-----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, TCAApx4tnPsheNVQXnAsUuoa06FyPdlq0jSo6e3wVA4u+xLo5VPXYLFvCZ+4WZ5V TQzRU6wBFpFVo/I1mZKW2Q== 0000950153-00-000441.txt : 20000331 0000950153-00-000441.hdr.sgml : 20000331 ACCESSION NUMBER: 0000950153-00-000441 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 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: 10-K405 SEC ACT: SEC FILE NUMBER: 000-11370 FILM NUMBER: 586428 BUSINESS ADDRESS: STREET 1: 1150 NORTH FIESTA BLVD CITY: GILBERT STATE: AZ ZIP: 85233-2237 BUSINESS PHONE: 4803331500 MAIL ADDRESS: STREET 1: 600 S ROCKFORD DR CITY: TEMPE STATE: AZ ZIP: 85281 10-K405 1 10-K405 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 COMMISSION FILE NUMBER 0-11370 CERPROBE CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 86-0312814 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 1150 NORTH FIESTA BOULEVARD, GILBERT, 85233 ARIZONA (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(480) 333-1500 (ISSUER TELEPHONE NUMBER, INCLUDING AREA CODE) SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE (TITLE OF CLASS) SECURITIES REGISTERED UNDER SECTION 12(g) OF THE ACT: COMMON STOCK, PAR VALUE $.05 PER SHARE PREFERRED SHARE PURCHASE RIGHTS (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-K or any amendment to this Form 10-K. [X] As of March 27, 2000, 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(R), was $125,824,547. 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 27, 2000, there were 9,423,052 shares of the registrant's common stock outstanding. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 CERPROBE CORPORATION ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999 TABLE OF CONTENTS PART I
PAGE ---- Item 1. Business.................................................... 1 Item 2. Properties.................................................. 18 Item 3. Legal Proceedings........................................... 18 Item 4. Submission of Matters to a Vote of Security Holders......... 19 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters......................................... 19 Item 6. Selected Consolidated Financial Data........................ 19 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 21 Item 7A. Quantitative and Qualitative Disclosures About Market Risk........................................................ 29 Item 8. Financial Statements and Supplementary Data................. 29 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................... 29 PART III Item 10. Directors and Executive Officers of the Registrant.......... 30 Item 11. Executive Compensation...................................... 31 Item 12. Security Ownership of Certain Beneficial Owners and Management.................................................. 34 Item 13. Certain Relationships and Related Transactions.............. 36 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K......................................................... 37 Signatures............................................................ 42 Financial Statements.................................................. F-1
i 3 PART I ITEM 1. BUSINESS INTRODUCTION AND GENERAL DEVELOPMENT OF BUSINESS Cerprobe Corporation ("Cerprobe" or the "Company") offers comprehensive solutions for semiconductor test interconnect and is a leading manufacturer of probe cards, automatic test equipment ("ATE") interface assemblies, ATE test boards, and test sockets/contactors. The Company believes it is the only company that designs, manufactures, and assembles each of the electromechanical components that assure the integrity of the electrical test signal that passes from the ATE to the integrated circuit ("IC") device under test ("DUT"). The Company's products address critical functions to assure IC quality, reduce manufacturing costs, improve the accuracy of manufacturing yield data, and identify repairable memory ICs. The Company has grown its business and expanded its product lines through internal product development, strategic acquisitions, joint development/ventures, and licensing of technologies. In 1990, the foundation for the growth of the Company's core probe card business was the development of the Company's CerCard(TM) technology. In April 1995, the Company acquired Fresh Test Technology Corporation ("Fresh Test"), which enabled the Company to expand its product line to include ATE interface assemblies. In December 1996, the Company acquired Cerprobe Interconnect Solutions, Inc. ("CIS"), formerly CompuRoute, Inc., which enabled the Company to offer ATE test boards, the Company's first packaged IC testing product. In May 1997, the Company established a joint development agreement with Japan-based Mitsubishi Materials Corporation. This joint development has resulted in the development of the Company's first next generation probe card based upon the Company's proprietary P4(TM) (Photolithographic Pattern Plated Probe) technology. In September 1998, the Company acquired France-based Cerprobe Europe S.A.S., formerly SemiConducteur Services, S.A., a probe card company, which enabled the Company to further expand in and service the European market. Additionally, in November 1998, the Company signed an agreement with Feinmetall GmbH, a German contact technology company, which provided the Company with an exclusive license to design, manufacture, and distribute Vertical integrated Probe (ViProbe(R)) products worldwide, except Europe. Finally, in December 1999, the Company acquired OZ Technologies, Inc. ("OZ"), which enabled the Company to offer test sockets, test contactors, and test boards used for testing packaged ICs. The Company maintains regional full service facilities in Arizona, California, and Texas as well as sales offices in Colorado, Florida, Massachusetts, and Oregon to serve the U.S. market for its products and services. The Company maintains full service facilities in Scotland and France and a sales office in Germany to serve the European market. The Company also maintains full service facilities in Singapore and Taiwan, as well as sales offices in Japan and Malaysia, to serve the Asian market. Each of the Company's facilities is located in proximity to major semiconductor manufacturing centers. The Company's focus on high quality products and innovative technologies has enabled it to establish strong relationships with leading worldwide semiconductor manufacturers. In 1999, the Company's top five customers were Intel Corporation, Texas Instruments, Motorola Inc., IBM Corporation, and LSI Logic Corporation. The Company believes it is a leading provider of high quality semiconductor testing products and services. The Company's goal is to enhance its leadership position and increase its domestic and international market share. The Company's strategy to achieve its goal includes the following key elements: - Provide comprehensive solutions for semiconductor test integration - Maintain strong customer relationships - Expand global presence - Focus on technological innovation - Provide quality products and services The Company was incorporated in California in 1976 and reincorporated in Delaware in 1987. The Company maintains its principal executive offices at 1150 North Fiesta Boulevard, Gilbert, Arizona 85233 and 1 4 its telephone number is (480) 333-1500. Unless the context indicates otherwise, all references to "Cerprobe" or the "Company" refer to Cerprobe Corporation and its subsidiaries. INDUSTRY OVERVIEW The semiconductor industry is characterized as cyclical, with capacity boom cycles followed by bust cycles that create tremendous pricing pressures. Despite these cycles, the IC market has generally been a high volume, high growth commodity market characterized by rapid technological change. According to independent semiconductor market research, worldwide production of ICs increased from approximately 41 billion units in 1995 to nearly 60 billion units in 1999. Presently the industry is in a recovery period after a severe downturn driven by excess capacity, pricing pressures, and the economic crisis in Asia. Growing demand for ICs has driven the increased demand for semiconductor testing products, such as probe cards, ATE interface assemblies, ATE test boards, and package test sockets/contactors. Because probe cards, test sockets/contactors, and to a lesser extent ATE test boards, are consumable products rather than capital equipment, the historically rapid unit growth of ICs and new IC designs have in particular fueled the demand for probe cards, test sockets/contactors, and ATE test boards. VLSI Research Inc. ("VLSI"), an independent semiconductor market research company, estimates the worldwide market for probe cards in 2000 to be approximately $366 million. The Company estimates that the market for ATE test boards is approximately $300 million. Fleck Research, an independent connector research company, estimates the worldwide market for test sockets/contactors in 2000 to be approximately $600 million. Based upon VLSI and other industry data on projected sales of new material handling equipment (wafer probers/handlers), the Company estimates the market for ATE interface assemblies to be $150 million. In addition to the historically rapid unit growth in ICs, technological advances in ICs have also fueled the increased demand for semiconductor testing products. IC technology is changing rapidly due to constantly increasing demand for greater functionality and higher processing speeds. Advances in IC design and process technologies have enabled manufacturers to meet these demands by producing ICs with shrinking geometries and ever greater circuit densities, higher pin counts, more varied configurations, and increased complexity. The intense competition among semiconductor manufacturers to be first to market with a new IC and gain a competitive edge has caused design and production cycles to continue to shrink. As a result of the increased complexity of ICs and shorter product life cycles, demand for sophisticated test interconnect products that can be produced in short lead times has increased. These trends in the IC market have caused corresponding trends in the probe card, ATE interface assembly, ATE test board, and test sockets/contactors markets. IC manufacturers are placing added emphasis on greater test accuracy, testing at higher speeds, testing multiple ICs simultaneously, and quicker turnaround times for testing products. As IC technology has become increasingly sophisticated and complex, it has become more difficult for IC manufacturers to maintain the necessary technology, expertise, personnel, and equipment to design and produce internally all of the various components required to carry the electrical signal between the ATE tester and the DUT. The Company believes competitive market conditions have led manufacturers to rely increasingly on outsourcing to reduce their own investment in the personnel, equipment, and facilities necessary for the specialized design and manufacturing of testing products in order to concentrate on the design, production, and distribution of their core IC products. INTEGRATED CIRCUIT TESTING Semiconductor manufacturers test ICs during the design and manufacturing processes to assure IC quality, reduce manufacturing costs, improve the accuracy of manufacturing yield data, and identify repairable memory ICs. 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. The increased cost associated with manufacturing ICs has increased the importance of IC testing in the manufacturing process. 2 5 Wafer Probing Most semiconductor manufacturers test ICs in wafer form by probing each individual IC to determine whether it meets design specifications. Probing involves establishing temporary electrical contact between the ATE and the DUT. The ATE transmits electrical signals to the ICs and analyzes the signals upon their return. The testing of ICs in wafer form is important to avoid incurring the significant expense of assembling and packaging ICs that do not meet specifications. The principal components of a wafer probing system include: - The ATE, which is capital equipment that transmits the electrical signals to the IC and evaluates the signals upon their return - The ATE test board, a complex, multilayer printed circuit board ("PCB") that is mounted directly to the ATE and transfers the test signals between the ATE and the spring contact tower of the ATE interface assembly - An ATE interface assembly, typically consisting of a spring contact tower, lock ring, and insert ring, that mechanically connects the ATE with the wafer prober and carries the electrical signals between the ATE and the probe card attached to the wafer prober - A probe card, which consists of a complex, multilayer PCB and numerous probes positioned to "touch down" on or make electrical contact with metallized test pads on the IC - A wafer prober, which is capital equipment that moves the wafers into position enabling the probe card probes to touch down on the test pads During the probing process, the wafer prober successively positions each IC on a wafer so that the pads on the IC align and make contact with the probes on a probe card. The ATE transmits electrical signals through the ATE interface assembly to the probe card. The ATE evaluates the return signals from the probe card to determine whether each IC meets design specifications. Depending on the complexity of the DUT, the testing of a single IC, during wafer probe, can last from a few milliseconds to over a minute. Package (Final) 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 or solder bumps. The packaged IC must then be tested to validate design and performance specifications. Package testing establishes temporary electrical contact between the ATE and the DUT. The ATE transmits electrical signals to the ICs and analyzes the signals upon their return. The testing of packaged ICs is important to avoid shipping ICs that have incurred assembly and handling defects or do not meet the performance requirements of the application. The principal components of a package IC test system include: - The ATE, which is capital equipment that transmits the electrical signals to the IC and evaluates the signals upon their return - The ATE test board, a PCB that is mounted directly to the ATE and transfers the test signals between the ATE and the test socket/contactor - A test socket/contactor, which consists of numerous micro spring contacts positioned to touch down or make electrical contact with the test pads on the packaged IC - A handler, which is capital equipment that successively positions each IC into a test socket/contactor enabling the temporary electrical connection 3 6 THE COMPANY'S STRATEGY The Company believes it is a leading provider of high quality semiconductor testing products and services. The Company's goal is to enhance its leadership position and increase its domestic and international market share. The Company's strategy to achieve its goal includes the following key elements: - Provide Comprehensive Solutions for Semiconductor Test Integration. The Company is focused on providing its worldwide customers with comprehensive solutions for semiconductor test integration, consisting of each of the electromechanical components necessary to assure the integrity of the electrical test signal. Historically, each component of the testing system has been supplied by different vendors. The Company believes IC manufacturers increasingly are seeking a single source provider capable of supplying comprehensive and integrated solutions for the components necessary to assure a clean test signal. The Company believes it is the only company that designs, manufactures, and assembles each of the components in the critical test signal path. The Company intends to capitalize on its market position and technical expertise by broadening existing product lines through internally developed products and as appropriate through acquisitions, joint ventures, and technology financing agreements. - Maintain Strong Customer Relationships. The Company intends to continue to maintain its long standing relationships with its broad customer base, which includes leading semiconductor manufacturers such as Intel Corporation, Texas Instruments, Motorola Inc., IBM Corporation, and LSI Logic Corporation, as well as with emerging companies. Engineering, sales, and management personnel collaborate closely with customer counterparts to determine customer needs and specifications and custom design specific testing solutions. The Company has accumulated substantial design expertise through these collaborations and believes this expertise, along with its in-house staff of 155 engineers and designers, provides it with a competitive advantage in meeting customer requirements for increasingly sophisticated testing products. 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 United States, Europe, and Asia. - Expand Global Presence. The Company believes that the international market for its products is at least as large as the domestic market. The Company intends to continue its expansion into international markets, including Europe and Asia. To date, the Company's international expansion includes the establishment of full service facilities in Scotland, France, Singapore, and Taiwan and sales and service facilities in Japan and Malaysia. In the Company's international operations, it employs managers native to those markets to minimize language and cultural barriers and provide market-specific technical and operational insight. - Focus on Technological Innovation. The Company custom designs or customizes its products to manufacturers' particular IC design specifications. Changes in the IC design require changes in the probe card and test socket/contractor, and depending on the design change, in the ATE test board. Consequently, the Company continually develops new designs and product enhancements. The Company collaborates with IC manufacturers and semiconductor equipment manufacturers to anticipate and address technological advances in semiconductor testing and to improve performance of its products. The Company is focusing its engineering and new product development efforts toward producing a variety of high performance custom designed products to test more complex ICs, to test at higher speeds, and to test more ICs in parallel. - 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. The Company's use of advanced metrology tools, which ensure precise measurement of all key product parameters, is a cornerstone of its quality management system. The Company believes that its design capabilities, customer focus, and production methods enhance its ability to provide its customers with high quality products and services with quick turnaround times. 4 7 PRODUCTS AND SERVICES Historically, each component of the IC testing system has been supplied by different vendors. As a result, IC manufacturers frequently have been left with the task of combining separate components from many small vendors into a single integrated testing system. The Company believes IC manufacturers increasingly are seeking a single source provider capable of supplying comprehensive solutions for the components necessary to assure a clean test signal between the testing equipment and the DUT. Through its manufacture of probe cards, ATE interface assemblies, ATE test boards, and test sockets/contactors, the Company is able to be a single source provider for its customers. Probe Card Products The Company believes it is the leading U.S. producer of probe cards, which constitute the majority of the Company's business. Probe cards accounted for 65%, 72%, and 73% of net sales in 1999, 1998, and 1997, respectively. Probe card sales will continue to grow. However, as a result of the OZ acquisition in December 1999 and related new product and service offerings, the Company's probe card sales likely will become a smaller percentage of net sales in the future. The probe card consists of a complex, multilayer (some in excess of 30 layers) PCB and utilizes a number of probes designed to contact (or "probe") separately a series of electrical contact points (or "pads") on the IC in wafer form. At the point of contact with the wafer, each probe is significantly smaller than a human hair. The majority of the Company's probe cards have fewer than 200 probes, although the Company's complex probe cards can have more than 3,000 probes. Because the type and complexity of ICs vary, the number and positioning of the probes and the size of each probe card must be custom designed for the specific IC being tested to ensure proper alignment. The testing of a single IC during wafer probe can last from a few milliseconds to over a minute, depending on the complexity of the semiconductor device. Unlike the capital equipment used in the semiconductor manufacturing process, probe cards are considered consumable products. The Company believes the average life of a probe card is approximately three months, which provides for 250,000 to 500,000 touchdowns with each touchdown generally representing the testing of a single IC. However, probe cards for application specific integrated circuits ("ASICs") might be used to test a single batch order of 5,000 ICs and then is discarded. The Company estimates that about one-third of its probe cards become obsolete within six months of being placed into service, primarily as a result of customer initiated design changes. However, damage due to faulty test handling equipment or operator error can render a probe card useless prior to the expiration of its normal life. The Company has invested over 20 years in the design of different types of probe card components and the manufacturing processes required to assemble a finished probe card. Because the signals carried by the probe card are complex and vary by customer, the Company manufactures many types of probe cards. The Company's probe card products utilize four technologies: Epoxy ring technology uses probes that connect directly to a printed circuit board. Probe cards using this type of technology are capable of high frequency, high density probing. The Company introduced its first ceramic based epoxy ring probe card, the CerCard(TM), in October 1990. Sales of ceramic based epoxy ring probe cards generated approximately 58%, 63%, and 61% of the Company's net sales for 1999, 1998, and 1997, respectively. The Company anticipates that these cards will continue to account for a decreasing percentage of its net sales. Ceramic blade technology uses a ceramic blade attached to a needle designed to make contact with the IC pads. Probe cards using ceramic blade technology, which was developed and patented by the Company, are capable of low current and low density probing. With optional features, the ceramic blade can be used for high frequency probing. Vertical (buckling beam) probe technology uses vertical probes that match the pattern of the pads on the IC being tested. This technology allows for the probing of pads in the center of an IC (area array) and is used 5 8 generally for high density applications. In November 1998, the Company licensed the ViProbe(R) (Vertical integrated Probe) products from Feinmetall GmbH, a German contact technology company. The ViProbe(R) products address customers' current requirements of probing area array and also testing multiple ICs simultaneously, meeting the needs of memory manufacturers. Photolithographic technology is a chemical plating process that uses photo masks to pattern unique flex circuit contact sets used on probe cards. The flex circuit contact sets are attached to probe cards using mechanical leaf springs. The Company has patented its P4(TM) (Photolithographic Pattern Plated Probe) technology for use in several probe card applications. The first application is for probe cards that are capable of fine pitch, ultra high frequency, and high accuracy probe tip placement on the decreasing size of IC test pads. Another application using P4(TM) is a vertical contact product using a C-shaped probe. Its vertical contact set, when fully developed, is expected to enable probing of ultra fine pitches and testing of multiple ICs simultaneously, which is a requirement for the memory market. The Company is jointly developing P4(TM)-based probe cards with Mitsubishi Materials Corporation. The Company's probe cards generally range in price from $500 to over $65,000, depending upon the complexity and performance specifications of the probe cards. ATE Interface Assemblies The Company entered the ATE interface business through the acquisition, in April 1995, of Fresh Test, a company engaged primarily in the design, manufacture, and sale of ATE interface products. An ATE interface assembly securely connects the ATE to the wafer prober or handler and is used to carry signals from the ATE to the DUT. An interface assembly typically consists of custom mechanical docking hardware such as a lock ring and insert ring, as well as two intricate multilayer PCBs connected by either a system of cables or, increasingly, spring-loaded contact pins. Interface assemblies 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 either a probe card fixture mounted on a prober or a test socket mounted to a handler for packaged IC testing. In each case, the reliability of the test is highly dependent on maintaining the integrity of the signal between the ATE and the IC being tested. Generally, each ATE interface assembly is custom designed or customized for each application. The Company's ATE interface product line transmits a clean electrical test signal from the ATE to the probe card or test socket and carries a return signal back to the ATE after the circuit processes the signal. The Company's ATE 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 increasing the accuracy of the test data. Because the Company's ATE interface assemblies enable the ATE to provide reliable yield data by allowing for clear signal transmission, its interfaces can also be cost saving devices. The Company's interface assemblies feature ease of mechanical installation and facilitate access to the probe card or test socket during testing. The ATE and related wafer prober and handler typically have useful lives of five to seven years. While the Company's ATE interface assemblies have a similar useful life, any upgrade of the ATE or reconfiguration of the prober or handler used with a specific ATE requires a new ATE interface assembly. As a result, the Company believes its ATE interface products have an average life of two to three years. The Company's ATE interface assemblies generally range in price from $5,000 to over $65,000. ATE Test Boards Through the acquisition of CIS in December 1996, the Company expanded its product offerings to include custom-designed ATE test boards. The CIS acquisition also enabled the Company to internalize the fabrication of specialized ATE PCBs, which are a critical component in its probe card, ATE interface assembly products, and test socket/contactor integrated units, rather than rely exclusively on third party PCB manufacturers. 6 9 ATE test board products are also referred to as prober interface boards, DUT boards, load boards, handler interface boards, or performance boards, depending on whether the ATE test board is used for wafer probing or package testing. The Company has developed a database for different ATE designs, which are used as starting designs and customized for the particular IC to be tested. The ATE test board is a complex, multilayer (some in excess of 40 layers) PCB that is mounted to the ATE and transfers the test signals between the ATE and the ATE interface assembly of a wafer prober or handler. The Company believes its ATE test boards have an average life of one year although their useful life could be much longer. The Company's ATE test board products range in price from $2,000 to over $30,000. Test Sockets/Contactors Through the acquisition of OZ Technologies, Inc. in December 1999, the Company expanded its product offerings to include custom-designed test sockets/contactors. The OZ acquisition enabled the Company to become a leading provider of test sockets/contactors for the high performance package test market. The test sockets/contactors provide the contact points between the packaged IC and the test interface board. Test sockets/contactors must accommodate repeated actuations (package insertions and removals) while maintaining strict mechanical and electrical operating tolerances. The Company specializes in high performance test sockets/contactors for Ball Grid Array ("BGA") and Chip Scale Packages ("CSP"). The testing of a packaged IC can last from a few milliseconds to over a minute, depending on the complexity of the semiconductor device. Like probe cards, test sockets/contactors are considered consumable products. The Company believes the average life of test sockets/contactors is approximately one month, which provides for 50,000 to 100,000 touchdowns with each touchdown generally representing the testing of a single packaged IC. However, damage due to faulty test handling equipment or operator error can render test sockets/contactors useless prior to the expiration of its normal life. The Company's test sockets/contactors products range in price from $2,000 to over $6,000. ENGINEERING AND PRODUCT DEVELOPMENT The customized nature of the Company's products results in ongoing engineering and product development being included in the cost of goods sold for the Company's products. In addition, the Company has devoted and will continue to devote substantial resources to materials, process engineering, and product development. Engineering and product development expenses were $4,806,971, $3,101,082, and $996,253 for the years ended December 31, 1999, 1998, and 1997, respectively, which represented 7.7%, 4.1%, and 1.4% of net sales, respectively. At December 31, 1999, the Company employed 155 engineers and designers. The Company has from time to time collaborated with certain customers that pay the Company to develop new products. Funds received from such engineering and product development are accounted for as offsets to the total expenses for the related project. In 1997, the Company entered into a joint development agreement with Mitsubishi Materials Corporation to accelerate the development of the Company's next generation probe card, which will utilize the Company's proprietary P4(TM) technology to address increasing demand for tighter pitches and the higher performance requirements for wafer probing. In 1998, the Company expanded the agreement with Mitsubishi Materials Corporation to apply P4(TM) technology to develop vertical probe cards to address customers' increasing interest in testing more ICs in parallel. The agreement provided that each party will own any patents and know-how resulting from the efforts of both parties will be owned jointly. Under the joint development and related agreements, the Company transferred to Mitsubishi Materials Corporation and a Japanese electronics distribution company the exclusive right to design, manufacture, and distribute P4(TM)-based probe cards in Japan. In November 1998, the Company signed a 10-year agreement with Feinmetall GmbH, a German contact technology company. This agreement gives the Company the exclusive license to design, manufacture, and distribute Vertical integrated Probe (ViProbe(R)) products worldwide, except Europe. The technology was 7 10 transferred to the Company's Gilbert facility in the fourth quarter of 1999. The Company and Feinmetall intend to jointly enhance and extend the ViProbe(R) family of products. In June 1998, the Company introduced the StingRay(TM) flexible interface. This unique product enabled customers to more rapidly and more easily reconfigure their interface system for a new test set-up or tester/ prober test combination using the same interface assembly with interchangeable spring contact towers and probe card trays. To address the final package test requirements of increased pin counts and increasing operating frequencies, CIS has furthered its technological advancements in microvia drilling capabilities, mixed dielectric board materials, and ever increasing board layer count. Microvia technology is the ability to drill holes smaller than 8 mils in diameter. These holes are needed in high density DUT boards to test advanced IC package types such as BGA and CSP. CIS has developed seven different levels of board material offerings, including several proprietary mixed dielectric materials to provide the customers with solutions targeted specifically for their high performance test applications. Through leading edge manufacturing processes, CIS is able to reliably produce printed circuit test boards in excess of 40 layers. In December 1999, the Company acquired OZ Technologies, Inc., a leader in the design and manufacture of high performance test sockets/contactors. OZ also has under development products for next generation testing requirements. These products are addressing thermal management issues, the ability to test more ICs in parallel (strip testing), as well as providing validation platforms that test IC devices in the end system environment at much lower costs than today's technology. MANUFACTURING The Company's manufacturing objective is to produce quality products that meet its customers' testing needs and design specifications on a timely and cost efficient basis. The Company's manufacturing operations consist of procurement and/or fabrication of components and subassemblies, assembly, and extensive testing of finished products. All components and subassemblies are inspected for mechanical and electrical compliance to the Company's specifications and all finished products are tested against the Company's and customers' specifications. The Company believes that it is able to respond more quickly and accurately to its customers' needs by maintaining manufacturing facilities and technical support in geographic markets where its semiconductor manufacturing customers are located. The Company designs and manufactures its probe cards in Arizona, California, and Texas as well as in Scotland, France, Singapore, and Taiwan. The Company typically designs and manufactures its probe cards within two weeks of receiving a customer order. The Company manufactures its interface assemblies in its Arizona facility. The Company typically designs and manufactures its ATE interface assemblies within eight weeks of receiving an order. The Company conducts its ATE test board and related PCB fabrication and assembly operations at its Dallas, Texas facility. The Company typically designs and fabricates its ATE test boards within four weeks of receiving an order. The Company designs and manufactures its test sockets/contactors in its Hayward, California facility and typically supplies the product within five weeks of receiving a customer order. The Company emphasizes quality and reliability in both the design and manufacture of its products. ISO 9000, the internationally recognized standard for quality management, sets the criteria for the Company's quality management system throughout its manufacturing processes. The Company's Scotland facility is ISO 9001 certified. The Company's use of advanced metrology tools, which ensure precise measurement of all key product parameters, is a cornerstone of its quality management system. The accuracy of measurements becomes increasingly important with the advancements in technology driving smaller IC geometeries. The Company's Quality and Engineering Departments work together to define measurement needs and develop tools that can achieve desired results. The Company relies on third party suppliers in the production and shipment of its products. Although the Company believes that all raw materials, component parts, and services are currently available in adequate amounts, shortages may develop in the future. Certain raw materials and component parts for the Company's 8 11 products are purchased from a single supplier or a limited group of suppliers. The Company does not have long-term written agreements with any suppliers. Although the Company believes there are alternative suppliers for all such raw materials, component parts, and services, termination or a significant disruption of any of its existing supplier arrangements could have an adverse effect on the Company's business, financial condition, and operating results. CUSTOMERS An integral part of the Company's strategy is to continue to maintain its long standing customer relationships. All of the Company's top 10 customers in 1999 were repeat customers. The top 10 customers fluctuate from year to year depending on the growth cycles of the individual customers. These semiconductor manufacturers provide the Company with a diversified customer base whose products serve the communications, computer, consumers, automotive, military, and aerospace industries. In addition to serving high volume established manufacturers, the Company's products also are designed to meet the needs of emerging and leading edge technology firms such as those offering ASICs and Gallium Arsenide ICs. During 1999, two customers comprised more than 10% of the Company's business, Intel Corporation and Texas Instruments. Intel accounted for 14%, 17%, and 17% of net sales for the years ended December 31, 1999, 1998, and 1997, respectively, and Texas Instruments accounted for 13%, 12%, and 10% of net sales for the years ended December 31, 1999, 1998, and 1997, respectively. The Company's top 10 customers in 1999, which together accounted for approximately 67% of net sales, were as follows: Credence Systems Corporation IBM Corporation Intel Corporation LSI Logic Corporation Motorola, Inc. National Semiconductor Corporation Phillips Semiconductor STMicroelectronics Teradyne, Inc. Texas Instruments MARKETING, SALES, AND SERVICES The Company's customers place a high value on service. Technical features and product quality also are attributes expected by the Company'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. Engineering, sales, and management personnel collaborate closely with customer counterparts to determine their needs and product specifications. Additionally, in order to meet the demanding service needs of its customers, all of the Company's facilities are located in proximity to manufacturing centers worldwide. The Company intends to leverage its worldwide sales facilities to market and distribute all of the Company's products. The Company markets its products in North America through direct technical sales personnel. To meet the demanding service requirements of its customers, the Company has five regional manufacturing, repair, and sales centers in Arizona, California, and Texas. In addition to its regional full service facilities and to facilitate rapid response, the Company serves its domestic customers through sales offices strategically located to major market centers and key customers. The Company maintains sales offices in Colorado, Florida, Massachusetts, and Oregon. The Company's international business represented approximately 23%, 18%, and 18% of net sales for 1999, 1998, and 1997, respectively. The Company believes the potential exists to increase sales in international markets and the Company has positioned itself to initiate a more aggressive marketing and sales program in these markets in the future. In particular, the Company has expanded its sales efforts throughout Europe through its full service facility in Scotland and a new sales office in Germany. Additionally, in September 1998, the Company acquired France-based SemiConducteur Services, S.A. (renamed Cerprobe Europe S.A.S.) to further support its European probe card customers. The Company established full service manufacturing and repair facilities in Singapore and Taiwan in April 1996 and January 1997, respectively, to 9 12 penetrate the growing markets for the Company's products in Southeast Asia. In addition, the Company established a sales office in July of 1999 in Japan and obtained a sales office in Malaysia in December 1999 through the acquisition of OZ Technologies, Inc. The Company augments its direct sales force with a network of independent distributors in Asia. COMPETITION The semiconductor testing products industry is highly competitive. The Company faces substantial competition in each of the probe card, interface assembly, ATE test board, and test sockets/contactors markets. In addition, the Company anticipates that it may face substantial competition in the future from new entrants in the Company's markets. The principal competitive factors in the industry are product performance, service, delivery time, and price. Competition in international markets is also significant, particularly in Asia where the Company is expanding into new geographic markets. Some of the Company's competitors, particularly in Asia, have substantially greater financial, engineering, or manufacturing resources than the Company and larger sales and service organizations. To compete successfully, the Company must make substantial investments in its engineering and product development, marketing, and customer service and support activities. Competition in the Company's markets may intensify and the Company's technological advantages may be reduced or lost as a result of technological advances by competitors or customers. BACKLOG As of December 31, 1999, the Company had a backlog of orders of approximately $9.1 million. These orders are believed to be firm and all are expected to be filled during fiscal 2000. The Company's business has not been seasonal to date. Because of possible changes in delivery schedules and cancellations of orders, the Company's backlog at any particular date is not necessarily indicative of future sales. ENVIRONMENTAL REGULATIONS The Company is subject to federal, state, and local provisions regulating the discharge of materials into the environment. The Company has made certain leasehold improvements in order to comply with Environmental Protection Agency and local regulations. Proper waste disposal is a major consideration for PCB and flex circuit manufacturers because metals and chemicals are used in the manufacturing process. Water used in the PCB and flex circuit manufacturing process must be treated to remove metal particles and other contaminants before it can be discharged into the municipal sanitary sewer system. The Company operates and maintains wastewater treatment systems and effluent testing facilities at its PCB manufacturing plant in Dallas, Texas and flex circuit manufacturing plant in Gilbert, Arizona. The Company's PCB and flex circuit manufacturing plants operate under effluent discharge permits issued by the appropriate governmental authorities. These permits must be renewed periodically and are subject to revocation in the event of violations of environmental laws. The Company believes that the waste treatment equipment in both its PCB and flex circuit manufacturing facilities are currently in compliance with environmental protection requirements in all material respects. However, there can be no assurance that violations will not occur in the future as a result of human error, equipment failure, or other causes. The Company is also subject to environmental laws relating to the storage, use, and disposal of chemicals, solid waste, and other hazardous materials as well as air quality regulations. Furthermore, environmental laws could become more stringent over time and the costs of compliance with more stringent laws could be substantial. Although the Company believes that it is in full compliance with all regulations, the Company is unable to predict what effect, if any, the adoption of more stringent regulations would have on its future operations. The Company does not anticipate incurring any future material expenditures to remain in substantial compliance with presently applicable environmental regulations. INTELLECTUAL PROPERTY While the Company considers intellectual property rights, patents, and licenses to be important, the Company does not consider any single patent to be material to the conduct of its business. The Company relies 10 13 primarily on trade secret protection for its proprietary information rather than patents to avoid publicly disclosing its technology in a patent application. The Company 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. EMPLOYEES As of December 31, 1999, the Company had 787 employees, consisting of 155 in engineering and product development, 469 in manufacturing, 62 in sales and marketing, and 101 in administration. There are no collective bargaining agreements and the Company considers its relations with its employees to be good. EXECUTIVE OFFICERS The following table sets forth certain information regarding the Company's executive officers.
NAME AGE POSITION - ---- --- -------- C. Zane Close........................ 50 President, Chief Executive Officer, and Director Daniel J. Hill....................... 51 Executive Vice President and Chief Operating Officer Michael K. Bonham.................... 61 Senior Vice President, Sales and Marketing Randal L. Buness..................... 43 Senior Vice President, Chief Financial Officer, Secretary, and Treasurer Kevin M. Kurtz....................... 38 Vice President, Operations Henry P. Scutoski.................... 54 Vice President, Quality and Process Management
C. Zane Close has served as President and Chief Executive Officer and as a director of the Company since July 1990. From September 1989 to July 1990, Mr. Close served as Vice President and General Manager of Probe Technology Corporation ("Probe Technology"), a manufacturer of probing devices for testing integrated circuits. Mr. Close served as Vice President of Operations of Probe Technology from February 1985 to September 1989. Prior to joining Probe Technology, Mr. Close held various financial and management positions at California Devices, NKB Corporation, and National Semiconductor Corporation. Daniel J. Hill has served as Executive Vice President and Chief Operating Officer since December 1999. From December 1998 to November 1999, Mr. Hill served as Executive Director, Semiconductor Industry Sector of PricewaterhouseCoopers, a professional services organization and consulting firm. Mr. Hill served as Chief Executive Officer of D.J. Hill & Associates, Inc., a consulting business from August 1997 to November 1998. From January 1995 to July 1997, Mr. Hill served as Founder and Chief Executive Officer of InterConnect Technology, a start-up silicon wafer foundry in Malaysia. Mr. Hill served as President and Chief Executive Officer of Micro Component Technology, Inc., a publicly held semiconductor test handling equipment company, from December 1991 to January 1995. From May 1980 to December 1991, Mr. Hill served in various management positions for National Semiconductor Corporation. Michael K. Bonham has served as Senior Vice President, Sales and Marketing of the Company since June 1996. Mr. Bonham served as Vice President of Sales and Marketing of the Company 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. Randal L. Buness has served as Senior Vice President since January 1999, and served as Vice President from June 1996 to January 1999. He has also served as Chief Financial Officer, Secretary, and Treasurer of the Company 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 manufacturer of liquid crystal displays. Mr. Buness served as Chief Financial Officer, Secretary, and Treasurer of United Medical Network, a developer of video conferencing networks for healthcare providers, from January 1993 to September 1994. From January 1989 to January 1993, Mr. Buness worked as an independent financial consultant. Mr. Buness served as principal and manager with Arthur Young from 11 14 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. Kevin M. Kurtz has served as Vice President, Operations of the Company since February 1999. From May 1997 to January 1999, Mr. Kurtz served as President of SVTR, Inc., a wholly owned wafer prober refurbishing subsidiary of the Company. From January 1996 to April 1997, Mr. Kurtz served as Vice President of Manufacturing of the Company. Mr. Kurtz served as Regional Sales Manager, then as General Manager of the Company's San Jose facility from December 1990 to December 1995. From September 1985 to November 1990, Mr. Kurtz held various sales and sales management positions with Probe Technology, a manufacturer of probing devices for testing of integrated circuits. Henry P. Scutoski has served as Vice President, Quality & Process Management since August 1999. Mr. Scutoski served as Vice President of Quality from April 1995 to August 1999 and Director of Quality from March 1994 to April 1995. From February 1991 to March 1994, Mr. Scutoski was an independent quality management consultant. From January 1985 to February 1991 Mr. Scutoski was a Quality Assurance Manager for Motorola's Government Electronics Group. SPECIAL CONSIDERATIONS The following risk factors should be considered carefully in addition to the other information in this Report in evaluating the Company and its business. Except for the historical information contained herein, the discussion in this Report contains certain forward-looking statements that involve risks and uncertainties. When used in this Report, the words "believes," "expects," "anticipates," "intends," "estimates," "should," "will likely," and similar expressions are intended to identify such forward-looking statements. The cautionary statements made in this Report should be read as being applicable to all related forward-looking statements wherever they appear in this Report. The Company's actual results could differ materially from those discussed here. Important factors that could cause or contribute to such differences include those discussed below, as well as those discussed elsewhere herein. THE COMPANY'S QUARTERLY OPERATING RESULTS MAY VARY SIGNIFICANTLY FROM PERIOD TO PERIOD, WHICH COULD NEGATIVELY IMPACT ITS FINANCIAL CONDITION AND ITS STOCK PRICE. The Company's quarterly and annual operating results may be affected by a wide variety of factors that could adversely impact net sales and profitability, many of which are beyond its control, including factors pertaining to: - Customer demand for the Company's products related to the cyclical nature of the semiconductor industry, market acceptance of the Company's products, changes in product mix, the level of orders that are received and can be delivered in a quarter, and customer order patterns; - Competition, including competitive pressures on delivery time, product performance and reliability, prices, the introduction or announcement of new products by competitors, and intellectual property rights of the Company's competitors that could prevent the Company from introducing products that effectively compete with theirs; - The Company's ability to introduce new product designs and innovations on a timely basis in response to market requirements; - The availability and cost of raw materials, equipment and other supplies, fluctuations in manufacturing yields, and the availability of production capacity; - The Company's ability to hire and retain technical personnel and management employees; and - Generally prevailing economic conditions in the U.S. and worldwide markets served by the Company. The market price of the Company's Common Stock could be adversely affected by fluctuations in the Company's operating results. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in Item 7 of this Report and "Business" contained in Item 1 of this Report. 12 15 THE SEMICONDUCTOR INDUSTRY IS HIGHLY CYCLICAL AND DEMAND FOR THE COMPANY'S PRODUCTS MAY DECLINE. The Company's business depends substantially on both the volume of IC production by semiconductor manufacturers as well as new IC and IC package designs. These factors in turn depend on the demand for ICs and products utilizing ICs. The semiconductor industry is highly cyclical and historically has experienced periods of oversupply. During these periods of oversupply, the demand for IC testing products, including the products manufactured by the Company, has been reduced. Demand for ICs or products utilizing ICs may decline. Moreover, demand for the Company's products may not continue at the current level. The Company anticipates that a significant portion of new orders for its products will depend upon demand from IC manufacturers building or expanding IC fabrication facilities or shifting production to new IC designs. IC manufactures may not increase production capacity or shift production to new IC designs, in which case demand for the Company's products may slow or decline. In addition, future downturns or slowdowns in the IC market may have an adverse effect on the Company's business, financial condition, and operating results. Moreover, the Company's need to invest in engineering and product development, marketing, and customer service and support capabilities may limit its ability to reduce expenses in response to such downturns or slowdowns. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in Item 7 of this Report and "Business" contained in Item 1 of this Report. THE COMPANY IS CONTINUING TO SUBSTANTIALLY EXPAND ITS BUSINESS AND OPERATIONS, AND IT MUST EFFECTIVELY MANAGE AND SUPPORT THIS EXPANSION. The Company intends to expand, in part, through strategic acquisitions, joint development/ventures, and licensing of technologies, and by entering into new geographic and product markets. The Company's ability to expand through acquisitions will depend primarily on its ability to identify, acquire, and operate other businesses that complement the Company's existing business. The Company may not be able to identify or consummate any suitable acquisitions. In addition, the operations and product offerings of any businesses that are acquired may not be successfully integrated into the Company's operations and product offerings. The Company anticipates that it will use cash, debt, and/or securities, including the Company's Common Stock, as the primary consideration for any future acquisitions. Operating results could fluctuate substantially due to the size, timing, and integration of any future acquisitions. The Company faces similar risks and uncertainties with respect to joint ventures. The Company has no specific agreements or plans with respect to any acquisitions or joint ventures. The Company believes that its future success will depend, in part, on its ability to expand into new international markets, particularly Asia, and new product markets. The Company believes that its Asian competitors have a competitive advantage because of their dominance of the Asian market. As a result, the Company may not be able to establish a significant presence in these international markets. In addition, it is uncertain whether the Company will be able to gain market acceptance for any new products it acquires or introduces. As a result, the Company's failure to penetrate new markets could harm its business. See "Business" contained in Item 1 of this Report. THE SEMICONDUCTOR INDUSTRY IS SUBJECT TO RAPID DEMAND SHIFTS WHICH ARE DIFFICULT TO PREDICT. THE COMPANY'S INABILITY TO EFFICIENTLY MANAGE ITS MANUFACTURING CAPACITY IN RESPONSE TO THESE RAPID SHIFTS MAY CAUSE A REDUCTION IN ITS GROSS MARGINS, PROFITABILITY, AND MARKET SHARE. The Company underwent a period of rapid growth through early 1998, followed by a period of slowdown due to the severe industry downturn in mid-1998. Through these periods the Company adjusted the levels of manufacturing and human resources. In addition, the Company worked closely with materials suppliers and other third parties to manage costs and delivery of goods and services on which the Company is dependent. The Company's operating results could be harmed if it is unable to effectively manage resources in a similar manner through future periods of growth and contraction in its industry. The management systems and controls currently in place and any steps taken to expand or contract such management systems and controls may not be adequate in the future to respond to changing industry conditions. 13 16 THE COMPANY'S FINANCIAL PERFORMANCE MAY BE HARMED IF IT IS NOT ABLE TO INTRODUCE NEW PRODUCTS AND TECHNOLOGIES. The Company operates in an industry subject to rapid change. The Company custom-designs or customizes its products to a customer's particular IC design specifications. The Company's business, financial condition, and operating results could be harmed if it was unable to introduce new product designs and enhancements and to adapt its manufacturing techniques in response to technological advances in IC and capital equipment designs. Any new product designs or enhancements may not receive or maintain substantial market acceptance. Technologies, other than those that the Company utilizes, are being developed. The Company's products could lose market share and the Company's business, financial condition, and operating results could be adversely impacted if other technologies gain market acceptance. In addition, the Company's future operating results may be harmed if it were unable to design, develop, and introduce competitive products on a timely basis. See "Business -- Products and Services" contained in Item 1 of this Report. INTENSE COMPETITION IN THE COMPANY'S MARKETS COULD SUBSTANTIALLY LIMIT THE VOLUME OF PRODUCTS IT SELLS OR REDUCE ITS TECHNOLOGICAL ADVANTAGE. The semiconductor testing products industry is highly competitive. The Company faces substantial competition in each of its product markets. In addition, the Company anticipates that it may face substantial competition in the future from new entrants in the Company's markets. The principal competitive factors in the industry are product performance, service, delivery time, and price. Competition in international markets is also significant, particularly in Asia where the Company is expanding into new geographic markets. Some of the Company's competitors, particularly in Asia, have substantially greater financial, engineering, or manufacturing resources and larger sales and service organizations than the Company. To compete successfully, the Company must make substantial investments in its engineering and product development, marketing, and customer service and support activities. Competition in the Company's markets may intensify and the Company's technological advantages may be reduced or lost as a result of technological advances by competitors or customers. THE COMPANY RELIES ON INDEPENDENT DISTRIBUTION CHANNELS TO SUSTAIN REVENUE LEVELS AND ACHIEVE REVENUE GROWTH AND IT IS SUSCEPTIBLE TO NUMEROUS RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS. The Company's international business represented approximately 23%, 18%, and 18% of net sales for 1999, 1998, and 1997, respectively. In Asia independent distributors generate a significant portion of sales. A reduction in the sales efforts by the Company's Asian distributors or termination of their relationships with the Company could adversely affect the Company's international sales and, as a result, its business, financial condition, and operating results. See "Business -- Marketing, Sales, and Services" contained in Item 1 of this Report. Given the Company's efforts in establishing production and/or sales facilities in Scotland, France, Singapore, Taiwan, Japan, and Malaysia, the Company 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 adversely affected by political and economic conditions abroad. Protectionist trade legislation in either the United States or foreign countries could adversely affect the Company's ability to manufacture or sell products in foreign markets and purchase materials or equipment from foreign suppliers. Examples of protectionist trade legislation include: - Changes in the current tariff structure; - Export compliance laws or other trade policies; and - The Company's ability to form effective joint venture alliances in order to compete in restrictive markets. In addition, the laws of certain foreign countries may not protect the Company's intellectual property rights to the same extent as the laws of the United States. See "Business" contained in Item 1 of this Report. 14 17 FLUCTUATIONS IN THE VALUE OF FOREIGN CURRENCIES COULD HARM THE COMPANY'S PROFITABILITY. A portion of the Company's foreign transactions are denominated in currencies other than the U.S. Dollar. The Company may purchase a portion of its raw materials and equipment from foreign suppliers and may incur labor costs in a foreign currency. Through these transactions, the Company is exposed to exchange rate fluctuations for the period of time from inception of the transaction until it is settled. The Company monitors its foreign currency exposure and, from time to time, the Company enters into hedging transactions to manage this exposure. Fluctuations in the currency exchange rates in the future may adversely affect the Company's operating results. A SMALL NUMBER OF CUSTOMERS HAVE ACCOUNTED FOR, AND ARE LIKELY TO CONTINUE TO ACCOUNT FOR, A SUBSTANTIAL PORTION OF THE COMPANY'S REVENUE AND THEREFORE ITS REVENUE COULD DECLINE DUE TO THE LOSS OF ONE OF THESE CUSTOMERS OR PRICING PRESSURES EXERTED BY THESE CUSTOMERS. Sales of the Company's products are concentrated with a small number of customers. During 1999, sales to the Company's largest customers, Intel Corporation and Texas Instruments, accounted for approximately 14% and 13% of net sales. The Company's top 10 customers in 1999 together accounted for approximately 67% of net sales. The Company expects that sales of its products to relatively few customers will continue to account for a high percentage of its net sales. None of the Company's customers has entered into a long-term agreement requiring them to purchase the Company's products. The loss of a significant customer or any reduction in orders from any significant customer could have an adverse effect on the Company's business. In addition, to the extent that these customers demand that the Company provide them with further discounts on volume purchases or resist the Company's attempts to raise prices in response to increases in the Company's manufacturing costs then the Company's revenues or profitability could decrease. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in Item 7 of this Report, and "Business -- Customers" contained in Item 1 of this Report. THE COMPANY CURRENTLY DOES NOT HAVE ANY LONG-TERM AGREEMENTS WITH ITS SUPPLIERS. THE COMPANY'S SALES MAY DECLINE AND ITS PROFITABILITY COULD BE HARMED BY THE LOSS OF OR FAILURE TO PERFORM BY A SINGLE OR LIMITED GROUP OF SUPPLIERS. The Company relies on third party suppliers in the production and shipment of its products. Although the Company believes that all raw materials, component parts, and services are currently available in adequate amounts, shortages may develop in the future. Certain of the raw materials and component parts for the Company's products are purchased from a single supplier or a limited group of suppliers. The Company does not have long-term written agreements with any suppliers. The Company's business could be harmed by termination or a significant disruption of any of its key supplier arrangements. See "Business -- Manufacturing" contained in Item 1 of this Report. ALTHOUGH THE COMPANY CURRENTLY HOLDS PATENTS, IT RELIES PRIMARILY ON TRADE SECRET PROTECTION FOR ITS PROPRIETARY METHODS AND COULD BE HARMED IF IT IS NOT ABLE TO PROTECT ITS TECHNOLOGY AND KNOW-HOW. While the Company currently holds certain patents, it does not consider any single patent to be material to the conduct of its business. The Company believes that its competitors have been and will be able to continue to circumvent many of the Company's patents. If the Company asserts its patent rights, (1) any patents issued to the Company may be challenged, invalidated, or circumvented, (2) any rights granted thereunder may not provide adequate protection to the Company, and (3) the Company may not have sufficient resources to prosecute its rights. The Company 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. The Company relies primarily on trade secret protection for its proprietary methods. The Company cannot be certain that it will be able to protect its technology and know-how. In addition, although there are no pending lawsuits against the Company regarding infringement of any existing patents or other intellectual property rights, third parties may assert intellectual property infringement claims against the Company in the future. See "Business -- Intellectual Property" contained in Item 1 of this Report. 15 18 THE COMPANY MAY NOT BE ABLE TO MEET ITS FUTURE CAPITAL REQUIREMENTS. The Company's business is capital intensive. In order to remain competitive, the Company must make significant investments in capital equipment for engineering, product development, and production. As a result of the increase in fixed costs and operating expenses related to these capital expenditures, the Company's operating results may be 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 Company cannot predict the timing and amount of any such capital requirements at this time. These requirements will depend on a number of factors, including demand for the Company's products, product mix, changes in industry conditions, and competitive factors. Such financing may not be available on acceptable terms, and any additional equity financing, if available, may result in additional dilution to existing investors. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources" contained in Item 7 of this Report. THE COMPANY MAY BE SUBJECT TO 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 compliance with presently applicable environmental regulations, the government could impose fines, suspend the Company's production or stop the Company's operations for the failure to comply with present or future regulations. The Company could be required by such regulations to acquire costly equipment or to incur other significant expenses to comply with environmental regulations. If the Company fails to control the use or adequately restrict the discharge of hazardous substances, it could be subject to future liabilities. See "Business -- Environmental Regulations" contained in Item 1 of this Report. THE COMPANY'S EXECUTIVE OFFICERS AND KEY EMPLOYEES ARE CRITICAL TO ITS BUSINESS AND THEY MAY NOT REMAIN WITH THE COMPANY IN THE FUTURE. The Company's success depends, in part, upon the retention of certain key personnel and the recruitment and retention of additional key personnel, including technical and engineering staff. The Company's business could be adversely affected by the loss of existing key personnel or the failure to recruit and retain necessary additional personnel. Future growth will further increase the Company's demand on resources and require the addition of new personnel and the development of additional expertise by existing personnel. The Company's prospects for success could be harmed by its failure to attract and retain personnel with the requisite expertise or to develop such expertise internally. THE COMPANY'S DIRECTORS AND EXECUTIVE OFFICERS OWN A SIGNIFICANT BLOCK OF ITS STOCK AND MAY BE ABLE TO EXERT INFLUENCE ON MATTERS REQUIRING STOCKHOLDER CONSENT. The Company's stockholders have the right to cumulate their votes for the election of directors. The Company's directors and executive officers and their affiliates currently beneficially own approximately 13.38% of the Company's stock. As a result, these persons, if they act as a group, may be able to elect one or more members 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 Company's stockholders. THE COMPANY'S STOCK PRICE HAS BEEN AND MAY CONTINUE TO BE HIGHLY VOLATILE. The market price of the Company's Common Stock has experienced significant volatility during the past three years. See "Market for the Registrant's Common Equity and Related Stockholder Matters" contained in 16 19 Item 5 of this Report. The trading price of the Company's Common Stock in the future could be subject to wide fluctuations in response to: - Quarterly variations in the Company's operating results and others in its industry; - Actual or anticipated announcements concerning the Company or its competitors; - Changes in analysts' estimates of the Company'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 that have adversely affected the market prices for many companies involved in high technology manufacturing and related industries. Often these price and volume fluctuations 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 the Company's Common Stock. POTENTIAL ISSUANCE OF ADDITIONAL SHARES COULD RESULT IN DILUTION TO EXISTING HOLDERS. As of December 31, 1999, options to acquire a total of 1,191,300 shares were outstanding under the Company's stock option plans. An additional 1,126,600 shares of Common Stock were reserved for issuance pursuant to the exercise of options that may be granted in the future under the Company's stock option plans. The Company also 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 37,275 shares of Common Stock in connection with the sale in 1996 of Series A 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 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. The Company 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 Common Stock and could have a dilutive effect on earnings per share. CHANGE IN CONTROL PROVISIONS COULD PREVENT TRANSACTIONS THAT COULD BENEFIT STOCKHOLDERS. The Company'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 the Company, 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 affect the voting power of the holders of the Company's Common Stock. The Delaware GCL also imposes conditions on certain business combination transactions with "interested stockholders" (as defined therein). The Company has also adopted a Rights Plan whereby, if and when the Rights become exercisable, holders of shares of Common Stock will be entitled to purchase one one-thousandth of a share of Series A Junior Participating Preferred Stock at a purchase price of $110 (subject to certain antidilution adjustments). The Rights will expire October 8, 2008 and will be exercisable only if a person or group becomes the beneficial owner of 15% or more of the Common Stock or commences a tender or exchange offer that would result in the offeror beneficially owning 15% or more of the Common Stock (the earlier of such dates being called the "Distribution Date"). If a Distribution Date has occurred, each Right, unless redeemed by the Company, entitles the holder to exercise a Right for $110 and receive an amount of Common Stock of the Company, or 17 20 in certain circumstances a combination of securities and/or assets or the common stock of the acquirer, having a market value of two times the exercise price of the Right. The Rights have certain anti-takeover effects. The Rights will cause substantial dilution to a person or group that attempts to acquire the Company on terms not approved by the Company's Board of Directors, except pursuant to an offer conditioned on a substantial number of Rights being acquired. The Rights should not interfere with any merger or other business combination approved by the Board of Directors since the Rights may be redeemed by the Company at $.01 per Right prior to the public announcement of a Distribution Date. ITEM 2. PROPERTIES The Company's principal executive offices and primary manufacturing facility are located in Gilbert, Arizona. The facility is owned by CRPB Investors, L.L.C. ("CRPB Investors"). The Company owns a 36% interest in CRPB Investors. The Company has entered into a long-term lease with CRPB Investors, the initial term of which expires in May 2012 with seven options to extend the lease for successive five-year terms. The Company's major facilities are described in the table below:
LEASE EXPIRATION FACILITY SQUARE FEET FUNCTION PRODUCTS DATE - -------- ----------- -------- -------- ---------- Gilbert, Arizona......... 83,000 Corporate headquarters, Probe cards May 2012 53,000 Manufacturing, sales and service ATE interface assemblies July 2008 Dallas, Texas............ 35,000 Manufacturing, sales and service ATE test boards Company owned San Jose, California..... 34,000 Manufacturing, sales and service Probe cards July 2002 Hsin Chu, Taiwan......... 10,600 Manufacturing and service Probe cards April 2003 Austin, Texas............ 7,000 Manufacturing, sales and service Probe cards March 2002 East Kilbride, 11,700 Manufacturing, sales Scotland............... and service Probe cards November 2007 Singapore................ 2,900 Manufacturing and service Probe cards August 2001 Meyreuil, France......... 5,600 Manufacturing, sales and service Probe cards June 2012 Yokohama, Japan.......... 13,900 Sales and service Probe cards April 2009 Hayward, California...... 26,800 Manufacturing, sales and service Test sockets/contactors February 2009
In addition, the Company leases space in Colorado Springs, Colorado; Boca Raton, Florida; Westboro, Massachusetts; Beaverton, Oregon; Richardson, Texas; Dallas, Texas; Austin, Texas; Santa Clara, California; San Diego, California; Tempe, Arizona; Massy, France; Berngau, Germany; and Penang, Malaysia. The Company believes that its existing facilities are adequate to meet its current requirements. ITEM 3. LEGAL PROCEEDINGS In October 1998, the Company filed an action against the former President, Director, and shareholder of Silicon Valley Test & Repair, Inc., which was acquired by the Company by way of a merger into its wholly-owned subsidiary, SVTR, Inc., in January 1997. The suit seeks rescission of the acquisition and/or money damages arising from failure of the defendants to disclose material facts regarding the origins of certain software necessary for SVTR, Inc.'s business. In February 1999, the defendants filed a counter claim against the Company, alleging conversion, interference with contractual relations, unfair business practices, breach of contract, and specific performance allegedly arising from the Company's actions to preclude the defendants from selling the Company stock received by the defendants as part of the purchase price of Silicon Valley Test 18 21 & Repair, Inc.; the Company seeks to recover this stock and the balance of the purchase price through its claims for rescission. In March 1999, the Company and SVTR filed an amended complaint. The defendants have responded and the action is proceeding to trial. While the Company intends to vigorously prosecute this action, it is impossible to predict the outcome of this or any litigation. It is not anticipated that this suit will have an adverse impact on the Company's financial condition or results of operations. The Company is involved in other legal actions arising in the ordinary course of business. In the opinion of management, the disposition of these actions would not have a material adverse effect on the Company. 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 1999. PART II ITEM 5. MARKET FOR THE REGISTRANT'S 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(R) on August 10, 1995 under the symbol "CRPB." On March 27, 2000, the closing price for the Company's Common Stock was $15.813. 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(R).
HIGH LOW ---- --- 1998: First Quarter............................................... $22 $16 1/4 Second Quarter.............................................. $20 9/16 $11 5/8 Third Quarter............................................... $12 3/4 $ 9 Fourth Quarter.............................................. $15 5/8 $ 9 1999: First Quarter............................................... $17 13/16 $12 3/4 Second Quarter.............................................. $12 1/4 $ 7 1/2 Third Quarter............................................... $11 7/8 $ 4 3/4 Fourth Quarter.............................................. $10 $ 4 9/16
The Company does not intend to pay any cash dividends in the future and intends to retain any future earnings for reinvestment in its business. 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 27, 2000, there were approximately 3,000 shareholders of record of Common Stock. ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The following selected consolidated financial data should be read in conjunction with the Company's Consolidated Financial Statements and Notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations," which are included elsewhere in this Report. The consolidated statement of operations data for the years ended December 31, 1999, 1998, and 1997 and the consolidated balance sheet data as of December 31, 1999 and 1998 are derived from, and are qualified by reference to, the consolidated financial statements included elsewhere in this Report, which have been audited by KPMG LLP. The consolidated statement of operations data for the years ended December 31, 1996 and 1995, and the consolidated balance sheet data as of December 31, 1997, 1996, and 1995, are derived from audited consolidated financial statements not included in this Report. These historical results are not necessarily indicative of the results to be expected in the future. 19 22
YEAR ENDED DECEMBER 31, ------------------------------------------------ 1999(1) 1998(2) 1997 1996(3) 1995 -------- ------- ------- ------- ------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) STATEMENT OF OPERATIONS DATA: Net sales....................................... $ 62,656 $76,207 $69,012 $37,308 $26,099 Cost of goods sold.............................. 41,637 45,052 39,251 20,343 13,706 -------- ------- ------- ------- ------- Gross profit.......................... 21,019 31,155 29,761 16,965 12,393 Expenses: Selling, general and administrative........... 21,215 18,317 16,219 10,460 7,306 Engineering and product development........... 4,807 3,101 996 903 707 In-process research and development........... 8,815 1,568 -- 4,584 -- Goodwill amortization......................... 786 461 386 265 197 -------- ------- ------- ------- ------- Total expenses........................ 35,623 23,447 17,601 16,212 8,210 -------- ------- ------- ------- ------- Operating income (loss)......................... (14,604) 7,708 12,160 753 4,183 Other income (expense): Interest income............................... 882 1,324 349 467 45 Interest expense.............................. (582) (269) (388) (222) (154) Other, net.................................... (528) 543 323 247 140 -------- ------- ------- ------- ------- Total other income (expense).......... (228) 1,598 284 492 31 -------- ------- ------- ------- ------- Income (loss) from continuing operations before minority interest and income taxes............ (14,832) 9,306 12,444 1,245 4,214 Minority interest............................... (455) (384) 30 95 -- -------- ------- ------- ------- ------- Income (loss) from continuing operations before income taxes.................................. (15,287) 8,922 12,474 1,340 4,214 Income tax (expense) benefit.................... 2,711 (3,685) (4,810) (2,701) (1,812) -------- ------- ------- ------- ------- Income (loss) from continuing operations........ (12,576) 5,237 7,664 (1,361) 2,402 Discontinued operations: Loss from operations of SVTR, Inc., net of taxes...................................... (5) (1,925) (5,767) -- -- Loss on disposal of SVTR, Inc., net of taxes...................................... -- (3,808) -- -- -- -------- ------- ------- ------- ------- Loss from discontinued operations..... (5) (5,733) (5,767) -- -- -------- ------- ------- ------- ------- Net income (loss)............................... $(12,581) $ (496) $ 1,897 $(1,361) $ 2,402 ======== ======= ======= ======= ======= Net income (loss) per common share: Basic......................................... $ (1.60) $ (0.06) $ 0.28 $ (0.30) $ 0.62 ======== ======= ======= ======= ======= Diluted....................................... $ (1.60) $ (0.06) $ 0.27 $ (0.30) $ 0.53 ======== ======= ======= ======= ======= Weighted average number of shares: Basic......................................... 7,885 7,964 6,690 4,580 3,874 Diluted....................................... 7,885 8,251 6,982 4,580 4,666 BALANCE SHEET DATA: Working capital................................. $ 11,812 $30,519 $42,505 $10,004 $ 4,771 Total assets.................................... 83,368 63,686 68,108 31,512 14,967 Long-term debt.................................. 7,655 3,204 1,275 1,741 981 Stockholders' equity............................ 53,117 53,474 59,344 23,130 10,656
- --------------- (1) Includes a write-off of in-process research and development of $8.8 million in 1999, or $1.12 per diluted share, related to the acquisition of OZ. 20 23 (2) Includes a write-off of in-process research and development of $1.6 million in 1998, or $0.11 per diluted share, net of tax benefit, related to the acquisition of Cerprobe Europe S.A.S. (3) Includes a write-off of in-process research and development of $4.6 million in 1996, or $1.00 per diluted share, related to the acquisition of CIS. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the Selected Consolidated Financial Data and the Consolidated Financial Statements and related Notes thereto of the Company appearing elsewhere in this Report. OVERVIEW The Company offers comprehensive solutions principally in one segment of the semiconductor industry -- semiconductor test interconnect. The Company is a leading manufacturer of probe cards, ATE interface assemblies, ATE test boards, and test sockets/contactors. The Company believes it is the only company that designs, manufactures, and assembles each of the electromechanical components that assure the integrity of the electrical test signal that passes from the ATE to the IC DUT. The Company's products address critical functions to assure IC quality, reduce manufacturing costs, improve the accuracy of manufacturing yield data, and identify repairable memory ICs. The semiconductor industry is characterized as cyclical, with capacity boom cycles followed by bust cycles that create tremendous pricing pressures. Despite these cycles, the IC market has generally been a high volume, high growth commodity market characterized by rapid technological change. The Company has benefited from this and has grown substantially over the last five years as the Company has increased its market share. Net sales have increased from $26.1 million for 1995 to $62.7 million for 1999, representing a five year average annualized growth rate of approximately 35%. The Company has grown its business and expanded its product lines through internal product development, strategic acquisitions, joint development/ventures, and licensing of technologies. In 1990, the foundation for the growth of the Company's core probe card business was the development of the Company's CerCard(TM) technology. In April 1995, the Company acquired Fresh Test Technology Corporation ("Fresh Test"), which enabled the Company to expand its product line to include ATE interface assemblies. In December 1996, the Company acquired Cerprobe Interconnect Solutions, Inc. ("CIS"), formerly CompuRoute, Inc., which enabled the Company to offer ATE test boards, the Company's first packaged IC testing product. In May 1997, the Company established a joint development agreement with Japan-based Mitsubishi Materials Corporation. This joint development has resulted in the company's first probe card based upon the Company's proprietary P4(TM) (Photolithographic Pattern Plated Probe) technology. In September 1998, the Company acquired France-based Cerprobe Europe S.A.S., formerly SemiConducteur Services, S.A., a probe card company, which enabled the Company to further expand in and service the European market. Additionally, in November 1998, the Company signed an agreement with Feinmetall GmbH, a German contact technology company, which provided the Company with an exclusive license to design, manufacture, and distribute Vertical integrated Probe (ViProbe(R)) products worldwide, except Europe. Finally, in December 1999, the Company acquired OZ Technologies, Inc. ("OZ"), which enabled the Company to offer test sockets, test contactors, and test boards used for testing packaged ICs. From 1996 through 1998, the semiconductor industry was in the worst recession in its history. The IC test segment of the semiconductor industry generally lags the cycle by six months or more. Because of this lag and market share gains by the Company, its business was not significantly impacted by the recession until the second quarter of 1998. During 1998, certain customers of the Company began processing a portion of their ICs in a manner that required vertical probing products that were not manufactured by the Company. This exacerbated the already difficult business conditions the Company was experiencing and the Company reported a loss from continuing operations before income taxes of $2.6 million in the second quarter of 1999. This was the first such quarterly loss by the Company (excluding acquisition related costs) in 29 consecutive quarters. In the third quarter of 1999, the Company began to experience some positive signs of a gradual 21 24 recovery. Sales for the third quarter were $14.9 million, a 6% increase over the second quarter of 1999. With aggressive cost cutting measures and improved sales, the operating loss for the third quarter was reduced substantially to $1.1 million. Similarly, sales for the fourth quarter of 1999 increased 8% to $16.1 million (excluding OZ's sales since the Company's acquisition on December 3, 1999). The operating loss for the fourth quarter improved again to $723,000 (excluding acquisition related costs and special charges for the quarter of $1.4 million. Additionally, the Company's newly licensed ViProbe(R) (a vertical probing product) has been evaluated by several of the Company's customers, and beginning in the first quarter of 2000, the Company expects growing demand for the product. In addition, the Company's P4(TM) product is positioned to address emerging requirements for fine pitch and high frequency probing. The Company believes that it is positioned to recover from the recent downturn 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 North America, Europe, and Asia. The Company maintains regional full service facilities in Arizona, California, and Texas as well as sales offices in Colorado, Florida, Massachusetts, and Oregon to service the U.S. market for its products and services. The Company continues to expand into international markets, including Europe and Asia. The Company maintains full service facilities in France and Scotland and a sales office in Germany to serve the European market. The Company also maintains full service facilities in Taiwan and Singapore to serve the Southeast Asian market, as well as sales and distribution offices in Japan and Malaysia, to serve the Asian market. Each of the Company's facilities is located in proximity to semiconductor manufacturing centers. 22 25 RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, the percentage of net sales of certain items in the Consolidated Statement of Operations 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, --------------------------- 1999(1) 1998(2) 1997 ------- ------- ----- Net sales................................................... 100.0% 100.0% 100.0% Cost of goods sold.......................................... 66.5 59.1 56.9 ----- ----- ----- Gross profit................................................ 33.5 40.9 43.1 Expenses: Selling, general and administrative....................... 33.9 24.0 23.5 Engineering and product development....................... 7.7 4.1 1.4 In-process research and development....................... 14.0 2.1 -- Goodwill amortization..................................... 1.3 0.6 0.6 ----- ----- ----- Total expenses.................................... 56.9 30.8 25.5 ----- ----- ----- Operating income (loss)..................................... (23.4) 10.1 17.6 Other income (expense): Interest income........................................... 1.4 1.7 0.5 Interest (expense)........................................ (0.9) (0.3) (0.6) Other, net................................................ (0.8) 0.7 0.5 ----- ----- ----- Total other income (expense)...................... (0.3) 2.1 0.4 ----- ----- ----- Income (loss) from continuing operations before and minority interest and income taxes................................. (23.7) 12.2 18.0 Minority interest........................................... (0.7) (0.5) 0.1 ----- ----- ----- Income (loss) from continuing operations and income taxes... (24.4) 11.7 18.1 Income tax (expense) benefit................................ 4.3 (4.8) (7.0) ----- ----- ----- Income (loss) from continuing operations.................... (20.1) 6.9 11.1 Discontinued operations: Loss from operations of SVTR, Inc. net of taxes........... -- (2.5) (8.4) Loss on disposal of SVTR, Inc. net of taxes............... -- (5.0) -- ----- ----- ----- Loss from discontinued operations......................... (0.0) (7.5) (8.4) ----- ----- ----- Net income (loss)......................................... (20.1)% (0.6)% 2.7% ===== ===== =====
- --------------- (1) Includes a write-off of in-process research and development costs of $8.8 million related to the acquisition of OZ. (2) Includes a write-off of in-process research and development costs of $1.6 million related to the acquisition of Cerprobe Europe S.A.S. Years Ended December 31, 1999 and December 31, 1998 Net Sales. Net sales for 1999 were $62.7 million, a decrease of 17.8% from net sales of $76.2 million for 1998. This decrease was partially offset by the inclusion of Cerprobe Europe, S.A.S. for the full year of 1999 compared to only the fourth quarter of 1998 ($3.0 million) and the inclusion of OZ in the fourth quarter of 1999 since the date of acquisition on December 3, 1999 ($1.9 million). The decrease was primarily a result of effects of the semiconductor industry's downturn, including reduced unit production, pricing pressures, and excess probe card capacity. Additionally, some of the Company's customers have begun using vertical probing products to test some of their more complex ICs and to test memory ICs in parallel. The Company's vertical 23 26 probing product has been evaluated by several of the Company's customers and, the Company began shipping its vertical probe cards in the first quarter of 2000. In addition, the Company's P4(TM) product is positioned to address emerging requirements for fine pitch and high frequency probing. Gross Profit. The gross profit for 1999 was $21.0 million, a decrease of 32.5% from the gross profit of $31.2 million for 1998. Gross margin decreased from 40.9% in 1998 to 33.5% in 1999. The decrease in gross profit was primarily a result of reduced sales and reduced average selling prices for the Company's products. The decrease in gross margin was a result of the Company's production infrastructure capable of higher production run rates, resulting in over capacity and under-absorption of overhead, and efforts to increase or maintain market share during the industry downturn by product price reductions, particularly to the Company's largest customers. Selling, General, and Administrative. Selling, general, and administrative expenses were $21.2 million, or 33.9% of net sales, for 1999, compared to $18.3 million, or 24.0% of net sales, for 1998, an increase of 15.8%. The increase in selling, general, and administrative expenses resulted primarily from continued domestic expansion, restructuring of the Japanese facility of approximately $352,000, employee related costs of approximately $255,000, one-time consulting costs of $300,000, and selling, general, and administration costs associated with the Company's subsidiary, OZ Technologies, Inc., of $150,000. Engineering and Product Development. Engineering and product development expenses were $4.8 million, or 7.7% of net sales, for 1999, an increase of 55.0% over $3.1 million, or 4.1% of net sales, for 1998. The Company has added substantial resources to its product development team to address emerging and next generation probing requirements for grid array, multi-chip testing, very high frequency ICs, and those that have pad pitch architecture of less than 60 microns. In-process Research and Development. In-process research and development costs from the December 1999 acquisition of OZ Technologies, Inc. totaled $8.8 million. 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 state of the research and development products/processes was not at a technologically feasible or commercially viable stage. Therefore, consistent with generally accepted accounting principles, the Company took a charge for the full value of the in-process research and development. Goodwill Amortization. Goodwill amortization was $785,981 in 1999, compared to $461,301 for 1998. The increase was attributable to the acquisition of OZ Technologies, Inc. which is being amortized over seven years. Interest Income. Interest income was $881,769 in 1999, compared to $1.3 million for 1998. This decrease was attributable to the investment of a lower average cash balance. Minority Interest. The minority interest share of income of $454,450 for 1999 and $383,637 for 1998 represented the Company's joint venture partners' share of income from the Company's Asian operations. Income Taxes. Income taxes decreased to a benefit of $2.7 million, which represented an effective tax benefit rate of 41.9% for 1999 (excluding the in-process research and development expenses of $8.8 million), compared to $3.7 million, which represented an effective tax rate of 41.1% for 1998 (excluding the in-process research and development expenses of $1.6 million which resulted in a tax benefit of $627,000). Net Loss. Net loss for 1999 was $12.6 million compared to the loss of $495,908 for 1998. Excluding in-process research and development and discontinued operations, net loss for 1999 would have been $3.8 million, or 6% of net sales compared to net income of $6.2 million or, 8.1% of net sales, for 1998. This increase in net loss was primarily a result of the effects of the semiconductor industry's downturn, including reduced unit production, pricing pressures, and excess probe card capacity. The Company's production infrastructure was capable of higher production run rates, resulting in over capacity and under-absorption of overhead. The Company has maintained its operating cost structure during the down cycle in its business because it believes that its global infrastructure will be an important competitive advantage as the industry recovers. 24 27 Years Ended December 31, 1998 and December 31, 1997 Net Sales. Net sales for 1998 were $76.2 million, an increase of 10.4% over net sales of $69.0 million for 1997. The majority of this increase occurred in the first quarter of 1998 as a result of higher order rates for the Company's probe card and interface products. However, during the remainder of the year, slower sales resulted from the softness in the worldwide demand for semiconductors. Gross Profit. The gross profit for 1998 was $31.2 million, an increase of 4.7% from the gross profit of $29.8 million for 1997. Gross margin decreased from 43.1% in 1997 to 40.9% in 1998. The decrease in gross margin was a result of a change in product mix, which included a higher ratio of lower margin ATE interface product sales and a result of the Company's production infrastructure capable of higher production run rates, resulting in over capacity and under-absorption of overhead. Selling, General, and Administrative. Selling, general, and administrative expenses were $18.3 million, or 24.0% of net sales, for 1998, compared to $16.2 million, or 23.5% of net sales, for 1997, an increase of 12.9%. The increase in selling, general, and administrative expenses resulted primarily from the increase in fixed general and administrative costs due to the Company's continued domestic expansion occurring in the later part of 1997 and first quarter of 1998. Engineering and Product Development. Engineering and product development expenses were $3.1 million, or 4.1% of net sales, for 1998, an increase of 211.3% over $996,253, or 1.4% of net sales, for 1997. The Company has added substantial resources to its product development team to address emerging and next generation probing requirements for grid array, multi-chip testing, very high frequency ICs, and those that have pad pitch architecture of less than 60 microns. In-Process Research and Development. In-process research and development costs from the September 1998 acquisition of Cerprobe Europe S.A.S. totaled $1.6 million. 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 state of the research and development products/processes was not at a technologically feasible or commercially viable stage. Therefore, consistent with generally accepted accounting principles, the Company took a one-time charge for the full value of the in-process research and development. Interest Income. Interest income was $1.3 million in 1998, compared to $348,816 for 1997. This increase was attributable to the interest earned on the net proceeds from the Company's 1997 secondary offering. Minority Interest. The minority interest share of income of $383,637 for 1998 and share of loss of $29,715 for 1997 represented the Company's joint venture partners' share of income (loss) from the Company's Asian operations (40%, 30% prior to August 18, 1997) and a France-based joint venture. The Company was involved from June 2, 1997 to June 25, 1998. Income Taxes. The provision for income taxes decreased to $3.7 million, which represented an effective tax rate of 41.1% for 1998 (excluding the in-process research and development expenses of $1.6 million which resulted in a tax benefit of $627,000), compared to $4.8 million, which represented an effective tax rate of 38.6% for 1997. The decreased effective tax rate, as adjusted, was due primarily from the reduced effective tax rate for export sales through the Company's foreign sales corporation and income from non-taxable annuities. Discontinued Operations. In December 1998 and 1997 the Company recorded $5.7 and $5.8 million in loss from discontinued operations from the disposal of its wafer prober refurbishing and upgrading subsidiary, SVTR, Inc. The Company disposed of the operations of SVTR through sale of equipment, inventory and technology in March 1999. Net Income (Loss). Net loss for 1998 was $495,908, compared to income of $1.9 million for 1997. Excluding acquisition related expenses, net income for 1998 would have been $444,892, or 0.6% of net sales for 1998, compared to 2.7% of net sales for 1997. This decrease was primarily a result of slower sales in the later part of 1998 due to the softness in the worldwide demand for semiconductors. The Company's production infrastructure was capable of higher production run rates, resulting in over capacity and under-absorption of overhead. 25 28 QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following table presents unaudited consolidated financial results for each of the eight quarters ended December 31, 1999. 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 and Notes thereto. The operating results for any quarter are not necessarily indicative of the results for any subsequent quarter.
QUARTERS ENDED(3) --------------------------------------------------------------------------------- 1999 1998 --------------------------------------- --------------------------------------- DEC 31(1) SEP 30 JUN 30 MAR 31 DEC 31 SEP 30(2) JUN 30 MAR 31 --------- ------- ------- ------- ------- --------- ------- ------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) STATEMENT OF OPERATIONS DATA: Net sales........................ $18,015 $14,932 $14,103 $15,606 $15,008 $20,107 $18,139 $22,953 Gross profit..................... 6,023 5,189 4,246 5,560 5,430 8,593 7,253 9,879 Operating income (loss).......... (2,498) (1,070) (2,556) 335 223 2,922 1,686 4,445 Net income (loss)................ (1,374) (878) (1,659) 150 251 1,977 1,202 2,748 Diluted net income (loss) per share.......................... $ (0.16) $ (0.11) $ (0.22) $ 0.02 $ 0.03 $ 0.25 $ 0.14 $ 0.32 AS A PERCENTAGE OF NET SALES: Net sales........................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Gross profit..................... 33.4% 34.8% 30.1% 35.6% 36.2% 42.7% 40.0% 43.0% Operating income (loss).......... (13.9)% (7.2)% (18.1)% 2.1% 1.5% 14.5% 9.3% 19.4% Net income (loss)................ (7.6)% (5.9)% (11.8)% 1.0% 1.7% 9.8% 6.6% 12.0%
- --------------- (1) Excludes a write-off of in-process research and development costs of $8.8 million or $1.05 per diluted share related to the acquisition of OZ Technologies, Inc. (2) Excludes a write-off of in-process research and development costs of $1.6 million or $.11 per diluted share, net of tax benefit, related to the acquisition of Cerprobe Europe S.A.S. (3) Excludes discontinued operations of SVTR, Inc. Quarterly results can be affected by a number of factors, including the cyclical nature of the semiconductor industry, market acceptance of the Company's products, product mix, customer order patterns, competition, the availability and cost of raw materials and production capacity, and the Company's ability to respond to technological advances. LIQUIDITY AND CAPITAL RESOURCES The Company has financed its operations and capital requirements primarily through cash flows from operations, equipment lease financing arrangements, and sales of equity securities. At December 31, 1999, cash and short-term investment securities were $3.5 million compared to $19.1 million at December 31, 1998. This decrease was a result of the use of cash related to the acquisition of OZ Technologies, Inc. The Company generated $922,747 of cash to support its operating activities for the year ended December 31, 1999. Accounts receivable increased by $3.4 million, net of allowance, or 37.6%, to $12.3 million at December 31, 1999, compared to the balance at December 31, 1998. Of this increase, $3.9 million was due to the acquisition of OZ Technologies, Inc. Inventories increased $4.4 million, net of reserve, or 83.4%, over December 31, 1998, to $9.7 million at December 31, 1999. Of this increase, $3.4 million was due to the acquisition of OZ Technologies, Inc. Income taxes receivable increased $3.3 million, or 465.3%, at December 31, 1999 over December 31, 1998. Approximately $2.0 million of the increase was due to the current recognition of previously recorded deferred losses associated with the sale of equipment and inventory from discontinued operations of SVTR. The remaining amount was a result of losses from current operations. Accounts payable and accrued expenses increased $3.7 million, or 65.2%, to $9.3 million at December 31, 1999. Of this increase, $3.3 million was due to the acquisition of OZ Technologies, Inc. 26 29 Working capital decreased $18.7 million, or 61.3%, to $11.8 million at December 31, 1999. The current ratio decreased from 5.8 at December 31, 1998, to 1.6 at December 31, 1999. This decrease was due primarily to the use of cash and increase in short-term debt related to the acquisition of OZ Technologies, Inc. On December 3, 1999, the Company acquired OZ Technologies, Inc. for $19.0 million in cash, notes payable of $5.6 million, and 1.5 million shares of stock. The Company incurred approximately $1.9 million in acquisition related expenses. The notes payable included a Subordinated Promissory Note in the amount of $2,830,000 and a Promissory Note in the amount of $2,800,000. The Subordinated Promissory Note accrues interest at a rate of 10% per annum and matures December 3, 2002. The Promissory Note accrues interest at a rate of 10% per annum and was to have matured on February 3, 2000. The selling stockholders have agreed to extend the maturity of this note until June 30, 2000. The Company may satisfy the Promissory Note on June 30, 2000, by paying in cash all amounts then due under the Promissory Note or by transferring its real property located at 10365 Sanden Drive, Dallas, Texas (the "Real Property") to the selling stockholders' agent, unencumbered except for minor liens and any mortgage that is executed by the Company in favor of the selling stockholders with respect to the Real Property. If the Company satisfies the Promissory Note by transferring the Real Property to the selling stockholders' agent on June 30, 2000, the Stock Purchase Agreement between the Company and the selling stockholders provides that the Company and the selling stockholders' agent will assign a value (the "Appraised Value") to the Real Property equal to the appraised value for the Real Property as determined by a mutually agreed-upon real estate appraiser. The Stock Purchase Agreement further provides that (1) to the extent the Appraised Value is less than $2,800,000 plus interest due under the Promissory Note, the amount of the difference will be added to the principal amount of the Subordinated Promissory Note and (2) to the extent the Appraised Value is more than $2,800,000 plus interest due under the Promissory Note, the amount of the difference may be applied to reduce the principal amount of the Subordinated Promissory Note if doing so does not cause the Company to violate any covenant in any loan document to which it is a party. The Company increased its investment in property, plant and equipment during the year ended December 31, 1999 by $1.8 million from the acquisition of OZ and $6.3 million of capital expenditures. The capital expenditures were primarily attributable to facilitizing of the Company's new manufacturing space for interface products and for new probe card products expected to be ramped into production during the year 2000 and additional costs associated with the Company's recently implemented Oracle based ERP system. These capital expenditures were funded with cash from operations and credit facilities from Bank. The Company estimates that it will make between $7.5 million and $9.5 million purchase for equipment, facility expense and information technology in the year 2000. In December 1999, the Company entered into a three-year senior secured credit facility with Bank of America, N.A. (the "Loan and Security Agreement"). The Loan and Security Agreement includes a revolving credit facility in the amount of $15,000,000 subject to borrowing base requirements providing for advances of up to 85% of eligible accounts receivable. Advances on the revolving credit facility bear interest at prime rate plus 0.50%. The facility also includes an inventory term loan in the amount of approximately $5,800,000 and a machinery and equipment term loan in the amount of $2,000,000, both of which bear interest at prime rate plus 2.00%. The inventory term loan will be repaid based upon a 24-month amortization with a balloon payment of the outstanding principal balance at the end of 12 months. The machinery and equipment term loan will be repaid based upon a 60-month amortization with a balloon payment of the outstanding principal balance at the end of 36 months. All loans, advances, and other obligations, liabilities, and indebtedness of the Company under the credit facility are secured by valid, perfected, and enforceable first priority liens upon and a security interest in substantially all of the Company's present and future assets, including all accounts, contract rights, inventory, instruments, documents, fixtures, chattel paper, general intangibles, patents, trademarks, copyrights, trade names, deposit accounts, vehicles, equipment, and pledge of stock of all domestic subsidiaries of Cerprobe and OZ and 65% of the stock of each wholly-owned foreign subsidiary of the Company. This credit facility is also guaranteed by all wholly-owned subsidiaries of Cerprobe and OZ. Advances under the revolving credit facility, the inventory term loan, and the machinery and 27 30 equipment term loan were $1,300,878, $5,834,000, and $2,000,000 respectively, at December 31, 1999. The inventory term loan and the equipment term loan are at the maximum currently available under the terms of these loans. The Loan and Security Agreement contains a number of covenants that, among other things, restrict the ability of the Company to dispose of assets, incur additional indebtedness, incur guaranty obligations, prepay indebtedness except in accordance with relevant subordination provisions, pay dividends or make capital distributions (other than distributions in capital stock), create liens on assets, engage in mergers or consolidations (except for any subsidiary which is acquired solely for the Company's Common Stock and that any subsidiary of the Company may voluntarily merge into another subsidiary), engage in certain transactions with subsidiaries and affiliates, make any change in accounting policies or reporting practices except as required or permitted by generally accepted accounting principles and otherwise restrict corporate activities. In addition, the Loan and Security Agreement requires the Company to comply with certain financial covenants, including the maintenance of a consolidated Tangible Net Worth (as defined in the Loan and Security Agreement). At December 31, 1999, the Company was in violation of the Tangible Net Worth covenant under the line of credit agreement which was waived by the lender. The Loan and Security Agreement contains customary events of default, including the failure to pay principal when due or any interest or other amount that becomes due, any representation or warranty being made by the Company that is incorrect in any material respect on or as of the date made, a default in the performance of any covenant which continues for more than thirty days, default in certain other indebtedness, certain insolvency events, certain ERISA events, and certain change of control events. The Company believes that its working capital, together with the loan and lease commitments described above and anticipated cash flow from operations, will provide adequate sources to fund operations for at least the next 12 months. The Company anticipates that any additional cash requirements for operations or capital expenditures will be financed through cash flow from operations, by borrowing from the Company's primary lender, by lease financing arrangements, or by sales of equity securities. Any such financing may not be available on acceptable terms and any additional equity financing, if available, would result in additional dilution to existing investors. YEAR 2000 In prior periods, the Company discussed the nature and progress of its plans to become Year 2000 ready. In late 1999, the Company completed the remediation and testing of its critical computer dependent systems. Through March 27, 2000, the Company has experienced no significant disruptions in critical information technology and non-information technology systems and believes those systems successfully responded to the Year 2000 date change. The Company is not aware of any material problems resulting from Year 2000 issues, either with its products, its internal systems, or the products and services of third parties. The Company will continue to monitor its mission critical computer applications and those of our suppliers and vendors throughout the year 2000. If significant yet to be identified Year 2000 issues arise, the Company may experience significant problems that could have an adverse affect on its financial condition and results of operations. Litigation regarding Year 2000 issues is possible. It is uncertain whether, or to what extent, the Company may be affected by such litigation. INFLATION AND CHANGING PRICES The Company 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 the Company and other suppliers. Accordingly, the price structure for the Company's products must be competitive. 28 31 Changes in the Company's supplier prices did not have a significant impact on cost of sales during 1999 or 1998. As a result of the Company's operation of the manufacturing, repair, and sales facilities in Scotland, France, Singapore, and Taiwan, the Company's foreign transactions may be denominated in currencies other than the U.S. Dollar. Such transactions may expose the Company to exchange rate fluctuations for the period of time from inception of the transaction until it is settled. Fluctuations in the currency exchange rate in the future may have an adverse impact on the Company's foreign operations. In addition, the Company 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 the Company's ability to manufacture or sell its products in foreign markets and purchase materials or equipment from foreign suppliers. In countries in which the Company conducts business in local currency, currency exchange rate fluctuations could adversely affect the Company's net sales or costs. BUSINESS OUTLOOK The Company's business depends substantially on both the volume of IC production by semiconductor manufacturers as well as new IC designs, which in turn depend on the demand of ICs and products utilizing ICs. The semiconductor industry is highly cyclical and historically has experienced periods of oversupply, resulting in reduced demand for IC testing products, including the products manufactured by the Company. The Company continues to analyze its current cost structure to bring its production and overhead costs in line with the anticipated industry demand for its products for the rest of this year. However, the Company's need to invest in engineering and product development, marketing, and customer service and support capabilities will limit its ability to reduce expenses in response to such downturns or slow downs. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK A portion of the Company's foreign sales are denominated in currencies other than the U.S. Dollar. The Company may also purchase a portion of its raw materials and equipment from foreign suppliers and will incur labor costs in a foreign currency. Such transactions expose the Company to exchange rate fluctuations for the period of time from inception of the transaction until it is settled. The Company monitors its foreign currency exposure and from time to time enters into hedging transactions to manage this exposure. There were no forward contracts at December 31, 1999. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 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 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 29 32 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS AND COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth certain information regarding the Company's directors. 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
NAME AGE POSITION(S) WITH CERPROBE - ---- --- ------------------------- Ross J. Mangano(1)(2).................. 54 Chairman of the Board of Directors C. Zane Close.......................... 50 President, Chief Executive Officer, and Director William A. Fresh(2).................... 71 Director Kenneth W. Miller(1)................... 68 Director Donald F. Walter(1)(2)................. 67 Director
- --------------- (1) Member of the Compensation Committee (2) Member of the Audit Committee Ross J. Mangano has served as the Chairman of the Board of Directors of the Company since February 1993 and as a director of the Company since February 1988. Mr. Mangano has served as the President of Oliver Estate, Inc., an investment management company, since 1996. Prior to that time, Mr. Mangano served in various management positions with Oliver Estate, Inc., since 1971. Mr. Mangano also is an investment analyst for Oliver Estate, Inc. Since July 1998, Mr. Mangano has served on the Board of Directors of U.S. RealTel, Inc., a public corporation owning access rights on properties around the world and has served as director of U.S. RealTel Argentina since 1999 as well. Mr. Mangano has served on the Board of Directors of BioSante Pharmaceuticals, Inc., a public company, since July 1999 and Orchard Software Corporation, a privately held company, which develops software for the medical industry, since August 1998. From August 1997 to 1999, Mr. Mangano served on the Board of Directors of Blue Chip Casino, a privately held casino. From December 1993 to 1996, Mr. Mangano served on the Board of Directors of Cole Taylor Financial Group, a publicly held bank holding company. C. Zane Close has served as President and Chief Executive Officer and as a director of the Company since July 1990. From September 1989 to July 1990, Mr. Close served as Vice President and General Manager of Probe Technology Corporation ("Probe Technology"), a manufacturer of probing devices for testing integrated circuits. Mr. Close served as Vice President of Operations of Probe Technology from February 1985 to September 1989. Prior to joining Probe Technology, Mr. Close held various financial and management positions at California Devices, NKB Corporation, and National Semiconductor Corporation. William A. Fresh has served as a director of the Company since April 1995. Mr. Fresh co-founded Fresh Test Technology Corporation ("Fresh Test"), a designer and manufacturer of probe and interface test technology for the semiconductor industry, which was acquired by the Company in April 1995. He served as Chairman of the Board and Chief Executive Officer of Fresh Test from January 1986 through March 1995. Mr. Fresh also has served as the Chairman of the Board and Chief Executive Officer of Magellan Technology, a public holding company; and Orem Tek Development Corp., a real estate development company, since May 1990 and May 1991, respectively. Mr. Fresh served as Chairman of the Board and Chief Executive Officer of Satellite Images System Corporation, a medical information processing company, from February 1992 to August 1996, and from August 1996 to May 1998 served on the Board of Directors of the successor company known as Satellite Images System, L.L.C. Mr. Fresh served as Chairman of the Board of 30 33 EFI Electronics, a publicly held power conditioning company; and Fresh Technology Company, a PC-based software company, from January 1991 to March 1994. From April 1996 to July 1998, Mr. Fresh served on the Board of Directors of Sento Technical Innovation Corporation, a publicly held software company. Mr. Fresh has served as Chairman of the Board and as senior consultant to Brow Z.com since August 1998. Kenneth W. Miller has served as a director of the Company since 1979. Mr. Miller served as Treasurer of the Company from June 1994 to June 1996 and as Secretary of the Company from October 1991 to June 1996. Since January 1992, Mr. Miller has served as a business consultant to various companies involved in the microelectronic industry. From April 1991 until October 1991, Mr. Miller served as Marketing Director of Scrantom Engineering, Inc., a manufacturer of hybrid circuits and ceramic circuit boards. From September 1988 until April 1991, Mr. Miller served as Marketing Director of Advanced Packaging Systems, a manufacturer of high-density ceramic and polymer thin film interconnect products. From 1981 to September 1988, Mr. Miller served as President of Interamics, a manufacturer of ceramic packages for ICs and hybrid substrates. Donald F. Walter has served as a director of the Company since May 1991. Since 1982, Mr. Walter has been a financial consultant and is the principal of Walter & Keenan Financial Consulting Co., a financial consulting firm. Since January 1982, Mr. Walter has served as a director of National Standard Co., a publicly held manufacturer of specialty wire products. Since October 1988, Mr. Walter has served as a director of Metro BanCorp, a publicly held bank. Directors hold office until their successors have been elected and qualified. All officers are elected by the Board of Directors and hold office until their successors have been duly elected and qualified, or until resignation or removal. There currently is no classification of the Board of Directors. There are no family relationships among any of the directors or officers of the Company. The employment agreement between the Company and Mr. Close provides that the Company will cause Mr. Close to be nominated to the Board of Directors so long as Mr. Close is employed by the Company. The stockholders of the Company, however, have no obligation to vote for Mr. Close and may withhold or distribute votes in their discretion. the Company knows of no other arrangements or understandings between any director or executive officer and any other person pursuant to which he has been selected as a director or executive officer. COMPLIANCE WITH SECTION 16 OF THE SECURITIES EXCHANGE ACT OF 1934 Section 16(a) of the Exchange Act requires the Company's directors and officers, and persons who own more than 10% of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership with the SEC. Officers, directors, and greater than 10% stockholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms filed with the SEC. Based solely on the Company's review of the copies of such forms received by it during the fiscal year ended December 31, 1999, and written representations that no other reports were required, the Company believes that each person who, at any time during such fiscal year, was a director, officer, or beneficial owner of more than 10% of the Company's Common Stock complied with all Section 16(a) filing requirements during such fiscal year. ITEM 11. EXECUTIVE COMPENSATION SUMMARY OF CASH AND OTHER COMPENSATION The following table sets forth information concerning the compensation for the fiscal years ended December 31, 1999, 1998, and 1997 earned by the Company's Chief Executive Officer and the Company's four most highly compensated executive officers whose aggregate cash compensation exceeded $100,000 for 31 34 services rendered in all capacities to the Company and its subsidiaries for the last fiscal year (the "Named Officers").
LONG TERM COMPENSATION ANNUAL COMPENSATION ----------------------------------- ------------------------------------------- AWARDS OTHER ---------------------- PAYOUTS ANNUAL RESTRICTED ---------- ALL OTHER NAME AND COMPEN- STOCK OPTIONS/ LTIP COMPEN- PRINCIPAL POSITION YEAR SALARY($) BONUS($) SATION($)(1) AWARD(S)($) SARS(#) PAYOUTS($) SATION($)(2) - ------------------ ---- --------- -------- ------------ ----------- -------- ---------- ------------ C. Zane Close................ 1999 280,000 -- -- -- -- -- 1,000(3) President and Chief 1998 270,000 -- -- -- 140,000(2) -- 1,500(4) Executive Officer 1997 209,276 185,716 -- -- 60,000 -- -- Michael K. Bonham............ 1999 160,000 -- -- -- -- -- 1,000(3) Sr. Vice President of 1998 150,000 -- -- -- 65,000(2) -- 1,500(4) Sales and Marketing 1997 134,950 99,547 -- -- 15,000 -- 13,349(5) Randal L. Buness............. 1999 160,000 -- -- -- -- -- 1,000(3) Senior Vice President, 1998 148,000 -- -- -- 90,000(2) -- 1,500(4) Chief Financial Officer, 1997 119,981 75,000 -- -- -- -- -- Secretary and Treasurer Kevin M. Kurtz............... 1999 150,000 -- -- -- -- -- 8,200(3) Vice President, Operations 1998 150,000 -- -- -- -- -- 8,700(4) 1997 133,000 20,000 -- -- 20,000 -- 1,800(6) Henry P. Scutoski............ 1999 125,000 -- -- -- 5,000 -- 1,000(3) Vice President, Quality 1998 115,000 -- -- -- -- -- 1,500(4) and Process Management 1997 105,000 11,626 -- -- -- -- --
- --------------- (1) Other annual compensation did not exceed the lesser of $50,000 or 10% of the total salary and bonus for any of the Named Officers. (2) Reflects the effect of the reissuance in August 1998 of options to acquire 60,000, 25,000, and 40,000 shares granted to Messrs. Close, Bonham, and Buness, respectively, originally granted in January 1998 and cancelled. (3) Represents matching contributions to the Company's 401(k) plan of $1,000 to Messrs. Close, Bonham, Buness, Kurtz, and Scutoski. In addition, $7,200 represents an auto allowance to Mr. Kurtz. (4) Represents matching contributions to the Company's 401(K) plan of $1,500 to Messrs. Close, Bonham, Buness, Kurtz, and Scutoski. In addition, $7,200 represents an auto allowance to Mr. Kurtz. (5) Represents salary and/or bonus earned by Mr. Bonham in 1996 payment for which was deferred to 1997. (6) Represents an auto allowance of $1,800 to Mr. Kurtz. 32 35 OPTION GRANTS IN LAST FISCAL YEAR The following table provides information on stock options granted to the Company's Named Officers during the fiscal year ended December 31, 1999.
POTENTIAL REALIZABLE VALUE AT ASSUMED INDIVIDUAL GRANTS ANNUAL RATES OF --------------------------------------------------------------------- STOCK PRICE NUMBER OF APPRECIATION FOR SECURITIES EXERCISE OPTION TERM($)(1) UNDERLYING OPTIONS % OF TOTAL OPTIONS PRICE -------------------- NAME GRANTED (#) GRANTED FISCAL YEAR ($/SH) EXPIRATION DATE 5% 10% - ---- ------------------ ------------------- -------- --------------- -------- --------- Henry P. Scutoski....... 5,000(2) 1.2% 15.125 2/16/09 47,560 120,527
- --------------- (1) Calculated from a base price equal to the exercise price of each option, which was the fair market value of the common stock on the date of grant. The amounts represent only certain assumed rates of appreciation. (2) One-fifth of the options vest and become exercisable on the date of grant, February 16, 1999; and one-fifth on each of February 16, 2000; February 16, 2001; February 16, 2002; and February 16, 2003. OPTION HOLDINGS AND YEAR END OPTIONS VALUES The following table contains certain information representing the options held by the Named Officers as of December 31, 1999.
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-THE- OPTIONS AT FISCAL MONEY OPTIONS AT FISCAL YEAR-END(#) YEAR-END($)(1) ------------------------------- ------------------------------- NAME EXERCISABLE UNEXERCISABLE(2) EXERCISABLE UNEXERCISABLE(2) - ---- ----------- ---------------- ----------- ---------------- C. Zane Close....................... 98,000 102,000 $-- $-- Michael K. Bonham................... 36,500 43,500 -- -- Randal L. Buness.................... 76,000 64,000 -- -- Kevin M. Kurtz...................... 38,000 12,000 -- -- Henry P. Scutoski................... 5,000 5,000 -- --
- --------------- (1) Calculated based upon the December 31, 1999, The Nasdaq National Market(R) closing price of $7.375 per share, multiplied by the applicable number of shares in-the-money, less the aggregate exercise price for such shares. (2) Not vested as of December 31, 1999. EMPLOYMENT AGREEMENTS AND OTHER ARRANGEMENTS The Company has entered into Employment Agreements with C. Zane Close, Michael K. Bonham, and Randal L. Buness that provide a base salary of $280,000 for Mr. Close and $160,000 for Messrs. Bonham and Buness and entitles each to participate in incentive compensation programs, stock option plans, and other generally available benefit programs. The terms of the agreements are two years for Mr. Close and one year for Messrs. Bonham and Buness, and each provides for automatic successive one-year renewal terms to continue until one party provides the other with written notice of non-renewal. Under each of the agreements, if the executive's employment is terminated by the Company without Cause (as defined) or by the executive for Good Reason (as defined), the executive will be entitled to "Severance Benefits." Under the agreements, Severance Benefits are defined as the greater of: - the sum of (a) the executive's base salary for the unexpired term of the agreement, and (b) the average of incentive compensation paid to the executive for the two years prior to the date of termination multiplied by a fraction, the numerator of which is the number of months remaining from the date of termination to the end of the term of the agreement and the denominator of which is 12, or 33 36 - the sum of (x) the executive's base salary in effect on the date of termination and (y) the average of incentive compensation paid to the executive for the two years prior to the date of termination. In addition, under the agreements each executive will continue to receive life, disability, accident and group health insurance benefits substantially similar to those which he was receiving immediately prior to his termination of employment until the earlier of the end of the period of 12 months following his termination of employment or the day on which he becomes eligible to receive any substantially similar continuing health care benefits under any plan or program of any other employer. Each of the agreements provides for the Company to indemnify the executive for certain liabilities arising from actions taken within the scope of employment. Each agreement contains restrictive covenants pursuant to which the executive has agreed not to compete with the Company or to solicit any clients or employees for a period of one year after the executive's employment ceases. These restrictions do not apply if the executive is terminated without Cause or by the executive for Good Reason. Change of Control Agreements The Company also entered into Change of Control Agreements with Messrs. Close, Bonham, and Buness. These Change of Control agreements provide that, upon termination of their employment by the Company without Cause (as defined) within two years following a Change of Control (as defined), or termination by executive for Good Reason (as defined) within two years following a Change of Control each is entitled to lump sum payment equal to the sum of: - two times base salary on the date of termination of employment, - two times the average of incentive compensation for the two years prior to termination of employment, and - the amount of any lump-sum severance benefit paid under any employment agreement. Additionally, each will be entitled to continuation of life, disability and group health benefits for 24 months after termination of employment. Notwithstanding the above, the benefits under the Change of Control Agreements will be reduced to the extent that the payments would not be deductible by the Company (in whole or in part) under Section 280G of the Internal Revenue Code (which is generally equal to 299% of the executive's average annual total compensation during the preceding five years). ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information regarding beneficial ownership of the Company's Common Stock as of March 9, 2000 by: - each director; - each Named Officer set forth in the Summary Compensation Table under the section entitled "Executive Compensation"; - all directors and executive officers of the Company as a group; and - each person known by the Company to be the beneficial owner of more than 5% of the Common Stock. The information as to beneficial ownership is based upon statements furnished to the Company by such persons. 34 37
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT OF OF BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP(2) CLASS(3) - ---------------------- -------------------------- ---------- Directors and Named Officers Ross J. Mangano............................................. 535,799(4) 5.67% C. Zane Close............................................... 170,100(5) 1.78% William A. Fresh............................................ 175,535(6) 1.86% Kenneth W. Miller........................................... 149,499(7) 1.58% Donald F. Walter............................................ 34,999(8) * Michael K. Bonham........................................... 98,017(9) 1.04% Randal L. Buness............................................ 79,000(10) * Kevin M. Kurtz.............................................. 49,997(11) * Henry P. Scutoski........................................... 16,820(12) * All directors and executive officers as a group (nine persons).................................................. 1,309,766(13) 13.38% Affiliate Nasser Barabi..................................... 525,000(14) 5.57%
- --------------- * Less than 1%. (1) Each director and officer of the Company may be reached through the Company at 1150 North Fiesta Boulevard, Gilbert, Arizona 85233-2237. (2) Unless otherwise indicated, and subject to community property laws where applicable, all shares are owned of record by the persons named and the beneficial ownership consists of sole voting power and sole investment power. (3) The percentages shown include the shares of Common Stock actually owned as of March 27, 2000 and the shares of Common Stock that the identified person or group had the right to acquire within 60 days of March 27, 2000, pursuant to the exercise of stock options. In calculating the percentage of ownership, all shares of Common Stock that the identified person or group had the right to acquire within 60 days of March 27, 2000, upon the exercise of stock options are deemed to be outstanding for the purpose of computing the percentage of the shares of Common Stock owned by such person or group, but are not deemed to be outstanding for the purpose of computing the percentage of the shares of Common Stock owned by any other person. (4) Includes 20,000 shares in the name of Nat & Co voted pursuant to a power of attorney, 21,300 shares in the name of Oliver & Company voted pursuant to a power of attorney, 90,000 shares in the name of Millie M. Cunningham voted pursuant to a power of attorney, 350,200 shares held in the name of Troon & Co., Ross J. Mangano, et al., Trustees for which Mr. Mangano serves as a trustee, and 21,999 shares that Mr. Mangano has the right to acquire pursuant to the exercise of options. (5) Includes 110,000 shares that Mr. Close has the right to acquire pursuant to the exercise of options. (6) Includes 111,461 shares held by WAF Investment Company, a company 100% owned by Mr. Fresh and his wife, 19,716 shares held by The William A. and Reva Luana Fresh Charitable Remainder Unitrust, and 21,999 shares that Mr. Fresh has the right to acquire pursuant to the exercise of options. (7) Includes 50,000 shares held by U.S. Trust Company of California, N.A., as trustee for the Kenneth W. Miller Charitable Remainder Unitrust. Mr. Miller disclaims beneficial ownership with respect to these shares. Also includes 21,999 shares that Mr. Miller has the right to acquire pursuant to the exercise of options. (8) Includes 21,999 shares that Mr. Walter has the right to acquire pursuant to the exercise of options. (9) Includes 37,750 shares that Mr. Bonham has the right to acquire pursuant to the exercise of options. (10) Includes 76,000 shares that Mr. Buness has the right to acquire pursuant to the exercise of options. (11) Includes 48,000 shares that Mr. Kurtz has the right to acquire pursuant to the exercise of options. (12) Includes 9,000 shares that Mr. Scutoski has the right to acquire pursuant to the exercise of options. (13) Includes 368,746 shares that members of the group had the right to acquire as of March 27, 2000 or within 60 days of March 27, 2000, pursuant to the exercise of stock options. 35 38 (14) Mr. Barabi's address is 3387 Investment Boulevard Hayward, California, 94545. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company believes that it is important for its directors and officers to be significant stakeholders in the Company. With this in mind, in August 1999, the Board of Directors approved a director and executive officer loan program to provide financial assistance to directors and executive officers, by way of loans, to assist with the exercise price and tax consequences of stock option exercises (the "Loan Program"). Under the Loan Program, the Company provides loans up to the amount of the exercise price to be paid plus presumed Federal and State taxes on the exercise of a stock option. Each member of the Board, each of the Company's executive officers, and any other individual designated by the Board are eligible for the loans. The Loan Program provides for unsecured, recourse loans, that bear interest at the applicable short-term Federal rate (for loans with terms less than three years), or the applicable mid-term Federal rate (for loans with terms of three years or greater). Generally, the term of the loans will be no longer than five years, although the Board may provide for a longer term on a case-by-case basis. Payments are due in installments of principal and interest throughout the term of the loans. If the employment/services of a Loan Program participant is terminated for "cause" or if the participant resigns without "good reason," any loans to that participant will be immediately due and payable. If the participant's employment/services is terminated without cause or if the participant resigns with good reason, then any loan remains payable pursuant to the original term of the loan. The terms cause and good reason are generally defined in the Company's standard executive employment agreements as modified for non-employee members of the Board. In 1999, the Loan Program provided loans totaling $841,465 in connection with the exercises of options to purchase 145,000 shares of Company stock and pay income tax liabilities associated with those exercises. The following table sets forth certain information regarding loans made by the Company to its directors and executive officers that were outstanding as of December 31, 1999 (collectively, the "Loans"). As of December 31, 1999, the aggregate indebtedness owed to the Company pursuant to the Loan Program was $889,206, including accrued interest thereon.
AMOUNT OUTSTANDING NUMBER OF SHARES NAME AND AS OF DECEMBER 31, PURCHASED THROUGH PRINCIPAL POSITION DATE DEBT INCURRED 1999(1) EXERCISE OF OPTIONS - ------------------ ------------------ ------------------ ------------------- C. Zane Close........................... 8/5/99 $372,511 60,000 President, Chief Executive Officer, and Director Michael K. Bonham....................... 8/5/99 $310,965 50,000 Sr. Vice President of Sales and Marketing Kenneth W. Miller....................... 8/16/99 $117,626 20,000 Director Donald F. Walter........................ 8/24/99 $ 88,104 15,000 Director
- --------------- (1) Includes accrued interest. 36 39 PART IV ITEM 14. 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, 1999 and 1998..... F-2 Consolidated Statements of Operations for the years ended December 31, 1999, 1998, and 1997......................... F-3 Consolidated Statements of Stockholders' Equity and Comprehensive Income for the years ended December 31, 1999, 1998, and 1997...................................... F-4 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998, and 1997......................... F-5 Notes to Consolidated Financial Statements.................. F-6
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) Second Restated Certificate of Incorporation of Cerprobe Corporation, filed with the Secretary of State on June 23, 1998, filed as Exhibit 3(e) to the Company's Form 10-Q for the period ended June 30, 1998 and incorporated herein by reference. 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. 3(c) Rights Agreement, dated September 28, 1998, between Cerprobe Corporation and American Securities Transfer & Trust, Incorporated, as Rights Agent, filed as an Exhibit to the Company's Form 8-A filed on or about October 2, 1998 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.
37 40
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 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. 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(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(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(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(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. 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.
38 41
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 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(aaa) Lease agreement between CompuRoute and Banc One Leasing dated November 17, 1997, filed as Exhibit 10(aaa) to the Company's Form 10-K for the year ended December 31, 1997 and incorporated herein by reference. 10(bbb) Master Lease Agreement between Company and Banc One Leasing Corporation, dated February 16, 1998, filed as Exhibit 10(bbb) to the Company's Form 10-K for the year ended December 31, 1997 and incorporated herein by reference. 10(ccc) Lease agreement between CompuRoute and Banc One Leasing Corporation, dated May 7, 1998, filed as Exhibit 10(ccc) to the Company's Form 10-Q for the period ended June 30, 1998 and incorporated herein by reference. 10(ddd) Lease agreement between CompuRoute and Banc One Leasing Corporation, dated June 17, 1998, filed as Exhibit 10(ddd) to the Company's Form 10-Q for the period ended June 30, 1998 and incorporated herein by reference. 10(eee) Lease agreement between Cerprobe Corporation and Jackson-Shaw El Dorado Tech I Limited Partnerships, dated May 15, 1998, filed as Exhibit 10(eee) to the Company's Form 10-Q for the period ended June 30, 1998 and incorporated herein by reference. 10(fff) Lease agreement between Cerprobe Corporation and Banc One Leasing Corporation, dated October 22, 1998, filed as Exhibit 10(fff) to the Company's Form 10-Q for the period ended June 30, 1998 and incorporated herein by reference. 10(ggg) Business Loan agreement between Cerprobe Corporation and Bank of America, dated December 31, 1998, filed as Exhibit 10(ggg) to the Company's Form 10-Q for the period ended March 31, 1999. 10(hhh) Lease agreement between Cerprobe Corporation and Bank of America, dated February 26, 1999, filed as Exhibit 10(hhh) to the Company's Form 10-Q for the period ended March 31, 1999. 10(iii) Employment Agreement between Cerprobe Corporation and C. Zane Close effective January 1, 1999, filed as Exhibit 10(iii) to the Company's Form 10-Q for the period ended March 31, 1999. 10(jjj) Employment Agreement between Cerprobe Corporation and Michael K. Bonham effective January 1, 1999, filed as Exhibit 10(jjj) to the Company's Form 10-Q for the period ended March 31, 1999. 10(kkk) Employment Agreement between Cerprobe Corporation and Randal L. Buness effective January 1, 1999, filed as Exhibit 10(kkk) to the Company's Form 10-Q for the period ended March 31, 1999. 10(lll) Change of Control Agreement between Cerprobe Corporation and C. Zane Close dated January 28, 1999, filed as Exhibit 10(lll) to the Company's Form 10-Q for the period ended March 31, 1999. 10(mmm) Change of Control Agreement between Cerprobe Corporation and Michael K. Bonham dated January 26, 1999, filed as Exhibit 10(mmm) to the Company's Form 10-Q for the period ended March 31, 1999.
39 42
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10(nnn) Change of Control Agreement between Cerprobe Corporation and Randal L. Buness dated January 26, 1999, filed as Exhibit 10(nnn) to the Company's Form 10-Q for the period ended March 31, 1999. 10(ooo) First Amendment to the Cerprobe Corporation 1997 Employee Stock Purchase Plan dated February 15, 1999, filed as Exhibit 10(ooo) to the Company's Form 10-Q for the period ended March 31, 1999. 10(ppp) Form of Secured Promissory Note and Stock Pledge Agreement entered into on August 16, 1999 between Cerprobe Corporation as Lender and Pledgee and each of the following as Borrower and Pledgor: Kenneth W. Miller ($115,000), Donald Walter ($86,250), C. Zane Close ($345,000), and Michael Bonham ($287,500), filed as Exhibit 10(ppp) to the Company's Form 10-Q for the period ended September 30, 1999. 10(qqq) Registration of 1.5 million shares of Cerprobe Corporation Common Stock on the Company's Form S-3 on March 8, 2000, in conjunction with the purchase of OZ Technologies, Inc. (no. 333-31992) and incorporated herein by reference. 10(rrr) Non-Qualified Stock Option Plan adopted by Cerprobe Corporation's Board of Directors on December 3, 1999, and Stock Option Agreement filed with the Company's form S-8 Registration Statement on March 8, 2000, (no. 333-31954) and incorporated herein by reference. 10(sss) Employment Agreement between Cerprobe Corporation and Daniel J. Hill effective October 19, 1999. 10(ttt) Change of Control Agreement between Cerprobe Corporation and Daniel J. Hill dated October 19, 1999. 10(uuu) Lease agreement between Cerprobe Interconnect Solutions, Inc. and Bank One Leasing Corporation dated November 15, 1999. 10(vvv) Lease agreement between Cerprobe Corporation and Bank One Leasing Corporation dated November 15, 1999. 10(www) Stock Purchase Agreement between Cerprobe Corporation and OZ Technologies, Inc., Nasser Barabi, Iraj Barabi, Ali Bushehri, and Aham Barabi dated December 3, 1999, filed as Exhibit 1 to the Company's 8-K on December 18, 1999. 10(xxx) Subordinated Promissory Note between Cerprobe Corporation and Ali Bushehri, dated December 3, 1999 filed as Exhibit 2 to the Company's 8-K on December 18, 1999. 10(yyy) Promissory Note between Cerprobe Corporation and Ali Bushehri, dated December 3, 1999 filed as Exhibit 3 to the Company's 8-K on December 18, 1999. 10(zzz) Employment Agreement between Cerprobe Corporation and Nasser Barabi effective December 3, 1999, filed as Exhibit 4 to the Company's 8-K on December 18, 1999. 10(aaaa) Employment Agreement between Cerprobe Corporation and Iraj Barabi effective December 3, 1999, filed as Exhibit 5 to the Company's 8-K on December 18, 1999. 10(bbbb) Consulting Agreement between Cerprobe Corporation and C-MA International, Ltd. Effective December 3, 1999, filed as Exhibit 6 to the Company's 8-K on December 18, 1999. 10(cccc) Noncompetition Agreement between Cerprobe Corporation and Nasser Barabi effective December 3, 1999, filed as Exhibit 7 to the Company's 8-K on December 18, 1999. 10(dddd) Noncompetition Agreement between Cerprobe Corporation and Iraj Barabi effective December 3, 1999, filed as Exhibit 8 to the Company's 8-K on December 18, 1999. 10(eeee) Noncompetition Agreement between Cerprobe Corporation and Ali Busherhi effective December 3, 1999, filed as Exhibit 9 to the Company's 8-K on December 18, 1999.
40 43
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10(ffff) Noncompetition Agreement between Cerprobe Corporation and Ahmad Barabi effective December 3, 1999, filed as Exhibit 10 to the Company's 8-K on December 18, 1999. 10(gggg) Loan and Security Agreement between Cerprobe Corporation and Bank of America dated December 3, 1999, filed as Exhibit 11 to the Company's 8-K on December 18, 1999. 10(hhhh) Notification of Assignment of payments between Cerprobe Corporation, Oracle Credit Corporation and Newcourt Financial USA, Inc. dated March 16, 2000. 11 Computation of Net Income (Loss) per Share. 21 List of Subsidiaries. 23 Consent of KPMG LLP, Independent Accountants 27.1 Financial Data Schedule for twelve months ended December 31, 1999 27.2 Restated Financial Data Schedule for twelve months ended December 31, 1998
(b) Reports on Form 8-K Form 8-K, filed on December 18, 1999, to report the acquisition of OZ Technologies, Inc. Form 8-K/A filed on February 18, 2000 to incorporate the Proforma Combined Condensed Financial Statements with respect to the acquisition of OZ Technologies, Inc. Form 8-K filed March 7, 2000, to file December 31, 1999 financial statements. 41 44 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/ C. ZANE CLOSE -------------------------------------- C. Zane Close President, Chief Executive Officer, and Director Dated: March 30,2000 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 30, 2000 - --------------------------------------------------- Directors and Director Ross J. Mangano /s/ C. ZANE CLOSE President, Chief Executive March 30, 2000 - --------------------------------------------------- Officer, and Director C. Zane Close (Principal Executive Officer) /s/ RANDAL L. BUNESS Senior Vice President, Chief March 30, 2000 - --------------------------------------------------- Financial Officer, Secretary, Randal L. Buness and Treasurer (Principal Financial and Accounting Officer) /s/ WILLIAM A. FRESH Director March 30, 2000 - --------------------------------------------------- William A. Fresh /s/ KENNETH W. MILLER Director March 30, 2000 - --------------------------------------------------- Kenneth W. Miller /s/ DONALD F. WALTER Director March 30, 2000 - --------------------------------------------------- Donald F. Walter
42 45 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders of Cerprobe Corporation: We have audited the accompanying consolidated balance sheets of Cerprobe Corporation and subsidiaries as of December 31, 1999 and 1998 and the related consolidated statements of operations, stockholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 1999. 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, 1999 and 1998 and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1999 in conformity with generally accepted accounting principles. KPMG LLP Phoenix, Arizona February 15, 2000 F-1 46 CERPROBE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, -------------------------- 1999 1998 ----------- ----------- ASSETS Current assets: Cash...................................................... $ 3,484,045 $ 4,753,696 Short-term investment securities.......................... -- 14,305,400 Accounts receivable, net of allowance of $331,009 in 1999 and $333,364 in 1998................................... 12,313,053 8,951,680 Inventories, net.......................................... 9,728,500 5,303,631 Accrued interest receivable............................... 22,157 102,093 Prepaid expenses.......................................... 1,107,378 869,382 Income taxes receivable................................... 4,041,140 714,811 Deferred tax asset........................................ 2,123,609 446,092 Net assets of discontinued operations..................... -- 1,481,903 ----------- ----------- Total current assets.............................. 32,819,882 36,928,688 Property, plant, and equipment, net......................... 23,537,021 21,169,934 Intangible assets, net...................................... 26,334,157 4,579,035 Other assets................................................ 676,485 1,007,917 ----------- ----------- Total assets...................................... $83,367,545 $63,685,574 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.......................................... $ 3,687,143 $ 2,534,997 Accrued expenses.......................................... 5,584,724 3,075,894 Current portion of notes payable.......................... 10,334,878 138,985 Current portion of capital lease obligations.............. 954,957 660,192 Net liabilities of discontinued operations................ 446,629 -- ----------- ----------- Total current liabilities......................... 21,008,331 6,410,068 Notes payable, less current portion......................... 5,200,034 731,555 Capital lease obligations, less current portion............. 2,454,637 2,472,563 Deferred tax and other liabilities.......................... 472,158 7,073 ----------- ----------- Total liabilities................................. 29,135,160 9,621,259 ----------- ----------- Minority interest........................................... 1,115,545 590,465 Commitments and contingencies Stockholders' equity: Preferred stock, $.05 par value; authorized 10,000,000 shares; issued and outstanding none.................... -- -- Common stock, $.05 par value; authorized 25,000,000 shares; issued 9,863,245 and outstanding 9,419,052 shares at December 31, 1999 and issued 8,131,279 and outstanding 7,645,126 shares at December 31, 1998...... 493,162 406,564 Additional paid-in capital................................ 67,830,701 55,271,200 Retained earnings (deficit)............................... (9,074,938) 3,505,734 Accumulated other comprehensive loss: Foreign currency translation........................... (236,534) (188,131) ----------- ----------- 59,012,391 58,995,367 Treasury stock, at cost, 444,193 shares at December 31, 1999 and 486,153 shares at December 31, 1998........... (5,027,278) (5,521,517) Notes receivable from related parties..................... (868,273) -- ----------- ----------- Total stockholders' equity........................ 53,116,840 53,473,850 ----------- ----------- Total liabilities and stockholders' equity........ $83,367,545 $63,685,574 =========== ===========
See accompanying notes to consolidated financial statements. F-2 47 CERPROBE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, ------------------------------------------ 1999 1998 1997 ------------ ----------- ----------- Net sales.......................................... $ 62,655,751 $76,207,477 $69,012,395 Costs of goods sold................................ 41,637,001 45,052,300 39,251,446 ------------ ----------- ----------- Gross profit..................................... 21,018,750 31,155,177 29,760,949 ------------ ----------- ----------- Expenses: Selling, general, and administrative............. 21,214,773 18,316,839 16,218,709 Engineering and product development.............. 4,806,971 3,101,082 996,253 In-process research and development.............. 8,815,000 1,568,000 -- Goodwill amortization............................ 785,981 461,301 386,467 ------------ ----------- ----------- Total expenses........................... 35,622,725 23,447,222 17,601,429 ------------ ----------- ----------- Operating income (loss)............................ (14,603,975) 7,707,955 12,159,520 ------------ ----------- ----------- Other income (expense): Interest income.................................. 881,769 1,323,918 348,816 Interest expense................................. (582,135) (269,115) (388,025) Other, net....................................... (527,138) 542,839 323,065 ------------ ----------- ----------- Total other income (expense)............. (227,504) 1,597,642 283,856 ------------ ----------- ----------- Income (loss) from continuing operations before minority interest and income taxes............... (14,831,479) 9,305,597 12,443,376 Minority interest.................................. (454,450) (383,637) 29,715 ------------ ----------- ----------- Income (loss) from continuing operations before income taxes..................................... (15,285,929) 8,921,960 12,473,091 Income tax (expense) benefit....................... 2,710,579 (3,685,308) (4,810,167) ------------ ----------- ----------- Income (loss) from continuing operations........... (12,575,350) 5,236,652 7,662,924 Discontinued operations: Loss from operations of SVTR, Inc., net of taxes......................................... (5,322) (1,924,820) (5,766,956) Loss on disposal of SVTR, Inc., net of taxes..... -- (3,807,740) -- ------------ ----------- ----------- Loss from discontinued operations............. (5,322) (5,732,560) (5,766,956) ------------ ----------- ----------- Net income (loss).................................. $(12,580,672) $ (495,908) $ 1,895,968 ============ =========== =========== Net income (loss) per common share: Basic: From continuing operations.................... $ (1.60) $ 0.66 $ 1.14 From discontinued operations.................. -- (0.72) (0.86) ------------ ----------- ----------- Net income (loss) per common share............... $ (1.60) $ (0.06) $ 0.28 ============ =========== =========== Weighted average number of common shares outstanding................................... 7,884,628 7,963,747 6,690,265 ============ =========== =========== Diluted: From continuing operations....................... $ (1.60) $ 0.63 $ 1.10 From discontinued operations..................... -- (0.69) (0.83) ------------ ----------- ----------- Net income (loss) per common share............... $ (1.60) $ (0.06) $ 0.27 ============ =========== =========== Weighted average number of common and common equivalent shares outstanding................. 7,884,628 8,251,373 6,982,368 ============ =========== ===========
See accompanying notes to consolidated financial statements. F-3 48 CERPROBE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
NUMBER OF NUMBER OF PREFERRED COMMON SHARES NUMBER OF ADDITIONAL SHARES ISSUED AND TREASURY COMMON PREFERRED TREASURY PAID-IN ISSUED OUTSTANDING SHARES STOCK STOCK STOCK CAPITAL --------- ----------- --------- -------- --------- ----------- ----------- Balance, December 31, 1996........ 6,027,714 330 -- $301,386 $16 $ -- $20,652,290 Exercise of stock options......... 95,265 -- -- 4,763 -- -- 811,702 Issuance of common stock for acquisition...................... 175,000 -- -- 8,750 -- -- 1,662,062 Issuance of common stock in secondary offering, net of issuance cost of $226,764........ 1,800,000 -- -- 90,000 -- -- 37,015,237 Redemption of preferred stock..... -- (330) -- -- (16) -- (5,249,984) Tax benefit from exercise of nonqualified stock options....... -- -- -- -- -- -- 245,000 Comprehensive income (loss): Foreign currency translation, net of taxes....................... -- -- -- -- -- -- -- Net income....................... Total comprehensive income........ --------- ---- -------- -------- --- ----------- ----------- Balance, December 31, 1997........ 8,097,979 -- -- $404,899 $-- $ -- $55,136,307 Exercise of stock options......... 31,300 -- -- 1,565 -- -- 204,048 Expenses from issuance of common stock............................ -- -- -- -- -- -- (178,650) Issuance of common stock for employee stock purchase plan..... 37,198 -- -- 480,454 (74,519) Exercise of warrants.............. 2,000 (1,551) 100 -- (33,114) 33,014 Purchase of treasury stock........ -- -- (521,800) -- -- (5,968,857) -- Tax benefit from exercise of nonqualified stock options....... -- -- -- -- -- -- 151,000 Comprehensive income (loss): Foreign currency translation, net of taxes....................... -- -- -- -- -- -- -- Net loss......................... -- -- -- -- -- -- -- Total comprehensive loss.......... --------- ---- -------- -------- --- ----------- ----------- Balance, December 31, 1998........ 8,131,279 -- (486,153) $406,564 $-- $(5,521,517) $55,271,200 Exercise of stock options......... 231,966 -- -- 11,598 -- -- 1,387,065 Issuance of common stock for acquisition...................... 1,500,000 -- -- 75,000 -- -- 11,263,000 Issuance of common stock for employee stock purchase plan..... 41,960 -- -- 494,239 (184,564) Tax benefit from exercise of nonqualified stock options....... -- -- -- -- -- -- 94,000 Notes receivable from related parties.......................... -- -- -- -- -- -- -- Comprehensive loss: Foreign currency translation, net of taxes....................... -- -- -- -- -- -- -- Net loss......................... -- -- -- -- -- -- -- Total comprehensive loss.......... --------- ---- -------- -------- --- ----------- ----------- Balance, December 31, 1999........ 9,863,245 -- (444,193) $493,162 $-- $(5,027,278) $67,830,701 ========= ==== ======== ======== === =========== =========== ACCUMULATED NOTES OTHER RETAINED RECEIVABLE COMPREHENSIVE TOTAL EARNINGS FROM RELATED INCOME STOCKHOLDERS' (DEFICIT) PARTIES (LOSS) EQUITY ------------ ------------ ------------- ------------- Balance, December 31, 1996........ $ 2,105,674 $ -- $ 42,596 $23,101,962 Exercise of stock options......... -- -- -- 816,465 Issuance of common stock for acquisition...................... -- -- -- 1,670,812 Issuance of common stock in secondary offering, net of issuance cost of $226,764........ -- -- -- 37,105,237 Redemption of preferred stock..... -- -- -- (5,250,000) Tax benefit from exercise of nonqualified stock options....... -- -- -- 245,000 Comprehensive income (loss): Foreign currency translation, net of taxes....................... -- -- (241,406) (241,406) Net income....................... 1,895,968 1,895,968 ----------- Total comprehensive income........ 1,654,562 ------------ --------- --------- ----------- Balance, December 31, 1997........ $ 4,001,642 $ -- $(198,810) $59,344,038 Exercise of stock options......... -- -- -- 205,613 Expenses from issuance of common stock............................ -- -- -- (178,650) Issuance of common stock for employee stock purchase plan..... -- -- -- 405,935 Exercise of warrants.............. -- -- -- -- Purchase of treasury stock........ -- -- -- (5,968,857) Tax benefit from exercise of nonqualified stock options....... -- -- -- 151,000 Comprehensive income (loss): Foreign currency translation, net of taxes....................... -- -- 10,679 10,679 Net loss......................... (495,908) -- -- (495,908) ----------- Total comprehensive loss.......... (485,229) ------------ --------- --------- ----------- Balance, December 31, 1998........ $ 3,505,734 $ -- $(188,131) $53,473,850 Exercise of stock options......... -- -- -- 1,398,663 Issuance of common stock for acquisition...................... -- -- -- 11,338,000 Issuance of common stock for employee stock purchase plan..... -- -- -- 309,675 Tax benefit from exercise of nonqualified stock options....... -- -- -- 94,000 Notes receivable from related parties.......................... -- (868,273) -- (868,273) Comprehensive loss: Foreign currency translation, net of taxes....................... -- -- (48,403) (48,403) Net loss......................... (12,580,672) -- (12,580,672) ----------- Total comprehensive loss.......... (12,629,075) ------------ --------- --------- ----------- Balance, December 31, 1999........ $$(9,074,938) $(868,273) $(236,534) $53,116,840 ============ ========= ========= ===========
See accompanying notes to consolidated financial statements. F-4 49 CERPROBE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, -------------------------------------------- 1999 1998 1997 ------------ ------------ ------------ Cash flows from operating activities: Income (loss) from continuing operations.................. $(12,575,350) $ 5,236,652 $ 7,662,924 Adjustments to reconcile net income (loss) from continuing operations to net cash provided by (used in) continuing operations: Depreciation and amortization........................... 6,068,223 4,676,110 3,546,154 In-process research and development..................... 8,815,000 1,568,000 -- Loss on sale of equipment............................... 184,763 373,245 12,583 Tax benefit from exercise of nonqualified stock options................................................ 94,000 151,000 245,000 Deferred income taxes................................... (596,951) (509,174) 8,062 Provision for losses on accounts receivable............. 4,000 186,585 24,000 Provision for obsolete inventory........................ 180,000 534,000 621,000 Compensation expense.................................... -- -- (33,536) Income (loss) applicable to minority interest........... 454,450 383,637 (29,715) Changes in working capital of continuing operations Accounts receivable................................... 499,745 571,725 (2,689,975) Inventories........................................... (1,248,621) (736,703) (1,728,051) Prepaid expenses and other assets..................... (42,877) (72,967) (236,085) Income taxes receivable............................... (1,224,804) (243,765) (256,949) Accounts payable and accrued expenses................. 369,742 (1,359,857) 2,075,238 Accrued income taxes.................................. -- (108,648) -- Other liabilities..................................... (7,073) (9,627) -- ------------ ------------ ------------ Net cash provided by continuing operations.......... 974,247 10,640,213 9,220,650 ------------ ------------ ------------ Net cash used in discontinued operations............ (51,500) (1,161,467) (7,558,443) ------------ ------------ ------------ Net cash provided by operating activities........... 922,747 9,478,746 1,662,207 ------------ ------------ ------------ Cash flows from investing activities: Purchase of property, plant, and equipment................ (6,339,844) (11,900,133) (6,302,918) Redemption (purchase) of investment securities............ 14,305,400 12,695,298 (24,019,378) Investment in CRPB Investors, L.L.C. ..................... 213,620 88,455 107,293 Purchase of OZ Technologies, Inc., net of cash acquired... (19,696,966) -- -- Purchase of Upsys-Cerprobe, L.L.C., net of cash acquired................................................ -- (376,366) -- Purchase of Cerprobe Europe S.A.S., net of cash acquired................................................ (31,135) (3,230,230) -- Purchase of Cerprobe Interconnect Solutions, Inc., net of cash acquired........................................... -- -- (80,102) Purchase of SVTR, net of cash acquired.................... -- -- (2,590,697) Proceeds from sale of equipment........................... 11,487 15,267 74,683 Payment (issuance) of notes receivable.................... (560,448) -- 250,000 ------------ ------------ ------------ Net cash used in investing activities............... (12,097,886) (2,707,709) (32,561,119) ------------ ------------ ------------ Cash flows from financing activities: Issuance of notes payable................................. 14,436,555 1,661,310 357,010 Redemption of convertible preferred stock................. -- -- (5,250,000) Payments on notes payable................................. (6,261,632) (768,110) (1,856,141) Net proceeds (costs) from issuance of common stock........ -- (178,650) 37,105,237 Purchase of treasury stock................................ -- (5,968,857) -- Net proceeds from employee stock purchase plan............ 309,675 405,935 -- Net proceeds from exercise of stock options............... 1,398,663 205,613 816,465 Capital contribution by minority interest partners........ -- -- 100,000 ------------ ------------ ------------ Net cash provided by (used in) financing activities.......................................... 9,883,261 (4,642,759) 31,272,571 ------------ ------------ ------------ Effect of exchange rates on cash............................ 22,227 (90,072) (241,406) ------------ ------------ ------------ Net increase (decrease) in cash............................. (1,269,651) 2,038,206 132,253 Cash, beginning of period................................... 4,753,696 2,715,490 2,583,237 ------------ ------------ ------------ Cash, end of period......................................... $ 3,484,045 $ 4,753,696 $ 2,715,490 ============ ============ ============ Supplemental disclosures of cash flow information from continuing operations: Interest paid............................................. $ 582,135 $ 182,133 $ 221,248 ============ ============ ============ Income taxes paid......................................... $ 482,597 $ 2,049,282 $ 2,060,000 ============ ============ ============ Supplemental disclosures of non-cash investing activities: The Company made acquisitions for $37.9 million, $3.6 million, and $4.5 million in the years ended December 31, 1999, 1998, and 1997, respectively. The purchase prices were allocated to the assets acquired and liabilities assumed based on their fair values as indicated in the notes to the consolidated financial statements. A summary of the acquisitions is as follows: Purchase price............................................ $ 37,899,135 $ 3,626,366 $ 4,546,825 Less cash acquired........................................ (1,203,034) (19,770) (285,316) Common stock issued....................................... (11,338,000) -- (1,670,812) Notes payable issued...................................... (5,630,000) -- -- ------------ ------------ ------------ Cash invested........................................... $ 19,728,101 $ 3,606,596 $ 2,590,697 ============ ============ ============ Notes receivable from the exercise of stock options from related parties......................................... $ 868,273 $ -- $ -- ============ ============ ============
See accompanying notes to consolidated financial statements. F-5 50 CERPROBE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS Cerprobe Corporation offers comprehensive solutions for semiconductor test integration and is a leading manufacturer of probe cards, automatic test equipment ("ATE") interface assemblies, and ATE test boards. The Company believes it is the only company that designs, manufactures, and assembles each of the electromechanical components that assure the integrity of the electrical test signal that passes from the ATE to the integrated circuits ("ICs") device under test. The Company's products address critical functions to assure IC quality, reduce manufacturing costs, improve the accuracy of manufacturing yield data, and identify repairable memory ICs. Unless the context indicates otherwise, all references to "Cerprobe" or the "Company" refer to Cerprobe Corporation and its subsidiaries. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Cerprobe Corporation and its subsidiaries: Cerprobe Europe Limited, Cerprobe Europe S.A.S., Cerprobe Asia Holdings Pte Ltd, Cerprobe Interconnect Solutions, Inc. ("CIS"), SVTR, Inc. ("SVTR"), Cerprobe Japan Co., Ltd, and OZ Technologies, Inc ("OZ"). All significant intercompany transactions have been eliminated in consolidation. Cerprobe Asia Holdings Pte Ltd is a 60% owner of Cerprobe Asia Pte Ltd; the balance is owned by Asian investors. Cerprobe Asia Pte Ltd's wholly owned subsidiaries, Cerprobe Singapore Pte Ltd and Cerprobe Taiwan Co., Ltd., operate full service sales and manufacturing plants. In January 1997, the Company acquired all of the outstanding stock of SVTR, Inc., a company that refurbishes, reconfigures, and services wafer probing equipment. In the third quarter of 1998, the Company discontinued operations of SVTR. See Note 17. In May 1997, the Company entered into a joint venture with Upsys Reseau Eurisys ("Upsys"), a French company owned by IBM and GAME COGEMA Group, a French testing and engineering company. The joint venture, called Upsys-Cerprobe, L.L.C., assembled and repaired Upsys's vertical probe card that had been distributed by Cerprobe throughout the United States and Asia. Cerprobe owned 55% of the joint venture and Upsys owned 45%. On June 25, 1998, the Company terminated its distribution agreement with Upsys, and in connection therewith, Cerprobe purchased Upsys's 45% interest in Upsys-Cerprobe, L.L.C. Accordingly, the consolidated financial statements as of and for the years ended December 31, 1999, 1998, and 1997 include the activities of Upsys-Cerprobe, L.L.C. as a consolidated entity with a minority interest through June 25, 1998. In September 1998, the Company acquired France-based Cerprobe Europe S.A.S. The Company designs, manufactures and distributes probe cards at its manufacturing plant near Marseilles. Accordingly, the consolidated financial statements as of and for the year ended December 31, 1998 include Cerprobe Europe S.A.S.'s activities since the date of acquisition. See Note 18. In March 1999, the Company formed Cerprobe Japan Co., Ltd. to operate a sales and distribution facility in Yokohama, Japan. In December 1999, the Company acquired California-based OZ Technologies, Inc. The Company offers systems solutions for IC package test and is a leading designer and producer of high performance test sockets and contactors. OZ also designs and distributes ATE test boards and burn-in interfaces and systems. Accordingly, the consolidated financial statements as of December 31, 1999 and for the year ended December 31, 1999 include OZ Technologies, Inc.'s activities since the date of acquisition. See Note 18. F-6 51 CERPROBE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 at the balance sheet dates and reporting of revenues and expenses during the reporting periods to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. INVENTORIES Inventories are stated at the lower of cost (first-in, first-out method) or market. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost and depreciated using 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.............................. 3-5 years Leasehold improvements...................................... Life of lease
INTANGIBLES Intangibles consist of a license, goodwill, assembled workforce, patents and technology. 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 seven to ten years using the straight-line method. Assembled workforce represents the amount allocated to an acquired company's existing personnel infrastructure and is being amortized over four years using the straight-line method. Patents and technology are stated at fair market value at the date of acquisition and are amortized over a period of five to eight 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. The Company continually evaluates whether events and circumstances have occurred that indicate the remaining estimated useful lives of intangibles may warrant revision or that the remaining balances may not be recoverable. When factors indicate that the assets should be evaluated for possible impairment, the Company uses an estimate of the undiscounted net cash flows over the remaining life of the assets in measuring whether the asset is recoverable. In November 1998, the Company entered into a 10 year manufacturing license agreement with Feinmetall GMBH Co., to acquire an exclusive non-transferrable royalty bearing license to manufacture, use, sell, distribute, and repair ViProbe(R). This license covers worldwide territories except Europe. The license will be amortized over the period in which products are produced and will not exceed the ten-year license term. INCOME TAXES The Company uses 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. F-7 52 CERPROBE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) FOREIGN CURRENCY TRANSLATION The financial statements of the Company's Europe, France, and Asia subsidiaries are translated into U.S. dollars in accordance with Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency Translation". Assets and liabilities of the subsidiaries are translated into U.S. 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 and minority interest. All transaction gains or losses are recorded in the statement of operations. REVENUE RECOGNITION The Company records revenue when goods are shipped. STOCK BASED COMPENSATION In accordance with the provisions of Accounting Principals Board Opinion No. 25, "Accounting for Stock Issued to Employees," the Company measures stock-based compensation expense as the excess of the market price at the grant date over the amount the employee must pay for the stock. The Company's policy is to grant stock options at fair market value at the date of grant; accordingly, no compensation expense is recognized. As permitted, the Company has elected to adopt the pro forma disclosure provisions only of SFAS No. 123, "Accounting for Stock-Based Compensation." ("SFAS No. 123"). CONCENTRATION OF CREDIT RISK Financial instruments which potentially subject the Company to concentrations of credit risk consists principally of cash, investment securities, forward currency contracts, and accounts receivable. The Company invests primarily in U.S. Treasury and government agency securities and corporate debt securities rated A1 or higher which have minimal credit risk. The Company places forward currency contracts with high credit-quality financial instruments in order to minimize credit risk exposure. Concentrations of credit risk with respect to accounts receivable are limited due to the Company's large semiconductor industry customer base. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities", which establishes standards for the accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts, and hedging activities. This statement generally requires recognition of gains and losses on hedging transactions. As issued, SFAS No. 133 is effective for all fiscal quarters of all fiscal years beginning after June 15, 1999. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133 -- An Amendment of FASB Statement No. 133, "which deferred the effective date of SFAS No. 133 until June 15, 2000. The company is currently evaluating the impact of SFAS No. 133. RECLASSIFICATIONS Certain amounts in the 1997 and 1998 financial statements have been reclassified to conform with the 1999 presentation. F-8 53 CERPROBE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (2) INVENTORIES Inventories consist of the following:
1999 1998 ---------- ---------- Raw materials............................................... $8,313,504 $5,147,311 Work-in-process............................................. 1,257,863 416,409 Finished goods.............................................. 288,053 4,567 ---------- ---------- 9,859,420 5,568,287 Reserve for obsolete inventories............................ (130,920) (264,656) ---------- ---------- $9,728,500 $5,303,631 ========== ==========
(3) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of the following:
1999 1998 ------------ ------------ Land.................................................... $ 587,433 $ 589,950 Building................................................ 2,340,887 2,394,679 Manufacturing tools and equipment....................... 17,479,305 15,385,727 Office furniture and equipment.......................... 3,372,043 2,489,523 Leasehold improvements.................................. 4,615,870 2,380,259 Computer hardware and software.......................... 9,523,321 4,675,543 Construction in progress................................ 1,956,360 3,816,557 ------------ ------------ 39,875,219 31,732,238 Accumulated depreciation and amortization............... (16,338,198) (10,562,304) ------------ ------------ $ 23,537,021 $ 21,169,934 ============ ============
(4) INTANGIBLE ASSETS Intangible assets consist of the following:
1999 1998 ----------- ----------- Licenses.................................................. $ 1,650,000 $ 1,528,575 Goodwill and assembled workforce.......................... 26,296,245 4,072,156 Patents and technology.................................... 613,057 340,840 ----------- ----------- 28,559,302 5,941,571 Accumulated amortization.................................. (2,225,145) (1,362,536) ----------- ----------- $26,334,157 $ 4,579,035 =========== ===========
F-9 54 CERPROBE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (5) OTHER ASSETS Other assets consist of the following:
1999 1998 -------- ---------- Investment in CRPB Investors, L.L.C. ....................... $249,865 $ 463,845 Other assets and deposits................................... 426,620 544,072 -------- ---------- $676,485 $1,007,917 ======== ==========
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 which serves as Cerprobe's worldwide headquarters. The investment is accounted for by the equity method of accounting. In 1999 and 1998, $(116,870) and $100,721, respectively, was recorded by Cerprobe as income (loss) from CRPB Investors, L.L.C. (6) ACCRUED EXPENSES Accrued expenses consist of the following:
1999 1998 ---------- ---------- Accrued payroll and related taxes........................... $2,579,820 $2,390,522 Other accrued expenses...................................... 2,279,484 685,372 Accrued acquisition costs................................... 513,275 -- Lease termination costs..................................... 212,145 -- ---------- ---------- $5,584,724 $3,075,894 ========== ==========
(7) NOTES PAYABLE AND LINE OF CREDIT In December 1999, the Company entered into a three-year senior secured credit facility with Bank of America, N.A. (the "Loan and Security Agreement"). The Loan and Security Agreement includes a revolving credit facility in the amount of $15,000,000 subject to borrowing base requirements providing for advances of up to eighty-five (85%) of eligible accounts receivable. Advances on the revolving credit facility bear interest at prime rate plus 0.50%. The facility also includes an inventory term loan in the amount of approximately $5,800,000 and a machinery and equipment term loan in the amount of $2,000,000, both of which bear interest at prime rate plus 2.00%. The inventory term loan shall be repaid based upon a 24-month amortization with a balloon payment of the outstanding principal balance at the end of 12 months. The machinery and equipment term loan shall be repaid based upon a 60-month amortization with a balloon payment of the outstanding principal balance at the end of 36 months. All loans, advances, and other obligations, liabilities, and indebtedness of the Company shall be secured by valid, perfected, and enforceable first priority liens upon and security interest in substantially all of the Company's present and future assets, including all accounts, contract rights, inventory instruments, documents, fixtures, chattel paper, general intangibles, patents, trademarks, copyrights, trade names, deposit accounts, vehicles, equipment, and pledge of stock of all domestic subsidiaries of Cerprobe and OZ and 65% of the stock of each wholly-owned foreign subsidiary of Cerprobe. The facility is also guaranteed by all wholly-owned subsidiaries of Cerprobe and OZ. Advances under the revolving credit facility, the inventory term loan, and the machinery and equipment term loan were $1,300,878, $5,834,000, and $2,000,000 respectively, at December 31, 1999. The inventory term loan and the equipment term loan are at the maximum currently available under the terms of these loans. The Loan and Security Agreement contains a number of covenants that, among other things, restrict the ability of the Company to dispose of assets, incur additional indebtedness, incur guaranty obligations, prepay F-10 55 CERPROBE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) indebtedness except in accordance with relevant subordination provisions, pay dividends or make capital distribution (other than distributions in capital stock), create liens on assets, engage in mergers or consolidations (except for any subsidiary which is acquired solely with the Company's Common Stock and that any subsidiary of the Company may voluntarily merge into another subsidiary), engage in certain transactions with subsidiaries and affiliates, make any change in accounting policies or reporting practices except as required or permitted by generally accepted accounting principles and otherwise restrict corporate activities. In addition, the Loan and Security Agreement requires the Company to comply with certain financial covenants, including the maintenance of a consolidated Tangible Net Worth (as defined in the Loan and Security Agreement). At December 31, 1999, the Company was in violation of the Tangible Net Worth covenant under the line of credit agreement which was waived by the lender. The Loan and Security Agreement contains customary events of default, including the failure to pay principal when due or any interest or other amount that becomes due, any representation or warranty being made by the Company that is incorrect in any material respect on or as of the date made, a default in the performance of any covenant which continues for more than thirty days, default in certain other indebtedness, certain insolvency events, certain ERISA events, and certain change of control events. In addition, pursuant to the OZ Technologies, Inc. acquisition, the Company issued to Selling Stockholders notes in the amount of $2,830,000 (the "Subordinated Promissory Note") and $2,800,000 (the "Promissory Note"). The Subordinated Promissory Note accrues interest at a rate of 10% per annum and matures December 3, 2002. The Promissory Note accrues interest at a rate of 10% per annum and was to have matured on February 3, 2000. The Selling Stockholders have agreed to extend maturity on this note until June 30, 2000. The Company may satisfy the Promissory Note on June 30, 2000 by paying in cash all amounts then due under the Promissory Note or by transferring its real property located at 10365 Sanden Drive, Dallas, Texas (the "Real Property") to the Selling Stockholders' agent, unencumbered except for minor liens and any mortgage that is executed by the Company in favor of the Selling Stockholders with respect to the Real Property. In the event that the Company satisfies the Promissory Note by transferring the Real Property to the Selling Stockholders' agent on June 30, 2000, the Stock Purchase Agreement provides that the Company and the Selling Stockholders' agent shall assign a value (the "Appraised Value") to the Real Property equal to the appraised value for the Real Property as determined by a mutually agreed-upon real estate appraiser. The Stock Purchase Agreement further provides that (i) to the extent the Appraised Value is less than $2,800,000 plus interest due under the Promissory Note, the amount of the difference shall be added to the principal amount of the Subordinated Promissory Note and (ii) to the extent the Appraised Value is more than $2,800,000 plus interest due under the Promissory Note, the amount of the difference may be applied to reduce the principal amount of the Subordinated Promissory Note if doing so does not cause the Company to violate any covenant in any loan document to which it is a party. The Company also has various demand loans outstanding to minority shareholders of Cerprobe Asia Holdings, Pte Ltd. Interest is accrued at the five year Treasury Rate plus 1.50% per anum. These loans are not contractually due or expected to be paid within the next 12 months, and accordingly, are classified as long-term debt. The outstanding balances, including interest at December 31, 1999, totaled $770,034. F-11 56 CERPROBE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Long-term debt consists of the following:
1999 1998 ------------ --------- Notes payable............................................. $ 15,534,912 $ 870,540 Less current portion...................................... (10,334,878) (138,985) ------------ --------- Notes payable, less current portion....................... $ 5,200,034 $ 731,555 ============ =========
Annual maturities of long-term debt are as follows: 2000.......................................... $10,334,878 2001.......................................... 400,000 2002.......................................... 4,030,000 Thereafter.................................... 770,034 ----------- $15,534,912 ===========
(8) 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 $5,547,998 and $4,710,745 with related accumulated amortization of $2,090,492 and $1,454,205 as of December 31, 1999 and 1998, 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 future minimum lease payments for the years ending December 31:
RENTALS RECEIVABLE CAPITAL OPERATING UNDER LEASES LEASES SUBLEASES ---------- ----------- ---------- 2000............................................ $1,140,177 $ 2,334,323 $47,600 2001............................................ 904,016 2,154,005 -- 2002............................................ 709,554 1,807,902 -- 2003............................................ 527,421 1,417,884 -- 2004............................................ 308,613 1,342,071 -- Thereafter...................................... 248,837 9,340,323 -- ---------- ----------- ------- Total future minimum lease payments............. $3,838,618 $18,396,508 $47,600 =========== ======= Less amounts representing interest (at rates ranging from 6.0% to 9.82%)................... (429,024) ---------- Present value of net minimum capital lease payments...................................... $3,409,594 Less current portion............................ (954,957) ---------- Capital lease obligations, less current portion....................................... $2,454,637 ==========
Depreciation expense for assets under capital leases is charged to depreciation and amortization expense. Rental expense for the years ended December 31, 1999, 1998, and 1997 was $1,959,970, $1,663,829, and $1,640,272, respectively. F-12 57 CERPROBE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (9) INCOME TAXES Income tax expense (benefit) consists of the following:
1999 1998 1997 ----------- ---------- ---------- Foreign....................................... $ 805,988 $ 549,245 $ 115,763 Federal....................................... (3,177,178) 2,488,841 3,643,959 State......................................... (339,389) 647,222 1,050,445 ----------- ---------- ---------- $(2,710,579) $3,685,308 $4,810,167 =========== ========== ========== Current....................................... $(1,734,320) $4,194,482 $4,802,105 Deferred...................................... (976,259) (509,174) 8,062 ----------- ---------- ---------- $(2,710,579) $3,685,308 $4,810,167 =========== ========== ==========
A reconciliation of actual income taxes to income taxes at the "expected" United States federal corporate income tax rate of 34% is as follows:
1999 1998 1997 ----------- ---------- ---------- Income tax expense (benefit) at "expected" federal corporate rate...................... $(5,042,763) $3,033,466 $4,240,851 State income taxes, net of federal tax effect...................................... (223,997) 427,167 693,294 In-process research and development expense not benefited............................... 2,996,420 -- -- Foreign income taxed at lower than U.S. federal rate........................................ (151,450) (3,326) (79,408) Amortization of intangibles................... 240,307 156,843 131,406 Foreign sales corporation benefit............. -- (106,236) (82,501) Utilization of federal tax credit............. (703,642) -- -- Nontaxable income............................. -- -- (79,013) Utilization of net operating loss carryforwards............................... -- -- (47,706) Change in foreign and state valuation allowance................................... 143,514 171,810 -- Other......................................... 31,032 5,584 33,244 ----------- ---------- ---------- $(2,710,579) $3,685,308 $4,810,167 =========== ========== ==========
The tax effects of temporary differences that give rise to significant portions of the deferred tax asset and deferred tax liability are as follows:
1999 1998 ----------- ---------- Deferred tax assets: Foreign tax loss carryforward............................ $ 86,738 $ 349,364 Acquisition costs not currently deductible............... 581,902 616,747 Amortization not currently deductible.................... 253,024 1,693 Currency translation not currently deductible............ 120,399 192,589 Reserves and accruals not currently deductible........... 1,024,801 446,092 Net operating loss carry forward........................... 1,125,339 -- Income tax credits......................................... 379,609 -- ----------- ---------- Deferred tax assets................................... $ 3,571,812 $1,606,485 Less valuation allowance................................. (492,878) (349,364) ----------- ----------
F-13 58 CERPROBE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1999 1998 ----------- ---------- Deferred tax assets...................................... $ 3,078,934 $1,257,121 Deferred tax liabilities: Difference between book and tax depreciation of property, plant and equipment................................... (1,427,483) (581,930) ----------- ---------- Net deferred tax asset (liability)....................... $ 1,651,451 $ 675,191 =========== ==========
Summary of current and long-term portion of deferred tax items are as follows:
1999 1998 --------- ------- Current asset............................................... 2,123,609 446,092 Long-term asset (included in other assets).................. -- 229,099 Long-term liability (included in other liabilities)......... (472,158) -- --------- ------- 1,651,451 675,191 ========= =======
The valuation allowance increased by $143,514 in 1999 and $171,810 in 1998, and is due to state and 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. (10) STOCKHOLDER'S EQUITY SHAREHOLDER RIGHTS PLAN On October 8, 1998, each shareholder of record received one Preferred Share Purchase Right ("Right") on each outstanding share of Common Stock owned. Each Right entitled shareholders to buy one one-thousandth of a share of newly created Series A Junior Participating Preferred Stock of the Company at an exercise price of $110. The Rights will be exercisable if a person or group hereafter acquires 15% or more of the Common Stock of the Company or announces a tender offer for 15% or more of the Common Stock. Should this occur, the Right will entitle its holder to purchase, at the Right's exercise price, a number of shares of Common Stock having a market value at the time of twice the Right's exercise price. Rights held by the 15% holder will become void and will not be exercisable to purchase shares at the bargain purchase price. If the Company is acquired in a merger or other business combination transaction after a person acquires 15% or more of the Company's Common Stock, each Right will entitle its holder to purchase, at the Right's then current exercise price, a number of the acquiring company's common shares having a market value at that time of twice the Right's exercise price. TREASURY STOCK During 1998, the Company repurchased 503,541 shares, or approximately 6%, of the Company's Common Stock in the open market at an approximate price of $11.37 per share. The Company has utilized 60,899 shares of the reacquired shares for reissuance in connection with its Employee Stock Purchase Plan. WARRANTS AND NON-EMPLOYEE STOCK OPTION Additionally, the Company issued 39,275 Common Stock warrants in January 1996. These warrants 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 January 2001. In 1998, 2,000 warrants were exercised. F-14 59 CERPROBE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (11) STOCK OPTION PLANS The Company adopted in 1983, 1989, 1995, respectively, an incentive stock option plan, a non-qualified stock option plan, and a combination stock option plan. In 1999 the Company adopted a broad-based non-qualified stock option plan with a maximum of 1,000,000 shares of Common Stock to be issued under the plan. The combined plans provide for the issuance of options to purchase 3,585,000 shares of the Company's Common Stock, of which 1,126,600 were available for grant as of December 31, 1999. 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 has elected to follow APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations in accounting for its plans. Under APB No. 25, because the exercise price of the 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 as if the Company had accounted for its employee stock options under the fair value method. The fair value of each option granted for 1999, 1998, and 1997 was estimated as of the date of the grant using the Black-Scholes option pricing model with the following weighted average assumptions for 1999, 1998, and 1997, respectively; risk-free interest rates of 5.2%, 5.1%, and 5.6%; dividend yields of zero for all years; volatility factors of the expected market price of the Company's Common Stock of 60%, 52%, and 52%, respectively; and weighted average expected lives of the options of 5 years for 1999 and 3 years for 1998 and 1997. Pro forma net income (loss) reflects only options granted in years 1995 through 1999. 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 before January 1, 1995 is not considered. The Company's pro forma information follows:
1999 1998 1997 ------------ --------- ---------- Net income (loss) As reported.............. $(12,580,672) $(495,908) $1,895,968 Pro forma (unaudited).... $(13,196,904) $(708,146) $1,784,019 Basic net income (loss) per share As reported.............. $ (1.60) $ (0.06) $ 0.28 Pro forma (unaudited).... $ (1.67) $ (0.09) $ 0.27 Diluted net income (loss) per share As reported.............. $ (1.60) $ (0.06) $ 0.27 Pro forma (unaudited).... $ (1.67) $ (0.09) $ 0.26
F-15 60 CERPROBE CORPORATION AND SUBSIDIARIES 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:
1999 1998 1997 --------------------- --------------------- ------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE ---------- -------- ---------- -------- -------- -------- Outstanding at beginning of year... 1,199,566 $10.19 639,866 $ 8.81 593,631 $ 8.46 Granted.......................... 423,000 $ 8.43 984,000 $13.44 153,000 $10.38 Exercised........................ (231,966) $ 6.03 (31,300) $ 6.57 (95,265) $ 8.57 Expired/canceled................. (199,300) $10.86 (393,000) $16.37 (11,500) $12.88 ---------- ---------- -------- Outstanding at end of year......... 1,191,300 $10.27 1,199,566 $10.19 639,866 $ 8.81 ========== ========== ======== Exercisable at end of year....... 540,196 $10.70 569,898 $ 9.01 367,320 $ 7.45 ========== ========== ======== Weighted average fair value of options granted during the year............................. $ 4.76 $ 5.35 $ 4.16 ========== ========== ========
The following table summarizes information about stock options outstanding at December 31, 1999:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------ ---------------------- WEIGHTED WEIGHTED WEIGHTED NUMBER AVERAGE AVERAGE NUMBER AVERAGE OUTSTANDING REMAINING EXERCISE EXERCISABLE EXERCISE AT 12/31/99 CONTRACTUAL LIFE PRICE AT 12/31/99 PRICE ----------- ---------------- -------- ----------- -------- $5.50.................................... 100,000 9.80 $ 5.50 20,000 $ 5.50 $7.00.................................... 150,000 10.00 $ 7.00 30,000 $ 7.00 $8.00 to $9.75........................... 70,000 9.24 $ 8.34 30,000 $ 8.77 $10.25 to $10.50......................... 263,800 7.31 $10.38 180,500 $10.37 $11.00 to $11.875........................ 303,000 8.26 $11.15 152,664 $11.24 $12.250 to $13.125....................... 243,500 8.72 $12.34 114,832 $12.44 $15.125.................................. 61,000 9.13 $15.13 12,200 $15.13 --------- ------- 1,191,300 8.59 $10.26 540,196 $10.26 ========= =======
(12) COMPREHENSIVE INCOME The Company recognized comprehensive income (loss) for the years ended December 31, as follows:
YEAR ENDED DECEMBER 31, --------------------------------------- 1999 1998 1997 ------------ --------- ---------- Net income (loss)............................ $(12,580,672) $(495,908) $1,895,968 Other comprehensive income (loss), net of tax: Foreign currency translation adjustment.... (80,672) 17,798 (402,344) Tax benefit (expense) from foreign currency translation............................. 32,269 (7,119) 160,938 ------------ --------- ---------- Net other comprehensive income (loss)... (48,403) 10,679 (241,406) ------------ --------- ---------- Comprehensive income (loss).................. $(12,629,075) $(485,229) $1,654,562 ============ ========= ==========
F-16 61 CERPROBE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (13) RELATED PARTY TRANSACTIONS In August 1999, the Company and certain of its Directors and Officers entered into Secured Promissory Notes and Stock Pledge Agreements, which totaled $841,465. The purpose of the loans was to exercise stock options scheduled to expire. Interest on the notes is at 6% per annum with note maturities in August 2002. The notes are fully recourse to the borrowers and are also collateralized by the Company's Common Stock. (14) SEGMENT INFORMATION The Company operates principally in one industry segment; the design, development, manufacture and market of semiconductor integrated circuit test products and services. The Company's principal customers are North American, European, and Asian-based semiconductor manufacturing companies. Two of the Company's customers exceeded 10% of net sales. The first customer accounted for 14%, 17%, and 17% of net sales for the years ended December 31, 1999, 1998, and 1997, respectively. The accounts receivable from that customer were $327,118, $586,318, and $1,081,424 at December 31, 1999, 1998, and 1997, respectively. The second customer accounted for 13%, 12%, and 10% of net sales for the years ended December 31, 1999, 1998, and 1997, respectively, with accounts receivable of $639,091, $451,766, and $654,015 at December 31, 1999, 1998, and 1997, respectively. International sales represented 23%, 18%, and 18% of the Company's net sales in 1999, 1998, and 1997, respectively. The following is a summary of the Company's geographic operations:
NORTH EUROPE AMERICA AND ASIA ELIMINATIONS CONSOLIDATED ----------- ----------- ------------ ------------ 1999 Customer sales............... $48,288,270 $14,367,481 $ -- $62,655,751 Intercompany sales........... 673,472 3,162,820 (3,836,292) -- ----------- ----------- ------------ ----------- Total sales........ $48,961,742 $17,530,301 $ (3,836,292) $62,655,751 =========== =========== ============ =========== Long-lived assets............ $60,059,515 $ 3,537,614 $(13,049,467) $50,547,662 =========== =========== ============ =========== 1998 Customer sales............... $62,412,140 $13,795,337 $ -- $76,207,477 Intercompany sales........... 494,987 3,304,021 (3,799,008) -- ----------- ----------- ------------ ----------- Total sales........ $62,907,127 $17,099,358 $ (3,799,008) $76,207,477 =========== =========== ============ =========== Long-lived assets............ $28,134,572 $ 4,375,940 $ (5,753,626) $26,756,886 =========== =========== ============ =========== 1997 Customer sales............... $56,670,599 $12,341,796 $ -- $69,012,395 Intercompany sales........... 864,575 2,110,599 (2,975,174) -- ----------- ----------- ------------ ----------- Total sales........ $57,535,174 $14,452,395 $ (2,975,174) $69,012,395 =========== =========== ============ =========== Long-lived assets............ $18,514,131 $ 1,967,317 $ (2,805,672) $17,675,776 =========== =========== ============ ===========
Management does not believe significant credit risk existed at December 31, 1999. The Company monitors its customers' financial condition and does not require collateral. Historically, the Company has not experienced significant losses related to receivables from any individual or groups of customers. F-17 62 CERPROBE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (15) COMMITMENTS AND CONTINGENCIES In October 1998, the Company filed an action against the former President, Director and shareholder of Silicon Valley Test & Repair, Inc., which was acquired by the Company by way of a merger into its wholly-owned subsidiary, SVTR, Inc., in January 1997. The suit seeks rescission of the acquisition and/or monetary damages arising from failure of the defendants to disclose material facts regarding the origins of certain software necessary for SVTR, Inc.'s business. In February 1999, the defendants filed a counter claim against the Company alleging conversion, interference with contractual relations, unfair business practices, breach of contract, and specific performance allegedly arising from the Company's actions to preclude the defendants from selling the Company stock received by defendants as part of the purchase price of Silicon Valley Test & Repair, Inc.; the Company seeks to recover this stock and the balance of the purchase price through its claims for rescission. In March 1999, the Company and SVTR filed an amended complaint. The defendants have responded and the action is proceeding to trial. While the Company intends to vigorously prosecute this action, it is impossible to predict the outcome of this or any litigation. It is not anticipated that this suit will have a material adverse impact on the Company's financial condition or results of operations. The Company is involved in other legal actions arising in the ordinary course of business. In the opinion of management, the disposition of these actions would not have a material adverse effect on the Company. (16) EMPLOYEE BENEFIT PLANS In December 1997, the Board of Directors approved the Employee Stock Purchase Plan (the "ESPP") which provides employees the means to acquire an equity interest in the Company. Eligible employees of the Company can purchase Common Stock through payroll deductions at the lower of 85% of the closing price of the Common Stock on the offering commencement date or the offering termination date. Payroll deductions for the purchase of the stock may not exceed 10% of the employee's base compensation or $25,000. As of December 31, 1999, 60,899 shares had been purchased under this plan. The maximum number of shares that may be issued under this plan is 150,000. The Company established the Cerprobe Corporation 401(k) Plan ("the Plan") in 1993. Employees who have reached 18 years of age and who have completed 90 days 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 and only for those participants who have completed one year of service for the Company. The Company expensed discretionary contributions pursuant to the Plan in the approximate amounts of $264,778, $324,000, and $241,000 for the years ended December 31, 1999, 1998, and 1997, respectively. The participants are fully vested in their and the Company's contributions. (17) DISCONTINUED OPERATIONS In the third quarter of 1998, the Company discontinued operations of SVTR, a wafer prober refurbishing and upgrading subsidiary acquired by the Company in January 1997. The discontinuance resulted from questions regarding the origins of certain software necessary for SVTR's business. In March 1999, Cerprobe sold certain SVTR assets for $500,000. No gain or loss was recognized on the sale. SVTR has been accounted for as a discontinued operation and accordingly, its results of operations and financial position are segregated for all periods presented in the accompanying consolidated financial F-18 63 CERPROBE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) statements. Net sales, related losses and income taxes associated with the discontinued operations are as follows:
YEARS ENDED DECEMBER 31, ------------------------ 1999 1998 -------- ------------ Net sales................................................... $ -- $ 3,871,292 ------- ----------- Loss from operations........................................ $(8,869) $(3,550,636) Income tax benefit.......................................... 3,547 1,625,816 ------- ----------- Loss from operations, net................................... $(5,322) $(1,924,820) ======= =========== Loss on disposal............................................ $ -- $(6,346,233) Income tax benefit.......................................... -- 2,538,493 ------- ----------- Loss on disposal, net....................................... $ -- $(3,807,740) ======= ===========
The effective tax rate used in calculating the income tax benefit from discontinued operations is approximately the same as the Company's effective tax rate for continuing operations. The Company recorded a pretax charge of $4,597,034 to write down its assets to estimated net realizable value and to record additional liabilities in the shut down period. A charge of $1,749,199 was also recorded to reflect the estimated phase out costs and losses from operations associated with SVTR. The tax benefit associated with these charges was $2,538,493. The net assets (liabilities) of SVTR, as reclassified in the accompanying consolidated balance sheets, include the following:
DECEMBER 31, ------------------------ 1999 1998 --------- ----------- Current assets............................................. $ 554,585 $ 3,445,737 Property, plant and equipment, net......................... -- -- Intangibles, net........................................... -- -- Other assets............................................... 63,011 46,865 Current liabilities........................................ (289,358) (931,913) Long term debt............................................. (5,286) (19,847) Other long term liabilities................................ (769,581) (1,058,939) --------- ----------- $(446,629) $ 1,481,903 ========= ===========
(18) ACQUISITIONS UPSYS-CERPROBE L.L.C. On June 25, 1998, the Company purchased Upsys's 45% interest in Upsys-Cerprobe L.L.C. The acquisition resulted in $376,366 of goodwill, which is being amortized on a straight-line basis over eight years. CERPROBE EUROPE S.A.S. (FORMERLY SEMICONDUCTEUR SERVICES S.A.) On September 30, 1998, the Company acquired France-based Cerprobe Europe S.A.S. for $3.0 million in cash and $250,000 in acquisition related expenses. Cerprobe Europe S.A.S. designs, manufactures and distributes probe cards. The acquisition resulted in $1,568,000 of in-process research and development, which was charged to operations upon acquisition, and $508,051 in goodwill, which is being amortized on a straight-line basis over 10 years, and $98,000 in assembled workforce, which is being amortized on a straight line basis over 4 years. F-19 64 CERPROBE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The acquisition was accounted for as a purchase and, accordingly, the accompanying consolidated balance sheet includes the assets purchased and liabilities assumed of Cerprobe Europe S.A.S. at December 31, 1998 and the accompanying consolidated statements of operations include the results of Cerprobe Europe S.A.S. since the date of acquisition. OZ TECHNOLOGIES, INC. ("OZ") In December 1999, the Company acquired all of the outstanding stock of OZ, a manufacturer of systems solutions for IC package testing and a leading designer and producer of high performance test sockets and contactors for $36 million. OZ also designs and distributes ATE test boards and burn-in interfaces and systems. The purchase price consisted of $19 million in cash, notes payable of $5.6 million, and 1.5 million shares of Common Stock. Of the 1.5 million shares of common stock, up to 554,089 can be sold during the 180-day period on or after the effective date of the registration statement on Form S-3 with the Securities and Exchange Commission. If the selling shareholders sell the common stock during the 180 day period and the average proceeds per share after selling expenses are less than $7.58 per share, the product of the difference between $7.58 per share and the average proceeds per share and the number of shares of Cerprobe Common Stock sold during the 180-day period shall be added to the Subordinated Promissory Note. The acquisition has been accounted for as a purchase and, accordingly, the purchase price has been allocated to the assets acquired and the liabilities assumed based upon the estimated fair values at the date of acquisition. The acquisition resulted in $8,815,000 in-process research and development, which was charged to operations upon acquisition, $21,183,864 in goodwill which is being amortized on a straight-line basis over seven years and $1,009,091 in assembled workforce which is being amortized on a straight-line basis over four years. The purchase price of $36 million plus acquisition costs of $1.9 million was allocated as follows: Purchase price: Cash...................................................... $19,000,000 Note payable.............................................. 5,630,000 Common Stock and additional paid in capital............... 11,338,000 Costs of acquisition...................................... 1,900,000 ----------- $37,868,000 =========== Assets acquired and liabilities assumed: Current assets............................................ $ 8,945,021 Property, plant and equipment............................. 1,822,749 Other assets.............................................. 87,209 In-process research and development....................... 8,815,000 Goodwill and assembled workforce.......................... 22,192,955 Current liabilities....................................... (3,994,934) ----------- $37,868,000 ===========
At acquisition, the state of the research and development products was not yet at a technological or commercially viable state. The Company did not believe that the research and development products had any future alternative use because if these products were not finished and brought to ultimate product completion, they would have no other value. Therefore, consistent with generally accepted accounting principles, the Company recorded a charge for the full value of the in-process research and development. The consolidated balance sheet as of December 31, 1999 includes the accounts of OZ and results of operations since the date of acquisition. The following summary, prepared on a pro forma basis, excluding the F-20 65 CERPROBE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) charge for in-process research and development, present the results of operations as if the acquisition had occurred on January 1, 1998.
YEARS ENDED DECEMBER 31, -------------------------- 1999 1998 ----------- ----------- (UNAUDITED) (UNAUDITED) Net sales................................................. $89,292,000 $97,082,000 Net income (loss)......................................... (938,400) 2,944,600 Basic net income (loss) per share......................... (0.10) 0.31 Diluted net income (loss) per share....................... (0.10) 0.30
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 1998 or as a projection of future results. (19) FAIR VALUE OF FINANCIAL INSTRUMENTS SFAS 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 the amounts. The carrying amount of investment securities, receivables, accounts payable, and accrued expenses approximates fair value because of the short term nature of these items. The fair value of notes payable and capital lease 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. (20) SUPPLEMENTAL FINANCIAL INFORMATION A summary of additions and deductions related to the allowances for accounts receivable and inventories for the years ended December 31, 1999, 1998 and 1997 follows:
BALANCE AT BALANCE AT BEGINNING END OF OF YEAR ADDITIONS DEDUCTIONS YEAR ---------- --------- ---------- ---------- Allowance for doubtful accounts: Year ended December 31, 1999............. $333,364 $ 4,000 $ 6,355 $331,009 Year ended December 31, 1998............. $215,179 $186,585 $ 68,400 $333,364 Year ended December 31, 1997............. $223,000 $ 24,000 $ 31,821 $215,179 Allowance for obsolescence of inventories: Year ended December 31, 1999............. $264,656 $180,000 $313,736 $130,920 Year ended December 31, 1998............. $244,000 $534,000 $513,344 $264,656 Year ended December 31, 1997............. $129,000 $621,000 $506,000 $244,000
F-21 66 CERPROBE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (21) NET INCOME (LOSS) PER SHARE The following table sets forth the computation of basic and diluted net income (loss) per share:
1999 1998 1997 ------------ --------- ---------- Net income (loss)............................ $(12,580,672) $(495,908) $1,895,968 ============ ========= ========== Weighted average outstanding common shares... 7,884,628 7,963,747 6,690,265 Effect of dilutive securities: Stock options.............................. 62,768 287,626 292,103 Convertible preferred stock................ -- -- -- Antidilutive effect of dilutive securities.............................. (62,768) -- -- ------------ --------- ---------- Weighted average and common equivalent shares outstanding...................... 7,884,628 8,251,373 6,982,368 ============ ========= ========== Basic net income (loss) per share.......... $ (1.60) $ (0.06) $ 0.28 ============ ========= ========== Diluted net income (loss) per share........ $ (1.60) $ (0.06) $ 0.27 ============ ========= ==========
(22) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER(1) QUARTER(2) ------- ------- ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE DATA) YEAR ENDED DECEMBER 31, 1999 Net sales................................ $15,606 $14,103 $14,932 $ 18,015 Gross profit............................. 5,560 4,246 5,189 6,023 Operating income (loss).................. 335 (2,556) (1,070) (11,313) Income (loss) from continuing operations............................. 150 (1,659) (878) (10,189) Net income (loss)........................ 145 (1,659) (878) (10,189) Basic net income (loss) per share........ 0.02 (0.22) (0.11) (1.22) Diluted net income (loss) per share...... 0.02 (0.22) (0.11) (1.22) YEAR ENDED DECEMBER 31, 1998 Net sales................................ $22,953 $18,139 $20,107 $ 15,008 Gross profit............................. 9,879 7,253 8,593 5,430 Operating income......................... 4,445 1,686 1,354 223 Income from continuing operations........ 2,748 1,202 1,036 251 Net income (loss)........................ 2,345 467 (3,557) 249 Basic net income (loss) per share........ 0.29 0.06 (0.46) 0.03 Diluted net income (loss) per share...... 0.28 0.06 (0.45) 0.03
- --------------- (1) 1998 includes a write-off of in-process research and development of $1.6 million, or $0.11 per diluted share, related to the acquisition of Cerprobe Europe S.A.S. (2) 1999 includes a write-off of in-process research and development of $8.8 million or $ 1.05 per diluted share, related to the acquisition of OZ Technologies, Inc. F-22 67 EXHIBIT INDEX
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) Second Restated Certificate of Incorporation of Cerprobe Corporation, filed with the Secretary of State on June 23, 1998, filed as Exhibit 3(e) to the Company's Form 10-Q for the period ended June 30, 1998 and incorporated herein by reference. 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. 3(c) Rights Agreement, dated September 28, 1998, between Cerprobe Corporation and American Securities Transfer & Trust, Incorporated, as Rights Agent, filed as an Exhibit to the Company's Form 8-A filed on or about October 2, 1998 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. 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(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(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.
68
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 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(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. 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(aaa) Lease agreement between CompuRoute and Banc One Leasing dated November 17, 1997, filed as Exhibit 10(aaa) to the Company's Form 10-K for the year ended December 31, 1997 and incorporated herein by reference. 10(bbb) Master Lease Agreement between Company and Banc One Leasing Corporation, dated February 16, 1998, filed as Exhibit 10(bbb) to the Company's Form 10-K for the year ended December 31, 1997 and incorporated herein by reference. 10(ccc) Lease agreement between CompuRoute and Banc One Leasing Corporation, dated May 7, 1998, filed as Exhibit 10(ccc) to the Company's Form 10-Q for the period ended June 30, 1998 and incorporated herein by reference. 10(ddd) Lease agreement between CompuRoute and Banc One Leasing Corporation, dated June 17, 1998, filed as Exhibit 10(ddd) to the Company's Form 10-Q for the period ended June 30, 1998 and incorporated herein by reference.
69
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10(eee) Lease agreement between Cerprobe Corporation and Jackson-Shaw El Dorado Tech I Limited Partnerships, dated May 15, 1998, filed as Exhibit 10(eee) to the Company's Form 10-Q for the period ended June 30, 1998 and incorporated herein by reference. 10(fff) Lease agreement between Cerprobe Corporation and Banc One Leasing Corporation, dated October 22, 1998, filed as Exhibit 10(fff) to the Company's Form 10-Q for the period ended June 30, 1998 and incorporated herein by reference. 10(ggg) Business Loan agreement between Cerprobe Corporation and Bank of America, dated December 31, 1998, filed as Exhibit 10(ggg) to the Company's Form 10-Q for the period ended March 31, 1999. 10(hhh) Lease agreement between Cerprobe Corporation and Bank of America, dated February 26, 1999, filed as Exhibit 10(hhh) to the Company's Form 10-Q for the period ended March 31, 1999. 10(iii) Employment Agreement between Cerprobe Corporation and C. Zane Close effective January 1, 1999, filed as Exhibit 10(iii) to the Company's Form 10-Q for the period ended March 31, 1999. 10(jjj) Employment Agreement between Cerprobe Corporation and Michael K. Bonham effective January 1, 1999, filed as Exhibit 10(jjj) to the Company's Form 10-Q for the period ended March 31, 1999. 10(kkk) Employment Agreement between Cerprobe Corporation and Randal L. Buness effective January 1, 1999, filed as Exhibit 10(kkk) to the Company's Form 10-Q for the period ended March 31, 1999. 10(lll) Change of Control Agreement between Cerprobe Corporation and C. Zane Close dated January 28, 1999, filed as Exhibit 10(lll) to the Company's Form 10-Q for the period ended March 31, 1999. 10(mmm) Change of Control Agreement between Cerprobe Corporation and Michael K. Bonham dated January 26, 1999, filed as Exhibit 10(mmm) to the Company's Form 10-Q for the period ended March 31, 1999. 10(nnn) Change of Control Agreement between Cerprobe Corporation and Randal L. Buness dated January 26, 1999, filed as Exhibit 10(nnn) to the Company's Form 10-Q for the period ended March 31, 1999. 10(ooo) First Amendment to the Cerprobe Corporation 1997 Employee Stock Purchase Plan dated February 15, 1999, filed as Exhibit 10(ooo) to the Company's Form 10-Q for the period ended March 31, 1999. 10(ppp) Form of Secured Promissory Note and Stock Pledge Agreement entered into on August 16, 1999 between Cerprobe Corporation as Lender and Pledgee and each of the following as Borrower and Pledgor: Kenneth W. Miller ($115,000), Donald Walter ($86,250), C. Zane Close ($345,000), and Michael Bonham ($287,500), filed as Exhibit 10(ppp) to the Company's Form 10-Q for the period ended September 30, 1999. 10(qqq) Registration of 1.5 million shares of Cerprobe Corporation Common Stock on the Company's Form S-3 on March 8, 2000, in conjunction with the purchase of OZ Technologies, Inc. (no. 333-31992) and incorporated herein by reference. 10(rrr) Non-Qualified Stock Option Plan adopted by Cerprobe Corporation's Board of Directors on December 3, 1999, and Stock Option Agreement filed with the Company's form S-8 Registration Statement on March 8, 2000, (no. 333-31954) and incorporated herein by reference. 10(sss) Employment Agreement between Cerprobe Corporation and Daniel J. Hill effective October 19, 1999.
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EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10(ttt) Change of Control Agreement between Cerprobe Corporation and Daniel J. Hill dated October 19, 1999. 10(uuu) Lease agreement between Cerprobe Interconnect Solutions, Inc. and Bank One Leasing Corporation dated November 15, 1999. 10(vvv) Lease agreement between Cerprobe Corporation and Bank One Leasing Corporation dated November 15, 1999. 10(www) Stock Purchase Agreement between Cerprobe Corporation and OZ Technologies, Inc., Nasser Barabi, Iraj Barabi, Ali Bushehri, and Aham Barabi dated December 3, 1999, filed as Exhibit 1 to the Company's 8-K on December 18, 1999. 10(xxx) Subordinated Promissory Note between Cerprobe Corporation and Ali Bushehri, dated December 3, 1999 filed as Exhibit 2 to the Company's 8-K on December 18, 1999. 10(yyy) Promissory Note between Cerprobe Corporation and Ali Bushehri, dated December 3, 1999 filed as Exhibit 3 to the Company's 8-K on December 18, 1999. 10(zzz) Employment Agreement between Cerprobe Corporation and Nasser Barabi effective December 3, 1999, filed as Exhibit 4 to the Company's 8-K on December 18, 1999. 10(aaaa) Employment Agreement between Cerprobe Corporation and Iraj Barabi effective December 3, 1999, filed as Exhibit 5 to the Company's 8-K on December 18, 1999. 10(bbbb) Consulting Agreement between Cerprobe Corporation and C-MA International, Ltd. Effective December 3, 1999, filed as Exhibit 6 to the Company's 8-K on December 18, 1999. 10(cccc) Noncompetition Agreement between Cerprobe Corporation and Nasser Barabi effective December 3, 1999, filed as Exhibit 7 to the Company's 8-K on December 18, 1999. 10(dddd) Noncompetition Agreement between Cerprobe Corporation and Iraj Barabi effective December 3, 1999, filed as Exhibit 8 to the Company's 8-K on December 18, 1999. 10(eeee) Noncompetition Agreement between Cerprobe Corporation and Ali Busherhi effective December 3, 1999, filed as Exhibit 9 to the Company's 8-K on December 18, 1999. 10(ffff) Noncompetition Agreement between Cerprobe Corporation and Ahmad Barabi effective December 3, 1999, filed as Exhibit 10 to the Company's 8-K on December 18, 1999. 10(gggg) Loan and Security Agreement between Cerprobe Corporation and Bank of America dated December 3, 1999, filed as Exhibit 11 to the Company's 8-K on December 18, 1999. 10(hhhh) Notification of Assignment of payments between Cerprobe Corporation, Oracle Credit Corporation and Newcourt financial USA, Inc. dated March 16, 2000. 11 Computation of Net Income (Loss) per Share. 21 List of Subsidiaries. 23 Consent of KPMG LLP, Independent Accountants 27.1 Financial Data Schedule for twelve months ended December 31, 1999 27.2 Restated Financial Data Schedule for twelve months ended December 31, 1998
EX-10.SSS 2 EX-10.SSS 1 EXECUTIVE EMPLOYMENT AGREEMENT THIS EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") is made this 19th day of October, 1999, by and between Daniel J. Hill ("Executive") and CERPROBE CORPORATION, a Delaware corporation ("Cerprobe"), effective January 1, 2000 ("Effective Date"). R E C I T A L S Cerprobe wishes to retain the services of Executive pursuant to this Employment Agreement, the terms and provisions of which are set forth below. NOW, THEREFORE, IT IS HEREBY MUTUALLY AGREED AS FOLLOWS: 1. POSITION AND DUTIES. During the Term (as defined in Section 5) Executive will continue to be employed by Cerprobe as its Executive Vice President and Chief Operating Officer and shall perform those duties as from time to time determined by the Board of Directors of Cerprobe ("Board") in accordance with the policies, practices and bylaws of Cerprobe. During the Term, the Board may, in its sole discretion, appoint Executive as a member of the Board. Executive shall serve Cerprobe faithfully, loyally, honestly, and to the best of Executive's ability. Executive will devote Executive's best efforts and substantially all of the Executive's business time to the performance of Executive's duties for, and in the business and affairs of, Cerprobe. Subject to Section 7, the Board reserves the right, in its sole discretion, to change or modify Executive's position, title, and duties during the Term of this Agreement. 2. BASE SALARY. Commencing on the Effective Date and during the first 12 months of this Agreement, Executive's base salary will be Two Hundred Fifty Thousand and 00/100 Dollars ($250,000), payable in accordance with Cerprobe's customary payroll practice. Executive's base salary will be reviewed annually by the Board in accordance with Cerprobe's compensation review policies and practices, all as determined by Cerprobe in its discretion; provided that in no event shall the amount of Executive's base salary be decreased. 3. SIGN-ON BONUS AND INCENTIVE COMPENSATION. A. Sign-On Bonus. As of the date of this Agreement, the Company shall pay the Executive a sign on bonus equal to the net after-tax amount that Executive is required to repay to Price Waterhouse upon his termination of employment with that firm, up to $100,000 (net after income and employment taxes). 2 B. Incentive Compensation. Cerprobe has a performance-based compensation program for other members of its senior management that is discretionary in nature and based on among other things the financial performance of Cerprobe and the Executive's value in achieving this performance. Executive shall be eligible to participate in any and all performance-based incentive compensation program that the Board has established or may in the future establish for Executive, as well as any performance-based incentive compensation program established from time to time for other members of Cerprobe's senior management. 4. INITIAL STOCK OPTION GRANT AND OTHER AGREEMENTS. A. Initial Stock Grant. As of the date this Agreement is signed, but subject to approval by the Company's Board of Directors, Cerprobe will grant to Executive an option to purchase an aggregate of 200,000 shares of the Company's common stock, subject to the terms and conditions set forth in a separate stock option agreement. B. Other Agreements. Cerprobe and Executive may, from time to time, enter into one or more agreements relating to specific benefit and/or compensation programs including without limitation, a change of control agreement, stock option agreements, stock purchase agreements, and stock grant agreements. Nothing in this Agreement is intended to alter or modify any of such agreements, which an referred to below as "Ancillary Agreements." 5. TERM AND TERMINATION. This Agreement will Agreement will continue in full force and effect until terminated by the parties. This Agreement may be terminated in any of the following ways: (a) it may be negotiated and replaced by a written agreement signed by both parties; (b) Cerprobe may elect to terminate this Agreement, with or without "Cause," as defined below; (c) Executive may elect to terminate this Agreement with or without "Good Reason," as defined below; or (d) either party may serve notice on the other of its or his desire to terminate this Agreement at the end of the Term. The "Term" of this Agreement shall begin on the Effective Date and shall expire by its terms on December 31, 2001 unless sooner terminated in accordance with the provisions of this Agreement. Thereafter, the "Term" of this Agreement shall renew automatically for additional 12-month periods unless terminated accordance with the provisions of this Agreement. 6. TERMINATION BY CERPROBE. A. Termination for Cause. Cerprobe may terminate this Agreement and Executive's employment for Cause at any time upon written notice. For purposes of this Agreement, "Cause" shall be limited to discharge resulting from a determination by Cerprobe that Executive has: (i) been convicted of a felony involving dishonesty, fraud, theft or embezzlement; (ii) repeatedly failed or refused, in a material respect, to follow reasonable policies or directives established by Cerprobe and after written notice thereof 2 3 from Cerprobe, and a reasonable opportunity by Executive to cure such failures or refusals after having been given reasonable written notice of such failures or refusals; (iii) willfully and persistently failed to attend to the material duties or obligations imposed upon Executive under this Agreement after reasonable written notice from Cerprobe and a reasonable opportunity by Executive to cure such failure; (iv) performed an act or failed to act, which, if Executive were prosecuted and convicted, would constitute a felony involving $1,000 or more of money or property of Cerprobe; or (v) intentionally misrepresented or concealed a material fact for purposes of securing employment with Cerprobe or this Agreement. If this Agreement and Executive's employment are terminated by Cerprobe for Cause, Executive shall receive no Severance Benefits. B. Termination Without Cause. Cerprobe also may terminate this Agreement and Executive's employment at any time or elect to not renew this Agreement at the end of any Term without Cause by giving at least 60 days prior written notice to Executive. In the event (i) this Agreement and Executive's employment are terminated by Cerprobe, or (ii) Cerprobe elects not to renew this Agreement at the end of any Term, without Cause, Executive shall be entitled to receive Severance Benefits pursuant to Section 9. 7. TERMINATION BY EXECUTIVE. Executive may terminate this Agreement and his employment with or without "Good Reason" in accordance with the provisions of this Section 7. A. Termination For Good Reason. Executive may terminate this Agreement and Executive's employment for "Good Reason" by giving written notice to Cerprobe within 60 days (or such longer period as may be agreed to in writing by Cerprobe) of Executive's reason(s) for believing that "Good Reason" for his termination of employment exists. Executive shall have "Good Reason" to terminate his Agreement and Executive's employment upon the occurrence of any of the following events: (i) the assignment to Executive of any duties that are inconsistent with, or the reduction of powers or functions associated with, Executive's position, duties, or responsibilities with Cerprobe, or an adverse change in Executive's titles, authority, or reporting responsibilities, or in conditions of Executive's employment, (ii) the Executive's base salary is reduced or the potential incentive compensation (or bonus) to which Executive may become entitled to at any level of performance by the Executive or Cerprobe is reduced, (iii) the failure of Cerprobe to cause any successor to expressly assume and agree to be bound by the terms of this Agreement, (iv) any purported termination by Cerprobe of Executive's employment for grounds other than for "Cause," (v) Cerprobe relieving the Executive of Executive's duties other than for "Cause," or (vi) Executive is required to relocate to an employment location that is more than fifty (50) miles from San Jose, California. 3 4 If Executive terminates this Agreement and his employment for Good Reason, Executive shall be entitled to receive Severance Benefits pursuant to Section 9. B. Termination Without Good Reason. Executive also may terminate this Agreements and Executive's employment without Good Reason at any time by giving 60 days notice to Cerprobe. If Executive terminates this Agreement and Executive's employment without Good Reason, Executive shall not be entitled to receive Severance Benefits pursuant to Section 9. 8. DEATH OR DISABILITY This Agreement will terminate automatically on Executive's death. Any salary or other amounts due to Executive for services rendered prior to Executive's death shall be paid to Executive's surviving spouse, or if Executive does not leave a surviving spouse, to Executive's estate. No other benefits shall be payable to Executive's estate or heirs pursuant to this Agreement, but amounts may be payable pursuant to any life insurance or other benefit plans maintained in whole or in part by Cerprobe for the benefit of Executive, his estate or heirs. In the Executive becomes "Disabled," Executive's employment hereunder and Cerprobe's obligation to pay Executive's salary shall continue for a period of 12 months from the date of such Disability, at which time Executive's employment hereunder shall automatically cease and terminate. Executive shall be considered "Disabled" or to be suffering from a "Disability" for purposes of this Section 8 if, in the reasonable, good faith judgment of a licensed physician selected by the Board, Executive is unable for a period of 90 consecutive business days to perform the essential functions of Executive position required under this Agreement, with or without reasonable accommodations, because of a physical or mental impairment. Any dispute relating to the existence of a Disability shall be resolved by the opinion of the licensed physician selected by the Board, provided, however, that if Executive does not accept the opinion of the licensed physician selected by Cerprobe, the dispute shall be resolved by the opinion of a licensed physician who shall be selected by Executive; provided further, however, that if Cerprobe does not accept the opinion of the licensed physician selected by Executive, the dispute shall be finally resolved by the opinion of a licensed physician selected by the licensed physicians selected by Cerprobe and Executive, respectively. 9. SEVERANCE BENEFITS If this Agreement and Executive's employment are terminated without Cause pursuant to Section 6(B) hereof or if Executive elects to terminate this Agreement for Good Reason pursuant to Section 7(A) hereof, Executive shall receive the "Severance Benefits" as provided by this Section. The Severance Benefits shall be payable in a single lump sum within 10 days following termination of employment and shall equal the greater of (i) sum of (a) the Executive's base salary for the unexpired Term, and (b) the average of incentive compensation paid to the Executive for the two years prior to the date of termination multiplied by a fraction, the numerator of which is the number of months remaining from the date of termination to the end of the Term and the 4 5 denominator of which is 12, and (ii) the sum of (x) Executive's base salary for a 12-month period as in effect on the date of termination and (y) the average on an annual basis of incentive compensation paid to the Executive for the two years prior to the date of termination. In addition, the Executive shall continue to receive life, disability, accident and group health insurance benefits substantially similar to those which he was receiving immediately prior to his termination of employment until the earlier of the end of the period of 12 months following his termination of employment or the day on which he becomes eligible to receive any substantially similar continuing health care benefits under any Plan or program of any other employer. If a particular insurance benefit may not be continued for any reason, Cerprobe shall pay Executive the amount necessary to permit Executive to purchase the same insurance benefits as were provided by Cerprobe, such payment to be made to Executive in a single lump sum. The benefits provided pursuant to this Section shall be provided on substantially the same terms and conditions as they were provided prior to the termination of employment, except that the full cost of such benefits shall be paid by the Cerprobe. The Executive's right to receive continued coverage under the Cerprobe's group health plans pursuant to Section 601 et seq. of the Employee Retirement Income Security Act of 1974, as it may be amended or replaced from time to time, shall commence following the expiration of his right to receive continued benefits under this Agreement. Executive shall have no duty to mitigate damages in order to receive the benefits provided by this Section. If Cerprobe terminates the Agreement and Executive's employment for Cause, or if Executive voluntarily terminates this Agreement and Executive's employment without Good Reason prior to the end of the Term, no Severance Benefits shall be paid to Executive. No Severance Benefits are payable in the event of Executive's death or disability while in the active employ of Cerprobe. 10. RELOCATION REIMBURSEMENT AND BENEFITS A. Relocation Expense Reimbursement. Executive understands that his position with Cerprobe will require him to relocate from Southern California to Northern California. To that end, Cerprobe will reimburse Executive for expenses incurred directly in connection with this move (including for example moving and storage expenses) up to an amount not to exceed $30,000. In addition, Cerprobe will pay Executive for expenses incurred in selling his home in Southern California (including for example, closing costs and real estate commissions) up to an amount not to exceed $125,000. B. General Benefits. Executive will be entitled to participate in all employee benefit plans, including, but not limited to, retirement plans, stock option plans, life insurance plans and health and dental plans available to other Cerprobe employees, subject to restrictions (including waiting periods) specified in the applicable Plan. Executive is entitled to four weeks of paid vacation per calendar year, with such vacation to be scheduled and taken in accordance with Cerprobe's standard vacation policies. 5 6 11. CONFIDENTIALITY AND NON-DISCLOSURE During the course of Executive's employment, Executive has and will become exposed to a substantial amount of confidential and proprietary information, including, but not limited to financial information, annual report, audited and unaudited financial reports, strategic plans, business plans, marketing strategies, new business strategies, personnel and compensation information, and other such reports, documents or information. In the event Executive's employment is terminated by either party for any, reason, Executive will return to Cerprobe and Executive will not take, any copies of such documents, computer print-outs, computer tapes, floppy disks, CD ROMS, etc., in any form, format or manner whatsoever, nor will Executive disclose the same in whole or in part to any person or entity, in any manner either directly or indirectly. Excluded from this Agreement is information that is already disclosed to third parties and is in the public domain or that Cerprobe consents to be disclosed, with such consent to be in writing. The provisions of this Section 11 shall survive the termination of this Agreement. 12. COVENANT-NOT-TO-COMPETE A. Interests to be Protected. The parties acknowledge that during the Term, Executive will perform essential for Cerprobe, its employees and shareholders, and for customers of Cerprobe. Therefore, Executive will be given an opportunity to meet, work with and develop close working relationships with Cerprobe's clients on a first-hand basis and will gain valuable insight as to the clients' operations, personnel and need for services. In addition, Executive will be to, have access to, and be required to work with, a considerable amount of Cerprobe's confidential and proprietary information, including but not limited to information concerning Cerprobe's methods of operation, financial information, strategic planning, operational budgets and strategies, payroll data, management systems programs, computer systems, marketing plans and strategies, merger and acquisition strategies and customer lists. The parties also expressly recognize and acknowledge that the personnel of Cerprobe have been trained by, and are valuable to Cerprobe, and that if Cerprobe must hire new personnel or retrain existing personnel to fill vacancies Cerprobe will incur substantial expense in recruiting and training such personnel. The parties expressly recognize that should Executive compete with Cerprobe in any manner whatsoever, it would seriously impair the goodwill and diminish the value of Cerprobe's business. The parties acknowledge that this covenant has an extended duration; however, they agree that this covenant is reasonable and that it is necessary for the protection of Cerprobe, its shareholders and employees. For these and other reasons, and the fact that there are many other employment opportunities available to Executive if Executive should terminate, the parties are in full and complete agreement that the following restrictive covenants (which together are referred to as the "Covenant-Not-To-Compete") are fair and reasonable and are freely, voluntarily and knowingly entered into. Further, each party has been given the 6 7 opportunity to consult with independent legal counsel before entering into this Agreement. B. Devotion to Employment. Executive shall devote substantially all of Executive's business time and best efforts to the performance of Executive's duties on behalf of Cerprobe. During the term of employment, Executive shall not at any time or place or to any extent whatsoever, either directly or indirectly, without the express written consent of Cerprobe, engage in any outside employment, or in any activity competitive with or adverse to Cerprobe's business, practice or affairs, whether alone or as partner, officer, director, employee, shareholder of any corporation or as a trustee, fiduciary, consultant or other representative. This is not intended to prohibit Executive from engaging in nonprofessional activities such as personal investments or conducting to a reasonable extent private business affairs which may include other boards of directors' activity, as long as they do not conflict with Cerprobe. Participation to a reasonable extent in civic, social or community activities is encouraged. C. Non-Solicitation of Customer or Suppliers. During the term of Executive's employment with Cerprobe and for a period of 12 months after the expiration or termination of employment with Cerprobe, regardless of who initiates the termination, Executive shall not, directly or indirectly, for Executive, or on behalf of, or in conjunction with, any other person(s), company, partnership, corporation, or governmental entity, in any manner whatsoever, call upon, contact encourage, handle or solicit, or cause others to solicit, any person or other entity that is, or was within the 12-month period immediately prior to the date of Executive's termination, a customer or supplier of Cerprobe or any of its subsidiaries or affiliates, for the purpose of soliciting, selling or purchasing from such customer or supplier the same, similar, or related services or products that are provided by, or purchased by, Cerprobe or any of its subsidiaries or affiliates. Notwithstanding the foregoing, the obligations of Executive under this Section 12(C), shall terminate only if the employment of Executive is terminated by Cerprobe without Cause or if Executive terminates his employment for Good Reason. If Executive violates Executive's obligations under this Section 12(C), then the time periods hereunder shall be extended by the period of time equal to that period beginning when the activities constituting such violation commenced and ending when the activities constituting such violation terminated. D. Non-Solicitation of Employees. During the term of Executive's employment with Cerprobe and for a period of 12 months after the termination of employment with Cerprobe, regardless of who initiates the termination, Executive shall not, directly or indirectly, for Executive, or on behalf of, or in conjunction with, any other person(s), company, partnership, corporation, or governmental entity, in any manner whatsoever, seek to hire, and/or hire any person who, on the date hereof, or on the date of Executive's termination, is an employee of Cerprobe or any of its subsidiaries or affiliates, and that receives annual compensation in excess of $25,000, for employment or as an independent contractor with any person or entity (other than Cerprobe or any of its subsidiaries or affiliates), unless first authorized in writing by Cerprobe, which authorization may be withheld in the sole and absolute discretion of Cerprobe. If Executive violates Executive's obligations wider this Section 12(D), then the time 7 8 periods hereunder shall be extended by the period of time equal to that period beginning when the activities constituting such violation commenced and ending when the activities constituting such violation terminated. E. Competing Business. During the term of Executive's employment and for a period of 12 months after the termination of employment with Cerprobe, regardless of who initiates the termination, Executive shall not, directly or indirectly, (including, without limitation, as a partner, director, officer or employee of, or lender or consultant to, any other personal entity, or shareholder (other than as the holder of less than five percent of the stock of a corporation the securities of which are traded on a national securities exchange or in the over-the-counter market), for Executive, or on behalf of, or in conjunction with, any other person(s), company, partnership, corporation, or governmental entity, in any manner whatsoever, or in any other capacity, within, into or from the Restricted Territory (as defined below) engage or cause others to engage in the same or similar business as Cerprobe and its subsidiaries, or any aspect thereof, unless first authorized in writing by Cerprobe, which authorization may be withheld in the sole and absolute discretion of Cerprobe. For purposes of this Section 12(E), the term "Restricted Territory" shall mean any geographical service area where Cerprobe or any of its subsidiaries and affiliates is engaged in business, sells products or performs services or was considering engaging in business at any time, prior to the termination or at the time of termination. Notwithstanding the foregoing, the obligations of Executive under this Section 12(E), shall terminate only if Executive is terminated by Cerprobe without Cause or if Executive terminates his employment for Good Reason. If Executive violates Executive's obligations under this Section 12(E), then the time periods hereunder shall be extended by the period of time equal to that period beginning when the activities constituting such violation commenced and ending when the activities constituting such violation terminated. F. Judicial Amendment. If the scope of any provision of this Section 12 is found by a court of competent jurisdiction to be too broad to permit enforcement to its full extent, then such provision shall be enforced to the maximum extent permitted by law. The parties agree that the scope of any provision of this Agreement may be modified by a judge in any proceeding to enforce this Agreement, so that such provision can be enforced to the maximum extent permitted by law. If any provision of this Agreement is found to be invalid or unenforceable for any reason, it shall not affect the validity of the remaining provisions of this Agreement. G. Injunctive Relief Damages and Forfeiture. Due to the nature of Executive's position with Cerprobe, and with full realization that a violation of this Agreement will cause immediate and irreparable injury and damage, which is not readily measurable, and to protect Cerprobe's interests, Executive understands and agrees that in addition to instituting legal proceedings to recover damages resulting from a breach of this Agreement, Cerprobe may seek to enforce this Agreement with an action for injunctive relief to cease or prevent any actual or threatened violation of this Agreement on the part of Executive. 8 9 H. Survival. The provisions of this Section 12, shall survive the termination of this Agreement. 13. DEFERRAL OF AMOUNTS PAYABLE UNDER THIS AGREEMENT. Any payment due pursuant to this Agreement may be deferred if and to the extent that the payment does not satisfy the requirements to be "qualified performance-based compensation" (as such term is defined by the regulations issued under Section 162(m) of the Internal Revenue Code, of 1986 (the "Code")) and when combined with all other payments received during the year that are subject to the limitations on deductibility under Section 162(m) of the Code, the payment exceeds the limitations on deductibility under Section 162(m) of the Code. The deferral of payments shall be in the discretion of the Board. Such deferred amounts shall be paid no later than the 60th day after the end of the next succeeding calendar year, provided that such payment, when combined with any other payments subject to the Section 162(m) limitations received during the year, does not exceed the limitations on deductibility under Section 162(m) of the Code. If the payments in such succeeding calendar year exceed the limitations on deductibility under Section 162(m) of the Code, such payments shall continue to be deferred to the next succeeding year. The above procedure shall be repeated until such payments can be and is fully paid without exceeding the limitation on deductibility under Section 162(m) of the Code. 14. AMENDMENTS This Agreement and the Ancillary Agreements constitute the entire agreement between the parties as to the subject matter hereof. Accordingly, there are no side agreements or verbal agreements other than those that are stated in this document or in the Ancillary Agreements. Any amendment, modification or change in said Agreements must be done so in writing and signed by both parties. 15. SEVERABILITY In the event a court or arbitrator declares that any provision of this Agreement is invalid or unenforceable, it shall not affect or invalidate any of the remaining provisions. Further, the court shall have the authority to re-write that portion of the Agreement it deems unenforceable, to make it enforceable. 16. GOVERNING LAW The law of the State of Arizona shall govern the interpretation and application of all of the provisions of this Agreement. 17. INDEMNITY A. General. Cerprobe shall, to the fullest extent authorized by the Delaware General Corporation Law, as amended, indemnify and hold harmless Executive in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative against expenses, liabilities and losses (including 9 10 attorneys' fees, judgments, fines, excise taxes or penalties and amounts paid in settlement) reasonably incurred or suffered by Executive in connection therewith. B. Expenses. This right to indemnification includes the right to be paid by Cerprobe the expenses (including attorneys' fees) incurred in defending any such proceeding in advance of its final disposition; provided, however, that, if the Delaware General Corporation Law requires, an advancement of expenses incurred by Executive shall be made only upon delivery to Executive of an undertaking, by or on behalf of Executive, to repay all amounts so advanced if it is ultimately determined by final judicial decision from which there is no further right to appeal that Executive is not entitled to be indemnified for such expenses. The rights to indemnification and to the advancement of expenses shall be contract rights and such rights shall continue as to Executive after his termination of employment and shall inure to the benefit of the Indemnitee's heirs, executors and administrators. C. Claims for Indemnification or Expenses. If a claim under either A or B above is not paid in full by Cerprobe within 60 days after Cerprobe receives a written claim, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be 20 days, Executive may at any time thereafter bring suit against Cerprobe to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, Executive shall be entitled to be paid also the expense of prosecuting or defending such suit. In any suit brought by the Executive to enforce a right to indemnification or to an advancement of expenses hereunder, or brought by Cerprobe to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that Executive is not entitled to be indemnified, or to such advancement of expenses, shall be on Cerprobe. 18. DISPUTE RESOLUTION A. Mediation. Any and all disputes arising under, pertaining to or touching upon this Agreement (excepting the confidentiality and non-disclosure provisions of Section 11 hereof, and the Covenant-Not-To-Compete provisions of Section 12 hereof), or the statutory rights or obligations of either party hereto, shall, if not settled by negotiation, be subject to non-binding mediation before an independent mediator selected by the parties pursuant to Section below writing and served upon the other. Any demand for mediation shall be made in writing party to the dispute, by certified mail, return receipt requested, at the business address of or at the last known residence address of Executive respectively. The demand shall set forth with reasonable specificity the basis of the dispute and the relief sought. The mediation learning will occur at a time and place convenient to the parties in Maricopa County, Arizona, within thirty (30) days of the date of selection or appointment of the mediator and shall be governed by the National Rules for the Resolution of Employment Disputes of the American Arbitration Association ("AAA"). B. Arbitration. In the event that the dispute is not settled through mediation, the parties shall then proceed to binding arbitration before a single independent arbitrator selected pursuant to Section 18(D). The mediator shall not serve 10 11 as arbitrator. ALL DISPUTES INVOLVING ALLEGED UNLAWFUL EMPLOYMENT DISCRIMINATION TERMINATION BY ALLEGED BREACH OF CONTRACT OR POLICY, OR ALLEGED EMPLOYMENT TORT COMMITTED BY CERPROBE OR A REPRESENTATIVE OF CERPROBE INCLUDING CLAIMS OF VIOLATIONS OF FEDERAL OR STATE DISCRIMINATION STATUTES OR PUBLIC POLICY, SHALL BE RESOLVED PURSUANT TO THIS POLICY AND THERE SHALL BE NO RECOURSE TO COURT, WITH OR WITHOUT A JURY TRIAL. The arbitration hearing shall occur at a time and place convenient to the parties in Maricopa County, Arizona, within thirty (30) days of selection or appointment of the arbitrator. If Cerprobe has adopted a policy that is applicable to arbitrations with executives, the arbitration shall be conducted in accordance with said policy to the extent that the policy is consistent with this Agreement and the Federal Arbitration Act, 9 U.S.C. Sections 1-16. If no such policy has been adopted, the arbitration shall be governed by the National Rules for the Resolution of Employment Disputes of the AAA. The arbitrator shall issue written findings of fact and conclusions of law, and an award, within fifteen (15) days of the date of the hearing unless the parties otherwise agree. C. Damages. In cases of breach of contract or policy, damages shall be limited to contract damages. In cases of intentional discrimination claims prohibited by statute, the arbitrator may direct payment consistent with 42 U.S.C. Section 1981(a) and the Civil Rights Act of 1991. In cases of employment tort, the arbitrator may award punitive damages if proved by clear and convincing evidence. Any award of punitive damages shall not exceed two times any compensatory award and in any event, shall not exceed Two Hundred Fifty Thousand Dollars ($250,000). The arbitrator may award fees to the prevailing party and assess costs of the arbitration to the non-prevailing party. Issues of procedure, arbitrability, or confirmation of award shall be governed by the Federal Arbitration Act, 9 U.S.C. Sections 1-16, except that court review of the arbitrator's award shall be that of an appellate court reviewing a decision of a trial judge sitting without a jury. D. Selection of Mediators or Arbitrators. The parties shall select the mediator or arbitrator form a panel list made available by the AAA. If the parties are unable to agree to a mediator or arbitrator within 10 days of receipt of a demand for mediation or arbitration, the mediator or arbitrator will be chosen by alternatively striking from a list of five (5) mediators or arbitrators obtained by Cerprobe from AAA. Executive shall have the first strike. 11 12 IN WITNESS WHEREOF, Cerprobe and Executive have executed this Agreement effective on the date set forth above. CERPROBE CORPORATION By: /s/ C. Zane Close _______________________________ Name: C. Zane Close Its: Chief Executive Officer By: /s/ Ross J. Mangano _______________________________ Name: Ross J. Mangano Its: Chairman of the Board of Directors "EXECUTIVE" /s/ Daniel J. Hill __________________________________ Daniel J. Hill 12 EX-10.TTT 3 EX-10.TTT 1 October 19, 1999 Daniel J. Hill 16848 Camino Lago DeCristal P.O. Box 9310 Rancho Santa Fe, CA 92067 CHANGE OF CONTROL AGREEMENT Dear D.J.: The Board of Directors believes that it is in the best interests of Cerprobe Corporation, a Delaware corporation ("Cerprobe"), and its shareholders to take appropriate steps to allay any concerns you may have about your future employment opportunities with Cerprobe and its subsidiaries (Cerprobe and its subsidiaries are collectively referred to as the "Company"). As a result, the Board has decided to offer to you the benefits described below. Please bear in mind that these benefits are being offered only to a few, selected employees and we accordingly ask that you refrain from discussing this program with others. Also, please note that the benefits described below will only be effective if you sign the extra copy of this Change of Control Agreement (the "Agreement") which is enclosed and return it to me on or before October 22, 1999. 1. TERM OF AGREEMENT. This Agreement is effective immediately and will continue in effect as long as you are actively employed by Cerprobe, unless you and Cerprobe agree in writing to its termination. 2. SEVERANCE PAYMENT. If your employment with the Company is terminated without "Cause" (as defined in Section 7) at any time within two years following a "Change of Control" (as defined in Section 5), you will receive the "Severance Payment" described below. You will also receive the Severance Payment if you terminate your employment for "Good Reason" (as defined in Section 6) at any time within two years following a Change of Control. For the purposes of this Agreement, if a termination occurs after the public announcement of an event which would constitute a Change of Control but before completion of the Change of Control, the termination shall be considered a termination occurring after a Change of Control has occurred. The Severance Payment equals the sum of (i) two times the higher of (x) your base salary on the date of your termination of employment, or (y) your base salary on the date preceding the 2 Change in Control, (ii) two times the average of the higher of (x) your incentive compensation for the two years prior to your termination of employment, or (y) your incentive compensation on the date preceding the Change in Control, and (iii) the amount of any lump-sum severance benefit paid to you under your Employment Agreement. The Severance Payment will be paid in one lump sum as soon as administratively feasible following your termination of employment, but in no event more than 90 days following your termination of employment. You are not entitled to receive the Severance Payment if your employment is terminated for Cause, if you terminate your employment without Good Reason, or if your employment is terminated by reason of your "Disability" (as defined in Section 9(d)) or your death. In addition, you are not entitled to receive the Severance Payment if your employment is terminated by you or the Company for any or no reason before a Change of Control occurs or more than two years after a Change of Control has occurred. In order to receive the Severance Payment, you must execute any release reasonably requested by the Company of claims that you may have pursuant to this Agreement (but not any other claims). The Severance Payment will be paid to you without regard to whether you look for or obtain alternative employment following your termination of employment with the Company. 3. BENEFITS CONTINUATION. If you are entitled to severance under Section 2, you will continue to receive life, disability, accident and group health insurance benefits substantially similar to those which you were receiving immediately prior to your termination of employment for a period of 24 months following your termination of employment. Such benefits shall be provided on substantially the same terms and conditions as they were provided prior to the Change of Control. The Company does not intend to provide duplicative benefits. As a result, benefits otherwise receivable pursuant to this Section shall be reduced or eliminated if and to the extent that you receive such benefits pursuant to your Employment Agreement. Benefits otherwise receivable pursuant to this Section also shall be reduced or eliminated if and to the extent that you receive comparable benefits from any other source (for example, another employer); provided, however, you shall have no obligation to seek, solicit or accept employment from another employer in order to receive such benefits. 4. INCENTIVE COMPENSATION. If you are employed by the Company on the day on which a Change of Control occurs, the incentive compensation to which you will be entitled (pursuant to any performance-based incentive compensation program established by the Company) for the calendar year in which the Change of Control occurs will equal at least the "Minimum Incentive Compensation Amount." The "Minimum Incentive Compensation Amount" will equal the incentive compensation to 2 3 which you would have been entitled if the year were to end on the day on which the Change of Control occurs, based upon performance up to that date. In measuring financial performance, financial results through the date of the Change of Control will be annualized. 5. CHANGE OF CONTROL DEFINED. For purposes of this Agreement, the term Change of Control shall mean and include the following transactions or situations: (a) A sale, transfer, or other disposition by Cerprobe through a single transaction or a series of transactions of securities of Cerprobe representing 30% or more of the combined voting power of Cerprobe's then outstanding securities to any "Unrelated Person" or "Unrelated Persons" acting in concert with one another. For purposes of this Section, the term "Person" shall mean and include any individual, partnership, joint venture, association, trust, corporation, or other entity (including a "group" as referred to in Section 13(d)(3) of the Securities Exchange Act of 1934 (the "Act")). For purposes of this Section, the term "Unrelated Person" shall mean and include any Person other than the Company, or an employee benefit Plan of the Company. (b) A sale, transfer, or other disposition through a single transaction or a series of transactions of all or substantially all of the assets of Cerprobe to an Unrelated Person or Unrelated Persons acting in concert with one another, (c) A change in the ownership of Cerprobe through a single transaction or a series of transactions such that any Unrelated Person or Unrelated Persons acting in concert with one another become the "Beneficial Owner," directly or indirectly, of securities of Cerprobe representing at least 30% of the combined voting power of Cerprobe's then outstanding securities. For purposes of this Section, the term "Beneficial Owner" shall have the same meaning as given to that term in Rule 13d-3 promulgated under the Act, provided that any pledgee of voting securities shall not be deemed to be the Beneficial Owner thereof prior to its acquisition of voting rights with respect to such securities. (d) Any consolidation or merger of Cerprobe with or into an Unrelated Person, unless immediately after the consolidation or merger the holders of the common stock of Cerprobe immediately prior to the consolidation or merger are the Beneficial Owners of securities of the surviving corporation representing at least 50% of the combined voting power of the surviving corporation's then outstanding securities. (e) During any period of two (2) years, individuals who, at the beginning of such period, constituted the Board of Directors of Cerprobe cease, for any reason, to constitute at least a majority thereof, unless the election or nomination for election of each new director was approved by the vote of at least two-thirds (2/3) of the directors then still in office who were directors at the beginning of such period. (f) A change in control of Cerprobe of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Act, 3 4 or any successor regulation of similar import, regardless of whether Cerprobe is subject to such reporting requirement. Notwithstanding any provision herein to the contrary, the filing of a proceeding for the reorganization of Cerprobe under Chapter 11 of the Federal Bankruptcy Code or any successor or other statute of similar import shall not be deemed to be a Change of Control for purpose of this Agreement. 6. GOOD REASON DEFINED. For purposes of this Agreement, the term "Good Reason" shall be given the meaning ascribed to such term in your Employment Agreement, as it may be amended from time to time. 7. CAUSE DEFINED. For purposes of this Agreement, the term "Cause" shall be given the meaning ascribed to such term in your Employment Agreement, as it may be amended from time to time. 8. CEILING ON BENEFITS. The Internal Revenue Code (the "Code") places significant tax burdens on you and the Company if the total payments made to you due to a Change of Control exceed prescribed limits. For example, if your limit is $749,999 (because your "Base Period Income" (as defined below) is $250,000) and the "Total Payments" (as defined below) exceed the limit by even $1.00, you are subject to an excise tax under Section 4999 of the Code of 20% of all amounts paid to you in excess of $250,000. If your limit is $749,999, you will not be subject to an excise tax if you receive exactly $749,999. If you receive $750,000, you will be subject to an excise tax of $100,000 (20% of $500,000). In order to avoid this excise tax and the related adverse tax consequences for the Company, by signing this Agreement, you agree that the present value of your Total Payments will not exceed an amount equal to 2.99 times your Base Period Income. This is the maximum amount which you may receive without becoming subject to the excise tax imposed by Section 4999 of the Code or which the Company may pay without loss of deduction under Section 280G of the Code. "Base Period Income" is an amount equal to your "annualized includible compensation" for the "base period" as defined in Sections 280G(d)(1) and (2) of the Code and the regulations adopted thereunder. Generally, your "annualized includible compensation" is the average of your annual taxable income from the Company for the "base period," which is the five calendar years prior to the year in which the Change of Control occurs. These concepts are complicated and technical and all of the rules set forth in the applicable regulations apply for purposes of this Agreement. 4 5 Your "Total Payments" include the sum of the Severance Payment and any other "payments in the nature of compensation" (as defined in Section 280G of the Code and the regulations adopted thereunder). If Cerprobe believes that these rules will result in a reduction of the payments to which you are entitled under this Agreement, it will so notify you within 60 days following delivery of the "Notice of Termination" described in Section 9. You and Cerprobe will then, at Cerprobe's expense, retain legal counsel, certified public accountants, and/or a firm of recognized executive compensation consultants to provide an opinion or opinions concerning whether your Total Payments exceed the limit discussed above. Cerprobe will select the legal counsel, certified public accountants and executive compensation consultants. If you do not accept one or more of the parties selected by Cerprobe you may provide Cerprobe with the names of legal counsel, certified public accountants and/or executive compensation consultants acceptable to you. If Cerprobe does not accept the party or parties selected by you, the legal counsel, certified public accountants and/or executive compensation consultants selected by you and Cerprobe, respectively, will select the legal counsel, certified public accountants and/or executive compensation consultants to provide the opinions required. At a minimum, the opinions required by this Section must set forth (a) the amount of your Base Period Income, (b) the present value of the Total Payments and (c) the amount and present value of any excess parachute payments. If the opinions state that there would be an excess parachute payment, your payments under this Agreement will be reduced to the extent necessary to eliminate the excess. You will be allowed to choose which payment should be reduced or eliminated, but the payment you choose to reduce or eliminate must be a payment determined by such legal counsel, certified public accountants, and/or executive compensation consultants to be includible in Total Payments. You will make your decision in writing and deliver it to Cerprobe within 30 days of your receipt of such opinions. If you fail to so notify Cerprobe, it will decide which payments to reduce or eliminate. If the legal counsel, certified public accountants, and/or executive compensation consultants selected to provide the opinions referred to above so requests in connection with the opinion required by this Section, a firm of recognized executive compensation consultants, selected by you and Cerprobe pursuant to the procedures set forth above, shall provide an opinion, upon which such legal counsel, certified public accountants, and/or executive compensation consultants may rely, as to the reasonableness of any item of compensation as reasonable compensation for services rendered before or after the Change of Control. If Cerprobe believes that your Total Payments will exceed the limitations of this Section, it will nonetheless make payments to you, at the times stated above, in the maximum amount that it believes may be paid without exceeding such limitations. The balance, if any, will then be paid after the opinions called for above have been received. 5 6 If the amount paid to you by Cerprobe is ultimately determined, pursuant to the opinion referred to above or by the Internal Revenue Service, to have exceeded the limitation of this Section, the excess will be treated as a loan to you by Cerprobe and shall be repayable on the 90th day following demand by Cerprobe, together with interest at the "applicable federal rate" provided in Section 1274(d) of the Code. In the event that the provisions of Sections 280G and 4999 of the Code are repealed without succession, this Section shall be of no further force or effect. 9. TERMINATION NOTICE AND PROCEDURE. Any termination by the Company or you of your employment shall be communicated by written Notice of Termination to you if such Notice of Termination is delivered by the Company and to the Company if such Notice of Termination is delivered by you, all in accordance with the following procedures: (a) The Notice of Termination shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances alleged to provide a basis for termination. (b) Any Notice of Termination by the Company shall be in writing signed by the Chairman of the Board of Cerprobe specifying in detail the basis for such termination. (c) If the Company shall furnish a Notice of Termination for Cause and you in good faith notify the Company that a dispute exists concerning such termination within the 15-day period following your receipt of such notice, you may elect to continue your employment during such dispute. If it is thereafter determined that (i) Cause did exist, your "Termination Date" shall be the earlier of (A) the date on which the dispute is finally determined, either by mutual written agreement of the parties or pursuant to the alternative dispute resolution provisions of Section 16, or (B) the date of your death; or (ii) Cause did not exist, your employment shall continue as if the Company had not delivered its Notice of Termination and there shall be no Termination Date arising out of such notice. (d) If the Company shall furnish a Notice of Termination by reason of Disability and you in good faith notify the Company that a dispute exists concerning such termination within the 15-day period following your receipt of such notice, you may elect to continue your employment during such dispute. The dispute relating to the existence of a Disability shall be resolved by the opinion of the licensed physician selected by Cerprobe, provided, however, that if you do not accept the opinion of the licensed physician selected by Cerprobe, the dispute shall be resolved by the opinion of a licensed physician who shall be selected by you; provided further, however, that if Cerprobe does not accept the opinion of the licensed physician selected by you, the dispute shall be finally resolved by the opinion of a licensed physician selected by the licensed physicians selected by Cerprobe and you, respectively. If it is thereafter determined that (i) a Disability did exist, your Termination Date shall be the earlier of (A) the date on which the dispute is resolved, or (B) the date of your death, or (ii) a Disability did not exist, your employment shall continue as if the Company had not delivered its Notice of Termination and 6 7 there shall be no Termination Date arising out of such notice. For purposes of this Agreement, "Disability" shall be given the meaning ascribed to such term in your Employment Agreement at the time the Disability determination is being made. (e) If you in good faith furnish a Notice of Termination for Good Reason and the Company notifies you that a dispute exists concerning the termination within the 15-day period following the Company's receipt of such notice, you may elect to continue your employment during such dispute. If it is thereafter determined that (i) Good Reason did exist, your Termination Date shall be the earlier of (A) the date on which the dispute is finally determined, either by mutual written agreement of the parties or pursuant to the alternative dispute resolution provisions of Section 16, (B) the date of your death, or (C) one day prior to the second anniversary of a Change of Control, and your payments hereunder shall reflect events occurring after you delivered Notice of Termination; or (ii) Good Reason did not exist, your employment shall continue after such determination as if you had not delivered the Notice of Termination asserting Good Reason. (f) If you do not elect to continue employment pending resolution of a dispute regarding a Notice of Termination, and it is finally determined that the reason for termination set forth in such Notice of Termination did not exist, if such notice was delivered by you, you shall be deemed to have voluntarily terminated your employment other than for Good Reason and if delivered by the Company, the Company will be deemed to have terminated you other than by reason of Disability or Cause. (g) For purposes of this Agreement, a transfer from Cerprobe to one of its subsidiaries or a transfer from a subsidiary to Cerprobe or another subsidiary shall not be treated as a termination of employment. 10. SUCCESSORS. Cerprobe will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of Cerprobe or any of its subsidiaries to expressly assume and agree to perform this Agreement in the same manner and to the same extent that Cerprobe or any subsidiary would be required to perform it if no such succession had taken place. Failure of Cerprobe to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle you to compensation in the same amount and on the same terms to which you would be entitled hereunder if you terminate your employment for Good Reason following a Change of Control, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Termination Date. As used in this agreement "Company" shall mean Company, as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise. 7 8 11. BINDING AGREEMENT. This Agreement shall inure to the benefit of and be enforceable by you and your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you should die while any amount would still be payable to you hereunder had you continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your devisee, legatee or other designee or, if there is no such designee, to your estate. 12. NOTICE. For purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States certified or registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notices to Cerprobe shall be directed to the attention of the Chairman of the Board of Cerprobe with a copy to the Secretary of Cerprobe, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 13. MISCELLANEOUS. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by you and the Chairman of the Board of Cerprobe. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreement or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Delaware without regard to its conflicts of law principles. All references to sections of the Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law. The obligations of Cerprobe that arise prior to the expiration of this Agreement shall survive the expiration of the term of this Agreement. 14. VALIDITY. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 15. COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall he deemed to be an original but all of which together will constitute one and the same instrument. 8 9 16. ALTERNATIVE DISPUTE RESOLUTION. All claims, disputes and other matters in question between the parties arising under this Agreement shall, unless otherwise provided herein (such as in Sections 8 and 9(d)), be resolved in accordance with the arbitration or alternative dispute resolution provisions included in your Employment Agreement. 17. EXPENSES AND INTEREST. If a good faith dispute shall arise with respect to the enforcement of your rights under this Agreement or if any arbitration or legal proceeding shall be brought in good faith to enforce or interpret any provision contained herein, or to recover damages for breach hereof, and you are the prevailing party, you shall recover from the Company any reasonable attorneys' fees and necessary costs and disbursements incurred as a result of such dispute or legal proceeding, and prejudgment interest on any money judgment obtained by you calculated at the rate of interest announced by Bank of America, Arizona from time to time as its prime rate from the date that payments to you should have been made under this Agreement. It is expressly provided that the Company shall in no event recover from you any attorneys' fees, costs, disbursements or interest as a result of any dispute or legal proceeding involving the Company and you. 18. PAYMENT OBLIGATIONS ABSOLUTE. Cerprobe's obligation to pay you the compensation and to make the arrangements in accordance with the provisions herein shall be absolute and unconditional and shall not be affected by any circumstances; provided, however, that Cerprobe may apply amounts payable under this Agreement to any debts owed to the Company by you on your Termination Date. All amounts payable by Cerprobe in accordance with this Agreement shall be paid without notice or demand. If Cerprobe has paid you more than the amount to which you are entitled under this Agreement, Cerprobe shall have the right to recover all or any part of such overpayment from you or from whomsoever has received such amount. 19. EFFECT ON EMPLOYMENT AGREEMENT. This Agreement supplements, and does not replace, your Employment Agreement, as it may be amended or replaced from time to time (the "Employment Agreement"). You will be entitled to receive all amounts due to you pursuant to your Employment Agreement; but some payments under your Employment Agreement may reduce your Severance Payments as provided in Section 2 and benefits due pursuant to your Employment Agreement may reduce the benefits due pursuant to Section 3. In addition, payments under your Employment Agreement may, in some limited circumstances, be considered as part of your Total Payment and result in a reduction in payments as provided in Section 8. If there is any conflict between the provisions of this Agreement and your Employment Agreement, the provisions of this Agreement shall control. 20. ENTIRE AGREEMENT. This Agreement and your Employment Agreement set forth the entire agreement between you and the Company concerning the subject matter discussed in this Agreement and supersede 9 10 all prior agreements, promises, covenants, arrangements, communications, representations, or warranties, whether written or oral, by any officer, employee or representative of the Company. Any prior agreements or understandings with respect to the subject matter set forth in this Agreement are hereby terminated and canceled. 21. DEFERRAL OF PAYMENTS. To the extent that any payment under this Agreement, when combined with all other payments received during the year that are subject to the limitations on deductibility under Section 162(m) of the Code, exceeds the limitations on deductibility under Section 162(m) of the Code, such payment shall, in the discretion of Cerprobe, be deferred to the next succeeding calendar year. Such deferred amounts shall be paid no later than the 60th day after the end of such next succeeding calendar year, provided that such payment, when combined with any other payments subject to the Section 162(m) limitations received during the year, does not exceed the limitations on deductibility under Section 162(m) of the Code. 22. PARTIES. This Agreement is an agreement between you and Cerprobe. In certain cases, though, obligations imposed upon Cerprobe may be satisfied by a subsidiary of Cerprobe. Any payment made or action taken by a subsidiary of Cerprobe shall be considered to be a payment made or action taken by Cerprobe for purposes of determining whether Cerprobe has satisfied its obligations under this Agreement. If you would like to participate in this special benefits program, please sign and return the extra copy of this letter which is enclosed. Sincerely, CERPROBE CORPORATION By. /s/ C. Zane Close __________________________________ Name: C. Zane Close Its: Chief Executive Officer By: /s/ Ross J. Mangano __________________________________ Name: Ross J. Mangano Its: Chairman of the Board of Directors Enclosure ACCEPTANCE I hereby accept the offer to participate in this special benefits program and I agree to be bound by all of the provisions noted above. Dated: __________ __, 1999 /s/ Daniel J. Hill ____________________________ Daniel J. Hill 10 11 Daniel J. Hill 11 EX-10.UUU 4 EX-10.UUU 1 [BANK ONE LOGO] LEASE SCHEDULE NO. 1000100200 FINANCING LEASE (Contract Rate Interim Rent) Master Lease Agreement dated 11/17/97 ------------ Lessor: Banc One Leasing Corporation Lessee: CERPROBE INTERCONNECT SOLUTIONS, INC. ------------------------------------- 1. GENERAL. This Lease Schedule is signed and delivered under the Master Lease Agreement identified above, as amended from time to time ("Master Lease"), between Lessee and Lessor. Capitalized terms defined in the Master Lease will have the same meanings when used in this Schedule. 2. FINANCING. Lessor finances for Lessee, and Lessee finances with Lessor, all of the property ("Equipment") described in Schedule A-1 attached hereto (and Lessee represents that all Equipment is new unless specifically identified as used). 3. AMOUNT FINANCED. EQUIPMENT COST: $222,423.82 SET-UP/FILING FEE: $375.00 MISCELLANEOUS: SALES TAX: $0.00 TOTAL: $222,798.82 4. FINANCING TERM. The Base Term of this Schedule shall be 60 months and the Base Term shall commence on ACCEPTANCE DATE ("Commencement Date"). The total Lease Term consists of the Interim Term plus the Base Term. The Interim Term begins on the date that Lessor accepts this Schedule as stated below Lessor's signature ("Acceptance Date") and continues up to the Commencement Date. 5. INSTALLMENT PAYMENTS/FEES. As financing for the Equipment, Lessee shall pay to Lessor all amounts stated below on the due dates stated below. There shall be added to each installment payment all applicable Taxes as in effect from time to time. (a) During the Lease Term, the above Amount Financed shall bear interest at the rate of 8.26% per annum ("Contract Rate"). (b) For the Interim Term, Lessee shall pay to Lessor on the Commencement Date an amount equal to the Per Diem Payment multiplied by the number of days in the Interim Term. "Per Diem Payment" means an amount equal to the product of the Amount Financed of the Equipment and the Daily Rate. "Daily Rate" means the Contract Rate divided by 360. (c) During the Base Term, Lessee shall pay to Lessor installment payments in the amounts and according to the timing set forth below, provided however, that notwithstanding the following, the final installment payment due hereunder shall be equal to the remaining principal balance hereunder together with all accrued interest and fees. (1) Amount of each installment payment during the Base Term (including principal and interest): 60 MON $4,545.34 Page 1 of 4 2 [BANK ONE LOGO] (2) Frequency of installment payments during Base Term: MONTHLY (3) Timing of installment payments during the Base Term: ARREARS (d) Lessee shall pay Lessor a Set-Up/Filing Fee as follows: (1) $0.00 shall be paid on the Acceptance Date, or (2) $375.00 has been included in the above Amount Financed of the Equipment. (e) Security Deposit: $0.00 On the Acceptance Date, Lessee shall pay Lessor said Security Deposit which shall be held in accordance with paragraph 6 below. 6. SECURITY INTEREST. This Schedule is intended to be a secured debt financing transaction, NOT a true lease. See Paragraph 7 below regarding Lessee's ownership of the Equipment. As collateral security for payment and performance of all Secured Obligations (defined in Paragraph 8 below) and to induce Lessor to extend credit from time to time to Lessee (under the Lease or otherwise), Lessee hereby grants to Lessor a first priority security interest in all of Lessee's right, title and interest in the Equipment, whether now existing or hereafter acquired, any sums specified in this Schedule as a "Security Deposit", and in all Proceeds (defined in Paragraph 8 below). At its option, Lessor may apply all or any part of any Security Deposit to cure any default of Lessee under the Lease. If upon final termination of this Schedule, Lessee has fulfilled all of the terms and conditions hereof, then Lessor shall pay to Lessee upon Lessee's written request any remaining balance of the Security Deposit for this Schedule, without interest. 7. TITLE TO EQUIPMENT; FIRST PRIORITY LIEN. Lessee represents, warrants and agrees: that Lessee currently is the lawful owner of the Equipment; that good and marketable title to the Equipment shall remain with Lessee at all times; that Lessee has granted to Lessor a first priority security interest in the Equipment and all Proceeds; and that the Equipment and all Proceeds are, and at all times shall be, free and clear of any Liens other than Lessor's security interest therein. Lessee at its sole expense will protect and defend Lessor's first priority security interest in the Equipment against all claims and demands whatsoever. 8. CERTAIN DEFINITIONS. "Secured Obligations" means (a) all payments and other obligations of Lessee under or in connection with this Schedule, and (b) all payments and other obligations of Lessee (whether now existing or hereafter incurred) under or in connection with the Master Lease and all present and future Lease Schedules thereto, and (c) all other leases, indebtedness, liabilities and/or obligations of any kind (whether now existing or hereafter incurred, absolute or contingent, direct or indirect) of Lessee to Lessor or to any affiliate of either Lessor or BANK ONE CORPORATION. "Proceeds" means all cash and non-cash proceeds of the Equipment including, without limitation, proceeds of insurance, indemnities and/or warranties. 9. AMENDMENTS TO MASTER LEASE. FOR PURPOSES OF THIS SCHEDULE ONLY, Lessee and Lessor agree to amend the Master Lease as follows: (a) public liability or property insurance as described in the second sentence of Section 8 will not be required; (b) the definition of "Stipulated Loss Value" in clause (b) of Section 9 is deleted and replaced by Paragraph 10 below; (c) the text of Section 10 is deleted in its entirety; (d) Subsections 23(a) and 23(c) are deleted; (e) subsection 23(b) and the last sentence of section 4 will apply only if an event of default occurs; and (f) all references in the Lease as it relates to this Schedule to "Lessee" and "Lessor" shall be changed to "Borrower" and "Lender" respectively. Page 2 of 4 3 [BANK ONE LOGO] 10. STIPULATED LOSS VALUE. FOR PURPOSES OF THIS SCHEDULE ONLY, the "Stipulated Loss Value" of any item of Equipment during its Lease Term equals the aggregate of the following as of the date specified by Lessor: (a) all accrued and unpaid interest, late charges and other amounts due under this Schedule and the Master Lease to the extent it relates to this Schedule as of such specified date, plus (b) the remaining principal balance due and payable by Lessee under this Schedule as of such specified date, plus (c) interest on the amount described in the foregoing clauses (a) and (b) at the Overdue Rate commencing with the specified date; provided, that the foregoing calculation shall not exceed the maximum amount which may be collected by Lessor from Lessee under applicable law in connection with enforcement of Lessor's rights under this Schedule and the Master Lease to the extent it relates to this Schedule. 11. LESSEE TO PAY ALL TAXES. FOR PURPOSES OF THIS SCHEDULE AND ITS EQUIPMENT ONLY: Lessee shall pay any and all Taxes relating to this Schedule and its Equipment directly to the applicable taxing authority; Lessee shall prepare and file all reports or returns concerning any such Taxes as may be required by applicable law or regulation (provided, that Lessor shall not be identified as the owner of the Equipment in such reports or returns); and Lessee shall, upon Lessor's request, send Lessor evidence of payment of such Taxes and copies of any such reports or returns. 12. LESSEE'S ASSURANCES. Lessee irrevocably and unconditionally: (a) reaffirms all of the terms and conditions of the Master Lease and agrees that the Master Lease remains in full force and effect; (b) agrees that the Equipment is and will be used at all times solely for commercial purposes, and not for personal family or household purposes; and (c) incorporates all of the terms and conditions of the Master Lease as if fully set forth in this Schedule. 13. REPRESENTATIONS AND WARRANTIES: Lessee represents and warrants that: (a) Lessee is a corporation, partnership or proprietorship duly organized, validly existing and in good standing under the laws of the state of its organization and is qualified to do business and is in good standing under the laws of each other state in which the Equipment is or will be located; (b) Lessee has full power, authority and legal right to sign, deliver and perform the Master Lease, this Schedule and all related documents and such actions have been duly authorized by all necessary corporate/partnership/proprietorship action; and (c) the Master Lease, this Schedule and each related document has been duly signed and delivered by Lessee and each such document constitutes a legal, valid and binding obligation of Lessee enforceable in accordance with its terms. 14. CONDITIONS. No lease of Equipment under this Schedule shall be binding on Lessor, and Lessor shall have no obligation to purchase the Equipment covered hereby, unless: (a) Lessor has received evidence of all required insurance; (b) in Lessor's sole judgment, there has been no material adverse change in the financial condition or business of Lessee or any guarantor, (c) Lessee has signed and delivered to Lessor this Schedule, which must be satisfactory to Lessor, and Lessor has signed and accepted this Schedule; (d) no change in the Code or any regulation thereunder, which in Lessor's sole judgment would adversely affect the economics to Lessor of the lease transaction, shall have occurred or shall appear to be imminent; (e) Lessor has received, in form and substance satisfactory to Lessor, such other documents and information as Lessor shall reasonably request; and (f) Lessee has satisfied all other reasonable conditions established by Lessor. 15. OTHER DOCUMENTS: EXPENSES: Lessee agrees to sign and deliver to Lessor any additional documents deemed desirable by Lessor to effect the terms of the Master Lease or this Schedule including, without limitation, Uniform Commercial Code financing statements which Lessor is authorized to file with the appropriate filing officers. Lessee hereby irrevocably appoints Lessor and any designee of Lessor as Lessee's attorney-in-fact with full power and authority in the place of Lessee and in the name of Lessee to prepare, sign, amend, file or record any Uniform Commercial Code financing statements or other documents deemed desirable by Lessor to perfect, establish or give notice of Lessor's interests in the Equipment or in any collateral as to which Lessee has granted Lessor a security interest. Lessee shall pay upon Lessor's written request any actual out-of-pocket costs and expenses paid or incurred by Lessor in connection with the above terms of this section or the funding and closing of this Schedule. Page 3 of 4 4 [BANK ONE LOGO] 16. PURCHASE ORDERS AND ACCEPTANCE OF EQUIPMENT. Lessee agrees that (i) Lessor has not selected, manufactured, sold or supplied any of the Equipment, (ii) Lessee has selected all of the Equipment and its suppliers, and (iii) Lessee has received a copy of, and approved, the purchase orders or purchase contracts for the Equipment. AS BETWEEN LESSEE AND LESSOR, LESSEE AGREES THAT: (a) LESSEE HAS RECEIVED, INSPECTED AND APPROVED ALL OF THE EQUIPMENT; (b) ALL EQUIPMENT IS IN GOOD WORKING ORDER AND COMPLIES WITH ALL PURCHASE ORDERS OR CONTRACTS AND ALL APPLICABLE SPECIFICATIONS; (c) LESSEE IRREVOCABLY ACCEPTS ALL EQUIPMENT FOR PURPOSES OF THE LEASE "AS-IS, WHERE-IS" WITH ALL FAULTS; AND (d) LESSEE UNCONDITIONALLY WAIVES ANY RIGHT THAT IT MAY HAVE TO REVOKE ITS ACCEPTANCE OF THE EQUIPMENT. LESSEE HAS READ AND UNDERSTOOD ALL OF THE TERMS OF THIS SCHEDULE. LESSEE AGREES THAT THERE ARE NO ORAL OR UNWRITTEN AGREEMENTS WITH LESSOR REGARDING THE EQUIPMENT OR THIS SCHEDULE. BANC ONE LEASING CORPORATION CERPROBE INTERCONNECT SOLUTIONS, INC. - ---------------------------- ------------------------------------- (Lessor) By: By: /s/ Randal L. Buness ------------------------- --------------------------------- Title: Title: Chief Financial Officer, Secretary, Treasurer, Director ---------------------- ------------------------------ Acceptance Date: Witness: /s/ Laura M. Back ------------ ---------------------------- Page 4 of 4 5 BANC ONE LEASING CORPORATION SCHEDULE A-1 EQUIPMENT LEASED HEREUNDER QUANTITY DESCRIPTION PAGE 1 ================================================================================ TOTAL AMOUNT: $222,423.82 LOCATION: 10365 SANDEN DRIVE DALLAS, TX 75238-2440 DALLAS COUNTY ALL PROPERTY DESCRIBED IN THE INVOICES IDENTIFIED BELOW, WHICH PROPERTY MAY BE GENERALLY DESCRIBED AS OFFICE EQUIPMENT. INVOICE INVOICE VENDOR NAME NUMBER AMOUNT - -------------------------------------------------------------------------------- EDC 224862 $ 36,900.00 NorthAmerican 177663 $ 672.00 Service Electric Co. 060499 $ 1,499.24 Probot 12483 $129,000.00 Probot 05233/4 $ 1,666.00 Probot 060499 $ 390.65 Probot 060999 $ 147.93 Garland 0992 $ 52,148.00 TOGETHER WITH ALL ATTACHMENTS, ADDITIONS, ACCESSIONS, PARTS, REPAIRS, IMPROVEMENTS, REPLACEMENTS AND SUBSTITUTIONS THERETO. This Schedule A-1 is attached to and made a part of Lease Number 1000100200 and constitutes a true and accurate description of the equipment. Lessee: CERPROBE INTERCONNECT SOLUTIONS, INC. By: /s/ Randal L. Buness ------------------------------ Date: November 15, 1999 ---------------------------- 6 NAME CHANGE ADDENDUM Dated _________________ Master Lease Agreement Dated 11/17/97 Lessee: COMPUROUTE, INC. (Previous Name) CERPROBE INTERCONNECT SOLUTIONS, INC. (New Name) Reference is made to the Master Lease Agreement identified above ("Master Lease"), which is by and between Banc One Leasing Corporation ("Lessor") and the lessee identified above ("Lessee"). As used herein: "Lease" shall mean any and all Schedules and the Master Lease; and "Equipment" shall mean the equipment covered by the Schedules. This Addendum modifies the terms and conditions of each Lease. Unless otherwise defined herein, capitalized terms defined in the Lease shall have the same meaning when used herein. Lessor and Lessee agree as follows: 1. Lessee has changed its name from the Previous Name to the New Name. All references to the Lessee in each Lease and in the Master Lease to the Previous Name are amended to be references to the New Name. 2. Lessee acknowledges that it has at all times been the Lessee for all purposes of each Lease from the inception of each Lease. Lessee hereby ratifies each Lease, including, without limitation, all powers of attorney granted to Lessor by each Lease. Except as expressly amended by this Addendum, the Lease remains unchanged and in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed this Addendum as of the date referenced above. Cerprobe Interconnect Banc One Leasing Corporation Solutions, Inc. (Lessee) (Lessor) By: /s/ Randal L. Buness By: Title: Chief Financial Officer, Title: Secretary, Treasurer Director Witness: /s/ Laura M. Back 7 CORPORATE GUARANTY (Limited to the "Guaranteed Lease") Master Lease Agreement Date: NOVEMBER 17, 1997 Lessee Name: CERPROBE INTERCONNECT SOLUTIONS, INC. Lease Schedule Number: 1000100200 Equipment Cost/Amount Financed: $222,798.82 1. For valuable consideration, the receipt of which is hereby acknowledged, the undersigned jointly and severally unconditionally guarantee to BANC ONE LEASING CORPORATION (hereinafter called "Lessor") the full and prompt performance by the lessee identified above (hereinafter called "Lessee") of all obligations which Lessee now has or may hereafter have to Lessor under the GUARANTEED LEASE (as defined below) and unconditionally guarantee the prompt payment when due (whether at scheduled maturity, upon acceleration or otherwise) of any and all sums, indebtedness and liabilities of whatsoever nature, due or to become due, direct or indirect, absolute or contingent, now or hereafter at any time owed or contracted by Lessee to Lessor under the GUARANTEED LEASE, and all costs and expenses of and incidental to collection of any of the foregoing, including reasonable attorneys' fees (all of the foregoing hereinafter called "Obligations"). "GUARANTEED LEASE" shall mean the Lease Schedule identified above (whether now existing or hereafter arising) together with the Master Lease Agreement identified above ("Master Lease") to the extent that it relates to the above-described Lease Schedule. 2. This is an absolute and unconditional guarantee of payment and not of collection. Lessor shall not be required, as a condition of the liability of the undersigned, to resort to, enforce or exhaust any of its remedies against the Lessee or any other party who may be liable for payment on any Obligation or to resort to, marshall, enforce or exhaust any of its remedies against any leased property or any property given or held as security for this Guaranty or any Obligation. 3. The undersigned hereby waive and grant to Lessor, without notice to the undersigned and without in any way affecting the liability of the undersigned, the right at any time and from time to time, to extend other and additional credit, leases, loans or financial accommodations to Lessee apart from the Obligations, to deal in any manner as it shall see fit with any Obligation of Lessee to Lessor and with any leased property or security for such Obligation, including, but not limited to, (i) accepting partial payments on account of any Obligation, (ii) granting extensions or renewals of all or any part of any Obligation, (iii) releasing, surrendering, exchanging, dealing with, abstaining from taking, taking, abstaining from perfecting, perfecting, or accepting substitutes for any or all leased property or security which it holds or may hold for any Obligation, (iv) modifying, waiving, supplementing or otherwise changing any of the terms, conditions or provisions contained in any Obligation and (v) the addition or release of any other party or person liable hereon, liable on the Obligations or liable on any other guaranty executed to guarantee any of Lessee's Obligations. The undersigned jointly and severally hereby agree that any and all settlements, compromises, compositions, accounts stated and agreed balances made in good faith between Lessor and Lessee shall be binding upon the undersigned. 4. Every right, power and discretion herein granted to Lessor shall be for the benefit of the successors or assigns of Lessor and of any transferee or assignee of any Obligation covered by this Guaranty, and in the event any such Obligation shall be transferred or assigned, every reference herein to Lessor shall be construed to mean, as to such Obligation, the transferee or assignee thereof. This Guaranty shall be binding upon each of the undersigned's executors, administrators, heirs, successors and assigns. 5. This Guaranty shall continue in force for so long as Lessee shall be obligated to Lessor pursuant to the Obligations described above. The undersigned expressly waive notice of the incurring by Lessee of any Obligation to Lessor. The undersigned also waive presentment, demand of payment, protest, notice of dishonor or nonpayment of or nonperformance of any Obligation. 6. The undersigned hereby waive any claims or rights which they might now have or hereafter acquire against Lessee or any other person primarily or contingently liable on any Obligation of Lessee, which claims or rights arise from the existence or performance of the undersigned's obligations under this Guaranty or any other guaranty or under any instrument or agreement with respect to any leased property or any property constituting collateral or security for this Guaranty or any other guaranty, including, without limitation, any right of subrogation, reimbursement, exoneration, contribution, indemnification, or any right to participate in any claim or remedy of Lessor or any other creditor which the undersigned now has or hereafter acquires, whether such claim or right arises in equity, under contract or statute, at common law, or otherwise. 7. Lessor's rights hereunder shall be reinstated and revived, and this Guaranty shall be fully enforceable, with respect to any amount at any time paid on account of the Obligations which thereafter shall be required to be restored or returned by Lessor upon the bankruptcy, insolvency or reorganization of the Lessee, the undersigned, or any other person, or as a result of any other fact or circumstance, all as though such amount had not been paid. 8. The undersigned jointly and severally agree to pay to Lessor all costs and expenses, including reasonable attorneys' fees, incurred by Lessor in the enforcement or attempted enforcement of this Guaranty, whether or not suit is filed in connection therewith, or in the exercise by Lessor of any right, privilege, power of remedy conferred by this Guaranty. Page 1 8 9. The undersigned represent and warrant that they have relied exclusively on their own independent investigation of Lessee, the leased property and the collateral for their decision to guarantee Lessee's Obligations now existing or thereafter arising. The undersigned agree that they have sufficient knowledge of the Lessee, the leased property, and the collateral to make an informed decision about this Guaranty, and that Lessor has no duty or obligation to disclose any information in its possession or control about Lessee, the leased property, and the collateral to the undersigned. The undersigned warrant to Lessor that they have adequate means to obtain from the Lessee on a continuing basis information concerning the financial condition of the Lessee and that they are not relying on Lessor to provide such information either now or in the future. 10. As long as any indebtedness under any of the Obligations remains unpaid or any credit is available to Lessee under any of the Obligations, the undersigned agree to furnish to Lessor: (a) annual financial statements setting forth the financial condition and results of operation of the undersigned (financial statements shall include balance sheet, income statement, changes in financial position and all notes thereto) within 120 days of the end of each fiscal year of the undersigned; (b) quarterly financial statements setting forth the financial condition and results of operation of the undersigned within 60 days of the end of each of the first three fiscal quarters of the undersigned; and (c) such other financial information as Lessor may from time to time request including, without limitation, financial reports filed by the undersigned with federal or state regulatory agencies. 11. No postponement or delay on the part of Lessor in the enforcement of any right hereunder shall constitute a waiver of such right. The failure of any person or entity to sign this Guaranty shall not discharge the liability of any of the undersigned. 12. This Guaranty remains fully enforceable irrespective of any claim, defense or counterclaim which the Lessee may or could assert on any of the Obligations including but not limited to failure of consideration, breach of warranty, payment, statute of frauds, statute of limitations, fraud, bankruptcy, accord and satisfaction, and usury, same of which the undersigned hereby waive along with any standing by the undersigned to assert any said claim, defense or counterclaim. 13. This Guaranty contains the entire agreement of the parties and supersedes all prior agreements and understandings, oral or written, with respect to the subject matter hereof. This Guaranty is not intended to replace or supersede any other guaranty which the undersigned have entered into or may enter into in the future. The undersigned may enter into additional guaranties in the future which may or may not refer to the Master Lease identified above and such guaranties are not intended to replace or supersede this Guaranty unless specifically provided in that additional guaranty. The interpretation, construction and validity of this guaranty shall be governed by the laws of the State of Ohio. With respect to any action brought by Lessor against Guarantor to enforce any term of this guaranty, Guarantor hereby irrevocably consents to the jurisdiction and venue of any state or federal court in Franklin County, Ohio, where Lessor has its principal place of business and where payments are to be made by Lessee and Guarantor. ALL PARTIES TO THIS GUARANTY, INCLUDING GUARANTOR AND LESSOR, WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY ON ANY MATTER WHATSOEVER ARISING OUT OF, IN CONNECTION WITH OR IN ANY WAY RELATED TO THIS GUARANTY. CERPROBE CORPORATION - -------------------- (Guarantor/Undersigned) By: /s/ Randal L. Buness -------------------------- Title: Sr. Vice President Witness: /s/ Laura M. Back Chief Financial Officer ----------------- Secretary, Treasurer ----------------------- Date: November 15, 1999 ------------------------ Page 2 EX-10.VVV 5 EX-10.VVV 1 [BANK ONE LOGO] LEASE SCHEDULE NO.: 1000100084 FINANCING LEASE ---------- (Per Diem Interim Rent) Master Lease Agreement dated 2/16/98 ------- Lessor: BANC ONE LEASING CORPORATION Lessee: CERPROBE CORPORATION -------------------- 1. GENERAL. This Lease Schedule is signed and delivered under the Master Lease Agreement identified above, as amended from time to time ("Master Lease"), between Lessee and Lessor. Capitalized terms defined in the Master Lease will have the same meanings when used in this Schedule. 2. FINANCING. Lessor finances for Lessee, and Lessee finances with Lessor, all of the property ("Equipment") described in Schedule A-1 attached hereto (and Lessee represents that all Equipment is new unless specifically identified as used): 3. AMOUNT FINANCED: Equipment Cost: $999,101.05 Set-Up/Filing Fee: $375.00 Miscellaneous: Sales Tax: $0.00 Total: $999,476.05 -----------
4. FINANCING TERM. The Base Term of this Schedule shall be 60 months and the Base Term shall commence on ACCEPTANCE DATE ("Commencement Date"). The total Lease Term consists of the Interim Term plus the Base Term. The Interim Term begins on the date that Lessor accepts this Schedule as stated below Lessor's signature ("Acceptance Date") and continues up to the Commencement Date. 5. INSTALLMENT PAYMENTS/FEES. As financing for the Equipment, Lessee shall pay to Lessor all amounts stated below on the due dates stated below. There shall be added to each installment payment all applicable Taxes as in effect from time to time. (a) For the Interim Term, Lessee shall pay to Lessor on the Commencement Date an amount equal to one-thirtieth (1/30th) of the Installment Payment multiplied by the number of days in the Interim Term. "Installment Payment" means the total of all installment payments due and payable during the Base Term divided by the number of months in the Base Term. (b) During the Base Term, Lessee shall pay to Lessor installment payments in the amounts and according to the timing set forth below, provided however, that notwithstanding the following, the final installment payment due hereunder shall be equal to the remaining principal balance hereunder together with all accrued interest and fees. (1) Amount of each installment payment during the Base Term (including principal and interest): 60 MON $20,390.06 (2) Frequency of installment payments during the Base Term: MONTHLY Page 1 of 4 2 [BANK ONE LOGO] (3) Timing of installment payments during the Base Term: ARREARS ------- (c) Lessee shall pay Lessor a Set-Up/Filing Fee as follows: (1) $0.00 shall be paid on the Acceptance Date, or (2) $375.00 has been included in the above Amount Financed of the Equipment. (d) Security Deposit: $0.00. On the Acceptance Date, Lessee shall pay Lessor said Security Deposit which shall be held in accordance with paragraph 6 below. 6. SECURITY INTEREST. This Schedule is intended to be a secured debt financing transaction, NOT a true lease. See Paragraph 7 below regarding Lessee's ownership of the Equipment. As collateral security for payment and performance of all Secured Obligations (defined in Paragraph 8 below) and to induce Lessor to extend credit from time to time to Lessee (under the Lease or otherwise), Lessee hereby grants to Lessor a first priority security interest in all of Lessee's right, title and interest in the Equipment, whether now existing or hereafter acquired, any sums specified in this Schedule as a "Security Deposit", and in all Proceeds (defined in Paragraph 8 below). At its option, Lessor may apply all or any part of any Security Deposit to cure any default of Lessee under the Lease. If upon final termination of this Schedule, Lessee has fulfilled all of the terms and conditions hereof, then Lessor shall pay to Lessee upon Lessee's written request any remaining balance of the Security Deposit for this Schedule, without interest. 7. TITLE TO EQUIPMENT; FIRST PRIORITY LIEN. Lessee represents, warrants and agrees: that Lessee currently is the lawful owner of the Equipment; that good and marketable title to the Equipment shall remain with Lessee at all times; that Lessee has granted to Lessor a first priority security interest in the Equipment and all Proceeds; and that the Equipment and all Proceeds are, and at all times shall be, free and clear of any Liens other than Lessor's security interest therein. Lessee at its sole expense will protect and defend Lessor's first priority security interest in the Equipment against all claims and demands whatsoever. 8. CERTAIN DEFINITIONS. "Secured Obligations" means (a) all payments and other obligations of Lessee under or in connection with this Schedule, and (b) all payments and other obligations of Lessee (whether now existing or hereafter incurred) under or in connection with the Master Lease and all present and future Lease Schedules thereto, and (c) all other leases, indebtedness, liabilities and/or obligations of any kind (whether now existing or hereafter incurred, absolute or contingent, direct or indirect) of Lessee to Lessor or to any affiliate of either Lessor or BANK ONE CORPORATION. "Proceeds" means all cash and non-cash proceeds of the Equipment including, without limitation, proceeds of insurance, indemnities and/or warranties. 9. AMENDMENTS TO MASTER LEASE. FOR PURPOSES OF THIS SCHEDULE ONLY, Lessee and Lessor agree to amend the Master Lease as follows: (a) public liability or property insurance as described in the second sentence of Section 8 will not be required; (b) the definition of "Stipulated Loss Value" in clause (b) of Section 9 is deleted and replaced by Paragraph 10 below; (c) the text of Section 10 is deleted in its entirety; (d) Subsections 23(a) and 23(c) are deleted; (e) subsection 23(b) and the last sentence of section 4 will apply only if an event of default occurs, and (f) all references in the Lease as it relates to this Schedule to "Lessee" and "Lessor" shall be changed to "Borrower" and "Lender" respectively. 10. STIPULATED LOSS VALUE. FOR PURPOSES OF THIS SCHEDULE ONLY, the "Stipulated Loss Value" of any item of Equipment during its Lease Term equals the aggregate of the following as of the date specified by Lessor: (a) all accrued and unpaid interest, late charges and other amounts due under this Schedule and the Master Lease to the extent it relates to this Schedule as of such specified date, plus (b) the remaining principal balance due and payable by Lessee under this Schedule as of such specified date, plus (c) interest on the amount described in the foregoing clauses (a) and (b) at the Overdue Rate commencing with the specified date; provided, that the foregoing calculation shall not exceed. Page 2 of 4 3 [BANK ONE LOGO] the maximum amount which may be collected by Lessor from Lessee under applicable law in connection with enforcement of Lessor's rights under this Schedule and the Master Lease to the extent it relates to this Schedule. 11. LESSEE TO PAY ALL TAXES. FOR PURPOSES OF THIS SCHEDULE AND ITS EQUIPMENT ONLY: Lessee shall pay any and all Taxes relating to this Schedule and its Equipment directly to the applicable taxing authority; Lessee shall prepare and file all reports or returns concerning any such Taxes as may be required by applicable law or regulation (provided, that Lessor shall not be identified as the owner of the Equipment in such reports or returns); and Lessee shall, upon Lessor's request, send Lessor evidence of payment of such Taxes and copies of any such reports or returns. 12. LESSEE'S ASSURANCES. Lessee irrevocably and unconditionally; (a) reaffirms all of the terms and conditions of the Master Lease and agrees that the Master Lease remains in full force and effect; (b) agrees that the Equipment is and will be used at all times solely for commercial purposes, and not for personal, family or household purposes; and (c) incorporates all of the terms and conditions of the Master Lease as if fully set forth in this Schedule. 13. REPRESENTATIONS AND WARRANTIES: Lessee represents and warrants that: (a) Lessee is a corporation, partnership or proprietorship duly organized, validly existing and in good standing under the laws of the state of its organization and is qualified to do business and is in good standing under the laws of each other state in which the Equipment is or will be located; (b) Lessee has full power, authority and legal right to sign, deliver and perform the Master Lease, this Schedule and all related documents and such actions have been duly authorized by all necessary corporate/partnership/proprietorship action; and (c) the Master Lease, this Schedule and each related document has been duly signed and delivered by Lessee and each such document constitutes a legal, valid and binding obligation of Lessee enforceable in accordance with its terms. 14. CONDITIONS. No lease of Equipment under this Schedule shall be binding on Lessor, and Lessor shall have no obligation to purchase the Equipment covered hereby, unless; (a) Lessor has received evidence of all required insurance; (b) in Lessor's sole judgment, there has been no material adverse change in the financial condition or business of Lessee or any guarantor; (c) Lessee has signed and delivered to Lessor this Schedule, which must be satisfactory to Lessor, and Lessor has signed and accepted this Schedule; (d) no change in the Code or any regulation thereunder, which in Lessor's sole judgment would adversely affect the economics to Lessor of the lease transaction, shall have occurred or shall appear to be imminent; (e) Lessor has received, in form and substance satisfactory to Lessor, such other documents and information as Lessor shall reasonably request; and (f) Lessee has satisfied all other reasonable conditions established by Lessor. 15. OTHER DOCUMENTS: EXPENSES: Lessee agrees to sign and deliver to Lessor any additional documents deemed desirable by Lessor to effect the terms of the Master Lease or this Schedule including, without limitation, Uniform Commercial Code financing statements which Lessor is authorized to file with the appropriate filing officers. Lessee hereby irrevocably appoints Lessor and any designee of Lessor as Lessee's attorney-in-fact with full power and authority in the place of Lessee and in the name of Lessee to prepare, sign, amend, file or record any Uniform Commercial Code financing statements or other documents deemed desirable by Lessor to perfect, establish or give notice of Lessor's interests in the Equipment or in any collateral as to which Lessee has granted Lessor a security interest. Lessee shall pay upon Lessor's written request any actual out-of-pocket costs and expenses paid or incurred by Lessor in connection with the above terms of this section or the funding and closing of this Schedule. Page 3 of 4 4 [BANK ONE LOGO] 16. PURCHASE ORDERS AND ACCEPTANCE OF EQUIPMENT. Lessee agrees that (i) Lessor has not selected, manufactured, sold or supplied any of the Equipment, (ii) Lessee has selected all of the Equipment and its suppliers, and (iii) Lessee has received a copy of, and approved, the purchase orders or purchase contracts for the Equipment. AS BETWEEN LESSEE AND LESSOR, LESSEE AGREES THAT: (a) LESSEE HAS RECEIVED, INSPECTED AND APPROVED ALL OF THE EQUIPMENT; (b) ALL EQUIPMENT IS IN GOOD WORKING ORDER AND COMPLIES WITH ALL PURCHASE ORDERS OR CONTRACTS AND ALL APPLICABLE SPECIFICATIONS; (c) LESSEE IRREVOCABLY ACCEPTS ALL EQUIPMENT FOR PURPOSES OF THE LEASE "AS-IS, WHERE-IS" WITH ALL FAULTS; AND (d) LESSEE UNCONDITIONALLY WAIVES ANY RIGHT THAT IT MAY HAVE TO REVOKE ITS ACCEPTANCE OF THE EQUIPMENT. LESSEE HAS READ AND UNDERSTOOD ALL OF THE TERMS OF THIS SCHEDULE. LESSEE AGREES THAT THERE ARE NOT ORAL OR UNWRITTEN AGREEMENTS WITH LESSOR REGARDING THE EQUIPMENT OR THIS SCHEDULE. BANC ONE LEASING CORPORATION CERPROBE CORPORATION - ---------------------------- -------------------- (Lessor) (Lessee) By: /s/ Mary Huebach By: /s/ Randal L. Buness ----------------------------- ----------------------------- Title: Funding Authority Title: Sr. Vice President Chief -------------------------- Financial Officer, Secretary Treasurer -------------------------- Acceptance Date: 11/17/99 Witness: Laura M. Back ---------------- ------------------------ Page 4 of 4 5 BANC ONE LEASING CORPORATION SCHEDULE A-1 EQUIPMENT LEASED HEREUNDER QUANTITY DESCRIPTION PAGE 1 ================================================================================ TOTAL AMOUNT: $999,101.05 LOCATION: 1150 NORTH FIESTA BLVD. GILBERT, AZ 85233 MARICOPA COUNTY ALL PROPERTY DESCRIBED IN THE INVOICES IDENTIFIED BELOW, WHICH PROPERTY MAY BE GENERALLY DESCRIBED AS OFFICE EQUIPMENT/MANUFACTURING EQUIPMENT.
VENDOR NAME INVOICE INVOICE NUMBER AMOUNT - ------------------------------------------------------------- Claricom 021099 $ 56,006.02 Atotech 9003383 $ 28,911.75 Atotech 9003668 $ 809.00 Creative Precision 1001 $ 28,357.00 Creative Precision 807 $ 42,346.00 Creative Precision 942 $ 47,998.45 HydroMatix 364 $ 85,308.00 AMG 99024 $ 94,614.33 Lumonics 59349 $ 25,924.50 Lumonics 60127 $ 8,980.00 Lumonics 59745 $ 51,849.00 HBS 36475 $161,067.80 HBS 36028 $ 52,731.00 HBS 3666 $314,198.20
TOGETHER WITH ALL ATTACHMENTS, ADDITIONS, ACCESSIONS, PARTS, REPAIRS, IMPROVEMENTS, REPLACEMENTS AND SUBSTITUTIONS THERETO. This Schedule A-1 is attached to and made a part of Lease Number 1000100084 and constitutes a true and accurate description of the equipment. Lessee: CERPROBE CORPORATION - --------------------------------------- By: Randal L. Buness - --------------------------------------- Date: November 15, 1999 - --------------------------------------- 6 [BANK ONE LOGO] LESSEE'S SECRETARY CERTIFICATE OF CERPROBE CORPORATION (the "Corporation") The undersigned, who is duly elected and acting Secretary or Assistant Secretary of the Corporation, hereby certifies that the following is a true and correct copy of resolutions duly adopted by the Board of Directors of the Corporation in conformity with its charter, articles of incorporation and by-laws [SELECT ONE] X at a meeting of said Board duly called and held November 30, - -------- 1998 at which a quorum was present and acting -or- by unanimous written action of said Board as allowed by statute, - -------- effective _____________, 19__ and that such resolutions have not been amended or altered and are in full force and effect on the date hereof. "RESOLVED, that any officer of this Corporation be and is hereby authorized and empowered in the name and on behalf of this Corporation from time to time (i) to enter into one or more lease agreements, loan and security agreements or conditional sale agreements ("Agreements") with Banc One Leasing Corporation (the "Company") as lessor, secured party or seller, as the case may be, concerning property to be leased, pledged as collateral, or sold to this Corporation in such amounts and on such terms and conditions as such officer deems appropriate; (ii) to mortgage, pledge, assign, and/or grant a security interest in any of this Corporation's property, (iii) to supplement or amend any such Agreements, and (iv) to execute and deliver such other documents (including, without limitation, leases or promissory notes) and to do and perform all other acts as such officer deems necessary, convenient or proper to carry out the foregoing; and FURTHER RESOLVED, that all that any officer shall have done or may do in connection with the Agreements or the transactions described above is hereby ratified and approved; and FURTHER RESOLVED, that the foregoing resolutions shall remain in full force and effect until written notice of their amendment or rescission shall have been received by the Company." The undersigned further certifies that the following are names and specimen signatures of officers of the Corporation authorized by the above resolutions, each of whom has been duly elected to hold and currently holds the office of the Corporation set forth opposite his or her name:
Name Title Signature (Please Print or Type) C. Zane Close President /s/ C. Zane Close - ---------------------- ---------------------- Randal L. Buness Sr. Vice President /s/ Randal L. Buness - ---------------------- ---------------------- Secretary - ---------------------- ---------------------- - ---------------------- --------------------- ----------------------
IN WITNESS WHEREOF, I have hereto set my hand and affixed the seal of the Corporation this 15th day of November,1999. /s/ Roseann L. Tavarozzi -------------------------------- Assistant Secretary Print Name: Roseann L. Tavarozzi -------------------- Page 1 of 1 EX-10.(HHHH) 6 EX-10.(HHHH) 1 [ORACLE CREDIT CORPORATION LETTERHEAD] NOTIFICATION OF ASSIGNMENT LETTER March 9, 2000 Randy Buness Cerprobe Corporation 1150 North Fiesta Blvd. Gilbert, AZ 85223 Dear Mr. Buness: THIS LETTER SERVES AS NOTIFICATION OF ASSIGNMENT OF PAYMENTS UNDER SUBJECT CONTRACT TO NEWCOURT FINANCIAL USA INC. ("NEWCOURT"). CONTRACT: Payment Schedule No. 1 dated 24-FEB-00 to Payment Plan Agreement #2357. ASSIGNED PAYMENTS: This is an assignment of your PAYMENTS ONLY. Sales Tax shall be added by Assignee to each Payment Amount at the following tax rate based on your ship-to location of Gilbert, AZ 85223. Your payments will be taxed at a rate of 5.70%. PAYMENT REMITTANCE INFORMATION: All Assigned Payments should be remitted to the address below. You will be invoiced shortly by Newcourt. REMIT TO: NEWCOURT FINANCIAL USA INC. POST OFFICE BOX 71521 CHICAGO, IL 60694-1521 RIGHTS: Except as specified under the Contract, Client's rights and remedies against Oracle under the software license and services agreement ("Agreement") shall not be affected. Newcourt assumes none of Oracle's obligations under the Agreement. Any questions surrounding the software or services should continue to be directed to your Oracle sales representative. With regard to payments due under the Contract, please confirm the above Contract constitutes the entire agreement between Oracle and Client, and there are no understandings, express or implied, which are not set forth in the Contract. INSTRUCTIONS: Please sign this letter and: - - ATTACH specific billing instructions and any additional requirements (i.e. P.O. #). - - FAX a copy to Oracle Attn: Keifer McIntyre, 650-506-7392, and - - MAIL the original to: LISA STRICKLAND NEWCOURT FINANCIAL USA, INC. 111 ANZA BLVD., SUITE 200, BURLINGAME, CA 94010 - - CONTACT Newcourt regarding any inquiries on your account at 650-342-5355, EXT. 447. - - NOTIFY YOUR ACCOUNTS PAYABLE department by forwarding a copy of this letter. Please contact me if you have any questions regarding this Assignment at 650-607-2686. Sincerely, Confirmed on: 3/16/00 -------------------- By: /s/ RANDAL L. BUNESS /s/ KEIFER MCINTYRE ------------------------------ - -------------------- Keifer McIntyre Name: Randal L. Buness Contracts Specialist ---------------------------- Title: SVP & CFO --------------------------- 2 [ORACLE CREDIT CORPORATION LOGO] PAYMENT SCHEDULE ASSIGNEE'S ORIGINAL PAGE OF (ORACLE PRODUCT) NO. 1 Customer: Cerprobe Corporation ---------------------------- 1150 North Fiesta Blvd. ---------------------------- Address: Gilbert, AZ 85223-2237 ---------------------------- ---------------------------- Contact: Randy Buness ---------------------------- Phone: 408-333-1500 ---------------------------- Order: Order Form dated 2/24/00 ---------------------------- Agreement: NL-233359 dated 19-Feb-98 ---------------------------- PPA No.: 2357 dated ---------------------------- ---------------------------- EXECUTED BY CUSTOMER (authorized signature): By: /s/ Randal L. Buness ---------------------------- Name: RANDAL L. BUNESS ---------------------------- Title: SVP & CFO ---------------------------- EXECUTED BY ORACLE CREDIT CORPORATION: By: /s/ Lowry Fenton ---------------------------- Name: LOWRY FENTON ---------------------------- Title: SR. DIRECTOR, OFD OPERATIONS ---------------------------- PAYMENT SCHEDULE EFFECTIVE DATE: 24-FEB-00 --------- SYSTEM - ------ Software: $335,412.00 ---------------------------- Support: $307,029.00 First year ---------------------------- Education: + Supp Renew ---------------------------- Consulting: ---------------------------- Other: ---------------------------- System Price: $642,441.00 ============================ PAYMENT SCHEDULE: - ----------------- PAYMENT AMOUNT DUE DATE: $56,240.00 01-Apr-00 through 01-Jan-01 $61,602.00 01-Apr-01 through 01-Jan-03 Four equal, consecutive, quarterly payments of $56,240.00 beginning 01-Apr-00 and eight equal, consecutive, quarterly payments of $61,602.00 beginning 01-Apr-01 Optional (if this box is checked): - -------- [ ] The Customer has ordered the System from an alliance member/agent of Oracle Corporation, whose name and address are specified below. Customer shall provide OCC with a copy of such Order. The System shall be directly licensed or provided by the Supplier specified in the applicable Order and Agreement, each of which shall be considered a separate contract. Customer has entered into the Order and Agreement based upon its own judgment, and expressly disclaims any reliance upon statements made by OCC about the System, if any. Customer's rights with respect to the System are as set forth in the applicable Order and Agreement and Customer shall have no right to make any claims under such Order and Agreement against OCC or its Assignee. Neither Supplier nor any alliance member/agent is authorized to waive or alter any term or condition of this Contract. If within ten days of the Payment Schedule Effective Date, OCC is provided with Customer Invoices for the System specifying applicable Taxes, then OCC may add the applicable Taxes in accordance with this Contract. Alliance Member/Agent: -------------------------------------------------------- Address: -------------------------------------------------------- Contact: Phone: -------------------------------------------------------- This Payment Schedule is entered into by Customer and Oracle Credit Corporation ("OCC") for the acquisition of the System from Oracle Corporation, an alliance member/agent of Oracle Corporation or any other party providing any portion of the System ("Supplier"). This Payment Schedule incorporates by reference the terms and conditions of the above-referenced Payment Plan Agreement ("PPA") to create a separate Contract ("Contract"). A. PAYMENTS: This Contract shall replace Customer's payment obligation under the Order and Agreement to Supplier, to the extent of the System Price listed above, upon Customer's delivery of a fully executed Order, Agreement, PPA, Payment Schedule, and any other documentation required by OCC, and execution of the Contract by OCC. Customer agrees that OCC may add the applicable Taxes due on the System Price to each Payment Amount based on the applicable tax rate invoiced by Supplier at shipment. OCC may adjust subsequent Payment Amounts to reflect any change or correction in Taxes due. If the System Price includes support fees for a support period that begins after the first support period, such future support fees and the then Relevant Taxes will be paid to Supplier as invoiced in the applicable support period from the Payment Amounts received in that period. The balance of each Payment Amount, unless otherwise stated, includes a proportional amount of the remaining components of the System Price excluding such future support fees, if any. B. SYSTEM: Software shall be accepted, and the services shall be deemed ordered pursuant to the terms of the Agreement. Customer agrees that any software acquired from Supplier to replace any part of the System shall be subject to the terms of the Contract. Any claims related to the performance of any component of the System shall be made pursuant to the Order and Agreement. Neither OCC nor Assignee shall be responsible to Customer for any claim or liability pertaining to any performance, actions, warranties or statements of Supplier. C. ADMINISTRATIVE: Customer agrees that OCC or its Assignee may treat executed faxes or photocopies delivered to OCC as original documents; however, Customer agrees to deliver original signed documents if requested. Customer agrees that OCC may insert the appropriate administrative information to complete this form. OCC will provide a copy of the final Contract upon request. 3
[ORACLE LOGO] ================================================= Customer: Cerprobe Corporation -------------------------------- -------------------------------- Address: 1150 North Fiesta Blvd. -------------------------------- Gilbert, AZ 85223-2237 -------------------------------- -------------------------------- Phone: 480-333-1799 -------------------------------- PPA No.: 2357 -------------------------------- Effective Date: 24-FEB-00 -------------------------------- =================================================
PAYMENT PLAN AGREEMENT ================================================= Executed by Customer (authorized signature): By: RANDAL L. BUNESS ----------------------------------------- Name: /s/ Randal L. Buness ----------------------------------------- Title: SVP & CFO ----------------------------------------- Executed by Oracle Credit Corporation: By: /s/ Lowry Fenton ----------------------------------------- Name: LOWRY FENTON ----------------------------------------- Title: SR. DIRECTOR, OFD OPERATIONS ----------------------------------------- =================================================
The Payment Plan Agreement ("PPA") is entered into by Customer and Oracle Credit Corporation ("OCC") to provide for the payment of the System Price specified in a Payment Schedule on an installment basis. The System (as defined below) is being acquired from Oracle Corporation, an alliance member/agent of Oracle Corporation or any other party providing any portion of the System ("Supplier"). Each Payment Schedule shall specify the Software and other products and services, which items together with any upgrade, transfer, substitution, or replacement thereof, shall comprise the "System." Each Payment Schedule shall incorporate the terms and conditions of the PPA to form a "Contract," and the System specified therein shall be subject to the terms and conditions of such Contract. The System shall be licensed or provided to Customer directly by Supplier pursuant to the terms of the Order and Agreement specified in the Contract. Except as provided under the Contract, Customer's rights and remedies under the Order and Agreement, including Supplier's warranty and refund provisions, shall not be affected. 1. PAYMENT SCHEDULE: Customer agrees to pay OCC the Payment Amounts in accordance with the Contract, with each payment due and payable on the applicable Due Date. If full payment of each Payment Amount and other amounts payable is not received by OCC within 10 days of each Due Date, Customer agrees to pay to OCC interest on the overdue amount at the rate equal to the lesser of one and one-half percent (1.5%) per month, or the maximum amount allowed by law. Unless stated otherwise, Payment Amounts exclude any applicable sales, use, property or any other tax allocable to the System, Agreement or Contract ("Taxes"). Any amounts or any Taxes payable under the Agreement which are not added to the Payment Amounts due under the Contract are due and payable by Customer, and Customer shall remain liable for any filing obligations. Customer's obligation to remit Payment Amounts to OCC or its assignee in accordance with the Contract is absolute, unconditional, noncancellable, independent, and shall not be subject to any abatement, set-off, claim, counterclaim, adjustment, reduction, or defense for any reason, including but not limited to, any termination of any Agreement, or performance of the System. 2. ASSIGNMENT: Customer hereby consents in OCC's assignment of all or a portion of its rights and interests in and to the Contract to third-parties ("Assignee"). OCC shall provide Customer notice thereof. Customer and OCC agree that Assignee shall not, because of such assignment, assume any of OCC's or Supplier's obligations to Customer. Customer shall not assert against Assignee any claim, defense, counterclaim or setoff that Customer may have against OCC or Supplier. Customer waives all rights to make any claim against Assignee for any loss or damage of the System or breach of any warranty, express or implied, as to any matter whatsoever, including but not limited to the System and service performance, functionality, features, merchantability or fitness for a particular purpose, or any indirect, incidental or consequential damages or loss of business. Customer shall pay Assignee all amounts due and payable under the Contract, but shall pursue any claims under any Agreement solely against Supplier. Except when a Default occurs, neither OCC nor Assignee will interfere with Customer's quiet enjoyment or use of the System in accordance with the Agreement's terms and conditions. 3. DEFAULT; REMEDIES: Any of the following shall constitute a Default under the Contract: (i) Customer fails to pay when due any sums due under any Contract; (ii) Customer breaches any representation or fails to perform any obligation in any Contract; (iii) Customer materially breaches or terminates the license relating to the Software; (iv) Customer defaults under a material agreement with Assignee; or (v) Customer becomes insolvent or makes an assignment for the benefit of creditors, or a trustee or receiver is appointed for Customer or for a substantial part of its assets, or bankruptcy, reorganization or insolvency proceedings shall be instituted by or against Customer. In the event of a Default that is not cured within thirty (30) days of its occurrence, OCC may: (i) require all outstanding Payment Amounts and other sums due and scheduled to become due (discounted at the lesser of the rate in the Contract or five percent (5%) per annum simple interest) to become immediately due and payable by Customer; (ii) pursue any rights provided under the Agreement, as well terminate all of Customer's rights to use the System and related services, and Customer agrees to cease all use of the System; and (iii) pursue any other rights or remedies available at law or in equity. In the event OCC initiates any action for the endorsement of the collection of Payment Amounts, there shall be due from Customer, in addition to the amounts due above, all costs and expenses of such action, including reasonable attorneys' fees. No failure or delay on the part of OCC to exercise any right or remedy hereunder shall operate as a waiver thereof, or as a waiver or any subsequent breach. All remedies are cumulative and not exclusive. Customer acknowledges that upon a default under the Contract, no party shall license, lease, transfer or use any Software in litigation of any damages resulting from Customer's default. 4. CUSTOMER'S REPRESENTATIONS AND COVENANTS: Customer represents that, throughout the terms of the Contract, the Contract has been duly authorized and constitutes a legal, valid, binding and enforceable agreement of Customer. Any transfer or assignment of Customer's rights or obligations in the System, or under the Agreement or the Contract shall require OCC's and Assignee's prior written consent. A transfer shall include a change in majority ownership of Customer. Customer agrees to promptly execute any ancillary documents and take further actions as OCC or Assignee may reasonably request, including, but not limited to, assignment notifications, acceptance certificates, certificates of authorization, registrations, and filings. Customer agrees to provide copies of Customer's balance sheet, income statement, and other financial reports as OCC or Assignee may reasonably request. 5. MISCELLANEOUS: The Contract shall constitute the entire agreement between Customer and OCC regarding the subject matter herein and shall supersede any inconsistent terms set forth in the Order, Agreement or any related agreements, Customer purchase orders and all prior oral and written understandings. If any provision of the Contract is invalid, such invalidity shall not affect the enforceability of the remaining terms of the Contract. Customer's obligations under the Contract shall commence on the Effective Date specified therein. Except for payment terms specified in the Contract, Customer remains responsible for all the obligations under each Agreement. Each Payment Schedule, and any changes to a Contract or any related document, shall take effect when executed by OCC. The Contract shall be governed by the laws of the State of California and shall be deemed executed in Redwood Shores, CA as of the Contract Effective Date. EX-11 7 EX-11 1 Exhibit 11 CERPROBE CORPORATION COMPUTATION OF NET INCOME (LOSS) PER SHARE
Year Ended December 31, --------------------------- 1999 1998 ------------ ---------- Net loss $(12,580,672) $ (495,908) ============ ========== Weighted average number of common shares outstanding 7,884,628 7,963,747 Common equivalent shares representing shares issuable upon exercise of stock options 62,768 287,626 Convertible preferred stock -- -- Subtraction of common equivalent shares due to antidilutive nature (62,768) -- ------------ ---------- Dilutive adjusted weighted average shares and assumed conversions 7,884,628 8,251,373 ============ ========= Basic net loss per share $ (1.60) $ (0.06) ============ ========= Diluted net loss per share $ (1.60) $ (0.06) ============ =========
EX-21 8 EX-21 1 Exhibit 21 CERPROBE CORPORATION LIST OF SUBSIDIARIES SUBSIDIARIES OF CERPROBE CORPORATION: Cerprobe Interconnect Solutions, Inc. SVTR, Inc. Cerprobe Europe Limited Cerprobe Asia Holdings Pte Ltd Cerprobe Europe S.A.S. OZ Technologies, Inc. SUBSIDIARIES OF OZ Technologies, Inc. Triple S Engineering, Inc. SUBSIDIARIES OF CERPROBE ASIA HOLDINGS PTE LTD: Cerprobe Asia Pte Ltd. SUBSIDIARIES OF CERPROBE ASIA PTE LTD.: Cerprobe Singapore Pte Ltd Cerprobe Taiwan Company Ltd * 70% owned by Cerprobe Corporation until August 18, 1997, at which time Cerprobe's ownership was reduced to 60%. EX-23 9 EX-23 1 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, No. 333-03015, No. 333-34979, No. 333-43469 and No. 333-31954) filed on Form S-8 and No. 33-61805 and No. 333-31992 on Form S-3 of Cerprobe Corporation of our report dated February 15, 2000, relating to the consolidated balance sheets of Cerprobe Corporation and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of operations, stockholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 1999, which report appears in the December 31, 1999, annual report on Form 10-K of Cerprobe Corporation. /s/ KPMG LLP Phoenix, Arizona March 30, 2000 EX-27.1 10 EX-27.1
5 This Schedule contains summary financial information extracted from the Consolidated Balance Sheet at December 31, 1999 and the Consolidated Statements of Operations for the year ended December 31, 1999 and is qualified in its entirety by reference to such financial statements. YEAR DEC-31-1999 DEC-31-1999 3,484,045 0 12,644,062 331,009 9,728,500 32,819,882 38,906,165 15,369,144 83,367,545 21,008,331 7,654,671 0 0 493,162 52,623,678 83,367,545 62,655,751 62,655,751 41,637,001 41,637,001 0 4,000 582,135 (14,831,479) 2,710,579 (12,575,350) (5,322) 0 0 (12,580,672) (1.60) (1.60)
EX-27.2 11 EX-27.2
5 This Schedule contains summary financial information extracted from the Consolidated Balance Sheet at December 31, 1998 and the Consolidated Statements of Operations for the year ended December 31, 1998 and is qualified in its entirety by reference to such financial statements. YEAR DEC-31-1998 DEC-31-1998 4,753,696 14,305,400 9,285,044 333,364 5,303,631 36,928,688 31,732,238 10,562,304 63,685,574 6,410,068 3,204,118 0 0 406,564 53,067,286 63,685,574 76,207,477 76,207,477 45,052,300 45,052,300 0 186,585 269,115 8,921,960 (3,685,308) 5,236,652 (5,732,560) 0 0 (495,908) (0.06) (0.06)
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