KULICKE & SOFFA INDUSTRIES INC, 424B4, 1997-05-14

KULICKE & SOFFA INDUSTRIES INC
424B4, 1997-05-14
SPECIAL INDUSTRY MACHINERY, NEC

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<PAGE>

File pursuant to Rule 424(b)(4)
Registration Statement 33-69734

3,000,000 SHARES

[LOGO OF KULICKE & SOFFA APPEARS HERE]

COMMON STOCK

All of the shares of Common Stock offered hereby are being sold by Kulicke
and Soffa Industries, Inc. ("K&S" or the "Company"). The Company's Common
Stock is traded on the Nasdaq National Market under the symbol KLIC. On May
13, 1997, the last reported sale price of the Common Stock on the Nasdaq
National Market was $31.25 per share. See "Price Range of Common Stock."

SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK
OFFERED HEREBY.

----------------

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.

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<TABLE>
<CAPTION>
Price to Underwriting Proceeds to
Public Discount(1) Company(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.................................. $31.00 $1.55 $29.45
Total(3)................................... $93,000,000 $4,650,000 $88,350,000
</TABLE>
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- -------------------------------------------------------------------------------

(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company, estimated at $350,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
450,000 additional shares of Common Stock solely to cover over-allotments,
if any. If the Underwriters exercise this option in full, the Price to
Public will total $106,950,000, the Underwriting Discount will total
$5,347,500 and the Proceeds to Company will total $101,602,500. See
"Underwriting."

The shares of Common Stock are offered by the several Underwriters named
herein, subject to receipt and acceptance by them and subject to their right
to reject any order in whole or in part. It is expected that delivery of the
certificates representing such shares will be made against payment therefor at
the office of Montgomery Securities on or about May 19, 1997.

----------------

MONTGOMERY SECURITIES
LEHMAN BROTHERS
SMITH BARNEY INC.

May 13, 1997
<PAGE>

ADDITIONAL INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549-1004 and at the regional offices of the Commission
located at 7 World Trade Center, Suite 1300, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-
2511. Copies of such materials may also be obtained from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549-1004
at prescribed rates. The Commission maintains a web site at http://www.sec.gov
that contains reports, proxy and information statements and other information
regarding registrants, like the Company, that file electronically with the
Commission. The Company's Common Stock is quoted on the Nasdaq National
Market, and reports and other information concerning the Company may be
inspected at the National Association of Securities Dealers, Inc. at 1735 K
Street, N.W., Washington, D.C. 20006-1500.

This Prospectus constitutes a part of a Registration Statement on Form S-3
filed by the Company with the Commission under the Securities Act of 1933, as
amended (the "Securities Act"). This Prospectus omits certain of the
information contained in the Registration Statement, and reference is hereby
made to the Registration Statement and related exhibits for further
information with respect to the Company and the securities offered hereby. Any
statements contained herein concerning the provisions of any document are not
necessarily complete, and, in such instance, reference is made to the copy of
such document filed as an exhibit to the Registration Statement or otherwise
filed with the Commission. Each such statement is qualified in its entirety by
such reference.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents have been previously filed by the Company with the
Commission (Commission File No. 0-121) and are hereby incorporated by
reference in this Prospectus as of their respective dates: (a) Annual Report
on Form 10-K for the fiscal year ended September 30, 1996; (b) Quarterly
Reports on Form 10-Q for the quarterly periods ended December 31, 1996 and
March 31, 1997; and (c) Form 8-A12G/A dated September 8, 1995 (as amended by a
Form 8-A12G/A dated September 11, 1995).

Additionally, all documents filed by the Company with the Commission
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent
to the date of this Prospectus and prior to the termination of the offering
made hereby shall be deemed to be incorporated by reference in this Prospectus
and to be a part hereof from the date of filing of such documents. Any
statement or information contained in a document incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement or information contained herein
modifies or replaces such a statement or such information. Any such statement
or information so modified or replaced shall not be deemed, except as so
modified or replaced, to constitute a part of this Prospectus. Such
incorporation by reference shall not be deemed specifically to incorporate by
reference the information referred to in Item 402(a)(8) of Regulation S-K
under the Securities Act.

The Company will furnish without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon written or oral
request, a copy of any and all of the information that has been incorporated
by reference in this Prospectus, other than exhibits to such information,
unless such exhibits are specifically incorporated by reference into the
information that this Prospectus incorporates. Requests should be submitted by
telephone to (215) 784-6750 or in writing to Kulicke and Soffa Industries,
Inc., 2101 Blair Mill Road, Willow Grove, Pennsylvania 19090, Attention:
Director --Investor Relations.

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY, INCLUDING THE ENTRY OF STABILIZING BIDS, SYNDICATE COVERING
TRANSACTIONS OR THE IMPOSITION OF PENALTY BIDS. FOR A DISCUSSION OF THESE
ACTIVITIES, SEE "UNDERWRITING."

2
<PAGE>

Kulicke and Soffa Industries, Inc. is a THE
leading supplier of semiconductor assembly [ARTWORK
solutions. The Company offers systems that APPEARS SEMICONDUCTOR
address a broad range of applications in the HERE]
assembly process including wire bonding MANUFACTURING
systems, wafer dicing saws and die, TAB and
flip-chip bonders. Through its American Fine PROCESS
Wire, Micro-Swiss and Semitec subsidiaries,
the Company offers a range of packaging
materials, including bonding wire, capillaries, .
wedges, die collets and saw blades. .
.
\ /
----------------------------------------------------
WAFER FABRICATION

The manufacture of ICs requires complex and
precise steps which can be broadly grouped into
wafer fabrication, assembly and test. Wafer
fabrication, the first step in the semiconductor
manufacturing process, starts with raw silicon
wafers and ends with finished devices in the form
of die on a wafer. After fabricated wafers are
tested, they typically are shipped to assembly
facilities located primarily in the Asia/Pacific
Rim.
----------------------------------------------------
.
.
.......................................
.
. WAFER DICING DIE BONDING WIRE BONDING
.
.\ [PICTURE OF ..\ [PICTURE OF ..\ [PICTURE OF
/ WAFER DICING / DIE BONDING / WIRE BONDING .....
APPEARS HERE] APPEARS HERE] APPEARS HERE] .
.
A finished wafer is The cut wafer, still The package with its .
mounted onto a carrier. mounted on its carrier, bonded die is moved to .
After precise automatic is next moved to a die a wire bonder. Very .
positioning of the bonder. The die bonder fine gold or aluminum .
wafer, a dicing saw cuts picks each good die off wire (typically 0.001 .
the wafer into individual the carrier and bonds inches in diameter) is .
die using diamond it to a package, which bonded between specific .
embedded saw blades. Saw is typically a stamped bond pads on the die .
blades are matched to the metal leadframe, a and corresponding leads .
material being diced and laminate-based package on the package, in .
are replaced at periodic or ceramic package, order to create the .
intervals. depending on the die and electrical connections .
the application in which necessary for the .
it will be used. device to function. The .
Individual die are wire passes through a .
handled delicately with fine bonding tool .
pick-up tools and/or die called a capillary, the .
collets which must shape of which .
conform to the shape of determines the .
the die. configuration of the .
bond. .
.
.
.
.......................................................
.
.
\/
- ---------------------------------------------------- ----------------------
ENCAPSULATION TEST

After wire bonding, the package is encapsulated. For After encapsulation,
leadframe-based packages, plastic is molded around devices are re-tested,
the package and the leads are then trimmed and and are then marked
formed. For ceramic packages, encapsulation is ...\ and prepared for
accomplished by mounting a lid over the die. For / shipment.
laminate-based packages, plastic is molded on the
laminate and balls are attached.
- ---------------------------------------------------- ----------------------
.
.
.
[ARTWORK APPEARS HERE] /...........................
\

FINISHED
SEMICONDUCTOR
DEVICES

<PAGE>

KULICKE AND SOFFA ASSEMBLY EQUIPMENT

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A Scanning Electron Microscope (SEM) Photo of Diced Wafer

[PHOTO OF DICED WAFER APPEARS HERE]
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DICING [PHOTO OF DICING SAW APPEARS HERE]
SAWS Model 7500
Fully Automated
Dicing Saw

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SEM Photo of Die Bonded to Leadframe

[PHOTO OF DIE BONDED TO LEADFRAME APPEARS HERE]
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DIE [PHOTO OF MULTI-PROCESS [PHOTO OF DIE ATTACH
BONDERS ASSEMBLY SYSTEM APPEARS MACHINE APPEARS HERE]
HERE]
Model 6900 Model 5408
Automatic Automatic
Multi-Process Die Attach
Assembly System Machine

--------------------------------------------------------
SEM Photo of Aluminum Wedge Bond
WIRE
BONDERS [PHOTO OF ALUMINUM WEDGE BOND APPEARS HERE]
--------------------------------------------------------
[PHOTO OF WEDGE BONDER
APPEARS HERE]
Model 1474fp
Wedge Bonder

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SEM Photo of Gold Ball Bond

[PHOTO GOLD BALL BOND APPEARS HERE]
- --------------------------------------------------------------------------------
[PHOTO OF GOLD BALL
BONDER APPEARS HERE]
Model 1488 plus
Gold Ball Bonder

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SEM Photo of Wire and Die Bonded Device

[PHOTO OF WIRE AND DIE BONDED DEVICE APPEARS HERE]
- --------------------------------------------------------------------------------

<PAGE>

PROSPECTUS SUMMARY

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 could differ materially. In evaluating such
statements, prospective investors should specifically consider the various
factors identified in this Prospectus, including the matters set forth under
the captions "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business," as well as those discussed
elsewhere in this Prospectus and in the documents incorporated by reference
herein.

The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus and other information
incorporated by reference herein, including the Company's Consolidated
Financial Statements and notes thereto. Unless otherwise noted, all information
in this Prospectus assumes no exercise of the Underwriters' over-allotment
option. As used in this Prospectus, the terms "K&S" and the "Company" include
Kulicke and Soffa Industries, Inc. and its subsidiaries, unless the context
otherwise indicates. The Company's fiscal year ends September 30.

THE COMPANY

The Company designs, manufactures and markets capital equipment, related
spare parts and packaging materials used to assemble semiconductor devices
("semiconductors" or "ICs"). The Company also services, maintains, repairs and
upgrades assembly equipment. According to VLSI Research, Inc. ("VLSI"), as of
December 31, 1995, K&S was the world's largest supplier of semiconductor
assembly equipment. The Company offers systems that address a broad range of
applications in the assembly process including wire bonding systems, wafer
dicing saws and die, TAB and flip-chip bonders. Through its American Fine Wire
Corporation ("AFW"), Micro-Swiss Ltd. ("Micro-Swiss") and Semitec subsidiaries,
the Company offers packaging materials including bonding wire, capillaries,
wedges, die collets and saw blades. The Company's customers consist of leading
semiconductor manufacturers and subcontract assemblers of semiconductors,
including Advanced Semiconductor Engineering, Anam Electronics, Hyundai, Intel,
Micron, Motorola, National Semiconductor, Orient Semiconductor Electronics,
Philips and SGS-Thomson.

According to VLSI, the worldwide market for semiconductors exceeded $137
billion in 1996 and is expected to reach approximately $340 billion by 2001.
The market for semiconductor assembly equipment is expected to continue to be
driven by the demand for ICs, as well as the proliferation of different package
types and technological advances in IC packages. Different types of devices
such as microprocessors, logic devices and memory devices often require
different assembly and packaging solutions. In addition, current-generation
semiconductors are more complex, more densely fabricated and more highly
integrated than those of prior generations. To package these newer devices,
assembly equipment must be able to handle smaller, more complex packages with
higher pin counts. In addition, device manufacturers and assemblers continue to
demand equipment with faster throughput, greater reliability, more automated
manufacturing support and lower cost of ownership. The market for the packaging
materials used in the semiconductor assembly process is similarly driven by IC
unit volume and increased technological demands. These demands typically
include package size reduction and greater consistency or uniformity of
materials.

K&S believes it is the world's leading supplier of wire bonders. The
Company's wire bonders, which represented approximately 60% of the Company's
net sales in the six-month period ended March 31, 1997, are used to connect
extremely fine wires, typically made of gold or aluminum, between the bonding
pads on a die and the leads on the package to which the die has been bonded.
The Company's principal

3
<PAGE>

wire bonders are its Model 1488 plus ball bonder and Model 1474fp wedge bonder.
The Company believes that its wire bonders offer competitive advantages based
on high throughput and superior process control, enabling fine pitch bonding
and long, low wire loops, which are needed to assemble advanced IC packages.

The Company's principal strategy is to improve and broaden the range of
products and services it offers to its customers. The Company intends to
enhance its leadership position in the wire bonder market and is currently
devoting substantial resources to develop its next generation of wire bonders,
the 8000 family. This family is being designed to enhance the technical
performance and further reduce the cost of ownership of K&S' wire bonder
products. The first product of this family, the Model 8020, is currently
scheduled to be introduced in the second half of calendar 1997. The Company
also intends to broaden its existing equipment product lines, expand its
packaging materials business, focus on service and spare parts opportunities
and pursue alternative packaging technologies. The Company sells its packaging
materials for use with competitors' assembly equipment as well as its own
equipment. The Company has recently expanded its packaging materials business
through its acquisitions of AFW, a manufacturer of gold and aluminum bonding
wire, in October 1995, and Semitec, a manufacturer of saw blades, in October
1996.

The Company was founded in 1951 and is a Pennsylvania corporation. Its
principal offices are located at 2101 Blair Mill Road, Willow Grove,
Pennsylvania 19090, and its telephone number is (215) 784-6000.

4
<PAGE>

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company... 3,000,000 shares
Common Stock to be outstanding after
the Offering......................... 22,642,487 shares(1)
Use of Proceeds....................... For repayment of outstanding bank and
other debt obligations, and for working
capital and other general corporate
purposes. See "Use of Proceeds."
Nasdaq National Market symbol......... KLIC
</TABLE>

SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED SEPTEMBER 30, MARCH 31,
-------------------------------- -----------------
1994 1995 1996 1996 1997
---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales.................. $ 173,302 $ 304,509 $ 381,176 $242,563 $203,335
Gross profit............... 71,968 137,052 141,685 97,573 74,016
Income from operations..... 13,930 55,440 17,418 38,898 16,588
Net income................. 10,418 42,822 11,847 27,042 9,721
Net income per share, fully
diluted................... $ 0.63 $ 2.22 $ 0.60 $ 1.36 $ 0.48
Weighted average shares
outstanding, fully
diluted................... 16,665 19,693 19,773 19,854 20,072
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, 1997
--------------------
AS
ACTUAL ADJUSTED(2)
-------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................ $108,041 $146,041
Total assets............................................... 282,886 316,186
Short-term debt............................................ 5,196 496
Long-term debt, less current portion....................... 50,553 553
Shareholders' equity....................................... 158,086 246,086
</TABLE>
- --------
(1) Based upon the shares of Common Stock outstanding as of March 31, 1997.
Excludes 1,370,724 shares of Common Stock reserved for issuance upon
exercise of outstanding options, and an additional 1,241,226 shares
reserved for issuance pursuant to future option grants under the Company's
stock option plans, as of March 31, 1997.
(2) Adjusted to reflect the sale of 3,000,000 shares of Common Stock offered by
the Company hereby, after deducting the estimated underwriting discount and
offering expenses, and the anticipated application of the proceeds thereof.
See "Use of Proceeds."

5
<PAGE>

RISK FACTORS

Prospective investors should consider carefully the following risk factors,
in addition to the other information contained in this Prospectus and
incorporated herein by reference concerning the Company and its business,
before purchasing the shares of Common Stock offered hereby. This Prospectus
contains forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act that involve certain risks
and uncertainties. Discussions containing such forward-looking statements may
be found in the material set forth under "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business," as well as in the Prospectus generally, including the documents
incorporated by reference herein. The Company's actual results could differ
materially from those anticipated in such forward-looking statements as a
result of certain factors, including those set forth in the following risk
factors and appearing elsewhere in this Prospectus and in the documents
incorporated by reference herein. These forward-looking statements are made as
of the date of this Prospectus and the Company assumes no obligation to update
such forward-looking statements or to update the reasons why actual results
could differ materially from those anticipated in such forward-looking
statements.

FLUCTUATIONS IN OPERATING RESULTS; LIMITED SYSTEM SALES

The Company has experienced and expects to continue to experience
significant fluctuations in its operating results. The Company's operating
results will depend upon a variety of factors, including the timing of
significant orders, the mix of products sold, changes in pricing by the
Company, its competitors, customers or suppliers, lengthy sales cycles for the
Company's systems, timing of new product announcements and releases by the
Company or its competitors, market acceptance of new products and enhanced
versions of the Company's existing products, capital spending patterns by
customers, manufacturing difficulties or inefficiencies associated with
existing products or new product introductions and the ability to produce
systems in volume and meet customer requirements, product discounts,
volatility in the Company's targeted markets, political and economic
instability, natural disasters, regulatory changes, possible disruptions of
operations caused by expanding existing facilities or moving into new
facilities, expenses associated with acquisitions and alliances and various
competitive factors, including price-based competition and competition from
vendors employing other technologies. The Company's gross margins on system
sales have varied and will vary based on a variety of factors, including the
mix of products sold and significant purchases by customers with volume
purchase arrangements. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

The Company derives a substantial portion of its revenues from the sale of a
relatively small number of systems which typically range in purchase price
from approximately $60,000 to over $375,000. As a result, the sale of a
limited number of systems could have a material effect on the Company's net
sales and operating results in a particular period. In addition, the Company's
backlog at the beginning of a quarter typically does not include all orders
required to achieve the Company's sales objectives for that quarter. Moreover,
virtually all customer purchase orders are subject to cancellation or
rescheduling by the customer with limited or no penalties, and, therefore,
backlog at any particular date is not necessarily representative of actual
sales for any succeeding period. The Company's net sales and operating results
for a quarter typically will depend upon the Company obtaining orders for
systems to be shipped in the same quarter that the order is received and could
be materially adversely affected if anticipated orders for a limited number of
systems are not received in time to permit shipment during such period.
Furthermore, a substantial portion of net sales may be realized near the end
of each quarter. A delay or reduction in shipments near the end of a
particular quarter, due, for example, to unanticipated shipment reschedulings,
cancellations or deferrals by customers, to customer credit issues, to
unexpected manufacturing difficulties experienced by the Company or to delays
in deliveries by suppliers, could cause net sales in a particular quarter to
fall significantly below the Company's expectations and may materially
adversely affect the Company's operating results for such quarter.

6
<PAGE>

During the past several years, the Company has increased its operating
expense levels to support the recent growth of its business and intends to
continue to make significant investments in research and development, capital
equipment and customer service and support capabilities worldwide. These
investments may make it difficult for the Company to reduce its operating
expenses in a particular period if the Company's net sales goals for that
period are not met. There can be no assurance that the Company will achieve a
rate of growth or maintain a level of sales in any future period commensurate
with its increased level of operating expenses.

The impact of the factors described above on the Company's sales and
operating results in any future period cannot be forecast with certainty. The
Company, for example, experienced declining sequential net sales and operating
income in the second, third and fourth quarters of fiscal 1996. Revenues
declined from $127.2 million in the first quarter of fiscal 1996 to $61.7
million in the fourth quarter of fiscal 1996 while net income declined from
$16.3 million in the first quarter of fiscal 1996 to a net loss of $12.7
million in the fourth quarter of fiscal 1996. There can be no assurance that
the impact of any of the factors described above on the Company's future
operating results and financial condition will not be material and adverse.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."

VOLATILITY OF SEMICONDUCTOR INDUSTRY

The operating results of the Company's largest business segment, equipment
manufacturing, depend primarily upon the capital expenditures of semiconductor
manufacturers and subcontract assemblers worldwide, which, in turn, depend on
the current and anticipated market demand for semiconductors and products
utilizing semiconductors. The semiconductor industry has historically been
highly volatile and experienced periodic downturns and slowdowns, which have
had a severe negative effect on the semiconductor industry's demand for
semiconductor capital equipment, including assembly equipment manufactured and
marketed by the Company and, to a lesser extent, packaging materials such as
those sold by the Company. These downturns and slowdowns have also adversely
affected the Company's operating results. There can be no assurance that the
semiconductor industry will achieve its historical growth rates in the future.
Any future downturn or slowdown in the semiconductor industry would have a
material adverse effect on the Company's business, financial condition and
operating results.

While semiconductor consumption continues to grow, the Company's equipment
segment was adversely affected in fiscal 1996 by industry wide overinvestment
in assembly capacity in fiscal 1995 and early fiscal 1996. During the third
and fourth quarters of fiscal 1996, the rate of new customer orders booked
into backlog was lower than each of the previous four quarters. Declining
orders resulted in a reduction in net sales of the Company's equipment
products during the second, third and fourth quarters of fiscal 1996 and
contributed significantly to the $12.7 million net loss by the Company in the
fourth quarter of fiscal 1996. There can be no assurance that overinvestment
in assembly capacity will not occur in the future or, if it does occur, that
the effect on the Company's future operating results and financial condition
will not be material and adverse. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

TECHNOLOGICAL CHANGE; IMPORTANCE OF TIMELY PRODUCT INTRODUCTIONS; PRODUCT
TRANSITIONS

The semiconductor and semiconductor equipment industries are subject to
rapid technological change and frequent new product introductions and
enhancements. The Company believes that its continued success will depend on
its ability to continuously develop and manufacture new products and product
enhancements and to introduce them into the market in response to demands for
higher performance assembly equipment. There can be no assurance that the
Company's competitors will not develop enhancements to or future generations
of competitive products that will offer superior performance and features and
render the Company's products noncompetitive. Furthermore, there can

7
<PAGE>

be no assurance that competitive technologies, such as flip-chip assembly, or
future technologies will not render the Company's wire bonding products
obsolete or that the Company will be able to develop and introduce products
incorporating such technologies in a timely manner that will satisfy future
customers needs or achieve market acceptance. Failure to develop and introduce
new products and product enhancements or to gain customers' acceptance of such
products in a timely fashion would harm the Company's competitive position.

The Company is in the process of developing a new generation of wire bonder,
the 8000 family, which will be based on an entirely new platform and has
required the development of new software and many subassemblies not part of
the Company's current wire bonders. The Company has experienced delays in the
development of the first product in the 8000 family, the Model 8020. The
delays in the development of the Model 8020 have been due to a variety of
reasons typical to the development of new technological products, including
hardware, software and process related issues and changes in functional
specifications based on input from customers. While development and technical
risks exist which have the potential to further affect the introduction of the
Model 8020, the Company currently expects that the product will be released in
the second half of calendar 1997. However, no assurance can be given that its
scheduled introduction in the second half of calendar 1997 will not be
delayed. The Company also may incur substantial costs during the customer
evaluation and qualification process to ensure the functionality and
reliability of the product. The Company's inability to complete the
development of and introduce the Model 8020 or other new products, or its
inability to manufacture and ship these products in volume and on a timely
basis, could adversely affect the Company's competitive position.

Furthermore, the Company's planned transition to the Model 8020 platform
involves numerous risks, including the possibility that customers will defer
purchases of Model 1488 plus wire bonders in anticipation of the availability
of the Model 8020 or that the Model 8020 will fail to meet customer needs or
achieve market acceptance. To the extent that the Company fails to accurately
forecast demand in volume and configuration for both its current and next-
generation wire bonders and generally to manage product transitions
successfully, it could experience reduced orders, delays in product shipments
and increased risk of inventory obsolescence. There can be no assurance that
the Company will successfully develop and manufacture new products, including
the Model 8020, that new products introduced by the Company will be accepted
in the marketplace or that the Company will manage its product transitions
successfully. The Company's failure to do any of the foregoing could
materially adversely affect the Company's business, financial condition and
operating results.

CUSTOMER CONCENTRATION

The semiconductor manufacturing industry is highly concentrated, with a
relatively small number of large semiconductor manufacturers and subcontract
assemblers accounting for a substantial portion of the purchases of
semiconductor assembly equipment and packaging materials. Sales to the
Company's five largest customers accounted for approximately 51.5%, 55.7%,
42.0% and 45.7% of its net sales for the fiscal years ended September 30,
1994, 1995 and 1996 and the six months ended March 31, 1997, respectively. In
fiscal 1994, sales to Anam, Intel and Motorola accounted for 14.2%, 11.5% and
10.8%, respectively, of the Company's net sales. In fiscal 1995, sales to
Intel and Anam accounted for 19.8% and 16.3%, respectively, of the Company's
net sales. During fiscal 1996, Anam and Intel accounted for approximately
14.3% and 11.2%, respectively, of the Company's net sales. For the six months
ended March 31, 1997, sales to Anam and Intel accounted for 17.9% and 11.6%,
respectively, of the Company's net sales. Additionally, the top five customers
in the Company's packaging materials segment accounted for over 40% of the
Company's net sales for the segment for fiscal 1996 and the six months ended
March 31, 1997. The Company expects that sales of its products to a limited
number of customers will continue to account for a high percentage of net
sales for the foreseeable future. The loss or reduction of orders from a
significant customer, including losses or reductions due to

8
<PAGE>

manufacturing, reliability or other difficulties associated with the Company's
products, changes in customer buying patterns or market, economic or
competitive conditions in the semiconductor or subcontract assembly
industries, could adversely affect the Company's business, financial condition
and operating results. See "Business -- Customers."

PRODUCT CONCENTRATION

The Company's wire bonders have historically represented a substantial
portion of the Company's net sales. During the fiscal years ended September
30, 1994, 1995 and 1996 and the six months ended March 31, 1997, sales of wire
bonders, primarily fully automatic ball bonders and wedge bonders, comprised
68%, 74%, 57% and 60% of net sales, respectively. Should the demand for, or
pricing of, these products decline due to the introduction of superior or
lower cost systems by competitors, changes in the semiconductor industry or
other factors, the Company's business, operating results and financial
condition would be materially adversely affected. While the Company's strategy
is to diversify its products and services, no assurance can be given that the
Company will be able to develop, acquire, introduce or market new products in
a timely or cost-effective manner or that any new products or improvements
will achieve market acceptance.

The Company's wire bonder product concentration also subjects the Company to
risks from the emergence of alternate assembly technologies. The Company's
primary products employ traditional die and wire bonding methods used in
conventional semiconductor device assembly. However, alternate assembly
technologies have emerged which may offer superior device performance or
reduce the size of an IC package. These technologies, including TAB, flip-chip
and chip-scale packaging, eliminate the need for wires to establish the
electrical connections between a die and its package. While most ICs currently
incorporate traditional die and wire bonding technologies, there can be no
assurance that the semiconductor industry will not, in the future, shift a
significant part of its volume into these or other alternate assembly
technologies and eliminate the need for certain of the Company's products,
including its die and wire bonders and related packaging materials utilized by
these assembly processes. See "Business."

MANAGEMENT OF GROWTH

The Company has significantly expanded its operations in recent years. This
expansion has included, and is expected to continue to include hiring
additional management and other critical personnel, adding manufacturing
equipment and capacity and expanding its domestic and international
operations. In addition, the Company plans to relocate AFW's Singapore
operations to a new facility and has constructed a new Micro-Swiss facility in
Israel, either of which could result in short-term manufacturing disruptions.
The Company's acquisitions and alliances over the last several years have
further increased the complexity, scope and geographic distribution of its
operations. The Company's expansion has placed and is expected to continue to
place increased demands on the Company's management, financial resources and
information and internal control systems. The Company's financial results
depend in significant part on its ability to manage its expanded operations
and to continue to implement, improve and expand its systems, procedures and
controls. Any failure to implement, improve and expand such systems,
procedures and controls in an efficient manner at a pace consistent with the
Company's business could have a material adverse effect on the Company's
business, financial condition and operating results.

MANUFACTURING DIFFICULTIES; DEPENDENCE ON SUBCONTRACTORS; SINGLE OR LIMITED
SOURCES OF SUPPLY

The manufacture of the Company's products involves highly complex and
precise components, subassemblies, materials and processes. Changes in the
Company's or its suppliers' manufacturing processes or the inadvertent use of
defective or contaminated materials by the Company or its suppliers could
adversely affect the Company's ability to achieve acceptable product quality
and reliability. The

9
<PAGE>

Company has experienced such problems from time to time, with varying degrees
of severity, which on occasion have adversely affected its ability to deliver
products in a timely manner to its customers. To the extent the Company does
not maintain acceptable product quality or reliability in the future, its
business, financial condition and operating results could be materially and
adversely affected.

As a part of its strategy, the Company relies on subcontractors to
manufacture to the Company's specifications many of the materials, components
and subassemblies used in its products. Certain of the Company's products
require materials, components and subassemblies of an exceptionally high
degree of reliability, accuracy, performance and purity. Currently there are a
number of such items for which there are only a single or limited number of
suppliers which have been accepted by the Company as a qualified supplier. The
Company generally does not maintain long-term contracts with its
subcontractors and suppliers. While the Company does not believe that the
Company's business is substantially dependent on any contract or arrangement
with any of its subcontractors or suppliers, the Company's reliance on
subcontractors and single source suppliers involves a number of significant
risks, including the loss of control over the manufacturing process, the
potential absence of adequate capacity and the reduced control over delivery
schedules, manufacturing yields, quality and costs. Further, certain of the
Company's subcontractors and suppliers are relatively small operations and
have limited financial and manufacturing resources. In the event that any
significant subcontractor or single source supplier were to become unable or
unwilling to continue to manufacture or sell subassemblies, components or
parts to the Company in required volumes and of acceptable quality levels and
prices, the Company would have to identify and qualify acceptable
replacements. The process of qualifying subcontractors and suppliers could be
lengthy, and no assurance can be given that any additional sources would be
available to the Company on a timely basis. The Company has experienced, from
time to time, reliability and quality problems with certain key subassemblies
provided by single source and other suppliers. The Company also has
experienced delays in the delivery of subassemblies from these and other
subcontractors in the past, which caused delays in Company shipments. If
supplies of such items were not available from any such source at acceptable
quality levels and prices and a relationship with an alternative supplier
could not be developed, shipments of the Company's products could be
interrupted and re-engineering of the affected product could be required with
resulting delays. In addition, from time to time, the Company has experienced
manufacturing difficulties and problems in its own operations which have
caused delays and have required remedial measures. Such delays, interruption
and re-engineering could damage the Company's relationships with its customers
and could have a material adverse effect on the Company's business, financial
condition and operating results. See "Business -- Manufacturing."

INTENSE COMPETITION

The semiconductor equipment and packaging materials businesses are intensely
competitive. Significant competitive factors in the semiconductor equipment
market include process capability and repeatability, quality and flexibility,
and cost of ownership, including throughput, reliability and automation,
customer support and price. The Company's major equipment competitors include
Shinkawa, Kaijo and ESEC in wire bonders; ESEC, Nichiden, ASM Pacific
Technology and Alphasem in die bonders; and Disco Corporation in dicing saws.
Competitive factors in the semiconductor packaging materials industry include
price, delivery and quality. Significant competitors in the packaging
materials line include Gaiser Tool Co., Small Precision Tools, Inc. and Disco
Corporation with respect to expendable tools and Tanaka Electronic Industries
and Sumitomo Metal Mining in the bonding wire market. In each of the markets
it serves, the Company faces competition and the threat of competition from
established competitors and potential new entrants, some of which may have
greater financial, engineering, manufacturing and marketing resources than the
Company. Some of these competitors are Japanese companies that have had and
may continue to have an advantage over the Company in supplying products to
Japan-based companies due to their preferences to purchase equipment from
Japanese suppliers. The Company expects its competitors to continue to improve
the performance of their current products and to introduce new products with
improved price and performance

10
<PAGE>

characteristics. New product introductions by the Company's competitors or by
new market entrants could cause a decline in sales or loss of market
acceptance of the Company's existing products. If a particular semiconductor
manufacturer or subcontract assembler selects a competitor's product for a
particular assembly operation, the Company may experience difficulty in
selling a product to that company for a significant period of time. Increased
competitive pressure could also lead to intensified price-based competition,
resulting in lower prices which could adversely affect the Company's business,
financial condition and operating results. The Company believes that to remain
competitive it must invest significant financial resources in new product
development and expand its customer service and support worldwide. There can
be no assurance that the Company will be able to compete successfully in the
future.

INTERNATIONAL OPERATIONS

Approximately 74%, 78%, 79% and 80% of the Company's net sales for fiscal
1994, 1995 and 1996 and the six months ended March 31, 1997, respectively,
were attributable to sales to customers for delivery outside of the United
States. The Company expects sales outside of the United States to continue to
represent a substantial portion of its future revenues. The future performance
of the Company will depend, in significant part, upon its ability to continue
to compete in foreign markets which, in turn, will depend, in part, upon a
continuation of current trade relations between the United States and foreign
countries in which semiconductor manufacturers or subcontractors have assembly
operations. A change toward more protectionist trade legislation in either the
United States or such foreign countries, such as a change in the current
tariff structures, export compliance or other trade policies, could adversely
affect the Company's ability to sell its products in foreign markets.

Because most of the Company's foreign sales are denominated in United States
dollars, the Company believes that the increase in value of the United States
dollar against foreign currencies during the past 18 months, particularly the
Japanese yen, is making the Company's products more expensive than those
offered by certain of its foreign competitors. The Company's ability to
compete overseas in the future could be adversely affected by a continuing
strengthening of the United States dollar against foreign currencies.

In addition, the Company maintains substantial manufacturing operations in
countries other than the United States, including operations located in Israel
and Singapore. Risks associated with the Company's international operations
include risks of war and civil disturbances or other events which may limit or
disrupt markets, expropriation, international exchange restrictions and
currency fluctuations, changing political conditions and monetary policies of
foreign governments. If such operations were interrupted by war, terrorism or
other factors beyond the Company's control, the Company's business, operating
results and financial condition could be materially adversely affected. See
"Business -- Manufacturing."

ENVIRONMENTAL REGULATIONS; POSSIBLE FINANCIAL EXPOSURE TO ENVIRONMENTAL CLAIMS

Federal, state, local and foreign regulations impose various controls on the
use, storage, discharge, handling, emission, generation, manufacture and
disposal of toxic or other hazardous substances used in the Company's
operations. The Company believes that its activities conform in all material
respects to current environmental and land use regulations applicable to its
operations and its current facilities and that it has obtained environmental
permits necessary to conduct its business. Nevertheless, the failure to comply
with current or future regulations could result in substantial fines being
imposed on the Company, suspension of production, alteration of its
manufacturing process or cessation of operations. Such regulations could
require the Company to acquire expensive remediation equipment or to incur
substantial expenses to comply with environmental regulations. Any failure by
the Company to control the use, disposal or storage of, or adequately restrict
the discharge of, hazardous or toxic substances could subject the Company to
significant liabilities.

11
<PAGE>

INTELLECTUAL PROPERTY PROTECTION; NOTICES OF ALLEGED PATENT INFRINGEMENT

Although the Company attempts to protect its proprietary technology through
patents, copyrights, trade secrets and other measures, there can be no
assurance that these measures will be adequate or that competitors will not be
able to develop similar technology independently. Further, there can be no
assurance that the claims allowed on any patent issued to the Company will be
sufficiently broad to protect the Company's technology, that any patent will
be issued from any pending application or that foreign intellectual property
laws will protect the Company's intellectual property rights. Litigation may
be necessary to enforce or determine the validity and scope of the Company's
proprietary rights or to defend against infringement claims. Such litigation
could result in substantial costs and diversion of resources and could have a
material adverse effect on the Company's business, financial condition and
operating results, regardless of the outcome of the litigation. In addition,
there can be no assurance that any of the patents issued to the Company will
not be challenged, invalidated or circumvented or that the rights granted
thereunder will provide competitive advantages to the Company.

Although the Company is not aware of any pending lawsuits against the
Company regarding infringement claims with respect to any existing patent or
any other intellectual property right of third parties, the Company has at
times been notified of claims that equipment it has supplied may be infringing
intellectual property rights of third parties. Certain of the Company's
customers have received notices of infringement from Jerome H. Lemelson,
alleging that equipment supplied by the Company, and processes performed by
such equipment, infringe on patents held by Mr. Lemelson. Mr. Lemelson is the
holder of numerous patents with purported broad application across various
industry lines. The Company's situation in this respect is similar to numerous
other companies in the semiconductor, electronics and other industries, whose
customers have received notices of infringement from Mr. Lemelson. He has
brought suit against a number of both domestic and foreign companies,
including those in the automotive and semiconductor industries, and reportedly
has obtained large settlements in certain instances. A number of the Company's
customers have been sued by Mr. Lemelson. Under and subject to the terms of
its agreements with customers, the Company could be required to reimburse
customers for certain damages resulting from these matters and to defend its
customers in patent infringement suits. Certain customers have requested that
the Company defend and indemnify them against the claims of Mr. Lemelson, but,
to date, no customer who has settled with Mr. Lemelson has sought contribution
from the Company. The Company has received opinions from its outside patent
counsel with respect to certain of the Lemelson patents. The Company is not
aware that any equipment marketed by the Company or processes performed by
such equipment infringe on the Lemelson patents in question and does not
believe that such matters will have a material adverse effect on its business,
financial condition and operating results. However, the ultimate outcome of
any infringement claim affecting the Company is uncertain and there can be no
assurances that the resolution of these matters will not have a material
adverse effect on the Company's business, financial condition and operating
results.

The Company also believes that much of its important technology resides in
its proprietary software and trade secrets. Insofar as the Company relies on
trade secrets and unpatented knowledge, including software, to maintain its
competitive position, there is no assurance that others may not independently
develop similar technologies. In addition, although the Company enters into
non-disclosure and non-competition agreements with certain of its employees,
customers, consultants, selected vendors and others, there is no assurance
that such agreements will not be breached. See "Business -- Intellectual
Property."

ACQUISITIONS AND ALLIANCES

As part of its strategy to complement or expand its existing business and
product offerings, the Company has recently entered into several acquisition
and alliance agreements with third parties. In October 1995, the Company
consummated the acquisition of AFW, a manufacturer of bonding wire; and, in
October 1996, completed the acquisition of Semitec, a manufacturer of saw
blades. There can be no assurance that these operations will be profitable or
that the anticipated benefits of either acquisition will be realized. In
February 1996, the Company entered into a joint venture with Delco Electronics
Corporation providing for the formation of Flip Chip Technologies, L.L.C.
("FCT"). FCT, which was formed to provide wafer bumping services on a contract
basis and to license related

12
<PAGE>

technologies, has experienced losses since its inception. There can be no
assurance that FCT will ever become profitable. See "--Investment in Flip Chip
Technologies, L.L.C." In February 1997, the Company and PRI Automation Inc.
("PRI") signed a non-binding memorandum of understanding to cooperate in the
development of technology to integrate and automate equipment used in
semiconductor assembly. The transaction contemplated by the memorandum of
understanding is subject to the negotiation of definitive agreements by the
parties. The Company expects to continue to pursue acquisitions of, and
alliances with, other companies with potentially complementary product lines,
technologies and businesses. Although the Company currently has no agreement,
understanding or arrangement with respect to any additional acquisitions or
alliances, the Company evaluates potential strategic business opportunities
which may be material in size and scope on an ongoing basis.

Acquisitions and alliances, including those entered into by the Company to
date, involve a number of risks and difficulties, including technology
acceptance, expansion into new geographic markets and business areas, the
requirement to understand local business practices, the diversion of
management's attention, the assimilation of the operations and personnel of
acquired companies, the integration of acquired companies' business and
financial reporting systems with those of the Company and securing and
protecting necessary intellectual property. There can be no assurance that the
Company will successfully integrate the operations of AFW, Semitec or other
business acquisitions, or that the FCT or PRI alliances or any future
alliances will be successful. If any such acquisition or alliance were to be
unsuccessful, the Company's business, financial condition and operating
results could be materially adversely affected. Further, possible future
acquisitions or alliances by the Company could result in dilutive issuances of
debt or equity securities, the incurrence of additional debt and contingent
liabilities and additional amortization expenses related to goodwill and other
intangible assets, which could materially adversely affect the Company's
business, financial condition and operating results.

INVESTMENT IN FLIP CHIP TECHNOLOGIES, L.L.C.

In February 1996, the Company entered into a joint venture agreement with
Delco Electronics Corporation providing for the formation and management of
FCT. FCT was formed to provide wafer bumping services on a contract basis and
to license related technologies, and has recently completed construction of
its manufacturing facility in Phoenix, Arizona. FCT is currently working with
its customers to have its manufacturing process qualified. This qualification
process is expected to continue at least through fiscal 1997. The Company has
experienced losses with respect to its interest in FCT since its inception,
including a $2.6 million loss during the first six months of fiscal 1997. The
Company expects it will incur losses in excess of this amount during the
remainder of fiscal 1997.

Pursuant to the terms of the joint venture agreement, the Company is
obligated to contribute to FCT an aggregate of $16.8 million, of which K&S had
funded $16.1 million through the end of the second quarter of fiscal 1997. In
addition to this obligation, the Company has agreed to loan FCT $5.0 million
and may agree to provide further loans in the future. The joint venture is
subject to numerous risks common to transactions of this nature. See "--
Acquisitions and Alliances." There can be no assurance that FCT will ever
become profitable, that the Company will not make additional capital
contributions and loans to FCT or that the anticipated benefits of the joint
venture will ever be realized. If the joint venture were to not realize such
benefits, the Company's business, financial condition and operating results
could be materially adversely affected.

DEPENDENCE ON KEY PERSONNEL

The Company is dependent upon the continued service of its key executive
management and technical personnel, who are generally not bound by employment
agreements requiring them to perform services for the Company. The loss of key
personnel could have a material adverse effect on the Company's business,
financial condition and operating results. In addition, the Company's future
operating results will depend in significant part upon its ability to attract
and retain highly skilled managerial, technical and marketing personnel. The
Company believes there is only a limited number of personnel with the
requisite skills to serve in these positions. Competition for such personnel
is intense, and there can be no assurance that the Company will be successful
in attracting or retaining

13
<PAGE>

such personnel. The Company's inability to attract and retain the executive
management and other personnel it requires could have a material adverse
effect on the Company's business, financial condition and operating results.

VOLATILITY OF STOCK PRICE

The stock market in general and the market for shares of technology
companies in particular recently have experienced extreme price fluctuations,
which have often been unrelated to the operating performance of the affected
companies. Many companies in the semiconductor and semiconductor equipment
industries, including the Company, experienced dramatic volatility in the
market prices of their common stock during the last two years. The Company
believes that factors such as announcements of developments related to the
Company's business or its competitors' or customers' businesses, fluctuations
in the Company's financial results, general conditions or developments in the
semiconductor and semiconductor equipment industries and the worldwide
economy, sales of the Company's Common Stock into the marketplace, the number
of market makers for the Company's Common Stock, announcements of
technological innovations or new or enhanced products by the Company or its
competitors or customers, a shortfall in revenue, gross margin, earnings or
other financial results from or changes in analysts' expectations and
developments in the Company's relationships with its customers and suppliers,
or a variety of factors beyond the Company's control could cause the price of
the Company's Common Stock to fluctuate, perhaps substantially. There can be
no assurance that the market price of the Company's Common Stock will not
experience significant fluctuations in the future, including fluctuations that
are material, adverse and unrelated to the Company's performance. See "Price
Range of Common Stock."

DISCRETION OF MANAGEMENT CONCERNING FUNDS

A substantial portion of the net proceeds from this Offering will be
invested in short-term, investment-grade, interest-bearing securities, pending
application of such proceeds for working capital and other general corporate
purposes or for future acquisitions or alliances. See "Use of Proceeds." Such
proceeds, together with the Company's existing working capital and funds that
may be available to the Company under its revolving credit facilities, will
represent a significant amount of capital over which management will have
substantial discretion.

FUTURE CAPITAL NEEDS

In order to remain competitive, the Company must continue to make
significant investments in capital equipment, facilities, computer systems,
sales, service, training and support capabilities, procedures, controls,
operations and research and development, among other items. The Company
believes that its cash flows from operations, its working capital, amounts
expected to be available under its revolving credit facilities and the net
proceeds of this Offering will be sufficient to meet the Company's liquidity
and capital requirements for at least the next 12 months. To the extent that
such financial resources are insufficient to fund the Company's activities,
additional funds will be required. There can be no assurance, however, that
additional financing will be available on reasonable terms or at all. See "--
Acquisitions and Alliances," "Use of Proceeds" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."

EFFECTS OF CERTAIN ANTI-TAKEOVER PROVISIONS

Certain provisions of the Company's Articles of Incorporation and By-laws
and Pennsylvania law may discourage certain transactions involving a change in
control of the Company. For example, the Company's Articles of Incorporation
and By-laws contain provisions which (i) classify the Board of Directors into
four classes, with one class being elected each year, (ii) permit the Board to
issue "blank check" preferred stock without shareholder approval and (iii)
prohibit the Company from engaging in certain business combinations with a
holder of 20% or more of the Company's voting securities without supra-
majority board or shareholder approval. Further, under the Pennsylvania
Business Corporation Law, because the Company's By-laws provide for a
classified Board of Directors, shareholders may only remove directors for
cause. These provisions and certain provisions of the Pennsylvania Business
Corporation Law could have the effect of delaying, deferring or preventing a
change in control of the Company and may adversely affect the voting and other
rights of holders of Common Stock. See "Description of Capital Stock."

14
<PAGE>

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 3,000,000 shares of
Common Stock offered hereby are estimated to be $88.0 million ($101.3 million
if the Underwriters' over-allotment option is exercised in full), after
deduction of the underwriting discount and estimated offering expenses.

The Company expects to use the majority of the net proceeds to repay the
$50.0 million outstanding balance on its existing revolving credit facility
with PNC Bank, N.A. and a $4.7 million obligation relating to the Semitec
acquisition. The $50.0 million revolving credit facility expires March 30,
2001 and presently bears interest at LIBOR plus 40 basis points (5.93% at May
13, 1997). The $4.7 million obligation relating to the Semitec acquisition
must be paid in cash or registered shares of the Company's Common Stock by
June 2, 1997, and currently bears interest at 12% per annum until paid. The
remaining proceeds are expected to be used for working capital and other
general corporate purposes.

The Company may use a portion of the net proceeds for acquisitions of
businesses, products or technologies complementary to the Company's business
and for joint ventures or other strategic alliances entered into for similar
purposes. The Company evaluates potential strategic business opportunities on
an ongoing basis. However, except for the non-binding memorandum of
understanding with PRI, the Company currently has no agreement, understanding
or arrangement with respect to any acquisitions or alliances. See "Risk
Factors -- Acquisitions and Alliances."

Pending the application of the net proceeds for the uses described above,
the net proceeds will be invested in short-term, investment-grade, interest-
bearing securities. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."

PRICE RANGE OF COMMON STOCK

The Company's Common Stock trades on the Nasdaq National Market under the
symbol KLIC. The following table sets forth for the periods indicated the high
and low sale prices for the Common Stock as reported on the Nasdaq National
Market, which prices reflect the effect of a two-for-one split of the Common
Stock which occurred in July 1995.

<TABLE>
<CAPTION>
HIGH LOW
--------- -------
<S> <C> <C>
FISCAL 1995:
First Quarter........................................... $10 31/32 $ 7 1/2
Second Quarter.......................................... 14 7/8 9 1/8
Third Quarter........................................... 33 3/8 13 1/4
Fourth Quarter.......................................... 45 3/8 32 7/8
FISCAL 1996:
First Quarter........................................... 36 3/4 22
Second Quarter.......................................... 25 1/2 15 1/8
Third Quarter........................................... 20 1/2 13 1/4
Fourth Quarter.......................................... 14 5/8 8 3/4
FISCAL 1997:
First Quarter........................................... 22 1/4 10 1/2
Second Quarter.......................................... 30 18 3/4
Third Quarter (through May 13, 1997).................... 33 3/4 20 3/4
</TABLE>

On May 13, 1997, the last reported sale price of the Common Stock on the
Nasdaq National Market was $31.25 per share. As of May 12, 1997, there were
approximately 830 holders of record of the shares of outstanding Common Stock.

15
<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of the Company (i) at
March 31, 1997 and (ii) as adjusted to reflect the sale by the Company of
3,000,000 shares of Common Stock pursuant to this Offering and the application
of the estimated net proceeds therefrom, after deducting the estimated
underwriting discount and offering expenses.

<TABLE>
<CAPTION>
MARCH 31, 1997
------------------
AS
ACTUAL ADJUSTED
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt(1)......................................... $ 5,196 $ 496
======== ========
Long-term debt, less current portion(1).................... $ 50,553 $ 553
-------- --------
Shareholders' equity:
Preferred stock, without par value, 5,000,000 shares
authorized, no shares outstanding....................... -- --
Common stock, without par value, 50,000,000 shares
authorized; 19,642,487 shares outstanding actual; and
22,642,487 shares outstanding as adjusted(2)............ 50,338 138,338
Retained earnings........................................ 110,806 110,806
Treasury stock........................................... (216) (216)
Cumulative translation adjustment........................ (2,842) (2,842)
-------- --------
Total shareholders' equity............................. 158,086 246,086
-------- --------
Total capitalization................................. $208,639 $246,639
======== ========
</TABLE>
- --------
(1) The Company's short-term and long-term debt primarily reflect obligations
of the Company relating to the Semitec acquisition and its $50.0 million
revolving bank credit facility, respectively. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results
of Operations."
(2) Excludes 1,370,724 shares of Common Stock reserved for issuance upon
exercise of outstanding options, and an additional 1,241,226 shares
reserved for issuance pursuant to future option grants under the Company's
stock option plans, as of March 31, 1997.

DIVIDEND POLICY

The Company currently does not pay cash dividends on its Common Stock. The
Company presently intends to retain any future earnings for use in its
business and does not anticipate paying any cash dividends on the Common Stock
in the foreseeable future.

16
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data presented below should be read in
conjunction with the Company's Consolidated Financial Statements and notes
thereto, which are incorporated herein by reference, and Management's
Discussion and Analysis of Financial Condition and Results of Operations
included elsewhere in this Prospectus. The consolidated statement of
operations data set forth below with respect to the fiscal years ended
September 30, 1994, 1995 and 1996 and the consolidated balance sheet data at
September 30, 1996 have been derived from, and are qualified by reference to,
the audited consolidated financial statements of the Company included in the
Company's Annual Report on Form 10-K for the fiscal year ended September 30,
1996, which report is incorporated by reference herein, and should be read in
conjunction with such Annual Report on Form 10-K. The consolidated statement
of operations data for the six-month periods ended March 31, 1996 and 1997 and
the consolidated balance sheet data at March 31, 1997 have been derived from,
and are qualified by reference to, the unaudited consolidated financial
statements included in the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 1997. The unaudited consolidated financial
statements have been prepared on the same basis as the audited consolidated
financial statements and, in the opinion of management, contain all
adjustments, consisting of only normal recurring adjustments, necessary for a
fair presentation of the results of operations for such periods. The results
of operations for the six-month period ended March 31, 1997 are not
necessarily indicative of results to be expected for any subsequent period.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
SEPTEMBER 30, MARCH 31,
--------------------------- ------------------
1994 1995(1) 1996(2) 1996 1997
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................... $173,302 $304,509 $381,176 $242,563 $203,335
Cost of goods sold........... 101,334 167,457 239,491 144,990 129,319
-------- -------- -------- -------- --------
Gross profit................. 71,968 137,052 141,685 97,573 74,016
Selling, general and
administrative.............. 36,752 50,728 71,863 35,244 34,963
Research and development,
net......................... 21,286 30,884 52,404 23,431 22,465
-------- -------- -------- -------- --------
Income from operations....... 13,930 55,440 17,418 38,898 16,588
Interest income (expense),
net......................... (907) 173 (164) (132) (457)
Equity in loss of joint
venture..................... -- -- (994) (48) (2,629)
Other expense (3)............ -- -- (630) (630) --
-------- -------- -------- -------- --------
Income before income taxes... 13,023 55,613 15,630 38,088 13,502
Provision for income tax
expense..................... 2,605 12,791 3,783 11,046 3,781
-------- -------- -------- -------- --------
Net income................... $ 10,418 $ 42,822 $ 11,847 $ 27,042 $ 9,721
======== ======== ======== ======== ========
Net income per share:
Primary.................... $ 0.63 $ 2.38 $ 0.60 $ 1.36 $ 0.48
Fully diluted.............. $ 0.63 $ 2.22 $ 0.60 $ 1.36 $ 0.48
Pro forma net income per
share (4)................... -- -- $ 0.64 -- $ 0.49
Weighted average shares
outstanding:
Primary.................... 16,665 18,028 19,773 19,854 20,072
Fully diluted.............. 16,665 19,693 19,773 19,854 20,072
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1996(2) 1997
------------- ---------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital......................................... $113,804 $108,041
Total assets............................................ 249,554 282,886
Short-term debt......................................... 491 5,196
Long-term debt, less current portion.................... 50,712 50,553
Shareholders' equity.................................... 147,489 158,086
</TABLE>
- --------
(1) During fiscal 1995, the Company called for redemption its 8% Convertible
Subordinated Debentures, as a result of which $26.2 million of such
debentures were converted into approximately 2,463,000 shares of Common
Stock.
(2) Includes the results of operations of AFW which was acquired in October
1995. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
(3) In fiscal 1996, other expense includes the write-off of $630,000 of costs
incurred in connection with a proposed public offering of Common Stock.
(4) Pro forma net income per share gives effect to the sale by the Company of
that number of shares of Common Stock sufficient to generate net assets
equal to the amount of debt to be repaid by proceeds of this Offering, and
the repayment of such debt as if the Offering and debt repayment had
occurred at the beginning of the period. See "Use of Proceeds."

17
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Consolidated
Financial Statements and related notes which are incorporated by reference in
this Prospectus. This Prospectus contains certain forward-looking statements
that involve risks and uncertainties. The Company's actual results could
differ materially from those discussed herein. Factors that could cause or
contribute to such differences include, but are not limited to, those set
forth under "Risk Factors" and elsewhere in this Prospectus and in the
documents incorporated by reference herein.

INTRODUCTION

Since the 1970s, the Company has focused its efforts primarily on developing
its leadership position in the semiconductor assembly equipment market and, to
a lesser extent, on expanding its position in the packaging materials
business. The Company substantially increased its packaging materials business
with the acquisitions of AFW, a manufacturer of bonding wire, in October 1995,
and Semitec, a manufacturer of saw blades, in October 1996. The Company has
$50.0 million outstanding under its revolving credit facility, which was used
for financing the AFW acquisition, and a $4.7 million obligation relating to
the financing of the Semitec acquisition. The Company intends to pay these
obligations in full with a portion of the net proceeds of this Offering.

In addition to its assembly equipment and packaging materials product lines,
the Company is focusing on service and parts opportunities in order to reduce
its customers' cost of ownership. Further, the Company continuously pursues
investments in alternative packaging technologies. To that end, in February
1996, the Company entered into a joint venture agreement with Delco
Electronics Corporation to provide wafer bumping services on a contract basis
and to license related technologies through FCT. The Company owns a 51% equity
interest in FCT and recognizes its share of the operating results of the joint
venture on the basis of its ownership interest. FCT has recently completed
construction of its manufacturing facility in Phoenix, Arizona and is
currently working with its customers to have its manufacturing process
qualified. This qualification process is expected to continue through at least
fiscal 1997. The Company has experienced losses with respect to its interest
in FCT since its inception, including a $2.6 million loss during the first six
months of fiscal 1997. The Company expects it will incur losses in excess of
this amount during the remainder of fiscal 1997.

International sales (i.e., shipments of the Company's products with ultimate
foreign destinations) comprised 74%, 78%, 79% and 80% of the Company's net
sales during the fiscal years ended 1994, 1995 and 1996 and the six-month
period ended March 31, 1997, respectively. Sales to customers in the
Asia/Pacific region (including Korea, Taiwan, Malaysia, the Philippines,
Japan, Singapore, Thailand and Hong Kong) accounted for 72%, 72% and 73% of
the Company's net sales during the fiscal years ended 1995 and 1996 and the
six-month period ended March 31, 1997, respectively. The Company's
international sales are primarily denominated in United States dollars. To
date, transactions conducted in currencies other than United States dollars
have not presented significant currency exchange exposure to the Company.

18
<PAGE>

The Company's historical operating results for each of the three years ended
September 30, 1994, 1995 and 1996 and for the six-month periods ended March
31, 1996 and 1997, as a percentage of net sales, are as follows:

<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
SEPTEMBER 30, MARCH 31,
------------------- ------------------
1994 1995 1996 1996 1997
----- ----- ----- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales............................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold.................... 58.5 55.0 62.8 59.8 63.6
----- ----- ----- -------- --------
Gross profit.......................... 41.5 45.0 37.2 40.2 36.4
Selling, general and administrative... 21.2 16.7 18.9 14.5 17.2
Research and development, net......... 12.3 10.1 13.7 9.7 11.0
----- ----- ----- -------- --------
Income from operations................ 8.0 18.2 4.6 16.0 8.2
Interest expense, net................. (0.5) 0.1 -- (0.1) (0.2)
Equity in loss of joint venture....... -- -- (0.3) -- (1.4)
Other expense......................... -- -- (0.2) (0.2) --
----- ----- ----- -------- --------
Income before income taxes............ 7.5 18.3 4.1 15.7 6.6
Provision for income tax expense...... 1.5 4.2 1.0 4.6 1.8
----- ----- ----- -------- --------
Net income............................ 6.0% 14.1% 3.1% 11.1% 4.8%
===== ===== ===== ======== ========
</TABLE>

RESULTS OF OPERATIONS

Six-Month Periods Ended March 31, 1997 and March 31, 1996

Demand for semiconductor assembly equipment declined throughout fiscal 1996.
In the first half of fiscal 1997, the Company saw a resurgence in demand for
its automatic wire bonders and recorded bookings totaling $243.0 million, or
$19.0 million higher than the $224.0 million booked during the comparable
period of the prior fiscal year. Fiscal 1997 second quarter bookings totaled
$138.0 million, which represented a $33.0 million improvement over the $105.0
million booked during the fiscal 1997 first quarter. The backlog of customer
orders increased by $17.0 million, or 18%, to $110.0 million at March 31, 1997
compared to $93.0 million at December 31, 1996. Since the timing of deliveries
may vary and orders generally are subject to delay or cancellation, the
Company's backlog as of any date may not be indicative of sales for any
succeeding period.

Net sales increased $39.6 million from the first quarter of fiscal 1997 to
$121.5 million in the second quarter of fiscal 1997. For the six-month period
ended March 31, 1997, net sales totaled $203.3 million, or $39.3 million lower
than the $242.6 million reported for the comparable fiscal 1996 period. This
difference primarily reflected the effect of the Company's highest sales level
to date in the first quarter of fiscal 1996 followed by the decline in the
second quarter which continued for the balance of the 1996 fiscal year.
Equipment segment revenues declined by $40.0 million in the first half of
fiscal 1997 compared to the same period of the prior fiscal year, principally
reflecting differences of approximately $34.5 million attributable to reduced
demand for the Company's machines, primarily automatic wire bonders, and
approximately $5.2 million related to lower sales of machine accessories,
upgrade kits and spare parts. Specifically, shipments of 1488 turbo and plus
ball bonders declined by 316 machines, or $26.3 million, and shipments of
1474fp wedge bonders declined by 10 machines, or $1.3 million from first half
of fiscal 1996 levels. Sales of packaging materials increased by $757,000 in
the first half of fiscal 1997 from the corresponding period of the prior
fiscal year, primarily reflecting $3.2 million of incremental sales of Semitec
which was acquired in October 1996, which was partially offset by a $2.6
million reduction in sales of Micro-Swiss products. In addition, increased
gold and aluminum wire sales volumes were offset by lower gold prices and
lower pricing on certain aluminum wire sales in fiscal 1997.

19
<PAGE>

Gross profit as a percentage of net sales decreased to 36.4% in the first
half of fiscal 1997 compared to 40.2% during the same period of the prior
fiscal year. This decline reflects lower gross profit margins in both the
equipment and packaging materials segments and a shift in the overall mix of
product sales from higher margin equipment products to lower margin packaging
materials, due to the disproportionate decline in equipment sales, as set
forth below.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
------------------
1996 1997
-------- --------
<S> <C> <C>
Equipment sales.......................................... 79.3% 74.9%
Packaging materials sales................................ 20.7 25.1
-------- --------
Total net sales........................................ 100.0% 100.0%
======== ========
</TABLE>

Equipment segment gross profit margin decreased to 42.5% from 44.9%
primarily due to reduced sales of machine accessories, upgrade kits and spare
parts. The packaging materials segment gross profit margin dropped to 18.3%
from 22.2% due principally to costs associated with the relocation of the
Micro-Swiss manufacturing facility and excess manufacturing capacity of Micro-
Swiss and to a shift in product mix from higher margin expendable tools to
lower margin wire products.

Selling, general and administrative ("SG&A") expenses totaled $35.0 million
for the first half of fiscal 1997 compared to $35.2 million in the same period
of the prior fiscal year, reflecting lower equipment segment and corporate
expenses resulting from cost reduction initiatives implemented in August 1996.
These savings were partially offset by higher expenses in the packaging
materials segment due to incremental operating costs associated with the
Semitec business, severance and relocation related charges approximating $1.1
million in the packaging materials segment and increased expense levels due to
expansion of the packaging materials marketing and distribution organizations.
As a percentage of net sales, however, SG&A expenses increased to 17.2% in the
first half of fiscal 1997 from 14.5% in the first half of fiscal 1996 due
primarily to the lower level of net sales in the fiscal 1997 first quarter.

Net research and development ("R&D") costs decreased to $22.5 million in the
first half of fiscal 1997, compared to $23.4 million for the same period of
the prior fiscal year. The decline in fiscal 1997 R&D spending was principally
in the equipment segment, and reflects reduced outside contract development
costs and lower expenditures for prototype materials. As a percentage of net
sales, however, R&D costs increased to 11.0% in the first half of fiscal 1997
from 9.7% in the first half of fiscal 1996 due primarily to the lower level of
net sales in the first half of fiscal 1997. The Company continues to invest
heavily in the development of the 8000 Series wire bonders and the enhancement
of many of its existing products, including, but not limited to, the Model
1488 plus ball bonder and Model 1474fp wedge bonder, to enable them to meet
customer requirements for higher lead count devices with finer pitch
requirements at faster bonding speeds. The Company also continues to invest in
new technologies which may eventually lead to improved and alternative
semiconductor assembly technologies.

Operating income totaled $16.6 million for the first half of fiscal 1997
compared to $38.9 million for the same period in fiscal 1996 due to the
factors discussed above. The equipment segment operating income declined from
$38.5 million in fiscal 1996 to $20.8 million in fiscal 1997, and the
packaging materials segment changed from $4.2 million of operating income in
fiscal 1996 to a $939,000 operating loss in fiscal 1997.

Interest expense incurred during the first half of fiscal 1997 resulted from
borrowings under the Company's $50.0 million revolving credit facility to fund
the October 1995 acquisition of AFW and the $4.7 million obligation incurred
in connection with the October 1996 acquisition of Semitec. Interest income
during the first half of fiscal 1997 was lower than the same period of the
prior fiscal year primarily due to interest earned on a note receivable from a
customer in fiscal 1996. Non-operating costs of $2.6 million

20
<PAGE>

in the first half of fiscal 1997 reflect the Company's equity interest in the
loss from its joint venture investment in FCT. Fiscal 1996 first half results
included the write-off of approximately $630,000 of costs incurred in
connection with a proposed public offering of the Company's Common Stock.

The fiscal 1997 effective tax rate is expected to approximate 28%. The
fiscal 1996 effective tax rate was 24%, due largely to the loss reported in
the fiscal fourth quarter which was primarily attributable to the Company's
United States-based operations.

Net income declined to $9.7 million for the six-month period ended March 31,
1997 as compared to $27.0 million for the six-month period ended March 31,
1996 due to the factors previously enumerated.

Fiscal Years Ended September 30, 1996 and September 30, 1995

During the fiscal year ended September 30, 1996, the Company recorded
bookings totaling $358.4 million, including approximately $66.0 million
related to AFW, compared to $342.4 million during fiscal 1995 which excluded
AFW's operating results. The $50.0 million decline in fiscal 1996 equipment
bookings primarily reflected a significant reduction in demand for
semiconductor assembly equipment, principally ball and wedge bonders, in the
latter half of fiscal 1996 compared to the record levels experienced
throughout fiscal 1995 and the first several months of fiscal 1996. The
Company believes that this decline reflected a high level of uncertainty and
concern among the Company's customers about then forecasted declines in
personal computer sales, a significant drop in the selling prices of memory
chips and, with regard to the Company's Taiwan-based customers, geopolitical
uncertainty regarding China's reaction to elections in Taiwan. At September
30, 1996, total backlog of customer orders approximated $69.0 million,
including $6.7 million relating to AFW, compared to $84.7 million at September
30, 1995.

Net sales for the fiscal year ended September 30, 1996 increased by $76.7
million to $381.2 million compared to $304.5 million in fiscal 1995. The
acquisition of AFW contributed $66.9 million to fiscal 1996 net sales.
Equipment segment net sales increased to $287.2 million in fiscal 1996
compared to $283.8 million in fiscal 1995. Total unit sales in fiscal 1996
were essentially flat compared to unit sales for fiscal 1995. However, sales
of ball bonders, non-semiconductor dicing saws and wire bonder upgrade kits
increased in fiscal 1996, while sales of wedge bonders declined in relation to
the amounts sold in fiscal 1995. During fiscal 1996, slightly improved selling
prices were realized on the Model 1488 ball bonder line compared to the
average selling prices realized on ball bonders during fiscal 1995. Packaging
materials segment net sales increased to $93.9 million in fiscal 1996 from
$20.7 million in fiscal 1995. The increase was due to $66.9 million of sales
of bonding wire products following the AFW acquisition and $6.4 million due to
increased sales volumes of expendable tools.

International sales (shipments of the Company's products with ultimate
foreign destinations) comprised 79% and 78% of the Company's net sales during
fiscal 1996 and 1995, respectively. Sales to customers in the Asia/Pacific
region (including Korea, Taiwan, Malaysia, the Philippines, Japan, Singapore,
Thailand and Hong Kong) accounted for approximately 72% of the Company's net
sales in both fiscal 1996 and 1995. In fiscal 1996, sales to customers located
in Malaysia, Korea and the Philippines increased compared to fiscal 1995
levels, while sales to Taiwan-based customers declined significantly in fiscal
1996. The decline in Taiwan in part reflected the impact of geopolitical
uncertainty concerning China's reaction to the 1996 elections in Taiwan.

Gross profit as a percentage of net sales declined to 37.2% in fiscal 1996
compared to 45.0% in fiscal 1995. Gross margin declines were experienced in
both the equipment segment and the packaging materials segment. As a result of
the rapid and substantial decline in customer demand for the Company's
equipment in the second half of fiscal 1996, the Company experienced
unfavorable overhead absorption during the third and fourth quarters of fiscal
1996. Provisions for excess and obsolete inventory totaled $4.5 million in
fiscal 1996 compared to $2.8 million in the prior year. The rapid decline in
customer demand in fiscal 1996, particularly for the Model 1488 turbo ball
bonders, and the anticipated transition to the new generation Model 8020 ball
bonders in the second half of calendar 1997, caused the Company to recognize
approximately $2.8 million of the 1996 provision for excess and

21
<PAGE>

obsolete inventory in the fourth quarter. Thus, equipment segment gross profit
as a percentage of net sales decreased to 42.5% for fiscal 1996 compared to
45.3% for fiscal 1995. Gross profit as a percentage of net sales in the
packaging materials segment decreased to 19.6% for fiscal 1996 compared to
40.7% for fiscal 1995. The decrease principally reflects the effect of the AFW
acquisition, as sales of bonding wire products have historically had a
substantially lower gross profit margin than the Company's other products.

SG&A expenses increased to $71.9 million in fiscal 1996 compared to $50.7
million in fiscal 1995. The increase of $21.2 million consisted of
approximately $9.4 million related to the equipment segment, $10.6 million
related to the packaging materials segment and $1.1 million of incremental
corporate costs. In the equipment segment, higher employment and travel
related costs, primarily in connection with the Company's worldwide customer
support activities during the first half of fiscal 1996, contributed to the
increase. Incremental goodwill amortization of $2.1 million and other SG&A
costs of $5.8 million associated with the AFW operation accounted for the
majority of the increase in the packaging materials segment. Higher sales
commissions related to increased sales of packaging materials, increased
travel costs related to AFW integration activities and increased
administrative costs to support the expanded worldwide activities of the
packaging materials segment also contributed to the fiscal 1996 increase.
Corporate costs grew principally as a result of implementation activities
related to a new worldwide computer system.

In response to the rapid decline in customer demand for the Company's
products during the latter half of fiscal 1996, the Company reduced its
worldwide work force, primarily in the equipment segment, suspended the
planned expansion of its Willow Grove, Pennsylvania facility and deferred the
implementation of a new worldwide integrated computer system. As a result of
these actions, in the fourth quarter of fiscal 1996, the Company incurred
severance costs totaling $1.2 million and a $1.8 million charge to write-off
costs incurred in connection with the suspended Willow Grove facility
expansion.

R&D costs increased to $52.4 million in fiscal 1996 compared to $30.9
million for the prior fiscal year. The majority of the R&D costs incurred were
in the equipment segment. Approximately $13.0 million of the increase was due
to engineering activities associated with the 8000 family of products,
principally the Model 8020 development program. The fiscal 1996 increase also
included approximately $1.0 million related to the write-down of certain
engineering prototype machines to their net realizable value. The remaining
R&D spending increases related to development activities for other products
and continuous improvements of existing products. Packaging materials segment
R&D costs increased to $1.0 million as compared to fiscal 1995 levels.
Substantially all of the R&D spending in the packaging materials segment
related to continuous improvement activities for existing products. Gross R&D
expenditures were partially offset by funding received from customers and
governmental subsidies totaling $2.5 million in fiscal 1996 compared to $2.8
million in fiscal 1995.

Operating income declined to $17.4 million in fiscal 1996 from $55.4 million
in fiscal 1995. The decline largely resulted from higher operating costs in
the equipment segment and to the decline in equipment segment gross profits
during the latter half of fiscal 1996. Most of the decline in operating income
was realized in the United States as the United States operation incurred the
majority of the Company's R&D expenses and corporate costs and recognized the
majority of the fiscal 1996 fourth quarter charges.

The increase in interest expense in fiscal 1996 was primarily attributable
to borrowings of $50.0 million under the Company's bank credit facility
related to the financing of the Company's October 1995 AFW acquisition. Fiscal
1996 first quarter results included the write-off of approximately $630,000 of
costs incurred in connection with a proposed public offering of the Company's
Common Stock. Also, during fiscal 1996, the Company contributed $2.6 million
of capital to FCT, and recognized $1.0 million as its proportionate share of
the joint venture's operating loss.

22
<PAGE>

The Company's effective tax rate increased to 24% for fiscal 1996 compared
to 23% in fiscal 1995. The increase was due primarily to the amount and
geographic distribution of taxable income in fiscal 1996. In connection with
the AFW acquisition, the Company acquired a $7.1 million United States federal
net operating loss ("NOL") carryforward. During fiscal 1996, AFW's United
States manufacturing operation experienced a small loss. Since the Company
cannot reasonably forecast sufficient future United States earnings by this
subsidiary to fully utilize the acquired NOL during the carryforward period, a
valuation allowance was established for the full amount of this potential tax
benefit. If realized, such tax benefits would reduce the recorded amount of
AFW goodwill.

Net income declined to $11.8 million in fiscal 1996 as compared to $42.8
million in fiscal 1995 due to the factors previously enumerated.

Fiscal Years Ended September 30, 1995 and September 30, 1994

The Company recorded bookings totaling $342.4 million during the fiscal year
ended September 30, 1995 compared to $178.0 million during fiscal 1994. The
increase in customer orders was primarily attributable to the following
factors. First, growing end-user demand for semiconductor devices resulted in
industry-wide expansion both in wafer fabrication capacity and semiconductor
assembly capacity in 1995. In addition, certain semiconductor manufacturers
replaced older assembly capital equipment with newer, higher throughput
machines capable of handling more complex semiconductor devices for a wider
variety of applications. Finally, enhanced versions of the Company's ball
bonder (Model 1488 turbo -- introduced in late fiscal 1994) and wedge bonder
(Model 1474fp --introduced in the second quarter of fiscal 1995) offered
significant performance advantages compared to the Company's earlier models,
including greater throughput, finer pitch capabilities and improved
programmability to handle a wider variety of applications. Favorable customer
acceptance of these enhanced models contributed to the Company's increased
volume of orders during fiscal 1995. At September 30, 1995, the backlog of
customer orders totaled approximately $84.7 million compared to $46.8 million
at September 30, 1994.

Net sales for the fiscal year ended September 30, 1995 increased 76% to
$304.5 million compared to $173.3 million during fiscal 1994. Approximately
$123.6 million of this increase was due to higher unit volume, primarily of
the Company's Model 1488 turbo ball bonders and 1474fp wedge bonders, and, to
a lesser extent, to increased sales of expendable tools. Higher selling prices
for the Model 1488 turbo ball bonder and Model 1474fp wedge bonder contributed
approximately $7.6 million to net sales in fiscal 1995, over the amounts
reported in fiscal 1994. In addition, approximately $6.1 million of the volume
increase was attributable to sales of products added from the July 1994
acquisition of Assembly Technologies ("AT"), a manufacturer of die bonders. By
geographic region, increases in net sales in fiscal 1995 as compared to fiscal
1994 were primarily attributable to customers located in the Asia/Pacific
region and, to a lesser extent, to customers located in the United States.
Sales to customers in the Asia/Pacific region and the United States accounted
for more than 90% of the Company's net sales in fiscal 1995.

Gross profit as a percentage of net sales increased to 45.0% for fiscal 1995
compared to 41.5% for fiscal 1994. The increase in the gross profit percentage
resulted principally from improved manufacturing overhead absorption
associated with higher sales volumes, improved gross profit margins on the
ball and wedge bonder products largely due to the higher selling prices
realized on the new enhanced models and a shift in sales mix toward higher
margin wedge bonders. During fiscal 1994, the wedge bonder product line
comprised 14% of net sales; in fiscal 1995, wedge bonder products accounted
for 20% of net sales. Partially offsetting the above factors were additional
inventory reserves established for slower selling products during fiscal 1995.

SG&A totaled $50.7 million during fiscal 1995 compared to $36.8 million
during fiscal 1994. This increase was primarily attributable to higher
employment levels required to support the higher volume

23
<PAGE>

of business, increased sales incentives and commissions resulting from the
higher sales levels, increased management incentives associated with improved
earnings and higher outside contractor costs associated with ongoing internal
management information systems development efforts. Of the total increase in
SG&A costs, $1.5 million was related to the incremental costs incurred by the
Company to market and support die bonder products added through the July 1994
acquisition of AT.

Net R&D costs increased to $30.9 million for the fiscal year ended September
30, 1995 compared to $21.3 million for the prior fiscal year. Of the $9.6
million increase in fiscal 1995, $2.0 million resulted from incremental
expenditures related to development of the Company's next generation of die
bonders and enhancements to die bonder products. The remainder consisted
primarily of personnel related costs, outside contractor costs and prototype
materials related to new product development. Gross R&D expenses were
partially offset by funding received from customers and governmental subsidies
totaling $2.8 million in fiscal 1995 and $2.0 million in fiscal 1994.

Operating income totaled $55.4 million for fiscal 1995 compared to $13.9
million for the same period in fiscal 1994. This improvement resulted
principally from the higher net sales and improved gross profit margins,
offset in part by the increased operating expenses noted above. The majority
of the increase in operating profit was realized in the United States, where
the Company maintains its principal manufacturing operations, and in Hong Kong
where the Company's Asia/Pacific sales activities are centered.

During fiscal 1995, all of the Company's remaining 8% Convertible
Subordinated Debentures were converted into Common Stock or redeemed. As a
result, interest expense during fiscal 1995 was lower than the amount reported
in fiscal 1994. The increase in the effective tax rate to 23% in fiscal 1995
compared to the fiscal 1994 rate of 20% was due primarily to utilization of
remaining NOL carryforwards in fiscal 1994, utilization in the United States
of R&D tax credits not previously used due to the effects of net operating
losses, and the amount and geographic distribution of taxable income in fiscal
1995.

Net income increased to $42.8 million in fiscal 1995 as compared to $10.4
million in fiscal 1994 due to the factors previously enumerated.

24
<PAGE>

Quarterly Operating Results

The following table presents the Company's historical unaudited quarterly
results of operations for the Company's most recent nine fiscal quarters. This
data is derived from the Company's annual and quarterly financial statements
which are incorporated into this Prospectus by reference. In the opinion of
management, such quarterly financial information has been prepared on the same
basis as the Company's annual financial statements and includes all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the financial results set forth therein. Results of operations
for any previous quarter are not necessarily indicative of results for any
future period. The following discussion is qualified by the more detailed
discussion of these quarterly results by management which are contained in the
Company's quarterly filings for the respective periods.

<TABLE>
<CAPTION>
FISCAL 1995 FISCAL 1996 FISCAL 1997
----------------------------------- -------------------------------------- -----------------
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31
------- ------- ------- -------- -------- -------- ------- -------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $51,459 $64,785 $87,296 $100,969 $127,189 $115,374 $76,912 $ 61,701 $81,844 $121,491
Cost of goods sold...... 29,414 35,628 47,456 54,959 75,113 69,877 49,111 45,390 53,063 76,256
------- ------- ------- -------- -------- -------- ------- -------- ------- --------
Gross profit............ 22,045 29,157 39,840 46,010 52,076 45,497 27,801 16,311 28,781 45,235
Selling, general and
administrative......... 10,655 11,668 13,153 15,252 16,988 18,256 18,192 18,427 16,227 18,736
Research and
development, net....... 6,160 6,546 8,316 9,862 11,276 12,155 12,937 16,036 10,693 11,772
------- ------- ------- -------- -------- -------- ------- -------- ------- --------
Income (loss) from
operations............. 5,230 10,943 18,371 20,896 23,812 15,086 (3,328) (18,152) 1,861 14,727
Interest income
(expense), net......... (197) (223) 93 500 (172) 40 16 (48) (180) (277)
Equity in loss of joint
venture................ -- -- -- -- -- (48) (192) (754) (1,083) (1,546)
Other expense........... -- -- -- -- (630) -- -- -- -- --
------- ------- ------- -------- -------- -------- ------- -------- ------- --------
Income (loss) before
income taxes........... 5,033 10,720 18,464 21,396 23,010 15,078 (3,504) (18,954) 598 12,904
Income tax provision
(benefit).............. 1,309 2,466 4,431 4,585 6,673 4,373 (1,016) (6,247) 179 3,602
------- ------- ------- -------- -------- -------- ------- -------- ------- --------
Net income (loss)....... $ 3,724 $ 8,254 $14,033 $ 16,811 $ 16,337 $ 10,705 $(2,488) $(12,707) $ 419 $ 9,302
======= ======= ======= ======== ======== ======== ======= ======== ======= ========
AS A PERCENTAGE OF NET
SALES:
Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold...... 57.2 55.0 54.4 54.4 59.1 60.6 63.9 73.6 64.8 62.8
------- ------- ------- -------- -------- -------- ------- -------- ------- --------
Gross profit............ 42.8 45.0 45.6 45.6 40.9 39.4 36.1 26.4 35.2 37.2
Selling, general and
administrative......... 20.7 18.0 15.1 15.1 13.4 15.8 23.7 29.9 19.8 15.4
Research and
development, net....... 11.9 10.1 9.5 9.8 8.9 10.5 16.8 26.0 13.1 9.7
------- ------- ------- -------- -------- -------- ------- -------- ------- --------
Income (loss) from
operations............. 10.2 16.9 21.0 20.7 18.6 13.1 (4.4) (29.5) 2.3 12.1
Interest income
(expense), net......... (0.4) (0.4) 0.2 0.5 (0.1) -- -- (0.1) (0.3) (0.2)
Equity in loss of joint
venture................ -- -- -- -- -- -- (0.2) (1.2) (1.3) (1.3)
Other expense........... -- -- -- -- (0.5) -- -- -- -- --
------- ------- ------- -------- -------- -------- ------- -------- ------- --------
Income (loss) before
income taxes........... 9.8 16.5 21.2 21.2 18.0 13.1 (4.6) (30.8) 0.7 10.6
Income tax provision
(benefit).............. 2.5 3.8 5.1 4.6 5.2 3.8 (1.3) (10.1) 0.2 2.9
------- ------- ------- -------- -------- -------- ------- -------- ------- --------
Net income (loss)....... 7.3% 12.7% 16.1% 16.6% 12.8% 9.3% (3.3)% (20.7)% 0.5% 7.7%
======= ======= ======= ======== ======== ======== ======= ======== ======= ========
</TABLE>

The Company's quarterly operating results have fluctuated significantly in
the past and may fluctuate significantly in the future depending upon a variety
of factors, including the timing of significant orders, the mix of products
sold, changes in pricing by the Company, its competitors, customers or
suppliers, lengthy sales cycles for the Company's systems, timing of new
product announcements and releases by the Company or its competitors, market
acceptance of new products

25
<PAGE>

and enhanced versions of the Company's existing products, capital spending
patterns by customers, manufacturing difficulties or inefficiencies associated
with existing products or new product introductions and the ability to produce
systems in volume and meet customer requirements, product discounts,
volatility in the Company's targeted markets, political and economic
instability, natural disasters, regulatory changes, possible disruptions of
operations caused by expanding existing facilities or moving into new
facilities, expenses associated with acquisitions and alliances and various
competitive factors, including price-based competition and competition from
vendors employing other technologies.
See "Risk Factors-- Fluctuations in Operating Results; Limited System Sales"
and "-- Volatility of Semiconductor Industry."

Throughout fiscal 1995, net sales increased in each successive quarter and
peaked in the first quarter of fiscal 1996, primarily reflecting increased
unit sales of the Company's ball and wedge bonders. This growth was
attributable both to increased customer acceptance of enhanced models of wire
bonders and to industry-wide demand for increased assembly capacity. In
October 1995, the Company acquired AFW which contributed approximately $66.9
million to fiscal 1996 net sales. Commencing in the second quarter of fiscal
1996, quarterly net sales began to decline due to industry-wide softening in
demand for semiconductor capital equipment. However, demand for capital
equipment, primarily the Company's wire bonders, rebounded in the first
quarter of fiscal 1997 and continued to increase in the second quarter,
growing by 48% over the prior quarter.

Gross profit as a percentage of net sales increased during fiscal 1995
principally due to improved manufacturing overhead absorption associated with
higher unit sales volumes and a shift in product mix to newer model wire
bonders with higher selling prices. Fiscal 1996 gross profit margins declined
primarily due to the rapid decrease in unit volume of equipment sales which
led to unfavorable manufacturing overhead absorption and the write-down of
excess inventories in the fourth quarter of fiscal 1996, and to an increase in
the proportion of total sales represented by lower margin AFW bonding wire
products. As a result of inventory write-downs in the fourth quarter of fiscal
1996 and of the growth in equipment sales in the first quarter of fiscal 1997,
gross margin increased to 35.2% in the first quarter of fiscal 1997 compared
to 26.4% in the fiscal 1996 fourth quarter.

SG&A expenses grew steadily throughout the fiscal 1995 and 1996 quarterly
periods, principally reflecting increases in employment-related costs as the
Company expanded its sales, marketing and customer support capabilities to
support the higher volume of business activities. In addition, SG&A costs
increased in fiscal 1996 as a result of the AFW acquisition. Lower SG&A costs
in the fiscal 1997 first quarter primarily reflect the effect of certain cost
reduction efforts implemented in the fiscal 1996 fourth quarter. SG&A expenses
increased in the second quarter of fiscal 1997 compared to the first quarter
of fiscal 1997 due primarily to severence and relocation related charges in
the packaging materials segment and a company-wide annual merit increase
effective January 1997. The Company expects the dollar amount of its SG&A
expenditures to increase in the future, although such expenses may vary as a
percentage of net sales from quarter to quarter.

R&D expenses have also risen significantly over the periods presented
through fiscal 1996 as the Company has increased its development activities,
both for continuous improvements and enhancements of existing platforms
(leading to enhanced versions of existing products such as the Model 1488 plus
ball bonder and the Model 1474fp wedge bonder) and toward the development of
new generations of machines, including the 8000 family of wire bonders. The
decline in R&D costs during the first quarter of fiscal 1997 was primarily
caused by reduced outside contract development costs and lower expenditures
for prototype materials in the Company's equipment segment. The Company
expects the dollar amount of its R&D expenditures to increase in the future,
although such expenses may vary as a percentage of sales from quarter to
quarter.

Operating income increased steadily throughout fiscal 1995 and the first
quarter of fiscal 1996, due largely to the increased sales and gross profits
related to the Company's equipment segment. The rapid

26
<PAGE>

decline in quarterly net sales and gross profits in fiscal 1996 without
significant reductions in operating costs contributed to the quarterly losses
during the latter half of fiscal 1996. Primarily as a result of the recent
growth in demand for the Company's wire bonding equipment, operating income
increased to $1.9 million in the first quarter of fiscal 1997 and $14.7
million in the second quarter of fiscal 1997 from an operating loss of $18.2
million in the fourth quarter of fiscal 1996.

EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS

In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-based Compensation" ("SFAS 123"), was issued. The
statement requires the recognition of the fair value of stock options and
other stock-based compensation to be reflected as compensation expense in the
income statement, or disclosure of the pro-forma effect on net income and
earnings per share of such compensation expense in the footnotes to the
Company's financial statements commencing with the 1997 fiscal year. The
Company expects to adopt SFAS 123 on a disclosure basis only. Accordingly,
implementation of SFAS 123 is not expected to impact the Company's
consolidated balance sheet or income statement.

In February 1997, Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128"), was issued. The statement specifies the
computation, presentation, and disclosure requirements for earnings per share.
The Company will implement SFAS 128 commencing with the first quarter of
fiscal 1998, at which time all earnings per share data for prior periods will
be restated to conform the provisions of the statement. The principal effect
of SFAS 128 will be to replace the current "Primary income per share"
calculation with "Basic income per share."

LIQUIDITY AND CAPITAL RESOURCES

During the past three fiscal years and the six-month period ended March 31,
1997, the Company has financed its operations principally through cash flows
from operating activities, while its acquisitions of AFW in October 1995 and
Semitec in October 1996 were financed with borrowings. Cash generated by
operating activities totaled $1.4 million during the first half of fiscal 1997
compared to $16.9 million during the first half of fiscal 1996. Cash and total
investments decreased to $40.7 million at March 31, 1997 from the $58.9
million at September 30, 1996. Reduced cash flows from operating activities in
the first half of fiscal 1997 as compared to the first half of fiscal 1996
primarily resulted from lower sales and profitability in the first half of
fiscal 1997.

At March 31, 1997, working capital decreased to $108.0 million compared to
$113.8 million at September 30, 1996. The accounts receivable balance at March
31, 1997 increased by $44.6 million compared to the September 30, 1996
balance. This increase resulted from increased sales volume in the fiscal 1997
second quarter compared to the fiscal 1996 fourth quarter. Inventory decreased
by $4.0 million at March 31, 1997, primarily due to the effect of higher sales
in the first six months of fiscal 1997 and the Company's efforts to more
effectively manage inventory levels in light of anticipated product
transitions later in calendar 1997.

Trade accounts payable and accrued expenses increased by approximately $18.3
million at March 31, 1997 compared to their September 30, 1996 balances. The
increase primarily reflects the effect of increased inventory purchases on
trade accounts payable as a result of the higher customer order rate.

During the first half of fiscal 1997, the Company invested approximately
$6.8 million in property and equipment, primarily to complete the construction
of its Micro-Swiss manufacturing facility in Yokneam, Israel and to upgrade
equipment used in the Company's manufacturing and R&D activities. The Company
presently expects fiscal 1997 capital spending to approximate $18.0 million.
In addition, the Company intends to make capital contributions and loans to
FCT. See "--Introduction." The

27
<PAGE>

Company's principal capital projects planned for fiscal 1997 include the
purchase of tooling and equipment necessary for the manufacture of new
products, including the 8000 family of wire bonders, relocation of its
Singapore-based AFW manufacturing operation into a new location scheduled to
occur in late calendar 1997, the purchase of equipment necessary to expand
manufacturing capacity, primarily in the United States and Israel, and
continued investments in a new global management information system.
Relocation of AFW's manufacturing operation to a new facility in Singapore is
not expected to have a material adverse effect on the Company's results of
operations, cash flows or liquidity.

The Company has a $10.0 million revolving credit facility expiring February
28, 1998 and a $50.0 million revolving credit facility expiring March 30,
2001. There were no borrowings under the $10.0 million credit line during
fiscal 1996 or the first half of fiscal 1997. The Company had outstanding the
entire amount of the $50.0 million revolving credit facility at March 31, 1997
and intends to repay the amount in full with the proceeds of this Offering.
After such repayment, the Company intends to retain both of its revolving
credit facilities.

A significant portion of the Company's consolidated earnings are
attributable to undistributed earnings of certain of its foreign subsidiaries.
Deferred income taxes have not been provided on that portion of undistributed
foreign earnings which is expected to be indefinitely reinvested in foreign
operations. If funds were required to be repatriated to fund the Company's
operations or other financial obligations, substantial additional United
States federal income tax expense could be required to be recognized.

The Company believes that anticipated cash flows from operations, its
working capital and amounts expected to be available under its revolving
credit facilities and the net proceeds of this Offering will be sufficient to
meet the Company's liquidity and capital requirements for at least the next 12
months. However, the Company may seek, as required, equity or debt financing
to provide capital for corporate purposes and/or to fund strategic business
opportunities, including possible acquisitions, joint ventures, alliances or
other business arrangements which could require substantial capital outlays.
The timing and amount of such potential capital requirements cannot be
determined at this time and will depend on a number of factors, including
demand for the Company's products, semiconductor and semiconductor capital
equipment industry conditions and competitive factors and the nature and size
of strategic business opportunities which the Company may elect to pursue.

28
<PAGE>

BUSINESS

This Prospectus contains certain forward-looking statements within the
meaning of the federal securities laws. Actual results and the timing of
certain events could differ materially from those projected in the forward-
looking statements due to a number of factors, including those set forth under
"Risk Factors" and elsewhere in this Prospectus and in the documents
incorporated by reference herein.

The Company designs, manufactures and markets capital equipment, related
spare parts and packaging materials used to assemble semiconductor devices.
The Company also services, maintains, repairs and upgrades assembly equipment.
According to VLSI, as of December 31, 1995, K&S was the world's largest
supplier of semiconductor assembly equipment. The Company offers systems that
address a broad range of applications in the assembly process including wire
bonding systems, wafer dicing saws and die, TAB and flip-chip bonders. Through
its AFW, Micro-Swiss and Semitec subsidiaries, the Company offers packaging
materials, including bonding wire, capillaries, wedges, die collets and saw
blades.

INDUSTRY BACKGROUND

The worldwide market for semiconductors exceeded $137 billion in 1996 and
VLSI projects this market to reach approximately $340 billion by 2001. The
market for semiconductor assembly equipment is expected to continue to be
driven by the demand for ICs, as well as the proliferation of different
package types and technological advances in IC packages. Different types of
devices such as microprocessors, logic devices and memory devices often
require different assembly and packaging solutions. In addition, current
generation semiconductors are more complex, more densely fabricated and more
highly integrated than those of prior generations. To package these newer
devices, assembly equipment must be able to handle smaller, more complex
packages with higher pin counts. Furthermore, device manufacturers and
assemblers continue to demand equipment with faster throughput, greater
reliability, more automated manufacturing support and lower cost of ownership.
The market for the packaging materials used in the semiconductor assembly
process is similarly driven by IC unit volume and increased technological
demands. These demands typically include package size reduction and greater
consistency or uniformity of materials.

As demand for ICs grows, semiconductor manufacturers increase capacity by
expanding and updating existing fabs and constructing new fabs. This expansion
has historically exhibited strong cyclical characteristics and continues to do
so. For example, in late 1995 and throughout most of 1996, many semiconductor
manufacturers experienced a reduction in order growth and, in a few instances,
a reduction in overall orders. These events caused certain semiconductor
manufacturers to postpone or cancel equipment deliveries to previously planned
expansion or new fab construction projects, providing evidence of the
continuing cyclical nature of this industry. However, as new fabrication
facilities come on line and existing facilities are expanded and upgraded, the
Company anticipates that the semiconductor industry will need to add capacity
to assemble the increased output of processed wafers. According to VLSI, sales
of semiconductor assembly equipment totaled approximately $2.1 billion in 1996
and are projected to grow to approximately $5.0 billion by 2001. Sales of
semiconductor packaging materials were approximately $7.3 billion in 1995 and
are expected to grow to approximately $9.4 billion by 1998 according to Rose
Associates.

Semiconductor Manufacturing Process

The manufacture of semiconductors requires complex and precise steps which
can be broadly grouped into wafer fabrication, assembly and test. Wafer
fabrication, the first step in the semiconductor manufacturing process, starts
with raw silicon wafers and ends with finished devices in the form of die on
wafers. After fabricated wafers are tested, they typically are shipped to
assembly facilities located

29
<PAGE>

primarily in the Asia/Pacific region. Set forth below is a diagram of some of
the major steps in the semiconductor manufacturing process:

[DIAGRAM OF SEMICONDUCTOR MANUFACTURING PROCESS SHOWING A SILICON WAFER FINISHED
SEMICONDUCTOR DEVICE MOVING THROUGH WAFER FABRICATION, ASSEMBLY AND TEST PROCESS
TO RESULT IN A FINISHED IC DEVICE. THE DIAGRAM FURTHER ILLUSTRATES THE ASSEMBLY
PROCESS STEPS OF WAFER DICING, DIE BONDING, WIRE BONDING AND ENCAPSULATION.]

Semiconductor devices are small and fragile and must be packaged to protect
them and facilitate their connection to electronic systems. "Assembly" refers
to those process steps required to package semiconductor devices. The packages
are typically based on either a stamped metal leadframe or a piece of
laminate, which is subsequently molded with plastic, or on ceramic, depending
on the device and the application in which it will be used.

The semiconductor assembly process begins with the mounting of a finished,
tested wafer onto a carrier, after which a dicing saw cuts the wafer into
individual die. The cut wafer is then moved to a die bonder which picks each
good die off the wafer and bonds it to a package. Next, the device is wire
bonded. Very fine gold or aluminum wire (typically 0.001 inches in diameter)
is bonded between specific locations called bond pads on the die and
corresponding leads on the package in order to create the electrical
connections necessary for the device to function. After wire bonding, the
package is encapsulated. For leadframe-based packages, plastic is molded
around the package and the leads are then trimmed and formed; for laminate-
based packages, plastic is molded on the laminate and balls are then attached.
For ceramic packages, encapsulation is accomplished by mounting a lid over the
die. After encapsulation, devices are re-tested and are then marked and
prepared for shipment.

COMPANY STRATEGY

The Company's principal strategy is to improve and broaden the range of
products and services it offers to its customers. To implement this strategy,
the Company continues to pursue the following objectives:

Enhance Leadership Position in Wire Bonders. The Company believes it is
the world's leading supplier of wire bonders. In addition to the technical
capabilities of its products, the Company believes its leadership position
in the wire bonder market derives, in part, from a high level of customer
support. The Company intends to enhance its worldwide market leadership by
continuing to improve the technical performance of its wire bonders while
reducing their cost of ownership. The Company's ongoing product development
strategy includes continuous improvement of its existing wire bonding
products, as well as the development of a next-generation family of wire
bonders. The Company is currently developing its next generation of wire
bonders, the 8000 family, which is based on a new control platform. The
Company's 8000 family is being designed to enhance the technical
performance and further reduce the cost of ownership of K&S' wire bonder
products. The first product of this family, the Model 8020, is currently
scheduled to be released in the second

30
<PAGE>

half of calendar 1997. The Company also has developed modules that allow
the Company's wire bonders to be integrated with automatic material
handling systems and with factory controlled networks in response to the
trend of certain assemblers to increase factory automation.

Broaden Assembly Equipment Product Lines. The Company continues to
leverage its significant investment in customer relationships by offering
its customers a broader range of assembly equipment. The Company intends to
increase the market penetration of its current product lines and to broaden
its assembly product offerings through acquisitions, strategic alliances
and internal development. To that end, the Company entered into a
Manufacturing License and Supply Agreement with Tokyo Seimitsu Co. Ltd.
("TSK") in October 1995. Under the terms of this agreement, the Company
manufactures and distributes TSK's automatic dicing saw as the Company's
Model 7500 and manufactures that saw for sale to, and for distribution by,
TSK as TSK's Model 5000. In addition, in February 1997, the Company and PRI
signed a non-binding memorandum of understanding to cooperate in the
development of technology to integrate and automate equipment used in
semiconductor assembly. The Company also continues to focus internal
development efforts on alternate assembly technologies.

Expand Packaging Materials Product Offerings. The Company is adding to
its packaging materials and product offerings in an effort to increase its
revenues related to the manufacture of ICs as opposed to the expansion of
IC manufacturing capacity. The Company's packaging materials include a
broad range of ceramic, carbide and metal tools used in die and wire
bonding, such as die collets, capillaries and wedges. In October 1995, the
Company acquired AFW which significantly increased the size of its
packaging materials business by adding gold and aluminum bonding wire to
its product offerings. In addition, in October 1996, the Company acquired
Semitec, a manufacturer of semiconductor dicing saw blades.

Focus on Service and Spare Parts Opportunities. The Company seeks to
capture additional revenue opportunities from its installed base of
assembly equipment through sales of spare parts, repair and maintenance,
training services and the reconfiguring and upgrading of systems. The
Company has established relationships with certain key customers whereby
the Company performs repair and maintenance and provides equipment upgrades
and training, enabling these customers to outsource these functions to the
Company. The Company intends to establish similar relationships with other
key customers. The Company plans to expand its revenue in these areas by
offering more comprehensive services designed to reduce its customers' cost
of ownership.

Pursue Other Semiconductor Packaging Technologies. The Company
continuously pursues the development of additional semiconductor packaging
technologies through internal research and development efforts and the
evaluation of potential acquisitions and alliances with third parties. For
example, in February 1996, the Company entered into a joint venture
agreement with Delco Electronics Corporation providing for the formation
and management of FCT. FCT was formed to provide wafer bumping services on
a contract basis and to license related technologies, and has recently
completed construction of its manufacturing facility in Phoenix, Arizona.
FCT is currently working with its customers to have its manufacturing
process qualified.

31
<PAGE>

PRODUCTS

K&S offers a broad range of semiconductor assembly equipment, packaging
materials and complementary services and spare parts used in the semiconductor
assembly process. Set forth below is a table listing the approximate
percentage of the Company's net sales by principal product area for its fiscal
years ended September 30, 1994, 1995 and 1996 and the six months ended March
31, 1997.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS
SEPTEMBER 30, ENDED
--------------------- MARCH 31,
1994 1995 1996 1997
----- ----- ----- ----------
<S> <C> <C> <C> <C>
Wire bonders............................ 68% 74% 57% 60%
Additional assembly equipment........... 10 9 10 8
Packaging materials..................... 8 7 25 25
Services and spare parts................ 14 10 8 7
----- ----- ----- ---
100% 100% 100% 100%
===== ===== ===== ===
</TABLE>

In October 1995, the Company acquired AFW which significantly increased the
size of its packaging materials business by adding gold and aluminum bonding
wire to its product offerings. In addition, in October 1996, the Company
acquired Semitec, a manufacturer of semiconductor dicing saw blades.

Wire Bonders

The Company's principal product line is its family of wire bonders, which
are used to connect extremely fine wires, typically made of gold or aluminum,
between the bonding pads on the die and the leads on the package to which the
die has been bonded. The Company offers both ball and wedge bonders in
automatic and manual configurations. Ball bonders typically are used for
leadframe-based and laminate-based packages while wedge bonders typically are
used for ceramic packages. The Company's principal wire bonders are its Model
1488 plus ball bonder and Model 1474fp wedge bonder. The Company believes that
its wire bonders offer competitive advantages based on high throughput and
superior process control enabling fine pitch bonding and long, low wire loops,
which are needed to assemble advanced IC packages. The selling prices for the
Company's automatic wire bonders range from $60,000 to over $200,000 and from
$8,000 to $40,000 for manual wire bonders, in each case depending upon system
configuration and purchase volume.

32
<PAGE>

or achieve market acceptance. To the extent that the Company fails to
accurately forecast demand in volume and configuration for both its current
and next generation wire bonders and generally to manage product transitions
successfully, it could experience reduced orders, delays in product shipments
and increased risk of inventory obsolescence. There can be no assurance that
the Company will successfully develop and manufacture new products, including
the Model 8020, that new products introduced by the Company will be accepted
in the marketplace or that the Company will manage its product transitions
successfully. The Company's failure to do any of the foregoing could
materially adversely affect the Company's business, financial condition and
operating results.

Additional Semiconductor Assembly Equipment

In addition to wire bonders, the Company produces other types of
semiconductor assembly equipment, including dicing saws, die bonders, TAB
bonders and flip-chip bonders, which allows the Company to leverage its
significant investment in customer relationships by offering its customers a
broad range of assembly equipment. In addition to wire bonders, principal
products offered by the Company consist of the following:

Dicing Saws. After precise automatic positioning of the wafer, a dicing
saw is used to cut it into individual die using diamond-embedded saw
blades. Dicing saws range in price from $60,000 to more than $230,000. In
October 1995, the Company entered into a Manufacturing License and Supply
Agreement with TSK. Under the terms of this agreement, the Company
manufactures and distributes TSK's automatic dicing saw as the Company's
Model 7500 and manufactures that saw for sale to, and for distribution by,
TSK as TSK's Model 5000. This product is produced in the Company's Israeli
machine manufacturing facility.

Die Bonders. Die bonders are used to attach a semiconductor die to a
leadframe or other package before wire bonding. The Company's product line
includes the Model 6900, an automatic multi-process assembly system which
can be configured to support either conventional die bonding applications
or alternate semiconductor assembly technologies, and Models 4206 and 5408
machines. Die bonders range in price from $100,000 to more than $300,000.

Tape Automated Bonding (TAB). TAB is an alternate assembly method which
uses a thin, flexible film of laminated copper and polyamide in place of a
conventional package. In a TAB assembled device, the die is bonded directly
to copper leads, thereby eliminating the need for wire bonding. The
Company's principal TAB bonder is the Model SP2100. The selling price for
TAB bonders typically exceeds $375,000.

Flip-Chip Assembly Systems. Flip-chip is an alternate assembly technique
in which the die is mounted face down in a package or other electronic
system using conductive bumps, thereby eliminating the need for either
conventional die or wire bonding. The Company's Model 6900 can be
configured to support flip-chip applications. Selling prices for flip-chip
assembly systems typically exceed $300,000.

The Company also offers different configurations of certain of its products
for non-semiconductor applications, including the Company's Model 980 saw for
use in cutting and grinding hard and brittle materials, such as ceramic, glass
and ferrite, for applications such as the fabrication of chip capacitors or
disk drive heads. Similarly, a variant of the Model 2100 TAB bonder is used to
assemble ink jet printer cartridges.

Packaging Materials

The Company currently offers a range of packaging materials to semiconductor
device assemblers which it sells under the brand names "American Fine Wire,"
"Micro-Swiss" and "Semitec." The Company intends to expand this business in an
effort to increase its revenues related to the manufacture of ICs as opposed
to the expansion of IC manufacturing capacity. The Company sells its packaging

33
<PAGE>

materials for use with competitors' assembly equipment as well as its own
equipment. The Company's principal packaging materials products consist of the
following:

Bonding Wire. AFW is a manufacturer of very fine (typically 0.001 inches
in diameter) gold and aluminum wire used in the wire bonding process. AFW
produces wire to a wide range of specifications, which can satisfy most
wire bonding applications. Gold bonding wire is generally priced based on a
fabrication charge per 1,000 feet of wire, plus the value of the gold. To
minimize AFW's financial exposure to gold price fluctuations, AFW obtains
gold for fabrication pursuant to a contract with its gold supplier and only
purchases the gold upon shipment and sale of the finished product to the
customer. Accordingly, fluctuations in the price of gold are generally
absorbed by its gold supplier or passed on to AFW's customers.

Expendable Tools. The Micro-Swiss family of expendable tools includes
capillaries, wedges, die collets and saw blades. Capillaries and wedges are
used to feed out, attach and cut the wires used in wire bonding. Die
collets are used to pick up, place and bond die to packages. Saw blades are
used for cutting hard and brittle materials. Through its October 1996
acquisition of Semitec, the Company became a manufacturer of hub blades
which are used to cut silicon wafers into semiconductor die.

Services and Spare Parts

The Company believes that its knowledge and experience have positioned it to
deliver innovative, customer-specific services that reduce the customer's cost
of ownership associated with the Company's equipment. Historically, the
Company's offerings in this area were limited to spare parts, customer
training and extended warranty contracts. In response to customer trends in
outsourcing equipment-related services, the Company is focusing on providing
repair and maintenance services, a variety of equipment upgrades, machine and
component rebuild activities and expanded customer training. These services
are generally priced on a time and materials basis. The service and
maintenance arrangements are typically subject to annual or multi-year
contracts.

CUSTOMERS

The Company's customers include large semiconductor manufacturers and
subcontract assemblers worldwide. The following list sets forth certain
customers who have purchased in excess of $3.0 million of the Company's
products since the beginning of fiscal 1996.

Advanced Micro Devices Micron Technology
Advanced Semiconductor Engineering Motorola
Anam Electronics National Semiconductor
AT&T/Lucent Technologies Orient Semiconductor Electronics
Caesar Technology Philips Electronics
Fujitsu Samsung Pacific
Hyundai Electronics Industries SGS-Thomson Microelectronics
IBM Siemens
Intel Siliconware
Lexmark International

Sales to a relatively small number of customers historically have accounted
for a significant percentage of the Company's net sales. In fiscal 1994, sales
to Anam, Intel and Motorola accounted for 14.2%, 11.5% and 10.8%,
respectively, of the Company's net sales. In fiscal 1995, sales to Intel and
Anam accounted for 19.8% and 16.3%, respectively, of the Company's net sales.
During fiscal 1996, sales to Anam and Intel accounted for approximately 14.3%
and 11.2%, respectively, of the Company's net sales. For the six months ended
March 31, 1997, sales to Anam and Intel accounted for approximately 17.9% and
11.6%, respectively, of the Company's net sales.

34
<PAGE>

The Company believes that developing long-term relationships with its
customers is critical to its success. By establishing these relationships with
semiconductor manufacturers and subcontract assemblers, the Company gains
insight to its customers' future IC packaging strategies. This information
assists the Company in its efforts to develop process and equipment solutions
that address its customers' future assembly requirements.

The Company expects that sales of its products to a limited number of
customers will continue to account for a high percentage of net sales for the
foreseeable future. The loss or reduction of orders from a significant
customer, including losses or reductions due to manufacturing, reliability or
other difficulties associated with the Company's products, changes in customer
buying patterns, or market, economic or competitive conditions in the
semiconductor or subcontract assembly industries, could adversely affect the
Company's business, financial condition and operating results. See "Risk
Factors--Customer Concentration."

SALES AND CUSTOMER SUPPORT

The Company sells its products to semiconductor manufacturers and
subcontract assemblers, who are primarily located or have operations in the
Asia/Pacific region. Approximately 74%, 78%, 79% and 80% of the Company's net
sales for fiscal 1994, 1995 and 1996 and the first six months of fiscal 1997,
respectively, were to customers for delivery outside of the United States.

The Company markets its semiconductor assembly equipment and its packaging
materials through separate sales organizations. With respect to semiconductor
assembly equipment, the Company's direct sales force, consisting of
approximately 100 individuals at March 31, 1997, is principally responsible
for sales of major product lines to customers in the United States and the
Asia/Pacific region, including Japan. Lower volume product lines, as well as
all equipment sales to customers in Europe, are sold through a network of
manufacturer's representatives. The Company sells its packaging materials
product lines through a separate direct sales force and through manufacturers'
representatives.

The Company believes that providing comprehensive worldwide sales, service
and customer support are important competitive factors in the semiconductor
equipment industry. In order to support its United States and foreign
customers whose semiconductor assembly operations are located in the
Asia/Pacific region, the Company maintains a significant presence in the
region, with sales facilities in Hong Kong, Japan, Korea, Taiwan, Malaysia and
Singapore, a technology center in Japan and an applications lab in Singapore.
The Company supports its assembly equipment customers worldwide with over 100
customer service and support personnel at March 31, 1997, located in Hong
Kong, Japan, Korea, Malaysia, the Philippines, Singapore, Taiwan, Thailand and
the United States. The Company's local presence in the Asia/Pacific countries
enables it to provide more timely customer service and support and affords
customers the ability to place orders locally and to deal with service and
support personnel who speak the same language and are familiar with local
country practices.

BACKLOG

At March 31, 1997, the Company's backlog was approximately $110.0 million,
as compared to approximately $93.0 million at December 31, 1996 and
approximately $74.0 million at March 31, 1996. The Company's backlog consists
of product orders for which confirmed purchase orders have been received and
which are scheduled for shipment within 12 months. In addition, the Company
may allocate production capacity to customers for anticipated purchases for
which a confirmed purchase order has not yet been received. Virtually all
orders are subject to cancellation, deferral or rescheduling by the customer
with limited or no penalties. Because of the possibility of customer changes
in delivery schedules or cancellations and potential delays in product
shipments, the Company's backlog as of any particular date may not be
indicative of revenues for any succeeding quarterly period.

35
<PAGE>

MANUFACTURING

The Company's assembly equipment manufacturing activities consist primarily
of integrating components and subassemblies to create finished systems
configured to customer specifications. The Company performs system design,
assembly and testing in-house at its Willow Grove, Pennsylvania and Haifa,
Israel facilities, but utilizes an outsourcing strategy for the manufacture of
many of its major subassemblies. K&S believes that outsourcing enables it to
minimize its fixed costs and capital expenditures and allows the Company to
focus on product differentiation through system design and quality control.
The Company's just-in-time inventory management strategy has reduced
manufacturing cycle times and has limited on-hand inventory. The Company has
obtained ISO 9001 registration for most operations in its Willow Grove,
Pennsylvania facility and for both of its Israeli manufacturing facilities.

The Company manufactures its Micro-Swiss expendable tools at its facility in
Israel and its AFW product line, consisting of gold and aluminum bonding wire,
at facilities in Alabama, Singapore and Switzerland. The Company has
constructed a new facility for its Micro-Swiss operations in Israel. Semitec
dicing blades are manufactured in Santa Clara, California.

The Company relies on subcontractors to manufacture to the Company's
specifications many of the materials, components or subassemblies used in its
products. Certain of the Company's products require materials, components or
subassemblies of an exceptionally high degree of reliability, accuracy,
performance and purity. Currently there are a number of such items for which
there are only a single or limited number of suppliers which have been
accepted by the Company as a qualified supplier. The Company generally does
not maintain long-term contracts with its subcontractors and suppliers. While
the Company does not believe that its business is substantially dependent on
any contract or arrangement with any of its subcontractors or suppliers, the
Company's reliance on subcontractors and single source suppliers involves a
number of significant risks, including the loss of control over the
manufacturing process, the potential absence of adequate capacity and the
reduced control over delivery schedules, manufacturing yields, quality and
costs. Further, certain of the Company's subcontractors and suppliers are
relatively small operations and have limited finances and manufacturing
resources. In the event that any significant subcontractor or single source
supplier were to become unable or unwilling to continue to manufacture or sell
subassemblies, components or parts to the Company in required volumes and of
acceptable quality levels and prices, the Company would have to identify and
qualify acceptable replacements. The process of qualifying subcontractors and
suppliers could be lengthy, and no assurance can be given that any additional
sources would be available to the Company on a timely basis.

The Company has experienced, from time to time, reliability and quality
problems with certain key subassemblies provided by single source and other
suppliers. The Company also has experienced delays in the delivery of
subassemblies from these and other subcontractors in the past, which caused
delays in Company shipments. If supplies of such items were not available from
any such source at acceptable quality levels and prices and a relationship
with an alternative supplier could not be developed, shipments of the
Company's products could be interrupted and re-engineering of the affected
product could be required with resulting delays. In addition, from time to
time, the Company has experienced manufacturing difficulties and problems in
its own operations which have caused delays and have required remedial
measures. Such delays, interruption and re-engineering could damage the
Company's relationships with its customers and have a material adverse effect
on the Company's business, financial condition and operating results. See
"Risk Factors--Manufacturing Difficulties; Dependence on Subcontractors;
Single or Limited Sources of Supply."

RESEARCH AND PRODUCT DEVELOPMENT

Because technological change occurs rapidly in the semiconductor industry,
the Company devotes substantial resources to its research and development
programs to maintain its competitiveness. The

36
<PAGE>

Company employed approximately 370 individuals in research and development at
March 31, 1997. The Company pursues the continuous improvement and enhancement
of existing products while simultaneously developing next generation products.
For example, while the performance of current generation wire bonders is being
enhanced in accordance with a specific continuous improvement plan, the
Company is simultaneously developing the 8000 family of next generation wire
bonders, the first models of which are currently scheduled to be introduced in
the second half of calendar 1997. Most of the next generation equipment
presently being developed by the Company is expected to be based on modular,
interchangeable subsystems, including the 8000 control platform, which
management believes will promote more efficient and cost-effective
manufacturing operations, lower inventory levels, improved field service
capabilities and shorter product development cycles, which will allow the
Company to introduce new products more quickly.

The Company's net expenditures for research and development totaled
approximately $21.3 million, $30.9 million, $52.4 million and $22.5 million
during the fiscal years ended September 30, 1994, 1995 and 1996 and the six-
month period ended March 31, 1997, respectively. The Company has received
funding from certain customers and government agencies pursuant to contracts
or other arrangements for the performance of specified research and
development activities. Such amounts are recognized as a reduction of research
and development expense when specified activities have been performed. During
the fiscal years ended September 30, 1994, 1995 and 1996 and the six-month
period ended March 31, 1997, such funding totaled approximately $2.0 million,
$2.8 million, $2.5 million and $370,000, respectively.

COMPETITION

In each of the markets it serves, the Company faces competition and the
threat of competition from established competitors and potential new entrants,
some of which may have greater financial, engineering, manufacturing and
marketing resources than the Company. Some of these competitors are Japanese
companies that have had and may continue to have an advantage over the Company
in supplying products to Japan-based companies due to their preferences to
purchase equipment from Japanese suppliers. The Company expects its
competitors to continue to improve the performance of their current products
and to introduce new products with improved price and performance
characteristics. New product introductions by the Company's competitors or by
new market entrants could cause a decline in sales or loss of market
acceptance of the Company's existing products. If a particular semiconductor
manufacturer or subcontract assembler selects a competitor's product for a
particular assembly operation, the Company may experience difficulty in
selling a product to that company for a significant period of time. Increased
competitive pressure could also lead to intensified price-based competition,
resulting in lower prices which could adversely affect the Company's business,
financial condition and operating results. The Company believes that to remain
competitive it must invest significant financial resources in new product
development and expand its customer service and support worldwide. There can
be no assurance that the Company will be able to compete successfully in the
future.

37
<PAGE>

INTELLECTUAL PROPERTY

Where circumstances warrant, the Company seeks to obtain patents on
inventions governing new products and processes developed as part of its
ongoing research, engineering and manufacturing activities. The Company
currently holds a number of United States patents, some of which have foreign
counterparts. The Company believes that the duration of its patents generally
exceeds the life cycles of the technologies disclosed and claimed therein.
Although the patents it holds and may obtain in the future may be of value,
the Company believes that its success will depend primarily on its
engineering, manufacturing, marketing and service skills.

Although the Company is not aware of any pending lawsuits against the
Company regarding infringement claims with respect to any existing patent or
any other intellectual property right of third parties, the Company has at
times been notified of claims that equipment it has supplied may be infringing
intellectual property rights of third parties. Certain of the Company's
customers have received notices of infringement from Jerome H. Lemelson,
alleging that equipment supplied by the Company, and processes performed by
such equipment, infringe on patents held by Mr. Lemelson. Mr. Lemelson is the
holder of numerous patents with purported broad application across various
industry lines. The Company's situation in this respect is similar to numerous
other companies in the semiconductor, electronics and other industries, whose
customers have received notices of infringement from Mr. Lemelson. He has
brought suit against a number of both domestic and foreign companies,
including those in the automotive and semiconductor industries, and reportedly
has obtained large settlements in certain instances. A number of the Company's
customers have been sued by Mr. Lemelson. Under and subject to the terms of
its agreements with customers, the Company could be required to reimburse
customers for certain damages resulting from these matters and to defend its
customers in patent infringement suits. Certain customers have requested that
the Company defend and indemnify them against the claims of Mr. Lemelson, but,
to date, no customer who has settled with Mr. Lemelson has sought contribution
from the Company. The Company has received opinions from its outside patent
counsel with respect to certain of the Lemelson patents. The Company is not
aware that any equipment marketed by the Company, or processes performed by
such equipment infringe on the Lemelson patents in question and does not
believe that such matters will have a material adverse effect on its business,
financial condition or operating results. However, the ultimate outcome of any
infringement claim affecting the Company is uncertain and there can be no
assurances that the resolution of these matters will not have a material
adverse effect on the Company's business, financial condition and operating
results.

The Company also believes that much of its important technology resides in
its proprietary software and trade secrets. Insofar as the Company relies on
trade secrets and unpatented knowledge, including software, to maintain its
competitive position, there is no assurance that others may not independently
develop similar technologies. In addition, although the Company executes non-
disclosure and non-competition agreements with certain of its employees,
customers, consultants, selected vendors and others, there is no assurance
that such secrecy agreements will not be breached. See "Risk Factors--
Intellectual Property Protection; Notices of Alleged Patent Infringement."

EMPLOYEES

At March 31, 1997, K&S had approximately 2,000 permanent employees, 50
temporary employees and 60 contract personnel worldwide. The only Company
employees represented by a labor union are AFW's approximately 55 employees in
Singapore. K&S considers its employee relations to be good. Competition in the
recruiting of personnel in the semiconductor and semiconductor equipment
industry is intense, particularly with respect to certain engineering
disciplines. The Company believes that its future success will depend in part
on its continued ability to hire and retain qualified management, marketing
and technical employees.

38
<PAGE>

FACILITIES

The Company's major facilities are described in the table below:

<TABLE>
<CAPTION>
LEASE
PRODUCTS EXPIRATION
FACILITY APPROXIMATE SIZE FUNCTION MANUFACTURED DATE
- -------- ---------------- -------- ------------ ----------
<S> <C> <C> <C> <C>
Willow Grove, 214,000 sq.ft.(1) Corporate headquarters, Wire bonders, die N/A
Pennsylvania manufacturing, bonders and TAB
technology center, sales bonders
and service
Yokneam, Israel 48,400 sq.ft (1) Manufacturing, Micro- Capillaries, wedges N/A
Swiss operations and die collets
Haifa, Israel 46,100 sq.ft.(2) Manufacturing, Manual wire bonders, April 2002
technology center, dicing saws and
assembly systems automatic multi-
process assembly
systems
Hong Kong 19,600 sq. ft.(2) Sales and service N/A November 1998
Tokyo, Japan 10,700 sq. ft.(2) Technology center, sales N/A November 1998
and service
Singapore 22,900 sq. ft.(2) Manufacturing, AFW Bonding wire November 1997
operations
Selma, Alabama 25,600 sq. ft.(2) Manufacturing, AFW Bonding wire October 2017
operations
Thalwil, Switzerland 15,100 sq. ft.(2) Manufacturing, AFW Bonding wire Cancelable upon
operations six months' notice
Santa Clara, California 13,600 sq. ft.(2) Manufacturing, Semitec Dicing saw blades October 2003
operations
</TABLE>
- --------
(1) Owned.
(2) Leased.

The Company relocated its Micro-Swiss operations to its newly constructed
facility in Yokneam, Israel in February 1997 from another facility in Israel.
The Company is planning to relocate AFW's Singapore manufacturing facility.
The Company also rents space for sales and service offices in Santa Clara,
California; Mesa, Arizona; Zug, Switzerland; Korea; Taiwan; and Singapore. The
Company believes that its facilities are generally in good condition.

39
<PAGE>

MANAGEMENT

The following table sets forth information regarding the directors and
executive officers of the Company.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
C. Scott Kulicke 47 Chairman of the Board of Directors and Chief
Executive Officer
James W. Bagley 58 Director
Frederick W. Kulicke, Jr. 79 Director
John A. O'Steen 53 Director
Allison F. Page 74 Director
MacDonell Roehm, Jr. 57 Director
Larry D. Striplin, Jr. 67 Director
C. William Zadel 53 Director
Moshe O. Jacobi 54 Senior Vice President and President, Packaging
Materials Group
Morton K. Perchick 59 Executive Vice President
Asuri Raghavan 44 Senior Vice President and President, Equipment
Group
Clifford G. Sprague 53 Senior Vice President and Chief Financial
Officer
Walter Von Seggern 57 Senior Vice President, Marketing
</TABLE>

C. Scott Kulicke has been Chief Executive Officer since 1979 and Chairman of
the Board since 1984. Prior to that, he held a number of executive positions
with the Company. Mr. Kulicke is the son of Frederick W. Kulicke, Jr., a
member of the Board of Directors.

James W. Bagley has been a director of the Company since 1993. He is
Chairman of the Board and Chief Executive Officer of OnTrak Systems, Inc., a
developer and marketer of semiconductor wafer processing equipment. Prior to
joining OnTrak Systems, Inc. in June 1996, Mr. Bagley was Vice Chairman of the
Board of Directors of Applied Materials, Inc., a leading supplier of wafer
fabrication systems to the semiconductor industry. Mr. Bagley also serves on
the Board of Directors of Tencor Instruments and Teradyne, Inc.

Frederick W. Kulicke, Jr. co-founded the Company in 1951, served as its
Chief Executive Officer until his retirement in 1979 and has been a director
since 1956.

John A. O'Steen has been a director of the Company since 1988 and is
Chairman and Chief Executive Officer of Cinmar, L.P., a mail order catalog
company. Prior to joining Cinmar in 1991, he was President, Chief Executive
Officer and a Director of Cincinnati Microwave, Inc., a manufacturer of
electronic products. Mr. O'Steen also serves on the Board of Directors of
International Cornerstone Group Inc. and Bill's Dollar Stores, Inc.

Allison F. Page, a director of the Company since 1962, is a retired partner
of the Philadelphia law firm of Pepper, Hamilton & Scheetz.

MacDonell Roehm, Jr. has been a director of the Company since 1984 and has
been Chairman, President and Chief Executive Officer of Bill's Dollar Stores,
Inc., a chain of retail convenience stores, since 1994. Prior to that, he
served for approximately nine years as Managing Director of AEA Investors,
Inc., a private investment firm.

Larry D. Striplin, Jr. has been a director of the Company since 1995 and is
Chairman of the Board and Chief Executive Officer of Nelson-Brantley Glass
Contractors, Inc., a glass contractor, and Clearview

40
<PAGE>

Properties, a real estate rental company. He was Chairman of the Board of
Circle "S" Industries, Inc. and AFW prior to their acquisition by the Company.
Mr. Striplin also serves on the Board of Directors of Capstone Capital
Corporation and Med Partners, Inc.

C. William Zadel, a director of the Company since 1989, is President and
Chief Executive Officer of Millipore Corporation, a global manufacturer of
filtration and purification products. Prior to joining Millipore Corporation
in 1996, he was President and Chief Executive Officer of Ciba-Corning
Diagnostics Corp., a manufacturer and distributor of medical diagnostic
products. Mr. Zadel also serves on the Board of Directors of Matritech, Inc.
and Zoll Medical Corporation.

Moshe O. Jacobi has served as the Company's Senior Vice President and
President, Packaging Materials Group since July 1995. Prior to that, he served
as Vice President of the Company and Managing Director of Micro-Swiss Ltd., a
wholly-owned subsidiary of the Company since November 1992. He was Division
Director and General Manager of the Micro-Swiss Division from July to November
1992, and from August 1986 to July 1992, he was Deputy Managing Director of
Kulicke and Soffa (Israel) Ltd., a wholly-owned subsidiary of the Company.

Morton K. Perchick joined the Company in 1980 and has served in various
executive positions, most recently as Senior Vice President, prior to his
being appointed Executive Vice President in July 1995.

Asuri Raghavan was promoted to Senior Vice President and President,
Equipment Group in November 1996, having served as Vice President, Marketing
since July 1995 and Vice President of the Wire Bonder Business since December
1993. Prior to that, he served as Vice President, Strategic Development from
June 1991 to 1993, and in various other management capacities since joining
the Company in 1980, except for the period from December 1985 until November
1987 when he was Director, Research and Technology of American Optical.

Clifford G. Sprague joined the Company in March 1989 as Vice President and
Chief Financial Officer and was promoted to Senior Vice President in 1990.
Prior to joining the Company, he served for more than five years as Vice
President and Controller of the Oilfield Equipment Group of NL Industries,
Inc., an oilfield equipment and service company.

Walter Von Seggern joined the Company in September 1992 as Vice President,
Engineering and Technology and was promoted to Senior Vice President,
Engineering and Technology in 1996. Mr. Von Seggern was appointed as Senior
Vice President, Marketing in April 1997. From April 1988 to April 1992, he
worked for M/A-Com, Inc. He was General Manager of M/A-Com's ANZAC, RGH and
Eurotec Divisions from 1990 to 1992 and from 1988 to 1990, he was General
Manager of M/A-Com's Radar Products Division.

41
<PAGE>

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 50,000,000 shares of
Common Stock, without par value, and 5,000,000 shares of preferred stock,
without par value. As of May 12, 1997, there were 19,661,050 shares of Common
Stock and no shares of preferred stock outstanding. The following description
of the capital stock of the Company is qualified in its entirety by reference
to the Company's Articles of Incorporation and By-laws, each as amended,
previously filed with the Commission and incorporated by reference herein.

The holders of the Common Stock are entitled to one vote per share for each
share held of record on all matters submitted to a vote of shareholders.
Subject to preferential rights with respect to any series of preferred stock
that may be issued, holders of the Common Stock are entitled to receive
ratably such dividends as may be declared by the Board of Directors on the
Common Stock out of funds legally available therefor and, in the event of a
liquidation, dissolution or winding-up of the affairs of the Company, are
entitled to share equally and ratably in all remaining assets and funds of the
Company. In the election of directors, the holders of the Common Stock may
multiply the number of votes the shareholder is entitled to cast by the total
number of directors to be elected at a meeting of shareholders and cast the
whole number of votes for one candidate or distribute them among some or all
candidates. The holders of the Common Stock have no preemptive rights or
rights to convert shares of the Common Stock into any other securities and are
not subject to future calls or assessments by the Company. All outstanding
shares of the Common Stock are fully paid and nonassessable by the Company.

The Company, by resolution of the Board of Directors and without any further
vote or action by the shareholders, has the authority to issue preferred stock
in one or more series and to fix from time to time the number of shares to be
included in each such series and the designations, preferences,
qualifications, limitations, restrictions and special or relative rights of
the shares of each such series. The ability of the Company to issue preferred
stock, while providing flexibility in connection with possible acquisitions
and other corporate purposes, could adversely affect the voting power of the
holders of the Common Stock and could have the effect of making it more
difficult for a person to acquire, or of discouraging a person from acquiring,
control of the Company. The Company has no present plans to issue any of the
preferred stock.

American Stock Transfer and Trust Company is the transfer agent and
registrar for the Company's Common Stock with offices in New York, New York.

42
<PAGE>

UNDERWRITING

Montgomery Securities, Lehman Brothers Inc. and Smith Barney Inc. (the
"Underwriters") have agreed, subject to the terms and conditions contained in
the Underwriting Agreement (the "Underwriting Agreement") by and among the
Company and the Underwriters, to purchase from the Company the number of
shares of Common Stock as indicated below opposite their respective names at
the public offering price less the underwriting discount set forth on the
cover page of this Prospectus. The Underwriting Agreement provides that the
obligations of the Underwriters are subject to certain conditions precedent
and that the Underwriters are committed to purchase all of such shares of
Common Stock if any are purchased.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Montgomery Securities.............................................. 1,000,000
Lehman Brothers Inc................................................ 1,000,000
Smith Barney Inc................................................... 1,000,000
---------
Total............................................................ 3,000,000
=========
</TABLE>

The Underwriters have advised the Company that they propose initially to
offer the Common Stock to the public on the terms set forth on the cover page
of this Prospectus. The Underwriters may allow to selected dealers a
concession of not more than $0.88 per share, and the Underwriters may allow,
and such dealers may reallow, a concession of not more than $0.10 per share to
certain other dealers. After the shares of Common Stock are released for sale
to the public, the offering price and other selling terms may be changed by
the Underwriters. The Common Stock is offered subject to receipt and
acceptance by the Underwriters, and to certain other conditions, including the
right to reject orders in whole or in part.

The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a
maximum of 450,000 additional shares of Common Stock to cover over-allotments,
if any, at the same price per share as the initial 3,000,000 shares to be
purchased by the Underwriters. To the extent that the Underwriters exercise
this option, the Underwriters will be committed, subject to certain
conditions, to purchase such additional shares in approximately the same
proportion as set forth in the above table. The Underwriters may purchase such
shares only to cover over-allotments made in connection with this Offering.

The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities, including civil liabilities under
the Securities Act, or will contribute to payments the Underwriters may be
required to make in respect thereof.

Each individual executive officer and director of the Company has agreed
that, subject to certain exceptions, for a period of 75 days after the date of
this Prospectus, he will not, without the prior consent of Montgomery
Securities, offer for sale, sell, transfer or otherwise dispose of any shares
of Common Stock of the Company. In addition, the Company has agreed that,
subject to certain exceptions, for a period of 90 days after the date of this
Prospectus, it will not, without the prior written consent of Montgomery
Securities, directly or indirectly issue, offer to sell, sell, distribute or
otherwise dispose of any shares of its Common Stock or securities convertible
into or exchangeable for its Common Stock or other equity security.

The Underwriters have advised the Company that pursuant to rules promulgated
by the Commission, certain persons participating in this Offering may engage
in transactions, including stabilizing bids, syndicate covering transactions
or the imposition of penalty bids, which may have the effect of stabilizing or
maintaining the market price of the Common Stock at a level above that which

43
<PAGE>

might otherwise prevail in the open market. A "stabilizing bid" is a bid for
or the purchase of the Common Stock on behalf of the Underwriters for the
purpose of fixing or maintaining the price of the Common Stock. A "syndicate
covering transaction" is the bid for or the purchase of the Common Stock on
behalf of the Underwriters to reduce a short position incurred by the
Underwriters in connection with the Offering. A "penalty bid" is an
arrangement permitting the Underwriters to reclaim the selling concession
otherwise accruing to an Underwriter or syndicate member in connection with
the Offering if the Common Stock originally sold by such Underwriter or
syndicate member is repurchased by the Underwriters in syndicate covering
transactions, in stabilization transactions or otherwise. The Underwriters
have advised the Company that such transactions may be effected on the Nasdaq
National Market or otherwise and, if commenced, may be discontinued at any
time.

LEGAL MATTERS

The validity of the issuance of the Common Stock offered hereby will be
passed upon for the Company by Drinker Biddle & Reath LLP, Philadelphia,
Pennsylvania, counsel for the Company. Certain legal matters relating to the
offering of the Common Stock will be passed upon for the Underwriters by
Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California, who may rely on the opinion of Drinker Biddle & Reath LLP as to
certain matters relating to the laws of Pennsylvania.

EXPERTS

The consolidated financial statements of the Company as of September 30,
1995 and 1996, and for each of the three fiscal years ended September 30, 1996
incorporated in this Prospectus by reference to the Annual Report on Form 10-K
for the year ended September 30, 1996, except as they relate to the results of
operations and cash flows for the fiscal year ended September 30, 1994, of
Kulicke and Soffa (Israel) Ltd., a wholly-owned subsidiary of the Company,
have been audited by Price Waterhouse LLP, independent accountants, and
insofar as they relate to the results of operations and cash flows of Kulicke
and Soffa (Israel) Ltd. for the fiscal year ended September 30, 1994, have
been audited by Luboshitz, Kasierer & Co., independent accountants, as set
forth in their respective reports thereon incorporated herein by reference.
Such consolidated financial statements have been so incorporated in reliance
on the reports of such independent accountants given on authority of such
firms as experts in accounting and auditing.

44
<PAGE>

Wedge Used to Feed Wire Through Wedge Bonders
[ART WORK APPEARS HERE]

Pick-up Tool Used to Handle Individual Die
[ART WORK APPEARS HERE]

Capillary Used to Feed Wire Through Ball Bonders
[ART WORK APPEARS HERE]

PACKAGING MATERIALS

Kulicke and Soffa currently offers a range of packaging materials to
semiconductor device assemblers which it sells under the brand name American
Fine Wire, Micro-Swiss and Semitec. The Micro-Swiss family of expendable
tools includes die collets, capillaries and wedges. Die collets are used to
pick up, place and bond the die to the package on which it is mounted during
die bonding. Capillaries and wedges are used to feed out, attach and cut the
wires used in wire bonding. American Fine Wire is a leading supplier of very
fine (typically 0.001 inches in diameter) gold and aluminum wire used in the
wire bonding process. AFW produces wire to a wide range of specifications,
which can satisfy many wire bonding applications. Semitec manufactures saw
blades used in the wafer dicing process.

Aluminum Bonding Wire
[ART WORK APPEARS HERE]

Gold Bonding Wire
[ART WORK APPEARS HERE]

Saw Blade
[ART WORK APPEARS HERE]

[LOGOS OF MICRO-SWISS, SEMITEC AND AMERICAN FINE WIRE CORPORATION APPEARS
HERE]
<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 of-
fering other than those contained or incorporated by reference in this Prospec-
tus, and, if given or made, such information or representations must not be re-
lied upon as having been authorized by the Company or any of the Underwriters.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any securities other than the shares of Common Stock to which it
relates or an offer to, or a solicitation of, any person in any jurisdiction
where such an offer or solicitation would be unlawful. Neither the delivery of
this Prospectus nor any sale made hereunder shall, under any circumstances,
create any implication that there has been no change in the affairs of the Com-
pany or that the information contained herein is correct as of any time subse-
quent to the date hereof.

-------------------

TABLE OF CONTENTS

-------------------

<TABLE>
<CAPTION>
Page
----
<S> <C>
Additional Information................................................... 2
Incorporation of Certain Documents by Reference.......................... 2
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
Use of Proceeds.......................................................... 15
Price Range of Common Stock.............................................. 15
Capitalization........................................................... 16
Dividend Policy.......................................................... 16
Selected Consolidated Financial Data..................................... 17
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 18
Business................................................................. 29
Management............................................................... 40
Description of Capital Stock............................................. 42
Underwriting............................................................. 43
Legal Matters............................................................ 44
Experts.................................................................. 44
</TABLE>

3,000,000 SHARES

[LOGO OF KULICKE & SOFFA APPEARS HERE]

COMMON STOCK

----------------

PROSPECTUS

----------------

MONTGOMERY SECURITIES

LEHMAN BROTHERS

SMITH BARNEY INC.

May 13, 1997

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------