-----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, MWAeWIPoqdHm9BocH/jvm7qwSS/LNYVqXlF97T/oTKvTDyypvCx+Y7OepTSjWNAF JT4iMQcLkyKqYogEDvm28Q== 0000950147-97-000202.txt : 19970401 0000950147-97-000202.hdr.sgml : 19970401 ACCESSION NUMBER: 0000950147-97-000202 CONFORMED SUBMISSION TYPE: 10KSB40 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CERPROBE CORP CENTRAL INDEX KEY: 0000725259 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS, NEC [3679] IRS NUMBER: 860312814 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB40 SEC ACT: 1934 Act SEC FILE NUMBER: 000-11370 FILM NUMBER: 97571190 BUSINESS ADDRESS: STREET 1: 600 S ROCKFORD DR CITY: TEMPE STATE: AZ ZIP: 85281 BUSINESS PHONE: 6029677885 MAIL ADDRESS: STREET 1: 600 S ROCKFORD DR CITY: TEMPE STATE: AZ ZIP: 85281 10KSB40 1 FORM 10KSB40 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------- FORM 10-KSB Annual Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 1996 Commission File Number 0-11370 CERPROBE CORPORATION ---------------------------------------------- (Name of small business issuer in its charter) Delaware 86-0312814 - ------------------------------- ------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 600 South Rockford Drive, Tempe, Arizona 85281 ---------------------------------------------- (Address of principal executive offices)(Zip Code) Issuer telephone number, including area code: (602) 967-7885 -------------- Securities registered under Section 12(b) of the : None ------------------------ (Title of Class) Securities registered under Section 12(g) of the Act: Common Stock, par value $.05 per share -------------------------------------- (Title of Class) Indicate by check mark whether the issuer (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 --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ X ]. The issuer's net sales for the fiscal year ended December 31, 1996 were $37,308,199. As of March 20, 1997, the aggregate market value of the voting stock held by non-affiliates of the registrant, computed by reference to the last sale price of such stock as of such date on the Nasdaq National Market, was $49,604,602. Shares of common stock held by each officer and director and by each person who owned 5% or more of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily conclusive. As of March 20, 1997, there were 6,353,047 shares of the registrant's common stock outstanding. Transitional Small Business Disclosure Format: Yes No X --- --- DOCUMENTS INCORPORATED BY REFERENCE Portions of the issuer's definitive Proxy Statement for the 1997 Annual Meeting of Stockholders are incorporated by reference in Part III hereof. CERPROBE CORPORATION ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 1996 TABLE OF CONTENTS
Page ---- PART I ITEM 1. DESCRIPTION OF BUSINESS............................................... 1 ITEM 2. DESCRIPTION OF PROPERTIES............................................. 21 ITEM 3. LEGAL PROCEEDINGS..................................................... 21 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................... 22 PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.............. 22 ITEM 6. SELECTED FINANCIAL DATA; MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................... 23 ITEM 7. FINANCIAL STATEMENTS ................................................. 31 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.............................................. 31 PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT............ 31 ITEM 10. EXECUTIVE COMPENSATION................................................ 31 ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............................................................ 31 ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................ 31 PART IV ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K........................................................... 32 SIGNATURES.............................................................................. 38
PART I ITEM 1. DESCRIPTION OF BUSINESS Introduction and General Development of Business Cerprobe Corporation ("Cerprobe" or the "Company") designs, manufactures, markets, and services high performance products and equipment for use in the testing of integrated circuits ("ICs") for the semiconductor industry. Historically, the Company has designed, manufactured, and marketed IC probe card products and automatic test equipment ("ATE") interface assemblies. Through the acquisition of CompuRoute, Inc. ("CompuRoute") in December 1996, the Company expanded its product and service offerings to include the design, manufacture, and marketing of ATE test board products and other complex, multilayer printed circuit boards ("PCBs") primarily for use in semiconductor testing applications. The Company also refurbishes, reconfigures, and services wafer probers through Silicon Valley Test & Repair, Inc., a wholly owned subsidiary acquired in January 1997 ("SVTR"). Cerprobe's products and services enable semiconductor manufacturers, such as Intel, Motorola, Texas Instruments, and IBM, among others, to test the integrity of their ICs during the batch fabrication stage of the manufacturing process used in manufacturing ICs in wafer form. Testing ICs during the batch fabrication stage permits semiconductor manufacturers to identify defective products early in the manufacturing process, which improves overall product quality and lowers manufacturing costs. The CompuRoute acquisition also enabled the Company to offer a line of products used in the final performance testing and sorting of packaged ICs. The Company markets its products and services worldwide to semiconductor manufacturers, both those who manufacture ICs for resale and those who manufacture ICs for inclusion in their own products. The Company has grown substantially over the last three years as the Company has benefited from substantial growth in worldwide demand for ICs. Net sales have increased from $14.3 million for 1994 to $26.1 million for 1995, and to $37.3 million for 1996. Similarly, the Company's net income has increased from $1.2 million for 1994, to $2.4 million for 1995, and to $3.2 million for 1996 (before a one-time charge for purchased in-process research and development of $4.6 million, resulting in a net loss of $1.4 million). This growth resulted primarily from internal product development and strategies. However, the Company also benefited from its acquisition in April 1995 of Fresh Test Technology Corporation, whose complementary products contributed approximately $4 million to 1995 net sales and approximately $7 million to 1996 net sales. To further expand its semiconductor test product and service offerings, Cerprobe acquired CompuRoute in December 1996 and SVTR in January 1997. CompuRoute's net sales and net income for the fiscal year ended December 31, 1996 were $10.4 million and $0.5 million, respectively, and SVTR's net sales and net loss for the same period were $14.6 million and $0.4 million, respectively. The Company believes that it is positioned to continue its growth as a result of its strength in designing, producing, and delivering, on a timely and cost-efficient basis, a broad range of custom or customized, high quality test products and services for semiconductor manufacturers in the U.S., Europe, and Asia. The Company maintains regional full service facilities in Arizona, California, and Texas as well as sales offices in Oregon, Colorado, Florida, and Massachusetts to service the U.S. market for its products and services. The Company maintains a full service facility in Scotland to serve the European market, and opened full service facilities in Singapore and Taiwan in April 1996 and January 1997, respectively, to serve the Southeast Asia market. Each of the Company's facilities is located in proximity to semiconductor manufacturing centers. The Company was incorporated in California in 1976 and reincorporated in Delaware in May 1987. The Company maintains its principal executive offices at 600 South Rockford Drive, Tempe, Arizona 85281, and its telephone number is (602) 967-7885. Unless the context indicates otherwise, all references to "Cerprobe" or the "Company" refer to Cerprobe Corporation and its subsidiaries. Industry Background During the past three decades, the demand for ICs has increased dramatically. The semiconductor has enabled the electronics industry to decrease the size, improve the performance, and expand the capabilities of electronic products, such as computers and cellular phones. As the electronics industry has become more sophisticated, it has developed the technology to reduce the size of components and to fabricate a complete electronic circuit on a single substrate referred to in the industry as a "chip." A number of components integrated on a single chip to form a circuit is known as an "integrated circuit." ICs are widely used in the automotive, computer, telecommunications, and consumer electronics industries. Demand for products incorporating ICs continues to increase as semiconductor manufacturers have decreased the size and improved the performance capabilities of ICs. ICs generally are manufactured using a batch fabrication process in which ICs are fabricated by repeating a complex series of process steps on a wafer substrate, which is usually made of silicon and measures three to eight inches in diameter. A finished wafer consists of many ICs (referred to as "die" while in wafer form), the number depending on the dimensions of the circuits and the size of the wafer. Integrated Circuit Testing Semiconductor manufacturers use probing equipment during the design and manufacturing processes to verify design specifications, identify defective ICs, ensure conformance with quality standards, and classify ICs according to performance characteristics. Most semiconductor manufacturers test ICs by probing the die in wafer form to determine whether each individual IC meets design specifications. Probing involves establishing temporary electrical contact between the device under test ("DUT") and the automatic test equipment ("ATE"). The number of die on any wafer meeting specifications varies depending upon the complexity of the circuit and other manufacturing related aspects. Semiconductor manufacturers generally test each IC two or three times before completion of the fabrication process, in order to maintain high manufacturing yields and acceptable profit margins. Testing is performed during the wafer fabrication process ("in-line testing") and at the completion of the wafer fabrication process ("end-of-line testing") to measure electrical parameters that verify the reliability of the wafer fabrication process, while functional testing is performed after the wafer fabrication ("wafer sort") to identify ICs that do not conform to particular electrical specifications. Semiconductor manufacturers use probe cards, ATE interfaces, and wafer probing equipment primarily during the wafer sort, which occurs before the separation and packaging of each individual IC. The testing of ICs in wafer form is important to avoid incurring the significant expense of assembling ICs that do not meet specifications. After wafer probing, ICs that meet specifications are separated from the batch and bonded onto plastic, ceramic, or other packages with extended leads. Packaged devices are loaded into a handler and the ATE test board is placed on the tester and coupled to the handler. The handler then automatically inserts each IC into the ATE test board, and the tester tests the IC and signals the handler if the IC is good or defective so the handler can automatically sort the ICs that pass the test. Wafer Probing Semiconductor manufacturers test ICs in wafer form by means of a probing system, which transmits electrical signals to the ICs and analyzes the signals upon their return. The principal components of a probing system include: (i) a probe card, which consists of a complex, multilayer printed circuit board ("PCB") and numerous probes positioned to "touch down" on or make electrical contact with a series of metallized pads on the ICs; (ii) a wafer prober, a piece of capital equipment that moves the wafers into position enabling the probe card probes to touch down on the pads; (iii) an ATE, a piece of capital equipment that transmits the electrical signals to the ICs and evaluates signals upon their return; and (iv) an ATE interface assembly, consisting of a complex, multilayer PCB combined with custom mechanical fixturing, which transmits the electrical signals between the ATE and the probe card. During the probing process, the wafer prober successively positions each IC on a wafer so that the pads on the IC align under and make contact with the probes on the probe card, which is mounted on the wafer prober. 2 The ATE transmits electrical signals through the ATE interface assembly, to the probe card, then to the metallized pads on the IC, and then evaluates the return signals from the probe card to determine whether a particular IC meets design specifications. The probing process also determines the performance capabilities of each IC. Package Testing ICs that pass the initial testing at the wafer level are separated from the wafer and bonded onto plastic, ceramic, or other packages with extended leads. The packaged IC must then be tested to validate design and performance specifications. Packaged devices are loaded into a piece of capital equipment called a handler. The ATE test board, which is placed on the tester and coupled to the handler, performs a similar function as the interface between the tester and the wafer prober in the wafer test process. The handler, which operates like a wafer prober in the wafer test process, then automatically positions each IC into a test socket device that is connected to the ATE test board. The tester then tests the IC and signals the handler if the IC is good or defective so the handler can automatically sort the ICs that pass the test. Market for Cerprobe's Products and Services Recent trends, including rapidly growing demand for semiconductors and advances in semiconductor technology, have driven increased demand for semiconductor testing products, such as probe cards, ATE interface assemblies, wafer probing equipment, and ATE test boards. As demand for semiconductors increases, semiconductor manufacturers typically require additional probing devices to meet their growing capacity requirements. IC technology is changing rapidly due to constantly increasing demand for greater functionality and higher speeds. Advances in IC design and process technologies have enabled manufacturers to produce smaller ICs with even greater circuit densities, levels of integration, and complexity to meet these demands. Advances in semiconductor technology have resulted in higher pin counts, more varied configurations, and increasingly complex semiconductor devices. As a result of the increased complexity of ICs and shorter product life cycles, demand for sophisticated probing devices has increased. These trends in the IC market have caused corresponding trends in the probe card, ATE interface assembly, wafer prober equipment and services, and ATE test board markets. Testing more complex ICs requires more sophisticated probe cards, ATE interface assemblies, and ATE test board products. The increased sophistication of ICs also has resulted in increased testing time, which lowers IC production rates. In addition, probe cards, ATE interface assemblies, and ATE test boards, which all employ complex, multilayer PCBs, must have greater performance capabilities in order to test the increasingly complex circuitry and higher pin counts of ICs. IC test product manufacturers also must have the capability to handle increasingly varied IC configurations. IC manufacturers are placing added emphasis on greater accuracy, testing at higher speed, multiple DUT testing, and quicker turnaround times for probing devices and packaged testing products. The long-term growth in demand for ICs and the required production capacity to meet this demand drives the market for wafer prober equipment and services. To meet forecasted capacity requirements, the semiconductor manufacturing industry will add approximately 70 new semiconductor fabrication facilities ("fabs") by the year 2001 according to Integrated Circuit Engineering, an independent semiconductor research company. The market value for new wafer probers and associated equipment in the new and existing fabs is estimated to be $476 million in 1997 and growing at an average annual rate of 21% to the year 2001, according to VLSI Research, an independent semiconductor research organization. Because of the escalating costs of new fabs, the Company's reconditioned/reconfigured wafer probers are increasingly being utilized by manufacturers in order to extend the life of an existing fab and minimize the overall fab investment. Product life, which is the time between the introduction of a new product and when it becomes obsolete due to new products that are faster, smaller, and/or more feature laden, is becoming shorter, requiring companies to develop new and better products in less time to be competitive. Because of the intense competition among semiconductor manufacturers to be first to market with a new IC and gain a competitive edge, design and production cycles continue to shrink. These factors have resulted in increased demand for sophisticated test products that can be produced in short lead times. 3 The probe testing of a single IC can last from a few milliseconds to over a minute depending on the complexity of the semiconductor device. Some ICs contain more than five million transistors. Unlike most of the equipment used in the semiconductor manufacturing process, which typically has a long life cycle, probe cards have a short life span and are generally considered consumables in the semiconductor manufacturing process. Probe cards for application specific integrated circuits ("ASICs") might be used to test a single batch of 25 wafers and then discarded. The average life of a probe card ranges from 200,000 to 500,000 touchdowns. Cerprobe estimates that about one-third of its probe cards become obsolete within six months of initial placement into service. However, damage due to faulty test handling equipment or operator error can render a probe card useless prior to the expiration of its normal useful life. Cerprobe's Strategy Cerprobe believes it has become a leader in providing its customers with high quality semiconductor testing products and services by addressing many of the challenges associated with the testing of complex ICs through a combination of strengths, involving advanced technical capabilities, a broad line of high quality products, and close relationships with leading IC manufacturers. Cerprobe's strategy is to continue to increase its share of the domestic semiconductor test product market and to continue expanding into international markets. The Company's implementation of this strategy includes the following key elements: o Focus on Technological Innovation. The Company intends to continue to work closely with major semiconductor manufacturers in an effort to anticipate and address technological advances in semiconductor testing. Cerprobe will continue to focus its probe card engineering and product development efforts toward producing a variety of high performance custom-designed cards that have the ability to test more complex ICs and to test at higher speeds. The Company supports higher IC production rates through the use of leading edge materials and proprietary circuit design methods in its probe cards, ATE interface assemblies, and ATE test boards. Cerprobe is collaborating with ATE manufacturers to produce higher performance PCBs using advanced materials and fabrication processes. SEMATECH, the U.S. semiconductor industry consortium, which defines the standards for future semiconductor products, awarded Cerprobe two research and development contracts in 1996. Cerprobe will continue to work with SEMATECH during 1997 to develop testing products that probe tighter pitch, higher temperatures and frequencies, multiple DUT, and area array. The Company also will continue its efforts to develop proprietary components, software, and processes to provide value-added wafer probing equipment refurbishment and reconfiguration services. o Maintain Strong Customer Relationships. Cerprobe maintains long standing relationships with many of its customers. The Company's development of products and product enhancements is market driven. Engineering, sales, and management personnel collaborate closely with customer counterparts to determine customers' needs and specifications. The Company's products are custom-designed or customized for testing specific semiconductor devices. To help meet the demanding service needs of the semiconductor manufacturing industry, all of the Company's facilities are located in proximity to semiconductor manufacturing centers in the U.S., Europe, and Asia. Cerprobe expects to continue to strengthen its existing customer relationships by continuing to provide quality products and high levels of service and support. o Provide Quality Products and Services. The Company believes it has developed a reputation as a leader in providing high quality products and services. This high quality level is achieved through a robust, documented, and controlled manufacturing process, and the application of sound quality management policies and practices. ISO 9000, the internationally recognized standard for quality management, sets the criterion for Cerprobe's quality management system and is being implemented at all manufacturing sites. Cerprobe's use of advanced metrology tools, which ensure precise measurement 4 of all key product parameters, is a cornerstone of its quality management system. As the size of the ICs is driven smaller by advances in IC technology, the accuracy of measurements becomes increasingly important. The Company's Quality and Engineering Departments work together to define measurement needs and identify tools that can achieve the desired results. Cerprobe believes that its size and production methods allow it to provide its customers with high quality products and services with quick turnaround times. o Expand to International Markets. The Company intends to continue its expansion into international markets including Europe and Asia. Cerprobe has begun to pursue these markets by aggressively mounting a focused sales and marketing effort directed at selected key semiconductor manufacturers abroad. Cerprobe believes that its recent international successes are in part due to its strategy of locating manufacturing plants close to customer sites. Cerprobe's international expansion includes the establishment of full service sales and manufacturing facilities in Scotland, Singapore, and Taiwan. o Expand Product Lines and Services. The Company intends to capitalize on its market position and technical expertise to further broaden existing product lines through internally developed products and from time to time through acquisitions and/or joint ventures. Currently, Cerprobe is focused on providing a total system solution for semiconductor test integration. Assuring the integrity of the electrical test signal, which passes from the ATE to the DUT and is returned for evaluation, is essential to semiconductor testing. Cerprobe believes it is the only company that is currently able to design, manufacture, and assemble all components in this critical path, which includes test boards, interfaces, probe cards, and electrical and mechanical connections, as well as wafer prober products and services. Cerprobe developed and introduced its CerCardTM probe card product in 1990. In early 1995, the Company acquired Fresh Test Technology Corporation, which enabled Cerprobe to expand its product line to include ATE interfaces and custom-designed PCBs. The acquisition of CompuRoute enabled Cerprobe to offer ATE test boards and the design and fabrication of complex, multilayer PCBs. The acquisition of SVTR enabled the Company to offer wafer prober equipment refurbishment and upgrading services. Products and Services Probe Card Products Probe card products constitute the majority of Cerprobe's business. Cerprobe believes it is the leading U.S. producer of probe cards. Probe cards accounted for approximately 81%, 84%, and 96% of net sales for 1996, 1995, and 1994, respectively. Because of the CompuRoute and SVTR acquisitions and the related new product and service offerings of the Company in 1997, the Company expects that probe card sales consequently will account for a smaller percentage of 1997 net sales. Cerprobe's probe cards generally range in price from $500 to $24,000, but may be priced higher depending upon the complexity and performance specifications of the probe cards. The probe card consists of a complex, multilayer PCB and utilizes a number of probes designed to separately contact (or "probe") a series of electrical contact points (or "pads") on the IC. Because the type and complexity of the IC to be tested vary, the number and positioning of the probes and the size of each probe card must be custom designed for the specific ICs being tested to ensure proper alignment. The metallized pads on the IC to be tested generally are located on the periphery of the circuit. As the number of pads increases due to the type and complexity of the IC being tested, certain customers place pads in the center as well as on the periphery of the IC being tested. This design is known as an "array." 5 There are four types of probe card technologies currently available in production. 1. CerCardTM/epoxy ring technology uses probes that connect directly to a printed circuit board. Probe cards using this type of technology are capable of high speed, high density probing. Cerprobe introduced the CerCardTM in October 1990. Sales of the CerCardTM generated approximately 70% of Cerprobe's net sales in 1996 as compared to approximately 68% of Cerprobe's net sales in 1995. Cerprobe anticipates that the CerCardTM will continue to account for a substantial portion of Cerprobe's probe card business in the future. 2. Ceramic/metal blade technology uses a ceramic or metal blade attached to a needle designed to make contact with the pads. Probe cards using ceramic blade technology, which was developed and patented by Cerprobe, are capable of low speed, low density probing. With optional features, the ceramic blade can be used for high speed probing. Cerprobe will continue to manufacture ceramic blade probe cards; however, Cerprobe expects that ceramic blade probe cards will account for a decreasing portion of Cerprobe's probe card business in the future. 3. Buckle beam technology uses vertical probes that emerge from a pattern that mirrors the pattern of the pads on the IC being tested. Probe cards using this technology are capable of probing pads in the center of an IC using an "array" design. This technology generally is used for high density, low speed applications. 4. Membrane technology uses a thin film flexible circuit with "bumps," rather than probes, designed to make contact with the pads. Probe cards using this technology were introduced in 1988 and are intended for high speed, high density applications. Other probe card technologies are being developed, such as quadrant replaceable and silicon membrane, but the Company does not believe such technologies currently are production worthy, primarily because these technologies result in greater costs and slower turnaround times. Cerprobe estimates that products utilizing CerCardTM/epoxy ring and ceramic blade technologies account for approximately 85% of the world market for IC probe card products, that products utilizing the metal technology account for approximately 10% of the world market, and that products using other technologies constitute less than 5% of the available world market. All of Cerprobe's internally developed probe cards utilize either CerCardTM/epoxy ring or ceramic blade technologies. In addition, in March 1997, the Company entered into a joint venture with a French semiconductor testing and engineering company to assemble and repair a vertical probe device originally developed by IBM. The Company will be the exclusive distributor for the product in the U.S. and Asia. Cerprobe has invested over 20 years in the design of different types of PCBs, blades, and probes, and the manufacturing processes required to assemble these products into a finished probe card. Because the signals carried by the probe card are very sophisticated and vary by customer, Cerprobe manufactures many types of PCBs, blades and probes, each of which may be individually designed to meet the specifications of each customer. ATE Interface Assemblies An ATE interface assembly is used to carry signals from the ATE to the probe card. An interface assembly typically consists of two intricate multilayer PCBs connected by either a system of cables varying in length from less than one inch up to six feet or increasingly, spring-loaded "pogo" contact pins. Interface assembly products range from small, single board, cable-type interfaces for less complex systems to high speed, high frequency, digital or mixed signal interfaces used in testing more complex ICs. One end of the interface connects to the ATE and the other to a probe card fixture mounted on a prober that holds the probe card in a stationary position. Each ATE interface assembly generally must be custom designed for each probe card application. Cerprobe's computer-aided design system is used to design the interface assemblies, each of which has hundreds 6 of intricate signal lines. In each case, the integrity of the test is highly dependent on maintaining the quality of the signal between the ATE and the IC being tested. Cerprobe's ATE interface product line transmits a "clean" signal from the ATE to the probe card and carries a return signal back to the ATE after the circuit processes the signal. Cerprobe's interface products are designed to optimize the integrity of return signal data through the reduction of channel crosstalk and the matching of delay times and impedance, thereby realizing accurate circuit yields. Yield is the ratio of good circuits to total circuits per processed wafer and is an important cost factor for Cerprobe's customers. Because Cerprobe's interfaces enable the ATE to provide reliable yield data by allowing for clear signal transmission, interfaces can also be cost saving devices. Cerprobe's interface products feature ease of mechanical installation in the prober and facilitate access to the wafer during testing. Cerprobe also produces another interface product known as a "planarization motherboard" ("PMB"), which is a modified probe card fixture sometimes used in the manufacture, repair, and inspection of probe cards. Customers of Cerprobe that maintain and inspect their probe cards will continue to purchase PMBs even though their demand for other interface products may decrease. In addition, motherboards are a necessary part of Cerprobe's manufacturing operations. The useful life of the ATE interface theoretically should match the 5-7 year life of the ATE; however, any upgrade of the ATE and/or reconfiguration of the prober used with a specific ATE will necessitate a new ATE interface assembly. Accordingly, the Company's ATE interface products have an average life of 2-3 years. Cerprobe increased sales of ATE interfaces as a result of the acquisition in April 1995 of Fresh Test Technology Corporation, a company engaged primarily in the design, manufacture, and sales of ATE interface products. Cerprobe's ATE interface assemblies range in price from $1,000 to $65,000. ATE Test Boards Through the acquisition of CompuRoute in December 1996, Cerprobe has expanded its products and services to include custom-designed ATE test boards for testing of ICs in packaged form. Some of these PCB-based products mount directly on the ATE test head, while others are interface or daughter boards, which consist of multiple PCBs connected either by cables or pogo pins. The Company has developed a number of master data bases for different ATEs, which are used as a starting design that is then customized for the particular IC to be tested. The Company also makes two other semiconductor test board products. The first is a product used to test ATE interface boards off-line, thereby eliminating the need for valuable ATE tester time, which is better utilized testing ICs. Each system, called an Auto-Verifier, consists of a test fixture, computer, printer, and test matrix interface mounted on a custom cart. This product may be used for either manual testing or volume production testing. The second product is an evaluation module product. Evaluation modules are assembled PCBs used by semiconductor manufacturers to demonstrate the capabilities of their ICs. Evaluation modules have been produced for such products as analog-to-digital converters, phase-lock loops, and audio amplifiers. Cerprobe's ATE test board products range in price from $10,000 to $70,000. The Company also designs and fabricates certain non-ATE boards. Some of these consist of high performance boards similar in complexity to ATE PCBs, while others consist of lower technology PCBs. Because non-ATE boards are easier to design and manufacture, competition is greater and profit margins are lower in this market, although volumes tend to be higher and production usually can be scheduled over a longer period of time. The CompuRoute acquisition also enabled the Company to internalize the fabrication of PCBs, which are a critical component in its probe card and ATE interface assembly products, rather than rely exclusively on third-party PCB manufacturers. In order to maximize consolidated profit margins, however, which typically are higher for PCBs sold to third parties, the Company intends to consume its internal PCB fabrication capacity only for prototypes, quick-turn customer needs, and research and development. The Company estimates that these activities will constitute less than 20% of its current internal capacity. 7 Wafer Prober Products and Services Through the acquisition of SVTR in January 1997, the Company has expanded its services to include refurbishing, reconfiguring, and servicing wafer probers. The wafer prober is a piece of capital equipment that successively positions each IC on a wafer so that the pads on the IC align under and make contact with the probes on the probe card, which is mounted on the wafer prober. The Company currently is focusing it services on wafer probers originally manufactured by Electroglas, Inc. ("Electroglas"), because the Company believes that Electroglas has the largest installed base of wafer probers in the world, outside of Japan. Prober refurbishment requires the Company to overhaul, reprofile, and recertify its customers' wafer probers. Refurbishing extends the life of the equipment and defers the need to buy new capital intensive probing equipment. The Company either develops independent sources for most of the components necessary for refurbishment or internally produces the part, particularly when the required part has been discontinued by the original equipment manufacturer. Prober reconfiguration requires the Company to retrofit its customers' wafer probers with greater/additional wafer diameter capability and/or accuracy positioning equipment. The Company has developed the components and processes necessary to reconfigure probers originally designed to handle six-inch wafers to the current advanced fab requirement of eight-inch wafers. Many fab production managers consider conversion of their existing six-inch equipment as an effective way to stretch their capital equipment budgets and an expedient way to upgrade to eight-inch wafer capability. Additionally, each conversion provides the Company with discarded six-inch components, which can be reconditioned and used for the Company's service and repair business. The Company also converts older generation four-inch probers into a single unit, which is able to handle four, five, and six-inch wafers. The demand for six-inch, wafer probers remains strong, especially in developing nations. The Company recently introduced a reaccurization service in which the customer's existing six-inch wafer probers are reprofiled and upgraded beyond their originally manufactured specifications to achieve the greater accuracy and performance that is required by many current standards. Additionally, the Company has developed add-on/enhancement products, including an automatic wafer transfer/handling system and probe-to-pad alignment positioning products. The Company also provides other prober services including providing maintenance and repair services and replacement parts for wafer probers through a network of direct and contract field service personnel in the U.S., Europe, and parts of Asia. Cerprobe's wafer prober products and services range in price from $40,000 to $150,000 per unit depending on options. Engineering and Product Development Cerprobe recently expanded its engineering and product development efforts in order to remain competitive in its target markets. The Company has devoted and will continue to devote substantial resources to product development and materials and process engineering. Engineering and product development expenses were $902,909, $706,680, and $417,198 for the years ended December 31, 1996, 1995, and 1994, respectively, which represented 2.4%, 2.7%, and 2.9% of net sales, respectively. Cerprobe has from time to time collaborated with certain customers that pay Cerprobe to develop new product innovations. These customer receipts for engineering and product development are generally accounted for as offsets to the total expenses for the related project. There can be no assurance that Cerprobe will continue to be successful in securing such joint funding. During 1996, Cerprobe was awarded two engineering and product development contracts with SEMATECH, a consortium of leading U.S. semiconductor manufacturers and the U.S. government formed to promote technological innovation in the U.S. semiconductor industry. In the first agreement with SEMATECH, Cerprobe concentrated on the extension of present technology to include tighter pitches (i.e. placing probes closer together) as well as developing higher frequency testing characteristics. Advances in semiconductor technology have resulted in the shrinkage of circuitry patterns (from 200 microns to 90 microns, and smaller pad pitches) and increases in speed from 33 megahertz to over 100 megahertz. As semiconductors have become more sophisticated, 8 the need to place the pads in the middle of the IC as well as on the perimeter has developed. An area array probe card makes it possible to test circuitry pads or bumps regardless of where they are located on the IC. The second agreement with SEMATECH called for Cerprobe to determine the best solution for probing the interior contact points of semiconductors. Pursuant to this agreement, in exchange for matching funds contributed by SEMATECH, Cerprobe retained the rights to any technology developed through these engineering and product development efforts. Cerprobe also believes it gains an added benefit from the SEMATECH relationship by being able to work with its semiconductor manufacturer partners to anticipate and address technological advances in semiconductor processing and testing. Manufacturing Probe Cards Probe cards follow a build-to-order manufacturing process, initiated by receipt of an order and related technical specifications from the semiconductor manufacturer customer. Probe card design consists of creating bills of material and manufacturing work instructions showing the required probe layout and interconnect scheme for the PCB. For certain complex designs, a custom ring or PCB design may be required. After the order is released to production, the probe needles are bent to the appropriate tip length and bend angle to meet individual customer specifications. Individual probes are inspected on an optical comparator for conformance to design requirements prior to advancing to the ring build stage. In the ring build stage, the probe tips are precisely positioned using a fixture and a template that matches the pads of the IC being tested. Once the probes are placed in position, the ring is secured with epoxy or ceramic-based epoxy, and the subassembly is placed in an oven for curing. The completed ring assembly is checked for initial planarity and tip depth and assembled to the PCB. Probes are then individually soldered to the appropriate interconnection points. Once soldering is complete, the probe tips are sanded and aligned to ensure consistent contact with the pads on the IC. Final quality checks include contact force measurement, workmanship inspection, and verification on a probe card analyzer for alignment, planarity, and interconnection accuracy. ATE Interface ATE interfaces can follow either a build-to-order or a standard product build-to-inventory stock process. The former is most common and is used for most semiconductor manufacturer customers. The latter is primarily used for large ATE manufacturers that integrate the interface into their tester product for resale to their end customer, a semiconductor manufacturer. The build process is initiated after receipt of an order and product specifications from the customer. A preliminary bill of materials is created and an engineer is assigned to manage the design project. A cross-functional meeting is held to communicate the project goals and specifications to all departments. Design is commenced and long lead time raw materials are ordered. A preliminary design or layout is completed and submitted to the customer for approval. Final detailed drawings are then created. The drawings are logged in, approved, and then released for production by the Company's document control department. The Company's purchasing department then issues stamped drawings to suppliers for fabrication of machined parts. Purchased and machined parts are inspected for conformance to all critical design aspects. Accepted parts are forwarded to production control for kitting and then advanced to the production floor for assembly. Engineering and/or design team members then join the production team and quality assurance personnel to assemble and test the finished product for functionality and performance. The product is electrically tested for a variety of customer or product specifications. Finally, quality assurance personnel compare the product to the purchase order for completeness, inspect the packaging of the product, and release the product for shipment. 9 PCB Fabrication Cerprobe conducts its PCB fabrication and assembly operations through its newly acquired CompuRoute subsidiary in its Dallas, Texas facility. PCBs are manufactured using various raw materials. Most of the products manufactured for semiconductor testing consist of multilayer PCBs with up to 22 layers. PCB assemblies involve three separate production stages: design, fabrication, and assembly. Customers may use outside vendors such as the Company for any or all of these stages. The design stage consists of working with the customer to create a layout of the PCB wiring patterns on a personal computer or workstation using CAD software. Once the design is complete, the wiring patterns are transferred to film using a laser photo plotter. This film is used to photographically transfer the wiring pattern image onto copper-clad laminate material. Through a chemical milling process, the excess copper is then removed leaving the desired wiring pattern. If multiple layers of wiring patterns are required, they are fabricated independently and then combined in a lamination press using a temperature/pressure/time matrix process. The outside wiring patterns then receive an electro-plated finish of tin-lead, nickel, and/or gold. Soldermask is applied as an outer wiring pattern insulator, and identifying nomenclature is marked in a silk-screen process. The finished PCBs are then electrically tested and inspected to ensure that customer and industry requirements are met. During the assembly process, passive and active components are loaded by hand onto the PCB in accordance with customer specifications. The leads of the components are soldered to their respective termination points on the outer wiring patterns of the PCB. After passing through a series of cleaning and inspection points, the PCB is finished and ready for shipment to the customer. Wafer Prober Services Cerprobe's recently acquired wafer prober services business provides a variety of services to a large installed base of wafer probers in North America, Europe, and Asia. These services include field service at the user's site and factory-based refurbishing and reprofiling to improve prober accuracy. Field service is provided by trained technicians consisting of both employees and contract representatives. The field service network provides on site maintenance, repair, and training. Field repair involves trouble shooting and replacement of components such as PCBs, cables, and electrical assemblies. Cerprobe refurbishes its customers' wafer probers at the Company's facilities. The units to be refurbished undergo an inspection and test regime, which thoroughly evaluates the prober's performance and accuracy and identifies components that are defective or have substandard operating characteristics. The equipment is completely disassembled and rebuilt, replacing all substandard components and assemblies and any parts that show excessive wear. The Company also provides a reaccurization service to its customer base that includes reprofiling as its major component. This service may be performed separately or in conjunction with refurbishing and is designed to improve the positioning accuracy of the user's older probers. Reprofiling is necessary to correct for the inaccuracies that may occur in manufacturing the linear motor and platen. The Company from time to time also remanufactures older equipment that it acquires on the open market using the processes described above for refurbishing and reprofiling. Marketing, Sales, and Services Cerprobe markets its products in North America through direct technical sales persons. The Company has an extensive North American customer base. These customers represent the major merchant manufacturers of ICs, which manufacture ICs for resale, such as Motorola, Intel, and National Semiconductor. In addition, a significant part of Cerprobe's net sales are derived from sales to captive semiconductor operations, which manufacture ICs for their own internal use, such as IBM, Hewlett-Packard, and AT&T/Lucent. These merchant semiconductor 10 manufacturers and captive semiconductor operations provide Cerprobe with a well-balanced customer base whose products serve the communications, computer, automotive, military, and aerospace industries. In addition to serving high volume established manufacturers, Cerprobe's products also are designed to meet the needs of emerging and leading edge technology firms such as those offering ASICs and GaAs (Gallium Arsenide devices). During 1996, Cerprobe's two largest customers, Intel and Motorola, accounted for approximately 15% and 12% of net sales, respectively. The Company's top five customers are Intel, Motorola, LSI Logic, IBM, and Hewlett-Packard, which together accounted for approximately 47% of net sales in 1996. Purchasers of probing products generally place a high value on service. Technical features and product quality also are attributes expected by Cerprobe's customers. The unique needs of purchasers of semiconductor testing products demand a high level of customer responsiveness. The Company's products usually require a high degree of customization in order to meet customer specifications. Response time, product design specifications, and rapid delivery typically are critical factors in customer satisfaction. In addition, the customer's evaluation of the design and performance of completed products can be quite subjective. To facilitate satisfaction of its customers' servicing needs, Cerprobe maintains five regional manufacturing, repair, and sales centers in Arizona, California, and Texas, and three manufacturing, repair, and sales facilities in Scotland, Singapore, and Taiwan to provide service to both the European and Asian markets. In addition to its regional service facilities, Cerprobe serves its domestic customers with full service sales offices strategically located to facilitate rapid response to major market centers and key customers. Cerprobe maintains sales offices in Oregon, Colorado, Florida, and Massachusetts. The Company utilizes a network of independent distributors in both Europe and Asia. Cerprobe's international business represented approximately 20% of net sales in 1996. Cerprobe believes the potential exists to increase sales in international markets and is positioning itself to initiate a more aggressive marketing and sales program in these markets in the future. In particular, Cerprobe intends to expand its sales efforts throughout Europe and has opened a manufacturing, repair, and sales facility in Scotland for the purpose of serving customers in Europe. In June 1995, the Company formed Cerprobe Asia PTE, LTD, a joint venture with Asian investors. Through the joint venture, Cerprobe established full service manufacturing, repair, and sales facilities in Singapore and Taiwan in April 1996 and January 1997, respectively, to penetrate the growing markets for the Company's products in Southeast Asia. The Japanese market has been difficult for the Company to penetrate. The Company believes that the Japanese semiconductor market is slightly larger than the U.S. market, but the Japanese manufacturers are being adequately serviced by Cerprobe's Japanese competitors. The Company is attempting to enter the Japanese market within the next 12 to 18 months through a joint venture arrangement with local Japanese investors. The Company intends to leverage its worldwide sales and service facilities to market and distribute all of the Company's products; however, international sales of ATE test boards and wafer prober equipment and services currently are coordinated primarily through its regional service centers in the U.S. The Company may not manufacture each of its products in each service location. Competition Probe Cards Cerprobe competes with several well-established domestic competitors and is becoming increasingly subject to significant competition internationally as it expands into foreign markets. In the IC probe card market, the Company's competitors include: Probe Technology Corporation, Wentworth Laboratories, Inc., and Micro-Probe, Incorporated, as well as numerous smaller competitors. These competitors manufacture and market epoxy ring probe cards, which have been accepted in the marketplace for over 20 years, and metal blade probe cards, which have been accepted in the marketplace for over 15 years. Epoxy ring and ceramic blade probe cards comprise approximately 85% of the available world market and metal blade probe cards comprise approximately 10% of the world market, according to the Company's internal research. The Company expects that probe card competition will increase in the future as integrated circuitry and probing technology become more sophisticated. Manufacturers 11 of IC probe cards compete primarily on the basis of product performance, service, delivery time, and price. Cerprobe believes that it compares favorably with its competitors in these areas. Competition in the international market is significant and similar to that faced in the domestic market. Most of the probe cards sold outside the U.S. use epoxy ring technology. Cerprobe's competitive challenges in the international market are expected to be similar to those experienced domestically. ATE Interface Assemblies Hand-wired connections have been Cerprobe's principal competition in the ATE interface assembly market. Historically, ATE end users have hand-wired the connections between the ATE and the probe card. More recently, however, the market for advanced ATE interface assemblies has been developing both domestically and internationally. Cerprobe competes with several well-established domestic companies in the ATE interface market, including ESH, Inc. ("ESH"), Micro Ceramix, Pier Electronics, and Troyco, as well as numerous smaller competitors. The Company competes in the market for ATE interface assemblies on the basis of performance specifications, service, and price. ATE Test Boards The Company competes with a variety of companies engaged in each facet of the ATE test board market, including design, fabrication, and assembly services. In design services, the Company competes not only with companies such as Automated Circuit Design ("ACD") and ESH, but also with the in-house design groups of its customers. Although the Company's customers have outsourced an increasing amount of design work to outside vendors such as the Company during the past two years, there can be no assurance that this trend will continue. In addition, there are numerous PCB fabricators in the U.S., any one of which may compete directly with the Company. Specifically, MulTech Engineering Consultants and UniCircuits, Incorporated specialize in high layer count ATE PCBs such as those manufactured by the Company. Cerprobe believes, however, that ESH is the only other PCB fabricator specializing in the semiconductor ATE market with in-house design, fabrication, and assembly capability. Other companies, however, could acquire this capability and compete with the Company in the future. Cerprobe believes that the key competitive factors in the market for ATE test boards include cycle time, cost, experience, vertical integration, and technical capabilities. Because of its new facility and purchase of new equipment, Cerprobe believes that it is well-positioned to increase manufacturing capacity and to meet increasingly demanding delivery schedules. The Company believes that the integration of design, manufacturing, and assembly in one operation is a significant advantage over many of its domestic competitors. Cerprobe's strategy is to expand its market in this area to increase its domestic market share and pursue international market share through its existing sales and service facilities both domestically and internationally. Wafer Prober Services The Company does not believe it has any material direct competition for its prober refurbishment and reconfiguration services, although certain prober manufacturers do provide some limited refurbishment services. There can be no assurance, however, that the Company will not face increasing competition from prober manufacturers or other potential competitors in the future. See "Special Considerations - Competition" contained in Item 1 of this report. Backlog As of December 31, 1996, the Company had a backlog of orders of approximately $4.8 million, excluding CompuRoute, which was acquired in late December 1996. These orders are believed to be firm and all are expected to be filled during fiscal 1997. The backlog of orders at December 31, 1995 for Cerprobe only was approximately $2.9 million. The Company's business has not been seasonal to date. 12 Patents Cerprobe strives to improve its existing technology and will pursue patent protection for any new products it may develop in connection with such efforts. However, there can be no assurance that future patents on new products will be sought or issued or that Cerprobe's present patent position will be sufficient to protect its development of new products. While Cerprobe considers patents, licenses, and other intellectual property rights to be important, Cerprobe does not consider any single patent to be material to the conduct of its business. Cerprobe believes that its success will depend primarily on the technological competence and creative skills of its personnel rather than the protection of its existing patents or future patents. Raw Materials Probe Cards and ATE Interfaces The raw materials and components used by Cerprobe in the manufacturing and assembly process for probe cards and ATE interface assemblies include ceramic, tungsten, single and multiple PCBs, a variety of machined mechanical parts, probe needles, and metallized ceramic blades. These raw materials and components are readily available from a broad supplier base. Cerprobe has experienced no significant shortages in the recent past. ATE Test Boards The raw materials and components used by Cerprobe in the manufacture and assembly of ATE test boards include circuit board laminates and passive electronic components, such as connectors, resistors, and capacitors. These raw materials and components are readily available from a broad base of suppliers. Cerprobe has experienced no significant shortages in the recent past. Prober Refurbishment/Reconfiguration The parts used in the Company's wafer prober refurbishment and reconfiguration services consist of electronic components, PCBs, wire and cable, sheet metal assemblies, motor platens (linear motors), other electrical motors, mechanical components such as bearings, screws, and various machined metal parts. Most of these parts are readily available from a number of suppliers. The primary exception is the motor platen, which only is available from two suppliers. The Company has experienced no significant shortages in the recent past. Environmental Regulations Cerprobe is subject to federal, state, and local provisions regulating the discharge of materials into the environment. Cerprobe has made certain leasehold improvements in order to comply with Environmental Protection Agency and local regulations. Although Cerprobe believes that it is in full compliance with all regulations, Cerprobe is unable to predict what effect, if any, the adoption of more stringent regulation would have on its future operations. Cerprobe does not anticipate incurring any future material expenditures to remain in substantial compliance with presently applicable environmental regulation. See "Special Considerations - Potential Liability for Failure to Comply with Environmental Regulation" contained in Item 1 of this report. Employees As of December 31, 1996, Cerprobe had 439 employees, including 108 employees of CompuRoute, which was acquired in December 1996. There are no collective bargaining agreements and Cerprobe considers its relations with its employees to be good. 13 Executive Officers The following table sets forth certain information regarding Cerprobe's executive officers. Name Age Position(s) with Cerprobe - ---- --- ------------------------- C. Zane Close 47 President, Chief Executive Officer, and Director Michael K. Bonham 58 Senior Vice President - Sales and Marketing Randal L. Buness 40 Vice President, Chief Financial Officer, Secretary, and Treasurer Eswar Subramanian 39 Senior Vice President and Chief Operating Officer Roseann L. Tavarozzi 42 Vice President, Corporate Controller, and Assistant Secretary Henry Wong 37 Vice President and Executive Director of Cerprobe Asia - ---------------- C. Zane Close has served as President and Chief Executive Officer and as a director of Cerprobe since July 1990. From September 1989 to July 1990, Mr. Close served as Vice President and General Manager of Probe Technology Corporation, a corporation that develops, manufactures, and markets probing devices for use in the testing of ICs ("Probe Technology"). Mr. Close served as Vice President of Operations of Probe Technology from February 1985 to September 1989. Michael K. Bonham has served as Senior Vice President - Sales and Marketing of Cerprobe since June 1996. Prior to that time, Mr. Bonham served as Vice President of Sales and Marketing of Cerprobe from July 1990 to June 1996. From October 1988 to June 1990, Mr. Bonham served as Marketing Manager of the IC Probe and Curve Tracer Group of Tektronix, Incorporated, a manufacturer of electronic test measurement equipment (Tektronix"). From September 1984 to October 1988, Mr. Bonham served as Major Account Manager and Consulting Sales Engineer for the Semiconductor Cast Systems division of Tektronix. Randal L. Buness has served as Vice President, Chief Financial Officer, Secretary, and Treasurer of Cerprobe since June 1996. From September 1994 to June 1996, Mr. Buness served as Vice President - Finance and Administration, Chief Financial Officer, Secretary, and Treasurer of Three-Five Systems, Inc., a publicly held company traded on the New York Stock Exchange. Mr. Buness served as Chief Financial Officer, Secretary, and Treasurer of United Medical Network from January 1993 to September 1994. From January 1989 to January 1993, Mr. Buness worked as a self-employed consultant. Mr. Buness served as principal and manager with Arthur Young from January 1986 to January 1989 and served as a manager, senior, and staff accountant with Price Waterhouse from July 1979 to January 1986. Mr. Buness is a Certified Public Accountant. Eswar Subramanian has served as Senior Vice President and Chief Operating Officer of Cerprobe since June 1996. Prior to that time, Mr. Subramanian served as Vice President of Engineering of Cerprobe from July 1990 to June 1996. Immediately prior to joining Cerprobe, Mr. Subramanian was Director of Development at Probe Technology, where he was responsible for the development and establishment of new probing technology and its production operations. From November 1984 to April 1990, Mr. Subramanian was Engineering Manager at Probe Technology and was responsible for the design, development, manufacture, and engineering of probing products. Roseann L. Tavarozzi has served as Vice President, Corporate Controller, and Assistant Secretary of Cerprobe since June 1996. Ms. Tavarozzi served as Vice President - Finance of Cerprobe from April 1995 to June 14 1996 and as Vice President and Chief Financial Officer from March 1994 to March 1995. Prior to joining Cerprobe, Ms. Tavarozzi was the Corporate Controller for Quorum International, Ltd., an international distributor of security products. From May 1989 to April 1992, Ms. Tavarozzi was the Controller- Mid Continent for Core-Mark International, Inc., an international distributor of consumable products. Ms. Tavarozzi is a Certified Public Accountant. Henry Wong has served as Vice President and Executive Director of Cerprobe Asia since June 1996. Mr. Wong served as Vice President of Production of Cerprobe from July 1991 to June 1996. Prior to joining Cerprobe, Mr. Wong was Chief Technologist of probe card production at Probe Technology, where he was involved in the manufacture and design of probe cards as well as production operations and research and development. Prior to his affiliation with Probe Technology in 1983, Mr. Wong worked with Rucker and Kolls, a California manufacturer of probe cards. Special Considerations The following factors, in addition to those discussed elsewhere in this report, should be considered carefully in evaluating the Company and its business. In accordance with the provisions of the Private Securities Litigation Reform Act of 1995, the cautionary statements and factors set forth below identify important trends, factors, and currently known developments that could cause actual results to differ materially from those in any forward-looking statements contained in this report or other filings made by the Company under the Securities Exchange Act of 1934. Uncertainties Accompanying Integration of Acquired Businesses; Management of Growth Significant uncertainties accompany any business combination and its implementation with respect to the ability of the Company to integrate administrative functions, management resources, and sales and marketing distribution systems in order to achieve operating efficiencies. There can be no assurance that the Company will be able to successfully integrate the operations of CompuRoute and SVTR following their recent acquisition by the Company. The inability to achieve the anticipated operating efficiencies could have a material adverse effect on the Company's operating results. The CompuRoute and SVTR acquisitions also will result in significant growth in the Company's operations. To manage this growth effectively, the Company will be required to expand its existing operating and financial systems and controls and to manage a substantial increase in its employee base. To the extent that the Company's management is unable to assume or perform these combined duties, the business of the Company could be materially and adversely affected. There can be no assurance that the management systems and controls currently in place or any steps taken to expand such management systems and controls will be adequate in the future. Factors Affecting Operating Results The Company's operating results will be affected by a wide variety of factors that could have a material adverse effect on its net sales and profitability, many of which are beyond its control. These factors include the Company's ability to design and introduce new products on a timely basis, customer demand for the Company's products, the level of orders that are received and can be delivered in a quarter, customer order patterns, product performance and reliability, utilization of manufacturing capacity, the availability and cost of raw materials, equipment and other supplies, the cyclical nature of the semiconductor industry, technological changes, competition and competitive pressures on prices, and economic conditions in the U.S. and worldwide markets served by the Company. The Company's products are utilized in the testing of ICs used by a wide variety of computer, automotive, communications, and aerospace manufacturers. A slowdown in demand for products that utilize ICs as a result of economic or other conditions in the U.S. or worldwide markets served by the Company could have a material adverse effect on its operating results. 15 Dependence on New Products and Technologies The Company operates in an industry subject to rapid change. Technological advances, the introduction of new products, and new design and manufacturing techniques could materially and adversely affect the Company's operations unless it is able to adapt to the resulting change in conditions. The Company's future operating results will depend to a significant extent on its ability to continue to develop and introduce new products on a timely basis that compete effectively on the basis of price, performance, and delivery and that address customer requirements. The success of new products depends on various factors, including proper new product selection, timely completion and introduction of new product designs, and development of support tools and collateral literature that make complex new products easy for engineers to understand. There can be no assurance that any new products will receive or maintain substantial market acceptance. If the Company is unable to design, develop, and introduce competitive products on a timely basis, its future operating results may be materially and adversely affected. Inability to Maintain Manufacturing Yields and Delivery Schedules The design and manufacture of probe cards, ATE interface products, test PCBs, and wafer prober equipment and services by the Company are highly complex processes that are sensitive to a wide variety of factors, including the level of contaminants in the manufacturing environment, impurities in the materials used, and the performance of the design and production personnel and equipment. As is typical in the industry, the Company from time to time has experienced lower than anticipated manufacturing yields and lengthening of delivery schedules. The Company's operating results could be materially and adversely affected if it is unable to maintain high levels of productivity and/or to maintain satisfactory delivery schedules. Competition Cerprobe competes with several well-established domestic companies in the IC probe card market, including Probe Technology Corporation, Wentworth Laboratories, Inc., and Micro-Probe, Incorporated, as well as numerous smaller competitors, and is becoming increasingly subject to significant competition internationally as the Company expands into foreign markets. Such competitors manufacture and market epoxy ring probe cards, which represent the significant majority of the domestic and international markets, and metal blade probe cards, which represent only a small portion of those markets. Cerprobe also encounters competition in the manufacture and sale of ceramic blade probe cards, although ceramic blade probe cards currently are produced by Cerprobe and only to a limited extent by Wentworth Laboratories, Inc. and Accuprobe, Inc. and represent only a small portion of the total market for probe cards. Competition may increase in the future as integrated circuitry and probing technology become more sophisticated. Cerprobe competes primarily on the basis of price, performance, and delivery. Cerprobe believes that ESH is the only other domestic manufacturer of ATE interface assemblies with complete in-house design, fabrication, and assembly capabilities. Other competitors currently provide only one or two of these services (usually design and assembly) but could acquire other capabilities and compete with Cerprobe in the future. In design services, Cerprobe competes with small design houses, such as Dolphin Designs, as well as the in-house design groups of its customers. Competition may increase in the future as test equipment and testing technology become more sophisticated. The Company competes with a variety of companies engaged in each facet of the ATE test board market, including design, fabrication, and assembly services. In design services, the Company competes not only with companies such as Automated Circuit Design ("ACD") and ESH, but also with the in-house design groups of its customers. Although the Company's customers have outsourced an increasing amount of design work to outside vendors such as the Company during the past two years, there can be no assurance that this trend will continue. In addition, there are numerous PCB fabricators in the U.S., any one of which may compete directly with the Company. Specifically, MulTech Engineering Consultants and UniCircuits, Incorporated specialize in high layer count ATE PCBs such as those manufactured by the Company. Cerprobe believes, however, that ESH is the only other PCB fabricator specializing in the semiconductor ATE market with in-house design, fabrication, and assembly capability. Other companies, however, could acquire this capability and compete with the Company in the future. 16 The Company does not believe it has any material direct competition for its wafer prober refurbishment and reconfiguration services, although the prober manufacturers, such as Electroglas, Inc., Tokyo Electron Labs, and Tokyo Semitsu, do provide some limited refurbishment services. These wafer prober manufacturers have greater financial, engineering, and manufacturing resources than the Company and larger service organizations and long-standing customer relationships. There can be no assurance that levels of competition in the market for wafer prober refurbishing and reconfiguration services will not intensify in the future. Risks of International Trade and Currency Exchange Fluctuations Approximately 20% of Cerprobe's net sales for 1996 were to international customers. Given Cerprobe's efforts in establishing production and sales facilities in Scotland and Singapore, as well as the opening of a production and sales facility in Taiwan in January 1997, Cerprobe anticipates that sales to international customers will increase in the future. The foreign manufacture and sale of products and the purchase of raw materials and equipment from foreign suppliers may be materially and adversely affected by political and economic conditions abroad. Protectionist trade legislation in either the U.S. or foreign countries, such as a change in the current tariff structures, export compliance laws, or other trade policies, as well as Cerprobe's ability to form effective joint venture alliances in order to compete in restrictive markets, could materially and adversely affect Cerprobe's ability to manufacture or sell products in foreign markets and purchase materials or equipment from foreign suppliers. In countries in which Cerprobe conducts business in local currency, currency exchange fluctuations could adversely affect Cerprobe's net sales or costs. In addition, the laws of certain foreign countries may not protect Cerprobe's intellectual property rights to the same extent as the laws of the United States. A portion of Cerprobe's foreign transactions are denominated in currencies other than the U.S. dollar. Such transactions expose Cerprobe to exchange rate fluctuations for the period of time from inception of the transaction until it is settled. Cerprobe has not engaged in transactions to hedge it currency risks, but may do so in the future. Although Cerprobe has not incurred any material exchange gains or losses, there can be no assurance that fluctuations in the currency exchange rates in the future will not have a material adverse effect on Cerprobe's operating results. Cyclicality of the Semiconductor Industry; Significant Capital Requirements The semiconductor industry in general has been characterized by cyclicality. The industry has experienced significant economic downturns at various times, characterized by diminished product demand, accelerated erosion of average selling prices, and production over-capacity. Cerprobe has sought to reduce its exposure to industry cyclicality by selling products to a geographically diverse base of customers across a broad range of market applications. However, the Company may experience substantial period-to-period fluctuations in future operating results due to general industry conditions or events occurring in the general economy. Although the semiconductor industry has experienced increased demand in the past, there can be no assurance that the Company will continue to experience the current level of demand for its products. The probe card, ATE interface, PCB fabrication, and wafer prober services industries are also capital intensive. In order to remain competitive, the Company must continue to make significant investments in capital equipment for engineering and product development. As a result of the increase in fixed costs and operating expenses related to these capital expenditures, the Company's operating results may be materially and adversely affected if net sales do not increase sufficiently to offset the increased costs. The Company may from time to time seek additional equity or debt financing to provide for the capital expenditures required to maintain or expand its production facilities and capital equipment. The timing and amount of any such capital requirements cannot be predicted at this time and will depend on a number of factors, including demand for the Company's products, product mix, changes in industry conditions, and competitive factors. There can be no assurance that any such financing will be available on acceptable terms, and that any additional equity financing would not result in additional dilution to existing investors. 17 Risks Associated with Acquisition Strategy The success of Cerprobe's acquisition strategy will depend primarily on its ability to identify, acquire, and operate other businesses that complement Cerprobe's existing business. There can be no assurance that any suitable acquisitions can be identified or consummated or that the operations of any businesses that are acquired will be successfully integrated into Cerprobe's operations. In addition, increased competition for acquisition candidates could increase purchase prices for acquisitions to levels that make such acquisitions unfavorable. As of the date of this report, Cerprobe has no binding agreements to effect any acquisitions. Cerprobe anticipates that it will use cash and/or its securities, including Cerprobe common stock, as the primary consideration for any future acquisitions. The size, timing, and integration of any future acquisitions could cause substantial fluctuations in operating results from quarter to quarter. Consequently, operating results for any quarter may not be indicative of the results that may be achieved for any subsequent fiscal quarter or for a full fiscal year. These fluctuations could materially and adversely affect the market price of Cerprobe common stock. Potential Liability for Failure to Comply with Environmental Regulations The Company is subject to a variety of federal, state, and local governmental regulations related to the use, storage, discharge and disposal of toxic, volatile or otherwise hazardous chemicals used in its manufacturing process. Although the Company believes that its activities are in substantial compliance with presently applicable environmental regulations, the failure to comply with present or future regulations could result in fines being imposed on the Company, suspension of its production, or a cessation of its operations. Such regulations could require the Company to acquire costly equipment or to incur other significant expenses to comply with environmental regulations. Any failure by the Company to control the use or adequately restrict the discharge of hazardous substances could subject it to future liabilities. Dependence on Management and Other Key Personnel The Company's success depends upon the retention of certain key personnel and the recruitment and retention of additional key personnel. The loss of existing key personnel or the failure to recruit and retain necessary additional personnel by the Company could materially and adversely affect its business prospects. There can be no assurance that the Company will be able to retain its current personnel or attract and retain necessary additional personnel. Future growth will further increase the demand on the Company's resources and require the addition of new personnel and the development of additional expertise by existing personnel. The failure of the Company to attract and retain personnel with the requisite expertise or to develop such expertise internally could materially and adversely affect the prospects for its success. Cerprobe has entered into employment agreements with certain executive officers that are effective for one year and are each subject to automatic renewal for terms of one year. Control by Current Stockholders The directors and executive officers of Cerprobe and their affiliates currently own beneficially approximately 23.9% of Cerprobe common stock. Accordingly, these persons, if they act as a group, will be able to elect at least one member to the Company's Board of Directors and may be able to exert significant influence regarding the outcome of other matters requiring approval by the stockholders of the Company. Price Volatility of Cerprobe Common Stock The market price of Cerprobe common stock has experienced significant volatility during the past two years. See "Market for Common Equity and Related Stockholder Matters" contained in Item 5 of this report. The trading price of Cerprobe common stock in the future could be subject to wide fluctuations in response to quarterly variations in operating results of Cerprobe and others in its industry, actual or anticipated announcements concerning Cerprobe or its competitors, changes in analysts' estimates of Cerprobe's financial performance, general conditions in the semiconductor industry, general economic and financial conditions, and other events or factors. In addition, the stock market has experienced extreme price and volume fluctuations, which have adversely affected the market 18 prices for many companies involved in high technology manufacturing and related industries and which often have been unrelated to the operating performance of such companies. These broad market fluctuations and other factors could have a material adverse effect on the market price of Cerprobe common stock. Rights to Acquire Shares; Potential Issuance of Additional Shares In accordance with the terms of Cerprobe's Series A Convertible Preferred Stock ("Convertible Preferred Stock"), up to 27,839 additional shares of Cerprobe common stock may be issued upon conversion of the Convertible Preferred Stock. As of March 20, 1997, options to acquire a total of 568,298 shares were outstanding under the Company's stock option plans. The Company also has registered for offer and sale up to 207,834 shares of its common stock, which are reserved for issuance pursuant to the Company's stock option plans. In addition, the Company has granted non-employee options to purchase up to 10,000 shares of common stock. The Company also has issued warrants to purchase up to 39,275 shares of common stock in connection with the sale of the Convertible Preferred Stock. During the terms of such options and warrants, the holders thereof will have the opportunity to profit from an increase in the market price of the Company's common stock with resulting dilution in the interests of holders of common stock. The existence of such stock options and warrants could adversely affect the terms on which the Company can obtain additional financing, and the holders of such options and warrants can be expected to exercise such options and warrants at a time when the Company, in all likelihood, would be able to obtain additional capital by offering shares of its common stock on terms more favorable to the Company than those provided by the exercise of such options and warrants. Cerprobe also has the authority to issue additional shares of common stock and shares of one or more series of convertible preferred stock. The issuance of such shares could result in the dilution of the voting power of outstanding shares of Cerprobe common stock and could have a dilutive effect on earnings per share. Shares Eligible for Future Sale Sales of substantial amounts of Cerprobe common stock in the public market could adversely affect prevailing market prices. As of March 20, 1997, there were 6,353,047 shares of Cerprobe common stock outstanding, 5,160,158 shares of which were freely transferable without restriction under the Securities Act, unless held by an "affiliate" of the Company, as that term is defined under the Securities Act. Cerprobe also has outstanding 562,857 restricted shares, as that term is defined under Rule 144 (the "Restricted Shares") under the Securities Act, that are eligible for sale in the public market subject to compliance with the holding period, volume limitations, and other requirements of Rule 144. As a result of recent changes to Rule 144, on April 30, 1997, these 562,857 Restricted Shares of common stock will become eligible for resale without restriction pursuant to Rule 144(k), unless held by an affiliate of the Company. In addition, 330,032 shares held by the former principal shareholder of CompuRoute are subject to Rule 145 of the Securities Act, which requires affiliates to sell any stock acquired in the acquisition in accordance with the volume and manner of sale restrictions under Rule 144. The former principal shareholder of CompuRoute has agreed not to sell, publicly or privately, any of the 330,032 shares acquired by her in connection with the CompuRoute acquisition until December 27, 1997, and no more than the greater of 1% of the outstanding shares of Cerprobe common stock, or 50,000 shares, in any 90-day period during the succeeding 12-month period. Subject to the terms of this lock-up agreement, this same shareholder will have certain registration rights covering the resale of shares of Cerprobe common stock acquired by her in the CompuRoute acquisition for as long as she is subject to the volume limitations on resale under Rule 145. The former principal shareholder of SVTR has agreed generally not to sell, publicly or privately, any of the 300,000 shares acquired by him in connection with the SVTR acquisition until January 15, 1998, on which date such shares will become eligible for resale subject to the volume limitations and other requirements of Rule 144. Patents, Licenses, and Intellectual Property Claims The Company has acquired certain patents, licenses, and other intellectual property rights covering certain of its products and manufacturing processes. While the Company considers these patents, licenses, and other intellectual property rights to be important, it does not consider any single patent to be material to the conduct of its business. 19 Change in Control Provisions Cerprobe's First Restated Certificate of Incorporation (the "Restated Certificate") and the Delaware General Corporation Law (the "Delaware GCL") contain provisions that may have the effect of making more difficult or delaying attempts by others to obtain control of Cerprobe, even when these attempts may be in the best interest of stockholders. The Restated Certificate also authorizes the Board of Directors, without stockholder approval, to issue one or more series of preferred stock which could have voting and conversion rights that adversely effect the voting power of the holders of Cerprobe common stock. The Delaware GCL also imposes conditions on certain business combination transactions with "interested stockholders" (as defined therein). Cautionary Statement Regarding Forward - Looking Statements This report contains various forward-looking statements that are based on certain assumptions made by the Company, as well as assumptions made in reliance on information currently available to the Company. When used in this report, the words "believe," "expect," "anticipate," "intend," "estimate," "should," "will likely," and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks, uncertainties, and assumptions, including those identified under "Special Considerations." Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, or projected. 20 ITEM 2. DESCRIPTION OF PROPERTIES Cerprobe's current principal executive offices and primary manufacturing facility are located at 600 S. Rockford Drive, Tempe, Arizona. The Company leases approximately 30,000 square feet of office and manufacturing space at that location. The lease expires on March 31, 1997 and has been extended until May 31, 1997. Cerprobe also occupies approximately 16,000 square feet of office and manufacturing space in Chandler, Arizona. The term of the lease expires on November 30, 1998. Cerprobe utilizes an additional 6,000 square feet of office and warehouse space in Chandler, Arizona pursuant to a lease ending March 31, 1997. Cerprobe occupies approximately 34,000 square feet for its manufacturing facilities in San Jose, California and 7,000 square feet for its facilities in Austin, Texas under leases expiring on July 31, 2002 and March 31, 2002, respectively. The Company's international service centers occupy the following space with leases expiring as indicated: East Kilbride, Scotland occupies 5,000 square feet expiring on August 27, 1999; Hsin Chu, Taiwan occupies 5,000 square feet expiring on August 31, 2001; and Singapore occupies 1,000 square feet expiring on September 2, 1998. In addition, Cerprobe leases space for its sales offices in Richardson, Texas; Beaverton, Oregon; Colorado Springs, Colorado; and Boca Raton, Florida. Cerprobe's aggregate monthly rental payments for these facilities are approximately $87,000. In connection with the acquisition of CompuRoute, Cerprobe purchased the land and building currently occupied by CompuRoute located in Dallas, Texas. The purchase price was approximately $2.2 million, including the assumption of a promissory note, secured by the property, which has an outstanding principal balance of approximately $1,030,000. The approximately 35,000 square foot facility was custom built for CompuRoute in 1995 and houses the Company's PCB design, manufacturing assembly, and sales operations. In connection with the acquisition of SVTR, the Company acquired SVTR's current principal executive offices and primary manufacturing facilities, which are located in California, Arizona, and Texas. The Company leases approximately 10,000 square feet of executive office space in Santa Clara, California. This lease will expire on February 28, 2001. The manufacturing activities occupy approximately 15,300 square feet in three locations pursuant to leases expiring on September 30, 1997, February 19, 1998, and March 31, 1998. The Company acquired two additional locations, which are used as sales service offices in Tempe, Arizona, and Dallas, Texas. The Arizona location occupies 1,000 square feet pursuant to a month to month lease. The Texas location occupies 2,272 square feet pursuant to a lease that will expire on November 30, 1998. The aggregate monthly rental payments for these facilities are $19,789. In September 1996, construction began on Cerprobe's new corporate headquarters facility in Gilbert, Arizona. Cerprobe expects the facility to be completed in the spring of 1997. In addition to executive and administrative offices, the facility will house Cerprobe's manufacturing and engineering and product development operations. Upon completion, Cerprobe intends to consolidate its Arizona operations, which are currently divided between three locations, into the 83,000 square foot facility, which is being constructed on a 12-acre parcel of land. The facility and land is owned by CRPB Investors, L.L.C. ("CRPB Investors"). Cerprobe owns a 36% interest in CRPB Investors. Cerprobe has entered into a long-term lease with CRPB Investors commencing on the date of substantial completion of the facility. The initial term of the lease is 15 years with seven options to extend the lease for successive five-year terms. The initial lease rate is dependent on final construction cost, but currently is estimated at approximately $73,000 per month, which will increase the Company's total monthly facility lease expense by approximately $34,000. Cerprobe believes that its existing facilities are adequate to meet its requirements until additional production capacity becomes available upon completion of the new facility. ITEM 3. LEGAL PROCEEDINGS The Company is not a party to, nor is any of its property the subject of, any material pending legal proceedings. 21 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of the Company's stockholders during the fourth quarter of 1996. PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock began trading in the over-the-counter market on the Nasdaq system on September 29, 1983 and commenced trading on the Nasdaq National Market on August 10, 1995 under the symbol "CRPB." On March 20, 1997, the closing price for the Company's common stock was $12.13. The following table sets forth the high and low last sale prices of the Company's common stock for the periods indicated, as reported on the Nasdaq National Market. High Low ---- --- 1994: First Quarter................................... 6 1/2 5 Second Quarter.................................. 5 1/4 4 1/2 Third Quarter................................... 5 3/4 5 1/2 Fourth Quarter.................................. 4 3/4 4 1/4 1995: First Quarter................................... 6 5 Second Quarter.................................. 8 1/4 5 1/2 Third Quarter(1)................................ 10 1/2 10 Fourth Quarter.................................. 17 16 3/4 1996: First Quarter................................... 15 1/4 12 3/8 Second Quarter.................................. 14 1/8 11 1/2 Third Quarter................................... 12 1/8 7 7/8 Fourth Quarter.................................. 14 3/8 9 (1) Prior to August 10, 1995, prices represent high and low bid quotations on Nasdaq. Bid quotations represent interdealer quotations, which exclude retail markups or mark-downs and commissions and may not necessarily represent actual transactions. Cerprobe paid a one-time dividend of $.03 per share on its common stock on May 23, 1994, but typically does not pay dividends on its common stock and does not anticipate that it will do so in the future. Cerprobe currently does not intend to declare or pay any cash dividends, and intends to retain any future earnings for reinvestment in its business. Payments of dividends in the future will depend on Cerprobe's growth, profitability, financial condition, and other factors that Cerprobe's Board of Directors may deem relevant. The Company's revolving credit facility contains restrictions on the Company's ability to pay cash dividends, and future borrowings may contain similar restrictions. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." As of March 20, 1997, there were approximately 2,360 holders of record of Cerprobe common stock. 22 ITEM 6. SELECTED FINANCIAL DATA; MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following table summarizes certain selected consolidated financial data of the Company and is qualified in its entirety by the more detailed consolidated financial statements and notes thereto appearing elsewhere herein. The data have been derived from the consolidated financial statements of the Company audited by KPMG Peat Marwick LLP, independent public accountants, for years 1994 through 1996 and by Deloitte & Touche LLP, independent public accountants, for years 1992 and 1993.
Year Ended December 31, ------------------------------------------------------------------- 1996(1) 1995 1994 1993 1992 ------- ---- ---- ---- ---- (in thousands, except per share amounts) Consolidated Statements of Operations: Net sales $37,308 $26,099 $14,251 $11,212 $8,060 ------- ------- ------- ------- ------ Costs and expenses: Cost of sales 20,343 13,706 8,214 6,768 4,914 Selling, general and administrative 10,725 7,503 3,693 2,398 1,827 Engineering and product development 903 707 417 336 246 Purchased research and development 4,584 --- --- --- --- ------- ------- ------- ------- ------- 36,555 21,916 12,324 9,502 6,987 ------- ------- ------- ------- ------- Operating income 753 4,183 1,927 1,710 1,073 ------- ------- ------- ------- ------- Other income (expense) Interest income 467 45 19 1 --- Interest expense (222) (154) (115) (132) (304) Other income 247 140 92 13 22 -------- ------- ------- ------- ------- 492 31 (4) (118) (282) -------- ------- ------- ------- ------- Income before provision for income taxes, minority interest, and extraordinary item 1,245 4,214 1,923 1,592 791 Provision for income taxes (2,701) (1,812) (710) (90) (321) Minority interest share of loss 95 --- --- --- --- -------- ------- -------- ------- ------- Net income (loss) before extraordinary item (1,361) 2,402 1,213 1,502 470 Extraordinary item - prior years' NOLs --- --- --- --- 301 -------- ------- -------- ------- -------- Net income (loss) $(1,361) $2,402 $1,213 $1,502 $771 ========= ======= ======== ======= ======== Net income (loss) per common and common equivalent share: Primary $(0.30) $0.59 $0.36 $0.41 $0.31 Weighted average number of common shares and common equivalent shares 4,580 4,071 3,387 3,688 2,502 Fully diluted $(0.30) $0.49 $0.30 $0.35 $0.21 Weighted average number of common shares and common equivalent shares 4,580 4,862 4,007 4,349 3,680 Consolidated Balance Sheet Data (at end of period): Working capital $9,903 $4,772 $3,572 $2,777 $1,551 Total assets 31,411 14,967 7,015 4,674 3,083 Long-term debt 1,742 981 791 748 859 Stockholders' equity 23,130 10,656 4,923 3,063 1,304
- ----------------- (1) Includes a one-time write-off of purchased research and development costs of $4,584,000 or $1.00 per share related to the acquisition of CompuRoute, Inc. in December 1996. 23 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Introduction and General Development of Business Cerprobe was incorporated in California in 1976 and reincorporated in Delaware in May 1987. The Company designs, manufactures, markets, and services high performance products and equipment for use in the testing of integrated circuits ("ICs") for the semiconductor industry. Cerprobe's products and services enable semiconductor manufacturers to test the integrity of their ICs during the batch fabrication stage of the manufacturing process used in manufacturing ICs in wafer form. The Company has grown substantially over the last three years as the Company has benefited from the substantial growth in the worldwide demand for ICs. Net sales have increased from $14.3 million for 1994, to $26.1 million for 1995, and to $37.3 million for 1996. Similarly, the Company's net income has increased from $1.2 million for 1994, to $2.4 million for 1995, and to $3.2 million for 1996 (before a one-time charge for purchased in-process research and development of $4.6 million, resulting in a net loss of $1.4 million). This growth resulted primarily from internal product development and strategies. However, the Company also benefited from its acquisition in April 1995 of Fresh Test Technology Corporation, whose complementary products contributed approximately $4 million to 1995 net sales and approximately $7 million to 1996 net sales. To further expand its semiconductor test product and service offerings, Cerprobe acquired CompuRoute, Inc., a company engaged in the design, manufacture, and marketing of complex, multilayer PCBs primarily for use in semiconductor testing applications ("CompuRoute"), in December 1996 and Silicon Valley Test & Repair, Inc., a company that refurbishes, reconfigures, and services wafer probers ("SVTR"), in January 1997. CompuRoute's net sales and net income for its fiscal year ended December 31, 1996 were $10.4 million and $0.5 million, respectively, and SVTR's net sales and net loss for the same period were $14.6 million and $0.4 million, respectively. The Company believes that it is positioned to continue its growth as a result of its strength in designing, producing, and delivering, on a timely and cost-efficient basis, a broad range of custom or customized, high quality test products and services for semiconductor manufacturers in the U.S., Europe, and Asia. The Company maintains regional full service facilities in Arizona, California, and Texas as well as sales offices in Oregon, Colorado, Florida, and Massachusetts to service the U.S. market for its products and services. The Company maintains a full service facility in Scotland to serve the European market, and opened full service facilities in Singapore and Taiwan in April 1996 and January 1997, respectively, to serve the Southeast Asia market. Each of the Company's facilities is located in proximity to semiconductor manufacturing centers. 24 Results of Operations The following table sets forth, for the periods indicated, the percentage of net sales of certain items in the Consolidated Financial Statements of the Company. The table and the discussion below should be read in conjunction with the Consolidated Financial Statements and Notes thereto. Year Ended December 31, ------------------------------ 1996(1) 1995 1994 ------- ---- ---- Net sales 100.0% 100.0% 100.0% ----- ----- ----- Costs and expenses: Cost of sales 54.5 52.5 57.6 Selling, general and administrative 28.7 28.8 25.9 Engineering and product development 2.4 2.7 2.9 Purchased research and development 12.3 -- -- ----- ----- ----- 97.9 84.0 86.4 ----- ----- ----- Operating income 2.1 16.0 13.6 ----- ----- ----- Other income (expense): Interest income 1.3 0.2 0.1 Interest expense (0.6) (0.6) (0.8) Interest and other income 0.6 0.5 0.6 ----- ----- ----- 1.3 0.1 (0.1) ----- ----- ----- Income before provision for income taxes and minority interest share of loss 3.4 16.1 13.5 Provision for income taxes (7.2) (6.9) (5.0) Minority interest share of loss 0.2 -- -- ----- ----- ----- Net income (3.6)% 9.2% 8.5% ====== ====== ====== - ----------------- (1) Includes a one-time write-off of purchased research and development costs of $4,584,000 related to the acquisition of CompuRoute, Inc. in December 1996. Year Ended December 31, 1996 Compared with Year Ended December 31, 1995 Net sales for 1996 were $37,308,199, an increase of 43% over net sales of $26,098,637 for 1995. This increase in net sales reflects a continuation of higher order rates for Cerprobe's probe card products, especially its CerCardTM product line, and increased sales from Cerprobe's international operations. International net sales in 1996 were $7,334,472 compared to $2,965,171 in 1995, an increase of 147%. The gross margin for 1996 was $16,964,683, an increase of 37% from the gross margin of $12,392,202 for 1995. Gross margin as a percentage of sales decreased from 47% in 1995 to 45% in 1996. The decrease in gross margin as a percentage of sales is primarily a result of a change in product mix, which includes a higher ratio of 25 ATE interface product sales and an increase in manufacturing capacity to meet anticipated customer demand and maintain satisfactory delivery schedules. Selling, general and administrative expenses were $10,725,075 for 1996 compared to $7,502,598 for 1995, an increase of 43%. The increase in selling, general and administrative expenses resulted primarily from the increase in fixed general and administrative costs due to Cerprobe's continued domestic facilities expansion and the start up of Asian operations. Engineering and product development expenses were $902,909 for 1996, an increase of 28% over $706,680 for 1995. This increase resulted from Cerprobe's continued emphasis on engineering and product development in an effort to anticipate and address technological advances in semiconductor testing. During 1996, Cerprobe was awarded two engineering and product development contracts by SEMATECH, the U.S. semiconductor industry consortium. Cerprobe also performs ongoing contract engineering and product development in collaboration with Micro Electronics & Computer Technology Corporation, a consortium of customers and the U.S. government. Contract revenues from these consortia are generally accounted for as an offset to the total expenses incurred for the respective projects. Purchased research and development costs from the acquisition of CompuRoute totalled $4,584,000. On December 27, 1996, Cerprobe acquired CompuRoute, a designer and fabricator of complex, multilayer PCBs used in semiconductor testing. The acquisition was accounted for using the purchase method. Accordingly, the purchase price was allocated to the assets acquired and the liabilities assumed based upon their estimated fair values. The value of purchased in-process research and development in connection with the acquisition was $4,584,000. The current state of the research and development products/processes is not yet at a technologically feasible or commercially viable stage. Cerprobe does not believe that the research and development products/processes have any future alternative use because if they are not finished and brought to ultimate product or process completion they have no value. Therefore, consistent with generally accepted accounting principles, Cerprobe took a one-time charge for the full value of the purchased in-process research and development. Interest expense was $221,248 for 1996 as compared to $153,758 for 1995, an increase of 44%. Cerprobe anticipates interest expense will increase in 1997 due to debt acquired in its acquisition of CompuRoute and SVTR as well as capacity expansion both domestically and internationally. Interest income was $467,043 in 1996 as compared to $44,697 for 1995. This represents a 945% increase from 1995 and is attributable to the interest earned on the net proceeds from the issuance of Convertible Preferred Stock in January 1996. Cerprobe expects a significant reduction in interest income in 1997, as the net proceeds of the Convertible Preferred Stock were used in the CompuRoute and SVTR acquisitions. The minority interest from Asian operations of $94,854 represents the Company's joint venture partners' share (30%) of the loss from Cerprobe Asia PTE, Ltd. The provision for income taxes increased to $2,701,000, which represents an effective tax rate of 46% for 1996, excluding the non-deductible purchased in-process research and development costs of $4,584,000, versus $1,811,727, which represents an effective rate of 43% for 1995. The increased effective tax rate, as adjusted for 1996, was due primarily to the benefit in 1995 of the Company's net operating loss carryforwards and the tax benefit of research tax credits. Net loss for 1996 was $1,360,790, a decrease in net income of $3,763,037, or 157%, from net income of $2,402,247 for 1995. This decrease is primarily due to the write-off of the purchased in-process research and development costs from the CompuRoute acquisition in the amount of $4,584,000. Excluding this one-time charge, net income for 1996 would have been $3,223,210 or 9% of net sales for 1996 as compared to 9% of net sales for 1995. 26 Year Ended December 31, 1995 Compared with Year Ended December 31, 1994 Cerprobe's net sales in 1995 increased 83% from 1994, primarily as a result of increased sales of its CerCardTM product line. The significant sales increase in the CerCardTM product line was due primarily to an increase in market share and continued strength in the semiconductor industry. The gross margin increased $6,354,683 from the comparable figure in the prior year. Gross margin as a percentage of sales increased from approximately 42% in 1994 to approximately 47% in 1995. The increase in gross margin and gross margin as a percentage of sales resulted primarily from the increase in net sales and the positive effect of fixed costs being spread over a larger revenue base. Although the strength in the semiconductor industry positively impacted sales, price competition in the market place continued to prevent Cerprobe from raising prices for its products. Selling, general and administrative expenses increased to $7,502,598, or 29% of net sales in 1995, from $3,693,401, or 26% of net sales in 1994. The increased selling, general and administrative expenses resulted primarily from the increase in fixed general and administrative costs due to the Company's continued facility expansion and the acquisition of Fresh Test Technology Corporation. Engineering and product development expenses increased by $289,482, or approximately 69%, from the prior period, reflecting a controlled expansion of engineering and product development efforts. This effort to maintain engineering and product development expenses at lower than historical levels reflected Cerprobe's then current strategy to focus engineering activity on improvements in current technology rather than the development and implementation of new products. During 1995, Cerprobe continued tight controls over engineering and product development spending. Interest expense in 1995 was $153,758, a slight increase from the $115,254 of interest expense of 1994. Total other income (expense) was $31,050 in 1995 compared to ($3,576) in 1994. Other income (expense) primarily resulted from interest income on cash balances and interest expense on debentures and financed property and equipment. Cerprobe's net income increased to $2,402,247 in 1995 from $1,212,823 in 1994. The increase in net income was primarily due to the increase in net sales and gross margin. 27 Quarterly Results of Operations The following table presents unaudited consolidated financial results for each of the eight quarters in the period ended December 31, 1996. The Company believes that all necessary adjustments have been included to present fairly the quarterly information when read in conjunction with the Consolidated Financial Statements. The operating results for any quarter are not necessarily indicative of the results for any subsequent quarter.
Quarters Ended ------------------------------------------------------------------------------ 1996 1995 -------------------------------------- -------------------------------------- Dec 31(1) Sep 30 June 30 Mar 31 Dec 31 Sept 30 June 30 Mar 31 -------- ------ -------- -------- ------- -------- ------- ------- (in thousands, except per share amounts) Consolidated Statements of Operations: Net sales $9,149 $8,799 $9,660 $9,700 $8,131 $6,834 $6,172 $4,963 -------- ------ -------- -------- ------- -------- ------- ------- Costs and expenses: Cost of sales 5,058 4,938 5,175 5,173 4,315 3,551 3,148 2,691 Selling, general and administration 2,854 2,595 2,667 2,608 2,393 2,198 1,763 1,149 Engineering & product development 179 346 276 102 178 200 209 121 Purchased research & development 4,584 --- --- --- --- --- --- --- -------- ------ -------- -------- ------- -------- ------- ------- 12,675 7,879 8,118 7,883 6,886 5,949 5,120 3,961 -------- ------ -------- -------- ------- -------- ------- ------- Operating income (3,526) 920 1,542 1,817 1,245 885 1,052 1,002 -------- ------ -------- -------- ------- -------- ------- ------- Other income (expense): Interest income 92 177 109 89 23 9 13 --- Interest expense (55) (51) (57) (59) (20) (50) (47) (36) Other income 125 65 46 11 8 30 39 62 -------- ------ -------- -------- ------- -------- ------- ------- Total other income (expense) 162 191 98 41 11 (11) 5 26 -------- ------ -------- -------- ------- -------- ------- ------- Income before provision for income taxes and minority interest (3,364) 1,111 1,640 1,858 1,256 874 1,057 1,028 Provision for income taxes (539) (469) (816) (877) (545) (362) (442) (463) Minority interest share of loss 11 21 37 25 --- --- --- --- Net income (loss) $ (3,892) $ 663 $ 861 $ 1,006 $ 711 $ 512 $ 615 $ 565 ======== ====== ======== ======== ======= ======== ======= ======= Net income (loss) per common and common equivalent share: Primary $ (0.73) $ 0.13 $ 0.16 $ 0.20 $ 0.16 $ 0.12 $ 0.15 $ 0.16 ======== ====== ======== ======== ======= ======== ======= ======= Weighted average number of common & common equivalent shares 5,362 5,298 5,393 5,063 4,365 4,405 4,194 3,446 Fully diluted $ (0.73) $ 0.11 $ 0.15 $ 0.18 $ 0.14 $ 0.10 $ 0.13 $ 0.14 ======== ====== ======== ======== ======= ======== ======= ======= Weighted average number of common & common equivalent shares 5,362 5,783 5,878 5,645 5,004 4,993 4,859 4,041
- -------------- (1) Includes a one-time write-off of purchased research and development costs of $4,584,000 or $0.86 per share related to the acquisition of CompuRoute, Inc. in December 1996. 28 Quarterly results can be affected by a number of factors, including the cyclical nature of the semiconductor industry, the timing of orders from major customers, customer delivery requirements, the availability and efficient utilization of the Company's production capacity, the mix of products sold, availability and cost of raw materials and skilled labor, competitive pricing pressures on the Company's products and services, and technological advances. Liquidity and Capital Resources Cerprobe has financed its operations and capital requirements primarily through cash flow from operations, equipment lease financing arrangements, and sales of equity securities. In January 1996, Cerprobe completed a private placement of Convertible Preferred Stock, which raised net proceeds of $9,400,000 to fund its domestic and international expansion as well as acquisitions of other companies and/or technologies. At December 31, 1996, cash and cash equivalents were $5,564,557, compared to $263,681 as of December 31, 1995. Cerprobe generated $5,660,015 in cash flow from operating activities in 1996. Accounts receivable increased by $1,187,162, or 27%, to $5,564,203 in 1996. Of this increase, $1,004,869 resulted from the acquisition of CompuRoute, $194,293 resulted from an increase in net sales, and $12,000 resulted from the increase in the provision for losses on accounts receivable for the year ended December 31, 1996 as compared to December 31, 1995. Inventories increased $1,060,672, or 38%, over 1995 to $3,862,753. Of this increase, $322,768 resulted from the acquisition of CompuRoute, $812,904 resulted from higher production levels related to the continuing year-over-year increase in net sales, and $75,000 resulted from an increase in the provision for obsolete inventory. Both accounts receivable days outstanding and inventory turns improved during 1996 as compared to 1995. Accounts payable and accrued expenses increased $2,050,732, or 90%, to $4,339,184 in 1996. Approximately $821,324 of the increase resulted from the acquisition of CompuRoute and the remainder represents increased activities with vendors. The current portions of notes payable, capital leases, and demand note payable increased to $1,792,935 at December 31, 1996 from $333,628 at December 31, 1995, primarily as a result of CompuRoute's capital leases, of which the current portion totaled $355,962, and the assumption of a $1,030,000 loan on the CompuRoute land and building purchased on December 27, 1996. Working capital increased $5,131,511, or 108%, to $9,902,970 at December 31, 1996 from December 31, 1995. The current ratio increased to 2.6 to 1 at December 31, 1996 from 2.5 to 1 at December 31, 1995. These increases were primarily as a result of the remaining balance of the net proceeds from the private placement of the Convertible Preferred Stock at December 31, 1996, which had not yet been used for the acquisition of SVTR. That acquisition utilized approximately $2,753,217 of cash in January 1997. Cerprobe increased its investment in property, plant, and equipment during the year ended December 31, 1996 by $8,412,043, or 109%, to $16,158,535 in 1996. This increase was attributable to the Company's efforts to expand capacity to meet customer demand for its products and its acquisition of CompuRoute and the related land and building. These capital expenditures were funded from cash flow from operations, proceeds from the private placement of the Convertible Preferred Stock, a capital lease with Wells Fargo Leasing Corporation and the assumption of a loan on the CompuRoute land and building. Long-term debt, comprised of the non-current portions of notes payable and capital leases, increased $760,238, or 77%, to $1,741,444, primarily as a result of the financing of new manufacturing equipment. In September 1996, construction began on Cerprobe's new corporate headquarters facility in Gilbert, Arizona. Cerprobe expects the facility to be completed in the spring of 1997. Cerprobe has entered into a long-term lease commencing on the date of substantial completion of the facility. The initial lease rate is dependent on final construction costs, but currently is estimated at approximately $73,000 per month, which will increase the Company's total monthly facility lease expense by approximately $34,000. 29 In February 1997, Cerprobe entered into a $10,000,000 unsecured revolving line of credit, which matures August 15, 1998, with its primary lender, Wells Fargo Bank. Advances under the revolving line may be made as prime rate advances, which accrue interest payable monthly, at the Bank's prime lending rate, or as LIBOR rate advances, which bear interest at 175 basis points in excess of the LIBOR base rate. If the remaining holders of the Convertible Preferred Stock elect to convert their shares into shares of Cerprobe common stock, based on the current market price of Cerprobe common stock, Cerprobe would be required to issue more than 800,000 shares of its common stock. To ensure compliance with Nasdaq National Market rules requiring stockholder approval of issuances of Cerprobe common stock representing greater than 20% of all shares outstanding, Cerprobe has the right to redeem any shares of Convertible Preferred Stock that, if converted, would result in the issuance of more than 800,000 shares of its common stock. In such event, Cerprobe may redeem those shares of Convertible Preferred Stock for cash in an amount determined by a formula based on the current market price of Cerprobe common stock. If the holders of all outstanding shares of Convertible Preferred Stock had elected to convert their shares on March 20, 1997, Cerprobe estimates that it would have been required to pay approximately $3,300,000 to have redeemed all shares of Convertible Preferred Stock that, if converted, would have resulted in the issuance of more than 800,000 shares of Cerprobe common stock. Redemption or automatic conversion must occur on or before January 18, 1998. On January 15, 1997, Cerprobe acquired SVTR. The purchase price consisted of (i) $2,753,217 in cash, and (ii) 300,000 shares of Cerprobe common stock of which 125,000 shares have been placed in escrow as a source of recourse for certain indemnification claims. The acquisition of SVTR was funded through net proceeds from the private placement of Convertible Preferred Stock. Cerprobe believes that its working capital, together with the loan commitments described above and anticipated cash flow from operations, will provide adequate sources to fund operations for at least the next 12 months. Cerprobe anticipates that any additional cash requirements as the result of operations or capital expenditures will be financed through cash flow from operations, by borrowing from Cerprobe's primary lender, by lease financing arrangements, or by sales of equity securities. Inflation and Changing Prices Cerprobe is impacted by inflationary trends and business trends within the semiconductor industry and by the general condition of the worldwide semiconductor markets. Market price pressures are exerted on semiconductor manufacturers by the global marketplace and global competition. Such pressures mandate that semiconductor manufacturers closely scrutinize the prices they pay for goods and services purchased from Cerprobe and other suppliers. Accordingly, the price structure for Cerprobe's products must be competitive. Changes in Cerprobe's supplier prices did not have a significant impact on cost of sales during 1996 or 1995. As a result of Cerprobe's operation of the manufacturing, repair, and sales facilities in Scotland, Singapore, and Taiwan, Cerprobe's foreign transactions may be denominated in currencies other than the U.S. dollar. Such transactions may expose Cerprobe to exchange rate fluctuations for the period of time from inception of the transaction until it is settled. There can be no assurance that fluctuations in the currency exchange rate in the future will not have an adverse impact on Cerprobe's foreign operations. In addition, Cerprobe may purchase a substantial portion of its raw materials and equipment from foreign suppliers and will incur labor costs in a foreign currency. The foreign manufacture and sale of products and the purchase of raw material and equipment from foreign suppliers may be adversely affected by political and economic conditions abroad. Protective trade legislation in either the United States or foreign countries, such as a change in the current tariff structures, export compliance laws or other trade policies, could adversely affect Cerprobe's ability to manufacture or sell its products in foreign markets and purchase materials or equipment from foreign suppliers. In countries in which Cerprobe conducts business in local currency, currency exchange fluctuations could adversely affect Cerprobe's net sales or costs. 30 "Safe Harbor" Statement Under the Private Securities Litigation Reform Act of 1995 Statements in this section regarding the expansion of Cerprobe's operation in Southeast Asia and adequacy of sources of capital are forward-looking statements. Words such as "expects," "intends," "believes," "anticipates," "should," and "will likely" also identify forward-looking statements. Actual results, however, could differ materially from those anticipated for a number of reasons, including increased competition in Southeast Asia, a downturn in the market for semiconductors, increases in interest rates, foreign currency fluctuation, and other unanticipated factors. Risk factors, cautionary statements, and other conditions that could cause actual results to differ are contained in "Special Considerations" in Item 1 of this report. ITEM 7. FINANCIAL STATEMENTS The Independent Auditors' Report and Consolidated Financial Statements of the Company are set forth on pages F-1 to F-24 of this report and are incorporated by reference herein. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT The information required by this Item relating to directors of the Company and disclosure relating to compliance with 16(a) of the Securities Act of 1934 is included under the captions "Election of Directors" and "Compliance with Section 16(a) of the Securities Act of 1934" in the Company's Proxy Statement for the 1997 Annual Meeting of Stockholders and is incorporated herein by reference. The information required by this Item relating to the Company's executive officers is included under the caption "Executive Officers" in Part I of this report. ITEM 10. EXECUTIVE COMPENSATION The information required by this Item is included under the caption "Executive Compensation" in the Company's Proxy Statement for the 1997 Annual Meeting of Stockholders and is incorporated herein by reference. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is included under the caption "Security Ownership of Principal Stockholders and Management" in the Company's Proxy Statement for the 1997 Annual Meeting of Stockholders and is incorporated herein by reference. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item is included under the caption "Certain Relationships and Related Transactions" in the Company's Proxy Statement for the 1997 Annual Meeting of Stockholders and is incorporated herein by reference. 31 PART IV ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report: 1. Financial Statements -------------------- The following Financial Statements of the Company are filed with this report:
Description Page ----------- ---- Independent Auditors' Report................................................................F-1 Consolidated Balance Sheets, December 31, 1996 and 1995.................................... F-2 Consolidated Statements of Operations for the years ended December 31, 1996, 1995 and 1994........................................................ F-3 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1996, 1995 and 1994.................................................. F-4 Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994........................................................ F-5 Notes to Consolidated Financial Statements................................................. F-7
2. Exhibits -------- Exhibit Number Description - ------ ----------- 2(a) Agreement of Merger and Plan of Reorganization dated February 21, 1995, as amended by that certain Amendment of Agreement of Merger and Plan of Reorganization dated March 31, 1995, by and among Fresh Test Acquisition, Inc., the Company, Fresh Technology Corporation, and William A. Fresh, Robert K. Bench, Harold D. Higgins, WAF Investment Company and Orem Tek Development Corp. filed as Exhibit 2 to the Company's Current Report on Form 8-K filed with the Commission on or about April 4, 1995 and incorporated herein by reference. 3(a) First Restated Certificate of Incorporation of the Company dated August 20, 1996. 3(b) Bylaws of the Company dated March 14, 1987, filed as Exhibit 4(b) to the Company's Form 10-Q for the period ended June 30, 1987 and incorporated herein by reference. 4(a) Specimen Stock Certificate filed as Exhibit 4(c) to the Company's Form S-18 Registration Statement (No. 2-85679) and incorporated herein by reference. 4(b) Specimen Convertible Subordinated Debenture filed as Exhibit 4(b) to the Company's Form 10-K for the year ended December 31, 1990 and incorporated herein by reference. 4(c) Specimen Series A Preferred Stock Certificate filed as Exhibit 4(c) to the Company's Form 10-KSB for the year ended December 31, 1995 and incorporated herein by reference. 4(d) Certificate of Designations of Series A Preferred Stock dated January 11, 1996, as filed with the Secretary of State of Delaware filed as Exhibit 4(d) to the Company's Form 10-KSB for the year ended December 31, 1995 and incorporated herein by reference. 10(a) Non-Qualified Stock Option Plan adopted by the Company's Board of Directors on June 25, 1983, as amended, and Form of Qualified Stock Option Agreement filed as Exhibits 4(a) and 4(c) to the Company's Form S-8 Registration Statement (No. 33-65200) and incorporated herein by reference. 32 10(b) Incentive Stock Option Plan adopted by the Company's Board of Directors on April 3, 1989, filed as Exhibit 10(k) to the Company's Form 10-K for the year ended December 31, 1989 and incorporated herein by reference and Form of Incentive Stock Option Agreement filed as Exhibit 4(d) to the Company's Form S-8 Registration Statement (No. 33-65200) and incorporated herein by reference. 10(c) Lease Agreement between the Company and Jerome A. Reynolds dated July 4, 1991 filed as Exhibit 10(b) to the Company's Form 10-K for the year ended December 31, 1991 and incorporated herein by reference. 10(d) Lease Agreement between the Company and Kou-ping Cheng dated June 11, 1993 filed as Exhibit 10(u) to the Company's Form 10-KSB for the year ended December 31, 1993 and incorporated herein by reference. 10(e) Lease Agreement between the Company and NPF Management, Inc. dated March 15, 1993 filed as Exhibit 10(p) to the Company's Form 10-K for the year ended December 31, 1992 and incorporated herein by reference. 10(f) Lease Modification between the Company and PDJ Corporation dated February 10, 1994 to Lease Agreement between the Company and NPF Management, Inc. dated March 15, 1993 filed as Exhibit 10(v) to the Company's Form 10-KSB for the year ended December 31, 1993 and incorporated herein by reference. 10(g) Lease Agreement between the Company and John J. Hollowell dated October 30, 1990 filed as Exhibit 10(m) to the Company's Form 10-K for the year ended December 31, 1990 and incorporated herein by reference. 10(h) Office Lease Agreement between the Company and Robert B. Hopgood, Jr. dated November 13, 1990 filed as Exhibit 10(n) to the Company's Form 10-K for the year ended December 31, 1990 and incorporated herein by reference. 10(i) Addendum dated March 1, 1992 between the Company and Robert B. Hopgood, Jr. to Office Lease Agreement between the Company and Robert B. Hopgood, Jr. dated November 13, 1990 filed as Exhibit 10(j) to the Company's Form 10-K for the year ended December 31, 1991 and incorporated herein by reference. 10(j) Second Addendum dated January 1, 1994 between the Company and Robert B. Hopgood, Jr. to Office Lease Agreement between the Company and Robert B. Hopgood, Jr. dated November 13, 1990 filed as Exhibit 10(j) to the Company's Form 10-K for the year ended December 31, 1991 and incorporated herein by reference. 10(k) Lease Agreement between the Company and Renner Plaza Properties dated September 8, 1993 filed as Exhibit 10(w) to the Company's Form 10-KSB for the year ended December 31, 1993 and incorporated herein by reference. 10(l) Lease Agreement between the Company and Aetna Life Insurance Company dated December 30, 1994 filed as Exhibit 10(l) to the Company's Form 10-KSB for the year ended December 31, 1994 and incorporated herein by reference. 10(m) Lease between Scottish Enterprise and Cerprobe Europe Limited dated November 4, 1994 filed as Exhibit 10(m) to the Company's Form 10-KSB for the year ended December 31, 1994 and incorporated herein by reference. 33 10(n) Rental Agreement between the Company and Gentra Capital Corporation dated as of July 6, 1994 filed as Exhibit 10(n) to the Company's Form 10-KSB for the year ended December 31, 1994 and incorporated herein by reference. 10(o) Agreement dated May 2, 1991 between the Company and John W. Tarzwell and Margaret L. Tarzwell filed as Exhibit 10(d) to the Company's Form 10-K for the year ended December 31, 1991 and incorporated herein by reference. 10(p) Amendment No. 1 dated March 8, 1993 to Agreement dated May 2, 1991 between the Company and John W. Tarzwell and Margaret L. Tarzwell filed as Exhibit 10(s) to the Company's Form 10-KSB for the year ended December 31, 1993 and incorporated herein by reference. 10(q) Asset Purchase Agreement dated July 10, 1991 between the Company and Alpha Test Corporation filed as Exhibit 10(c) to the Company's Form 10-K for the year ended December 31, 1991 and incorporated herein by reference. 10(r) Employment Contract dated July 16, 1990 between the Company and Carl Zane Close filed as Exhibit 10(p) to the Company's Form 10-K for the year ended December 31, 1990 and incorporated herein by reference. 10(s) Employment Contract dated July 17, 1990 between the Company and Michael K. Bonham filed as Exhibit 10(q) to the Company's Form 10-K for the year ended December 31, 1990 and incorporated herein by reference. 10(t) Employment Contract dated July 16, 1990 between the Company and Eswar Subramanian filed as Exhibit 10(r) to the Company's Form 10-K for the year ended December 31, 1990 and incorporated herein by reference. 10(u) Employment Contract dated July 16, 1990 between the Company and Henry Wong filed as Exhibit 10(s) to the Company's Form 10-K for the year ended December 31, 1990 and incorporated herein by reference. 10(v) Manufacturing Licensing Agreement between the Company and Intertrade Scientific, Inc. dated August 30, 1993 filed as Exhibit 10(x) to the Company's Form 10-KSB for the year ended December 31, 1993 and incorporated herein by reference. 10(w) Manufacturing Licensing Agreement between the Company and ESJ Corporation dated January 21, 1994 filed as Exhibit 10(y) to the Company's Form 10-KSB for the year ended December 31, 1993 and incorporated herein by reference. 10(x) Loan Agreement between the Company and First Interstate Bank of Arizona, N.A. dated June 6, 1994 and related Promissory Note filed as Exhibit 10(x) to the Company's Form 10-KSB for the year ended December 31, 1994 and incorporated herein by reference. 10(y) Master Lease Agreement between the Company and First Interstate Bank of Arizona, N.A. dated as of June 6, 1994 filed as Exhibit 10(y) to the Company's Form 10-KSB for the year ended December 31, 1994 and incorporated herein by reference. 10(z) Master Lease Agreement between the Company and PFC, Inc. dated August 9, 1994 filed as Exhibit 10(z) to the Company's Form 10-KSB for the year ended December 31, 1994 and incorporated herein by reference. 34 10(aa) Commitment of Norwest Equipment Finance, Inc. to the Company dated December 14, 1994 filed as Exhibit 10(aa) to the Company's Form 10-KSB for the year ended December 31, 1994 and incorporated herein by reference. 10(bb) Agreement between Cerprobe Europe, Limited and Lanarkshire Development Agency dated August 15, 1994, as amended, filed as Exhibit 10(bb) to the Company's Form 10-KSB for the year ended December 31, 1994 and incorporated herein by reference. 10(cc) Lease Agreement between the Company and Realtec Properties I, L.P. dated July 17, 1995 filed as Exhibit 1 to the Company's Form 10-QSB for the quarter ended June 30, 1995 and incorporated herein by reference. 10(dd) Lease Agreement between the Company and East Point Realty Trust dated June 30, 1995 filed as Exhibit 2 to the Company's Form 10-QSB for the quarter ended June 30, 1995 and incorporated herein by reference. 10(ee) Amendment to Loan Agreement between the Company and First Interstate Bank of Arizona, N.A. dated April 30, 1995 and related Promissory Note filed as Exhibit 3 to the Company's Form 10-QSB for the quarter ended June 30, 1995 and incorporated herein by reference. 10(ff) Amendment to Master Lease Agreement between the Company and First Interstate Bank of Arizona, N.A. dated April 30, 1995 filed as Exhibit 4 to the Company's Form 10-QSB for the quarter ended June 30, 1995 and incorporated herein by reference. 10(gg) Letter of Intent between the Company and Technology Parks PTE LTD dated June 23, 1995 filed as Exhibit 5 to the Company's Form 10-QSB for the quarter ended June 30, 1995 and incorporated herein by reference. 10(hh) Employment Agreement between the Company and Robert K. Bench dated March 31, 1995 filed as Exhibit 10(hh) to the Company's Form 10-KSB for the year ended December 31, 1995 and incorporated herein by reference. 10(ii) Security Agreement between the Company and Zions Credit Corporation dated December 27, 1995 filed as Exhibit 10(ii) to the Company's Form 10-KSB for the year ended December 31, 1995 and incorporated herein by reference. 10(jj) Assignment of Lease between Fresh Test Technology, Inc. and the Company dated August 31, 1995 filed as Exhibit 10(jj) to the Company's Form 10-KSB for the year ended December 31, 1995 and incorporated herein by reference. 10(kk) Lease Agreement between Fresh Test Technology, Inc. and Mission West Properties dated September 21, 1993 filed as Exhibit (kk) to the Company's Form 10-KSB for the year ended December 31, 1995. 10(ll) The Company's 1995 Stock Option Plan filed as Exhibit 10(ll) to the Company's Form 10-KSB for the year ended December 31, 1995 and incorporated herein by reference. 10(mm) Capital Lease Agreement between the Company and Wells Fargo Leasing Corporation dated October 10, 1996 filed as an Exhibit to the Company's Form 10-QSB for the quarter ended September 30, 1996 and incorporated herein by reference. 10(nn) Capital Lease Agreement between the Company and Wells Fargo Leasing Corporation dated September 9, 1996 filed as an Exhibit to the Company's Form 10-QSB for the quarter ended September 30, 1996 and incorporated herein by reference. 10(oo) Memorandum of Lease with respect to the Lease Agreement between the Company and CRPB Investors, L.L.C. dated August 21, 1996, and the Addendum to the Lease Agreement filed as an Exhibit to the Company's Form 10-QSB for the quarter ended September 30, 1996 and incorporated herein by reference. 35 10(pp) Employment Agreement between the Company and Randal L. Buness dated June 26, 1996 filed as an Exhibit to the Company's Form 10-QSB for the quarter ended September 30, 1996 and incorporated herein by reference. 10(qq) Operating Agreement between the Company and CRPB Investors, L.L.C. dated September 18, 1996 filed as an Exhibit to the Company's Form 10-QSB for the quarter ended September 30, 1996 and incorporated herein by reference. 10(rr) Agreement of Merger and Plan of Reorganization, dated as of October 25, 1996, by and among the Company, C-Route Acquisition, Inc., CROUTE, Inc., COMPUROUTE, INCORPORATED, and Souad Shrime filed as Exhibit 10(rr) to the Company's Registration Statement on Form S-4 (No. 333-15785) and incorporated herein by reference. 10(ss) Agreement and Plan of Merger, dated as of October 25, 1996, by and between COMPUROUTE, INCORPORATED, and CROUTE, Inc. filed as Exhibit 10(ss) to the Company's Registration Statement on Form S-4 (No. 333-15785) and incorporated herein by reference. 10(tt) Purchase and Sale Agreement dated as of October 25, 1996, by and between Souad Shrime and the Company filed as Exhibit 10(tt) to the Company's Registration Statement on Form S-4 (No. 333-15785) and incorporated herein by reference. 10(uu) Indemnification Agreement by Souad Shrime in favor of and for the benefit of the Company and C-Route Acquisition, Inc. filed as Exhibit 10(uu) to the Company's Registration Statement on Form S-4 (No. 333-15785) and incorporated herein by reference. 10(vv) Agreement of Merger and Plan of Reorganization dated January 15, 1997, by and among the Company, EMI Acquisition, Inc., Silicon Valley Test & Repair, Inc., and William and Carol Mayer filed as Exhibit 1 to the Company's Current Report on Form 8-K filed with the Commission on or about January 30, 1997 and incorporated herein by reference. 10(ww) Registration Rights Agreement dated January 15, 1997, by and between the Company and William and Carol Mayer filed as Exhibit 2 to the Company's Current Report on Form 8-K filed with the Commission on or about January 30, 1997 and incorporated herein by reference. 10(xx) Employment Agreement dated January 15, 1997, by and between the Company and William and Carol Mayer filed as Exhibit 2 to the Company's Current Report on Form 8-K filed with the Commission on or about January 30, 1997 and incorporated herein by reference. 10(yy) Credit Agreement between the Company and Wells Fargo Bank, National Association dated February 28, 1997. 10(zz) Revolving Line of Credit Note between the Company and Wells Fargo Bank, National Associated dated February 28, 1997. 11 Schedule of Computation of Net Income (Loss) per Share. 21 List of Subsidiaries. 23 Independent Auditors' Consent. 27 Financial Data Schedule. (b) Reports on Form 8-K ------------------- None. 36 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. CERPROBE CORPORATION /s/ Zane Close ------------------------------------- C. Zane Close President, Chief Executive Officer, and Director Dated: March 28, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/Ross J. Mangano Chairman of the Board of March 28, 1997 - -------------------------------------------- Directors and Director Ross J. Mangano /s/C. Zane Close President, Chief Executive March 28, 1997 - -------------------------------------------- Officer, and Director C. Zane Close (Principal Executive Officer) /s/Randal L. Buness Vice President, Chief Financial March 28, 1997 - -------------------------------------------- Officer, Secretary, and Treasurer Randal L. Buness (Principal Financial and Accounting Officer) /s/William A. Fresh Director March 28, 1997 - -------------------------------------------- William A. Fresh /s/Kenneth W. Miller Director March 28, 1997 - -------------------------------------------- Kenneth W. Miller /s/Donald F. Walter Director March 28, 1997 - -------------------------------------------- Donald F. Walter
37 CERPROBE CORPORATION INDEX TO FINANCIAL STATEMENTS
Page Independent Auditors' Report.............................................................................. F-1 Consolidated Balance Sheets, December 31, 1996 and 1995................................................... F-2 Consolidated Statements of Operations for the years ended December 31, 1996, 1995 and 1994.......................................................................................... F-3 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1996, 1995 and 1994...................................................................... F-4 Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994.......................................................................................... F-5 Notes To Consolidated Financial Statements................................................................ F-7
INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Cerprobe Corporation: We have audited the accompanying consolidated balance sheets of Cerprobe Corporation and subsidiaries as of December 31, 1996 and 1995 and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Cerprobe Corporation and subsidiaries as of December 31, 1996 and 1995 and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996 in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Phoenix, Arizona February 14, 1997, except as to the fourth paragraph of note 20 which is as of February 28, 1997 F-1 CERPROBE CORPORATION Consolidated Balance Sheets December 31, 1996 and 1995 Assets 1996 1995 ----------------- -------------- Current assets: Cash and cash equivalents $ 5,564,557 $ 263,681 Accounts receivable, net of allowance of $223,000 in 1996 and $173,000 in 1995 5,564,203 4,377,041 Inventories, net 3,862,753 2,802,081 Note receivable 250,000 -- Prepaid expenses 377,003 111,673 Income taxes receivable 214,097 163,464 Deferred tax asset 202,476 270,599 ----------------- -------------- Total current assets 16,035,089 7,988,539 Property, plant and equipment, net 11,446,291 4,667,786 Intangibles, net 2,602,812 1,997,409 Other assets 1,326,592 313,716 ----------------- -------------- Total assets $31,410,784 $14,967,450 ================= ============== Liabilities and Stockholders' Equity Current liabilities: Accounts payable $2,739,064 $1,499,853 Accrued expenses 1,600,120 788,599 Convertible subordinated debentures -- 595,000 Demand note payable 1,030,000 -- Current portion of notes payable 128,180 123,743 Current portion of capital leases 634,755 209,885 ----------------- ------------- Total current liabilities 6,132,119 3,217,080 Notes payable, less current portion 278,645 408,376 Capital leases, less current portion 1,462,799 572,830 Deferred tax liability -- 66,123 Other liabilities 394,011 46,801 ----------------- ------------- Total liabilities 8,267,574 4,311,210 ----------------- ------------- Minority interest 12,851 -- Commitments and contingencies Stockholders' equity: Preferred stock, $.05 par value; authorized 10,000,000 shares; issued and outstanding 330 shares of Series A Convertible Preferred Stock, liquidation preference of $10,164 per share 16 -- Common stock, $.05 par value; authorized, 10,000,000 shares; issued and outstanding 6,027,714 shares in 1996 and 4,095,851 301,386 204,792 shares in 1995 Additional paid-in capital 20,652,290 7,239,410 Retained earnings 2,105,674 3,466,464 Unearned compensation -- (241,872 Foreign currency translation adjustment 70,993 (12,554 ----------------- ------------- Total stockholders' equity 23,130,359 10,656,240 ================= ============= Total liabilities and stockholders' equity $31,410,784 $14,967,450 ================= ============= See accompanying notes to consolidated financial statements. F-2 CERPROBE CORPORATION Consolidated Statements of Operations Years ended December 31, 1996, 1995 and 1994
1996 1995 1994 ------------------ ------------------ ------------------ Net sales $37,308,199 $26,098,637 $14,251,485 Costs of goods sold 20,343,516 13,706,435 8,213,966 ------------------ ------------------ ------------------ Gross margin 16,964,683 12,392,202 6,037,519 ------------------ ------------------ ------------------ Expenses: Selling, general and administrative 10,725,075 7,502,598 3,693,401 Engineering and product development 902,909 706,680 417,198 Purchased research and development 4,584,000 -- -- ------------------ ------------------ ------------------ Total expenses 16,211,984 8,209,278 4,110,599 ------------------ ------------------ ------------------ Operating income 752,699 4,182,924 1,926,920 ------------------ ------------------ ------------------ Other income (expense): Interest income 467,043 44,697 18,882 Interest expense (221,248) (153,758) (115,254) Other income, net 246,862 140,111 92,796 ------------------ ------------------ ------------------ Total other income (expense) 492,657 31,050 (3,576) ------------------ ------------------ ------------------ Income before income taxes and 1,245,356 4,213,974 1,923,344 minority interest Minority interest share of loss 94,854 -- -- ------------------ ------------------ ------------------ Income before income taxes 1,340,210 4,213,974 1,923,344 Provision for income taxes (2,701,000) (1,811,727) (710,521) ------------------ ------------------ ------------------ Net income (loss) $(1,360,790) $2,402,247 $1,212,823 ================== ================== ================== Net income (loss) per common and common equivalent share: Primary $(0.30) $0.59 $0.36 ================== ================== ================== Weighted average number of common and common equivalent shares outstanding 4,579,598 4,071,233 3,387,220 ================== ================== ================== Fully diluted $(0.30) $0.49 $0.30 ================== ================== ================== Weighted average number of common and common equivalent shares outstanding 4,579,598 4,862,137 4,006,801 ================== ================== ==================
See accompanying notes to consolidated financial statements. F-3 CERPROBE CORPORATION Consolidated Statements of Stockholders' Equity Years ended December 31, 1996, 1995 and 1994
Number of Number of Common Preferred Shares Shares Additional Issued and Issued and Common Preferred Paid-in Outstanding Outstanding Stock Stock Capital ------------ ------------- -------------- ---------- ---------------- Balance, January 1, 1994 2,976,018 - $ 148,800 $ - $ 2,973,645 Conversion of subordinated debentures 40,000 - 2,000 - 38,000 Stock options exercised 207,333 - 10,367 - 191,326 Tax benefit of exercise of nonqualified stock options - - - - 482,461 Cash dividends paid ($.03 a share) - - - - - Translation adjustment - - - - - Net income - - - - - ------------ ------------- -------------- ---------- ---------------- Balance, December 31, 1994 3,223,351 $ 161,167 $ - $ 3,685,432 Issuance of stock options at less than fair market value - - - - 387,000 Compensation expense related to stock options - - - - - Stock options exercised 160,000 - 8,000 - 199,464 Tax benefit of exercise of nonqualified stock options - - - - 340,170 Issuance of common stock for acquisition 712,500 - 35,625 - 2,627,344 Translation adjustment - - - - - Net income - - - - ------------ ------------- -------------- ---------- ---------------- Balance, December 31, 1995 4,095,851 - $ 204,792 $ - $ 7,239,410 Issuance of convertible preferred stock - 1,000 - 50 9,399,950 Conversion of subordinated debentures 595,000 - 29,750 - 565,250 Compensation expense related to stock options - - - - (192,489) Stock options exercised 164,702 - 8,235 - 556,744 Tax benefit of exercise of nonqualified stock options - - - - 542,000 Conversion of preferred stock for common stock 772,161 (670) 38,609 (34) (38,575) Issuance of common stock for acquisition 400,000 - 20,000 - 2,580,000 Translation adjustment - - - - - Net loss - - - - - ------------ ------------- -------------- ---------- ---------------- Balance, December 31, 1996 6,027,714 330 $ 301,386 $ 16 $ 20,652,290 ============ ============= ============== ========== ================
Foreign Retained Currency Total Earnings Unearned Translation Stockholders' (Deficit) Compensation Adjustment Equity -------------- -------------- ------------ ----------------- Balance, January 1, 1994 $ (59,129) $ - $ - $ 3,063,316 Conversion of subordinated debentures - - - 40,000 Stock options exercised - - - 201,693 Tax benefit of exercise of nonqualified stock options - - - 482,461 Cash dividends paid ($.03 a share) (89,477) - - (89,477) Translation adjustment - - 12,138 12,138 Net income 1,212,823 - - 1,212,823 -------------- -------------- ------------ ----------------- Balance, December 31, 1994 $ 1,064,217 $ $ 12,138 $ 4,922,954 Issuance of stock options at less than fair market value - (387,000) - - Compensation expense related to stock options - 145,128 - 145,128 Stock options exercised - - - 207,464 Tax benefit of exercise of nonqualified stock options - - - 340,170 Issuance of common stock for acquisition - - - 2,662,969 Translation adjustment - - (24,692) (24,692) Net income 2,402,247 - - 2,402,247 -------------- -------------- ------------ ----------------- Balance, December 31, 1995 $ 3,466,464 $ (241,872) $ (12,554) $ 10,656,240 Issuance of convertible preferred stock - - - 9,400,000 Conversion of subordinated debentures - - - 595,000 Compensation expense related to stock options - 241,872 - 49,383 Stock options exercised - - - 564,979 Tax benefit of exercise of nonqualified stock options - - - 542,000 Conversion of preferred stock for common stock - - - - Issuance of common stock for acquisition - - - 2,600,000 Translation adjustment - - 83,547 83,547 Net loss (1,360,790) - - (1,360,790) -------------- -------------- ------------ ----------------- Balance, December 31, 1996 $ 2,105,674 $ - $ 70,993 $ 23,130,359 ============== ============== ============ =================
See accompanying notes to consolidated financial statements. F-4 CERPROBE CORPORATION Consolidated Statements of Cash Flows Years ended December 31, 1996, 1995 and 1994
1996 1995 1994 --------------- --------------- --------------- Cash flows from operating activities: Net income (loss) $(1,360,790) $2,402,247 $1,212,823 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 1,930,341 1,125,584 458,436 Purchased research and development 4,584,000 -- -- Tax benefit from exercise of nonqualified stock options 542,000 340,170 482,461 (Gain) loss on sale of equipment -- 4,787 (50) Deferred income taxes 2,000 (110,502) (93,974) Provision for losses on accounts receivable 12,000 12,000 24,000 Provision for obsolete inventory 75,000 80,000 67,200 Compensation expense 49,383 145,128 -- Loss applicable to minority interest in consolidated subsidiaries (94,854) -- -- Changes in operating assets and liabilities, net of acquisitions: Accounts receivable (194,293) (1,444,689) (907,762) Inventories (812,904) (1,038,216) (51,285) Prepaid expenses and other assets (562,590) (389,988) (59,418) Income taxes receivable (50,633) (163,464) -- Accounts payable and accrued expenses 1,229,408 1,101,238 (15,786) Accrued income taxes -- (376,442) 331,765 Other liabilities 311,947 (42,289) 90,356 --------------- --------------- ---------------- Net cash provided by operating activities: 5,660,015 1,645,564 1,538,766 --------------- --------------- ---------------- Cash flows from investing activities: Purchase of property, plant and equipment (4,922,960) (1,960,775) (1,354,694) Investment in CRPB Investors, L.L.C. (659,233) -- -- Purchase of Fresh Test Technology, net of cash acquired -- (81,698) -- Purchase of CompuRoute, Inc., net of cash acquired (4,327,162) -- -- Proceeds from sale of equipment -- 42,062 50 Increase in notes receivable (250,000) -- -- --------------- --------------- ---------------- Net cash used in investing activities (10,159,355) (2,000,411) (1,354,644) --------------- --------------- ---------------- Cash flows from financing activities: Dividends paid -- -- (89,477) Principal payments on notes payable and capital leases (356,015) (302,563) (79,603) Net proceeds from issuance of convertible preferred 9,400,000 -- -- stock Net proceeds from stock options exercised 564,979 207,464 201,693 Capital contribution by minority interest partners 107,705 -- -- --------------- --------------- ---------------- Net cash provided by (used in) financing activities 9,716,669 (95,099) 32,613 --------------- --------------- ---------------- Effect of exchange rates on cash and cash equivalents 83,547 (24,692) 12,138 --------------- --------------- ---------------- Net increase (decrease) in cash and cash equivalents 5,300,876 (474,638) 228,873 Cash and cash equivalents, beginning of year 263,681 738,319 509,446 --------------- --------------- ---------------- Cash and cash equivalents, end of year $5,564,557 $263,681 $738,319 =============== =============== ================
See accompanying notes to consolidated financial statements. F-5 CERPROBE CORPORATION Consolidated Statements of Cash Flows, Continued Years ended December 31, 1996, 1995 and 1994
1996 1995 1994 ------------------ ------------------ ------------------ Supplemental schedule of noncash investing and financing activities: Conversion of subordinated debentures $ 595,000 $ -- $ 40,000 ================== ================== ================== Equipment acquired under capital leases and issuance of note payable $1,553,968 $1,056,817 $195,293 ================== ================== ================== Supplemental disclosures of cash flow information: Interest paid $ 218,383 $ 153,690 $115,873 ================== ================== ================== Income taxes paid (refunded) $2,060,000 $1,679,876 $ (9,731) ================== ================== ================== Supplemental disclosures of noncash investing activities: The Company made acquisitions for $7.4 million and $3.1 million in the years ended December 31, 1996 and 1995, respectively. The purchase price was allocated to the assets acquired and liabilities assumed based on their fair values as indicated in notes to the consolidated financial statements. A summary of the acquisitions was as follows: Purchase price $ 7,432,543 $ 3,065,834 Less cash acquired (505,381) (321,167) Common stock issued (2,600,000) (2,662,969) ================== ================== Cash invested $ 4,327,162 $ 81,698 ================== ==================
See accompanying notes to consolidated financial statements. F-6 CERPROBE CORPORATION Notes to Consolidated Financial Statements Years ended December 31, 1996, 1995 and 1994 (1) Summary of Significant Accounting Policies Description of Business Cerprobe Corporation ("Cerprobe") designs, manufactures, markets, and services high performance products and equipment for use in the testing of integrated circuits ("ICs") for the semiconductor industry. Cerprobe's products enable semiconductor manufacturers to test the integrity of their ICs in wafer form. Testing ICs during the batch fabrication stage of the manufacturing process permits semiconductor manufacturers to identify defective products early in the manufacturing process, which improves overall product quality and lowers manufacturing costs. Through a recent acquisition, the Company also has a line of products used in the final performance testing and sorting of packaged ICs. The Company markets its products and services worldwide to semiconductor manufacturers, both those who manufacture ICs for resale and those who manufacture ICs for inclusion in their own products. Principles of Consolidation The consolidated financial statements include the accounts of Cerprobe and its wholly-owned subsidiaries: Cerprobe Europe Limited, and Cerprobe Asia Holdings PTE LTD ("Company"). Cerprobe Asia Holdings PTE LTD together with Asian investors, formed Cerprobe Asia PTE LTD in 1995. Cerprobe Asia Holdings PTE LTD is a 70% owner of Cerprobe Asia PTE LTD. Cerprobe Asia PTE LTD created wholly-owned subsidiaries, Cerprobe Singapore PTE LTD and Cerprobe Taiwan Co. LTD, to operate full service sales and manufacturing plants. Singapore became operational in April of 1996 and Taiwan in January of 1997. All significant intercompany transactions have been eliminated in consolidation. The consolidated balance sheet at December 31, 1996 also includes the assets and liabilities of CompuRoute, Inc. a wholly owned subsidiary, acquired on December 27, 1996; the consolidated financial statements do not include the 1996 operations of CompuRoute, Inc. due to the date of acquisition. Use of Estimates Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. Cash and Cash Equivalents Cash and cash equivalents include cash on hand and in banks and cash invested in short-term securities with original maturities of three months or less. Inventories Inventories are stated at the lower of cost (first-in, first-out method) or market. F-7 CERPROBE CORPORATION Notes to Consolidated Financial Statements, Continued Property, Plant and Equipment Property, plant and equipment are stated at cost and depreciated by the straight-line method over the following estimated useful lives: Building 39 years Manufacturing tools and equipment 3-7 years Office furniture and equipment 3-7 years Computer hardware and software 3 years Leasehold improvements Life of lease Other Intangibles Goodwill represents the amount by which the cost of businesses purchased exceeds the fair value of the net assets acquired. Goodwill is amortized over a period of eight years using the straight-line method. The Company continually evaluates whether events and circumstances have occurred that indicate the remaining estimated useful life of goodwill may warrant revision or that the remaining balance may not be recoverable. When factors indicate that the asset should be evaluated for possible impairment, the Company uses an estimate of the undiscounted net cash flows over the remaining life of the asset in measuring whether the asset is recoverable. Patents and technology are stated at fair market value at the date of acquisition less accumulated amortization and are amortized over a period of five years using the straight-line method. Research and development costs and any costs associated with internally developed patents, formulas or other proprietary technology are expensed in the year incurred. Income Taxes The Company utilizes the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Foreign Currency Translation The financial statements of the Company's Europe and Asia subsidiaries are translated into US dollars in accordance with SFAS No. 52, "Foreign Currency Translation." Assets and liabilities of the subsidiaries are translated into US dollars at current exchange rates. Income and expense items are translated at the average exchange rate for the year. The resulting translation adjustments are recorded directly as a separate component of stockholders' equity. All transaction gains or losses are recorded in the statement of operations. F-8 CERPROBE CORPORATION Notes to Consolidated Financial Statements, Continued Revenue Recognition The Company records revenue when goods are shipped. Net Income (Loss) Per Share Primary net income (loss) per common and common equivalent share is computed using the weighted average number of common shares outstanding during each year and includes shares issuable upon exercise of stock options, warrants, and conversion of convertible preferred stock when the effect of such issuance is dilutive. The calculation of fully diluted net income (loss) per common and common equivalent share also includes shares issuable upon conversion of convertible subordinated debentures when the effect of such issuance is dilutive. Long-lived Asset In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," ("SFAS No. 121") which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. SFAS No. 121 also addresses the accounting for long-lived assets that are expected to be disposed of. The Company adopted SFAS No. 121 in the first quarter of 1996 and this adoption did not have a material impact on the consolidated financial statements. Stock Based Compensation Prior to January 1, 1996, the Company accounted for its stock option plans in accordance with the provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. On January 1, 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation," ("SFAS No. 123"), which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants made in 1995 and future years as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123. Reclassifications Certain reclassifications have been made to the prior year financial statements to conform to the 1996 presentation. F-9 CERPROBE CORPORATION Notes to Consolidated Financial Statements, Continued (2) Inventories Inventories consist of the following:
1996 1995 ------------------ ------------------ Raw materials $3,328,422 $1,655,974 Work-in-process 615,360 1,229,107 Finished goods 47,971 -- Reserve for obsolete inventories (129,000) (83,000) ------------------ ---------------- $3,862,753 $2,802,081 ================== ==================
(3) Note Receivable The Company has a note receivable from Silicon Valley Test & Repair, Inc., ("SVTR") dated December 12, 1996, for $250,000. Interest on the outstanding balance is 1% in excess of the prime rate. As of December 31, 1996, the interest rate was 9.25%. This note was repaid upon the acquisition of SVTR by the Company on January 15, 1997. See note 20. (4) Property, Plant and Equipment Property, plant and equipment consists of the following:
1996 1995 ------------------ ------------------ Land $ 359,253 $ -- Building 1,947,877 -- Manufacturing tools and equipment 8,789,140 4,825,724 Office furniture and equipment 1,063,547 694,643 Leasehold improvements 1,112,576 759,843 Computer hardware and software 2,402,551 1,067,444 Construction in progress 483,591 398,838 Accumulated depreciation and amortization (4,712,244) (3,078,706) ------------------ ------------------ $11,446,291 $4,667,786 ================== ==================
F-10 CERPROBE CORPORATION Notes to Consolidated Financial Statements, Continued (5) Intangibles Intangibles consist of the following:
1996 1995 ------------------ ------------------ Goodwill $3,009,638 $2,120,505 Patents and technology 90,839 90,839 Accumulated amortization (497,665) (213,935) ------------------ ------------------ $2,602,812 $1,997,409 ================== ==================
Goodwill from the acquisition of Fresh Test Technology and CompuRoute, Inc. is $2,120,505 and $889,133, respectively. (6) Other Assets Other assets consist of the following:
1996 1995 ------------------ ------------------ Investment in CRPB Investors, L.L.C. $659,233 $ -- Deferred compensation 343,755 306,348 Other assets and deposits 323,604 7,368 ------------------ ------------------ $1,326,592 $313,716 ================== ==================
In September 1996, the Company acquired a 36% interest in CRPB Investors, L.L.C., for $659,233. CRPB Investors, L.L.C., an Arizona limited liability company, was formed for the purpose of owning and operating the 83,000 square foot facility being built to serve as Cerprobe's worldwide headquarters. The investment will be accounted for by the equity method of accounting. (7) Accrued Expenses Accrued expenses consist of the following:
1996 1995 ------------------ ------------------ Accrued payroll and related taxes $1,070,777 $482,866 Other accrued expenses 529,343 305,733 ------------------ ------------------ $1,600,120 $788,599 ================== ==================
F-11 CERPROBE CORPORATION Notes to Consolidated Financial Statements, Continued (8) Demand Note Payable On December 27, 1996, the Company assumed a demand note with Security Bank of Garland, Texas for approximately $1,030,000 on the purchase of land and building occupied by CompuRoute, Inc., located in Dallas, Texas. Interest on the outstanding balance is 1.00% in excess of the prime rate. As of December 31, 1996, the interest rate was 9.25%. (9) Convertible Subordinated Debentures and Notes Payable In March and April 1991, the Company issued $1,000,000 in aggregate principal amount of Convertible Subordinated Debentures (the "Debentures"). The Debentures were convertible into shares of the Company's common stock at a conversion price equal to $1.00 per share. As of December 31, 1996 and 1995, respectively, $0 and $595,000 in principal amount of debentures were outstanding. On April 30, 1996, the Company entered into an unsecured $3,000,000 revolving line of credit with First Interstate Bank (now Wells Fargo Bank), which expires on April 28, 1997. The non-use fee under the line of credit is .125% of the unused portion, calculated per annum. The interest rate on any amounts borrowed under the revolving credit agreement is the lower of prime rate, which was 8.25% at December 31, 1996, or LIBOR (London Interbank Rate), plus 2.25%, which was 7.75% at December 31, 1996. There was no amount outstanding under this agreement at December 31, 1996. On February 28, 1997, the Company entered into a new line of credit with Wells Fargo Bank that replaced this line. See note 20. The Company has a note payable with Zion Credit Corporation for the purchase of manufacturing equipment. The note accrues interest at 9.4% annually with monthly payments of $13,185 including interest through December 1999. At December 31, 1996, $406,825 was outstanding under the note. Long-term debt consists of the following:
1996 1995 ------------------ ----------------- Convertible subordinated debentures $ -- $ 595,000 Note payable 406,825 532,119 ------------------ ----------------- 406,825 1,127,119 Less current portion (128,180) (718,743) ------------------ ----------------- Long-term debt $278,645 $ 408,376 ================== =================
F-12 CERPROBE CORPORATION Notes to Consolidated Financial Statements, Continued Annual maturities of long-term debt are as follows: 1997 $128,180 1998 139,660 1999 138,985 ------------------ $406,825 ================== (10) Stockholders' Equity Convertible Preferred Stock In January 1996, the Company issued 1,000 shares of convertible preferred stock for $10,000,000. Net proceeds, after deducting expenses, were $9,400,000. If a holder does not convert within the first two years, then automatic conversion occurs at the end of the second year. The convertible preferred stock converts at the lesser of 110% of the fixed strike price of $16.55 or 90% of the average five day closing price prior to the conversion date. The Company may call the convertible preferred stock at any time in minimum amounts of $2,000,000 at a price of 125% of par, or upon a merger, buyout, or acquisition. Additionally, the Company issued 39,275 common stock warrants in January 1996. These give the holder the right to purchase from the Company not more than 39,275 fully paid and non-assessable shares of the Company's common stock, $.05 par value, at a price of $16.55 per share on or after January 16, 1997, with expiration in four years. During 1996, 670 shares of convertible preferred stock were converted into 772,161 shares of common stock. Accordingly, 330 shares of convertible preferred stock were outstanding at December 31, 1996. If the remaining holders of the convertible preferred stock elect to convert their shares into shares of Cerprobe common stock based on the market price of common stock as of December 31, 1996, the Company would be required to issue more than 800,000 shares of common stock. To insure compliance with Nasdaq National Market rules requiring shareholder approval of issuances of common stock representing greater than 20% of all shares outstanding, the Company has the right to redeem any shares of convertible preferred stock that, if converted, would result in the issuance of more than 800,000 shares of Cerprobe common stock. See note 14. F-13 CERPROBE CORPORATION Notes to Consolidated Financial Statements, Continued (11) Income Taxes The components of the provision for income taxes are as follows:
1996 1995 1994 ------------------ ------------------ ------------------ Federal $2,093,000 $1,391,499 $495,000 State 608,000 420,228 215,521 ------------------ ------------------ ------------------ $2,701,000 $1,811,727 $710,521 ================== ================== ================== Current $2,699,000 $1,922,229 $804,495 Deferred 2,000 (110,502) (93,974) ------------------ ------------------ ------------------ $2,701,000 $1,811,727 $710,521 ================== ================== ==================
A reconciliation of the difference between the provision for income taxes and income taxes at the statutory United States federal income tax rate is as follows:
1996 1995 1994 ------------------ ----------------- ----------------- Income tax expense at statutory rate $456,000 $1,433,000 $654,000 State income taxes, net 362,700 253,000 142,000 Purchased research and development not benefited 1,558,560 -- -- Foreign losses not benefited 167,450 199,000 149,000 Amortization of intangibles 90,200 67,000 -- Utilization of net operating carryforwards -- (38,045) (186,400) Research tax credit -- (54,440) -- Other 66,090 (47,788) (48,079) ------------------ ----------------- ----------------- $2,701,000 $1,811,727 $710,521 ================== ================= =================
F-14 CERPROBE CORPORATION Notes to Consolidated Financial Statements, Continued The components of the Company's deferred tax asset and deferred tax liability are as follows:
1996 1995 ------------------ ------------------ Deferred tax assets: Foreign loss carry forward $545,000 $348,000 Reserves and accruals not currently deductible 303,265 270,598 Deferred compensation 87,747 48,785 ------------------ ------------------ Total gross deferred tax assets 936,012 667,383 Less valuation allowance (545,000) (348,000) ------------------ ------------------ Deferred tax asset 391,012 319,383 ------------------ ------------------ Deferred tax liability: Difference between book and tax depreciation of property, plant and equipment 188,536 114,907 ------------------ ------------------ Net deferred tax asset $202,476 $204,476 ================== ==================
The valuation allowance increased by $197,000 and $163,000 in December 31, 1996 and 1995, respectively and is due to foreign losses for which there is no assurance of realizing a tax benefit. A valuation allowance has not been provided for the other deferred tax assets since management believes realization of the deferred tax assets is considered more likely than not. During 1996 and 1995, tax benefits were recorded for the exercise of stock options under the nonqualified stock option plan. The benefits of $542,000 and $340,170 were recorded to additional paid-in capital. (12) Stock Option Plan The Company adopted in 1983, 1989, and 1995, respectively, an incentive stock option plan, a nonqualified stock option plan, and a combination stock option plan. The combined plans provided for the issuance of options to purchase 1,685,000 shares of the Company's common stock, of which 207,834 were available for grant as of December 31, 1996. In accordance with the plans, options are to be granted at no less than 100% of the fair market value of the shares at the date of grant. The options become exercisable on a basis as established by the Company's Compensation Advisory Committee of the Board of Directors and are exercisable for a period of 5 to 10 years. The Company extended the exercise date on 72,000 options issued under the nonqualified stock option plan in 1995. Compensation expense related to these options was $49,383 and $145,128 during the years ended December 31, 1996 and 1995, respectively. The Company has elected to follow APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations in accounting for its plans because, as discussed below, the alternative fair value accounting provided for under SFAS No. 123. "Accounting for Stock-Based Compensation," requires the use of option valuation models that were not developed for use in valuing employee stock options. Under APB No. 25, because the exercise price of the F-15 CERPROBE CORPORATION Notes to Consolidated Financial Statements, Continued Company's employee stock options equals the market price of the underlying stock on the date of the grant, no compensation expense is recognized. Pro forma information regarding net income (loss) and earnings (loss) per share is required by SFAS No. 123 and it has been determined as if the Company had accounted for its employee stock options under the fair value method. The fair value of each option granted for 1996 and 1995 was estimated as of the date of the grant using the Black-Scholes option pricing model with the following weighted average assumptions for 1996 and 1995, respectively; risk-free interest rates of 6.1% and 5.8%; dividend yields of zero for both years; volatility factors of the expected market price of the Company's common stock of 52.5% and 51.3%; and weighted average expected lives of the options of 3 years for both years. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's option, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. Pro forma net income (loss) reflects only options granted in 1996 and 1995. Therefore, the full impact of calculating compensation cost for employee stock options under SFAS No. 123 is not reflected in the pro forma amounts presented below because compensation cost is reflected over the options' vesting periods of generally between 3 and 4 years and the compensation cost for options granted prior to January 1, 1995 is not considered. The Company's pro forma information follows:
1996 1995 ------------------ ------------------ Unaudited Net income (loss) As reported $(1,360,790) $2,402,247 Pro forma $(1,543,070) $2,360,326 Primary earnings (loss) per share As reported $(.30) $.59 Pro forma $(.34) $.58 Fully diluted earnings per share As reported $(.30) $.49 Pro forma $(.34) $.49
F-16 CERPROBE CORPORATION Notes to Consolidated Financial Statements, Continued A summary of the Company's employee stock option activity and related information for the years ended December 31 follows:
1996 1995 --------------------------- --------------------------- Weighted Weighted Average Average Exercise Exercise Shares Price Price --------------------------- --------------------------- Outstanding at beginning of year 598,333 $ 6.44 562,333 $ 3.52 Granted 160,000 $ 10.86 206,000 $ 10.42 Exercised (164,702) $ 3.43 (160,000) $ 1.30 Expired/Canceled 0 (10,000) $ 6.75 ----------- ----------- Outstanding at end of year 593,631 $ 8.46 598,333 $ 6.44 =========== =========== Excisable at end of year 360,233 $ 6.94 347,940 $ 4.68 =========== =========== Weighted average fair value of options granted $ 4.45 $ 4.20 =========== ===========
Exercise prices for the options outstanding as of December 31, 1996 ranged from $0.50 to $12.88. The weighted average remaining contractual life of those options was 7.7 years as of December 31, 1996. (13) Related Party Transactions Effective May 1, 1991, the Company entered into an agreement with a former director and officer of the Company, whereby this officer left the employ of the Company and agreed not to compete with the Company for a two-year period. The agreement required the Company to pay $3,125 per month from May 1, 1991 through April 30, 1993 and to provide certain other benefits to this individual. This agreement was extended for an additional year, through April 30, 1994, and is presently on a month-to-month basis. Two of the Company's stockholders, who together beneficially own 460,000 shares of the Company's common stock, beneficially own an approximately 24% interest in CRPB Investors, L.L.C.. A Vice President of the Company and Executive Director of Cerprobe Asia, owns 10% of Cerprobe Asia PTE LTD. F-17 CERPROBE CORPORATION Notes to Consolidated Financial Statements, Continued (14) Commitments and Contingencies Leases The Company leases certain equipment under capital leases. These assets have been capitalized at the present value of the future minimum lease payments and are included with manufacturing tools and equipment and office furniture at a cost of $3,381,836 and $1,043,082 with related accumulated amortization of $896,637 and $266,014 at December 31, 1996 and 1995, respectively. In addition, the Company is obligated under certain noncancelable operating leases for the Company's manufacturing and office space. Certain operating lease agreements provide for annual rent escalations and renewal options. The following is a schedule of the minimum future lease payments for the years ending December 31:
Rentals receivable Capital Operating under leases leases subleases ---------------- ----------------- ----------------- 1997 $790,075 $ 1,674,262 $111,700 1998 718,985 1,913,694 75,300 1999 473,780 1,761,189 78,900 2000 338,132 1,681,783 47,600 2001 224,164 1,572,393 -- Thereafter -- 12,020,464 -- ---------------- ----------------- ----------------- Total minimum future lease payments 2,545,136 $20,623,785 $313,500 ================= ================= Less amounts representing interest (at rates ranging from 4.5% to 27.5%) (447,582) ---------------- Present value of net minimum future lease payments 2,097,554 Less current portion (634,755) ---------------- Long-term portion $1,462,799 ================
Amortization expense applicable to assets under capital leases is charged to depreciation and amortization expense. Rental expense for the years ended December 31, 1996, 1995 and 1994 was $1,002,856, $723,396 and $446,422, respectively. F-18 CERPROBE CORPORATION Notes to Consolidated Financial Statements, Continued On August 21, 1996, Cerprobe entered into a long term commercial operating lease to consolidate its Arizona operations into a single facility on a twelve acre parcel in Gilbert, Arizona. The lease will commence upon completion of the 83,000 square foot facility in May 1997. The facility will serve as the Company's worldwide headquarters and is being built for Cerprobe's use by CRPB Investors, L.L.C., a limited liability company formed for the purpose of owning and operating the property. Cerprobe is a 36% shareholder in CRPB Investors, L.L.C. The initial term of the lease is 15 years with 7 options to extend the lease for successive 5 year terms. The initial lease rate is dependent on final construction costs, but is currently expected to approximate $875,000 per year. Convertible Preferred Stock If the remaining holders of the convertible preferred stock elect to convert their shares into shares of common stock based on the market price of common stock as of December 31, 1996, Cerprobe would be required to issue more than 800,000 shares of common stock. To insure compliance with Nasdaq National Market rules requiring shareholder approval of issuances of common stock representing greater than 20% of all shares outstanding, Cerprobe has the right to redeem any shares of convertible preferred stock that, if converted, would result in the issuance of more than 800,000 shares of common stock. In such event, Cerprobe may redeem those shares of convertible preferred stock for cash in an amount determined by a formula based on the current market price of common stock. If the holders of all outstanding shares of convertible preferred stock had elected to convert their shares on December 31, 1996, Cerprobe estimates that it would have been required to pay approximately $3,500,000 to have redeemed all shares of convertible preferred stock that, if converted, would have resulted in the issuance of more than 800,000 shares of common stock. Based on the formula referred to above, the amount of cash required to redeem any shares of convertible preferred stock will increase if the price of common stock decreases, and will decrease if the price of common stock increases. Automatic conversion of the stock or redemption must occur by January 18, 1998. (15) Business Segment The Company is engaged in one business segment, the design, development, manufacture and market of semiconductor integrated circuit test products and services. For the years ended December 31, 1996, 1995 and 1994, 20%, 11% and 5%, respectively, of the Company's sales were outside of the United States. One customer accounted for 15.5%, 18.8% and 16.0% of net sales for the years ended December 31, 1996, 1995 and 1994. Another customer accounted for 11.6%, 9.9% and 11.4% of net sales for the years ended December 31, 1996, 1995 and 1994. F-19 CERPROBE CORPORATION Notes to Consolidated Financial Statements, Continued (16) Acquisitions Fresh Test Technology On April 3, 1995, the Company acquired all of the outstanding stock of Fresh Test Technology Corporation ("Fresh Test"), a manufacturer of test and interface hardware products, for 712,500 shares of the Company's common stock. The acquisition has been accounted for by the purchase method of accounting and, accordingly, the purchase price has been allocated to the assets purchased and the liabilities assumed based upon the fair values at the date of acquisition. The excess of the purchase price over the fair values of the net assets acquired was $2,120,505 and has been recorded as goodwill, which is being amortized on a straight-line basis over eight years. The purchase price of $2,662,969 plus acquisition costs of $402,865 was allocated as follows: Purchase price: Common Stock $2,662,969 Costs of acquisition 402,865 ----------------- $3,065,834 ----------------- Assets acquired and liabilities assumed: Current assets $1,252,176 Property, plant and equipment 253,684 Other assets 83,051 Goodwill 2,120,505 Current liabilities (531,634) Noncurrent liabilities (111,948) ----------------- $3,065,834 -----------------
The operating results of Fresh Test have been included in the consolidated statement of operations from the date of acquisition. The following summary, prepared on a pro forma basis, presents the results of operations as if the acquisition had occurred January 1, 1994:
Year ended December 31, ------------------------------------- 1995 1994 ------------------------------------- (unaudited) Net sales $27,601,795 $18,712,171 Net income 2,543,690 998,856 Primary net income per share 0.62 0.24 Fully diluted net income per share 0.52 0.21
The pro forma results are not necessarily indicative of what the actual consolidated results of operations might have been if the acquisition had been effective at the beginning of 1994 or as a projection of future results. F-20 CERPROBE CORPORATION Notes to Consolidated Financial Statements, Continued CompuRoute, Inc. On December 27, 1996, the Company acquired all of the outstanding stock of CompuRoute, Inc. ("CompuRoute"), a manufacturer of printed circuit boards, for $7,037,797. The purchase price consisted of $4,437,797 in cash and 400,000 shares of common stock. The acquisition has been accounted for by the purchase method of accounting and accordingly, the purchase price has been allocated to the assets purchased and the liabilities assumed based upon the fair values at the date of acquisition. The excess of the purchase price over the fair values of the net assets acquired was $889,133 and has been recorded as goodwill, which is being amortized on a straight-line basis over eight years. The purchase price of $7,037,797 plus acquisition costs of $394,746 was allocated as follows. Purchase price: Cash $4,437,797 Common stock 2,600,000 Costs of acquisition 394,746 -------------- $7,432,543 -------------- Assets acquired and liabilities assumed: Current assets $1,870,903 Property, plant and equipment 1,948,189 Other assets 18,498 Purchased research and development 4,584,000 Goodwill 889,133 Current liabilities (1,177,286) Noncurrent liabilities (700,894) -------------- $7,432,543 -------------- At acquisition, the state of the research and development products was not yet at a technological or commercially viable stage. The Company does not believe that the research and development products have any future alternative use because if these products are not finished and brought to ultimate product completion, they have no other value. Therefore, consistent with generally accepted accounting principles, the Company recorded a one-time charge for the full value of the purchased in-process research and development. F-21 CERPROBE CORPORATION Notes to Consolidated Financial Statements, Continued The consolidated balance sheet for as of December 31, 1996 includes the accounts of CompuRoute, however, due to the fact that the acquisition occurred on December 27, 1996, CompuRoute's 1996 results of operations are not included in the consolidated statements of operations. The following summary, prepared on a pro forma basis, excluding the charge for purchased research and development, presents the results of operations as if the acquisition had occurred January 1, 1995: Year ended December 31, ----------------------------- 1996 1995 ----------------------------- (unaudited) Net sales $47,732,502 $36,296,077 Net income 3,585,440 3,261,074 Primary net income per share 0.67 0.73 Fully diluted net income per share 0.62 0.62 The pro forma results are not necessarily indicative of what the actual consolidated results of operations might have been if the acquisition had been effective at the beginning of 1995 or as a projection of future results. (17) 401(k) Plan On April 1, 1993, the Company established the Cerprobe Corporation 401(k) Plan (the Plan). Employees who have reached 18 years of age and who have completed one year of service for the Company are eligible to participate in the Plan. Participants may elect to defer up to 15% of their salary. Any contribution by the Company is at its discretion. The Company expensed discretionary contributions pursuant to the Plan in the amount of $91,000, $90,000, and $0 for the years ended December 31, 1996, 1995, and 1994, respectively. The participants are fully vested in their contributions and become fully vested in the Company's contributions after three years of service. (18) Fair Value of Financial Instruments Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments," requires that the Company disclose estimated fair values for its financial instruments. The following summary presents a description of the methodologies and assumptions used to determine such amounts. The carrying amount of cash equivalents approximates fair value because their maturity is generally less than three months. The carrying amount of receivables, accounts payable and accrued expenses approximates fair value as they are expected to be collected or paid within 90 days of year-end. The fair value of notes payable, demand note payable, capital lease obligations and other long-term obligations approximate the terms in the marketplace at which they could be replaced. Therefore, the fair value approximates the carrying value of these financial instruments. F-22 CERPROBE CORPORATION Notes to Consolidated Financial Statements, Continued (19) Supplemental Financial Information A summary of additions and deductions related to the allowances for accounts receivable and inventories for the years ended December 31, 1996, 1995 and 1994 follows:
Balance at Balance at beginning end of of year Additions Acquistions Deductions year ----------------- ---------------- ---------------- ---------------- ---------------- Allowance for doubtful accounts: Year ended December 31, 1996 $ 173,000 $ 12,000 $ 44,000 $ (6,000) $ 223,000 Year ended December 31, 1995 $ 23,000 $ 12,000 $ 139,094 $ (1,094) $ 173,000 Year ended December 31, 1994 $ 10,000 $ 24,000 $ - $ (11,000) $ 23,000 Allowance for obsolescence of inventories: Year ended December 31, 1996 $ 83,000 $ 75,000 $ - $ (29,000) $ 129,000 Year ended December 31, 1995 $ 52,000 $ 80,000 $ 30,600 $ (79,600) $ 83,000 Year ended December 31, 1994 $ 48,500 $ 67,200 $ - $ (63,700) $ 52,000
(20) Subsequent Events Acquisition On January 15, 1997 the Company acquired all of the outstanding stock of SVTR. The purchase price paid by the Company consisted of $2,753,217 in cash and 300,000 shares of Cerprobe common stock. Purchase price: Cash $2,753,217 Common stock 2,864,250 Costs of acquisition 97,796 ============== $5,715,263 ============== F-23 CERPROBE CORPORATION Notes to Consolidated Financial Statements, Continued Under the terms of the acquisition, the Company has agreed to pay up to an additional $500,000 in cash and up to 50,000 additional shares of common stock if certain sales and operating profit targets for calendar year 1997 are achieved by SVTR. The acquisition will be accounted for using the purchase method. Accordingly, the purchase price has been allocated to assets acquired and liabilities assumed based upon their estimated fair values. The company intends to take a one-time charge for the full value of the purchased in-process research and development in the first quarter ending March 31, 1997, which is currently estimated to be approximately $5,400,000. Note Payable On February 28, 1997, the Company entered into a revolving line of credit of $10,000,000 for general corporate purposes and possible future acquisitions, which matures on August 15, 1998. The unsecured line of credit replaced a $3,000,000 revolving line of credit. Interest on the outstanding balance is at the prime rate or 30, 60, or 90 day LIBOR plus 1.75%. The non-use fee under the line of credit is 0.125% for outstanding balances exceeding $3,000,000 and 0.25% for outstanding balances less than $3,000,000. The line of credit contains certain restrictive covenants which include, among other things, restrictions on the declaration or payment of dividends, the incurrance or assumption of other indebtedness, and the making of loans to or investments in others. The line also requires the Company to maintain a specified net worth, as defined, to maintain a required debt to equity ratio, and to maintain certain other financial ratios. F-24 EX-3.A 2 FIRST RESTATED CERTIFICATE OF INCORPORATION FIRST RESTATED CERTIFICATE OF INCORPORATION OF CERPROBE CORPORATION 1. The name of the corporation is CERPROBE CORPORATION (which is hereinafter referred to as the "Corporation"). 2. The original Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on March 23, 1987, under the name CERPROBE CORPORATION. 3. This First Restated Certificate of Incorporation has been duly proposed by resolutions adopted and declared advisable by the Board of Directors of the Corporation, duly adopted by the stockholders of the Corporation at a meeting duly called, and duly executed and acknowledged by the officers of the Corporation in accordance with the provisions of Sections 103 and 245 of the General Corporation Law of the State of Delaware, and restates and integrates the provisions of the Certificate of Incorporation of the Corporation and, upon filing with the Secretary of State in accordance with Section 103, shall thenceforth supersede the Certificate of Incorporation and all amendments thereto, and shall, as it may thereafter be amended in accordance with its terms and applicable law, be the Certificate of Incorporation of the Corporation. 4. The text of the Certificate of Incorporation of the Corporation is hereby amended and restated to read in its entirety as follows: ARTICLE I Name ---- The name of the Corporation shall be Cerprobe Corporation. ARTICLE II Address ------- The registered office of the Corporation in the State of Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle. The name and address of the Corporation's registered agent is The Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware 19801. 1 ARTICLE III Purpose ------- The purpose for which this Corporation is organized is the transaction of any or all lawful business for which corporations may be incorporated under the laws of the State of Delaware, as may be amended from time to time. ARTICLE IV Stock ----- The Corporation shall have the authority to issue ten million (10,000,000) shares of Common Stock. The par value of each share of Common Stock shall be 5/100 Dollar ($0.05). The Corporation shall have the authority to issue ten million (10,000,000) shares of Preferred Stock. The par value of each share of Preferred Stock shall be 5/100 Dollar ($0.05). Section 1. Common Stock. The Board of Directors of the Corporation may, from time to time, distribute on a pro rata basis to its Common Stock shareholders, out of the capital surplus of the Corporation, a portion of its assets, in cash or property. The Board of Directors of the Corporation may, from time to time, cause the Corporation to purchase its own Common Stock shares to the extent of the unreserved and unrestricted earned and capital surplus of the Corporation. The Corporation may issue rights and options to purchase shares of Common Stock of the Corporation to Directors, Officers or employees of the Corporation or any affiliate thereof, and no shareholder approval or ratification of any such issuance of rights and options shall be required. Section 2. Preferred Stock. The Corporation shall have authority to issue its Preferred Stock in series. The Board of Directors is vested with authority to establish and designate series and to fix the number of shares to be included in each such series and the relative rights, preferences and limitations of each such series, subject to the provisions set forth below. If the stated dividends and amounts payable on liquidation are not paid in full, the shares of all series of the same class shall share ratably in the payment of dividends including accumulations, if any, in accordance with the sums which would be payable on such shares if all dividends were declared and paid in full, and in any distribution of assets other than by way of dividends in accordance with the sums which would be payable in such distribution if all sums payable were discharged in full. The authority of the Board of Directors with respect to each series of Preferred Stock shall include, but not be limited to, determination of the following: a. The number of shares constituting that series and the distinctive designation of that series; b. The dividend rate on the shares of that series, whether dividends shall be cumulative, and, if so, from which date or dates; 2 c. Whether that series shall participate in unlimited dividend rights, and, if so, the extent of such participation; d. Whether that series shall have voting rights, in addition to the voting rights provided by law, and, if so, the terms of such voting rights, including whether it shall vote as a separate series, or with other series of Preferred Stock, or as one class with the holders of Common Stock, with or without other series of Preferred Stock, and whether differently as to different matters, or any combination of the foregoing; e. Whether that series shall have conversion privileges, and, if so, the terms and conditions of such conversion, including provision for adjustment of the conversion rate in such events as the Board of Directors shall determine; f. Whether or not the shares of that series shall be redeemable, and, if so, the terms and conditions of such redemption, including the date or dates upon or after which they shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; g. The amounts payable on the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation; h. Any other relative rights, preferences and limitations of that series. Dividends on outstanding Preferred Stock of each series shall be declared and paid, or set apart for payment, before any dividends shall be declared and paid, or set apart for payment, on the Common Stock with respect to the same dividend period. Upon any dissolution, liquidation or winding up of the Corporation, whether voluntary or involuntary, the holders of the Preferred Stock shall be entitled to receive out of the assets of the Corporation, before any distribution shall be made to the holders of the Common Stock, the amounts determined to be payable on the Preferred Stock of each series in the event of voluntary or involuntary liquidation. No holder of Preferred Stock shall be entitled to any preemptive rights. The Corporation may issue rights and options to purchase shares of Preferred Stock of the Corporation to Directors, Officers or employees of the Corporation or any affiliate thereof, and no shareholder approval or ratification of any such issuance of rights and options shall be required. Section 3. Cumulative Voting. At all elections of directors of the Corporation, or at elections held under specified circumstances, each holder of stock or of any class or classes or of a series or series thereof shall be entitled to as many votes as shall equal the number of votes which he would be entitled to cast for the election of directors with respect to his shares of stock multiplied by the number of directors to be elected by him, and he may cast all of such votes for a single director or may distribute them among the number to be voted for, or for any two or more of them as he may see fit. 3 ARTICLE V Board of Directors ------------------ The number of persons to serve on the Board of Directors shall be fixed by the Bylaws. ARTICLE VI Indemnification --------------- Section 1. A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived any improper personal benefit. If the Delaware General Corporation Law is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended. Any repeal or modification of the foregoing paragraph by the stockholder of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification. Section 2. a. Right to Indemnification. Each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "Proceeding"), by reason of the fact that he or she is or was a director, officer or employee of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another Corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans (hereinafter an "Indemnitee"), whether the basis of such Proceeding is an alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment), against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) reasonably incurred or suffered by such Indemnitee in connection therewith and such indemnification shall continue as to an Indemnitee who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the Indemnitee's heirs, executors and administrators; provided, however, that, except as provided in paragraph (b) hereof with respect to Proceedings to enforce rights to indemnification, the Corporation shall indemnify any such Indemnitee in connection with a Proceeding (or part thereof) initiated by such Indemnitee only if such Proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. The right to indemnification conferred in this Section shall be a contract right and shall include the right to be paid 4 by the Corporation the expenses incurred in defending any such Proceeding in advance of its final disposition (hereinafter an "Advancement of Expenses"); provided, however, that, if the Delaware General Corporation Law requires, an Advancement of Expenses incurred by an Indemnitee in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such Indemnitee, including without limitation, service to an employee benefit plan) shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such Indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal that such Indemnitee is not entitled to be indemnified for such expenses under this Section or otherwise (hereinafter and "Undertaking"). b. Right of Indemnitee to Bring Suit. If a claim under paragraph (a) of this Section is not paid in full by the Corporation within sixty days after a written claim has been received by the Corporation, except in the case of a claim for an Advancement of Expenses, in which case the applicable period shall be twenty days, the Indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit or in a suit brought by the Corporation to recover an Advancement of Expenses pursuant to the terms of an Undertaking, the Indemnitee shall be entitled to be paid also the expense of prosecuting or defending such suit. In (i) any suit brought by the Indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the Indemnitee to enforce a right to an Advancement of Expenses) it shall be a defense that, and (ii) any suit by the Corporation to recover an Advancement of Expenses pursuant to the terms of an Undertaking the Corporation shall be entitled to recover such expenses upon final adjudication that, the Indemnitee has not met the applicable standard of conduct set forth in the Delaware General Corporation Law. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the Indemnitee is proper in the circumstances because the Indemnitee has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the Indemnitee has not met such applicable standard of conduct, shall create a presumption that the Indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the Indemnitee, be a defense to such suit. In any suit brought by the Indemnitee to enforce a right hereunder, or by the Corporation to recover an Advancement of Expenses pursuant to the terms of an undertaking, the burden of proving that the Indemnitee is not entitled to be indemnified or to such Advancement of Expenses under this Section or otherwise shall be on the Corporation. c. Non-Exclusivity of Rights. The rights to indemnification and to the advancement of expenses conferred in this Section shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, this Certificate of Incorporation, Bylaws, agreement, vote of stockholders or disinterested directors or otherwise. d. Insurance. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another Corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law. e. Indemnification of Agents of the Corporation. The Corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification and to the advancement of expenses, to any agent of the Corporation to the fullest extent of the provisions of this Section with respect to the indemnification and advancement of expenses of directors, officers and employees of the Corporation. 5 ARTICLE VII Election of Directors --------------------- All elections of Directors will be by ballot vote where a ballot vote is demanded by any person entitled to vote prior to the time the voting begins; otherwise, a voice vote will suffice. ARTICLE VIII Amendment of Bylaws ------------------- The Bylaws may be altered, amended, repealed or temporarily or permanently suspended, in whole or in part, or new bylaws adopted by the action of the Board of Directors or the Stockholders, in accordance with the provisions set forth below: Section 1. By Action of the Board of Directors. The Bylaws may be altered, amended, repealed or temporarily or permanently suspended, in whole or in part, or new bylaws adopted by the action of the Board of Directors only upon the affirmative vote of a majority of the entire Board of Directors. Such vote may be taken at any annual, regular or special meeting of the Board of Directors if notice of such alteration, amendment, repeal or adoption of the new bylaws shall be contained in the notice of such annual, regular or special meeting. Section 2. By Action of the Stockholders. The Bylaws may be altered, amended or repealed or new bylaws may be adopted by the stockholders only (i) upon the affirmative vote as to all the stock held by the holders of not less than eighty percent (80%) of the Outstanding Voting Shares and (ii) by a Majority of Stockholders. Such vote may be taken at any annual or special meeting of the stockholders if notice of such alteration, amendment, repeal or adoption of the new bylaws shall be contained in the notice of such annual or special meeting. ARTICLE IX Board Considerations Upon Significant Events -------------------------------------------- The Board, when evaluating any (A) tender offer or invitation for tenders, or proposal to make a tender offer or request or invitation for tenders, by another party, for any equity security of the Corporation, or (B) proposal or offer by another party to (1) merge or consolidate the Corporation or any subsidiary with another corporation or other entity, (2) purchase or otherwise acquire all or a substantial portion of the properties or assets of the Corporation or any subsidiary, or sell or otherwise dispose of to the Corporation or any subsidiary all or a substantial portion of the properties or assets of such other party, or (3) liquidate, dissolve, reclassify the securities of, declare an extraordinary dividend of, recapitalize or reorganize the Corporation, shall take into account all factors that the Board deems relevant, including, without limitation, to the extent so deemed relevant, the potential impact on 6 employees, customers, suppliers, partners, joint venturers and other constituents of the Corporation and the communities in which the Corporation operates. In addition to any affirmative vote required by applicable law and in addition to any vote of the holders of any series of Preferred Stock provided for or fixed pursuant to the provisions of Article IV of this First Restated Certificate of Incorporation, any alteration, amendment or repeal relating to this Article IX must be approved by the affirmative vote of the holders of at least sixty six and two-thirds percent (66 2/3%) of the combined voting power of the issued and outstanding shares of Voting Stock (as defined in Article XII), voting together as a single class. ARTICLE X Notwithstanding anything to the contrary contained in the Corporation's Bylaws, the Corporation elects to be governed by Section 203 of the Delaware General Corporation Law. In addition to any affirmative vote required by applicable law and in addition to any vote of the holders of any series of Preferred Stock provided for or fixed pursuant to the provisions of Article IV of this First Restated Certificate of Incorporation, any alteration, amendment or repeal relating to this Article X must be approved by the affirmative vote of the holders of at least sixty six and two-thirds percent (66 2/3%) of the combined voting power of the issued and outstanding shares of Voting Stock (as defined in Article XII), voting together as a single class. ARTICLE XI Stockholder Consent ------------------- No action that is required or permitted to be taken by the stockholders of the Corporation at any annual or special meeting of stockholders may be effected by written consent of stockholders in lieu of a meeting of stockholders, unless the action to be effected by written consent of stockholders and the taking of such action by such written consent have expressly been approved in advance by the Board. In addition to any affirmative vote required by applicable law and in addition to any vote of the holders of any series of Preferred Stock provided for or fixed pursuant to the provisions of Article IV of this First Restated Certificate of Incorporation, any alteration, amendment or repeal relating to this Article XI must be approved by the affirmative vote of the holders of at least sixty six and two-thirds percent (66 2/3%) of the combined voting power of the issued and outstanding shares of Voting Stock (as defined in Article XII), voting together as a single class. ARTICLE XII Business Combinations; Fair Price --------------------------------- A. In addition to any affirmative vote required by law or this First Restated Certificate of Incorporation, and except as otherwise expressly provided in paragraph B of this Article XII: 7 1. any merger or consolidation of the Corporation or any Subsidiary (as hereinafter defined) with (a) any Interested Stockholder (as hereinafter defined), or (b) any other corporation, partnership or other entity (whether or not itself an Interested Stockholder) which is, or after such merger or consolidation would be, an Affiliate (as hereinafter defined) of an Interested Stockholder other than a merger enacted in accordance with Section 253 of the Delaware General Corporation Law or any successor thereof; or 2. any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) to or with any Interested Stockholder, including all Affiliates of the Interested Stockholder, of any assets of the Corporation or any Subsidiary having an aggregate Fair Market Value (as hereinafter defined) of ten million dollars ($10,000,000) or more; or 3. the issuance or transfer by the Corporation or any Subsidiary (in one transaction or a series of transactions) of any securities of the Corporation or any Subsidiary to any Interested Stockholder, including all Affiliates of the Interested Stockholder, in exchange for cash, securities or other property (or a combination thereof) having an aggregate Fair Market Value of ten million dollars ($10,000,000) or more (other than on a pro rata basis to all holders of Voting Stock of the same class held by the Interested Stockholder pursuant to a stock split, stock dividend or distribution of warrants or rights and other than in connection with the exercise or conversion of securities exercisable for or convertible into securities of the Corporation of any of its subsidiaries which securities have been distributed pro rata to all holders of Voting Stock); or 4. the adoption of any plan or proposal for the liquidation or dissolution of the Corporation proposed by or on behalf of an Interested Stockholder or any Affiliates of an Interested Stockholder; or 5. any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or any other transaction (whether or not an Interested Stockholder is a party thereto) which has the effect, directly or indirectly, of increasing the proportionate share by more than one percent (1%) of the issued and outstanding shares of any class of equity or convertible securities of the Corporation or any Subsidiary which are directly or indirectly owned by any Interested Stockholder or one or more Affiliates of the Interested Stockholder; shall require the affirmative vote of the holders of at least sixty six and two-thirds percent (66 2/3%) of the voting power of the then issued and outstanding Voting Stock, as hereinafter defined, voting together as a single class, including the affirmative vote of the holders of at least sixty six and two-thirds percent (66 2/3%) of the voting power of the then issued and outstanding Voting Stock not Beneficially Owned directly or indirectly by an Interested Stockholder or any Affiliate of any Interested Stockholder. Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage may be permitted, by law or in any agreement with any national securities exchange or otherwise. B. The provisions of Section A of this Article XII shall not be applicable to any particular Business Combination (as hereinafter defined), and such Business Combination shall require 8 only such affirmative vote as is required by law or any other provision of this First Restated Certificate of Incorporation, if the conditions specified in either of the following paragraph 1 or 2 are met: 1. the Business Combination shall have been approved by a majority of the Continuing Directors (as hereinafter defined); or 2. all of the following price and procedural conditions shall have been met: (a) the aggregate amount of the cash and the Fair Market Value (as hereinafter defined) as of the date of the consummation of the Business Combination of consideration other than cash, to be received per share by the holders of Common Stock in such Business Combination, shall be at least equal to the highest of the following: (i) (if applicable) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by the Interested Stockholder for any shares of Common Stock acquired by it (A) within the two (2) year period immediately prior to the first public announcement of the proposal of such Business Combination (the "Announcement Date"), or (B) in the transaction in which it became an Interested Stockholder, whichever is higher; (ii) the Fair Market Value per share of Common Stock on the Announcement Date or on the date on which the Interested Stockholder became an Interested Stockholder (the "Determination Date"), whichever is higher; and (iii) (if applicable) the price per share equal to the Fair Market Value per share of Common Stock determined pursuant to paragraph 2(a)(ii) above, multiplied by the ratio of (A) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by the Interested Stockholder for any shares of Common Stock acquired by it within the two (2) year period immediately prior to the Announcement Date to (B) the Fair Market Value per share of Common Stock on the first day in such two (2) year period upon which the Interested Stockholder acquired any shares of Common Stock; and (b) the aggregate amount of the cash and the Fair Market Value as of the date of the consummation of the Business Combination of consideration other than cash to be received per share by holders of shares of any other class, other than Common Stock or Excluded Preferred Stock, of issued and outstanding Voting Stock shall be at least equal to the highest of the following (it being intended that the requirements of this paragraph 2(b) shall be required to be met with respect to every such class of issued and outstanding Voting Stock, whether or not the Interested Stockholder has previously acquired any shares of a particular class of Voting Stock): (i) (if applicable) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by the Interested Stockholder for any shares of such class of Voting Stock acquired by it (A) within the two (2) year period immediately prior to the Announcement Date, or (B) in the transaction in which it became an Interested Stockholder, whichever is higher; 9 (ii) (if applicable) the highest preferential amount per share to which the holders of shares of such class of Voting Stock are entitled in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation; (iii) the Fair Market Value per share of such class of Voting Stock on the Announcement Date or on the Determination Date, whichever is higher; and (iv) (if applicable) the price per share equal to the Fair Market Value per share of such class of Voting Stock determined pursuant to paragraph 2(b)(iii) above, multiplied by the ratio of (A) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by the Interested Stockholder for any shares of such class of Voting Stock acquired by it within the two (2) year period immediately prior to the Announcement Date to (B) the Fair Market Value per share of such class of Voting Stock on the first day in such two (2) year period upon which the Interested Stockholder acquired any shares of such class of Voting Stock; and (c) the consideration to be received by holders of a particular class of issued and outstanding Voting Stock (including Common Stock and other than Excluded Preferred Stock) shall be in cash or in the same form as the Interested Stockholder has previously paid for shares of such class of Voting Stock (if the Interested Stockholder has paid for shares of any class of Voting Stock with varying forms of consideration, the form of consideration for such class of Voting Stock shall be either cash or the form used to acquire the largest number of shares of such class of Voting Stock previously acquired by it); and (d) after such Interested Stockholder has become an Interested Stockholder and prior to the consummation of such Business Combination: (i) there shall have been no failure to declare and pay at the regular date therefor any full quarterly dividends (whether or not cumulative) on any issued and outstanding preferred stock, except as approved by a majority of the Continuing Directors; (ii) there shall have been no reduction in the annual rate of dividends paid on the Common Stock (except as necessary to reflect any subdivision of the Common Stock), except as approved by a majority of the Continuing Directors; (iii) there shall have been an increase in the annual rate of dividends as necessary fully to reflect any recapitalization (including any reverse stock split), reorganization or any similar reorganization which has the effect of reducing the number of issued and outstanding shares of the Common Stock, unless the failure so to increase such annual rate is approved by a majority of the Continuing Directors; and (iv) such Interested Stockholder shall not have become the Beneficial Owner of any additional Voting Stock except as part of the transaction which results in such Interested Stockholder becoming an Interested Stockholder; and (e) after such Interested Stockholder has become an Interested Stockholder, such Interested Stockholder shall not have received the benefit, directly or indirectly (except proportionately as a shareholder), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by the Corporation, whether in anticipation of or in connection with such Business Combination or otherwise; and 10 (f) a proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations) shall be mailed to stockholders of the Corporation at least thirty (30) days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be marked pursuant to such Act or subsequent provisions). C. For purposes of this Article XII the following terms shall have the following meanings: 1. "Affiliate" or "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on June 21, 1996. 2. "Beneficial Owner" shall have the meaning ascribed to such term in Rule 13d-3 of the General Rules and Regulations of the Securities Exchange Act of 1934, as in effect on June 21, 1996. In addition, a Person shall be the "Beneficial Owner" of any Voting Stock which such Person or any of its Affiliates or Associates has: (a) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise; or (b) the right to vote pursuant to any agreement, arrangement or understanding (but neither such Person nor any such Affiliate or Associate shall be deemed to be the Beneficial Owner of any shares of Voting Stock solely by reason of a revocable proxy granted for a particular meeting of the stockholders, pursuant to a public solicitation of proxies for such meeting, and with respect to which shares neither such Person nor any such Affiliate of Associate is otherwise deemed the Beneficial Owner). 3. "Business Combination" shall mean any transaction described in any one or more of clauses (1) through (5) of Section A of this Article XII. 4. "Continuing Director" shall mean any member of the Board who is unaffiliated with and is not the Interested Stockholder and was a member of the Board prior to the time that the Interested Stockholder became an Interested Stockholder, and any director who is thereafter chosen to fill any vacancy on the Board or who is elected and who, in either event, is unaffiliated with the Interested Stockholder and in connection with his or her initial assumption of office is recommended for appointment or election by a majority of Continuing Directors then on the Board. 5. "Excluded Preferred Stock" means any series of Preferred Stock with respect to which a majority of the Continuing Directors have approved a Preferred Stock Designation creating such series that expressly provides that the provisions of this Article XII shall not apply. 6. "Fair Market Value" shall mean: (a) in the case of stock, the highest closing sale price during the thirty (30) day period immediately preceding the date in question of a share of such stock on the Composite Tape for New York Stock Exchange listed stocks, or, if such stock is not quoted on the composite tape, on the New York Stock Exchange, or, if such stock is not listed on such exchange, on the principal United States securities exchange registered under the Securities Exchange Act of 1934 on which such stock is listed, or, if such stock is not listed on any such exchange, the highest closing bid quotation with respect to a share of such stock during the thirty (30) day period preceding the date in question on the National Association of Securities Dealers, Inc. Automated Quotation System or any system then in use in its stead, or if no such quotations are available, the fair market value on the 11 date in question of a share of such stock as determined by the Board in accordance with Section D of this Article XII; and (b) in the case of property other than cash or stock, the fair market value of such property on the date in question as determined by the Board in accordance with Section D of this Article XII. 7. "Interested Stockholder" shall mean any Person to or which: (a) itself, or along with its Affiliates, is the Beneficial Owner, directly or indirectly, of more than fifteen percent (15%) of the then issued and outstanding Voting Stock; or (b) is an Affiliate of the Corporation and at any time within the two (2) year period immediately prior to the date in question was itself, or along with its Affiliates, the Beneficial Owner, directly or indirectly, of fifteen percent (15%) or more of the then issued and outstanding Voting Stock; or (c) is an assignee of or has otherwise succeeded to any Voting Stock which was at any time within the two (2) year period immediately prior to the date in question beneficially owned by an Interested Stockholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. For the purpose of determining whether a Person is an Interested Stockholder pursuant to paragraph 7 of this Section C, the number of shares of Voting Stock deemed to be issued and outstanding shall include shares deemed owned through application of paragraph 2 of this Section C but shall not include any other shares of Voting Stock that may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options or otherwise. Notwithstanding anything to the contrary contained in this First Restated Certificate of Incorporation, for purposes of this First Restated Certificate of Incorporation, the term "Interested Stockholder" shall not, for any purpose, include, and the provisions of Article XII(A) hereof shall not apply to: (a) the Corporation or any Subsidiary; or (b) any employee stock ownership plan of the Corporation or any Subsidiary. 8. In the event of any Business Combination in which the Corporation survives, the phrase "other consideration to be received" as used in paragraphs 2(a) and (b) and paragraph B of this Article XII shall include the shares of Common Stock and/or the shares of any other class of issued and outstanding Voting Stock retained by the holders of such shares. 9. "Person" shall mean any individual, firm, corporation, partnership or other entity. 10. "Subsidiary" shall mean any corporation or other entity of which the Corporation owns, directly or indirectly, securities that enable the Corporation to elect a majority of the board of directors or other persons performing similar functions of such corporation or entity or that otherwise give to the Corporation the power to control such corporation or entity. 11. "Voting Stock" means all issued and outstanding shares of capital stock of the Corporation that pursuant to or in accordance with this First Restated Certificate of Incorporation are entitled to vote generally in the election of directors of the Corporation, and each reference herein, 12 where appropriate, to a percentage or portion of shares of Voting Stock shall refer to such percentage or portion of the voting power of such shares entitled to vote. The issued and outstanding shares of Voting Stock shall not include any shares of Voting Stock that may be issuable pursuant to any agreement, or upon the exercise or conversion of any rights, warrants or options or otherwise. D. The Continuing Directors of the Corporation shall have the power and duty to determine for the purposes of this Article XII, on the basis of information known to them after reasonable inquiry, all facts necessary to determine compliance with this Article XII, including, without limitation: (i) whether a Person is an Interested Stockholder; (ii) the number of shares of Voting Stock beneficially owned by any Person; (iii) whether a Person is an Affiliate or Associate of another; (iv) whether the applicable conditions set forth in paragraph 2 of paragraph B of this Article XII have been met with respect to any Business Combination; (v) the Fair Market Value of stock or other property in accordance with paragraph 6 of paragraph C of this Article XII; and (vi) whether the assets which are the subject of any Business Combination have, or the consideration to be received for the issuance or transfer of securities by the Corporation or any Subsidiary in any Business Combination has, an aggregate Fair Market Value of ten million dollars ($10,000,000) or more. E. Nothing contained in this Article XII shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law. F. In addition to any affirmative vote required by applicable law and in addition to any vote of the holders of any series of Preferred Stock provided for or fixed pursuant to the provisions of Article IV of this First Restated Certificate of Incorporation, any alteration, amendment or repeal relating to this Article XII must be approved by the affirmative vote of the holders of at least sixty six and two-thirds percent (66 2/3%) of the combined voting power of the issued and outstanding shares of Voting Stock, voting together as a single class. IN WITNESS WHEREOF, this First Restated Certificate of Incorporation has been signed this ____ day of August, 1996. CERPROBE CORPORATION By:_________________________________ C. Zane Close, President 13 EX-10.YY 3 CREDIT AGREEMENT CREDIT AGREEMENT THIS AGREEMENT is entered into as of February 28, 1997, by and between CERPROBE CORPORATION, a Delaware corporation ("Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank"). RECITAL ------- Borrower has requested from Bank the credit accommodation described below, and Bank has agreed to provide said credit accommodation to Borrower on the terms and conditions contained herein. NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Bank and Borrower hereby agree as follows: ARTICLE I THE CREDIT ---------- SECTION 1. LINE OF CREDIT. (a) Line of Credit. Subject to the terms and conditions of this Agreement, Bank hereby agrees to make advances to Borrower from time to time up to and including August 15, 1998, not to exceed at any time the aggregate principal amount of TEN MILLION AND NO/100 DOLLARS ($10,000,000.00) ("Line of Credit"), the proceeds of which shall be used for general corporate purposes and acquisitions and to pay off certain indebtedness of Borrower and/or its subsidiaries. Borrower's obligation to repay advances under the Line of Credit shall be evidenced by a promissory note substantially in the form of Exhibit C attached hereto ("Line of Credit Note"), all terms of which are incorporated herein by this reference. (b) Limitation on Borrowings. Outstanding borrowings under the Line of Credit shall not at any time exceed an aggregate principal amount of $10,000,000.00. (c) Borrowing and Repayment. Borrower may from time to time during the term of the Line of Credit borrow, partially or wholly repay its outstanding borrowings, and reborrow, subject to all of the limitations, terms and conditions contained herein or in the Line of Credit Note; provided however, that the total outstanding borrowings under the Line of Credit shall not at any time exceed the maximum principal amount available thereunder, as set forth above. SECTION 2. INTEREST/FEES. (a) Interest. The outstanding principal balance of the Line of Credit shall bear -1- interest at the rate of interest set forth in the Line of Credit Note. (b) Computation and Payment. Interest shall be computed on the basis of a 360-day year, actual days elapsed. Interest shall be payable at the times and place set forth in the Line of Credit Note. (c) Unused Commitment Fee. Borrower shall pay to Bank a fee equal to (i) .125 percent (_%) per annum (computed on the basis of a 360-day year, actual days elapsed) on the average daily unused amount of the Line of Credit if the average daily used amount ("Outstanding Borrowing") is at least equal to or exceeds $3,000,000.00 or (ii) .250 percent (1/4%) per annum (computed on the basis of a 360-day year, actual days elapsed) on the average daily unused amount of the Line of Credit if the average daily Outstanding Borrowing is less than $3,000,000.00, which fee shall be calculated on a quarterly basis by Bank and shall be due and payable by Borrower in arrears within three (3) business days after each billing is sent by Bank. SECTION 3. COLLECTION OF PAYMENTS. Borrower authorizes Bank to collect all principal, interest and fees due under the Line of Credit by charging Borrower's demand deposit account number 4159-506641 with Bank, or any other demand deposit account maintained by Borrower with Bank, for the full amount thereof. Should there be insufficient funds in any such demand deposit account to pay all such sums when due, the full amount of such deficiency shall be immediately due and payable by Borrower. ARTICLE II REPRESENTATIONS AND WARRANTIES ------------------------------ Borrower makes the following representations and warranties to Bank, which representations and warranties shall survive the execution of this Agreement and shall continue in full force and effect until the full and final payment, and satisfaction and discharge, of all obligations of Borrower to Bank subject to this Agreement. SECTION 1. LEGAL STATUS. Borrower is a corporation, duly organized and existing and in good standing under the laws of the state of Delaware, and is qualified or licensed to do business (and is in good standing as a foreign corporation, if applicable) in all jurisdictions in which such qualification or licensing is required and in which the failure to so qualify or to be so licensed could have a material adverse effect on Borrower and its subsidiaries taken as a whole. SECTION 2. AUTHORIZATION AND VALIDITY. This Agreement, the Line of Credit Note, and each other document, contract and instrument required hereby or at any time hereafter delivered to Bank in connection herewith (collectively, the "Loan Documents") have been duly authorized, and upon their execution and delivery in accordance with the provisions hereof will constitute legal, valid and binding agreements and obligations of Borrower or the party which executes the same, enforceable in accordance with their respective terms, except as such enforceability may be subject to or limited by bankruptcy, insolvency, reorganization, arrangement, moratorium, or other similar laws relating to or affecting the rights of creditors -2- generally. SECTION 3. NO VIOLATION. The execution, delivery and performance by Borrower of each of the Loan Documents do not violate any provision of any law or regulation, or contravene any provision of the Articles of Incorporation or By-Laws of Borrower, or result in any material breach of or material default under any material contract, material obligation, material indenture or other material instrument to which Borrower is a party or by which Borrower may be bound. SECTION 4. LITIGATION. There are no pending, or to Borrower's knowledge threatened, actions, claims, investigations, suits or proceedings by or before any governmental authority, arbitrator, court or administrative agency which would, if adversely determined, have a material adverse effect on the financial condition or operation of Borrower and its subsidiaries taken as a whole other than those disclosed by Borrower to Bank in writing prior to the date hereof. SECTION 5. CORRECTNESS OF FINANCIAL STATEMENT. The financial statement of Borrower dated September 30, 1996, a true copy of which has been delivered by Borrower to Bank prior to the date hereof, (a) is complete and correct and presents fairly the financial condition of Borrower in all material respects, (b) discloses all liabilities of Borrower that are required to be reflected or reserved against under generally accepted accounting principles, whether liquidated or unliquidated, fixed or contingent, and (c) has been prepared in accordance with generally accepted accounting principles consistently applied. Since the date of such financial statement there has been no material adverse change in the financial condition of Borrower and its subsidiaries taken as a whole, nor has Borrower mortgaged, pledged, granted a security interest in or otherwise encumbered any of its assets or properties except for Permitted Liens (as hereinafter defined). Bank is aware that, since the date of the September 30, 1996 financial statements of Borrower, Borrower has entered into: (a) the Agreement of Merger and Plan of Reorganization, dated October 25, 1996, pursuant to which CROUTE, Inc., a Texas corporation, was merged with and into C-Route Acquisition, Inc., a Delaware corporation (a wholly owned subsidiary of Borrower), which changed its name to CompuRoute, Inc. in connection with the merger; and (b) the Agreement of Merger and Plan of Reorganization, dated January 15, 1997, pursuant to which Silicon Valley Test & Repair, Inc., a California corporation, was merged with and into EMI Acquisition, Inc., a Delaware corporation (a wholly owned subsidiary of Borrower), which changed its name to Silicon Valley Test & Repair, Inc. in connection with the merger. For purposes of this Agreement, the phrase "Permitted Liens" shall mean: (a) liens, security interest, claims or other encumbrances (collectively, "Liens") in favor of Bank; (b) Liens existing on the date hereof and disclosed in writing to Bank (including, without limitation, the Liens described on the attached Exhibit A); (c) Liens on equipment or inventory to secure the purchase price thereof; (d) Liens arising pursuant to operating or capital leases to secure the payments due under such lease; (e) Liens for taxes, assessments or governmental charges or levies not yet due and payable (or as to which the period of grace, if any, related thereto has not yet expired) or which are being contested in good faith; (f) Liens of materialmen, mechanics, carriers, warehousemen, processors or landlords for labor, materials, supplies or rentals incurred in the ordinary course of business; (g) Liens consisting of deposits or pledges made in the ordinary course of business in connection with, or to secure payment of, -3- obligations under workers compensation, unemployment insurance or similar legislation and utility deposits; (h) Liens securing the performance of bids, tenders, statutory obligations, surety and appeal bonds and other obligations of like nature, incurred in the ordinary course of business; (i) Liens constituting encumbrances in the nature of zoning restrictions, easements and rights of restriction of record on the use of real property, which in the aggregate do not materially detract from the value of such property; (j) Liens consented to by Bank in writing; or (k) Liens to secure indebtedness permitted under Section 5.2 hereof. SECTION 6. INCOME TAX RETURNS. Borrower has no knowledge of any pending assessments or adjustments of its income tax payable with respect to any year. SECTION 7. NO SUBORDINATION. There is no agreement, indenture, contract or instrument to which Borrower is a party that requires the subordination in right of payment of any of Borrower's obligations subject to this Agreement to any other obligation of Borrower. SECTION 8. PERMITS, FRANCHISES. Borrower possesses all permits, consents, approvals, franchises and licenses required and rights to all trademarks, trade names, patents, and fictitious names, if any, necessary to enable it to conduct the business in which it is now engaged in compliance with applicable law and the failure of which to so possess would have a material adverse effect on the financial condition of Borrower and its subsidiaries taken as a whole. SECTION 9. ERISA. To Borrower's knowledge, Borrower is in compliance in all material respects with all applicable provisions of the Employee Retirement Income Security Act of 1974, as amended or recodified from time to time ("ERISA"); to Borrower's knowledge, Borrower has not materially violated any provision of any defined employee pension benefit plan (as defined in ERISA) maintained or contributed to by Borrower (each, a "Plan"); to Borrower's knowledge, no Reportable Event as defined in ERISA has occurred and is continuing with respect to any Plan initiated by Borrower; to Borrower's knowledge, Borrower has met its minimum funding requirements under ERISA with respect to each Plan; and to Borrower's knowledge, each Plan will be able to fulfill its benefit obligations as they come due in accordance with the Plan documents and under generally accepted accounting principles. SECTION 10. OTHER OBLIGATIONS. Borrower is not in default on any obligation for borrowed money or any purchase money obligation (where such material default would allow the creditor of Borrower to accelerate the payment of the loan or obligation) or any other material lease or contract. SECTION 11. ENVIRONMENTAL MATTERS. Except as disclosed by Borrower to Bank in writing prior to the date hereof, to Borrower's knowledge, Borrower is in compliance in all material respects with all applicable federal or state environmental, hazardous waste, health and safety statutes, and any rules or regulations adopted pursuant thereto, which govern or affect any of Borrower's operations and/or properties, including without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Superfund Amendments and Reauthorization Act of 1986, the Federal Resource Conservation and Recovery Act of 1976, -4- and the Federal Toxic Substances Control Act. None of the operations of Borrower is the subject of any federal or state investigation evaluating whether any remedial action involving a material expenditure is needed to respond to a release of any toxic or hazardous waste or substance into the environment. To Borrower's knowledge, Borrower has no material contingent liability in connection with any release of any toxic or hazardous waste or substance into the environment. ARTICLE III CONDITIONS ---------- SECTION 1. CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation of Bank to extend any credit contemplated by this Agreement is subject to the fulfillment to Bank's satisfaction of all of the following conditions: (a) Approval of Bank Counsel. All legal matters incidental to the extension of credit by Bank shall be satisfactory to Bank's counsel. (b) Documentation. Bank shall have received, in form and substance satisfactory to Bank, each of the following, duly executed: (i) This Agreement and the Line of Credit Note. (ii) Such other documents as Bank may require under any other Section of this Agreement. (c) Financial Condition. There shall have been no material adverse change, as reasonably determined by Bank, in the financial condition of Borrower and its subsidiaries taken as a whole or any annual financial projections provided to Bank by Borrower, nor any material decline, as reasonably determined by Bank, in the market value of a substantial or material portion of the assets of Borrower and its subsidiaries taken as a whole. (d) Insurance. Borrower shall have delivered to Bank evidence of insurance coverage on all Borrower's property, in types and amounts customarily covered in lines of business similar to that of Borrower and issued by companies reasonably satisfactory to Bank, and where required by Bank, with loss payable endorsements in favor of Bank. SECTION 2. CONDITIONS OF EACH EXTENSION OF CREDIT. The obligation of Bank to make each extension of credit requested by Borrower hereunder shall be subject to the fulfillment to Bank's satisfaction of each of the following conditions: (a) Compliance. The representations and warranties contained herein and in each of the other Loan Documents shall be true in all material respects on and as of the date of the signing of this Agreement and on the date of each extension of credit by Bank pursuant hereto, with the same effect as though such representations and warranties had been made on and as of each such date, and on each such date, and no Event of Default as defined herein shall -5- be continuing or shall exist. (b) Documentation. Bank shall have received all additional documents which may be required in connection with such extension of credit. ARTICLE IV AFFIRMATIVE COVENANTS --------------------- Borrower covenants that so long as Bank remains committed to extend credit to Borrower pursuant hereto, or any liabilities (whether direct or contingent, liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents remain outstanding, and until payment in full of all obligations of Borrower subject hereto, Borrower shall, unless Bank otherwise consents in writing: SECTION 1. PUNCTUAL PAYMENTS. Punctually pay all principal, interest, fees or other liabilities due under any of the Loan Documents at the times and place and in the manner specified therein. SECTION 2. ACCOUNTING RECORDS. Maintain books and records in accordance with generally accepted accounting principles consistently applied, and, after 48 hours prior written notice, permit any representative of Bank, at any reasonable time during the regular business hours of Borrower, to: (a) inspect, audit and examine such books and records and make copies of the same; and (b) inspect the properties of Borrower. SECTION 3. FINANCIAL STATEMENTS. Provide to Bank all of the following, in form and detail reasonably satisfactory to Bank: (a) not later than ninety (90) days after and as of the end of each fiscal year, a financial statement of Borrower, certified by an independent certified public accountant, to include a balance sheet, statement of income and expenses and statement of cash flows, which financial statement requirement may be satisfied by delivery to Bank of a copy of the Borrower's Form 10-K filed with the U.S. Securities and Exchange Commission ("SEC"), and within ten (10) business days after filing, copies of Borrower's filed federal income tax returns for such year; (b) not later than forty-five (45) days after and as of the end of each fiscal quarter, a financial statement of Borrower, prepared by Borrower, to include a balance sheet, statement of income and expenses and statement of cash flows which financial statement requirement may be satisfied by delivery to Bank of a copy of the Borrower's Form 10-Q filed with the SEC; (c) contemporaneously with each annual and quarterly financial statement of Borrower required hereby, a certificate for the benefit of the Bank as to the financial statements in the form of the Borrower's certification of the Forms 10-K and 10-Q delivered to the SEC together with a certificate of the president or chief financial officer of Borrower that there exists -6- no Event of Default and indicating compliance with each financial covenant described in Section 4.9 hereof; (d) from time to time such other information as Bank may reasonably request. SECTION 4. COMPLIANCE. Preserve and maintain all licenses, permits, governmental approvals, rights, privileges and franchises necessary for the conduct of its business the failure of which to preserve or maintain would have a material adverse effect on Borrower or its subsidiaries taken as a whole; and comply with the provisions of all documents pursuant to which Borrower is organized and/or which govern Borrower's continued existence and with the material requirements of all laws, rules, regulations and orders of any governmental authority applicable to Borrower and/or its business, unless the failure to so materially comply would not have a material adverse effect on Borrower and its subsidiaries taken as a whole. SECTION 5. INSURANCE. Maintain and keep in force insurance of the types and in amounts customarily carried in lines of business similar to that of Borrower, including but not limited to fire, extended coverage, public liability, flood, property damage and workers' compensation, with all such insurance carried with companies and in amounts reasonably satisfactory to Bank, and deliver to Bank from time to time at Bank's reasonable request schedules setting forth all insurance then in effect. SECTION 6. FACILITIES. Keep all properties owned by Borrower and material to Borrower's business in good repair and condition, and from time to time make repairs, renewals and replacements thereto consistent with past practices. SECTION 7. TAXES AND OTHER LIABILITIES. Pay and discharge when due any and all indebtedness, obligations, assessments and taxes, both real or personal, including without limitation federal and state income taxes and state and local property taxes and assessments, except such (a) as Borrower may in good faith contest or as to which a bona fide dispute may arise, and for which Borrower has made provision, to Bank's reasonable satisfaction, for eventual payment thereof in the event Borrower is obligated to make such payment, or (b) where the failure to pay or discharge would not have a material adverse effect on Borrower and its subsidiaries taken as a whole. SECTION 8. LITIGATION. Promptly give notice in writing to Bank of any litigation pending or threatened against Borrower with a claim in excess of $500,000.00. SECTION 9. FINANCIAL CONDITION. Maintain, as of the end of each fiscal quarter, unless otherwise indicated, the financial condition of Borrower and its subsidiaries taken as a whole as follows using generally accepted accounting principles consistently applied and used consistently with prior practices (except to the extent modified by the definitions herein): (a) Current Ratio not at any time less than 1.2 to 1.0, with "Current Ratio" defined as total current assets divided by total current liabilities. -7- (b) Tangible Net Worth not at any time less than $15,000,000.00 as of December 31, 1996 increased thereafter by the sum of (i) fifty percent (50%) of any future net income after taxes (but not reduced by any net loss) and (ii) ninety percent (90%) of any future increases in stockholder equity, including without limitation preferred stock, due to any new equity offering, with "Tangible Net Worth" defined as the aggregate of total stockholders' equity plus subordinated debt less any intangible assets. (c) Total Liabilities divided by Tangible Net Worth not at any time greater than 1.0 to 1.0, with "Total Liabilities" defined as the aggregate of current liabilities and non-current liabilities less subordinated debt, and with "Tangible Net Worth" as defined above. (d) Net income after taxes not less than $0 on an annual basis, determined as of each fiscal year end with no quarterly losses for more than two consecutive fiscal quarters, excluding from the calculation of net income any losses incurred as a result of any non-recurring write-offs of any research and development assets purchased as part of a business acquisition. (e) EBITDA Coverage Ratio not less than 1.5 to 1.0 as of each fiscal year end, with "EBITDA" defined as net profit before tax plus interest expense (net of capitalized interest expense), depreciation expense and amortization expense, and with "EBITDA Coverage Ratio" defined as EBITDA divided by the aggregate of total interest expense plus the prior period current maturity of long-term debt and the prior period current maturity of subordinated debt. SECTION 10. NOTICE TO BANK. Promptly (but in no event more than five (5) business days after Borrower obtains knowledge of each such event or matter) give written notice to Bank in reasonable detail of: (a) the occurrence of any Event of Default; (b) any change in the name or the organizational structure of Borrower; (c) the occurrence and nature of any Reportable Event or Prohibited Transaction, each as defined in ERISA, or any funding deficiency with respect to any Plan; or (d) any termination or cancellation of any insurance policy which Borrower is required to maintain, or any uninsured or partially uninsured loss through liability or property damage, or through fire, theft or any other cause affecting Borrower's property in excess of an aggregate of $500,000.00. ARTICLE V NEGATIVE COVENANTS ------------------ Borrower further covenants that so long as Bank remains committed to extend credit to Borrower pursuant hereto, or any liabilities (whether direct or contingent, liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents remain outstanding, and until payment in full of all obligations of Borrower subject hereto, Borrower will not without Bank's prior written consent: SECTION 1. USE OF FUNDS. Use any of the proceeds of any credit extended hereunder except for the purposes stated in Article I hereof. -8- SECTION 2. OTHER INDEBTEDNESS. Create, incur, assume or permit to exist any indebtedness or liabilities resulting from borrowings, loans or advances, whether secured or unsecured, matured or unmatured, liquidated or unliquidated, joint or several, except (a) the liabilities of Borrower to Bank; (b) any other liabilities of Borrower existing as of, and disclosed to Bank prior to, the date hereof (including, without limitation, the liability to Zions Credit Corporation evidenced by the Security Agreement and Promissory Note, dated December 27, 1995, and any other documents executed in connection therewith, and the liability to Security Bank, N.A. - Garland, evidenced by the Promissory Note (Secured by Deed of Trust), dated October 16, 1995, and any other documents executed in connection therewith, which liability was assumed by Borrower pursuant to the Consent and Release, dated December 27, 1996); (c) indebtedness or obligations to any of the subsidiaries or affiliates of Borrower; (d) trade accounts created, or prepaid expenses accrued, in the ordinary course of business; (e) operating or capital leases entered into in the ordinary course of business; and (f) other indebtedness or obligations in an aggregate amount at any time outstanding not to exceed $1,000,000.00. SECTION 3. MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge into or consolidate with any other entity, unless Borrower is the surviving entity; make any substantial change in the general nature of Borrower's business as conducted as of the date hereof; nor sell, lease, transfer or otherwise dispose of all or a substantial or material portion of Borrower's assets except in the ordinary course of its business, and except for the purposed sale and leaseback transaction related to Borrower's Dallas, Texas facility. SECTION 4. GUARANTIES. Guarantee or become liable in any way as surety, endorser (other than as endorser of negotiable instruments for deposit or collection in the ordinary course of business), accommodation endorser or otherwise for, nor pledge or hypothecate (other than Permitted Liens) any assets of Borrower as security for, any liabilities or obligations of any other person or entity, except any of the foregoing: (a) in favor of Bank; (b) existing on the date hereof (including, without limitation, the Absolute, Unconditional and Continuing Guaranty, dated January 15, 1997, executed by Borrower in favor of William Mayer); or (c) in connection with any acquisition permitted hereunder so long as the maximum liability thereunder does not exceed $1,000,000.00. SECTION 5. LOANS, ADVANCES, INVESTMENTS. Make any loans or advances to or investments in any person or entity, except: (a) loans or advances to, or investments in, any person or entity existing as of the date hereof and disclosed in writing to Bank (including, without limitation, the investments described on the attached Exhibit B); (b) loans or advances to, or investments in, any of the subsidiaries or affiliates of Borrower existing on the date hereof (which include CompuRoute, Inc., Silicon Valley Test & Repair, Inc., Cerprobe Asia Holdings PTE. LTD. and Cerprobe Europe, Limited) or any subsidiary of Borrower formed or acquired after the date hereof; (c) loans or advances to or investments in, the limited liability company arising pursuant to the Operating Agreement of Upsys - Cerprobe, L.L.C., dated February 12, 1997, executed (but not yet effective) by Borrower and Upsys, a French corporation, each as a member; (d) loans or advances to the employees of Borrower or its subsidiaries or affiliates for reasonable travel and business expenses in the ordinary course of business; (e) deposits for utilities, security deposits, leases and similar prepaid expenses accrued in the ordinary course -9- of business; and (f) other loans or advances to, or investments in, any person or entity not to exceed $500,000.00 in the aggregate after the date hereof. SECTION 6. DIVIDENDS, DISTRIBUTIONS. Declare or pay any dividend or distribution either in cash, stock or any other property on Borrower's stock now or hereafter outstanding, nor redeem, retire, repurchase or otherwise acquire any shares of any class of Borrower's stock now or hereafter outstanding; provided, however, that the foregoing shall not restrict the right of Borrower to redeem shares of the Series A Preferred Stock of Borrower in accordance with Section 6 of the Certificate of Designation of Series A Preferred Stock, which is included in the Certificate of Incorporation of Borrower. SECTION 7. PLEDGE OF ASSETS. Mortgage, pledge, grant or permit to exist a security interest in, or lien upon, all or any portion of Borrower's assets now owned or hereafter acquired, including without limitation its accounts receivable, inventory, unpledged equipment and real estate, except Permitted Liens. ARTICLE VI EVENTS OF DEFAULT ----------------- SECTION 1. EVENTS OF DEFAULT. The occurrence of any of the following shall constitute an "Event of Default" under this Agreement: (a) Borrower shall fail to pay within five (5) business days of when due any principal or interest payable under any of the Loan Documents. (b) Borrower shall fail to pay within five (5) business days after written notice from Bank any fees or other amounts payable under the Loan Documents (other than those referred to in subsection (a) above). (c) Any financial statement or certificate furnished to Bank in connection with, or any representation or warranty made by Borrower or any other party under this Agreement or any other Loan Document shall prove to be incorrect, false or misleading in any material respect when furnished or made. (d) Any default in the compliance with any covenant contained in Section 4.9 hereof and such default shall continue for a period of twenty (20) days from its occurrence. (e) Any default in the performance of or compliance with any obligation, agreement or other provision contained herein or in any other Loan Document (other than those referred to in subsections (a), (b), (c) and (d) above), and with respect to any such default which by its nature can be cured, such default shall continue for a period of thirty (30) days from written notice thereof to Borrower, or, if such default by it nature cannot reasonably be cured within such thirty (30) day period, within sixty (60) days of written notice thereof so long as Borrower is diligently and in good faith attempting to cure such default. -10- (f) Any default in the payment or performance of any obligation, or any defined event of default, under the terms of any contract or instrument (other than any of the Loan Documents) pursuant to which Borrower has incurred any debt or other liability to any person or entity, including Bank, if the amount of such debt or liability is in excess of $500,000 and such default provides the other person or entity the right to accelerate the debt or liability and any applicable period of grace or right to cure has expired. (g) The service of a notice of levy and/or of a writ of attachment or execution, or other like process, against the assets of Borrower which exceeds $500,000 in value and such notice of levy and/or writ of attachment or execution or other like process shall continue undischarged or unstayed for a period of thirty (30) days; or the entry of a judgment against Borrower for the payment of money which exceeds $500,000 (which is not covered by insurance) and such judgment shall continue undischarged, unstayed or unbonded for a period of thirty (30) days. (h) Borrower shall become insolvent, or shall suffer or consent to or apply for the appointment of a receiver, trustee, custodian or liquidator of itself or any material portion of its property, or shall admit in writing that it is unable to pay its debts as they become due, or shall make a general assignment for the benefit of creditors; Borrower shall file a voluntary petition in bankruptcy, or seeking reorganization, in order to effect a plan or other arrangement with creditors or any other relief under the Bankruptcy Reform Act, Title 11 of the United States Code, as amended or recodified from time to time ("Bankruptcy Code"), or under any state or federal law granting relief to debtors, whether now or hereafter in effect; or any involuntary petition or proceeding pursuant to the Bankruptcy Code or any other applicable state or federal law relating to bankruptcy, reorganization or other relief for debtors is filed or commenced against Borrower and such petition or proceeding is not dismissed within ninety (90) days of the filing or commencement thereof, or Borrower shall file an answer admitting the jurisdiction of the court and the material allegations of any involuntary petition; or Borrower shall be adjudicated a bankrupt, or an order for relief shall be entered against Borrower by any court of competent jurisdiction under the Bankruptcy Code or any other applicable state or federal law relating to bankruptcy, reorganization or other relief for debtors and such order for relief shall continue unstayed for a period of ninety (90) days. (i) The dissolution or liquidation of Borrower; or Borrower or any of its directors, stockholders or members, shall take action seeking to effect the dissolution or liquidation of Borrower. SECTION 2. REMEDIES. Upon the occurrence of any Event of Default: (a) all indebtedness of Borrower under each of the Loan Documents, any term thereof to the contrary notwithstanding, shall at Bank's option and without notice become immediately due and payable without presentment, demand, protest or notice of dishonor, all of which are hereby expressly waived by each Borrower; (b) the obligation, if any, of Bank to extend any further credit under any of the Loan Documents shall immediately cease and terminate; and (c) Bank shall have all rights, powers and remedies available under each of the Loan Documents, or accorded by law, including without limitation the right to resort to any or all security for any credit accommodation from Bank subject hereto and to exercise any or all of the rights of a beneficiary -11- or secured party pursuant to applicable law. All rights, powers and remedies of Bank may be exercised at any time by Bank and from time to time after the occurrence of an Event of Default, are cumulative and not exclusive, and shall be in addition to any other rights, powers or remedies provided by law or equity. ARTICLE VII MISCELLANEOUS ------------- SECTION 1. NO WAIVER. No delay, failure or discontinuance of Bank in exercising any right, power or remedy under any of the Loan Documents shall affect or operate as a waiver of such right, power or remedy; nor shall any single or partial exercise of any such right, power or remedy preclude, waive or otherwise affect any other or further exercise thereof or the exercise of any other right, power or remedy. Any waiver, permit, consent or approval of any kind by Bank of any breach of or default under any of the Loan Documents must be in writing and shall be effective only to the extent set forth in such writing. SECTION 2. NOTICES. All notices, requests and demands which any party is required or may desire to give to any other party under any provision of this Agreement must be in writing delivered to each party at the following address: BORROWER: CERPROBE CORPORATION 600 South Rockford Drive Tempe, Arizona 85281 Attention: Randal Buness Facsimile No.: (602) 967-4636 with a copy to: O'CONNOR CAVANAGH One East Camelback Road Suite 1100 Phoenix, Arizona 85012 Attention: John B. Furman, Esq. Facsimile No.: (602) 263-2900 BANK: WELLS FARGO BANK, NATIONAL ASSOCIATION 100 West Washington, MAC #4101-250 Phoenix, Arizona 85003 Attention: Commercial Banking, Kathleen Sowa Facsimile No.: (602) 229-4409 or to such other address as any party may designate by written notice to all other parties. Each such notice, request and demand shall be deemed given or made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by mail, upon the earlier of the date of receipt or three (3) days after deposit in the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy, upon receipt. -12- SECTION 3. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to Bank immediately upon demand the full amount of all reasonable payments, advances, charges, costs and expenses, including reasonable attorneys' fees (to include outside counsel fees and all allocated costs of Bank's in-house counsel), expended or incurred by Bank in connection with (a) the negotiation and preparation of this Agreement and the other Loan Documents, Bank's continued administration hereof and thereof, and the preparation of any amendments and waivers hereto and thereto, (b) the enforcement of Bank's rights and/or the collection of any amounts which become due to Bank under any of the Loan Documents, and (c) the prosecution or defense of any action in any way related to any of the Loan Documents, including without limitation, any action for declaratory relief, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Bank or any other person) relating to any Borrower or any other person or entity. SECTION 4. SUCCESSORS, ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the heirs, executors, administrators, legal representatives, successors and assigns of the parties; provided however, that Borrower may not assign or transfer its interest hereunder without Bank's prior written consent. Bank reserves the right to sell, assign, transfer, negotiate or grant participations in all or any part of, or any interest in, Bank's rights and benefits under each of the Loan Documents. In connection therewith, Bank may disclose all documents and information which Bank now has or may hereafter acquire relating to any credit extended by Bank to Borrower, Borrower or its business. SECTION 5. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other Loan Documents constitute the entire agreement between Borrower and Bank with respect to any extension of credit by Bank subject hereto and supersede all prior negotiations, communications, discussions and correspondence concerning the subject matter hereof. This Agreement may be amended or modified only in writing signed by each party hereto. SECTION 6. NO THIRD PARTY BENEFICIARIES. This Agreement is made and entered into for the sole protection and benefit of the parties hereto and their respective permitted successors and assigns, and no other person or entity shall be a third party beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any other of the Loan Documents to which it is not a party. SECTION 7. TIME. Time is of the essence of each and every provision of this Agreement and each other of the Loan Documents. SECTION 8. SEVERABILITY OF PROVISIONS. If any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or any remaining provisions of this Agreement. SECTION 9. COUNTERPARTS. This Agreement may be executed in any number of -13- counterparts, each of which when executed and delivered shall be deemed to be an original, and all of which when taken together shall constitute one and the same Agreement. SECTION 10. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Arizona. SECTION 11. SUPERSEDED DOCUMENTS. This Agreement and the Line of Credit Note are executed to replace the Business Loan Agreement, dated April 27, 1996, executed by Borrower and First Interstate Bank of Arizona (the predecessor of Bank) ("FIB"), the Promissory Note, dated April 27, 1996, in the maximum principal amount of $3,000,000, executed by Borrower in favor of FIB and all other documents executed in connection therewith (collectively, the "Superseded Documents"). Upon the execution and delivery of this Agreement and the Line of Credit Note by Borrower, Bank shall deliver the Superseded Documents to Borrower marked "Paid" or "Cancelled." SECTION 12. ARBITRATION. (a) Arbitration. Upon the demand of any party, any Dispute shall be resolved by binding arbitration (except as set forth in (e) below) in accordance with the terms of this Agreement. A "Dispute" shall mean any action, dispute, claim or controversy of any kind, whether in contract or tort, statutory or common law, legal or equitable, now existing or hereafter arising under or in connection with, or in any way pertaining to, any of the Loan Documents, or any past, present or future extensions of credit and other activities, transactions or obligations of any kind related directly or indirectly to any of the Loan Documents, including without limitation, any of the foregoing arising in connection with the exercise of any self-help, ancillary or other remedies pursuant to any of the Loan Documents. Any party may by summary proceedings bring an action in court to compel arbitration of a Dispute. Any party who fails or refuses to submit to arbitration following a lawful demand by any other party shall bear all costs and expenses incurred by such other party in compelling arbitration of any Dispute. (b) Governing Rules. Arbitration proceedings shall be administered by the American Arbitration Association ("AAA") or such other administrator as the parties shall mutually agree upon in accordance with the AAA Commercial Arbitration Rules. All Disputes submitted to arbitration shall be resolved in accordance with the Federal Arbitration Act (Title 9 of the United States Code), notwithstanding any conflicting choice of law provision in any of the Loan Documents. The arbitration shall be conducted at a location in Arizona selected by the AAA or other administrator. If there is any inconsistency between the terms hereof and any such rules, the terms and procedures set forth herein shall control. All statutes of limitation applicable to any Dispute shall apply to any arbitration proceeding. All discovery activities shall be expressly limited to matters directly relevant to the Dispute being arbitrated. Judgment upon any award rendered in an arbitration may be entered in any court having jurisdiction; provided however, that nothing contained herein shall be deemed to be a waiver by any party that is a bank of the protections afforded to it under 12 U.S.C. ss.91 or any similar applicable state law. (c) No Waiver; Provisional Remedies, Self-Help and Foreclosure. No provision hereof shall limit the right of any party to exercise self-help remedies such as setoff, -14- foreclosure against or sale of any real or personal property collateral or security, or to obtain provisional or ancillary remedies, including without limitation injunctive relief, sequestration, attachment, garnishment or the appointment of a receiver, from a court of competent jurisdiction before, after or during the pendency of any arbitration or other proceeding. The exercise of any such remedy shall not waive the right of any party to compel arbitration hereunder. (d) Arbitrator Qualifications and Powers; Awards. Arbitrators must be active members of the Arizona State Bar or retired judges of the state or federal judiciary of Arizona with expertise in the substantive law applicable to the subject matter of the Dispute and possessing general commercial business experience. Arbitrators are empowered to resolve Disputes by summary rulings in response to motions filed prior to the final arbitration hearing. Arbitrators (i) shall resolve all Disputes in accordance with the substantive law of the state of Arizona, (ii) may grant any remedy or relief that a court of the state of Arizona could order or grant within the scope hereof and such ancillary relief as is necessary to make effective any award, and (iii) shall have the power to award recovery of all costs and fees, to impose sanctions and to take such other actions as they deem necessary to the same extent a judge could pursuant to the Federal Rules of Civil Procedure, the Arizona Rules of Civil Procedure or other applicable law. Any Dispute in which the amount in controversy is $5,000,000 or less shall be decided by a single arbitrator who shall not render an award of greater than $5,000,000 (including damages, costs, fees and expenses). By submission to a single arbitrator, each party expressly waives any right or claim to recover more than $5,000,000. Any Dispute in which the amount in controversy exceeds $5,000,000 shall be decided by majority vote of a panel of three arbitrators; provided however, that all three arbitrators must actively participate in all hearings and deliberations. (e) Judicial Review. Notwithstanding anything herein to the contrary, in any arbitration in which the amount in controversy exceeds $25,000,000, the arbitrators shall be required to make specific, written findings of fact and conclusions of law. In such arbitrations (i) the arbitrators shall not have the power to make any award which is not supported by substantial evidence or which is based on legal error, (ii) an award shall not be binding upon the parties unless the findings of fact are supported by substantial evidence and the conclusions of law are not erroneous under the substantive law of the state of Arizona, and (iii) the parties shall have in addition to the grounds referred to in the Federal Arbitration Act for vacating, modifying or correcting an award the right to judicial review of (A) whether the findings of fact rendered by the arbitrators are supported by substantial evidence, and (B) whether the conclusions of law are erroneous under the substantive law of the state of Arizona. Judgment confirming an award in such a proceeding may be entered only if a court determines the award is supported by substantial evidence and not based on legal error under the substantive law of the state of Arizona. (f) Miscellaneous. To the maximum extent practicable, the AAA, the arbitrators and the parties shall take all action required to conclude any arbitration proceeding within 180 days of the filing of the Dispute with the AAA. No arbitrator or other party to an arbitration proceeding may disclose the existence, content or results thereof, except for disclosures of information by a party required in the ordinary course of its business, by applicable law or regulation, or to the extent necessary to exercise any judicial review rights set -15- forth herein. If more than one agreement for arbitration by or between the parties potentially applies to a Dispute, the arbitration provision most directly related to the Loan Documents or the subject matter of the Dispute shall control. This arbitration provision shall survive termination, amendment or expiration of any of the Loan Documents or any relationship between the parties. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first written above. CERPROBE CORPORATION, a Delaware corporation By: Title: WELLS FARGO BANK, NATIONAL ASSOCIATION By: Title: -16- EXHIBIT "A" LIENS ----- Financing Statements filed with the Office of the Arizona Secretary of State File Date File Number Secured Party - --------- ----------- ------------- FEB 12, 1991 653382 XEROX CORPORATION JUL 14, 1992 711515 CITICORP NORTH AMERICA JUL 14, 1992 711516 EATON FINANCIAL CORPORATION JUN 25, 1993 748553 NORWEST EQUIPMENT FINANCE, INC. SEP 30, 1993 760012 NORWEST EQUIPMENT FINANCE, INC. MAR 27, 1995 825185 FIRST INTERSTATE BANK OF ARIZONA AUG 15, 1995 842809 FIRST INTERSTATE BANK OF ARIZONA JAN 3, 1996 861015 ZIONS CREDIT CORPORATION Other Liens Liens in favor of Security Bank, N.A. - Garland -17- EXHIBIT "B" INVESTMENTS ----------- 1. Cerprobe Asia Holdings PTE. LTD., a wholly owned subsidiary of Borrower, together with Asian investors, formed a joint venture named Cerprobe Asia PTE. LTD. Cerprobe Asia Holdings PTE. LTD. owns 70% of Cerprobe Asia PTE. LTD. Cerprobe Asia PTE. LTD. has two wholly owned subsidiaries, Cerprobe Singapore PTE. LTD. and Cerprobe Taiwan Co. LTD. 2. Borrower owns 36% of CRPB Investors, L.L.C., which owns the facility and land for the corporate headquarters of Borrower. 3. Borrower has invested approximately $122,000 in Upsys - Cerprobe, L.L.C., pursuant to that Operating Agreement dated February 12, 1997 executed (but not yet effective) by Upsys, a French corporation, and Borrower, each as a member, with Cobra Venture Management, Inc., a Delaware corporation, as manager. -18- EXHIBIT "C" NOTE ---- -19- EX-10.ZZ 4 REVOLVING LINE OF CREDIT NOTE REVOLVING LINE OF CREDIT NOTE $10,000,000.00 Phoenix, Arizona February 28, 1997 FOR VALUE RECEIVED, the undersigned CERPROBE CORPORATION, a Delaware corporation ("Borrower"), promises to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank") at its office at 100 West Washington, Phoenix, Arizona, or at such other place as the holder hereof may designate, in lawful money of the United States of America and in immediately available funds, the principal sum of TEN MILLION AND NO/100 DOLLARS ($10,000,000.00), or so much thereof as may be advanced and be outstanding, with interest thereon, to be computed on each advance from the date of its disbursement as set forth herein. DEFINITIONS: As used herein, the following terms shall have the meanings set forth after each, and any other term defined in this Note shall have the meaning set forth at the place defined: a. "Business Day" means any day except a Saturday, Sunday or any other day on which commercial banks in Arizona are authorized or required by law to close. b. "Fixed Rate Term" means a period commencing on a Business Day and continuing for one (1), two (2) or three (3) months, as designated by Borrower, during which all or a portion of the outstanding principal balance of this Note bears interest determined in relation to LIBOR; provided, however, that no Fixed Rate Term may be selected for a principal amount less than TWO HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS ($250,000.00) with $100,000.00 increments above that; and provided further, that no Fixed Rate Term shall extend beyond the scheduled maturity date hereof. If any Fixed Rate Term would end on a day which is not a Business Day, then such Fixed Rate Term shall be extended to the next succeeding Business Day. c. "LIBOR" means the rate per annum (rounded upward, if necessary, to the nearest whole 1/8 of 1%) and determined pursuant to the following formula: LIBOR = Base LIBOR ------------------------------- 100% - LIBOR Reserve Percentage i. "Base LIBOR" means the rate per annum for United States dollar deposits quoted by Bank as the Inter-Bank Market Offered Rate, with the understanding that such rate is quoted by Bank for the purpose of calculating effective rates of interest for loans making reference thereto, on the first day of a Fixed Rate Term for delivery of funds on said date for a period of time approximately equal to the number of days in such Fixed Rate Term and in an amount approximately equal to the principal amount to which such Fixed Rate Term applies. Borrower understands and agrees that Bank may base its quotation -1- of the Inter-Bank Market Offered Rate upon such offers or other market indicators of the Inter-Bank Market as Bank in its discretion deems appropriate including, but not limited to, the rate offered for U.S. dollar deposits on the London Inter- Bank Market. ii. "LIBOR Reserve Percentage" means the reserve percentage prescribed by the Board of Governors of the Federal Reserve System (or any successor) for "Eurocurrency Liabilities" (as defined in Regulation D of the Federal Reserve Board, as amended), adjusted by Bank for expected changes in such reserve percentage during the applicable Fixed Rate Term. d. "Prime Rate" means at any time the rate of interest most recently announced within Bank at its principal office as its Prime Rate, with the understanding that the Prime Rate is one of Bank's base rates and serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto, and is evidenced by the recording thereof after its announcement in such internal publication or publications as Bank may designate. INTEREST: (a) Interest. The outstanding principal balance of this Note shall bear interest (computed on the basis of a 360-day year, actual days elapsed) either (i) at a fluctuating rate per annum at the Prime Rate in effect from time to time, or (ii) at a fixed rate per annum determined by Bank to be one and three-quarters percent (1.75%) above LIBOR in effect on the first day of the applicable Fixed Rate Term. When interest is determined in relation to the Prime Rate, each change in the rate of interest hereunder shall become effective on the date each Prime Rate change is announced within Bank. With respect to each LIBOR selection hereunder, Bank is hereby authorized to note the date, principal amount, interest rate and Fixed Rate Term applicable thereto and any payments made thereon on Bank's books and records (either manually or by electronic entry) and/or on any schedule attached to this Note. (b) Selection of Interest Rate Options. At any time any portion of this Note bears interest determined in relation to LIBOR, it may be continued by Borrower at the end of the Fixed Rate Term applicable thereto so that all or a portion thereof bears interest determined in relation to the Prime Rate or to LIBOR for a new Fixed Rate Term designated by Borrower. At any time any portion of this Note bears interest determined in relation to the Prime Rate, Borrower may convert all or a portion thereof so that it bears interest determined in relation to LIBOR for a Fixed Rate Term designated by Borrower. At such time as Borrower requests an advance hereunder or wishes to select a LIBOR option for all or a portion of the outstanding principal balance hereof, and at the end of each Fixed Rate Term, Borrower shall give Bank notice specifying: (i) the interest rate option selected by Borrower; (ii) the principal amount subject thereto; and (iii) for each LIBOR selection, the length of the applicable Fixed Rate Term. Any such notice may be given by telephone so long as, with respect to each LIBOR selection, (A) Bank receives written confirmation from Borrower not later than three (3) Business Days after such telephone notice is given, and (B) such notice is given to Bank prior to 10:00 a.m., California time, on the first day of the Fixed Rate Term. For each LIBOR option requested hereunder, Bank will quote the applicable fixed rate to Borrower at approximately 10:00 a.m., -2- California time, on the first day of the Fixed Rate Term. If Borrower does not immediately accept the rate quoted by Bank, any subsequent acceptance by Borrower shall be subject to a redetermination by Bank of the applicable fixed rate; provided, however, that if Borrower fails to accept any such rate by 11:00 a.m., California time, on the Business Day such quotation is given, then the quoted rate shall expire and Bank shall have no obligation to permit a LIBOR option to be selected on such day. If no specific designation of interest is made at the time any advance is requested hereunder or at the end of any Fixed Rate Term, Borrower shall be deemed to have made a Prime Rate interest selection for such advance or the principal amount to which such Fixed Rate Term applied. (c) Additional LIBOR Provisions. (i) If Bank at any time shall determine that for any reason adequate and reasonable means do not exist for ascertaining LIBOR, then Bank shall promptly give notice thereof to Borrower. If such notice is given and until such notice has been withdrawn by Bank, then (A) no new LIBOR option may be selected by Borrower, and (B) any portion of the outstanding principal balance hereof which bears interest determined in relation to LIBOR, subsequent to the end of the Fixed Rate Term applicable thereto, shall bear interest determined in relation to the Prime Rate. (ii) If any law, treaty, rule, regulation or determination of a court or governmental authority or any change therein or in the interpretation or application thereof (each, a "Change in Law") shall make it unlawful for Bank (A) to make LIBOR options available hereunder, or (B) to maintain interest rates based on LIBOR, then in the former event, any obligation of Bank to make available such unlawful LIBOR options shall immediately be cancelled, and in the latter event, any such unlawful LIBOR-based interest rates then outstanding shall be converted, at Bank's option, so that interest on the portion of the outstanding principal balance subject thereto is determined in relation to the Prime Rate; provided, however, that if any such Change in Law shall permit any LIBOR-based interest rates to remain in effect until the expiration of the Fixed Rate Term applicable thereto, then such permitted LIBOR-based interest rates shall continue in effect until the expiration of such Fixed Rate Term. Upon the occurrence of any of the foregoing events, Borrower shall pay to Bank immediately upon demand such amounts as may be necessary to compensate Bank for any fines, fees, charges, penalties or other costs incurred or payable by Bank as a result thereof and which are attributable to any LIBOR options made available to Borrower hereunder, and any reasonable allocation made by Bank among its operations shall be conclusive and binding upon Borrower, absent manifest error. (iii) If any Change in Law or compliance by Bank with any request or directive (whether or not having the force of law) from any central bank or other governmental authority shall: (A) subject Bank to any tax, duty or other charge with -3- respect to any LIBOR options, or change the basis of taxation of payments to Bank of principal, interest, fees or any other amount payable hereunder (except for changes in the rate of tax on the overall net income of Bank); or (B) impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances or loans by, or any other acquisition of funds by any office of Bank; or (C) impose on Bank any other condition; and the result of any of the foregoing is to increase the cost to Bank of making, renewing or maintaining any LIBOR options hereunder and/or to reduce any amount receivable by Bank in connection therewith, then in any such case, Borrower shall pay to Bank immediately upon demand such amounts as may be necessary to compensate Bank for any additional costs incurred by Bank and/or reductions in amounts received by Bank which are attributable to such LIBOR options. In determining which costs incurred by Bank and/or reductions in amounts received by Bank are attributable to any LIBOR options made available to Borrower hereunder, any reasonable allocation made by Bank among its operations shall be conclusive and binding upon Borrower, absent manifest error. (d) Payment of Interest. Interest accrued on this Note shall be payable on the first day of each month, commencing April 1, 1997. (e) Default Interest. From and after the maturity date of this Note, or such earlier date as all principal owing hereunder becomes due and payable by acceleration or otherwise, the outstanding principal balance of this Note shall bear interest until paid in full at an increased rate per annum (computed on the basis of a 360-day year, actual days elapsed) equal to four percent (4%) above the rate of interest from time to time applicable to this Note. BORROWING AND REPAYMENT: (a) Borrowing and Repayment. Borrower may from time to time during the term of this Note borrow, partially or wholly repay its outstanding borrowings, and reborrow, subject to all of the limitations, terms and conditions of this Note and of any document executed in connection with or governing this Note; provided, however, that the total outstanding borrowings under this Note shall not at any time exceed the principal amount stated above. The unpaid principal balance of this obligation at any time shall be the total amounts advanced hereunder by the holder hereof less the amount of principal payments made hereon by or for Borrower, which balance may be endorsed hereon from time to time by the holder. The outstanding -4- principal balance of this Note shall be due and payable in full on August 15, 1998. (b) Advances. Advances hereunder, to the total amount of the principal sum stated above, may be made by the holder at the oral or written request of (i) Zane Close or Randy Buness, any one acting alone, who are authorized to request advances and direct the disposition of any advances until written notice of the revocation of such authority is received by the holder at the office designated above, or (ii) any person, with respect to advances deposited to the credit of any account of Borrower with the holder, which advances, when so deposited, shall be conclusively presumed to have been made to or for the benefit of Borrower regardless of the fact that persons other than those authorized to request advances may have authority to draw against such account. The holder shall have no obligation to determine whether any person requesting an advance is or has been authorized by Borrower. (c) Application of Payments. Each payment made on this Note shall be credited first, to any interest then due and second, to the outstanding principal balance hereof. All payments credited to principal shall be applied first, to the outstanding principal balance of this Note which bears interest determined in relation to the Prime Rate, if any, and second, to the outstanding principal balance of this Note which bears interest determined in relation to LIBOR, with such payments applied to the oldest Fixed Rate Term first. PREPAYMENT: (a) Prime Rate. Borrower may prepay principal on any portion of this Note which bears interest determined in relation to the Prime Rate at any time, in any amount and without penalty or prior notice. (b) LIBOR. Borrower may prepay principal on any portion of this Note which bears interest determined in relation to LIBOR at any time and in the minimum amount of TWO HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS ($250,000.00) with $100,000.00 increments above that; provided, however, that if the outstanding principal balance of such portion of this Note is less than said amount, the minimum prepayment amount shall be the entire outstanding principal balance thereof. In consideration of Bank providing this prepayment option to Borrower, or if any such portion of this Note shall become due and payable at any time prior to the last day of the Fixed Rate Term applicable thereto by acceleration or otherwise, Borrower shall pay to Bank immediately upon demand a fee which is the sum of the discounted monthly differences for each month from the month of prepayment through the month in which such Fixed Rate Term matures, calculated as follows for each such month: (i) Determine the amount of interest which would have accrued each month on the amount prepaid at the interest rate applicable to such amount had it remained outstanding until the last day of the Fixed Rate Term applicable thereto. (ii) Subtract from the amount determined in (i) above the amount of interest which would have accrued for the same month on the amount prepaid for the remaining term of such Fixed Rate Term at -5- LIBOR in effect on the date of prepayment for new loans made for such term and in a principal amount equal to the amount prepaid. (iii) If the result obtained in (ii) for any month is greater than zero, discount that difference by LIBOR used in (ii) above. Borrower acknowledges that prepayment of such amount may result in Bank incurring additional costs, expenses and/or liabilities, and that it is difficult to ascertain the full extent of such costs, expenses and/or liabilities. Borrower, therefore, agrees to pay the above-described prepayment fee and agrees that said amount represents a reasonable estimate of the prepayment costs, expenses and/or liabilities of Bank. If Borrower fails to pay any prepayment fee when due, the amount of such prepayment fee shall thereafter bear interest until paid at a rate per annum four percent (4.0%) above the Prime Rate in effect from time to time (computed on the basis of a 360-day year, actual days elapsed). Each change in the rate of interest on any such past due prepayment fee shall become effective on the date each Prime Rate change is announced within Bank. EVENTS OF DEFAULT: This Note is made pursuant to and is subject to the terms and conditions of that certain Credit Agreement between Borrower and Bank dated of even date herewith as amended from time to time (the "Credit Agreement"). Any default in the payment or performance of any obligation under this Note, or any defined event of default under the Credit Agreement, shall constitute an "Event of Default" under this Note. MISCELLANEOUS: (a) Remedies. Upon the occurrence of any Event of Default, the holder of this Note, at the holder's option, may declare all sums of principal and interest outstanding hereunder to be immediately due and payable without presentment, demand, notice of nonperformance, notice of protest, protest or notice of dishonor, all of which are expressly waived by each Borrower, and the obligation, if any, of the holder to extend any further credit hereunder shall immediately cease and terminate. (b) Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of Arizona. IN WITNESS WHEREOF, the undersigned has executed this Note as of the date first written above. CERPROBE CORPORATION, a Delaware corporation -6- By: Name: Its: -7- EX-11 5 COMPUTATION OF NET INCOME (100) PER SHARE
Year Ended December 31, 1996 1995 1994 ----------- ---------- ---------- Net income $(1,360,790) $2,402,247 $1,212,823 =========== ========== ========== Weighted average shares Common shares outstanding 4,579,598 3,874,459 3,009,778 Common equivalent shares representing shares issuable upon exercise of stock options 196,774 377,442 ----------- ---------- ---------- Total weighted average shares - primary 4,579,598 4,071,233 3,387,220 Incremental common equivalent shares (calculated using the higher of end of period or average market value) 790,904 619,581 ----------- ---------- ---------- Total weighted average shares - fully diluted 4,862,137 4,006,801 =========== ========== ========== Primary net income per common and common equivalent share $ (0.30) $ 0.59 $ 0.36 =========== ========== ========== Fully diluted net income per common and common equivalent share $ 0.49 $ 0.30 =========== ========== ==========
EX-21 6 LIST OF SUBSIDIARIES EXHIBIT 21 List of Subsidiaries Subsidiaries of Cerprobe Corporation: CompuRoute, Inc. Silicon Valley & Test Repair, Inc. Cerprobe Europe Limited Cerprobe Asia Holdings PTE LTD. Subsidiaries of Cerprobe Asia Holdings PTE LTD.: Cerprobe Asia PTE LTD* Subsidiaries of Cerprobe Asia PTE LTD.: Cerprobe Singapore PTE LTD. Cerprobe Taiwan Co. LTD. *70% owned by Cerprobe Corporation EX-23 7 INDEPENDENT AUDITORS' CONSENT CONSENT OF INDEPENDENT AUDITORS The Board of Directors Cerprobe Corporation We consent to incorporation by reference in the registration statements (No. 33-8348, No. 33-65200 and No. 333-03015) filed on Form S-8 of Cerprobe Corporation of our report dated February 14, 1997 except as a paragraph 4 of note 20 which is as of February 28, 1997, relating to the consolidated balance sheets of Cerprobe Corporation and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1996, which report appears in the December 31, 1996 annual report on Form 10-KSB of Cerprobe Corporation. KPMG PEAT MARWICK LLP Phoenix, Arizona March 27, 1997 EX-27 8 FDS --
5 1 U.S. DOLLARS 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 1 5,564,557 0 5,787,203 223,000 3,862,753 16,035,089 16,158,535 4,712,244 31,410,784 6,132,119 0 0 16 301,386 0 31,410,784 37,308,199 37,308,199 20,343,516 16,211,984 0 12,000 221,248 1,340,210 2,701,000 0 0 0 0 (1,360,790) (.30) (.30)
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