<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
-----------------------
COMMISSION FILE NUMBER 0-23562
-----------
MICROELECTRONIC PACKAGING, INC.
------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 94-3142624
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9577 CHESAPEAKE DRIVE, SAN DIEGO, CALIFORNIA 92123
- -------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (619) 292-7000
------------------
Indicate by check whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [x] No [_]
At November 9, 1998, there were outstanding 10,856,890 shares of the
---------------- ----------
Registrant's Common Stock, no par value per share.
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<PAGE>
Index Page No.
- ----- --------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets...................... 3
Condensed Consolidated Statements of Operations............ 4
Condensed Consolidated Statements of Cash Flows............ 5
Condensed Consolidated Statement of Changes in
Shareholders' Deficit...................................... 6
Notes to Condensed Consolidated Financial Statements....... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 15
PART II OTHER INFORMATION
Item 1. Legal Proceedings.......................................... 29
Item 2. Changes in Securities and Use of Proceeds.................. 29
Item 3. Defaults upon Senior Securities............................ 29
Item 4. Submission of Matters to a Vote of Security Holders........ 29
Item 5. Other Information.......................................... 30
Item 6. Exhibits and Reports on Form 8-K........................... 30
SIGNATURES............................................................ 31
EXHIBIT INDEX......................................................... 32
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
MICROELECTRONIC PACKAGING, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
- --------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 516,000 $ 1,296,000
Accounts receivable, net 1,837,000 2,504,000
Inventories 3,393,000 4,230,000
Other current assets 390,000 387,000
- --------------------------------------------------------------------------------
Total current assets 6,136,000 8,417,000
Property, plant and equipment, net 1,930,000 1,212,000
Other non-current assets 198,000 282,000
- --------------------------------------------------------------------------------
$ 8,264,000 $ 9,911,000
================================================================================
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt $ 19,000 $ 22,000
Accounts payable 5,220,000 7,450,000
Accrued liabilities 951,000 1,711,000
Deferred revenue 156,000 265,000
Debt and accrued interest of discontinued
operations in default, due on demand 30,344,000 30,344,000
Current liabilities of discontinued operations,
net -- 10,282,000
- --------------------------------------------------------------------------------
Total current liabilities 36,690,000 50,074,000
Long-term debt, less current portion 59,000 69,000
Commitments and Contingencies
Shareholders' Deficit
Common stock, no par value 40,114,000 40,016,000
Accumulated deficit (68,599,000) (80,248,000)
- --------------------------------------------------------------------------------
Total shareholders' deficit (28,485,000) (40,232,000)
- --------------------------------------------------------------------------------
$ 8,264,000 $ 9,911,000
================================================================================
</TABLE>
3
<PAGE>
MICROELECTRONIC PACKAGING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------ --------------------------
1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 3,739,000 $ 5,655,000 $16,898,000 $ 22,207,000
Cost of goods sold 2,806,000 4,019,000 12,746,000 19,102,000
--------- --------- ---------- ----------
Gross profit 933,000 1,636,000 4,152,000 3,105,000
Selling, general and administrative 692,000 1,008,000 2,402,000 3,587,000
Engineering and product development 306,000 79,000 898,000 275,000
- ------------------------------------------------------------------------------------------------------------
Income (loss) from operations (65,000) 549,000 852,000 (757,000)
Other income (expense):
Interest (expense), net (5,000) (7,000) (11,000) (32,000)
Other income, net 310,000 27,000 600,000 301,000
- ------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations
before provision for income taxes 240,000 569,000 1,441,000 (488,000)
Provision for income taxes - - (18,000) -
- ------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations 240,000 569,000 1,423,000 (488,000)
Discontinued Operations:
Loss from discontinued operations - - - (4,524,000)
Estimated loss on disposal - - - (7,351,000)
- ------------------------------------------------------------------------------------------------------------
Net income (loss) $ 240,000 $ 569,000 $ 1,423,000 $(12,363,000)
============================================================================================================
Earnings (loss) per common share:
Continuing operations $ 0.02 $ 0.05 $ 0.13 $ (0.05)
Discontinued operations - - - (1.16)
- ------------------------------------------------------------------------------------------------------------
Net income (loss) per common share $ 0.02 $ 0.05 $ 0.13 $ (1.21)
============================================================================================================
Earnings (loss) per common share - assuming dilution:
Continuing operations $ 0.02 $ 0.05 $ 0.12 $ (0.05)
Discontinued operations - - - (1.16)
- ------------------------------------------------------------------------------------------------------------
Net income (loss) per common share $ 0.02 $ 0.05 $ 0.12 $ (1.21)
============================================================================================================
</TABLE>
4
<PAGE>
MICROELECTRONIC PACKAGING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
--------------------------
1998 1997
- --------------------------------------------------------------------------------------
<S> <C> <C>
Net cash provided by operating activities of:
Continuing operations $ 319,000 $ 1,349,000
Discontinued operations - 1,882,000
- --------------------------------------------------------------------------------------
Net cash provided by operating activities 319,000 3,231,000
- --------------------------------------------------------------------------------------
Cash flows from investing activities:
Acquisition of fixed assets (1,086,000) (396,000)
Proceeds from the sale of fixed assets:
Continuing operations 9,000 25,000
Discontinued operations - 236,000
- --------------------------------------------------------------------------------------
Net cash provided (used) by investing activities (1,077,000) (135,000)
- --------------------------------------------------------------------------------------
Cash flows from financing activities:
Decrease in short-term notes payable
Continuing operations (35,000) -
Discontinued operations - (3,612,000)
Borrowings under long-term debt and promissory notes
Continuing operations - 205,000
Principal payments on long-term debt and promissory notes
Continuing operations - (512,000)
Discontinued operations - (508,000)
Issuance of common stock, net 13,000 -
- --------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (22,000) (4,427,000)
- --------------------------------------------------------------------------------------
Net increase (decrease) in cash (780,000) (1,331,000)
Cash at beginning of period 1,296,000 2,954,000
- --------------------------------------------------------------------------------------
Cash at end of period $ 516,000 $ 1,623,000
======================================================================================
</TABLE>
5
<PAGE>
MICROELECTRONIC PACKAGING, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS' DEFICIT
(unaudited)
<TABLE>
<CAPTION>
Common Stock
----------------------- Accumulated
Shares Amount Deficit Total
---------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Balance at January 1, 1998 10,793,279 $40,016,000 $(80,248,000) $(40,232,000)
Issuance of common stock 63,611 13,000 - 13,000
Non-employee stock-based
compensation - 85,000 - 85,000
De-Consolidation of Discontinued
Subsidiaries - - 10,226,000 10,226,000
Net income - - 1,423,000 1,423,000
- --------------------------------------------------------------------------------------
Balance at September 30, 1998 10,856,890 $40,114,000 $(68,599,000) $(28,485,000)
======================================================================================
</TABLE>
6
<PAGE>
Microelectronic Packaging, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. Quarterly Financial Statements
The accompanying condensed consolidated financial statements and related
notes as of September 30, 1998 and for the three and nine month periods ended
September 30, 1998 and 1997 are unaudited but include all adjustments
(consisting of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair statement of financial position and results
of operations of the Company for the interim periods. Certain prior year
amounts have been reclassified to conform to the current year presentation.
The results of operations for the three and nine month periods ended
September 30, 1998 are not necessarily indicative of the operating results to
be expected for the full fiscal year. The information included in this
report should be read in conjunction with the Company's audited consolidated
financial statements and notes thereto and the other information, including
risk factors, set forth for the year ended December 31, 1997 in the Company's
Annual Report on Form 10-K. Readers of this Quarterly Report on Form 10-Q
are strongly encouraged to review the Company's Annual Report on Form 10-K.
Copies are available from the Chief Financial Officer of the Company at 9577
Chesapeake Drive, San Diego, California 92123.
2. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
(Unaudited)
<S> <C> <C>
Raw materials................ $1,763,000 $2,445,000
Work-in-progress............. 1,459,000 1,654,000
Finished goods............... 171,000 131,000
---------- ----------
$3,393,000 $4,230,000
========== ==========
</TABLE>
3. Effects of Income Taxes
The Company believes that it has sufficient losses to offset any taxable
income that will be generated in the current year. However, the Company's
use of these losses may result in alternative minimum taxes for Federal
income tax purposes. As a result, the Company has recorded a provision for
income taxes for the nine month period ended September 30, 1998 (for
anticipated alternative minimum taxes).
The Company believes that it has incurred an ownership change pursuant to
Section 382 of the Internal Revenue Code and, as a result, the Company
believes that its ability to utilize its current net operating loss and
credit carryforwards in subsequent periods will be subject to annual
limitations.
7
<PAGE>
Notes to Condensed Consolidated Financial Statements (unaudited)
- --------------------------------------------------------------------------------
4. Net Income (Loss) Per Share
<TABLE>
<CAPTION>
For the three months ended September 30, 1998
---------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
---------------------------------------------
<S> <C> <C> <C>
Income from continuing operations $240,000
Basic EPS
Income available to common shareholders 240,000 10,826,537 $0.02
=====
Effect of dilutive securities:
Stock options -- 481,596
Warrants -- --
-------- -----------
Diluted EPS
Income available to common
shareholders + assumed conversions $240,000 11,308,133 $0.02
======== =========== =====
</TABLE>
Options to purchase 2,028,133 shares and warrants to purchase 1,427,693 shares
of common stock at prices ranging from $.42 to $6.50 were outstanding during the
third quarter of 1998 but were not included in the computation of diluted EPS
because the options' and warrants' exercise prices were greater than the average
market price of the common shares for the quarter then ended. The options and
warrants, which expire between October 1998 and September 2008 were still
outstanding as of September 30, 1998.
<TABLE>
<CAPTION>
For the three months ended September 30, 1998
---------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
---------------------------------------------
<S> <C> <C> <C>
Income from continuing operations $569,000
Basic EPS
Income available to common shareholders 569,000 10,793,279 $.05
====
Effect of dilutive securities:
Stock options -- 193,098
Warrants -- --
-------- -----------
Diluted EPS
Income (loss) available to common
shareholders + assumed conversions $569,000 10,986,377 $.05
======== =========== ====
</TABLE>
Options and warrants to purchase 2,518,177 shares of common stock which were
outstanding during the third quarter of 1997 were not included in the
computation of diluted EPS because the options' and warrants' effect on EPS
would be anti-dilutive.
8
<PAGE>
Notes to Condensed Consolidated Financial Statements (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the nine months ended September 30, 1998
---------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
---------------------------------------------
<S> <C> <C> <C>
Income from continuing operations $1,423,000
Basic EPS
Income available to common shareholders 1,423,000 10,804,487 $0.13
=====
Effect of dilutive securities:
Stock options -- 1,050,710
Warrants -- --
---------- -----------
Diluted EPS
Income available to common
shareholders + assumed conversions $1,183,000 11,855,197 $0.12
========== =========== =====
</TABLE>
Options to purchase 294,800 shares and warrants to purchase 1,427,693 shares of
common stock at prices ranging from $.61 to $6.50 were outstanding during the
first nine months of 1998 but were not included in the computation of diluted
EPS because the options' and warrants' exercise prices were greater than the
average market price of the common shares for the nine months then ended. The
options and warrants, which expire between October 1998 and September 2008 were
still outstanding as of September 30, 1998.
<TABLE>
<CAPTION>
For the nine months ended September 30, 1997
---------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
---------------------------------------------
<S> <C> <C> <C>
Loss from continuing operations $ (488,000) 10,215,111 $(0.05)
Loss from discontinued operations (11,875,000) 10,215,111 (1.16)
------------ ----------- ------
Basic EPS
Income (loss) available to common
shareholders (12,363,000) 10,215,111 $(1.21)
======
Effect of dilutive securities:
Stock options -- --
Warrants -- --
------------ -----------
Diluted EPS
Income (loss) available to common
shareholders + assumed conversions $(12,363,000) 10,215,111 $(1.21)
============ =========== ======
</TABLE>
Options and warrants to purchase 2,518,177 shares of common stock which were
outstanding during the first nine months of 1997 were not included in the
computation of diluted EPS because the options' and warrants' effect on EPS
would be anti-dilutive.
5. Commitments and Contingencies
The Company is involved in various claims and litigation arising in and
outside of the ordinary course of business. In addition, given the current
state of the Company and its subsidiaries, numerous creditors and parties to
contracts have threatened or initiated litigation to recoup their loans and
investments. If these claims are not favorably resolved, they will have a
material adverse effect on the Company's financial condition, results of
operations and ability to continue as a going-concern.
9
<PAGE>
Notes to Condensed Consolidated Financial Statements (unaudited)
- --------------------------------------------------------------------------------
The Company entered into a lease for new manufacturing facilities and
corporate offices. This lease commenced September 1, 1997, and extends to
October 31, 2002. Minimum monthly rental payments of $16,000 began on
November 1, 1997, with scheduled annual increases of 6% to 7% per year
beginning November 1, 1998.
6. Customer Supplied Inventory
Prior to July 25, 1997 the Company's CTM Electronics, Inc. subsidiary
purchased certain chips ("die") used in the assembly of multichip modules
("MCM's") sold to one of the Company's significant customers from that same
customer. Effective July 25, 1997, this customer notified the Company that it
will no longer sell die to the Company and instead is providing the die on
consignment. The pro forma presentation below gives effect to this change in
operations on selected line items from the Company's Condensed Consolidated
Statements of Operations for the three and nine month periods ended September
30, 1997, as if this change had been put into effect on January 1, 1997.
<TABLE>
<CAPTION>
==============================================================================
Historical Pro Forma
Three Months Ended Pro Forma Three Months Ended
September 30, 1997 Adjustments September 30, 1997
===========================================================
<S> <C> <C> <C>
Net sales $5,655,000 $(965,000)/(1)/ $4,690,000
Cost of goods sold 4,019,000 (995,000)/(2)/ 3,024,000
Gross profit 1,636,000 30,000 1,666,000
Net income $ 569,000 30,000 $ 599,000
===================================================
Net loss per
common share $ .05 $ -- $ .05
===============================================================================
<CAPTION>
==============================================================================
Historical Pro Forma
Nine Months Ended Pro Forma Nine Months Ended
September 30, 1997 Adjustments September 30, 1997
===========================================================
<S> <C> <C> <C>
Net sales $ 22,207,000 $(10,626,000)/(1)/ $ 11,581,000
Cost of goods sold 19,102,000 (10,942,000)/(2)/ 8,160,000
Gross profit 3,105,000 316,000 3,421,000
Net loss $(12,363,000) 316,000 $(12,047,000)
=====================================================
Net loss per
common share $ (1.21) $ 0.03 $ (1.18)
===============================================================================
</TABLE>
/(1)/ The cost of the die to be provided on consignment will be removed from
the selling price of the MCM's. The amount of the 2% prompt payment
discount offered to the customer, which is included in revenues, will be
reduced by the lower selling prices for these MCM's.
/(2)/ The cost of the die to be provided on consignment will be removed from
the cost of goods sold, corresponding to the reduction in selling prices
of the MCM's.
7. Discontinued Operations
On July 10, 1997, The Development Bank of Singapore Limited, one of the
Company's Singapore subsidiaries largest creditors ("DBS"), appointed a
Receiver and Manager to liquidate the assets of
10
<PAGE>
Notes to Condensed Consolidated Financial Statements (unaudited)
- --------------------------------------------------------------------------------
Microelectronic Packaging (S) Pte. Ltd. ("MPS"), which is a wholly owned
subsidiary of the Company which manufactured primarily pressed ceramics
products. DBS exercised its option to appoint a Receiver and Manager under
the terms of a Deed of Debenture dated November 27, 1984 (as amended) between
DBS and MPS. The Company anticipates that the Receiver and Manager will
complete the liquidation of MPS in 1998. The Company has guaranteed all of
MPS's obligations to DBS of which approximately $2.6 million was outstanding
as of September 30, 1998. These loans are included in the caption "Debt and
accrued interest of discontinued operations, in default, due on demand" in
the Consolidated Balance Sheet. See Note 9 to the Condensed Consolidated
Financial Statements. There can be no assurance that such debt will be fully
paid through the liquidation of the assets of MPS. If insufficient, DBS could
demand repayment of the shortfall from the Company through the guarantee. The
Company does not have adequate resources to repay such debt if the guarantee
is called.
The Company recorded the effect of the receivership as of June 30, 1997, and
the results of operations of MPS have been classified as "Loss from
discontinued operations" in the Consolidated Statement of Operations. As a
result of the appointment of a Receiver and Manager, MPS is no longer able to
manufacture its pressed ceramic products and has ceased generating revenue
since July 10, 1997.
During the last several months, the Company (as guarantor) reached written
agreements with all six of MPS' creditors. For five of those creditors (see
separate discussion regarding the settlement of the DBS Bank loans below),
the Company agreed to make payments aggregating $3,478,584 as full
satisfaction of the total of all obligations to these creditors. The payments
to these creditors are due between November 19, 1998 and May 1, 1999. In
addition, for one of these creditors, the Company issued warrants for the
purchase of 200,000 shares of the Company's common stock at an exercise price
of $1.00 per share in full satisfaction of the debt. One of the agreements
calls for a payment of $150,000 on November 19, 1998 as payment in full of
the obligation due to that creditor. The Company may either (1) pay the
amount on November 19, (2) obtain assistance from the other five creditors to
extend the payment due date of the agreement to May 1, 1999, or (3) consider
other alternatives. It is uncertain whether such payment will be made on
November 19, 1998 as presently scheduled.
On March 18, 1997, a Receiver was appointed to handle the liquidation of the
multilayer ceramics operations of MPM (S) Pte. Ltd. As of December 31, 1997,
essentially all of the assets of MPM had been sold. Final resolution of the
remaining liabilities will come only after the liquidation of MPS, since MPS
has guaranteed the DBS bank loan and the equipment leases entered into by
MPM. The portion of these liabilities remaining after any reduction
available from the sale of MPS and MPM assets will then be transferred to
MPI, as MPI also guaranteed these loans and leases, which balance was
approximately $2.4 million as of September 30, 1998. As of April 14, 1998,
the Company (as guarantor) reached an agreement with MPM's lessor for the
payment of $483,056 as full satisfaction of the balance remaining after the
sale of the leased equipment; this payment is due on May 1, 1999.
The holders of the debentures issued to Transpac and related parties still
retain $9.0 million of debt securities issued by MPM which are guaranteed by
the Company. The Company and MPM are in default thereunder. On April 22,
1998, the Company (as guarantor) reached an agreement with Transpac for the
payment of $3,112,463 as full satisfaction of the total of all obligations to
Transpac; this payment is due on May 1, 1999. In addition, warrants for the
purchase of 500,000 shares of the Company's common stock at an exercise price
of $1.00 per share were issued to Transpac, and the Company agreed to a
payment of 30% of any monetary proceeds from the
11
<PAGE>
Notes to Condensed Consolidated Financial Statements (unaudited)
- --------------------------------------------------------------------------------
settlement of a specific claim, and the Company guaranteed a minimum proceeds
of $1,000,000 on or prior to December 31, 1999.
As indicated previously, both MPS and MPM are indebted to DBS, and the
Company has guaranteed those obligations. As of July 20, 1998, the Company
(as guarantor) reached an agreement with DBS for the payment of $1,177,397 as
full satisfaction of all obligations to DBS; this payment is due on May 1,
1999. In addition, the Company agreed to a payment of 5% of any monetary
proceeds from the settlement of a specific claim, and there were further
considerations given to DBS that are not considered material by the Company.
The Company's MPC subsidiary was informed in April 1997 that Carborundum
Corporation ("Carborundum"), its sole customer, was immediately canceling the
manufacturing and related agreements with MPC as a result of Carborundum's
sale of its assets to a third party.
On April 5, 1997, a fire at the Company's MPC facility caused damage to the
building and certain equipment. The Company is insured against the fire, and
believes that it will incur no losses from the fire. The Company has closed
the MPC operation and has terminated all of its MPC employees. The Company
has recorded the effect of the closure of this business as of June 30, 1997,
and the results of operations of MPC have been classified as "Loss from
discontinued operations" in the Consolidated Statement of Operations.
Discontinued operations include management's best estimates of the amounts
expected to be realized on the sale of its assets associated with these
discontinued operations and the expenses to be incurred through the disposal
date. The amounts the Company will ultimately realize and incur could differ
materially in the near term from the amounts assumed in arriving at the loss
on disposal of the discontinued operation. Management anticipates that the
foreign operations will be fully dissolved in 1998. However, Management
cannot predict how long it may take the High Court of the Republic of
Singapore to complete the Winding Up of these companies.
Consistent with the presentation in Form 10-K for the year ended December 31,
1997, all debt obligations originating in Singapore have been reclassified to
the caption "Debt and accrued interest of discontinued operations, in
default, due on demand."
8. Going Concern
The accompanying financial statements have been prepared assuming the Company
(MPI along with its only operating subsidiary - CTM) will continue as a going
concern. A number of factors, including the Company's history of significant
losses, the debt service costs associated with the Company's high level of
existing indebtedness, the need to complete the debt restructuring by the
agreed-upon debt settlement payment dates, various claims and lawsuits, and
the Company's Singapore operations in receivership and liquidation raise
substantial doubts about the Company's ability to continue as a going
concern. As of September 30, 1998, the Company has an accumulated deficiency
of $68.6 million and a working capital deficiency of $30.6 million, which
includes $30.3 million of debt of discontinued operations due on demand and
accrued interest from discontinued operations debt net of the remaining
assets from those discontinued operations. While the Company has completed
debt restructuring agreements with its discontinued Singapore operations
creditors, which provide for a reduced payment of $9.3 million in full
satisfaction of the $30.3 million in debt, the Company does not possess
sufficient cash resources to repay these obligations, and thus would be in
default on all of these obligations. The Company would be unable to repay
these loans in the event that such demand was made by the Company's
creditors. See Note 7 for further information regarding the Company's
efforts to restructure this debt and accrued interest from discontinued
operations.
12
<PAGE>
Notes to Condensed Consolidated Financial Statements (unaudited)
- --------------------------------------------------------------------------------
The Company is currently renegotiating the terms of the debt obligations of
its discontinued Singapore operations. Certain obligations with principal
balances totaling approximately $25.2 million have been guaranteed by MPI.
All of these creditors have signed definitive, binding agreements. The
agreements principally involve MPI paying 30% to 40% of the principal and
accrued but unpaid interest ("Settled Debt Amount") owed to each creditor as
of December 31, 1997, within six months of formal documents being agreed
between the parties. The remaining 60% to 70% would be forgiven by the
creditors at the time of the payment of the 30% to 40% portion. There are
also other non-cash considerations being provided to certain creditors. The
Company has not yet recorded the benefit of such debt forgiveness. The
Company intends to either (1) attempt to obtain financing for the 30% to 40%
portion to be paid by the Company or (2) negotiate with these creditors a
conversion of the Settled Debt Amount into the Company's Preferred Stock,
which will be convertible into MPI Common Stock. There can be no assurance
that the Company will be successful in its efforts to either obtain the
financing needed or complete the debt to equity conversion, on acceptable
terms, or at all, in order to fulfill its obligations under the agreements
reached with creditors. In addition, if the Company is successful in its
efforts to complete a debt to equity conversion, this conversion will
substantially dilute the existing shareholders of the Company. Any failure
on the part of the Company to finalize a settlement with its discontinued
Singapore operations creditors would materially adversely affect the
Company's financial condition and ability to continue as a going concern, and
could, as is the case with other debt defaults and failure to repay, require
that the Company seek bankruptcy protection under Chapter 11 or Chapter 7 of
Title 11 of the United States Code for MPI and its U.S. subsidiaries.
9. Restatement of Current Liabilities of Discontinued Operations, Net to
Shareholders' Deficit
During the quarter ended June 30, 1998, the High Court of the Republic of
Singapore ordered the Winding up of MPM Singapore Pte. Ltd. ("MPM"), a wholly
owned subsidiary of the Company. As a result of this decision, MPM cannot
continue as an operating business, and it cannot be allowed to dispose of its
assets or incur further liabilities. In addition, the Company does not have
any control over the management of MPM. This function is undertaken by the
Receiver and Manager appointed by DBS Bank.
In September 1997, the High Court of the Republic of Singapore ordered the
Winding Up of Microelectronic Packaging (S) Pte. Ltd. ("MPS"), also a wholly
owned subsidiary of the Company. As with MPM, MPS cannot continue as an
operating business, and the Company does not have any control over the
management of MPS. This function is undertaken by the Receiver and Manager
appointed by DBS Bank.
The Company has been informed by DBS and the Receiver and Manager for MPM and
MPS that there will not be any funds remaining (after the liquidation of
assets) to satisfy any claims of unsecured creditors for MPM and MPS.
Due to the circumstances as described above, management, effective with the
quarter ended June 30, 1998, will not consolidate the assets and the
liabilities not guaranteed of MPM and MPS, into the consolidated financial
statements for MPI and subsidiaries. For MPM, the decision was based upon
the Singapore High Court's decision to Wind Up this company. For MPS, the
Singapore High Court had already ordered the Winding Up in September 1997,
however, due to the material amount of assets remaining to be liquidated and
also due to requests made by MPS' Receiver and Manager for the Company to
assist them in the realization and disposal of MPS' remaining assets,
Management elected to consolidate until there was a clearer determination of
the control of the subsidiary and realization of its assets. In July 1998,
Management was informed of the sale of the two buildings owned by MPS. In
addition, it became more evident during the quarter ended June 30, 1998 that
any remaining realization of Accounts Receivable on the books of MPS was
highly
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Notes to Condensed Consolidated Financial Statements (unaudited)
- --------------------------------------------------------------------------------
questionable. Accordingly the decision was made to not consolidate the
assets and the liabilities not guaranteed by the Company.
The effect of this decision was to reduce the Current Liabilities of
Discontinued Operations, net and improve the Shareholders' Deficit by $10.2
million as of June 30, 1998.
10. Forward Looking Statements
These Condensed Consolidated Financial Statements contain forward-looking
statements which involve substantial risks and uncertainties. The Company's
actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including the
effects of debt restructuring.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements which involve substantial risks
and uncertainties. The Company's actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including those set forth in this section and elsewhere in this
Quarterly Report on Form 10-Q.
RESULTS OF OPERATIONS
NET SALES
For the three months ended September 30, 1998, net sales were $3,739,000 as
compared to $5,655,000 for third quarter of 1997. The Company's CTM
Electronics, Inc. subsidiary has purchased certain chips ("die") used in the
assembly of multichip modules ("MCMs") sold to one of the Company's significant
customers from that same customer (see Note 6 of Notes to Condensed Consolidated
Financial Statements). Effective July 25, 1997, this customer notified the
Company that it will no longer sell die to the Company and instead is providing
the die on consignment. This change ("consigned die") has resulted in a
reduction in selling prices for products sold to this customer. This change
would have resulted in net sales for the three months ended September 30, 1997
to be $4,690,000 ("proforma net sales"). Thus, net sales actually decreased by
$951,000 or 20%. The decrease in net sales is due to a 19% decrease in MCM
units shipped, as well as a 3% decrease in average selling prices (after
removing die cost as discussed above). The primary reason for the decrease in
average selling prices resulted from a re-negotiated pricing structure by CTM's
largest customer as well as a change in product mix.
For the nine months ended September 30, 1998, net sales were $16,898,000,
representing a decrease of $5,309,000 or 24% over net sales of $22,207,000 for
the corresponding period of 1997. Had the consignment policy described above
been in effect as of January 1, 1997, net sales for the nine months ended
September 30, 1997 would have been $11,581,000 ("proforma net sales"). Thus,
net sales actually increased by $5,317,000 or 46%. The increase is due to a 29%
increase in units shipped, combined with an increase in average selling prices
of 5%, due to a change in product mix.
Net sales to one customer comprised 86% and 87% of net revenues for the three
and nine months ended September 30, 1998, respectively, as compared to 81% and
90% of net revenues for the comparative periods in 1997 to that same customer.
COST OF GOODS SOLD
For the three months ended September 30, 1998, the cost of goods sold was
$2,806,000 as compared to $4,019,000 for the third quarter of 1997, a decrease
of 30%. After eliminating die cost from cost of goods sold for the three months
ended September 30, 1997, cost of goods sold would have been $3,024,000. Thus,
cost of goods sold decreased $218,000 or 7%. The decrease in cost of goods sold
is due to the 19% decrease in MCM units shipped. However, cost of goods sold
for the third quarter of 1998 includes a $350,000 reversal of a previously-
recorded inventory reserve. Without such reversal, cost of goods sold as
percentage of sales would have increased from 71% for the third quarter of 1997
to 84% for the third quarter of 1998. Such increase is primarily the result of
a change in product mix.
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For the nine months ended September 30, 1998, the cost of goods sold was
$12,746,000, representing a decrease of $6,356,000 or 33% over cost of goods
sold of $19,102,000 for the corresponding period of 1997. After eliminating die
cost from cost of goods sold for the nine months ended September 30, 1997, cost
of goods sold would have been $8,160,000. Thus cost of goods sold increased by
$4,586,000 or 56%. The increase in cost of goods sold is due to the 29%
increase in MCM units shipped. Cost of goods sold as a percentage of revenue
(on a proforma basis) increased by 5% due to declines in average selling prices
of certain products sold to CTM's most significant customer being greater than
declines in cost of goods sold for those products, principally material costs.
GROSS PROFIT
Gross profit was $933,000 (25% of net sales) for the third quarter of 1998 as
compared to $1,636,000 (29% of net sales) for the third quarter of 1997. Gross
profit decreased due to decreased sales revenue described above. Gross margin
for the third quarter of 1997 on a proforma basis is 35% of proforma sales. If
the effect of a $350,000 reversal of a previously-recorded inventory reserve
were excluded from the calculation of the 1998 third quarter gross margin, gross
profit as a percentage of net sales would have been 16%. As stated above, the
decline in gross margin from 1997 to 1998 is a combination of declines in
average selling prices of certain products sold to CTM's most significant
customer being greater than declines in cost of goods sold for those products,
principally material costs.
For the nine months ended September 30, 1998, gross profit was $4,152,000 (25%
of net sales) as compared to $3,105,000 (14% of net sales) for the third quarter
of 1997. Gross margin for the nine months ended September 30, 1997 on a
proforma basis is 29% of proforma sales. The decline in gross margin from the
1997 period on a proforma basis to the 1998 period is again primarily due to
reduced selling prices and a change in product mix.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses were $692,000 for the third quarter
and $2,402,000 for the nine months ended September 30, 1998, representing
decreases of $316,000 or 31% and $1,185,000 or 34%, respectively, from the
comparative periods of 1997. Selling, general and administrative expenses for
the 1998 periods include a $100,000 reserve for the anticipated cost to settle
an environmental claim. See Item 3 of the Company's 1997 Annual Report on Form
10-K for a discussion of this environmental claim. The decreases in expenses
are primarily the result of the Company's reduction of the additional legal and
consulting fees which had been incurred in connection with the restructuring of
the Company's U.S. operations and the winding up of its Singapore operations.
The Company anticipates that selling, general and administrative expenses, in
absolute dollars, will remain the same or decline for the balance of 1998 at the
level of the third quarter of 1998.
ENGINEERING AND PRODUCT DEVELOPMENT
Engineering and product development expenses were $306,000 for the third quarter
and $898,000 for the nine months ended September 30, 1998, representing
increases of $227,000 or 287% and $623,000 or 227%, respectively, from the
comparative periods of 1997. The increases result primarily from the increase
in the engineering staff employed by the Company, which is part of the Company's
commitment to improvement in quality and processes in its manufacturing
facility. The Company anticipates that engineering and product development
expenses, in absolute dollars, will remain the same or decline for the balance
of 1998 at the level of the third quarter of 1998.
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INTEREST EXPENSE
Interest expense was $5,000 for the third quarter and $11,000 for the nine
months ended September 30, 1998, representing decreases of $2,000 and $21,000,
respectively, from the comparative periods of 1997. Interest expense for 1997
included interest on the $2.8 million of convertible debentures issued in
October 1996. These debentures were converted into common stock by the end of
February 1997, thus no such interest was incurred in 1998. Interest on customer
loans that are related to the discontinued operations in Singapore have been
included in "Discontinued operations: Loss from discontinued operations" line of
the Condensed Consolidated Statements of Operations.
OTHER INCOME
Other income was $310,000 for the third quarter and $600,000 for the nine months
ended September 30, 1998, representing increases of $283,000 and $299,000,
respectively, from the comparative periods of 1997. Other income for the third
quarter of 1998 includes $259,000 relating to the final settlement of an
insurance claim for a fire at the Company's MPC facility in April 1997. Other
income for the first quarter of 1997 included $190,000 received in settlement of
a note receivable which had been previously written-off.
EFFECTS OF INCOME TAXES
The Company believes that it has sufficient losses to offset any taxable income
that will be generated in the current year. However, the Company's use of these
losses may result in alternative minimum taxes for Federal income tax purposes.
As a result, the Company has recorded a small provision for income taxes for the
nine month period ended September 30, 1998.
The Company believes that it has incurred an ownership change pursuant to
Section 382 of the Internal Revenue Code, and, as a result, the Company believes
that its ability to utilize its current net operating loss and credit
carryforwards in subsequent periods will be subject to annual limitations.
DISCONTINUED OPERATIONS
The net operating results of the activities of MPM, MPS, MPC and Furnace Tech
("FT") for each of the three and nine month periods ended September 30, 1997
have been included as income or loss from discontinued operations on the
Condensed Consolidated Statement of Operations. Amounts recorded as estimated
losses on disposal of assets of the discontinued operations reflect management's
best estimates of the amounts expected to be realized on the sale of the assets
associated with these discontinued operations and the expenses to be incurred
through the disposal date. Such expenses include $3.5 million of interest
expense relating to the indebtedness of the discontinued operations through the
expected completion of the liquidation process for those debts guaranteed by
MPI, which was anticipated to be December 31, 1998. Such interest expense was
recorded as of June 30, 1997. If such indebtedness has not been repaid or
restructured by the beginning of the first quarter of 1999, the Company will
again begin recording interest expense on that outstanding indebtedness.
Interest of approximately $563,000 would be accrued beginning in the first
quarter of 1999 and would continue until the indebtedness is repaid or
restructured.
Beginning in the second quarter of 1998, the Company has discontinued the
consolidation of the assets and liabilities of MPM, MPS, MPC and FT. Those
liabilities and accrued interest guaranteed by MPI have continued to be included
in the Consolidated Balance Sheets of the Company. The effect of the
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deconsolidation of these entities was to reduce current liabilities and improve
shareholders' deficit by $10.2 million as of June 30, 1998.
During the quarter ended June 30, 1998, the High Court of the Republic of
Singapore ordered the Winding up of MPM Singapore Pte. Ltd. ("MPM"), a wholly
owned subsidiary of the Company. As a result of this decision, MPM cannot
continue as an operating business, and it cannot be allowed to dispose of its
assets or incur further liabilities. In addition, the Company does not have any
control over the management of MPM. This function is undertaken by the Receiver
and Manager appointed by DBS Bank.
In September 1997, the High Court of the Republic of Singapore ordered the
Winding Up of "Microelectronic Packaging (S) Pte. Ltd. ("MPS"), also a wholly
owned subsidiary of the Company. As with MPM, MPS cannot continue as an
operating business, and the Company does not have any control over the
management of MPS. This function is undertaken by the Receiver and Manager
appointed by DBS Bank.
Due to the circumstances as described in the previous two paragraphs,
management, effective with the quarter ended June 30, 1998, MPI will not
consolidate the assets and the liabilities not guaranteed of MPS and MPM, into
the consolidated financial statements for MPI and subsidiaries. For MPM, the
decision was based upon the Singapore High Court's decision to Wind Up this
company. For MPS, the Singapore High Court had already ordered the Winding Up
in September 1997, however, due to the material amount of assets remaining to be
liquidated and also due to requests made by MPS' Receiver and Manager for the
Company to assist them in the realization and disposal of MPS' remaining assets,
Management elected to consolidate until there was a clearer determination of the
control of the subsidiary and realization of its assets. In July 1998,
Management was informed of the sale of the two buildings owned by MPS. In
addition, it became more evident during the quarter ended June 30, 1998 that any
remaining realization of Accounts Receivable on the books of MPS was highly
questionable. Accordingly the decision was made to not consolidate the assets
and the liabilities not guaranteed by the Company.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 1998, the Company financed its
operations from operating cash flow. During this period, operating activities
of continuing operations provided $319,000. Investing activities, consisting
principally of the acquisition of fixed assets of continuing operations, used
$1,077,000. At September 30, 1998, the Company had a working capital deficiency
of $30,554,000 and an accumulated deficit of $68,599,000. At September 30,
1998, the Company had outstanding approximately $25,211,000 of principal amount
of debt from its discontinued operations, which debt has been guaranteed by MPI,
the parent company.
The Company's sources of liquidity at September 30, 1998 consisted of
inventories of $3,393,000, trade accounts receivable of $1,837,000 and its U.S.
cash balance of $516,000. The Company has no borrowing arrangements available
to it.
On July 10, 1997, The Development Bank of Singapore Limited, one of the
Company's Singapore subsidiaries' largest creditors ("DBS"), appointed a
Receiver and Manager to liquidate the assets of Microelectronic Packaging (S)
Pte. Ltd. ("MPS"), which is a wholly owned subsidiary of the Company which
manufactured primarily pressed ceramic products. DBS exercised its option to
appoint a Receiver and Manager under the terms of a Deed of Debenture dated
November 27, 1984 (as amended) between DBS and MPS. The Company anticipates
that the Receiver and Manager will complete the liquidation of
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MPS in 1998. The Company has guaranteed all of MPS's obligations to DBS of which
approximately $2.6 million was outstanding as of September 30, 1998. These loans
are included in the caption "Debt and accrued interest of discontinued
operations, in default, due on demand" in the Consolidated Balance Sheets. There
can be no assurance that such debt will be fully paid through the liquidation of
the assets of MPS. If insufficient, DBS could demand repayment of the shortfall
from the Company through its guarantee. The Company does not have adequate
resources to repay such debt if the guarantee is called.
The Company recorded the effect of the receivership as of June 30, 1997, and the
results of operations of MPS have been classified as "Loss from discontinued
operations" in the Consolidated Statement of Operations. As a result of the
appointment of a Receiver and Manager, MPS is no longer able to manufacture its
pressed ceramic products and has ceased generating revenue since July 10, 1997.
During the last several months, the Company (as guarantor) reached written
agreements with all six of MPS' creditors. For five of those creditors (see
separate discussion regarding the settlement of the DBS Bank loans below), the
Company agreed to make payments aggregating $3,478,584 as full satisfaction of
the total of all obligations to these creditors. The payments to these
creditors are due between November 15, 1998 and May 1, 1999. In addition, for
one of the creditors, the Company issued warrants for the purchase of 200,000
shares of the Company's common stock at an exercise price of $1.00 per share.
On March 18, 1997, a Receiver was appointed to handle the liquidation of the
multilayer ceramics operations of MPM (S) Pte. Ltd. As of December 31, 1997,
essentially all of the assets of MPM had been sold. Final resolution of the
remaining liabilities will come only after the liquidation of MPS, since MPS has
guaranteed the DBS bank loan and the equipment leases entered into by MPM. The
portion of these liabilities remaining after any reduction available from the
sale of MPS and MPM assets will then be transferred to MPI, as MPI also
guaranteed these loans and leases. As of April 14, 1998, the Company (as
guarantor) reached an agreement with MPM's lessor for the payment of $483,056 as
full satisfaction of the balance remaining after the sale of the leased
equipment; this payment is due on May 1, 1999.
The holders of the debentures issued to Transpac and related parties still
retain $9.0 million of debt securities issued by MPM which are guaranteed by the
Company. On April 22, 1998, the Company (as guarantor) reached an agreement
with Transpac for the payment of $3,112,463 as full satisfaction of the total of
all obligations to Transpac; this payment is due on May 1, 1999. In addition,
warrants for the purchase of 500,000 shares of the Company's common stock at an
exercise price of $1.00 per share were issued to Transpac, and the Company
agreed to a payment of 30% of any monetary proceeds from the settlement of a
specific claim, and the Company guaranteed a minimum proceeds of $1,000,000 on
or prior to December 31, 1999.
As indicated previously, both MPS and MPM are indebted to DBS, and the Company
has guaranteed those obligations. As of July 20, 1998, the Company (as
guarantor) reached an agreement with DBS for the payment of $1,177,397 as full
satisfaction of total of all obligations to DBS; this payment is due on May 1,
1999. In addition, the Company agreed to a payment of 5% of any monetary
proceeds from the settlement of a specific claim, and there were further
considerations with DBS that are not considered material by the Company.
Management anticipates that the foreign operations will be fully dissolved in
1998. However, Management cannot predict how long it may take the High Court of
the Republic of Singapore to complete the Winding Up of these companies.
The Company also has various capitalized leases for equipment utilized in the US
operations, with a total balance of approximately $78,000 as of September 30,
1998. These lease obligations are being serviced currently by CTM.
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The Company previously purchased raw materials from its principal customer. As
of July 25, 1997, the material was supplied by the customer on consignment. As
of September 30, 1998, the Company owes to that customer approximately $3.2
million from purchases previously made before the change to consignment. The
Company is making regular payments to that customer under an informal repayment
plan.
FUTURE OPERATING RESULTS
Status as a Going Concern. The Company's independent certified public
accountants have included an explanatory paragraph in their audit report with
respect to the Company's 1997, 1996 and 1995 consolidated financial statements
related to a substantial doubt with respect to the Company's ability to continue
as a going concern. Absent outside debt or equity financing, and excluding
significant expenditures required for the Company's major projects and repayment
of debts, and assuming the Company is successful in completing the restructuring
of its debt, the Company currently anticipates that cash on hand and anticipated
cash flow from operations may be adequate to fund its operations in the ordinary
course throughout 1998. Any significant increase in planned capital
expenditures or other costs or any decrease in or elimination of anticipated
sources of revenue or the inability of the Company to restructure its debt could
cause the Company to restrict its business and product development efforts.
There can be no assurance that the Company will be successful in completing the
restructuring of its debt by the agreed-upon debt settlement payment dates, or
at all. If adequate revenues are not available, the Company will be unable to
execute its business development efforts and may be unable to continue as a
going concern. There can be no assurance that the Company's future consolidated
financial statements will not include another going concern explanatory
paragraph if the Company is unable to restructure its debt and become
profitable. The factors leading to and the existence of the explanatory
paragraph will have a material adverse effect on the Company's ability to obtain
additional financing.
Risk of Bankruptcy. The Company may need to be reorganized under Chapter 11 of
Title 11 of the United States Code or liquidated under Chapter 7 of Title 11 of
the United States Code. There can be no assurance that if the Company decides
to reorganize under the applicable laws of the United States that such
reorganizational efforts would be successful or that shareholders would receive
any distribution on account of their ownership of shares of the Company's stock.
Similarly, there can be no assurances that if the Company decides to liquidate
under the applicable laws of the United States that such liquidation would
result in the shareholders receiving any distribution on account of their
ownership of shares of the Company's stock. In fact, if the Company were to be
reorganized or liquidated under the applicable laws of the United States, the
bankruptcy laws would require (with limited exceptions) that the creditors of
the Company be paid before any distribution is made to the shareholders.
Future Capital Needs; Need for Additional Financing. The Company's future
capital requirements will depend upon many factors, including the extent and
timing of acceptance of the Company's products in the market, requirements to
restructure and retire its substantial debt, requirements to construct,
transition and maintain existing or new manufacturing facilities, commitments to
third parties to develop, manufacture, license and sell products, the progress
of the Company's research and
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development efforts, the Company's operating results and the status of
competitive products. If the Company is successful in restructuring its debt
obligations, absent debt or equity financing and excluding significant
expenditures required for the Company's major projects and repayments of debts,
the Company anticipates that cash on hand and anticipated cash flow from
operations may be adequate to fund its operations through 1998. There can be no
assurance, however, that the Company will not require additional financing prior
to such date to fund its operations. In addition, the Company may require
substantial additional financing to fund its operations in the ordinary course,
particularly if the Company is unable to restructure its debt obligations.
Furthermore, the Company may require additional financing to fund the
acquisition of selected assets needed in its production facilities. There can be
no assurance that the Company will be able to obtain such additional financing
on terms acceptable to the Company, or at all.
If the Company cannot complete its agreements with its creditors to repay its
obligations by the agreed-upon debt settlement payment dates, the Company will
not be able to continue as a going concern. The Company's high level of
outstanding indebtedness and the numerous restrictive covenants set forth in the
agreements covering this indebtedness prohibit the Company from obtaining
additional bank lines of credit and from raising funds through the issuance of
debt or other securities without the prior consent of DBS and Transpac and other
creditors. If the Company is unable to satisfy its Settled Debt Amount (see
Note 8 to Condensed Consolidated Financial Statements) by the dates these
obligations are required to be satisfied, then the amounts of those obligations
revert back to their original amounts, including all accrued interest, and the
Company would be in default of all of these obligations. If either a sufficient
number of these creditors or any of the substantial creditors choose to
accelerate payments or to place MPI or one or more of its subsidiaries under
judicial reorganization, the Company may be forced to seek protection under
Chapter 11 of Title 11 of the United States Code or similar bankruptcy laws of
Singapore. If the Company were to seek additional financing, such additional
financing may not be available to the Company on acceptable terms, or at all.
If additional funds are raised either by issuing equity or convertible or debt
securities, or by converting the discontinued Singapore operations' debt
obligations to equity securities, substantial dilution to the existing
shareholders will result. Since adequate funds are not currently available, the
Company has been required to delay, scale back or eliminate programs which could
continue to have a material adverse effect on the Company's business, prospects,
financial condition and results of operations. In addition, the Company has
been forced to delay, downsize or eliminate other research and development,
manufacturing, construction or transitioning programs or alliances or obtain
funds through arrangements with third parties pursuant to which the Company has
been forced to relinquish rights to certain of its technologies or to other
assets that the Company would not otherwise relinquish. The delay, scaling back
or elimination of any such programs or the relinquishment of any such rights
could have a material adverse effect on the Company's business, prospects,
financial condition and results of operations.
Future Operating Results. The Company's operating results have fluctuated
significantly in the past and will continue to fluctuate significantly in the
future depending upon a variety of factors, including corporate and debt
restructurings, creditor relationships, conversions of significant amounts of
debt into a significant amount of equity, downward pressure in gross margins,
losses due to low shipping volume, delayed market acceptance, if any, of new and
enhanced versions of the Company's products, delays, cancellations or
reschedulings of orders, delays in product development, defects in products,
integration of acquired businesses, political and economic instability, natural
disasters, outbreaks of hostilities, variations in manufacturing yields, changes
in manufacturing capacity and variations in the utilization of such capacity,
changes in the length of the design-to-production cycle, relationships with and
conditions of customers, subcontractors, and suppliers, receipt of raw
materials, including consigned materials, customer concentration, price
competition, cyclicality in the semiconductor industry and conditions in the
personal computer industries. In addition, operating results will fluctuate
significantly based upon several other factors, including the Company's ability
to attract new customers, changes in pricing by the Company, its competitors,
subcontractors, customers or suppliers,
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and fluctuations in manufacturing yields. The absence of significant backlog for
an extended period of time will also limit the Company's ability to plan
production and inventory levels, which could lead to substantial fluctuations in
operating results. Accordingly, the failure to receive anticipated orders or
delays in shipments due, for example, to unanticipated shipment reschedulings or
defects or to cancellations by customers, or to unexpected manufacturing
problems may cause net sales in a particular quarter to fall significantly below
the Company's expectations, which would materially adversely affect the
Company's operating results for such quarter. The impact of these and other
factors on the Company's net sales and operating results in any future period
cannot be forecasted with certainty. In addition, the significant fixed overhead
costs at the Company's facilities, the need for continued expenditures for
research and development, capital equipment and other commitments of the
Company, among other factors, will make it difficult for the Company to reduce
its expenses in a particular period if the Company's sales goals for such period
are not met. A large portion of the Company's operating expenses are fixed and
are difficult to reduce or modify should revenues not meet the Company's
expectations, thus magnifying the material adverse impact of any such revenue
shortfall. Accordingly, there can be no assurance that the Company will not
incur losses in the future or that such losses will not have a material adverse
effect on the Company's business, financial condition and results of operations.
Repayment of Debt Obligations by MPM and MPS. As of September 30, 1998, MPM and
MPS had combined outstanding borrowings of approximately $25,211,000. Most of
the assets of MPM and MPS have been liquidated by receivers appointed by DBS.
The Company currently anticipates that the remaining proceeds from the
liquidation of assets will be insufficient to fully repay its outstanding debt.
Since the borrowings have been guaranteed by MPI, the Company has renegotiated
terms for the repayment of the remaining indebtedness. The failure of the
Company to consummate the renegotiated debt obligations would materially
adversely affect the Company's financial condition and the ability of the
Company to continue as a going concern.
Adverse Impact of MPM and MPS Liquidations on MPI. MPM and MPS are currently
being liquidated under the laws of Singapore. The liquidation of the assets of
MPM and MPS are expected to generate proceeds that total less than the
outstanding obligations of those entities guaranteed by MPI. If such shortfall
occurs, MPI may be forced to repay any outstanding debt because of its role as
guarantor of such debts. If MPI were unable to repay these debts, the Company
may be forced to seek bankruptcy protection under Chapter 11 or Chapter 7 of
Title 11 of the United States Code or similar bankruptcy laws of Singapore for
MPI and its subsidiaries.
Certain Obligations of MPS. At September 30, 1998, MPS had outstanding
borrowings of approximately $3,955,000 with DBS and had borrowed an aggregate of
approximately $11,354,000 from a consortium of customers to fund its purchase of
certain CERDIP manufacturing and alumina powder equipment from Samsung Corning.
All of these creditors have signed definitive, binding agreements modifying the
terms and conditions of their borrowings. If the Company is unable to satisfy
the terms of these agreements by the dates these obligations are required to be
satisfied, then the amounts of those obligations revert back to their original
amounts, including all accrued interest, and the Company would be in default of
all of these obligations. If any lender were to then accelerate the principal
due as one of their remedies, such accelerations will materially adversely
affect the Company's ability to continue as an ongoing concern and may force the
Company to seek bankruptcy protection under Chapter 7 or Chapter 11 of Title 11
of the United States Code or similar bankruptcy laws of Singapore. As a part of
the Consortium, Motorola guaranteed MPS' repayment of $2,000,000 in borrowings
from a certain bank lender. Under the terms of the agreement relating to
Motorola's guarantee, MPI granted Motorola a security interest in all of the
issued and outstanding capital stock of MPS, CTM and MPA. While in default,
Motorola may have the right to vote and give consents with respect to all of the
issued and outstanding capital of MPS, CTM and MPA. As a result, during the
continuation of any such event of default, MPI may be unable to control at the
shareholder level the direction of the subsidiaries that generate substantially
all of the Company's
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revenues and hold substantially all of the Company's assets. Any such loss of
control would have a material adverse effect on the Company's business,
prospects, financial condition, results of operations and status as an ongoing
concern and could force the Company to seek protection under Chapter 7 or
Chapter 11 of Title 11 of the United States Code or similar bankruptcy laws of
Singapore. The agreements covering the Transpac Financing, including the
convertible debenture and MPI's guarantee of such MPM indebtedness, contain
numerous restrictions and events of default that have been triggered by the
aforementioned actions and would, if they became effective and operative,
materially adversely affect the Company's business, prospects, results of
operations, condition and status as an ongoing concern and could force the
Company to seek protection under Chapter 7 or Chapter 11 of Title 11 of the
United States Code or similar bankruptcy laws of Singapore.
High Leverage. The Company is highly leveraged and has substantial debt service
requirements. The Company has $36,749,000 in liabilities as of September 30,
1998. On September 30, 1998, the Company had a total shareholders' deficit of
approximately $28,485,000. The Company's ability to meet its debt service
requirements will be dependent upon the Company's future performance, which will
be subject to financial, business and other factors affecting the operation of
the Company, many of which are beyond its control and on the willingness of the
Company's creditors to participate in restructuring the Company's debt. There
can be no assurance that the Company will be able to meet the capital
requirements described above or, if the Company is able to meet such
requirements, that the terms available will be favorable to the Company. See
"Liquidity and Capital Resources".
Highly Competitive Industry; Significant Price Competition. The electronic
interconnection technology industry is intensely competitive. The Company
experiences intense competition worldwide from a number of manufacturers,
including Maxtek Components Corporation, VLSI Packaging, Raytheon Electronic
Systems, Hewlett-Packard Company, Advanced Packaging Technology of America and
MicroModule Systems, all of which have substantially greater financial resources
and production, marketing and other capabilities than the Company with which to
develop, manufacture, market and sell their products. The Company faces
competition from certain of its customers that have the internal capability to
produce products competitive with the Company's products and may face
competition from new market entrants in the future. In addition, corporations
with which the Company has agreements are conducting independent research and
development efforts in areas which are or may be competitive with the Company.
The Company expects its competitors to continue to improve the performance of
their current products and to introduce new products or new technologies that
provide improved performance characteristics. New product introductions by the
Company's competitors could cause a significant decline in sales or loss of
market acceptance of the Company's existing products which could materially
adversely affect the Company's business, financial condition and results of
operations. The Company is also experiencing significant price competition,
which may materially adversely affect the Company's business, financial
condition and results of operations. The Company believes that to remain
competitive in the future it will need to continue to develop new products and
to invest significant financial resources in new product development. There can
be no assurance that such new products will be developed or that sales of such
new products will be achieved. There can be no assurance that the Company will
be able to compete successfully in the future.
Reliance on Principal Customer. Sales to one principal customer accounted for
86% of the Company's net sales in the third quarter of 1998 and is expected to
continue to account for most of the Company's net sales. Under the agreement
between the principal customer and the Company entered into in January 1998, the
Company is obligated to provide the principal customer with its requirements for
MCM product. Given the Company's anticipated continued reliance on its MCM
business as a large percentage of overall net sales, the failure to meet the
principal customer's requirements will materially adversely affect the Company's
ability to continue as an ongoing concern. In addition, under the terms of the
agreement, the principal customer is entitled to request repricing of the
Company's products. The
23
<PAGE>
Company has negotiated and agreed to such repricing for the fourth quarter of
1998. Such repricing in the future may result in the Company being unable to
produce the products made for the principal customer with an adequate operating
profit, and the Company may be unable to compete with the prices of other
vendors who supply the same or similar products to the principal customer. The
failure to satisfy the terms of the agreement, or the failure of the Company to
achieve an operating profit under the contract, would have a material adverse
impact on the Company's business, financial condition, and results of operation.
Significant Customer Concentration. Historically, the Company has sold its
products to a very limited number of customers. Any reduction in orders by any
of these customers, including reductions due to market, economic or competitive
conditions in the semiconductor, personal computer or electronic industries or
in other industries that manufacture products utilizing semiconductors or MCMs,
could materially adversely affect the Company's business, financial condition
and results of operations. The supply agreements with certain of the Company's
customers do not obligate them to purchase products from the Company. The
Company's ability to increase its sales in the future will also depend in part
upon its ability to obtain orders from new customers. There can be no assurance
that the Company's sales will increase in the future or that the Company will be
able to retain existing customers or to attract new ones. Failure to develop
new customer relationships could materially adversely affect the Company's
business, financial condition and results of operations.
Dependence on Semiconductor and Personal Computer Industries. The financial
performance of the Company is dependent in large part upon the current and
anticipated market demand for semiconductors and products such as personal
computers that incorporate semiconductors. The semiconductor industry is highly
cyclical and historically has experienced recurring periods of oversupply The
Company believes that the markets for new generations of semiconductors will
also be subject to similar fluctuations. The semiconductor industry has
demonstrated a significant prolonged slowdown in demand. There can be no
assurance that growth will return and that the slowdown will not continue. A
reduced rate of growth in the demand for semiconductor component parts due, for
example, to competitive factors, technological change or otherwise, may
materially adversely affect the markets for the Company's products. From time
to time, the personal computer industry, like the semiconductor industry, has
experienced significant downturns, often in connection with, or in anticipation
of, declines in general economic conditions. Accordingly, any factor adversely
affecting the semiconductor or the personal computer industry or particular
segments within the semiconductor or personal computer industry may materially
adversely affect the Company's business, financial condition and results of
operations. There can be no assurance that the Company's net sales and results
of operations will not be materially adversely affected if downturns or
slowdowns in the semiconductor, personal computer industry or other industries
utilizing the Company's products continue or again occur in the future.
Technological Change; Importance of Timely Product Introduction; Uncertainty of
Market Acceptance and Emerging Markets. The markets for the Company's products
are subject to technological change and new product introductions and
enhancements. Customers in the Company's markets require products embodying
increasingly advanced electronics interconnection technology. Accordingly, the
Company must anticipate changes in technology and define, develop and
manufacture or acquire new products that meet its customers' needs on a timely
basis. The Company anticipates that technological changes could cause the
Company's net sales to decline in the future. There can be no assurance that
the Company will be able to identify, develop, manufacture, market, support or
acquire new products successfully, that any such new products will gain market
acceptance, or that the Company will be able to respond effectively to
technological changes. If the Company is unable for technological or other
reasons to develop products in a timely manner in response to changes in
technology, the Company's business, financial condition and results of
operations will be materially adversely affected. There can be no assurance
that the Company will not encounter technical or other difficulties that could
in the future delay the introduction of new products or product enhancements.
In addition, new product introductions by the Company's competitors could cause
a
24
<PAGE>
decline in sales or loss of market acceptance of the Company's products, which
could materially adversely affect the Company's business, financial condition
and results of operations. Even if the Company develops and introduces new
products, such products must gain market acceptance and significant sales in
order for the Company to achieve its growth objectives. Furthermore, it is
essential that the Company develop business relationships with and supply
products to customers whose end-user products achieve and sustain market
penetration. There can be no assurance that the Company's products will achieve
widespread market acceptance or that the Company will successfully develop such
customer relationships Failure by the Company to develop products that gain
widespread market acceptance and significant sales or to develop relationships
with customers whose end-user products achieve and sustain market penetration
will materially adversely affect the Company's business, financial condition and
results of operations. The Company's financial performance will depend in
significant part on the continued development of new and emerging markets such
as the market for MCMs. The Company is unable to predict with any certainty any
growth rate and potential size of emerging markets. Accordingly, there can be
no assurance that emerging markets targeted by the Company, such as the market
for MCMs, will develop or that the Company's products will achieve market
acceptance in such markets. The failure of emerging markets targeted by the
Company to develop or the failure by the Company's products to achieve
acceptance in such markets could materially adversely affect the Company's
business, financial condition and results of operations.
Sole or Limited Sources of Supply. Certain raw materials essential for the
manufacture of the Company's products are obtained from a sole supplier or a
limited group of suppliers. There are a limited number of qualified suppliers
of laminate substrates and die which are of critical importance to the
production of the Company's MCM products. In the manufacturing process, the
Company also utilizes consigned materials supplied by certain of its customers.
Such material supplied by customers has historically been in short supply, and
has impacted the Company's ability to produce its goods on a timely basis. The
Company's reliance on sole or a limited group of suppliers and certain customers
for consigned materials involves several risks, including a potential inability
to obtain an adequate supply of required materials and reduced control over the
price, timely delivery, and quality of raw materials. There can be no assurance
that problems with respect to yield and quality of such materials and timeliness
of deliveries will not continue to occur. Disruption or termination of these
sources could delay shipments of the Company's products and could have a
material adverse effect on the Company's business, financial condition and
operating results. Such delays could also damage relationships with current and
prospective customers, including customers that supply consigned materials.
Product Quality and Reliability; Need to Increase Production. The Company's
customers establish demanding and time-consuming specifications for quality and
reliability that must be met by the Company's products. From initial customer
contact to actual qualification for production, which may take as long as three
years, the Company typically expends significant resources. Although the
Company has generally met its customers' quality and reliability product
specifications, the Company has in the past experienced and is currently
experiencing difficulties in meeting some of these standards. Although the
Company has addressed past concerns and has resolved a number of quality and
reliability problems, there can be no assurance that such problems will not
continue or recur in the future. If such problems did continue or recur, the
Company could experience delays in shipments, increased costs, delays in or
cancellation of orders and product returns, any of which would have a material
adverse effect on the Company's business, financial condition or results of
operations. The manufacture of the Company's products is complex and subject to
a wide variety of factors, including the level of contaminants in the
manufacturing environment and the materials used and the performance of
personnel and equipment. The Company has in the past experienced lower than
anticipated production yields and written off defective inventory as a result of
such factors. The Company must also successfully increase production to support
anticipated sales volumes. There can be no assurance that the Company will be
able to do so or that it will not experience problems in increasing production
in the future. The Company's failure to adequately increase production or to
maintain high quality
25
<PAGE>
production standards would have a material adverse effect on the Company's
business, financial condition and results of operations.
Expansion of Operations. In order to be competitive, the Company must implement
a variety of systems, procedures and controls. The Company expects its
operating expenses to continue to increase. If orders received by the Company
do not result in sales or if the Company is unable to sustain net sales at
anticipated levels, the Company's operating results will be materially adversely
affected until operating expenses can be reduced. The Company's expansion will
also continue to cause a significant strain on the Company's management,
financial and other resources. If the Company is to grow, it must expand its
accounting and other internal management systems, and there can be no assurance
that the Company will be successful in effecting such expansion. Any failure to
expand these areas in an efficient manner at a pace consistent with the
Company's business could have a material adverse effect on the Company's results
of operations. Moreover, there can be no assurance that net sales will increase
or remain at or above recent levels or that the Company's systems, procedures
and controls will be adequate to support the Company's operations. The
Company's financial performance will depend in part on its ability to continue
to improve its systems, procedures and controls.
Intellectual Property Matters. Although the Company attempts to protect its
intellectual property rights through patents, trade secrets and other measures,
it believes that its financial performance will depend more upon the innovation,
technological expertise, manufacturing efficiency and marketing and sales
abilities of its employees. There can be no assurance that others will not
independently develop similar proprietary information and techniques or gain
access to the Company's intellectual property rights or disclose such technology
or that the Company can meaningfully protect its intellectual property rights.
There can be no assurance that any patent owned by the Company will not be
invalidated, circumvented or challenged, that the rights granted thereunder will
provide competitive advantages to the Company or that any of the Company's
pending or future patent applications will be issued with the scope of the
claims sought by the Company, if at all. Furthermore, there can be no assurance
that others will not develop similar products, duplicate the Company's products
or design around the patents owned by the Company, or that third parties will
not assert intellectual property infringement claims against the Company. In
addition there can be no assurance that foreign intellectual property laws will
protect the Company's intellectual property rights.
Environmental Regulations. The Company is subject to a variety of local, state,
federal and foreign governmental regulations relating to the storage, discharge,
handling, emission, generation, manufacture and disposal of toxic or other
hazardous substances used to manufacture the Company's products. The Company
believes that it is currently in compliance in all material respects with such
regulations and that it has obtained all necessary environmental permits to
conduct its business. Nevertheless, the failure to comply with current or
future regulations could result in the imposition of substantial fines on the
Company, suspension of production, alteration of its manufacturing processes or
cessation of operations. Compliance with such regulations could require the
Company to acquire expensive remediation equipment or to incur substantial
expenses. Any failure by the Company to control the use, disposal, removal or
storage of, or to adequately restrict the discharge of, or assist in the cleanup
of, hazardous or toxic substances, could subject the Company to significant
liabilities, including joint and several liability under certain statutes. The
imposition of such liabilities could materially adversely affect the Company's
business, financial condition or results of operations. The Company has been
notified by the United States Environmental Protection Agency that it considers
the Company to be a potentially responsible party under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended by
the Superfund Amendments and Reauthorization Act of 1986.
Growth Strategy Through Acquisitions. As part of its growth strategy, the
Company has in the past sought and may in the future continue to seek to
increase sales and achieve growth through the acquisition of comparable or
complementary businesses or technologies. The implementation of this
26
<PAGE>
strategy will depend on many factors, including the availability of acquisitions
at attractive prices and the ability of the Company to make acquisitions, the
integration of acquired businesses into existing operations, the expansion of
the Company's customer base and the availability of required capital.
Acquisitions by the Company may result in dilutive issuances of equity
securities, and in the incurrence of debt and the amortization of goodwill and
other intangible assets that could adversely affect the Company's profitability.
Any inability to control and manage growth effectively could have a material
adverse effect on the Company's business, financial condition and results of
operations. There can be no assurance that the Company will successfully expand
or that growth and expansion will result in profitability or that the Company's
growth plans through acquisitions will not be inhibited by the Company's current
lack of resources.
Dependence on Key Personnel. The Company's financial performance depends in
part upon its ability to attract and retain qualified management, technical, and
sales and support personnel for its operations. Competition for such personnel
is intense, and there can be no assurance that the Company will be successful in
attracting or retaining such personnel. The loss of any key employee, the
failure of any key employee to perform in his current position or the Company's
inability to attract and retain skilled employees, as needed, could materially
adversely affect the Company's business, financial condition and results of
operations.
Volatility of Stock Price. The Company believes that factors such as
announcements of developments related to the Company's business, fluctuations in
the Company's financial results, general conditions or developments in the
semiconductor and personal computer industry and the general economy, sales of
the Company's Common Stock into the marketplace, the ability of the Company to
sell its stock on an exchange or over-the-counter, an outbreak of hostilities,
natural disasters, announcements of technological innovations or new products or
enhancements by the Company or its competitors, developments in the Company's
relationships with its customers and suppliers, or a shortfall or changes in
revenue, gross margins or earnings or other financial results from analysts'
expectations could cause the price of the Company's Common Stock to fluctuate,
perhaps substantially. In recent years the stock market in general, and the
market for shares of small capitalization stocks in particular, including the
Company, have experienced extreme price fluctuations, which have often been
unrelated to the operating performance of affected companies. There can be no
assurance that the market price of the Company's Common Stock will not continue
to experience significant fluctuations in the future, including fluctuations
that are unrelated to the Company's performance.
Recurring Net Operating Losses. The Company's decision to discontinue its
multilayer ceramic operations was the primary factor contributing to its 1996
net loss of $41,842,000. The decision by the principal secured creditors of the
Company's pressed ceramic operations to liquidate that operation's assets was
the primary factor contributing to the 1997 net loss of $11,496,000, as well as
additional loss provisions made in 1997 relating to the discontinuance of the
multilayer ceramic operations. At September 30, 1998, the Company had a working
capital deficiency of $30,554,000 and an accumulated deficit of $68,599,000.
The Company had outstanding at September 30, 1998 approximately $25,211,000 of
principal amount of debt from its discontinued operations, which debt has been
guaranteed by MPI, the parent company.
Year 2000 Compliance. Many currently installed computer systems and software
products are coded to accept only two digit entries in the date code field.
These date code fields will need to accept four digit entries to distinguish
21st century dates from 20th century dates. As a result, in less than two
years, computer systems and/or software used by many companies may need to be
upgraded to comply with such "Year 2000" requirements. Significant uncertainty
exists in the software industry and in other industries concerning the potential
effects associated with such compliance. Although the Company currently offers
products that are designed to be Year 2000 compliant, there can be no assurance
that the Company's products and the software products used by the Company
contain all necessary date code changes.
27
<PAGE>
As of September 30, 1998, the Company has partially completed an analysis of its
readiness for compliance with the Year 2000 change. Its assessment of its
manufacturing systems and company products reveals that no known Year 2000
issues currently exist either in the products, their raw materials, or their
relationship as components to larger systems produced by its customers; its
financial systems software is currently being upgraded to a newer replacement
system which will be complete in December 1998, and which system is Year 2000
compliant; documentation systems that currently use fixed dating are Year 2000
compliant, while those that require revision dating are currently under review;
and approximately 50% of the Company's computing hardware systems have been
upgraded to be Year 2000 compliant. The Company's costs to become Year 2000
compliant as of September 30, 1998 have been $235,000 for computer software and
$48,000 for computer hardware.
The Company has not yet completed its analysis of its readiness for compliance
with the Year 2000 change. Based upon the partial analysis described above, the
Company believes its exposure to Year 2000 risks is limited because the majority
of the Company's recordkeeping systems are new and compliant and have been
installed within the last eighteen months. The Company utilizes no custom-
programmed "legacy" software or hardware systems known to need Year 2000
upgrading or conversion. The Company believes it should be fully compliant with
its Year 2000 issues by the end of the second quarter of 1999 when it believes
it will have completed due diligence of its internal systems and supplier
compliance requirements, as well as completed the remaining 50% of its computing
hardware upgrades needed. However, there can be no assurance that conditions or
events may occur during the course of the completion of this analysis which will
have an adverse impact on the Company's readiness for compliance with the Year
2000 change.
The Company believes that the purchasing patterns of customers and potential
customers and the performance of vendors may be affected by Year 2000 issues in
a variety of ways. Many companies are expending significant resources to
correct or patch their current software systems for Year 2000 compliance. These
expenditures may result in reduced funds available to purchase products such as
those offered by the Company or the inability to render services or provide
supplies to the Company. Year 2000 issues may cause other companies to
accelerate purchases, thereby causing an increase in short-term demand and a
consequent decrease in long-term demand for software products, and disruption of
supply patterns. Additionally, Year 2000 issues could cause a significant
number of companies, including current Company customers and vendors, to spend
significant resources upgrading their internal systems, and as a result consider
switching to other systems or suppliers. Any of the foregoing could result in a
material adverse effect on the Company's business, operating results and
financial condition.
ITEM 3 - QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
The Company has no derivative financial instruments.
The Company has outstanding indebtedness at September 30, 1998 to DBS
denominated in Singapore dollars of approximately Singapore $3,400,000 (U.S.
equivalent $2,144,000). Further, the Company has two buildings, also located in
Singapore, which are mortgaged as security for the Singapore loans, and for
which deposits have been received from purchasers for the sale of such
buildings. All of the Company's other indebtedness is denominated in U.S.
dollars, and all other Singapore-based assets have been liquidated by the
receiver of MPM or MPS and used to retire outstanding indebtedness. The sales
price of the buildings located in Singapore is somewhat more than the amount of
the Company's debt which is denominated in Singapore dollars. Accordingly, the
Company believes its exposure to foreign currency rate movements is extremely
limited since it has matched the maturity and approximate amount of assets and
liabilities denominated in the Singapore dollar.
28
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Due to the closure of the Company's Singapore operations, various
creditors have instituted legal actions against the Company and its
subsidiaries in order to recover amounts due. In addition, numerous
other creditors and parties to contracts have threatened or initiated
litigation to recoup their loans and/or investments. These claims will
not be fully satisfied through the liquidation of assets in Singapore.
If these claims are not favorably resolved, they will have a material
adverse effect on the Company's financial condition, results of
operations and ability to continue as a going concern because the
Company has guaranteed substantially all of these debts.
Item 2. Changes in Securities and Use of Proceeds
Options were issued during the quarter ended September 30, 1998 to
employees of the Company under the terms of the Company's 1993 Stock
Option/Stock Issuance Plan for 210,000 shares of common stock at a
price of $0.42 per share. Options were issued during the quarter ended
September 30, 1998 to two non-employee directors of the Company under
the terms of the Automatic Option Grant Program of the Company's 1993
Stock Option/Stock Issuance Plan for 30,000 shares of common stock at
prices ranging from $0.34 to $0.45 per share. These options were issued
pursuant to the exemptions provided by Section 4(2) of the Securities
Act of 1933 and/or Regulation D.
On September 24, 1998 a warrant to purchase 200,000 shares of the
Company's common stock at $1.00 per share was issued to
STMicroelectronics, Inc. ("ST"), pursuant to the terms of the
Restructuring, Settlement and Mutual Release Agreement between ST and
the Company dated September 24, 1998. This warrant was issued pursuant
the exemptions provided by Section 4(2) of the Securities Act of 1933
and/or Regulation D.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
29
<PAGE>
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
Reports on Form 8-K.
None.
The Exhibits filed as part of this report are listed below.
Exhibit No. Description
----------- ---------------------------------------------------------
10.84 Restructuring, Settlement and Mutual Release Agreement
between STMicroelectronics, Inc. and the Company dated
September 24, 1998.
10.85 Amendment to Restructuring, Settlement and Mutual Release
Agreement between Texas Instruments Singapore (Pte.) Ltd.
and the Company dated August 11, 1998.
10.86 Amendment to Restructuring, Settlement and Mutual Release
Agreement between Transpac Capital Pte. Ltd., Transpac
Industrial Holdings Ltd., Regional Investment Company,
Ltd. and Natsteel Equity III Pte. Ltd., and the Company
dated September 1, 1998.
10.87 Amendment to Restructuring, Settlement and Mutual Release
Agreement between ORIX Leasing Singapore Limited and the
Company dated August 11, 1998.
10.88 Amendment to Forbearance, Restructure and Mutual Release
Agreement between Motorola, Inc. and the Company dated
November 5, 1998.
27.1 Financial Data Schedule
30
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MICROELECTRONIC PACKAGING, INC.
-------------------------------
(Registrant)
Date: November 12, 1998 By: /s/ DENIS J. TRAFECANTY
--------------------- ----------------------------
Denis J. Trafecanty
Senior Vice President,
Chief Financial Officer
and Secretary
31
<PAGE>
EXHIBIT INDEX
Number Description
- ------ -----------
10.84 Restructuring, Settlement and Mutual Release Agreement between
STMicroelectronics, Inc. and the Company dated September 24, 1998.
10.85 Amendment to Restructuring, Settlement and Mutual Release Agreement
between Texas Instruments Singapore (Pte.) Ltd. and the Company dated
August 11, 1998.
10.86 Amendment to Restructuring, Settlement and Mutual Release Agreement
between Transpac Capital Pte. Ltd., Transpac Industrial Holdings
Ltd., Regional Investment Company, Ltd. and Natsteel Equity III Pte.
Ltd., and the Company dated September 1, 1998.
10.87 Amendment to Restructuring, Settlement and Mutual Release Agreement
between ORIX Leasing Singapore Limited and the Company dated August
11, 1998.
10.88 Amendment to Forbearance, Restructure and Mutual Release Agreement
between Motorola, Inc. and the Company dated November 5, 1998.
27.1 Financial Data Schedule
<PAGE>
EXHIBIT 10.84
RESTRUCTURING, SETTLEMENT
AND MUTUAL RELEASE AGREEMENT
----------------------------
This Restructuring, Settlement and Mutual Release Agreement (this
"Agreement") is entered into as of this 24th day of September, 1998 the
"Effective Date", by and among Microelectronic Packaging, Inc. ("MPI"), on
behalf of itself and its predecessors, successors, former or current
subsidiaries, affiliates, officers, directors, shareholders, agents, attorneys,
representatives, insurers, employees and assigns (collectively with MPI, the
"MPI Releasees"), and STMicroelectronics Inc. (formerly known as SGS-Thomson
Microelectronics, Inc.) (hereinafter "ST"), assignee of STMicroelectronics Pte.
Ltd. (formerly known as SGS-Thomson Microelectronics, Pte. Ltd.) (hereinafter
"ST-Singapore") and its predecessors, successors, subsidiaries, affiliates,
officers, directors, stockholders, agents, attorneys, representatives, insurers,
employees and assigns (collectively with ST, the "ST Releasees").
W I T N E S S E T H:
WHEREAS, pursuant to a Supply Guarantee and Preferred Allocation
Agreement dated August 17, 1995 by and among MPI, Microelectronic Packaging (S)
Pte Ltd ("MPS") and ST-Singapore (including the Charge agreement executed by MPS
pursuant thereto, collectively, the "Initial Loan Agreement"), ST-Singapore made
a lump sum advance in the amount of US$4.0 million to MPS, a subsidiary of MPI,
upon which certain interest amounts were thereafter due and payable periodically
under the Initial Loan Agreement as amended by Supplemental Agreement to the
Supply Guarantee and Preferred Allocation Agreement dated August 17, 1995, which
Supplemental Agreement was itself dated October 19, 1995 (collectively with the
Initial Loan Agreement, the "Loan Agreement");
WHEREAS, MPI entered into a Deed of Guarantee and Indemnity dated
August 17, 1995 with ST-Singapore (the "Guarantee"), pursuant to which MPI
agreed to guaranty the obligations of MPS under the Loan Agreement;
WHEREAS, MPS has defaulted on its obligations under the Loan Agreement
giving rise to MPI's obligations under the Guarantee; and
WHEREAS, ST-Singapore has assigned its rights under the Loan Agreement
and Guarantee to ST; and
WHEREAS, the parties wish to settle all obligations under the Loan
Agreement and the Guarantee, and terminate and release all rights and
obligations under such documents and all other related agreements, and settle
all other disputes that may exist between MPI and each of the other MPI
Releasees, and ST and each of the other ST Releasees.
NOW, THEREFORE, in consideration of the mutual promises contained
herein and for other good and sufficient consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
<PAGE>
1. General Release, Covenants and Settlement.
-----------------------------------------
a. Release Waiver and Covenant. ST, on behalf of itself and the
---------------------------
other ST Releasees, hereby agrees as follows:
i. Release. On the Release Date (as defined in Section 1.d),
-------
ST, on behalf of itself and each other ST Releasee, will fully and forever
release and discharge each of the MPI Releasees from and against any and all
claims, damages and causes of action they may have against each such person or
entity and will not sue or otherwise institute or cause to be instituted or in
any way participate in any legal, administrative or regulatory proceedings
against any of the MPI Releasees (in which they or any of them are claimants)
with respect to (a) any matter under the provisions of, arising out of or in
connection with, the Loan Agreement and the Guarantee and any of their
respective related agreements, letters, documents and instruments, including any
breach of any representation or warranty or noncompliance or nonfulfillment of
any covenant or agreement set forth in such financing or loan documents, (b) any
and all claims, demands, debts, causes of action of whatsoever kind or nature,
whether known or unknown, suspended or unsuspended, matured or unmatured which
ST or any ST Releasee now owns or holds against any of the MPI Releasees or have
at any time heretofore owned or held, and (c) the Confession of Judgment
Documents (as defined in Section 1.d.i.(2) below); provided, however, that the
foregoing release and waiver should in no way be interpreted as a release from
any claim or cause of action ST may have as a result of any breach of the
warrant.
ii. Waiver. On the Release Date, ST on behalf of itself and
------
each other ST Releasee will waive any rights it may have had or then has to
pursue any and all remedies available to it under any cause of action against
any other party to this Agreement, including each subsidiary of ST, pursuant to,
in connection with, or arising out of the Loan Agreement, the Guarantee and all
related agreements, letters, documents, and instruments, including without
limitation, claims of breach of contract, breach of fiduciary duty, fraud, and
breach of the covenant of good faith and fair dealing.
iii. Termination of the Loan Agreement, the Guarantee and all
--------------------------------------------------------
Related Agreements. ST agrees that, on the Release Date, each of the Loan
- ------------------
Agreement, the Guarantee and the Confession of Judgment Documents, and each of
their respective related agreements, letters, documents and instruments,
regardless of whether they are in default, will be fully and completely
terminated and rendered devoid of legal effect and unenforceable, such that even
provisions of the Loan Agreement, the Guarantee, the Confession of Judgment
Documents (as defined in Section 1.d.i.(2) below) and all related agreements,
letters, documents and instruments that, according to their terms, survive
termination, will be terminated and nullified. Further, ST hereby acknowledges
and agrees that, on the Release Date, any loan, debt, liability or other
obligation evidenced by the Confession of Judgment Documents (as defined in
Section 1.d.i.(2) below) or otherwise created pursuant to or arising out of the
Loan Agreement or the Guarantee, as well as any writings, agreements, notes or
certificates representing such loan, debt, liability or obligations, will be
automatically cancelled and rendered devoid of force and effect.
iv. Payment in Full. Assuming ST is paid in full pursuant to
---------------
section 1.d.i(1) ST hereby acknowledges and agrees that, on the Release Date and
thereafter,
(1) the only payments and benefits they are entitled to
receive
<PAGE>
from any and all of the MPI Releasees are those specified in Sections
1.b. and 1.c. of this Agreement; and
(2) they are not entitled to receive any further
monetary payments from any and all of the MPI Releasees pursuant to, in
connection with, or arising out of the Confession of Judgment Documents (as
defined in Section 1.d.i.(2) below), the Loan Agreement or the Guarantee, or any
of their respective related agreements, letters, documents and instruments.
b. Release Waiver and Covenants. MPI, on behalf of itself and the
----------------------------
other MPI Releasees, hereby agree as follows:
i. Release. On the Effective Date MPI, on behalf of itself
-------
and each other MPI Releasee, will have fully and forever released and discharged
each of the ST Releasees from any claims, damages, and causes of action it or
they may have had against any of them and will not sue or otherwise institute or
cause to be instituted or any way participate in legal, administrative or
regulatory proceeding against any of the ST Releasees (in which it or any of
them are claimants) with respect to (a) any matter under the provisions of,
arising out of or in connection with the Loan Agreement, the Guarantee and any
of their respective related agreements, letters, documents and instruments, and
(b) any and all claims, demands, debts, causes of action of whatsoever kind or
nature, whether known or unknown, suspended or unsuspended, matured or unmatured
which the MPI or any MPI Releasee now owns or holds against any of the ST
Releasees or have at any time heretofore owned or held.
ii. Waiver. On the Release Date, MPI, on behalf of itself and
------
each other MPI Releasee will waive any rights it may have had or then has to
pursue any and all remedies available to it under any cause of action against
any other party to this Agreement, including each subsidiary of MPI, pursuant
to, in connection with, or arising out of the Loan Agreement, the Guarantee and
all related agreements, letters, documents, and instruments, including without
limitation, claims of breach of contract, breach of fiduciary duty, fraud, and
breach of the covenant of good faith and fair dealing.
iii. Termination of the Loan Agreement, the Guarantee and all
--------------------------------------------------------
Related Agreements. MPI hereby acknowledges and agrees that, on the Release
- ------------------
Date, each of the Loan Agreement, the Guarantee and each of their respective
related agreements, letters, documents and instruments will be fully and
completely terminated and rendered devoid of force and effect, such that even
provisions of the Loan Agreement, the Guarantee and each of their respective
related agreements, letters, documents and instruments that, according to their
terms, survive termination, will be automatically terminated and nullified.
iv. Payment in Full. MPI acknowledges and agrees that on the
---------------
Effective Date and thereafter the only payments and benefits it is entitled to
receive from the ST Releasees are those specified in Sections 1.a. and 1.c. of
this Agreement.
c. Mutual Agreements and Covenants.
-------------------------------
No party to this Agreement shall, except as may be mandated by
statutory or regulatory requirements, as may be required by legal process in the
course of actual litigation or in the case of a subpoena, or as may be necessary
for MPI to negotiate an accommodation with
<PAGE>
its creditors, disclose to others the fact or terms of this settlement, the
amounts referred to in this Agreement or the fact of the payment of said
amounts, except that each such party may disclose to each such party's
attorneys, accountant or other advisors to whom the disclosure is necessary to
effectuate the purposes for which such party has consulted with such
professional advisors and except that MPI may file this Agreement with any
governmental or regulatory body, describe it and refer to it in any filing it
makes pursuant to federal and state securities laws or to its Board of Directors
or shareholders.
d. Settlement and Payment. In settlement of all defaults, amounts
----------------------
owed, debts, liabilities and other obligations pursuant to, in connection with,
or arising out of the Loan Agreement, the Guarantee and each of their respective
related agreements, letters, documents and instruments:
i. (1) MPI will pay to ST by no later than May 1, 1999 an amount
of US$1,137,044, by wire transfer to ST, in accordance with written wire
transfer instructions it will receive from ST. The date upon which MPI makes
payment in full of the balance of the amount due to ST pursuant to the preceding
sentence shall be the "Release Date." If such payment occurs after May 1, 1999,
there will be no "Release Date" for purposes of this Agreement.
(2) Concurrent with the execution of this Agreement, MPI
will deliver to ST fully executed and verified original Confession of Judgment
Documents conforming to those attached as Exhibit A hereto confessing judgment
in the amount of U.S. Four Million Dollars ($4,000,000) plus interest and costs.
Steven K. Rose, ST Vice President, Secretary and General Counsel, or his
successor, shall retain the Confession of Judgment Documents on behalf of ST and
shall have responsibility for using the Confession of Judgment Documents only in
accord with this Agreement. If and when MPI makes full, complete and timely
payment of the settlement amount set forth in Section 1(d)(i)(1) above to ST, ST
shall return the Confession of Judgment Documents to MPI. If MPI fails to make
full, complete and timely payment of the settlement amount referenced in Section
1(d)(i)(1) above to ST, ST shall give MPI written notice of MPI's payment
default and demand for cure and performance within 72 hours. If MPI cures its
default within 72 hours of such notices, ST will return the Confession of
Judgment Documents to MPI. If MPI fails to fully, completely and timely cure its
payment default following notice from ST, then ST shall be entitled to
immediately submit the Confession of Judgment Documents to the court and obtain
entry of judgment in accord with the Confession of Judgment Documents without
further notice to MPI.
(3) If MPI fails to make timely, full payment of the
settlement payment set forth in Section 1(d)(i)(1) above, and for any reason ST
is unable to successfully obtain entry of the judgment by confession referenced
in Section 1(d)(i)(2) above, then MPI further agrees to promptly and without
contest stipulate to a judgment against it, in the form attached as Exhibit B
hereto; to deliver an originally, fully executed stipulated judgment to ST along
with this executed Agreement; and to not oppose entry of the stipulated judgment
in any action initiated by ST arising out of MPI's failure to make complete,
timely payment of the settlement payment referenced in Section 1(d)(i)(1) above
referenced in this Agreement following the notice and opportunity to cure
referenced in Section 1(d)(i)(2) above; Steven K. Rose or his successor will
have responsibility for retaining the stipulated judgment and utilizing it only
in accord with the terms of this Agreement, and returning it to MPI upon timely
payment in full by MPI to ST of the amount set forth in Section (d)(i)(1) above.
<PAGE>
ii. Concurrent with the execution of this Agreement, MPI will
issue to ST a warrant to purchase 200,000 shares of MPI's common stock ("Common
Shares") at an exercise price of US$1.00 per share, which warrant will be
immediately exercisable and will remain exercisable for seven (7) years from the
date of issuance (the "Warrant"). The Warrant will conform to the documents
attached as Exhibit C hereto.
2. Representations and Warranties.
------------------------------
a. MPI. MPI represents and warrants that:
---
i. It has all requisite corporate power and authority to
execute and deliver, and fulfill its obligations under this Agreement and the
Warrant. This Agreement (notwithstanding the lack of approval of MPS), upon
execution and delivery by MPI and assuming due and proper execution and delivery
by ST, and the Warrant will constitute valid and binding obligations of MPI,
enforceable in accordance with their terms, except as such enforcement may be
limited by bankruptcy, insolvency, moratorium and other laws of general
application affecting the enforcement of creditors' rights.
ii. No consent, approval, order or authorization, or
registration, qualification, designation, declaration or filing with, any
federal, state or local governmental authority on the part of MPI is required in
connection with the execution, delivery and performance of this Agreement and
the Warrant by MPI, other than state securities law filings which have been
completed or are in the process of being completed.
iii. No consent, approval, waiver or other action by any person
under any contract, agreement, indenture, lease, instrument or other document to
which MPI is a party or by which it is bound is necessary for the execution,
delivery and performance of this Agreement and the Warrant by MPI.
iv. MPS is not a necessary party to this Agreement and,
notwithstanding the foregoing, in the event MPS is a necessary party, MPI shall
indemnify ST from any and all damage it incurs as a result of MPS not being a
party to this agreement.
b. ST. ST represents and warrants that:
--
i. It has all requisite corporate power and authority to
execute and deliver, and fulfill its obligations under this Agreement. This
Agreement, upon execution and delivery by ST and assuming due and proper
execution and delivery by MPI, will constitute a valid and binding obligation of
ST, enforceable in accordance with its terms, except as such enforcement may be
limited by bankruptcy, insolvency, moratorium and other laws of general
application affecting the enforcement of creditors' rights.
<PAGE>
ii. It is the proper assignee of the rights of ST-Singapore
with regard to the Loan Agreement and Guarantee.
3. Miscellaneous. MPI and ST hereby agree as follows:
-------------
a. Differences in Fact. Each party to this Agreement hereby agrees
-------------------
to accept and assume the risk that any fact with respect to any matter covered
by this Agreement may hereafter be found to be other than or different from the
facts it believes at the time of this Agreement to be true, and agrees that this
Agreement shall be and will remain effective notwithstanding any such difference
in fact.
b. Severability. If any provision of this Agreement is found to
------------
be unenforceable, it shall not affect the enforceability of the remaining
provisions and the court shall enforce all remaining provisions to the extent
permitted by law. All parties agree that, notwithstanding the lack of execution
of this Agreement by MPS, this Agreement is valid, binding and enforceable on
all parties.
c. Prior Agreements. This Agreement shall supersede and render null
----------------
and void any and all prior agreements between MPI and/or MPS, on one hand, and
ST, on the other hand, concerning the subject matter contained herein.
d. Scope of Release. This Agreement extends to all claims of every
----------------
nature and kind, known or unknown, suspected or unsuspected, past or present,
arising from or attributable by any party to this Agreement for any matter
released in this Agreement and any and all rights granted to MPI or ST under
Section 1542 of the California Civil Code or any analogous state law or federal
or foreign law or regulation are hereby expressly waived. Said Section 1542 of
the Civil Code of the State of California reads as follows:
A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the
release, which, if known by him, must have materially affected his
settlement with the debtor.
No party to this Agreement has any knowledge of any existing claims against any
other party, except for those released by this Agreement.
e. Successors and Assigns. This Agreement shall bind and benefit ST
----------------------
and its successors and assigns and shall also bind and benefit MPI and its
successors and assigns.
f. Governing Law. This Agreement shall be deemed to have been
-------------
g. Jurisdiction. The parties to the Agreement hereby (i) irrevocably
------------
submit to the exclusive jurisdiction of the courts of the State of California
sitting in San Diego County for the purpose of any action or proceeding arising
out of or relating to this Agreement and any other documents and instruments
relating hereto, (ii) agree that all claims in respect of any such
<PAGE>
action or proceeding may be heard and determined in such courts, (iii)
irrevocably waive (to the extent permitted by applicable law) any objection
which it now or hereafter may have to the laying of venue of any such action or
proceeding brought in any of the foregoing courts, and any objection on the
ground that any such action or proceeding in any such court has been brought in
an inconvenient forum and (iv) agree that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner permitted by law.
h. Remedies. The parties acknowledge and agree that, in the event of
--------
any dispute in which any party alleges and proves any non-performance or breach
of Section 1.a., 1.b. or 1.c., monetary damages will be an inadequate remedy for
the non-performance or breach of such provision(s), and the non-performing or
breaching party hereby consents in advance to be subject to specific performance
and any other appropriate equitable remedies. The parties acknowledge and agree
under no circumstances will punitive or consequential damages be awarded in
respect of any party's non-performance or breach of any provision of this
Agreement.
i. Counterparts. This agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
j. Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
k. Amendment and Termination. No amendment, modification, waiver,
-------------------------
termination or cancellation of this Agreement or any part thereof shall be
effective unless it is in writing and is signed by MPI and ST. No delay on the
part of any party in exercising any right, power or privilege hereunder shall
operate as a waiver thereof. Nor shall any waiver on the part of any party of
any such right, power or privilege, nor any single or partial exercise of any
such right, power or privilege, preclude any further exercise thereof or the
exercise of any other such right, power or privilege. The rights and remedies
herein provided are cumulative and are not exclusive of any rights or remedies
that any party may otherwise have at law or in equity. The rights and remedies
of any party based upon, arising out of or otherwise in respect of any
inaccuracy in or breach or nonfulfillment of or noncompliance with any
representation, warranty, covenant or agreement contained in this Agreement
shall in no way be limited by the fact that the act, omission, occurrence or
other state of facts upon which any claim of any such inaccuracy or breach is
based may also be the subject matter of any other representation, warranty,
covenant or agreement contained in this Agreement (or in any other agreement
between the parties) as to which there is no inaccuracy or breach.
l. Survival of Representations, Warrants, Covenants and Agreements.
---------------------------------------------------------------
The representations, warranties, covenants and agreements contained in this
Agreement shall survive the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby.
m. Notices. All notices, demands or other communications to be given
-------
or delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when delivered personally to the
recipient, sent to the recipient by reputable overnight courier service (charges
prepaid), or mailed to the recipient by certified or
<PAGE>
registered mail, return, receipt requested and postage prepaid. Such notices,
demands and other communications shall be addressed as follows:
If to ST:
c/o STMicroelectronics, Inc.
1310 Electronics Drive
Carrollton, TX 75006-5039
Attn: Steven K. Rose, Vice President,
Secretary and General Counsel
Telephone: (972) 466-6412
Telecopy: (972) 466-7044
If to MPI:
Microelectronic Packaging, Inc.
9577 Chesapeake Drive
San Diego, CA 92123
Attn: President
Telephone: (619) 292-7000
Telecopy: (619) 292-7881
with a copy to:
Miller, Boyko & Bell
550 West B Street, Suite 400
San Diego, CA 92101-3955
Attn: Van E. Haynie
Telephone: (619) 235-4040
Telecopy: (619) 231-8796
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party
(provided that notice of a change of address shall be effective only upon
receipt thereof).
n. Strict Construction. This Agreement is the result of arms-length
-------------------
negotiations between the parties hereto and has been prepared jointly by the
parties. In applying and interpreting the provisions of this Agreement, there
shall be no presumption that the Agreement was prepared by any one party or that
the Agreement shall be construed in favor of or against any one party.
<PAGE>
o. Consent to Assignment. In executing this Agreement, MPI waives
---------------------
any right it may have to object to the assignment of ST-Singapore's rights to ST
and to the extent required by contract, law or otherwise, consents to such
assignment.
p. Further Assurances. MPI and ST further agree to cooperate and
------------------
take such actions as may be reasonably necessary to effectuate this Agreement,
including executing any additional documents which may be required to carry out
this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and as of
the day and year first above written.
MICROELECTRONIC PACKAGING, INC.
By: /s/ Denis J. Trafecanty
-----------------------
Denis J. Trafecanty
----------------------------
(Print Name of Signatory)
Title: SVP & CFO
----------------------
STMicroelectronics, Inc. (formerly known as SGS-
Thomson Microelectronics, Inc.) assignee of
STMICROELECTRONICS PTE. LTD. (formerly known as
SGS-Thomson Microelectronics Pte. Ltd.)
By: /s/ Steven Rose
-----------------------
Steven K. Rose
----------------------------
(Print Name of Signatory)
Title: Vice President
---------------------
<PAGE>
EXHIBIT A
VAN E. HAYNIE (SBN 114937)
MILLER, BOYKO & BELL
550 West B Street, Suite 400
San Diego, CA 92101-3599
Telephone: (619) 235-4040
Attorneys for Defendant
MICROELECTRONIC PACKAGING, INC.
SUPERIOR COURT OF CALIFORNIA,
COUNTY OF SAN DIEGO
IN RE CONFESSION OF JUDGMENT IN CASE NO. ____________
FAVOR OF STMICROELECTRONICS, DEFENDANT'S VERIFIED CONFESSION
INC., OF JUDGMENT STATEMENT
Plaintiff, [CCP (S) 1132(b)]
v.
MICROELECTRONIC PACKAGING,
INC., ET. AL,
Defendant.
Microelectronic Packaging, Inc. ("MPI") hereby confesses judgment in favor of
STMicroelectronics Inc.. (formerly known as SGS-Thomson Microelectronics Inc.)
(hereinafter "ST"), assignee of STMicroelectronics Pte. Ltd. (formerly known as
SGS-Thomson Microelectronics Pte. Ltd.) (hereinafter ST-Singapore) in the amount
of $4,000,000, plus interest at the legal rate from the date of entry of
judgment by confession, plus costs, and authorizes entry of judgment against MPI
in that sum.
MPI's confession of judgment is for money due and owing by MPI to ST and
arises out of the following facts:
Pursuant to a Supply Guarantee and Preferred Allocation Agreement dated August
17, 1995 by and among MPI, and ST-Singapore, ST-Singapore made a lump sum
advance in the
<PAGE>
amount of $4,000,000 to a subsidiary of MPI, and MPI entered into a Deed of
Guarantee and Indemnity dated August 17, 1995 with ST-Singapore pursuant to
which MPI agreed to guarantee the obligations of MPS under the above-referenced
Loan Agreement. MPS has defaulted on its obligations under the Loan Agreement,
giving rise to MPI's obligations under the Guarantee. ST-Singapore has assigned
its rights under the loan agreement and the guarantee to ST. MPI's guarantee
obligation is the basis for the debt due and owing by MPI to ST, and the basis
for the amount as to which MPI confesses judgment against MPI in favor of ST.
Dated: September 24, 1998 MICROELECTRONIC PACKAGING, INC.,
Defendant
By: /s/ Denis J. Trafecanty
----------------------------------
Denis J. Trafecanty
Chief Financial Officer
<PAGE>
VERIFICATION
I, Denis J. Trafecanty, am the Chief Financial Officer of Microelectronic
Packaging, Inc. I have read the foregoing verified confession of judgment
statement by Microelectronic Packaging, Inc. in favor of STMicroelectronics,
Inc., know the contents thereof, and am authorized to execute this verification
statement on behalf of MPI.
I declare under penalty of perjury under the laws of the State of California
and the United States of America that the foregoing verified confession of
judgment is true of my own knowledge and that this declaration was executed on
September 24, 1998, at Phoenix, Arizona.
/s/ Denis J. Trafecanty
-------------------------------------
Denis J. Trafecanty
<PAGE>
EXHIBIT A
VAN E. HAYNIE (SBN 114937)
MILLER, BOYKO & BELL
550 West B Street, Suite 400
San Diego, CA 92101-3599
Telephone: (619) 235-4040
Attorneys for Defendant
MICROELECTRONIC PACKAGING, INC.
SUPERIOR COURT OF THE STATE OF CALIFORNIA,
COUNTY OF SAN DIEGO
IN RE CONFESSION OF JUDGMENT IN
FAVOR OF STMicroelectronics, Inc.
Plaintiff, CASE NO. ____________
v. DEFENDANT'S ATTORNEY'S
MICROELECTRONIC PACKAGING, INC., DECLARATION IN SUPPORT OF
ET. AL., STATEMENT CONFESSING JUDGMENT
Defendant. [CCP (S) 1133]
I, Van E. Haynie, declare:
I am an attorney at law duly admitted to practice before all the courts of
the State of California and the attorney of record herein for Microelectronic
Packaging, Inc., the party confessing judgment in the above-entitled cause.
I further declare that I have examined the proposed judgment and have
advised Microelectronic Packaging, Inc. with respect to the waiver of rights and
defenses under the confession of judgment procedure, and have advised
Microelectronic Packaging, Inc. to utilize the confession of judgment procedure.
<PAGE>
I declare under penalty of perjury that the foregoing is true and correct and
that this declaration was executed on September 23, 1998, at San Diego,
California.
Dated: September 23, 1998. MILLER, BOYKO & BELL
By: /s/ Van E. Haynie
---------------------------
Van E. Haynie
Attorney for Defendant
MICROELECTRONIC PACKAGING, INC.
<PAGE>
EXHIBIT A
SUPERIOR COURT OF THE STATE OF CALIFORNIA,
COUNTY OF SAN DIEGO
IN RE CONFESSION OF JUDGMENT IN
FAVOR OF STMICROELECTRONICS,
INC., CASE NO. ____________
Plaintiff, JUDGMENT BY CONFESSION
v. [CCP (S) 1134]
MICROELECTRONIC PACKAGING,
INC., ET. AL.,
Defendant.
Pursuant to the verified Confession of Judgment Statement by Microelectronic
Packaging, Inc. ("MPI") in favor of STMicroelectronics, Inc. ("ST"), judgment is
hereby entered by confession as follows:
IT IS HEREBY ORDERED, ADJUDGED AND DECREED that STMicroelectronics Inc. shall
recover from defendant Microelectronic Packaging, Inc. the following:
(1) Principal in the amount of $4,000,000.
(2) Interest on such principal amount from the date of entry of this judgment
at the legal rate then in effect.
(3) Ordinary and reasonable costs.
<PAGE>
APPROVED AS TO FORM AND CONTENT.
Dated: September 23, 1998. MILLER, BOYKO & BELL
Attorneys for Defendant
MICROELECTRONIC PACKAGING, INC.
By: /s/ Van E. Haynie
-------------------------------
Van E. Haynie
Attorney
Dated September 24, 1998
MICROELECTRONIC PACKAGING, INC.
Defendant
By: /s/ Denis J. Trafecanty
-------------------------------
Denis J. Trafecanty
Chief Financial Officer
IT IS SO ORDERED, ADJUSTED AND DECREED.
------------------------------------
CLERK OF THE COURT
------------------------------------
DEPUTY CLERK
<PAGE>
EXHIBIT B
SUPERIOR COURT OF THE STATE OF CALIFORNIA,
COUNTY OF SAN DIEGO
STMICROELECTRONICS, INC.,
Plaintiff,
v. CASE NO. ____________
MICROELECTRONIC PACKAGING, STIPUTLATED JUDGMENT AND
INC., ET. AL., JUDGMENT THEREON
Defendant.
- ------------------------------
Defendant Microelectronic Packaging, Inc. ("MPI") hereby stipulates to entry
of judgment against MPI in favor of plaintiff STMicroelectronics, Inc. ("ST") In
the above-entitled action as follows:
1. Principal in the amount of $4,000,000;
2. Interest on such principal amount from the date of this judgment at the
legal rate then in effect.
3. Ordinary and reasonable costs.
<PAGE>
APPROVED AS TO FORM AND CONTENT.
Dated: September 23, 1998. MILLER, BOYKO & BELL
Attorneys for Defendant
MICROELECTRONIC PACKAGING, INC.
By: /s/ Van E. Haynie
----------------------------------
Van E. Haynie
Attorney
Dated September 24, 1998
MICROELECTRONIC PACKAGING, INC.
Defendant
By: /s/ Denis J. Trafecanty
-----------------------------------
Denis J. Trafecanty
Senior Vice President
Chief Financial Officer
IT IS SO ORDERED, ADJUSTED AND DECREED.
--------------------------------------
JUDGE OF THE SUPERIOR COURT
<PAGE>
EXHIBIT C
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT
IN EFFECT WITH RESPECT TO SUCH SECURITIES, OR DELIVERY OF AN OPINION OF COUNSEL
IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES THAT SUCH
OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE WITH THE ACT.
No. WCS-______
WARRANT TO PURCHASE COMMON STOCK
OF
MICROELECTRONIC PACKAGING, INC.
Void after September 24, 2005
This certifies that, for valid and good consideration, STMicroelectronics
Pte. Ltd. (formerly known as SGS-Thomson Microelectronics Pte. Ltd. (the
"Holder") is entitled, subject to the terms set forth below, to purchase from
Microelectronic Packaging, Inc. (the "Company"), a California corporation, the
number of shares of the Common Stock of the Company, as constituted on the date
hereof, upon surrender hereof, at the principal office of the Company referred
to below at the Exercise Price as set forth in Section 2 below. The number,
character and Exercise Price of such shares of Common Stock are subject to
determination and adjustment as provided below.
1. Term of Warrant. Subject to the terms and conditions set forth herein,
---------------
this Warrant shall be exercisable, in whole or in part, at any time or from time
to time on or after September 24, 1998. This Warrant shall expire at 5:00 p.m.,
Pacific Standard Time, on September 24, 2005 without any action on the part of
any party (the "Expiration Date").
2. Exercise Price. The exercise price at which this Warrant may be
--------------
exercised shall be $1.00 per share of Common Stock, as adjusted from time to
time pursuant to Section 11 hereof (the "Exercise Price"), payable either by
cash or check or by net exercise pursuant to Section 4.d.
3. Number of Shares. The Holder is entitled, subject to the provisions
----------------
of this Warrant, to purchase from the Company an aggregate of two hundred
thousand (200,000) fully paid and nonassessable shares of Common Stock of the
Company (subject to adjustment as provided herein) (the "Warrant Shares").
4. Exercise of Warrant.
-------------------
a. Subject to the terms and conditions set forth herein, the purchase
rights represented by this Warrant are exercisable by the Holder in whole or in
part, at any time, or from time to time, during the term hereof as described in
Section 1 above, and such exercise shall be effected by the surrender of this
Warrant, the Notice of Paid Exercise annexed hereto and upon payment of the
Exercise Price in cash or by check.
b. This Warrant shall be deemed to have been exercised immediately
prior to the close of business on the date of its surrender for exercise as
provided above, and the person or persons entitled to receive the shares of
Common Stock issuable upon such exercise shall be treated for all purposes as
the holder of record of such shares as of the close of business on such date. As
promptly as practicable on or after such date, the Company at its expense shall
issue and deliver to the person or persons entitled to receive the same a
certificate or certificates for the number of shares issuable upon such
exercise.
<PAGE>
c. Upon any partial exercise of this Warrant, there shall be issued to
the Holder hereof a new Warrant certificate in respect of the Warrant Shares as
to which the Warrant Shares evidenced by this Warrant certificate shall not have
been exercised. This Warrant certificate may be exchanged at the office of the
Company by surrender of this Warrant certificate properly endorsed either
separately or in combination with one or more other Warrant certificates for one
or more new Warrant certificates evidencing the right of the Holder thereof to
purchase the same aggregate number of Warrant Shares as were purchasable upon
exercise of this Warrant evidenced by the Warrant certificate or certificates
exchanged. No fractional shares will be issued upon the exercise of any Warrant,
but the Company will pay the cash value thereof determined as provided in this
Warrant. This Warrant certificate is transferable at the office of the Company
in the manner and subject to the limitations set forth in this Warrant.
d. In lieu of exercising this Warrant by paying the Exercise Price in
cash or by check, Holder may elect to receive shares equal to the value of this
Warrant (or the portion thereof being canceled) by surrender of this Warrant at
the principal office of the Company together with the Notice of Net Exercise
annexed hereto in which event the Company shall issue to Holder a number of
shares of the Company's Common Stock, computed using the following formula:
Where X - The number of shares of Common Stock to be
issued to Holder.
X=(Y)(A-B)
--------
A
Y - The number of shares of Common Stock to be canceled
pursuant to such exercise under this Warrant.
A - The fair market value of one share of the Company's
Common Stock,
B - Exercise Price (as adjusted to the date of such
calculations).
For purposes of this Section, if the Company is not traded on the NASDAQ
Stock Market, the fair market value of one share of the Company's Common Stock
shall be the fair market value of such share as determined in good faith by the
Board of Directors of the Company.
5. No Fractional Shares or Scrip. No fractional shares or scrip
-----------------------------
representing fractional shares shall be issued upon the exercise of this
Warrant. In lieu of any fractional share to which the Holder would otherwise be
entitled, the Company shall make a cash payment equal to the Exercise Price
multiplied by such fraction.
6. No Rights of Shareholder. The Holder shall not be entitled to vote or
------------------------
receive dividends or be deemed the holder of Common Stock or any other
securities of the Company that may at any time be issuable on the exercise
hereof for any purpose, nor shall anything contained herein be construed to
confer upon the Holder, as such, any of the rights of a shareholder of the
Company 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 or to receive notice of meetings, or to receive
dividends or subscription rights or otherwise until this Warrant shall have been
exercised and the shares of Common Stock purchasable upon the exercise hereof
shall have been issued, as provided herein.
<PAGE>
7. Transfer of Warrant.
-------------------
a. Warrant Register. The Company will maintain a register (the
----------------
"Warrant Register") containing the names and addresses of the Holder or Holders.
Any Holder of this Warrant or any portion thereof may change his address as
shown on the Warrant Register by written notice to the Company requesting such
change. Any notice or written communication required or permitted to be given to
the Holder may be delivered or given by mail to such Holder as shown on the
Warrant Register and at the address shown on the Warrant Register. Until this
Warrant is transferred on the Warrant Register of the Company, the Company may
treat the Holder as shown on the Warrant Register as the absolute owner of this
Warrant for all purposes.
b. Non-transferability and Non-Negotiability of Warrant. Except as
----------------------------------------------------
otherwise provided below, this Warrant may not be transferred or assigned
without compliance with all applicable federal and state securities laws by the
transferor and the transferee (including the delivery of investment
representation letters and legal opinions reasonably satisfactory to the
Company). Any Holder of this Warrant or Warrant Shares (i) that is a partnership
or like organization may assign distribute or transfer all or any portion of
such securities to its partners or affiliated entities, or (ii) that is a
corporation or other entity may distribute or transfer all or any portion of
such securities to its affiliates, subsidiaries or its parent company or entity,
and, in each case, shall not be obligated to provide the Company with any
investment representation letters or legal opinions with respect to such
assignment, distribution or transfer.
c. Compliance with Securities Laws.
-------------------------------
(1) Authorization. Holder has full power and authority to enter
-------------
into this Warrant, and such Warrant constitutes its valid and legally binding
obligation, enforceable in accordance with its terms.
(2) Purchase Entirely for Own Account. This Warrant has been
---------------------------------
purchased by the Holder for such Holder's own account, not as a nominee or
agent, and not with a view to the resale or distribution of any part thereof,
and such Holder has no present intention of selling, granting any participation
in, or otherwise distributing the same. Such Holder does not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer, or
grant participation to any person with respect to this Warrant or underlying
shares of Common Stock.
(3) Disclosure of Information. Such Holder acknowledges that it
-------------------------
has received all the information that it has requested in connection with the
purchase of this Warrant, including the Company's filings with the Securities
and Exchange Commission. Holder further represents that it has had an
opportunity to ask questions and receive answers from the Company, as well as to
consult its own legal, tax and other advisors, regarding the information
provided and the terms and conditions of the offering of this Warrant. Holder
represents and warrants that it is prepared to lose its entire interest in this
Warrant and the underlying shares of Common Stock and has not relied on the
Company or any of the Company's advisors in determining whether to make this
investment in the Company.
(4) Investment Experience. Holder acknowledges that it is able
---------------------
to fend for itself, can bear the economic risk of its investment and has such
knowledge and experience in financial or business matters that it is capable of
evaluating the merits and risks of the investment in this Warrant and the
underlying shares of Common Stock. Such Holder also represents it has not been
organized for the purpose of acquiring this Warrant.
(5) Accredited Investor.
-------------------
(a) Holder is an "accredited investor" as defined below and
understands the meaning of that term.
(b) The term "accredited investor" as used herein refers to:
i) Any bank as defined in section 3(a)(2) of the Act, or
<PAGE>
any savings and loan association or other institution as defined in section
3(a)(5(A) of the Act whether acting in its individual or fiduciary capacity; any
broker dealer registered pursuant to section 15 of the Securities Exchange Act
of 1934; any insurance company as defined in section 2(13) of the Act; any
investment company registered under the Investment Borrower Act of 1940 or any
business development company as defined in section 2(a)(48) of that Act; any
Small Business Investment Borrower licensed by the U.S. Small Business
Administration under section 301(c) or (d) of the Small Business Investment Act
of 1958; any plan established and maintained by a state, its political
subdivisions, or any agency or instrumentality of a state or its political
subdivisions, for the benefit of its employees, if such plan has total assets in
excess of $5,000,000; any employee benefit plan within the meaning of the
Employee Retirement Income Security Act of 1974, if the investment decision is
made by a plan fiduciary, as defined in section 3(21) of such Act, which is
either a bank, savings and loan association, insurance company, or registered
investment adviser, or if the employee benefit plan has total assets in excess
of $5,000,000 or, if a self-directed plan, with investment decisions made solely
by persons that are accredited investors;
ii) Any private business development company as defined
in section 202(a)(22) of the Investment Advisers Act of 1940;
iii) Any organization described in section 501(c)(3) of
the Internal Revenue Code, corporation, Massachusetts or similar business trust,
or partnership, not formed for the specific purpose of acquiring the securities
offered, with total assets in excess of $5,000,000;
iv) Any director, executive officer, or general partner
of the issuer of the securities being offered or sold, or any director,
executive officer, or general partner of a general partner of that issuer;
v) Any natural person whose individual net worth, or joint
net worth with that person's spouse, at the time of his purchase exceeds
$1,000,000;
vi) Any natural person who had an individual income in
excess of $200,000 in each of the two most recent years or joint income with
that person's spouse in excess of $300,000 in each of those years and has a
reasonable expectation of reaching the same income level in the current year;
vii) Any trust with total assets in excess of $5,000,000,
not formed for the specific purpose of acquiring the securities offered, whose
purchase is directed by a person who has such knowledge and experience in
financial and business matters that he is capable of evaluating the merits and
risks of the prospective investment or the issuer believes immediately prior to
making any sale that such person comes within this description; or
viii) Any entity in which all of the equity owners are
accredited investors.
As used in this Section, the term "net worth" means the excess of
total assets over total liabilities. For the purpose of determining a person's
net worth, the principal residence owned by an individual should be valued at
fair market value, including the cost of improvements, net of current
encumbrances. As used in this Section, "income" means actual economic income,
which may differ from adjusted gross income for income tax purposes.
Accordingly, the Holder should consider whether it should add any or all of the
following items to its adjusted gross income for income tax purposes in order to
reflect more accurately its actual economic income: any amounts attributable to
tax-exempt income received, losses claimed as a limited partner in any limited
partnership, and deductions claimed for depletion.
(6) Restricted Securities. The Holder understands that this
---------------------
Warrant and underlying Common Stock it is purchasing are characterized as
"restricted securities" under U.S. federal securities laws inasmuch as they are
being acquired from the Company in a transaction not involving a public offering
and without
<PAGE>
registration under such laws and applicable regulations and cannot be resold
without registration under the Act, except in certain limited circumstances. In
this connection, the Holder represents that it is familiar with SEC Rule 144, as
currently in effect, and understands the resale limitations imposed on these
securities by the Act.
(7) Representations by Foreign Investor. The Holder hereby
-----------------------------------
represents that it has satisfied itself as to the full observance of the laws of
its jurisdiction in connection with any invitation to subscribe for this Warrant
and underlying shares of Common Stock, including (i) the legal requirements
within its jurisdiction for the purchase of this Warrant and underlying shares
of Common Stock, (ii) any foreign exchange restrictions applicable to such
purchase, (iii) any governmental or other consents that may need to be obtained,
and (iv) the income tax and other tax consequences, if any, that may be relevant
to the purchase, holding, redemption, sale, or transfer of this Warrant and
underlying shares of Common Stock. The Holder's subscription and payment for,
and its continued beneficial ownership of this Warrant, will not violate any
applicable securities or other laws of its jurisdiction.
(8) Compliance with Securities Laws. Unless otherwise provided
-------------------------------
herein, without in any way limiting the representations set forth above, the
Holder further agrees not to make any disposition of all or any portion of this
Warrant or any shares of Common Stock to be issued upon exercise hereof unless
and until the transferee has agreed in writing for the benefit of the Company to
be bound by the terms of this Warrant, provided and to the extent such sections
are then applicable, and:
(a) There is then in effect a registration statement under
the Act covering such proposed disposition and such disposition is made in
accordance with such registration statement; or
(b) (1) the Holder shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition and (2) the
Holder shall have furnished the Company with an opinion of counsel, reasonably
satisfactory to the Company, that such disposition will not require registration
of such securities under the Act.
8. Legends. This Warrant and all shares of Common Stock issued upon
-------
exercise hereof will bear one or all of the following legends:
(a) "THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") AND MAY NOT BE OFFERED, SOLD
OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO SUCH SECURITIES, OR DELIVERY OF
AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE
SECURITIES THAT SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN
COMPLIANCE WITH THE ACT."
(b) Any legend required by the laws of the State of California or
other applicable authority, including any legend required by the California
Department of Corporations and Sections 417 and 418 of the California
Corporations Code.
9. Reservation of Stock. The Company covenants that during the term this
--------------------
Warrant is exercisable, the Company will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the issuance
of Common Stock upon the exercise of this Warrant and, from time to time, will
take all steps necessary to amend its articles of incorporation to provide
sufficient reserves of shares of Common Stock issuable upon exercise of this
Warrant. The Company further covenants that all shares that may be issued upon
the exercise of rights represented by this Warrant, upon exercise of the rights
represented by this Warrant and payment of the Exercise Price, all as set forth
herein, will be free from all taxes, liens, and charges in respect of the issue
thereof (other than taxes in respect of any transfer occurring contemporaneously
or otherwise specified herein) and will be fully paid and non-assessable. The
Company agrees that its issuance of this Warrant shall constitute full authority
to its officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for shares of Common Stock upon the
exercise of this Warrant.
<PAGE>
10. Amendments and Waivers.
----------------------
a. Any term of this Warrant may be amended or waived with the written
consent of the Company and the Holder.
b. No waivers of or exceptions to any term, condition or provision of
this Warrant, in any one or more instances, shall be deemed to be, or construed
as, a further or continuing waiver of any such term, condition or provision.
11. Adjustments. The number of shares purchasable hereunder are subject to
-----------
adjustment from time to time as follows:
a. Merger, Sale of Assets, etc. If at any time, while this Warrant,
----------------------------
or any portion thereof, is outstanding and unexpired there shall be (i) a
reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (ii) a merger (other than
a mere reincorporation merger) or consolidation of the Company with or into
another corporation in which the Company is not the surviving entity, or a
merger in which the Company is the surviving entity but the shares of the
Company's capital stock outstanding immediately prior to the merger are
converted by virtue of the merger into other property, whether in the form of
securities, cash, or otherwise, or (iii) a sale or transfer of the Company's
properties and assets as, or substantially as, an entirety to any other person,
then, as a part of such reorganization, merger, consolidation, sale or transfer,
lawful provision shall be made so that the holder of this Warrant shall
thereafter be entitled to receive upon exercise of this Warrant, during the
period specified herein and upon payment of the Exercise Price then in effect or
by net exercise pursuant to Section 4.d., the number of shares of stock or other
securities or property of the successor corporation resulting from such
reorganization, merger, consolidation, sale or transfer which a holder of the
shares deliverable upon such exercise of this Warrant would have been entitled
to receive in such reorganization, consolidation, merger, sale or transfer, if
this Warrant had been exercised immediately before the consummation of such
reorganization, merger, consolidation, sale or transfer, all subject to further
adjustment as provided in this Section 11. The foregoing provisions of this
Section 11(a) shall similarly apply to successive reorganizations,
consolidations, mergers, sales and transfers and to the stock or securities of
any other corporation which are at the time receivable upon the exercise of this
Warrant. If the per share consideration payable to the Holder hereof for shares
in connection with any such transaction is in a form other than cash or
marketable securities, then the value of such consideration shall be determined
in good faith by the Company's Board of Directors. In all events, appropriate
adjustment (as determined in good faith by the Company's Board of Directors)
shall be made in the application of the provisions of this Warrant with respect
to the rights and interests of the Holder after the transaction, to the end that
the provisions of this Warrant shall be applicable after that event, as near as
reasonably may be, in relation to any shares or other property deliverable after
that event upon exercise of this Warrant.
b. Reclassification, etc. If the Company at any time while this
----------------------
Warrant, or any portion thereof, remains outstanding and unexpired shall, by
reclassification of securities or otherwise, change any of the securities as to
which purchase rights under this Warrant exist into the same or a different
number of securities of any other class or classes, this Warrant shall
thereafter represent the right to acquire such number and kind of securities as
would have been issuable as the result of such change with respect to the
securities which were subject to the purchase rights under this Warrant
immediately prior to such reclassification or other change, and the Exercise
Price therefor shall be appropriately adjusted, all subject to further
adjustment as provided in this Section 11.
c. Split, Subdivision or Combination of Shares. If the Company at
-------------------------------------------
any time while this Warrant, or any portion thereof, remains outstanding and
unexpired shall split, subdivide or combine the securities as to which purchase
rights under this Warrant exist, into a different number of securities of the
same class, this Warrant shall thereafter represent the right to acquire such
number of securities as would have been issuable as the result of such change
with respect to the securities which were subject to the purchase rights under
this Warrant immediately prior to such change, and the Exercise Price for such
securities shall be proportionately decreased in the case of a split or
subdivision or proportionately increased in the case of a combination.
d. Adjustments for Dividends in Stock or Other Securities or
---------------------------------------------------------
Property. If while this
- --------
<PAGE>
Warrant, or any portion hereof, remains outstanding and unexpired the holders of
the securities as to which purchase rights under this Warrant exist at the time
shall have received, or, on or after the record date fixed for the determination
of eligible shareholders, shall have become entitled to receive, without payment
therefor, other or additional stock or other securities or property of the
Company by way of dividend, then and in each case, this Warrant shall represent
the right to acquire, in addition to the number of shares of the security
receivable upon exercise of this Warrant, and without payment of any additional
consideration therefor, the amount of such other or additional stock or other
securities or property of the Company which such holder would hold on the date
of such exercise had it been the holder of record of the security receivable
upon exercise of this Warrant on the date hereof and had thereafter, during the
period from the date hereof to and including the date of such exercise, retained
such shares and/or all other additional stock available by it as aforesaid
during such period, giving effect to all adjustments called for during such
period by the provisions of this Section 11.
e. Prior Notice of Certain Events. The Company will provide Holder
------------------------------
with notice of any merger, asset sale or dividend not less than ten (10)
business days prior to the record date for such event.
12. Registration of Warrant Shares.
------------------------------
a. With respect to 100,000 of the Warrant Shares during the period
beginning on the date of issuance of this Warrant and ending on the Expiration
Date, and with respect to the remaining 100,000 Warrant Shares during the period
beginning on the second anniversary hereof and ending on the Expiration Date
(the Warrant Shares that are subject to registration at a given time are
referred to herein as the "Registrable Warrant Shares"), the Holder shall have
the right to request the filing of a registration statement on Form S-3 (such
requests shall be in writing and shall state the number of shares of Registrable
Warrant Shares to be disposed of and the intended methods of disposition of such
shares by such Holder); provided, however, that the Company shall not be
obligated to effect any such registration after the Company has effected two (2)
such registrations pursuant to such a request of the Holders.
b. In the case of each registration effected by the Company pursuant
to Section 12.a., the Company will keep each Holder advised in writing as to the
initiation of each registration and as to the completion thereof. At its
expense, the Company will use its best efforts to:
(1) File such S-3 registration statement with the Securities and
Exchange Commission within 120 days of receive a request pursuant to Section
12.a. and, to the extent practicable, cause such registration statement to be
declared effective within 120 days of such request.
(2) Keep the registration statement effective for six months after
the effective date of such registration statement;
(3) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement;
(4) Furnish such number of prospectuses and other documents
incident thereto, including any amendment of or supplement to the prospectus, as
a Holder from time to time may reasonably request;
(5) Notify the Holder at any time when a prospectus relating to
Registrable Warrant Shares is required to be delivered under the Securities Act
of the happening of any event as a result of which the prospectus included in
such registration statement, as then in effect, includes an untrue statement of
a material fact or omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading or incomplete in the
light of the circumstances then existing, and at the request of any such seller,
prepare and furnish to such seller a reasonable number of copies of a supplement
to or an amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such shares, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein
<PAGE>
not misleading or incomplete in the light of the circumstances then existing;
(6) Cause all such Registrable Warrant Shares registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed.
13. Miscellaneous.
-------------
a. Governing Law. This Warrant shall be governed by and construed
-------------
under the laws of California. The parties to this Warrant hereby (i) irrevocably
submit to the exclusive jurisdiction of the courts of California for the purpose
of any action or proceeding arising out of or relating to this Warrant and any
other documents and instruments relating hereto, (ii) agree that all claims in
respect of any such action or proceeding may be heard and determined in such
courts, (iii) irrevocably waive (to the extent permitted by applicable law) any
objection which it now or hereafter may have to the laying of venue of any such
action or proceeding brought in any of the foregoing courts, and any objection
on the ground that any such action or proceeding in any such court has been
brought in an inconvenient forum and (iv) agree that a final judgment in any
such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner permitted by law.
b. Notices. Unless otherwise provided, any notice required or
-------
permitted under this Warrant shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
deposit with the United States Post Office, by registered or certified mail,
postage prepaid and addressed to the party to be notified at the address
indicated for such party on the signature page hereof in the case of the
Company, and on the Warrant Register in the case of the Holder, or at such other
address as such party may designate by ten (10) days' advance written notice to
the other parties.
c. Counterparts. This Warrant may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
d. Successor and Assigns. This Warrant shall bind and benefit the
---------------------
Holder and each of its successors and assigns and the Company and each of its
successors and assigns.
IN WITNESS WHEREOF, each of Microelectronic Packaging, Inc., and the Holder
has caused this Warrant to be executed by one of its duly authorized officers or
such other authorized person or entity.
Dated:September 24, 1998 MICROELECTRONIC PACKAGING, INC.
By: /s/ Denis J. Trafecanty
-----------------------
Denis J. Trafecanty
Chief Financial Officer
STMICROELECTRONICS PTE. LTD.
By: /s/ Steven Rose
-----------------------
Steven K. Rose
-----------------------------
(Print Name of Signatory)
Title: Vice President
-----------------------
<PAGE>
NOTICE OF PAID EXERCISE
-----------------------
To: MICROELECTRONIC PACKAGING, INC.
(1) The undersigned hereby elects to purchase __________ shares of Common
Stock of Microelectronic Packaging, Inc. pursuant to Section 4(a) of the
attached Warrant, and tenders herewith payment of the purchase price for such
shares.
(2) In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the shares of Common Stock are being acquired solely for the
account of the undersigned and not as a nominee for any other party, and for
investment, and that the undersigned will not offer, sell, or otherwise dispose
of any such shares of Common Stock except under circumstances that will not
result in a violation of the Securities Act of 1933, as amended, or any state
securities laws or unless sold pursuant to Rule 144 of such Act.
(3) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
---------------------------------------
[Name]
And, if said number of shares of Common Stock shall not be all the shares
of Common Stock purchasable under the within Warrant certificate, a new Warrant
certificate is to be issued in the name of said undersigned for the balance
remaining of the Warrant Shares purchasable thereunder less any fraction of a
share paid in cash.
<PAGE>
NOTICE OF NET EXERCISE
----------------------
To: MICROELECTRONIC PACKAGING, INC.
(1) The undersigned hereby elects to purchase __________ shares of Common
Stock of Microelectronic Packaging, Inc. pursuant to Section 4.d. of the
attached Warrant, such that an additional number of shares of Common Stock under
the Warrant will be cancelled in respect of the purchase price in the manner set
forth in Section 4.d.
(2) In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the shares of Common Stock are being acquired solely for the
account of the undersigned and not as a nominee for any other party, and for
investment, and that the undersigned will not offer, sell, or otherwise dispose
of any such shares of Common Stock except under circumstances that will not
result in a violation of the Securities Act of 1933, as amended, or any state
securities laws or unless sold pursuant to Rule 144 of such Act.
(3) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
------------------------------------
[Name]
And, if number of shares of Common Stock being cancelled pursuant to
Section 4.d. of the Warrant shall not be all the shares of Common Stock
purchasable under the within Warrant certificate, a new Warrant certificate is
to be issued in the name of said undersigned for the balance remaining of the
Warrant Shares purchasable thereunder less any fraction of a share paid in cash.
<PAGE>
EXHIBIT 10.85
AMENDMENT
---------
RESTRUCTURING, SETTLEMENT AND MUTUAL RELEASE AGREEMENT
This Amendment is entered into as of August 11, 1998 between
Microelectronic Packaging, Inc. ("MPI"), and Texas Instruments Singapore (PTE)
Ltd. ("TI") the purpose of which is to amend that certain "Restructuring,
Settlement and Mutual Release Agreement" (the "Settlement Agreement") entered
into as of April 24, 1998 between MPI and TI.
Capitalized terms otherwise defined herein, shall have the same meaning
ascribed to them in the Settlement Agreement.
RECITALS
A. MPI and TI entered into the Settlement Agreement as of April 24, 1998
pursuant to which MPI and TI agreed to settle and restructure certain
obligations of MPI whereby, among other things, MPI agreed to pay to TI the
amount of US$1,077,147 within six (6) calendar months of the Execution Date.
B. Pursuant to Section 7.h of the Settlement Agreement, the parties now
desire to amend the Settlement Agreement to extend the period of time within
which MPI is obligated to pay to TI the amounts required under the Settlement
Agreement.
NOW, THEREFORE, in consideration of the mutual promises contained herein
and for other good and sufficient consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties agree as follows:
1. Section 2 below shall amend, replace and supersede section 2 of the
Settlement Agreement:
2. Settlement. In order to settle the defaults, amounts owed,
-----------
debts, liabilities and other obligations pursuant to, in connection
with, or arising out of the Agreement, the Guarantee, the Loan and
Security Agreement and each of their respective related agreements,
letters, documents and instruments (collectively, the "Loan
Documents"), MPI agrees that by no later than May 1, 1999, MPI will
pay to TI the amount of US $1,077,147, by wire transfer in accordance
with the wire transfer instructions provided by TI.
<PAGE>
Upon acceptance of the parties, this Amendment, as of the day and year
specified on page one hereof, shall become a part of the Settlement Agreement
and all provisions of the Settlement Agreement not specifically inconsistent
herewith shall remain in full force and effect. Nothing in the Settlement
Agreement or this Agreement shall be construed to require MPI to make any
payment obligations to TI required under the Settlement Agreement on a date
prior to May 1, 1999.
MICROELECTRONIC PACKAGING, INC.
By: /s/ Denis J. Trafecanty
---------------------------
Chief Financial Officer
TEXAS INSTRUMENTS SINGAPORE (PTE) LTD.
By: /s/ Dr. John Culbreth
---------------------------
Finance Director
<PAGE>
EXHIBIT 10.86
AMENDMENT
---------
RESTRUCTURING, SETTLEMENT AND MUTUAL RELEASE AGREEMENT
This Amendment No. 1 is entered into as of September 1, 1998 by and among
Microelectronic Packaging, Inc. ("MPI"), and Transpac Capital Pte. Ltd.
("Transpac"), Transpac Industrial Holdings Ltd., Regional Investment Company
Ltd., and Natsteel Equity III Pte. Ltd., (collectively with Transpac, the
"Investors"), the purpose of which is to amend that certain Restructuring,
Settlement and Mutual Release Agreement" (the "Settlement Agreement") entered
into as of April 22, 1998 between MPI and the Investors.
Capitalized terms otherwise defined herein, shall have the same meaning
ascribed to them in the Settlement Agreement.
RECITALS
A. MPI and the Investors entered into the Settlement Agreement as of April
22, 1998 pursuant to which MPI and the Investors agreed to settle and
restructure certain obligations of MPI whereby, among other things, MPI agreed
to pay to the Investors the amount of US$3,112,462.50 within six (6) calendar
months of the Execution Date.
B. Pursuant to Section 9.i of the Settlement Agreement, the parties now
desire to amend subsection 2.b of the Settlement Agreement to extend the period
of time within which MPI is obligated to pay to the Investors certain amounts
required under the Settlement Agreement.
NOW, THEREFORE, in consideration of the mutual promises contained herein
and for other good and sufficient consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties agree as follows:
1. Section 2.b. below shall amend, replace and supersede section 2 of the
Settlement Agreement:
2. Settlement. In order to settle the defaults, amounts owed,
-----------
debts, liabilities and other obligations pursuant to, in connection
with, or arising out of the Agreement, the Guarantee, the Subscription
Agreement and each of their respective related agreements, letters,
documents and instruments (collectively, the "Loan Documents"), MPI
agrees to undertake the following obligations:
<PAGE>
b. By no later than May 1, 1999, MPI will pay to the Investors the
amount of US $3,112,462.50, by wire transfer to Transpac, as agent
for the Investors, in accordance with the wire transfer
instructions contained in Exhibit 1 attached hereto or such other
written wire transfer instruction provided by Transpac to MPI.
Upon acceptance of the parties, this Amendment No. 1, as of the day and year
first set forth above, shall become a part of the Settlement Agreement and all
provisions of the Settlement Agreement not specifically inconsistent herewith
shall remain in full force and effect, including but not limited to Section 2.a.
of the Settlement Agreement.
MICROELECTRONIC PACKAGING, INC.
By: /s/ Denis J. Trafecanty
----------------------------------
Chief Financial Officer
TRANSPAC CAPITAL PTE LTD
By: /s/ Caroline Chan
----------------------------------
Senior Vice President
TRANSPAC INDUSTRIAL HOLDINGS LTD.
By: /s/ Caroline Chan
----------------------------------
Company Secretary
REGIONAL INVESTMENT COMPANY LTD
By: /s/ Caroline Chan
----------------------------------
Authorized Signatory
NATSTEEL EQUITY III PTE LTD
By: /s/ Dr. Josephine Kwa Lay Keng
----------------------------------
Senior Vice President
TRANSPAC CAPITAL PTE LTD, as agent
By: /s/ Caroline Chan
----------------------------------
Senior Vice President
<PAGE>
EXHIBIT 10.87
AMENDMENT
---------
RESTRUCTURING, SETTLEMENT AND MUTUAL RELEASE AGREEMENT
This Amendment is entered into as of August 11, 1998 between
Microelectronic Packaging, Inc. ("MPI"), and ORIX Leasing Singapore Limited
("ORIX") the purpose of which is to amend that certain "Restructuring,
Settlement and Mutual Release Agreement" (the "Settlement Agreement") entered
into as of April 14, 1998 between MPI and ORIX.
Capitalized terms otherwise defined herein, shall have the same meaning
ascribed to them in the Settlement Agreement.
RECITALS
A. MPI and ORIX entered into the Settlement Agreement as of April 14, 1998
pursuant to which MPI and ORIX agreed to settle and restructure certain
obligations of MPI whereby, among other things, MPI agreed to pay to ORIX the
amount of US$483,056.10 within six (6) calendar months of the Execution Date.
B. Pursuant to Section 6.h of the Settlement Agreement, the parties now
desire to amend the Settlement Agreement to extend the period of time within
which MPI is obligated to pay to ORIX the amounts required under the Settlement
Agreement.
NOW, THEREFORE, in consideration of the mutual promises contained herein
and for other good and sufficient consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties agree as follows:
1. Section 2 below shall amend, replace and supersede section 2 of the
Settlement Agreement:
2. Settlement. In order to settle the defaults, amounts owed,
-----------
debts, liabilities and other obligations pursuant to, in connection
with, or arising out of the Agreement, the Guarantee, the Loan and
Security Agreement and each of their respective related agreements,
letters, documents and instruments (collectively, the "Loan
Documents"), MPI agrees that by no later than May 1, 1999, MPI will
pay to ORIX the amount of US $483,056, by wire transfer in accordance
with the wire transfer instructions provided by ORIX.
<PAGE>
Upon acceptance of the parties, this Amendment, as of the day and year
specified on page one hereof, shall become a part of the Settlement Agreement
and all provisions of the Settlement Agreement not specifically inconsistent
herewith shall remain in full force and effect. Nothing in the Settlement
Agreement or this Agreement shall be construed to require MPI to make any
payment obligations required under the Settlement Agreement on a date prior to
May 1, 1999.
MICROELECTRONIC PACKAGING, INC.
By: /s/ Denis J. Trafecanty
---------------------------
Chief Financial Officer
ORIX LEASING SINGAPORE LIMITED
By: /s/ Kwek Chye Teck
---------------------------
Managing Director
<PAGE>
EXHIBIT 10.88
AMENDMENT
---------
FORBEARANCE, RESTRUCTURE AND MUTUAL RELEASE AGREEMENT
This Amendment is entered into as of November 5, 1998 by and among
Microelectronic Packaging, Inc. ("MPI"), CTM Electronics, Inc. ("CTM"),
Microelectronic Packaging America ("MPA") and Motorola, Inc. ("Motorola"), the
purpose of which is to amend that certain "Forbearance, Restructure and Mutual
Release Agreement" (the "Agreement") entered into as of July 1, 1998 between
MPI, CTM, MPA and Motorola.
Capitalized terms otherwise defined herein, shall have the same meaning
ascribed to them in the Settlement Agreement.
RECITALS
A. MPI, CTM, MPA and Motorola entered into the Agreement as of July 1, 1998
pursuant to which MPI and Motorola agreed to settle and restructure certain
obligations of MPI whereby, among other things, MPI agreed to pay to Motorola
the amount of US$877,331 within six (6) calendar months of the Execution Date
("Payment Deadline").
B. Pursuant to Section 4.a of the Agreement, the parties now desire to
amend the Agreement to extend the period of time within which MPI is obligated
to pay to Motorola the amounts required under the Agreement.
NOW, THEREFORE, in consideration of the mutual promises contained herein
and for other good and sufficient consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties agree as follows:
1. Section 4.a below shall amend, replace and supersede section 4.a of the
Agreement:
4.a Discounted Payment. MPI agrees that by no later than May 1, 1999
-------------------
("Payment Deadline"), MPI will pay to Motorola the amount of US$
887,331.00 ("Discounted Payment Amount") by wire transfer in
accordance with the wire transfer instructions provided by Motorola.
<PAGE>
Upon acceptance of the parties, this Amendment, as of the day and year
specified on page one hereof, shall become a part of the Agreement and all
provisions of the Agreement not specifically inconsistent herewith shall remain
in full force and effect.
MICROELECTRONIC PACKAGING, INC.
By: /s/ Denis J. Trafecanty
---------------------------
Denis J. Trafecanty
Chief Financial Officer
CTM ELECTRONICS, INC.
By: /s/ Denis J. Trafecanty
---------------------------
Denis J. Trafecanty
Chief Financial Officer
MICROELECTRONIC PACKAGING AMERICA
By: /s/ Denis J. Trafecanty
---------------------------
Denis J. Trafecanty
Chief Financial Officer
MOTOROLA, INC.
By: B. Gutmann
---------------------------
Bernard Gutmann
SCG Group Controller
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET AS OF SEPTEMBER 30, 1998 AND THE STATEMENTS OF OPERATIONS, CASH FLOWS AND
SHAREHOLDERS EQUITY FOR THE PERIOD ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN
ITS ENTIRETY TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JUL-01-1998 JUL-01-1997
<PERIOD-END> SEP-30-1998 SEP-30-1997
<CASH> 516 1,296
<SECURITIES> 0 0
<RECEIVABLES> 1,837 2,504
<ALLOWANCES> 0 0
<INVENTORY> 3,393 4,230
<CURRENT-ASSETS> 6,136 8,417
<PP&E> 1,930 1,212
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 8,264 9,911
<CURRENT-LIABILITIES> 36,690 50,074
<BONDS> 59 69
0 0
0 0
<COMMON> 40,114 40,016
<OTHER-SE> (68,599) (80,248)
<TOTAL-LIABILITY-AND-EQUITY> 8,264 9,911
<SALES> 3,739 5,655
<TOTAL-REVENUES> 3,739 5,655
<CGS> 2,806 4,019
<TOTAL-COSTS> 2,806 4,019
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 5 7
<INCOME-PRETAX> 240 569
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 240 569
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 240 569
<EPS-PRIMARY> 0.02 .05
<EPS-DILUTED> 0.02 .05
</TABLE>
