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