory units to Company upon
request by the Company within a one (1) week period if there are available
units available in the dormitory building. In the event that there are no
available units, CDHT will construct another dormitory building, at no
expense to PSi, within a six (6) month period and at the previously agreed
lease rate and terms.
5. Canteen Services
(a) CDHT will provide non-profit canteen services to the Company.
The Company has option to use canteen services provided by any third
parties.
6. Taxes and Duties
CDHT represents and warrants to and covenants with PSi the following:
(a) Enterprise Income Tax - As a foreign investment company incorporating in a
high-tech zone, the Company is and will be entitled to the applicable
preferential treatment of 2-year tax exemption followed by 3-year enjoyment
of the lowest income tax rate (but in no case higher than 10%) starting
from its first profitable year. Afterwards, the Company will continue to
enjoy the applicable lowest tax rate (but in no case higher than 10%) if it
continues to export 70% of its products. If the Company exports less than
70% of its products, then the tax rate will be 15%.
(b) The Company is and will be entitled to exemption of the Custom duties and
VAT for machinery, equipments, construction materials, moulds, and spare
parts imported hereby. CDHT will assist the Company in the smooth
importation of second-hand equipments.
(c) The Company is and will be entitled to exemption of Custom duties and VAT
for raw materials, spare parts, packing materials, components and units
imported hereby.
(d) CDHT will provide bonded warehouse facility for the Company, including
refund of VAT on items produced locally such as machinery, equipment,
construction materials, raw materials, packaging materials, moulds and
spare parts, all of which are made in China.
(e) Other than those stipulated in the national government regulations, there
will be no other state, local, city, municipal income taxes, consumption
taxes, property taxes and fees.
7. Other Service
(a) CDHT encourages and supports PSi or its affiliates or the Company to
establish a semiconductor test and assembly facility in the Hi-tech Zone
and will provide all assistance, including the establishment of a work
team, determined by PSi or its affiliates or Company as necessary for
obtaining preferential policies on import and export, business
registration, tax and duties, foreign exchange control and environment
protection.
6
(b) The CDHT shall offer the Company a training subsidy of RMB500,000 on annual
basis for a term of 5 years. The subsidy will be payable upon the
establishment of the Company and in the first month of each year
thereafter. In the event the subsidy has not been paid within the period
specified herein, the Company shall deduct the outstanding subsidy from the
lease payment or purchase price of the land and factories. Such deduction
shall not form part of the calculation for the purchase amount of the land
and factory, as specified in 1.4.viii.
The Company is and will be entitled to pay social benefits and social
securities on a preferential basis according to existing Hi-Tech Zone
policies, as follows:
--------------------------------------------------------------------------------
Current rates applied in Rates applicable for PSI
Chengdu project
--------------------------------------------------------------------------------
Retirement 20% 11%
--------------------------------------------------------------------------------
Medical insurance 7.5% 4%
--------------------------------------------------------------------------------
Unemployment
Insurance 2% 2%
--------------------------------------------------------------------------------
Accidental Injuries
insurance 0.6%-2% 1%
--------------------------------------------------------------------------------
Maternity insurance 0.6% 0.6%
--------------------------------------------------------------------------------
Housing reserve 6% 6%
--------------------------------------------------------------------------------
Total Ca 37% 24.6%
--------------------------------------------------------------------------------
|
CDHT guarantees that the Company will be able to pay the rate specified
above. CDHT shall coordinate with the relevant governmental authority and
shall obtain all the necessary approvals and clearances in the event that
any other governmental authority/(ies) challenges the legality of this
rate.
(c) The basic wages on which social securities will be paid by the Company
shall not be lower than the lowest wage level of Chengdu, i.e.910
yuan/month, and shall not be higher than three times of the lowest wage
level. The aforesaid preferential rates shall not prejudice the level of
social security applicable to the staff of the Company.
8. General Provisions
(a) Options to Choose Service Providers
7
Notwithstanding the provisions contained herein, PSi or its affiliated
companies or the Company shall have the right to choose any service
provider to provide relevant service described in this Agreement
rather than CDHT.
(b) Confidentiality
Other than for the purpose of performance of this Agreement, CDHT
shall not disclose to any third party, without the prior written
consent of PSi, (i) any information on potential investment by PSi or
any of its Affiliates; (ii) any content of this Agreement and any
terms and conditions agreed by PSi and CDHT orally or in writing.
(c) Non Assignability
This Agreement and the rights and obligations hereunder shall not be
assignable by either Party without the prior written consent of the
other Party, except that a party may assign this Agreement to the
successor of all or substantially all of its business assets or an
Affiliated Company without such consent.
For the purposes of this Agreement, an Affiliated Company shall mean
any legal entity that either Party may delegate and/or assign all or
part of the performance of its rights and obligations hereunder,
wherein at least fifty one (51) percent of the voting shares (or
similar voting rights), now or hereunder owned or controlled, directly
or indirectly by PSi or CDHT, as the case may be, or in which PSi or
CDHT, as the case may be, otherwise has the ability to direct the
management, but such legal entity shall be considered to be an
Affiliated Company only for so long as such control exists.
(d) PSi's Investment
CDHT acknowledges and agrees that there are several factors that will
affect PSi or its affiliated companies' decision to make an investment
in the Hi-Tech Zone, or the final amount of that investment, whether
in the Phase No. 1 or in subsequent phases. Based upon the above
understanding, should PSi or its affiliated companies decide not to
invest in Hi-Tech Zone or alter its investment amount after the
execution and delivery of this Agreement, PSi or its affiliated
companies shall not bear any liability to CDHT notwithstanding any
provision in this agreement. In the event PSi cancels the investment
project, then the CDHT will not be liable to the obligations as
committed in this agreement.
(e) Most Favorable Treatment
CDHT undertakes to make its best efforts to help the Company to obtain
the most favorable treatment in PRC as a wholly owned foreign
enterprise in Hi-Tech Zone during the term of this Agreement, while
realizing that relevant PRC laws and regulations may be amended from
time to time.
(f) Entire Agreement
8
This Agreement shall constitute the entire agreement between the
parties hereto with regard to the subject matter hereof and supersede
all previous discussions, negotiations and agreements between the
Parties regarding the subject matter hereof.
(g) Effectiveness
The obligations of PSi under this Agreement shall become effective
upon the issuance by the relevant Governmental Authority/ies of the
Company's business license, customs permits, and such other approvals
and permits as may be necessary to establish and operate an Assembly
and Test Facility Factory in the Sichuan Chengdu Export Processing
Zone, Chengdu, Sichuan Province. The obligations of all other parties
to this contract shall become effective from the execution date and
continuously effective during the operational period of the Company.
(h) Validity of the Agreement
If any provisions contained herein become illegal under PRC laws
during the term of this Agreement, the parties shall, through friendly
negotiations, reach supplemental agreements in accordance to Section
8(f) of this Agreement. The invalidity, nullity and unenforceability
of any provision hereof shall not influence or prejudice the validity,
effectiveness and enforceability of other provisions hereof.
(i) Termination
PSi has right to terminate this Agreement upon giving a one-month
prior written notice to CDHT.
(j) Language and Copies
This Agreement shall be written in both English and Chinese. This
Agreement will be signed in 4 (four) originals, with each party
holding two (2). All the signed originals shall bear equal legal
effects.
9
This Agreement is signed by the duly authorized representatives of each of
the parties hereto on the date first written above.
PSi TECHNOLOGIES, INC. CHENGDU HI-TECH ZONE
By: By:
/s/ Arthur J. Young, Jr. /s/ Jing Gang
------------------------------------- ----------------------------------------
Name: Arthur J. Young, Jr. Name: Jing Gang
Title: Chairman and CEO Title: Director of the Management
Committee of Chengdu Hi-Tech Zone and
Assistant to the Mayor of the People's
Government of Chengdu
|
10
Annex A
Site Map of Factory and Land
11
Exhibit 4.4
Lease Contract
[CHINESE CHARACTERS]
Lessor: Sichuan Chengdu Export Processing Zone Investment Development Company
Limited (hereafter named as "Party A"), a corporation of the Chengdu Hi-Tech
Zone
[CHINESE CHARACTERS]
Lessee: PSI Technologies (Chengdu) Company Limited (proposed name) (hereinafter
named as "Party B")
[CHINESE CHARACTERS]
In accordance with the "Investment & Cooperation Agreement" signed between PSI
Technologies Inc (who invests in Party B through PSi Technologies China Holdings
Co. Ltd.) and the Management Committee of the Chengdu Hi-tech Development Zone
(who is in charge of Party A) on December 7, 2003, based on the principles of
honesty and equality, after friendly discussion, and in accordance with relevant
regulations as stipulated in the "PRC Contract Law", Party A and Party B hereby
sign this Contract regarding the leasing of the standard factory buildings
(Building A and Building B as described in the "Investment & Cooperation
Agreement") of Party A by Party B as follows
[CHINESE CHARACTERS]
1. Location of the Buildings:
[CHINESE CHARACTERS]
a) The Buildings refer to the No.4 and No.5 standard factory buildings
(i.e. Building A and Building B as described in the "Investment
Cooperation Agreement") which locate in Sichuan Chengdu Export
Processing Zone, #1, New Century West Road, Tianfu Avenue, Chengdu
City. (Per attached drawing.)
[CHINESE CHARACTERS]
2. Description of the Buildings:
[CHINESE CHARACTERS]
a) The total construction area of the Buildings are 5184 square meters,
among which there are 2592 square meters for each of No. 4 and No.5
standard factory building.
[CHINESE CHARACTERS]
b) The Land on which the Buildings are located totals 8,235 square meters
in area.
[CHINESE CHARACTERS]
c) If there is any difference between the agreed construction area and
the actual construction area, the actual construction area shall
control. In the event the actual construction area is smaller than the
agreed construction area, the rates payable by Party B to Party A
shall be adjusted correspondingly.
[CHINESE CHARACTERS]
d) The property has been installed with seven (7) connections such as
water, power, gas, drainage, sewage, telecommunications, Internet and
other accessory facilities.
[CHINESE CHARACTERS]
3. Period of Leasing:
[CHINESE CHARACTERS]
a) Period of leasing is 36 months, from January 1st of 2004 to December
31st of 2006.
[CHINESE CHARACTERS]
b) Should Party B decide to renew the Lease Contract when the lease
period expires, Party B should give a written notice to Party A sixty
(60) days in advance, and Party A should give 1st priority to Party B
to renew the Lease Contract under the same conditions; Should Party B
decide to terminate the Lease Contract before the lease period
expires, Party B may do so without liability provided written notice
is given to Party A sixty (60) days in advance, so that Party A can
arrange for the Buildings to be leased to other parties.
[CHINESE CHARACTERS]
c) During the term of lease, Party B has the right to purchase the No.4
and No.5 standard factory buildings (i.e. Building A and Building B as
described in the "Investment Cooperation Agreement") with a total area
of 5,184 square
2
meters or 2,592 square meters individually, and the land use right of
land parcels with total area of 8,235 square meters.. The purchase
price for either No. 4 or No. 5 standard factory building (Building A
and Building B as described in the Investment Cooperation Agreement)
is RMB880 per square meter and for the land use rights is RMB80 per
square meter. The use right of the land is for a period of not less
than 50 years.
[CHINESE CHARACTERS]
4. Lease Fee and Payment:
[CHINESE CHARACTERS]
a) Lease Fee of No.4 standard factory building: RMB8 per square meter per
month. Total of RMB20736 per month.
4 [CHINESE CHARACTERS]
b) Lease Fee of No.5 standard factory building: RMB8 per square meter per
month. Total of RMB20736 per month. However, before Party B finishes
installing equipment in this building (upon written confirmation by
both Party A and Party B), the lease fee of this factory building is
RMB4 per square meter per month, total of RMB10,368 per month.
5 [CHINESE CHARACTERS]
c) Time of Paying the Lease Fee: Within the first 5 days of the first
month of each 3 months (which can be either cash or check. If it is
check, it should have been registered with the bank to be payable.)
[CHINESE CHARACTERS]
d) If Party B delays the payment of lease fee, a fine of 0.05% of the
total amount of the payable lease fee will be charged per day.
[CHINESE CHARACTERS]
e) If Party B raises an official request to purchase the Buildings at any
time within the 36-month lease period, the lease fee which has been
paid to Party A will be transferred in full as purchase payment.
[CHINESE CHARACTERS]
3
[CHINESE CHARACTERS]
5. Deposit System:
a) Party B will pay RMB20,000 as the Lease Deposit to Party A within 5
days upon the signing of this Contract.
[CHINESE CHARACTERS]
b) The execution of item 5a) is the condition of the effectiveness of
this Contract.
[CHINESE CHARACTERS]
c) The Lease Deposit will be transferred as Lease Fee when Party B pays
the 1st installment of Lease Fee. The 1st installment of Lease Fee is
RMB73,312 (equivalent to RMB20,736 X 3 lease fee for No. 4 building +
RMB10,368 X 3 lease fee for No. 5 building - RMB20,000 lease deposit)
[CHINESE CHARACTERS]
6. Delivery of the Buildings
[CHINESE CHARACTERS]
a) Party A will deliver the Buildings and Land to Party B within 5 days
upon Party B's payment of the Lease Deposit, in a state acceptable to
Party B. Further, the Buildings and Land will be free and clear from
all occupants and garbage at the expense of Party A. Party B should
check the attached facilities of the Buildings, and proceed with a
formal transfer procedure with Party A.
[CHINESE CHARACTERS]
7. Maintenance and Management of the Buildings
[CHINESE CHARACTERS]
a) Within the Lease Period, the maintenance of the Buildings will be
jointly managed by both the Leaser and the Lessee. The main structure
of the factory buildings, the building surface, the doors and windows,
and the original facilities and pipes inside the factory buildings
will be maintained and repaired by Party A according to a schedule and
standard acceptable to Party B. If any malfunction occurs, Party B
shall inform Party A to repair without undue delay and in any event no
later than 5 working days, and the total costs and expenses shall be
borne by Party A; however, if the malfunction is caused by Party B's
inappropriate usage or damage, then Party
4
B will be responsible to repair and bear the repairing expenses. In
the event Party A fails to repair the malfunction within the specified
time period, Party B may deduct the expenses incurred by it in
repairing the malfunction from the lease fee payable to Party A.
[CHINESE CHARACTERS]
8. Property Management:
[CHINESE CHARACTERS]
a) Party B shall follow relevant regulations (per Attachment I) of Party
A, and pay Property Management Fee to Party A. Property Management Fee
will be RMB1 per month per square meter construction area, total of
RMB5,184 per month. Time of paying the Property Management Fee should
be the same as the time and schedule of paying the Lease Fee. However,
before equipment is installed into the No.5 standard factory building
(Building B), Party A shall not charge Party B for its Property
Management Fee. In exchange for the Property Management Fee, Party A
commits to provide garbage disposal and outside factory security
services to Party B.
[CHINESE CHARACTERS]
b) Party B shall pay water and electricity fees per the actual
consumption to the water and electricity supply companies every month.
[CHINESE CHARACTERS]
9. Purpose of the Buildings:
[CHINESE CHARACTERS]
The Buildings are only used for the processing of Party B's products within
the approved scope of business, and its offices.
[CHINESE CHARACTERS]
10. Warranties:
[CHINESE CHARACTERS]
a) Party A hereby guarantees that it has full authorizations, power and
rights to
5
lease or sell the Buildings and Lands and the use right of the Land to
Party B. In addition, it has full rights and authorizations to
execute, deliver and perform this Contract.
[CHINESE CHARACTERS]
b) Party A guarantees that no litigation, arbitration, disputes or other
legal administrative procedures is pending or threatening, which is
related to all the pieces of Land or Buildings leased or sold to Party
B. Nor is there any mortgage created in favor of any bank, company or
person, or lease or any other interest held by any third parties
attached to the Buildings and the Lands.
[CHINESE CHARACTERS]
c) Party A shall assume and pay all taxes and fees with respect to Party
B's acquisition and lease of the use right of every piece of Land.
[CHINESE CHARACTERS]
d) Unless otherwise expressly provided for herein, Party B may use the
buildings and Land freely and legally without any other additional
charges or taxes, unless in the case of taxes as mandated by relevant
regulations or laws.
[CHINESE CHARACTERS]
e) Party A, as the legitimate holder and leaser of the Buildings, shall
not unreasonable interfere or exclude the rights of Party B under this
Contract when Party A excises its right to the Buildings and Land,
including but not limited to:
[CHINESE CHARACTERS]
(i) Without prior written consent from Party B, Party A shall not
transfer or lease to any third party the Buildings and Land.
[CHINESE CHARACTERS]
(ii) Without written prior consent from Party B, Party A shall not
mortgage all or any part of the Buildings and Land for the
interest of itself or any other third party.
[CHINESE CHARACTERS]
6
11. Rights and Responsibilities of both Parties:
[CHINESE CHARACTERS]
a) Party A has a responsibility to keep confidentiality of the business
secrets of Party B. Before obtaining the prior written consent of
Party B, Party A shall not disclose them to anybody.
[CHINESE CHARACTERS]
b) Party B has right to establish new buildings, structures and install
facilities equipment on the Land without an increase in the lease fee,
provided that the cost for construction of the new buildings shall be
borne by Party B.
[CHINESE CHARACTERS]
c) Party A shall handle all legal procedures with respect to
verification, change or extension of the Real Estate Property Right
Certificate and Certificate for Use of State-owned Land during the
lease term.
[CHINESE CHARACTERS]
d) Party A is responsible for filing the Contract with relevant PRC
authorities at its cost.
[CHINESE CHARACTERS]
e) Provided that Party B pays the rent and performs and observes the
terms and conditions herein contained, Party B shall peaceably hold
and enjoy the leased Buildings throughout the Lease Period without any
interruption by Party A or any other person except as required by the
law of the People's Republic of China.
[CHINESE CHARACTERS]
f) Should Party B need to refurnish the Buildings, Party B shall firstly
request to Party A. After sending the Refurnishing Plan and obtaining
the approval from Party A, Party B can refurnish. Party A shall not
refuse such request of Party B if without an appropriate reason. When
the refurnishing team enters the site, the refurbishing team shall pay
RMB5,000 as Guarantee Fee to Party A. This Guarantee Fee will be
refunded in full by Party A to the team if the refurnishing team does
not damage any of Party B's assets and Party A's building structure
and layout. Rubbishes of the refurnishing will be placed in a
designated place as Party A will assign. After the refurnishing
project, Party B shall clean and ship away the rubbishes, or ask Party
A to clean and ship away the rubbishes with a Cleaning and Shipping
Fee.
7
[CHINESE CHARACTERS]
g) When Party B returns the Buildings to Party A upon the expiry of the
Lease Period, if Party A requests for returning the Buildings per
their original condition, Party B shall return them per their original
condition, except for normal tear and wear. If Party A requests that
some furnishing facilities are irremovable and belong to Party A,
Party B agrees that no fee will be charged.
[CHINESE CHARACTERS]
h) Should Party B decide to set up any advertisement board or other
popularizing boards on the Buildings, Party B shall firstly apply to
Party A and obtain Party A's approval.
[CHINESE CHARACTERS]
i) Party B has the right to deduct from the Lease Fee any subsidy or
rebate (such as the power subsidy fee rebate and the training fee
subsidy) committed by the Management Committee of the Chengdu Hi-Tech
Zone ("CDHT") to PSi Technologies, Inc. ("PSi") in the Investment &
Cooperation Agreement signed between CDHT and PSi on December 7, 2003
and any of its amendments, additions, deletions or subsequent
Contracts as may be agreed between both parties.
[CHINESE CHARACTERS]
12. Renege Responsibility:
[CHINESE CHARACTERS]
a) Party A shall provide a copy of its Property Management Regulations
and other related regulations to Party B prior to the execution of
this Contract for Party B's review. If Party B finds anything
unreasonable or abnormal in such regulations, the Parties shall agree
to make any amendments thereto before execution of this Contract. Any
amended and restated regulation as agreed upon by the Parties shall
have the binding force upon the Parties. Further, Party A shall inform
Party B of any and all future amendments,
8
additions or deletions to the Property Management Regulations
subsequent to the execution and effectiveness of this Contract, at
least 30 days prior to the effectiveness of such amendment, addition
or deletion. If Party B does not follow Party A's Property Management
Regulations which Party A considers a serious violation or causes
negative effect to the management of the whole region, Party A shall
formally inform Party B in writing of its violation and allow Party B
to rectify the violation within 30 days from the receipt of the formal
notice. If after the 30-day period, Party B does not rectify the
violation, then Party A has the right to apply to the Court to dismiss
this Contract and ask for compensation from Party B.
[CHINESE CHARACTERS]
b) Unless as provided in this Contract, if either Party A or Party B
fails to perform its obligations hereunder, it shall constitute a
breach of this Contract and the defaulting party shall undertake the
liabilities for such breach. The parties agree that the party in
breach shall pay the other party the direct loss and damage. If party
A is in any breach of this Contract and does not rectify within 7
days, then Party B is entitled to withhold or deduct the rent as well
as management fees, or terminate this Contract immediately upon a
written notice to Party A.
[CHINESE CHARACTERS]
c) If Party A delays to deliver the Buildings for use by Party B
according to this Contract, Party A shall pay a fine of 1% of the
total amount of half-year lease fee and property management fee for
each day of such delay.
[CHINESE CHARACTERS]
13. Electricity Supply:
[CHINESE CHARACTERS]
a) Party A shall provide electricity for Party B's office, lighting, and
facilities as agreed to ensure the normal operation of Party B's
business.
9
[CHINESE CHARACTERS]
b) Should Party B decide to buy a transformer from power bureau to add
its power supply, Party A shall ensure the completion of the
construction of such transformer within 30 days upon Party B's
obtaining the approval of power bureau.
[CHINESE CHARACTERS]
c) Party A will provide an electricity capacity of 300 kva with the
necessary cables shall connect it with the red-line border of the land
for the startup period of Party B for 1 year from the date on which
Party B starts its business operating.
[CHINESE CHARACTERS]
d) Party A will, at Party B's option, provide an additional 200 kva
transformer. However, the cost of necessary cables shall be borne by
Party B.
[CHINESE CHARACTERS]
e) Party A will be responsible for the coordination of 13% tax refund of
the water and electricity fees for the processing of the exported
products of Party B.
[CHINESE CHARACTERS]
f) Party A will provide a power subsidy of 10% based on the actual
power consumption expenses (gross amount before tax rebate) to Party B
for the first five (5) years from the date of issuance of Party B's
business license; the rate subsidy will be changed to 5% for the
following five (5) years afterwards. Such subsidy will be payable
within one (1) month from the payment of the bill to the power bureau.
In the event the subsidy has not been paid within the one (1) month
period, Party B shall deduct the outstanding subsidy from the lease
payment or purchase price of the land and buildings. Such deduction
shall not form part of the calculation for the purchase amount of the
land and factory, as specified in Article 3C and 4E.
[CHINESE CHARACTERS]
14. Force Majeure
10
If because of any event of force majeure, including without limitation,
explosion, fire lightning strike, earthquake, hurricane, war, riot, civil
disturbance or strike, or the enactment, rescission or amendment of any law,
regulation, rule or decree of any Chinese Government authority, a party is
unable to continue to operate or otherwise perform its obligations hereunder for
a period of more than thirty (30) days, then the other party may terminate this
Contract by thirty (30) days prior written notice to the first party, provided
that the cause for termination has not been remedied within the thirty (30) day
period of notice. Upon such termination, Lessee shall be entitled to a refund of
the rent for the remainder of the then current rental period, for which Lessee
has already paid, and both Leaser and Lessee shall be released from all further
obligations in connection with this Contract, save those in connection with
which amounts were due and owing and not yet paid prior to the event of force
majeure.
[CHINESE CHARACTERS]
15. Applicable Law
The formation of this Contract, its validity, interpretation, execution and
settlement of any disputes arising hereunder shall be governed by and construed
in accordance with the laws of the People's Republic of China.
[CHINESE CHARACTERS]
16. Dispute Resolution
In the case of disputes arising over this Contract or any matters related
hereto, the parties shall negotiate in good faith to resolve such disputes. If
such negotiation fails within a 60-day period, the parties shall submit the
dispute to an arbitration panel in Singapore for arbitration in accordance with
the Arbitration Rules of the United Nations Commission on International Trade
Law (UNCITRAL) in effect at the time of the dispute. The decision of the
arbitrage body is final and shall be binding on the parties hereto.
[CHINESE CHARACTERS]
17. General Provisions
[CHINESE CHARACTERS]
11
(a) Effectiveness
[CHINESE CHARACTERS]
This Contract shall become effective upon seal and signature of both
Parties and payment of the lease deposit.
[CHINESE CHARACTERS]
(b) Non-Assignability
[CHINESE CHARACTERS]
This Contract and the rights and obligations hereunder shall not be
assignable by either Party without the prior written consent of the
other Party, except that a party may assign this Contract to the
successor of all or substantially all of its business assets or an
Affiliated Company without such consent.
[CHINESE CHARACTERS]
For the purposes of this Contract, an Affiliated Company shall mean
any legal entity that either Party may delegate and/or assign all or
part of the performance of its rights and obligations hereunder,
wherein at least fifty one (51) percent of the voting shares (or
similar voting rights), now or hereunder owned or controlled, directly
or indirectly by Party B or Party A, as the case may be, or in which
Party B or Party A, as the case may be, otherwise has the ability to
direct the management, but such legal entity shall be considered to be
an Affiliated Company only for so long as such control exists.
[CHINESE CHARACTERS]
(c) Most Favorable Treatment
[CHINESE CHARACTERS]
Party A undertakes to make its best efforts to help Part B to obtain
the most favorable treatment in PRC as a wholly owned foreign
enterprise in Hi-Tech Zone during the term of this Contract, while
realizing that relevant PRC laws and regulations may be amended from
time to time.
[CHINESE CHARACTERS]
(d) Entire Contract
[CHINESE CHARACTERS]
12
This Contract shall constitute the entire Contract between the parties
hereto, with the exception of the Investment & Cooperation Agreement
signed by the Management Committee of the Chengdu Hi-Tech Zone and PSi
Technologies, Inc., and any and all amendments, additions or deletions
as may be agreed by CDHT or PSi, which forms the basis of this lease
contract.
[CHINESE CHARACTERS]
(e) Validity of the Contract
[CHINESE CHARACTERS]
If any provisions contained herein become illegal under PRC laws
during the term of this Contract, the parties shall, through friendly
negotiations, reach supplemental Contracts. The invalidity, nullity
and unenforceability of any provision hereof shall not influence or
prejudice the validity, effectiveness and enforceability of other
provisions hereof.
[CHINESE CHARACTERS]
(f) Termination
[CHINESE CHARACTERS]
Party B has right to terminate this Contract without liability upon
the provision of a sixty (60) day prior written notice to Party A,
notwithstanding any provision or article in this Contract.
[CHINESE CHARACTERS]
18. Copies of Contract
[CHINESE CHARACTERS]
a) There are total four (4) copies of this Contract. Each Party shall
keep two (2) copies, which are equally authentic.
[CHINESE CHARACTERS]
b) The Attachment of this Contract (after being approved and signed by
both Parties) and Additional Contract are equally authentic as this
Contract.
[CHINESE CHARACTERS]
13
Party A (with stamp): Sichuan Chengdu Export Processing Zone Investment
Development Co., Ltd.
[CHINESE CHARACTERS]
Representative (signature):
[CHINESE CHARACTERS]
Phone: 8532 1798
[CHINESE CHARACTERS] 8532 1798
Address: No.1, New Century West Road, Tianfu Avenue, Chengdu City
[CHINESE CHARACTERS]
Date:
[CHINESE CHARACTERS]
Party B (with stamp): PSI Technologies (Chengdu) Co.Ltd
[CHINESE CHARACTERS]
Representative: William J. Meder (signature):
[CHINESE CHARACTERS]
Phone: 85331234
[CHINESE CHARACTERS] 85331476
Address: No.1, New Century West Road, Tianfu Avenue, Chengdu City
[CHINESE CHARACTERS]
Date:
[CHINESE CHARACTERS]
14
EXHIBIT 4.5
NON-COMPETITION AGREEMENT
This NON-COMPETITION AGREEMENT dated as of November 4, 1997 (this
"Agreement") is made and entered into by and among PSi Technologies, Inc., a
corporation organized and existing under the laws of the Philippines (the
"Company"), RFM Corporation, a corporation organized and existing under the laws
of the Philippines ("RFM"), Arthur J. Young. Jr., an individual residing at No.
43 Cabildo Street, Urdaneta Village, Makati City, Philippines ("Young") and ML
IBK Positions, Inc., a corporation organized and existing under the laws of
Delaware ("Buyer").
WHEREAS, this Agreement is being entered into simultaneously with the
closing of Buyer's acquisition of certain shares of the Company from RFM and
United Development Corporation, a corporation organized and existing under the
laws of the Philippines ("UDC," and together with RFM, the "Sellers"), pursuant
to a Stock Purchase Agreement dated November 4, 1997 (the "Stock Purchase
Agreement") among Buyer, Sellers and the Company; and
WHEREAS, Buyer would not consummate the transactions contemplated by
the Stock Purchase Agreement but for, among other things, the covenants and
agreements of Young contained herein;
NOW, THEREFORE, in consideration of the 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:
1. Covenant Against Competition. Young acknowledges that (i) the principal
business of the Company is the packaging and testing of, and other activities
related to, power semiconductors which are used in the regulation, conversion
and distribution of electricity (collectively, the "Business"), (ii) the Company
is one of a limited number of persons throughout the world which has developed
such Business; (iii) the Business is, in large part, international in scope and
the Company's customers, potential customers and competitors are located
throughout the world; and (iv) Young's work for the Company has given and will
continue to give him access to the confidential affairs and proprietary
information of the Company. Accordingly, Young covenants and agrees that:
(a) Young shall not, in the Philippines, Asia-Pacific region or
elsewhere directly or indirectly, for a period commencing on the date of this
Agreement and terminating on the day which (x) if Young's employment with the
company pursuant to the Compensation Package Agreement for Young, dated July 1,
1996 or any successor Compensation Package Agreement for Young put in place by
RFM expires, is one (1) year following such expiration or (y) Young's employment
is terminated, is two (2) years following such termination, (1)
engage in the Business for the account of Young or that of any person (other
than the Company) (2) render any services related to the Business to any person
(other than the Company) engaged in the Business; or (3) become interested in
any such person (other than the Company) as a partner, shareholder, principal,
agent, trustee, consultant or in any other relationship or capacity: provided,
however, that notwithstanding the above, Young may own, directly or indirectly,
solely as an investment, securities of any such person which are traded on any
national securities exchange if Young (x) is not a controlling person of, or a
member of a group which controls, such person and (y) does not, directly or
indirectly, own on percent (1%) or more of any class of securities of such
person.
(b) During the term of his employment with the Company and thereafter,
Young shall keep secret and retain in strictest confidence, and shall not use
for his benefit or the benefit of others, except in connection with the business
and affairs of the Company and its affiliates, all confidential matters relating
to the Business and to the Company and it affiliates learned by Young heretofore
or hereafter, directly or indirectly, from the company and its affiliates,
including any information concerning the business affairs, customers, clients,
sources of supply and customer lists of the Company and its affiliates (the
"Confidential Company Information") and shall not disclose them to anyone except
with the Company's express written consent provided that this obligation shall
not apply to Confidential Company Information which (1) is at the time of
receipt or thereafter becomes publicly known, through no act of Young in breach
of this Agreement or (2) is received from a third party not under an obligation
to keep such information confidential and without breach of this Agreement.
These rights are in addition to and without limitation to those rights and
remedies available under common law for protection of the types of such
confidential information which constitute "trade secrets" as construed under
controlling law.
(c) At all times after the term of his employment with the Company,
Young shall not, directly or indirectly, knowing solicit or encourage to leave
the employment of the Company or its affiliates, any employee of the Company or
any of its affiliates or hire any employee who has left the employment of the
Company or any of its affiliates within one year of the termination of such
employee's employment with the company or any of its affiliates.
(d) All memoranda, notes list. Records and other documents (and all
copies thereof) constituting Confidential Company Information or compiled by
Young or made available to Young concerning the Business or the Company or any
of its affiliates shall be the Company's property, shall be kept confidential in
accordance with the provisions of this Section 1, and shall be delivered to the
Company at any time on request.
(e) The parties hereto acknowledge and agree that any remedy at law for
any breach of the provisions of this Section 1 would be inadequate, and Young
hereby 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.
2. Entire Agreement. This Agreement supersedes all prior discussions and
agreements between the parties with respect to the subject matter hereof, and
contains the sole and entire agreement between the parties hereto with respect
to the subject matter hereof.
3. Waiver. 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 waiving such term or condition. 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. All remedies, either under this
Agreement or by applicable law or otherwise afforded, will be cumulative and not
alternative.
4. Amendment. This Agreement may be amended, supplemented or modified only
by a written instrument duly executed by or on behalf of each party hereto.
5. No Assignment; Binding Effect. 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 party hereto and any attempt to do so will be
void. Notwithstanding the preceding sentence, Buyer may assign any or all of its
rights, interests and obligations hereunder to any of it affiliates without the
consent of (but with notice to) Seller. This Agreement is binding upon, inures
to the benefit of and is enforceable by the parties hereto and their respective
successors and permitted assigns.
6. Headings. The headings used in this Agreement have been inserted for
convenience of reference only and do not define or limit the provisions hereof.
7. Invalid Provisions. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under any present or future applicable law,
and if the rights of obligations of any party hereto under this Agreement will
not be materially and adversely affected thereby, (a) such provision will be
fully severable, (b) this Agreement will 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 will remain in full force and
effect and will 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 will be added automatically as part of this
Agreement a legal, valid and enforceable provision as similar in terms to such
illegal, invalid or unenforceable provision as may be possible.
8. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Philippines without regard to the conflict of
law principles thereof.
9. Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by a duly authorized officer of each party hereto as of the date first written
above.
/s/ Arthur J. Young, Jr.
---------------------------
Arthur J. Young, Jr.
|
RFM CORPORATION
By: /s/ Felicisimo Nacino, Jr.
Name:
Title:
|
PSi TECHNOLOGIES, INC.
By:_/s/ Arthur J. Young, Jr.
Name:
Title:
|
ML IBK POSITIONS, INC.
By: /s/ Eva Policar-Bautista
Name:
Title:
|
ACKNOWLEDGEMENT
REPUBLIC OF THE PHILIPPINES)
MAKATI CITY ) S.S.
BEFORE ME, a Notary Public for and in Makati City, this 4/th/ day of
November, 1997, personally appeared:
Names Comm. Tax Cert. No./ Date/Place Issued
Passport No.
----------- ---------------------- ---------------------
Felicisimo Nacino, Jr. 1696648 1-10-97/Mandaluyong City
Arthur J. Young EM275217 2-02-93/Manila
Eva Policar-Bautista 5151937 2-04-97/Quezon City
|
all of whom are known to me and by me known to be the same persons who executed
the foregoing Non-competition Agreement and who severally acknowledged to me
that the same is their own free and voluntary act and deed and the free and
voluntary act and deed of the entities which they respectively represent.
WITNESS MY HAND AND SEAL on the date and place first above written.
Doc. No. _____
Page No. _____
Book No. _____
Series of 1997.
EXHIBIT 4.6
CONTRACT OF LEASE
KNOW ALL MEN BY THESE PRESENTS:
This Contract of Lease, made and entered into this 1st day of February, 2003 by
and between:
FOOD TERMINAL, INCORPORATED , a corporation duly organized and
existing by virtue of the laws of the Republic of the Philippines,
with principal office address at FTI Complex, South Superhighway,
Taguig Metro Manila, represented in this act by its President, ATTY.
BERNIE G. FONDEVILLA, hereinafter referred to as the " LESSOR".
-and-
PSI TECHNOLOGIES, INC., a corporation duly organized and existing by
virtue of the laws of the Republic of the Philippines with office
address at Electronics Avenue, FTI Complex, Taguig, Metro Manila,
represented in this act by its Chairman and Chief Executive Officer,
MR. ARTHUR J. YOUNG, JR., hereinafter referred to as the "LESSEE".
W I T N E S S E T H: That-
WHEREAS, the LESSOR is the absolute owner of the FTI Complex situated at South
Superhighway, Taguig Metro Manila and is engaged in the leasing of land,
warehouses, stalls and buildings;
WHEREAS, the LESSEE desires to lease certain land and buildings inside the FTI
Complex;
NOW, THEREFORE, for and in consideration of the foregoing premises and the
payment of the rent and the compliance with all the terms, conditions and
covenants hereinafter set forth, the LESSOR has agreed to lease, let and demise,
as it hereby leases, lets and demises, unto the LESSEE, and the latter has
agreed to accept, as it hereby accepts, the lease under the terms, conditions
and covenants particularly described hereunder, as follows:
1. Object of the Lease - The LESSOR hereby leases, lets and demises unto the
LESSEE that portion of land and building of the FTI Complex which is more
particularly described as follows:
Lot 92 - A1:
Covered area - 4,536.00 square meters
- 1,873.10 square meters
Open space - 6,064.14 square meters
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2. Term - This lease is for a definitive period of eighteen (18) months from
February 1, 2003 to August 14, 2004.
3. Rental - The LESSEE, in consideration for the use of the space or the area
leased by it, shall pay rentals to the LESSOR in an amount in Philippine
Currency based on the following itemized monthly rate:
For the covered area - 4,536.00 square meters at PhP130.00
per square meter per month, exclusive
of VAT
- 1,873.10 square meters at PhP50.00
per square meter per month, exclusive
of VAT
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For the open space - 6,064.14 square meters at PhP50.00 per
square meter per month, exclusive of
VAT
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4. Mode of Payment for the Rentals Due - The rentals due to the LESSOR shall be
paid semi-annually in advance by the LESSEE.
Upon the execution of this Contract, the LESSEE shall pay to the LESSOR the
advance rental for the first (1st) six (6) months of the term of the Contract
in the amount of PhP5,919,252.00, Philippine currency, exclusive of VAT.
The LESSEE is likewise required to issue, three (3) months after the date of
this Contract, two (2) postdated checks dated August 1, 2003 and February 1,
2004 to cover the rentals due for the last two (2) six (6) months period of
the term of the Contract. Each post dated check shall be in the amount of
PhP5,919,252.00, exclusive of VAT.
5. Deposit - The LESSEE shall, at all times during the existence of the lease,
maintain a deposit with the LESSOR in the amount equivalent to three (3)
months rental, which shall answer for damages, and any other monetary
obligation under or resulting from the LESSEE's violation of any of the
provisions of this Contract. It being understood, however, that the LESSEE's
liability for the breach of its obligation under this Contract is no way
limited to the said sum.
Upon the execution of this Contract, the LESSEE shall deposit with the LESSOR
the sum of PhP2,959,626.00, Philippine currency, exclusive of VAT, equivalent
to three (3) months rentals at the rental rate applicable to the first year
of the lease period as above-stated.
Upon the expiration of the period of this lease and the surrender of the
leased premises to the LESSOR, or as soon as all the amounts due from the
LESSEE to the LESSOR under this Contract or for any breach thereof shall have
been fully determined and satisfied, the sum deposited or the balance thereof
remaining, if any, after deducting the amounts due, shall be returned to the
LESSEE without interest.
The LESSOR shall have the right from time to time to deduct from the deposit
any and all advances and damages which the LESSEE may be liable to the LESSOR
under any provision(s) of this Contract and in the event that the deposit is
reduced as a result of such deduction and/or as a result of an increase in
the monthly rental, the LESSEE shall, within five (5) days from demand, make
additional deposit with the LESSOR in order to maintain the deposit in such
an amount equal to the sum required under this provision.
6. Payment Arrangement - Notwithstanding the provisions on the payment of the
rentals due and the deposit under this Contract, the LESSOR has granted the
LESSEE the authority to pay the total six (6) months advance rental for the
first (1st) six (6) months of the term of this Contract and the three (3)
months deposit in the amount equivalent to PhP8,878,878.00 based on the
following schedule:
Upon signing of this Contract - PhP2,959,626.00
One (1) month after the date of this Contract - PhP2,959,626.00
Three (3) months after the date of this Contract - PhP2,959,626.00
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7. Management Fee - The LESSEE shall pay to the LESSOR a management fee in an
amount equivalent to five percent (5%) of the rentals due for the year. This
management fee, in the amount equivalent to PhP295,962.60 per semester,
exclusive of VAT, shall likewise be paid semi-annually in advance by the
LESSEE to the LESSOR at the office of the latter without the necessity of
prior demand and without delay within the first thirty (30) days of each six
(6) months period.
8. Late Payment Penalty - A late payment penalty at the rate of two (2%) percent
per month shall be charged on any rental, or any and all amounts due from the
LESSOR under this Contract, not paid on time, counted from the date of
delinquency until the same has/have
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been fully paid to the satisfaction of the LESSOR, provided, however, that
this shall be without prejudice to the LESSOR's right to terminate the
Contract. For purposes of computation of the amount of the late payment
penalty, a fraction of one (1) month shall be considered as one (1) whole
month. No rental, or any and all amounts due from the LESSOR under this
Contract, shall be recognized as having been paid unless evidenced by
official receipt, duly issued by the LESSOR and/or its agent, acknowledging
the receipt by the LESSOR from the LESSEE of the cleared funds delivered for
such payments. Neither shall payment of rental, or any and all amounts due
from the LESSOR under this Contract, made by the LESSEE to unauthorized
persons be recognized.
9. Obligations of the Lessee - The LESSEE is mandated to strictly and faithfully
observe and/or comply with the following:
(a) The LESSEE shall use the leased premises for any lawful business provided
it conforms to the type of businesses or enterprises acceptable to the
present policies of the LESSOR, particularly as the businesses or
enterprises relate or conform to the master development plan of the
LESSOR. For this purpose, the LESSEE is hereby authorized to undertake at
its own expense any and all construction for the renovation and
improvement of the leased premises, provided however, that all plans and
specifications for construction, including the alteration and/or addition
thereof during the term of this Contract, must first be submitted for
evaluation and final approval by the LESSOR.
(b) The LESSEE shall pay all realty and other taxes due or may be due on the
improvements that may be introduced on the leased premises subject of
this Contract. For validation purposes, the LESSEE shall furnish the
LESSOR, at no later than ten (10) working days after the payment thereof,
of the photocopies of the pertinent official receipts evidencing the
payments of the said taxes.
(c) The LESSEE shall not affix, inscribe or paint or cause to be affixed,
inscribed or painted any notice, sign or other advertising medium on any
part of the inside or outside of the leased premises or anywhere within
the FTI Complex except upon previous written permission from the LESSOR
and only in such size, color, and style approved by the LESSOR.
(d) The LESSEE shall not keep within the leased premises any explosive or
combustible articles or substances; any damage caused, directly and
indirectly, by an infringement of this prohibition shall be charged to
the LESSEE.
(e) The LESSEE shall not install any apparatus, machineries, appliances, or
equipment, nor carry on, conduct or permit any trade, occupation or
activity, in the leased premises which may cause noise, constitute a
nuisance, disturb the other tenants, expose the leased premises to fire
or thereby increase the fire hazard or rating of the leased premises
and/or the FTI Complex for fire insurance coverage or other types of
insurance coverage.
(f) The LESSEE shall allow the LESSOR, or any of its duly designated agents
or contractors, to free access to the leased premises for the collection
and disposal of garbage/thrash, if any, wherein the LESSEE shall be
charged with the corresponding garbage fee based on the LESSOR's
prevailing charges for such additional services.
(g) The LESSEE shall remit to the LESSOR the relevant amounts representing
payments for garbage fee, if any, and electricity within seven (7)
working days from receipt of the statement account issued by the LESSOR.
Failure on the part of the LESSEE to pay the monthly charges on garbage
fee, if any, and electricity within the period provided, shall make said
LESSEE liable to pay late payment penalty, as provided in Paragraph 8
hereof, without prejudice to the LESSOR's right to terminate this
Contract and for the repossession of the leased premises including the
cutting off of utilities.
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(h) The LESSEE shall keep the equipment/facilities located and goods stored
in the leased premises insured against loss and damage by fire,
earthquake, and typhoon for their full insurable value and shall furnish
the LESSOR, within ten (10) working days from the start of the insurance
coverages and without the need of demand, of the photocopies of the
insurance policies detailing the complete list of such insurance
coverages and the official receipts evidencing the full payment of the
required premium, and shall pay all necessary premiums thereon as they
become due; Provided that, in case of loss, destruction of the
equipment, facilities and goods during the existence of this Contract,
the insurance proceeds shall first be applied to any unpaid rental
and/or any other unpaid bills of the LESSEE due to the LESSOR. For this
reason, the LESSOR shall be designated by the LESSEE as the primary
beneficiary in any and all insurance proceeds from the loss or damage of
the insured properties.
For purposes of this provision on insurance coverages for the
equipment/facilities located and goods stored in the leased premises,
the LESSEE is required to purchase the insurance policies from the
accredited insurance companies or agencies of the LESSOR.
(i) The LESSEE shall promptly comply with any and all laws, ordinances,
rules regulations and orders which the national, provincial, or local
government, or any department, bureau, commission or other agency or
instrumentality thereof may promulgate; further, the LESSEE shall be
subject to and shall obey the LESSOR's existing and future house,
security, traffic, environmental, engineering, and other rules and
regulations for the leased premises and/or for the whole of the FTI
Complex, for which, if the LESSOR does not elect to terminate the lease
for violation of said rules, the LESSEE shall pay the fines imposed by
the LESSOR; furthermore, the LESSEE shall indemnify and hold harmless
the LESSOR against all actions, suits, damages and claims by whomsoever
they may be brought or made by reason of non-observance or
non-performance of said rules, regulations, ordinance, or laws.
(j) The LESSEE shall allow the LESSOR's representatives to enter the leased
premises at any time to examine the same or to make any repair, or for
any purpose which it may deem necessary for the operation and
maintenance of the leased premises or its installation, or to exhibit
the leased premises to a prospective lessee, or to otherwise assure the
LESSOR that the LESSEE is complying with all the terms and conditions of
this Contract.
10. Obligations of the Lessor - The LESSOR is mandated to strictly and
religiously observe/comply with the following:
(a) The LESSOR shall provide, at its own expense, security services within
the FTI Complex, but does not guarantee the LESSEE's property and/or
good against loss, damage or destruction not caused by the LESSOR's
employees or agents but due to causes beyond its control; neither does
the LESSOR guarantee for losses in the leased premises.
(b) The LESSOR shall allow the LESSEE, if LESSEE so desires, to hire the
services of a security agency to guard the latter's property or goods
within the leased premises; provided, however, that the security agency
hired by the LESSEE shall be subject to the security and safety measures
within the leased premises and the FTI Complex as a whole and should be
duly registered with the LESSOR's Security and Investigation Department.
(c) The LESSOR shall shoulder the expenses for the repair of damages in the
leased premises caused by fire or other causes without the fault of the
LESSEE, its/his/her agents, guests, or clients. In such cases, the
LESSEE shall be obligated to immediately give notice of the damage/s to
the leased premises or its appurtenances, and shall allow the LESSOR to
repair the damage/s and the LESSOR agrees to exert effort to do so at
the least inconvenience to the LESSEE. The LESSOR acknowledges and
confirms that in the event the damage/s to the leased premises impairs
or prevents the LESSEE from using the leased premises for the conduct of
its/his/her business, the obligation of the LESSEE
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to pay to the LESSOR the lease rentals specified under this Contract
shall be suspended until such damage/s is/are repaired by the LESSOR.
(d) Warranty - The LESSOR hereby warrants the peaceful and continuous
possession and enjoyment of the leased premises by the LESSEE. The
LESSOR shall indemnify and hold the LESSEE free and harmless from
claims, suits, proceedings, actions, and other demands from third
parties claiming title, possession or any other interest in respect of
the leased premises or any portion thereof and from damage arising
therefrom.
11. Constructions/Renovations/Alteration and Improvements - The LESSEE
acknowledges and confirms that prior to the commencement by the LESSEE of
the works for the construction and installation of the improvements required
by the LESSEE at the leased premises, the LESSOR and the LESSEE shall
mutually determine and establish the relevant conditions for the
introduction of such improvements at the leased premises.
All constructions, renovations, alterations, additions, repairs, or
improvements that the LESSEE may want to make in the leased premises shall
first be submitted for the approval of the LESSOR together with the plans
and specifications for such construction and additions and shall not be
undertaken without the latter's prior written consent. All such alterations,
additions and improvements made by the LESSEE on, in or upon the leased
premises, except the movable furnitures and fixtures put in at the expense
of the LESSEE and removable without defacing or injuring the leased premises
or the FTI Complex, shall become the property of the LESSOR without further
formality or need of reimbursement for their value and shall remain upon and
be surrendered with the leased premises as part thereof upon the termination
and/or cancellation of the lease due to the expiration of the lease period
and/or due to other causes as provided in this Contract. If the LESSOR does
not elect to retain such installations additions or improvements, the
premises shall be restored to its original condition at LESSEE's account.
To stress, the LESSOR shall reserve the absolute right to disallow any
alteration, installation, addition, or improvements requested by the LESSEE.
12. Sublease or Assignment of Rights - The LESSEE shall not assign or transfer
its rights under this Contract nor sublet the leased premises nor allow it
to be used for any purpose other than that hereinabove specified or be
occupied in whole or in part by any other person, firm or corporation
without the written consent of the LESSOR; and no right, title or interest
thereto or therein shall be conferred on or vested in anyone other than the
LESSEE without such written consent of the LESSOR. In the event that
subleasing is allowed by the LESSOR, the LESSEE shall abide and comply with
the subleasing policy of the LESSOR, particularly the fifty percent (50%)
share of the LESSOR in the difference between the rent from the subleasing
transaction and the original rent for the leased premises as provided in
this Contract.
13. Non-Liability of the Lessor - The LESSOR shall not be liable and the LESSEE
shall make no claims against the LESSOR for any loss, damage or
inconvenience due, directly or indirectly, to any of the following:
(a) Leakage of defect in/or destruction of, any water, gas electrical,
telephone, or plumbing installation in/or about the leased premises not
otherwise caused by the negligence of the LESSOR.
(b) Absence, failure, breakdown, or insufficiency of water supply, telephone
service, or electric current beyond the control or without the fault of
the LESSOR.
(c) Presence of bugs, ants, termites, rats, vermin, "anay", or insect of any
kind or nature, in the leased premises.
(d) Water or rain which may come into, or flow from, any part of the leased
premises not otherwise caused by negligence of the LESSOR.
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(e) Fault or negligence of the LESSEE, its agents, employees, visitors, or
other persons.
(f) Fire, or fortuitous events, theft, robbery, or other crimes and
misdemeanors.
14. Third Party Liability - The LESSEE assumes full responsibility for any
damage which may be caused to the person or property of third persons while
in any part of the leased premises and further binds itself to hold the
LESSOR free from any such claims for injury or damage unless such injury or
damage is due to the negligence of the LESSOR.
15. Repairs of Utilities/Extra Connections - Repairs in the utility service
system, including water pipes and toilet equipment and facilities, all
minor electrical alterations and installations and installation of
additional electrical, water, telephone, and/or gas connections within the
leased premises shall be undertaken by the LESSEE for its sole account and
expense; provided that the LESSEE shall provide the LESSOR written prior
advice before undertaking such repairs, alterations and installations.
As the electrical system of the leased premises and the FTI Complex is
designed for a specific purpose, all electrical equipment and/or machines
to be installed and used on the leased premises must be reported by the
LESSEE to the LESSOR to prevent overburdening of the lines and all major
electrical alterations and installations shall only be undertaken by the
LESSEE upon prior written approval of the LESSOR. The said prior written
approval of the LESSOR shall only be granted upon submission to the LESSOR
of the pertinent plans and specifications for the said major electrical
alterations and installations.
The LESSEE assumes full responsibility for any damages which may be caused
to the person or property of third persons by the said repairs, alterations
and installations and further binds itself to hold the LESSOR free and
harmless from any such claims for injury or damage arising from the said
repairs, alterations and installations undertaken by the LESSEE within the
leased premises.
16. Rental Adjustment Due to Change in Circumstances - If at any time during
the term of this Contract there should be a material variation,
depreciation, or devaluation in the value of the Philippine Peso due to
extraordinary inflation or deflation or official devaluation, the rental
rates herein stipulated shall be adjusted in favor of the LESSOR so that
such rental rates shall correspond to the value of the currency at the time
this Contract was executed. It is agreed and understood that a "material
variation" exists when there is a change to the extent of fifteen percent
(15%) in the purchasing power of the currency compared with its value at
the time of the signing of this Contract and at the time of any subsequent
adjustment of the rental rates, as determined by reference to the Consumer
Price Index published by the Department of Economic Research of the Bangko
Sentral ng Pilipinas.
17. Termination of Lease - The LESSEE agrees to return and surrender the leased
premises at the expiration of the term of its lease in as good condition as
reasonable wear and tear will permit and without any delay whatsoever,
devoid of all occupants, furniture, articles, and effects of any kind other
than such alterations, installations, additions, or improvements belonging
to the LESSOR in accordance with the provisions of Paragraph 11. Further,
upon the expiration of the term of this lease, the LESSOR shall have the
right to close or padlock the leased premises, and/or physically take
possession and occupy the leased premises, and/or exclude the LESSEE, its
agents, representatives, guests, customers, their things and effects,
therefrom, whether forcibly or otherwise, without incurring any civil,
criminal, and/or administrative liability.
18. Lessor's Right To Pre-Terminate Contract In Specified Situations - In
addition to other situations provided herein wherein the LESSOR is accorded
the right to pre-terminate/cancel this Contract at any time during the
duration of the lease, the LESSOR shall also have the absolute right to
pre-terminate this lease Contract by giving the LESSEE a ninety (90) days
notice in any of the following situation:
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(a) When the LESSOR needs the leased premises for its redevelopment
pursuant to any FTI development plan;
(b) When it becomes clear and definite that the LESSOR will be privatized
and unless the eventual owner or buyer continues the contractual
relation with the LESSEE;
(c) When LESSOR finds it necessary to repossess the leased premises for
reason of public interest.
It is understood that the LESSOR shall have the right to close or padlock
the leased premises, and/or physically take possession and occupy the
leased premises, and/or exclude the LESSEE, it agents, representatives,
guests, customers, their things and effects, therefrom, whether forcibly or
otherwise, without incurring any civil, criminal, and/or administrative
liability.
19. Pre-termination of the Contract by the LESSEE - Should the LESSEE be
constrained to pre-terminate this Contract for any reason whatsoever, the
LESSEE shall give a written notice to the LESSOR at least thirty (30) days
before the effective date of the pre-termination and shall pay the LESSOR a
pre-termination fee in an amount equivalent to three (3) months rent
computed based on the prevailing rental rates at the time of the
pre-termination. Further, the LESSOR shall effect the forfeiture of the
unused portions of the advance rental and deposit made by the LESSEE.
20. Failure to Surrender - If the leased premises be not surrendered at the
expiration of the lease period, the LESSEE shall pay, by way of penalty, a
sum equivalent to the amount of the rentals for the leased premises for the
whole period of delay. It is hereby agreed that such penalty shall be in
addition to the rentals corresponding to the period of delay. Payment of
said penalty shall likewise be without prejudice to the attorney's fees and
other liabilities provided in this Contract. The LESSEE shall furthermore
hold the LESSOR harmless from any liability in respect to any and all
claims made by any succeeding tenant against the LESSOR, resulting from the
delay by the LESSOR in, delivering possession of the premises to such
succeeding tenant, insofar as such delay is occasioned by the failure of
the LESSEE to so surrender the premises on time.
21. Abandonment of Leased Premises - Should the LESSEE abandon the leased
premises before the expiration of the period of this lease, the LESSOR may
upon the expiration of fifteen (15) day notice delivered at the leased
premises or posted on the main door thereof, close or padlock the leased
premises, physically take possession and occupy the leased premises, and
retain any and all things therein, in which case, this lease shall be
automatically terminated. The LESSOR shall be free to lease the leased
premises to any other party, and the LESSEE shall forfeit the advance
rental and the deposit in favor of the LESSOR.
If the premises is not used or no operation is conducted by LESSEE for
sixty (60) days without paying the rental corresponding the said period and
LESSOR/OWNER is not notified of the reason, the leased premises is
considered abandoned and the LESSOR/OWNER is entitled to declare the lease
terminated without need of judicial intervention and in such case, the
LESSOR/OWNER is likewise authorized to enter the leased premises to
repossess it and to retain the LESSEE/OPERATOR's things therefrom.
22. Enforcement of Covenants - The failure of the LESSOR to insist upon strict
performance of any of the terms, conditions and covenants of this lease
and/or to exercise any option herein contained shall not be construed as
relinquishment or cancellation of such covenant or option nor shall it be
construed as a waiver of any subsequent breach or default of the terms,
conditions and covenants of this Contract, which shall continue in full
force and effect. No waiver by the LESSOR of any of its rights under this
Contract shall be deemed to have been made unless expressed in writing and
signed by the LESSOR.
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23. Remedies Cumulative - All remedies herein before and hereinafter conferred
on the LESSOR shall be deemed cumulative and no one exclusive of the other,
or of any other remedy conferred by law.
24. Breach or Default - The LESSEE agrees that all the covenants and agreements
herein contained shall be deemed essential conditions hereof and that if
default or breach be made by the LESSEE of any such conditions, then the
LESSOR shall have the absolute right to unilaterally terminate and cancel
this Contract, upon fifteen (15) days prior notice delivered at the leased
premises or posted on the main door thereof. Upon such termination or
cancellation, the LESSOR shall likewise have the right to forthwith close
and padlock the leased premises, and/or physically take possession and
occupy the leased premises, and/or exclude the LESSEE, its agents,
representatives, guests, customers, their things and effects therefrom,
whether forcibly or otherwise, without incurring any civil, criminal and/or
administrative liability.
25. Satisfaction of Obligations and Damages - In all cases where this Contract
is terminated or cancelled by reason of any default or breach committed by
the LESSEE, the said LESSEE, shall be fully liable to the LESSOR in
accordance to the provisions of Paragraph 19 and for any and all damages,
actual or consequential, resulting from such default and termination.
In the event of cancellation or termination of this Contract, the LESSOR,
in addition to the rights and authority herein granted upon it, is hereby
authorized, as the attorney-in-fact of the LESSEE, to sell at public sale,
without notice to the LESSEE, any and all goods, merchandise, furnitures,
fixtures and equipments found in the leased premises, and to apply the
proceeds of such sale to any damages and outstanding obligation of the
LESSEE under this Contact.
26. Representations and Warranties - Each of the parties hereto represents and
warrants that:
(a) It is a corporation duly organized, validly existing and in good
standing under and by virtue of the laws of the Republic of the
Philippines.
(b) It has full power and authority to enter into and perform its
obligations under this Contract.
(c) All necessary actions, consents, and approvals for the execution of
this Contract have been taken and/or obtained.
(d) Its execution, delivery and performance of this Contract will not
conflict with or constitute a breach of its Charter/Articles of
Incorporation, By-laws, or any resolution of its Board of Directors or
any agreement or instrument to which it is a party to or under which
any of its properties or assets are bound, or any law of the Republic
of the Philippines or any regulation, judgment or order of any agency
or instrumentality thereof.
(e) This Contract constitute the legal, valid, and binding obligations of
each of the parties enforceable in accordance with its terms.
27. Judicial Action - In the event of any breach of this Contract by the
LESSEE, the LESSOR is compelled to seek judicial relief against the LESSEE,
the latter, in addition to and aside from the damages as above-provided,
shall pay attorney's fees to the LESSOR equivalent to twenty percent (20%)
of the amount claimed in the complaint but in no case less than Thirty
Thousand Pesos (P30,000.00), aside from costs and other expenses which the
law may entitle the LESSOR to recover from the LESSEE.
Any and all suits arising from this Contract shall be filed in the proper
Regional Trial Court of Pasig or Metropolitan Trial Courts of Taguig Metro
Manila.
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28. Section Captions - The captions appearing under the section number
designation of this Contract are for convenience only and are not part of
this lease and do not in any way limit or amplify the terms and provisions
of this Contract.
29. Entire Agreement - This Contract constitute the entire, complete and
exclusive statement of the terms and conditions of the agreement between
the parties with respect to the subject leased premises. All lease
contracts and other agreements previously entered into by the parties
herein affecting the subject leased premises are hereby declared null and
void. Consistently, no statement or agreement, oral or written, made prior
to the signing hereof and no prior conduct or practice of either party
shall vary or modify the written terms embodied hereof, and neither party
shall vary or modify the written terms embodied hereof, and neither party
shall claim any modification of any provision set forth herein unless such
modification is in writing and signed by both parties.
30. Severability - In case any of the provisions contained in this Contract
shall be declared invalid, illegal, or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions shall not
in way be affected or impaired thereby.
IN WITNESS WHEREOF, the parties have caused this instrument to be duly executed
on the day, month, and year hereinabove mentioned in Taguig, Metro Manila,
Philippines.
FOOD TERMINAL, INC. PSI TECHNOLOGIES, INC.
(Lessor) (Lessee)
By: By:
/s/ Bernie Fondevilla /s/ Arthur J. Young, Jr.
BERNIE G. FONDEVILLA ARTHUR J. YOUNG, JR.
President Chairman and Chief Executive Officer
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Signed in the presence of:
--------------------------- ---------------------------
------------------------
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February 1, 2003
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A C K N O W L E D G E M E N T
REPUBLIC OF THE PHILIPPINES )
TAGUIG, METRO MANILA ) SS.
BEFORE ME, a Notary Public for and in the Municipality of Taguig, Metro Manila,
on this __ day of _________________, personally appeared:
COMMUNITY TAX DATE/PLACE
------------- ----------
NAME CERTIFICATE NO. OF ISSUE
---- --------------- --------
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FOOD TERMINAL, INC.
BERNIE G. FONDEVILLA
PSI TECHNOLOGIES, INC.
ARTHUR J. YOUNG, JR.
known to me and to me known to be the same person who executed the foregoing
Contract of Lease, and they have acknowledged to me that the same is their own
free and voluntary act and deed.
IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my notarial seal
on the date at the place first written above.
NOTARY PUBLIC
Doc. No. _______;
Page No. _______;
Book No. _______;
Series of 2003.
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EXHIBIT 4.7
SUPPLEMENTAL AGREEMENT
This SUPPLEMENTAL AGREEMENT (hereinafter referred to as "this Agreement"), made,
executed and entered into this day of November 1999 at Calamba, Laguna by and
between:
RBF DEVELOPMENT CORPORATION, a corporation duly organized and existing under and
by virtue of the laws of the Philippines, with office address at Carmelray
Industrial Park ll, Calamba, Laguna, represented by its duly authorized
Vice-President, Ms Yolanda L. Nasoles (herein after referred to as the
"Lessor"); and
PSi TECHNOLOGIES LAGUNA, INC., a corporation duly organized and existing under
and by virtue of the laws of the Philippines, with office address at Lot B2-5,
Carmelray Industrial Park ll Brgy, Tulo Calamba, Laguna 4027, Philippines
represented herein by its duly authorized President, Mr. Arthur J. Young, Jr.
(hereinafter referred to as the "Lessee");
And the Lessor and the Lessor shall be collectively referred to as the "Parties"
and individually referred to as the "Party")
WHEREAS:
(A) The parties have entered into a Contract of Lease dated 1/st/ August 1999,
"Contract of Lease") wherein the Lessee leased from the Lessor the parcel
of land ("Land Lot") and factory building type known as CP2 model
("Building") thereon located at Lot B2-5, Carmelray Industrial park ll,
Calamba, Laguna ("Leased Premises")
(B) The parties have further executed a side letter dated 20/th/ August 1999
("Side Letter") to vary the terms and conditions of the Contract of Lease.
(C) Pursuant to Clause 16 of the Contract of Lease, the Lessee desires to alter
the Leased Premises by constructing a second storey to the Building subject
to the Lessor's consent.
(D) On 9/th/ November 1999, the Lessee accepted a Letter of Offer dated 9/th/
of November 1999 from the Lessor ("Letter of Offer") In which the Lessor
shall procure the construction of a second storey to the Building in
consideration of the Lessee's payment of an upfront fee and variations to
the Contract of Lease.
(E) Pursuant to the Letter of Offer, the Parties have agreed to amend the
Contract of Lease to the extent set out in this Agreement.
(F) This Agreement is supplemental to the Contract of Lease and the Side
Letter.
IT IS HEREBY AGREED BETWEEN THE PARTIES THAT:
1. INTERPRETATION
1.1 All expression used in this Agreement shall have the same meaning as
defined in the Contract of Lease unless otherwise defined herein.
1.2 Any reference in this Agreement to another document or instrument is a
reference to that other document or instrument as the same may have been,
or may from time to time be amended. Varied or supplemented..
1.3 Unless otherwise stated in this Agreement, all terms and conditions herein
shall take effect from the date of this Agreement.
1.4 Save as expressly amended and provided in this Agreement, all the terms and
conditions of the Contract of Lease, the Side Letter and all other
agreement relating to or connection with the same shall continue to apply
with, and remain in, full force and effect.
2. CONSTRUCTION WORKS FOR SECOND STOREY
2.1 At the request of the Lessee and in consideration of the Lessee's payment
of a non-refundable cash sum of United States Dollars Four Hundred
Fifty-Six Thousand Only (USD456,000) ("Upfront Fee") to the Lessor, the
Lessor shall procure the construction of a second storey for the Building
("Construction Works") in accordance with the specifications stated in
Schedule 2.
2.2 The Lessee shall pay the Upfront Fee to the Lessor in the following stages:
(a) The Lessee shall pay the sum of the United States Dollars Ninety-One
Thousand Two Hundred Only (USD91,200) upon the acceptance of the
Letter of Offer dated 9/th/ November 1999 granted by the Lessor
(hereinafter referred to as the "letter of Offer");
(b) The Lessee shall pay the sum of United States Dollars Ninety-One
Thousand Two Hundred Only (USD91,200) within one (1) month after the
acceptance of the Letter of Offer;
(c) The Lessee shall pay the sum of United States Dollars One Hundred
Thirty-six Thousand Eight Hundred Only (USD136,800) within two (2)
months after the acceptance of the Letter of Offer; and
(d) The Lessee shall pay the sum of United States Dollars One Hundred
Thirty-six Thousand Eight hundred Only (USD136,800) upon the
completion of the Construction Works.
2.3 The Lessor shall commence the Construction Works upon the execution of his
Agreement and shall procure its completion within three (3) months from the
date hereof on 31/st/ January 2000 (whichever is later).
2.4 The Construction Works shall be limited to the scope stated in Schedule 1
of this Agreement.
2.5 The specification stated in Schedule 2 of this Agreement shall be deemed to
be included into Schedule 1 of the Contract of Lease with effect from
completion of the Construction Works.
2.6 The Construction Works shall be deemed to be completed upon the issuance of
the Certificate of Completion by the engineer nominated by the Lessor.
2.7 Notwithstanding Clause 11.1 of the Contract of Lease pertaining to the
Lessors obligation to grant quiet enjoyment of the Leased Premises to the
Lessee, in order to facilitate the Construction Works , the Lessee hereby
undertakes and agrees as follows:
(a) The Lessee shall grant the Lessor, its contractors, sub-contractors
and all other persons authorized by the Lessor free and unrestricted
access to the land Lot and the Building for the purpose of the
Construction Works in accordance with Clause 20.1 of the Contract of
Lease. The Lessor shall give three (3) days notice to the Lessee
before the commencement of the Construction Works and thereafter shall
not be required to serve any further notices prior to entry.
(b) The Lessee shall at the request of the Lessor, Its contractors,
sub-contractors or such other persons authorized by the Lessor, move
or remove the Lessee's installations, goods
or articles within the Leased Premised at the Lessee's own cost and
within the specified time to facilitate the carrying out of the
Construction Works.
(c) The Lessee expressly acknowledges that the Construction Works may
result in interruption or interference with its production and other
activities in the Building and/or Land Lot, and undertakes not to hold
the Lessor, its contractors, sub-contractors and all other persons
authorized by the Lessor liable for loss (whether direct or
consequential including but not limited to loss of profit or other
economic losses) damage or inconvenience resulting from such
interruption or interference caused by or in relation to the
Construction Works.
(d) Without prejudice to the generally of Clause 38 of the Contract of
Lease, the Lessee undertakes not to hold the Lessor liable for any
consequential losses or damages (including but not limited the
economic losses, increased costs of production, loss of profit) caused
by or in relation to the Construction Works unless such losses or
damages were caused by the willful misconduct or negligence of the
Lessor, its contractors, sub-contractors, agents or representatives
who work for and on behalf of the Lessor.
3. AMENDMENTS TO THE CONTRACT OF LEASE & SIDE LETTER
3.1 REVISED GROSS FLOOR AREA
Upon completion of the Construction Works,
(a) the estimated gross floor area of the second storey of the Building
shall be approximately 1,890 square meters; and
(b) the existing gross floor area of the Building from approximately 4,050
square meters shall be revised to approximately 5,940 square meters.
The revised gross floor area of the Building being approximately 5,940
square meters shall be used for the purpose of assessing the Rent and
Service Charge.
3.2 REVISED TERM
Clause 1.1 of the Contract of Lease shall be deleted and substituted with
the following clause:
"This Contract shall have a term of eight (8) years and eight (8) months
("Term") commencing on 1/st/ August 1999 ("Possession Date") and ending
31/st/ January 2003, subject to the provisions of Clause 2 below".
3.3 REVISED RENT PERIOD
Clause 1.2 of the Contract of Lease shall be deleted and substituted with
the following clause:
"There shall be a rent period of ninety-six (96) months during the Term:
(a) commencing from 1/st/ October 1999 and ending on 30/th/ September 2000
(both dates included) ("1/st/" Rent Period);
(b) commencing from 1/st/ October 2000 and ending on 30/th/ September 2001
(both dates included)("2/nd/ Rent period');
(c) commencing from 1/st/ December 2001 and ending on 30/th/ November 2002
(both dates included)("3/rd/ Rent Period");
(d) commencing from 1/st/ April 2003 and ending on 31/st/ March 2004 (both
dates included) ("4/th/ rent Period");
(e) commencing from 1/st/ April 2004 and ending on 31/st/ March 2005 (both
dates included) ("5/th/ Rent Period");
(f) commencing from 1/st/ April 2005 and ending on 31/st/ March 2006 (both
dates included) ("6/th/ Rent Period");
(g) commencing from 1/st/ April 2006 and ending on 31/st/ March 2007 (both
dates included) ("7/th/ Rent Period");
(h) commencing from 1/st/ April 2007 and ending 31/st/ March 2008 (both
dates included) ("8/th/ Rent Period");
and the 1/st/ Rent Period, 2/nd/ Rent Period, 3/rd/ Rent Period, 4/th/ Rent
Period, 5/th/ Rent Period, 6/th/ Rent Period, 7/th/ Rent Period and 8/th/
Rent Period shall be collectively known as "Rent Period" hereinafter.
During the Rent Period, the Lessee shall pay all charges due and stipulated
in this Contract including Rent."
3.4 REVISED RENT FREE PERIOD
Clause 1.4 of the Contract of Lease shall be deleted and substitute with
the following clause:
"There shall be a rent free period of six (6) months during the Term:
(a) commencing on 1/st/ October 2001 until 30/th/ November 2001 (both
dates included) ("1/st/ Rent Free Period"); and
(b) commencing on 1/st/ December 2002 until 31/st/ March 2003 (both dates
included) ("2" Rent Free Period");
and the 1/st/ Rent Free Period and 2/nd/ Rent Free Period shall be
collectively known as "Rent free Period hereinafter. During the Rent Free
Period, the Lessee shall pay all charges due and stipulates in this
Contract except Rent."
3.5 RENEWAL CLAUSE
Clause 2.2 of the Contract of Lease and Clause 2.2(a) in the Side letter
shall be deleted.
3.6 REVISED RENT
Clause 3.1 of the Contract of Lease shall be deleted and substitute with
the following clause:
"In consideration of the Lessor granting of the Leased Premises to the
Lessee, the Lessee shall pay the Lessor a monthly rent ("Rent") for the
Rent Period at the following rates:
(a) During the 1/st/ Rent Period commencing from 1/st/ October 1999 to
31/st/ January 2000, the monthly Rent shall be United States Dollars
Twenty Thousand Two Hundred and Fifty Only (USD20,250.00);
(b) During the 1/st/ Rent Period commencing from 1/st/ February 2000 to
30/th/ September 2000 the monthly Rent shall be United States Dollars
Twenty-One Thousand Seven Hundred Forty and Cents Forty Only
(USD21,740.40);
(c) During the 2/nd/ Rent Period, the monthly Rent shall be United States
Dollars Twenty-One Thousand Seven Hundred Forty and Cents Forty Only
(USD21,740.40);
(d) During the 3/rd/ Rent Period, the monthly Rent shall be United States
Dollars Twenty-One Thousand Seven Hundred Forty and Cents Forty Only
(USD21,740.40);
(e) During the 4/th/ Rent Period, the monthly Rent shall be United States
Dollars Twenty-Two Thousand Eight Hundred Fifty Only (USD22,850.00);
(f) During the 5/th/ Rent Period, the monthly Rent shall be United States
Dollars Twenty-Five Thousand One Hundred Fifty-Seven Only
(USD25,157.00);
(g) During the 6/th/ Period, the monthly Rent shall be United States
Dollars Twenty-Seven Thousand Six Hundred Thirty-Eight Only
(USD27,638.00);
(h) During the 7/th/ Rent Period, the monthly Rent shall be United Stated
Dollars Thirty Thousand Nine Hundred Fifty-Four Only (USD30,954.00);
(i) During the 8/th/ Rent Period, the monthly Rent shall be Thirty-Four
Thousand Six Hundred Sixty-Nine Only(USD34,669.00).
Rent shall be paid in advance without demand or deduction in half-yearly
installments."
3.7 REVISED RENT DUE DATES
Clause 3.2 of the Contract of Lease shall be deleted and substituted with
the following clause:
"Unless otherwise permitted by the Lessor or stated herein, the Rent shall
be due and payable on the following dates (individually referred to as
"Rent Due Date" and collectively referred to as "Rent Due Dates"):
(a) Rent for the first four (4) months of the 1/st/ Rent Period (from
1/st/ October 1999 till 31/st/ January 2000) shall be due and payable
on 1/st/ October 1999;
(b) Rent for the next two (2) months of the 1/st/ Rent Period (from 1/st/
February 2000 till 31/st/ March 2000) shall be due and payable on
1/st/ February 2000;
(c) Rent for the next last six (6) months of the 1/st/ Rent Period (from
1/st/ April 2000 till 30/th/ September 2000) shall be due and payable
on 1/st/ April 2000;
(d) Rent for the first six (6) months of the 2/nd/ Rent Period (from 1/st/
October 2000 till 31/st/ March 2001) shall be due and payable on 1/st/
October 2000;
(e) Rent for the next six (6) months of the 2/nd/ Rent Period (from 1/st/
April 2001 till 30/th/ September 2001) shall e due and payable on
1/st/ April 2001;
(f) Rent for the first six (6) months of the 3/rd/ Rent Period (from 1/st/
December 2001 till 31/st/ May 2002) shall be due and payable on 1/st/
December 2001;
(g) Rent for the next six (6) months of the 3/rd/ Rent Period (from 1/st/
June 2002 till 30/th/ November 2002) shall be due and payable on 1/st/
June 2002;
(h) Rent for the first six (6) months of the 4/th/ Rent Period (from 1/st/
April 2003 till 30/th/ September 2003) shall be due and payable on
1/st/ December 2002;
(i) Rent for the next six (6) months of the 4/th/ Rent Period (from 1/st/
October 2003 till 31/st/ March 2004) shall be due and payable on 1/st/
October 2003;
(j) Rent for the first six (6) months of the 5/th/ Rent Period (from 1/st/
April 2004 till 30/th/ September 2004) shall be due and payable on
1/st/ April 2004;
(k) Rent for the next six (6) months of the 5/th/ Rent Period (from 1/st/
October 2004 till 31/st/ March 2005 shall be due and payable on 1/st/
October 2004;
(l) Rent for the first six (6) months of the 6/th/ Rent Period (from 1/st/
April 2005 till 30/th/ September 2005) shall be due and payable on
1/st/ April 2005;
(m) Rent for the next six (6) months of the 6/th/ Rent Period (from 1/st/
October 2005 till 31/st/ March 2006) shall be due and payable on 1/st/
October 2005;
(n) Rent for the first six (6) months of the 7/th/ Rent Period (from 1/st/
April 2006 till 30/th/ September 2006) shall be due and payable on
1/st/ April 2006;
(o) Rent for the next six (6) months of the 7/th/ Rent Period (from 1/st/
October 2006 till 31/st/ March 2007) Shall be due and payable on 1/st/
October 2006;
(p) Rent for the first six (6) months of the 8/th/ Rent Period (from 1/st/
April 2007 till 30/th/ September 2007) shall be due and payable on
1/st/ April 2007;
(q) Rent for the next six (6) months of the 8/th/ Rent Period (from 1/st/
October 2007 till 31/st/ March 2008) shall be due and payable on 1/st/
October 2007."
3.8 REVISED PROPERTY MANAGEMENT SERVICE CHARGE
Clause 4.1 of the Contract of Lease shall be deleted and substituted with
the following clause:
"In consideration of the EM Service as stated in Schedule 3, the Lessee
shall pay the Lessor a property management service charge ("Service
Charge") calculated at the rate of;
(a) United States Dollars Six Hundred and Seven and Cents Fifty Only
(USD607.50) per month from the Possession Date till 31/st/ December
1999;
(b) United States Dollars One Thousand and Twelve and Cents Fifty Only
(USD1,012.50) per month from 1st January 2000 till 31/st/ January
2000;
(c) United States Dollars One Thousand Four Hundred Eighty-Five Only
(USD1,485.00) per month from 1/st/ February 2000 onwards fro the
remainder of the Term;
payable without demand or deduction and in advance by half-yearly or
eight-monthly installments on each Sc Due Date (as hereinafter defined)."
3.9 REVISED SC DUE DATES
Clause 3.7 of the Contract of Lease shall be deleted and substituted with
the following clause:
"Unless otherwise permitted by the Lessor as stated herein, the Service
Charge shall be due and payable on the following due dates (Individually
referred to as "SC Due Date" and collectively referred to as "SC Due
Dates"):
(a) Service Charge for the Fitting Out Period shall be due and payable
upon the execution of this Contract by the Lessee or the Possession
Date, whichever shall be earlier;
(b) Service Charge for the first six (6) months of the 1/st/ Rent Period
(from 1/st/ October 1999 till 31/st/ March 2000) shall be due and
payable on 1/st/ October 1999;
(c) Service Charge for the next six (6) months of the 1/st/ Rent Period
from 1/st/ April 2000 till 30/th/ September 2000 shall be due and
payable on 1/st/ April 2000;
(d) Service Charge for the first six (6) months of the 2/nd/ Rent Period
(from 1/st/ October 2000 till 31/st/ March 2001) shall be due and
payable on 1/st/ October 2000;
(e) Service Charge for the next six (6) months of the 2/nd/ Rent Period
from 1/st/ April 2001 till 30/th/ September 2001) and the 1/st/ Rent
Free Period shall be due and payable on 1/st/ April 2001;
(f) Service Charge fort he first six (6) months of the 3/rd/ Rent Period
and the 1/st/ Rent Free Period (from 1/st/ October 2001 till 31/st/
May 2002) shall be due and payable on 1/st/ October 2001; and
(g) Service Charge for the next six (6) months of the 3/rd/ Rent Period
from 1/st/ June 2002 till 30/th/ November 2002) and the 2/nd/ Rent
Free Period shall be due and payable on 1/st/ June 2002;
(h) Service Charge for the first six (6) months of the 4/th/ Rent Period
and the 2/nd/ Rent Free Period (from 1/st/ December 2002 till 30/th/
September 2003) shall be due and payable on 1/st/ December 2002;
(i) Service Charge for the second six (6) months of the 4/th/ Rent Period
(from 1/st/ October 2003 till 31/st/ March 2004) shall be due and
payable on 1/st/ October 2003;
(j) Service Charge for the first six (6) months of the 5/th/ Rent Period
(from 1/st/ April 2004 till 30/th/ September 2004) shall be due and
payable on 1/st/ April 2004;
(k) Service Charge for the second six (6) months of the 5/th/ Rent Period
(from 1/st/ October 2004 till 31/st/ March 2005) shall be due and
payable on 1/st/ October 2004;
(l) Service Charge for the first six (6) months of the 6/th/ Rent Period
(from 1/st/ April 2005 till 30/th/ September 2005) shall be due and
payable on 1/st/ April 2005;
(m) Service Charge for the second six (6) months of the 6/th/ Rent Period
(from 1/st/ October 2005 till 31/st/ March 2006) shall be due and
payable on 1/st/ October 2005;
(n) Service Charge for the first six (6) months of the 7/th/ Rent Period
(from 1/st/ April 2006 till 30/th/ September 2006) shall be due and
payable on 1/st/ April 2006;
(o) Service Charge for the second six (6) months of the 7/th/ Rent Period
(from 1/st/ October 2006 till 31/st/ March 2007) shall be due and
payable on 1/st/ October 2006;
(p) Service Charge for the first six (6) months of the 8/th/ Rent Period
(from 1/st/ April 2007 till 30/th/ September 2007) shall be due and
payable on 1/st/ April 2007;
(q) Service Charge for the second six (6) months of the 8/th/ Rent Period
(from 1/st/ October 2007 till 31/st/ March 2008) shall be due and
payable on 1/st/ October 2007.'
3.10 REVISED SECURITY DEPOSIT
Clause 7.1 of the Contract of Lease shall be deleted and substituted with
the following clause:
"The Lessee shall place the following security deposits ("Security
Deposit") with the Lessor on the following dates:
(a) On or before the date of this contract the Lessee shall place a
Security Deposit of United States Dollars Eighty-One Thousand only
(USD81,000.00) with the Lessors as follows:
(i) United States Dollars Twenty Thousand Two Hundred and Fifty Only
(USD20,250.00) in cash; and
(ii) United States Dollars Sixty Thousand Seven Hundred and Fifty Only
(USD60,750.00) in the form of a Banker's Guarantee/Insurance Bond
in favour of the Lessor and upon such terms and conditions as
specified by the Lessor;
(b) On or before 1/st/ February 2000, the Lessee shall place a Security
Deposit of United States Dollars Eighty-six Thousand Nine Hundred
Sixty-One and Cents Sixty Only (USD86,961.60) with the Lessor as
follows:
(i) United States Dollars Twenty-One Thousand Seven Hundred Forty and
Cents Forty Only USD21,740.00) in cash; and
(ii) United States Dollars Sixty-Five Thousand Two Hundred Twenty-One
and Cents Twenty Only (USD65,221.20) in the form of a Banker's
Guarantee/Insurance Bond in favour of the Lessor and upon such
terms and conditions as specified by the Lessor;
Whereupon the Security Deposit (after such deductions as permitted in
this Contract) placed earlier on or before the date of the Contract
shall be returned to the Lessee;
(c) On or before 1/st/ December 2002, the Lessee shall place a Security
Deposit of United States Dollars Ninety-One Thousand Four Hundred Only
(USD91,400.00) with the Lessor as follows:
(i) United States Dollars Twenty-Two Thousand Eight Hundred Fifty
Only (USD22,850.00) in cash: and
(ii) United States Dollars Sixty-Eight Thousand Five Hundred Fifty
Only (USD68,550.00) in the form of a Banker;s Guarantee/Insurance
Bond in favour of the Lessor and upon such terms and conditions
as specified by the Lessor".
whereupon the Security Deposit (after such deductions as permitted in
this Contract placed earlier on 1/st/ February 2000 shall be returned
to the Lessee;
(d) On or before 1/st/ February 2004, the Lessee shall place a Security
Deposit of United States Dollars One Hundred Thousand Six Hundred
Twenty-Eight Only (USD100,628.00) with the Lessor as follows;
(i) United States Dollars Twenty-five Thousand One Hundred
Fifty-Seven Only (USD25,157.00) in cash; and
(ii) United States Dollars Seventy-five thousand Four Hundred
Seventy-One Only (USD75,471.00) in the form of a Banker's
Guarantee/Insurance Bond in favour of the Lessor and upon such
terms and conditions as specified by the Lessor;
whereupon the Security Deposit (after such deductions as permitted in
this Contract) placed earlier on 1/st/ December 2002 shall be returned
to the Lessee;
(e) On or before 1/st/ April 2005, the Lessee shall place a Security
Deposit of United States Dollar One Hundred Ten Thousand five Hundred
Fifty-Two Only (USD110,552.00) with the Lessor as follows;
(iii) United States Dollars Twenty -Seven Thousand Six Hundred Thirty
-Eight Only (USD27,638.00) in cash; and
(iv) United States Dollars Eighty-Two Thousand Nine Hundred Fourteen
Only (USD82,914.00) in the form of a Banker's
Guarantee/insurance bond in favour of the Lessor and upon such
terms and conditions as specified by the lessor;
Whereupon the Security Deposit (after such deductions as permitted in
this Contract) placed earlier on 1/st/ February 2004 shall be returned
to the Lessee;
(f) On or before 1/st/ April 2006, the Lessee shall place a Security
Deposit of United States Dollars One Hundred Twenty-three thousand
Eight Hundred Sixteen Only (USD123,816.00) with the Lessor as follows:
(v) United States Dollars Thirty Thousand Nine hundred Fifty-four
Only (USD30,954.00) in cash: and
(vi) United States Dollars Ninety-Two Thousand Eight hundred
Sixty-Two Only (USD92,862.00) in the form of a Banker's
Guarantee/Insurance bond in favour of the Lessor and upon such
terms and conditions as specified by the Lessor;
Whereupon the Security Deposit (after such deductions as permitted in
this contract) placed earlier on 1/st/ April 2005 shall be returned to
the Lessee;
(g) On or before 1/st/ April 2007, the Lessee shall place a Security
Deposit of United States Dollars One Hundred Thirty-Eight Thousand Six
Hundred Seventy-Six Only (USD 138,676) with the Lessor as follows:
(vii) United States dollars Thirty-four Thousand Six Hundred
Sixty-Nine Only (USD34,669.00)
(viii) United States Dollars One Hundred and Four Thousand Seven Only
(USD104,007.00) in the form of a Banker's Guarantee/Insurance
Bond in favour of the Lessor and upon such term and conditions
as specified by the Lessor;
Whereupon the Security Deposit (after such deductions as permitted in
this contract) placed earlier on 1/st/ April 2006 shall be returned to
the Lessee."
3.11 IMMEDIATE TERMINATION BY THE LESSEE
Clause 40.4 of the Contract of Lessee shall be deleted and substituted with
the following clause:
"The Lessee may terminate without notice and forfeit this Contract with
immediate effect in the event that:
(a) the lessor enters into liquidation, whether compulsory or voluntary
save for the purpose of reconstruction or amalgamation) or the Lessor
enters into any arrangement with its creditors by composition or
otherwise in anticipation of liquidation ;or
(b) the Lessor becomes bankrupted, insolvent or is dissolved, makes as
assignment for the benefit of its creditors, or has filed any petition
in court seeking any readjustment, arrangement, suspension,
condonation or reduction of the Lessee debts, liabilities or
obligations;
PROVIDED THAT the Lessee's other rights and remedies in respect of any
breach of the Lessor's Obligation shall not be prejudiced.
3.12 EARLY TERMINATION WITH NOTICE BY THE LESSEE
The following clause be inserted after Clause 40.4 of the Contract of Lease
and numbered Clause 40.5:
"The Lessee may terminate with one (1) week's written notice and forfeit
this contract upon the expiry of the notice in the even that the Lessor
breaches any of the Lessor's Obligations under this Contract and the Lessor
has failed to commence any action to remedy the breach within twenty-one
(21) days from the date of receipt of the Lessee's written notice to remedy
the breach or within such longer period as the Lessor may deem necessary or
reasonable to procure the commencement of the remedial action;
PROVIDED THAT the Lessee's other rights and remedies in respect of any
breach of the Lessor's Obligations shall not be prejudices."
3.13 LESSEE'S UNDERTAKING NOT TO TERMINATE THE CONTRACT
The following clause shall be inserted after Clause 40.5 of the Contract of
Lease and numbered Clause 40.6
"Unless Otherwise permitted by Law or provided in this contract, the Lessee
shall not be entitled to terminate this contract."
3.14 LESSEE'S LIABILITY FOR RENT AND SERVICE CHARGE
The following clause shall be inserted after Clause 40.6 of the Contract of
Lease and numbered Clause 40.7:
"If the Lessee terminate this contract prior to the expiry of the Term
other than by exercising its rights under Clauses 40.4 and 40.5 the Lessee
shall be liable for Rent for the entire Term and the Security Deposit shall
be forfeited immediately upon termination."
3.15 OPTION TO PURCHASE
Clause 51 of the Contract of Lease shall be deleted and substituted with
the following clause:
"51.1 During the Term of this Contract, the Lessee is granted an option to
purchase the Leased Premises on the following terms:
(a) the option shall expire upon the termination of this contract;
(b) the Sale Price of the Leased Premises shall be in the following
manner:
(i) if the lessee exercised the option on or before 30/th/
September 2000, the Sale Price of the Leased Premises is
United States Dollars Two Million Eight Hundred Thirty-Six
Thousand Only (USD2,836,000.00);
(ii) if the Lessee exercises the option during the 2/nd/ Rent
Period or the 1/st/ Rent Free Period (i.e. from 1st October
2000 to 30/th/ November 2001), the Sale Price of the Leased
Premises is United States dollars Three Million Seventy-Six
Thousand Only (USD3,076,000);
(iii) if the Lessee exercises the option during the 3rd Rent
Period or the 2/nd/ Rent Free Period (i.e. from 1/st/
December 2001 to 31/st/ March 2003), the Sale Price of
the Leased Premises is United States Dollars Three
Million Three Hundred Thirty Six thousand Only
(USD3,336,000);
(iv) if the Lessee exercises the option during the 4/th/ Rent
Period, the Sale Price of the Leased Premises is United
States Dollars Three Million Six Hundred Fifty-Two
Thousand Eight Hundred Only (USD3,652,800);
(v) if the Lessee exercises the option during the 5/th/ Rent
Period, the Sale Price of the Leased Premises is United
States Dollars four Million Four Thousand Four Hundred
Forty-eight Only (USD4,004,448);
(vi) if the Lessee exercises the option during the 6/th/ Rent
Period, the Sale Price of the Leased Premises id United
States Dollars Four Million three hundred Ninety-Four
Thousand Seven Hundred Seventy-Seven Only (USD4,394,777);
(vii) if the Lessee exercises the option during the 7/th/ Rent
Period, the Sale Price of the Leased Premises is United
States Dollars Four Million Eight Hundred Twenty-Eight
Thousand and Forty-Three Only (USD4,828,043);
(viii) if the Lessee exercises the option during the 8/th/ Rent
Period, the Sale Price of the Leased Premises is United
States Dollars Five Million Three Hundred eight thousand
Nine Hundred Sixty-Seven Only (USD5,308,967).
(c) the payment schedule of the Sale Price shall be as follows:
Stage Percentage of
Sale Price
l. Upon exercising the option 40%
ll. Upon the signing of the Deed of Conditional Sale 30%
lll. Upon the signing of the /Deed of Absolute Sale 30%
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(d) there being no outstanding material breach by the Lessee (which
test of materiality shall be determined by the Lessor whose
decision shall be final) under this Contract at the time of the
Lessee's exercise of the option to purchase the Leased Premises.
51.2 To exercise the option to purchase the Leased Premises, the Lessee
shall notify the Lessor in writing of its intention to exercise the
option together with payment of forty percent (40%) of the Sale
Price. Thereafter, the Lessor shall procure the Deed of Conditional
Sale for the Lessee to execute.
51.3 In the event that the Lessee exercises this option in accordance with
Clause 51.2, the sum of United States Dollars Four Hundred and
Fifty-Six Thousand Only (USD456,000) and the following percentage of
the total Rent paid by the Lessee under this Contract prior to the
Lessee's exercise of the said option shall be considered as part of
the Sale Price for the Leased Premises:
Time of Exercise of Option Percentage of
Rent
During Fitting Out Period & 1/st/ Rent Period 25%
During 2/nd/ Rent Period & 1/st/ Rent Free Period 40%
During 3/rd/ Rent Period & 2/nd/ Rent Free Period 45%
During the 4/th/ Rent Period 50%
During the 5/th/ Rent Period 50%
During the 6/th/ Rent Period 45%
During the 7/th/ Rent Period 45%
During the 8/th/ Rent Period 45%
4. REINSTATEMENT DEPOSIT
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4.1 Pursuant to Clause 16.3 of the Contract of Lease, the Lessee shall place
an additional reinstatement deposit with the Lessor for the cash sum of
Pesos Nine Hundred thousand Only(P900,000)("2/nd/ Storey Reinstatement
Deposit") on or before the execution of this Agreement.
4.2 At the request of the Lessee, the Lessor has agreed to accept a surety
bond instead of a cash payment for the 2/nd/ Storey Reinstatement
Deposit, provided that such surety bond shall be subject to the term and
condition approved by the Lessor.
4.3 The 2/nd/ Storey Reinstatement Deposit shall not at any time be deemed as
payment of all or any part of the Rent or Service Charge.
4.4 On or before the termination of the Contract of Lease or expiry of the
term, the lessee shall reinstate the Building to the satisfaction of the
Lessor (insofar as removing the second storey of the Building) to return
to its original state as at the Possession Date.
4.5 In the event that the Lessee breaches its obligations under Clause 4.4
hereof, the lessor shall be entitled (but not obligated) to reinstate the
Building to its original state as at the Possession Date and the cost of
reinstatement works, shall be for the account of the Lessee. The Lessor
may deduct the cost of reinstatement from the 2/nd/ Storey Reinstatement
Deposit and if it is insufficient, the Lessor shall give a seven (7) days
prior written demand to the Lessee whereupon the Lessee shall pay the
amount stated therein upon the expiry of the demand.
4.6 Upon the full reinstatement of the Building to its original state as at
the Possession Date at the Lessee's expense and to the satisfaction of
the Lessor, the 2/nd/ Storey Reinstatement Deposit shall be returned
without interest to the Lessee within thirty (30) days after the expiry
of the Term ort he termination of the Contract of Lease (whichever the
earlier).
IN WITNESS WHEREOF, the parties hereto have caused this Contract or Lease to be
executed on the date and at the place above-mentioned.
RBF DEVELOPMENT CORPORATRION PSi TECHNOLOGIES (LAGUNA), INC.
(Lessor) (Lessee)
By: /s/ Yolanda L. Nasoles /s/ Arthur J. Young, Jr.
YOLANDA L. NASOLES ARTHUR J. YOUNG, JR.
Vice President President
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SIGNED IN THE PRESENCE OF:
Exhibit 4.8
PSi Technologies Holdings, Inc. and Firebird Consulting Group, LLC
Consulting Agreement
This Consulting Agreement entered into effective as of August 9, 1999
("Effective Date"), by and between PSI Technologies Holdings Inc., a corporation
having its principal place of business at FTI Complex, Taguig, Metro Manila,
Philippines and Firebird Consulting Group, LLC, specifically William Meder
(Consultant), an Arizona corporation having its principal place of business at
1411 E. Bayview, Tempe, AZ 85283.
IT IS AGREED:
1. Responsibilities of Consultant
Consultant will provide advisory service to The President and Board of
Directors of PSI Technologies. He will attend regular Board meetings
expected to be held every two months. He will advise the Board of
Directors on Investment and Operations. He will provide recommendations on
growth investments particularly related to expansion into new countries.
From time to time at the request of the President or Board of Directors he
may be requested to do site analysis. He will provide recommendations on
operations excellence.
2. Term and Termination
Term: The term of this Agreement shall be for one year from the effective date,
and renewable, by mutual agreement, on a yearly basis after that.
Termination: Either party may terminate this Agreement at its convenience, for
any or no reason whatsoever, upon thirty (30) days' prior written notice to the
other. In such event, Consultant shall continue to provide services until the
termination date, unless otherwise advised by PSI Technolgies.
3. Survival
Section 5 shall survive termination or expiration of this Agreement for a period
of six (6) months from the effective date of such termination or expiration.
Section 6 shall survive termination or expiration of this Agreement for a period
of twenty-four (24) months from the effective date of such termination or
expiration.
4. Consulting Fees
PSI Technologies shall pay to Consultant an amount equal to the lesser of (i)
one thousand US dollars ($1,000) per day or (ii) two hundred US dollars ($200)
per hour for performance of responsibilities. Billable time will include
international travel time.
Upon termination of the Agreement, payments under this paragraph shall cease,
provided however, that Consultant shall be entitled to payments for billable
time that occurred prior to the date of termination and for which Consultant has
not yet been paid. Consultant shall be entitled to
reimbursement from PSI Technolgies for related expenses. All travel expenses
must be documented using Firebird Consulting Group's standard form.
5. Indemnification
Consultant shall indemnify, defend and hold PSI Technolgies harmless from any
expenses, damages, costs, or losses resulting from any suit or proceeding
brought for infringement of patents, trademarks, copyrights or other
intellectual property or for unfair competition arising from compliance with
designs, specifications or instructions.
6. Confidentiality
Consultant recognizes that PSI Technologies has and will have copyrights,
business affairs, future plans, trade secrets, process information, technical
information, and other proprietary information (collectively, "Information")
which are valuable, special and unique assets of PSI Technologies. Consultant
agrees that he will not at any time or in any manner, either directly or
indirectly, use any Information for the Consultant's own benefit, or divulge,
disclose or communicate in any manner any Information to any third party without
the prior written consent of PSI Technologies. Consultant will protect
Information and treat it as strictly confidential.
7. General
This Agreement constitutes the complete understanding and agreement with respect
to the subject matter hereof, and supersedes all prior understandings and
agreements relating to its subject matter. This Agreement may not be waived,
modified or amended unless mutually agreed upon in writing. This Agreement, nor
any rights or obligations, may be assigned by Consultant without written consent
of PSI Technologies. This Agreement shall be governed by the laws of the State
of Arizona.
Agreed to this 9th day of August, 1999
PSi Technologies Holdings, Inc. Firebird Consulting Group LLC
/s/ Arthur J. Young, Jr. /s/ William J. Meder
Arthur J. Young, Jr. William J. Meder
Chairman & CEO President
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2
Exhibit 4.9
[LOGO] PSi TECHNOLOGIES HOLDINGS. INC. June 26, 2002
Mr. William J Meder
President and Chief Executive Officer
Firebird Consulting Group LLC
PO Box 28245,
Tempe, AZ 85285
USA
Dear Mr. Meder:
This letter sets out our agreement on the terms and conditions that will govern
your appointment as Director of PSi Technologies Holdings Inc. (PSIT), and PSi
Technologies Inc. (PSI), effective this date.
1. You are hereby appointed as a Director in the Board of Directors of both
PSIT and PSI, upon your election by the incumbent members of the said
boards, in any of their regular or special board meetings.
2. Your term as Director shall be consistent with the term of Directors as
defined in the company's articles and by-laws.
3. You shall be compensated with $1,500.00 (per diem) for every meeting of the
Board that you attend.
4. You shall continue to perform your services as Consultant for Strategy and
Operations in accordance with the consultancy agreement that we signed with
you dated August 9, 1999. As an amendment to said agreement, the company
guarantees you a minimum of three (3) days of consultancy of work, in
conjunction with each board meeting, in the following areas, among others:
1) the company's M&A projects in China or in other overseas locations, 2)
the formulation of the company's business strategies, 3) the conduct of
performance reviews, and 4) the review of the company's manufacturing
operations and package development initiatives. The company shall also pay
for all of your travel and hotel expenses while performing your consultancy
services.
5. It is understood that you will continue to be covered by the
confidentiality and non-disclosure provisions of the agreement mentioned
above.
If you agree with all of the above terms and conditions, please indicate your
conforme by signing below.
Very Truly Yours,
For PSi Technologies Holdings Inc., and
PSi Technologies Inc.:
/s/ Arthur J. Young, Jr.
-------------------------------------
Arthur J. Young, Jr.
Chairman and Chief Executive Officer
Date:
-------------------------------
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Conforme:
/s/ William J. Meder
-------------------------------------
William J. Meder
President and Chief Executive Officer
Firebird Consulting Group LLC
Date:
-------------------------------
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Exhibit 12.1
CEO SECTION 302 CERTIFICATION
I, Arthur J. Young, Jr., certify that:
1. I have reviewed this annual report on Form 20-F of PSi Technologies
Holdings, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
company as of, and for, the periods presented in this annual report;
4. The Company's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the company, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) Evaluated the effectiveness of the company's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
c) Disclosed in this report any change in the company's internal control
over financial reporting that occurred during the period covered by the annual
report that has materially affected, or is reasonably likely to materially
affect, the company's internal control over financial reporting.
5. The company's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
company's auditors and the audit committee of company's board of directors (or
persons performing the equivalent functions):
a) All significant deficiencies and weaknesses in the design or operation
of internal control over financial reporting which are reasonably likely to
adversely affect the company's ability to record, process, summarize and report
financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the company's internal control over
financial reporting.
By: /s/ Arthur J. Young, Jr.
------------------------------------
Name: Arthur J. Young, Jr.
Title: Chief Executive Officer
June 30, 2004
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Exhibit 12.2
CFO SECTION 302 CERTIFICATION
I, Thelma G. Oribello, certify that:
1. I have reviewed this annual report on Form 20-F of PSi Technologies
Holdings, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
company as of, and for, the periods presented in this annual report;
4. The Company's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the company, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) Evaluated the effectiveness of the company's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
c) Disclosed in this report any change in the company's internal control
over financial reporting that occurred during the period covered by the annual
report that has materially affected, or is reasonably likely to materially
affect, the company's internal control over financial reporting.
5. The company's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
company's auditors and the audit committee of company's board of directors (or
persons performing the equivalent functions):
a) All significant deficiencies and weaknesses in the design or operation
of internal control over financial reporting which are reasonably likely to
adversely affect the company's ability to record, process, summarize and report
financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the company's internal control over
financial reporting.
By: /s/ Thelma G. Oribello
------------------------------------
Name: Thelma G. Oribello
Title: Chief Financial Officer
June 30, 2004
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Exhibit 13.1
CEO SECTION 906 CERTIFICATION
PSi TECHNOLOGIES HOLDINGS, INC.
This certification is provided to PSi Technologies Holdings, Inc. (the
"Issuer") in connection with the preparation of the annual report on Form 20-F
(the "Form 20-F") for the period ended December 31, 2003 of Issuer.
I, Arthur J. Young, Jr., the Chief Executive Officer of Issuer certify
that:
(1) To the best of my knowledge, after reasonable investigation:
(i) the Form 20-F fully complies with the requirements of section
13(a) or section 15(d) of the Securities Exchange Act of 1934;
and
(ii) the information contained in the Form 20-F fairly presents, in
all material respects, the financial condition and results of
operations of the Issuer.
(2) I have reviewed the contents of this certificate with the Chief
Financial Officer of Issuer.
Dated: June 30, 2004.
/s/ Arthur J. Young, Jr.
-----------------------------------
Name: Arthur J. Young, Jr.
Title: Chief Executive Officer
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Exhibit 13.2
CFO SECTION 906 CERTIFICATION
PSi TECHNOLOGIES HOLDINGS, INC.
This certification is provided to PSi Technologies Holdings, Inc. (the
"Issuer") in connection with the preparation of the annual report on Form 20-F
(the "Form 20-F") for the period ended December 31, 2003 of Issuer.
I, Thelma G. Oribello, the Chief Financial Officer of Issuer certify
that:
(1) To the best of my knowledge, after reasonable investigation:
(i) the Form 20-F fully complies with the requirements of section
13(a) or section 15(d) of the Securities Exchange Act of 1934;
and
(ii) the information contained in the Form 20-F fairly presents, in
all material respects, the financial condition and results of
operations of the Issuer.
(2) I have reviewed the contents of this certificate with the Chief
Executive Officer of Issuer.
Dated: June 30, 2004.
/s/ Thelma G. Oribello
-----------------------------------
Name: Thelma G. Oribello
Title: Chief Financial Officer
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