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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14a-6(e)(2))
[X] Definitive Consent Solicitation Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Microelectronic Packaging, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
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MICROELECTRONIC PACKAGING, INC.
9577 Chesapeake Drive
San Diego, California 92123
September 20, 1999
The Board of Directors ("Board") of Microelectronic Packaging, Inc. ("Company")
is soliciting your consent to: (1) approve the conversion of approximately
$28.06 million in debt owed to eight creditors into Series A Convertible
Preferred Stock of the Company and the amendment of one of the creditor's
warrants to purchase Common Stock; (2) approve the issuance of Series A
Convertible Preferred Stock issued in connection with the debt conversion to 11
employees including officers, directors of the Company and third parties in
exchange for their payment of a creditor claim; (3) approve various amendments
to the Company's 1993 Stock Option/Stock Issuance Plan to: (i) increase the
number of shares of Common Stock authorized for issuance over the term of such
plan by an additional 2,309,368 shares; (ii) amend the number of shares
available for issuance under such plan for each person participating in any one
calendar year to 2,000,000 shares; and (iii) amend the Automatic Option Grant
Program to increase the number of shares of Common Stock subject to automatic
option grants to be made to new and continuing non-employee Board members; (4)
approve the grant of options to purchase 3,721,827 shares of Common Stock to
Company employees, officers and directors pursuant to the amended 1993 Stock
Option/Stock Issuance Plan; (5) approve the Certificate of Amendment of the
Amended and Restated Articles of Incorporation to authorize the issuance of the
Series A Convertible Preferred Stock to the creditors, employees, officers and
directors of the Company and third parties in connection with the debt
conversion; and (6) approve the amendment to the Amended and Restated Articles
of Incorporation to authorize the change of the Company's name to Meltronix,
Inc. We ask that you return your written consent by October 15, 1999.
The Board believes it is in the best interest of the Company and its
shareholders to approve Proposals 1-6. Before Proposals 1-6 can be effective,
the holders of a majority of the Company's outstanding stock must give their
written consent.
IT IS IMPERATIVE THAT WE RECEIVE YOUR CONSENT TO THE ATTACHED PROPOSALS AS SOON
AS POSSIBLE, BUT IN NO EVENT LATER THAN OCTOBER 15, 1999, SUBJECT TO EXTENSION
IN THE DISCRETION OF THE COMPANY, BECAUSE YOUR BROKER CANNOT CONSENT TO
PROPOSALS 1-6 WITHOUT YOUR WRITTEN CONSENT.
The Board asks you to consent to Proposals 1-6. These consent solicitation
materials provide you with detailed information about the Proposals. In
addition, you may obtain information about the Company from documents we have
filed with the Securities and Exchange Commission. We encourage you to read
these consent solicitation materials carefully.
PLEASE COMPLETE, SIGN AND RETURN THE ACCOMPANYING CONSENT
CARD BY OCTOBER 15, 1999.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU
CONSENT TO PROPOSALS 1-6 AS DESCRIBED IN THE ATTACHED
CONSENT SOLICITATION STATEMENT.
<PAGE>
CONSENT SOLICITATION STATEMENT
TABLE OF CONTENTS
Page
----
GENERAL INFORMATION ........................................................ 1
Voting Rights ......................................................... 1
Summary of the Proposals .............................................. 1
Solicitation of Written Consents ...................................... 2
Revocability of Consents .............................................. 3
Expense of Consent Solicitation ....................................... 4
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ........... 4
PROPOSAL 1 - APPROVAL OF CONVERSION OF APPROXIMATELY $28.06 MILLION IN
DEBT OWED TO EIGHT CREDITORS INTO SERIES A CONVERTIBLE PREFERRED STOCK
OF THE COMPANY AND THE AMENDMENT OF ONE OF THE CREDITOR'S WARRANTS TO
PURCHASE COMMON STOCK ................................................. 7
Description of and Reasons for Proposal 1 ......................... 7
Summary of Debt to be Converted ................................... 9
Summary of Principal Terms of Debt Conversion and Mutual
Settlement and Release Agreement .............................. 13
Summary of Prior Settlement Agreements Regarding Debt to Creditors 16
Summary of Principal Terms of Series A Convertible Preferred Stock 17
Registration Rights ............................................... 19
Principal Terms of Transpac Warrant ............................... 20
Opinion of Financial Advisor ...................................... 20
Vote Required and Recommendation for Approval ..................... 23
PROPOSAL 2 - APPROVAL OF THE ISSUANCE OF SERIES A CONVERTIBLE PREFERRED
STOCK ISSUED IN CONNECTION WITH THE DEBT CONVERSION TO 11 EMPLOYEES
INCLUDING OFFICERS, DIRECTORS OF THE COMPANY AND THIRD PARTIES IN
EXCHANGE FOR THEIR PAYMENT OF A CREDITOR CLAIM ........................ 24
Description of and Reasons for Proposal 2 ......................... 24
FI Financial Assignment Agreement with STMicroelectronics, Inc. ... 24
Assignment of Portion of FI Financial's Interest in
STMicroelectronics, Inc.'s Debt to Employees, Officers, a
Director of the Company and Third Parties ..................... 25
Conditions to Purchase of Series A Convertible Preferred Stock
by Employees, Officers, Directors and Third Parties ........... 26
Vote Required and Recommendation for Approval ..................... 26
i
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Consent Solicitation Statement
Table of Contents (cont'd)
Page
----
PROPOSAL 3 - APPROVAL OF VARIOUS AMENDMENTS TO THE COMPANY'S 1993 STOCK
OPTION/STOCK ISSUANCE PLAN AS DESCRIBED HEREIN ........................ 27
Description of and Reasons for Proposal 3 ......................... 27
Plan Structure .................................................... 28
Administration .................................................... 28
Share Reserve ..................................................... 28
Eligibility ....................................................... 28
Valuation ......................................................... 29
Discretionary Option Grant Program ................................ 29
Automatic Option Grant Program .................................... 29
Stock Issuance Program ............................................ 30
Acceleration ...................................................... 30
Financial Assistance .............................................. 30
Special Tax Election .............................................. 31
Amendment and Termination ......................................... 31
Federal Income Tax Consequences ................................... 31
Accounting and Income Tax Treatment ............................... 32
Conditions to Approval of Amendments to 1993 Stock Plan ........... 32
Vote Required and Recommendation for Approval ..................... 33
PROPOSAL 4 - APPROVAL OF GRANT OF OPTIONS TO PURCHASE 3,721,827 SHARES
OF COMMON STOCK TO COMPANY EMPLOYEES, OFFICERS AND DIRECTORS PURSUANT
TO AMENDED 1993 STOCK OPTION/STOCK ISSUANCE PLAN ...................... 33
Description of and Reasons for Proposal 4 ......................... 33
Conditions to Issuance of Additional Options to Employees,
Officers and Directors ........................................ 34
Vote Required and Recommendation for Approval ..................... 34
PROPOSAL 5 - APPROVAL OF CERTIFICATE OF AMENDMENT OF AMENDED AND
RESTATED ARTICLES OF INCORPORATION TO AUTHORIZE THE ISSUANCE OF THE
SERIES A CONVERTIBLE PREFERRED STOCK TO THE CREDITORS, EMPLOYEES,
OFFICERS AND A DIRECTOR OF THE COMPANY AND THIRD PARTIES IN CONNECTION
WITH THE DEBT CONVERSION .............................................. 34
Description of and Reasons for Proposal 5 ......................... 34
Background ........................................................ 35
The Proposal ...................................................... 35
Conditions to Approval of Amended and Restated Articles of
Incorporation ................................................. 35
Vote Required and Recommendation for Approval ..................... 35
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Consent Solicitation Statement
Table of Contents (cont'd)
Page
----
PROPOSAL 6 - APPROVAL OF AMENDMENT TO THE AMENDED AND RESTATED ARTICLES
OF INCORPORATION TO CHANGE THE NAME OF THE COMPANY TO MELTRONIX, INC .. 36
Description of and Reasons for Proposal 6 ......................... 36
Vote Required and Recommendation for Approval ..................... 36
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ............................. 36
EXECUTIVE COMPENSATION AND RELATED INFORMATION ............................. 38
Summary of Cash and Certain Other Compensation .................... 38
Option Grants in Last Fiscal Year ................................. 40
Aggregated Option Exercises and Fiscal Year-End Values ............ 40
Compensation Committee Interlocks and Insider Participation in
Compensation Decisions ........................................ 40
Employment Contracts and Termination of Employment and Change in
Control Arrangements .......................................... 40
Board of Directors Report on Executive Compensation ............... 41
INFORMATION INCORPORATED BY REFERENCE ...................................... 45
ANNEX A - RESOLUTIONS OF ACTIONS BY WRITTEN CONSENT ....................... A-1
FINANCIAL INFORMATION ..................................................... F-1
EXHIBITS
Exhibit A Form of Debt Conversion and Mutual Settlement and Release
Agreement and Form of Second Amendment thereto
Exhibit B Form of Final Certificate of Amendment of Amended and
Restated Articles of Incorporation
Exhibit C Form of Registration Rights Agreement
Exhibit D Form of Transpac Warrant and Amendment No. 1
Exhibit E STM/FI Financial Assignment Agreement
Exhibit F Form of IBM Proceeds Agreement
Exhibit G Assignment of Interest Agreement.
Exhibit H Form of L.H. Friend, Weinress, Frankson and Presson, Inc.
Opinion
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MICROELECTRONIC PACKAGING, INC.
--------------------------
CONSENT SOLICITATION STATEMENT
FOR SHAREHOLDER ACTION BY WRITTEN CONSENT
--------------------------
This Consent Solicitation Statement ("Consent Statement") has been prepared
by the management of Microelectronic Packaging, Inc. ("Company" or "MPI") and is
being furnished in connection with the solicitation by the Board of Directors of
the written consent of the Company's shareholders.
The Company intends to distribute this Consent Statement and the
accompanying materials to its Shareholders on or about September 21, 1999. The
mailing address of the Company's principal executive offices is 9577 Chesapeake
Drive, San Diego, California 92123.
The Company is seeking Shareholder approval of Proposals 1-6. These matters
are described in detail in this Consent Statement.
Attached to the Consent Statement as Annex A is the Resolution of Actions
by Written Consent of Shareholders (the "Consent Resolution"). The procedure for
indicating approval of the proposals included in the Consent Resolution is
described in detail in this Consent Statement.
GENERAL INFORMATION
Voting Rights
The proposals being submitted for Shareholder approval are to be acted upon
by written consent, without a meeting, rather than by a vote held at a meeting.
The holders of the common stock of the Company ("Common Stock") are entitled to
consent or withhold their consent in writing regarding each of the proposals
being considered. Each outstanding share of Common Stock is entitled to one vote
for or against each proposal.
The written consent of a majority of the outstanding shares of Common Stock
is required to approve each of the respective proposals contained in the Consent
Resolution.
Summary of the Proposals
The Board of Directors has adopted a resolution which declares the
advisability of, and submits to the Shareholders for authorization and approval,
proposals to:
1. Approve the conversion of approximately $28.06 million in debt
owed to eight creditors into Series A Convertible Preferred Stock
of the Company and the amendment of one of the creditor's
warrants to purchase Common Stock;
2. Approve the issuance of Series A Convertible Preferred Stock
issued in connection with the debt conversion to 11 employees
including officers, directors of the Company and third parties
in exchange for their payment of a creditor claim;
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3. Approve various amendments to the Company's 1993 Stock
Option/Stock Issuance Plan to:
(i) increase the number of shares of Common Stock
authorized for issuance over the term of such plan by
an additional 2,309,368 shares;
(ii) amend the number of shares available for issuance
under such plan for each person participating in any
one calendar year to 2,000,000 shares; and
(iii) amend the Automatic Option Grant Program to increase
the number of shares of Common Stock subject to
automatic option grants to be made to new and
continuing non-employee Board members.
4. Approve the grant of options to purchase 3,721,827 shares of
Common Stock to Company employees, officers and directors
pursuant to the amended 1993 Stock Option/Stock Issuance Plan;
5. Approve the Certificate of Amendment of the Amended and Restated
Articles of Incorporation to authorize the issuance of the Series
A Convertible Preferred Stock to the creditors, employees,
officers, directors of the Company and third parties in
connection with the debt conversion; and
6. Approve the amendment to the Amended and Restated Articles of
Incorporation to change the name of the Company to Meltronix,
Inc.
One or more of the proposals may be abandoned by the Board at any time
before the Certificate of Amendment of the Amended and Restated Articles of
Incorporation with the amendments contained in Proposals 5 and 6 is filed with
the California Secretary of State's office, if holders of a majority of the
outstanding Common Stock do not approve the proposal, or if for any reason the
Board deems it advisable to abandon a proposal.
Only holders of record of shares of the Company's Common Stock at the close
of business on August 31, 1999 ("Record Date") are entitled to execute the
Consent Resolution. At the close of business on the Record Date, there were
10,856,890 shares of Common Stock issued and outstanding held by approximately
138 holders of record. The holders of the Common Stock as of the Record Date are
referred to in this Consent Statement as the "Shareholders."
Solicitation of Written Consents
Under California law and under the Company's Bylaws, any action which may
be taken at any annual or special meeting of the Shareholders may be taken
without a meeting, without prior notice and without a vote, if a consent in
writing, setting forth the action so taken, is signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. The matters being considered by
the Shareholders are being submitted for action by written consent, rather than
by votes cast at a meeting. Attached to this Consent Statement as Annex A is the
text of the Consent
2
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Resolution being submitted for Shareholder adoption by written consent. The
Consent Resolution provides for the approval of each of the proposals, each of
which were summarized above and are more fully described under the captions for
each proposal below. In accordance with California law, notice of shareholder
approval of the respective proposals without a meeting by less than unanimous
written consent, shall be given to the Shareholders at least 10 days before the
date the Consent Resolution is effective. Consent Resolutions must be received
by the Company on or before October 15, 1999, subject to extension in the
discretion of the Company.
Shareholders are requested to indicate approval of and consent to the
adoption of the proposals contained in the Consent Resolution, or disapproval
thereof, by executing the enclosed copy of the Consent Resolution and by
checking the boxes which correspond to the approval or disapproval of the
proposed action. Each proposal contained in the Consent Resolution may be
considered separately. Failure to check any of the boxes will, if the Consent
Resolution has been signed, constitute approval of and consent to the adoption
of all of the proposals contained in the Consent Resolution. Signing and
indicating approval or disapproval on the Consent Resolution will be deemed to
be the granting or denial of written consent to the adoption of each proposal
contained in the Consent Resolution.
Approving a proposal contained in the Consent Resolution and execution of
the Consent Resolution will constitute your approval of the proposal, as a
Shareholder of the Company. Shareholders who do not approve a proposal or
consent to the adoption of the Consent Resolution will nonetheless be bound by
the Consent Resolution if written consents representing a majority of the
outstanding shares of Common Stock are received by the Company approving the
proposal.
The Board requests that each Shareholder indicate their approval or
disapproval of each proposal listed in the Consent Resolution and execute and
date the Consent Resolution, indicate the number of Shares being voted, and
deliver the Consent Resolution to the Company via regular mail, fax or in person
at the following address:
Microelectronic Packaging, Inc.
Attn: Denis Trafecanty, Senior Vice President
and Chief Financial Officer
9577 Chesapeake Drive
San Diego, CA 92123
Facsimile: (619) 292-7881
A self-addressed stamped envelope is enclosed for your convenience in returning
the Consent Resolution. Each Shareholder is requested to indicate on the Consent
Resolution the number of shares which the Shareholder is voting. If the
Shareholder wishes to vote any shares not registered in his/her name, a written
consent of the registered Shareholder of record as of the Record Date must be
received by the Company. The Consent Resolution should be returned as soon as
possible for receipt no later than October 15, 1999, subject to extension in the
discretion of the Company.
Under applicable law, Shareholders who abstain from voting with respect to
any proposal, or who vote against any proposal to be considered in this Consent
Statement, do not have the right to an appraisal of their shares or any similar
dissenter's rights under applicable law.
Revocability of Consents
When the enclosed Consent Resolution is properly executed and returned, the
shares it represents will be voted in accordance with the directions noted
thereon, and if no directions are indicated, the shares it represents will be
voted in favor of each proposal. Any person providing a Consent Resolution in
the
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form accompanying this Consent Statement has the power to revoke it any time
prior to the time that written consents of the number of shares required to
authorize the proposed action have been filed with the Secretary of the Company,
but not thereafter. It may be revoked by filing with the Secretary of the
Company at the Company's principal executive office a writing revoking the
Consent Resolution. Such revocation shall be effective upon its receipt by the
Secretary of the Company.
Expense of Consent Solicitation
The Company will bear the entire cost of the solicitation of Shareholder
approval of the Consent Resolution, including the preparation, assembly,
printing and mailing of this Consent Statement, and any additional material
furnished to Shareholders. In addition, the Company may reimburse certain
persons for their cost of forwarding the solicitation material to Shareholders.
The solicitation of consents by mail may be supplemented by telephone, telegram
and/or personal solicitation by directors, officers or employees of the Company.
No additional compensation will be paid for any of such services. To assist in
the solicitation process, the Company has retained Beacon Hill Partners, Inc.
The fee for such services will be approximately $6,500 plus reasonable expenses
incurred to distribute the solicitation materials.
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information known to the Company regarding
the ownership of the Company's Common Stock as of June 30, 1999 for (i) each
Director and nominee who owns Common Stock, (ii) all persons or entities who
were known by the Company to be beneficial owners of five percent (5%) or more
of the Company's Common Stock, (iii) the Chief Executive Officer and other
executive officers whose compensation for 1998 were each in excess of $100,000,
and (iv) all executive officers and Directors of the Company as a group.
<TABLE>
<CAPTION>
Number of
Shares
Percent of Beneficially Percent of
Number of Total Shares Owned if All Total Shares
Shares Outstanding Proposals Outstanding
Beneficially Beneficially Herein Beneficially
Name and Address of Beneficial Owner Owned(1) Owned Adopted(11) Owned(11)
- ------------------------------------ -------- ----- ----------- ---------
<S> <C> <C> <C> <C>
Entities that may be deemed to be affiliated with
Transpac Capital Pte. Ltd.(2)
6 Shenton Way
#2D-09 DBS Building, Tower Two
Singapore 068809 ................................ 1,342,013 11.8% 9,405,664 30.8%
Joost Tjaden(3)
c/o TBM Associates
3500 Oaklawn, #215
Dallas, Texas 75219 ............................. 687,620 6.3% 687,620 2.3%
Cabot Ceramics, Inc.(4)
c/o Cabot Corporation
75 State Street
Boston, MA 02119-1806 ........................... 654,326 6.0% 654,326 2.2%
Counterpoint Master LLC
1301 Avenue of the Americas
40th Floor
New York, NY 10019 .............................. 627,035 5.8% 627,035 2.1%
Anthony J.A. Bryan(5) ........................... 168,333 1.5% 457,866 1.5%
Frank Howland(5) ................................ 145,800 1.3% 396,576 1.3%
Waldemar Heeb(5) ................................ 15,000 0.1% 40,800 0.1%
Wong Lin Hong(6) ................................ 1,357,013 11.9% 9,446,464 31.4%
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C>
James Waring(7) ................................. _________ _____ ___________ _____%
Andrew K. Wrobel(8)
c/o Microelectronic Packaging, Inc.
9577 Chesapeake Drive
San Diego, California 92123 ..................... 600,000 5.2% 1,711,358 5.5%
Denis J. Trafecanty(9) .......................... 300,000 2.7% 1,001,170 3.3%
Timothy R. Sullivan(10) ......................... 150,000 1.3% 434,452 1.5%
All directors and executive officers
as a group (7 persons) .......................... 2,736,146 21.5% 13,488,686 39.8%
</TABLE>
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Percentage beneficially owned
is based on a total of 10,856,890 shares of Common Stock issued and
outstanding as of the Record Date. Shares of Common Stock subject to
options or warrants currently exercisable or convertible, or exercisable or
convertible within 60 days of the Record Date are deemed outstanding for
computing the percentage of the person holding such options or warrants but
are not outstanding for computing the percentage of any other person.
Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have
sole voting and investment power with respect to all shares of Common Stock
beneficially owned.
(2) The Transpac entities include Transpac Capital Pte. Ltd. (the "Manager"), a
Singapore private limited company; Transpac Industrial Holdings Limited
("TIH"), a Singapore public listed company; Regional Investment Company
Limited ("Regional"), a Singapore public limited company; Transpac Equity
Fund ("TEF"), a British Virgin Islands trust; Transpac Venture Partnership
II ("TVP"), a collective investment scheme; Transpac Manager's Fund
("TMF"), a British Virgin Islands international business company; and
NatSteel Equity III Pte Ltd. ("NatSteel"), a Singapore private limited
company. The Manager does not have any direct ownership interest in the
Company's Common Stock. The Manager has, in its capacity as investment
adviser to each of TIH, Regional, TEF and TVP, the power to control the
voting and disposition of the 765,466 shares and warrants for 500,000
shares of Common Stock held in the aggregate by TIH, Regional, TEF and TVP
and, therefore, may be deemed to be a beneficial owner of such shares. TIH
has direct beneficial ownership of 334,069 shares and warrants for 198,500
shares of the Common Stock. TIH shares the power to control the voting and
disposition of such 334,069 shares of Common Stock and warrants for 198,500
shares with the beneficial ownership of any shares of Common Stock and
warrants for 198,500 shares with the Manager. The Manager further holds
warrants to purchase 201,500 shares of Common Stock. TIH disclaims
beneficial ownership of any shares of Common Stock held by any other
Transpac entity. Regional has direct beneficial ownership of 92,066 shares
of the Common Stock and warrants for 54,500 shares. Regional shares the
power to control the voting and disposition of such 92,066 shares of Common
Stock and warrants for 54,500 shares with the Manager. Regional disclaims
beneficial ownership of any shares of Common Stock held by any other
Transpac entity. TEF has direct beneficial ownership of 197,285 shares of
the Common Stock. TEF shares the power to control the voting and
disposition of such 197,285 shares of Common Stock with the Manager. TEF
disclaims beneficial ownership of any shares of Common Stock held by any
other Transpac entity. TVP has direct beneficial ownership of 139,415
shares of 139,415 shares of the Common Stock. TVP shares the power to
control the voting and disposition of such 139,415 shares of Common Stock
with the Manager. TVP disclaims beneficial ownership of any shares of
Common Stock held by any other Transpac entity. TMF has direct beneficial
ownership of 2,631 shares of the Common Stock. NatSteel has direct
beneficial ownership of 76,547 shares of the Common Stock and warrants for
45,500 shares. NatSteel and the Manager have no formal relationship,
advisory or otherwise, in respect of the shares of Common Stock held by
NatSteel. However, NatSteel anticipates that it may rely upon the advice of
Transpac in connection with the voting and disposition of the shares of
Common Stock held by it. NatSteel disclaims beneficial ownership of the
shares of Common Stock held by any other Transpac entity. The preceding
information was partially obtained from a Schedule 13D filed with the
Securities and Exchange Commission on or about April 3, 1996. Mr. Wong Lin
Hong is Director and Executive Vice President of Transpac Capital Pte.
Ltd., and as such may be deemed to share voting and investment power with
respect to the Transpac entities' shares. Mr. Wong disclaims beneficial
ownership of such shares except to the extent of his pecuniary interest
therein.
5
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(3) Includes shares owned by TBM Associates, Inc. ("TBM"), an investment
management company in which Mr. Tjaden is a significant shareholder, and as
such may be deemed to share voting and investment power. TBM exercises
voting control over shares of MPI common stock held by Bostech Associates
(1,719 shares), Ion Associates (33,685 shares) and N.V. Bever Holding
(368,094 shares and a warrant to purchase 1,173 additional shares at an
exercise price of $5.63). Also includes shares held by Janivo Fonds (99,307
shares) and Van Doorne Group (99,285 shares), over which Mr. Tjaden
exercises voting control. Mr. Tjaden disclaims beneficial ownership of all
such shares.
(4) Cabot Ceramics, Inc. is a corporation wholly owned by Cabot Corporation.
The executive management of Cabot Corporation has voting and investment
power over such shares and may be deemed to beneficially own such shares.
(5) All shares are in the form of stock options exercisable within 60 days of
the Record Date.
(6) Also includes the 1,342,013 shares owned by the Transpac entities as
described in footnote (2) above, and as to 1,342,013 of such shares Mr.
Wong disclaims beneficial ownership except to the extent of his pecuniary
interest therein. 500,000 of such shares are in the form of a stock
purchase warrant exercisable within 60 days of the Record Date.
(7) Mr. Waring was elected as a Director in August, 1999.
(8) Includes options to acquire 600,000 shares of Common Stock which are
exercisable within 60 days of the Record Date under the table for the
Number of Shares Beneficially Owned, and as to the table for Number of
Shares Beneficially Owned if All Proposals Herein are Adopted, includes the
79,358 shares of Common Stock which are initially convertible from the
Series A Convertible Preferred Stock to be purchased under Proposal 2, and
the option to acquire 1,032,000 shares of Common Stock intended to be
granted upon approval of Proposals 3 and 4 herein, all of which are
exercisable within 60 days of the Record Date.
(9) Includes options to acquire 300,000 shares of Common Stock which are
exercisable within 60 days of the Record Date under the table for the
Number of Shares Beneficially Owned, and as to the table for the Number of
Shares Beneficially Owned If All Proposals Herein are Adopted, includes the
185,170 shares of Common Stock which are initially convertible from the
Series A Convertible Preferred Stock to be purchased under Proposal 2
herein, and the option to acquire 516,000 shares of Common Stock intended
to be granted upon approval of Proposals 3 and 4 herein, all of which are
exercisable within 60 days of the Record Date.
(10) Includes options to acquire 150,000 shares of Common Stock which are
exercisable within 60 days of the Record Date under the table for the
Number of Shares Beneficially Owned, and as to the table for the Number of
Shares Beneficially Owned if All Proposals Herein are Adopted, includes the
26,452 shares of Common Stock which are initially convertible from the
Series A Convertible Preferred Stock to be purchased under Proposal 2
herein, and the option to acquire 258,000 shares of Common Stock intended
to be granted upon approval of Proposals 3 and 4 herein, all of which are
exercisable within 60 days of the Record Date.
(11) The number of shares beneficially owned by the parties described in this
table assumes all of the proposals in this Consent Statement are approved
by the Shareholders, for which there can be no assurance, and that the
Series A Convertible Preferred Stock referenced in footnotes 8, 9 and 10 is
converted as of the Record Date assuming 29,582,444 shares of Common Stock
of the Company are outstanding, and that the options to acquire the
referenced shares of Common Stock of the Company are exercised as of the
Record Date assuming 29,582,444 shares of Common Stock are outstanding.
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PROPOSAL 1
APPROVAL OF CONVERSION OF APPROXIMATELY $28.06 MILLION IN DEBT OWED TO EIGHT
CREDITORS INTO SERIES A CONVERTIBLE PREFERRED STOCK OF THE COMPANY AND THE
AMENDMENT OF ONE OF THE CREDITOR'S WARRANTS TO PURCHASE COMMON STOCK.
Description of and Reasons for Proposal 1
As of June 30, 1999, the Company is in default on approximately $28.06
million in debt plus accrued interest related to the Company's discontinued
operations in Singapore. The entire amount including accrued interest is
currently due and payable. The Company does not have the ability to pay the
amounts due on this debt. As more fully described herein, the Company proposes
to convert and cancel the approximately $28.06 million in debt owed to eight
creditors for 9,362,777 shares of Series A Convertible Preferred Stock of the
Company which will initially be convertible into 18,725,554 shares of Common
Stock if Proposal 1 is approved by the Shareholders.
The $28.06 million in debt resulted from (i) the construction by MPM
Singapore Pte. Ltd. ("MPM"), an affiliate of the Company, of a multi-layer
ceramic operations plant in Singapore, which ceased operations prior to the
commencement of production; and (ii) the purchase in December, 1994 and
installation of additional equipment at Microelectronic Packaging (S) Pte., Ltd.
("MPS") which was used to provide pressed ceramic products to integrated circuit
manufacturers. As a result of what management believes was a slowdown in market
demand, this equipment was no longer required to satisfy its customers' reduced
requirements. In 1997, a receiver was appointed by the courts in Singapore to
liquidate MPM's and MPS' assets. The Company believes the principal reasons
which forced MPM to liquidate included changing market demand for multi-layer
ceramic products and the failure of a potential major customer to commit to any
product purchases. The Company also believes the principal reasons which forced
MPS to liquidate was a decline in the market for pressed ceramics, as much of
the additional equipment purchased by MPS represented excess capacity. Both of
these subsidiaries have been in receivership since 1997, the receiver has
completed the liquidation of MPM's assets and the receiver is in the process of
completing the liquidation of MPS' assets, and the proceeds were used to retire
a portion of MPM's and MPS' debts. During 1998, the High Court of the Republic
of Singapore ordered the winding up of MPM.
The Company fully guaranteed the $28.06 million in debt incurred by MPM and
MPS to eight creditors in connection with the operations in Singapore
("Singapore Creditors"). During 1998, the Company signed Restructuring, Mutual
Release and Settlement Agreements ("Restructuring Agreements") with the
Singapore Creditors, which called for settlement payments of approximately $9.3
million in satisfaction of the then $27.1 million in debt owed. The $9.3 million
in settlement payments were generally due no later than May 1, 1999. During 1998
the Company explored various proposals to obtain additional financing to enable
it to satisfy the $9.3 million in settlement obligations. Since the Company was
not able to obtain funding to pay this $9.3 million, the Company renegotiated
the terms and entered into non-binding letter agreements with all of the
Singapore Creditors (including a third party who agreed to purchase the creditor
position of one of the Singapore Creditors) which called for the conversion of
all debt and accrued interest obligations into shares of the Company's to be
authorized Series A Convertible Preferred Stock ("Debt Conversion Transaction").
A summary of the principal terms of the Series A Convertible Preferred
Stock is set forth under the heading "Summary of Principal Terms of Series A
Convertible Preferred Stock" below. The letter agreements provided that the
proposed Debt Conversion Transaction was subject to the completion of definitive
agreements for all of the Singapore Creditors and the approval of the Debt
Conversion Transaction by the holders of a majority of the Company's Common
Stock.
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The Company has prepared Debt Conversion and Mutual Settlement and Release
Agreements for each of the Singapore Creditors ("Conversion and Settlement
Agreements"), which respectively include, as applicable, the following exhibits:
Registration Rights Agreement; IBM Proceeds Agreement; Certificate of Amendment
of Amended and Restated Articles of Incorporation; and Amendment No. 1 to the
Warrants granted to Transpac. One of the Singapore Creditors,
STMicroelectronics, Inc. ("STM") did not agree to participate in the Debt
Conversion Transaction, and in lieu thereof, STM agreed to sell its creditor
position to FI Financial, LLC ("FI Financial") pursuant to the terms and
conditions of a written agreement entered into on April 14,1999 between STM, FI
Financial and the Company ("STM/FI Financial Agreement"). On August 31, 1999 FI
Financial and STM signed an assignment agreement ("STM/FI Financial Assignment
Agreement") whereby for a $500,000 payment to STM, FI Financial acquired all
rights, title and interest to STM's creditor claims with the Company. FI
Financial has signed a Conversion and Settlement Agreement and agreed to
participate in the Debt Conversion Transaction upon the approval by the
Shareholders of the Debt Conversion Transaction, all as described in more detail
in Proposal 2 below.
In addition to the STM/FI Financial Assignment Agreement, as of the date
hereof, the Company has received executed Conversion and Settlement Agreements
from all of the Singapore Creditors consisting of the following: Transpac
Capital Pte. Ltd. and related investors; Texas Instruments Singapore, Ltd.; Orix
Leasing Singapore Ltd.; NS Electronics Bangkok, Ltd.; Motorola, Inc.; Samsung
Corning; and the Development Bank of Singapore, Ltd. The Development Bank of
Singapore, Ltd. also requested changes to Exhibit B, the Form of Certificate of
Amendment of Amended and Restated Articles of Incorporation, and the other
Singapore Creditors have all agreed in writing to the changes to the Certificate
of Amendment of Amended and Restated Articles of Incorporation as set forth at
Exhibit B hereto.
All of the Singapore Creditors have also agreed in writing to a 61-day
extension to October 31, 1999 to the previous deadline of August 31, 1999 for
Shareholder approval and consummation of the proposals in this Consent Statement
as set forth in the Form of First Amendment to the Conversion and Settlement
Agreement at Exhibit A hereto. If the proposals in this Consent Statement are
not approved by the Shareholders by October 31, 1999 where this Consent
Statement has been mailed to the Shareholders prior to that date, the Company
shall request an additional extension beyond October 31, 1999 for a reasonable
time to enable the Company to receive Shareholder approval from the Singapore
Creditors without further notice to the Shareholders. The names of the Singapore
Creditors and a summary of the current debt amounts and transactions from which
they resulted are summarized below.
The Company believes the Conversion and Settlement Agreements are very
advantageous for the Company and its Shareholders and will enable the Company to
continue its operations and avoid the adverse prospect of an immediate Chapter
11 reorganization bankruptcy filing. If the Company is unable to obtain the
consent of the Shareholders to the Debt Conversion Transaction, or if all of the
Singapore Creditors do not sign the Conversion and Settlement Agreements, the
Company will likely be required to institute immediate Chapter 11 bankruptcy
proceedings. While the Company currently intends to initially file a Chapter 11
bankruptcy proceeding in such a case there can be no assurance it would remain
as a Chapter 11 bankruptcy proceeding. The Board of Directors has considered
other reasonable and viable alternatives to bankruptcy, including selling equity
or debt securities or securing a bank or other loan to raise the financing
needed to repay the Singapore Creditors, but was unable to sell any securities
or secure a bank or other loan because of the adverse financial condition of the
Company, and believes bankruptcy would be in the best interests of the Company
and its Shareholders if Shareholder approval of Proposals 1 through 5 herein is
not obtained.
The Board has approved the Debt Conversion Transaction and the related
agreements which include the Form of Debt Conversion and Mutual Release and
Settlement Agreement and the Second Amendment thereto, Form of Certificate of
Amendment of Amended and Restated Articles of Incorporation, Form of
Registration Rights Agreement, Form of Transpac Warrant and Amendment No. 1 to
the Warrants granted to Transpac, STM/FI Financial Assignment Agreement, Form of
IBM Proceeds Agreement, Assignment of Interest Agreement and Form of L.H.
Friend, Weinress, Frankson and
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Presson, Inc. Opinion, all as respectively attached to this Consent Statement as
Exhibits A, B, C, D, E, F, G and H ("Exhibits"). All statements contained in
this Consent Statement with respect to such documents are qualified in their
entirety by references to those Exhibits.
Summary of Debt to be Converted
During 1998, the Company signed Restructuring Agreements with each of the
Singapore Creditors, which called for settlement payments of approximately $8.3
million to satisfy the then approximately $27.1 million in debt obligations owed
to them if the $8.3 million was paid to the Singapore Creditors by May 1, 1999
and an additional $1.0 million paid to Transpac Capital Pte. Ltd. and related
investors by December 31, 1999. The Company was not able to obtain funding to
repay all or any part of the $8.3 million due on May 1, 1999 and renegotiated
the terms with each creditor. All of the Singapore Creditors other than STM
agreed to convert their debt and accrued interest into shares of the Company's
Series A Convertible Preferred Stock.
The Company will issue a total of 9,362,777 shares of Series A Convertible
Preferred Stock to the Singapore Creditors, which will be initially convertible
into 18,725,554 shares of Common Stock of the Company if Proposals 1 through 5
are approved by the Shareholders. The Singapore Creditors, assuming Proposals 1
through 5 herein are approved by the Shareholders, will own the following
percentage of the outstanding Common Stock of the Company, which includes the
Common Stock or other equity securities currently owned by such parties:
Transpac and related entities: 30.76%, including beneficial ownership of the
Transpac warrant to purchase 500,000 shares of Common Stock; Development Bank of
Singapore, Ltd.: 7.80%; Motorola: 5.88%; N.S. Electronics Bangkok, Ltd.: 1.83%;
FI Financial and its assigns: 8.94%; Texas Instruments, Inc.: 7.14%; Samsung
Corning Co. Ltd.: 1.24%; and Orix Leasing Singapore Ltd.: 3.20%.
STM sold its creditor position to FI Financial on August 31, 1999 in
exchange for a cash payment of $500,000 ("STM Payment"). FI Financial is owned
by James T. Waring, who was elected to the Board in August 1999. FI Financial
had previously deposited the STM Payment in escrow and on August 31, 1999 made
the STM Payment because the Company and FI Financial were convinced that STM
would not agree to any further extension to obtain Shareholder approval of the
Debt Conversion Transaction before the STM Payment was made. FI Financial has
entered into a Conversion and Settlement Agreement and has the right to acquire
1,322,647 shares of Series A Convertible Preferred Stock, which is the number of
shares STM would have received if STM had agreed to the Debt Conversion
Transaction and entered into a Conversion and Settlement Agreement. FI Financial
is entitled to assign its rights thereunder to 11 employees including officers
and a director of the Company and four third parties, who have paid
corresponding cash reimbursements to FI Financial. Prior to the approval by the
Shareholders of the Debt Conversion Transaction, FI Financial will be entitled
to and may assign further interests under the STM/FI Financial Assignment
Agreement to additional parties. In addition, pursuant to the STM/FI Financial
Assignment Agreement, FI Financial will acquire ownership of the Warrant held by
STM to purchase 200,000 shares of the Company's Common Stock for a purchase
price of $1.00 per share ("STM Warrant"). As part of the Debt Conversion
Transaction, FI Financial has agreed to surrender the STM Warrant to the Company
without exercise, whereupon the STM Warrant will be terminated and will not have
any further force or effect.
The number of shares of Series A Convertible Preferred Stock to be issued
to each of the Singapore Creditors in cancellation of their debts is based on a
formula, calculated by dividing the number resulting from multiplying the
principal and interest owed to each of the Singapore Creditors as of December
31, 1997 by 30% of such amount, which is the numerator, and the denominator of
which is the original issue price of $1.02 of the Series A Convertible Preferred
Stock. For Transpac, Development Bank of
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<PAGE>
Singapore, Ltd. and NS Electronics Bangkok, Ltd., certain adjustments were added
after the calculation of 30% of the principal and interest owed as of December
31, 1997, and Motorola, Inc. required 40% of the principal and interest owed as
of December 31, 1997. With regard to Transpac, after the number resulting from
the above formula was determined, $1 million dollars was added which reflected
the Company's guarantee that Transpac would receive a minimum of $1 million from
proposed litigation by it against a prior customer. Development Bank of
Singapore, Ltd. required that after 30% of the December 31, 1997 principal and
interest owed was calculated that the Company add to that number the insurance
proceeds of $136,606 it received from the casualty loss of one of its
subsidiaries' buildings in Singapore plus a subsidiaries account receivable
owed to the Development Bank of Singapore, Ltd. of $673,808. The NS Electronics
Bangkok, Ltd. adjustment formula required that the Company subtract from the
number resulting from multiplying 30% of the December 31, 1997 principal and
interest owed to NS Electronics Bangkok, Ltd., a debt of $500,000 owed by NS
Electronics Bangkok, Ltd. to a subsidiary of the Company. Motorola, Inc.
required as a condition of agreeing to sign the Conversion and Settlement
Agreement that they receive 40% of the principal and interest owed on their debt
as of December 31, 1997 since they were a secured creditor and held assets of
the Company as collateral. After the adjustments are made to the debt conversion
formula as described above, the Company will issue the Series A Convertible
Preferred Stock to the Singapore Creditors based on a discounted amount of debt
of approximately $9.5 million, rather than the $28.06 million in principal and
interest owed as of June 30, 1999, which will result in fewer shares of the
Series A Preferred Stock being issued to the Singapore Creditors than if the
$28.06 million in debt was used as the basis for the shares to be issued.
As of June 30, 1999, which is the end of the Company's second quarter and
for which the Company has filed with the Securities and Exchange Commission its
most recent Form 10-Q/A Quarterly Report, the Company owed approximately $28.06
million to the Singapore Creditors, whose names are Transpac Capital Pte. Ltd.
and related investors; STMicroelectronics, Inc.; Texas Instruments Singapore,
Ltd.; Development Bank of Singapore, Ltd.; Motorola, Inc.; NS Electronics
Bangkok Ltd.; Samsung Corning Co., Ltd.; and Orix Leasing Singapore Ltd. All of
the principal and interest on these debts was due and payable by May 1, 1999 and
is now in default. The following is a brief summary of the material terms and
conditions of these debts. If Proposal 1 is approved by a majority of the
holders of the Company's Common Stock, all of the $28.06 million in debt will be
canceled and exchanged for the Series A Convertible Preferred Stock of the
Company.
Development Bank of Singapore, Ltd. ("DBS"). At June 30, 1999, the
Company's subsidiaries, MPM and MPS, had outstanding borrowings due to DBS in
the principal amount of $1,452,273 including accrued interest. The amount
outstanding results from the remaining balance of various borrowings made by MPM
and MPS under lines of credit, overdraft facilities and an accounts receivable
financing line of credit originally made in 1996. The $1,452,273 debt represents
the balance of the original debt remaining after the liquidation of the assets
of MPM and MPS by the receivers and the application of the proceeds from the
sale of the assets. All of the assets of MPM and substantially all of the assets
of MPS have been liquidated by the receivers of MPM and MPS. In addition, DBS
has signed a Conversion and Settlement Agreement.
The remaining balances due to DBS are in default, are payable upon demand
and bear interest at the bank's prime rate plus 5%. All of these amounts are
guaranteed by the Company. In February 1999, the Company and DBS signed a
non-binding letter agreement which calls for conversion of all of the Company's
obligations into shares of Series A Convertible Preferred Stock.
Transpac Capital Pte. Ltd. and Related Investors. At June 30, 1999, MPM
had outstanding borrowings due to Transpac Capital Pte. Ltd. and related
investors (collectively, "Transpac") in the principal amount of $9.0 million,
plus accrued interest in the approximate amount of $2,547,883. On
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March 27, 1996, the Company and MPM completed a financing with Transpac pursuant
to which the Company issued 842,013 shares of its Common Stock to Transpac for a
total purchase price of $2.0 million, and MPM issued a convertible debenture to
Transpac in the principal amount of $9.0 million. The debenture has a term of
five years, bears interest at the rate of 8.5% per annum and is guaranteed by
the Company. The outstanding principal on the debenture is due and payable in
full at the end of the five-year term; however, from and after April 23, 1997,
the debenture is convertible at Transpac's option to shares of Common Stock of
MPM or Common Stock of the Company. The debenture was fully guaranteed by the
Company. Neither MPM nor the Company have ever made any payments under the
debenture. The debenture is currently in default and payable upon demand.
In early 1999, the Company and Transpac signed a non-binding letter
agreement which calls for the conversion of all of the Company's obligations to
Transpac into shares of Series A Convertible Preferred Stock. In addition,
Transpac has signed a Conversion and Settlement Agreement.
NS Electronics Bangkok Ltd. ("NSEB"). At June 30, 1999, the Company had
outstanding a term note due to NSEB, a former customer of MPS with a principal
balance of $1,250,000 and approximately $571,883 of accrued interest. This note
is fully guaranteed by the Company and is secured by certain assets of the
Company. This note is currently in default and payable upon demand.
In 1995, the Company borrowed $1,500,000 from NSEB at an interest rate of
14% per annum. The Company has made no principal payments since September 1996.
The NSEB promissory note is secured by all of the Company's domestic equipment
and trade receivables that are not subject to liens or other encumbrances
existing prior to May 30, 1995. In March 1997, the Company entered into an
Amended Loan and Security Agreement and a Second Secured Promissory Note with
NSEB pursuant to which NSEB agreed to waive any breach of the covenants, terms
and conditions of the original Loan and Security Agreement and the original
Secured Promissory Note (both dated May 30, 1995) and agreed to a revised (and
extended) payment schedule. The interest rate on the outstanding balance,
however, was raised from 14% per annum to 18% per annum and the Company is
currently in default under the terms of the Second Secured Note. In February
1999, the Company and NSEB signed a non-binding letter agreement which calls for
the conversion of all of the Company's agreed obligations to NSEB into shares of
Series A Convertible Preferred Stock. In addition, NSEB has signed a Conversion
and Settlement Agreement.
Texas Instruments Singapore, Ltd. ("TI"). At June 30, 1999, the Company's
subsidiary, MPS, had an outstanding promissory note due to TI, a former customer
of MPS. The principal balance due under the note is $3,500,000 and approximately
$278,596 of accrued interest was due and payable as of June 30, 1999. The note
bears interest at the rate of $3.5% per annum. The note is fully guaranteed by
the Company and was secured by certain assets of MPS. The note is currently in
default and payable upon demand.
In 1995, MPS borrowed $3,500,000 from TI at an interest rate of 7.25% per
annum. The Company entered into several amended loan agreements during 1997 and
1998; however, the Company was unable to meet the terms of those agreements. In
April 1999, the Company and TI signed a Conversion and Settlement Agreement.
STMicroelectronics, Inc. ("STM"). At June 30, 1999, the Company's
subsidiary, MPS, had outstanding a promissory note due to STM, a former customer
of MPS. The principal balance due under the note is $4,000,000 and approximately
$893,595 of accrued interest was due and payable as of June
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30, 1999. The note is fully guaranteed by MPI and was secured by certain assets
of MPS. The note is currently in default and payable upon demand.
In 1995, MPS borrowed $4,000,000 from STM at an interest rate of 7.25% per
annum. MPS did not make any principal payments, and only made limited interest
payments. On April 14, 1999, STM and FI Financial entered into the STM/FI
Financial Agreement, pursuant to which STM agreed to assign its creditor
position to FI Financial in exchange for a cash payment of $500,000. On August
31, 1999, STM and FI Financial executed the STM/FI Financial Assignment
Agreement pursuant to which FI Financial paid STM $500,000 for an assignment of
all rights, title and interest in STM's creditor claims against the Company. The
issuance of the Series A Convertible Preferred Stock to FI Financial and its
assigns is subject to the approval of the Debt Conversion Transaction by the
holders of a majority of the Company's Common Stock. FI Financial has also
entered into a Conversion and Settlement Agreement and agreed to participate in
the Debt Conversion Transaction with respect to the entire creditor position of
STM. As part of FI Financial's participation in the Debt Conversion Transaction,
FI Financial will surrender the STM Warrant without exercise, whereupon the STM
Warrant will be terminated and will not have any further force or effect.
Motorola, Inc. ("Motorola"). At June 30, 1999, the Company's subsidiary,
MPS, had outstanding a term note due to Motorola, a former customer of MPS. The
note bears interest at approximately 7% per annum. The principal balance on the
note is $2,208,000 and approximately $238,578 of accrued interest was due and
payable as of June 30, 1999. The note has been guaranteed by the Company and is
secured by certain assets of the Company and all shares of CTM Electronics, Inc.
("CTM") and Microelectronic Packaging America, Inc. ("MPA"). The note is
currently in default and payable upon demand.
In 1995, MPS borrowed $2,000,000 from Citibank N.A. at an interest rate of
7%. The loan was guaranteed by Motorola and was eventually paid in full by
Motorola. This obligation to Motorola is secured by all of the assets of MPI,
CTM and MPA not previously pledged to NSEB, as well as all capital stock of MPS,
CTM and MPA. In January 1999, the Company and Motorola signed a non-binding
letter agreement which calls for the conversion of all of the Company's
obligations to Motorola into shares of Series A Convertible Preferred Stock. In
addition, Motorola has signed a Conversion and Settlement Agreement.
Samsung Corning Co., Ltd. ("Samsung"). In 1996, MPS borrowed $1,000,000
from DBS at the Singapore Interbank offer interest rate plus 1.5%, repayable in
twelve monthly installments beginning in November 1996. The loan had been fully
guaranteed by Samsung, and co-guaranteed by the Company. MPS made payments under
the note totaling approximately $417,000 during 1996 and 1997. The remaining
balance of approximately $583,000 plus interest was paid to DBS by Samsung after
DBS called upon the guarantee of Samsung. Samsung has requested that MPI
reimburse it for the amount paid under the guarantee. In March 1999, the Company
and Samsung signed a non-binding letter agreement which calls for the conversion
of all of the Company's obligations to Samsung into shares of Series A
Convertible Preferred Stock. In addition, Samsung has signed a Conversion and
Settlement Agreement.
Orix Leasing Singapore Ltd. ("Orix"). At June 30, 1999, the Company had
outstanding a deficiency balance from capital leases due to Orix totaling
$1,801,973. The amount outstanding is the remaining balance of various lease
borrowings made by MPM and MPS. This balance remains after the liquidation of
the leased assets of MPM and MPS by Orix and the application to these leases of
the resulting proceeds from the sale of these assets. The remaining amount
outstanding is represented by a note issued by the Company at an interest rate
of 7.25%. The note is currently in default and is payable upon demand.
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In 1996 and earlier, MPM, and to a lesser extent MPS, borrowed
approximately $2,600,000 under capital leases from Orix. Both MPM and MPS
stopped making lease payments, and Orix foreclosed on the equipment and sold it
at an auction in 1997. The balance remaining after the liquidation of the leased
assets is guaranteed by the Company. In March 1999, the Company and Orix signed
the Conversion and Settlement Agreement.
Summary of Principal Terms of Debt Conversion and Mutual Settlement and Release
Agreement
The Conversion and Settlement Agreements generally provide that all of the
debts owed by the Company to the Singapore Creditors would be terminated and the
parties would release all of their respective rights and obligations under the
agreements relating to the original and related debts, and the parties would
further settle all other disputes of any kind that may or could exist between
the parties in exchange for the Series A Convertible Preferred Stock to be
issued in connection with the Debt Conversion Transaction. The Board has
approved the Debt Conversion Transaction and the Conversion and Settlement
Agreements. The following summary of the principal terms of the form of
Conversion and Settlement Agreement attached hereto as Exhibit A is qualified in
its entirety by reference to this exhibit which is representative of the
Conversion and Settlement Agreements for all of the Singapore Creditors except
that only Transpac and DBS will have an IBM Proceeds Agreement, and only
Transpac will have the Amendment No. 1 to the Warrant previously issued to
Transpac:
Summary of Termination Provisions
The Conversion and Settlement Agreements will remain in full force and
effect until the date Transpac and the related investors convert their debt into
Series A Convertible Preferred Stock, subject to the following termination
provisions:
(i) prior to October 31, 1999 no party has the right to terminate
the Conversion and Settlement Agreement;
(ii) as of and after the date Transpac and the related investors
convert their debt, no party has the right to terminate the Conversion and
Settlement Agreement;
(iii) after October 31, 1999, so long as Transpac has not converted
its debt into Series A Convertible Preferred Stock, Transpac has sole
discretion on behalf of the related investor group to cancel the Conversion
and Settlement Agreement by giving written notice to the Company; and
(iv) if a voluntary or involuntary case against the Company is
commenced under the United States Bankruptcy Code, or an assignment for the
benefit of creditors by the Company is made, the Conversion and Settlement
Agreement is terminated.
Conditions to Debt Conversion
Before the debt conversion is completed, all of the following conditions
must be complied with:
(i) The completion of all of the Singapore Creditors conversions is
subject to the completion of signed agreements between the Company and each
of the Singapore Creditors upon terms and conditions which are not more
favorable to any one creditor than the other creditors. Specifically, the
effective price per share of the Series A Convertible Preferred Stock must
not be less than $1.02 per share, and the terms and conditions of the
settlement and release provisions for
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each of the Conversion and Settlement Agreements may not be different in
any material respect for any of the Singapore Creditors.
(ii) The Board must approve the material terms and conditions of the
Conversion and Settlement Agreements for each of the Singapore Creditors.
(iii) The holders of a majority of the Common Stock of the Company
must approve the material terms and conditions of the Debt Conversion
Transaction.
(iv) The Certificate of Amendment of the Amended and Restated
Articles of Incorporation must be approved by the Board and holders of a
majority of the Common Stock of the Company.
(v) L.H. Friend, Weinress, Frankson and Presson, Inc. must have
issued the fairness opinion to the Company, which opinion must be
satisfactory to the Company.
Series A Convertible Preferred Stock to be Issued to Creditors
The Conversion and Settlement Agreement sets forth the number of shares of
Series A Convertible Preferred Stock of the Company each of the Singapore
Creditors will receive upon the closing of the Debt Conversion Transaction which
are set forth below:
Transpac Capital Pte. Ltd. Transpac and the related investor group
("Transpac") will receive 4,031,826 shares of Series A Convertible Preferred
Stock of the Company. This Series A Convertible Preferred Stock is initially
convertible into 8,063,651 shares of Common Stock of the Company. The conversion
of the Series A Convertible Preferred Stock is subject to adjustment as provided
for in the Certificate of Amendment of the Amended and Restated Articles of
Incorporation which provide general anti-dilution protection for all of the
Singapore Creditors and which are triggered by certain events as summarized
under the heading "Summary of Principal Terms of Series A Convertible Preferred
Stock - Conversion" at page 18 herein. Assuming conversion into Common Stock of
all of the shares of Series A Convertible Preferred Stock of Transpac and
exercise of the warrant to purchase 500,000 shares of Common Stock which is
exercisable within 60 days of the Record Date, and of all other Singapore
Creditors in the Debt Conversion Transaction as of August 16, 1999 (which would
represent 18,725,554 shares of Common Stock for the Singapore Creditors as a
group), and including Transpac and the related investors current stock ownership
as set forth in the table "Security Ownership of Certain Beneficial Owners and
Management" herein, Transpac and related the investor group would own 9,405,664
shares of Common Stock or approximately 30.76% of the resulting total of
29,582,444 shares of outstanding Common Stock of the Company.
Development Bank of Singapore, Ltd. DBS will receive 1,154,311 shares of
Series A Convertible Preferred Stock of the Company. This Series A Convertible
Preferred Stock is initially convertible into 2,308,622 shares of Common Stock
of the Company. Assuming conversion into Common Stock of all of the Series A
Convertible Preferred Stock of DBS and of all other Singapore Creditors in the
Debt Conversion Transaction as of August 16, 1999 DBS would own approximately
7.80% of the resulting total of 29,582,444 shares of outstanding Common Stock of
the Company.
Motorola, Inc. Motorola will receive 869,932 shares of Series A Convertible
Preferred Stock of the Company. This Series A Convertible Preferred Stock is
initially convertible into 1,739,865 shares of Common Stock of the Company.
Assuming conversion into Common Stock of all of the Series A
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Convertible Preferred Stock of Motorola and of all other Singapore Creditors in
the Debt Conversion Transaction as of August 16, 1999, Motorola would own
approximately 5.88% of the resulting total of 29,582,444 shares of outstanding
Common Stock of the Company.
NS Electronics Bangkok, Ltd. NSEB will receive 271,176 shares of Series A
Convertible Preferred Stock of the Company. This Series A Convertible Preferred
Stock is initially convertible into 542,353 shares of Common Stock of the
Company. Assuming conversion into Common Stock of all of the Series A
Convertible Preferred Stock of NSEB and of all other Singapore Creditors in the
Debt Conversion Transaction as of August 16, 1999, NSEB would own approximately
1.83% of the resulting total of 29,582,444 shares of outstanding Common Stock of
the Company.
STMicroelectronics, Inc. Assuming the Debt Conversion Transaction is
approved by the Shareholders, by virtue of the STM/FI Financial Assignment
Agreement wherein FI Financial has purchased the creditor position of STM for a
cash payment of $500,000, FI Financial owns the creditor position of STM and has
agreed to convert that creditor position into the 1,322,647 shares of Series A
Convertible Preferred Stock STM would have received if STM had participated in
the Debt Conversion Transaction ("FI Financial Shares"). Because FI Financial
has assigned portions of its interest under the STM/FI Financial Assignment
Agreement to 11 employees including officers and a director and four other third
parties, and may assign some or all of FI Financial's remaining interest under
the STM/FI Financial Assignment Agreement to additional third parties
(collectively "FI Financial Assignees"), the FI Financial Assignees will each
receive a pro-rata share of the FI Financial Shares in proportion to their
respective interests under the STM/FI Financial Assignment Agreement. The FI
Financial Shares are initially convertible into 2,645,294 shares of Common Stock
of the Company. Assuming conversion into Common Stock of all of the FI Financial
Shares and all of the Series A Convertible Preferred Stock of all of the other
Singapore Creditors in the Debt Conversion Transaction as of August 16, 1999, FI
Financial and/or the FI Financial Assignees would own approximately 8.94% of the
resulting total of 29,582,444 shares of outstanding Common Stock of the Company.
As explained in previous sections of this Consent Statement, as part of the Debt
Conversion Transaction, FI Financial will surrender the STM Warrant without
exercise, whereupon the STM Warrant will be terminated and will not have any
further force or effect.
Texas Instruments, Inc. TI will receive 1,056,026 shares of Series A
Convertible Preferred Stock of the Company. This Series A Convertible Preferred
Stock is initially convertible into 2,112,053 shares of Common Stock of the
Company. Assuming conversion into Common Stock of all of the Series A
Convertible Preferred Stock of TI and all of the other Singapore Creditors in
the Debt Conversion Transaction as of August 16, 1999, TI would own
approximately 7.14% of the resulting total of 29,582,444 shares of outstanding
Common Stock of the Company.
Samsung Corning Co., Ltd. Samsung will receive 183,275 shares of Series A
Convertible Preferred Stock of the Company. This Series A Convertible Preferred
Stock is initially convertible into 366,549 shares of Common Stock of the
Company. Assuming conversion into Common Stock of all of the Series A
Convertible Preferred Stock of Samsung and all of the other Singapore Creditors
in the Debt Conversion Transaction as of August 16, 1999, Samsung would own
approximately 1.24% of the resulting total of 29,582,444 shares of outstanding
Common Stock of the Company.
Orix Leasing Singapore Ltd. Orix will receive 473,584 shares of Series A
Convertible Preferred Stock of the Company. This Series A Convertible Preferred
Stock is initially convertible into 947,169 shares of Common Stock of the
Company. Assuming conversion into Common Stock of all of the Series A
Convertible Preferred Stock of Orix and all of the other Singapore Creditors in
the Debt Conversion
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Transaction as of August 16, 1999, Orix would own approximately 3.20% of the
resulting total of 29,582,444 shares of the outstanding Common Stock of the
Company.
Change in Control
Assuming all of the Series A Convertible Preferred Stock of all of the
Singapore Creditors is converted into Common Stock of the Company in connection
with the Debt Conversion Transaction as of August 16, 1999, the Singapore
Creditors (including FI Financial as the holder of the creditor position of STM)
and including Transpac and the related entities' warrant to purchase 500,000
shares which is exercisable within 60 days of the Record Date, would
collectively own approximately 67.82% of the resulting total of 29,582,444
outstanding shares of Common Stock of the Company. This percentage of Common
Stock could enable the Singapore Creditors (including FI Financial as the holder
of the creditor position of STM) to collectively exercise effective control over
the business and affairs of the Company. As of August 16, 1999, the Company has
no information which would lead it to believe that the Singapore Creditors
intend to act collectively on matters concerning the business and affairs of the
Company.
The existing Shareholders of the Company will suffer substantial dilution
to their respective share ownership positions of the Company if the Debt
Conversion Transaction and the other proposals described herein are approved by
the Shareholders. However, the Company strongly believes that approval of the
Debt Conversion Transaction is the only way to avoid an imminent bankruptcy
filing by the Company with the probable result that the Shareholders would not
receive anything for their Common Stock because of the $28.06 million in
Singapore Creditor claims.
Release Provisions of Debt Conversion Transaction
Once the Singapore Creditors (including FI Financial as the holder of the
creditor position of STM) convert their debt, the debt owed by the Company in
the aggregate amount of $28.06 million to the Singapore Creditors shall be
deemed to be converted into the respective number of shares of the Company's
Series A Convertible Preferred Stock set forth above. As of and after the date
of conversion, the Company's debts to the Singapore Creditors shall be canceled,
terminated and eliminated and the Company and the Singapore Creditors (including
FI Financial) shall release and discharge each other from any and all claims,
damages and causes of action relating to such debts. The releases do not apply
to fraud or wilful misconduct. Also, the releases do not extend to the
Conversion and Settlement Agreements, the Certificate of Amendment, the
Registration Rights Agreement or the Warrants issued to Transpac.
Summary of Prior Settlement Agreements Regarding Debt to Creditors
During 1998, the Company negotiated the Restructuring Agreements with the
Singapore Creditors, which generally provided that if certain sums of money were
paid to the Singapore Creditors by certain dates, the Company would only have to
pay a discounted percentage of the debts to each creditor to discharge and
settle the debts. These Restructuring Agreements called for settlement payments
of approximately $9.3 million to satisfy all debt obligations (approximately
$27.1 million at the time) if substantially all of the full amount was paid by
May 1, 1999. The Company was not able to pay the required amounts on the due
dates and negotiated new agreements with the Singapore Creditors, and the
Conversion and Settlement Agreements replace these prior agreements.
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Summary of Principal Terms of Series A Convertible Preferred Stock
The following is a summary of the rights, preferences and privileges of the
Series A Convertible Preferred Stock and is qualified in its entirety by the
Certificate of Amendment filed as Exhibit B to this Consent Statement.
Voting Rights
The holder of each share of Series A Convertible Preferred Stock has the
right to one vote for each share of Common Stock into which the Series A
Convertible Preferred Stock could be converted and shall have full voting rights
equal to the holders of the Common Stock.
In addition, as long as any shares of Series A Convertible Preferred Stock
are outstanding, the holders of the Series A Convertible Preferred Stock voting
as a separate series, with cumulative voting rights as among themselves, shall
be entitled to elect one director. The holders of the Series A Convertible
Preferred Stock and the Common Stock, voting together as a single class, shall
be entitled to elect the remaining directors of the Company.
Dividends
The Series A Convertible Preferred Stock is entitled to dividends of $.0357
per share per annum out of assets legally available, when, as and if declared by
the Board. The dividends are cumulative and are payable prior to the payment of
any dividend or distribution on the Common Stock and participate in any
dividends payable on the Common Stock. Under applicable California law, the
Company must meet certain financial conditions before it can make any
distributions of dividends. As of August 16, 1999, the Company could not legally
make any distributions of cash dividends on the Series A Convertible Preferred
Stock. Upon the conversion of the Series A Convertible Preferred Stock, any
dividends payable with respect to the Series A Convertible Preferred Stock shall
be converted into that number of shares of Common Stock determined by dividing
the dividends payable by the conversion price.
Liquidation
In the event of any liquidation, dissolution or winding up of the Company,
the Series A Convertible Preferred Stock is entitled to receive at an amount per
share equal to $1.02 for each outstanding share of Series A Convertible
Preferred Stock, plus any declared but unpaid dividends before any distribution
to the holders of the Common Stock.
Redemption
To the extent it may lawfully do so, the Company is entitled, in the sole
discretion of the Board, to redeem all or any part of the outstanding shares of
Series A Convertible Preferred Stock, upon not less than 20 and not more than 30
days prior notice, for the original issue price of $1.02 plus the amount of all
declared but unpaid dividends. Any redemption for less than all of the
outstanding Series A Convertible Preferred Stock shall be allocated pro rata
among all the holders thereof. While any shares of the Series A Convertible
Preferred Stock is outstanding, the Company cannot redeem any shares of Common
Stock without the approval of a majority of the shares of Series A Convertible
Preferred Stock.
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Conversion
Each share of Series A Convertible Preferred Stock is convertible at the
option of the holder at any time after the date of issuance and on or prior to
the fifth day before the redemption date into such number of fully-paid and
nonassessable shares of Common Stock as is determined by dividing the original
issue price of $1.02 by the conversion price of $0.51 per share, as adjusted.
Each share of Series A Convertible Preferred Stock is also automatically
converted into shares of Common Stock at the conversion price then in effect,
immediately upon the Company's receipt of the written consent of a majority of
the shares of Series A Convertible Preferred Stock outstanding. The conversion
price of the Series A Convertible Preferred Stock is subject to adjustment upon
the occurrence of certain dilutive issuances, splits and combinations,
distributions and recapitalizations, the material terms of which are summarized
in the next paragraph.
The conversion price of the Series A Convertible Preferred Stock is subject
to adjustment when (i) the Company issues after the date the Series A
Convertible Preferred Stock is first issued, any Common Stock without
consideration or for a consideration per share less than the conversion price of
the Series A Convertible Preferred Stock; (ii) in the event the Company declares
a distribution payable in securities of other persons, evidences of indebtedness
issued by the Company or other persons, assets (excluding cash dividends) or
options or rights issued without consideration, the holders of the Series A
Convertible Preferred Stock are entitled to a proportionate share of any such
distribution as though they were holders of the Common Stock into which the
Series A Convertible Preferred Stock is convertible on the record date; (iii) if
at any time or from time to time there shall be a recapitalization or
reclassification of the Common Stock, an adjustment will be made so that the
holders of the Series A Convertible Preferred Stock shall be entitled to receive
upon conversion the number of shares of Common Stock of the Company they would
have been entitled to receive on account of such recapitalization or
reclassification.
The Board of Directors determined the conversion price for the Series A
Convertible Preferred Stock based on extensive negotiations with Transpac, which
functioned as the lead creditor on behalf of the Singapore Creditors. At the
beginning of the negotiations, the Board of Directors originally proposed to
Transpac a significantly higher conversion price, while Transpac proposed a
significantly lower conversion price. After extensive negotiations over a period
of several months, Transpac agreed to the $0.51 conversion price, and then
management of the Company and Transpac convinced all of the other Singapore
Creditors to agree to the $0.51 conversion price. The Board of Directors
believes a conversion price of $0.51 per share is in the best interests of the
Company and the Shareholders.
Protective Provisions
So long as any shares of Series A Convertible Preferred Stock are
outstanding, the Company will not, without first obtaining the approval of the
holders of at least two-thirds of the then outstanding Series A Convertible
Preferred Stock:
(i) sell all or substantially all of the assets or merge into or
consolidate with any corporation to effect any transaction or series of
related transactions in which more than 50% of the voting power of the
Company is disposed of;
(ii) alter or change the rights, preferences or privileges of the
Series A Convertible Preferred Stock;
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(iii) increase or decrease the number of authorized shares of Series
A Convertible Preferred Stock;
(iv) authorize or issue any other equity security senior to or on a
par with the Series A Convertible Preferred Stock;
(v) redeem, purchase or otherwise acquire any share or shares of
the capital stock of the Company, excluding the repurchase of Common Stock
from employees, officers, directors, consultants or persons performing
services pursuant to agreements providing for repurchase;
(vi) amend or otherwise modify the Articles of Incorporation to
change the rights, preferences or privileges of the Series A Convertible
Preferred Stock;
(vii) declare or pay any dividends on the Common Stock;
(viii) declare or pay any dividends on the Series A Convertible
Preferred Stock except for the fixed amount dividends;
(ix) take any other action with respect to which holders of the
Series A Convertible Preferred Stock are entitled to vote, as a separate
class; or
(x) reclassify any outstanding shares into shares having rights,
preferences or privileges senior to or on a parity with the Series A
Convertible Preferred Stock.
Registration Rights
All of the eight creditors who are converting their debt into equity of the
Company have been granted registration rights pursuant to Registration Rights
Agreements which require the Company to register the underlying Common Stock
with the Securities and Exchange Commission ("SEC"). The following summary of
the applicable Registration Rights Agreements is qualified in its entirety by
reference to the Form of Registration Rights Agreement which is set forth at
Exhibit C to this Consent Statement.
The Company is required to use its best efforts to register the Common
Stock issuable upon conversion of the Series A Convertible Preferred Stock and
any Common Stock issuable as a dividend or distribution subject to certain
exceptions. The Company does not have to register the shares in the following
situations: (1) if the holders propose to sell securities at an aggregate price
of less than $1.5 million, provided the $1.5 million does not apply if the
holders represent in writing they intend to dispose of at least 2 million shares
of Common Stock of the Company; (2) within 120 days after the filing or
effective date of any other registration statement filed pursuant to the
Registration Rights Agreement; or (3) in any jurisdiction where the Company
would have to execute a general consent to service of process.
The Company is obligated to use its best efforts to file the registration
statement no later than six months from the date of Shareholder approval of the
Debt Conversion Transaction, to cause it to be effective within 45 days if it is
a Form S-3 Registration Statement ("S-3"), and if it is not an S-3, to be
effective within 90 days of the filing of another registration statement form.
The Company must keep the registration statement effective for one year after it
is declared effective by the SEC. The Company must pay all expenses of
registration except for underwriting discounts and commissions.
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Principal Terms of Transpac Warrant
In connection with the Restructuring Agreement dated April 24, 1998 with
Transpac and the related investors, Transpac and the related investors received
a warrant to purchase 500,000 shares of Common Stock of the Company ("Warrant")
at an exercise price of $1.00 per share. The Warrant is exercisable on or after
April 24, 1998 and until April 24, 2003. The number of shares purchasable under
the Warrant is subject to adjustment upon certain events including stock splits,
subdivisions or contributions of shares. Beginning April 24, 1999, holders of at
least 50% of the shares of Common Stock issued or issuable pursuant to the
Warrant ("Warrant Shares") can demand the Company file a registration statement
to register the Warrant Shares at the Company's expense. The Company, however,
does not have to register the Warrant Shares if the holders sell the Warrant
Shares for an aggregate price of less than $1.0 million; unless the holders sell
at least 250,000 Warrant Shares. Upon completion of the Debt Conversion
Transaction, the Warrant is amended pursuant to the Conversion and Settlement
Agreement with Transpac and the related investors to reduce the exercise price
to $.50.
The Board of Directors agreed to renegotiate the exercise price of the
Warrant because it was advised by Transpac that its acceptance of the Debt
Conversion Transaction, execution of the Conversion and Settlement Agreement and
its recommendation that the other Singapore Creditors accept the Debt Conversion
Transaction on the proposed terms was predicated on the condition that the
exercise price of the Warrant be reduced by 50% to $0.50. The Board of Directors
attempted to negotiate a higher exercise price but was advised by Transpac that
the exercise price of $0.50 for the warrant was not negotiable. Transpac also
maintained that since the original warrant was granted to Transpac when the
Company's stock price was $0.75, whereas at the start of the negotiations with
Transpac for the Debt Conversion Transaction the market price of the Company's
Common Stock almost dropped in half, that such a reduction was necessary. The
Board of Directors believes that since Transpac was the largest creditor and in
a position to influence the other Singapore Creditors that the reduction was
justified to ensure Transpac would agree to the Debt Conversion Transaction.
In addition to the 4,031,826 shares of Series A Convertible Preferred Stock
which Transpac and the related investors will receive assuming the Debt
Conversion Transaction is approved by the Shareholders, if Transpac elects to
exercise the entire Warrant it could acquire an additional 500,000 shares of
Common Stock of the Company. The Transpac Warrant and the amendment thereto are
filed as Exhibit D to the Consent Statement and the foregoing description of its
terms and conditions is qualified in its entirety by the Transpac Warrant at
Exhibit D.
Opinion of Financial Advisor
At the meeting of the Microelectronic Packaging, Inc. ("MPI" or the
"Company") Board on April 28, 1999, L.H. Friend, Weinress, Frankson & Presson,
Inc. ("L.H. Friend") delivered its oral opinion, and later confirmed such
opinion in writing that, as of April 28, 1999, the terms of the conversion of
$27,556,801 of debt related to the Company's discontinued operations in
Singapore as of March 31, 1999 (the "Debt") into shares of the Company's Series
A Convertible Preferred Stock (the "Preferred Stock") pursuant to the Debt
Conversion and Mutual Settlement and Release Agreements (the "Agreements")
between the Company and Transpac Capital Pte. Ltd., Texas Instruments
Incorporated, Motorola, Inc., The Development Bank of Singapore Limited, FI
Financial LLC, ORIX Leasing Singapore Limited, NS Electronics Bangkok (1993)
Ltd. and Samsung Corning Co. Ltd. (the "Creditors") (collectively the
"Transaction"), were fair, from a financial point of view, to the Company's
shareholders. L.H. Friend did not materially participate in negotiations for the
terms of the Transaction. No limitations were placed
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by the senior management of the Company with respect to the investigations made
or the procedures followed by L.H. Friend in preparing or rendering its opinion.
THE FULL TEXT OF THE OPINION OF L.H. FRIEND, WHICH SETS FORTH ASSUMPTIONS
MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED
AS EXHIBIT H TO THIS CONSENT STATEMENT AND IS INCORPORATED HEREIN BY REFERENCE.
MPI SHAREHOLDERS ARE URGED TO READ THE OPINION CAREFULLY AND IN ITS ENTIRETY.
THE SUMMARY OF THE OPINION OF L.H. FRIEND SET FORTH IN THIS CONSENT STATEMENT IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION. L.H.
FRIEND'S OPINION IS DIRECTED ONLY TO THE FAIRNESS OF THE TRANSACTION FROM A
FINANCIAL POINT OF VIEW TO THE SHAREHOLDERS OF THE COMPANY AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER OF THE COMPANY AS TO HOW TO VOTE
IN CONNECTION WITH THE CONSENT SOLICITATION.
In rendering its opinion, among other things, L.H. Friend: (i) reviewed the
Agreements between the Company and the Creditors; (ii) reviewed the draft
Certificate of Amendment of Amended and Restated Articles of Incorporation dated
April 29, 1999; (iii) reviewed the draft Registration Rights Agreements dated
April 29, 1999 between the Company and the Creditors; (iv) reviewed the draft
Transpac Warrant and Amendment No. 1 dated April 29, 1999; (v) reviewed the
Agreement of Assignment of Interest under Letter Agreement with
STMicroelectronics, Inc. between the employees and management of the Company and
FI Financial LLC, dated April 21, 1999; (vi) reviewed the draft IBM Proceeds
Agreement dated April 29, 1999; (vii) reviewed the Letter Agreement dated April
14, 1999 between FI Financial LLC and STMicroelectronics, Inc.; (viii) reviewed
the Company's Annual Report to Stockholders on Form 10-K for the fiscal years
ended December 31, 1998, 1997 and 1996, and the Form 10-Q for the quarter ended
March 31, 1999; (ix) examined certain operating and financial information and
financial projections provided to L.H. Friend by the Company's management; (x)
reviewed the historical market prices and trading volume of the Company's Common
Stock; (xi) analyzed publicly available financial and market data regarding
certain companies in the electronic component manufacturing industry and
compared them to the Company's financial and market data; (xii) conducted
limited interviews with certain members of the Company's management team; and
(xiii) performed such other studies, analyses, inquires and investigations as
L.H. Friend deemed appropriate. In addition, after the rendering of its opinion,
L.H. Friend reviewed the Company's Form 10-Q/A for the period ended June 30,
1999. L.H. Friend informed the Company's management orally that nothing came to
their attention in connection with this review that would cause L.H. Friend to
change its opinion.
In rendering its opinion, L.H. Friend relied upon the accuracy and
completeness of all financial and other information that was supplied to L.H.
Friend and assumed that there has been no material change in the assets,
financial condition and business prospects of the Company since the date of the
most recent financial statements made available to L.H. Friend. With respect to
financial projections for the Company, L.H. Friend assumed that such projections
were reasonably prepared and reflect the best currently available estimates of
the future financial results and conditions of the Company.
The following is a summary of all of the material analyses performed by
L.H. Friend. This summary was presented by L.H. Friend to the MPI Board on April
28, 1999 in connection with the rendering of the opinion:
(i) Liquidation Analysis. L.H. Friend performed a Liquidation Analysis for
the Company. The Liquidation Analysis is based on the latest available book
value information provided by the Company's management with regards to assets
and liabilities of its Singapore subsidiaries ("Singapore Entities"), CTM
Electronics, Inc. ("CTM") and Corporate, San Diego ("MPI") (together, the
"Subsidiaries"). In the Liquidation Analysis, L.H. Friend reviewed each major
asset or liability category and assumed that, during a liquidation event, the
Company would receive full book value on all trade
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accounts receivable and deposits, $500,000 on fixed assets and very minimal
value for inventory and other miscellaneous assets. L.H. Friend further assumed
that the Company would be liable for the full amount of its outstanding
liabilities such as accounts payable, accruals and debt of discontinued
operations. L.H. Friend also assumed the cost of liquidation to be $500,000.
L.H. Friend calculated the Net Liquidation Proceeds (Shortfall) for the
Subsidiaries and for the combined Company by subtracting the liquidation value
of all outstanding liabilities from the liquidation value of all assets. The Net
Liquidation Proceeds (Shortfall) for the Subsidiaries and for the combined
Company are as follows: Singapore Entities - ($29,183,000), CTM - $1,015,000,
MPI - ($4,488,000) and total combined Company - ($33,156,000).
(ii) Stock Trading History. L.H. Friend examined the history of the
trading prices and volume of the Company's Common Stock for the period from
January 1, 1998 to April 28, 1999. The analysis indicated that during the period
from January 1, 1998 to April 28, 1999, the Company's Common Stock never closed
above $0.88 per share, which is significantly below the price per share of
Common Stock implied in the Transaction.
(iii) Comparison with Selected Companies. L.H. Friend reviewed and compared
selected historical stock market data and financial statistics for the Company
to the corresponding data and statistics of four publicly traded companies in
the electronic component manufacturing industry; including Flextronics
International Ltd. ("Flextronics"), Aeroflex Incorporated ("Aeroflex"), HEI Inc.
("HEI") and Irvine Sensors Corporation ("ISC") (together, the "L.H. Friend
Comparable Companies"). The L.H. Friend Comparable Companies were chosen based
upon a variety of factors, including the similarity of their business and
customer bases and their relative capital structures. L.H. Friend also compared
the Pro Forma data and statistics of the Company, giving effect to the
18,725,554 shares of the Company's Common Stock issuable under the Preferred
Stock, to the corresponding data and statistics of the L.H. Friend Comparable
Companies (the "Pro Forma Basis"). L.H. Friend examined certain publicly
available financial data and statistics of the L.H. Friend Comparable Companies
and the Company, including revenues, earnings before interest and taxes plus
depreciation and amortization ("EBITDA"), earnings before interest and taxes
("EBIT"), net income, earnings per share and the multiples of Total Enterprise
Value (defined as the market value of the common equity, plus total debt, less
cash and equivalents) to revenues, EBITDA and EBIT. In addition, L.H. Friend
examined the Equity Value to Net Income multiples ("P/E Multiple"). All of the
multiple comparisons were performed for the latest 12 months of reported
results. The P/E Multiples were analyzed for the latest 12 months of reported
results as well as for publicly available brokerage analysts' estimates of
earnings per share for fiscal year 2000 for each company.
The indicated mean and median Total Enterprise Value multiple ranges for
the L.H. Friend Comparable Companies were 2.1 times and 1.5 times revenues, 13.6
times and 13.6 times EBITDA, and 20.8 and 20.8 times EBIT. The P/E Multiple mean
and median values for the L.H. Friend Comparable Companies were 32.4 times and
32.4 times latest 12 months earnings per share and 19.5 and 15.2 times the
fiscal year 2000 earnings per share. L.H. Friend then compared these multiples
to Company's current multiples based upon actual Equity Value as of the date of
the opinion as well as multiples derived on the Pro Forma Basis. Total
Enterprise Value multiple ranges based on the Company's current stock price and
the Pro Forma Basis were 1.5 times and 2.2 times revenues, 26.7 times and 38.9
times EBITDA and 50.8 and 74.0 times EBIT, respectively. The P/E Multiples base
on current stock price and the Pro Forma Basis were 4.0 times and 60.0 times
earnings per share for Fiscal Year 1998.
With respect to the comparison with selected public companies, L.H. Friend
noted that the Company was trading at multiples of profitability, including
EBITDA, EBIT and earning per share, which were consistent with those of the L.H.
Friend Comparable Companies as of the date of this opinion. In
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addition, L.H. Friend further noted that on the Pro Forma Basis, the same
profitability multiples at the share price implied by the Transaction were
significantly higher than those of the L.H. Friend Comparable Companies.
(iv) Discounted Cash Flow Analysis. L.H. Friend performed a Discounted Cash
Flow Analysis of the Company based on the projections provided by the
management. L.H. Friend calculated the present values of the estimated free cash
flows of the Company through the Fiscal Year ending December 31, 2003 and the
estimated terminal value of the Company at the end of such date. In calculating
the estimated terminal value, L.H. Friend utilized the mean and median EBITDA
multiples of 4.0 times, 5.0 times, 6.0 times and 7.0 times EBITDA which were
deemed reasonable by L.H. Friend for the purpose of this opinion. In calculating
the present values of the estimated free cash flows and estimated terminal
value, L.H. Friend assumed reasonable discount rates of 15.0%, 17.5%, 20.0% and
22.5%. The results from the Discounted Cash Flow Analysis implied a present
Equity Value of between $11.0 million and $21.6 million, or $0.37 and $0.73 per
share.
The summary of the L.H. Friend presentation set forth above does not
purport to be a complete description of the presentations made by L.H. Friend to
Company management or its Board of Directors. L.H. Friend notes its belief that
its analyses must be considered as a whole and that selecting portions of its
analyses, without considering all factors and analyses, could create a
misleading view of the process underlying its opinion. In its analyses, L.H.
Friend made certain assumptions with respect to industry performance, general
business and economic conditions, and other matters, many of which are beyond
the control of the Company. Any estimates contained therein are not necessarily
indicative of actual values, which may vary significantly. Estimates of the
relative financial values of the Company do not purport to be appraisals or
necessarily reflect the prices at which the Company may actually be sold.
L.H. Friend was selected by the Company's Board of Directors based on its
qualifications, experience, expertise and reputation. As part of its investment
banking business, L.H. Friend is regularly engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, secondary distributions of securities, private
placements and other transactions.
Pursuant to a letter agreement dated December 8, 1998, the Company has paid
L.H. Friend a fee of $50,000 for rendering this opinion, and has agreed to
reimburse L.H. Friend for its reasonable expenses incurred in connection with
its engagement by the Company. The Company has also agreed to indemnify L.H.
Friend and its directors, officers, agents, employees, affiliates and
controlling persons against any losses, claims or liabilities to which L.H.
Friend becomes subject to in connection with its rendering of services, except
those that arise from L.H. Friend's gross negligence or willful misconduct.
Vote Required and Recommendation for Approval
The affirmative vote of a majority of the outstanding Common Stock is
required to approve the Debt Conversion Transaction. The Board of Directors
recommends the Shareholders vote FOR the approval of the Debt Conversion
Transaction. See also "Certain Relationships and Related Transactions" for a
discussion of any conflicts of interest that may have existed with respect to
certain members of the Board of Directors during the time the board negotiated
and approved the Debt Conversion Transaction.
If the Company is unable to obtain Shareholder approval of the Debt
Conversion Transaction at Proposal 1, it would result in a breach of one of the
principal conditions to the Singapore Creditors' obligations to complete the
Debt Conversion Transaction. The Conversion and Settlement Agreement contains a
number of conditions which must happen before the Singapore Creditors must close
and convert
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their debts, including that "...The material terms and conditions of the
Transpac Conversion and other creditor conversions shall have been approved by
MPI Shareholders, which approval shall be sought and obtained by MPI in
accordance with all applicable laws." The failure of the Shareholders to approve
the Debt Conversion Transaction would constitute a failure of a condition
precedent to the performance of the Singapore Creditors, who would not be
obligated to proceed under the current Conversion and Settlement Agreement. In
that case, it is very likely the Company would seek protection under applicable
bankruptcy laws.
PROPOSAL 2
APPROVAL OF THE ISSUANCE OF SERIES A CONVERTIBLE PREFERRED STOCK ISSUED IN
CONNECTION WITH THE DEBT CONVERSION TO 11 EMPLOYEES INCLUDING OFFICERS,
DIRECTORS OF THE COMPANY AND THIRD PARTIES IN EXCHANGE FOR THEIR PAYMENT OF A
CREDITOR CLAIM.
Description of and Reasons for Proposal 2
As of June 30, 1999, the Company owed STM the principal amount of
$4,000,000 and approximately $893,595 of accrued interest pursuant to a term
note incurred in 1995 by MPS and guaranteed by the Company. In September 1998,
the Company signed a Restructuring, Settlement and Mutual Release Agreement
which required the Company to pay $1,137,044 to STM by May 1, 1999 in full
satisfaction of all obligations owed. The Company was unable to raise the
funding necessary to pay off the required amount by May 1, 1999 and attempted to
renegotiate the debt and have STM convert the $4,000,000 principal amount plus
accrued interest into the Series A Convertible Preferred Stock along with the
other Singapore Creditors. STM would not agree to a debt conversion and required
that a negotiated cash payment be made to eliminate their debt.
The Company located an investor, FI Financial, which agreed to purchase
STM's creditor position for $500,000, and on August 31, 1999 pursuant to the
STM/FI Financial Assignment Agreement, it purchased STM's creditor position for
$500,000. FI Financial also agreed to allow employees of the Company including a
director, officers and third parties to contribute toward the purchase of the
STM creditor claim and to receive a pro-rata share of the Series A Convertible
Preferred Stock that would otherwise be issued to STM in the Debt Conversion
Transaction. FI Financial may also assign some or all of its remaining interest
in the STM creditor position to additional third parties.
FI Financial Assignment Agreement with STMicroelectronics, Inc.
The Company negotiated with several parties during late 1998 and early
1999, and on April 14, 1999 STM signed the STM/FI Financial Agreement with FI
Financial, which is principally owned by James Waring, a director of the
Company, to assign its creditor position to FI Financial for $500,000. Mr.
Waring is also a member of the law firm of Ross, Dixon & Bell, outside lawyers
for the Company. Three members of Ross, Dixon & Bell have also agreed to
contribute payments to FI Financial in exchange for their pro-rata share of the
Series A Convertible Preferred Stock. Under the STM/FI Financial Agreement and
the agreed extension date, FI Financial was required to pay out of an escrow
account $500,000 to STM by August 31, 1999 in exchange for a complete assignment
of all of STM's rights, title, claims and interests under the agreements which
gave rise to the original $4.0 million principal debt, plus accrued interest. On
August 31, 1999 pursuant to the STM FI Financial Assignment Agreement, FI
Financial purchased all of STM's rights, title, claims and interests in and to
STM's creditor portion with the Company for $500,000. The STM/FI Financial
Assignment Agreement is filed as Exhibit E to the Consent Statement, and the
description of its terms and conditions is qualified in its entirety by Exhibit
E.
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<PAGE>
STM and FI Financial also agreed pursuant to another letter agreement with
the Company to the assignment of certain percentages of FI Financial's interest
in STM's debt to employees, officers and a director of the Company, and to
certain third parties.
Principal Conditions to FI Financial's Obligations
FI Financial's obligations to pay STM the $500,000 by August 31, 1999 under
the agreement with STM was subject to the following principal conditions:
(i) The Company obtain Board of Director approval for the FI
Financial transactions and the other Singapore Creditor debt conversions,
and the issuance to FI Financial and its assigns of 1,322,647 shares of the
Company's Series A Convertible Preferred Stock.
(ii) STM execute the Assignment Agreement with FI Financial and
deliver a signed copy to the escrow agent.
(iii) STM deliver to the escrow agent the signed Warrant, a
settlement agreement and the original debt agreements.
All of the above conditions were complied with and since the Company and FI
Financial were convinced STM would not agree to a further extension beyond
August 31, 1999 to obtain Shareholder approval of the Debt Conversion
Transaction, and to ensure the Debt Conversion Transaction would go forward, FI
Financial paid STM the $500,000 on August 31, 1999 and assumed STM's creditor
position with the Company.
Assignment of Portion of FI Financial's Interest in STMicroelectronics, Inc.'s
Debt to Employees, Officers and a Director of the Company and Third Parties
FI Financial agreed, pursuant to an Assignment of Interest Agreement in
April and May, 1999 to assign a percentage interest in its interest in STM's
debt to employees, officers and a director of the Company and other third
parties. The assignees can obtain a pro-rata interest in the Series A
Convertible Preferred Stock to be issued depending on their cash contributions.
Pursuant to the assignment, the assignees agree to authorize FI Financial
to act as their agent in connection with the escrow account. The Assignment of
Interest Agreement is filed as Exhibit G to the Consent Statement, and the
description of its terms and conditions is qualified in its entirety by Exhibit
G.
To assist in enabling the Company to go forward with the Debt Conversion
Transaction and demonstrate their commitment to the Company's future, the
following employees, officers and a director and members of the Company's
outside business law firm have agreed to contribute the amounts and to receive
the number of shares of Series A Convertible Preferred Stock set forth below
opposite their names:
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<TABLE>
<CAPTION>
Name Amount Relationship Number of Shares
---- ------ ------------ ----------------
<S> <C> <C> <C>
1. Andrew Wrobel $ 15,000 Chairman, President and 39,679
Chief Executive Officer
2. Denis Trafecanty $ 35,000 Senior Vice President and 92,585
Chief Financial Officer
3. Pete Hudson $ 15,000 Vice President, Technology 39,679
4. Dudley Westlake $ 5,000 Vice President, Sales and Marketing 13,226
5. Tim Sullivan $ 5,000 Vice President and Controller 13,226
6. Dale Feine $ 5,000 Director, New Business Development 13,226
7. Craig Iwami $ 20,000 Director, Operations 52,906
8. Don Hayashigawa $ 5,000 Manager, Design and Test 13,226
9. Ha Tran $ 40,000 Production Manager 105,812
10. Billy Nguyen $ 15,000 Test Supervisor 39,679
11. Mimie Doetkott $ 5,000 Production Manager 13,226
12. Van Haynie $ 25,000 Member, Ross, Dixon & Bell 66,132
13. Ross, Dixon & Bell
401(k) Plan, FBO
Van Tengberg $ 25,000 Member, Ross, Dixon & Bell 66,132
14. Ross, Dixon & Bell
401(k) Plan, FBO
Fletcher Paddison $ 25,000 Member, Ross, Dixon & Bell 66,132
========== =======
Total: $ 240,000 634,871 Shares
</TABLE>
The shares of Series A Convertible Preferred Stock issued to the parties
listed above also have the registration rights granted in the Registration
Rights Agreement, Exhibit C, which is discussed in Proposal 1 under the heading
"Registration Rights."
Conditions to Purchase of Series A Convertible Preferred Stock by Employees,
Officers, Directors of the Company and Third Parties
Before the employees, officers, directors and the third parties will
purchase any Series A Convertible Preferred Stock from FI Financial in
connection with this Proposal 2, the Shareholders must approve the Debt
Conversion Transaction at Proposal 1. In the event the Debt Conversion
Transaction at Proposal 1 is not approved by the Shareholders pursuant to this
Consent Statement, the Company will very likely seek protection under applicable
bankruptcy laws.
Vote Required and Recommendation for Approval
The affirmative vote of a majority of the outstanding Common Stock is
required to approve the purchase of the Series A Convertible Preferred Stock
from FI Financial by the employees, officers, a director of the Company and
third parties.
The Company is requesting Shareholder approval of the issuance of the
Series A Convertible Preferred Stock to 11 of its employees, officers, directors
and third parties in exchange for their payment of a creditor claim because
these employees, officers, directors and third parties have indicated they may
not proceed with the purchase of their portion of the creditor claim of STM
without Shareholder approval.
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<PAGE>
The Company also requires Shareholder approval of Proposal 2 since it involves
the issuance of the Series A Convertible Preferred Stock to its own officers,
directors and employees to ensure disclosure to the Shareholders of all material
facts regarding the transaction, and because the Company does not want to
proceed with the transaction without Shareholder approval.
The Board of Directors recommends the Shareholders vote FOR the approval of
Proposal 2. The Board believes that the employees', officers' and two directors'
contribution of their own money toward the purchase of the STM creditor claim to
receive Series A Convertible Preferred Stock demonstrates a strong commitment to
the Company and is in the best interests of the Company. The Board also believes
that the purchase of such Series A Convertible Preferred Stock will encourage
such individuals to remain as employees of the Company.
PROPOSAL 3
APPROVAL OF VARIOUS AMENDMENTS TO THE COMPANY'S 1993 STOCK OPTION/STOCK ISSUANCE
PLAN AS DESCRIBED HEREIN.
Description of and Reasons for Proposal 3
On May 17, 1999, the Board of Directors approved, subject to Shareholder
approval, amendments to the Company's 1993 Stock Option/Stock Issuance Plan
("1993 Plan") to effect the following changes: (i) increase the maximum number
of shares of Common Stock authorized for issuance over the term of the 1993 Plan
from 4,690,632 to 7,000,000 shares; (ii) increase the maximum number of options,
stock appreciation rights and direct stock issuances to any one person per
calendar year to 2,000,000 shares of Common Stock from 500,000 shares of Common
Stock; and (iii) amend the Automatic Option Grant Program to increase the number
of shares of Common Stock for which option grants are to be made to each new
non-employee Board member from 15,000 to 40,000 shares and to increase the
number of shares for which option grants are to be made annually to each
continuing non-employee Board member from 10,000 to 30,000 shares.
The 1993 Plan was adopted by the Board of Directors on December 9, 1993 and
subsequently approved by the Company's Shareholders. The 1993 Plan is the
successor to the Company's 1988 Stock Option Plan (the "Predecessor Plan"). As
of June 30, 1999, options covering an aggregate of 2,163,853 shares of Common
Stock were outstanding under the 1993 Plan, no shares of Common Stock had been
issued under such plan, and 4,836,147 shares of Common Stock remained available
for future option grants and stock issuances, assuming Shareholder approval of
the increase to 7,000,000 shares of Common Stock underlying the 1993 Plan which
forms part of this Proposal.
Shareholder approval of Proposal 3 is necessary because the 1993 Plan does
not contain enough shares to issue the 3,721,827 shares of Common Stock under
the 1993 Plan intended to be issued as set forth in Proposal 4 herein. The
Company plans on granting options to purchase an additional 3,721,827 shares of
Common Stock to 33 employees, officers and directors to encourage them to remain
in the employ of the Company if the Debt Conversion Transaction is approved
because of concerns that the substantial dilution in their share ownership which
will result from the Debt Conversion Transaction could
27
<PAGE>
cause them to leave the Company unless the options are granted. The increased
ceiling for individual grants is necessary because the current limitation of
500,000 shares per year is not sufficient to enable the proposed issuance of
1.72 times the number of shares under existing options to current officers and
directors of the Company as planned in Proposal 4. The Board also believes it
will be better able to attract new directors and retain the current non-employee
directors if the initial grant of shares is increased from 15,000 to 40,000
shares upon becoming a director and to increase the number of shares for which
option grants are to automatically be made annually to directors from 10,000 to
30,000 shares.
The following is a summary of the material features of the 1993 Plan,
including the amendments which will become effective upon Shareholder approval
of this Proposal 3. Any Shareholder of the Company who wishes to obtain a copy
of the actual plan document may do so upon written request to the Chief
Financial Officer of the Company at the Company's principal executive offices in
San Diego, California.
Plan Structure
The 1993 Plan contains three separate equity incentive programs: (i) a
Discretionary Option Grant Program, (ii) at an Automatic Option Grant Program
and (iii) a Stock Issuance Program. The principal features of these programs are
described below.
Administration
As of June 30, 1999, the 1993 Plan is administered by the Board. The Board,
as Plan Administrator, has complete discretion (subject to the provisions of the
1993 Plan) to authorize option grants and direct stock issuances under the 1993
Plan. In addition, the Board may appoint a committee, comprising two or more
Board members, to act as Plan Administrator of the 1993 Plan with respect to
individuals other than officers and directors of the Company who are subject to
the short-swing profit trading restrictions of Section 16 of the Securities
Exchange Act of 1934. All grants under the Automatic Option Grant Program are
made in strict compliance with the provisions of that program and no
administrative discretion is exercised by the Plan Administrator with respect to
the grants made thereunder.
Share Reserve
A total of 7,000,000 shares of Common Stock (including the 2,309,368 shares
subject to approval under this Proposal) has been reserved for issuance over the
ten-year period of the 1993 Plan. Also proposed to be amended is the current
provision which provides that, in no event may any one participant in the 1993
Plan be granted stock options and direct stock issuances for more than 500,000
shares in the aggregate per calendar year. In the event any change is made to
the outstanding shares of Common Stock by reason of any recapitalization, stock
dividend, stock split, combination of shares, exchange of shares or other change
in corporate structure effected without the Company's receipt of consideration,
appropriate adjustments will be made to the securities issuable (in the
aggregate and to each participant) under the 1993 Plan and to each outstanding
option.
Eligibility
Salaried employees (including officers), non-employee Board members and
consultants and independent advisors of the Company and its parent and
subsidiaries are eligible to participate in the
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<PAGE>
Discretionary Grant and Stock Issuance Programs of the 1993 Plan. Only
non-employee members of the Board are eligible to participate in the Automatic
Option Grant Program.
As of June 30, 1999, three executive officers, four non-employee Board
members and all of the approximately 29 eligible salaried employees have been
selected from eligible parties to participate in the 1993 Plan.
Valuation
The fair market value per share on any relevant date under the 1993 Plan
will be the average of the highest bid and lowest ask trading price per share on
that date on the Nasdaq Electronic Bulletin Board, provided the Company timely
files all reports required under the Securities Exchange Act of 1934, as
amended. On June 30, 1999, the average of the highest bid and lowest ask
trading prices per share was $0.395.
Discretionary Option Grant Program
Options may be granted under the Discretionary Option Grant Program at an
exercise price per share not less than 85% of the fair market value per share of
Common Stock on the option grant date. No granted option will have a term in
excess of ten (10) years.
Upon cessation of service, the optionee will have a limited period of time
in which to exercise any outstanding option to the extent such option is
exercisable for vested shares. The Plan Administrator will have complete
discretion to extend the period following the optionee's cessation of service
during which such optionee's outstanding options may be exercised and/or to
accelerate the exercisability or vesting of such options in whole or in part.
Such discretion may be exercised at any time while the options remain
outstanding, whether before or after the optionee's actual cessation of service.
The Plan Administrator is authorized to effect the cancellation of
outstanding options under the Discretionary Option Grant Program (including
options incorporated from the Predecessor Plan) which have exercise prices in
excess of the then-current market price of the Common Stock and to issue
replacement options with an exercise price based on the market price of the
Common Stock at the time of the new grant. The Plan Administrator does not
intend to effect such a cancellation and regrant of outstanding options
immediately following this Consent Solicitation.
Automatic Option Grant Program
Under the amended provisions of the Automatic Option Grant Program, each
individual who is serving as a non-employee Board member and each individual who
was appointed by the Board each year as a new non-employee Board member on such
date, is granted on such date a non-statutory option to purchase 40,000 shares
of Common Stock. Each individual who first becomes a non-employee Board member,
whether through election by the Shareholders or appointment by the Board, will
automatically be granted, at the time of such initial election or appointment, a
non-statutory option to purchase 40,000 shares of Common Stock.
On the date of each Annual Meeting, each individual who is to continue to
serve as a non-employee Board member will automatically be granted a
non-statutory option to purchase 30,000 shares of Common Stock. There will be no
limit to the number of such 30,000-share option grants any one non-employee
Board member may receive over his or her period of Board service.
29
<PAGE>
Each option will have at an exercise price per share equal to 100% of the
fair market value per share of Common Stock on the option grant date and a
maximum term of ten (10) years measured from the option grant date.
Each option will become vested for the option shares in four (4) equal
annual installments over the optionee's period of Board service, with the first
such installment to become vested upon the completion of one year of Board
service measured from the option grant date. The vesting of each automatic
option grant will immediately accelerate upon the optionee's death or permanent
disability or upon certain changes in the ownership or control of the Company.
Upon cessation of Board service, the non-employee Board member will have a
limited time to exercise his or her automatic options, but in no event may the
option be exercised after the expiration date of the option term. Any shares not
exercisable at the time of such cessation of Board service will terminate and
cease to be outstanding.
Stock Issuance Program
Shares may be sold under the Stock Issuance Program at a price per share
not less than 85% of the fair market value per share of Common Stock, payable in
cash or through a promissory note payable to the Company. Shares may also be
issued solely as a bonus for past services.
The issued shares may either be immediately vested upon issuance or subject
to a vesting schedule tied to the performance of service or the attainment of
performance goals. The Plan Administrator will, however, have the discretionary
authority at any time to accelerate the vesting of any unvested shares.
Acceleration
In the event the Company is acquired by a merger or asset sale, each
outstanding option under the Discretionary Option Grant Program which is not to
be assumed by the successor corporation or replaced with a comparable option to
purchase shares of the capital stock of the successor corporation will
automatically accelerate in full, and all unvested shares under the Stock
Issuance Program will immediately vest, except to the extent the Company's
repurchase rights with respect to those shares are to be assigned to the
successor corporation. Any options assumed or replaced in connection with such
acquisition may, in the Plan Administrator's discretion, be subject to immediate
acceleration, and any unvested shares which do not vest at the time of such
acquisition may be subject to full and immediate vesting, in the event the
individual's service is subsequently terminated within a specified period
following the acquisition.
The acceleration of vesting in the event of a change in the ownership or
control of the Company may be seen as at an anti-takeover provision and may have
the effect of discouraging a merger proposal, a takeover attempt or other
efforts to gain control of the Company.
Financial Assistance
The Plan Administrator may permit one or more participants to pay the
exercise price of outstanding options or the purchase price of shares under the
1993 Plan by delivering a promissory note payable in installments. The Plan
Administrator will determine the terms of any such promissory note. However, the
maximum amount of financing provided any participant may not exceed the cash
consideration payable for the issued shares plus all applicable taxes incurred
in connection with the
30
<PAGE>
acquisition of the shares. Any such promissory note may be subject to
forgiveness in whole or in part, at the discretion of the Plan Administrator,
over the participant's period of service.
Special Tax Election
The Plan Administrator may provide one or more holders of options or
unvested shares with the right to have the Company withhold a portion of the
shares otherwise issuable to such individuals in satisfaction of the tax
liability incurred by such individuals in connection with the exercise of those
options or the vesting of those shares. Alternatively, the Plan Administrator
may allow such individuals to deliver previously-acquired shares of Common Stock
in payment of such tax liability.
Amendment and Termination
The Board may amend or modify the 1993 Plan in any or all respects
whatsoever subject to any required Shareholder approval. The Board may terminate
the 1993 Plan at any time, and the 1993 Plan will in all events terminate on
December 8, 2003.
Federal Income Tax Consequences
Option Grants
Options granted under the 1993 Plan may be either incentive stock options
which satisfy the requirements of Section 422 of the Internal Revenue Code or
non-statutory options which are not intended to meet such requirements. The
Federal income tax treatment for the two types of option differs as follows:
Incentive Options. No taxable income is recognized by the optionee at the
time of the option grant, and no taxable income is generally recognized at the
time the option is exercised. The optionee will, however, recognize taxable
income in the year in which the purchased shares are sold or otherwise disposed
of. For Federal tax purposes, dispositions are divided into two categories: (i)
qualifying and (ii) disqualifying. A qualifying disposition occurs if the sale
or other disposition is made after the optionee has held the shares for more
than two years after the option grant date and more than one year after the
exercise date. If either of these holding periods is not satisfied, then a
disqualifying disposition will result.
If the optionee makes a disqualifying disposition of the purchased shares,
then the Company will be entitled to an income tax deduction, for the taxable
year in which such disposition occurs, equal to the excess of (i) the fair
market value of such shares on the option exercise date over (ii) the exercise
price paid for the shares. In no other instance will the Company be allowed a
deduction with respect to the optionee's disposition of shares purchased under
incentive options.
Non-Statutory Options. No taxable income is recognized by at an optionee
upon the grant of a non-statutory option without a readily ascertainable fair
market value. The optionee will in general recognize ordinary income, in the
year in which the option is exercised, equal to the excess of the fair market
value of the purchased shares on the exercise date over the exercise price paid
for the shares, and the optionee will be required to satisfy the tax withholding
requirements applicable to such income.
If the shares acquired upon exercise of the non-statutory option are
unvested and subject to repurchase by the Company in the event of the optionee's
termination of service prior to vesting in those shares, then the optionee will
not recognize any taxable income at the time of exercise but will have to
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<PAGE>
report as ordinary income, as and when the Company's repurchase right lapses, at
an amount equal to the excess of (i) the fair market value of the shares on the
date the repurchase right lapses over (ii) the exercise price paid for the
shares. The optionee may, however, elect under Section 83(b) of the Internal
Revenue Code to include as ordinary income in the year of the exercise of the
option at an amount equal to the excess of (i) the fair market value of the
purchased shares on the exercise date over (ii) the exercise price paid for such
share. If the Section 83(b) election is made, the optionee will not recognize
any additional income as and when the repurchase right lapses.
The Company will be entitled to an income tax deduction equal to the amount
of ordinary income recognized by the optionee with respect to the exercised
non-statutory option. The deduction will in general be allowed for the taxable
year of the Company in which such ordinary income is recognized by the optionee.
Direct Stock Issuances
The tax principles applicable to direct stock issuances under the 1993 Plan
will be substantially the same as those summarized above for the exercise of
non-statutory option grants.
Accounting and Income Tax Treatment
Deductibility of Executive Compensation. The Company anticipates that any
compensation deemed paid by it in connection with disqualifying dispositions of
incentive stock option shares or exercises of non-statutory options granted with
an exercise price equal to the fair market value of the option shares at the
time of grant will qualify as performance-based compensation for purposes of
Internal Revenue Code Section 162(m) and will not have to be taken into account
for purposes of the $1 million limitation per covered individual on the
deductibility of the compensation paid to certain executive officers of the
Company. Accordingly, all compensation deemed paid with respect to those options
will remain deductible by the Company without limitation under Internal Revenue
Code Section 162(m).
Option grants or stock issuances with exercise or issue prices less than
the fair market value of the shares on the grant or issue date will result in a
compensation expense to the Company's earnings equal to the difference between
the exercise or issue price and the fair market value of the shares on the grant
or issue date. Such expense will be accruable by the Company over the period
that the option shares or issued shares are to vest. Option grants or stock
issuances made under the 1993 Plan with exercise or issue prices equal to 100%
of the fair market value of the Common Stock will not result in any charge to
the Company's earnings, but the Company must disclose, in footnotes to the
Company's financial statements, the impact those options would have upon the
Company's reported earnings where the value of those options are treated as a
compensation expense. Whether or not granted at a discount, the number of
outstanding options may be a factor in determining the Company's earnings per
share.
Conditions to Approval of Amendments to 1993 Stock Plan
Before the amendments to the 1993 Stock Plan are effective, the
Shareholders must approve the Debt Conversion Transaction at Proposal 1 and the
purchase of the Series A Convertible Preferred Stock from FI Financial by the
Company's employees and management at Proposal 2. In the event Proposals 1 and 2
are not approved by the Shareholders, Proposal 3 will be withdrawn.
32
<PAGE>
Vote Required and Recommendation for Approval
The affirmative vote of a majority of the outstanding Common Stock is
required to approve the amendments to the 1993 Plan. If such Shareholder
approval is not obtained, then only the original 2,526,779 shares of Common
Stock will be available for issuance under the 1993 Plan. In addition, if such
Shareholder approval is not obtained, then the current limitation of grants of
options and direct share issuances in any one year to one person of 500,000
shares will remain as well as the lesser number of shares to non-employee
directors upon appointment and each year thereafter. In that event, the current
management and employees will be unable to be granted options in excess of the
currently-authorized number.
The Board of Directors recommends the Shareholders vote FOR the approval of
the amendments to the 1993 Plan. The Board believes that it is in the best
interests of the Company to continue to have a comprehensive equity incentive
program for the Company which will provide a meaningful opportunity for
officers, employees and non-employee Board members to acquire a substantial
proprietary interest in the Company and thereby encourage such individuals to
remain in the Company's service and more closely align their interests with
those of the Shareholders.
PROPOSAL 4
APPROVAL OF GRANT OF OPTIONS TO PURCHASE 3,721,827 SHARES OF COMMON STOCK TO
COMPANY EMPLOYEES, OFFICERS AND DIRECTORS PURSUANT TO AMENDED 1993 STOCK
OPTION/STOCK ISSUANCE PLAN.
Description of and Reasons for Proposal 4
On May 17, 1999, the Board of Directors approved, subject to Shareholder
approval, the grant of options to purchase a total of 3,721,827 shares of Common
Stock to approximately 33 employees, officers and directors under the 1993 Stock
Plan as it is proposed to be amended in Proposal 3 herein. Among other
conditions, the grant of the options to these employees, officers and a director
is subject to Shareholder approval of the amendments to the 1993 Stock Plan as
discussed in Proposal 3 above.
The reason for the grant of the additional options to the employees,
officers and directors is to encourage them to remain in the employ of the
Company if the Debt Conversion Transaction is approved because of the
substantial dilution in their share ownership which will result from the Debt
Conversion Transaction. As of June 30, 1999 and before the Debt Conversion
Transaction, the Company had 10,856,890 shares of Common Stock outstanding. If
the Debt Conversion Transaction is approved, and assuming conversion of the
Series A Convertible Preferred Stock to Common Stock, there will be
approximately 29,582,444 shares of Common Stock outstanding, or approximately
2.72 times the number of previously-outstanding shares.
Accordingly, the employees, officers and directors of the Company who have
continued to work with the Company, notwithstanding that it has faced
bankruptcy, will be subject to substantial dilution of their stock ownership.
Management believes that valuable employees may leave the Company if their
options are not adjusted as set forth in this Proposal 4. To enable the
employees, officers and directors to maintain their percentage interest in the
Company after the Debt Conversion Transaction, each of the 33 employees,
officers and directors who has been issued options will be issued an option to
acquire Common Stock of the Company in an amount equal to 1.72 times the number
of their currently-outstanding shares subject to options. The options will be
granted to the employees, officers and directors in accordance with the
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<PAGE>
terms and conditions of the amended 1993 Plan. Based on the 2,163,853 shares of
Common Stock which underlie options granted to employees, options to purchase an
additional 3,721,827 shares of Common Stock will be issued to the employees if
Proposal 4 is approved.
Conditions to Issuance of Additional Options to Employees, Officers and
Directors
Before the grant of the options to purchase 3,721,827 shares of Common
Stock to the 33 employees, officers and directors is effective, the Shareholders
must approve the Debt Conversion Transaction at Proposal 1 and it must be
completed, and the Shareholders must also approve Proposal 2 and the amendments
to the 1993 Stock Plan as discussed in Proposal 3. In the event the Debt
Conversion Transaction at Proposals 1 and 2 is not approved by the Shareholders
pursuant to this Consent Statement, the grant of additional options to purchase
3,721,827 shares of Common Stock to the employees, officers and directors as set
forth in this Proposal 4 will be withdrawn.
Vote Required and Recommendation for Approval
The affirmative vote of a majority of the outstanding Common Stock is
required to approve the grant of options to purchase an additional 3,721,827
shares of Common Stock under the 1993 Plan to the 33 employees, officers and
directors of the Company. If such Shareholder approval is not obtained, then
only the original 2,526,779 shares of Common Stock available for issuance under
the 1993 Plan before the proposed increase described in Proposal 3 will be
available to be granted to the employees, officers and directors. In that event,
the current management and employees will be substantially diluted by the shares
of Common Stock which could be converted in connection with the Debt Conversion
Transaction, which management believes is very likely to result in the loss of
valuable employees.
The Board of Directors recommends the Shareholders vote FOR the approval of
the amendments to the 1993 Plan. The Board believes that it is in the best
interests of the Company to continue to have a comprehensive equity incentive
program for the Company which will provide a meaningful opportunity for
officers, employees and non-employee Board members to acquire a substantial
proprietary interest in the Company and thereby encourage such individuals to
remain in the Company's service and more closely align their interests with
those of the Shareholders.
PROPOSAL 5
APPROVAL OF CERTIFICATE OF AMENDMENT OF AMENDED AND RESTATED ARTICLES OF
INCORPORATION TO AUTHORIZE THE ISSUANCE OF THE SERIES A CONVERTIBLE PREFERRED
STOCK TO THE CREDITORS, EMPLOYEES AND DIRECTORS OF THE COMPANY AND THIRD
PARTIES IN CONNECTION WITH THE DEBT CONVERSION.
Description of and Reasons for Proposal 5
The Articles of Incorporation currently authorize the Company to issue up
to 50,000,000 shares of Common Stock and up to 10,000,000 shares of Preferred
Stock. The Debt Conversion Transaction requires the authorization of the Series
A Convertible Preferred Stock to be issued to the creditors in accordance with
the Conversion and Settlement Agreement. This amendment to the Articles of
Incorporation creates the Series A Convertible Preferred Stock to be issued to
the creditors with the rights, preferences and privileges required by the
creditors. The Proposal would cause 9,362,777 authorized shares of Preferred
Stock to be designated as Series A Convertible Preferred Stock.
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<PAGE>
The holders of shares of the Series A Convertible Preferred Stock would be
entitled to voting rights, preferential dividends, preferences on liquidation
and conversion rights as described in Proposal 1 under the heading "Summary of
Principal Terms of Series A Convertible Preferred Stock" and as fully set forth
in Exhibit B. In addition the Series A Convertible Preferred Stock is subject to
redemption as provided in Exhibit B. The Company is limited by the proposed
amendment of the Articles of Incorporation in its authority to sell
substantially all of the assets of the Company, enter into any merger or
consolidation, alter the rights of Series A Convertible Preferred Stock holders,
issue additional stock with priority over or equal preference to the Series A
Convertible Preferred Stock holders, or undertake certain other transaction, all
as specifically described in Exhibit B.
Background
The Company currently has 60,000,000 authorized shares of stock, consisting
of 50,000,000 shares of Common Stock, no par value and 10,000,000 shares of
undesignated preferred stock. The proposed amendment of the Articles of
Incorporation ("Proposal") would create a new class of 9,362,777 shares of
preferred stock, no par value designated "Series A Convertible Preferred Stock."
Assuming Proposal 5 is approved by the Shareholders, the 10,000,000 shares of
undesignated preferred stock which is currently authorized will be eliminated.
Series A Convertible Preferred Stock will be senior as to dividends and upon
liquidation, dissolution or winding up to the Common Stock.
The holders of Series A Convertible Preferred Stock will have voting rights
equal to one vote for each share of Common Stock into which such Series A
Convertible Preferred Stock could then be converted. Each share of Series A
Convertible Preferred Stock is initially convertible into two (2) shares of
Common Stock. However, the conversion ratio is subject to adjustment under
specified circumstances.
The Proposal
The Company's Certificate of Incorporation shall be amended as set forth in
Exhibit B, which has the effect of amending in full and restating Article III of
the Amended and Restated Articles of Incorporation of the Company.
The full text of Article III as proposed to be amended is attached as
Exhibit B to this Consent Statement.
A Certificate of Amendment reflecting the foregoing amendments shall be
filed with the Secretary of State of the State of California after the adoption
of the Proposal by the Shareholders.
Conditions to Approval of Amended and Restated Articles of Incorporation
Before the Certificate of Amendment of the Amended and Restated Articles of
Incorporation is effective, the Shareholders must approve Proposal 1, the Debt
Conversion Transaction, and Proposal 2, the purchase of the Series A Convertible
Preferred Stock from FI Financial by the employees, officers and a director of
the Company. In the event Proposals 1 and 2 are not approved by the
Shareholders, Proposal 5 will be withdrawn and the Company will likely seek
protection under applicable bankruptcy laws.
Vote Required and Recommendation for Approval
The affirmative vote of a majority of the outstanding Common Stock is
required to approve the Certificate of Amendment of the Amended and Restated
Articles of Incorporation authorizing the issuance of the Series A
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<PAGE>
Convertible Preferred Stock. If Shareholder approval is not obtained, the
Company will be unable to complete the Debt Conversion Transaction and will
likely be forced to declare bankruptcy since the Company believes it is highly
unlikely the Singapore Creditors will proceed without Shareholder approval.
The Board of Directors recommends the Shareholders vote FOR the approval of
the Certificate of Amendment of the Amended and Restated Articles of
Incorporation. The Board believes that the issuance of the Series A Convertible
Preferred Stock to the Singapore Creditors in exchange for such debts is in the
best interests of the Company and the only viable way to avoid bankruptcy.
PROPOSAL 6
AMENDMENT OF THE AMENDED AND RESTATED ARTICLES OF INCORPORATION TO CHANGE THE
NAME OF THE COMPANY TO "MELTRONIX, INC."
Description of and Reasons for Proposal 6
The Company believes that the current name does not accurately reflect the
image of its current business and that the name change to Meltronix, Inc. will
be in the best interests of the Company and will more accurately reflect its
current business and operations. The name change will be accomplished by
amending the Amended and Restated Articles of Incorporation of the Company at
Article I to reflect the new name of Meltronix, Inc. This amendment to the
Amended and Restated Articles of Incorporation is in addition to the amendment
set forth at Proposal 5 to authorize the Series A Convertible Preferred Stock in
connection with the Debt Conversion Transaction. The approval of this Proposal 6
is not dependent upon the approval of any of the other five proposals contained
in this Consent Statement.
Vote Required and Recommendation for Approval
The affirmative vote of a majority of the outstanding Common Stock is
required to approve the amendment to the Amended and Restated Articles of
Incorporation to authorize the name change to Meltronix, Inc. If Shareholder
approval is not obtained, the Company will not change its name.
The Board of Directors recommends the Shareholders vote FOR the approval of
the amendment to the Amended and Restated Articles of Incorporation to change
the name. The Board believes the change of name will be in the best interests of
the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In November 1996, the Company entered into an agreement for consulting
services with G&L Investments ("G&L") which established a consulting
relationship with, among others, Lewis Solomon (former Chairman of the Board of
Directors) and Gary Stein (a former Director). In exchange for consulting
services, G&L, through an affiliate, received $15,000 plus reasonable expenses
for each month that G&L provided services to the Company. On July 14, 1998, the
Company notified G&L that their agreement for consulting services was
terminated.
In November 1996, the Company also entered into an agreement for consulting
services with The Watley Group, LLC ("Watley") which employed Mr. Anthony Bryan
(a Director), among others, pursuant to which Watley received $15,000 plus
reasonable expenses for each month that it provided services to the
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<PAGE>
Company. On January 16, 1998, the Company notified Watley that their agreement
for consulting services was terminated.
The Company has entered into an indemnification agreement with each of its
directors.
The Company and certain of its Shareholders entered into a registration
rights agreement pursuant to which entities that may be deemed affiliated with
greater than a five percent Shareholder were granted certain registration
rights. Such agreement provides for indemnification by the Company for such
persons.
In March 1996, pursuant to a subscription agreement, the Company
consummated the sale and issuance of 842,013 shares of Common Stock (the
"Transpac Shares") to Transpac at the purchase price of $2.37526 per share, for
a total purchase price of $2,000,000 (the "Transpac Financing"). Transpac has
board observer rights and the right to appoint a representative of Transpac to
the Company's Board of Directors. Such right was exercised in August 1998 with
the appointment of Mr. Wong to the Board of Directors of the Company. Mr. Wong
is also a director and Executive Vice President of Transpac.
In connection with the Company's subsidiaries in Singapore, which ceased
operations in 1997, the Company fully guaranteed certain debt obligations.
During 1998, the Company signed Restructuring Agreements with each of the
Singapore Creditors, which called for settlement payments of approximately $9.3
million to satisfy all debt obligations. This included an agreement with
Transpac which requires the Company to pay to Transpac $3.1 million by May 1,
1999, issue warrants to purchase 500,000 shares of the Company's Common Stock at
$1.00 per share, and other provisions. Under the terms of the agreements, the
indebtedness due to Transpac returns to the full $11.357 million if the payment
of $3.1 million is not made by May 1, 1999. Because the Company has not been
able to obtain funding to satisfy the settlement payment obligations, the
Company renegotiated the terms and has executed a Conversion and Settlement
Agreement with Transpac which calls for the conversion of all debt and accrued
interest obligations into shares of the Company's Series A Convertible Preferred
Stock, each share of which will be convertible into two shares of the Company's
Common Stock. Such Series A Convertible Preferred Stock is ultimately
convertible into 8,063,651 shares of the Company's Common Stock. The Conversion
and Settlement Agreement further stipulates that the warrants issued to Transpac
to purchase 500,000 shares of the Company's Common Stock at $1.00 per share be
amended to reduce the exercise price to $0.50 per share.
The Debt Conversion Transaction is subject to the completion of definitive
agreements for all of the Singapore Creditors, which have been executed, and the
approval of the Debt Conversion Transaction by a majority of the outstanding
Common Stock of the Company.
The Company entered into the STM/FI Financial Agreement on April 14, 1999
with STM and FI Financial. Mr. Waring, a member of the Company's Board of
Directors, is an officer of FI Financial. Under the terms of the STM/FI
Financial Agreement, STM, a creditor of the Company, assigned its rights to a
series of agreements with the Company to FI Financial. FI Financial, for
consideration paid to STM of $500,000, pursuant to the STM/FI Financial
Assignment Agreement dated August 31, 1999 assumed STM's creditor position and
will, upon approval of the Debt Conversion Transaction by a majority of the
outstanding Common Stock, receive shares of the Company's Series A
Convertible Preferred Stock, which shares would be convertible into 2,645,294
shares of the Company's Common Stock.
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<PAGE>
FI Financial subsequently entered into a series of Assignment of Interest
agreements with a group of employees, officers and a director of the Company and
other parties, whereby these parties have collectively agreed to pay to FI
Financial a total of $240,000 toward the purchase of the STM creditor claim in
exchange for the right to receive a pro-rata portion of the Company's Series A
Convertible Preferred Stock to be received by FI Financial. Under the terms of
the Assignment of Interest agreements, this group of parties would receive
shares of the Company's Series A Convertible Preferred Stock, which would be
convertible into 1,269,741 shares of the Company's Common Stock. FI Financial
has also signed a Conversion and Settlement Agreement.
Certain executive officers and directors of the Company will receive
benefits in the form of Series A Convertible Preferred Stock and option grants
if Proposals 1 through 5 set forth herein are approved by the Shareholders. Mr.
Trafecanty, Chief Financial Officer, Mr. Sullivan, Controller, Mr. Wrobel, Chief
Executive Officer and Director, and Mr. Waring, a director of the Company and an
officer of FI Financial, who is considered the beneficial owner of the shares
issued to FI Financial, will receive 92,585 shares, 13,226 shares, 39,679 shares
and 687,776 shares, respectively, of Series A Convertible Preferred Stock in
exchange for their respective capital contributions as described in Proposal 2
herein. These Series A Convertible Preferred Stock shares will be initially
convertible into 185,120 shares, 26,452 shares, 79,358 shares and 1,375,552
shares of Common Stock, respectively, assuming the Debt Conversion Transaction
is approved by the Shareholders. If Proposals 1 through 5 herein are approved by
the Shareholders, Messrs. Trafecanty, Sullivan and Wrobel will have options,
including options previously granted, to acquire a total of 816,000, 408,000 and
1,632,000 shares of Common Stock of the Company, respectively. Mr. Waring, as a
director, will receive an option to acquire 40,000 shares upon his appointment
as a director, and will automatically receive 30,000 shares each year he remains
as a director if Proposals 1 through 5 contained herein are approved. The other
existing directors consisting of Messrs. Wong L. Hong, Frank Howland, Waldemar
Heeb and Anthony Bryan will each automatically receive 30,000 shares each year
they are a director under the Automatic Option Grant Program of the amended 1993
Plan if Proposals 1 through 5 contained herein are approved.
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions, between the Company and its
officers, directors, principal Shareholders and affiliates will be approved by a
majority of the Board of Directors, including a majority of the independent and
disinterested outside directors on the Board of Directors, and will be on terms
no less favorable to the Company than could be obtained from unaffiliated third
parties.
EXECUTIVE COMPENSATION AND RELATED INFORMATION
Summary of Cash and Certain Other Compensation
The following table provides certain summary information concerning
compensation earned, for services rendered in all capacities to the Company and
its subsidiaries, for the fiscal years ended December 31, 1998, 1997 and 1996,
by all persons who served as the Company's Chief Executive Officer during 1998,
and each of the other two (2) most highly compensated executive officers of the
Company who earned more than $100,000 in compensation for the 1998 fiscal year
(hereafter referred to as "Named Executive Officers").
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<PAGE>
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
Awards Payouts
Other Restricted Securities LTIP All Other
Name and Salary Bonus Annual Stock Underlying Payouts Comp.
Principal Position Year ($) ($) Comp.(1)($) Award(s)($) Options (#) ($) ($)(2)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Andrew K. Wrobel(3) 1998 220,898 133,980 --- --- --- --- 3,015
Chairman, President and 1997 46,664 25,000 --- --- 600,000 --- 99
Chief Executive Officer 1996 --- --- --- --- --- ---
---
Denis J. Trafecanty(4) 1998 158,154 80,000 46,723(5) --- --- --- 11,858
Senior Vice President 1997 149,414 35,000 28,798(5) --- 300,000(6) --- 5,102
and Chief Financial 1996 37,736 --- --- --- 50,000 --- ---
Officer
Timothy R. Sullivan(7) 1998 117,335 59,583 --- --- --- --- 4,559
Vice President and 1997 97,741 20,000 --- --- 150,000 --- 21,612(7)
Controller 1996 --- --- --- --- --- --- ---
</TABLE>
- ------------
(1) Other Annual Compensation for all other employees listed in the table is
less than $50,000 and 10% of the total of annual salary and bonus for such
individual.
(2) All other compensation if comprised of (i) matching contributions made by
the Company on behalf of the Named Executive Officer to its Section 401 (k)
Plan and (ii) annual premiums paid for group term life insurance policies.
Under such policies, the Named Executive Officer may designate the
beneficiary of the insurance proceeds payable upon death. The amounts of
the Company's matching contribution to its Section 401 (k) Plan and the
life insurance premiums are set forth below:
Matching 401(k) Life Insurance
Contribution ($) Premium ($)
---------------- --------------
Andrew K. Wrobel ............... 1998 ----- 3,015
1997 ----- 99
Denis J. Trafecanty ............ 1998 4,748 7,110
1997 4,360 742
Timothy R. Sullivan ............ 1998 3,594 965
1997 1,650 112
(3) Mr. Wrobel was appointed as Chairman of the Board of Directors in January
1999. Mr. Wrobel was appointed President and Chief Executive Officer of the
Company in October 1997.
(4) Mr. Trafecanty was appointed as Chief Financial Officer of the Company in
August 1996.
(5) The Company provided a car allowance to Mr. Trafecanty of $6,000 for each
of the 1998 and 1997, living expenses totaling $9,291 and $10,926 for 1998
and 1997 respectively, and reimbursed Mr. Trafecanty for the income tax
impact of these and other benefits, which totaled $18,637 and $8,147 for
1998 and 1997 respectively.
(6) Includes options for 50,000 shares granted on August 21, 1997 in exchange
for the cancellation of an option for 50,000 shares originally granted on
August 26, 1996 with an exercise price $4.00 per share.
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<PAGE>
(7) Mr. Sullivan was appointed as Vice President and Controller of the Company
in March 1997. The Company paid Mr. Sullivan $19,850 in connection with
consulting services rendered to the Company during January and February
1997. These fees are included in the caption All Other Compensation.
Option Grants in Last Fiscal Year
There were no stock option grants made to the Company's Chief Executive
Officer or any of the other Named Executive Officers during the fiscal year
ended December 31, 1998. No stock appreciation rights were granted or exercised
during such fiscal year.
Aggregated Option Exercise and Fiscal Year-End Values
No options were exercised by the Company's Chief Executive Officer or the
other two Named Executive Officers during the fiscal year ended December 31,
1998. The following table sets forth information concerning option holdings for
such fiscal year with respect to the Company's Chief Executive Officer and each
of the other two Named Executive Officers. The fair market value of the Common
Stock as the December 31, 1998 fiscal year-end was $0.15 per share, based on the
average of the highest bid and lowest ask price as quoted on the OTC Bulletin
Board. No stock appreciation rights were exercised or outstanding during such
fiscal year.
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Fiscal Year-End (#) at Fiscal Year-End($)
-----------------------------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- --------------------------------------------------------------------------------
Andrew K. Wrobel .... 233,334 366,666 ----- -----
Denis J. Trafecanty . 147,500 152,500 ----- -----
Timothy R. Sullivan . 75,000 75,000 ----- -----
Compensation Committee Interlocks and Insider Participation in Compensation
Decisions
The Company does not have a compensation committee, and the Board of
Directors currently performs the functions of a compensation committee. No
current executive officer of the Company has ever served as a member of the
board of directors or compensation committee of any other entity that has or has
had one or more executive officers serving as a member of the company's Board of
Directors. Mr. Wong is a director of the Company and Executive Vice President of
Transpac. Transpac has entered into a Conversion and Settlement Agreement with
the Company which calls for the conversion of all of its debts and accrued
interest obligations to the Company into shares of the Company's Series A
Convertible Preferred Stock, each share of which will be convertible into two
shares of the Company's Common Stock. Such Series A Convertible Preferred Stock
is ultimately convertible in 8,063,651 shares of the Company's Common Stock. The
Debt Conversion Transaction is subject to approval by a majority of the holders
of the Company's Common Stock.
Employment Contracts and Termination of Employment and Change in Control
Arrangements
Employment Agreement with Andrew K. Wrobel. Effective October 6, 1997, the
Company entered into an employment agreement ("Agreement") with
Andrew K. Wrobel. The terms of this
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<PAGE>
Agreement shall automatically be extended, unless not less than one (1) year
prior to the expiration date the Company shall have given written notice to Mr.
Wrobel that the term of this Agreement shall terminate on the expiration date;
or Mr. Wrobel, not less than thirty (30) days prior to the expiration date,
elects to terminate this Agreement by delivering written notice of such desire
to terminate to the Company. Under the terms of this Agreement, Mr. Wrobel is
entitled to a base salary of not less than $220,000 per year, plus a minimum
increase of six (6) percent of his base salary on each anniversary of the
agreement. Mr. Wrobel is also entitled to receive a bonus equal to sixty percent
(60%) of his then existing base salary, payable quarterly pro-rata upon the
Company's achievement of the performance criteria set forth in the business plan
to be prepared by Mr. Wrobel for the Company and approved by the Board. The
Agreement also guaranteed Mr. Wrobel a stock option for 500,000 shares of the
Company's Common Stock at the fair market value on the date of the Agreement
($0.43 per share). The options will become exercisable on an accelerated basis
in the event of any acquisition of the Company by merger or asset sale, unless
the options are assumed by the acquiring entity. Mr. Wrobel participates in all
of the Company's employee benefit plans. In the event of his termination other
than for cause, Mr. Wrobel is entitled to full acceleration of his options and a
severance payment equal to one (1) year of his then current salary within five
(5) business days of his termination plus twelve (12) months additional coverage
under the Company's health, medical and dental plans.
Change in Control Arrangements. The Board of Directors has the authority as
Plan Administrator of the 1993 Plan to provide for the accelerated vesting of
the shares of the Common Stock subject to outstanding options held by the Chief
Executive Officer and the Company's other executive officers under that plan in
the event their employment were to be terminated (whether involuntarily or
through a forced resignation) following an acquisition of the Company by merger
or asset sale. In connection with a hostile change in control of the Company
effected through a successful tender offer for more than 50% of the Company's
outstanding voting stock or through a proxy contest for the election of Board
members, the Plan Administrator has the discretionary authority to provide for
automatic acceleration of outstanding options under the Discretionary Option
Grant Program of the 1993 Plan and the automatic vesting of outstanding shares
under the Stock Issuance Program.
Board of Directors Report on Executive Compensation
For the 1998 fiscal year, the Board of Directors was responsible for
establishing the base salary and incentive cash bonus programs for the Company's
executive officers and other key employees and administering certain other
compensation programs for such individuals, subject in each instance to review
and final approval by the full Board. The Board of Directors also had the
exclusive responsibility during such year for the administration of the
Company's 1993 Plan under which grants may be made to executive officers and
other key employees.
General Compensation Policy. The fundamental policy of the Board of
Directors is to provide the Company's executive officers and other key employees
with compensation opportunities based upon their contribution to the financial
success of the Company and their personal performance. It is the Board of
Directors's objective to have a substantial portion of each officer's
compensation contingent upon the Company's performance as well as upon his own
level of performance. Accordingly, the compensation package for each executive
officer and key employee is comprised of three elements: (i) base salary which
reflects individual performance, (ii) annual variable performance award payable
in cash and tied to the Company's achievement of financial performance targets,
and (iii) long-term stock-based incentive award which strengthen the mutuality
of the interest between the executive officers and the Company's Shareholders.
As an executive officer's level of responsibility increases, it is the intent of
the Board of
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Directors to have a greater portion of his total compensation be dependent upon
Company performance and stock price appreciation rather than base salary.
Factors. For Andrew K. Wrobel, the Board of Directors followed the terms of
his employment agreement with the Company in determining his compensation for
1998. That agreement specifies the compensation, subject to Board adjustment,
that was paid to Mr. Wrobel during 1998. Several of the more important factors
which the Board of Directors considered in establishing the components of the
compensation packages for executive officers who do not have an employment
agreement with the Company for the 1998 fiscal year are summarized below.
Additional factors were also taken into account and the Board of Directors may,
in its discretion, apply entirely different factors, particularly different
measures of financial performance, in setting executive compensation for the
future fiscal years.
Base Salary. The base salary for each officer who does not have an
employment agreement with the Company is determined on the basis of the
following factors: experience, personal performance and internal comparability
considerations. The weight given to each of these factors differs from
individual to individual, as the Board of Directors deems appropriate.
Annual Incentive Compensation. Annual bonuses are earned by each executive
officer primarily on the basis of the Company's achievement of certain corporate
financial performance targets established for each fiscal year combined with the
individual performance of such individual.
Long-Term Incentive Compensation. Long-term incentives are provided through
stock option grants. The grants are designed to align the interests of each
executive officer with those of the Shareholders and provide each individual
with a significant incentive to manage the Company from the perspective of an
owner with an equity stake in the business. Each grant allows the individual to
acquire shares of the Common Stock at a fixed price per share (the market price
on the grant date) over a specified period of time (up to ten years). Each
option generally becomes exercisable in installments over a two and one-half (2
1/2) or three (3)-year period, contingent upon the executive officer's continued
employment with the Company or a subsidiary. Accordingly, the option will
provide a return to the executive officer only if the executive officer remains
employed by the Company during the vesting period, and then only if the market
price of the underlying shares appreciates over the option term.
The number of shares subject to each option grant is set at a level
intended to create a meaningful opportunity for stock ownership based on the
officer's current position with the Company, the base salary associated with
that position, the size of comparable awards made to individuals in similar
positions within the industry, the individual's potential for increased
responsibility and promotion over the option term, and the individual's personal
performance in recent periods. The Board of Directors also takes into account
the number of vested and unvested options held by the executive officer in order
to maintain an appropriate level of equity incentive for that individual.
However, the Board of Directors does not adhere to any specific guidelines as to
the relative option holdings of the Company's executive officers. In 1998, no
Named Executives received an option grant. Such options are described in the
Summary Compensation Table, in the column entitled "Long Term Compensation
Awards--Securities Underlying Options" and in the "Option Grants in Last Fiscal
Year" table.
CEO Compensation. In setting the compensation payable to the Company's
Chief Executive Officer, Mr. Wrobel, the Board of Directors followed the terms
of the employment agreement that was previously negotiated between Mr. Wrobel
and the Company and subsequently executed. In accordance with the terms of his
employment agreement, Mr. Wrobel received a base salary of $220,898 in 1998.
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<PAGE>
For fiscal year 1998, Mr. Wrobel was entitled to a bonus equal to sixty
percent of his then-existing base salary, payable quarterly pro-rata upon the
Company's achievement of the performance criteria set forth in the business plan
prepared by Mr. Wrobel for the Company and approved by the Board. The business
plan approved by the Board required the Company to achieve a defined cumulative
net income for fiscal year 1998 measured as of each quarterly period for Mr.
Wrobel to be entitled to a bonus in that quarter equal to 15% of his then-
existing base salary. The defined cumulative net income in each of the four
quarters of fiscal year 1998 was: cumulative through the first quarter -
$229,000; cumulative through the second quarter - $315,000; cumulative through
the third quarter -$821,000; and cumulative through the fourth quarter -
$1,307,000. Based on these factors and such other factors as the Board of
Directors deemed appropriate, the Board of Directors awarded Mr. Wrobel a bonus
of $133,980 in 1998. The 1998 base salary in Mr. Wrobel's employment agreement
was based on such factors as the Board of Directors determined to be appropriate
at the time the employment agreement was negotiated in 1997. On October 6, 1997,
Mr. Wrobel was granted an option to purchase 500,000 shares of Common Stock (see
"Employment Contracts and Termination of Employment and Change in Control
Arrangements--Employment Agreement with Andrew K. Wrobel") to make a portion of
his total compensation contingent on increased value for the Company's
Shareholders; the option will have no value unless there is appreciation in the
value of the Company's Common Stock over the option term. On November 4, 1997,
Mr. Wrobel received an option to purchase an additional 100,000 shares of Common
Stock.
Compliance with Internal Revenue Code Section 162(m). As a result of
Section 162(m) of the Internal Revenue Code, the Company will not be allowed a
federal income tax deduction for compensation paid to certain executive
officers, to the extent that compensation exceeds $1 million per officer in any
fiscal year. This limitation applies to all compensation paid to the covered
executive officers, which is not considered to be performance-based.
Compensation that does qualify as performance-based compensation will not have
to be taken into account for purposes of this limitation. Non-performance based
compensation paid to the Company's executive officers for the 1997 fiscal year
did not exceed the $1 million limit per officer, and the Board of Directors does
not anticipate that the non-performance based cash compensation to be paid to
the Company's executive officers for fiscal 1999 will exceed that limit. In
addition, option grants and other awards made under the 1993 Plan prior to
January 1, 1998 were structured so that any compensation deemed paid to an
executive officer in connection with those awards will qualify as
performance-based compensation which will not be subject to the $1 million
limitation. However, any compensation deemed paid by the Company in connection
with transactions relating to options or other awards granted during the 1999
fiscal year will have to be taken into account for purposes of the $1 million
limitation. Because it is very unlikely that the compensation payable to any of
the Company's executive officers in the foreseeable future will approach the $1
million limit, the Board of Directors has decided at this time not to take any
action to limit or restructure the elements of compensation payable to the
Company's executive officers. The Board of Directors will reconsider this
decision should the individual compensation of any executive officer ever
approach the $1 million level.
Dated as of April 20, 1999
Mr. Anthony J.A. Bryan
Mr. Wong Lin Hong
Mr. Andrew Wrobel
Mr. Waldemar Heeb
Mr. Frank L. Howland
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<PAGE>
The Board of Directors report on executive compensation is not deemed filed with
the Securities and Exchange Commission, and is not incorporated by reference
into any filing of the Company under the Securities Act of 1933, as amended, or
the Securities Exchange Act of 1934, whether made before or after the date of
this Consent Statement and irrespective of any general incorporation language in
any such filing.
THE BOARD OF DIRECTORS
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INFORMATION INCORPORATED BY REFERENCE
The Company incorporates by reference in this Consent Statement the
following portions of its Form 10-K/A Annual Report for the fiscal year ended
December 31, 1998 attached hereto under the heading "Financial Information"
beginning at page F-1: (i) Management's Discussion and Analysis of Financial
Condition and Results of Operations ("MDA") for December 31, 1998 and 1997 at
pages F-20 through F-34 herein; and (ii) the audited financial statements of the
Company as of December 31, 1998 and 1997 at pages F-42 through F-69 herein;
incorporates by reference the following portions of its Form 10-Q Quarterly
Report for the quarter ended March 31, 1999 attached hereto: (i) the unaudited
financial statements as of March 31, 1999 at pages F-72 through F-79 herein; and
(ii) the MDA therein set forth at pages F-81 through F-87 herein and also
incorporates by reference the following portions of its Form 10-Q/A Quarterly
Report for the quarter ended June 30, 1999 attached hereto (i) the unaudited
financial statements as of June 30, 1999 at pages F-92 through F-100 herein; and
(ii) the MDA therein set forth at pages F-101 through F-107 herein.
Dated: September 20, 1999
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ANNEX A
RESOLUTION OF ACTIONS BY WRITTEN CONSENT OF SHAREHOLDERS
OF
MICROELECTRONIC PACKAGING, INC.
WHEREAS, pursuant to the California Corporations Code, the Bylaws of this
corporation and the attached Consent Solicitation Statement which is
incorporated by this reference, it is deemed desirable and in the best interests
of this corporation that the following actions be taken by the Shareholders of
this corporation pursuant to this Written Consent:
NOW, THEREFORE, BE IT RESOLVED that the undersigned Shareholders of this
corporation hereby consent to, approve and adopt the following:
1. RESOLVED, the Shareholders approve the conversion of approximately
$28.06 million in debt owed to eight creditors into Series A Convertible
Preferred Stock of the Company and the amendment of one of the creditor's
warrants to purchase Common Stock.
[_] FOR [_] AGAINST [_] ABSTAIN
2. RESOLVED, the Shareholders approve the issuance of Series A Convertible
Preferred Stock issued in connection with the debt conversion to 11 employees
including officers, directors of the Company and third parties in exchange for
their payment of a creditor claim.
[_] FOR [_] AGAINST [_] ABSTAIN
3. RESOLVED, the Shareholders approve various amendments to the Company's
1993 Stock Option/Stock Issuance Plan to:
(i) increase the number of shares of Common Stock authorized for
issuance over the term of such plan by an additional 2,309,368
shares;
(ii) amend the number of shares available for issuance under such plan
for each person participating in any one calendar year to
2,000,000 shares; and
(iii) amend the Automatic Option Grant Program to increase the number
of shares of Common Stock subject to automatic option grants to
be made to new and continuing non-employee Board members.
[_] FOR [_] AGAINST [_] ABSTAIN
4. RESOLVED, the Shareholders approve the grant of options to purchase
3,721,827 shares of Common Stock to Company employees, officers and directors
pursuant to the amended 1993 Stock Option/Stock Issuance Plan.
[_] FOR [_] AGAINST [_] ABSTAIN
A-1
<PAGE>
5. RESOLVED, the Shareholders approve the Certificate of Amendment of the
Amended and Restated Articles of Incorporation to authorize the issuance of the
Series A Convertible Preferred Stock to the creditors, employees, officers, a
director of the Company and third parties in connection with the debt
conversion.
[_] FOR [_] AGAINST [_] ABSTAIN
6. RESOLVED, the Shareholders approve the amendment to the Amended and
Restated Articles of Incorporation to change the name of the Company to
Meltronix, Inc.
[_] FOR [_] AGAINST [_] ABSTAIN
RESOLVED FURTHER, that the officers of this corporation are, and each
acting alone is, hereby authorized to do and perform any and all such acts,
including execution of any and all documents and certificates, as said officers
shall deem necessary or advisable, to carry out the purposes of the foregoing
resolutions.
RESOLVED FURTHER, that any actions taken by such officers prior to the date
of the foregoing resolutions adopted hereby that are within the authority
conferred thereby are hereby ratified, confirmed and approved as the acts and
deeds of this corporation.
This Written Consent shall be filed in the Minute Book of this corporation
and become a part of the records of this corporation.
This Written Consent, when properly executed, will be voted in the manner
directed herein by the undersigned shareholder. If no direction is made, this
Written Consent will be voted for Proposals 1, 2, 3, 4, 5 and 6.
DATED:
---------------------------------------------
---------------------------------------------
Signature
---------------------------------------------
Signature if Held Jointly
---------------------------------------------
Number of Shares
Please sign exactly as your name appears on your stock certificate. When
shares are held by joint tenants, both should sign. When signing as an attorney,
executor, administrator, trustee or guardian, please give full title as such. If
the shares are owned by a corporation, sign in the full corporate name by the
President or other authorized officer. If the shares are owned by a Partnership,
sign in the name of the Partnership name by an authorized person.
A-2
<PAGE>
PLEASE MARK, SIGN, DATE AND RETURN THE WRITTEN CONSENT PROMPTLY USING THE
ENCLOSED ENVELOPE OR FAX YOUR CONSENT TO DENIS TRAFECANTY AT MICROELECTRONIC
PACKAGING, INC., (619) 292-7881.
A-3
<PAGE>
FINANCIAL INFORMATION OF
MICROELECTRONIC PACKAGING INC.
INDEX
Page(s)
Introduction ............................................................ F-2
Pro Forma Unaudited Condensed Consolidated Balance Sheet as of
June 30, 1999 ......................................................... F-3
Pro Forma Unaudited Condensed Consolidated Statement of Operations for
the Six Month Period Ended June 30, 1999 and the Fiscal Year
Ended December 31, 1998 ............................................... F-4
Notes to Pro Forma Unaudited Consolidated Financial Statements .......... F-5
Financial Statements and Supplementary Data:
Annual Report on Form 10-K/A for the Fiscal Year Ended December 31, 1998 F-6
Quarterly Report on Form 10-Q for the Three Month Period Ended
March 31, 1999 ..................................................... F-73
Quarterly Report on Form 10-Q/A for the Three Month Period Ended
June 30, 1999 ...................................................... F-93
F-1
<PAGE>
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated financial
statements (the "Pro Forma Financial Statements") are based upon the historical
consolidated financial statements of the Company.
The historical financial information included in the Pro Forma Financial
Statements represents the financial position and operations of the Company as
previously reported by the Company in its Annual Report on Form 10-K for the
year ended December 31, 1998 and its Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1999. The Pro Forma Financial Statements reflect
the effect of issuing 9,362,777 shares of Series A Convertible Preferred Stock
in exchange for cancellation of debt and accrued interest totaling $28,059,000
as of June 30, 1999, and the recording of the gain on forgiveness of such debt
and certain related transactions. The pro forma unaudited condensed consolidated
statements of operations for the year ended December 31, 1998 and for the six
months ended June 30, 1999 give effect to this transaction as if it were
consummated on January 1, 1998. The pro forma unaudited condensed consolidated
balance sheet as of June 30, 1999 gives effect to this transaction as if it were
consummated on June 30, 1999. The gain on the forgiveness of the debt, net of
income taxes, is reflected in the pro forma unaudited condensed consolidated
balance sheet. The gain on the forgiveness of debt, net of income taxes, is not
included in the pro forma unaudited condensed consolidated statements of
operations. The pro forma adjustments, including the gain on the forgiveness of
the debt, are described more fully in the accompanying notes. The proforma
historical Statements of Operations only include the results of the Company's
continuing operations and do not reflect the 1998 results of the operations
discontinued by the Company.
The Pro Forma Financial Statements are presented for informational purposes
only and do not purport to be indicative of the results of operations that
actually would have been achieved had such transactions been consummated on the
date or for the periods indicated and do not purport to be indicative of the
results of operations for any future period. The Pro Forma Financial Statements
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1998 and the Company's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1999.
F-2
<PAGE>
MICROELECTRONIC PACKAGING, INC.
PRO FORMA UNAUDITED CONDENSED
CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1999
<TABLE>
<CAPTION>
Amounts in Thousands
--------------------------------------------------------
Proforma After
Historical Adjustments Adjustments
(Unaudited) (Unaudited) (Unaudited)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash $ 140 $ --- $ 140
Accounts receivable, net 1,489 --- 1,489
Inventories 2,065 --- 2,065
Other current assets 164 --- 164
- -------------------------------------------------------------------------------------------------------
Total current assets 3,858 --- 3,858
Property, plant and equipment, net 2,051 --- 2,051
Other non-current assets 117 --- 117
- -------------------------------------------------------------------------------------------------------
$ 6,026 $ --- $ 6,026
- -------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS
EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt $ 473 --- 473
Accounts payable 3,883 --- 3,883
Accrued liabilities 662 100 (2) 906
144 (3)
Debt and accrued interest of discontinued
operations, in default, due on demand 28,059 (28,059)(1) ---
- -------------------------------------------------------------------------------------------------------
Total current liabilities 33,077 (27,815) 5,262
Long-term debt, less current portion 40 --- 40
Commitments and Contingencies
Shareholders= Equity (Deficit)
Series A Preferred Stock --- 9,550 (1) 9,450
(100)(2)
Common stock, no par value 40,170 121 (4) 40,291
Accumulated deficit (67,261) 18,509 (1) (49,017)
(144)(3)
(121)(4)
- -------------------------------------------------------------------------------------------------------
Total shareholders= equity (deficit) (27,091) 27,815 724
- -------------------------------------------------------------------------------------------------------
$ 6,026 --- $ 6,026
=======================================================================================================
</TABLE>
See accompanying notes for an explanation of the Proforma Adjustments.
F-3
<PAGE>
MICROELECTRONIC PACKAGING, INC.
PRO FORMA UNAUDITED CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
Amounts in Thousands
Six Months Ended June 30, 1999 Year Ended December 31, 1998
-------------------------------- -----------------------------------------
Proforma After Proforma After
Historical Adjustments Adjustments Adjustments Adjustments
(Unaudited) (Unaudited) (Unaudited) Historical (Unaudited) (Unaudited)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $ 3,924 --- $ 3,924 $ 19,271 --- $ 19,271
Cost of goods sold 3,511 --- 3,511 14,714 --- 14,714
-------------------------------------------------------------------------------------
Gross profit 413 --- 413 4,557 --- 4,557
Selling, general and administrative 1,047 --- 1,047 2,915 --- 2,915
Engineering and product development 370 --- 370 1,060 --- 1,060
-------------------------------------------------------------------------------------
Income (loss) from operations (1,004) --- (1,004) 582 --- 582
Other income (expense)
Interest (expense), net (1,013) 1,005/(3)/ (8) (2,269) 2,251/(3)/ (18)
Other income, net 91 --- 91 179 17/(3)/ 196
-------------------------------------------------------------------------------------
Income (loss) before taxes (1,926) 1,005 (921) (1,508) 2,268 760
Provision for income taxes --- --- --- 18 --- 18
-------------------------------------------------------------------------------------
Income (loss) from continuing operations (1,926) 1,005 $ (921) $ (1,526) 2,268 $ 742
=====================================================================================
Earnings per common share - basic:
Net income (loss) $ (0.18) $ (0.10) $ (0.14) $ 0.04
=====================================================================================
Weighted average shares outstanding 10,857,000 10,857,000 10,818,000 10,818,000
=====================================================================================
Earnings per common share--assuming dilution
Net income (loss) $ (0.18) $ (0.10) $ (0.14) $ 0.02
=====================================================================================
Weighted average shares outstanding 10,857,000 10,857,000 10,818,000 30,035,000
=====================================================================================
</TABLE>
F-4
<PAGE>
Notes to Proforma Adjustments (Dollar Amounts in Thousands):
1. Reflects the issuance of 9,362,777 shares of Series A Convertible Preferred
Stock in exchange for the cancellation of debt and accrued interest
totaling $28,059 as of June 30, 1999. The fair value of the Preferred
Stock was determined by an independent appraisal performed by an investment
banker.
2. The estimated expenses of issuing the Series A Convertible Preferred Stock
of $100 have been offset against the fair value of the Preferred Stock
described in Note 1.
3. To reverse interest expense recorded for debt to be forgiven in exchange
for the issuance of Series A Convertible Preferred Stock and record tax
liability on extraordinary gain.
4. Reflects the cost of issuing stock options to non-employee directors and
lenders, and repricing a warrant for 500,000 shares of Common Stock to one
of the debt holders as part of their debt forgiveness, and the
corresponding increase in common stock value. The cost of the issuance of
such options and the cost of repricing the warrant have been determined in
accordance with the fair value based method prescribed in SFAS 123. The
Company has estimated the fair value of each stock option and warrant using
the Black-Scholes option-pricing model.
5. The Company expects to record an extraordinary gain from the extinguishment
of the debt identified in Note 1 of $18,244 as at June 30, 1999. The gain
has been calculated by subtracting the fair value of the Series A Preferred
Stock plus the expenses of the Debt Conversion Transaction from the $28,059
in debt as of June 30, 1999. If the transaction had been consummated as of
January 1, 1998, the Company would have recorded an extraordinary gain of
$17,229 for the year ended December 31, 1998. Such gain is not reflected in
the Pro Forma Unaudited Condensed Consolidated Statements of
Operations.
6. The Series A Convertible Preferred Stock to be issued by the Company in
exchange for the cancellation of debt bears a cumulative annual dividend of
$.0357 per share, is initially convertible into two shares of Common Stock
for each share of Series A Preferred Stock, and has several other features
more fully described in the Consent Solicitation Statement. If the Series A
Convertible Preferred Stock had been issued as of January 1, 1998, the
Company would have recorded dividends of $167 for the six months ended June
30, 1999 and $334 for the year ended December 31, 1998, respectively, and
the cumulative liability for such dividends as of June 30, 1999, assuming
such dividends had been unpaid by the Company, would total $501.
7. Series A Convertible Preferred Stock has a cumulative dividend rate of
$.0357 per share. For purposes of computing the unaudited proforma income
(loss) per share, net income (loss) available to common shareholders for
basic EPS purposes equals net income minus proforma preferred stock
dividends. These dividends totals $167 for the six months ended June 30,
1999 and $334 for the year ended December 31, 1998. The weighted average
number of shares for the year ended December 31, 1998 on a proforma basis
includes dilutive securities comprised of incremental shares assuming the
Preferred Stock is converted to Common Stock and incremental shares for
Common Stock options to be issued to employees and non-employee directors.
Such dilutive securities are excluded from the weighted average number of
shares for the six months ended June 30, 1999 because they are anti-
dilutive due to the loss incurred by the Company.
F-5
