<PAGE>
As filed with the Securities and Exchange Commission on May 13, 1997
Registration No. 333-26457
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------------
inTEST Corporation
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 3825 22-2370659
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code No.) Identification No.)
</TABLE>
2 Pin Oak Lane, Cherry Hill, New Jersey 08003, (609) 424-6886
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
ALYN R. HOLT ROBERT E. MATTHIESSEN
Chairman and Chief Executive Officer President and Chief Operating Officer
inTEST Corporation
2 Pin Oak Lane, Cherry Hill, New Jersey 08003, (609) 424-6886
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
CHARLES C. ZALL, ESQ. BARRY M. ABELSON, ESQ.
Saul, Ewing, Remick & Saul Pepper, Hamilton & Scheetz LLP
3800 Centre Square West 3000 Two Logan Square
Philadelphia, Pennsylvania 19102 18th and Arch Streets
(215) 972-7777 Philadelphia, Pennsylvania 19103
(215) 981-4000
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
---------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
==============================================================================
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
SUBJECT TO COMPLETION, DATED MAY 13, 1997
2,275,000 Shares
[COMPANY LOGO]
Common Stock
---------------------
Of the 2,275,000 shares of Common Stock offered hereby, 1,820,000 are being
sold by inTEST Corporation ("inTEST" or the "Company") and 455,000 shares are
being sold by certain stockholders of the Company (the "Selling Stockholders").
The Company will not receive any of the proceeds from the sale of shares by the
Selling Stockholders. See "Principal and Selling Stockholders."
Prior to the offering, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering price
for the Common Stock will be between $8.50 and $10.50 per share. See
"Underwriting" for information relating to the factors to be considered in
determining the initial public offering price. The Company has applied to have
the Common Stock approved for quotation on the Nasdaq National Market under the
symbol "INTT."
---------------------
Prospective investors should carefully consider
"Risk Factors" beginning on page 5.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
=========================================================================================
Underwriting
Price to Discounts and Proceeds to Proceeds to
Public Commissions(1) Company(2) Selling Stockholders
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share ...... $ $ $ $
- ------------------------------------------------------------------------------------------
Total(3) ...... $ $ $ $
==========================================================================================
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including certain liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting estimated expenses of $655,000 payable by the Company.
(3) The Selling Stockholders have granted the Underwriters an option,
exercisable within 30 days after the date of this Prospectus, to purchase up
to 341,250 additional shares of Common Stock solely to cover
over-allotments. If this option is exercised in full, the total Price to
Public, Underwriting Discounts and Commissions and Proceeds to Selling
Stockholders will be $_____________, $____________ and $____________,
respectively. See "Underwriting."
---------------------
The shares of Common Stock are offered by the several Underwriters named
herein subject to prior sale, receipt and acceptance by them and subject to
their right to reject orders in whole or in part. It is expected that the
delivery of the certificates for such shares will be made on or about , 1997
at the office of Janney Montgomery Scott Inc., Philadelphia, Pennsylvania.
---------------------
JANNEY MONTGOMERY SCOTT INC. NEEDHAM & COMPANY, INC.
The date of this Prospectus is _________, 1997
<PAGE>
[Picture of a test head in position to dock to a device handler, each equipped
with inTEST docking hardware.]
[Picture of inTEST docking hardware consisting of docking plate with three cams
and interconnecting cables.]
[Drawings depicting a test head being moved in each of the six degrees of motion
freedom.]
[Picture of inTEST in2 Test Head Positioner (manipulator) holding a test head
equipped with inTEST docking hardware.]
-------------------------
"inTEST," the Company's logo on the cover of this Prospectus and the "in2"
logo are registered trademarks of inTEST Corporation. This Prospectus also
contains trademarks of other companies.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and Consolidated Financial Statements and Notes thereto appearing
elsewhere in this Prospectus. Unless the context otherwise requires, all
references herein to the "Company" or "inTEST" include inTEST Corporation
("inTEST CORP") and its subsidiaries. All information in this Prospectus assumes
no exercise of the Underwriters' over-allotment option and gives effect to (i) a
stock split in the form of a stock dividend in the amount of 0.5579 shares for
every one share outstanding to be effected on the date of this Prospectus, (ii)
the termination of the Company's status as an S corporation immediately prior to
the offering and (iii) the issuance of an aggregate of 300,443 shares of Common
Stock simultaneously with the closing of the offering in exchange for the
minority interests in the Company's three foreign subsidiaries (the "Exchange").
See "The Company" and "S Corporation Distributions."
The Company
The Company is a leading independent designer, manufacturer and marketer of
docking hardware and test head manipulators, which are used with automatic test
equipment ("ATE") by semiconductor manufacturers during the testing of wafers
and packaged devices. The Company also designs and markets related ATE interface
products including high performance test sockets, interface boards and probing
assemblies. The Company's products are designed to improve the utilization and
cost-effectiveness of ATE (including testers, wafer probers and device handlers)
during the testing of linear, digital and mixed signal integrated circuits.
Since inception in 1981, the Company has developed and continues to support over
4,600 products and has been granted 13 U.S. patents for its technology.
Testing is an integral and necessary step during the design and manufacture
of wafers and packaged devices. Each integrated circuit is tested at least twice
during the manufacturing process to ensure the functional and electrical
performance of each circuit. The increasing worldwide demand for semiconductors
in recent years has led to an increase in the demand for ATE. According to VLSI
Research Inc., in 1996 semiconductor manufacturers spent an estimated $3.7
billion on testers and $1.3 billion on wafer probers and device handlers. The
increasing complexity of wafers and packaged devices, as manifested by larger
wafers, higher speeds, growing pin counts, smaller packaged devices and greater
levels of integration has changed the design, architecture and complexity of ATE
used during the testing of such devices and has resulted in an increased demand
for the Company's products.
The Company's docking hardware products mechanically control the intimate
interface between the test head's interface board and the prober's probing
assembly or handler's test socket. Such docking hardware facilitates the quick,
easy and safe changeover of test heads to probers or handlers, thereby allowing
semiconductor manufacturers to achieve cost savings by (i) improving ATE
utilization, (ii) improving the accuracy and integrity of test results and (iii)
reducing the need to repair or replace expensive ATE interface products. The
Company's docking hardware can be designed to be used with substantially all
makes and models of test heads, probers and handlers, and can usually be
designed to allow all ATE on a test floor to be mechanically "plug-compatible."
The Company's in2 free-standing, floating-head universal manipulators are
designed to be used in either a dedicated or a flexible test environment and
have been engineered to hold test heads in an effectively weightless state, and
can be moved up or down, right or left, forward or backward and rotated around
each axis (six degrees of motion freedom). Consequently, an operator using no
more than 22 pounds of force can reposition a test head weighing up to
approximately 900 pounds by grasping it in his or her hands and gently moving
the test head into position to dock with a prober or handler.
The Company's largest customers include Lucent Technologies, Motorola, SGS
Thomson and Texas Instruments among semiconductor manufacturers, and Credence
Systems, LTX and Teradyne among ATE manufacturers. The Company designs, markets
and supports its products globally both through Company account managers based
in New Jersey, Texas, California, the U.K., Singapore and Japan and through
independent sales representatives in the U.S. and abroad. The Company's
executive offices are located in Cherry Hill, New Jersey. Manufacturing
facilities are located in New Jersey and the U.K.
3
<PAGE>
The Offering
<TABLE>
<CAPTION>
<S> <C>
Common Stock offered by the Company ............... 1,820,000 shares
Common Stock offered by the Selling Stockholders . 455,000 shares
Total offering .................................... 2,275,000 shares
Common Stock to be outstanding after the offering . 5,911,034 shares(1)
Use of Proceeds .................................... For working capital, general corporate
purposes (which may include S corporation
distributions) and possible acquisitions. See
"Use of Proceeds."
Proposed Nasdaq National Market symbol ............ INTT
</TABLE>
Summary Consolidated Financial Information
(in thousands, except per share data)
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------------------------------
1992 1993 1994 1995 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Earnings Data:
Revenues ............................................. $ 6,512 $ 8,875 $ 9,287 $14,442 $18,582
Gross profit .......................................... 3,254 5,415 5,510 9,251 11,827
Operating income .................................... 649 1,767 1,289 4,037 5,616
Earnings before income taxes and minority interest ... $ 605 $ 1,782 $ 1,326 $ 4,070 $ 5,717
-------- -------- -------- -------- --------
Pro forma net earnings (2) ........................... $ 3,366
Pro forma net earnings per share (2) .................. $ 0.82
Pro forma weighted average shares outstanding (1)(2) .. 4,091
Supplemental pro forma net earnings per share (3)....... $ 0.79
Supplemental pro forma weighted average shares
outstanding (3)...................................... 4,265
</TABLE>
<TABLE>
<CAPTION>
Three months ended
March 31,
-----------------------
1996 1997
---------- ---------
<S> <C> <C>
Consolidated Statement of Earnings Data:
Revenues ............................................. $ 6,089 $ 3,887
Gross profit .......................................... 4,233 2,285
Operating income .................................... 2,694 1,007
Earnings before income taxes and minority interest ... $ 2,706 $ 1,022
-------- --------
Pro forma net earnings (2) ........................... $ 537
Pro forma net earnings per share (2) .................. $ 0.13
Pro forma weighted average shares outstanding (1)(2) .. 4,091
Supplemental pro forma net earnings per share (3)...... $ 0.13
Supplemental pro forma weighted average shares
outstanding (3)...................................... 4,265
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
March 31, 1997
--------------------------------------------------
Pro forma
Actual Pro forma (4) as adjusted (4)(5)
---------- ---------------- --------------------
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents ...... $ 2,983 $ 2,983 $18,408
Working capital .................. 3,924 560 15,985
Total assets ..................... 7,492 9,115 24,540
Long term debt .................. 148 148 148
Total stockholders' equity ...... 4,154 2,640 18,065
</TABLE>
- ------------
(1) Includes 300,443 shares of Common Stock to be issued in the Exchange, and
excludes 150,000 shares of Common Stock issuable upon the exercise of stock
options, the grant of which will become effective as of the effective date
of the Registration Statement of which this Prospectus is a part (the
"Registration Statement") and which will be exercisable at the initial
public offering price. None of such options will be exercisable until one
year after the effective date of grant. See "Management -- 1997 Stock Plan."
(2) Assumes the termination of the Company's S corporation status effective
January 1, 1996 and the completion of the Exchange on January 1, 1996, and
as a result reflects the amortization of goodwill associated therewith and
the absence of a charge for the minority interest. See Note 3 of Notes to
Consolidated Financial Statements.
(3) Supplemental pro forma net earnings per share reflects the assumed issuance
of 174,000 shares of Common Stock, based on an assumed initial public
offering price of $9.50 per share, to fund distributions to the Company's
current stockholders of previously taxed but undistributed S corporation
earnings, net of available cash and cash equivalents (estimated to be $1.7
million as of March 31, 1997). See "Use of Proceeds," "S Corporation
Distributions" and Note 3 of Notes to Consolidated Financial Statements.
(4) Reflects the acquisition of the minority interests in the Company's foreign
subsidiaries pursuant to the Exchange, including goodwill arising from the
Exchange, and the effects of the termination of the Company's S corporation
status, including the distribution described under "S Corporation
Distributions." See Note 3 of Notes to Consolidated Financial Statements.
(5) Adjusted to reflect the sale by the Company of 1,820,000 shares of Common
Stock offered hereby at an assumed initial public offering price of $9.50
per share and the receipt of the estimated net proceeds therefrom (after
deducting estimated underwriting discounts and commissions and estimated
offering expenses payable by the Company). See "Use of Proceeds" and
"Capitalization."
4
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Prospective investors should carefully consider the following
risk factors in addition to the other information set forth in this Prospectus.
This Prospectus contains certain statements of a forward-looking nature relating
to future events or the future financial performance of the Company. Prospective
investors are cautioned that such statements are only predictions and that
actual events or results may differ materially.
Dependence upon Semiconductor Industry. The Company's business is
substantially dependent upon the level of activity and capital expenditures of
semiconductor manufacturers. The semiconductor industry is highly cyclical and
has from time to time experienced periods of excess capacity which often have
had a severely detrimental effect on the industry's demand for ATE. There can be
no assurance that the Company's business and results of operations will not be
materially adversely affected by downturns in the semiconductor industry
generally, or by downturns or changes in any one or more particular market
segments of the semiconductor industry in which the Company participates. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Fluctuations in Revenues and Operating Results. The Company's revenues and
operating results have fluctuated and could in the future fluctuate
significantly from period to period, including from one quarterly period to
another, due to a combination of factors, including the cyclicality of the
semiconductor industry, delays in the Company's shipments of products, the mix
of products sold, the mix of customers and the regions of the world where sales
are made in a particular period, the level of the Company's fixed costs,
cancellation or rescheduling of orders by customers and competitive pricing
pressures. In the fourth quarter of 1996, for example, the Company experienced
an operating loss substantially as a result of reduced revenues. The Company
believes such reduced revenues reflect the reduction by semiconductor
manufacturers of commitments to purchase ATE products in the second and third
quarters of 1996. The impact of these and other factors on the Company's
revenues and operating results in any future period cannot be forecast with
accuracy. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Importance of Patents and Proprietary Rights; Risk of Litigation. The
Company's success depends in significant part on its ability to obtain patent
protection for its proprietary technologies and to preserve its trade secrets.
The Company's U.S. issued patents will expire at various times beginning in 2002
and extending through 2015. There can be no assurance that additional patents
will be issued on the Company's pending or future applications, or that any
patents now or hereafter owned by the Company will afford protection against
competitors that develop similar technology or products. There is no certainty
that any patents issued to the Company will be held valid if subsequently
challenged or subjected to reexamination or reissue, that others will not claim
rights in the patents and other proprietary technology owned by the Company or
that the Company's efforts to protect its proprietary rights will be successful
generally or in any specific circumstance. There are no pending lawsuits or
claims against the Company regarding infringement of any existing patents or
other intellectual property rights of others.
The Company has notified one of its competitors that the Company believes
the competitor's products infringe on one of the Company's U.S. patents. The
competitor responded by alleging that certain claims of the patent are invalid
based on an earlier issued U.S. patent. The Company, in order to strengthen its
patent position, requested reexamination of its patent by the U.S. Patent and
Trademark Office (the "PTO") over that earlier issued U.S. patent. The
competitor thereafter also requested a reexamination of the patent. A
reexamination provides the PTO with an opportunity to reevaluate the validity of
the claims of a patent previously issued by the PTO. On April 7, 1997, the PTO
issued an Office Action in Reexamination confirming five of the nine claims of
the Company's patent, and rejecting four claims. On April 29, 1997, the
Company's patent attorney presented to the Examiner in charge of the
Reexamination a minor amendment to the claims. In response, the Examiner agreed
that the proposed amendment appears to overcome the rejection of the four
claims. Based on advice of its patent counsel, the Company believes that upon
formal submission of the proposed amendment, all claims will be deemed
patentable and the Commissioner of the PTO will issue a Certificate of
Reexamination to that effect. Although there can be no assurance, the Company
believes that the failure of the PTO ultimately to deem patentable some or all
of the four claims rejected in the Office Action will not have a material
adverse effect on the Company's business or results of operations. See
"Business--Patents and Other Proprietary Rights."
5
<PAGE>
Competition. The ATE industry is highly competitive. Many of the Company's
competitors have greater financial resources and some have more extensive
engineering, manufacturing, marketing and customer support capabilities than the
Company. The Company's competitors include independent manufacturers of docking
hardware, manipulators and related ATE interface products, designers and
manufacturers of ATE and, to a lesser extent, semiconductor manufacturers'
in-house ATE interface groups. The independent manufacturers of docking hardware
and manipulators which compete with the Company include Reid-Ashman
Manufacturing of the U.S., Microhandling of Germany and Shang Sheng of Taiwan.
The manufacturers of ATE which compete with the Company in the sale of docking
hardware and manipulators include Credence Systems, LTX, Schlumberger and
Teradyne. The Company competes with numerous independent manufacturers of
related ATE interface products. The Company principally competes on the basis of
product performance and functionality, product reliability, customer service,
applications support, price and timely product delivery. There can be no
assurance that the Company's competitors will not develop competing products
that will offer performance features that are superior to the Company's
products. The Company believes that in order to remain competitive, it must
continue to commit a significant portion of its personnel, financial resources,
research and development and customer support in developing new products and in
maintaining customer satisfaction worldwide. See "Business -- Competition."
Importance of Product Development. The market for ATE is subject to rapid
technological change and new product introductions, as well as advancing
industry standards. The development of increasingly complex semiconductors and
the utilization of semiconductors in a broader spectrum of products have driven
the need for more advanced ATE systems to test such devices at an acceptable
cost. The demand for these new ATE systems provides both the opportunity and the
need for the Company to develop additional products. There can be no assurance
that the Company will be successful in developing, manufacturing or selling new
products, that the introduction of such products will coincide with the
development of new generations of semiconductors or that such products will
satisfy customer needs or achieve market acceptance. The failure to provide
customers with new products could have a material adverse effect on the
Company's business and results of operations, as well as its customer
relationships. See "Business -- Strategy" and " -- Products."
Acquisitions. Although the Company has not made an acquisition since 1985,
a key element of its growth strategy is to acquire businesses, technologies or
products that are complementary to those of the Company. There can be no
assurance that the Company will be able to acquire and integrate successfully
such businesses, technologies or products or that any financing which may be
necessary for such acquisitions can be obtained on favorable terms or at all.
Furthermore, the integration of an acquisition may cause a diversion of
management's time and resources. Acquisitions by the Company could result in
dilutive issuances of equity securities and additional debt and amortization
expenses related to goodwill and intangible assets. In addition, gross profit
margins of acquired products, necessary product or technology development
expenditures and other factors related to any such acquisition could result in
dilution to the Company's stockholders or have other material adverse effects on
the Company's business and results of operations. The Company is not currently a
party to any agreement or understanding with respect to any acquisition. See
"Business -- Strategy."
International Sales and Operations. Approximately 37% and 43% of the
Company's revenues were generated by the Company's three foreign subsidiaries,
and approximately 5% and 19% of the Company's revenues were derived from sales
by inTEST CORP to customers located outside the U.S., in the first quarter of
1997 and in 1996, respectively. The Company intends to expand its international
presence and expects that international revenues will continue to represent a
significant portion of its revenues. See "Business -- Strategy." Sales to
customers outside the U.S. and operations in foreign countries are subject to
risks in addition to those incident to domestic sales and operations, including
the imposition of financial and operational governmental controls and regulatory
restrictions, the need to comply with a wide variety of U.S. and foreign import
and export laws, political and economic instability, trade restrictions, changes
in tariffs and taxes, longer payment cycles and the greater difficulty of
administering business abroad. There can be no assurance that any of these
factors will not have a material adverse effect on the Company's business or
results of operations. A significant portion of the Company's revenues is
denominated in foreign currencies, and accordingly, the Company's business and
results of operations may be affected by fluctuations in interest and currency
exchange rates. Also, the laws of certain foreign countries may not protect the
Company's intellectual property to the same extent as do the laws of the U.S.
See "Business -- Markets and Customers" and Note 4 of Notes to Consolidated
Financial Statements.
6
<PAGE>
Customer Concentration. Although the Company's largest customers generally
change from year to year, sales to the Company's top ten customers accounted for
70%, 73% and 69% of the Company's revenues in 1996, 1995 and 1994, respectively,
and sales to one customer, Lucent Technologies, accounted for 16%, 16% and 7% in
1996, 1995 and 1994, respectively. The Company sells to its customers on a
purchase order or other limited basis and not pursuant to long term contracts.
There can be no assurance that the Company will be able to retain its largest
customers or that such customers will not cancel or reschedule orders. The loss
of a major customer or a reduction in orders by major customers, including
reductions due to market or competitive conditions in the semiconductor
industry, could have a material adverse effect on the Company's business and
results of operations. See "Business -- Markets and Customers."
Dependence on Key Suppliers. The Company relies on third party suppliers,
fabricators, finishers and manufacturers (collectively, "Suppliers") in the
production of its products. Although the Company believes that all raw materials
and component parts are currently available in adequate amounts, there can be no
assurance that shortages will not develop in the future. Certain of the raw
materials and component parts for the Company's docking hardware and manipulator
products are purchased from single Suppliers, and certain of the Company's
docking hardware and manipulator products are fabricated by single fabricators
and finished by single finishers. The related ATE interface products sold by the
Company are manufactured to the Company's specifications by third party
fabricators, finishers and manufacturers, and certain of those products are
purchased from single Suppliers. The Company does not have written agreements
with such Suppliers. Although the Company believes there are alternative
Suppliers for all such products, a termination or significant disruption of any
of its existing supplier arrangements could have a material adverse effect on
the Company's business and results of operations. See "Business -- Manufacturing
and Supply."
Dependence on Key Personnel. The loss of any one or more of the key
technical staff or managers of the Company could have a material adverse effect
on the Company's business and results of operations. Due to the importance of
long term relationships generally in Japan, the loss of any key employee of the
Company's Japanese subsidiary could have similar adverse consequences on the
Company's Japanese operations. From time to time, there is intense competition
for qualified employees among companies in the ATE industry, academic
institutions and other businesses. The Company does not have written employment
agreements with any of its executive officers or other key employees, nor does
the Company maintain key-person life insurance on any of its employees. There
can be no assurance that the Company will be successful in hiring or retaining
qualified personnel, and the inability to attract and motivate highly skilled
employees could have a material adverse effect on the Company's business and
results of operations. See "Business -- Strategy," " -- Employees" and
"Management."
Control by Principal Stockholders. Upon completion of the offering, the
Company's Chairman and Chief Executive Officer, Alyn R. Holt, and all of the
executive officers and directors of the Company, collectively, will beneficially
own approximately 31% and 50%, respectively, of the Common Stock (28% and 45%,
respectively, if the over-allotment option is exercised in full). Existing
management will hold sufficient voting power to enable it to continue to exert
significant influence over the business and affairs of the Company for the
foreseeable future. Such concentration of control of the Company may also have
the effect of discouraging bids for the Common Stock at a premium over the
market price and may have a material adverse effect on the market price of the
Common Stock. See "Principal and Selling Stockholders."
Broad Management Discretion as to Use of Proceeds. The net proceeds of the
offering will be used for working capital, general corporate purposes and
possible acquisitions of businesses, technologies or products complementary to
the Company's business. If the Company were to make any such acquisition, it
might use a significant portion of the net proceeds in connection with such
acquisition. The Company currently has no specific agreements or plans with
respect to such acquisitions, and there can be no assurance the Company will
consummate any acquisition. Accordingly, the Company's management will retain
broad discretion as to the allocation of a significant portion of the net
proceeds from the offering. See "Use of Proceeds" and "Business -- Strategy."
Anti-Takeover Protection. Certain provisions of the Company's Certificate
of Incorporation and of Delaware law could discourage potential acquisition
proposals and could delay or prevent a change in control of the Company. Such
provisions could diminish the opportunities for a stockholder to participate in
tender offers, including those at a premium over the market price of the Common
Stock. Such provisions may also inhibit
7
<PAGE>
increases in the market price of the Common Stock that could result from
takeover attempts. In addition, the Board of Directors, without further
stockholder approval, may issue Preferred Stock that could have the effect of
delaying, deterring or preventing a change in control of the Company. The
issuance of Preferred Stock could also have a material adverse effect on the
voting power of the holders of Common Stock, including the loss of voting
control to others. The Company has no present plans to issue any Preferred
Stock. See "Description of Capital Stock -- Preferred Stock" and " -- Certain
Corporate Provisions."
No Prior Public Market; Possible Volatility of Stock Price; Dilution. Prior
to the offering, there has been no public market for the Common Stock, and there
can be no assurance that an active public market for the Common Stock will
develop or be sustained after the offering. The initial public offering price
was determined through negotiations between the Company and the representatives
of the Underwriters (the "Representatives") based on several factors and may not
be indicative of the market price of the Common Stock after the offering. See
"Underwriting." The trading price of the Company's Common Stock could be subject
to wide fluctuations in response to quarterly variations in the Company's
operating results, announcements of technological innovations or new products by
the Company or its competitors, developments concerning patents or proprietary
rights or other events or factors. The stock market has experienced extreme
price and volume fluctuations which have particularly affected the market prices
of many technology companies and small capitalization stocks in particular, and
which have often been unrelated to the operating performance of these companies.
These broad market fluctuations, as well as general economic and political
conditions, may have an unfavorable effect on the market price of the Common
Stock. Purchasers of the Common Stock offered hereby will experience immediate
and substantial dilution in net tangible book value of the Common Stock. See
"Dilution."
Shares Eligible for Future Sale. The sale of a substantial number of shares
of Common Stock, or the perception that such sales could occur, could have a
material adverse effect on prevailing market prices for the Common Stock. In
addition, any such sale or such perception could make it more difficult for the
Company to sell equity securities or equity-related securities in the future at
a time and price that the Company deems appropriate. Upon consummation of the
offering, the Company will have a total of 5,911,034 shares of Common Stock
outstanding, of which the 2,275,000 shares offered hereby will be eligible for
immediate sale in the public market without restriction, unless they are held by
"affiliates" of the Company within the meaning of Rule 144 under the Securities
Act of 1933, as amended (the "Securities Act"). The remaining 3,636,034 shares
will be "restricted" securities within the meaning of Rule 144 under the
Securities Act and will be eligible for public sale thereunder subject to volume
limitations and other conditions of Rule 144, if applicable. As of the date of
this Prospectus, the Company and the holders of all of its Common Stock have
agreed that they will not sell any shares of Common Stock or related securities
of the Company without the prior written consent of Janney Montgomery Scott
Inc., for a period of 180 days from the date of this Prospectus. Upon expiration
of such 180 day period, 297,841 of the currently outstanding restricted shares
will be eligible for public sale under Rule 144 without any volume or other
limitations. No prediction can be made as to the effect, if any, that future
sales of Common Stock, or the availability of Common Stock for future sale, will
have on the market price of the Common Stock from time to time or the Company's
ability to raise capital through an offering of its equity securities. In
addition, the Company plans to file a registration statement within 185 days of
the date of this Prospectus to permit the sale of up to 500,000 shares of Common
Stock which may be issued to employees in the future pursuant to the Company's
1997 Stock Plan. See "Management -- 1997 Stock Plan" and "Shares Eligible for
Future Sale."
8
<PAGE>
THE COMPANY
The Company was incorporated in New Jersey in 1981 and reincorporated in
Delaware in April 1997. The Company has three foreign subsidiaries: inTEST
Limited ("inTEST LTD"), a British corporation located in Thame, England, U.K.;
inTEST Kabushiki Kaisha ("inTEST KK"), a Japanese corporation located in
Kichijoji, Japan; and inTEST PTE, Limited ("inTEST PTE"), a Singapore
corporation located in Singapore. The Company maintains its headquarters at 2
Pin Oak Lane, Cherry Hill, New Jersey 08003. The Company's telephone number is
(609) 424-6886 and its Internet e-mail address is [email protected].
The Company and the minority stockholders of each of the Company's foreign
subsidiaries have agreed that simultaneous with the closing of the offering, the
Company will acquire the minority interests in each of the three foreign
subsidiaries by means of the Exchange, pursuant to which the Company will issue
shares of its Common Stock in exchange for the shares of stock of each foreign
subsidiary held by the minority stockholders. The agreed upon exchange ratio for
the minority interests is based on the average percentage contribution of each
subsidiary to the Company's consolidated earnings before interest and taxes for
the three most recent years. Alyn R. Holt, the Company's Chairman and Chief
Executive Officer, will receive a total of 48,487 shares of the Company's Common
Stock in exchange for his shares of stock in the foreign subsidiaries. Mr. Holt
is the only director, officer or stockholder of inTEST CORP who owns shares of
common stock in any of the foreign subsidiaries. Each of the minority
stockholders of the foreign subsidiaries, including Mr. Holt, will receive
shares of the Company's Common Stock based upon the same exchange ratio. See
"Principal and Selling Stockholders."
USE OF PROCEEDS
The proceeds to be received by the Company from the sale of the Common
Stock offered hereby (net of estimated underwriting discounts and commissions
and offering expenses) will be approximately $15.4 million, assuming an initial
public offering price of $9.50 per share. The Company will not receive any
proceeds from the sale of shares of Common Stock by the Selling Stockholders.
The proceeds will be used for working capital, general corporate purposes
and possible acquisitions of businesses, technologies or products complementary
to the Company's business. A key element of the Company's growth strategy is to
seek to acquire businesses, technologies or products involving one or more of
the many ATE interface products related to its principal docking hardware and
manipulator product lines. If the Company were to make any such acquisition, it
might use a significant portion of the net proceeds or incur additional
indebtedness in connection with such acquisition. At the present time the
Company has no specific agreements or plans with respect to such acquisitions,
and there can be no assurance the Company will consummate any acquisition. See
"Business -- Strategy."
Although there can be no assurance, the Company believes it will have,
exclusive of the net proceeds of the offering, cash and cash equivalents in
excess of the amount necessary to pay a final S corporation distribution to the
Company's current stockholders. To the extent the Company does not have
sufficient cash and cash equivalents to pay such distribution, the Company may
use a portion of the net proceeds to fund a portion of such distribution. If the
final S corporation distribution had been made on March 31, 1997, the
distribution would have exceeded the Company's available cash and cash
equivalents by approximately $1.7 million. See "S Corporation Distributions"
and Note 3 of Notes to Consolidated Financial Statements.
Pending use as set forth above, the Company intends to invest the proceeds
in investment-grade, short term, interest-bearing securities or shares of
investment companies investing primarily in such securities.
9
<PAGE>
S CORPORATION DISTRIBUTIONS
Prior to the offering, the Company has been a corporation subject to
taxation under Subchapter S of the Internal Revenue Code of 1986, as amended. As
a result, the net earnings of the Company have been taxed, for Federal and
certain New Jersey state income tax purposes, as income of the Company's
stockholders, and the Company periodically paid dividends to its stockholders in
amounts exceeding such stockholders' liabilities for taxes.
The Company will terminate its S corporation status prior to the sale of
the Common Stock offered hereby (the "Termination Date") and distribute to its
current stockholders a final amount representing the Company's previously taxed
but undistributed S corporation earnings through the Termination Date. The
amount of the final distribution would have been approximately $3.4 million if
the Termination Date had been March 31, 1997, but the amount distributed will
include the Company's actual taxable income through the Termination Date, less
distributions to stockholders during that time period. The Company intends to
make this distribution, in one or more installments, prior to December 31, 1997.
Purchasers of shares of Common Stock in the offering will not receive any
portion of the S corporation distribution. The Company believes it will have,
exclusive of the net proceeds of the offering, cash and cash equivalents in
excess of the amount necessary to pay the final S corporation distribution
following the Termination Date. See "Use of Proceeds."
DIVIDEND POLICY
The Company does not anticipate paying cash dividends in the foreseeable
future, but intends to retain future earnings, if any, for reinvestment in the
operation and expansion of the Company's business. Any determination to pay cash
dividends will be at the discretion of the Board of Directors and will be
dependent upon the Company's financial condition, results of operations, capital
requirements and such other factors as the Board of Directors deems relevant.
10
<PAGE>
CAPITALIZATION
The following table sets forth (i) the capitalization of the Company at
March 31, 1997, (ii) the pro forma capitalization at that date reflecting both
the issuance of an aggregate of 300,443 shares of Common Stock in the Exchange
and the termination of the Company's S corporation status and (iii) the
capitalization as adjusted at that date to give effect to the pro forma
adjustments described above, the sale of the 1,820,000 shares of Common Stock
offered by the Company hereby at an assumed initial public offering price of
$9.50 per share and the receipt of the estimated net proceeds therefrom. This
table should be read in conjunction with the Consolidated Financial Statements
and Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
March 31, 1997
----------------------------------------
(in thousands)
Pro forma
Actual Pro forma as adjusted
-------- ----------- ------------
<S> <C> <C> <C>
Long term debt ................................................... $ 148 $ 148 $ 148
-------- -------- --------
Stockholders' equity:
Preferred stock, $0.01 par value; 5,000,000 shares authorized; no
shares issued or outstanding .................................. -- -- --
Common stock, $0.01 par value; 20,000,000 shares authorized;
3,790,591 shares issued and outstanding actual, 4,091,034 shares
issued and outstanding pro forma and 5,911,034 shares issued and
outstanding pro forma as adjusted ............................ 38 41 59
Additional paid-in capital ....................................... 689 2,544 17,951
Retained earnings ................................................ 3,461 89 89
Foreign currency translation adjustment ........................ (34) (34) (34)
-------- -------- --------
Total stockholders' equity ....................................... 4,154 2,640 18,065
-------- -------- --------
Total capitalization ............................................. $ 4,302 $ 2,788 $ 18,213
======== ======== ========
</TABLE>
11
<PAGE>
DILUTION
At March 31, 1997, the pro forma net tangible book value of the Company was
$1,073,000 or $0.26 per share of Common Stock. Pro forma net tangible book value
per share represents total assets less intangible assets, less total
liabilities, divided by the number of shares of Common Stock outstanding at that
date after giving effect to the Exchange. After giving effect to the receipt of
the net proceeds from the sale of the 1,820,000 shares of Common Stock offered
by the Company hereby at an assumed initial public offering price of $9.50 per
share, and after deducting underwriting discounts and estimated offering
expenses, the pro forma net tangible book value as of March 31, 1997 would have
been $16,498,000 or $2.79 per share of Common Stock. This represents an
immediate increase in net tangible book value of $2.53 per share to existing
stockholders and an immediate dilution of $6.71 per share to new investors
purchasing the shares of Common Stock offered hereby. The following table
illustrates this dilution on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share ..................... $ 9.50
Pro forma net tangible book value per share before the offering .... $ 0.26
Increase per share attributable to new investors ................... 2.53
--------
Pro forma net tangible book value per share after the offering ...... 2.79
--------
Dilution per share to new investors ................................. $ 6.71
========
</TABLE>
The following table sets forth, as of March 31, 1997, and after giving
effect to the Exchange and the offering, the difference between existing
stockholders and new investors with respect to the number of shares of Common
Stock purchased from the Company (but not those purchased from the Selling
Stockholders), the total cash consideration paid and the average price per
share.
<TABLE>
<CAPTION>
Shares Purchased Cash Consideration Average
------------------------- -------------------------- Price
Number Percent Amount Percent Per Share
------------ ---------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders ...... 4,091,034 69.2% $ 1,173,000 6.3% $0.29
New investors ............... 1,820,000 30.8 17,290,000 93.7 9.50
----------- ------- ------------ ------- -------
Total(1) .................. 5,911,034 100.0% $18,463,000 100.0%
=========== ======= ============ =======
</TABLE>
- ------------
(1) Sales by the Selling Stockholders in the offering will reduce the number of
shares held by existing stockholders to 3,636,034 or 61.5% of the total
number of shares of Common Stock outstanding after the offering (3,294,784
and 55.7% if the Underwriters' over-allotment option is exercised in full),
and will increase the number of shares held by new investors to 2,275,000 or
38.5% of the total number of shares of Common Stock outstanding after the
offering (2,616,250 and 44.3% if the Underwriters' over-allotment is
exercised in full).
12
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table contains certain selected consolidated financial data
of the Company and is qualified by the more detailed Consolidated Financial
Statements and Notes thereto included elsewhere in this Prospectus. The
consolidated statement of earnings data for the years ended December 31, 1992,
1993, 1994, 1995 and 1996 and the consolidated balance sheet data as of December
31, 1992, 1993, 1994, 1995 and 1996 have been derived from the Consolidated
Financial Statements of the Company which have been audited by KPMG Peat Marwick
LLP, independent certified public accountants, as indicated in their report
included elsewhere in this Prospectus. The consolidated statement of earnings
data for the three months ended March 31, 1996 and 1997 and the consolidated
balance sheet data as of March 31, 1996 and 1997 are derived from unaudited
financial statements. The unaudited financial statements include all adjustments
(consisting only of normal recurring adjustments) that the Company considers
necessary for a fair presentation of the results of operations for such periods.
The following data should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
Consolidated Financial Statements and Notes thereto and other financial
information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------
1992 1993 1994
---------- ---------- ----------
(in thousands, except per share
data)
<S> <C> <C> <C>
Consolidated Statement of Earnings Data:
Revenues ............................................. $ 6,512 $ 8,875 $ 9,287
Cost of revenues .................................... 3,258 3,460 3,777
-------- -------- --------
Gross profit ....................................... 3,254 5,415 5,510
Operating expenses:
Selling expense .................................... 1,027 1,466 1,491
Research and development expense .................. 750 953 1,623
General and administrative expense .................. 828 1,229 1,107
-------- -------- --------
Total operating expenses ........................... 2,605 3,648 4,221
-------- -------- --------
Operating income .................................... 649 1,767 1,289
Other income (expense):
Interest income .................................... 23 20 22
Interest expense .................................... (50) (40) (9)
Other ............................................. (17) 35 24
-------- -------- --------
Total other income (expense) ..................... (44) 15 37
-------- -------- --------
Earnings before income taxes and minority interest ... 605 1,782 1,326
Income tax expense ................................. 103 254 382
-------- -------- --------
Earnings before minority interest .................. 502 1,528 944
Minority interest .................................... (36) (64) (127)
-------- -------- --------
Net earnings ....................................... $ 466 $ 1,464 $ 817
======== ======== ========
Pro forma net earnings (1) ...........................
Pro forma net earnings per share (1) ...............
Pro forma weighted average shares outstanding (1) ...
Supplemental pro forma net earnings per share (2)
Supplemental pro forma weighted average shares
outstanding (2)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Three months ended
Years ended December 31, March 31,
------------------------ ------------------
1995 1996 1996 1997
---------- ------------ ------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Consolidated Statement of Earnings Data:
Revenues ............................................. $ 14,442 $ 18,582 $ 6,089 $ 3,887
Cost of revenues .................................... 5,191 6,755 1,856 1,602
-------- -------- -------- --------
Gross profit ....................................... 9,251 11,827 4,233 2,285
Operating expenses:
Selling expense .................................... 2,118 2,471 781 493
Research and development expense .................. 1,930 1,928 394 374
General and administrative expense .................. 1,166 1,812 364 411
-------- -------- -------- --------
Total operating expenses ........................... 5,214 6,211 1,539 1,278
-------- -------- -------- --------
Operating income .................................... 4,037 5,616 2,694 1,007
Other income (expense):
Interest income .................................... 82 147 23 29
Interest expense .................................... -- (11) (5) (4)
Other ............................................. (49) (35) (6) (10)
-------- -------- -------- --------
Total other income (expense) ..................... 33 101 12 15
-------- -------- -------- --------
Earnings before income taxes and minority interest ... 4,070 5,717 2,706 1,022
Income tax expense ................................. 637 858 355 167
-------- -------- -------- --------
Earnings before minority interest .................. 3,433 4,859 2,351 855
Minority interest .................................... (181) (213) (94) (11)
-------- -------- -------- --------
Net earnings ....................................... $ 3,252 $ 4,646 $ 2,257 $ 844
======== ======== ======== ========
Pro forma net earnings (1) ........................... $ 3,366 $ 537
Pro forma net earnings per share (1) ............... $ 0.82 $ 0.13
Pro forma weighted average shares outstanding (1) ... 4,091 4,091
Supplemental pro forma net earnings per share (2)..... $ 0.79 $ 0.13
Supplemental pro forma weighted average shares
outstanding (2) .................................... 4,265 4,265
</TABLE>
<TABLE>
<CAPTION>
December 31, March 31, 1997
-------------------------------------------------------------- ------------------------
Pro
1992 1993 1994 1995 1996 Actual forma (3)
---------- ---------- ---------- ---------- ---------- ---------- -----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents ...... $ 943 $ 1,034 $ 1,336 $ 1,919 $ 3,692 $ 2,983 $ 2,983
Working capital .................. 1,526 2,546 2,944 4,201 4,377 3,924 560
Total assets ..................... 2,976 3,675 4,624 6,352 7,716 7,492 9,115
Long term debt .................. -- -- -- -- 155 148 148
Total stockholders' equity ...... 1,436 2,448 2,765 4,048 4,587 4,154 2,640
</TABLE>
- ------------
(1) Assumes the termination of the Company's S corporation status effective
January 1, 1996 and the completion of the Exchange on January 1, 1996, and
as a result reflects the amortization of goodwill associated therewith and
the absence of a charge for the minority interest. See Note 3 of Notes to
Consolidated Financial Statements.
(2) Supplemental pro forma net earnings per share reflects the assumed issuance
of 174,000 shares of Common Stock, based on an assumed initial public
offering price of $9.50 per share, to fund distributions to the Company's
current stockholders of previously taxed but undistributed S corporation
earnings, net of available cash and cash equivalents (estimated to be $1.7
million as of March 31, 1997). See "Use of Proceeds," "S Corporation
Distributions" and Note 3 of Notes to Consolidated Financial Statements.
(3) Reflects the acquisition of the minority interests in the Company's foreign
subsidiaries pursuant to the Exchange, including goodwill arising from the
Exchange, and the effects of the termination of the Company's S corporation
status, including the distribution described under "S Corporation
Distributions." See Note 3 of Notes to Consolidated Financial Statements.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company was founded in 1981 to design and develop docking hardware,
test head manipulators and related ATE interface products. In 1982, the Company
introduced its first docking hardware and the in2 test head manipulator. The
Company has designed more than 4,600 products since its inception, and believes
that its products have been purchased by most major semiconductor manufacturers.
A significant majority of the Company's revenues for the 15 months ended March
31, 1997 was derived from sales of its docking hardware and manipulator
products, and the remainder was derived from sales of related ATE interface
products.
The Company's revenues have fluctuated generally as a result of cyclicality
in the semiconductor manufacturing industry. The Company believes that purchases
of the Company's docking hardware and manipulators are typically made from its
customers' capital expenditure budgets, while related ATE interface products,
which must be replaced periodically, are typically made from its customers'
operating budgets. When semiconductor manufacturing activity generally slowed
during much of 1996, many semiconductor manufacturers reduced their capital
expenditure budgets and, correspondingly, postponed or cancelled orders for ATE
and related equipment. As a result, starting in the second quarter of 1996
through the fourth quarter of 1996, the Company's orders for and sales of
docking hardware and manipulators declined substantially. During this same
period, orders for and sales of related ATE interface products also declined,
but to a lesser extent. Although the Company experienced increased orders for
and sales of all of its products in the first quarter of 1997 compared to the
fourth quarter of 1996, the Company's revenues were substantially below the
record high revenues realized in the first quarter of 1996.
The Company sells to semiconductor manufacturers and ATE manufacturers
either through inTEST account managers or through independent sales
representatives. The mix of customers during any given period may affect the
Company's gross margin due to the difference in accounting for sales discounts
and commissions. Specifically, sales discounts, typical in sales by inTEST
account managers to ATE manufacturers worldwide, are a direct reduction of
revenue and have the effect of reducing gross margin. In contrast, trade
discounts offered on sales to semiconductor manufacturers, while also a
reduction in revenue, are generally lower than sales discounts to ATE
manufacturers and accordingly have less impact on gross margin. Additionally,
commissions paid to independent sales representatives on sales to semiconductor
manufacturers in North America and Southeast Asia are charged to selling expense
and do not affect gross margin. Consequently, the relative mix of customers for
the Company's products and the region of the world where sales are made have
affected and will affect the Company's gross margin and selling expense.
Operating income, however, has not been materially affected by the foregoing
factors, because commissions paid to independent sales representatives plus
trade discounts on sales to semiconductor manufacturers are approximately equal
to the sales discounts given on sales to ATE manufacturers. See "Business --
Sales and Distribution."
The Company believes that the ultimate destination of a significant
majority of its products is outside the U.S. Approximately 37%, 43%, 49% and 54%
of the Company's revenues for the three months ended March 31, 1997 and the
years ended December 31, 1996, 1995 and 1994, respectively, were derived from
sales by the Company's three foreign subsidiaries. Approximately 5%, 19%, 19%
and 6% of the Company's revenues for the three months ended March 31, 1997 and
the years ended December 31, 1996, 1995 and 1994, respectively, were derived
from sales by inTEST CORP which were shipped to customer locations outside the
U.S. Although the Company has exposure to foreign currency fluctuations as a
result of its foreign operations, it believes its exposure to foreign currency
fluctuations is not significant. Foreign currency transaction gains and losses
were ($31,000), ($43,000) and $25,000 in 1996, 1995 and 1994, respectively. The
minority interest shown in the Company's Consolidated Financial Statements
reflects the approximately 21% interest in each of the Company's three foreign
subsidiaries which are to be acquired upon the closing of the offering pursuant
to the Exchange.
Prior to the offering, the Company and its stockholders elected to be
treated as an S corporation for Federal and New Jersey state income tax
purposes. Accordingly, while the Company's Consolidated Financial Statements
reflect income tax expense related to its foreign operations and certain state
income taxes, they do not include a provision for Federal income tax expense. In
connection with the offering, the Company will terminate
14
<PAGE>
its S corporation status and will become subject to Federal and additional New
Jersey state income taxes in future years. Management anticipates that the
Company's prospective effective tax rate will approximate 40%, although this
rate could fluctuate from period-to-period depending on the mix of domestic and
foreign earnings, the availability of foreign tax credits and on other factors.
The Company will also begin to provide for deferred income taxes in future
periods, although no provision will be made for foreign earnings intended to be
permanently invested abroad, which approximate $1.0 million at March 31, 1997.
The Company believes the effect of such additional taxes on the Company's
liquidity will be more than offset by the elimination of the Company's practice,
as an S corporation, of distributing dividends to its stockholders. Such
dividends totaled 88%, 61% and 79% of the Company's net earnings in 1996, 1995
and 1994, respectively.
Results of Operations
The following table sets forth, for the periods indicated, the percentage
of the Company's revenues represented by certain line items of its Consolidated
Statements of Earnings:
<TABLE>
<CAPTION>
Three months ended
Years ended December 31, March 31,
------------------------------------ ------------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Revenues .......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues .................................... 40.7 35.9 36.4 30.5 41.2
-------- -------- -------- -------- --------
Gross margin ....................................... 59.3 64.1 63.6 69.5 58.8
Operating expenses:
Selling expense .................................... 16.0 14.6 13.3 12.8 12.7
Research and development expense .................. 17.5 13.4 10.4 6.5 9.6
General and administrative expense ............... 11.9 8.1 9.7 6.0 10.6
-------- -------- -------- -------- --------
Total operating expenses ........................... 45.4 36.1 33.4 25.3 32.9
-------- -------- -------- -------- --------
Operating income .................................... 13.9 28.0 30.2 44.2 25.9
Other income ....................................... 0.4 0.2 0.5 0.2 0.4
-------- -------- -------- -------- --------
Earnings before income taxes and minority interest . 14.3 28.2 30.7 44.4 26.3
Income tax expense ................................. 4.1 4.4 4.6 5.8 4.3
Minority interest ................................. (1.4) (1.3) (1.1) (1.5) (0.3)
-------- -------- -------- -------- --------
Net earnings ....................................... 8.8% 22.5% 25.0% 37.1% 21.7%
======== ======== ======== ======== ========
</TABLE>
Three Months Ended March 31, 1997 Compared to Three Months Ended March 31, 1996
Revenues. Revenues were $3.9 million for the first quarter of 1997 compared
to a record $6.1 million for the same period in 1996, a decrease of $2.2 million
or 36%. The substantial fluctuation in revenues followed the cyclicality of the
semiconductor industry during the same periods. Revenues for the first quarter
of 1996 reflected an increased level of capital expenditures in the
semiconductor industry, which was followed by a general decline in such
expenditures during much of the balance of 1996. Revenues for the first quarter
of 1997, although down from the first quarter of 1996, indicate an increase in
commitments for capital expenditures which began in the industry at the end of
1996. As a result, revenues for the first quarter of 1997 exceeded revenues for
the fourth quarter of 1996 by 46% or $1.2 million, and the Company's backlog
increased from $1.8 million at December 31, 1996 to $2.3 million at March 31,
1997.
Gross Margin. Gross margin declined to 59% for the first quarter of 1997
from 70% for the same period in 1996. The decrease was principally attributable
to the fact that sales to ATE manufacturers generated approximately one-third of
the Company's revenues in the first quarter of 1997 compared to approximately
one-fifth in the first quarter of 1996. The Company believes that this shift in
customer mix is not indicative of a trend. The reduced gross margin also
reflects higher incremental material costs, due to lower manufacturing levels,
and higher fixed costs (principally rent, depreciation and salaries) for the
first quarter of 1997 compared to the same period in 1996.
15
<PAGE>
Selling Expense. Selling expense was $0.5 million for the first quarter of
1997 compared to $0.8 million for the same period in 1996, a decrease of $0.3
million or 37%. The decrease was due principally to a decrease in commissions
and other variable expenses associated with lower sales activity, as well as a
lower percentage of revenues from commission sales to semiconductor
manufacturers.
Research and Development Expense. Research and development expense was $0.4
million for the first quarter of both 1997 and 1996. The primary component of
research and development expense is compensation, which did not change
materially for the first quarter of 1997 compared to the same period in 1996.
Most of the Company's technical staff are engaged in both research and
development and sales functions.
General and Administrative Expense. General and administrative expense was
$0.4 million for the first quarter of both 1997 and 1996. The primary component
of general and administrative expense is compensation, which did not change
materially for the first quarter of 1997 compared to the same period in 1996.
Income Tax Expense. As an S corporation, net earnings are taxed as income
to the Company's stockholders for Federal income tax. However, income tax
expense includes certain state income taxes and taxes imposed by foreign
jurisdictions. Income tax expense decreased to $0.2 million for the first
quarter of 1997 from $0.4 million for the same period in 1996, a decrease of
$0.2 million or 53%, primarily as a result of reduced operating income on lower
revenues, offset by an increase in the Company's effective tax rate. The
Company's effective tax rate was 16% for the first quarter of 1997 compared to
13% for the same period in 1996. The increase in the effective tax rate was
caused primarily by a greater percentage of earnings before income taxes and
minority interest being attributable to the Company's foreign subsidiaries.
1996 Compared to 1995
Revenues. Revenues were $18.6 million for 1996 compared to $14.4 million
for 1995, an increase of $4.2 million or 29%. The increase was due to the higher
levels of shipments of the Company's products during the first nine months of
1996, which were based on orders placed by semiconductor manufacturers during
late 1995 and early 1996. The Company did not increase sales prices
significantly in 1996. The Company believes that more than half of the Company's
increased revenues was from sales of products used in the testing of mixed
signal devices, and the balance was from sales of products used in the testing
of digital devices, such as microprocessors and microcontrollers, and numerous
other devices used in the automotive, computer, telecommunications and other
industries.
Gross Margin. Gross margin remained constant at 64% for both 1996 and 1995.
The percentage of the Company's revenues derived from sales to ATE manufacturers
increased by 8% in 1996 compared to 1995, which had the effect of reducing gross
margin for 1996. The reduction in gross margin was offset by the improved
absorption of fixed costs over the higher revenue base and reduced incremental
material costs due to volume discounts received in the first two quarters of
1996.
Selling Expense. Selling expense was $2.5 million for 1996 compared to $2.1
million for 1995, an increase of $0.4 million or 17%. The increase was
attributable to increased variable costs associated with higher sales activity
in 1996. Selling expense as a percentage of revenues decreased in 1996 compared
to 1995 because of an increase in non-commission sales as a percentage of
revenues. Salaries associated with sales activities were the same for 1996 as
for 1995, as management elected not to expand its sales staff in anticipation of
third and fourth quarter reductions in capital expenditures by semiconductor
manufacturers.
Research and Development Expense. Research and development expense was $1.9
million for both 1996 and 1995. Compensation expense incurred in research and
development activities for 1996 increased $0.2 million or 22% over 1995 due to
an increase in staffing levels and associated costs. The increase was offset by
a $0.2 million or 45% decrease in amounts spent for materials.
General and Administrative Expense. General and administrative expense was
$1.8 million for 1996 compared to $1.2 million for 1995, an increase of $0.6
million or 55%. The majority of the increase was attributable to additional
compensation and costs associated with newly hired staff in accounting, MIS and
finance functions and salary increases of other administrative personnel.
16
<PAGE>
Income Tax Expense. The Company's effective tax rate decreased slightly in
1996 to 15% compared to 16% for 1995 due principally to a decrease in the
contribution of earnings before income taxes and minority interest from the
Company's foreign subsidiaries.
1995 Compared to 1994
Revenues. Revenues were $14.4 million for 1995 compared to $9.3 million for
1994, an increase of $5.1 million or 56%. The increase was due to the higher
levels of shipments of the Company's products throughout 1995, reflecting
increased demand as semiconductor manufacturers expanded manufacturing capacity
in excess of historical rates. The increase in revenues was principally related
to volume increases as the Company did not increase sales prices significantly
in 1995. As in 1996, the Company believes the increase in revenues was
attributable to increased sales of products used during the testing of complex
integrated circuits.
Gross Margin. Gross margin was 64% for 1995 compared to 59% for 1994, an
increase of 5%. The improvement in gross margin was primarily the result of
lower incremental material costs due to increased purchasing volume, improved
overhead absorption of fixed costs over the higher revenue base and a 10%
reduction in the percentage of revenues derived from sales to ATE manufacturers.
Selling Expense. Selling expense was $2.1 million for 1995 compared to $1.5
million for 1994, an increase of $0.6 million or 42%. The increase was
attributable to increased variable costs associated with the increase in
revenues for 1995 primarily including commissions on sales to semiconductor
manufacturers by independent sales representatives which increased $0.2 million
or 53%. Salaries associated with sales activities also increased $0.2 million or
56% due to the hiring of additional staff in 1995.
Research and Development Expense. Research and development expense was $1.9
million for 1995 compared to $1.6 million for 1994, an increase of $0.3 million
or 19%. Compensation expense incurred in research and development activities for
1995 increased $0.1 million or 12% due primarily to salary increases. In
addition, amounts spent for materials increased $0.2 million or 63%.
General and Administrative Expense. General and administrative expense was
$1.2 million for 1995 compared to $1.1 million for 1994, an increase of $0.1
million or 5%, resulting primarily from increased professional expenses related
to patent applications in Europe and Asia and consulting fees.
Income Tax Expense. The Company's effective tax rate declined significantly
in 1995 to 16% compared to 29% for 1994. The decrease was a function of a
significantly greater percentage of earnings before income tax and minority
interest being attributable to the Company's domestic operations in 1995 (65%)
compared to 1994 (26%).
Quarterly Results of Operations
The following tables present certain unaudited consolidated quarterly
financial information for each of the nine quarters ended March 31, 1997. In the
opinion of the Company's management, this quarterly information has been
prepared on the same basis as the Consolidated Financial Statements set forth
elsewhere in this Prospectus and includes all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the information for
the periods presented when read in conjunction with the Consolidated Financial
Statements and Notes thereto. The results of operations for any quarter are not
necessarily indicative of results for the full year or for any future period.
The Company's business is not seasonal, therefore year-over-year quarterly
comparisons of the Company's results of operations may not be as meaningful as
the sequential quarterly comparisons set forth below which tend to reflect the
cyclical activity of the semiconductor industry as a whole. Quarterly
fluctuations in expenses either are related directly to sales activity and
volume, or tend to be a function of personnel costs and the timing of expenses
incurred throughout a year. See "Risk Factors -- Fluctuations in Revenues and
Operating Results."
17
<PAGE>
<TABLE>
<CAPTION>
Three months ended
---------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31,
1995 1995 1995 1995
----------- ----------- ------------ -----------
(in thousands)
<S> <C> <C> <C> <C>
Consolidated Statement of Earnings Data:
Revenues ................................. $ 3,158 $ 3,094 $ 3,867 $ 4,323
Cost of revenues ........................ 1,441 1,225 1,479 1,046
-------- ------- --------- --------
Gross profit ........................... 1,771 1,869 2,388 3,277
-------- ------- --------- --------
Operating expenses:
Selling expense ........................ 313 411 576 818
Research and development expense ...... 360 415 491 664
General and administrative expense ...... 205 286 216 459
-------- ------- --------- --------
Total operating expenses ............... 878 1,112 1,283 1,941
-------- ------- --------- --------
Operating income (loss) .................. 839 757 1,105 1,336
Other income (expense) .................. 15 35 (24) 7
-------- ------- --------- --------
Earnings (loss) before income taxes and
minority interest ..................... 854 792 1,081 1,343
Income tax expense ..................... 208 181 109 139
Minority interest ........................ (65) (43) (30) (43)
-------- ------- --------- --------
Net earnings (loss) ..................... $ 581 $ 568 $ 942 $ 1,161
======== ======= ========= ========
As a Percentage of Revenues:
Revenues ................................. 100.0% 100.0% 100.0% 100.0%
Cost of revenues ........................ 45.6 39.6 38.2 24.2
-------- ------- --------- --------
Gross margin ........................... 54.4 60.4 61.8 75.8
-------- ------- --------- --------
Operating expenses:
Selling expense ........................ 9.9 13.3 14.9 18.9
Research and development expense ...... 11.4 13.4 12.7 15.4
General and administrative expense ...... 6.5 9.2 5.6 10.6
-------- ------- --------- --------
Total operating expenses ............... 27.8 35.9 33.2 44.9
-------- ------- --------- --------
Operating income (loss) .................. 26.6 24.5 28.6 30.9
Other income (expense) .................. 0.5 1.1 (0.6) 0.2
-------- ------- --------- --------
Earnings (loss) before income taxes and
minority interest ..................... 27.1 25.6 28.0 31.1
Income tax expense ..................... 6.6 5.8 2.8 3.2
Minority interest ........................ (2.1) (1.4) (0.8) (1.0)
-------- ------- --------- --------
Net earnings (loss) ..................... 18.4% 18.4% 24.4% 26.9%
======== ======= ========= ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Three months ended
----------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31,
1996 1996 1996 1996 1997
----------- ----------- ------------ ------------ ----------
(in thousands)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Earnings Data:
Revenues ................................. $ 6,089 $ 5,043 $ 4,780 $ 2,670 $ 3,887
Cost of revenues ........................ 1,856 1,732 1,850 1,317 1,602
-------- ------- --------- ------- --------
Gross profit ........................... 4,233 3,311 2,930 1,353 2,285
-------- ------- --------- ------- --------
Operating expenses:
Selling expense ........................ 781 555 586 549 493
Research and development expense ...... 394 456 425 653 374
General and administrative expense ...... 364 509 453 486 411
-------- ------- --------- ------- --------
Total operating expenses ............... 1,539 1,520 1,464 1,688 1,278
-------- ------- --------- ------- --------
Operating income (loss) .................. 2,694 1,791 1,466 (335) 1,007
Other income (expense) .................. 12 20 39 30 15
-------- ------- --------- ------- --------
Earnings (loss) before income taxes and
minority interest ..................... 2,706 1,811 1,505 (305) 1,022
Income tax expense ..................... 355 290 180 33 167
Minority interest ........................ (94) (86) (67) 34 (11)
-------- ------- --------- ------- --------
Net earnings (loss) ..................... $ 2,257 $ 1,435 $ 1,258 ($ 304) $ 844
======== ======= ========= ======= ========
As a Percentage of Revenues:
Revenues ................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues ........................ 30.5 34.3 38.7 49.3 41.2
-------- ------- --------- ------- --------
Gross margin ........................... 69.5 65.7 61.3 50.7 58.8
-------- ------- --------- ------- --------
Operating expenses:
Selling expense ........................ 12.8 11.0 12.2 20.5 12.7
Research and development expense ...... 6.5 9.0 8.9 24.5 9.6
General and administrative expense ...... 6.0 10.1 9.5 18.2 10.6
-------- ------- --------- ------- --------
Total operating expenses ............... 25.3 30.1 30.6 63.2 32.9
-------- ------- --------- ------- --------
Operating income (loss) .................. 44.2 35.5 30.7 (12.5) 25.9
Other income (expense) .................. 0.2 0.4 0.8 1.1 0.4
-------- ------- --------- ------- --------
Earnings (loss) before income taxes and
minority interest ..................... 44.4 35.9 31.5 (11.4) 26.3
Income tax expense ..................... 5.8 5.7 3.8 1.3 4.3
Minority interest ........................ (1.5) (1.7) (1.4) 1.3 (0.3)
-------- ------- --------- ------- --------
Net earnings (loss) ..................... 37.1% 28.5% 26.3% (11.4%) 21.7%
======== ======= ========= ======= ========
</TABLE>
Liquidity and Capital Resources
The Company has funded its working capital requirements principally through
net cash provided by operations. As of March 31, 1997, the Company had $3.0
million in cash and cash equivalents and $3.9 million in working capital. Net
cash provided by operations was $0.3 million, $5.5 million, $2.7 million and
$1.0 million for the first quarter of 1997, and for the years ended December 31,
1996, 1995 and 1994, respectively, and principally consisted of net earnings.
Purchases of machinery, equipment and leasehold improvements in 1996 were
$0.6 million, including $0.2 million to purchase a coordinate measuring machine
for the Company's Cherry Hill, New Jersey facility. In 1996, the Company leased
a 28,630 square foot office and manufacturing facility in Cherry Hill, New
Jersey and spent approximately $0.2 million on leasehold improvements and
furniture costs to outfit this facility, which houses the Company's domestic
manufacturing and customer operations and administrative functions. The Company
also leased 3,077 square feet of office and manufacturing space in Singapore
during 1996 and spent approximately $0.2 million on leasehold improvements and
furniture expenditures to outfit this facility, which houses the Company's
Southeast Asian customer operations office and is anticipated to be utilized for
additional manufacturing operations commencing in 1998.
18
<PAGE>
The Company has a five-year $0.2 million term loan, due in August 2001, and
a $1.5 million revolving line of credit with a commercial bank. The interest
rate on the term loan is fixed at 8.65%, and the revolving line of credit bears
interest at the bank's prime lending rate. The term loan is collateralized by
liens on certain equipment and furnishings located at the Company's Cherry Hill,
New Jersey facility. The revolving line of credit is collateralized by a pledge
of certain assets of inTEST CORP. No amounts were outstanding under the line of
credit as of March 31, 1997 or December 31, 1996. The Company does not have any
capital lease obligations.
The Company believes that existing cash and cash equivalents, its available
line of credit, anticipated net cash provided by operations and the net proceeds
from the offering will be sufficient to meet the Company's cash requirements for
the next 24 months. However, if the Company were to make any acquisitions, the
Company may require additional equity or debt financing to meet working capital
requirements or capital expenditure needs.
Although the Company has historically paid cash dividends to its
stockholders, the Company does not anticipate that it will pay any dividends for
the foreseeable future following the offering, except for the final S
corporation distribution. See "Use of Proceeds," "S Corporation Distributions"
and Note 3 of Notes to Consolidated Financial Statements. The Company intends to
retain future earnings, if any, for reinvestment in the operation and expansion
of the Company's business.
19
<PAGE>
BUSINESS
The Company is a leading independent designer, manufacturer and marketer of
docking hardware and test head manipulators, which are used with automatic test
equipment ("ATE") by semiconductor manufacturers during the testing of wafers
and packaged devices. The Company also designs and markets related ATE interface
products including high performance test sockets, interface boards and probing
assemblies. The Company's products are designed to improve the utilization and
cost-effectiveness of ATE (including testers, wafer probers and device handlers)
during the testing of linear, digital and mixed signal integrated circuits.
Since inception in 1981, the Company has developed and continues to support over
4,600 products and has been granted 13 U.S. patents for its technology.
The Company's largest customers include Lucent Technologies, Motorola, SGS
Thomson and Texas Instruments among semiconductor manufacturers, and Credence
Systems, LTX and Teradyne among ATE manufacturers. The Company designs, markets
and supports its products globally both through Company account managers based
in New Jersey, Texas, California, the U.K., Singapore and Japan and through
independent sales representatives in the U.S. and abroad. The Company's
executive offices are located in Cherry Hill, New Jersey. Manufacturing
facilities are located in New Jersey and the U.K.
Industry Background
Testing is an integral and necessary step during the design and manufacture
of wafers and packaged devices. The increasing worldwide demand for
semiconductors in recent years has led to an increase in the demand for ATE.
According to VLSI Research Inc., in 1996 semiconductor manufacturers spent an
estimated $3.7 billion on testers (the test head and mainframe cabinet) and $1.3
billion on wafer probers and device handlers. The increasing complexity of
wafers and packaged devices, as manifested by larger wafers, higher speeds,
growing pin counts, smaller packaged devices and greater levels of integration
has changed the design, architecture and complexity of ATE used during the
testing of such devices.
Testers range in price from approximately $0.5 million to over $3.0 million
each depending primarily on the complexity of the device to be tested and the
number of test heads, typically one or two, with which each tester is
configured. Probers and handlers range in price from approximately $0.1 to $0.5
million. A typical test floor of a large semiconductor manufacturer can have
approximately 100 test heads and 100 probers or 250 handlers available for use
at any one time. Given such a substantial investment, semiconductor
manufacturers employ testing processes which seek to maximize ATE and floor
space utilization.
Each integrated circuit is tested at least twice during the manufacturing
process to ensure the functional and electrical performance of the circuits
prior to shipment to the device user. After wafer fabrication, each circuit on a
wafer is automatically positioned under a probing assembly by a prober where the
individual circuits on the wafer are tested (the "front-end test"). After device
packaging, devices are individually fed by the handler to an environmentally
controlled test socket where the device is again tested (the "back-end test").
Manipulators facilitate the movement of a test head to a prober or handler, and
"docking" describes the function of connecting a test head to a prober or
handler with mechanically engineered hardware. Shown below is a schematic
depiction of the major steps in the semiconductor manufacturing process.
[Schematic depiction of the fabrication of an integrated circuit
using blocks to represent each major step of the process from raw
wafer to finished device with special emphasis on "Wafer Test" and
"Final Test."]
Until the early 1970s, testers were designed with the interface circuits
(also referred to as pin electronics) mounted inside the tester's mainframe
cabinet and connected the pin electronics to the prober's probing assembly or to
the handler's test socket via an electrical cable, typically five to ten feet
long. As devices became faster, more complex and more precise, signal distortion
inherent with the use of such cables resulted in degraded test results. Although
certain devices are still tested in this manner, such devices tend to be used in
older, less technologically advanced applications.
20
<PAGE>
During the 1970s, tester manufacturers responded by moving the pin
electronics from the tester's mainframe cabinet to an independent test head,
which could be directly mated with a prober or handler, thereby eliminating the
problems associated with using cables as the connection between the tester's pin
electronics and the prober or handler. Direct mating of the test head pin
electronics to the prober's probing assembly or to the handler's test socket was
accomplished by mounting the test head directly to the prober or handler with a
pivot-mechanism manipulator resembling a waffle iron. Such a combination
resulted in the test head being "dedicated" to only one prober or one handler.
Dedicated manipulators are of greatest value in ATE systems in which the
test head is infrequently disconnected and re-connected to and from one prober
or handler to another prober or handler. Consequently, dedicated manipulators
are used (i) primarily at front-end test, where large, homogeneous lots of
wafers are tested for long, uninterrupted periods of time, and (ii) at back-end
test, where high volume, commodity devices such as DRAMs are tested in large
lots. However, back-end non-commodity devices, such as microcontrollers and
telecommunications devices, generally are tested in smaller lots due to varying
package types and test specifications, thereby requiring frequent handler
changes.
In 1980, free-standing manipulators were introduced to minimize ATE
downtime and increase device testing throughput. Such manipulators used
hand-cranked lead screws to position a test head to a prober or handler. These
early manipulators were only marginally better than the waffle-iron design and
did not significantly improve ATE utilization due to the lack of motion freedom
necessary for successful docking.
Users of these early manipulators attempted to precisely align fragile pin
electronics to test sockets and probing assemblies without docking hardware.
Lack of proper docking hardware often can cause deterioration and damage to the
interface boards, test sockets or probing assemblies. Such damage can lead to
compromised or inaccurate test results and the rejection of good wafers or
devices (yield loss), or, more costly, the acceptance of unsatisfactory wafers
or devices (quality error). In addition, successfully connecting a test head
held by a free-standing manipulator to a prober or handler without docking
hardware is difficult and time-consuming.
The Company's docking hardware and free-standing universal manipulators are
designed to improve the utilization of ATE, particularly ATE employed in
back-end non-commodity flexible testing environments, by facilitating the quick,
easy and safe changeover of test heads to probers and handlers. Shown below is
a graphic representation of a current, typical ATE system configuration.
[Graphic representation of an ATE test system showing a side-docking
device handler and an in2 test head manipulator holding the test
head in the undocked position. Test head and handler are shown
equipped with inTEST docking hardware.]
21
<PAGE>
The Company's docking hardware products mechanically control the intimate
interface between the test head's interface board and the prober's probing
assembly or handler's test socket. As a result, fragile interface boards, test
sockets or probing assemblies are protected from damage during docking. The
Company's docking hardware allows semiconductor manufacturers to achieve cost
savings by (i) improving ATE utilization, (ii) improving the accuracy and
integrity of test results and (iii) reducing the need to repair or replace
expensive ATE interface products. The Company's docking hardware can be designed
for use with substantially all makes and models of test heads, probers and
handlers, and can usually be designed to allow all the ATE on a test floor to be
mechanically plug-compatible. Plug-compatibility simplifies the docking
procedures, allowing for increased flexibility and utilization of test heads,
probers and handlers on a test floor.
The Company's free-standing universal manipulators are designed to be used
in either a dedicated or a flexible test environment. In addition, the Company's
manipulators have been engineered to hold test heads in what seeks to replicate
a "zero gravity" free space. As a result, an operator using no more than 22
pounds of force can reposition the test head by grasping it in his or her hands
and gently moving the test head into position to dock with a prober or handler.
Test heads currently in use weigh up to approximately 900 pounds and measure up
to a cubic yard in volume.
A test head held in the Company's free-standing universal manipulator and
equipped with the Company's docking hardware can be easily, quickly and safely
docked to any handler. After testing a particular production lot of devices, the
test head can quickly and easily be disconnected and docked to another handler
for testing either a subsequent lot of the same packaged device or to test a
different device.
The continued development of more complex devices will require faster,
higher pin count, and larger and heavier test heads. The Company believes that
semiconductor manufacturers will continue to demand docking hardware and
manipulators which exhibit corresponding design changes and improvements in
utilization and functionality.
Strategy
The Company's goals are to supply the highest quality docking hardware,
test head manipulators and related ATE interface products, and to provide the
most cost effective ATE interface solutions to the semiconductor industry. The
following elements, all of which are interrelated, form the basis of inTEST's
strategy:
Capitalize on Experience and Expertise. Over the past 15 years, the Company
has developed numerous generations of docking hardware and test head
manipulators. The Company has designed, and continues to support, over 4,600
unique products and maintains over 5,100 computerized engineering drawings.
Substantially all of the Company's products are customized to a customer's
particular ATE system configuration. As a result, the Company has accumulated
substantial technical design expertise, evidenced in part by having been granted
13 U.S. patents to date, with two U.S. patent applications pending. The
Company's product development efforts are focused on the needs of semiconductor
manufacturers and seek to establish the Company's docking hardware and
manipulator products as the industry standard. For example, the Company is
currently developing a new series of fully-automatic, microprocessor-controlled
dedicated manipulators (the Test Head Hoist). These manipulators are primarily
designed for front-end wafer and back-end commodity device testing, two market
segments which the Company has not traditionally targeted.
Maintain Customer Relationships. As an independent provider of docking
hardware and test head manipulators, the Company has cultivated and maintains
close working relationships with nearly all major semiconductor and ATE
manufacturers. The long term and interactive nature of such customer
relationships provides the Company's account managers with hands-on knowledge of
leading-edge test procedures, test room protocol, ATE systems and the economics
of testing. The Company works with its customers in identifying ATE interface
problems, defines and custom designs product solutions, installs the Company's
products and provides post-installation follow-up and operational support. The
Company believes that by maintaining such relationships, it will be able to
respond quickly to new ATE interface applications. The Company believes that its
direct access to a broad and diversified base of ATE system environments
provides it with an important competitive advantage.
Expand International Presence. The Company intends to add manufacturing
capabilities to its existing facility in Singapore in 1998 and to consider
establishing operations in other key back-end markets such as
22
<PAGE>
China, Malaysia, the Philippines, Taiwan or Thailand. The Company believes that
proximity to semiconductor manufacturers enables the Company to respond more
quickly and accurately to its customers' needs. In addition, employing account
managers native to such markets minimizes language and cultural barriers and
provides market-specific technical and operational insight.
Pursue Complementary Acquisitions. The Company will seek to acquire
businesses (domestic or foreign), technologies or products that are
complementary to the Company's docking hardware and manipulator products,
including related ATE interface products that must be replaced periodically and
could result in additional recurring revenues. The Company is not currently a
party to any agreement or understanding with respect to any acquisition, nor has
it identified any specific acquisition targets. However, there are numerous
companies which manufacture related ATE interface products that the Company
believes could enhance its ability to provide its customers with the means to
improve the efficiency and cost-effectiveness of semiconductor testing
processes. The Company does not intend to expand its lines of docking hardware
and manipulators by acquisition, nor to acquire tester, prober or handler
manufacturers.
Products
The Company designs, manufactures and markets docking hardware and test
head manipulators used by semiconductor manufacturers during the testing of
wafers and packaged devices. The Company also designs and markets related ATE
interface products. The Company's products are designed to improve the
utilization and cost-effectiveness of testers, wafer probers and device
handlers. Substantially all of the Company's products are customized for use
with particular ATE and, in the case of docking hardware, also to achieve
plug-compatibility among particular combinations of ATE. The Company's docking
hardware, manipulators and related ATE interface products are designed for use
with more than 175 test heads, 30 probers and 300 handlers, all of which are
mechanically unique makes and models. The Company has designed and continues to
support more than 4,600 products, any of which can be manufactured upon request.
23
<PAGE>
Docking Hardware and ATE Interface Products
The Company's docking hardware is designed for use with floating-head
universal manipulators, which are used when maximum mobility and
inter-changeability of handlers between test heads is required. The Company's
docking hardware provides the mechanical control to safely connect, with near
zero electrical length, the test interface board with either the probing
assembly on a prober or the test socket on a handler. A simple cam action docks
and locks the test head to the prober or handler so that the two become a single
mechanism which prohibits motion of the test head relative to the prober or
handler. This minimizes deterioration of the interface boards, test sockets and
probing assemblies caused by the constant vibration characteristic of the
operation of all probers and handlers. The Company's docking hardware allows an
operator to manually align the probing assembly or test socket to within .005"
with respect to the interface board on the test head. Shown below is a graphic
representation of a test head and handler in the un-docked position.
[Graphic representation of a test head and handler in the un-docked
position showing details of inTEST docking hardware.]
The Company offers six standard four-cam families and three standard
three-cam families with load ratings of 200, 400 and 600 pounds. The Company's
docking families are primarily distinguished from one another by the number of
docking cams and guide pins, the load rating and the size of test head interface
boards that can be used with each particular family of docking hardware. The
Company's docking hardware products range in price from approximately $2,000 to
$12,000.
The Company's docking hardware products are distinguished from those
offered by ATE manufacturer competitors by the ability of the Company's products
to make multiple competing brands of test heads plug-compatible with multiple
brands of probers and handlers used by a semiconductor manufacturer by only
changing interface boards. Creating such plug-compatibility requires detailed
information about competing ATE that would generally not be available to a
competing ATE manufacturer. Plug-compatibility permits non-commodity
semiconductor manufacturers to reduce the changeover time required to un-dock a
test head from one handler and dock it to another handler between production
lots or when changing the device type being tested.
24
<PAGE>
In addition, the Company designs and sells a variety of related ATE
interface products including high performance test sockets, interface boards,
probing assemblies and other products. The Company custom designs all docking
hardware and related ATE interface products for the specific combinations of
test heads and probers or handlers used by its customers.
Manipulator Products
in2 Test Head Positioner. The in2 Test Head Positioner ("in2") is a
universal manipulator which can be designed to hold any test head. A universal
manipulator enables the test head to be repositioned for alternate use with any
one of several probers or handlers on a test floor. The in2 is distinguished
from universal manipulators manufactured by competitors by its innovative,
floating-head design. The design of the in2 allows a test head to be held in an
effectively weightless state, moved up or down, right or left, forward or
backward and rotated around each axis (six degrees of motion freedom) by an
operator using no more than 22 pounds of force. Consequently, an operator can
manually reposition the test head by grasping it in his or her hands and gently
moving the test head into position to dock with the prober or handler. This same
design feature allows the operator to dock the test interface board (which is
used to connect the test head's pin electronics to the probing assembly on a
prober or to the test socket on a handler) with near zero electrical length
between the pin electronics and the probing assembly or the test socket, while
protecting the fragile electrical contacts from inadvertent damage during the
docking action.
The Company manufactures six styles of the in2, all of which are available
in eight different load-rated sizes. The styles include one tumble mode style
and five cable pivot style manipulators. Each style provides a distinct
combination of performance characteristics suited to different customer
applications. A tumble mode positioner might be specified for various reasons
including test head form factor, compatibility with in-line auto mation, cable
support simplicity or cost minimization. Reasons for specifying a cable pivot
positioner could include providing improved handling characteristics necessary
for larger test heads, the ability to handle test heads with short
mainframe-to-test head cables or the necessity to position the test head close
to the floor. In addition, the Company designs telescopic cable supports to be
used with its cable pivot manipulators; these cable supports minimize bending
and twisting stress to mainframe-to-test head cables, which can be delicate yet
weigh several hundred pounds. The in2 ranges in price from approximately $12,000
to $100,000 depending upon load capacity, manipulator style and the type of
cable management.
Test Head Hoist. In July 1996, the Company introduced a new,
fully-automatic, electrically-powered and microprocessor-controlled dedicated
manipulator called the Test Head Hoist ("THH"). The patented, overhead design of
the THH series manipulator uses a powered scissor mechanism to raise and lower a
test head to a prober or a top docking handler. This design enables a THH to
dock very large test heads (weight tested to 1,000 pounds) within .005". Shown
below is a graphic representation of the THH.
[Graphic representation of the Test Head Hoist with test head and
prober shown from 3/4 front view.]
25
<PAGE>
Although the Company has had no sales of the THH series manipulator to
date, the Company believes that the THH series of manipulators will be
attractive to semiconductor manufacturers for testing 300 mm wafers and packaged
memory devices. The Company's THH is the only fully-automatic manipulator which
enables a test head to be automatically docked to a prober or handler with the
push of one button. The Company believes that the THH enables semiconductor
manufacturers to increase floor space utilization of their ATE test systems by
25% to 40% over that achieved by waffle-iron style dedicated manipulators or
universal manipulators because a THH series manipulator has a virtually zero
"footprint." The Company does not expect significant sales of the THH
manipulators before 1999.
Markets and Customers
The Company markets its products globally to semiconductor manufacturers
and, to a lesser extent, ATE manufacturers on an OEM basis. The Company believes
that it sells to most major semiconductor manufacturers in the world. The
Company's docking hardware and universal manipulators are primarily used during
back-end testing of non-commodity packaged devices. Such devices include linear,
digital and mixed signal integrated circuits (such as microprocessors, digital
signal processing chips, ASICs and non-commodity memory devices) and primarily
have applications in the automotive, computer, consumer products and
telecommunications industries.
The Company believes its sales of docking hardware and manipulators are a
function of the general level of capital expenditures by semiconductor
manufacturers. In addition, the Company's sales of docking hardware generally
are driven by changes in device designs or test methods, industry-wide volume of
device testing, sales of new handlers and, to a lesser extent, sales of new test
heads. In the past, sales of the Company's docking hardware generally have been
strong when spending for test heads was low. During such times, the Company
believes that semiconductor manufacturers seek to improve the utilization,
performance and efficiency of existing ATE by purchasing docking hardware. The
Company's sales of manipulators generally follow purchases of test heads by the
Company's semiconductor manufacturer customers. The Company believes its sales
of related ATE interface products primarily depend upon operating expenditures
of the Company's semiconductor manufacturer customers.
Both North American and European semiconductor manufacturers have located
most of their back-end factories in Southeast Asia. The front-end wafer
fabrication plants of U.S. semiconductor manufacturers are primarily in the U.S.
Likewise, European, Taiwanese, South Korean and Japanese semiconductor
manufacturers primarily have located their wafer fabs in their respective
countries. The Company's sales to Japanese semiconductor manufacturers primarily
consist of test sockets and interface boards. Sales of docking hardware and
universal manipulators have been limited in Japan and South Korea because
manufacturers in these countries emphasize mass-produced products such as memory
devices and other commodity devices. Commodity devices are typically tested
using dedicated manipulators rather than universal manipulators with docking
hardware.
As part of the Company's strategy to be domiciled in its major markets, the
Company established inTEST LTD in the U.K. in 1985, inTEST KK in Japan in 1987
and inTEST PTE in Singapore in 1990. inTEST LTD designs, manufactures and
markets the Company's products principally in the European market. inTEST KK was
established to be a liaison office with Japanese ATE manufacturers and to market
inTEST products in Japan. In addition, inTEST KK initiated the Company's
business of designing and marketing related ATE interface products. inTEST PTE
designs, markets and provides technical support to customers in Southeast Asia,
and it intends to commence manufacturing operations in Singapore in 1998.
The Company has maintained long term relationships with substantially all
ATE manufacturers. The Company believes its relations with such manufacturers
are good and have been additionally strengthened due to the fact that the
Company does not compete with such manufacturers for testers, probers and
handlers. The Company believes that maintaining such relationships is essential
to its ability to provide plug-compatible ATE interface solutions.
26
<PAGE>
The following semiconductor and ATE manufacturers have each purchased at
least $250,000 of the Company's products since the beginning of 1994:
Analog Devices National Semiconductor
Credence Systems NEC
Harris Philips Electronics
Hewlett Packard Schlumberger
Intel SGS Thomson
LTX Symbios Logic
Lucent Technologies Teradyne
Matsushita Texas Instruments
Microchip Technologies Tokyo Electron
Motorola Xilinx
The Company's largest customers include Lucent Technologies, Motorola, SGS
Thomson and Texas Instruments among semiconductor manufacturers, and Credence
Systems, LTX and Teradyne among ATE manufacturers. See "Risk Factors -- Customer
Concentration."
Manufacturing and Supply
The Company's principal manufacturing operations consist of assembly and
testing at its facilities in New Jersey and in the U.K. In 1998, the Company
plans to commence similar operations in its Singapore facility. 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 manufacturer customers are located.
The Company assembles its docking hardware, manipulator products and
certain of its probing assemblies from a combination of standard components and
fabricated custom parts which have been manufactured to the Company's
specifications by third party manufacturers. The Company's related ATE interface
products, such as test sockets, interface boards and other of its probing
assemblies, are also manufactured to the Company's specifications by third party
manufacturers. The Company's policy is to use the highest quality raw materials
and components in its products. The primary raw materials used in fabricated
parts are various grades of aluminum and steel, in interface boards are
fiberglass and copper and in test sockets are plastic and copper, all of which
are widely available. Substantially all components are purchased from multiple
Suppliers. Certain raw materials and components are purchased from single
Suppliers. However, the Company believes that all materials and components are
available in adequate amounts from other sources. See "Risk Factors --
Dependence on Key Suppliers."
In New Jersey, the Company controls the quality of raw materials,
fabricated parts and components by conducting incoming inspections using
sophisticated measurement equipment, including a coordinate measuring machine,
to ensure that products with critical dimensions meet the Company's
specifications. In the U.K., the Company relies upon its Suppliers for
inspecting the quality of fabricated parts. The Company intends to buy a
coordinate measuring machine for inTEST LTD by the end of 1997. The Company's
policy is to inspect all products at various stages prior to shipment. The
Company's inspection standards have been designed to comply with applicable MIL
specifications and ANSI standards. The Company is preparing a quality manual to
comply with such specifications and standards in anticipation of applying for
ISO 9001 certification.
Sales and Distribution
In North America, the Company sells to semiconductor manufacturers
principally through independent, commissioned sales representatives and to ATE
manufacturers through Company account managers. North American sales
representatives also coordinate product installation and support with the
Company's technical staff and participate in trade shows. Technical support is
provided to the Company's North American customers and independent sales
representatives by Company employees based in Cherry Hill, New Jersey,
Sunnyvale, California and Austin, Texas.
27
<PAGE>
In Europe, the Company sells to semiconductor and ATE manufacturers through
Company account managers, except in Belgium and Holland where the Company uses
an independent sales representative. In Japan, the Company sells to
semiconductor and ATE manufacturers through Company account managers. In China,
Hong Kong, Malaysia, the Philippines, Singapore, South Korea, Taiwan and
Thailand, the Company sells through independent sales representatives.
International sales representatives are responsible for sales, installation,
support and trade show participation in their geographic market areas.
Company account managers are responsible for a portfolio of customer
accounts and for managing certain independent sales representatives. In
addition, Company account managers are responsible for applications engineering,
custom product design, pricing, quotations, proposals and transaction
negotiations.
Competition
The Company's competitors include independent manufacturers of docking
hardware, manipulators and related ATE interface products, designers and
manufacturers of ATE and, to a lesser extent, semiconductor manufacturers'
in-house ATE interface groups. The Company principally competes on the basis
of product performance and functionality, product reliability, customer service,
applications support, price and timely product delivery.
The independent manufacturers of docking hardware and manipulators which
compete with the Company include Reid-Ashman Manufacturing of the U.S.,
Microhandling of Germany and Shang Sheng of Taiwan, each of which manufactures
docking hardware and manipulators. The manufacturers of ATE which compete with
the Company in the sale of docking hardware and universal manipulators include
Credence Systems, LTX, Schlumberger and Teradyne. Such manufacturers of ATE may
be both competitors and customers of the Company. In addition, in the sale of
related ATE interface products there are approximately 20 manufacturers of
interface boards, four manufacturers of high performance test sockets and eight
manufacturers of probing assemblies. See "Risk Factors -- Competition."
Patents and Other Proprietary Rights
The Company currently holds 13 U.S. patents and 64 foreign patents and has
pending two U.S. patent applications and more than 30 foreign applications that
cover various aspects of its technology. The Company's policy is to protect its
technology by filing patent applications for the technologies that the Company
considers important to its business. The Company first filed for patent
protection in the U.S. for its docking hardware and the in2 test head
manipulator in 1982.
The Company also relies on trade secrets and unpatentable knowhow to
protect its proprietary rights. It is the Company's policy to require, as a
condition of permanent employment, that all employees of the Company agree to
assign to the Company all rights to inventions or other discoveries relating to
the Company business made while employed by the Company. In addition, all
employees agree not to disclose any information regarding the Company which is
private or confidential.
The Company has notified one of its competitors that the Company believes
the competitor's products infringe on one of the Company's U.S. patents. The
competitor responded by alleging that certain claims of the patent are invalid
based on an earlier issued U.S. patent. The Company, in order to strengthen its
patent position, requested reexamination of its patent by the U.S. Patent and
Trademark Office (the "PTO") over that earlier issued U.S. patent. The
competitor thereafter also requested a reexamination of the patent. A
reexamination provides the PTO with an opportunity to reevaluate the validity of
the claims of a patent previously issued by the PTO. On April 7, 1997, the PTO
issued an Office Action in Reexamination confirming five of the nine claims of
the Company's patent, and rejecting four claims. On April 29, 1997, the
Company's patent attorney presented to the Examiner in charge of the
Reexamination a minor amendment to the claims. In response, the Examiner agreed
that the proposed amendment appears to overcome the rejection of the four
claims. Based on advice of its patent counsel, the Company believes that upon
formal submission of the proposed amendment, all claims will be deemed
patentable and the Commissioner of the PTO will issue a Certificate of
Reexamination to that effect. Although there can be no assurance, the Company
believes that the failure of the PTO ultimately to deem patentable some or all
of the four claims rejected in the Office Action will not have a material
adverse effect on the Company's business or results of operations. See
"Business--Patents and Other Proprietary Rights."
28
<PAGE>
Computer Systems
The Company maintains an MIS system at each of its facilities. These
systems are designed to (i) process all quotations, sales orders, work orders,
and purchase orders; (ii) plan, control and allocate inventory; (iii) plan and
schedule production; (iv) cost and price products; and (v) maintain accounting
and financial records. The MIS systems provide a central database of price
lists, product descriptions, applications data, design manuals and engineering
documentation and are simultaneously accessible by all employees of the Company.
In addition, the MIS systems prompt the actions of many of the employees of the
Company, including designers, buyers and inspectors. The MIS systems, which are
fully integrated, interactive and real-time, have been extensively customized by
both Company employees and outside consultants. The MIS systems control the
Company's inventory of approximately 12,000 fabricated parts, 6,000 purchased
parts, 11,000 finished goods and 1,000 sub-assemblies.
The Company utilizes LAN-based CAD systems at each of its facilities. The
CAD systems currently contain over 4,000 of the Company's 7,600 fabrication
drawings and over 1,100 of the Company's 1,800 customer drawings of product
applications, floor plans and operating procedures. All new designs and drawings
are created in CAD and engineering changes are published as CAD drawings as the
changes are adopted.
Backlog
At March 31, 1997, the Company's backlog of unfilled orders for all
products was approximately $2.3 million compared with approximately $4.3 million
at March 31, 1996. The Company's backlog includes customer purchase orders which
have been accepted by the Company. Although backlog generally is shipped within
45 days, the backlog at March 31, 1996 was unusually high and was shipped over
the next 70 days. The Company's backlog at March 31, 1997 represents shipments
which are expected to be made in 40 to 45 days. While backlog is calculated on
the basis of firm purchase orders, no assurance can be given that customers will
purchase the Company's products subject to such orders. As a result, the
Company's backlog at a particular date is not necessarily indicative of sales
for any future period. See "Risk Factors -- Dependence upon Semiconductor
Industry" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Employees
At March 31, 1997, the Company had 61 employees, including 26 in customer
operations, 21 in manufacturing operations and 14 in administration.
Substantially all of the Company's key employees are highly skilled and trained
technical personnel, and new technical employees are required to attend an
in-house training program. None of the Company's employees are represented by a
labor union, and the Company has never experienced a work stoppage. The Company
believes that its employee relations are excellent.
Facilities
The Company's headquarters are located in Cherry Hill, New Jersey in 28,630
square feet of office and manufacturing space leased pursuant to a seven-year
lease which expires in 2003. The Company's facility in the U.K. is located in
Thame in 4,600 square feet of office and manufacturing space leased pursuant to
an assumed, 20-year lease which expires in December 1997. The Company is
currently negotiating renewal terms for this lease. In Singapore, the Company
occupies 3,077 square feet of office and manufacturing space leased pursuant to
a four-year lease which expires in 2000 subject to a two-year renewal option. In
Kichijoji, Japan, the Company occupies approximately 1,200 square feet of office
space pursuant to an agreement which is cancelable on reasonable notice by
either party. In Sunnyvale, California, the Company occupies 1,900 square feet
of office and warehouse space leased pursuant to a five-year lease which expires
in 2001. The Company believes that its headquarters and other existing
facilities are adequate to meet its current and foreseeable future needs.
29
<PAGE>
MANAGEMENT
Executive Officers, Directors and Significant Employees
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
- --------------------------------------- ------ -------------------------------------------------
<S> <C> <C>
Alyn R. Holt (1) ..................... 59 Chairman and Chief Executive Officer
Robert E. Matthiessen (1)(2) ......... 52 President, Chief Operating Officer and Director
Daniel J. Graham (1) .................. 51 Senior Vice President and Director
Hugh T. Regan, Jr. .................. 37 Chief Financial Officer and Treasurer
Hugh T. Regan, Sr. .................. 62 Secretary
Richard O. Endres (2)(3) ............ 71 Director
Stuart F. Daniels, Ph.D. (2)(3) ...... 56 Director
</TABLE>
- ------------
(1) Member of the Executive Committee
(2) Member of the Compensation Committee
(3) Member of the Audit Committee
Other significant employees of the Company include:
Name Age Position
- ----------------------- ------ -------------------------------------
Jack R. Edmunds ...... 56 Director of Operations, inTEST CORP
Brian R. Moore ...... 60 Managing Director, inTEST LTD
Tomoyasu Ogura ...... 47 Representative Director, inTEST KK
Cornelis Hol ......... 59 Managing Director, inTEST PTE
Alyn R. Holt is a co-founder of the Company and has served as Chairman and
Chief Executive Officer since the Company's inception in September 1981. Mr.
Holt has over 35 years experience in the ATE industry, including various
positions in general management, marketing management and engineering. From 1973
to 1980, Mr. Holt was Manager of the Measurement Systems Division of Siemens
Corporation. From 1966 to 1973, he served in various capacities including Vice
President of Marketing for Computest Corporation, a manufacturer of ATE for the
computer industry. Mr. Holt is a co-inventor on several of the Company's
patents. Mr. Holt holds an M.B.A. from California State University and a B.S. in
Electrical Engineering from South Dakota State University.
Robert E. Matthiessen was elected President, Chief Operating Officer and a
Director of the Company in February 1997. Prior to that, Mr. Matthiessen served
as Executive Vice President since joining the Company in October 1984. He has
over 25 years experience in the ATE industry, including various positions in
general management, marketing management and engineering management. In 1982,
Mr. Matthiessen co-founded a company engaged in the production of video products
for training, advertising and sales, and served as its President from inception
to 1984. From 1973 to 1981, he served in various engineering and marketing
management positions with the Measurement Systems Division of Siemens
Corporation. Mr. Matthiessen is a co-inventor on several of the Company's
patents. He studied electrical engineering at Drexel University and business
administration at Rutgers University.
Daniel J. Graham is a co-founder of the Company and has served as Senior
Vice President and a Director of the Company since 1988. Prior to that, Mr.
Graham served as Vice President of the Company since the Company's inception.
Mr. Graham has expertise in integrated circuit test technology and operated his
own software consulting firm from 1978 to 1992. He has over 25 years industrial
experience involving the development of software and hardware systems for ATE.
Mr. Graham is a past Chairman of the Test Technology Technical Committee of the
Institute of Electrical and Electronic Engineers, Inc. (the "IEEE") Computer
Society. He currently serves as General Vice Chair of the International Test
Conference which is sponsored by the IEEE. He holds an M.S. in Computer and
Information Science Engineering from the University of Pennsylvania and a B.S.
with honors in Electrical Engineering from the Queen's University of Belfast,
Northern Ireland.
30
<PAGE>
Hugh T. Regan, Jr. has served as the Company's Chief Financial Officer and
Treasurer since joining the Company in April 1996. From 1989 to 1995, Mr. Regan
was the Vice President of Finance for Value Property Trust, a publicly traded
real estate investment trust (the "Trust"). From 1995 until he joined the
Company, Mr. Regan was the Chief Financial Officer of the Trust. Mr. Regan holds
a B.S. in Accounting and Finance from Rider University and is a Certified Public
Accountant.
Hugh T. Regan, Sr. has served as the Company's Secretary since 1982. Mr.
Regan was Chief Financial Officer of the Company from 1982 to 1996. He has
served as President of his accounting firm, Regan Accounting Services, since
1986. He has over 35 years of financial and general management experience in the
computer, ATE and other industries. From 1979 to 1983, he was Executive Vice
President and Chief Financial Officer of Emery Corporation, a home furnishings
manufacturing company. From 1973 to 1979, he was Vice President of Finance and
Chief Financial Officer of Clarke Corporation, a publicly traded building
products manufacturing company. From 1966 to 1973, he was Controller for
Computest Corporation, an early leader in ATE. Mr. Regan holds a B.S. in
Business Administration and Accounting from LaSalle University.
Richard O. Endres has served as a Director of the Company since April 1982.
He has served as President of VRA, Inc., which provides business planning and
financial services for start-up companies, since 1976. Mr. Endres founded
Computest Corporation in 1962 and served as its President from 1962 to 1973.
Computest was sold to Siemens Corporation in 1973, at which time Mr. Endres
became Group Vice President for Siemens until 1976. From 1948 to 1953, Mr.
Endres was engaged in early transistor circuit development and computer memory
research at RCA's David Sarnoff Research Center. Mr. Endres holds a B.S. in
Electrical Engineering from Purdue University.
Stuart F. Daniels, Ph.D. is a co-founder of the Company and served as Vice
President and a Director in 1982 and was reappointed as a Director in April
1997. In 1996, Dr. Daniels founded The Daniels Group, which is engaged in
technology transfer and license consulting. From 1980 to 1995, Dr. Daniels held
several management positions with Siemens Corporation. Dr. Daniels also
co-founded Digital General Corp., an ATE company, in 1969. Dr. Daniels holds a
Ph.D. in Electrical Engineering from Case Western Reserve University, an M.S. in
Electrical Engineering from Case Institute of Technology and a B.S. in
Electrical Engineering from the University of New Hampshire. He is also an
adjunct of the Computer Information Science Department at the New Jersey
Institute of Technology. Dr. Daniels holds two patents in ATE technology.
Jack R. Edmunds has served as Director of Operations since joining the
Company in September 1987. He has over 20 years experience in the ATE industry,
including various positions in operations management, marketing management,
engineering and sales. From 1964 to 1975 he held numerous management positions
in operations, engineering, marketing and sales with Computest Corporation. He
studied business administration at Rutgers University.
Brian R. Moore has served as the Managing Director of inTEST LTD since
February 1985. From 1982 to 1985, Mr. Moore was a managing partner in Anglo
European Machinery Company, a manufacturer of test head manipulators and other
specialty machines for the ATE industry, which was acquired by inTEST LTD in
1985. He has over 35 years experience in the ATE industry, including various
positions in general management, engineering management, operations management,
marketing and mechanical design. Mr. Moore is a co-inventor on several of the
Company's patents. He studied mechanical engineering at High Wycombe Technical
College in the U.K.
Tomoyasu Ogura has served as the Representative Director of inTEST KK since
March 1990. Prior to that, Mr. Ogura was Marketing Manager of inTEST KK since
May 1988. From 1981 to 1988, Mr. Ogura was the Technical Manager for a
subsidiary of C. Itoh & Co., a trading company. He has over 20 years experience
in the ATE industry in Japan, including various positions in general management,
sales management, marketing, engineering and sales. Mr. Ogura holds a B.S.
degree in Electrical Engineering from Kanagawa University, Yokohama.
Cornelis Hol has served as the Managing Director of inTEST PTE since its
inception in April 1990 and as Director of inTEST KK since its inception in
1987. Mr. Hol is also Managing Director of C. Hol Business Development, a
management consulting company he founded in 1986 with which the Company has a
contract for the management of inTEST PTE. In addition, from 1993 to 1995, Mr.
Hol was President of Intertrade
31
<PAGE>
Scientific, Inc. ("ITS"), a distributor of semiconductor production equipment,
in the U.S., and Managing Director of ITS in Munich, Germany. He has over 15
years experience in the semiconductor industry in Southeast Asia, Japan, Europe
and the U.S., including various positions in general management, sales and
distribution management. From 1981 to 1986, Mr. Hol was Managing Director of MCT
Asia, a manufacturer of device handlers. Mr. Hol holds a Marine Engineering
degree from De Ruyter School, Flushing, Holland.
Hugh T. Regan, Jr. is Hugh T. Regan's son; there are no other family
relationships between any of the directors or executive officers of the Company.
Dr. Daniels has agreed to provide consulting services to the Company including
analyzing patents and other intellectual properties relating to the Company's
technology interests, for which he will be compensated for his services at a
rate of $150 per hour. The Company does not expect the consulting fees paid to
Dr. Daniels to exceed $25,000 per year. Non-employee directors are paid a
quarterly retainer of $2,500, a fee of $2,000 per board meeting and a fee of
$1,000 per committee meeting that falls on a day other than a board meeting. In
addition, non-employee directors are reimbursed travel expenses and other costs
associated with attending board or committee meetings. The Company does not pay
additional cash compensation to officers of the Company for their service as
directors of inTEST CORP. However, officers who serve as directors of the
Company's foreign subsidiaries receive compensation as approved each year by
such subsidiary's Board of Directors. The Company intends to hold at least four
meetings of the Board of Directors per year. Directors are also eligible to
participate in the Company's 1997 Stock Plan. See " -- 1997 Stock Plan" and " --
Executive Compensation."
Board Committees
The Board of Directors has three standing Committees: an Executive
Committee, an Audit Committee and a Compensation Committee. The Executive
Committee is responsible for those duties delegated to it by the Board of
Directors. The Audit Committee reviews the results and scope of the audit and
other services provided by the Company's independent auditors. The Compensation
Committee makes recommendations concerning salaries and incentive compensation
for employees of the Company and administers the Company's stock option and
bonus plan. See " -- 1997 Stock Plan."
32
<PAGE>
Executive Compensation
The following table sets forth certain information with respect to the
compensation paid by the Company for services rendered during the years ended
December 31, 1996, 1995 and 1994, to its Chairman and Chief Executive Officer
and the other executive officers of the Company whose total annual salary and
bonus exceeded $100,000 during such period (each, a "Named Executive Officer").
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
------------------------------------------
Other annual All other
Name and Principal Position Year Salary Bonus compensation compensation
- ------------------------------ ------- ----------- ---------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Alyn R. Holt ............... 1996 $155,545 $55,234 $ 47,693(1) $ 145,851(2)
Chairman and Chief 1995 121,300 44,631 19,876(1) 86,557(2)
Executive Officer 1994 112,530 18,280 25,337(1) 20,250(2)
Robert E. Matthiessen ...... 1996 $ 97,020 $ 6,750 $ 13,578(3) $ 5,720(4)
President, Chief Operating 1995 92,620 -- 14,095(3) 756(4)
Officer and Director 1994 89,217 -- 21,567(3) 756(4)
Daniel J. Graham ............ 1996 $105,200 -- $ 18,943(5) $ 35,539(6)
Senior Vice President and 1995 100,000 -- 19,376(5) 45,795(6)
Director 1994 95,503 -- 20,097(5) 17,116(6)
Hugh T. Regan, Sr. (7) ...... 1996 $113,635 -- -- $ 27,628(8)
Secretary 1995 106,150 -- -- 23,295(8)
1994 95,550 -- -- 15,650(8)
</TABLE>
- ------------
(1) Includes: $39,500 for the annual lease value of automobiles for Alyn R. and
Connie E. Holt in 1996, and $11,250 and $10,250 for Mr. Holt in 1995 and
1994, respectively; $6,793, $7,426 and $14,087 for group health insurance in
1996, 1995 and 1994, respectively.
(2) Includes: $3,046, $2,724 and $2,724 for premiums paid on life insurance for
Mr. Holt in 1996, 1995 and 1994, respectively; $4,486 matching contribution
to Mr. Holt's 401(k) Plan account in 1996; and $138,319, $83,833 and $17,526
for serving as a director of inTEST LTD and inTEST KK in 1996, 1995 and
1994, respectively.
(3) Includes: $8,750, $7,750 and $10,250 for the annual lease value of an
automobile for Mr. Matthiessen in 1996, 1995 and 1994, respectively; $4,828,
$5,345 and $11,317 for group health insurance in 1996, 1995 and 1994,
respectively.
(4) Includes: $1,184, $756 and $756 for premiums paid on life insurance for Mr.
Matthiessen in 1996, 1995 and 1994, respectively; and $4,536 matching
contribution to Mr. Matthiessen's 401(k) Plan account in 1996.
(5) Includes: $10,750, $10,750 and $7,550 for the annual lease value of an
automobile for Mr. Graham in 1996, 1995 and 1994, respectively; $6,793,
$7,426 and $11,317 for group health insurance in 1996, 1995 and 1994,
respectively.
(6) Includes: $2,107, $1,436 and $1,466 for premiums paid on life insurance for
Mr. Graham in 1996, 1995 and 1994, respectively; $4,750 matching
contribution to Mr. Graham's 401(k) Plan account in 1996; and $28,682,
$44,359 and $15,650 for serving as a director of inTEST LTD and inTEST KK in
1996, 1995 and 1994, respectively.
(7) Mr. Regan served as the Company's Chief Financial Officer through April
1996.
(8) Includes: $785 for premiums paid on life insurance for Mr. Regan in 1996;
$1,920 matching contribution to Mr. Regan's 401(k) Plan account in 1996; and
$24,923, $23,295 and $15,650 for serving as a director of inTEST LTD in
1996, 1995 and 1994, respectively.
33
<PAGE>
401(k) Plan
The inTEST Corporation 401(k) Savings Incentive Plan (the "401(k) Plan")
became effective on January 1, 1996. All employees of inTEST CORP who are at
least 18 years of age and have completed six months of service with the Company
are eligible to participate in the 401(k) Plan. An eligible employee may elect
to contribute up to 15% of his or her compensation each year instead of
receiving that amount in cash, up to the legal limit (the limit for 1997 is
$9,500). The Company will match employee contributions up to 10% of an
employee's compensation, not to exceed $4,750. At the discretion of the Board of
Directors, the Company may also match employee contributions up to an additional
5% of an employee's salary, not to exceed $4,750 or, in aggregate, $9,500 for a
total matched contribution not to exceed 15% of an employee's compensation.
1997 Stock Plan
Pursuant to the inTEST Corporation 1997 Stock Plan (the "Plan" or the "1997
Stock Plan"), directors, key employees and consultants of the Company are
eligible to receive awards of (i) options to purchase shares of Common Stock and
(ii) shares of Common Stock. Options granted under the Plan may be "incentive
stock options" ("ISOs"), within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), or non-qualified stock options
("NQSOs"). Stock awards may be granted in addition to or in lieu of any other
award granted under the Plan. The Company has authorized 500,000 shares of
Common Stock for issuance upon exercise of options or stock awards under the
Plan (subject to anti-dilution and similar adjustments).
The Plan consists of two parts: the Non-Qualified Plan and the Key Employee
Plan. The Non-Qualified Plan is administered by the Board of Directors of the
Company and the Key Employee Plan is administered by the Compensation Committee
of the Board of Directors of the Company (the Board of Directors or the
Compensation Committee, as the case may be, is referred to herein as the
"Administrator").
Subject to the provisions of the Plan, the Administrator will determine the
type of award, when and to whom awards will be granted, the number of shares
covered by each award and the terms, provisions and kind of consideration
payable, if any, with respect to awards to key employees and consultants. In
determining the persons to whom awards shall be granted and the number of shares
covered by each award, the Administrator shall take into account the duties of
the respective persons, their present and potential contribution to the success
of the Company and such other factors as the Administrator shall deem relevant.
The Administrator may interpret the Plan and may at any time adopt such rules
and regulations for the Plan as it deems advisable.
An option may be granted on such terms and conditions as the Administrator
may approve. No option may be granted with an exercise period in excess of ten
years from the date of grant. Generally, ISOs will be granted with an exercise
price equal to the "Fair Market Value" (as defined in the Plan) on the date of
grant; the exercise price of an NQSO will be determined by the Administrator. In
the case of ISOs, certain limitations will apply with respect to the aggregate
value of option shares which can become exercisable for the first time during
any one calendar year, and certain additional limitations will apply to ISOs
granted to persons who, at the time the option is granted, own more than 10% of
the combined voting power of the Company. The Administrator may provide for the
payment of the option price in cash, by delivery of Common Stock having a Fair
Market Value equal to such option price, by a combination thereof or by any
other method. Options granted under the Plan will become exercisable at such
times and under such conditions as the Administrator shall determine, subject to
acceleration of the exercisability of options in the event of, among other
things, a "Change in Control" (as defined in the Plan).
All options to the extent not earlier exercised, expire on the earliest of
(i) the last business day immediately preceding the tenth anniversary of the
date of grant, (ii) one year following the optionee's termination of his or her
employment or service with the Company (unless such termination is for cause, as
defined in the Plan, in which case any options held by such optionee will
terminate immediately) or (iii) a date set by the Administrator upon a finding
that a change in the financial accounting treatment for the options would or may
have a material adverse effect on the Company. In addition, in the event of a
change of control, as defined in the Plan, the Administrator may take whatever
actions with respect to outstanding options it deems necessary or advisable,
including accelerating the expiration date of any such outstanding option to a
date not earlier than thirty (30) days from the date notice of such acceleration
is given to the respective optionee.
34
<PAGE>
The Plan further provides for the granting of stock awards, which are
awards of Common Stock which may be subject to restrictions on the sale or other
disposition of such shares, except by will or the laws of descent and
distribution, during such period of time as the Administrator determines. The
Administrator may also impose such other conditions and restrictions, if any, on
the shares as it deems appropriate, including, for example, the continued
employment of the recipient.
The Board of Directors may at any time suspend, amend, modify or terminate
the Plan provided that, with respect to the Key Employee Plan, any amendment
which would change the eligibility of employees or a class of employees eligible
to receive an option or to increase the maximum number of shares as to which
options may be granted, will only be effective if such action is approved by the
holders of a majority of the issued and outstanding shares of Common Stock. In
addition, no change may be made which would adversely affect any award
previously granted, except with the written consent of the grantee. No awards
may be granted under the Plan more than ten years from the date the Plan was
adopted.
The Administrator has granted options to purchase 150,000 shares of Common
Stock to key employees pursuant to the Key Employee Plan. The grant of these
options will become effective on the effective date of the Registration
Statement. These options, which are ISOs, will become exercisable on a pro rata
basis annually on the first through fifth anniversaries of the date of this
Prospectus. Stuart F. Daniels, Ph.D. and Hugh T. Regan, Jr. will receive options
to purchase 10,000 and 30,000 shares of Common Stock, respectively. Dr. Daniels
and Mr. Regan are the only directors or executive officers of the Company to be
granted options under the Plan to date.
Limitation of Liability and Indemnification
Pursuant to the provisions of the Delaware General Corporation Law
("DGCL"), the Company has adopted provisions in its Certificate of Incorporation
which limit the personal liability of its directors to the Company or its
stockholders for monetary damages for breach of their fiduciary duty as a
director to the fullest extent permitted by the DGCL, and in its Bylaws which
require the Company to indemnify its directors and officers to the fullest
extent permitted by Delaware law. The Bylaws require the Company to indemnify an
officer or director in connection with a proceeding (or part thereof) initiated
by such officer or director only if the initiation of such proceeding by such
person was authorized by the Board of Directors. The Company has applied for a
directors' and officers' liability insurance policy.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee consists of Robert E. Matthiessen, Richard O.
Endres and Stuart F. Daniels, Ph.D. Mr. Matthiessen is the President and Chief
Operating Officer of the Company. Mr. Endres has never served as an officer or
employee of the Company. Dr. Daniels was a co-founder of the Company and served
as Vice President and Director in 1982. From 1982 until Dr. Daniels was
re-elected to the Board of Directors in April 1997, his only relationship with
the Company was as a stockholder. Prior to the offering, the Company did not
have a Compensation Committee, and compensation decisions were made by the Board
of Directors, which consisted of Messrs. Holt, Endres and Graham.
35
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of March 31, 1997 and after giving
effect to the sale of shares of Common Stock in the offering by (i) each
Director or Named Executive Officer of the Company, (ii) each person known by
the Company to own beneficially five percent or more of the Common Stock, (iii)
each Selling Stockholder and (iv) all current executive officers and directors
of the Company as a group.
<TABLE>
<CAPTION>
Prior to Offering(1) After Offering(1)(2)
------------------------------- ------------------------------
Shares Shares
Beneficially Percentage Shares Being Beneficially Percentage
Name of Beneficial Owner Owned Owned Offered(2) Owned Owned
- ------------------------------------- --------------- ------------- --------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Alyn R. Holt (3)(4)(5) ............ 2,083,217 50.9% 232,550 1,850,667 31.3%
Richard O. Endres (3)(4)(6) ......... 483,435 11.8 53,965 429,470 7.3
Daniel J. Graham (3)(4) ............ 446,729 10.9 49,868 396,861 6.7
Deed of Trust f/b/o K.D. Holt (3) . 261,727 6.4 29,216 232,511 3.9
Connie E. Holt ..................... 186,948 4.6 20,869 166,079 2.8
Robert E. Matthiessen (4) ......... 160,364 3.9 17,901 142,463 2.4
Hugh T. Regan, Sr. (4) ............ 129,098 3.2 14,411 114,687 1.9
Brian R. Moore (4) .................. 93,219 2.3 10,406 82,813 1.4
Nils O. Ny (4) ..................... 70,106 1.7 7,826 62,280 1.1
Jack R. Edmunds (4) ............... 67,459 1.6 7,530 59,929 1.0
John W. Lalley ..................... 53,905 1.3 6,017 47,888 *
Micronics Japan Company, Ltd. (7).... 48,209 1.2 5,382 42,827 *
Julian P. Partington (4) ............ 45,664 1.1 5,097 40,567 *
Tomoyasu Ogura (4) .................. 43,388 1.1 4,843 38,545 *
Christopher L. West (4) ............ 42,532 1.0 4,748 37,784 *
William R. Blatchley (4) ............ 34,274 * 3,826 30,448 *
Ann L. Martz ........................ 23,369 * 2,609 20,760 *
Dale G. Holt ........................ 18,695 * 2,087 16,608 *
Jerome R. Bortnem (4) ............... 15,579 * 1,739 13,840 *
Stuart F. Daniels, Ph.D. (4) ...... 14,021 * 1,565 12,456 *
John J. Kotarski (4) ............... 9,347 * 1,043 8,304 *
Tomio Wakamatsu (4) ............... 3,214 * 359 2,855 *
Kenji Murayama (4) .................. 3,214 * 359 2,855 *
All executive officers and directors
as a group (7 persons) ............ 3,316,864 81.1% 370,260 2,946,604 49.7%
</TABLE>
- ------------
* Denotes less than 1%.
(1) Unless otherwise indicated below, the persons in the above table have sole
voting and investment power with respect to all shares owned by them.
Includes 300,443 shares of Common Stock issued in the Exchange. See "The
Company."
(2) If the Underwriters' over-allotment option is exercised in full, the Selling
Stockholders will sell an aggregate of 341,250 shares, allocated among them
in the same proportion as the relative number of shares being offered by
each of them as set forth above.
(3) The address of the stockholder is: c/o the Company, 2 Pin Oak Lane, Cherry
Hill, New Jersey 08003.
(4) The Selling Stockholder is, or was during the past three years, a director,
officer or employee of the Company.
(5) Does not include 261,727 shares held in trust for the benefit of Mr. Holt's
child or 186,948 shares owned by Mr. Holt's spouse, Connie E. Holt. Mr. Holt
disclaims beneficial ownership of the shares held in trust for his child and
the shares owned by his spouse. Includes 48,487 shares acquired pursuant to
the Exchange. See "The Company."
(6) Includes 261,727 shares held in trust for the benefit of Mr. Holt's child
for which Mr. Endres is trustee.
(7) inTEST KK occupies its facility pursuant to an agreement with this Selling
Stockholder.
36
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 20,000,000 shares
of Common Stock and 5,000,000 shares of Preferred Stock.
The following summary of certain provisions of the Common Stock and
Preferred Stock does not purport to be complete and is subject to, and qualified
in its entirety by, the provisions of the Company's Certificate of Incorporation
that are included as an exhibit to the Registration Statement of which this
Prospectus is a part, and by the provisions of applicable law.
Common Stock
As of March 31, 1997, there were 3,790,591 shares of Common Stock
outstanding that were held of record by 17 stockholders. Prior to the offering,
the Company will issue an additional 300,443 shares of its Common Stock in
exchange for the minority interests in the Company's three subsidiaries (the
"Exchange"). Giving effect to the sale of the shares of Common Stock offered by
the Company in the offering and the shares to be issued in the Exchange, there
will be 5,911,034 shares of Common Stock outstanding immediately following the
offering.
Holders of Common Stock are entitled to one vote per share, to receive
dividends when and if declared by the Board of Directors and to share ratably in
the assets of the Company legally available for distribution to its stockholders
in the event of liquidation. Holders of Common Stock have no preemptive,
subscription, redemption or conversion rights. All outstanding shares of Common
Stock are, and the shares to be sold hereby will be, upon issuance and payment
therefor, duly authorized, fully paid and nonassessable. The holders of Common
Stock do not have cumulative voting rights. The holders of a majority of the
shares of Common Stock can elect all the directors and can control the
management and affairs of the Company. The rights, preferences and privileges of
holders of Common Stock will be subject to the rights of the holders of any
series of Preferred Stock that the Company may issue in the future.
Preferred Stock
The Company has an authorized class of undesignated Preferred Stock
consisting of 5,000,000 shares. Preferred Stock may be issued in series from
time to time with such designations, relative rights, priorities, preferences,
qualifications, limitations and restrictions thereof, to the extent that such
are not fixed in the Company's Certificate of Incorporation, as the Board of
Directors determines. The rights, priorities, preferences, qualifications,
limitations and restrictions of different series of Preferred Stock may differ
with respect to dividend rates, amounts payable on liquidation, voting rights,
conversion rights, redemption provisions, sinking fund provisions and other
matters. The Board of Directors may authorize the issuance of Preferred Stock
which ranks senior to the Common Stock with respect to the payment of dividends
and the distribution of assets on liquidation. In addition, the Board of
Directors is authorized to fix the limitations and restrictions, if any, upon
the payment of dividends on Common Stock to be effective while any shares of
Preferred Stock are outstanding. The Board of Directors, without stockholder
approval, can issue Preferred Stock with voting and conversion rights which
could adversely affect the voting power of the holders of Common Stock. The
issuance of Preferred Stock may have the effect of delaying, deferring or
preventing a change of control of the Company. Upon consummation of the
offering, no shares of Preferred Stock will be outstanding. The Company has no
present intention to issue shares of Preferred Stock.
Certain Corporate Provisions
The Company's Certificate of Incorporation and Bylaws contain a number of
provisions relating to corporate governance and to the rights of stockholders.
Certain of these provisions may be deemed to have a potential "anti-takeover"
effect in that such provisions may delay, defer or prevent a change of control
of the Company. These provisions include the authority of the Board of Directors
to issue series of Preferred Stock with such voting rights and other powers as
the Board of Directors may determine. See "Management -- Executive Officers,
Directors and Significant Employees."
37
<PAGE>
The Company is subject to the provisions of the DGCL. Section 203 of the
DGCL prohibits a publicly-held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
A "business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested stockholder. Subject to
certain exceptions, an "interested stockholder" is a person who, together with
affiliates, owns, or within three years did own, 15 percent or more of the
corporation's voting stock.
Transfer Agent and Registrar
The transfer agent and registrar for the Common Stock of the Company is The
First National Bank of Boston.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the offering, there has been no public market for the Common Stock
of the Company. Future sales of substantial amounts of Common Stock in the
public market could adversely affect the prevailing market prices.
Upon completion of the offering, there will be 5,911,034 shares of Common
Stock of the Company outstanding, of which 3,338,078 will be "restricted
securities" and may be publicly sold only if registered under the Securities Act
or sold in accordance with an applicable exemption from registration, such as
Rule 144.
In general, under Rule 144 as currently in effect, a stockholder, including
an "affiliate" of the Company, as that term is defined in Rule 144 (an
"Affiliate"), who has beneficially owned his or her restricted securities (as
that term is defined in Rule 144) for at least one year from the later of the
date such securities were acquired from the Company or (if applicable) the date
they were acquired from an Affiliate, is entitled to sell, within any
three-month period, a number of such shares that does not exceed the greater of
one percent of the then outstanding shares of Common Stock (approximately 59,110
shares immediately after the offering) or the average weekly trading volume in
the Common Stock during the four calendar weeks preceding the date on which
notice of such sale was filed under Rule 144, provided certain requirements
concerning availability of public information, manner of sale and notice of sale
are satisfied. In addition, under Rule 144(k), if a period of at least two years
has elapsed between the later of the date restricted securities were acquired
from the Company and the date they were acquired from an Affiliate of the
Company, a stockholder who is not an Affiliate of the Company at the time of
sale and has not been an Affiliate for at least three months prior to the sale
would be entitled to sell the shares immediately without compliance with the
foregoing requirements under Rule 144.
As of the date of this Prospectus, the Company and each of its stockholders
have agreed that they will not directly or indirectly, offer, sell, offer to
sell, grant any option to purchase or otherwise sell or dispose (or approve any
offer, sale, offer of sale, grant of any options to purchase or sale or
disposition) of any shares of Common Stock or other capital stock of the
Company, or any securities convertible into, or exercisable or exchangeable for,
any shares of Common Stock or other capital stock of the Company without the
prior written consent of Janney Montgomery Scott Inc., on behalf of the
Underwriters, for a period of 180 days from the date of this Prospectus (the
"Lock-up Agreements"). Beginning 180 days after the date of this Prospectus,
approximately 297,841 shares of Common Stock will become eligible for resale
without volume or other limitations pursuant to Rule 144.
An additional 500,000 shares of Common Stock in the aggregate are reserved
for future issuance under the 1997 Stock Plan, and options to purchase a total
of 150,000 shares have been granted which will become effective as of the
effective date of the Registration Statement. The Company intends to file a
registration statement under the Act shortly after the effective date of the
Registration Statement, covering certain shares of Common Stock reserved for
issuance under the 1997 Stock Plan. Upon the effectiveness of that registration
statement, most of the shares of Common Stock which may be issued pursuant to
the 1997 Stock Plan, other than shares held by Affiliates, will be immediately
eligible for resale in the public market without restriction, subject to the
terms of the Lock-up Agreements, if applicable. See "Management -- 1997 Stock
Plan."
38
<PAGE>
UNDERWRITING
The Underwriters named below, acting through their Representatives, Janney
Montgomery Scott Inc. and Needham & Company, Inc. have severally agreed, subject
to the terms and conditions of the Underwriting Agreement, to purchase a total
of 1,820,000 shares of Common Stock from the Company and 455,000 shares of
Common Stock from the Selling Stockholders. The number of shares of Common Stock
that each Underwriter has agreed to purchase is set forth opposite its name
below. The Underwriters are committed to purchase all of such shares if any are
purchased. Under certain circumstances, the commitments of non-defaulting
Underwriters may be increased. The names of the several Underwriters and the
respective number of shares to be purchased by each of them are as follows:
Number of
Underwriter Shares
- -------------------------------------- -----------
Janney Montgomery Scott Inc. ......
Needham & Company, Inc. ............
-----------
Total .............................. 2,275,000
===========
The Company is obligated to sell, and the Underwriters are obligated to
purchase, all of the shares of Common Stock offered hereby if any are purchased.
The Underwriters, through their Representatives, have advised the Company
and the Selling Stockholders: that they propose to offer the Common Stock
initially at the public offering price set forth on the cover page of this
Prospectus; that the Underwriters may allow to selected dealers a concession of
$ per share; and that such dealers may reallow a concession of $ per
share to certain other dealers. After the initial public offering, the offering
price and the concessions may be changed by the Representatives.
The Selling Stockholders have granted to the Underwriters an option,
exercisable for 30 days from the date of this Prospectus, to purchase up to
341,250 additional shares of Common Stock at the initial public offering price,
less underwriting discounts and commissions, as set forth on the cover page of
this Prospectus. The Underwriters may exercise such option solely for the
purpose of covering over-allotments incurred in the sale of the shares of Common
Stock offered hereby. To the extent such option to purchase is exercised, each
Underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares as the number set
forth next to such Underwriter's name in the preceding table bears to 2,275,000.
The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters or contribute to losses arising out of certain liabilities,
including liabilities under the Securities Act.
As of the date of this Prospectus, the Company, its officers and directors,
and stockholders of the Company holding 3,636,034 shares of Common Stock upon
completion of the offering, have agreed that they will not, directly or
indirectly, offer, sell, offer to sell, grant any option to purchase or
otherwise sell or dispose (or approve any offer, sale, offer of sale, grant of
any options to purchase or sale or disposition) of any shares of Common Stock or
other capital stock of the Company or any securities convertible into, or
exercisable or exchangeable for, any shares of Common Stock or other capital
stock of the Company without the prior written consent of Janney Montgomery
Scott Inc., for a period of 180 days from the date of this Prospectus. See
"Shares Eligible for Future Sale."
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
Prior to the offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price will be
determined through negotiations among the Company and the Representatives. Among
the factors considered in making such determination are the prevailing market
conditions, the Company's financial and operating history and condition, its
prospects and the prospects for its industry in general, the management of the
Company, and the market prices of securities for companies in businesses similar
to that of the Company.
39
<PAGE>
LEGAL MATTERS
The legality of the issuance of the shares of Common Stock being offered
hereby will be passed upon for the Company and the Selling Stockholders by Saul,
Ewing, Remick & Saul, Philadelphia, Pennsylvania. Certain legal matters in
connection with patent law matters will be passed upon for the Company by Ratner
& Prestia, Berwyn, Pennsylvania. Certain legal matters will be passed upon for
the Underwriters by Pepper, Hamilton & Scheetz LLP, Philadelphia, Pennsylvania.
EXPERTS
The Consolidated Financial Statements of the Company as of December 31,
1996 and 1995 and for each of the years in the three-year period ended December
31, 1996, have been included herein and in the Registration Statement in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
Certain matters dealing with patents and proprietary rights set forth under
"Risk Factors -- Importance of Patents and Proprietary Rights; Risk of
Litigation," "Business -- Strategy -- Capitalize on Experience and Expertise"
and "Business -- Patents and Other Proprietary Rights" have been included in
this Prospectus in reliance upon the written opinion of Ratner & Prestia,
Berwyn, Pennsylvania, patent counsel for the Company, as experts in such
matters.
ADDITIONAL INFORMATION
The Company is not currently subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). As a result of
the offering, the Company will be required to file reports and other information
with the Securities and Exchange Commission (the "Commission") pursuant to the
informational requirements of the Exchange Act.
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Act with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto. Statements contained in this
Prospectus as to the contents of any contract or other document referred to are
not necessarily complete and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. For further information, reference is made to the Registration
Statement and exhibits thereto. The Registration Statement may be inspected
without charge at the Office of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of the Registration Statement may be obtained
from the Commission at prescribed rates from the Public Reference Section of the
Commission at such address, and at the Commission's regional offices located at
7 World Trade Center, Suite 1300, New York, New York 10048, and at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. In
addition, registration statements and certain other filings made with the
Commission through its Electronic Data Gathering, Analysis, and Retrieval
("EDGAR") system are publicly available through the Commission's site on the
Internet's World Wide Web, located at http://www.sec.gov. The Registration
Statement, including all exhibits thereto and amendments thereof, has been filed
with the Commission through EDGAR.
The Company intends to furnish to its stockholders annual reports
containing financial statements audited by an independent accounting firm.
40
<PAGE>
inTEST CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
------
Report of KPMG Peat Marwick LLP, Independent Auditors ...... F-2
Consolidated Financial Statements:
Consolidated Balance Sheets .............................. F-3
Consolidated Statements of Earnings ........................ F-4
Consolidated Statements of Stockholders' Equity ............ F-5
Consolidated Statements of Cash Flows ..................... F-6
Notes to Consolidated Financial Statements ............... F-7
F-1
<PAGE>
When the transaction referred to in the first paragraph of Note 12 of the notes
to consolidated financial statements has been consummated, we will be in a
position to render the following report.
/s/ KPMG Peat Marwick LLP
Independent Auditors' Report
The Board of Directors and Stockholders
inTEST Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheets of inTEST
Corporation and subsidiaries as of December 31, 1995 and 1996, and the related
consolidated statements of earnings, stockholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of inTEST Corporation
and subsidiaries at December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
Philadelphia, Pennsylvania
March 14, 1997, except for Note 12,
as to which the date is April 25, 1997
F-2
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except for share data)
<TABLE>
<CAPTION>
December 31, March 31, 1997
----------------------- ------------------------------
Pro forma
Actual (Note 3)
1995 1996 (unaudited) (unaudited)
---------- ---------- -------------- -------------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents ........................ $ 1,919 $ 3,692 $ 2,983 $ 2,983
Trade accounts and notes receivable, net of
allowance for doubtful accounts of $42 at
December 31, 1995 and $88 at December 31,
1996 and March 31, 1997 ......................... 2,992 1,953 2,495 2,495
Inventories ....................................... 1,218 1,313 1,178 1,178
Deferred tax asset .............................. -- -- -- 56
Other current assets .............................. 11 70 167 167
-------- ------- ------- -------
Total current assets .............................. 6,140 7,028 6,823 6,879
-------- ------- ------- -------
Property and equipment:
Machinery and equipment ........................... 633 1,096 1,082 1,082
Leasehold improvements ........................... 55 173 169 169
-------- ------- ------- -------
688 1,269 1,251 1,251
Accumulated depreciation ........................ (547) (676) (701) (701)
-------- ------- ------- -------
Net property and equipment ........................ 141 593 550 550
-------- ------- ------- -------
Other assets ....................................... 71 95 119 119
Goodwill (Note 3) ................................. -- -- -- 1,567
-------- ------- ------- -------
Total assets ....................................... $ 6,352 $ 7,716 $ 7,492 $ 9,115
======== ======= ======= =======
Current liabilities:
Current installments of long term debt ............ $ -- $ 34 $ 34 $ 34
Accounts payable ................................. 845 574 837 837
Dividends payable ................................. -- 973 1,216 1,216
Accrued wages and expenses ........................ 299 595 427 427
Customer deposits ................................. 191 -- -- --
State and foreign income taxes payable ............ 604 475 385 385
S corporation distribution to stockholders (Note 3) -- -- -- 3,420
-------- ------- ------- -------
Total current liabilities ........................ 1,939 2,651 2,899 6,319
-------- ------- ------- -------
Long term debt .................................... -- 155 148 148
Deferred tax liability ........................... -- -- -- 8
Minority interest ................................. 365 323 291 --
-------- ------- ------- -------
Commitments (Note 8)
Stockholders' equity:
Preferred stock, $0.01 par value; 5,000,000 shares
authorized; no shares issued or outstanding .... -- -- -- --
Common stock, $0.01 par value; 20,000,000
shares authorized; 3,790,591 shares issued and
outstanding at December 31, 1995 and 1996 and
March 31, 1997; 4,091,034 shares issued and
outstanding pro forma ......................... 38 38 38 41
Additional paid-in capital ........................ 689 689 689 2,544
Retained earnings ................................. 3,273 3,833 3,461 89
Foreign currency translation adjustment ......... 48 27 (34) (34)
-------- ------- ------- -------
Total stockholders' equity ........................ 4,048 4,587 4,154 2,640
-------- ------- ------- -------
Total liabilities and stockholders' equity ......... $ 6,352 $ 7,716 $ 7,492 $ 9,115
======== ======= ======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
Consolidated Statements of Earnings
(in thousands, except for per share data)
<TABLE>
<CAPTION>
Three months ended
Years ended December 31, March 31,
------------------------------------ ------------------------------
1996 1997
1994 1995 1996 (unaudited) (unaudited)
---------- ---------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues ....................................... $ 9,287 $ 14,442 $ 18,582 $ 6,089 $ 3,887
Cost of revenues ................................. 3,777 5,191 6,755 1,856 1,602
-------- -------- -------- ------- -------
Gross profit .................................... 5,510 9,251 11,827 4,233 2,285
-------- -------- -------- ------- -------
Operating expenses:
Selling expense ................................. 1,491 2,118 2,471 781 493
Research and development expense ............... 1,623 1,930 1,928 394 374
General and administrative expense ............ 1,107 1,166 1,812 364 411
-------- -------- -------- ------- -------
Total operating expenses ........................ 4,221 5,214 6,211 1,539 1,278
-------- -------- -------- ------- -------
Operating income ................................. 1,289 4,037 5,616 2,694 1,007
-------- -------- -------- ------- -------
Other income (expense):
Interest income ................................. 22 82 147 23 29
Interest expense .............................. (9) -- (11) (5) (4)
Other .......................................... 24 (49) (35) (6) (10)
-------- -------- -------- ------- -------
37 33 101 12 15
-------- -------- -------- ------- -------
Earnings before income taxes and minority interest 1,326 4,070 5,717 2,706 1,022
-------- -------- -------- ------- -------
Provision for income taxes:
State .......................................... 9 82 126 75 21
Foreign ....................................... 373 555 732 280 146
-------- -------- -------- ------- -------
Income tax expense .............................. 382 637 858 355 167
-------- -------- -------- ------- -------
Earnings before minority interest ............... 944 3,433 4,859 2,351 855
Minority interest .............................. (127) (181) (213) (94) (11)
-------- -------- -------- ------- -------
Net earnings .................................... $ 817 $ 3,252 $ 4,646 $ 2,257 $ 844
======== ======== ======== ======= =======
Pro forma information (unaudited) (Note 3):
Pro forma earnings before income taxes ......... $ -- $ -- $ 5,613 $ -- $ 996
Pro forma income taxes ........................... -- -- 2,247 -- 459
Pro forma net earnings ........................ -- -- 3,366 -- 537
Pro forma net earnings per share ............... $ -- $ -- $ 0.82 $ -- $ 0.13
Pro forma weighted average shares outstanding .... -- -- 4,091 -- 4,091
Supplemental pro forma net earnings per share .... $ 0.79 $ 0.13
Supplemental pro forma weighted average shares
outstanding..................................... 4,265 4,265
======== ======== ======== ======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
(in thousands, except for share data)
<TABLE>
<CAPTION>
Common Stock Additional
------------------------ paid-in
Shares Amount capital
------------ --------- -------------
<S> <C> <C> <C>
Balance, January 1, 1994 .................. 3,720,486 $37 $639
Dividends ................................. -- -- --
Net earnings .............................. -- -- --
Shares issued as compensation for
services ................................. 7,789 -- 5
Foreign currency translation adjustment . -- -- --
----------- ---- -----
Balance, December 31, 1994 ............... 3,728,275 37 644
Dividends ................................. -- -- --
Net earnings .............................. -- -- --
Shares issued as compensation for
services ................................. 62,316 1 45
Foreign currency translation adjustment . -- -- --
----------- ---- -----
Balance, December 31, 1995 ............... 3,790,591 38 689
Dividends ................................. -- -- --
Net earnings .............................. -- -- --
Foreign currency translation adjustment . -- -- --
----------- ---- -----
Balance, December 31, 1996 ............... 3,790,591 38 689
Dividends (unaudited) ..................... -- -- --
Net earnings (unaudited) .................. -- -- --
Foreign currency translation adjustment
(unaudited) .............................. -- -- --
----------- ---- -----
Balance, March 31, 1997 (unaudited) ...... 3,790,591 $38 $689
=========== ==== =====
<CAPTION>
Foreign currency Total stock-
Retained translation holders'
earnings adjustment equity
----------- ------------------- --------------
<S> <C> <C> <C>
Balance, January 1, 1994 .................. $ 1,821 $ (49) $ 2,448
Dividends ................................. (642) -- (642)
Net earnings .............................. 817 -- 817
Shares issued as compensation for
services ................................. -- -- 5
Foreign currency translation adjustment . -- 137 137
-------- ------ --------
Balance, December 31, 1994 ............... 1,996 88 2,765
Dividends ................................. (1,975) -- (1,975)
Net earnings .............................. 3,252 -- 3,252
Shares issued as compensation for
services ................................. -- -- 46
Foreign currency translation adjustment . -- (40) (40)
-------- ------ --------
Balance, December 31, 1995 ............... 3,273 48 4,048
Dividends ................................. (4,086) -- (4,086)
Net earnings .............................. 4,646 -- 4,646
Foreign currency translation adjustment . -- (21) (21)
-------- ------ --------
Balance, December 31, 1996 ............... 3,833 27 4,587
Dividends (unaudited) ..................... (1,216) -- (1,216)
Net earnings (unaudited) .................. 844 -- 844
Foreign currency translation adjustment
(unaudited) .............................. -- (61) (61)
-------- ------ --------
Balance, March 31, 1997 (unaudited) ...... $ 3,461 $ (34) $ 4,154
======== ====== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-5
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands of dollars)
<TABLE>
<CAPTION>
Years ended December 31, Three months ended March 31,
------------------------------------ -----------------------------
1994 1995 1996 1996 1997
---------- ----------- ----------- -------------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings...................................... $ 817 $ 3,252 $ 4,646 $ 2,257 $ 844
Adjustments to reconcile net earnings to net cash
Depreciation and amortization .................. 59 36 109 11 41
Foreign exchange (gain) loss ................... (25) 43 31 (3) (3)
Minority interest .............................. 127 181 213 94 11
Stock issued for services received ............. 5 46 -- -- --
Changes in assets and liabilities:
Accounts receivable ............................ (544) (850) 1,182 (1,321) (684)
Inventories .................................... 58 (284) (66) (80) 97
Other current assets ........................... (4) (46) (61) (56) (123)
Notes receivable ............................... (68) (170) (216) 100 42
Accounts payable ............................... 203 342 (235) 753 307
State and foreign income tax payable .......... 249 261 (118) (105) (72)
Accrued expenses ............................... 54 35 50 204 (129)
Other assets ................................... 45 (101) (65) -- --
-------- -------- -------- -------- --------
Total adjustments ................................. 159 (507) 824 (403) (513)
-------- -------- -------- -------- --------
Net cash provided by operations ................... 976 2,745 5,470 1,854 331
-------- -------- -------- -------- --------
Cash flows used in investing activities:
Purchase of property and equipment ............... (38) (39) (554) (13) (5)
-------- -------- -------- -------- --------
Net cash used in investing activities ............. (38) (39) (554) (13) (5)
-------- -------- -------- -------- --------
Cash flows used in financing activities:
Dividends paid ................................... (642) (1,976) (3,339) (186) (1,001)
Proceeds from long term debt ..................... -- -- 200 -- --
Principal payments on debt ....................... (71) (8) (11) -- (8)
-------- -------- -------- -------- --------
Net cash used in financing activities ............ (713) (1,984) (3,150) (186) (1,009)
-------- -------- -------- -------- --------
Effects of exchange rates on cash ................. 77 (139) 7 (6) (26)
-------- -------- -------- -------- --------
Net cash provided by all activities ............... 302 583 1,773 1,649 (709)
Cash at beginning of period ...................... 1,034 1,336 1,919 1,919 3,692
-------- -------- -------- -------- --------
Cash at end of period ............................ $ 1,336 $ 1,919 $ 3,692 $ 3,568 $ 2,983
======== ======== ======== ======== ========
Cash payments made for:
State and foreign income taxes ................... $ 122 $ 374 $ 977 $ 471 $ 241
Interest ......................................... 13 9 11 5 4
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-6
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Information as of March 31, 1997 and for the three months ended
March 31, 1996 and 1997 is unaudited)
(in thousands, except for share data)
(1) Nature of Operations
inTEST Corporation ("the Company") designs, manufactures and markets
docking hardware and test head manipulators used by semiconductor manufacturers
during the testing of wafers and packaged devices. The Company also designs and
markets related automatic test equipment interface products. The Company
operates in a single industry segment.
The consolidated entity is comprised of inTEST Corporation (parent) and
three 79% owned foreign subsidiaries: inTEST Limited (Thame, U.K.), inTEST
Kabushiki Kaisha (Kichijoji, Japan) and inTEST PTE, Limited (Singapore). All
significant intercompany accounts and transactions have been eliminated upon
consolidation.
inTEST manufactures its products in the U.S. and the U.K. Its subsidiaries
in Singapore and Japan are engaged in marketing and support activities.
(2) Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Short term investments, which have maturities of three months or less when
purchased, are considered to be cash equivalents and are carried at cost, which
approximates market value.
Notes Receivable
Notes receivable are due from trade customers, and have original maturities
of less than three months. The notes are non-interest bearing.
Inventories
Inventories are stated at lower of cost or market. Cost is determined under
the first-in first-out (FIFO) method.
Property and Equipment
Machinery and equipment are stated at cost. Depreciation is based upon the
estimated useful life of the assets using the straight line method. The
estimated useful lives range from five to seven years. Leasehold improvements
are recorded at cost and amortized over the shorter of the lease term or
estimated useful life of the asset. Expenditures for maintenance and repairs are
charged to operations as incurred.
Income Taxes
The Company has elected S corporation status for Federal tax purposes, and
in the State of New Jersey. As a result, any Federal and certain New Jersey
state income tax liabilities are that of the stockholders, not of the Company.
The Company is, however, taxed in foreign countries and for activity in certain
states.
No foreign or state deferred income taxes have been recorded in the
Company's historical financial statements at December 31, 1995 and 1996 as such
amounts are not significant.
F-7
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Information as of March 31, 1997 and for the three months ended
March 31, 1996 and 1997 is unaudited)
(in thousands, except for share data)
(2) Summary of Significant Accounting Policies -- (Continued)
Revenue Recognition
Revenues from sales of products are recognized upon shipment to customers.
Research and Development
Research and development costs are expensed as incurred.
Product Warranties
The Company generally provides product warranties and records estimated
warranty expense at time of sale based upon historical claims experience.
Foreign Currency
The accounts of the foreign subsidiaries are translated in accordance with
Statement of Financial Accounting Standard No. 52, Foreign Currency Translation,
which requires that assets and liabilities of international operations be
translated using the exchange rate in effect at the balance sheet date. The
results of operations are translated using an average exchange rate for the
year. The effects of rate fluctuations in translating assets and liabilities of
international operations into U.S. dollars are accumulated and reflected as a
foreign currency translation adjustment in the statements of stockholders'
equity. Transaction gains and losses are included in net earnings.
Recently Adopted Accounting Standards
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Adoption of this Statement had no impact on the Company's financial
position, results of operations, or liquidity.
(3) Pro forma Information (Unaudited)
Background
In connection with the initial public offering transaction described in
Note 12, the Company plans to terminate its S corporation status and make a
final distribution of previously taxed earnings to its stockholders. In
addition, the Company intends to acquire the minority interest ownership
position in its three foreign subsidiaries in a share exchange transaction.
Accordingly, the accompanying financial statements include certain pro forma
information which gives effect to these events as further explained below.
Pro forma Balance Sheet
The pro forma balance sheet of the Company as of March 31, 1997 reflects:
a) the estimated net deferred income taxes of $48 which will be recorded by
the Company as a result of the termination of its S corporation status
shortly before the closing of the offering.
b) an estimated distribution of $3,420 payable to the stockholders of all
taxed but undistributed S corporation earnings.
F-8
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Information as of March 31, 1997 and for the three months ended
March 31, 1996 and 1997 is unaudited)
(in thousands, except for share data)
(3) Pro forma Information (Unaudited) -- (Continued)
c) the acquisition of the minority interests in the Company's foreign
subsidiaries expected to occur concurrent with the closing of the
offering, and the estimated goodwill of $1,567 associated with such
acquisitions.
The Company expects to issue 300,443 shares of common stock in exchange for
the 21% interest in each of its foreign subsidiaries which is not presently
owned by the Company. The shares, exclusive of those to be issued to the
Company's principal stockholder who is also a stockholder of two of the foreign
subsidiaries, have been valued at the assumed initial public offering price of
$9.50 per share to the extent such shares are freely transferable. Approximately
225,000 of the shares being exchanged are subject to contractual and legal
restrictions on transfer and have been valued at a 25% discount to the assumed
initial public offering price.
The deferred income tax asset will represent the tax effect of the
cumulative differences between the financial reporting and income tax bases of
certain assets and liabilities as of the termination of the S corporation
status.
The significant items comprising the Company's pro forma net deferred
income tax assets and liabilities as of March 31, 1997 are temporary differences
relating to the following:
Allowance for bad debts ......... $ 32
Inventory capitalized costs ...... 2
Accrued expenses .................. 22
-----
Current deferred tax asset ........ 56
Fixed assets ..................... (8)
-----
Net deferred tax asset ............ $ 48
=====
Since the Company does not intend to repatriate the earnings of its foreign
subsidiaries, no deferred taxes have been recorded on such amounts, which
approximate $975 at March 31, 1997.
Pro forma Statement of Earnings Information
Shortly before the closing of the offering, the Company will terminate its
status as an S corporation and will be subject to Federal and additional state
income taxes thereafter. Accordingly, for informational purposes, the statement
of earnings for the year ended December 31, 1996 and the quarter ended March 31,
1997 reflects pro forma earnings on an after-tax basis, assuming the Company had
been taxed as a C corporation. The difference between the Federal statutory
income tax rate and the pro forma income tax rate was as follows:
<TABLE>
<CAPTION>
Year ended Three months ended
December 31, 1996 March 31, 1997
-------------------- --------------------
<S> <C> <C>
Federal statutory tax rate ............... 34% 34%
State income taxes, net of Federal benefit 3 3
Foreign income taxes ..................... 3 7
Nondeductible goodwill amortization ...... 1 1
Research credits ........................ (1) --
Other .................................... -- 1
----- -----
Pro forma income tax rate ............... 40% 46%
===== =====
</TABLE>
F-9
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Information as of March 31, 1997 and for the three months ended
March 31, 1996 and 1997 is unaudited)
(in thousands, except for share data)
(3) Pro forma Information (Unaudited) -- (Continued)
In addition, the unaudited pro forma results for the year ended December
31, 1996 and the quarter ended March 31, 1997 also reflect goodwill amortization
resulting from the acquisition of minority interests in foreign subsidiaries,
net of the elimination of the minority interest charge reflected in the
historical financial statements, as if the acquisition had occurred on January
1, 1996. The goodwill resulting from the acquisition is assumed to be amortized
over 15 years.
Pro forma Net Earnings Per Share
Pro forma net earnings per share was calculated by dividing pro forma net
earnings by the weighted average number of shares of common stock outstanding
during the period, adjusted to give effect to shares to be exchanged to acquire
the minority interests in foreign subsidiaries as if this transaction had
occurred on January 1, 1996.
Supplemental Pro forma Net Earnings Per Share
Supplemental pro forma net earnings per share is based on the weighted
average number of shares of common stock used in the calculation of pro forma
net earnings per share plus the number of shares that would be required to be
sold to fund certain distributions to the Company's current stockholders of
previously taxed but undistributed S corporation earnings, net of available
cash and cash equivalents (the amount of such net proceeds assumed to be used
for this purpose is estimated to be $1,653 at March 31, 1997).
(4) Foreign Operations
The Company operates in a single business segment. However, foreign
operations represent a significant portion of the Company's activity. The
following is a summary of operations by entities located within the indicated
geographic areas:
<TABLE>
<CAPTION>
Three months ended
Years ended December 31, March 31,
------------------------------------ ----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated customers from:
North America ..................... $ 4,299 $ 7,409 $10,614 $ 3,672 $ 2,433
Far East ........................... 2,560 4,862 4,860 1,359 1,108
United Kingdom ..................... 2,428 2,171 3,108 1,058 346
-------- -------- -------- -------- --------
$ 9,287 $14,442 $18,582 $ 6,089 $ 3,887
======== ======== ======== ======== ========
Affiliate sales or transfers from:
North America ........................ $ 1,000 $ 1,596 $ 1,321 $ 559 $ 81
Far East ........................... -- -- -- -- --
United Kingdom ..................... -- 451 54 48 50
-------- -------- -------- -------- --------
$ 1,000 $ 2,047 $ 1,375 $ 607 $ 131
======== ======== ======== ======== ========
Operating profit:
North America ........................ $ 338 $ 2,610 $ 3,815 $ 1,932 $ 790
Far East ........................... 182 612 432 187 66
United Kingdom ..................... 769 815 1,369 575 151
-------- -------- -------- -------- --------
$ 1,289 $ 4,037 $ 5,616 $ 2,694 $ 1,007
======== ======== ======== ======== ========
Identifiable assets:
North America ..................... $ 1,920 $ 3,327 $ 5,408 $ 5,561 $ 4,974
Far East ........................... 1,088 1,408 1,409 1,752 1,536
United Kingdom ..................... 1,616 1,617 899 1,711 982
-------- -------- -------- -------- --------
$ 4,624 $ 6,352 $ 7,716 $ 9,024 $ 7,492
======== ======== ======== ======== ========
</TABLE>
F-10
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Information as of March 31, 1997 and for the three months ended
March 31, 1996 and 1997 is unaudited)
(in thousands, except for share data)
(4) Foreign Operations -- (Continued)
Amounts for the Far East consist of activities in the Company's Singapore
and Japan subsidiaries.
Export sales from the Company's New Jersey location totaled $591, $2,777,
and $3,486 during the years ended December 31, 1994, 1995, and 1996,
respectively, and $1,528 and $196 during the three months ended March 31, 1996
and 1997, respectively.
The Company's foreign subsidiaries paid directors fees to several
individuals who are members of management of the parent company which totaled
$49, $151, and $192 during the years ended December 31, 1994, 1995, and 1996,
respectively.
(5) Concentrations of Credit Risk
The Company's customers are in the semiconductor industry. During 1994,
1995, and 1996 the Company had sales to certain customers which exceeded 10% of
the Company's consolidated revenues. Those sales were as follows:
Customer 1994 1995 1996
- ----------- ------ ------ ------
A ...... 7% 16% 16%
B ...... 12 3 9
C ...... 14 11 8
D ...... 16 12 7
Additionally, at December 31, 1996, these four customers accounted for 27%
of trade receivables.
(6) Inventories
Inventories held at December 31 were comprised of the following:
1995 1996
------- ------
Raw materials ......... $ 1,075 $1,145
Work in process ...... 20 44
Finished goods ...... 123 124
-------- -------
$ 1,218 $1,313
======== =======
(7) Debt
In 1996, the Company financed a purchase of equipment with a term note. The
note bears interest at a fixed rate of 8.65%, and is to be paid in equal monthly
installments of $4 through August, 2001. At December 31, 1996, $189 was
outstanding. Prior to 1996 the Company had no long term debt.
Principal payments due within the next five years are as follows:
1997 ...... $ 34
1998 ...... 37
1999 ...... 40
2000 ...... 44
2001 ...... 34
Additionally, the Company has a $1,500 line of credit. Borrowings under
this line of credit are principally used for working capital purposes.
Borrowings on the line of credit bear interest at prime rate, which is payable
monthly on any outstanding balance. Further, the Company is required to maintain
a $50 compensating balance at the bank which granted the line of credit. The
credit line expires on June 30, 1997. At December 31, 1996 and March 31, 1997,
there were no borrowings outstanding.
F-11
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Information as of March 31, 1997 and for the three months ended
March 31, 1996 and 1997 is unaudited)
(in thousands, except for share data)
(8) Commitments
The Company leases its offices, warehouse facilities and automobiles under
noncancelable operating leases which expire at various dates through 2003. Total
rental expense for the years ended December 31, 1994, 1995, and 1996, and the
three months ended March 31, 1996 and 1997 was $336, $388, and $422, $83, and
$115, respectively. The aggregate minimum rental commitments under the
noncancelable operating leases in effect at December 31, 1996 are as follows:
1997 ..................... $ 346
1998 ..................... 309
1999 ..................... 275
2000 ..................... 217
2001 and thereafter ...... 452
(9) Income Taxes
As discussed in Notes 2 and 3, the Company has elected S corporation status
for Federal tax purposes, as well as certain states, and therefore is not
subject to federal income taxes directly. For those states and foreign
jurisdictions in which the Company is subject to taxes, the temporary
differences that give rise to deferred tax assets and liabilities were not
significant at December 31, 1995 and 1996, or March 31, 1997.
Earnings before income taxes were as follows:
Three months ended
Years ended December 31, March 31,
--------------------------------- -------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- -------
Domestic ...... $ 345 $2,651 $3,979 $1,984 $ 835
Foreign ...... 981 1,419 1,738 722 187
-------- ------- ------- ------- -------
$ 1,326 $4,070 $5,717 $2,706 $1,022
======== ======= ======= ======= =======
Income tax expense was as follows:
Three months ended
Years ended December 31, March 31,
--------------------------- ----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- ------
Domestic ...... $ 9 $ 82 $ 126 $ 75 $ 21
Foreign ...... 373 555 732 280 146
----- ----- ------ ----- -----
$382 $637 $ 858 $355 $167
===== ===== ====== ===== =====
(10) Employee Benefit Plans
In 1996, the Company instituted a defined contribution 401(k) plan for its
employees who work in the U.S. All employees of the parent company who are at
least 18 years of age and have completed six months of service with the Company
are eligible to participate in the plan. Under the plan, the Company matches
employee contributions dollar for dollar up to 10% of the employee's annual
compensation up to $5. In addition, the Company may match employee contributions
dollar for dollar for amounts exceeding 15% of the employee's annual
compensation to a maximum of $5. Employer contributions vest over a six-year
period. The Company contributions in 1996 totaled $71.
F-12
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Information as of March 31, 1997 and for the three months ended
March 31, 1996 and 1997 is unaudited)
(in thousands, except for share data)
(10) Employee Benefit Plans -- (Continued)
The Company sponsors a noncontributory pension plan for an employee of its
U.K. subsidiary. The Company has no other defined contribution or defined
benefit plans.
(11) Accrued Expense
Accrued wages and expenses consist of the following:
December 31, March 31,
------------------ -----------
1995 1996 1997
-------- ------- -----------
Accrued commissions ...... $ 113 $390 $107
Accrued vacation ......... 101 101 101
Other ..................... 85 104 219
------- ----- -----
$ 299 $595 $427
======= ===== =====
(12) Subsequent Events
In April 1997, the Company's Board of Directors authorized the filing of a
Registration Statement on Form S-1 in connection with a planned initial public
offering of the Company's common stock. The Company intends to effect a stock
split in the form of a stock dividend in the amount 0.5579 shares for every one
share outstanding as of the effective date of the transaction. All share and per
share information in the accompanying consolidated financial statements have
been retroactively adjusted to give effect to the planned modification to the
Company's capital structure.
Also in April 1997, the Company's Board of Directors reserved 500,000
shares of common stock for issuance under a newly created stock plan and also
approved the award of stock options to employees to purchase a total of 150,000
shares of common stock. The grants are to become effective on the effective date
of the Registration Statement and the options will be exercisable at a per share
price equal to the initial public offering price.
F-13
<PAGE>
[Map of world with the locations of the Company's manufacturing and customer
operations identified.]
[Picture of inTEST Test Head Hoist with test head and wafer prober.]
<PAGE>
================================================================================
No dealer, sales representative or any other person has been authorized
to give any information or to make any representations in connection with this
offering other than those contained in this Prospectus and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company, the Selling Stockholders or any of the Underwriters.
This Prospectus does not constitute an offer to sell or a solicitation of any
offer to buy any security other than the shares of Common Stock offered by this
Prospectus, nor does it constitute an offer to sell or a solicitation of any
offer to buy the shares of Common Stock in any jurisdiction in which such offer
or solicitation is not authorized, or in which the person making such offer or
solicitation is not qualified to do so, or to any person to whom it is unlawful
to make such offer or solicitation. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create any implication
that the information contained herein is correct as of any time subsequent to
the date hereof.
-----------------------------------
TABLE OF CONTENTS
Page
------
Prospectus Summary .............................. 3
Risk Factors .................................... 5
The Company .................................... 9
Use of Proceeds ................................. 9
S Corporation Distributions ..................... 10
Dividend Policy ................................. 10
Capitalization ................................. 11
Dilution ....................................... 12
Selected Consolidated Financial Data ............ 13
Management's Discussion and Analysis of
Financial Condition and Results of
Operations .................................... 14
Business ....................................... 20
Management ....................................... 30
Principal and Selling Stockholders ............... 36
Description of Capital Stock ..................... 37
Shares Eligible for Future Sale .................. 38
Underwriting .................................... 39
Legal Matters .................................... 40
Experts .......................................... 40
Additional Information ........................... 40
Index to Consolidated Financial Statements ...... F-1
Until _______, 1997, all dealers effecting transactions in the Common Stock
offered hereby, whether or not participating in this distribution, may be
required to deliver a Prospectus. This is in addition to the obligations of
dealers to deliver a Prospectus when acting as Underwriters and with respect to
their unsold allotments or subscriptions.
================================================================================
<PAGE>
================================================================================
2,275,000 Shares
[COMPANY LOGO]
Common Stock
---------------------
P R O S P E C T U S
---------------------
JANNEY MONTGOMERY SCOTT INC.
NEEDHAM & COMPANY, INC.
____, 1997
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
Set forth below is an estimate of the approximate amount of fees and
expenses (other than underwriting commissions and discounts) payable by the
Company in connection with the issuance and distribution of the Common Stock
pursuant to the Prospectus contained in this Registration Statement. The Company
will pay all of these expenses.
<TABLE>
<CAPTION>
Approximate
Amount
-------------
<S> <C>
Securities and Exchange Commission registration fee ...... $ 8,324
NASD filing fee .......................................... 3,248
Blue Sky expenses ....................................... 5,000
Nasdaq company listing fee .............................. 32,277
Accountants fees and expenses ........................... 150,000
Legal fees and expenses ................................. 200,000
Transfer Agent and Registrar fees and expenses ............ 7,000
Printing and engraving expenses ........................... 90,000
Directors' and Officers' insurance ........................ 130,000
Miscellaneous expenses .................................... 29,151
---------
Total ................................................... $655,000
=========
</TABLE>
Item 14. Indemnification of Directors and Officers
Article VI of the Company's Bylaws provides that the Company shall
indemnify its directors and officers to the fullest extent permitted by the
General Corporation Law of the State of Delaware ("DGCL"). The Bylaws require
the Company, among other things, to indemnify such directors and officers
against certain liabilities that may arise by reason of their status or service
as directors or officers, to advance expenses to them as they are incurred,
provided that they undertake to repay the amount advanced if it is ultimately
determined by a court that they are not entitled to indemnification and to
obtain directors' and officers' liability insurance if available on reasonable
terms. The Bylaws require the Company to indemnify an officer or director in
connection with a proceeding (or part thereof) initiated by such officer or
director only if the initiation of such proceeding was authorized by the Board
of Directors. Reference is made to Section 145 of the DGCL which provides for
indemnification of directors and officers in certain circumstances.
Article IX of the Company's Certificate of Incorporation provides that a
director of the Company shall not be personally liable to the Company or its
stockholders for monetary damages for breach of his or her fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) for willful or negligent conduct in paying dividends or repurchasing
stock out of other than lawfully available funds or (iv) for any transaction
from which the director derives an improper personal benefit.
The Company has applied for an insurance policy which will entitle the
Company to be reimbursed for certain indemnity payments it is required or
permitted to make to its directors and officers.
Item 15. Recent Sales of Unregistered Securities
On October 4, 1994, the Company issued 5,000 shares (7,789 shares after the
stock dividend to occur on the effective date of this Registration Statement
(the "Stock Dividend")) of Common Stock to William R. Blatchley in exchange for
services rendered. No underwriters were involved in the issuance of these
securities and no commissions were paid. The shares of Common Stock were issued
in reliance on the exemption from registration contained in Section 4(2) of the
Securities Act.
II-1
<PAGE>
On June 1, 1995, the Company issued 10,000 shares (15,579 shares after
giving effect to the Stock Dividend) of Common Stock to Christopher L. West in
exchange for services rendered. No underwriters were involved in the issuance of
these securities and no commissions were paid. The shares of Common Stock were
issued in reliance on the exemption from registration contained in Section 4(2)
of the Securities Act.
On June 27, 1995, the Company issued 10,000 shares (15,579 shares after
giving effect to the Stock Dividend) of Common Stock to William R. Blatchley in
exchange for services rendered. No underwriters were involved in the issuance of
these securities and no commissions were paid. The shares of Common Stock were
issued in reliance on the exemption from registration contained in Section 4(2)
of the Securities Act.
On June 27, 1995, the Company issued 10,000 shares (15,579 shares after
giving effect to the Stock Dividend) of Common Stock to Jerome R. Bortnam in
exchange for services rendered. No underwriters were involved in the issuance of
these securities and no commissions were paid. The shares of Common Stock were
issued in reliance on the exemption from registration contained in Section 4(2)
of the Securities Act.
On June 27, 1995, the Company issued 10,000 shares (15,579 shares after
giving effect to the Stock Dividend) of Common Stock to Jack R. Edmunds in
exchange for services rendered. No underwriters were involved in the issuance of
these securities and no commissions were paid. The shares of Common Stock were
issued in reliance on the exemption from registration contained in Section 4(2)
of the Securities Act.
II-2
<PAGE>
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits.
[CAPTION]
<TABLE>
<S> <C>
1.* Form of Underwriting Agreement.
3.1* Certificate of Incorporation of inTEST CORP.
3.2* Bylaws of inTEST CORP.
4.1** Specimen stock certificate representing Common Stock.
5. ** Opinion of Saul, Ewing, Remick & Saul as to the legality of the securities being registered
(including consent).
10.1* Amended and Restated Loan Agreement, dated June 30, 1996, between inTEST CORP and PNC
Bank, National Association.
10.2* Lease, dated February 11, 1996, between Cherry Hill Industrial Sites, Inc. and inTEST CORP.
10.3* Lease, dated August 5, 1996, between KIP Properties and inTEST CORP.
10.4* Lease, dated December 2, 1977, between Alan Breck Robertson and Mavis Robertson and Robertson
Engineering (Thame) Limited ("U.K. Lease").
10.5* Assignment of U.K. Lease, dated January 28, 1986, between Citycrown Engineering Limited and
inTEST LTD.
10.6* Tenancy Agreement, dated April 18, 1996, between Alambon Tools Private Limited and inTEST PTE.
10.7* Agreement of Exchange between Alyn R. Holt and inTEST CORP, dated April 4, 1997. Each of the
minority stockholders of inTEST LTD, inTEST PTE and inTEST KK have executed Agreements of
Exchange which are substantially identical to Mr. Holt's except as to certain requirements under the
laws of each foreign jurisdiction and also as to the parties, the number of shares exchanged and the
number of inTEST CORP shares received as set forth below:
</TABLE>
<TABLE>
<CAPTION>
Number of Shares Number of Shares
Party Pre-Exchange Post-Exchange
-------------------------------- ------------------- ------------------
<S> <C> <C> <C> <C>
inTEST LTD: Alyn R. Holt 2,775 23,902
Brian R. Moore 6,947 59,836
Julian P. Partington 3,403 29,311
inTEST PTE: Alyn R. Holt 16,500 7,221
Cornelis Hol 15,000 6,565
inTEST KK: Micronics Japan Company, Ltd. 60 30,945
Tomoyasu Ogura 54 27,850
Cornelis Hol 6 3,094
Tomio Wakamatsu 4 2,063
Kenji Murayama 4 2,063
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
10.8* 1997 Stock Plan.
10.9** Form of S Corporation Stockholder Indemnification Agreement.
10.10 Consulting Agreement, dated April 1, 1997, between inTEST CORP and
Stuart F. Daniels, Ph.D.
21.* Subsidiaries of the Company.
23.1 Consent of KPMG Peat Marwick LLP.
23.2** Consent of Saul, Ewing, Remick & Saul (contained in its opinion to be filed as Exhibit 5 hereto).
23.3 Consent of Ratner & Prestia.
24* Power of Attorney (see signature page).
27.1* Financial Data Schedule for the year ended December 31, 1996.
27.2* Financial Data Schedule for the quarter ended March 31, 1997.
</TABLE>
- ------------
* Previously filed as an exhibit to the Company's Registration Statement filed
on May 2, 1997.
** To be filed by amendment.
(b) Financial Statement Schedules.
Schedule II -- Valuation of Qualifying Accounts.
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore have
been omitted.
II-3
<PAGE>
Item 17. Undertakings
The Registrant hereby undertakes:
(1) To provide to the Underwriters at the closing specified in the
Underwriting Agreement, certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to each
purchaser.
(2) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the applicable provisions of the DGCL, or otherwise, the
Company has been advised that in the opinion of the Commission, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(3) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(4) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 1 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the Township of Cherry
Hill, and State of New Jersey on the 13th day of May, 1997.
inTEST CORPORATION
By: /s/ Alyn R. Holt
------------------------------------
Alyn R. Holt
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act, this Amendment No. 1 to
the Registration Statement has been signed below by the following persons in the
capacities indicated on May 13, 1997.
<TABLE>
<CAPTION>
Signature Title
- -------------------------------------- -------------------------------------------------
<S> <C>
/s/ Alyn R. Holt Chairman and Chief Executive Officer
- ----------------------------------- (principal executive officer)
Alyn R. Holt
*
- ----------------------------------- President, Chief Operating Officer and Director
Robert E. Matthiessen
*
- ----------------------------------- Senior Vice President and Director
Daniel J. Graham
* Chief Financial Officer and Treasurer
- ----------------------------------- (principal financial officer and accounting
Hugh T. Regan, Jr. officer)
* Secretary
- -----------------------------------
Hugh T. Regan, Sr.
* Director
- -----------------------------------
Richard O. Endres
* Director
- -----------------------------------
Stuart F. Daniels
*By: /s/ Alyn R. Holt
--------------------------------
Alyn R. Holt
Attorney-in-Fact
</TABLE>
II-5
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
Schedule II
Valuation and Qualifying Accounts
(in thousands)
<TABLE>
<CAPTION>
Balance at
For the year ended beginning
December 31, of period
- -------------------- --------------
<S> <C> <C>
1994 Allowance for doubtful accounts $ 31
1995 53
1996 42
- -------------------------------------------------------------------------------
1994 Warranty reserve $ --
1995 --
1996 --
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Additions
------------------------------------
Charged to
For the year ended costs and Charged to other Balance at
December 31, expenses accounts-describe Deductions end of period
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1994 $ 50 $ -- $ 28 $ 53
1995 18 -- 29 42
1996 50 -- 4 88
- -----------------------------------------------------------------------------------------
1994 $ -- $ -- $ -- $ --
1995 -- -- -- --
1996 25 -- -- 25
- -----------------------------------------------------------------------------------------
</TABLE>
S-1
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibit
Number Title or Description
- --------- --------------------
<S> <C>
10.10 Consulting Agreement, dated April 1, 1997, between inTEST CORP and
Stuart F. Daniels, Ph.D.
23.1 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Ratner & Prestia.
</TABLE>
<PAGE>
Exhibit 10.10
Consulting Agreement
This Agreement is made effective as of April 01, 1997, by and between inTest
Corporation, of 2 Pin Oak Lane, Cherry Hill, New Jersey 08003, and Stuart F.
Daniels, of 103 Ramblewood Road, Moorestown, New Jersey 08057.
In this Agreement, the party who is contracting to receive services shall be
referred to as "inTest", and the party who will be providing the services shall
be referred to as "Daniels."
Daniels has a background in Automatic Testing Equipment, Intellectual Property,
and licensing matters and is willing to provide services to inTest based on this
background.
inTest desires to have services provided by Daniels.
Therefore, the parties agree as follows:
1. DESCRIPTION OF SERVICES. Beginning on April 01, 1997, Daniels will
provide the following services (collectively, the "Services"): Searching for and
analyzing patents and other intellectual properties relating to inTest's
technology interests.
2. PERFORMANCE OF SERVICES. The manner in which the Services are to be
performed and the specific hours to be worked by Daniels shall be determined by
Daniels. inTest will rely on Daniels work as many hours as may be reasonably
necessary to fulfill Daniels' obligations under this Agreement.
3. PAYMENT. inTest will pay a fee to Daniels for the Services based on
$150.00 per hour. This fee shall be payable monthly, no later than the last day
of the month following the period during which the Services were performed. Upon
termination of this Agreement, payments under this paragraph shall cease;
provided, however, that Daniels shall be entitled to payments for periods or
partial periods that occurred prior to the date of termination and for which
Daniels has not yet been paid.
4. EXPENSE REIMBURSEMENT. Daniels shall be entitled to reimbursement from
inTest for "out-of-pocket" expenses incurred in providing services including,
but not necessarily limited to:
- travel and lodging expenses
- meals
- Costs of purchasing copies of patents and related services
5. NEW PROJECT APPROVAL. Daniels and inTest recognize that Daniels'
Services will include working on various projects for inTest. Daniels shall
obtain the approval of inTest prior to the commencement of a new project.
6. TERM/TERMINATION. This Agreement shall be effective for a period of 1
(one) year and shall automatically renew for successive terms of the same
duration, unless either party provides 60 days written notice to the other party
prior to the termination of the applicable initial term or renewal term.
7. RELATIONSHIP OF PARTIES. It is understood by the parties that Daniels is
an independent contractor with respect to inTest, and not an employee of inTest.
inTest will not provide fringe benefits, including health insurance benefits,
paid vacation, or any other employee benefit, for the benefit of
<PAGE>
Daniels. Further, Daniels is a Director of inTest, and the services rendered by
Daniels to inTest under this consulting agreement shall amount to less than the
larger of $25,000 per year or 10 percent of Daniels' Schedule C income.
8. DISCLOSURE. Daniels is required to disclose any outside activities or
interests, including ownership or participation in the development of prior
inventions, that conflict or may conflict with the best interests of inTest.
Prompt disclosure is required under this paragraph if the activity or interest
is related, directly or indirectly, to:
- a product or product line of inTest
- a manufacturing process of inTest
9. EMPLOYEES. Daniels' employees, if any, who perform services for inTest
under this Agreement shall also be bound by the provisions of this Agreement.
10. ASSIGNMENT. Daniels' obligations under this Agreement may not be
assigned or transferred to any other person, firm, or corporation without the
prior written consent of inTest.
11. INTELLECTUAL PROPERTY. The following provisions shall apply with respect
to copyrightable works, ideas, discoveries, inventions, applications for
patents, and patents (collectively, "Intellectual Property") conceived,
originated, suggested, or developed by Daniels as a direct result of Daniels'
hire hereunder:
a. Said Intellectual Property shall be the sole property of inTest,
and inTest shall have and enjoy all right, title, and interest
thereto as owner.
b. Daniels shall convey, transfer, and assign to inTest any and all
right, title, or interest that Daniels may have in and to said
Intellectual Property.
c. Daniels agrees to disclose all said Intellectual Property to
inTest and to execute any and all reasonable and legal documents
and, for compensation, do any further reasonable and legal acts as
may be requested by inTest from time to time in order for inTest
to advantageously utilize said Intellectual Property.
12. CONFIDENTIALITY. Daniels recognizes that inTest has and will have the
following information:
- inventions
- products
- prices
- apparatus
- costs
- discounts
- future plans
- business affairs
- process information
- trade secrets
-2-
<PAGE>
- technical information
- customer lists
- products design information
- copyrights
and other proprietary information (collectively, "Information") which
are valuable, special and unique assets of inTest and need to be
protected from improper disclosure. In consideration for the disclosure
of the Information, Daniels agrees that Daniels will not at any time or
in any manner, either directly or indirectly, use any Information for
Daniels' own benefit, or divulge, disclose, or communicate in any
manner any Information to any third party without the prior written
consent of inTest. Daniels will protect the Information and treat it as
strictly confidential.
13. UNAUTHORIZED DISCLOSURE OR INFORMATION. If it appears that Daniels has
disclosed (or has threatened to disclose) Information in violation of this
Agreement, inTest shall be entitled to an injunction to restrain Daniels from
disclosing, in whole or in part, such Information, or from providing any
services to any party to whom such Information has been disclosed or may be
disclosed. inTest shall not be prohibited by this provision from pursuing other
remedies, including a claim for losses and damages.
14. CONFIDENTIALITY AFTER TERMINATION. The confidentiality provisions of
this Agreement shall remain in full force and effect after the termination of
this Agreement.
15. RETURN OF RECORDS. Upon termination of this Agreement, Daniels shall
deliver all records, notes, data, memoranda, models, and equipment of any nature
that are in Daniels' possession or under Daniels' control and that are inTest's
property.
16. NOTICES. All notices required or permitted under this Agreement shall be
in writing and shall be deemed delivered when delivered in person or deposited
in the United States mail, postage prepaid, addressed as follows:
IF for inTest:
inTest Corporation
Hugh T. Regan, Jr.
Treasurer and Chief Financial Officer
2 Pin Oak Lane
Cherry Hill, New Jersey 08003
IF for Daniels:
Stuart F. Daniels
103 Ramblewood Road
Moorestown, New Jersey 08057
Such address may be changed from time to time by either party by providing
written notice to the other in the manner set forth above.
-3-
<PAGE>
17. AMENDMENT. This Agreement may be modified or amended if the amendment is
made in writing and is signed by both parties.
18. SEVERABILITY. If any provision of this Agreement shall be held to be
invalid or unenforceable for any reason, the remaining provisions shall continue
to be valid and enforceable. If a court finds that any provision of this
Agreement is invalid or unenforceable, but that by limiting such provision it
would become valid and enforceable, then such provision shall be deemed to be
written construed, and enforced as so limited.
19. WAIVER OF CONTRACTUAL RIGHT. The failure of either party to enforce any
provision of this Agreement shall not be construed as a waiver or limitation of
that party's right to subsequently enforce and compel strict compliance with
every provision of this Agreement.
20. APPLICABLE LAW. This Agreement shall be governed by the laws of the
State of New Jersey.
Party receiving services:
inTest Corporation
By: /s/ Hugh T. Regan, Jr. /s/ Alyn R. Holt
------------------------- -------------------
Hugh T. Regan, Jr. Alyn R. Holt
Treasurer and Chief Financial Officer Chairman & C.E.O.
inTest Corporation inTest Corporation
Party providing services:
Stuart F. Daniels
By: /s/ Stuart F. Daniels
----------------------
Stuart F. Daniels
-4-
<PAGE>
Exhibit 23.1
Consent of Independent Certified Public Accountants
The Board of Directors
inTEST Corporation:
The audits referred to in our report dated March 14, 1997, included the related
financial statement schedule for each of the years in the three-year period
ended December 31, 1996, included in the registration statement. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement schedule
based on our audits. In our opinion, the financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
We consent to the use of our reports included herein and to the references to
our firm under the headings "Selected Consolidated Financial Data" and "Experts"
in the prospectus.
/s/ KPMG Peat Marwick LLP
- -------------------------
Philadelphia, Pennsylvania
May 12, 1997
<PAGE>
Exhibit 23.3
CONSENT OF RATNER & PRESTIA
We hereby consent to the reference to our firm under the headings "Legal
Matters" and "Experts" in this Registration Statement and the related Prospectus
of inTEST Corporation.
RATNER & PRESTIA
/s/ Allan Ratner
------------------
Allan Ratner
Berwyn, PA
May 12, 1997
