-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CdUmyR+xUHyA4PYWBF4lY4Zbi0g6ce+QliFG+A4q/ivnEqqDyvQWWtqhYX1pC7hK vQF+1FQCu45LpQY1LWTLEQ== 0001017062-98-002274.txt : 19981116 0001017062-98-002274.hdr.sgml : 19981116 ACCESSION NUMBER: 0001017062-98-002274 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MICROELECTRONIC PACKAGING INC /CA/ CENTRAL INDEX KEY: 0000916232 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 943142624 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-23562 FILM NUMBER: 98748055 BUSINESS ADDRESS: STREET 1: 9577 CHESAPEAKE DRIVE CITY: SAN DIEGO STATE: CA ZIP: 92123 BUSINESS PHONE: 6192927000 MAIL ADDRESS: STREET 1: 9577 CHESAPEAKE DRIVE CITY: SAN DIEGO STATE: CA ZIP: 92123 10-Q 1 FORM 10-Q ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------- FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998 ----------------------- COMMISSION FILE NUMBER 0-23562 ----------- MICROELECTRONIC PACKAGING, INC. ------------------------------------------------------ (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) CALIFORNIA 94-3142624 - ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 9577 CHESAPEAKE DRIVE, SAN DIEGO, CALIFORNIA 92123 - -------------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (619) 292-7000 ------------------ Indicate by check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [_] At November 9, 1998, there were outstanding 10,856,890 shares of the ---------------- ---------- Registrant's Common Stock, no par value per share. ================================================================================ Index Page No. - ----- -------- PART I FINANCIAL INFORMATION Item 1. Financial Statements: Condensed Consolidated Balance Sheets...................... 3 Condensed Consolidated Statements of Operations............ 4 Condensed Consolidated Statements of Cash Flows............ 5 Condensed Consolidated Statement of Changes in Shareholders' Deficit...................................... 6 Notes to Condensed Consolidated Financial Statements....... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................. 15 PART II OTHER INFORMATION Item 1. Legal Proceedings.......................................... 29 Item 2. Changes in Securities and Use of Proceeds.................. 29 Item 3. Defaults upon Senior Securities............................ 29 Item 4. Submission of Matters to a Vote of Security Holders........ 29 Item 5. Other Information.......................................... 30 Item 6. Exhibits and Reports on Form 8-K........................... 30 SIGNATURES............................................................ 31 EXHIBIT INDEX......................................................... 32 2 PART I - FINANCIAL INFORMATION Item 1 - Financial Statements MICROELECTRONIC PACKAGING, INC. CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31, 1998 1997 - -------------------------------------------------------------------------------- (unaudited) ASSETS Current assets: Cash $ 516,000 $ 1,296,000 Accounts receivable, net 1,837,000 2,504,000 Inventories 3,393,000 4,230,000 Other current assets 390,000 387,000 - -------------------------------------------------------------------------------- Total current assets 6,136,000 8,417,000 Property, plant and equipment, net 1,930,000 1,212,000 Other non-current assets 198,000 282,000 - -------------------------------------------------------------------------------- $ 8,264,000 $ 9,911,000 ================================================================================ LIABILITIES AND SHAREHOLDERS' DEFICIT Current liabilities: Current portion of long-term debt $ 19,000 $ 22,000 Accounts payable 5,220,000 7,450,000 Accrued liabilities 951,000 1,711,000 Deferred revenue 156,000 265,000 Debt and accrued interest of discontinued operations in default, due on demand 30,344,000 30,344,000 Current liabilities of discontinued operations, net -- 10,282,000 - -------------------------------------------------------------------------------- Total current liabilities 36,690,000 50,074,000 Long-term debt, less current portion 59,000 69,000 Commitments and Contingencies Shareholders' Deficit Common stock, no par value 40,114,000 40,016,000 Accumulated deficit (68,599,000) (80,248,000) - -------------------------------------------------------------------------------- Total shareholders' deficit (28,485,000) (40,232,000) - -------------------------------------------------------------------------------- $ 8,264,000 $ 9,911,000 ================================================================================
3 MICROELECTRONIC PACKAGING, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Three months ended Nine months ended September 30, September 30, ------------------------ -------------------------- 1998 1997 1998 1997 - ------------------------------------------------------------------------------------------------------------ Net sales $ 3,739,000 $ 5,655,000 $16,898,000 $ 22,207,000 Cost of goods sold 2,806,000 4,019,000 12,746,000 19,102,000 --------- --------- ---------- ---------- Gross profit 933,000 1,636,000 4,152,000 3,105,000 Selling, general and administrative 692,000 1,008,000 2,402,000 3,587,000 Engineering and product development 306,000 79,000 898,000 275,000 - ------------------------------------------------------------------------------------------------------------ Income (loss) from operations (65,000) 549,000 852,000 (757,000) Other income (expense): Interest (expense), net (5,000) (7,000) (11,000) (32,000) Other income, net 310,000 27,000 600,000 301,000 - ------------------------------------------------------------------------------------------------------------ Income (loss) from continuing operations before provision for income taxes 240,000 569,000 1,441,000 (488,000) Provision for income taxes - - (18,000) - - ------------------------------------------------------------------------------------------------------------ Income (loss) from continuing operations 240,000 569,000 1,423,000 (488,000) Discontinued Operations: Loss from discontinued operations - - - (4,524,000) Estimated loss on disposal - - - (7,351,000) - ------------------------------------------------------------------------------------------------------------ Net income (loss) $ 240,000 $ 569,000 $ 1,423,000 $(12,363,000) ============================================================================================================ Earnings (loss) per common share: Continuing operations $ 0.02 $ 0.05 $ 0.13 $ (0.05) Discontinued operations - - - (1.16) - ------------------------------------------------------------------------------------------------------------ Net income (loss) per common share $ 0.02 $ 0.05 $ 0.13 $ (1.21) ============================================================================================================ Earnings (loss) per common share - assuming dilution: Continuing operations $ 0.02 $ 0.05 $ 0.12 $ (0.05) Discontinued operations - - - (1.16) - ------------------------------------------------------------------------------------------------------------ Net income (loss) per common share $ 0.02 $ 0.05 $ 0.12 $ (1.21) ============================================================================================================
4 MICROELECTRONIC PACKAGING, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Nine months ended September 30, -------------------------- 1998 1997 - -------------------------------------------------------------------------------------- Net cash provided by operating activities of: Continuing operations $ 319,000 $ 1,349,000 Discontinued operations - 1,882,000 - -------------------------------------------------------------------------------------- Net cash provided by operating activities 319,000 3,231,000 - -------------------------------------------------------------------------------------- Cash flows from investing activities: Acquisition of fixed assets (1,086,000) (396,000) Proceeds from the sale of fixed assets: Continuing operations 9,000 25,000 Discontinued operations - 236,000 - -------------------------------------------------------------------------------------- Net cash provided (used) by investing activities (1,077,000) (135,000) - -------------------------------------------------------------------------------------- Cash flows from financing activities: Decrease in short-term notes payable Continuing operations (35,000) - Discontinued operations - (3,612,000) Borrowings under long-term debt and promissory notes Continuing operations - 205,000 Principal payments on long-term debt and promissory notes Continuing operations - (512,000) Discontinued operations - (508,000) Issuance of common stock, net 13,000 - - -------------------------------------------------------------------------------------- Net cash provided (used) by financing activities (22,000) (4,427,000) - -------------------------------------------------------------------------------------- Net increase (decrease) in cash (780,000) (1,331,000) Cash at beginning of period 1,296,000 2,954,000 - -------------------------------------------------------------------------------------- Cash at end of period $ 516,000 $ 1,623,000 ======================================================================================
5 MICROELECTRONIC PACKAGING, INC. CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT (unaudited)
Common Stock ----------------------- Accumulated Shares Amount Deficit Total ---------- ----------- ------------- ------------- Balance at January 1, 1998 10,793,279 $40,016,000 $(80,248,000) $(40,232,000) Issuance of common stock 63,611 13,000 - 13,000 Non-employee stock-based compensation - 85,000 - 85,000 De-Consolidation of Discontinued Subsidiaries - - 10,226,000 10,226,000 Net income - - 1,423,000 1,423,000 - -------------------------------------------------------------------------------------- Balance at September 30, 1998 10,856,890 $40,114,000 $(68,599,000) $(28,485,000) ======================================================================================
6 Microelectronic Packaging, Inc. Notes to Condensed Consolidated Financial Statements (unaudited) 1. Quarterly Financial Statements The accompanying condensed consolidated financial statements and related notes as of September 30, 1998 and for the three and nine month periods ended September 30, 1998 and 1997 are unaudited but include all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of financial position and results of operations of the Company for the interim periods. Certain prior year amounts have been reclassified to conform to the current year presentation. The results of operations for the three and nine month periods ended September 30, 1998 are not necessarily indicative of the operating results to be expected for the full fiscal year. The information included in this report should be read in conjunction with the Company's audited consolidated financial statements and notes thereto and the other information, including risk factors, set forth for the year ended December 31, 1997 in the Company's Annual Report on Form 10-K. Readers of this Quarterly Report on Form 10-Q are strongly encouraged to review the Company's Annual Report on Form 10-K. Copies are available from the Chief Financial Officer of the Company at 9577 Chesapeake Drive, San Diego, California 92123. 2. Inventories Inventories consist of the following:
September 30, 1998 December 31, 1997 ------------------ ----------------- (Unaudited) Raw materials................ $1,763,000 $2,445,000 Work-in-progress............. 1,459,000 1,654,000 Finished goods............... 171,000 131,000 ---------- ---------- $3,393,000 $4,230,000 ========== ==========
3. Effects of Income Taxes The Company believes that it has sufficient losses to offset any taxable income that will be generated in the current year. However, the Company's use of these losses may result in alternative minimum taxes for Federal income tax purposes. As a result, the Company has recorded a provision for income taxes for the nine month period ended September 30, 1998 (for anticipated alternative minimum taxes). The Company believes that it has incurred an ownership change pursuant to Section 382 of the Internal Revenue Code and, as a result, the Company believes that its ability to utilize its current net operating loss and credit carryforwards in subsequent periods will be subject to annual limitations. 7 Notes to Condensed Consolidated Financial Statements (unaudited) - -------------------------------------------------------------------------------- 4. Net Income (Loss) Per Share
For the three months ended September 30, 1998 --------------------------------------------- Income Shares Per-Share (Numerator) (Denominator) Amount --------------------------------------------- Income from continuing operations $240,000 Basic EPS Income available to common shareholders 240,000 10,826,537 $0.02 ===== Effect of dilutive securities: Stock options -- 481,596 Warrants -- -- -------- ----------- Diluted EPS Income available to common shareholders + assumed conversions $240,000 11,308,133 $0.02 ======== =========== =====
Options to purchase 2,028,133 shares and warrants to purchase 1,427,693 shares of common stock at prices ranging from $.42 to $6.50 were outstanding during the third quarter of 1998 but were not included in the computation of diluted EPS because the options' and warrants' exercise prices were greater than the average market price of the common shares for the quarter then ended. The options and warrants, which expire between October 1998 and September 2008 were still outstanding as of September 30, 1998.
For the three months ended September 30, 1998 --------------------------------------------- Income Shares Per-Share (Numerator) (Denominator) Amount --------------------------------------------- Income from continuing operations $569,000 Basic EPS Income available to common shareholders 569,000 10,793,279 $.05 ==== Effect of dilutive securities: Stock options -- 193,098 Warrants -- -- -------- ----------- Diluted EPS Income (loss) available to common shareholders + assumed conversions $569,000 10,986,377 $.05 ======== =========== ====
Options and warrants to purchase 2,518,177 shares of common stock which were outstanding during the third quarter of 1997 were not included in the computation of diluted EPS because the options' and warrants' effect on EPS would be anti-dilutive. 8 Notes to Condensed Consolidated Financial Statements (unaudited) - --------------------------------------------------------------------------------
For the nine months ended September 30, 1998 --------------------------------------------- Income Shares Per-Share (Numerator) (Denominator) Amount --------------------------------------------- Income from continuing operations $1,423,000 Basic EPS Income available to common shareholders 1,423,000 10,804,487 $0.13 ===== Effect of dilutive securities: Stock options -- 1,050,710 Warrants -- -- ---------- ----------- Diluted EPS Income available to common shareholders + assumed conversions $1,183,000 11,855,197 $0.12 ========== =========== =====
Options to purchase 294,800 shares and warrants to purchase 1,427,693 shares of common stock at prices ranging from $.61 to $6.50 were outstanding during the first nine months of 1998 but were not included in the computation of diluted EPS because the options' and warrants' exercise prices were greater than the average market price of the common shares for the nine months then ended. The options and warrants, which expire between October 1998 and September 2008 were still outstanding as of September 30, 1998.
For the nine months ended September 30, 1997 --------------------------------------------- Income Shares Per-Share (Numerator) (Denominator) Amount --------------------------------------------- Loss from continuing operations $ (488,000) 10,215,111 $(0.05) Loss from discontinued operations (11,875,000) 10,215,111 (1.16) ------------ ----------- ------ Basic EPS Income (loss) available to common shareholders (12,363,000) 10,215,111 $(1.21) ====== Effect of dilutive securities: Stock options -- -- Warrants -- -- ------------ ----------- Diluted EPS Income (loss) available to common shareholders + assumed conversions $(12,363,000) 10,215,111 $(1.21) ============ =========== ======
Options and warrants to purchase 2,518,177 shares of common stock which were outstanding during the first nine months of 1997 were not included in the computation of diluted EPS because the options' and warrants' effect on EPS would be anti-dilutive. 5. Commitments and Contingencies The Company is involved in various claims and litigation arising in and outside of the ordinary course of business. In addition, given the current state of the Company and its subsidiaries, numerous creditors and parties to contracts have threatened or initiated litigation to recoup their loans and investments. If these claims are not favorably resolved, they will have a material adverse effect on the Company's financial condition, results of operations and ability to continue as a going-concern. 9 Notes to Condensed Consolidated Financial Statements (unaudited) - -------------------------------------------------------------------------------- The Company entered into a lease for new manufacturing facilities and corporate offices. This lease commenced September 1, 1997, and extends to October 31, 2002. Minimum monthly rental payments of $16,000 began on November 1, 1997, with scheduled annual increases of 6% to 7% per year beginning November 1, 1998. 6. Customer Supplied Inventory Prior to July 25, 1997 the Company's CTM Electronics, Inc. subsidiary purchased certain chips ("die") used in the assembly of multichip modules ("MCM's") sold to one of the Company's significant customers from that same customer. Effective July 25, 1997, this customer notified the Company that it will no longer sell die to the Company and instead is providing the die on consignment. The pro forma presentation below gives effect to this change in operations on selected line items from the Company's Condensed Consolidated Statements of Operations for the three and nine month periods ended September 30, 1997, as if this change had been put into effect on January 1, 1997.
============================================================================== Historical Pro Forma Three Months Ended Pro Forma Three Months Ended September 30, 1997 Adjustments September 30, 1997 =========================================================== Net sales $5,655,000 $(965,000)/(1)/ $4,690,000 Cost of goods sold 4,019,000 (995,000)/(2)/ 3,024,000 Gross profit 1,636,000 30,000 1,666,000 Net income $ 569,000 30,000 $ 599,000 =================================================== Net loss per common share $ .05 $ -- $ .05 =============================================================================== ============================================================================== Historical Pro Forma Nine Months Ended Pro Forma Nine Months Ended September 30, 1997 Adjustments September 30, 1997 =========================================================== Net sales $ 22,207,000 $(10,626,000)/(1)/ $ 11,581,000 Cost of goods sold 19,102,000 (10,942,000)/(2)/ 8,160,000 Gross profit 3,105,000 316,000 3,421,000 Net loss $(12,363,000) 316,000 $(12,047,000) ===================================================== Net loss per common share $ (1.21) $ 0.03 $ (1.18) ===============================================================================
/(1)/ The cost of the die to be provided on consignment will be removed from the selling price of the MCM's. The amount of the 2% prompt payment discount offered to the customer, which is included in revenues, will be reduced by the lower selling prices for these MCM's. /(2)/ The cost of the die to be provided on consignment will be removed from the cost of goods sold, corresponding to the reduction in selling prices of the MCM's. 7. Discontinued Operations On July 10, 1997, The Development Bank of Singapore Limited, one of the Company's Singapore subsidiaries largest creditors ("DBS"), appointed a Receiver and Manager to liquidate the assets of 10 Notes to Condensed Consolidated Financial Statements (unaudited) - -------------------------------------------------------------------------------- Microelectronic Packaging (S) Pte. Ltd. ("MPS"), which is a wholly owned subsidiary of the Company which manufactured primarily pressed ceramics products. DBS exercised its option to appoint a Receiver and Manager under the terms of a Deed of Debenture dated November 27, 1984 (as amended) between DBS and MPS. The Company anticipates that the Receiver and Manager will complete the liquidation of MPS in 1998. The Company has guaranteed all of MPS's obligations to DBS of which approximately $2.6 million was outstanding as of September 30, 1998. These loans are included in the caption "Debt and accrued interest of discontinued operations, in default, due on demand" in the Consolidated Balance Sheet. See Note 9 to the Condensed Consolidated Financial Statements. There can be no assurance that such debt will be fully paid through the liquidation of the assets of MPS. If insufficient, DBS could demand repayment of the shortfall from the Company through the guarantee. The Company does not have adequate resources to repay such debt if the guarantee is called. The Company recorded the effect of the receivership as of June 30, 1997, and the results of operations of MPS have been classified as "Loss from discontinued operations" in the Consolidated Statement of Operations. As a result of the appointment of a Receiver and Manager, MPS is no longer able to manufacture its pressed ceramic products and has ceased generating revenue since July 10, 1997. During the last several months, the Company (as guarantor) reached written agreements with all six of MPS' creditors. For five of those creditors (see separate discussion regarding the settlement of the DBS Bank loans below), the Company agreed to make payments aggregating $3,478,584 as full satisfaction of the total of all obligations to these creditors. The payments to these creditors are due between November 19, 1998 and May 1, 1999. In addition, for one of these creditors, the Company issued warrants for the purchase of 200,000 shares of the Company's common stock at an exercise price of $1.00 per share in full satisfaction of the debt. One of the agreements calls for a payment of $150,000 on November 19, 1998 as payment in full of the obligation due to that creditor. The Company may either (1) pay the amount on November 19, (2) obtain assistance from the other five creditors to extend the payment due date of the agreement to May 1, 1999, or (3) consider other alternatives. It is uncertain whether such payment will be made on November 19, 1998 as presently scheduled. On March 18, 1997, a Receiver was appointed to handle the liquidation of the multilayer ceramics operations of MPM (S) Pte. Ltd. As of December 31, 1997, essentially all of the assets of MPM had been sold. Final resolution of the remaining liabilities will come only after the liquidation of MPS, since MPS has guaranteed the DBS bank loan and the equipment leases entered into by MPM. The portion of these liabilities remaining after any reduction available from the sale of MPS and MPM assets will then be transferred to MPI, as MPI also guaranteed these loans and leases, which balance was approximately $2.4 million as of September 30, 1998. As of April 14, 1998, the Company (as guarantor) reached an agreement with MPM's lessor for the payment of $483,056 as full satisfaction of the balance remaining after the sale of the leased equipment; this payment is due on May 1, 1999. The holders of the debentures issued to Transpac and related parties still retain $9.0 million of debt securities issued by MPM which are guaranteed by the Company. The Company and MPM are in default thereunder. On April 22, 1998, the Company (as guarantor) reached an agreement with Transpac for the payment of $3,112,463 as full satisfaction of the total of all obligations to Transpac; this payment is due on May 1, 1999. In addition, warrants for the purchase of 500,000 shares of the Company's common stock at an exercise price of $1.00 per share were issued to Transpac, and the Company agreed to a payment of 30% of any monetary proceeds from the 11 Notes to Condensed Consolidated Financial Statements (unaudited) - -------------------------------------------------------------------------------- settlement of a specific claim, and the Company guaranteed a minimum proceeds of $1,000,000 on or prior to December 31, 1999. As indicated previously, both MPS and MPM are indebted to DBS, and the Company has guaranteed those obligations. As of July 20, 1998, the Company (as guarantor) reached an agreement with DBS for the payment of $1,177,397 as full satisfaction of all obligations to DBS; this payment is due on May 1, 1999. In addition, the Company agreed to a payment of 5% of any monetary proceeds from the settlement of a specific claim, and there were further considerations given to DBS that are not considered material by the Company. The Company's MPC subsidiary was informed in April 1997 that Carborundum Corporation ("Carborundum"), its sole customer, was immediately canceling the manufacturing and related agreements with MPC as a result of Carborundum's sale of its assets to a third party. On April 5, 1997, a fire at the Company's MPC facility caused damage to the building and certain equipment. The Company is insured against the fire, and believes that it will incur no losses from the fire. The Company has closed the MPC operation and has terminated all of its MPC employees. The Company has recorded the effect of the closure of this business as of June 30, 1997, and the results of operations of MPC have been classified as "Loss from discontinued operations" in the Consolidated Statement of Operations. Discontinued operations include management's best estimates of the amounts expected to be realized on the sale of its assets associated with these discontinued operations and the expenses to be incurred through the disposal date. The amounts the Company will ultimately realize and incur could differ materially in the near term from the amounts assumed in arriving at the loss on disposal of the discontinued operation. Management anticipates that the foreign operations will be fully dissolved in 1998. However, Management cannot predict how long it may take the High Court of the Republic of Singapore to complete the Winding Up of these companies. Consistent with the presentation in Form 10-K for the year ended December 31, 1997, all debt obligations originating in Singapore have been reclassified to the caption "Debt and accrued interest of discontinued operations, in default, due on demand." 8. Going Concern The accompanying financial statements have been prepared assuming the Company (MPI along with its only operating subsidiary - CTM) will continue as a going concern. A number of factors, including the Company's history of significant losses, the debt service costs associated with the Company's high level of existing indebtedness, the need to complete the debt restructuring by the agreed-upon debt settlement payment dates, various claims and lawsuits, and the Company's Singapore operations in receivership and liquidation raise substantial doubts about the Company's ability to continue as a going concern. As of September 30, 1998, the Company has an accumulated deficiency of $68.6 million and a working capital deficiency of $30.6 million, which includes $30.3 million of debt of discontinued operations due on demand and accrued interest from discontinued operations debt net of the remaining assets from those discontinued operations. While the Company has completed debt restructuring agreements with its discontinued Singapore operations creditors, which provide for a reduced payment of $9.3 million in full satisfaction of the $30.3 million in debt, the Company does not possess sufficient cash resources to repay these obligations, and thus would be in default on all of these obligations. The Company would be unable to repay these loans in the event that such demand was made by the Company's creditors. See Note 7 for further information regarding the Company's efforts to restructure this debt and accrued interest from discontinued operations. 12 Notes to Condensed Consolidated Financial Statements (unaudited) - -------------------------------------------------------------------------------- The Company is currently renegotiating the terms of the debt obligations of its discontinued Singapore operations. Certain obligations with principal balances totaling approximately $25.2 million have been guaranteed by MPI. All of these creditors have signed definitive, binding agreements. The agreements principally involve MPI paying 30% to 40% of the principal and accrued but unpaid interest ("Settled Debt Amount") owed to each creditor as of December 31, 1997, within six months of formal documents being agreed between the parties. The remaining 60% to 70% would be forgiven by the creditors at the time of the payment of the 30% to 40% portion. There are also other non-cash considerations being provided to certain creditors. The Company has not yet recorded the benefit of such debt forgiveness. The Company intends to either (1) attempt to obtain financing for the 30% to 40% portion to be paid by the Company or (2) negotiate with these creditors a conversion of the Settled Debt Amount into the Company's Preferred Stock, which will be convertible into MPI Common Stock. There can be no assurance that the Company will be successful in its efforts to either obtain the financing needed or complete the debt to equity conversion, on acceptable terms, or at all, in order to fulfill its obligations under the agreements reached with creditors. In addition, if the Company is successful in its efforts to complete a debt to equity conversion, this conversion will substantially dilute the existing shareholders of the Company. Any failure on the part of the Company to finalize a settlement with its discontinued Singapore operations creditors would materially adversely affect the Company's financial condition and ability to continue as a going concern, and could, as is the case with other debt defaults and failure to repay, require that the Company seek bankruptcy protection under Chapter 11 or Chapter 7 of Title 11 of the United States Code for MPI and its U.S. subsidiaries. 9. Restatement of Current Liabilities of Discontinued Operations, Net to Shareholders' Deficit During the quarter ended June 30, 1998, the High Court of the Republic of Singapore ordered the Winding up of MPM Singapore Pte. Ltd. ("MPM"), a wholly owned subsidiary of the Company. As a result of this decision, MPM cannot continue as an operating business, and it cannot be allowed to dispose of its assets or incur further liabilities. In addition, the Company does not have any control over the management of MPM. This function is undertaken by the Receiver and Manager appointed by DBS Bank. In September 1997, the High Court of the Republic of Singapore ordered the Winding Up of Microelectronic Packaging (S) Pte. Ltd. ("MPS"), also a wholly owned subsidiary of the Company. As with MPM, MPS cannot continue as an operating business, and the Company does not have any control over the management of MPS. This function is undertaken by the Receiver and Manager appointed by DBS Bank. The Company has been informed by DBS and the Receiver and Manager for MPM and MPS that there will not be any funds remaining (after the liquidation of assets) to satisfy any claims of unsecured creditors for MPM and MPS. Due to the circumstances as described above, management, effective with the quarter ended June 30, 1998, will not consolidate the assets and the liabilities not guaranteed of MPM and MPS, into the consolidated financial statements for MPI and subsidiaries. For MPM, the decision was based upon the Singapore High Court's decision to Wind Up this company. For MPS, the Singapore High Court had already ordered the Winding Up in September 1997, however, due to the material amount of assets remaining to be liquidated and also due to requests made by MPS' Receiver and Manager for the Company to assist them in the realization and disposal of MPS' remaining assets, Management elected to consolidate until there was a clearer determination of the control of the subsidiary and realization of its assets. In July 1998, Management was informed of the sale of the two buildings owned by MPS. In addition, it became more evident during the quarter ended June 30, 1998 that any remaining realization of Accounts Receivable on the books of MPS was highly 13 Notes to Condensed Consolidated Financial Statements (unaudited) - -------------------------------------------------------------------------------- questionable. Accordingly the decision was made to not consolidate the assets and the liabilities not guaranteed by the Company. The effect of this decision was to reduce the Current Liabilities of Discontinued Operations, net and improve the Shareholders' Deficit by $10.2 million as of June 30, 1998. 10. Forward Looking Statements These Condensed Consolidated Financial Statements contain forward-looking statements which involve substantial risks and uncertainties. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the effects of debt restructuring. 14 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements which involve substantial risks and uncertainties. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth in this section and elsewhere in this Quarterly Report on Form 10-Q. RESULTS OF OPERATIONS NET SALES For the three months ended September 30, 1998, net sales were $3,739,000 as compared to $5,655,000 for third quarter of 1997. The Company's CTM Electronics, Inc. subsidiary has purchased certain chips ("die") used in the assembly of multichip modules ("MCMs") sold to one of the Company's significant customers from that same customer (see Note 6 of Notes to Condensed Consolidated Financial Statements). Effective July 25, 1997, this customer notified the Company that it will no longer sell die to the Company and instead is providing the die on consignment. This change ("consigned die") has resulted in a reduction in selling prices for products sold to this customer. This change would have resulted in net sales for the three months ended September 30, 1997 to be $4,690,000 ("proforma net sales"). Thus, net sales actually decreased by $951,000 or 20%. The decrease in net sales is due to a 19% decrease in MCM units shipped, as well as a 3% decrease in average selling prices (after removing die cost as discussed above). The primary reason for the decrease in average selling prices resulted from a re-negotiated pricing structure by CTM's largest customer as well as a change in product mix. For the nine months ended September 30, 1998, net sales were $16,898,000, representing a decrease of $5,309,000 or 24% over net sales of $22,207,000 for the corresponding period of 1997. Had the consignment policy described above been in effect as of January 1, 1997, net sales for the nine months ended September 30, 1997 would have been $11,581,000 ("proforma net sales"). Thus, net sales actually increased by $5,317,000 or 46%. The increase is due to a 29% increase in units shipped, combined with an increase in average selling prices of 5%, due to a change in product mix. Net sales to one customer comprised 86% and 87% of net revenues for the three and nine months ended September 30, 1998, respectively, as compared to 81% and 90% of net revenues for the comparative periods in 1997 to that same customer. COST OF GOODS SOLD For the three months ended September 30, 1998, the cost of goods sold was $2,806,000 as compared to $4,019,000 for the third quarter of 1997, a decrease of 30%. After eliminating die cost from cost of goods sold for the three months ended September 30, 1997, cost of goods sold would have been $3,024,000. Thus, cost of goods sold decreased $218,000 or 7%. The decrease in cost of goods sold is due to the 19% decrease in MCM units shipped. However, cost of goods sold for the third quarter of 1998 includes a $350,000 reversal of a previously- recorded inventory reserve. Without such reversal, cost of goods sold as percentage of sales would have increased from 71% for the third quarter of 1997 to 84% for the third quarter of 1998. Such increase is primarily the result of a change in product mix. 15 For the nine months ended September 30, 1998, the cost of goods sold was $12,746,000, representing a decrease of $6,356,000 or 33% over cost of goods sold of $19,102,000 for the corresponding period of 1997. After eliminating die cost from cost of goods sold for the nine months ended September 30, 1997, cost of goods sold would have been $8,160,000. Thus cost of goods sold increased by $4,586,000 or 56%. The increase in cost of goods sold is due to the 29% increase in MCM units shipped. Cost of goods sold as a percentage of revenue (on a proforma basis) increased by 5% due to declines in average selling prices of certain products sold to CTM's most significant customer being greater than declines in cost of goods sold for those products, principally material costs. GROSS PROFIT Gross profit was $933,000 (25% of net sales) for the third quarter of 1998 as compared to $1,636,000 (29% of net sales) for the third quarter of 1997. Gross profit decreased due to decreased sales revenue described above. Gross margin for the third quarter of 1997 on a proforma basis is 35% of proforma sales. If the effect of a $350,000 reversal of a previously-recorded inventory reserve were excluded from the calculation of the 1998 third quarter gross margin, gross profit as a percentage of net sales would have been 16%. As stated above, the decline in gross margin from 1997 to 1998 is a combination of declines in average selling prices of certain products sold to CTM's most significant customer being greater than declines in cost of goods sold for those products, principally material costs. For the nine months ended September 30, 1998, gross profit was $4,152,000 (25% of net sales) as compared to $3,105,000 (14% of net sales) for the third quarter of 1997. Gross margin for the nine months ended September 30, 1997 on a proforma basis is 29% of proforma sales. The decline in gross margin from the 1997 period on a proforma basis to the 1998 period is again primarily due to reduced selling prices and a change in product mix. SELLING, GENERAL AND ADMINISTRATIVE Selling, general and administrative expenses were $692,000 for the third quarter and $2,402,000 for the nine months ended September 30, 1998, representing decreases of $316,000 or 31% and $1,185,000 or 34%, respectively, from the comparative periods of 1997. Selling, general and administrative expenses for the 1998 periods include a $100,000 reserve for the anticipated cost to settle an environmental claim. See Item 3 of the Company's 1997 Annual Report on Form 10-K for a discussion of this environmental claim. The decreases in expenses are primarily the result of the Company's reduction of the additional legal and consulting fees which had been incurred in connection with the restructuring of the Company's U.S. operations and the winding up of its Singapore operations. The Company anticipates that selling, general and administrative expenses, in absolute dollars, will remain the same or decline for the balance of 1998 at the level of the third quarter of 1998. ENGINEERING AND PRODUCT DEVELOPMENT Engineering and product development expenses were $306,000 for the third quarter and $898,000 for the nine months ended September 30, 1998, representing increases of $227,000 or 287% and $623,000 or 227%, respectively, from the comparative periods of 1997. The increases result primarily from the increase in the engineering staff employed by the Company, which is part of the Company's commitment to improvement in quality and processes in its manufacturing facility. The Company anticipates that engineering and product development expenses, in absolute dollars, will remain the same or decline for the balance of 1998 at the level of the third quarter of 1998. 16 INTEREST EXPENSE Interest expense was $5,000 for the third quarter and $11,000 for the nine months ended September 30, 1998, representing decreases of $2,000 and $21,000, respectively, from the comparative periods of 1997. Interest expense for 1997 included interest on the $2.8 million of convertible debentures issued in October 1996. These debentures were converted into common stock by the end of February 1997, thus no such interest was incurred in 1998. Interest on customer loans that are related to the discontinued operations in Singapore have been included in "Discontinued operations: Loss from discontinued operations" line of the Condensed Consolidated Statements of Operations. OTHER INCOME Other income was $310,000 for the third quarter and $600,000 for the nine months ended September 30, 1998, representing increases of $283,000 and $299,000, respectively, from the comparative periods of 1997. Other income for the third quarter of 1998 includes $259,000 relating to the final settlement of an insurance claim for a fire at the Company's MPC facility in April 1997. Other income for the first quarter of 1997 included $190,000 received in settlement of a note receivable which had been previously written-off. EFFECTS OF INCOME TAXES The Company believes that it has sufficient losses to offset any taxable income that will be generated in the current year. However, the Company's use of these losses may result in alternative minimum taxes for Federal income tax purposes. As a result, the Company has recorded a small provision for income taxes for the nine month period ended September 30, 1998. The Company believes that it has incurred an ownership change pursuant to Section 382 of the Internal Revenue Code, and, as a result, the Company believes that its ability to utilize its current net operating loss and credit carryforwards in subsequent periods will be subject to annual limitations. DISCONTINUED OPERATIONS The net operating results of the activities of MPM, MPS, MPC and Furnace Tech ("FT") for each of the three and nine month periods ended September 30, 1997 have been included as income or loss from discontinued operations on the Condensed Consolidated Statement of Operations. Amounts recorded as estimated losses on disposal of assets of the discontinued operations reflect management's best estimates of the amounts expected to be realized on the sale of the assets associated with these discontinued operations and the expenses to be incurred through the disposal date. Such expenses include $3.5 million of interest expense relating to the indebtedness of the discontinued operations through the expected completion of the liquidation process for those debts guaranteed by MPI, which was anticipated to be December 31, 1998. Such interest expense was recorded as of June 30, 1997. If such indebtedness has not been repaid or restructured by the beginning of the first quarter of 1999, the Company will again begin recording interest expense on that outstanding indebtedness. Interest of approximately $563,000 would be accrued beginning in the first quarter of 1999 and would continue until the indebtedness is repaid or restructured. Beginning in the second quarter of 1998, the Company has discontinued the consolidation of the assets and liabilities of MPM, MPS, MPC and FT. Those liabilities and accrued interest guaranteed by MPI have continued to be included in the Consolidated Balance Sheets of the Company. The effect of the 17 deconsolidation of these entities was to reduce current liabilities and improve shareholders' deficit by $10.2 million as of June 30, 1998. During the quarter ended June 30, 1998, the High Court of the Republic of Singapore ordered the Winding up of MPM Singapore Pte. Ltd. ("MPM"), a wholly owned subsidiary of the Company. As a result of this decision, MPM cannot continue as an operating business, and it cannot be allowed to dispose of its assets or incur further liabilities. In addition, the Company does not have any control over the management of MPM. This function is undertaken by the Receiver and Manager appointed by DBS Bank. In September 1997, the High Court of the Republic of Singapore ordered the Winding Up of "Microelectronic Packaging (S) Pte. Ltd. ("MPS"), also a wholly owned subsidiary of the Company. As with MPM, MPS cannot continue as an operating business, and the Company does not have any control over the management of MPS. This function is undertaken by the Receiver and Manager appointed by DBS Bank. Due to the circumstances as described in the previous two paragraphs, management, effective with the quarter ended June 30, 1998, MPI will not consolidate the assets and the liabilities not guaranteed of MPS and MPM, into the consolidated financial statements for MPI and subsidiaries. For MPM, the decision was based upon the Singapore High Court's decision to Wind Up this company. For MPS, the Singapore High Court had already ordered the Winding Up in September 1997, however, due to the material amount of assets remaining to be liquidated and also due to requests made by MPS' Receiver and Manager for the Company to assist them in the realization and disposal of MPS' remaining assets, Management elected to consolidate until there was a clearer determination of the control of the subsidiary and realization of its assets. In July 1998, Management was informed of the sale of the two buildings owned by MPS. In addition, it became more evident during the quarter ended June 30, 1998 that any remaining realization of Accounts Receivable on the books of MPS was highly questionable. Accordingly the decision was made to not consolidate the assets and the liabilities not guaranteed by the Company. LIQUIDITY AND CAPITAL RESOURCES During the nine months ended September 30, 1998, the Company financed its operations from operating cash flow. During this period, operating activities of continuing operations provided $319,000. Investing activities, consisting principally of the acquisition of fixed assets of continuing operations, used $1,077,000. At September 30, 1998, the Company had a working capital deficiency of $30,554,000 and an accumulated deficit of $68,599,000. At September 30, 1998, the Company had outstanding approximately $25,211,000 of principal amount of debt from its discontinued operations, which debt has been guaranteed by MPI, the parent company. The Company's sources of liquidity at September 30, 1998 consisted of inventories of $3,393,000, trade accounts receivable of $1,837,000 and its U.S. cash balance of $516,000. The Company has no borrowing arrangements available to it. On July 10, 1997, The Development Bank of Singapore Limited, one of the Company's Singapore subsidiaries' largest creditors ("DBS"), appointed a Receiver and Manager to liquidate the assets of Microelectronic Packaging (S) Pte. Ltd. ("MPS"), which is a wholly owned subsidiary of the Company which manufactured primarily pressed ceramic products. DBS exercised its option to appoint a Receiver and Manager under the terms of a Deed of Debenture dated November 27, 1984 (as amended) between DBS and MPS. The Company anticipates that the Receiver and Manager will complete the liquidation of 18 MPS in 1998. The Company has guaranteed all of MPS's obligations to DBS of which approximately $2.6 million was outstanding as of September 30, 1998. These loans are included in the caption "Debt and accrued interest of discontinued operations, in default, due on demand" in the Consolidated Balance Sheets. There can be no assurance that such debt will be fully paid through the liquidation of the assets of MPS. If insufficient, DBS could demand repayment of the shortfall from the Company through its guarantee. The Company does not have adequate resources to repay such debt if the guarantee is called. The Company recorded the effect of the receivership as of June 30, 1997, and the results of operations of MPS have been classified as "Loss from discontinued operations" in the Consolidated Statement of Operations. As a result of the appointment of a Receiver and Manager, MPS is no longer able to manufacture its pressed ceramic products and has ceased generating revenue since July 10, 1997. During the last several months, the Company (as guarantor) reached written agreements with all six of MPS' creditors. For five of those creditors (see separate discussion regarding the settlement of the DBS Bank loans below), the Company agreed to make payments aggregating $3,478,584 as full satisfaction of the total of all obligations to these creditors. The payments to these creditors are due between November 15, 1998 and May 1, 1999. In addition, for one of the creditors, the Company issued warrants for the purchase of 200,000 shares of the Company's common stock at an exercise price of $1.00 per share. On March 18, 1997, a Receiver was appointed to handle the liquidation of the multilayer ceramics operations of MPM (S) Pte. Ltd. As of December 31, 1997, essentially all of the assets of MPM had been sold. Final resolution of the remaining liabilities will come only after the liquidation of MPS, since MPS has guaranteed the DBS bank loan and the equipment leases entered into by MPM. The portion of these liabilities remaining after any reduction available from the sale of MPS and MPM assets will then be transferred to MPI, as MPI also guaranteed these loans and leases. As of April 14, 1998, the Company (as guarantor) reached an agreement with MPM's lessor for the payment of $483,056 as full satisfaction of the balance remaining after the sale of the leased equipment; this payment is due on May 1, 1999. The holders of the debentures issued to Transpac and related parties still retain $9.0 million of debt securities issued by MPM which are guaranteed by the Company. On April 22, 1998, the Company (as guarantor) reached an agreement with Transpac for the payment of $3,112,463 as full satisfaction of the total of all obligations to Transpac; this payment is due on May 1, 1999. In addition, warrants for the purchase of 500,000 shares of the Company's common stock at an exercise price of $1.00 per share were issued to Transpac, and the Company agreed to a payment of 30% of any monetary proceeds from the settlement of a specific claim, and the Company guaranteed a minimum proceeds of $1,000,000 on or prior to December 31, 1999. As indicated previously, both MPS and MPM are indebted to DBS, and the Company has guaranteed those obligations. As of July 20, 1998, the Company (as guarantor) reached an agreement with DBS for the payment of $1,177,397 as full satisfaction of total of all obligations to DBS; this payment is due on May 1, 1999. In addition, the Company agreed to a payment of 5% of any monetary proceeds from the settlement of a specific claim, and there were further considerations with DBS that are not considered material by the Company. Management anticipates that the foreign operations will be fully dissolved in 1998. However, Management cannot predict how long it may take the High Court of the Republic of Singapore to complete the Winding Up of these companies. The Company also has various capitalized leases for equipment utilized in the US operations, with a total balance of approximately $78,000 as of September 30, 1998. These lease obligations are being serviced currently by CTM. 19 The Company previously purchased raw materials from its principal customer. As of July 25, 1997, the material was supplied by the customer on consignment. As of September 30, 1998, the Company owes to that customer approximately $3.2 million from purchases previously made before the change to consignment. The Company is making regular payments to that customer under an informal repayment plan. FUTURE OPERATING RESULTS Status as a Going Concern. The Company's independent certified public accountants have included an explanatory paragraph in their audit report with respect to the Company's 1997, 1996 and 1995 consolidated financial statements related to a substantial doubt with respect to the Company's ability to continue as a going concern. Absent outside debt or equity financing, and excluding significant expenditures required for the Company's major projects and repayment of debts, and assuming the Company is successful in completing the restructuring of its debt, the Company currently anticipates that cash on hand and anticipated cash flow from operations may be adequate to fund its operations in the ordinary course throughout 1998. Any significant increase in planned capital expenditures or other costs or any decrease in or elimination of anticipated sources of revenue or the inability of the Company to restructure its debt could cause the Company to restrict its business and product development efforts. There can be no assurance that the Company will be successful in completing the restructuring of its debt by the agreed-upon debt settlement payment dates, or at all. If adequate revenues are not available, the Company will be unable to execute its business development efforts and may be unable to continue as a going concern. There can be no assurance that the Company's future consolidated financial statements will not include another going concern explanatory paragraph if the Company is unable to restructure its debt and become profitable. The factors leading to and the existence of the explanatory paragraph will have a material adverse effect on the Company's ability to obtain additional financing. Risk of Bankruptcy. The Company may need to be reorganized under Chapter 11 of Title 11 of the United States Code or liquidated under Chapter 7 of Title 11 of the United States Code. There can be no assurance that if the Company decides to reorganize under the applicable laws of the United States that such reorganizational efforts would be successful or that shareholders would receive any distribution on account of their ownership of shares of the Company's stock. Similarly, there can be no assurances that if the Company decides to liquidate under the applicable laws of the United States that such liquidation would result in the shareholders receiving any distribution on account of their ownership of shares of the Company's stock. In fact, if the Company were to be reorganized or liquidated under the applicable laws of the United States, the bankruptcy laws would require (with limited exceptions) that the creditors of the Company be paid before any distribution is made to the shareholders. Future Capital Needs; Need for Additional Financing. The Company's future capital requirements will depend upon many factors, including the extent and timing of acceptance of the Company's products in the market, requirements to restructure and retire its substantial debt, requirements to construct, transition and maintain existing or new manufacturing facilities, commitments to third parties to develop, manufacture, license and sell products, the progress of the Company's research and 20 development efforts, the Company's operating results and the status of competitive products. If the Company is successful in restructuring its debt obligations, absent debt or equity financing and excluding significant expenditures required for the Company's major projects and repayments of debts, the Company anticipates that cash on hand and anticipated cash flow from operations may be adequate to fund its operations through 1998. There can be no assurance, however, that the Company will not require additional financing prior to such date to fund its operations. In addition, the Company may require substantial additional financing to fund its operations in the ordinary course, particularly if the Company is unable to restructure its debt obligations. Furthermore, the Company may require additional financing to fund the acquisition of selected assets needed in its production facilities. There can be no assurance that the Company will be able to obtain such additional financing on terms acceptable to the Company, or at all. If the Company cannot complete its agreements with its creditors to repay its obligations by the agreed-upon debt settlement payment dates, the Company will not be able to continue as a going concern. The Company's high level of outstanding indebtedness and the numerous restrictive covenants set forth in the agreements covering this indebtedness prohibit the Company from obtaining additional bank lines of credit and from raising funds through the issuance of debt or other securities without the prior consent of DBS and Transpac and other creditors. If the Company is unable to satisfy its Settled Debt Amount (see Note 8 to Condensed Consolidated Financial Statements) by the dates these obligations are required to be satisfied, then the amounts of those obligations revert back to their original amounts, including all accrued interest, and the Company would be in default of all of these obligations. If either a sufficient number of these creditors or any of the substantial creditors choose to accelerate payments or to place MPI or one or more of its subsidiaries under judicial reorganization, the Company may be forced to seek protection under Chapter 11 of Title 11 of the United States Code or similar bankruptcy laws of Singapore. If the Company were to seek additional financing, such additional financing may not be available to the Company on acceptable terms, or at all. If additional funds are raised either by issuing equity or convertible or debt securities, or by converting the discontinued Singapore operations' debt obligations to equity securities, substantial dilution to the existing shareholders will result. Since adequate funds are not currently available, the Company has been required to delay, scale back or eliminate programs which could continue to have a material adverse effect on the Company's business, prospects, financial condition and results of operations. In addition, the Company has been forced to delay, downsize or eliminate other research and development, manufacturing, construction or transitioning programs or alliances or obtain funds through arrangements with third parties pursuant to which the Company has been forced to relinquish rights to certain of its technologies or to other assets that the Company would not otherwise relinquish. The delay, scaling back or elimination of any such programs or the relinquishment of any such rights could have a material adverse effect on the Company's business, prospects, financial condition and results of operations. Future Operating Results. The Company's operating results have fluctuated significantly in the past and will continue to fluctuate significantly in the future depending upon a variety of factors, including corporate and debt restructurings, creditor relationships, conversions of significant amounts of debt into a significant amount of equity, downward pressure in gross margins, losses due to low shipping volume, delayed market acceptance, if any, of new and enhanced versions of the Company's products, delays, cancellations or reschedulings of orders, delays in product development, defects in products, integration of acquired businesses, political and economic instability, natural disasters, outbreaks of hostilities, variations in manufacturing yields, changes in manufacturing capacity and variations in the utilization of such capacity, changes in the length of the design-to-production cycle, relationships with and conditions of customers, subcontractors, and suppliers, receipt of raw materials, including consigned materials, customer concentration, price competition, cyclicality in the semiconductor industry and conditions in the personal computer industries. In addition, operating results will fluctuate significantly based upon several other factors, including the Company's ability to attract new customers, changes in pricing by the Company, its competitors, subcontractors, customers or suppliers, 21 and fluctuations in manufacturing yields. The absence of significant backlog for an extended period of time will also limit the Company's ability to plan production and inventory levels, which could lead to substantial fluctuations in operating results. Accordingly, the failure to receive anticipated orders or delays in shipments due, for example, to unanticipated shipment reschedulings or defects or to cancellations by customers, or to unexpected manufacturing problems may cause net sales in a particular quarter to fall significantly below the Company's expectations, which would materially adversely affect the Company's operating results for such quarter. The impact of these and other factors on the Company's net sales and operating results in any future period cannot be forecasted with certainty. In addition, the significant fixed overhead costs at the Company's facilities, the need for continued expenditures for research and development, capital equipment and other commitments of the Company, among other factors, will make it difficult for the Company to reduce its expenses in a particular period if the Company's sales goals for such period are not met. A large portion of the Company's operating expenses are fixed and are difficult to reduce or modify should revenues not meet the Company's expectations, thus magnifying the material adverse impact of any such revenue shortfall. Accordingly, there can be no assurance that the Company will not incur losses in the future or that such losses will not have a material adverse effect on the Company's business, financial condition and results of operations. Repayment of Debt Obligations by MPM and MPS. As of September 30, 1998, MPM and MPS had combined outstanding borrowings of approximately $25,211,000. Most of the assets of MPM and MPS have been liquidated by receivers appointed by DBS. The Company currently anticipates that the remaining proceeds from the liquidation of assets will be insufficient to fully repay its outstanding debt. Since the borrowings have been guaranteed by MPI, the Company has renegotiated terms for the repayment of the remaining indebtedness. The failure of the Company to consummate the renegotiated debt obligations would materially adversely affect the Company's financial condition and the ability of the Company to continue as a going concern. Adverse Impact of MPM and MPS Liquidations on MPI. MPM and MPS are currently being liquidated under the laws of Singapore. The liquidation of the assets of MPM and MPS are expected to generate proceeds that total less than the outstanding obligations of those entities guaranteed by MPI. If such shortfall occurs, MPI may be forced to repay any outstanding debt because of its role as guarantor of such debts. If MPI were unable to repay these debts, the Company may be forced to seek bankruptcy protection under Chapter 11 or Chapter 7 of Title 11 of the United States Code or similar bankruptcy laws of Singapore for MPI and its subsidiaries. Certain Obligations of MPS. At September 30, 1998, MPS had outstanding borrowings of approximately $3,955,000 with DBS and had borrowed an aggregate of approximately $11,354,000 from a consortium of customers to fund its purchase of certain CERDIP manufacturing and alumina powder equipment from Samsung Corning. All of these creditors have signed definitive, binding agreements modifying the terms and conditions of their borrowings. If the Company is unable to satisfy the terms of these agreements by the dates these obligations are required to be satisfied, then the amounts of those obligations revert back to their original amounts, including all accrued interest, and the Company would be in default of all of these obligations. If any lender were to then accelerate the principal due as one of their remedies, such accelerations will materially adversely affect the Company's ability to continue as an ongoing concern and may force the Company to seek bankruptcy protection under Chapter 7 or Chapter 11 of Title 11 of the United States Code or similar bankruptcy laws of Singapore. As a part of the Consortium, Motorola guaranteed MPS' repayment of $2,000,000 in borrowings from a certain bank lender. Under the terms of the agreement relating to Motorola's guarantee, MPI granted Motorola a security interest in all of the issued and outstanding capital stock of MPS, CTM and MPA. While in default, Motorola may have the right to vote and give consents with respect to all of the issued and outstanding capital of MPS, CTM and MPA. As a result, during the continuation of any such event of default, MPI may be unable to control at the shareholder level the direction of the subsidiaries that generate substantially all of the Company's 22 revenues and hold substantially all of the Company's assets. Any such loss of control would have a material adverse effect on the Company's business, prospects, financial condition, results of operations and status as an ongoing concern and could force the Company to seek protection under Chapter 7 or Chapter 11 of Title 11 of the United States Code or similar bankruptcy laws of Singapore. The agreements covering the Transpac Financing, including the convertible debenture and MPI's guarantee of such MPM indebtedness, contain numerous restrictions and events of default that have been triggered by the aforementioned actions and would, if they became effective and operative, materially adversely affect the Company's business, prospects, results of operations, condition and status as an ongoing concern and could force the Company to seek protection under Chapter 7 or Chapter 11 of Title 11 of the United States Code or similar bankruptcy laws of Singapore. High Leverage. The Company is highly leveraged and has substantial debt service requirements. The Company has $36,749,000 in liabilities as of September 30, 1998. On September 30, 1998, the Company had a total shareholders' deficit of approximately $28,485,000. The Company's ability to meet its debt service requirements will be dependent upon the Company's future performance, which will be subject to financial, business and other factors affecting the operation of the Company, many of which are beyond its control and on the willingness of the Company's creditors to participate in restructuring the Company's debt. There can be no assurance that the Company will be able to meet the capital requirements described above or, if the Company is able to meet such requirements, that the terms available will be favorable to the Company. See "Liquidity and Capital Resources". Highly Competitive Industry; Significant Price Competition. The electronic interconnection technology industry is intensely competitive. The Company experiences intense competition worldwide from a number of manufacturers, including Maxtek Components Corporation, VLSI Packaging, Raytheon Electronic Systems, Hewlett-Packard Company, Advanced Packaging Technology of America and MicroModule Systems, all of which have substantially greater financial resources and production, marketing and other capabilities than the Company with which to develop, manufacture, market and sell their products. The Company faces competition from certain of its customers that have the internal capability to produce products competitive with the Company's products and may face competition from new market entrants in the future. In addition, corporations with which the Company has agreements are conducting independent research and development efforts in areas which are or may be competitive with the Company. The Company expects its competitors to continue to improve the performance of their current products and to introduce new products or new technologies that provide improved performance characteristics. New product introductions by the Company's competitors could cause a significant decline in sales or loss of market acceptance of the Company's existing products which could materially adversely affect the Company's business, financial condition and results of operations. The Company is also experiencing significant price competition, which may materially adversely affect the Company's business, financial condition and results of operations. The Company believes that to remain competitive in the future it will need to continue to develop new products and to invest significant financial resources in new product development. There can be no assurance that such new products will be developed or that sales of such new products will be achieved. There can be no assurance that the Company will be able to compete successfully in the future. Reliance on Principal Customer. Sales to one principal customer accounted for 86% of the Company's net sales in the third quarter of 1998 and is expected to continue to account for most of the Company's net sales. Under the agreement between the principal customer and the Company entered into in January 1998, the Company is obligated to provide the principal customer with its requirements for MCM product. Given the Company's anticipated continued reliance on its MCM business as a large percentage of overall net sales, the failure to meet the principal customer's requirements will materially adversely affect the Company's ability to continue as an ongoing concern. In addition, under the terms of the agreement, the principal customer is entitled to request repricing of the Company's products. The 23 Company has negotiated and agreed to such repricing for the fourth quarter of 1998. Such repricing in the future may result in the Company being unable to produce the products made for the principal customer with an adequate operating profit, and the Company may be unable to compete with the prices of other vendors who supply the same or similar products to the principal customer. The failure to satisfy the terms of the agreement, or the failure of the Company to achieve an operating profit under the contract, would have a material adverse impact on the Company's business, financial condition, and results of operation. Significant Customer Concentration. Historically, the Company has sold its products to a very limited number of customers. Any reduction in orders by any of these customers, including reductions due to market, economic or competitive conditions in the semiconductor, personal computer or electronic industries or in other industries that manufacture products utilizing semiconductors or MCMs, could materially adversely affect the Company's business, financial condition and results of operations. The supply agreements with certain of the Company's customers do not obligate them to purchase products from the Company. The Company's ability to increase its sales in the future will also depend in part upon its ability to obtain orders from new customers. There can be no assurance that the Company's sales will increase in the future or that the Company will be able to retain existing customers or to attract new ones. Failure to develop new customer relationships could materially adversely affect the Company's business, financial condition and results of operations. Dependence on Semiconductor and Personal Computer Industries. The financial performance of the Company is dependent in large part upon the current and anticipated market demand for semiconductors and products such as personal computers that incorporate semiconductors. The semiconductor industry is highly cyclical and historically has experienced recurring periods of oversupply The Company believes that the markets for new generations of semiconductors will also be subject to similar fluctuations. The semiconductor industry has demonstrated a significant prolonged slowdown in demand. There can be no assurance that growth will return and that the slowdown will not continue. A reduced rate of growth in the demand for semiconductor component parts due, for example, to competitive factors, technological change or otherwise, may materially adversely affect the markets for the Company's products. From time to time, the personal computer industry, like the semiconductor industry, has experienced significant downturns, often in connection with, or in anticipation of, declines in general economic conditions. Accordingly, any factor adversely affecting the semiconductor or the personal computer industry or particular segments within the semiconductor or personal computer industry may materially adversely affect the Company's business, financial condition and results of operations. There can be no assurance that the Company's net sales and results of operations will not be materially adversely affected if downturns or slowdowns in the semiconductor, personal computer industry or other industries utilizing the Company's products continue or again occur in the future. Technological Change; Importance of Timely Product Introduction; Uncertainty of Market Acceptance and Emerging Markets. The markets for the Company's products are subject to technological change and new product introductions and enhancements. Customers in the Company's markets require products embodying increasingly advanced electronics interconnection technology. Accordingly, the Company must anticipate changes in technology and define, develop and manufacture or acquire new products that meet its customers' needs on a timely basis. The Company anticipates that technological changes could cause the Company's net sales to decline in the future. There can be no assurance that the Company will be able to identify, develop, manufacture, market, support or acquire new products successfully, that any such new products will gain market acceptance, or that the Company will be able to respond effectively to technological changes. If the Company is unable for technological or other reasons to develop products in a timely manner in response to changes in technology, the Company's business, financial condition and results of operations will be materially adversely affected. There can be no assurance that the Company will not encounter technical or other difficulties that could in the future delay the introduction of new products or product enhancements. In addition, new product introductions by the Company's competitors could cause a 24 decline in sales or loss of market acceptance of the Company's products, which could materially adversely affect the Company's business, financial condition and results of operations. Even if the Company develops and introduces new products, such products must gain market acceptance and significant sales in order for the Company to achieve its growth objectives. Furthermore, it is essential that the Company develop business relationships with and supply products to customers whose end-user products achieve and sustain market penetration. There can be no assurance that the Company's products will achieve widespread market acceptance or that the Company will successfully develop such customer relationships Failure by the Company to develop products that gain widespread market acceptance and significant sales or to develop relationships with customers whose end-user products achieve and sustain market penetration will materially adversely affect the Company's business, financial condition and results of operations. The Company's financial performance will depend in significant part on the continued development of new and emerging markets such as the market for MCMs. The Company is unable to predict with any certainty any growth rate and potential size of emerging markets. Accordingly, there can be no assurance that emerging markets targeted by the Company, such as the market for MCMs, will develop or that the Company's products will achieve market acceptance in such markets. The failure of emerging markets targeted by the Company to develop or the failure by the Company's products to achieve acceptance in such markets could materially adversely affect the Company's business, financial condition and results of operations. Sole or Limited Sources of Supply. Certain raw materials essential for the manufacture of the Company's products are obtained from a sole supplier or a limited group of suppliers. There are a limited number of qualified suppliers of laminate substrates and die which are of critical importance to the production of the Company's MCM products. In the manufacturing process, the Company also utilizes consigned materials supplied by certain of its customers. Such material supplied by customers has historically been in short supply, and has impacted the Company's ability to produce its goods on a timely basis. The Company's reliance on sole or a limited group of suppliers and certain customers for consigned materials involves several risks, including a potential inability to obtain an adequate supply of required materials and reduced control over the price, timely delivery, and quality of raw materials. There can be no assurance that problems with respect to yield and quality of such materials and timeliness of deliveries will not continue to occur. Disruption or termination of these sources could delay shipments of the Company's products and could have a material adverse effect on the Company's business, financial condition and operating results. Such delays could also damage relationships with current and prospective customers, including customers that supply consigned materials. Product Quality and Reliability; Need to Increase Production. The Company's customers establish demanding and time-consuming specifications for quality and reliability that must be met by the Company's products. From initial customer contact to actual qualification for production, which may take as long as three years, the Company typically expends significant resources. Although the Company has generally met its customers' quality and reliability product specifications, the Company has in the past experienced and is currently experiencing difficulties in meeting some of these standards. Although the Company has addressed past concerns and has resolved a number of quality and reliability problems, there can be no assurance that such problems will not continue or recur in the future. If such problems did continue or recur, the Company could experience delays in shipments, increased costs, delays in or cancellation of orders and product returns, any of which would have a material adverse effect on the Company's business, financial condition or results of operations. The manufacture of the Company's products is complex and subject to a wide variety of factors, including the level of contaminants in the manufacturing environment and the materials used and the performance of personnel and equipment. The Company has in the past experienced lower than anticipated production yields and written off defective inventory as a result of such factors. The Company must also successfully increase production to support anticipated sales volumes. There can be no assurance that the Company will be able to do so or that it will not experience problems in increasing production in the future. The Company's failure to adequately increase production or to maintain high quality 25 production standards would have a material adverse effect on the Company's business, financial condition and results of operations. Expansion of Operations. In order to be competitive, the Company must implement a variety of systems, procedures and controls. The Company expects its operating expenses to continue to increase. If orders received by the Company do not result in sales or if the Company is unable to sustain net sales at anticipated levels, the Company's operating results will be materially adversely affected until operating expenses can be reduced. The Company's expansion will also continue to cause a significant strain on the Company's management, financial and other resources. If the Company is to grow, it must expand its accounting and other internal management systems, and there can be no assurance that the Company will be successful in effecting such expansion. Any failure to expand these areas in an efficient manner at a pace consistent with the Company's business could have a material adverse effect on the Company's results of operations. Moreover, there can be no assurance that net sales will increase or remain at or above recent levels or that the Company's systems, procedures and controls will be adequate to support the Company's operations. The Company's financial performance will depend in part on its ability to continue to improve its systems, procedures and controls. Intellectual Property Matters. Although the Company attempts to protect its intellectual property rights through patents, trade secrets and other measures, it believes that its financial performance will depend more upon the innovation, technological expertise, manufacturing efficiency and marketing and sales abilities of its employees. There can be no assurance that others will not independently develop similar proprietary information and techniques or gain access to the Company's intellectual property rights or disclose such technology or that the Company can meaningfully protect its intellectual property rights. There can be no assurance that any patent owned by the Company will not be invalidated, circumvented or challenged, that the rights granted thereunder will provide competitive advantages to the Company or that any of the Company's pending or future patent applications will be issued with the scope of the claims sought by the Company, if at all. Furthermore, there can be no assurance that others will not develop similar products, duplicate the Company's products or design around the patents owned by the Company, or that third parties will not assert intellectual property infringement claims against the Company. In addition there can be no assurance that foreign intellectual property laws will protect the Company's intellectual property rights. Environmental Regulations. The Company is subject to a variety of local, state, federal and foreign governmental regulations relating to the storage, discharge, handling, emission, generation, manufacture and disposal of toxic or other hazardous substances used to manufacture the Company's products. The Company believes that it is currently in compliance in all material respects with such regulations and that it has obtained all necessary environmental permits to conduct its business. Nevertheless, the failure to comply with current or future regulations could result in the imposition of substantial fines on the Company, suspension of production, alteration of its manufacturing processes or cessation of operations. Compliance with such regulations could require the Company to acquire expensive remediation equipment or to incur substantial expenses. Any failure by the Company to control the use, disposal, removal or storage of, or to adequately restrict the discharge of, or assist in the cleanup of, hazardous or toxic substances, could subject the Company to significant liabilities, including joint and several liability under certain statutes. The imposition of such liabilities could materially adversely affect the Company's business, financial condition or results of operations. The Company has been notified by the United States Environmental Protection Agency that it considers the Company to be a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986. Growth Strategy Through Acquisitions. As part of its growth strategy, the Company has in the past sought and may in the future continue to seek to increase sales and achieve growth through the acquisition of comparable or complementary businesses or technologies. The implementation of this 26 strategy will depend on many factors, including the availability of acquisitions at attractive prices and the ability of the Company to make acquisitions, the integration of acquired businesses into existing operations, the expansion of the Company's customer base and the availability of required capital. Acquisitions by the Company may result in dilutive issuances of equity securities, and in the incurrence of debt and the amortization of goodwill and other intangible assets that could adversely affect the Company's profitability. Any inability to control and manage growth effectively could have a material adverse effect on the Company's business, financial condition and results of operations. There can be no assurance that the Company will successfully expand or that growth and expansion will result in profitability or that the Company's growth plans through acquisitions will not be inhibited by the Company's current lack of resources. Dependence on Key Personnel. The Company's financial performance depends in part upon its ability to attract and retain qualified management, technical, and sales and support personnel for its operations. Competition for such personnel is intense, and there can be no assurance that the Company will be successful in attracting or retaining such personnel. The loss of any key employee, the failure of any key employee to perform in his current position or the Company's inability to attract and retain skilled employees, as needed, could materially adversely affect the Company's business, financial condition and results of operations. Volatility of Stock Price. The Company believes that factors such as announcements of developments related to the Company's business, fluctuations in the Company's financial results, general conditions or developments in the semiconductor and personal computer industry and the general economy, sales of the Company's Common Stock into the marketplace, the ability of the Company to sell its stock on an exchange or over-the-counter, an outbreak of hostilities, natural disasters, announcements of technological innovations or new products or enhancements by the Company or its competitors, developments in the Company's relationships with its customers and suppliers, or a shortfall or changes in revenue, gross margins or earnings or other financial results from analysts' expectations could cause the price of the Company's Common Stock to fluctuate, perhaps substantially. In recent years the stock market in general, and the market for shares of small capitalization stocks in particular, including the Company, have experienced extreme price fluctuations, which have often been unrelated to the operating performance of affected companies. There can be no assurance that the market price of the Company's Common Stock will not continue to experience significant fluctuations in the future, including fluctuations that are unrelated to the Company's performance. Recurring Net Operating Losses. The Company's decision to discontinue its multilayer ceramic operations was the primary factor contributing to its 1996 net loss of $41,842,000. The decision by the principal secured creditors of the Company's pressed ceramic operations to liquidate that operation's assets was the primary factor contributing to the 1997 net loss of $11,496,000, as well as additional loss provisions made in 1997 relating to the discontinuance of the multilayer ceramic operations. At September 30, 1998, the Company had a working capital deficiency of $30,554,000 and an accumulated deficit of $68,599,000. The Company had outstanding at September 30, 1998 approximately $25,211,000 of principal amount of debt from its discontinued operations, which debt has been guaranteed by MPI, the parent company. Year 2000 Compliance. Many currently installed computer systems and software products are coded to accept only two digit entries in the date code field. These date code fields will need to accept four digit entries to distinguish 21st century dates from 20th century dates. As a result, in less than two years, computer systems and/or software used by many companies may need to be upgraded to comply with such "Year 2000" requirements. Significant uncertainty exists in the software industry and in other industries concerning the potential effects associated with such compliance. Although the Company currently offers products that are designed to be Year 2000 compliant, there can be no assurance that the Company's products and the software products used by the Company contain all necessary date code changes. 27 As of September 30, 1998, the Company has partially completed an analysis of its readiness for compliance with the Year 2000 change. Its assessment of its manufacturing systems and company products reveals that no known Year 2000 issues currently exist either in the products, their raw materials, or their relationship as components to larger systems produced by its customers; its financial systems software is currently being upgraded to a newer replacement system which will be complete in December 1998, and which system is Year 2000 compliant; documentation systems that currently use fixed dating are Year 2000 compliant, while those that require revision dating are currently under review; and approximately 50% of the Company's computing hardware systems have been upgraded to be Year 2000 compliant. The Company's costs to become Year 2000 compliant as of September 30, 1998 have been $235,000 for computer software and $48,000 for computer hardware. The Company has not yet completed its analysis of its readiness for compliance with the Year 2000 change. Based upon the partial analysis described above, the Company believes its exposure to Year 2000 risks is limited because the majority of the Company's recordkeeping systems are new and compliant and have been installed within the last eighteen months. The Company utilizes no custom- programmed "legacy" software or hardware systems known to need Year 2000 upgrading or conversion. The Company believes it should be fully compliant with its Year 2000 issues by the end of the second quarter of 1999 when it believes it will have completed due diligence of its internal systems and supplier compliance requirements, as well as completed the remaining 50% of its computing hardware upgrades needed. However, there can be no assurance that conditions or events may occur during the course of the completion of this analysis which will have an adverse impact on the Company's readiness for compliance with the Year 2000 change. The Company believes that the purchasing patterns of customers and potential customers and the performance of vendors may be affected by Year 2000 issues in a variety of ways. Many companies are expending significant resources to correct or patch their current software systems for Year 2000 compliance. These expenditures may result in reduced funds available to purchase products such as those offered by the Company or the inability to render services or provide supplies to the Company. Year 2000 issues may cause other companies to accelerate purchases, thereby causing an increase in short-term demand and a consequent decrease in long-term demand for software products, and disruption of supply patterns. Additionally, Year 2000 issues could cause a significant number of companies, including current Company customers and vendors, to spend significant resources upgrading their internal systems, and as a result consider switching to other systems or suppliers. Any of the foregoing could result in a material adverse effect on the Company's business, operating results and financial condition. ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company has no derivative financial instruments. The Company has outstanding indebtedness at September 30, 1998 to DBS denominated in Singapore dollars of approximately Singapore $3,400,000 (U.S. equivalent $2,144,000). Further, the Company has two buildings, also located in Singapore, which are mortgaged as security for the Singapore loans, and for which deposits have been received from purchasers for the sale of such buildings. All of the Company's other indebtedness is denominated in U.S. dollars, and all other Singapore-based assets have been liquidated by the receiver of MPM or MPS and used to retire outstanding indebtedness. The sales price of the buildings located in Singapore is somewhat more than the amount of the Company's debt which is denominated in Singapore dollars. Accordingly, the Company believes its exposure to foreign currency rate movements is extremely limited since it has matched the maturity and approximate amount of assets and liabilities denominated in the Singapore dollar. 28 PART II - OTHER INFORMATION Item 1. Legal Proceedings Due to the closure of the Company's Singapore operations, various creditors have instituted legal actions against the Company and its subsidiaries in order to recover amounts due. In addition, numerous other creditors and parties to contracts have threatened or initiated litigation to recoup their loans and/or investments. These claims will not be fully satisfied through the liquidation of assets in Singapore. If these claims are not favorably resolved, they will have a material adverse effect on the Company's financial condition, results of operations and ability to continue as a going concern because the Company has guaranteed substantially all of these debts. Item 2. Changes in Securities and Use of Proceeds Options were issued during the quarter ended September 30, 1998 to employees of the Company under the terms of the Company's 1993 Stock Option/Stock Issuance Plan for 210,000 shares of common stock at a price of $0.42 per share. Options were issued during the quarter ended September 30, 1998 to two non-employee directors of the Company under the terms of the Automatic Option Grant Program of the Company's 1993 Stock Option/Stock Issuance Plan for 30,000 shares of common stock at prices ranging from $0.34 to $0.45 per share. These options were issued pursuant to the exemptions provided by Section 4(2) of the Securities Act of 1933 and/or Regulation D. On September 24, 1998 a warrant to purchase 200,000 shares of the Company's common stock at $1.00 per share was issued to STMicroelectronics, Inc. ("ST"), pursuant to the terms of the Restructuring, Settlement and Mutual Release Agreement between ST and the Company dated September 24, 1998. This warrant was issued pursuant the exemptions provided by Section 4(2) of the Securities Act of 1933 and/or Regulation D. Item 3. Defaults upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders None. 29 Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K Reports on Form 8-K. None. The Exhibits filed as part of this report are listed below. Exhibit No. Description ----------- --------------------------------------------------------- 10.84 Restructuring, Settlement and Mutual Release Agreement between STMicroelectronics, Inc. and the Company dated September 24, 1998. 10.85 Amendment to Restructuring, Settlement and Mutual Release Agreement between Texas Instruments Singapore (Pte.) Ltd. and the Company dated August 11, 1998. 10.86 Amendment to Restructuring, Settlement and Mutual Release Agreement between Transpac Capital Pte. Ltd., Transpac Industrial Holdings Ltd., Regional Investment Company, Ltd. and Natsteel Equity III Pte. Ltd., and the Company dated September 1, 1998. 10.87 Amendment to Restructuring, Settlement and Mutual Release Agreement between ORIX Leasing Singapore Limited and the Company dated August 11, 1998. 10.88 Amendment to Forbearance, Restructure and Mutual Release Agreement between Motorola, Inc. and the Company dated November 5, 1998. 27.1 Financial Data Schedule 30 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MICROELECTRONIC PACKAGING, INC. ------------------------------- (Registrant) Date: November 12, 1998 By: /s/ DENIS J. TRAFECANTY --------------------- ---------------------------- Denis J. Trafecanty Senior Vice President, Chief Financial Officer and Secretary 31 EXHIBIT INDEX Number Description - ------ ----------- 10.84 Restructuring, Settlement and Mutual Release Agreement between STMicroelectronics, Inc. and the Company dated September 24, 1998. 10.85 Amendment to Restructuring, Settlement and Mutual Release Agreement between Texas Instruments Singapore (Pte.) Ltd. and the Company dated August 11, 1998. 10.86 Amendment to Restructuring, Settlement and Mutual Release Agreement between Transpac Capital Pte. Ltd., Transpac Industrial Holdings Ltd., Regional Investment Company, Ltd. and Natsteel Equity III Pte. Ltd., and the Company dated September 1, 1998. 10.87 Amendment to Restructuring, Settlement and Mutual Release Agreement between ORIX Leasing Singapore Limited and the Company dated August 11, 1998. 10.88 Amendment to Forbearance, Restructure and Mutual Release Agreement between Motorola, Inc. and the Company dated November 5, 1998. 27.1 Financial Data Schedule EX-10.84 2 RESTRUCTURING SETTLEMENT EXHIBIT 10.84 RESTRUCTURING, SETTLEMENT AND MUTUAL RELEASE AGREEMENT ---------------------------- This Restructuring, Settlement and Mutual Release Agreement (this "Agreement") is entered into as of this 24th day of September, 1998 the "Effective Date", by and among Microelectronic Packaging, Inc. ("MPI"), on behalf of itself and its predecessors, successors, former or current subsidiaries, affiliates, officers, directors, shareholders, agents, attorneys, representatives, insurers, employees and assigns (collectively with MPI, the "MPI Releasees"), and STMicroelectronics Inc. (formerly known as SGS-Thomson Microelectronics, Inc.) (hereinafter "ST"), assignee of STMicroelectronics Pte. Ltd. (formerly known as SGS-Thomson Microelectronics, Pte. Ltd.) (hereinafter "ST-Singapore") and its predecessors, successors, subsidiaries, affiliates, officers, directors, stockholders, agents, attorneys, representatives, insurers, employees and assigns (collectively with ST, the "ST Releasees"). W I T N E S S E T H: WHEREAS, pursuant to a Supply Guarantee and Preferred Allocation Agreement dated August 17, 1995 by and among MPI, Microelectronic Packaging (S) Pte Ltd ("MPS") and ST-Singapore (including the Charge agreement executed by MPS pursuant thereto, collectively, the "Initial Loan Agreement"), ST-Singapore made a lump sum advance in the amount of US$4.0 million to MPS, a subsidiary of MPI, upon which certain interest amounts were thereafter due and payable periodically under the Initial Loan Agreement as amended by Supplemental Agreement to the Supply Guarantee and Preferred Allocation Agreement dated August 17, 1995, which Supplemental Agreement was itself dated October 19, 1995 (collectively with the Initial Loan Agreement, the "Loan Agreement"); WHEREAS, MPI entered into a Deed of Guarantee and Indemnity dated August 17, 1995 with ST-Singapore (the "Guarantee"), pursuant to which MPI agreed to guaranty the obligations of MPS under the Loan Agreement; WHEREAS, MPS has defaulted on its obligations under the Loan Agreement giving rise to MPI's obligations under the Guarantee; and WHEREAS, ST-Singapore has assigned its rights under the Loan Agreement and Guarantee to ST; and WHEREAS, the parties wish to settle all obligations under the Loan Agreement and the Guarantee, and terminate and release all rights and obligations under such documents and all other related agreements, and settle all other disputes that may exist between MPI and each of the other MPI Releasees, and ST and each of the other ST Releasees. NOW, THEREFORE, in consideration of the mutual promises contained herein and for other good and sufficient consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. General Release, Covenants and Settlement. ----------------------------------------- a. Release Waiver and Covenant. ST, on behalf of itself and the --------------------------- other ST Releasees, hereby agrees as follows: i. Release. On the Release Date (as defined in Section 1.d), ------- ST, on behalf of itself and each other ST Releasee, will fully and forever release and discharge each of the MPI Releasees from and against any and all claims, damages and causes of action they may have against each such person or entity and will not sue or otherwise institute or cause to be instituted or in any way participate in any legal, administrative or regulatory proceedings against any of the MPI Releasees (in which they or any of them are claimants) with respect to (a) any matter under the provisions of, arising out of or in connection with, the Loan Agreement and the Guarantee and any of their respective related agreements, letters, documents and instruments, including any breach of any representation or warranty or noncompliance or nonfulfillment of any covenant or agreement set forth in such financing or loan documents, (b) any and all claims, demands, debts, causes of action of whatsoever kind or nature, whether known or unknown, suspended or unsuspended, matured or unmatured which ST or any ST Releasee now owns or holds against any of the MPI Releasees or have at any time heretofore owned or held, and (c) the Confession of Judgment Documents (as defined in Section 1.d.i.(2) below); provided, however, that the foregoing release and waiver should in no way be interpreted as a release from any claim or cause of action ST may have as a result of any breach of the warrant. ii. Waiver. On the Release Date, ST on behalf of itself and ------ each other ST Releasee will waive any rights it may have had or then has to pursue any and all remedies available to it under any cause of action against any other party to this Agreement, including each subsidiary of ST, pursuant to, in connection with, or arising out of the Loan Agreement, the Guarantee and all related agreements, letters, documents, and instruments, including without limitation, claims of breach of contract, breach of fiduciary duty, fraud, and breach of the covenant of good faith and fair dealing. iii. Termination of the Loan Agreement, the Guarantee and all -------------------------------------------------------- Related Agreements. ST agrees that, on the Release Date, each of the Loan - ------------------ Agreement, the Guarantee and the Confession of Judgment Documents, and each of their respective related agreements, letters, documents and instruments, regardless of whether they are in default, will be fully and completely terminated and rendered devoid of legal effect and unenforceable, such that even provisions of the Loan Agreement, the Guarantee, the Confession of Judgment Documents (as defined in Section 1.d.i.(2) below) and all related agreements, letters, documents and instruments that, according to their terms, survive termination, will be terminated and nullified. Further, ST hereby acknowledges and agrees that, on the Release Date, any loan, debt, liability or other obligation evidenced by the Confession of Judgment Documents (as defined in Section 1.d.i.(2) below) or otherwise created pursuant to or arising out of the Loan Agreement or the Guarantee, as well as any writings, agreements, notes or certificates representing such loan, debt, liability or obligations, will be automatically cancelled and rendered devoid of force and effect. iv. Payment in Full. Assuming ST is paid in full pursuant to --------------- section 1.d.i(1) ST hereby acknowledges and agrees that, on the Release Date and thereafter, (1) the only payments and benefits they are entitled to receive from any and all of the MPI Releasees are those specified in Sections 1.b. and 1.c. of this Agreement; and (2) they are not entitled to receive any further monetary payments from any and all of the MPI Releasees pursuant to, in connection with, or arising out of the Confession of Judgment Documents (as defined in Section 1.d.i.(2) below), the Loan Agreement or the Guarantee, or any of their respective related agreements, letters, documents and instruments. b. Release Waiver and Covenants. MPI, on behalf of itself and the ---------------------------- other MPI Releasees, hereby agree as follows: i. Release. On the Effective Date MPI, on behalf of itself ------- and each other MPI Releasee, will have fully and forever released and discharged each of the ST Releasees from any claims, damages, and causes of action it or they may have had against any of them and will not sue or otherwise institute or cause to be instituted or any way participate in legal, administrative or regulatory proceeding against any of the ST Releasees (in which it or any of them are claimants) with respect to (a) any matter under the provisions of, arising out of or in connection with the Loan Agreement, the Guarantee and any of their respective related agreements, letters, documents and instruments, and (b) any and all claims, demands, debts, causes of action of whatsoever kind or nature, whether known or unknown, suspended or unsuspended, matured or unmatured which the MPI or any MPI Releasee now owns or holds against any of the ST Releasees or have at any time heretofore owned or held. ii. Waiver. On the Release Date, MPI, on behalf of itself and ------ each other MPI Releasee will waive any rights it may have had or then has to pursue any and all remedies available to it under any cause of action against any other party to this Agreement, including each subsidiary of MPI, pursuant to, in connection with, or arising out of the Loan Agreement, the Guarantee and all related agreements, letters, documents, and instruments, including without limitation, claims of breach of contract, breach of fiduciary duty, fraud, and breach of the covenant of good faith and fair dealing. iii. Termination of the Loan Agreement, the Guarantee and all -------------------------------------------------------- Related Agreements. MPI hereby acknowledges and agrees that, on the Release - ------------------ Date, each of the Loan Agreement, the Guarantee and each of their respective related agreements, letters, documents and instruments will be fully and completely terminated and rendered devoid of force and effect, such that even provisions of the Loan Agreement, the Guarantee and each of their respective related agreements, letters, documents and instruments that, according to their terms, survive termination, will be automatically terminated and nullified. iv. Payment in Full. MPI acknowledges and agrees that on the --------------- Effective Date and thereafter the only payments and benefits it is entitled to receive from the ST Releasees are those specified in Sections 1.a. and 1.c. of this Agreement. c. Mutual Agreements and Covenants. ------------------------------- No party to this Agreement shall, except as may be mandated by statutory or regulatory requirements, as may be required by legal process in the course of actual litigation or in the case of a subpoena, or as may be necessary for MPI to negotiate an accommodation with its creditors, disclose to others the fact or terms of this settlement, the amounts referred to in this Agreement or the fact of the payment of said amounts, except that each such party may disclose to each such party's attorneys, accountant or other advisors to whom the disclosure is necessary to effectuate the purposes for which such party has consulted with such professional advisors and except that MPI may file this Agreement with any governmental or regulatory body, describe it and refer to it in any filing it makes pursuant to federal and state securities laws or to its Board of Directors or shareholders. d. Settlement and Payment. In settlement of all defaults, amounts ---------------------- owed, debts, liabilities and other obligations pursuant to, in connection with, or arising out of the Loan Agreement, the Guarantee and each of their respective related agreements, letters, documents and instruments: i. (1) MPI will pay to ST by no later than May 1, 1999 an amount of US$1,137,044, by wire transfer to ST, in accordance with written wire transfer instructions it will receive from ST. The date upon which MPI makes payment in full of the balance of the amount due to ST pursuant to the preceding sentence shall be the "Release Date." If such payment occurs after May 1, 1999, there will be no "Release Date" for purposes of this Agreement. (2) Concurrent with the execution of this Agreement, MPI will deliver to ST fully executed and verified original Confession of Judgment Documents conforming to those attached as Exhibit A hereto confessing judgment in the amount of U.S. Four Million Dollars ($4,000,000) plus interest and costs. Steven K. Rose, ST Vice President, Secretary and General Counsel, or his successor, shall retain the Confession of Judgment Documents on behalf of ST and shall have responsibility for using the Confession of Judgment Documents only in accord with this Agreement. If and when MPI makes full, complete and timely payment of the settlement amount set forth in Section 1(d)(i)(1) above to ST, ST shall return the Confession of Judgment Documents to MPI. If MPI fails to make full, complete and timely payment of the settlement amount referenced in Section 1(d)(i)(1) above to ST, ST shall give MPI written notice of MPI's payment default and demand for cure and performance within 72 hours. If MPI cures its default within 72 hours of such notices, ST will return the Confession of Judgment Documents to MPI. If MPI fails to fully, completely and timely cure its payment default following notice from ST, then ST shall be entitled to immediately submit the Confession of Judgment Documents to the court and obtain entry of judgment in accord with the Confession of Judgment Documents without further notice to MPI. (3) If MPI fails to make timely, full payment of the settlement payment set forth in Section 1(d)(i)(1) above, and for any reason ST is unable to successfully obtain entry of the judgment by confession referenced in Section 1(d)(i)(2) above, then MPI further agrees to promptly and without contest stipulate to a judgment against it, in the form attached as Exhibit B hereto; to deliver an originally, fully executed stipulated judgment to ST along with this executed Agreement; and to not oppose entry of the stipulated judgment in any action initiated by ST arising out of MPI's failure to make complete, timely payment of the settlement payment referenced in Section 1(d)(i)(1) above referenced in this Agreement following the notice and opportunity to cure referenced in Section 1(d)(i)(2) above; Steven K. Rose or his successor will have responsibility for retaining the stipulated judgment and utilizing it only in accord with the terms of this Agreement, and returning it to MPI upon timely payment in full by MPI to ST of the amount set forth in Section (d)(i)(1) above. ii. Concurrent with the execution of this Agreement, MPI will issue to ST a warrant to purchase 200,000 shares of MPI's common stock ("Common Shares") at an exercise price of US$1.00 per share, which warrant will be immediately exercisable and will remain exercisable for seven (7) years from the date of issuance (the "Warrant"). The Warrant will conform to the documents attached as Exhibit C hereto. 2. Representations and Warranties. ------------------------------ a. MPI. MPI represents and warrants that: --- i. It has all requisite corporate power and authority to execute and deliver, and fulfill its obligations under this Agreement and the Warrant. This Agreement (notwithstanding the lack of approval of MPS), upon execution and delivery by MPI and assuming due and proper execution and delivery by ST, and the Warrant will constitute valid and binding obligations of MPI, enforceable in accordance with their terms, except as such enforcement may be limited by bankruptcy, insolvency, moratorium and other laws of general application affecting the enforcement of creditors' rights. ii. No consent, approval, order or authorization, or registration, qualification, designation, declaration or filing with, any federal, state or local governmental authority on the part of MPI is required in connection with the execution, delivery and performance of this Agreement and the Warrant by MPI, other than state securities law filings which have been completed or are in the process of being completed. iii. No consent, approval, waiver or other action by any person under any contract, agreement, indenture, lease, instrument or other document to which MPI is a party or by which it is bound is necessary for the execution, delivery and performance of this Agreement and the Warrant by MPI. iv. MPS is not a necessary party to this Agreement and, notwithstanding the foregoing, in the event MPS is a necessary party, MPI shall indemnify ST from any and all damage it incurs as a result of MPS not being a party to this agreement. b. ST. ST represents and warrants that: -- i. It has all requisite corporate power and authority to execute and deliver, and fulfill its obligations under this Agreement. This Agreement, upon execution and delivery by ST and assuming due and proper execution and delivery by MPI, will constitute a valid and binding obligation of ST, enforceable in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency, moratorium and other laws of general application affecting the enforcement of creditors' rights. ii. It is the proper assignee of the rights of ST-Singapore with regard to the Loan Agreement and Guarantee. 3. Miscellaneous. MPI and ST hereby agree as follows: ------------- a. Differences in Fact. Each party to this Agreement hereby agrees ------------------- to accept and assume the risk that any fact with respect to any matter covered by this Agreement may hereafter be found to be other than or different from the facts it believes at the time of this Agreement to be true, and agrees that this Agreement shall be and will remain effective notwithstanding any such difference in fact. b. Severability. If any provision of this Agreement is found to ------------ be unenforceable, it shall not affect the enforceability of the remaining provisions and the court shall enforce all remaining provisions to the extent permitted by law. All parties agree that, notwithstanding the lack of execution of this Agreement by MPS, this Agreement is valid, binding and enforceable on all parties. c. Prior Agreements. This Agreement shall supersede and render null ---------------- and void any and all prior agreements between MPI and/or MPS, on one hand, and ST, on the other hand, concerning the subject matter contained herein. d. Scope of Release. This Agreement extends to all claims of every ---------------- nature and kind, known or unknown, suspected or unsuspected, past or present, arising from or attributable by any party to this Agreement for any matter released in this Agreement and any and all rights granted to MPI or ST under Section 1542 of the California Civil Code or any analogous state law or federal or foreign law or regulation are hereby expressly waived. Said Section 1542 of the Civil Code of the State of California reads as follows: A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which, if known by him, must have materially affected his settlement with the debtor. No party to this Agreement has any knowledge of any existing claims against any other party, except for those released by this Agreement. e. Successors and Assigns. This Agreement shall bind and benefit ST ---------------------- and its successors and assigns and shall also bind and benefit MPI and its successors and assigns. f. Governing Law. This Agreement shall be deemed to have been ------------- g. Jurisdiction. The parties to the Agreement hereby (i) irrevocably ------------ submit to the exclusive jurisdiction of the courts of the State of California sitting in San Diego County for the purpose of any action or proceeding arising out of or relating to this Agreement and any other documents and instruments relating hereto, (ii) agree that all claims in respect of any such action or proceeding may be heard and determined in such courts, (iii) irrevocably waive (to the extent permitted by applicable law) any objection which it now or hereafter may have to the laying of venue of any such action or proceeding brought in any of the foregoing courts, and any objection on the ground that any such action or proceeding in any such court has been brought in an inconvenient forum and (iv) agree that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner permitted by law. h. Remedies. The parties acknowledge and agree that, in the event of -------- any dispute in which any party alleges and proves any non-performance or breach of Section 1.a., 1.b. or 1.c., monetary damages will be an inadequate remedy for the non-performance or breach of such provision(s), and the non-performing or breaching party hereby consents in advance to be subject to specific performance and any other appropriate equitable remedies. The parties acknowledge and agree under no circumstances will punitive or consequential damages be awarded in respect of any party's non-performance or breach of any provision of this Agreement. i. Counterparts. This agreement may be executed in two or more ------------ counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. j. Titles and Subtitles. The titles and subtitles used in this -------------------- Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. k. Amendment and Termination. No amendment, modification, waiver, ------------------------- termination or cancellation of this Agreement or any part thereof shall be effective unless it is in writing and is signed by MPI and ST. No delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof. Nor shall any waiver on the part of any party of any such right, power or privilege, nor any single or partial exercise of any such right, power or privilege, preclude any further exercise thereof or the exercise of any other such right, power or privilege. The rights and remedies herein provided are cumulative and are not exclusive of any rights or remedies that any party may otherwise have at law or in equity. The rights and remedies of any party based upon, arising out of or otherwise in respect of any inaccuracy in or breach or nonfulfillment of or noncompliance with any representation, warranty, covenant or agreement contained in this Agreement shall in no way be limited by the fact that the act, omission, occurrence or other state of facts upon which any claim of any such inaccuracy or breach is based may also be the subject matter of any other representation, warranty, covenant or agreement contained in this Agreement (or in any other agreement between the parties) as to which there is no inaccuracy or breach. l. Survival of Representations, Warrants, Covenants and Agreements. --------------------------------------------------------------- The representations, warranties, covenants and agreements contained in this Agreement shall survive the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby. m. Notices. All notices, demands or other communications to be given ------- or delivered under or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been given when delivered personally to the recipient, sent to the recipient by reputable overnight courier service (charges prepaid), or mailed to the recipient by certified or registered mail, return, receipt requested and postage prepaid. Such notices, demands and other communications shall be addressed as follows: If to ST: c/o STMicroelectronics, Inc. 1310 Electronics Drive Carrollton, TX 75006-5039 Attn: Steven K. Rose, Vice President, Secretary and General Counsel Telephone: (972) 466-6412 Telecopy: (972) 466-7044 If to MPI: Microelectronic Packaging, Inc. 9577 Chesapeake Drive San Diego, CA 92123 Attn: President Telephone: (619) 292-7000 Telecopy: (619) 292-7881 with a copy to: Miller, Boyko & Bell 550 West B Street, Suite 400 San Diego, CA 92101-3955 Attn: Van E. Haynie Telephone: (619) 235-4040 Telecopy: (619) 231-8796 or to such other address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party (provided that notice of a change of address shall be effective only upon receipt thereof). n. Strict Construction. This Agreement is the result of arms-length ------------------- negotiations between the parties hereto and has been prepared jointly by the parties. In applying and interpreting the provisions of this Agreement, there shall be no presumption that the Agreement was prepared by any one party or that the Agreement shall be construed in favor of or against any one party. o. Consent to Assignment. In executing this Agreement, MPI waives --------------------- any right it may have to object to the assignment of ST-Singapore's rights to ST and to the extent required by contract, law or otherwise, consents to such assignment. p. Further Assurances. MPI and ST further agree to cooperate and ------------------ take such actions as may be reasonably necessary to effectuate this Agreement, including executing any additional documents which may be required to carry out this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and as of the day and year first above written. MICROELECTRONIC PACKAGING, INC. By: /s/ Denis J. Trafecanty ----------------------- Denis J. Trafecanty ---------------------------- (Print Name of Signatory) Title: SVP & CFO ---------------------- STMicroelectronics, Inc. (formerly known as SGS- Thomson Microelectronics, Inc.) assignee of STMICROELECTRONICS PTE. LTD. (formerly known as SGS-Thomson Microelectronics Pte. Ltd.) By: /s/ Steven Rose ----------------------- Steven K. Rose ---------------------------- (Print Name of Signatory) Title: Vice President --------------------- EXHIBIT A VAN E. HAYNIE (SBN 114937) MILLER, BOYKO & BELL 550 West B Street, Suite 400 San Diego, CA 92101-3599 Telephone: (619) 235-4040 Attorneys for Defendant MICROELECTRONIC PACKAGING, INC. SUPERIOR COURT OF CALIFORNIA, COUNTY OF SAN DIEGO IN RE CONFESSION OF JUDGMENT IN CASE NO. ____________ FAVOR OF STMICROELECTRONICS, DEFENDANT'S VERIFIED CONFESSION INC., OF JUDGMENT STATEMENT Plaintiff, [CCP (S) 1132(b)] v. MICROELECTRONIC PACKAGING, INC., ET. AL, Defendant. Microelectronic Packaging, Inc. ("MPI") hereby confesses judgment in favor of STMicroelectronics Inc.. (formerly known as SGS-Thomson Microelectronics Inc.) (hereinafter "ST"), assignee of STMicroelectronics Pte. Ltd. (formerly known as SGS-Thomson Microelectronics Pte. Ltd.) (hereinafter ST-Singapore) in the amount of $4,000,000, plus interest at the legal rate from the date of entry of judgment by confession, plus costs, and authorizes entry of judgment against MPI in that sum. MPI's confession of judgment is for money due and owing by MPI to ST and arises out of the following facts: Pursuant to a Supply Guarantee and Preferred Allocation Agreement dated August 17, 1995 by and among MPI, and ST-Singapore, ST-Singapore made a lump sum advance in the amount of $4,000,000 to a subsidiary of MPI, and MPI entered into a Deed of Guarantee and Indemnity dated August 17, 1995 with ST-Singapore pursuant to which MPI agreed to guarantee the obligations of MPS under the above-referenced Loan Agreement. MPS has defaulted on its obligations under the Loan Agreement, giving rise to MPI's obligations under the Guarantee. ST-Singapore has assigned its rights under the loan agreement and the guarantee to ST. MPI's guarantee obligation is the basis for the debt due and owing by MPI to ST, and the basis for the amount as to which MPI confesses judgment against MPI in favor of ST. Dated: September 24, 1998 MICROELECTRONIC PACKAGING, INC., Defendant By: /s/ Denis J. Trafecanty ---------------------------------- Denis J. Trafecanty Chief Financial Officer VERIFICATION I, Denis J. Trafecanty, am the Chief Financial Officer of Microelectronic Packaging, Inc. I have read the foregoing verified confession of judgment statement by Microelectronic Packaging, Inc. in favor of STMicroelectronics, Inc., know the contents thereof, and am authorized to execute this verification statement on behalf of MPI. I declare under penalty of perjury under the laws of the State of California and the United States of America that the foregoing verified confession of judgment is true of my own knowledge and that this declaration was executed on September 24, 1998, at Phoenix, Arizona. /s/ Denis J. Trafecanty ------------------------------------- Denis J. Trafecanty EXHIBIT A VAN E. HAYNIE (SBN 114937) MILLER, BOYKO & BELL 550 West B Street, Suite 400 San Diego, CA 92101-3599 Telephone: (619) 235-4040 Attorneys for Defendant MICROELECTRONIC PACKAGING, INC. SUPERIOR COURT OF THE STATE OF CALIFORNIA, COUNTY OF SAN DIEGO IN RE CONFESSION OF JUDGMENT IN FAVOR OF STMicroelectronics, Inc. Plaintiff, CASE NO. ____________ v. DEFENDANT'S ATTORNEY'S MICROELECTRONIC PACKAGING, INC., DECLARATION IN SUPPORT OF ET. AL., STATEMENT CONFESSING JUDGMENT Defendant. [CCP (S) 1133] I, Van E. Haynie, declare: I am an attorney at law duly admitted to practice before all the courts of the State of California and the attorney of record herein for Microelectronic Packaging, Inc., the party confessing judgment in the above-entitled cause. I further declare that I have examined the proposed judgment and have advised Microelectronic Packaging, Inc. with respect to the waiver of rights and defenses under the confession of judgment procedure, and have advised Microelectronic Packaging, Inc. to utilize the confession of judgment procedure. I declare under penalty of perjury that the foregoing is true and correct and that this declaration was executed on September 23, 1998, at San Diego, California. Dated: September 23, 1998. MILLER, BOYKO & BELL By: /s/ Van E. Haynie --------------------------- Van E. Haynie Attorney for Defendant MICROELECTRONIC PACKAGING, INC. EXHIBIT A SUPERIOR COURT OF THE STATE OF CALIFORNIA, COUNTY OF SAN DIEGO IN RE CONFESSION OF JUDGMENT IN FAVOR OF STMICROELECTRONICS, INC., CASE NO. ____________ Plaintiff, JUDGMENT BY CONFESSION v. [CCP (S) 1134] MICROELECTRONIC PACKAGING, INC., ET. AL., Defendant. Pursuant to the verified Confession of Judgment Statement by Microelectronic Packaging, Inc. ("MPI") in favor of STMicroelectronics, Inc. ("ST"), judgment is hereby entered by confession as follows: IT IS HEREBY ORDERED, ADJUDGED AND DECREED that STMicroelectronics Inc. shall recover from defendant Microelectronic Packaging, Inc. the following: (1) Principal in the amount of $4,000,000. (2) Interest on such principal amount from the date of entry of this judgment at the legal rate then in effect. (3) Ordinary and reasonable costs. APPROVED AS TO FORM AND CONTENT. Dated: September 23, 1998. MILLER, BOYKO & BELL Attorneys for Defendant MICROELECTRONIC PACKAGING, INC. By: /s/ Van E. Haynie ------------------------------- Van E. Haynie Attorney Dated September 24, 1998 MICROELECTRONIC PACKAGING, INC. Defendant By: /s/ Denis J. Trafecanty ------------------------------- Denis J. Trafecanty Chief Financial Officer IT IS SO ORDERED, ADJUSTED AND DECREED. ------------------------------------ CLERK OF THE COURT ------------------------------------ DEPUTY CLERK EXHIBIT B SUPERIOR COURT OF THE STATE OF CALIFORNIA, COUNTY OF SAN DIEGO STMICROELECTRONICS, INC., Plaintiff, v. CASE NO. ____________ MICROELECTRONIC PACKAGING, STIPUTLATED JUDGMENT AND INC., ET. AL., JUDGMENT THEREON Defendant. - ------------------------------ Defendant Microelectronic Packaging, Inc. ("MPI") hereby stipulates to entry of judgment against MPI in favor of plaintiff STMicroelectronics, Inc. ("ST") In the above-entitled action as follows: 1. Principal in the amount of $4,000,000; 2. Interest on such principal amount from the date of this judgment at the legal rate then in effect. 3. Ordinary and reasonable costs. APPROVED AS TO FORM AND CONTENT. Dated: September 23, 1998. MILLER, BOYKO & BELL Attorneys for Defendant MICROELECTRONIC PACKAGING, INC. By: /s/ Van E. Haynie ---------------------------------- Van E. Haynie Attorney Dated September 24, 1998 MICROELECTRONIC PACKAGING, INC. Defendant By: /s/ Denis J. Trafecanty ----------------------------------- Denis J. Trafecanty Senior Vice President Chief Financial Officer IT IS SO ORDERED, ADJUSTED AND DECREED. -------------------------------------- JUDGE OF THE SUPERIOR COURT EXHIBIT C THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO SUCH SECURITIES, OR DELIVERY OF AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES THAT SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE WITH THE ACT. No. WCS-______ WARRANT TO PURCHASE COMMON STOCK OF MICROELECTRONIC PACKAGING, INC. Void after September 24, 2005 This certifies that, for valid and good consideration, STMicroelectronics Pte. Ltd. (formerly known as SGS-Thomson Microelectronics Pte. Ltd. (the "Holder") is entitled, subject to the terms set forth below, to purchase from Microelectronic Packaging, Inc. (the "Company"), a California corporation, the number of shares of the Common Stock of the Company, as constituted on the date hereof, upon surrender hereof, at the principal office of the Company referred to below at the Exercise Price as set forth in Section 2 below. The number, character and Exercise Price of such shares of Common Stock are subject to determination and adjustment as provided below. 1. Term of Warrant. Subject to the terms and conditions set forth herein, --------------- this Warrant shall be exercisable, in whole or in part, at any time or from time to time on or after September 24, 1998. This Warrant shall expire at 5:00 p.m., Pacific Standard Time, on September 24, 2005 without any action on the part of any party (the "Expiration Date"). 2. Exercise Price. The exercise price at which this Warrant may be -------------- exercised shall be $1.00 per share of Common Stock, as adjusted from time to time pursuant to Section 11 hereof (the "Exercise Price"), payable either by cash or check or by net exercise pursuant to Section 4.d. 3. Number of Shares. The Holder is entitled, subject to the provisions ---------------- of this Warrant, to purchase from the Company an aggregate of two hundred thousand (200,000) fully paid and nonassessable shares of Common Stock of the Company (subject to adjustment as provided herein) (the "Warrant Shares"). 4. Exercise of Warrant. ------------------- a. Subject to the terms and conditions set forth herein, the purchase rights represented by this Warrant are exercisable by the Holder in whole or in part, at any time, or from time to time, during the term hereof as described in Section 1 above, and such exercise shall be effected by the surrender of this Warrant, the Notice of Paid Exercise annexed hereto and upon payment of the Exercise Price in cash or by check. b. This Warrant shall be deemed to have been exercised immediately prior to the close of business on the date of its surrender for exercise as provided above, and the person or persons entitled to receive the shares of Common Stock issuable upon such exercise shall be treated for all purposes as the holder of record of such shares as of the close of business on such date. As promptly as practicable on or after such date, the Company at its expense shall issue and deliver to the person or persons entitled to receive the same a certificate or certificates for the number of shares issuable upon such exercise. c. Upon any partial exercise of this Warrant, there shall be issued to the Holder hereof a new Warrant certificate in respect of the Warrant Shares as to which the Warrant Shares evidenced by this Warrant certificate shall not have been exercised. This Warrant certificate may be exchanged at the office of the Company by surrender of this Warrant certificate properly endorsed either separately or in combination with one or more other Warrant certificates for one or more new Warrant certificates evidencing the right of the Holder thereof to purchase the same aggregate number of Warrant Shares as were purchasable upon exercise of this Warrant evidenced by the Warrant certificate or certificates exchanged. No fractional shares will be issued upon the exercise of any Warrant, but the Company will pay the cash value thereof determined as provided in this Warrant. This Warrant certificate is transferable at the office of the Company in the manner and subject to the limitations set forth in this Warrant. d. In lieu of exercising this Warrant by paying the Exercise Price in cash or by check, Holder may elect to receive shares equal to the value of this Warrant (or the portion thereof being canceled) by surrender of this Warrant at the principal office of the Company together with the Notice of Net Exercise annexed hereto in which event the Company shall issue to Holder a number of shares of the Company's Common Stock, computed using the following formula: Where X - The number of shares of Common Stock to be issued to Holder. X=(Y)(A-B) -------- A Y - The number of shares of Common Stock to be canceled pursuant to such exercise under this Warrant. A - The fair market value of one share of the Company's Common Stock, B - Exercise Price (as adjusted to the date of such calculations). For purposes of this Section, if the Company is not traded on the NASDAQ Stock Market, the fair market value of one share of the Company's Common Stock shall be the fair market value of such share as determined in good faith by the Board of Directors of the Company. 5. No Fractional Shares or Scrip. No fractional shares or scrip ----------------------------- representing fractional shares shall be issued upon the exercise of this Warrant. In lieu of any fractional share to which the Holder would otherwise be entitled, the Company shall make a cash payment equal to the Exercise Price multiplied by such fraction. 6. No Rights of Shareholder. The Holder shall not be entitled to vote or ------------------------ receive dividends or be deemed the holder of Common Stock or any other securities of the Company that may at any time be issuable on the exercise hereof for any purpose, nor shall anything contained herein be construed to confer upon the Holder, as such, any of the rights of a shareholder of the Company or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to give or withhold consent to any corporate action or to receive notice of meetings, or to receive dividends or subscription rights or otherwise until this Warrant shall have been exercised and the shares of Common Stock purchasable upon the exercise hereof shall have been issued, as provided herein. 7. Transfer of Warrant. ------------------- a. Warrant Register. The Company will maintain a register (the ---------------- "Warrant Register") containing the names and addresses of the Holder or Holders. Any Holder of this Warrant or any portion thereof may change his address as shown on the Warrant Register by written notice to the Company requesting such change. Any notice or written communication required or permitted to be given to the Holder may be delivered or given by mail to such Holder as shown on the Warrant Register and at the address shown on the Warrant Register. Until this Warrant is transferred on the Warrant Register of the Company, the Company may treat the Holder as shown on the Warrant Register as the absolute owner of this Warrant for all purposes. b. Non-transferability and Non-Negotiability of Warrant. Except as ---------------------------------------------------- otherwise provided below, this Warrant may not be transferred or assigned without compliance with all applicable federal and state securities laws by the transferor and the transferee (including the delivery of investment representation letters and legal opinions reasonably satisfactory to the Company). Any Holder of this Warrant or Warrant Shares (i) that is a partnership or like organization may assign distribute or transfer all or any portion of such securities to its partners or affiliated entities, or (ii) that is a corporation or other entity may distribute or transfer all or any portion of such securities to its affiliates, subsidiaries or its parent company or entity, and, in each case, shall not be obligated to provide the Company with any investment representation letters or legal opinions with respect to such assignment, distribution or transfer. c. Compliance with Securities Laws. ------------------------------- (1) Authorization. Holder has full power and authority to enter ------------- into this Warrant, and such Warrant constitutes its valid and legally binding obligation, enforceable in accordance with its terms. (2) Purchase Entirely for Own Account. This Warrant has been --------------------------------- purchased by the Holder for such Holder's own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and such Holder has no present intention of selling, granting any participation in, or otherwise distributing the same. Such Holder does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer, or grant participation to any person with respect to this Warrant or underlying shares of Common Stock. (3) Disclosure of Information. Such Holder acknowledges that it ------------------------- has received all the information that it has requested in connection with the purchase of this Warrant, including the Company's filings with the Securities and Exchange Commission. Holder further represents that it has had an opportunity to ask questions and receive answers from the Company, as well as to consult its own legal, tax and other advisors, regarding the information provided and the terms and conditions of the offering of this Warrant. Holder represents and warrants that it is prepared to lose its entire interest in this Warrant and the underlying shares of Common Stock and has not relied on the Company or any of the Company's advisors in determining whether to make this investment in the Company. (4) Investment Experience. Holder acknowledges that it is able --------------------- to fend for itself, can bear the economic risk of its investment and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in this Warrant and the underlying shares of Common Stock. Such Holder also represents it has not been organized for the purpose of acquiring this Warrant. (5) Accredited Investor. ------------------- (a) Holder is an "accredited investor" as defined below and understands the meaning of that term. (b) The term "accredited investor" as used herein refers to: i) Any bank as defined in section 3(a)(2) of the Act, or any savings and loan association or other institution as defined in section 3(a)(5(A) of the Act whether acting in its individual or fiduciary capacity; any broker dealer registered pursuant to section 15 of the Securities Exchange Act of 1934; any insurance company as defined in section 2(13) of the Act; any investment company registered under the Investment Borrower Act of 1940 or any business development company as defined in section 2(a)(48) of that Act; any Small Business Investment Borrower licensed by the U.S. Small Business Administration under section 301(c) or (d) of the Small Business Investment Act of 1958; any plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has total assets in excess of $5,000,000; any employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974, if the investment decision is made by a plan fiduciary, as defined in section 3(21) of such Act, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or if the employee benefit plan has total assets in excess of $5,000,000 or, if a self-directed plan, with investment decisions made solely by persons that are accredited investors; ii) Any private business development company as defined in section 202(a)(22) of the Investment Advisers Act of 1940; iii) Any organization described in section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000; iv) Any director, executive officer, or general partner of the issuer of the securities being offered or sold, or any director, executive officer, or general partner of a general partner of that issuer; v) Any natural person whose individual net worth, or joint net worth with that person's spouse, at the time of his purchase exceeds $1,000,000; vi) Any natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person's spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year; vii) Any trust with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a person who has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of the prospective investment or the issuer believes immediately prior to making any sale that such person comes within this description; or viii) Any entity in which all of the equity owners are accredited investors. As used in this Section, the term "net worth" means the excess of total assets over total liabilities. For the purpose of determining a person's net worth, the principal residence owned by an individual should be valued at fair market value, including the cost of improvements, net of current encumbrances. As used in this Section, "income" means actual economic income, which may differ from adjusted gross income for income tax purposes. Accordingly, the Holder should consider whether it should add any or all of the following items to its adjusted gross income for income tax purposes in order to reflect more accurately its actual economic income: any amounts attributable to tax-exempt income received, losses claimed as a limited partner in any limited partnership, and deductions claimed for depletion. (6) Restricted Securities. The Holder understands that this --------------------- Warrant and underlying Common Stock it is purchasing are characterized as "restricted securities" under U.S. federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and without registration under such laws and applicable regulations and cannot be resold without registration under the Act, except in certain limited circumstances. In this connection, the Holder represents that it is familiar with SEC Rule 144, as currently in effect, and understands the resale limitations imposed on these securities by the Act. (7) Representations by Foreign Investor. The Holder hereby ----------------------------------- represents that it has satisfied itself as to the full observance of the laws of its jurisdiction in connection with any invitation to subscribe for this Warrant and underlying shares of Common Stock, including (i) the legal requirements within its jurisdiction for the purchase of this Warrant and underlying shares of Common Stock, (ii) any foreign exchange restrictions applicable to such purchase, (iii) any governmental or other consents that may need to be obtained, and (iv) the income tax and other tax consequences, if any, that may be relevant to the purchase, holding, redemption, sale, or transfer of this Warrant and underlying shares of Common Stock. The Holder's subscription and payment for, and its continued beneficial ownership of this Warrant, will not violate any applicable securities or other laws of its jurisdiction. (8) Compliance with Securities Laws. Unless otherwise provided ------------------------------- herein, without in any way limiting the representations set forth above, the Holder further agrees not to make any disposition of all or any portion of this Warrant or any shares of Common Stock to be issued upon exercise hereof unless and until the transferee has agreed in writing for the benefit of the Company to be bound by the terms of this Warrant, provided and to the extent such sections are then applicable, and: (a) There is then in effect a registration statement under the Act covering such proposed disposition and such disposition is made in accordance with such registration statement; or (b) (1) the Holder shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition and (2) the Holder shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration of such securities under the Act. 8. Legends. This Warrant and all shares of Common Stock issued upon ------- exercise hereof will bear one or all of the following legends: (a) "THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO SUCH SECURITIES, OR DELIVERY OF AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES THAT SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE WITH THE ACT." (b) Any legend required by the laws of the State of California or other applicable authority, including any legend required by the California Department of Corporations and Sections 417 and 418 of the California Corporations Code. 9. Reservation of Stock. The Company covenants that during the term this -------------------- Warrant is exercisable, the Company will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of Common Stock upon the exercise of this Warrant and, from time to time, will take all steps necessary to amend its articles of incorporation to provide sufficient reserves of shares of Common Stock issuable upon exercise of this Warrant. The Company further covenants that all shares that may be issued upon the exercise of rights represented by this Warrant, upon exercise of the rights represented by this Warrant and payment of the Exercise Price, all as set forth herein, will be free from all taxes, liens, and charges in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously or otherwise specified herein) and will be fully paid and non-assessable. The Company agrees that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Common Stock upon the exercise of this Warrant. 10. Amendments and Waivers. ---------------------- a. Any term of this Warrant may be amended or waived with the written consent of the Company and the Holder. b. No waivers of or exceptions to any term, condition or provision of this Warrant, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such term, condition or provision. 11. Adjustments. The number of shares purchasable hereunder are subject to ----------- adjustment from time to time as follows: a. Merger, Sale of Assets, etc. If at any time, while this Warrant, ---------------------------- or any portion thereof, is outstanding and unexpired there shall be (i) a reorganization (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), (ii) a merger (other than a mere reincorporation merger) or consolidation of the Company with or into another corporation in which the Company is not the surviving entity, or a merger in which the Company is the surviving entity but the shares of the Company's capital stock outstanding immediately prior to the merger are converted by virtue of the merger into other property, whether in the form of securities, cash, or otherwise, or (iii) a sale or transfer of the Company's properties and assets as, or substantially as, an entirety to any other person, then, as a part of such reorganization, merger, consolidation, sale or transfer, lawful provision shall be made so that the holder of this Warrant shall thereafter be entitled to receive upon exercise of this Warrant, during the period specified herein and upon payment of the Exercise Price then in effect or by net exercise pursuant to Section 4.d., the number of shares of stock or other securities or property of the successor corporation resulting from such reorganization, merger, consolidation, sale or transfer which a holder of the shares deliverable upon such exercise of this Warrant would have been entitled to receive in such reorganization, consolidation, merger, sale or transfer, if this Warrant had been exercised immediately before the consummation of such reorganization, merger, consolidation, sale or transfer, all subject to further adjustment as provided in this Section 11. The foregoing provisions of this Section 11(a) shall similarly apply to successive reorganizations, consolidations, mergers, sales and transfers and to the stock or securities of any other corporation which are at the time receivable upon the exercise of this Warrant. If the per share consideration payable to the Holder hereof for shares in connection with any such transaction is in a form other than cash or marketable securities, then the value of such consideration shall be determined in good faith by the Company's Board of Directors. In all events, appropriate adjustment (as determined in good faith by the Company's Board of Directors) shall be made in the application of the provisions of this Warrant with respect to the rights and interests of the Holder after the transaction, to the end that the provisions of this Warrant shall be applicable after that event, as near as reasonably may be, in relation to any shares or other property deliverable after that event upon exercise of this Warrant. b. Reclassification, etc. If the Company at any time while this ---------------------- Warrant, or any portion thereof, remains outstanding and unexpired shall, by reclassification of securities or otherwise, change any of the securities as to which purchase rights under this Warrant exist into the same or a different number of securities of any other class or classes, this Warrant shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities which were subject to the purchase rights under this Warrant immediately prior to such reclassification or other change, and the Exercise Price therefor shall be appropriately adjusted, all subject to further adjustment as provided in this Section 11. c. Split, Subdivision or Combination of Shares. If the Company at ------------------------------------------- any time while this Warrant, or any portion thereof, remains outstanding and unexpired shall split, subdivide or combine the securities as to which purchase rights under this Warrant exist, into a different number of securities of the same class, this Warrant shall thereafter represent the right to acquire such number of securities as would have been issuable as the result of such change with respect to the securities which were subject to the purchase rights under this Warrant immediately prior to such change, and the Exercise Price for such securities shall be proportionately decreased in the case of a split or subdivision or proportionately increased in the case of a combination. d. Adjustments for Dividends in Stock or Other Securities or --------------------------------------------------------- Property. If while this - -------- Warrant, or any portion hereof, remains outstanding and unexpired the holders of the securities as to which purchase rights under this Warrant exist at the time shall have received, or, on or after the record date fixed for the determination of eligible shareholders, shall have become entitled to receive, without payment therefor, other or additional stock or other securities or property of the Company by way of dividend, then and in each case, this Warrant shall represent the right to acquire, in addition to the number of shares of the security receivable upon exercise of this Warrant, and without payment of any additional consideration therefor, the amount of such other or additional stock or other securities or property of the Company which such holder would hold on the date of such exercise had it been the holder of record of the security receivable upon exercise of this Warrant on the date hereof and had thereafter, during the period from the date hereof to and including the date of such exercise, retained such shares and/or all other additional stock available by it as aforesaid during such period, giving effect to all adjustments called for during such period by the provisions of this Section 11. e. Prior Notice of Certain Events. The Company will provide Holder ------------------------------ with notice of any merger, asset sale or dividend not less than ten (10) business days prior to the record date for such event. 12. Registration of Warrant Shares. ------------------------------ a. With respect to 100,000 of the Warrant Shares during the period beginning on the date of issuance of this Warrant and ending on the Expiration Date, and with respect to the remaining 100,000 Warrant Shares during the period beginning on the second anniversary hereof and ending on the Expiration Date (the Warrant Shares that are subject to registration at a given time are referred to herein as the "Registrable Warrant Shares"), the Holder shall have the right to request the filing of a registration statement on Form S-3 (such requests shall be in writing and shall state the number of shares of Registrable Warrant Shares to be disposed of and the intended methods of disposition of such shares by such Holder); provided, however, that the Company shall not be obligated to effect any such registration after the Company has effected two (2) such registrations pursuant to such a request of the Holders. b. In the case of each registration effected by the Company pursuant to Section 12.a., the Company will keep each Holder advised in writing as to the initiation of each registration and as to the completion thereof. At its expense, the Company will use its best efforts to: (1) File such S-3 registration statement with the Securities and Exchange Commission within 120 days of receive a request pursuant to Section 12.a. and, to the extent practicable, cause such registration statement to be declared effective within 120 days of such request. (2) Keep the registration statement effective for six months after the effective date of such registration statement; (3) Prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement; (4) Furnish such number of prospectuses and other documents incident thereto, including any amendment of or supplement to the prospectus, as a Holder from time to time may reasonably request; (5) Notify the Holder at any time when a prospectus relating to Registrable Warrant Shares is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading or incomplete in the light of the circumstances then existing, and at the request of any such seller, prepare and furnish to such seller a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such shares, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading or incomplete in the light of the circumstances then existing; (6) Cause all such Registrable Warrant Shares registered pursuant hereunder to be listed on each securities exchange on which similar securities issued by the Company are then listed. 13. Miscellaneous. ------------- a. Governing Law. This Warrant shall be governed by and construed ------------- under the laws of California. The parties to this Warrant hereby (i) irrevocably submit to the exclusive jurisdiction of the courts of California for the purpose of any action or proceeding arising out of or relating to this Warrant and any other documents and instruments relating hereto, (ii) agree that all claims in respect of any such action or proceeding may be heard and determined in such courts, (iii) irrevocably waive (to the extent permitted by applicable law) any objection which it now or hereafter may have to the laying of venue of any such action or proceeding brought in any of the foregoing courts, and any objection on the ground that any such action or proceeding in any such court has been brought in an inconvenient forum and (iv) agree that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner permitted by law. b. Notices. Unless otherwise provided, any notice required or ------- permitted under this Warrant shall be given in writing and shall be deemed effectively given upon personal delivery to the party to be notified or upon deposit with the United States Post Office, by registered or certified mail, postage prepaid and addressed to the party to be notified at the address indicated for such party on the signature page hereof in the case of the Company, and on the Warrant Register in the case of the Holder, or at such other address as such party may designate by ten (10) days' advance written notice to the other parties. c. Counterparts. This Warrant may be executed in two or more ------------ counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. d. Successor and Assigns. This Warrant shall bind and benefit the --------------------- Holder and each of its successors and assigns and the Company and each of its successors and assigns. IN WITNESS WHEREOF, each of Microelectronic Packaging, Inc., and the Holder has caused this Warrant to be executed by one of its duly authorized officers or such other authorized person or entity. Dated:September 24, 1998 MICROELECTRONIC PACKAGING, INC. By: /s/ Denis J. Trafecanty ----------------------- Denis J. Trafecanty Chief Financial Officer STMICROELECTRONICS PTE. LTD. By: /s/ Steven Rose ----------------------- Steven K. Rose ----------------------------- (Print Name of Signatory) Title: Vice President ----------------------- NOTICE OF PAID EXERCISE ----------------------- To: MICROELECTRONIC PACKAGING, INC. (1) The undersigned hereby elects to purchase __________ shares of Common Stock of Microelectronic Packaging, Inc. pursuant to Section 4(a) of the attached Warrant, and tenders herewith payment of the purchase price for such shares. (2) In exercising this Warrant, the undersigned hereby confirms and acknowledges that the shares of Common Stock are being acquired solely for the account of the undersigned and not as a nominee for any other party, and for investment, and that the undersigned will not offer, sell, or otherwise dispose of any such shares of Common Stock except under circumstances that will not result in a violation of the Securities Act of 1933, as amended, or any state securities laws or unless sold pursuant to Rule 144 of such Act. (3) Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below: --------------------------------------- [Name] And, if said number of shares of Common Stock shall not be all the shares of Common Stock purchasable under the within Warrant certificate, a new Warrant certificate is to be issued in the name of said undersigned for the balance remaining of the Warrant Shares purchasable thereunder less any fraction of a share paid in cash. NOTICE OF NET EXERCISE ---------------------- To: MICROELECTRONIC PACKAGING, INC. (1) The undersigned hereby elects to purchase __________ shares of Common Stock of Microelectronic Packaging, Inc. pursuant to Section 4.d. of the attached Warrant, such that an additional number of shares of Common Stock under the Warrant will be cancelled in respect of the purchase price in the manner set forth in Section 4.d. (2) In exercising this Warrant, the undersigned hereby confirms and acknowledges that the shares of Common Stock are being acquired solely for the account of the undersigned and not as a nominee for any other party, and for investment, and that the undersigned will not offer, sell, or otherwise dispose of any such shares of Common Stock except under circumstances that will not result in a violation of the Securities Act of 1933, as amended, or any state securities laws or unless sold pursuant to Rule 144 of such Act. (3) Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below: ------------------------------------ [Name] And, if number of shares of Common Stock being cancelled pursuant to Section 4.d. of the Warrant shall not be all the shares of Common Stock purchasable under the within Warrant certificate, a new Warrant certificate is to be issued in the name of said undersigned for the balance remaining of the Warrant Shares purchasable thereunder less any fraction of a share paid in cash. EX-10.85 3 AMENDMENT TO RESTRUCTRING AGREEMENT EXHIBIT 10.85 AMENDMENT --------- RESTRUCTURING, SETTLEMENT AND MUTUAL RELEASE AGREEMENT This Amendment is entered into as of August 11, 1998 between Microelectronic Packaging, Inc. ("MPI"), and Texas Instruments Singapore (PTE) Ltd. ("TI") the purpose of which is to amend that certain "Restructuring, Settlement and Mutual Release Agreement" (the "Settlement Agreement") entered into as of April 24, 1998 between MPI and TI. Capitalized terms otherwise defined herein, shall have the same meaning ascribed to them in the Settlement Agreement. RECITALS A. MPI and TI entered into the Settlement Agreement as of April 24, 1998 pursuant to which MPI and TI agreed to settle and restructure certain obligations of MPI whereby, among other things, MPI agreed to pay to TI the amount of US$1,077,147 within six (6) calendar months of the Execution Date. B. Pursuant to Section 7.h of the Settlement Agreement, the parties now desire to amend the Settlement Agreement to extend the period of time within which MPI is obligated to pay to TI the amounts required under the Settlement Agreement. NOW, THEREFORE, in consideration of the mutual promises contained herein and for other good and sufficient consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. Section 2 below shall amend, replace and supersede section 2 of the Settlement Agreement: 2. Settlement. In order to settle the defaults, amounts owed, ----------- debts, liabilities and other obligations pursuant to, in connection with, or arising out of the Agreement, the Guarantee, the Loan and Security Agreement and each of their respective related agreements, letters, documents and instruments (collectively, the "Loan Documents"), MPI agrees that by no later than May 1, 1999, MPI will pay to TI the amount of US $1,077,147, by wire transfer in accordance with the wire transfer instructions provided by TI. Upon acceptance of the parties, this Amendment, as of the day and year specified on page one hereof, shall become a part of the Settlement Agreement and all provisions of the Settlement Agreement not specifically inconsistent herewith shall remain in full force and effect. Nothing in the Settlement Agreement or this Agreement shall be construed to require MPI to make any payment obligations to TI required under the Settlement Agreement on a date prior to May 1, 1999. MICROELECTRONIC PACKAGING, INC. By: /s/ Denis J. Trafecanty --------------------------- Chief Financial Officer TEXAS INSTRUMENTS SINGAPORE (PTE) LTD. By: /s/ Dr. John Culbreth --------------------------- Finance Director EX-10.86 4 AMENDMENT TO RESTRUCTURING AGREEMENT EXHIBIT 10.86 AMENDMENT --------- RESTRUCTURING, SETTLEMENT AND MUTUAL RELEASE AGREEMENT This Amendment No. 1 is entered into as of September 1, 1998 by and among Microelectronic Packaging, Inc. ("MPI"), and Transpac Capital Pte. Ltd. ("Transpac"), Transpac Industrial Holdings Ltd., Regional Investment Company Ltd., and Natsteel Equity III Pte. Ltd., (collectively with Transpac, the "Investors"), the purpose of which is to amend that certain Restructuring, Settlement and Mutual Release Agreement" (the "Settlement Agreement") entered into as of April 22, 1998 between MPI and the Investors. Capitalized terms otherwise defined herein, shall have the same meaning ascribed to them in the Settlement Agreement. RECITALS A. MPI and the Investors entered into the Settlement Agreement as of April 22, 1998 pursuant to which MPI and the Investors agreed to settle and restructure certain obligations of MPI whereby, among other things, MPI agreed to pay to the Investors the amount of US$3,112,462.50 within six (6) calendar months of the Execution Date. B. Pursuant to Section 9.i of the Settlement Agreement, the parties now desire to amend subsection 2.b of the Settlement Agreement to extend the period of time within which MPI is obligated to pay to the Investors certain amounts required under the Settlement Agreement. NOW, THEREFORE, in consideration of the mutual promises contained herein and for other good and sufficient consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. Section 2.b. below shall amend, replace and supersede section 2 of the Settlement Agreement: 2. Settlement. In order to settle the defaults, amounts owed, ----------- debts, liabilities and other obligations pursuant to, in connection with, or arising out of the Agreement, the Guarantee, the Subscription Agreement and each of their respective related agreements, letters, documents and instruments (collectively, the "Loan Documents"), MPI agrees to undertake the following obligations: b. By no later than May 1, 1999, MPI will pay to the Investors the amount of US $3,112,462.50, by wire transfer to Transpac, as agent for the Investors, in accordance with the wire transfer instructions contained in Exhibit 1 attached hereto or such other written wire transfer instruction provided by Transpac to MPI. Upon acceptance of the parties, this Amendment No. 1, as of the day and year first set forth above, shall become a part of the Settlement Agreement and all provisions of the Settlement Agreement not specifically inconsistent herewith shall remain in full force and effect, including but not limited to Section 2.a. of the Settlement Agreement. MICROELECTRONIC PACKAGING, INC. By: /s/ Denis J. Trafecanty ---------------------------------- Chief Financial Officer TRANSPAC CAPITAL PTE LTD By: /s/ Caroline Chan ---------------------------------- Senior Vice President TRANSPAC INDUSTRIAL HOLDINGS LTD. By: /s/ Caroline Chan ---------------------------------- Company Secretary REGIONAL INVESTMENT COMPANY LTD By: /s/ Caroline Chan ---------------------------------- Authorized Signatory NATSTEEL EQUITY III PTE LTD By: /s/ Dr. Josephine Kwa Lay Keng ---------------------------------- Senior Vice President TRANSPAC CAPITAL PTE LTD, as agent By: /s/ Caroline Chan ---------------------------------- Senior Vice President EX-10.87 5 AMENDMENT TO RESTRUCTURING AGREEMENT EXHIBIT 10.87 AMENDMENT --------- RESTRUCTURING, SETTLEMENT AND MUTUAL RELEASE AGREEMENT This Amendment is entered into as of August 11, 1998 between Microelectronic Packaging, Inc. ("MPI"), and ORIX Leasing Singapore Limited ("ORIX") the purpose of which is to amend that certain "Restructuring, Settlement and Mutual Release Agreement" (the "Settlement Agreement") entered into as of April 14, 1998 between MPI and ORIX. Capitalized terms otherwise defined herein, shall have the same meaning ascribed to them in the Settlement Agreement. RECITALS A. MPI and ORIX entered into the Settlement Agreement as of April 14, 1998 pursuant to which MPI and ORIX agreed to settle and restructure certain obligations of MPI whereby, among other things, MPI agreed to pay to ORIX the amount of US$483,056.10 within six (6) calendar months of the Execution Date. B. Pursuant to Section 6.h of the Settlement Agreement, the parties now desire to amend the Settlement Agreement to extend the period of time within which MPI is obligated to pay to ORIX the amounts required under the Settlement Agreement. NOW, THEREFORE, in consideration of the mutual promises contained herein and for other good and sufficient consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. Section 2 below shall amend, replace and supersede section 2 of the Settlement Agreement: 2. Settlement. In order to settle the defaults, amounts owed, ----------- debts, liabilities and other obligations pursuant to, in connection with, or arising out of the Agreement, the Guarantee, the Loan and Security Agreement and each of their respective related agreements, letters, documents and instruments (collectively, the "Loan Documents"), MPI agrees that by no later than May 1, 1999, MPI will pay to ORIX the amount of US $483,056, by wire transfer in accordance with the wire transfer instructions provided by ORIX. Upon acceptance of the parties, this Amendment, as of the day and year specified on page one hereof, shall become a part of the Settlement Agreement and all provisions of the Settlement Agreement not specifically inconsistent herewith shall remain in full force and effect. Nothing in the Settlement Agreement or this Agreement shall be construed to require MPI to make any payment obligations required under the Settlement Agreement on a date prior to May 1, 1999. MICROELECTRONIC PACKAGING, INC. By: /s/ Denis J. Trafecanty --------------------------- Chief Financial Officer ORIX LEASING SINGAPORE LIMITED By: /s/ Kwek Chye Teck --------------------------- Managing Director EX-10.88 6 AMENDMENT TO FORBEARANCE, RESTRUCTURE & MUTUAL REL EXHIBIT 10.88 AMENDMENT --------- FORBEARANCE, RESTRUCTURE AND MUTUAL RELEASE AGREEMENT This Amendment is entered into as of November 5, 1998 by and among Microelectronic Packaging, Inc. ("MPI"), CTM Electronics, Inc. ("CTM"), Microelectronic Packaging America ("MPA") and Motorola, Inc. ("Motorola"), the purpose of which is to amend that certain "Forbearance, Restructure and Mutual Release Agreement" (the "Agreement") entered into as of July 1, 1998 between MPI, CTM, MPA and Motorola. Capitalized terms otherwise defined herein, shall have the same meaning ascribed to them in the Settlement Agreement. RECITALS A. MPI, CTM, MPA and Motorola entered into the Agreement as of July 1, 1998 pursuant to which MPI and Motorola agreed to settle and restructure certain obligations of MPI whereby, among other things, MPI agreed to pay to Motorola the amount of US$877,331 within six (6) calendar months of the Execution Date ("Payment Deadline"). B. Pursuant to Section 4.a of the Agreement, the parties now desire to amend the Agreement to extend the period of time within which MPI is obligated to pay to Motorola the amounts required under the Agreement. NOW, THEREFORE, in consideration of the mutual promises contained herein and for other good and sufficient consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. Section 4.a below shall amend, replace and supersede section 4.a of the Agreement: 4.a Discounted Payment. MPI agrees that by no later than May 1, 1999 ------------------- ("Payment Deadline"), MPI will pay to Motorola the amount of US$ 887,331.00 ("Discounted Payment Amount") by wire transfer in accordance with the wire transfer instructions provided by Motorola. Upon acceptance of the parties, this Amendment, as of the day and year specified on page one hereof, shall become a part of the Agreement and all provisions of the Agreement not specifically inconsistent herewith shall remain in full force and effect. MICROELECTRONIC PACKAGING, INC. By: /s/ Denis J. Trafecanty --------------------------- Denis J. Trafecanty Chief Financial Officer CTM ELECTRONICS, INC. By: /s/ Denis J. Trafecanty --------------------------- Denis J. Trafecanty Chief Financial Officer MICROELECTRONIC PACKAGING AMERICA By: /s/ Denis J. Trafecanty --------------------------- Denis J. Trafecanty Chief Financial Officer MOTOROLA, INC. By: B. Gutmann --------------------------- Bernard Gutmann SCG Group Controller EX-27.1 7 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE SHEET AS OF SEPTEMBER 30, 1998 AND THE STATEMENTS OF OPERATIONS, CASH FLOWS AND SHAREHOLDERS EQUITY FOR THE PERIOD ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS 3-MOS DEC-31-1998 DEC-31-1997 JUL-01-1998 JUL-01-1997 SEP-30-1998 SEP-30-1997 516 1,296 0 0 1,837 2,504 0 0 3,393 4,230 6,136 8,417 1,930 1,212 0 0 8,264 9,911 36,690 50,074 59 69 0 0 0 0 40,114 40,016 (68,599) (80,248) 8,264 9,911 3,739 5,655 3,739 5,655 2,806 4,019 2,806 4,019 0 0 0 0 5 7 240 569 0 0 240 569 0 0 0 0 0 0 240 569 0.02 .05 0.02 .05
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