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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
COMMISSION FILE NUMBER 0-11370
CERPROBE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 86-0312814
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1150 NORTH FIESTA BOULEVARD, GILBERT, ARIZONA 85233
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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(602) 333-1500
ISSUER TELEPHONE NUMBER, INCLUDING AREA CODE
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
(TITLE OF CLASS)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $0.05 PER SHARE
(TITLE OF CLASS)
Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March 20, 1998, 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
$120,707,766. 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, 1998, there were 8,103,979 shares of the registrant's
common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the issuer's definitive Proxy Statement for the 1998 Annual
Meeting of Stockholders are incorporated by reference in Part III hereof.
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CERPROBE CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1997
TABLE OF CONTENTS
PART I
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Item 1. Business.................................................... 1
Item 2. Properties.................................................. 17
Item 3. Legal Proceedings........................................... 17
Item 4. Submission of Matters to a Vote of Security Holders......... 18
PART II
Item 5. Market for the Registrant's Common Equity and Related 18
Stockholder Matters.........................................
Item 6. Selected Consolidated Financial Data........................ 18
Item 7. Management's Discussion and Analysis of Financial Condition 20
and Results of Operations...................................
Item 7A. Quantitative and Qualitative Disclosures About Market 27
Risk........................................................
Not applicable.
Item 8. Financial Statements and Supplementary Data................. 26
Item 9. Changes in and Disagreements with Accountants on Accounting 26
and Financial Disclosure....................................
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 26
Item 11. Executive Compensation...................................... 26
Item 12. Security Ownership of Certain Beneficial Owners and 26
Management..................................................
Item 13. Certain Relationships and Related Transactions.............. 26
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 27
8-K.........................................................
Signatures............................................................ 32
Financial Statements.................................................. F-1
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PART I
ITEM 1. BUSINESS
INTRODUCTION AND GENERAL DEVELOPMENT OF BUSINESS
Cerprobe Corporation ("Cerprobe" or the "Company") offers comprehensive
solutions for semiconductor test integration and is a leading manufacturer of
probe cards, automatic test equipment ("ATE") interface assemblies, and ATE test
boards. The Company believes it is the only company that designs, manufactures,
and assembles each of the electromechanical components that assure the integrity
of the electrical test signal that passes from the ATE to the integrated circuit
("IC") device under test ("DUT"). The Company also refurbishes, reconfigures,
and services wafer probers. The Company's products address critical functions to
assure IC quality, reduce manufacturing costs, improve the accuracy of
manufacturing yield data, and identify repairable memory ICs.
The Company has grown its business and expanded its product lines primarily
through internal product development. The development of the Company's CerCard
technology in 1990 served as the foundation for the growth of the Company's core
probe card business. The Company has also grown through strategic acquisitions
and joint ventures. The acquisition of Fresh Test Technology ("Fresh Test")
Corporation in April 1995 enabled the Company to expand its product line to
include ATE interface assemblies. The acquisition of CompuRoute, Inc.
("CompuRoute") in December 1996 enabled the Company to offer ATE test boards,
the Company's first packaged IC testing product. In January 1997, the Company
acquired SVTR, Inc. ("SVTR"), which refurbishes, reconfigures, and services
wafer prober equipment. In March 1997, the Company entered into a strategic
international joint venture with Upsys for the assembly of a memory IC testing
product, which the Company will distribute in the United States and Asia. Upsys
is a joint venture between IBM and a French test and engineering company. In May
1997, the Company established an international joint venture with Mitsubishi
Materials to develop next generation probe card technology.
The Company maintains regional full service facilities in Arizona,
California, and Texas as well as sales offices in Colorado, Florida,
Massachusetts, and Oregon to serve the U.S. market for its products and
services. The Company also maintains a full service facility in Scotland to
serve the European market and full service facilities in Singapore and Taiwan to
serve the Southeast Asian market. Each of the Company's facilities is located in
proximity to major semiconductor manufacturing centers. The Company's focus on
high quality products and innovative technologies has enabled it to establish
strong relationships with leading worldwide semiconductor manufacturers. In
1997, the Company's top five customers were Intel Corporation, IBM Corporation,
LSI Logic, Motorola, and Texas Instruments.
The Company believes it is a leader in providing high quality semiconductor
testing products and services. The Company's goal is to enhance its leadership
position and increase its domestic and international market share. The Company's
strategy to achieve its goal includes the following key elements: (i) provide
comprehensive solutions for semiconductor test integration, (ii) continue to
maintain strong customer relationships, (iii) expand its global presence, (iv)
focus on technological innovation, and (v) provide quality products and
services.
The Company was incorporated in California in 1976 and reincorporated in
Delaware in 1987. The Company maintains its principal executive offices at 1150
North Fiesta Boulevard, Gilbert, Arizona 85233, and its telephone number is
(602) 333-1500. Unless the context indicates otherwise, all references to
"Cerprobe" or the "Company" refer to Cerprobe Corporation and its subsidiaries.
INDUSTRY OVERVIEW
The IC market is a high volume, high growth commodity market characterized
by rapid technological change. According to independent semiconductor market
research, worldwide production of ICs increased from approximately 39 billion
units in 1993 to nearly 60 billion units in 1997.
Growing demand for ICs has driven the increased demand for semiconductor
testing products, such as probe cards, ATE interface assemblies, ATE test
boards, and wafer probing equipment. Because probe cards,
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and to a lesser extent ATE test boards, are consumable products rather than
capital equipment, the rapid unit growth of ICs and new IC designs are in
particular fueling the demand for probe cards and ATE test boards. VLSI Research
Inc. ("VLSI"), an independent semiconductor market research company, estimated
the worldwide market for probe cards in 1998 to be approximately $450 million.
The Company estimates that the market for ATE test boards is approximately $300
million. Based upon VLSI and other industry data on projected sales of new
material handling equipment (wafer probers/handlers), the Company estimates the
market for ATE interface assemblies to be $150 million.
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 as
well. The market for wafer probers and associated equipment in new and existing
IC fabrication facilities ("fabs") in 1998 is estimated by VLSI to be
approximately $600 million. Because of the escalating costs of new fabs,
reconditioned and upgraded wafer probers increasingly are being utilized by
manufacturers in order to extend the life of existing fabs and minimize capital
expenditures. As a result of the increasing size and the age of the installed
base of wafer probers, the Company expects the demand for wafer prober
reconditioning and remanufacturing services to increase; however, there can be
no assurance that such an increase will occur.
In addition to the rapid unit growth in ICs, technological advances in ICs
have also fueled the increased demand for semiconductor testing products. IC
technology is changing rapidly due to constantly increasing demand for greater
functionality and higher processing speeds. Advances in IC design and process
technologies have enabled manufacturers to meet these demands by producing
smaller ICs with ever greater circuit densities, higher pin counts, more varied
configurations, and increased complexity. The intense competition among
semiconductor manufacturers to be first to market with a new IC and gain a
competitive edge has caused design and production cycles to continue to shrink.
As a result of the increased complexity of ICs and shorter product life cycles,
demand for sophisticated test products that can be produced in short lead times
has increased.
These trends in the IC market have caused corresponding trends in the probe
card, ATE interface assembly, and ATE test board markets, as well as in the
market for wafer prober equipment and services. IC manufacturers are placing
added emphasis on greater test accuracy, testing at higher speeds, multiple DUT
testing, and quicker turnaround times for probing devices and packaged testing
products. As IC technology has become increasingly sophisticated and complex, it
has become more difficult for IC manufacturers to maintain the necessary
technology, expertise, personnel, and equipment to design and produce internally
all of the various components required to carry the electrical signal between
the ATE tester and the DUT. The Company believes competitive market conditions
have led manufacturers to rely increasingly on outsourcing to reduce their own
investment in the personnel, equipment, and facilities necessary for the
specialized design and manufacturing of testing products in order to concentrate
on the design, production, and distribution of their core IC products.
INTEGRATED CIRCUIT TESTING
Semiconductor manufacturers test ICs during the design and manufacturing
processes to assure IC quality, reduce manufacturing costs, improve the accuracy
of manufacturing yield data, and identify repairable memory ICs. Semiconductor
manufacturers generally test each IC two or three times before completion of the
fabrication process in order to maintain high manufacturing yields and
acceptable profit margins. The increased cost associated with manufacturing ICs
has increased the importance of IC testing in the manufacturing process.
Wafer Probing
Most semiconductor manufacturers test ICs in wafer form by probing each
individual IC to determine whether it meets design specifications. Probing
involves establishing temporary electrical contact between the ATE and the DUT.
The ATE transmits electrical signals to the ICs and analyzes the signals upon
their return. The testing of ICs in wafer form is important to avoid incurring
the significant expense of assembling and packaging ICs that do not meet
specifications. The principal components of a wafer probing system include:
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(i) the ATE, which is capital equipment that transmits the electrical signals to
the IC and evaluates the signals upon their return; (ii) the ATE test board, a
complex, multilayer printed circuit board ("PCB") that is mounted directly to
the ATE and transfers the test signals between the ATE and the pogo tower of the
ATE interface assembly; (iii) an ATE interface assembly, typically consisting of
a pogo tower, lock ring, and insert ring, that mechanically connects the ATE
with the wafer prober and carries the electrical signals between the ATE and the
probe card attached to the wafer prober; (iv) a probe card, which consists of a
complex, multilayer PCB and numerous probes positioned to "touch down" on or
make electrical contact with metallized test pads on the IC; and (v) a wafer
prober, which is the capital equipment that moves the wafers into position
enabling the probe card probes to touch down on the test pads.
During the probing process, the wafer prober successively positions each IC
on a wafer so that the pads on the IC align and make contact with the probes on
a probe card. The ATE transmits electrical signals through the ATE interface
assembly to the probe card. The ATE evaluates the return signals from the probe
card to determine whether each IC meets design specifications. Depending on the
complexity of the DUT, the probe testing of a single IC can last from a few
milliseconds to over a minute.
Package (Final) Testing
ICs that pass the initial testing at the wafer level are separated from the
wafer and bonded onto plastic, ceramic, or other packages with extended leads.
The packaged IC must then be tested to validate design and performance
specifications. Packaged devices are loaded into a machine called a handler. The
ATE test board is placed on the ATE, and the ATE is coupled to the handler using
an ATE interface assembly. The handler, which performs a function similar to the
wafer prober in the wafer test process, successively positions each IC into a
test socket device that is connected to the ATE test board. The ATE tests the IC
and evaluates the return signals to determine whether a particular IC meets
performance specifications. After package testing, the handler sorts the IC
devices according to test performance.
THE COMPANY'S STRATEGY
The Company believes it is a leading provider of high quality semiconductor
testing products and services. The Company's goal is to enhance its leadership
position and increase its domestic and international market share. The Company's
strategy to achieve its goal includes the following key elements:
- Provide Comprehensive Solutions for Semiconductor Test Integration. The
Company is focused on providing its worldwide customers with comprehensive
solutions for semiconductor test integration, consisting of each of the
electromechanical components necessary to assure the integrity of the
electrical test signal. Historically, each component of the testing system
has been supplied by different vendors. The Company believes IC
manufacturers increasingly are seeking a single source provider capable of
supplying comprehensive solutions for the components necessary to assure a
clean test signal. The Company believes it is the only company that
designs, manufactures, and assembles each of the components in the
critical test signal path. The Company intends to capitalize on its market
position and technical expertise by broadening existing product lines
through internally developed products and as appropriate through
acquisitions or joint ventures.
- Maintain Strong Customer Relationships. The Company intends to continue
to maintain its long standing relationships with its broad customer base,
which includes leading semiconductor manufacturers such as Intel, Texas
Instruments, IBM, and Motorola, as well as with emerging companies.
Engineering, sales, and management personnel collaborate closely with
customer counterparts to determine customer needs and specifications, and
custom design specific testing solutions. The Company has accumulated
substantial design expertise through these collaborations and believes
this expertise, along with its in-house staff of over 100 engineers and
designers, provides it with a competitive advantage in meeting customer
requirements for increasingly sophisticated testing products. To help meet
the demanding service needs of the semiconductor manufacturing industry,
all of the Company's facilities are located in proximity to semiconductor
manufacturing centers in the United States, Europe, and Asia.
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- Expand Global Presence. The Company believes that the international
market for its products is at least as large as the domestic market. The
Company intends to continue its expansion into international markets,
including Europe and Asia, and has begun to pursue these markets by
aggressively mounting a focused sales and marketing effort directed at key
semiconductor manufacturers. To date, the Company's international
expansion includes the establishment of full service facilities in
Scotland, Singapore, and Taiwan. The Company also intends to enter the
Japanese market within the next 12 months through a joint venture
arrangement with local Japanese partners. In the Company's overseas
operations, the Company employs managers native to such markets to
minimize language and cultural barriers and provide market-specific
technical and operational insight.
- Focus on Technological Innovation. The Company custom designs or
customizes its products to manufacturers' particular IC design
specifications. Changes in the IC design require changes in the probe card
and, depending on the design change, in the ATE test board. Consequently,
the Company continually develops new designs and product enhancements. The
Company collaborates with IC manufacturers and semiconductor equipment
manufacturers to anticipate and address technological advances in
semiconductor testing and to improve performance of its products. The
Company has also worked closely with SEMATECH, the U.S. semiconductor
industry consortium that defines the standards for future semiconductor
products, over the past several years on research and development
contracts. The Company is focusing its engineering and new product
development efforts toward producing a variety of high performance custom
designed products to test more complex ICs and to test at higher speeds.
In addition, the Company is developing a next generation probe card
through a joint development relationship with Mitsubishi Materials
Corporation.
- Provide Quality Products and Services. The Company believes it has
developed a reputation as a leader in providing high quality products and
services. This high quality level is achieved through a robust,
documented, and controlled manufacturing process, and the application of
sound quality management policies and practices. The Company's use of
advanced metrology tools, which ensure precise measurement of all key
product parameters, is a cornerstone of its quality management system. The
Company believes that its design capabilities, customer focus, and
production methods enhance its ability to provide its customers with high
quality products and services with quick turnaround times.
PRODUCTS AND SERVICES
Historically, each component of the IC testing system has been supplied by
different vendors. As a result, IC manufacturers frequently have been left with
the task of combining separate components from many small vendors into a single
integrated testing system. The Company believes IC manufacturers increasingly
are seeking a single source provider capable of supplying comprehensive
solutions for the components necessary to assure a clean test signal between the
testing equipment and the DUT. Through its manufacture of probe cards, ATE
interface assemblies, and ATE test boards and through its wafer prober services,
the Company is able to be a single source provider for its customers.
Probe Card Products
The Company believes it is the leading U.S. producer of probe cards, which
constitute the majority of the Company's business. Probe cards accounted for
approximately 64%, 81%, and 84% of net sales in 1997, 1996, and 1995. Probe card
sales continue to grow; however, as a result of the CompuRoute and SVTR
acquisitions and the related new product and service offerings, the Company
expects that future probe card sales will account for an increasingly smaller
percentage of net sales.
The probe card consists of a complex, multilayer (some in excess of 30
layers) PCB and utilizes a number of probes designed to contact (or "probe")
separately a series of electrical contact points (or "pads") on the IC in wafer
form. At the point of contact with the wafer, each probe is significantly
smaller than a human hair. The majority of the Company's probe cards have fewer
than 200 probes; the Company's complex probe cards can have more than 1,500
probes. Because the type and complexity of ICs vary, the number and
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positioning of the probes and the size of each probe card must be custom
designed for the specific IC being tested to ensure proper alignment.
The probe testing of a single IC can last from a few milliseconds to over a
minute, depending on the complexity of the semiconductor device. Unlike the
capital equipment used in the semiconductor manufacturing process, probe cards
are considered consumable products. The Company believes the average life of a
probe card is approximately three months, which provides for 200,000 to 500,000
touchdowns with each touchdown generally representing the testing of a single
IC. However, probe cards for application specific integrated circuits ("ASICs")
might be used to test a single batch order of 50,000 ICs and then discarded. The
Company estimates that about one-third of its probe cards become obsolete within
six months of being placed into service, primarily as a result of customer
initiated design changes. However, damage due to faulty test handling equipment
or operator error can render a probe card useless prior to the expiration of its
normal life.
The Company has invested over 20 years in the design of different types of
probe card components and the manufacturing processes required to assemble a
finished probe card. Because the signals carried by the probe card are complex
and vary by customer, the Company manufactures many types of probe cards.
The Company's probe card products utilize three technologies:
Epoxy ring technology uses probes that connect directly to a printed
circuit board. Probe cards using this type of technology are capable of high
speed, high density probing. The Company introduced its first ceramic based
epoxy ring probe card, the CerCard, in October 1990. Sales of ceramic based
epoxy ring probe cards generated approximately 54%, 73%, and 68% of the
Company's net sales for 1997, 1996 and 1995. The Company anticipates that such
cards will continue to account for a substantial portion of its net sales.
Ceramic blade technology uses a ceramic blade attached to a needle designed
to make contact with the IC pads. Probe cards using ceramic blade technology,
which was developed and patented by the Company, are capable of low speed, low
density probing. With optional features, the ceramic blade can be used for high
speed probing.
Cobra probe (buckle beam) technology uses vertical probes that match the
pattern of the pads on the IC being tested. This technology allows for the
probing of pads in the center of an IC and is used generally for high density
applications. Vertical contact probing is particularly well-suited for
multiple-IC and memory IC testing. In May 1997, the Company entered into a joint
venture with a French semiconductor testing and engineering company to assemble
and repair the Cobra probe card, which is based on technology originally
developed by IBM. The Company will be the exclusive distributor for the product
in the United States and Asia.
The Company's probe cards generally range in price from $500 to $65,000,
depending upon the complexity and performance specifications of the probe cards.
ATE Interface Assemblies
The Company entered the ATE interface business through the acquisition in
April 1995 of Fresh Test, a company engaged primarily in the design,
manufacture, and sale of ATE interface products. An ATE interface assembly
securely connects the ATE to the wafer prober or handler and is used to carry
signals from the ATE to the DUT. An interface assembly typically consists of
custom mechanical docking hardware such as a lock ring and insert ring, as well
as two intricate multilayer PCBs connected by either a system of cables or,
increasingly, spring-loaded "pogo" contact pins. Interface assemblies range from
small, single board, cable-type interfaces for less complex systems to high
speed, high frequency, digital or mixed signal interfaces used in testing more
complex ICs. One end of the interface connects to the ATE and the other to
either a probe card fixture mounted on a prober or a test socket mounted to a
handler for packaged IC testing. In each case, the reliability of the test is
highly dependent on maintaining the integrity of the signal between the ATE and
the IC being tested.
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Each ATE interface assembly is custom designed or customized for each
application. The Company's ATE interface product line transmits a clean signal
from the ATE to the probe card or test socket and carries a return signal back
to the ATE after the circuit processes the signal. The Company's ATE interface
products are designed to optimize the integrity of return signal data through
the reduction of channel crosstalk and the matching of delay times and
impedance, thereby increasing the accuracy of the test data. Because the
Company's ATE interface assemblies enable the ATE to provide reliable yield data
by allowing for clear signal transmission, its interfaces can also be cost
saving devices. The Company's interface assemblies feature ease of mechanical
installation and facilitate access to the probe card or test socket during
testing.
The ATE and related wafer prober and handler typically have useful lives of
five to seven years. While the Company's ATE interface assemblies have a similar
useful life, any upgrade of the ATE or reconfiguration of the prober or handler
used with a specific ATE requires a new ATE interface assembly. As a result, the
Company believes its ATE interface products have an average life of two to three
years.
The Company's ATE interface assemblies generally range in price from
$10,000 to $65,000.
ATE Test Boards
Through the acquisition of CompuRoute in December 1996, the Company
expanded its product offerings to include custom-designed ATE test boards. 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.
ATE test board products are also referred to as prober interface boards,
DUT boards, load boards, or performance boards, depending on whether the ATE
test board is used for wafer probing or package testing. The Company has
developed a database for different ATE designs, which are used as starting
designs and customized for the particular IC to be tested. The ATE test board is
a complex, multilayer PCB that is mounted to the ATE and transfers the test
signals between the ATE and the ATE interface assembly of a wafer prober or
handler. ATE test boards were the Company's first packaged IC testing product.
The Company believes its ATE test boards have an average life of one year
although their useful life could be much longer. The Company's ATE test board
products range in price from $2,000 to $30,000.
Wafer Prober Products and Services
Through the acquisition of SVTR in January 1997, the Company expanded its
services to include remanufacturing, upgrading, and servicing wafer probers. The
wafer prober positions each IC on a wafer so that the pads on the IC align and
make contact with the probes on the probe card, which is mounted on the wafer
prober. The Company currently is focusing its 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 remanufacturing requires the Company to overhaul, reprofile, and
recertify its customers' wafer probers. Remanufacturing extends the life of the
equipment, deferring the need to buy new capital intensive probing equipment.
The Company develops independent sources for most of the components necessary
for remanufacturing 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 to handle larger diameter wafers and improve the accuracy of wafer
positioning. The Company has developed the components and processes necessary to
reconfigure probers originally designed to handle four and six-inch wafers to
the current advanced fab requirement of eight-inch wafers. Many fab production
managers consider conversion of their existing four and six-inch equipment as an
effective way to optimize their capital equipment budgets and an expedient way
to upgrade to eight-inch wafer capability. Additionally, each conversion
provides the Company with salvageable 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 that is able to handle
five and six-inch wafers. The demand for six-inch wafer probers remains strong,
especially in
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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 and 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
on-site maintenance and repair services and replacement parts for wafer probers
through a network of direct and contract field service personnel in the United
States, Europe, and parts of Asia.
The Company's wafer prober products and services range in price from
$25,000 to $150,000 per unit, depending on options.
ENGINEERING AND PRODUCT DEVELOPMENT
The customized nature of the Company's products results in ongoing
engineering and product development being included in the cost of goods sold for
the Company's products. In addition, the Company has devoted and will continue
to devote substantial resources to materials and process engineering and product
development. Engineering and product development expenses were $1,604,000,
$903,000, and $707,000 for the years ended December 31, 1997, 1996, and 1995,
respectively, which represented 2.1%, 2.4%, and 2.7% of net sales, respectively.
The Company employs over 100 engineers and designers.
During 1995, the Company 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, the
Company 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. The second agreement with SEMATECH called for
the Company to determine the best solution for probing the interior contact
points of semiconductors. The Company retains the rights to any technology
developed by it through these engineering and product development efforts. The
Company also believes it gains an added benefit from the SEMATECH relationship
by being able to work with its semiconductor manufacturer customers to
anticipate and address technological advances in semiconductor processing and
testing.
The Company has from time to time collaborated with certain customers that
pay the Company to develop new products. Funds received from such engineering
and product development are accounted for as offsets to the total expenses for
the related project.
The Company recently entered into a joint development agreement with
Mitsubishi Materials Corporation to accelerate the research and development of
the Company's next generation probe card, which will utilize the Company's
proprietary technology to address increasing demand for tighter pitches and the
higher performance requirements for wafer probing. Under such agreement each
party will own any patents and know-how resulting from its own efforts, subject
to a royalty free license back to the other party. Patents and know-how
resulting from the efforts of both parties will be owned jointly.
MANUFACTURING
The Company's manufacturing objective is to produce quality products that
meet its customers' testing needs and design specifications on a timely and cost
efficient basis.
The Company's manufacturing operations consist of procurement and/or
fabrication of components and subassemblies, assembly, and extensive testing of
finished products. All components and subassemblies are inspected for mechanical
and electrical compliance to Company specifications and all finished products
are tested against Company and customer specifications.
The Company believes that it is able to respond more quickly and accurately
to its customers' needs by maintaining manufacturing facilities and technical
support in geographic markets where its semiconductor manufacturing customers
are located. The Company designs and manufactures its probe cards in Arizona,
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California, and Texas as well as in Scotland, Singapore, and Taiwan. The Company
typically designs and manufactures its probe cards within two weeks of receiving
a customer order. The Company manufactures its interface assemblies in its
Gilbert, Arizona facility. The Company typically designs and manufactures its
ATE interface assemblies within 12 weeks of receiving an order. The Company
conducts its ATE test board and related PCB fabrication and assembly operations
at its Dallas, Texas facility. The Company typically designs and fabricates its
ATE test boards within four weeks of receiving an order.
The Company refurbishes, reconfigures, and services wafer probers in its
facility in Tempe, Arizona. The Company's 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 factory-based
remanufacturing, upgrading to allow for the processing of larger wafers and/or
to improve prober accuracy, and providing field service at the user's site.
The Company emphasizes quality and reliability in both the design and
manufacture of its products. While the Company's facilities are not ISO 9000
certified, ISO 9000, the internationally recognized standard for quality
management, sets the criteria for the Company's quality management system
throughout its manufacturing processes. The Company's use of advanced metrology
tools, which ensure precise measurement 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 develop tools that can achieve desired
results.
The Company relies on third party suppliers in the production and shipment
of its products. Although the Company believes that all raw materials, component
parts, and services are currently available in adequate amounts, there can be no
assurance that shortages will not develop in the future. Certain of the raw
materials and component parts for the Company's products are purchased from
single or a limited group of suppliers. The Company does not have long-term
written agreements with such suppliers. Although the Company believes there are
alternative suppliers for all such raw materials, component parts, and services,
termination or a significant disruption of any of its existing supplier
arrangements could have a material adverse effect on the Company's business,
financial condition, and operating results.
CUSTOMERS
An integral part of the Company's strategy is to continue to maintain its
long standing customer relationships. All of the Company's top 15 customers in
1997 were repeat customers. The top 15 customers fluctuate from year to year
depending on the growth cycles of the individual customers. These semiconductor
manufacturers provide the Company with a diversified customer base whose
products serve the communications, computer, automotive, military, and aerospace
industries. In addition to serving high volume established manufacturers, the
Company's products also are designed to meet the needs of emerging and leading
edge technology firms such as those offering ASICs and Gallium Arsenide ICs.
During 1997, the Company's largest customer, Intel, accounted for approximately
17% of net sales. The Company's top 15 customers in 1997, which together
accounted for approximately 67% of net sales, were as follows:
Advanced Micro Devices
Hewlett-Packard
IBM
Intel Corporation
Linear Technology
LSI Logic
Lucent Technologies
Macronix International
Micron Semiconductor
Motorola
National Semiconductor
Symbios Logic
Teradyne
Tech-Semiconductor
Texas Instruments
MARKETING, SALES, AND SERVICES
The Company's customers place a high value on service. Technical features
and product quality also are attributes expected by the Company's customers. The
unique needs of purchasers of semiconductor testing products demand a high level
of customer responsiveness. The Company's products usually require a high degree
of customization in order to meet customer specifications. Response time,
product design specifications, and rapid delivery typically are critical factors
in customer satisfaction. In addition, the customer's
8
<PAGE> 11
evaluation of the design and performance of completed products can be quite
subjective. Engineering, sales, and management personnel collaborate closely
with customer counterparts to determine their needs and product specifications.
Additionally, in order to meet the demanding service needs of its customers, all
of the Company's facilities are located in proximity to manufacturing centers
worldwide.
The Company intends to leverage its worldwide sales facilities to market
and distribute all of the Company's products. The Company markets its products
in North America through direct technical sales personnel. To meet the demanding
service requirements of its customers, the Company has five regional
manufacturing, repair, and sales centers in Arizona, California, and Texas. In
addition to its regional full service facilities, the Company serves its
domestic customers through sales offices strategically located to facilitate
rapid response to major market centers and key customers. The Company maintains
sales offices in Oregon, Colorado, Florida, and Massachusetts.
The Company utilizes a network of independent foreign distributors in both
Europe and Asia. The Company's international business represented approximately
17%, 20%, and 11% of net sales for 1997, 1996, and 1995, respectively. The
Company believes the potential exists to increase sales in international
markets, and the Company is positioning itself to initiate a more aggressive
marketing and sales program in these markets in the future. In particular, the
Company 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, the Company
established full service manufacturing and repair 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. Within the next 12 months,
the Company intends to enter into the highly competitive Japanese market through
a joint venture arrangement with local Japanese partners.
COMPETITION
The semiconductor testing products industry is highly competitive. The
Company faces substantial competition in each of the probe card, interface
assembly, and ATE test board markets. In addition, the Company anticipates that
it may face substantial competition in the future from new entrants in the
Company's markets. The principal competitive factors in the industry are product
performance, service, delivery time, and price. Competition in international
markets is also significant, particularly in Asia where the Company is expanding
into new geographic markets while simultaneously addressing the testing
requirements of the memory IC market, a new product market for the Company. Some
of the Company's competitors, particularly in Asia, have substantially greater
financial, engineering, or manufacturing resources than the Company and larger
sales and service organizations. To compete successfully, the Company must make
substantial investments in its engineering and product development, marketing,
and customer service and support activities. There can be no assurance that
competition in the Company's markets will not intensify or that the Company's
technological advantages may not be reduced or lost as a result of technological
advances by competitors or customers.
Wafer prober manufacturers, such as Electroglas, Tokyo Electron Labs, and
Tokyo Semitsu, provide limited refurbishment services and offer new wafer
probers as an alternative. These wafer prober manufacturers have greater
financial, engineering, and manufacturing resources and larger service
organizations than the Company as well as long-standing customer relationships.
There can be no assurance that levels of competition in the market for wafer
prober remanufacturing and reconfiguration services will not intensify in the
future or that customers will not elect to purchase new wafer probers.
BACKLOG
As of December 31, 1997, the Company had a backlog of orders of
approximately $10.5 million. These orders are believed to be firm and all are
expected to be filled during fiscal 1998. The Company's business has not been
seasonal to date. Because of possible changes in delivery schedules and
cancellations of orders, the Company's backlog at any particular date is not
necessarily indicative of future sales.
9
<PAGE> 12
ENVIRONMENTAL REGULATIONS
The Company is subject to federal, state, and local provisions regulating
the discharge of materials into the environment. The Company has made certain
leasehold improvements in order to comply with Environmental Protection Agency
and local regulations. Proper waste disposal is a major consideration for PCB
manufacturers because metals and chemicals are used in the manufacturing
process. Water used in the printed circuit board manufacturing process must be
treated to remove metal particles and other contaminants before it can be
discharged into the municipal sanitary sewer system. The Company operates and
maintains wastewater treatment systems and effluent testing facilities at its
PCB manufacturing plant in Dallas, Texas.
The Company's PCB manufacturing plant operates under effluent discharge
permits issued by the appropriate governmental authorities. These permits must
be renewed periodically and are subject to revocation in the event of violations
of environmental laws. The Company believes that the waste treatment equipment
in its PCB manufacturing facility is currently in compliance with environmental
protection requirements in all material respects. However, there can be no
assurance that violations will not occur in the future as a result of human
error, equipment failure, or other causes. The Company is also subject to
environmental laws relating to the storage, use, and disposal of chemicals,
solid waste, and other hazardous materials as well as air quality regulations.
Furthermore, environmental laws could become more stringent over time, and the
costs of compliance with more stringent laws could be substantial.
Although the Company believes that it is in full compliance with all
regulations, the Company is unable to predict what effect, if any, the adoption
of more stringent regulations would have on its future operations. The Company
does not anticipate incurring any future material expenditures to remain in
substantial compliance with presently applicable environmental regulations.
INTELLECTUAL PROPERTY
While the Company considers intellectual property rights, patents, and
licenses to be important, the Company does not consider any single patent to be
material to the conduct of its business. The Company relies primarily on trade
secret protection for its proprietary information rather than patents to avoid
publicly disclosing its technology in a patent application. The Company believes
that its success will depend primarily on the technological competence and
creative skills of its personnel rather than the protection of its existing
patents or future patents.
EMPLOYEES
As of December 31, 1997, the Company had 707 employees, consisting of 116
in engineering and product development, 410 in manufacturing, 78 in sales and
marketing, and 103 in administration. There are no collective bargaining
agreements, and the Company considers its relations with its employees to be
good.
EXECUTIVE OFFICERS
The following table sets forth certain information regarding Cerprobe's
executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
C. Zane Close.......... 48 President, Chief Executive Officer, and Director
Eswar Subramanian...... 40 Senior Vice President and Chief Operating Officer
Michael K. Bonham...... 59 Senior Vice President -- Sales and Marketing
Randal L. Buness....... 41 Vice President, Chief Financial Officer, Secretary,
and Treasurer
</TABLE>
C. Zane Close has served as President and Chief Executive Officer and as a
director of the Company since July 1990. From September 1989 to July 1990, Mr.
Close served as Vice President and General Manager of Probe Technology
Corporation ("Probe Technology"), a manufacturer of probing devices for testing
integrated circuits. Mr. Close served as Vice President of Operations of Probe
Technology from February 1985 to September 1989.
10
<PAGE> 13
Eswar Subramanian has served as Senior Vice President and Chief Operating
Officer of the Company since June 1996. Mr. Subramanian served as Vice President
of Engineering of the Company from July 1990 to June 1996. From April 1990 to
July 1990, 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.
Michael K. Bonham has served as Senior Vice President -- Sales and
Marketing of the Company since June 1996. Mr. Bonham served as Vice President of
Sales and Marketing of the Company from July 1990 to June 1996. From October
1988 to June 1990, Mr. Bonham served as Marketing Manager of the IC Probe and
Curve Tracer Group of Tektronix, Incorporated, a manufacturer of electronic test
measurement equipment.
Randal L. Buness has served as Vice President, Chief Financial Officer,
Secretary, and Treasurer of the Company since June 1996. From September 1994 to
June 1996, Mr. Buness served as Vice President -- Finance and Administration,
Chief Financial Officer, Secretary, and Treasurer of Three-Five Systems, Inc., a
publicly held manufacturer of liquid crystal displays. Mr. Buness served as
Chief Financial Officer, Secretary, and Treasurer of United Medical Network, a
developer of video conferencing networks for healthcare providers, from January
1993 to September 1994. From January 1989 to January 1993, Mr. Buness worked as
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.
11
<PAGE> 14
SPECIAL CONSIDERATIONS
The following risk factors should be considered carefully in addition to
the other information in this Report in evaluating the Company and its business.
Except for the historical information contained herein, the discussion in this
Report contains certain forward-looking statements that involve risks and
uncertainties. When used in this Report, the words "believes," "expects,"
"anticipates," "intends," "estimates," "should," "will likely," and similar
expressions are intended to identify such forward-looking statements. The
cautionary statements made in this Report should be read as being applicable to
all related forward-looking statements wherever they appear in this Report. The
Company's actual results could differ materially from those discussed here.
Important factors that could cause or contribute to such differences include
those discussed below, as well as those discussed elsewhere herein.
FLUCTUATIONS IN OPERATING RESULTS
The Company's quarterly and annual operating results will be affected by a
wide variety of factors that could have a material adverse effect on net sales
and profitability, many of which are beyond its control, including factors
pertaining to (i) customer demand for the Company's products, such as the
cyclical nature of the semiconductor industry, market acceptance of the
Company's products, changes in product mix, the level of orders that are
received and can be delivered in a quarter, and customer order patterns; (ii)
competition, such as competitive pressures on delivery time, product performance
and reliability, prices, the introduction or announcement of new products by
competitors, and intellectual property rights of third parties; (iii) product
development, such as the Company's ability to introduce new product designs and
innovations on a timely basis in response to advances in IC technology; (iv)
manufacturing and operations, such as the availability and cost of raw
materials, equipment and other supplies, fluctuations in manufacturing yields,
availability and cost of production capacity, and concentration of suppliers;
and (v) generally prevailing economic conditions in the U.S. and worldwide
markets served by the Company. Fluctuations in operating results could
materially and adversely affect the market price of the Common Stock. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained in Item 7 of this Report and "Business" contained in Item
1 of this Report .
CYCLICALITY OF THE SEMICONDUCTOR INDUSTRY
The Company's business depends substantially on both the volume of IC
production by semiconductor manufacturers as well as new IC designs, which in
turn depend on the demand of ICs and products utilizing ICs. The semiconductor
industry is highly cyclical and historically has experienced periods of
oversupply, resulting in reduced demand for IC testing products, including the
products manufactured by the Company. There can be no assurance that demand for
ICs or products utilizing ICs will not decline. Furthermore, there can be no
assurance that demand for the Company's products will continue at the current
level. The Company anticipates that a significant portion of new orders for its
products will depend upon demand from IC manufacturers building or expanding IC
fabrication facilities or otherwise increasing production capacity or shifting
production to new IC designs, and there can be no assurance that such demand
will exist. Future downturns or slowdowns in the IC market will have a material
adverse effect on the Company's business, financial condition, and operating
results. Moreover, the Company's need to invest in engineering and product
development, marketing, and customer service and support capabilities will limit
its ability to reduce expenses in response to such downturns or slowdowns. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained in Item 7 of this Report and "Business" contained in Item
1 of this Report .
RISK ASSOCIATED WITH EXPANSION STRATEGY
The Company intends to expand, in part, through strategic acquisitions and
joint ventures and by entering into new geographic and product markets. The
Company's ability to expand through acquisitions will depend primarily on its
ability to identify, acquire, and operate other businesses that complement the
Company's existing business. There can be no assurance that any suitable
acquisitions can be identified or consummated or that the operations and product
offerings of any businesses that are acquired will be successfully integrated
12
<PAGE> 15
into the Company's operations and product offerings. The Company anticipates
that it will use cash and/or its securities, including 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. The Company faces similar risks and uncertainties with
respect to joint ventures. The Company is not engaged in any negotiations with
any third parties and has no specific agreements or plans with respect to any
acquisitions or joint ventures, and there can be no assurance the Company will
consummate any acquisitions or joint ventures.
The Company believes that its future success will depend, in part, on its
ability to expand into new international markets, particularly Asia, and new
product markets. The Company believes that its Asian competitors have a
competitive advantage because of their dominance of the Asian market. There can
be no assurance that the Company will be able to establish a significant
presence in these international markets. There also can be no assurance that or
to what extent the Company will be able to gain market acceptance for any new
product. See "Business" contained in Item 1 of this Report.
MANAGEMENT OF GROWTH
The Company has undergone a period of rapid growth and expansion of its
worldwide organization. Continued expansion by the Company may strain its
management, manufacturing, and human resources and the ability of materials
suppliers and other third parties on which the Company is dependent. 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. Moreover, to manage its 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 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.
DEPENDENCE ON NEW PRODUCTS AND TECHNOLOGIES
The Company operates in an industry subject to rapid change. The Company
custom-designs or customizes its products to a customer's particular IC design
specifications. The Company's inability to introduce new product designs and
enhancements and to adapt its manufacturing techniques in response to
technological advances in IC and capital equipment designs would have a material
adverse effect on the Company's business, financial condition, and operating
results. There can be no assurance that any new product designs or enhancements
will receive or maintain substantial market acceptance. Probe card technologies,
other than those being utilized by the Company, are being developed. To the
extent that such other probe card technologies gain market acceptance, the
Company's probe card products could lose market share and the Company's
business, financial condition, and operating results would be materially and
adversely affected. 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. See "Business -- Products and Services"
contained in Item 1 of this Report.
COMPETITION
The semiconductor testing products industry is highly competitive. The
Company faces substantial competition in each of the probe card, ATE interface
assembly, and ATE test board markets. In addition, the Company anticipates that
it may face substantial competition in the future from new entrants in the
Company's markets. The principal competitive factors in the industry are product
performance, service, delivery time, and price. Competition in international
markets is also significant, particularly in Asia where the Company is expanding
into new geographic markets while simultaneously addressing the testing
requirements of the memory IC market, a new product market for the Company. Some
of the Company's competitors, particularly in Asia, have substantially greater
financial, engineering, or manufacturing resources than the Company and larger
sales and service organizations. To compete successfully, the Company must make
substantial investments in its engineering and product development, marketing,
and customer service and support activities. There can be no assurance that
competition in the Company's markets will not intensify or
13
<PAGE> 16
that the Company's technological advantages will not be reduced or lost as a
result of technological advances by competitors or customers.
Wafer prober manufacturers, such as Electroglas, Inc., Tokyo Electron Labs,
and Tokyo Semitsu, provide limited refurbishment services and offer new wafer
probers as an alternative. These wafer prober manufacturers have greater
financial, engineering, and manufacturing resources and larger service
organizations than the Company, as well as long standing customer relationships.
There can be no assurance that levels of competition in the market for wafer
prober remanufacturing and reconfiguration services will not intensify in the
future or that customers will not elect to purchase new wafer probers.
RELIANCE ON THIRD PARTY DISTRIBUTION CHANNELS
The Company markets and sells its products internationally primarily
through a network of third party foreign distributors that are not under the
direct control of the Company. The Company's international business represented
approximately 17% of net sales for 1997. A reduction in the sales efforts by the
Company's foreign distributors or termination of their relationships with the
Company could materially and adversely affect the Company's international sales
and, as a result, its business, financial condition, and operating results. See
"Business -- Marketing, Sales, and Services" contained in Item 1 of this Report.
RISKS OF INTERNATIONAL OPERATIONS
Given the Company's efforts in establishing production and sales facilities
in Scotland, Singapore, and Taiwan, the Company anticipates that sales to
international customers will increase in the future. The foreign manufacture and
sale of products and the purchase of raw materials and equipment from foreign
suppliers may be materially and adversely affected by political and economic
conditions abroad. Protectionist 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, as well as the Company's ability to
form effective joint venture alliances in order to compete in restrictive
markets, could materially and adversely affect the Company's ability to
manufacture or sell products in foreign markets and purchase materials or
equipment from foreign suppliers. In addition, the laws of certain foreign
countries may not protect the Company's intellectual property rights to the same
extent as the laws of the United States. See "Business" contained in Item 1 of
this Report.
CURRENCY EXCHANGE FLUCTUATIONS
A portion of the Company's foreign transactions are denominated in
currencies other than the U.S. dollar. Such transactions expose the Company to
exchange rate fluctuations for the period of time from inception of the
transaction until it is settled. The Company has not engaged in transactions to
hedge its currency risks, but may do so in the future. The Company may purchase
a portion of its raw materials and equipment from foreign suppliers and will
incur labor costs in a foreign currency. There can be no assurance that
fluctuations in the currency exchange rates in the future will not have a
material adverse effect on the Company's operating results.
DEPENDENCE ON KEY CUSTOMERS
Sales of the Company's products are concentrated with a small number of
customers. During 1997, sales to the Company's largest customer, Intel,
accounted for approximately 17% of net sales. The Company's top 15 customers in
1997 together accounted for approximately 67% of net sales. The Company expects
that sales of its products to relatively few customers will continue to account
for a high percentage of its net sales. None of the Company's customers has
entered into a long-term agreement requiring it to purchase the Company's
products. The loss of a significant customer or any reduction in orders from any
significant customer, including reductions due to changes in customer buying
patterns, market, economic, or competitive conditions in the IC industry or in
the industries that manufacture products utilizing ICs, would have a material
adverse effect on the Company's business, financial condition, and operating
results. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" contained in Item 7 of this Report, and
"Business -- Customers" contained in Item 1 of this Report.
14
<PAGE> 17
DEPENDENCE ON KEY SUPPLIERS
The Company relies on third party suppliers in the production and shipment
of its products. Although the Company believes that all raw materials, component
parts, and services are currently available in adequate amounts, there can be no
assurance that shortages will not develop in the future. Certain of the raw
materials and component parts for the Company's products are purchased from
single or a limited group of suppliers. The Company does not have long-term
written agreements with such suppliers. Termination or a significant disruption
of any of its key supplier arrangements could have a material adverse effect on
the Company's business, financial condition, and operating results. See
"Business -- Manufacturing" contained in Item 1 of this Report.
INTELLECTUAL PROPERTY
While the Company currently holds certain patents, the Company does not
consider any single patent to be material to the conduct of its business. The
Company believes that its competitors have been and will be able to continue to
circumvent many of the Company's patents. To the extent the Company wishes to
assert its patent rights, there can be no assurance that any patents issued to
the Company will not be challenged, invalidated, or circumvented, that any
rights granted thereunder will provide adequate protection to the Company, or
that the Company will have sufficient resources to prosecute its rights. The
Company believes that its success will depend primarily on the technological
competence and creative skills of its personnel rather than the protection of
its existing patents or future patents. The Company relies primarily on trade
secret protection for its proprietary information. There can be no assurance
that the Company will be able to protect its technology.
Although there are no pending lawsuits against the Company regarding
infringement of any existing patents or other intellectual property rights,
there can be no assurance that third parties will not assert intellectual
property infringement claims against the Company. See "Business -- Intellectual
Property" contained in Item 1 of this Report.
SIGNIFICANT CAPITAL REQUIREMENTS
The probe card, ATE interface, ATE test board, and wafer prober services
industries are capital intensive. In order to remain competitive, the Company
must 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, if available, would
not result in additional dilution to existing investors. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" contained in Item 7 of this
Report.
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
15
<PAGE> 18
restrict the discharge of hazardous substances could subject it to future
liabilities. See "Business -- Environmental Regulations" contained in Item 1 of
this Report.
DEPENDENCE ON MANAGEMENT AND OTHER KEY PERSONNEL
The Company's success depends, in part, upon the retention of certain key
personnel and the recruitment and retention of additional key personnel,
including technical and engineering staff. The 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, financial condition, and
operating results. 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.
CONTROL BY CURRENT STOCKHOLDERS
Stockholders of the Company have the right to cumulate their votes for the
election of directors. The directors and executive officers of the Company and
their affiliates currently own beneficially approximately 15.1% of the Common
Stock. Accordingly, these persons, if they act as a group, will be able to elect
one or more members to the Company's Board of Directors and may be able to exert
significant influence regarding the outcome of other matters requiring approval
by the stockholders of the Company.
PRICE VOLATILITY OF COMMON STOCK
The market price of the Company's Common Stock has experienced significant
volatility during the past three years. See "Market for the Registrant's Common
Equity and Related Stockholder Matters" contained in Item 5 of this Report. The
trading price of the Company's Common Stock in the future could be subject to
wide fluctuations in response to quarterly variations in operating results of
the Company and others in its industry, actual or anticipated announcements
concerning the Company or its competitors, changes in analysts' estimates of the
Company's financial performance, general conditions in the semiconductor
industry, general economic and financial conditions, and other events or
factors. In addition, the stock market has experienced extreme price and volume
fluctuations, which have adversely affected the market 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 the Common Stock.
RIGHTS TO ACQUIRE SHARES; POTENTIAL ISSUANCE OF ADDITIONAL SHARES
As of December 31, 1997, options to acquire a total of 639,866 shares were
outstanding under the Company's stock option plans. An additional 366,334 shares
of Common Stock were reserved for issuance pursuant to the exercise of options
that may be granted in the future under the Company's stock option plans. The
Company also has granted non-employee options to purchase up to 10,000 shares of
Common Stock. The Company also has issued warrants to purchase up to 39,275
shares of Common Stock in connection with the sale of the Series A Convertible
Preferred Stock. During the terms of such options and warrants, the holders
thereof will have the opportunity to profit from an increase in the market price
of the Common Stock with resulting dilution in the interests of holders of
Common Stock. The existence of such stock options and warrants could adversely
affect the terms on which the Company can obtain additional financing, and the
holders of such options and warrants can be expected to exercise such options
and warrants at a time when the Company, in all likelihood, would be able to
obtain additional capital by offering shares of its Common Stock on terms more
favorable to the Company than those provided by the exercise of such options and
warrants. The Company also has the authority to issue additional shares of
Common Stock and shares of one or more series of convertible preferred stock.
The issuance of such shares could result in the dilution of the voting power of
outstanding shares of Common Stock and could have a dilutive effect on earnings
per share.
16
<PAGE> 19
CHANGE IN CONTROL PROVISIONS
The Company's First Restated Certificate of Incorporation (the "Restated
Certificate") and the Delaware General Corporation Law (the "Delaware GCL")
contain provisions that may have the effect of making more difficult or delaying
attempts by others to obtain control of the Company, even when these attempts
may be in the best interest of stockholders. The Restated Certificate also
authorizes the Board of Directors, without stockholder approval, to issue one or
more series of preferred stock, which could have voting and conversion rights
that adversely affect the voting power of the holders of the Company's Common
Stock. The Delaware GCL also imposes conditions on certain business combination
transactions with "interested stockholders" (as defined therein).
ITEM 2. PROPERTIES
The Company's principal executive offices and primary manufacturing
facility are located in Gilbert, Arizona. The facility is owned by CRPB
Investors, L.L.C. ("CRPB Investors"). The Company owns a 36% interest in CRPB
Investors. The Company has entered into a long-term lease with CRPB Investors,
the initial term of which expires in May 2012 with seven options to extend the
lease for successive five-year terms.
The Company's major facilities are described in the table below:
<TABLE>
<CAPTION>
LEASE
EXPIRATION
FACILITY SQUARE FEET FUNCTION PRODUCTS DATE
- -------- ----------- -------- -------- --------------
<S> <C> <C> <C> <C>
Gilbert, Arizona.......... 83,000 Corporate Probe cards and ATE May 2012
headquarters, interface
manufacturing, assemblies
sales and service
Dallas, Texas............. 35,000 CompuRoute ATE test boards Company owned
headquarters,
manufacturing,
sales and service
San Jose, California...... 34,000 Manufacturing, Probe cards July 2002
sales and service
Tempe, Arizona............ 30,000 SVTR headquarters, Remanufactured/ September 2004
manufacturing, upgraded wafer
sales and service probers
Chandler, Arizona......... 16,000 Upsys-Cerprobe, Cobra probe cards November 1998
L.L.C.
headquarters,
manufacturing and
service
Hsin Chu, Taiwan.......... 9,000 Manufacturing and Probe cards April 2003
service
Austin, Texas............. 7,000 Manufacturing, Probe cards March 2002
sales and service
East Kilbride, Scotland... 11,700 Manufacturing, Probe cards December 2007
sales and service
Singapore................. 1,000 Manufacturing and Probe cards September 1998
service
</TABLE>
In addition, the Company leases space for its sales and service offices in
Colorado Springs, Colorado; Boca Raton, Florida; Westboro, Massachusetts;
Beaverton, Oregon; Richardson, Texas; Dallas, Texas; and Santa Clara,
California. The Company believes that its existing facilities are adequate to
meet its current requirements.
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.
17
<PAGE> 20
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 1997.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock began trading in the over-the-counter market on
the Nasdaq system on September 29, 1983 and commenced trading on the Nasdaq
National Market on August 10, 1995 under the symbol "CRPB." On March 20, 1998,
the closing price for the Company's common stock was $17 7/8. 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, except
that prior to August 10, 1995 prices represent high ask and low bid quotations
on Nasdaq. Bid and Ask quotations represent interdealer quotations, which
exclude retail markups or markdowns and commissions and may not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1995:
First Quarter............................................. $ 6 5/8 $ 4 3/4
Second Quarter............................................ 8 3/4 4 3/4
Third Quarter............................................. 10 3/4 8
Fourth Quarter............................................ 17 3/8 9 1/4
1996:
First Quarter............................................. 17 1/2 13
Second Quarter............................................ 16 11 7/8
Third Quarter............................................. 12 1/8 7 7/8
Fourth Quarter............................................ 14 3/8 9
1997:
First Quarter............................................. 15 7/8 11 1/8
Second Quarter............................................ 13 3/4 9 3/8
Third Quarter............................................. 25 3/4 12 3/4
Fourth Quarter............................................ 26 1/4 15 3/8
</TABLE>
Cerprobe does not intend to pay any cash dividends in the future and
intends to retain any future earnings for reinvestment in its business. The
Company's revolving credit facility contains restrictions on the Company's
ability to pay cash dividends, and future borrowings may contain similar
restrictions. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations-Liquidity and Capital Resources."
As of March 20, 1998, there were approximately 3,800 holders of record of
Cerprobe common stock.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Company's Consolidated Financial Statements and Notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations," which are included elsewhere in this Report. The
consolidated statement of operations data for the years ended December 31, 1997,
1996, and 1995 and the consolidated balance sheet data as of December 31, 1997
and 1996 are derived from, and are qualified by reference to, the consolidated
financial statements included elsewhere in this Report, which have been audited
by KPMG Peat Marwick LLP. The consolidated statement of operations data for the
years ended December 31, 1994 and 1993, and the consolidated balance sheet data
as of December 31, 1995, 1994 and 1993, are derived from audited consolidated
financial statements not included in this Report. These historical results are
not necessarily indicative of the results to be expected in the future.
18
<PAGE> 21
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1997(1) 1996(2) 1995 1994 1993
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................ $77,110 $37,308 $26,099 $14,251 $11,212
Cost of goods sold....................... 45,477 20,343 13,706 8,214 6,768
------- ------- ------- ------- -------
Gross profit............................. 31,633 16,965 12,393 6,037 4,444
Expenses:
Selling, general and administrative.... 19,640 10,725 7,503 3,693 2,398
Engineering and product development.... 1,604 903 707 417 336
Acquisition related expenses........... 4,996 4,584 -- -- --
------- ------- ------- ------- -------
Total expenses...................... 26,240 16,212 8,210 4,110 2,734
------- ------- ------- ------- -------
Operating income (loss).................. 5,393 753 4,183 1,927 1,710
Other income (expense):
Interest income........................ 353 467 45 19 1
Interest expense....................... (486) (222) (154) (115) (132)
Other income, net...................... 318 247 140 92 13
------- ------- ------- ------- -------
Total other income (expense)........ 185 492 31 (4) (118)
------- ------- ------- ------- -------
Income before income taxes, and minority
interest............................... 5,578 1,245 4,214 1,923 1,592
Provision for income taxes............... (3,712) (2,701) (1,812) (710) (90)
Minority interest share of loss.......... 30 95 -- -- --
------- ------- ------- ------- -------
Net income (loss)........................ $ 1,896 $(1,361) $ 2,402 $ 1,213 $ 1,502
======= ======= ======= ======= =======
Net income (loss) per share:
Basic.................................. $ 0.28 $ (0.30) $ 0.62 $ 0.38 $ 0.46
======= ======= ======= ======= =======
Diluted................................ $ 0.27 $ (0.30) $ 0.53 $ 0.30 $ 0.35
======= ======= ======= ======= =======
Weighted average number of shares:
Basic.................................. 6,690 4,580 3,874 3,213 3,292
Diluted................................ 6,982 4,580 4,666 4,007 4,323
BALANCE SHEET DATA:
Working capital.......................... $42,505 $10,004 $ 4,771 $ 3,572 $ 2,777
Total assets............................. 69,455 31,512 14,967 7,015 4,674
Long-term debt........................... 1,315 1,741 981 791 748
Stockholders' equity..................... 59,211 23,130 10,656 4,923 3,063
</TABLE>
- ---------------
(1) Includes a one-time write-off of purchased research and development of $4.5
million in 1997, or $0.64 per share, related to the acquisition of SVTR.
Also includes the cost to move SVTR's manufacturing operations from
California to Arizona during 1997 of $500,000, or $0.04 per share, net of
taxes, for a total of $0.68 per share.
(2) Includes a one-time write-off of purchased research and development of $4.6
million in 1996, or $1.00 per share, related to the acquisition of
CompuRoute.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Selected Consolidated Financial Data and the Consolidated Financial
Statements and related Notes thereto of the Company appearing elsewhere in this
Report.
19
<PAGE> 22
OVERVIEW
Cerprobe offers comprehensive solutions for semiconductor test integration
and is a leading manufacturer of probe cards, ATE interface assemblies, and ATE
test boards. The Company's products and services enable semiconductor
manufacturers to test ICs in wafer form and as packaged ICs.
The Company has grown substantially over the last five years as the Company
has increased its market share and has benefited from the substantial growth in
the worldwide demand for ICs. Net sales have increased from $11.2 million for
1993 to $77.1 million for 1997, representing an average annualized growth rate
of approximately 62%. Similarly, the Company's net income has increased from
$1.5 million for 1993 to $6.7 million for 1997 (before a one-time charge for
purchased research and development of $4.5 million and SVTR moving expenses of
$300,000, net of tax benefit of $200,000, which together reduced net income to
$1.9 million). Until 1995, substantially all of the Company's growth was from
the existing probe card product line.
Beginning with the April 1995 acquisition of Fresh Test Technology
Corporation ("Fresh Test"), acquisitions have contributed to the Company's
growth. Fresh Test expanded the Company's product line to include ATE interface
assemblies. The Company acquired CompuRoute in December 1996, which enabled the
Company to offer ATE test boards. The Company acquired SVTR in January 1997,
which added wafer prober remanufacturing and upgrading services. Net sales from
these acquired products and services together approximated $28 million, $7
million, and $4 million for years 1997, 1996, and 1995, respectively. In May
1997 the Company entered into a joint venture with Upsys Reseau Erisys
("Upsys"), a French company owned by IBM and GAME, a French test and engineering
company. The joint venture, called Upsys-Cerprobe, L.L.C., assembles and repairs
the Cobra probe card for distribution by the Company in the United States and
Asia. The Company believes the Cobra probe is well-suited for area array IC and
multiple memory IC testing, both new markets for the Company.
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 United States,
Europe, and Asia. There can be no assurance that the Company can continue its
growth. The Company maintains regional full service facilities in Arizona,
California, and Texas as well as sales offices in Colorado, Florida,
Massachusetts, and Oregon to service the U.S. market for its products and
services. The Company continues to expand into international markets, including
Europe and Asia. The Company maintains a full service facility in Scotland to
serve the European market and full service facilities in Singapore and Taiwan to
serve the Southeast Asia market. Each of the Company's facilities is located in
proximity to semiconductor manufacturing centers.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
of net sales of certain items in the Consolidated Statement of Operations of the
Company. The table and the discussion below should be read in conjunction with
the Consolidated Financial Statements and Notes thereto.
20
<PAGE> 23
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1997(1) 1996(2) 1995
------- ------- -----
<S> <C> <C> <C>
Net sales................................................... 100.0% 100.0% 100.0%
Cost of goods sold.......................................... 59.0 54.5 52.5
----- ----- -----
Gross profit................................................ 41.0 45.5 47.5
Expenses:
Selling, general and administrative....................... 25.4 28.7 28.8
Engineering and product development....................... 2.1 2.4 2.7
Acquisition related expenses.............................. 6.5 12.3 --
----- ----- -----
Total expenses......................................... 34.0 43.4 31.5
----- ----- -----
Operating income............................................ 7.0 2.1 16.0
Other income (expense):
Interest income........................................... 0.4 1.3 0.2
Interest expense.......................................... (0.6) (0.6) (0.6)
Other income, net......................................... 0.4 0.6 0.5
----- ----- -----
Total other income (expense)........................... 0.2 1.3 0.1
----- ----- -----
Income before income taxes and minority interest............ 7.2 3.4 16.1
Provision for income taxes.................................. (4.8) (7.2) (6.9)
Minority interest share of loss............................. -- 0.2 --
----- ----- -----
Net income (loss)........................................... 2.4% (3.6)% 9.2%
===== ===== =====
</TABLE>
- ---------------
(1) Includes a one-time write-off of purchased research and development costs of
$4.5 million in 1997 related to the acquisition of SVTR and the cost to move
SVTR's manufacturing operations from California to Arizona during 1997 of
$500,000.
(2) Includes a one-time write-off of purchased research and development costs of
$4.6 million in 1996 related to the acquisition of CompuRoute.
YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996
Net Sales. Net sales for 1997 were $77.1 million, an increase of 106.7%
over net sales of $37.3 million for 1996. This increase in net sales of $39.8
million resulted from acquisitions of CompuRoute and SVTR (together $20.8
million), higher domestic order rates for the Company's probe card and interface
products ($13.2 million), and increased international sales ($5.8 million).
Gross Profit. The gross profit for 1997 was $31.6 million, an increase of
85.9% from the gross profit of $17.0 million for 1996. Gross margin decreased
from 45.5% in 1996 to 41.0% in 1997. The decrease in gross margin was primarily
a result of a change in product mix due to acquisitions. Approximately 27% of
net sales in the period were attributed to ATE test boards and wafer prober
products and services. Both product lines from CompuRoute and SVTR have lower
gross profits than the Company's core products of probe cards and ATE
interfaces.
Selling, General, and Administrative. Selling, general, and administrative
expenses were $19.6 million, or 25.4% of net sales, for 1997, compared to $10.7
million, or 28.7% of net sales, for 1996, an increase of $8.9 million. The
increase in selling, general, and administrative expenses resulted primarily
from the two recent acquisitions of CompuRoute and SVTR ($5.2 million) and the
Company's continued domestic and international expansion ($3.7 million).
Engineering and Product Development. Engineering and product development
expenses were $1.6 million, or 2.1% of net sales, for 1997, an increase of 77.6%
over $903,000, or 2.4% of net sales, for 1996. These increased expenses resulted
from the Company's recent acquisitions of CompuRoute and SVTR, and continued
emphasis on engineering and product development in an effort to anticipate and
address
21
<PAGE> 24
technological advances in semiconductor testing. Total expenses were partially
offset by increased project funding receipts from collaborations on engineering
and product development with certain customers and the re-assignment of
personnel and other resources to the joint venture with Upsys.
Acquisition Related Expenses. Acquisition related expenses from the
January 1997 acquisition of SVTR totaled $5.0 million. The acquisition was
accounted for using the purchase method. Accordingly, the purchase price was
allocated to the assets acquired and the liabilities assumed based upon their
estimated fair values. The value of purchased research and development in
connection with the acquisition was $4.5 million. The state of the research and
development products/processes was not at a technologically feasible or
commercially viable stage. Therefore, consistent with generally accepted
accounting principles, the Company took a one-time charge for the full value of
the purchased research and development. The additional $500,000 was related to
the move of SVTR's manufacturing operations from California to Arizona in 1997.
Interest Income. Interest income was $353,000 in 1997, compared to
$467,000 for 1996. This decrease is attributable to the utilization of net
proceeds from the issuance of Series A Convertible Preferred Stock in January
1996, for the CompuRoute and SVTR acquisitions in December 1996 and January
1997, respectively. Interest income is expected to increase in 1998 due to the
interest earned on the net proceeds of the Company's secondary offering
completed in September 1997.
Provision for Income Taxes. The provision for income taxes increased to
$3.7 million, which represented an effective tax rate of 36.8% for 1997
(excluding the nondeductible purchased research and development expenses of $4.5
million), compared to $2.7 million, which represented an effective rate of 46.3%
for 1996 (excluding the non-deductible acquisition related expenses of $4.6
million). The decreased effective tax rate, as adjusted for 1997 and 1996, was
due primarily to the benefit in 1997 from CompuRoute's net operating loss
carryforwards as well as net operating loss carryforwards from foreign
subsidiaries (4%). The Company also benefited in 1997 from the reduced effective
tax rate for export sales through the Company's foreign sales corporation and
income from non-taxable annuities (2%).
Minority Interest Share of Loss. The minority interest share of loss of
$30,000 for 1997 represented the Company's joint venture partners' share of the
loss from the Company's Asian operations and joint venture with UPSYS.
Net Income (Loss). Net income for 1997 was $1.9 million, compared to the
loss of $1.4 million for 1996. Excluding acquisition related expenses, net
income for 1997 would have been $6.7 million, or 8.7% of net sales for 1997,
compared to 8.6% of net sales for 1996.
YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1995
Net Sales. Net sales for 1996 were $37.3 million, an increase of 43.5%
over net sales of $26.0 million for 1995. The increase in net sales reflected a
continuation of higher order rates for the Company's probe card products and
increased international sales. International net sales in 1996 were $7.3 million
compared to $3.0 million in 1995, an increase of 147.0%, primarily attributable
to the international expansion in Scotland in 1995 and Singapore in 1996.
Gross Profit. The gross profit for 1996 was $17.0 million, an increase of
37.1% from the gross profit of $12.4 million for 1995. Gross margin decreased
from 47.5% in 1995 to 45.5% in 1996. The decrease in gross margin was primarily
as a result of a change in product mix, which included a higher ratio of lower
margin ATE interface product sales as well as higher fixed costs related to
increased manufacturing capacity to meet anticipated customer demand and
maintain satisfactory delivery schedules.
Selling, General, and Administrative. Selling, general, and administrative
expenses were $10.7 million, or 28.7% of net sales, for 1996, compared to $7.5
million, or 28.8% of net sales, for 1995, an increase of 42.7%. The increase in
selling, general, and administrative expenses resulted primarily from the
increase in fixed general and administrative costs due to the Company's
continued domestic expansion and the start-up of Asian operations.
22
<PAGE> 25
Engineering and Product Development. Engineering and product development
expenses were $903,000, or 2.4% of net sales, for 1996, an increase of 27.7%
over $707,000, or 2.7% of net sales, for 1995. These increased expenses resulted
from the Company's continued emphasis on engineering and product development in
an effort to anticipate and address technological advances in semiconductor
testing. During 1995, the Company was awarded two engineering and product
development contracts by SEMATECH, the U.S. semiconductor industry consortium.
The Company also performs ongoing contract engineering and product development
in collaboration with customers. Revenues from these collaborations are
accounted for as an offset to the total expenses incurred for the respective
projects.
Acquisition Related Expenses. Purchased research and development costs
from the December 1996 acquisition of CompuRoute totaled $4.6 million. The
acquisition was accounted for using the purchase method. Accordingly, the
purchase price was allocated to the assets acquired and the liabilities assumed
based upon their estimated fair values. The value of purchased research and
development in connection with the acquisition was $4.6 million. The state of
the research and development products/processes was not at a technologically
feasible or commercially viable stage. Therefore, consistent with generally
accepted accounting principles, the Company took a one-time charge for the full
value of the purchased research and development.
Interest Income. Interest income was $467,000 in 1996, compared to $45,000
for 1995. This increase is attributable to the interest earned on the net
proceeds from the issuance of Series A Convertible Preferred Stock in January
1996.
Provision for Income Taxes. The provision for income taxes increased to
$2.7 million, which represented an effective tax rate of 46.3% for 1996
(excluding the nondeductible acquisition related expenses of $4.6 million),
compared to $1.8 million, which represented an effective rate of 43.0% 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.
Minority Interest Share of Loss. The minority interest share of loss of
$95,000 for 1996 represented the Company's joint venture partners' share of the
loss from the Company's Asian operations.
Net Income (Loss). Net loss for 1996 was $1.4 million, compared to the
income of $2.4 million for 1995. Excluding acquisition related expenses, net
income for 1996 would have been $3.2 million, or 8.6% of net sales for 1996,
compared to 9.2% of net sales for 1995.
23
<PAGE> 26
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table presents unaudited consolidated financial results for
each of the eight quarters in the period ended December 31, 1997. The Company
believes that all necessary adjustments have been included to present fairly the
quarterly information when read in conjunction with the Consolidated Financial
Statements and Notes thereto. The operating results for any quarter are not
necessarily indicative of the results for any subsequent quarter.
<TABLE>
<CAPTION>
QUARTERS ENDED
--------------------------------------------------------------------------------
1997 1996
----------------------------------------- ------------------------------------
DEC 31 SEP 30(1) JUN 30 MAR 31(2) DEC 31(3) SEP 30 JUN 30 MAR 31
------- --------- ------- --------- --------- ------ ------ ------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................ $22,641 $19,886 $18,684 $15,899 $9,149 $8,799 $9,660 $9,700
Gross profit..................... 9,266 8,187 7,675 6,505 4,091 3,861 4,485 4,528
Operating income................. 2,927 3,027 2,556 1,879 1,058 920 1,542 1,817
Net income....................... 2,240 1,794 1,589 1,069 692 663 861 1,007
Diluted net income per
share(4)....................... $ 0.27 $ 0.27 $ 0.24 $ 0.17 $ 0.13 $0.11 $0.15 $ 0.18
AS A PERCENTAGE OF NET SALES:
Net sales........................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit..................... 41.0 41.2 41.1 40.9 44.7 43.9 46.4 46.7
Operating income................. 13.0 15.2 13.7 11.8 11.6 10.5 16.0 18.7
Net income....................... 9.9% 9.0% 8.5% 6.7% 7.6% 7.5% 8.9% 10.4%
</TABLE>
- ---------------
(1) Does not include a one-time recovery of purchased research and development
costs of $1.2 million, or $0.17 per share, related to the re-negotiation of
the SVTR purchase price.
(2) Does not include a one-time write-off of purchased research and development
costs of $5.7 million for the three months ended March 31, 1997, or $0.90
per share, related to the acquisition of SVTR nor the cost to move SVTR's
manufacturing operations from California to Arizona for $500,000 or $0.05
per share, net of taxes, for a total of $0.95 per share.
(3) Does not include a one-time write-off of purchased research and development
costs of $4.6 million for the three months ended December 31, 1996, or $0.86
per share, related to the acquisition of CompuRoute.
(4) Net income per share calculations have been restated to reflect the adoption
of Statement of Financial Accounting Standard No. 128, Earnings Per Share.
Quarterly results can be affected by a number of factors, including the
cyclical nature of the semiconductor industry, market acceptance of the
Company's products, product mix, customer order patterns, competition, the
availability and cost of raw materials and production capacity, and the
Company's ability to respond to technological advances.
LIQUIDITY AND CAPITAL RESOURCES
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 Series A Convertible Preferred Stock, which raised net proceeds of
$9.4 million. The net proceeds have been used in domestic and international
expansion and acquisition of companies and/or technologies. In September 1997
the Company completed a secondary offering which raised net proceeds of
approximately $31.1 million. In October 1997, the managing underwriters of the
secondary offering exercised their over-allotment option, which raised an
additional $6.0 million. A portion of the proceeds has been used to repay
existing Company debt. The remainder, approximately $29.0 million, will be used
for general corporate purposes, including working capital, and for possible
future acquisitions. At December 31, 1997, cash and cash equivalents were $30.3
million compared to $5.6 million at December 31, 1996.
Cerprobe generated $5.9 million in cash flow from operating activities for
the year ended December 31, 1997. Accounts receivable increased by $4.8 million,
or 87.3%, to $10.3 million at December 31, 1997. Of this increase, $824,000
resulted from the acquisition of SVTR with the balance a result of increased
sales.
24
<PAGE> 27
Inventories increased $4.6 million, or 117.9%, over December 31, 1996, to $8.5
million at December 31, 1997. The increase resulted primarily from the
acquisition of SVTR. Accounts payable and accrued expenses increased $3.3
million, or 76.7%, to $7.6 million at December 31, 1997. The increase resulted
from the acquisition of SVTR and Cerprobe's continued expansion activities.
Cerprobe borrowed approximately $2.0 million from its revolving line of
credit during the second quarter to payoff notes payable and capital lease
obligations of CompuRoute and SVTR whose obligation interest rates were higher
than Cerprobe's borrowing rate. The $2.0 million borrowed from the revolving
line has been paid off with proceeds from the secondary offering.
Working capital increased $33.5 million, or 324.9%, to $42.5 million at
December 31, 1997, primarily as a result of the secondary offering. The current
ratio increased from 2.6 at December 31, 1996, to 6.1 at December 31, 1997. This
increase was due to the net proceeds from the Secondary Offering.
Cerprobe increased its investment in property, plant, and equipment during
the year ended December 31, 1997, by $3.7 million, or 32.5%, to $15.1 million.
This increase was attributable to the acquisition of SVTR and the Company's
efforts to expand capacity to meet customer demand for its products. These
capital expenditures were funded primarily from cash flow from operations.
In February 1997, Cerprobe entered into a $10.0 million unsecured revolving
line of credit, which matures August 15, 1998, with its primary lender. 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. At December 31, 1997, there were no amounts outstanding under the
unsecured revolving line of credit.
In May 1997, Cerprobe entered into a $3.0 million capital lease line of
credit, which matured February 28, 1998. The advances were collateralized by the
underlying leased manufacturing equipment, furniture, fixtures, software, and/or
hardware and the term of each lease is 60 months. At December 31, 1997, advances
totaling $357,000 had been made under the agreement. In February 1998, the
Company entered into a new lease line of credit agreement that replaced the
previous line. The $5.0 million lease line of credit, which matures February 28,
1999, has a maximum lease term for each lease of 60 months. Pricing will be
indexed to like term treasuries plus 150 basis points. The advances will be
collateralized by the underlying leased manufacturing equipment, furniture,
fixtures, software, and/or hardware.
Cerprobe believes that its working capital, together with the loan and
lease commitments described above and anticipated cash flow from operations,
will provide adequate sources to fund operations for at least the next 12
months. Cerprobe anticipates that any additional cash requirements for
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. There can be no assurance that
any such financing will be available on acceptable terms and that any additional
equity financing, if available, would not result in additional dilution to
existing investors.
YEAR 2000 COSTS
The Company is currently implementing new worldwide computerized
manufacturing and information systems, which implementation is expected to be
completed by 1999. Such systems will have the ability to process transactions
with dates for the year 2000 and beyond at no incremental cost and, accordingly,
"Year 2000" issues are not expected to have any material impact upon the
Company's future financial condition or results of operations.
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.
25
<PAGE> 28
Changes in Cerprobe's supplier prices did not have a significant impact on
cost of sales during 1997 or 1996.
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS
The Independent Auditors' Report and Consolidated Financial Statements of
the Company are set forth on pages F-1 to F24 of this report and are
incorporated by reference herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
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 1998 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 11. EXECUTIVE COMPENSATION
The information required by this Item is included under the caption
"Executive Compensation" in the Company's Proxy Statement for the 1998 Annual
Meeting of Stockholders and is incorporated herein by reference.
ITEM 12. 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 1998 Annual Meeting of Stockholders and is incorporated
herein by reference.
ITEM 13. 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 1998 Annual Meeting of Stockholders and is incorporated herein
by reference.
26
<PAGE> 29
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:
1. FINANCIAL STATEMENTS
The following Financial Statements of the Company are filed with this
report:
<TABLE>
<CAPTION>
DESCRIPTION PAGE
----------- ----
<S> <C>
Independent Auditors' Report................................ F-1
Consolidated Balance Sheets, December 31, 1997 and 1996..... F-2
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995.......................... F-3
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1997, 1996 and 1995.............. F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995.......................... F-5
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
2. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
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.
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.
</TABLE>
27
<PAGE> 30
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
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.
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.
</TABLE>
28
<PAGE> 31
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
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.
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 10(kk) to the Company's Form 10-KSB for the year
ended December 31, 1995 and incorporated herein by
reference.
10(ll) The Company's 1995 Stock Option Plan filed as Exhibit 10(ll)
to the Company's Form 10-KSB for the year ended December 31,
1995 and incorporated herein by reference.
10(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.
</TABLE>
29
<PAGE> 32
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10(oo) Memorandum of Lease with respect to the Lease Agreement
between the Company and CRPB Investors, L.L.C. dated August
21, 1996, and the Addendum to the Lease Agreement filed as
an Exhibit to the Company's Form 10-QSB for the quarter
ended September 30, 1996 and incorporated herein by
reference.
10(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 filed as
Exhibit 10(yy) to the Company's Form 10-K for the year ended
December 31, 1996 and incorporated herein by reference.
10(zz) Revolving Line of Credit Note between the Company and Wells
Fargo Bank, National Associated dated February 28, 1997
filed as Exhibit 10(zz) to the Company's Form 10-K for the
year ended December 31, 1996 and incorporated herein by
reference.
10(aaa) Lease agreement between CompuRoute and Bank One Leasing
dated November 17, 1997, filed as exhibit 10(aaa) to the
Company's Form 10-K for the year ended December 31, 1997 and
incorporated herein by reference.
10(bbb) Master Lease Agreement between Company and Bank One Leasing
Corporation, dated February 16, 1998, filed as exhibit
10(bbb) to the Company's Form 10-K for the year ended
December 31, 1997 and incorporated herein by reference.
11 Schedule of Computation of Net Income (Loss) per Share.
21 List of Subsidiaries.
23 Independent Auditors' Consent.
27.1 Financial Data Schedule for twelve months ended December 31,
1997.
27.2 Restated Financial Data Schedule for twelve months ended
December 31, 1996.
27.3 Restated Financial Data Schedule for twelve months ended
December 31, 1995.
</TABLE>
(B) REPORTS ON FORM 8-K
None.
30
<PAGE> 33
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CERPROBE CORPORATION
/s/ C. ZANE CLOSE
--------------------------------------
C. Zane Close
President, Chief Executive
Officer, and Director
Dated: March 30, 1998
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
--------- ----- ----
<C> <S> <C>
/s/ ROSS J. MANGANO Chairman of the Board of Directors March 30, 1998
- ------------------------------------------------ and Director
Ross J. Mangano
/s/ C. ZANE CLOSE President, Chief Executive Officer, March 30, 1998
- ------------------------------------------------ and Director (Principal Executive
C. Zane Close Officer)
/s/ RANDAL L. BUNESS Vice President, Chief Financial March 30, 1998
- ------------------------------------------------ Officer, Secretary, and Treasurer
Randal L. Buness (Principal Financial and
Accounting Officer)
/s/ WILLIAM A. FRESH Director March 30, 1998
- ------------------------------------------------
William A. Fresh
/s/ KENNETH W. MILLER Director March 30, 1998
- ------------------------------------------------
Kenneth W. Miller
/s/ DONALD F. WALTER Director March 30, 1998
- ------------------------------------------------
Donald F. Walter
</TABLE>
31
<PAGE> 34
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, 1997 and 1996 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, 1997. 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, 1997 and 1996 and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1997 in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Phoenix, Arizona
February 6, 1998
F-1
<PAGE> 35
CERPROBE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $30,347,173 $ 5,564,557
Accounts receivable, net of allowance of $292,000 in 1997
and $223,000 in 1996................................... 10,341,428 5,564,203
Inventories, net.......................................... 8,483,141 3,862,753
Note receivable........................................... -- 250,000
Accrued interest receivable............................... 202,939 6,221
Prepaid expenses.......................................... 388,692 370,782
Income taxes receivable................................... 624,574 214,097
Deferred tax asset........................................ 518,778 303,265
----------- -----------
Total current assets.............................. 50,906,725 16,135,878
Property, plant and equipment, net.......................... 15,141,902 11,446,291
Intangibles, net............................................ 2,396,301 2,602,812
Other assets................................................ 1,009,916 1,326,592
----------- -----------
Total assets...................................... $69,454,844 $31,511,573
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 4,346,039 $ 2,739,064
Accrued expenses.......................................... 3,286,304 1,600,120
Demand note payable....................................... -- 1,030,000
Current portion of notes payable.......................... 139,661 128,180
Current portion of capital leases......................... 629,798 634,755
----------- -----------
Total current liabilities......................... 8,401,802 6,132,119
Notes payable, less current portion......................... 148,985 278,645
Capital leases, less current portion........................ 1,165,722 1,462,799
Deferred tax liability...................................... 377,701 100,789
Other liabilities........................................... 16,700 394,011
----------- -----------
Total liabilities................................. 10,110,910 8,368,363
----------- -----------
Minority interest........................................... 132,437 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
$3,354,120 in 1996..................................... -- 16
Common stock, $.05 par value; authorized, 10,000,000
shares; issued and outstanding 8,097,979 shares in 1997
and 6,027,714 shares in 1996........................... 404,899 301,386
Additional paid-in capital................................ 55,136,307 20,652,290
Retained earnings......................................... 4,001,642 2,105,674
Foreign currency translation adjustment................... (331,351) 70,993
----------- -----------
Total stockholders' equity........................ 59,211,497 23,130,359
----------- -----------
Total liabilities and stockholders' equity........ $69,454,844 $31,511,573
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 36
CERPROBE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net sales........................................... $77,110,204 $37,308,199 $26,098,637
Costs of goods sold................................. 45,477,486 20,343,516 13,706,435
----------- ----------- -----------
Gross margin.............................. 31,632,718 16,964,683 12,392,202
----------- ----------- -----------
Expenses:
Selling, general and administrative............... 19,640,112 10,725,075 7,502,598
Engineering and product development............... 1,603,853 902,909 706,680
Acquisition related expenses...................... 4,996,467 4,584,000 --
----------- ----------- -----------
Total expenses............................ 26,240,432 16,211,984 8,209,278
----------- ----------- -----------
Operating income.................................... 5,392,286 752,699 4,182,924
----------- ----------- -----------
Other income (expense):
Interest income................................... 353,367 467,043 44,697
Interest expense.................................. (486,069) (221,248) (153,758)
Other income, net................................. 318,416 246,862 140,111
----------- ----------- -----------
Total other income........................ 185,714 492,657 31,050
----------- ----------- -----------
Income before income taxes and minority interest.... 5,578,000 1,245,356 4,213,974
Minority interest share of loss..................... 29,715 94,854 --
----------- ----------- -----------
Income before income taxes.......................... 5,607,715 1,340,210 4,213,974
Provision for income taxes.......................... (3,711,747) (2,701,000) (1,811,727)
----------- ----------- -----------
Net income (loss)................................... $ 1,895,968 $(1,360,790) $ 2,402,247
=========== =========== ===========
Net income (loss) per share:
Basic............................................. $ 0.28 $ (0.30) $ 0.62
=========== =========== ===========
Weighted average number of common shares
outstanding.................................... 6,690,265 4,579,598 3,874,459
=========== =========== ===========
Diluted........................................... $ 0.27 $ (0.30) $ 0.53
=========== =========== ===========
Weighted average number of common and common
equivalent shares outstanding.................. 6,982,368 4,579,598 4,666,232
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 37
CERPROBE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
COMMON PREFERRED
SHARES SHARES ADDITIONAL
ISSUED AND ISSUED AND COMMON PREFERRED PAID-IN RETAINED UNEARNED
OUTSTANDING OUTSTANDING STOCK STOCK CAPITAL EARNINGS COMPENSATION
----------- ----------- -------- --------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995....... 3,223,351 -- $161,167 $ -- $ 3,685,432 $ 1,064,217 $ --
Issuance of stock options at
less than fair market
value...................... -- -- -- -- 387,000 -- (387,000)
Compensation expense related
to stock options........... -- -- -- -- -- -- 145,128
Stock options exercised...... 160,000 -- 8,000 -- 199,464 -- --
Tax benefit from exercise of
nonqualified stock
options.................... -- -- -- -- 340,170 -- --
Issuance of common stock for
acquisition................ 712,500 -- 35,625 -- 2,627,344 -- --
Translation adjustment....... -- -- -- -- -- -- --
Net income................... -- -- -- -- -- 2,402,247 --
--------- ----- -------- ---- ----------- ----------- ---------
Balance, December 31, 1995..... 4,095,851 -- $204,792 $ -- $ 7,239,410 $ 3,466,464 $(241,872)
Issuance of 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) -- 241,872
Stock options exercised...... 164,702 -- 8,235 -- 556,744 -- --
Tax benefit from 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..................... -- -- -- -- -- (1,360,790) --
--------- ----- -------- ---- ----------- ----------- ---------
Balance, December 31, 1996..... 6,027,714 330 $301,386 $ 16 $20,652,290 $ 2,105,674 $ --
Stock options exercised...... 95,265 -- 4,763 -- 811,702 -- --
Issuance of common stock for
acquisition................ 175,000 -- 8,750 -- 1,662,062 -- --
Issuance of common stock in
secondary offering, net of
issuance cost of
$226,764................... 1,800,000 -- 90,000 -- 37,015,237 -- --
Preferred stock redemption... -- (330) -- (16) (5,249,984) -- --
Tax benefit from exercise of
nonqualified stock
options.................... -- -- -- -- 245,000 -- --
Translation adjustment....... -- -- -- -- -- -- --
Net income................... -- -- -- -- -- 1,895,968 --
--------- ----- -------- ---- ----------- ----------- ---------
Balance, December 31, 1997..... 8,097,979 -- $404,899 $ -- $55,136,307 $ 4,001,642 $ --
========= ===== ======== ==== =========== =========== =========
<CAPTION>
FOREIGN
CURRENCY TOTAL
TRANSLATION STOCKHOLDERS'
ADJUSTMENT EQUITY
----------- -------------
<S> <C> <C>
Balance, January 1, 1995....... $ 12,138 $ 4,922,954
Issuance of stock options at
less than fair market
value...................... -- --
Compensation expense related
to stock options........... -- 145,128
Stock options exercised...... -- 207,464
Tax benefit from 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
--------- -----------
Balance, December 31, 1995..... $ (12,554) $$10,656,240
Issuance of preferred
stock...................... -- 9,400,000
Conversion of subordinated
debentures................. -- 595,000
Compensation expense related
to stock options........... -- 49,383
Stock options exercised...... -- 564,979
Tax benefit from exercise of
nonqualified stock
options.................... -- 542,000
Conversion of preferred stock
for common stock........... -- --
Issuance of common stock for
acquisition................ -- 2,600,000
Translation adjustment....... 83,547 83,547
Net loss..................... -- (1,360,790)
--------- -----------
Balance, December 31, 1996..... $ 70,993 $$23,130,359
Stock options exercised...... -- 816,465
Issuance of common stock for
acquisition................ -- 1,670,812
Issuance of common stock in
secondary offering, net of
issuance cost of
$226,764................... -- 37,105,237
Preferred stock redemption... -- (5,250,000)
Tax benefit from exercise of
nonqualified stock
options.................... -- 245,000
Translation adjustment....... (402,344) (402,344)
Net income................... -- 1,895,968
--------- -----------
Balance, December 31, 1997..... $(331,351) $59,211,497
========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 38
CERPROBE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
----------- ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ 1,895,968 $ (1,360,790) $ 2,402,247
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization........................... 3,684,591 1,930,341 1,125,584
Purchased research and development...................... 4,496,467 4,584,000 --
Tax benefit from exercise of nonqualified stock
options.............................................. 245,000 542,000 340,170
Gain on sale of equipment............................... 12,583 -- 4,787
Deferred income taxes................................... 56,477 2,000 (110,502)
Provision for losses on accounts receivable............. 112,000 12,000 12,000
Provision for obsolete inventory........................ 629,000 75,000 80,000
Compensation expense.................................... (33,536) 49,383 145,128
Loss applicable to minority interest in consolidated
subsidiaries......................................... (29,715) (94,854) --
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable.................................. (4,065,025) (194,293) (1,444,689)
Inventories.......................................... (1,384,298) (812,904) (1,038,216)
Prepaid expenses and other assets.................... 297,788 (562,590) (389,988)
Income taxes receivable.............................. (410,477) (50,633) (163,464)
Accounts payable and accrued expenses................ 921,054 1,229,408 1,101,238
Accrued income taxes................................. -- -- (376,442)
Other liabilities.................................... -- 311,947 (42,289)
----------- ------------ -----------
Net cash provided by operating activities:......... 5,921,535 5,660,015 1,645,564
----------- ------------ -----------
Cash flows from investing activities:
Purchase of property, plant and equipment................. (6,386,534) (4,922,960) (1,960,775)
Investment in CRPB Investors, L.L.C....................... 107,292 (659,233) --
Purchase of SVTR, Inc. net of cash acquired............... (2,590,697) -- --
Purchase of Fresh Test Technology Corp., net of cash
acquired................................................ -- -- (81,698)
Purchase of CompuRoute, Inc., net of cash acquired........ (80,102) (4,327,162) --
Proceeds from sale of equipment........................... 74,684 -- 42,062
(Issuance) payment of notes receivable.................... 250,000 (250,000) --
----------- ------------ -----------
Net cash used in investing activities.............. (8,625,357) (10,159,355) (2,000,411)
----------- ------------ -----------
Cash flows from financing activities:
Principal payments on notes payable and capital leases.... (4,882,920) (356,015) (302,563)
Net proceeds from issuance of preferred stock............. -- 9,400,000 --
Redemption of preferred stock............................. (5,250,000) -- --
Net proceeds from issuance of common stock................ 37,105,237 -- --
Net proceeds from exercise of stock options............... 816,465 564,979 207,464
Capital contribution by minority interest partners........ 100,000 107,705 --
----------- ------------ -----------
Net cash provided by (used in) financing
activities....................................... 27,888,782 9,716,669 (95,099)
----------- ------------ -----------
Effect of exchange rates on cash and cash equivalents....... (402,344) 83,547 (24,692)
----------- ------------ -----------
Net increase (decrease) in cash and cash equivalents........ 24,782,616 5,300,876 (474,638)
Cash and cash equivalents, beginning of year................ 5,564,557 263,681 738,319
----------- ------------ -----------
Cash and cash equivalents, end of year...................... $30,347,173 $ 5,564,557 $ 263,681
=========== ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 39
CERPROBE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Supplemental schedule of non-cash financing
activities:
Conversion of subordinated debentures............. $ -- $ 595,000 $ --
=========== =========== ===========
Equipment acquired under capital leases and
issuance of note payable....................... $ 357,010 $ 1,553,968 $ 1,056,817
=========== =========== ===========
Supplemental disclosures of cash flow information:
Interest paid..................................... $ 486,069 $ 218,383 $ 153,690
=========== =========== ===========
Income taxes paid................................. $ 3,937,456 $ 2,060,000 $ 1,679,876
=========== =========== ===========
Supplemental disclosures of non-cash investing
activities:
The Company made acquisitions for $4.5 million,
$7.4 million and $3.1 million in the years
ended December 31, 1997, 1996 and 1995,
respectively. The purchase prices were
allocated to the assets acquired and
liabilities assumed based on their fair values
as indicated in the notes to the consolidated
financial statements. A summary of the
acquisitions is as follows:
Purchase price.................................... $ 4,546,825 $ 7,432,543 $ 3,065,834
Less cash acquired................................ (285,316) (505,381) (321,167)
Common stock issued............................... (1,670,812) (2,600,000) (2,662,969)
----------- ----------- -----------
Cash invested.................................. $ 2,590,697 $ 4,327,162 $ 81,698
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 40
CERPROBE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Cerprobe Corporation offers comprehensive solutions for semiconductor test
integration and is a leading manufacturer of probe cards, automatic test
equipment ("ATE") interface assemblies, and ATE test boards. The Company
believes it is the only company that designs, manufactures, and assembles each
of the electromechanical components that assure the integrity of the electrical
test signal that passes from the ATE to the integrated circuits ("ICs") device
under test. The Company also refurbishes, reconfigures, and services wafer
probers. The Company's products and services enable semiconductor manufacturers
to test ICs in wafer form and as packaged ICs. Testing ICs assures IC quality,
reduces manufacturing costs, improves the accuracy of manufacturing yield data,
and identifies repairable memory 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.
Unless the context indicates otherwise, all references to "Cerprobe" or the
"Company" refer to Cerprobe Corporation and its subsidiaries.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Cerprobe and
its subsidiaries: Cerprobe Europe Limited, Cerprobe Asia Holdings PTE LTD,
CompuRoute, Inc., SVTR, Inc. and Cobra Venture Management, Inc.
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. Cerprobe Singapore became operational in April
of 1996 and Cerprobe Taiwan in January of 1997. All significant intercompany
transactions have been eliminated in consolidation.
The consolidated balance sheet as of December 31, 1996 includes the assets
and liabilities of CompuRoute, Inc. ("CompuRoute") 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.
On January 15, 1997, the company acquired all of the outstanding stock of
STVR, Inc., ("SVTR"), a company that refurbishes, reconfigures, and services
wafer probing equipment. Accordingly, the consolidated financial statements as
of and for the year ended December 31, 1997 include SVTR's activities since the
date of acquisition.
On March 17, 1997, the Company entered into a joint venture with Upsys
Reseau Eurisys ("Upsys"), a French company owned by IBM and GAME, a French test
and engineering company. The joint venture, called Upsys-Cerprobe, L.L.C.,
assembles and repairs the Cobra Probe in Arizona for distribution by Cerprobe
throughout the United States and Asia. Cerprobe owns 55% of the joint venture
and Upsys owns 45%.
Accordingly, the consolidated financial statements as of and for the year
ended December 31, 1997 include the activities of Upsys-Cerprobe since the
formation of the venture. The Company manages the joint venture and established
a wholly owned subsidiary called Cobra Venture Management, Inc. to function as
manager of Upsys-Cerprobe, L.L.C.
F-7
<PAGE> 41
CERPROBE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On August 18, 1997, Cerprobe Asia Holdings PTE LTD sold 10% of its
ownership in Cerprobe Asia PTE LTD to a Taiwanese investor. Accordingly, the
consolidated financial statements as of and for the year ended December 31, 1997
reflect a 60% ownership in Cerprobe Asia PTE LTD since the transaction date.
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 maturities of three months or less.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and depreciated by the
straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Building.................................................... 39 years
Manufacturing tools and equipment........................... 3-7 years
Office furniture and equipment.............................. 3-7 years
Computer hardware and software.............................. 3-5 years
Leasehold improvements...................................... Life of lease
</TABLE>
INTANGIBLES
Intangibles consists of goodwill, patents and technology.
Goodwill represents the amount by which the cost of businesses purchased
exceeds the fair value of the net assets acquired. Goodwill is amortized over a
period of eight years using the straight-line method. Patents and technology are
stated at fair market value at the date of acquisition and are amortized over a
period of five years using the straight-line method. Research and development
costs and any costs associated with internally developed patents, formulas or
other proprietary technology are expensed in the year incurred. The Company
continually evaluates whether events and circumstances have occurred that
indicate the remaining estimated useful lives of intangibles may warrant
revision or that the remaining balances may not be recoverable. When factors
indicate that the assets should be evaluated for possible impairment, the
Company uses an estimate of the undiscounted net cash flows over the remaining
life of the assets in measuring whether the asset is recoverable.
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.
F-8
<PAGE> 42
CERPROBE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 Statement of Financial Accounting
Standards ("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.
REVENUE RECOGNITION
The Company records revenue when goods are shipped.
NET INCOME (LOSS) PER SHARE
In 1997, the Financial Accounting Standards Board issued SFAS No. 128,
Earnings per Share ("SFAS No. 128"). SFAS No. 128 replaced the calculation of
primary and fully diluted earnings per share with basic and diluted earnings per
share. Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented, and where appropriate, restated to conform to the SFAS No. 128
requirements.
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.
(2) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Raw materials....................................... $7,614,152 $3,328,422
Work-in-process..................................... 1,075,353 615,360
Finished goods...................................... 127,636 47,971
Reserve for obsolete inventories.................... (334,000) (129,000)
---------- ----------
$8,483,141 $3,862,753
========== ==========
</TABLE>
F-9
<PAGE> 43
CERPROBE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Land.............................................. $ 364,017 $ 359,253
Building.......................................... 1,973,704 1,947,877
Manufacturing tools and equipment................. 11,315,590 8,789,140
Office furniture and equipment.................... 2,120,917 1,063,547
Leasehold improvements............................ 1,856,107 1,112,576
Computer hardware and software.................... 3,903,769 2,402,551
Construction in progress.......................... 807,811 483,591
Accumulated depreciation and amortization......... (7,200,013) (4,712,244)
----------- -----------
$15,141,902 $11,446,291
=========== ===========
</TABLE>
(4) INTANGIBLES
Intangibles consist of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Goodwill............................................ $3,089,740 $3,009,638
Patents and technology.............................. 207,794 90,839
Accumulated amortization............................ (901,233) (497,665)
---------- ----------
$2,396,301 $2,602,812
========== ==========
</TABLE>
(5) OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Investment in CRPB Investors, L.L.C................. $ 551,941 $ 659,233
Deferred compensation............................... -- 343,755
Other assets and deposits........................... 457,975 323,604
---------- ----------
$1,009,916 $1,326,592
========== ==========
</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 which serves as Cerprobe's worldwide headquarters. The investment
is accounted for by the equity method of accounting. In 1997, approximately
$107,000 was received by Cerprobe as a distribution from CRPB Investors, L.L.C.
In November 1997, the Company liquidated the deferred compensation plan.
F-10
<PAGE> 44
CERPROBE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Accrued payroll and related taxes................... $2,369,411 $1,070,777
Other accrued expenses.............................. 916,893 529,343
---------- ----------
$3,286,304 $1,600,120
========== ==========
</TABLE>
(7) 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 was 1.00% in excess of the prime rate. The note was paid in
full in October 1997.
(8) NOTES PAYABLE AND CAPITAL LEASES
In February 1997, the Company entered into a $10,000,000 revolving line of
credit agreement with Wells Fargo Bank for general corporate purposes and
possible future acquisitions, which matures on August 15, 1998. 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 the 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 of 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. The Company was in compliance
with all covenants as of December 31, 1997. There were no amounts outstanding
under this agreement as of December 31, 1997.
In May 1997, the Company entered into a $3,000,000 lease line of credit
agreement, which matures February 28, 1998, with Banc One Leasing Corporation.
The maximum term for each lease schedule may not exceed 60 months. Pricing is
indexed to like term treasuries plus 170 basis points. Advances are
collateralized by the underlying leased manufacturing equipment, furniture,
fixtures, software, and/or hardware. On November 17, 1997, the Company financed
$357,010 for manufacturing equipment. The note accrues interest at 7.49%
annually with monthly payments of $7,152, including interest for 60 months. As
of December 31, 1997, there was $347,132 outstanding under the note.
In February 1998, the Company entered into a new lease line of credit
agreement with Banc One Leasing Corporation that replaced the previous line. The
$5,000,000 lease line of credit, which matures February 28, 1999, has a maximum
lease term for each lease of 60 months. Pricing is indexed to like term
treasuries plus 150 basis points. Advances are collateralized by the underlying
leased manufacturing equipment, furniture, fixtures, software, and/or hardware.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Notes payable.......................................... 288,646 406,825
Less current portion................................... (139,661) (128,180)
-------- --------
Notes payable, less current portion.................... $148,985 $278,645
======== ========
</TABLE>
F-11
<PAGE> 45
CERPROBE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Annual maturities of long-term debt are as follows:
<TABLE>
<S> <C>
1998.............................................. $139,661
1999.............................................. 148,985
--------
$288,646
========
</TABLE>
The Company has a note payable for the purchase of equipment which accrues
interest at 9.4%. A monthly payment of $13,185 including interest is due through
December 1999.
(9) 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.
During 1996, 670 shares of convertible preferred stock were converted into
772,161 shares of common stock.
On August 25, 1997, the Company redeemed the remaining 330 shares of
convertible preferred stock for $5,250,000 in cash. The redemption was funded
through an advance on the Company's line of credit, which was paid off in
September 1997, with the proceeds from the Secondary Offering. As of December
31, 1997, no shares of convertible preferred stock were outstanding.
WARRANTS AND NON-EMPLOYEE STOCK OPTIONS
Additionally, the Company issued 39,275 common stock warrants in January
1996. These warrants give the holder the right to purchase from the Company not
more than 39,275 fully paid and non-assessable shares of the Company's common
stock, $.05 par value, at a price of $16.55 per share on or after January 16,
1997, with expiration in January 2001.
In October 1996, 10,000 common stock options were issued to Silverman
Heller Associates. These options give the holder the right to purchase not more
than 10,000 fully paid and non-assessable shares of the Company's common stock,
$.05 par value, at a price of $9.00 per share.
(10) INCOME TAXES
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Foreign........................................ $ 115,763 $ -- $ --
Federal........................................ 2,792,531 2,093,000 1,391,499
State.......................................... 803,453 608,000 420,228
---------- ---------- ----------
$3,711,747 $2,701,000 $1,811,727
========== ========== ==========
Current........................................ $3,655,270 $2,699,000 $1,922,229
Deferred....................................... 56,477 2,000 (110,502)
---------- ---------- ----------
$3,711,747 $2,701,000 $1,811,727
========== ========== ==========
</TABLE>
F-12
<PAGE> 46
CERPROBE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the provision for income taxes and income taxes at the
United States federal corporate income tax rate of 34% is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Income tax expense at federal corporate rate... $1,906,623 $ 456,000 $1,433,000
State income taxes, net of federal Tax
benefit...................................... 529,980 362,700 253,000
Purchased research and development not
benefited.................................... 1,528,799 1,558,560 --
Foreign losses not benefited (income taxed at
lower than U.S. federal rate)................ (79,408) 167,450 199,000
Amortization of intangibles.................... 131,406 90,200 67,000
Foreign sales corporation benefit.............. (82,501) -- --
Nontaxable income.............................. (79,013)
Utilization of net operating loss
carryforwards................................ (47,706) -- (38,045)
Research tax credit............................ -- -- (54,440)
Other.......................................... (96,433) 66,090 47,788
---------- ---------- ----------
$3,711,747 $2,701,000 $1,811,727
========== ========== ==========
</TABLE>
The components of the Company's deferred tax asset and deferred tax
liability are as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Deferred tax assets:
Foreign tax loss carry forward............................ $ 177,554 $ 545,000
Reserves and accruals not currently deductible............ 518,778 303,265
Deferred compensation..................................... -- 87,747
---------- ----------
Total gross deferred tax assets................... 1,208,248 936,012
Less valuation allowance.................................. (177,554) (545,000)
---------- ----------
Deferred tax asset........................................ 518,778 391,012
---------- ----------
Deferred tax liability:
Difference between book and tax depreciation of property,
plant and equipment.................................... 377,701 188,536
---------- ----------
Net deferred tax asset.................................... $ 141,077 $ 202,476
========== ==========
</TABLE>
The valuation allowance increased by $144,470 and $80,000 in 1997 and 1996
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 1997 and 1996, tax benefits were recorded for the exercise of stock
options under the Company's stock option plans. The benefits of $245,000 and
$542,000 were recorded as additional paid-in capital.
(11) STOCK OPTION PLANS
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
1,985,000 shares of the Company's common stock, of which 366,334 were available
for grant as of December 31, 1997. 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
F-13
<PAGE> 47
CERPROBE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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 1997, 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 1997, 1996, and 1995, respectively; risk-free interest
rates of 5.6%, 6.1%, and 5.8%; dividend yields of zero for all years; volatility
factors of the expected market price of the Company's common stock of 52%, 53%,
and 51%, respectively; and weighted average expected lives of the options of 3
years for all 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 opinion, 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 1997, 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>
1997 1996 1995
---------- ----------- ----------
UNAUDITED
---------------------------------------
<S> <C> <C> <C> <C>
Net income (loss)............... As reported $1,895,968 $(1,360,790) $2,402,247
Pro forma $1,784,019 $(1,470,158) $2,377,094
Basic net income (loss) per As reported $ 0.28 $ (0.30) $ 0.62
share.........................
Pro forma $ 0.27 $ (0.32) $ 0.62
Diluted net income (loss) per As reported $ 0.27 $ (0.30) $ 0.53
share.........................
Pro forma $ 0.26 $ (0.32) $ 0.52
</TABLE>
F-14
<PAGE> 48
CERPROBE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the Company's employee stock option activity and related
information for the years ended December 31 follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------ -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................. 593,631 $ 8.46 598,333 $ 6.44 562,333 $ 3.52
Granted................. 153,000 $10.38 160,000 $10.86 206,000 $10.42
Exercised............... (95,265) $ 8.57 (164,702) $ 3.43 (160,000) $ 1.30
Expired/Canceled........ (11,500) 12.88 0 (10,000) $ 6.75
------- --------- ---------
Outstanding at end of
year................. 639,866 $ 8.81 593,631 $ 8.46 598,333 $ 6.44
======= ========= =========
Exercisable at end of
year................. 367,320 $ 7.45 360,233 $ 6.94 347,940 $ 4.68
======= ========= =========
Weighted average fair
value of options
granted.............. $ 4.16 $ 4.45 $ 4.20
======= ========= =========
</TABLE>
Exercise prices for the options outstanding as of December 31, 1997 ranged
from $5.50 to $12.75. The weighted average remaining contractual life of those
options was approximately 7 years as of December 31, 1997.
(12) 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 $2,962,383 and $3,381,836 with related accumulated amortization of
$1,184,886 and $896,637 as of December 31, 1997 and 1996, 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.
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 commenced upon the completion of the
83,000 square foot facility in May 1997. The facility serves as the Company's
worldwide headquarters and was 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 $875,000 per year.
F-15
<PAGE> 49
CERPROBE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
1998........................................... $ 766,498 $ 1,925,880 $ 75,300
1999........................................... 566,155 1,784,071 78,900
2000........................................... 437,394 1,689,968 47,600
2001........................................... 218,166 1,595,721 --
2002........................................... 71,523 1,507,164 --
Thereafter..................................... -- 10,594,636 --
---------- ----------- --------
Total minimum future lease payments............ $2,059,736 $19,097,440 $201,800
=========== ========
Less amounts representing interest (at rates
ranging from 4.5% to 10.5%).................. (264,216)
----------
Present value of net minimum future lease
payments..................................... $1,795,520
Less current portion........................... (629,798)
----------
Long-term portion.............................. $1,165,722
==========
</TABLE>
Amortization expense applicable to assets under capital leases is charged
to depreciation and amortization expense.
Rental expense for the years ended December 31, 1997, 1996 and 1995 was
$1,915,544, $1,002,856 and $723,396, respectively.
(13) BUSINESS SEGMENT
The Company is engaged in the design, development, manufacture and market
of semiconductor integrated circuit test products and services. For the years
ended December 31, 1997, 1996 and 1995, 17%, 20% and 11%, respectively, of the
Company's sales were shipped to customers outside of the United States.
One customer accounted for 17%, 16% and 19% of net sales for the years
ended December 31, 1997, 1996 and 1995. The accounts receivable from that
customer at December 31, 1997, and 1996 was $1,081,424 and $449,380
respectively.
(14) ACQUISITIONS
FRESH TEST TECHNOLOGY CORPORATION
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
F-16
<PAGE> 50
CERPROBE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
basis over eight years. The purchase price of $2,662,969 plus acquisition costs
of $402,865 was allocated as follows:
<TABLE>
<S> <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 on January 1, 1995:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
------------
<S> <C>
Net sales................................................... $27,601,795
Net income.................................................. 2,543,690
Basic net income per share.................................. 0.62
Diluted net income per share................................ 0.52
</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 1995 or as a projection of future results.
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 acquired and the liabilities assumed based upon the estimated fair
values at the date of acquisition. The excess of the purchase price over the
estimated fair values of the net assets acquired was $969,235 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 $474,848
(which includes $80,102 of acquisition costs paid in 1997) was allocated as
follows.
F-17
<PAGE> 51
CERPROBE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<S> <C>
Purchase price:
Cash...................................................... $ 4,437,797
Common stock.............................................. 2,600,000
Costs of acquisition...................................... 474,848
-----------
$ 7,512,645
===========
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.................................................. 969,235
Current liabilities....................................... (1,177,286)
Noncurrent liabilities.................................... (700,894)
-----------
$ 7,512,645
===========
</TABLE>
At acquisition, the state of the research and development products was not
yet at a technological or commercially viable stage. The Company did not believe
that the research and development products had any future alternative use
because if these products were not finished and brought to ultimate product
completion, they would have no other value. Therefore, consistent with generally
accepted accounting principles, the Company recorded a one-time charge for the
full value of the purchased research and development.
The consolidated balance sheet 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 on January
1, 1995:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1996 1995
----------- -----------
(UNAUDITED)
<S> <C> <C>
Net sales................................................. $47,732,502 $36,296,077
Net income................................................ 3,585,440 3,261,074
Basic net income per share................................ 0.78 0.84
Diluted net income per share.............................. 0.67 0.70
</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 1995 or as a projection of future results.
SVTR, INC.
On January 15, 1997, the Company acquired all of the outstanding stock of
SVTR, a company that refurbishes, reconfigures, and services wafer probing
equipment for $5,617,467 excluding costs of acquisition. The purchase price
consisted of $2,753,217 in cash and 300,000 shares of common stock. The
acquisition has been accounted for under the purchase method of accounting and
accordingly, the purchase price has been allocated to assets acquired and
liabilities assumed based upon their estimated fair values at the date of
acquisition.
On August 18, 1997, a letter of understanding detailing the settlement of
certain open terms related to the purchase of SVTR, was signed by the former
owners of SVTR. In general, the letter of understanding required
F-18
<PAGE> 52
CERPROBE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the former owners to return 125,000 shares of the Company's common stock then
held in escrow to the Company. In addition, the former owners were required to
release any claims or interest they may have to receive any payments or shares
of common stock of the Company with respect to an earnout provision detailed in
the January 15, 1997 agreement of merger between the two entities. On September
26, 1997, a formal agreement was signed consummating the details in the letter
of understanding. As a result, the Company has recorded a $1,167,689 reduction
in previously recorded acquisition related expenses.
The re-negotiated purchase price of $4,546,825 including acquisition costs
of $122,796 was allocated as follows:
<TABLE>
<S> <C>
Purchase price:
Cash...................................................... $ 2,753,217
Common stock.............................................. 1,670,812
Costs of acquisition...................................... 122,796
-----------
$ 4,546,825
===========
Assets acquired and liabilities assumed:
Current assets............................................ $ 4,918,904
Property, plant and equipment............................. 517,413
Other assets.............................................. 146,867
Purchased research and development........................ 4,496,467
Current liabilities....................................... (4,795,473)
Noncurrent liabilities.................................... (737,353)
-----------
$ 4,546,825
===========
</TABLE>
The following summary, prepared on a pro forma basis, excluding the charges
for purchased research and development, presents the results of operations as if
the acquisitions of CompuRoute and SVTR had occurred on January 1, 1996:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1997 1996
----------- -----------
(UNAUDITED)
<S> <C> <C>
Net sales................................................. $77,163,584 $62,269,096
Net income................................................ 6,552,369 2,951,871
Basic net income per share................................ 0.98 0.64
Diluted net income per share.............................. 0.94 0.55
</TABLE>
The pro forma results are not necessarily indicative of what the actual
consolidated results of operations might have been if the acquisitions had been
effective at the beginning of 1996 and are not a projection of future results.
(15) 401(K) PLAN
The Company established the Cerprobe Corporation 401(k) Plan ("the Plan")
in 1993. Employees who have reached 18 years of age and who have completed 90
days of service for the Company are eligible to participate in the Plan.
Participants may elect to defer up to 15% of their salary.
Any contribution by the Company is at its discretion and only for those
participants who have completed one year of service for the Company. The Company
expensed discretionary contributions pursuant to the Plan
F-19
<PAGE> 53
CERPROBE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
in the amount of $241,000, $91,000, and $90,000 for the years ended December 31,
1997, 1996, and 1995, respectively. The participants are fully vested in their
and the Company's contributions.
(16) FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments",
requires that the Company disclose estimated fair values for its financial
instruments. The following summary presents a description of the methodologies
and assumptions used to determine 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.
(17) SUPPLEMENTAL FINANCIAL INFORMATION
A summary of additions and deductions related to the allowances for
accounts receivable and inventories for the years ended December 31, 1997, 1996
and 1995 follows:
<TABLE>
<CAPTION>
BALANCE AT BALANCE
BEGINNING AT END
OF YEAR ADDITIONS ACQUISITIONS DEDUCTIONS OF YEAR
---------- --------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts:
Year ended December 31,
1997................. $223,000 $112,000 $ 12,000 $ (55,000) $292,000
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
Allowance for obsolescence
of inventories:
Year ended December 31,
1997................. $129,000 $629,000 $ 82,000 $(506,000) $334,000
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
</TABLE>
F-20
<PAGE> 54
CERPROBE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(18) NET INCOME (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted net
income (loss) per share:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ----------- ----------
<S> <C> <C> <C>
Net income (loss)............................. $1,895,968 $(1,360,790) $2,402,247
Convertible debenture interest after tax
affect...................................... -- -- 53,291
---------- ----------- ----------
Income (loss) available to common
stockholders................................ $1,895,968 $(1,360,790) $2,455,538
========== =========== ==========
Weighted average outstanding common shares.... 6,690,265 4,579,598 3,874,459
Effect of dilutive securities:
Stock options............................... 292,103 194,883 196,773
Convertible preferred stock................. -- 553,858 --
Convertible debentures...................... -- -- 595,000
Antidilutive effect of dilutive
securities............................... -- (748,741) --
---------- ----------- ----------
Weighted average and common equivalent shares
outstanding................................. 6,982,368 4,579,598 4,666,232
========== =========== ==========
Basic net income (loss) per share............. $ 0.28 $ (0.30) $ 0.62
========== =========== ==========
Diluted net income (loss) per share........... $ 0.27 $ (0.30) $ 0.53
========== =========== ==========
</TABLE>
(19) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
- ---------------------------------
Net sales................................... $15,899 $18,684 $19,886 $22,641
Gross profit................................ 6,505 7,675 8,187 9,266
Operating income (loss)..................... (4,285) 2,556 4,194 2,927
Net income (loss)........................... (4,895) 1,589 2,962 2,240
Basic net income (loss) per share........... (0.78) 0.25 0.47 0.28
Diluted net income (loss) per share......... (0.78) 0.24 0.44 0.27
Basic weighted average common shares
outstanding............................... 6,293 6,353 6,316 8,068
Diluted weighted average and common
equivalent shares outstanding............. 6,293 6,596 6,733 8,431
YEAR ENDED DECEMBER 31, 1996
- ---------------------------------
Net sales................................... $ 9,700 $ 9,660 $ 8,799 $ 9,149
Gross profit................................ 4,528 4,485 3,861 4,091
Operating income (loss)..................... 1,817 1,542 920 (3,526)
Net income (loss)........................... 1,007 861 663 (3,892)
Basic net income (loss) per share........... 0.24 0.19 0.14 (0.73)
Diluted net income (loss) per share......... 0.18 0.15 0.11 (0.73)
Basic weighted average common shares
outstanding............................... 4,185 4,446 4,690 5,362
Diluted weighted average and common
equivalent shares outstanding............. 5,548 5,878 5,821 5,362
</TABLE>
Basic and diluted net income (loss) per share amounts have been restated to
reflect the adoption of SFAS No. 128.
F-21
<PAGE> 1
10 (aaa) Ex-10(aaa)
FINANCING LEASE
[BANK ONE LOGO (R)] LEASE SCHEDULE NO. 1000063309
LESSOR: BANC ONE LEASING CORPORATION
LESSEE: COMPUROUTE, INC.
1. GENERAL. Reference is made to the Master Lease Agreement dated as of
November 17, 1997, as amended from time to time ("Master Lease"), between the
above Lessee and Lessor. This Lease Schedule is signed and delivered under the
Master Lease. Unless otherwise defined herein, capitalized terms defined in the
Master Lease will have the same meaning when used in this Schedule.
2. FINANCING. Lessor finances for Lessee, and Lessee finances with Lessor, all
of the property ("Equipment") described below:
<TABLE>
<CAPTION>
Quantity Description (New Unless Specified as Used) Amount Financed
- -------- ------------------------------------------ ---------------
<S> <C> <C> <C>
See Attached Schedule A-1 Equipment Cost 356,635.51
Documentation Fee 375.00
Sales Tax 0.00
TOTAL $357.010.51
===========
</TABLE>
3. FINANCING TERM AND INSTALLMENT PAYMENTS. The Lease Term for the Equipment
begins on the earlier of the Acceptance Date or the Commencement Date and
continues for the number of months after the Commencement Date as stated in the
Lease Term box below. The Acceptance Date is the date that Lessor accepts
this Schedule as stated below Lessor's signature. The Commencement Date is the
[ ] 1st [X] 15th day of the month in which the Acceptance Date occurs.
<TABLE>
<CAPTION>
Lease Term Number of Payments Installment Payments (excluding Taxes)
<S> <C> <C>
60 Months 60 60 MONTHLY 7,152.06
</TABLE>
PAYMENT DUE DATES: On the Commencement Date and on the same day of each Month
thereafter until paid in full. Total Advance Payment of $0.00 to be applied as
follows:
$0.00 Security Deposit $0.00 First and Last 0 Payment(s)
$0.00 Set-up/Filing/Search Fees $0.00 Other (Specify)
Lessee shall pay to Lessor all amounts stated above on the due dates stated
above, except that the Total Advance Payment is due on the Commencement Date.
There shall be added to each installment payment all applicable Taxes as in
effect from time to time.
4. SECURITY INTEREST. This Schedule is not intended to be a true lease, but is
intended to be a secured debt financing transaction. As collateral security for
payment and performance of all Secured Obligations (as defined in Paragraph A on
the reverse side of this Schedule) and to induce Lessor to extend credit from
time to time to Lessee (under the Lease or otherwise). Lessee hereby grants to
Lessor a first priority security interest in all of Lessee's right, title and
interest in the Equipment, whether now existing or hereafter acquired, and in
all Proceeds (as defined in Paragraph A on the reverse side of this Schedule).
Lessee represents, warrants and agrees that Lessee currently is the lawful owner
of the Equipment and that good and marketable title to the Equipment shall
remain with Lessee at all times. Lessee represents, warrants and agrees: that
Lessee has granted to Lessor a first priority security interest in the Equipment
and all Proceeds; and that the Equipment and all Proceeds are, and at all times
shall be, free and clear of any Liens other than Lessor's security interest
therein. Lessee at its sole expense will protect and defend Lessor's first
priority security interest in the Equipment against all claims and demands
whatsoever.
5. LESSEE'S ASSURANCES. Lessee irrevocably and unconditionally: (a) reaffirms
all of the terms and conditions of the Master Lease and agrees that the Master
Lease remains in full force and effect; (b) agrees that the Equipment is and
will be used at all times solely for commercial purposes, and not for personal,
family or household purposes; and (c) incorporates all of the terms and
conditions of the Master Lease as if fully set forth in this Schedule.
6. PURCHASE ORDERS AND ACCEPTANCE OF EQUIPMENT. Lessee agrees that (i) Lessor
has not selected, manufactured, sold or supplied any of the Equipment, (ii)
Lessee has selected all of the Equipment and its suppliers, and (iii) Lessee
has received a copy of, and approved, the purchase orders or purchase contracts
for the Equipment. AS BETWEEN LESSEE AND LESSOR, LESSEE AGREES THAT: (a) LESSEE
HAS RECEIVED, INSPECTED AND APPROVED ALL OF THE EQUIPMENT; (b) ALL EQUIPMENT IS
IN GOOD WORKING ORDER AND COMPLIES WITH ALL PURCHASE ORDERS OR CONTRACTS AND
ALL APPLICABLE SPECIFICATIONS; (c) LESSEE IRREVOCABLY ACCEPTS ALL EQUIPMENT FOR
PURPOSES OF THE LEASE "AS-IS, WHERE-IS" WITH ALL FAULTS; AND (d) LESSEE
UNCONDITIONALLY WAIVES ANY RIGHT THAT IT MAY HAVE TO REVOKE ITS ACCEPTANCE OF
THE EQUIPMENT.
7. MISCELLANEOUS: At the end of lease term, Lessee shall make a final payment
of $1.00.
Principal Amount: $357,010.51 Interest Rate Per Annum: 7.49%
Lessee Promises to pay said principal amount, with interest at said rate,
in the amount and at the times stated in this schedule. Interest calculated on
basis of a 360-Day year.
LESSEE HAS READ AND UNDERSTOOD ALL OF THE TERMS OF THIS SCHEDULE. LESSEE AGREES
THAT THERE ARE NO ORAL OR UNWRITTEN AGREEMENTS WITH LESSOR REGARDING THE
EQUIPMENT OR THIS SCHEDULE. THIS SCHEDULE IS EXPRESSLY SUBJECT TO THE TERMS AND
CONDITIONS ON THE REVERSE SIDE OF THIS SCHEDULE.
Accepted By: COMPUROUTE, INC.
BANC ONE LEASING CORPORATION ------------------------------------
(Name of Lessee)
By: By: /s/ Alexander D. Wasserzug
--------------------------- ---------------------------------
Title: Title: President
------------------------ ------------------------------
Acceptance Date: Witness Signature: /s/ Terry A. Ritz
-------------- ------------------
White: Lessor's Original Yellow: Duplicate Pink: Duplicate
MM-3A (3/94)
<PAGE> 2
CORPORATE LEASE ACKNOWLEDGEMENT
State of Texas :
------------- :
:SS
County of Dallas :
------------- :
The above mentioned foregoing instrument, was acknowledged before me this
11/17, 1997 by (Officers' Name) ALEXANDER D. WASSERZUG, (Officer's Title)
- ----- -- -----------------------
PRESIDENT, of COMPUROUTE, INC., a DELAWARE corporation, on behalf of the
- --------- ---------------- --------
corporation.
/s/ Linda J. Adams
---------------------------------
[Notary Seal] Notary Public
Commission Expires 6/23/98
--------------
<PAGE> 3
[BANK1ONE LOGO (R)]
Banc One Leasing Corporation
MASTER LEASE AGREEMENT
This MASTER LEASE AGREEMENT is made, entered and dated as of NOVEMBER 17, 1997,
by and between:
LESSOR: LESSEE:
BANC ONE LEASING CORPORATION COMPUROUTE, INC.
1111 Polaris Parkway, Suite A-3 10365 SANDEN DRIVE
Columbus, Ohio 43240 DALLAS, TX 75238
1. LEASE OF EQUIPMENT: Lessor leases to Lessee, and Lessee leases from Lessor,
all the property described in the Lease Schedules which are signed from time to
time by Lessor and Lessee.
2. CERTAIN DEFINITIONS: "Schedule" means each Lease Schedule signed by Lessee
and Lessor which incorporates the terms of this Master Lease Agreement,
together with all exhibits, riders, attachments and addenda thereto.
"Equipment" means the property described in each Schedule, together with all
attachments, additions, accessions, parts, repairs, improvements, replacements
and substitutions thereto. "Lease", "herein", "hereunder", "hereof" and similar
words mean this Master Lease Agreement and all Schedules, together with all
exhibits, riders, attachments and addenda to any of the foregoing, as the same
may from time to time be amended, modified or supplemented. "Prime Rate" means
the prime rate of interest announced from time to time as the prime rate by
Bank One, Columbus, NA; provided, that the parties acknowledge that the Prime
Rate is not intended to be the lowest rate of interest charged by said bank in
connection with extensions of credit. "Lien" means any security interest, lien,
mortgage, pledge, encumbrance, judgment, execution, attachment, warrant, writ,
levy, other judicial process or claim of any nature whatsoever by or of any
person. "Fair Market Value" means the amount which would be paid for an item of
Equipment by an informed and willing buyer (other than a used equipment or
scrap dealer) and an informed and willing seller neither under a compulsion to
buy or sell. "Lessor's Cost" means the invoiced price of any item of Equipment
plus any other cost to Lessor of acquiring an item of Equipment. All terms
defined in the Lease are equally applicable to both the singular and plural
form of such terms.
3. LEASE TERM AND RENT: The term of the lease of the Equipment described in
each Schedule ("Lease Term") commences on the date stated in the Schedule and
continues for the term stated therein. As rent for the Equipment described in
each Schedule, Lessee shall pay Lessor the rent payments and all other amounts
stated in such Schedule, payable on the dates specified therein. All payments
due under the Lease shall be made in United States dollars at Lessor's office
stated in the opening paragraph or as otherwise directed by Lessor in writing.
4. ORDERING, DELIVERY, REMOVAL AND INSPECTION OF EQUIPMENT: If an event of
default occurs or if for any reason Lessee does not accept, or revokes its
acceptance of, equipment covered by a purchase order or purchase contract or if
any commitment or agreement of Lessor to lease equipment to Lessee expires,
terminates or is otherwise canceled, then automatically upon notice from Lessor,
any purchase order or purchase contract and all obligations thereunder shall be
assigned to Lessee and Lessee shall pay and perform all obligations thereunder.
Lessee agrees to pay, defend, indemnify and hold Lessor harmless from any
liabilities, obligations, claims, costs and expenses (including reasonable
attorney fees and expenses) of whatever kind imposed on or asserted against
Lessor in any way related to any purchase orders or purchase contracts. Lessee
shall make all arrangements for, and Lessee shall pay all costs of,
transportation, delivery, installation and testing of Equipment. The Equipment
shall be delivered to Lessee's premises stated in the applicable Schedule and
shall not be removed without Lessor's prior written consent. Lessor has the
right upon reasonable notice to Lessee to inspect the Equipment wherever
located. Lessor may enter upon any premises where Equipment is located and
remove it immediately, without notice or liability to Lessee, upon the
expiration or other termination of the Lease Term.
5. MAINTENANCE AND USE: Lessee agrees it will, at its sole expense: (a) repair
and maintain the Equipment in good condition and working order and supply and
install all replacement parts or other devices when required to so maintain the
Equipment or when required by applicable law or regulation, which parts or
devices shall automatically become part of the Equipment; (b) use and operate
the Equipment in a careful manner in the normal course of its business and only
for the purposes for which it was designed in accordance with the
manufacturer's warranty requirements, and comply with all laws and regulations
relating to the Equipment, and obtain all permits or licenses necessary to
install, use or operate the Equipment; and (c) make no alterations, additions,
subtractions, upgrades or improvements to the Equipment without Lessor's prior
written consent, but any such alterations, additions, upgrades or improvements
shall automatically become part of the Equipment. The Equipment will not be
used or located outside of the United States.
6. NET LEASE; NO EARLY TERMINATION: The Lease is a net lease. Lessee's
obligation to pay all rent and all other amounts payable under the Lease is
absolute and unconditional under any and all circumstances and shall not be
affected by any circumstances of any character including, without limitation,
(a) any setoff, claim, counterclaim, defense or reduction which Lessee may
have at any time against Lessor or any other party for any reason, or (b) any
defect in the condition, design or operation of, any lack of fitness for use
of, any damage to or loss of, or any lack of maintenance or service for any of
the Equipment. Each Schedule is a noncancelable lease of the Equipment
described therein and Lessee's obligation to pay rent and perform all other
obligations thereunder and under the Lease are not subject to cancellation or
termination by Lessee for any reason.
7. NO WARRANTIES BY LESSOR: LESSOR LEASES THE EQUIPMENT AS-IS, WHERE-IS, AND
WITH ALL FAULTS. LESSOR MAKES NO WARRANTIES OR REPRESENTATIONS, EXPRESS OR
IMPLIED, OF ANY KIND AS TO THE EQUIPMENT INCLUDING, WITHOUT LIMITATION: ITS
MERCHANTABILITY; ITS FITNESS FOR ANY PARTICULAR PURPOSE; ITS DESIGN, CONDITION,
QUALITY, CAPACITY, DURABILITY, CAPABILITY, SUITABILITY OR WORKMANSHIP; ITS
NON-INTERFERENCE WITH OR NON-INFRINGEMENT OF ANY PATENT, TRADEMARK, COPYRIGHT OR
OTHER INTELLECTUAL PROPERTY RIGHT; OR ITS COMPLIANCE WITH ANY LAW, RULE,
SPECIFICATION, PURCHASE ORDER OR CONTRACT PERTAINING THERETO. Lessor hereby
assigns to Lessee the benefit of any assignable manufacturer's or supplier's
warranties, but Lessor, at Lessee's written request, will cooperate with Lessee
in pursuing any remedies Lessee may have under such warranties. Any action taken
with regard to warranty claims against any manufacturer or supplier by Lessee
will be at Lessee's sole expense. LESSOR MAKES NO REPRESENTATIONS OR WARRANTIES,
EXPRESS OR IMPLIED, OF ANY KIND AS TO THE FINANCIAL CONDITION OR FINANCIAL
STATEMENTS OF ANY PARTY OR AS TO THE TAX OR ACCOUNTING TREATMENT OR CONSEQUENCES
OF THE LEASE, THE EQUIPMENT OR THE RENTAL PAYMENTS.
8. INSURANCE: Lessee at its sole expense shall at all times keep each item of
Equipment insured against all risks of loss or damage from every cause
whatsoever for an amount not less than the greater of the full replacement value
or the Lessor's Cost of such item of Equipment. Lessee at its sole expense shall
at all times carry public liability and property damage insurance in amounts
satisfactory to Lessor protecting Lessee and Lessor from liabilities for
injuries to persons and damage to property of others relating in any way to the
Equipment. All insurers shall be reasonably satisfactory to Lessor. Lessee shall
deliver to Lessor satisfactory evidence of such coverage. Proceeds of any
insurance covering damage or loss of the Equipment shall be payable to Lessor as
loss payee and shall, at Lessor's option, be applied toward (a) the replacement,
restoration or repair of the Equipment, or (b) payment of the obligations of
Lessee under the Lease. Proceeds of any public liability or property insurance
shall be payable first to Lessor as additional insured to the extent of its
liability, then to Lessee. If an event of default occurs and is continuing, or
if Lessee fails to make timely payments due under Section 9 hereof, then Lessee
automatically appoints Lessor as Lessee's attorney-in-fact with full power and
authority in the place of Lessee and in the name of Lessee or Lessor to make
claim for, receive payment of, and sign and endorse all documents, checks or
drafts for loss or damage under any such policy. Each insurance policy will
require that the insurer give Lessor at least 30 days prior written notice of
any cancellation of such policy and will require that Lessor's interests remain
insured regardless of any act, error, omission, neglect or misrepresentation of
Lessee. The insurance maintained by Lessee shall be primary without any right of
contribution from insurance which may be maintained by Lessor.
9. LOSS AND DAMAGE: (a) Lessee bears the entire risk of loss, theft, damage or
destruction of Equipment in whole or in part from any reason whatsoever
("Casualty Loss"), No Casualty Loss to Equipment shall relieve Lessee from the
obligation to pay rent or from any other obligation under the Lease.
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9. LOSS AND DAMAGE (CONTINUED): In the event of Casualty Loss to any item of
Equipment, Lessee shall immediately notify Lessor of the same and Lessee shall,
if so directed by Lessor, immediately repair the same. If Lessor determines
that any item of Equipment has suffered a Casualty Loss beyond repair ("Lost
Equipment"), then Lessee, at the option of Lessor, shall: (1) Immediately
replace the Lost Equipment with similar equipment in good repair, condition and
working order free and clear of any Liens and deliver to Lessor a bill of sale
covering the replacement equipment, in which even such replacement equipment
shall automatically be Equipment under the Lease; or (2) On the rent payment
date which is at least 30 but no more than 60 days after the date of the
Casualty Loss, pay to Lessor all amounts then due and payable by Lessee under
the Lease for the Lost Equipment plus the Stipulated Loss Value for such Lost
Equipment as of the date of the Casualty Loss. Upon payment by Lessee of all
amounts due under the above clause (2), the lease of the Lost Equipment will
terminate and Lessor shall transfer to Lessee all of Lessor's right, title and
interest in such Equipment on an "as-is, where-is" basis with all faults,
without recourse and without representation or warranty of any kind, express or
implied.
(b) "Stipulated Loss Value" of any item of Equipment during its Lease Term
equals the present value discounted in arrears to the applicable date at the
applicable SLV Discount Rate of (1) the remaining rents and all other amounts
[including, without limitation, any balloon payment and, as to a terminal
rental adjustment clause ("TRAC") lease, the TRAC value stated in the Schedule,
and any other payments required to be paid by Lessee at the end of the
applicable Lease Term] payable under the Lease for such item on and after such
date to the end of the applicable Lease Term and (2) an amount equal to the
Economic Value of the Equipment. For any item of Equipment, "Economic Value"
means the Fair Market Value of the Equipment at the end of the applicable Lease
Term as originally anticipated by Lessor at the Commencement Date of the
applicable Schedule; provided, that Lessee agrees that such value shall be
determined by the books of Lessor as of the Commencement Date of the applicable
Schedule. After the payment of all rent due under the applicable Schedule and
the expiration of the Lease Term of any item of Equipment, the Stipulated Loss
Value of such item equals the Economic Value of such item. Stipulated Loss
Value shall also include any Taxes payable by Lessor in connection with its
receipt thereof. For any item of Equipment, "SLV Discount Rate" means an
interest rate equal to the Prime Rate in effect on the Commencement Date of the
Schedule for such item minus two percentage points.
10. TAX BENEFIT INDEMNITY. (a) The Lease has been entered into on the basis
that Lessor shall be entitled to such deductions, credits and other tax benefits
as are provided by federal, state and local income tax law to an owner of the
Equipment (the "Tax Benefits") including, without limitation: (1) modified
accelerated cost recovery deductions on each item of Equipment under Section 168
of the Code (as defined below) in an amount determined commencing with the
taxable year in which the Commencement Date of the applicable Schedule occurs,
using the maximum allowable depreciation method available under Section 168 of
the Code, using a recovery period (as defined in Section 168 of the Code)
reasonably determined by Lessor, and using an initial adjusted basis which is
equal to the Lessor's Cost of such item; (2) amortization of the expenses paid
by Lessor in connection with the Lease on a straight-line basis over the term
of the applicable Schedule; and (3) Lessor's federal taxable income will be
subject to the maximum rate on corporations in effect under the Code as of the
Commencement Date of the applicable Schedule.
(b) If on any one or more occasions (1) Lessor shall lose, shall not have
or shall lose the right to claim all or any part of the Tax Benefits, (2) there
shall be reduced, disallowed, recalculated or recaptured all or any part of the
Tax Benefits, or (3) all or any part of the Tax Benefits is reduced by a change
in law or regulation (each of the events described in subparagraphs 1, 2 or 3 of
this paragraph (b) will be referred to as a "Tax Loss"), then, upon 30 days
written notice by Lessor to Lessee that a Tax Loss has occurred, Lessee shall
pay Lessor an amount which, in the reasonable opinion of Lessor and after the
deduction of all taxes required to be paid by Lessor with respect to the receipt
of such amount, will provide Lessor with the same after-tax net economic yield
which was originally anticipated by Lessor as of the Commencement Date of the
applicable Schedule.
(c) A Tax Loss shall occur upon the earliest of: (1) the happening of any
event (such as disposition or change in use of an item of Equipment) which may
cause such Tax Loss; (2) Lessor's payment to the applicable taxing authority of
the tax increase resulting from such Tax Loss; or (3) the adjustment of
Lessor's tax return to reflect such Tax Loss.
(d) Lessor shall not be entitled to payment under this section for any Tax
Loss caused solely by one or more of the following events: (1) a disqualifying
sale or disposition of an item of Equipment by Lessor prior to any default by
Lessee; (2) Lessor's failure to timely or properly claim the Tax Benefits in
Lessor's tax return; (3) a disqualifying change in the nature of Lessor's
business or liquidation thereof; (4) a foreclosure by any person holding
through Lessor a security interest on an item of Equipment which foreclosure
results solely from an act of Lessor, or (5) Lessor's failure to have
sufficient taxable income or tax liability to utilize the Tax Benefits.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended. For
the purposes of this section 10, the term "Lessor" shall include any affiliate
group (within the meaning of section 1504 of the Code) of which Lessor is a
member for any year in which a consolidated income tax return is filed for such
affiliated group. Lessee's obligations under this section shall survive the
expiration, cancellation or termination of the Lease.
11. GENERAL TAX INDEMNITY: Lessee will pay, and will defend, indemnify and hold
Lessor harmless on an after-tax basis from, any and all Taxes (as defined below)
and related audit and contest expenses on or relating to (a) any of the
Equipment, (b) the Lease, (c) purchase, acceptance, ownership, lease,
possession, use, operation, transportation, return or other disposition of any
of the Equipment, and (d) rentals or earnings relating to any of the Equipment
or the Lease. "Taxes" means present and future taxes or other governmental
charges that are not based on the net income of Lessor, whether they are
assessed to or payable by Lessee or Lessor, including, without limitation (i)
sales, use, excise, licensing, registration, titling, franchise, business and
occupation, gross receipts, stamp and personal property taxes, (ii) levies,
imposts, duties, assessments, charges and withholdings, (iii) penalties, fines,
and additions to tax and (iv) interest on any of the foregoing. Unless Lessor
elects otherwise, Lessor will prepare and file all reports and returns relating
to any Taxes and will pay all Taxes to the appropriate taxing authority. Lessee
will reimburse Lessor for all such payments promptly on request. On or after any
applicable assessment/levy/lien date for any personal property Taxes relating to
any Equipment, Lessee agrees that upon Lessor's request Lessee shall pay to
Lessor the personal property Taxes which Lessor reasonably anticipates will be
due, assessed, levied or otherwise imposed on any Equipment during its Lease
Term. If Lessor elects in writing, Lessee will itself prepare and file all such
reports and returns, pay all such Taxes directly to the taxing authority, and
send Lessor evidence thereof. Lessee's obligations under this section shall
survive the expiration, cancellation or termination of the Lease.
12. GENERAL INDEMNITY: Lessee assumes all risk and liability for, and shall
defend, indemnify and keep Lessor harmless on an after-tax basis from, any and
all liabilities, obligations, losses, damages, penalties, claims, actions,
suits, costs and expenses, including reasonable attorney fees and expenses, of
whatsoever kind and nature imposed on, incurred by or asserted against Lessor,
in any way relating to or arising out of the manufacture, purchase, acceptance,
rejection, ownership, possession, use, selection, delivery, lease, operation,
condition, sale, return or other disposition of the Equipment or any part
thereof (including, without limitation, any claim for latent or other defects,
whether or not discoverable by Lessee or any other person, any claim for
negligence, tort or strict liability, any claim under any environmental
protection or hazardous waste law and any claim for patent, trademark or
copyright infringement). Lessee will not indemnify Lessor under this section
for loss or liability arising from events which occur after the Equipment has
been returned to Lessor or for loss or liability caused directly and solely by
the gross negligence or willful misconduct of Lessor. In this section, "Lessor"
also includes any director, officer, employee, agent, successor or assign of
Lessor. Lessee's obligations under this section shall survive the expiration,
cancellation or termination of the Lease.
13. PERSONAL PROPERTY: Lessee represents and agrees that the Equipment is, and
shall at all times remain, separately identifiable personal property. Upon
Lessor's request, Lessee shall furnish Lessor a landlord's and/or mortgagee's
waiver and consent to remove all Equipment. Lessor may display notice of its
interest in the Equipment by any reasonable identification. Lessee shall not
alter or deface any such indicia of Lessor's interest.
14. DEFAULT: Each of the following events shall constitute an event of default
under the Lease: (a) Lessee fails to pay any rent or other amount due under the
Lease within ten days of its due date; or (b) Lessee fails to perform or
observe any of its obligations in Sections 8, 18, or 22 hereof; or (c) Lessee
fails to perform or observe any of its other obligations in the Lease for more
than 30 days after Lessor notifies Lessee of such failure; or (d) Lessee or any
Lessee affiliate defaults in the payment, performance or observance of any
obligation under any loan, credit agreement or other lease in which Lessor or
any subsidiary (direct or indirect) of Banc One Corporation (which is Lessor's
ultimate parent corporation) is the creditor or lessor; or (e) any statement,
representation or warranty made by Lessee in the Lease, in any Schedule or in
any document, certificate or financial statement in connection with the Lease
proves at any time to have been untrue or misleading in any material respect as
of the time when made; or (f) Lessee becomes insolvent or bankrupt, or Lessee
admits its inability to pay its debts as they mature, or Lessee makes an
assignment for the benefit of creditors, or Lessee applies for, institutes or
consents to the appointment of a receiver, trustee or similar official for
Lessee or any substantial part of its property or any such official is
appointed without Lessee's consent, or Lessee applies for, institutes or
consents to any bankruptcy, insolvency, reorganization, debt moratorium,
liquidation, or similar proceeding relating to Lessee or any substantial part
of its property under the laws of any jurisdiction or any such proceeding is
instituted against Lessee without stay or dismissal for more than 30 days, or
Lessee commences any act amounting to a business failure or a winding up of its
affairs, or Lessee ceases to do business as a going concern; or (g) with
respect to any guaranty, letter of credit, pledge agreement, security
agreement, mortgage, deed of trust, debt subordination agreement or other
credit enhancement or credit support agreement (whether now existing or
hereafter arising) signed or issued by any party in connection with all or any
part of Lessee's obligations, under the Lease, the party signing or issuing any
such agreement defaults in its obligations thereunder or any such agreement
shall cease to be in full force and effect or shall be declared to be null,
void, invalid or unenforceable by the party signing or issuing it; or (h) there
shall occur in Lessor's reasonable opinion any material adverse change in the
financial condition, business or operations of Lessee.
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14. DEFAULT (CONTINUED):
As used in this section 14, the term "Lessee" also includes any guarantor
(whether now existing or hereafter arising) of all or any part of Lessee's
obligations under the Lease and/or any issuer of a letter of credit (whether now
existing or hereafter arising) relating to all or any part of Lessee's
obligations under the Lease, and the term "Lease" also includes any guaranty or
letter of credit (whether now existing or hereafter arising) relating to all or
any part of Lessee's obligations under the Lease.
15. REMEDIES. If any event of default exists, Lessor may exercise in any order
one or more of the remedies described in the lettered subparagraphs of this
section, and Lessee shall perform its obligations imposed thereby:
(a) Lessor may require Lessee to return any or all Equipment as provided
in the Lease.
(b) Lessor or its agent may repossess any or all Equipment wherever found,
may enter the premises where the Equipment is located and disconnect, render
unusable and remove it, and may use such premises without charge to store or
show the Equipment for sale.
(c) Lessor may sell any or all Equipment at public or private sale, with or
without advertisement or publication, may re-lease or otherwise dispose of it
or may use, hold or keep it.
(d) Lessor may require Lessee to pay to Lessor on a date specified by
Lessor, with respect to any or all Equipment (i) all accrued and unpaid rent,
late charges and other amounts due under the Lease on or before such date, plus
(ii) as liquidated damages for loss of a bargain and not as a penalty, and in
lieu of any further payments of rent, the Stipulated Loss Value of the
Equipment on such date, plus (iii) interest at the Overdue Rate on the total of
the foregoing ("Overdue Rate" means an interest rate per annum equal to the
higher of 18% or 2% over the Prime Rate, but not to exceed the highest rate
permitted by applicable law). The parties acknowledge that the foregoing money
damage calculation reasonably reflects Lessor's anticipated loss with respect
to the Equipment and the related Lease resulting from the event of default. If
an event of default under section 14(f) of this Master Lease Agreement exists,
then Lessee will be automatically liable to pay Lessor the foregoing amounts as
of the next rent payment date unless Lessor otherwise elects in writing.
(e) Lessee shall pay all costs, expenses and damages incurred by Lessor
because of the event of default or its actions under this section, including,
without limitation any collection agency and/or attorney fees and expenses, any
costs related to the repossession, safekeeping, storage, repair, reconditioning
or disposition of the Equipment and any incidental and consequential damages.
(f) Lessor may terminate the Lease and/or any or all Schedules, may sue to
enforce Lessee's performance of its obligations under the Lease and/or may
exercise any other right or remedy then available to Lessor at law or in equity.
Lessor is not required to take any legal process or give Lessee any notice
before exercising any of the above remedies. None of the above remedies is
exclusive, but each is cumulative and in addition to any other remedy available
to Lessor. Lessor's exercise of one or more remedies shall not preclude its
exercise of any other remedy. No action taken by Lessor shall release Lessee
from any of its obligations to Lessor. No delay or failure on the part of
Lessor to exercise any right hereunder shall operate as a waiver thereof, nor
as an acquiescence in any default, nor shall any single or partial exercise of
any right preclude any other exercise thereof or the exercise of any other
right. After any default, Lessor's acceptance of any payment by Lessee under
the Lease shall not constitute a waiver by Lessor of such default, regardless
of Lessor's knowledge or lack of knowledge at the time of such payment, and
shall not constitute a reinstatement of the Lease if the Lease has been
declared in default by Lessor, unless Lessor has agreed in writing to reinstate
the Lease and to waive the default.
If Lessor actually repossesses any Equipment, then it will use
commercially reasonable efforts under the then current circumstances to attempt
to mitigate its damages; provided, that Lessor shall not be required to sell,
re-lease or otherwise dispose of any Equipment prior to Lessor enforcing any of
the remedies described above. Lessor may sell or re-lease the Equipment in any
manner it chooses, free and clear of any claims or rights of Lessee and without
any duty to account to Lessee with respect thereto except as provided below.
If Lessor actually sells or re-leases the Equipment, it will credit the net
proceeds of any sale of the Equipment, or the net present value (discounted at
the then current Prime Rate) of the rents payable under any new lease of the
Equipment, against and up to (but not exceeding) the Stipulated Loss Value of
the Equipment and any other amounts Lessee owes Lessor, or will reimburse
Lessee for and up to (but not exceeding) Lessee's payment thereof. The term
"net" as used above shall mean such amount after deducting the costs and
expenses described in clause (e) above of this section. If Lessor elects in
writing not to sell or re-lease any Equipment, it will similarly credit or
reimburse Lessee for Lessor's reasonable estimate of such Equipment's Fair
Market Value.
16. LESSOR'S RIGHT TO PERFORM: If Lessee fails to make any payment under the
Lease or fails to perform any of its other agreements in the Lease (including,
without limitation, its agreement to provide insurance coverage as stated in
the Lease), Lessor may itself make such payment or perform such agreement, and
the amount of such payment and the amount of the expenses of Lessor incurred in
connection with such payment or performance shall be deemed to be additional
rent, payable by Lessee on demand.
17. FINANCIAL REPORTS: Lessee agrees to furnish to Lessor: (a) annual financial
statements setting forth the financial condition and results of operation of
Lessee (financial statements shall include the balance sheet, income statement
and changes in financial position and all notes thereto) within 120 days of the
end of each fiscal year of Lessee; (b) quarterly financial statements setting
forth the financial condition and results of operation of Lessee within 60 days
of the end of each of the first three fiscal quarters of Lessee; and (c) such
other financial information as Lessor may from time to time reasonably request
including, without limitation, financial reports filed by Lessee with federal
or state regulatory agencies. All such financial information shall be prepared
in accordance with generally accepted accounting principles. If Lessee fails to
furnish the annual financial statements to Lessor within 30 days of Lessor's
written request, then Lessor may, at its option, charge Lessee a
non-performance fee equal to all the rentals due under the Lease for the then
current month (unless otherwise prohibited by law) and such fees shall be
deemed to be additional rent, payable by Lessee on demand.
18. NO CHANGES IN LESSEE: Lessee shall not: (a) liquidate, dissolve or suspend
business; (b) sell, transfer or otherwise dispose of all or a majority of its
assets, except that Lessee may sell its inventory in the ordinary course of its
business; (c) enter into any merger, consolidation or similar reorganization
unless it is the surviving corporation; (d) transfer all or any substantial
part of its operations or assets outside of the United States of America; or
(e) without 30 days advance written notice to Lessor, change its name or chief
place of business. Lessee shall at all times maintain a tangible net worth
which is no less than the greater of 75% of its tangible net worth as of the
date of the Master Lease Agreement or 75% of its highest tangible net worth
thereafter.
19. LATE CHARGES: If any rent or other amount payable under the Lease is not
paid when due, then as compensation for the administration and enforcement of
Lessee's obligation to make timely payments, Lessee shall pay with respect to
each overdue payment on demand an amount equal to the greater of fifteen
dollars ($15.00) or five percent (5%) of the each overdue payment (but not to
exceed the highest late charge permitted by applicable law) plus any collection
agency fees and expenses.
20. NOTICES; POWER OF ATTORNEY: (a) Service of all notices under the Lease
shall be sufficient if given personally or couriered or mailed to the party
involved at its respective address set forth herein or at such other address as
such party may provide in writing from time to time. Any such notice mailed to
such address shall be effective three days after deposit in the United States
mail with postage prepaid. (b) With respect to any power of attorney covered by
the Lease, the powers conferred on Lessor thereby: are powers coupled with an
interest; are irrevocable; are solely to protect Lessor's interests under the
Lease; and do not impose any duty on Lessor to exercise such powers. Lessor
shall be accountable solely for amounts it actually receives as a result of its
exercise of such powers.
21. ASSIGNMENT BY LESSOR: Lessor and any assignee of Lessor, with or without
notice to or consent of Lessee, may sell, assign, transfer or grant a security
interest in all or any part of Lessor's rights, obligations, title or interest
in the Equipment, the Lease, any Schedule or the amounts payable under the Lease
or any Schedule to any entity ("transferee"). The transferee shall succeed to
all of Lessor's rights in respect to the Lease (including, without limitation,
all rights to insurance and indemnity protection described in the Lease). Lessee
agrees to sign any acknowledgement and other documents reasonably requested by
Lessor or the transferee in connection with any such transfer transaction.
Lessee, upon receiving notice of any such transfer transaction, shall comply
with the terms and conditions thereof. Lessee agrees that it shall not assert
against any transferee any claim, defense, setoff, deduction or counterclaim
which Lessee may now or hereafter be entitled to assert against Lessor. Unless
otherwise agreed in writing, the transfer transaction shall not relieve Lessor
of any of its obligations to Lessee under the Lease and Lessee agrees that the
transfer transaction shall not be construed as being an assumption of such
obligations by the transferee.
22. NO ASSIGNMENT, SUBLEASE OR LIEN BY LESSEE: LESSEE SHALL NOT, DIRECTLY OR
INDIRECTLY, (a) MORTGAGE, ASSIGN, SELL, TRANSFER, OR OTHERWISE DISPOSE OF THE
LEASE OR ANY INTEREST THEREIN OR THE EQUIPMENT OR ANY PART THEREOF, OR (b)
SUBLEASE, RENT, LEND OR TRANSFER POSSESSION OR USE OF THE EQUIPMENT OR ANY PART
THEREFOR TO ANY PARTY, OR (c) CREATE, INCUR, GRANT, ASSUME OR ALLOW TO EXIST
ANY LIEN ON THE LEASE, ANY SCHEDULE, THE EQUIPMENT OR ANY PART THEREOF.
Page 3 of 4
<PAGE> 6
23. EXPIRATION OF LEASE TERM: (a) At least 90 days (or earlier if otherwise
specified), but no more than 270 days prior to expiration of the Lease Term of
each Schedule, Lessee shall give Lessor written notice of its electing one of
the following options for all (but not less than all) of the Equipment covered
by such Schedule: return the Equipment under clause (b) below; or purchase the
Equipment under clause (c) below. The election of an option shall be
irrevocable. If Lessee fails to give timely notice of its election, it shall be
deemed to have elected to return the Equipment.
(b) If Lessee elects or is deemed to have elected to return the Equipment
at the expiration of the Lease Term of a Schedule or if Lessee is obligated at
any time to return the Equipment, then Lessee shall, at its sole expense and
risk, deinstall, disassemble, pack, crate, insure and return the Equipment to
Lessor (all in accordance with applicable industry standards) at any location in
the continental United States of America selected by Lessor. The Equipment shall
be in the same condition as when received by Lessee, reasonable wear, tear and
depreciation resulting from normal and proper use excepted (or, if applicable,
in the condition set forth in the Lease or the Schedule), shall be in good
operating order and maintenance as required by the Lease, shall be certified as
being eligible for any available manufacturer's maintenance program, shall be
free and clear of any Liens as required by the Lease, shall comply with all
applicable laws and regulations and shall include all manuals, specifications,
repair and maintenance records and similar documents. Until Equipment is
returned as required above, all terms of the Lease shall remain in full force
and effect including, without limitation, obligations to pay rent and insure the
Equipment; provided, that after the expiration of any Schedule and before Lessee
has completed its return of the Equipment or its purchase option (if elected),
the term of the lease of the Equipment covered by such Schedule shall be
month-to-month or such shorter period as may be specified by Lessor.
(c) If Lessee gives Lessor timely notice of its election to purchase
Equipment, then on the expiration date of the applicable Schedule Lessee shall
purchase all (but not less than all) of the Equipment and shall pay to Lessor
the Fair Market Value of the Equipment plus all Taxes (other than income taxes
on Lessor's gains on such sale), costs and expenses incurred or paid by Lessor
in connection with such sale plus all accrued but unpaid amounts due with
respect to the Equipment and/or the Schedule. The Stipulated Loss Value or
Economic Value of any item of Equipment shall have no bearing or influence on
the determination of Fair Market Value under this clause (c). Upon payment in
full of the above amounts, and if no default has occurred and is continuing
under the Lease, Lessor shall transfer title to such Equipment to Lessee
"as-is, where-is" with all faults and without recourse to Lessor and without
any representation or warranty of any kind whatsoever by Lessor, express or
implied.
(d) For purposes of the purchase option of the Lease, the determination of
the Fair Market Value of any Equipment shall be determined (1) without deducting
any costs of dismantling or removal from the location of use, (2) on the
assumption that the Equipment is in the condition required by the applicable
return and maintenance provisions of the Lease and is free and clear of any
Liens as required by the Lease, and (3) shall be determined by mutual agreement
of Lessee and Lessor or, if Lessor and Lessee are not able to agree on such
value, by the Appraisal Procedure. "Appraisal Procedure" means the determination
of Fair Market Value by an independent appraiser acceptable to Lessor and
Lessee, or, if the parties are unable to agree on an acceptable appraiser, by
averaging the valuation (disregarding the one which differs the most from the
other two) of three independent appraisers, the first appointed by Lessor, the
second appointed by Lessee and the third appointed by the first two appraisers.
For purposes of the "Remedies" section of the Lease, the Fair Market Value shall
be determined by Lessor in good faith and any such valuation shall be on an
"as-is, where-is" basis without regard to the first sentence of this clause (d).
Lessee, at its sole expense, shall pay all fees, costs and expenses of the above
described appraisers.
24. GOVERNING LAW: THE INTERPRETATION, CONSTRUCTION AND VALIDITY OF THE LEASE
SHALL BE GOVERNED BY THE LAWS OF THE STATE OF OHIO. WITH RESPECT TO ANY ACTION
BROUGHT BY LESSOR AGAINST LESSEE TO ENFORCE ANY TERM OF THE LEASE, LESSEE
HEREBY IRREVOCABLY CONSENTS TO THE JURISDICTION AND VENUE OF ANY STATE OR
FEDERAL COURT IN THE FRANKLIN COUNTY, OHIO, WHERE LESSOR HAS ITS PRINCIPAL
PLACE OF BUSINESS AND WHERE PAYMENTS ARE TO BE MADE BY LESSEE.
25. MISCELLANEOUS: (a) Subject to the limitations herein, the Lease shall be
binding upon and inure to the benefit of the parties hereto and their
respective heirs, administrators, successors and assigns. (b) This Master Lease
Agreement and each Schedule may be executed in any number of counterparts,
which together shall constitute a single instrument. Only one counterpart of
each Schedule shall be marked "Lessor's Original" and all other counterparts
shall be marked "Duplicate". A security interest in any Schedule may be created
through transfer and possession only of the counterpart marked "Lessor's
Original". (c) Section and paragraph headings in this Master Lease Agreement
and the Schedules are for convenience only and have no independent meaning. (d)
The terms of the Lease shall be severable and if any term thereof is declared
unconscionable, invalid, illegal or void, in whole or in part, the decision so
holding shall not be construed as impairing the other terms of the Lease and
the Lease shall continue in full force and effect as if such invalid, illegal,
void or unconscionable term were not originally included herein. (e) All
indemnity obligations of Lessee under the Lease and all rights, benefits and
protections provided to Lessor by warranty disclaimers shall survive the
cancellation, expiration or termination of the Lease. (f) Lessor shall not be
liable to Lessee for any indirect, consequential or special damages for any
reason whatsoever. (g) Each payment made by Lessee shall be applied by Lessor
in such manner as Lessor determines in its discretion which may include,
without limitation, application as follows: first, to accrued late charges;
second, to accrued rent; and third, the balance to any other amounts then due
and payable by Lessee under the Lease. (h) If the Lease is signed by more than
one Lessee, each of such Lessees shall be jointly and severally liable for
payment and performance of all of Lessee's obligations under the Lease.
26. ENTIRE AGREEMENT: THE LEASE REPRESENTS THE FINAL, COMPLETE AND ENTIRE
AGREEMENT BETWEEN THE PARTIES HERETO. THERE ARE NO ORAL OR UNWRITTEN AGREEMENTS
OR UNDERSTANDINGS AFFECTING THE LEASE OR THE EQUIPMENT. Lessee agrees that
Lessor is not the agent of any manufacturer or supplier, that no manufacturer
or supplier is an agent of Lessor, and that any representation, warranty or
agreement made by a manufacturer, supplier or their employees, sales
representatives or agents shall not be binding on Lessor.
27. JURY WAIVER: ALL PARTIES TO THIS MASTER LEASE AGREEMENT WAIVE ALL RIGHTS TO
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY PARTY
AGAINST ANY OTHER PARTY ON ANY MATTER WHATSOEVER ARISING OUT OF, IN CONNECTION
WITH OR IN ANY WAY RELATED TO THIS MASTER LEASE AGREEMENT.
COMPUROUTE, INC.
BANC ONE LEASING CORPORATION --------------------------------------------
(Name of Lessee)
Lessor
By: By: /s/ Alexander D. Wasserzug
------------------------------ ----------------------------------------
Title: Title: PRESIDENT
---------------------------- -------------------------------------
Lessee's Witness: /s/ Terry A. Ritz
--------------------------
- -------------------------------------------------------------------------------
COMPUROUTE, INC.
Regardless of any prior, present
or future oral agreement or course --------------------------------------------
of dealing, no term or condition (Name of Lessee)
of the Lease may be amended,
modified, waived, discharged,
cancelled or terminated except by
a written instrument signed by the
party to be bound; except Lessee
authorizes Lessor to complete the
Acceptance Date of each Schedule
and the serial numbers of any
Equipment. By: /s/ Alexander D. Wasserzug
----------------------------------------
Title: PRESIDENT
-------------------------------------
- -------------------------------------------------------------------------------
Page 4 of 4
<PAGE> 7
CORPORATE MASTER LEASE ACKNOWLEDGEMENT
State of Texas :
-------------- :
: SS
County of Dallas :
-------------- :
The above mentioned foregoing instrument, was acknowledged before me this
11/17, 1997 by (Officers' Name) ALEXANDER D. WASSERZUG, (Officer's Title)
PRESIDENT, of COMPUROUTE, INC., a DELAWARE corporation, on behalf of the
corporation.
/s/ Linda J. Adams
--------------------------------
Notary Public
[Notary Seal]
Commission Expires 6/23/98
<PAGE> 8
LESSEE'S SECRETARY CERTIFICATE OF
COMPUROUTE, INC. (the "Corporation")
- -----------------------------------------------------------
The undersigned, who is the duly elected and acting Secretary or Assistant
Secretary of the Corporation, hereby certifies that the following is a true and
correct copy of resolutions duly adopted by the Board of Directors of the
Corporation in conformity with its charter, articles of incorporation and
by-laws
[SELECT ONE]
at a meeting of said Board duly called and held
- ------- 19 at which a quorum was present and acting -------------------,
---
-or-
X by unanimous written action of said Board as allowed by statute,
- ------- effective 11/17, 1997
--------- ---
and that such resolutions have not been amended or altered and are in full
force and effect on the date hereof.
"RESOLVED, that any officer of this Corporation be and is hereby
authorized and empowered in the name and on behalf of this Corporation from
time to time (i) to enter into one or more lease agreements, loan and security
agreements or conditional sale agreements ("Agreements") with Banc One Leasing
Corporation (the "Company") as lessor, secured party or seller, as the case may
be, concerning property to be leased, pledged as collateral, or sold to this
Corporation in such amounts and on such terms and conditions as such officer
deems appropriate; (ii) to mortgage, pledge, assign, and/or grant a security
interest in any of this Corporation's property, (iii) to supplement or amend
any such Agreements, and (iv) to execute and deliver such other documents
(including, without limitation, leases or promissory notes) and to do and
perform all other acts as such officer deems necessary, convenient or proper to
carry out the foregoing; and
FURTHER RESOLVED, that all that any officer shall have done or may do in
connection with the Agreements or the transactions described above is hereby
ratified and approved; and
FURTHER RESOLVED, that the foregoing resolutions shall remain in full
force and effect until written notice of their amendment or rescission shall
have been received by the Company."
The undersigned further certifies that the following are names and
specimen signatures of officers of the Corporation authorized by the above
resolutions, each of whom has been duly elected to hold and currently holds the
office of the Corporation set forth opposite his or her name:
Name Office Signature
---- ------ ---------
ALEXANDER D. WASSERZUG President /s/ Alexander D. Wasserzug
- ---------------------- -----------------------------
TERRY A. RITZ Vice President /s/ Terry A. Ritz
- ---------------------- -----------------------------
Vice President
- ---------------------- -----------------------------
Page 1 of 2
<PAGE> 9
Name Office Signature
---- ------ ---------
RANDAL L. BUNESS Secretary /s/ Randal L. Buness
- ---------------------- -----------------------------
- ---------------------- ---------------- -----------------------------
- ---------------------- ---------------- -----------------------------
IN WITNESS WHEREOF, I have hereto set my hand and affixed the seal of the
Corporation this 17 day of NOVEMBER , 1997 .
------- ---------------- ---
(Corporate Seal) /s/ Randal L. Buness
-----------------------------------------------
Secretary or Assistant Secretary [Select One]
Print Name: RANDAL L. BUNESS
-----------------------------------------------
Page 2 of 2
<PAGE> 10
PREPAYMENT SCHEDULE ADDENDUM
(For Prepayment of a Financing Lease Schedule)
Dated NOVEMBER 17, 1997
--------------------
Lease Schedule No. 1000063309 Dated NOVEMBER 17, 1997
----------------------- --------------------------
Lessee: COMPUROUTE, INC.
Reference is made to the above Lease Schedule as previously amended
("Schedule") and to the Master Lease Agreement as previously amended ("Master
Lease") identified in the Schedule, which are by and between Banc One Leasing
Corporation ("Lessor") and the above lessee ("Lessee"). As used herein:
"Lease" shall mean the Schedule and the Master Lease, but only to the extent
that the Master Lease relates to the Schedule; and "Equipment" shall mean the
equipment covered by the Schedule. This Schedule Addendum amends and
supplements the terms and conditions of the Lease. Unless otherwise defined
herein, capitalized terms defined in the Lease shall have the same meaning when
used herein. SOLELY FOR PURPOSES OF THE SCHEDULE, LESSOR AND LESSEE AGREE AS
FOLLOWS:
1. Notwithstanding anything to the contrary in the Lease, Lessee and
Lessor agree that so long as Lessee gives Lessor at least 20 days prior written
notice (the "Notice Period"), Lessee may elect to prepay the outstanding
principal balance of the Schedule, in whole or in part, on the rent payment
date (a "Prepayment Date") following the Notice Period by paying to Lessor
(whether made voluntarily or involuntarily as a result of an acceleration of
the Maturity Date or otherwise), the total of the following: (a) all accrued
rent or installment payments, interest, Taxes, late charges and other amounts
then due and payable under the Schedule and the Master Lease to the extent it
relates to the Schedule; plus (b) the principal amount selected by Lessee for
prepayment in the notice of prepayment (hereinafter, the "Prepaid Principal");
plus (c) a prepayment premium, if any, equal to the product of (i) an Average
Lost Monthly Interest Income and (ii) the number of months from the Prepayment
Date to the Maturity Date (with any fraction of a month counted as a month),
discounted to present value at the Discount Rate. At the option of Lessor, in
its absolute and sole discretion, any prepayment shall be applied to
installments coming due hereunder in the inverse order of their due dates.
2. Solely for purposes of this Addendum, the following definitions in this
paragraph 2 shall apply to this Addendum. "Maturity Date" means the scheduled
expiration of the Lease Term of the Schedule as set forth in the Schedule.
"Average Lost Monthly Interest Income" means the amount determined by dividing
(i) the product of the Average Principal and the Lost Rate, by (ii) twelve
(12). "Average Principal" is the amount equal to either (i) one-half of the sum
of (A) the amount of Prepaid Principal and (B) the amount of principal that is
scheduled to be due on the Maturity Date ("Balloon Amount"), or (ii) the amount
of
Page 1
<PAGE> 11
Prepaid Principal, if such amount is less than the Balloon Amount. "Lost Rate"
is the rate per annum equal to the percentage, if any, by which (i) the yield to
maturity of United States Treasury debt obligations having a maturity date
nearest to the Maturity Date ("Treasury Obligations") determined on the date
hereof exceeds (ii) the yield to maturity of Treasury Obligations determined on
the date of prepayment. "Discount Rate" is the rate per annum equal to the yield
to maturity of Treasury Obligations determined on the date of prepayment. The
maturity date and yield to maturity of the Treasury Obligations shall be
determined by Lessor, in its absolute and sole discretion, on the basis of
quotations published in The Wall Street Journal, or other comparable sources.
Treasury Obligations shall exclude any stripped U.S. Treasury obligations and
any U.S. Treasury obligations which have multiple maturity or call dates, and if
more than one issue of U.S. Treasury obligations has the applicable maturity
month, then the U.S. Treasury obligation with the highest yield to maturity
shall be used.
3. Except as expressly amended or supplemented by this Addendum and other
instruments signed by Lessor, the Lease remains unchanged and in full force and
effect.
IN WITNESS WHEREOF, the parties hereto have executed this Addendum as of
the date referenced above.
COMPUROUTE, INC. Banc One Leasing Corporation
(Lessee) (Lessor)
By: /s/ Alexander D. Wasserzug By:
--------------------------- ---------------------------
Title: PRESIDENT Title:
------------------------ ------------------------
Page 2
<PAGE> 12
BANC ONE LEASING CORPORATION
SCHEDULE A-1 EQUIPMENT LEASED HEREUNDER
QUANTITY DESCRIPTION PAGE 1
=========== =================================================================
EQUIPMENT LOCATION: 10365 SANDEN DRIVE
DALLAS, TEXAS 75238
COUNTY: DALLAS
EQUIPMENT COST: $356,635.51
EQUIPMENT DESCRIPTION:
ONE (1) ORANGE ENGINEERING & MACHINE CO. 26" X 32" VACUUM LAMINATION PRESS
CONSISTING OF SIX PRODUCT TRAYS, ONE 26" X 32" COLD PRESS, ONE
LOADER/UNLOADER, AND TWO NON-INDEXING ACCUMULATORS
ONE (1) UNIDYNE CUT SHEET LAMINATOR
REPLACEMENT PARTS FOR LAMINATOR INCLUDING: THREE CASTER INFED, ONE
BELT DRIVE, TWO GEARS, FOUR BEARINGS, FOUR SWITCH TOGGLES, TWO
THERMOCOUPLES, TWO INSULATORS, TWO TUBS SPAGHETI, ONE TAPE GLASS, TWO
LOW SPEED CUT, AND ONE BRAKE KIT
ONE (1) AUTOTECH ALKALINE ETCHING UNIT
TOGETHER WITH ALL ATTACHMENTS, ADDITIONS, ACCESSIONS, PARTS, REPAIRS,
IMPROVEMENTS, REPLACEMENTS AND SUBSTITUTIONS THERETO.
This schedule A-1 is attached to and made a part of Lease Number 1000063309 and
constitutes a true and accurate description of the equipment.
Lessee:
COMPUROUTE, INC.
By: /s/ Alexander D. Wasserzug
------------------------
Date: NOVEMBER 17, 1997
------------------------
<PAGE> 13
CONDITIONAL SALE
INSURANCE REQUEST LETTER
WILLIS CORROON
- -------------------------------------------------------
(Agent)
7310 N. 16TH STREET, SUITE 300
- -------------------------------------------------------
(Street Address)
PHOENIX, AZ 85020-5299
- -------------------------------------------------------
(City, State, Zip)
(602) 870-7000
- -------------------------------------------------------
(Telephone Number)
Dear Agent:
Before our lease transaction can close, we need a properly executed Certificate
of Insurance or binder covering the equipment we are leasing. Please send proof
immediately of the following insurance requirements in the enclosed
self-addressed envelope.
1. PHYSICAL DAMAGE: All risk equipment coverage for the replacement cost of
the equipment being leased, which is estimated to be $357,010.51.
Equipment Description: SEE SCHEDULE A-1 ATTACHED.
2. LOSS PAYEE: Banc One Leasing Corporation must be named as loss payee on the
Physical Damage coverage as owners of the equipment during the term of the
lease. "Mortgagee" will not be acceptable as this indicates a security
interest rather than ownership as described above.
3. LIABILITY: Liability coverages must be provided in the following amounts:
$500,000 for injury or death of one person
$100,000 for property damage liability as a result of one accident
$500,000 combined single limit of liability as a result of any one
accident
4. NOTICE OF CANCELLATION: This policy shall not be canceled nor any
restriction of coverage affected unless thirty (30) days prior written
notice has been given by certified mail to Banc One Leasing Corporation at
1111 Polaris Parkway, Suite A3, Columbus, Ohio 43240, Attn: Insurance Dept.
PLEASE REFERENCE THE COMPLETE LEASE NUMBER AS LISTED BELOW FOR TRACKING
PURPOSES. THANK YOU.
Sincerely,
/s/ Alexander D. Wasserzug
- -------------------------------------------------------
(By)
COMPUROUTE, INC.
- -------------------------------------------------------
(Lessee Name)
1000063309
- -------------------------------------------------------
(Lease Number)
================================================================================
Verified By: Date:
------------------------------------------- -----------------
(BOLC Employee)
<PAGE> 14
CORPORATE GUARANTY
Master Lease Agreement Date: NOVEMBER 17, 1997
Lessee Name: COMPUROUTE, INC.
Equipment Cost: $357,010.51
1. For valuable consideration, the receipt of which is hereby
acknowledged, the undersigned jointly and severally unconditionally guarantee
to BANC ONE LEASING CORPORATION (hereinafter called "Lessor") the full and
prompt performance by the lessee identified above (hereinafter called
"Lessee"), of all obligations which Lessee now has or may hereafter have to
Lessor, including but not limited to obligations under equipment leases and
promissory notes executed in connection with anticipated equipment leases
(including but not limited to all present and future lease schedules and
promissory notes under the Master Lease identified above, with a total original
equipment cost to the Lessor of no more than the amount of the Equipment Cost
set forth above), and unconditionally guarantee the prompt payment when due
(whether at scheduled maturity, upon acceleration or otherwise) of any and all
sums, indebtedness and liabilities of whatsoever nature, due or to become due,
direct or indirect, absolute or contingent, now or hereafter at any time owed
or contracted by Lessee to Lessor, and all costs and expenses of and incidental
to collection of any of the foregoing, including reasonable attorneys' fees
(all of the foregoing hereinafter called "Obligations"). It is the
undersigned's express intention that this guaranty in addition to covering all
present Obligations of Lessee to Lessor, shall extend to all future Obligations
of Lessee to Lessor, whether or not such Obligations are reduced or entirely
extinguished and thereafter increased or are reincurred, whether or not such
Obligations are related to the Master Lease identified above, whether or not
such Obligations exceed the Equipment Cost identified above, and whether or not
such Obligations are specifically contemplated by the undersigned, Lessee, and
Lessor as of the date hereof.
2. This is an absolute and unconditional guarantee of payment and not of
collection. Lessor shall not be required, as a condition of the liability of
the undersigned, to resort to, enforce or exhaust any of its remedies against
the Lessee or any other party who may be liable for payment on any Obligation
or to resort to, marshall, enforce or exhaust any of its remedies against any
leased property or any property given or held as security for this Guaranty or
any Obligation.
3. The undersigned hereby waive and grant to Lessor, without notice to
the undersigned and without in any way affecting the liability of the
undersigned, the right at any time and from time to time, to extend other and
additional credit, leases, loans or financial accommodations to Lessee apart
from the Obligations, to deal in any manner as it shall see fit with any
Obligation of Lessee to Lessor and with any leased property or security for
such Obligation, including, but not limited to, (i) accepting partial payments
on account of any Obligation, (ii) granting extensions or renewals of all or
any part of any Obligation, (iii) releasing, surrendering, exchanging, dealing
with, abstaining from taking, taking, abstaining from perfecting, perfecting,
or accepting substitutes for any or all leased property or security which it
holds or may hold
<PAGE> 15
for any Obligation, (iv) modifying, waiving, supplementing or otherwise
changing any of the terms, conditions or provisions contained in any Obligation
and (v) the addition or release of any other party or person liable hereon,
liable on the Obligations or liable on any other guaranty executed to guarantee
any of Lessee's Obligations. The undersigned jointly and severally hereby agree
that any and all settlements, compromises, compositions, accounts stated and
agreed balances made in good faith between Lessor and Lessee shall be binding
upon the undersigned.
4. Every right, power and discretion herein granted to Lessor shall be for
the benefit of the successors or assigns of Lessor and of any transferee or
assignee of any Obligation covered by this Guaranty, and in the event any such
Obligation shall be transferred or assigned, every reference herein to Lessor
shall be construed to mean, as to such Obligation, the transferee or assignee
thereof. This Guaranty shall be binding upon each of the undersigned's
executors, administrators, heirs, successors and assigns.
5. This Guaranty shall continue in force for so long as Lessee shall be
obligated to Lessor, and thereafter until Lessor shall have actually received
written notice of the termination hereof from the undersigned, it being
contemplated that Lessee may borrow, lease, repay and subsequently borrow money
from or lease property from, or become obligated to, Lessor from time to time,
and the undersigned, not having given notice of the termination hereof as herein
provided for, shall be deemed to have permitted this Guaranty to remain in full
force and effect for the purpose of inducing Lessor to make further leases or
loans to Lessee; provided, however, no notice of termination of this Guaranty
shall affect in any manner the rights of Lessor arising under this Guaranty with
respect to the following: (a) any Obligation incurred by Lessee in connection
with the Master Lease identified above with a total equipment cost of no more
than the amount of the Total Equipment Cost set forth above, whether such
obligation is in the form of a lease or a promissory notice; or (b) any
Obligation incurred by Lessee prior to receipt by Lessor of written notice of
termination or any Obligation incurred after receipt of such written notice
pursuant to a written agreement entered into by Lessor prior to receipt of such
notice. The undersigned expressly waive notice of the incurring by Lessee of any
Obligation to Lessor. The undersigned also waive presentment, demand of payment,
protest, notice of dishonor or nonpayment of or nonperformance of any
Obligation.
6. The undersigned hereby waive any claims or rights which they might now
have or hereafter acquire against Lessee or any other person primarily or
contingently liable on any Obligation of Lessee, which claims or rights arise
from the existence or performance of the undersigned's obligations under this
Guaranty or any other guaranty or under any instrument or agreement with
respect to any leased property or any property constituting collateral or
security for this Guaranty or any other guaranty, including, without
limitation, any right of subrogation, reimbursement, exoneration, contribution,
indemnification, or any right to participate in any claim or remedy of Lessor
or any other creditor which the undersigned now has or hereafter acquires,
whether such claim or right arises in equity, under contract or statute, at
common law, or otherwise.
7. Lessor's rights hereunder shall be reinstated and revived, and this
Guaranty shall be fully enforceable, with respect to any amount at any time
paid on account of the Obligations which thereafter shall be required to be
restored or returned by Lessor upon the bankruptcy, insolvency or
reorganization of the Lessee, the undersigned, or any other person, or as a
result of any other fact
<PAGE> 16
or circumstance, all as though such amount had not been paid.
8. The undersigned jointly and severally agree to pay to Lessor all costs
and expenses, including reasonable attorneys' fees, incurred by Lessor in the
enforcement or attempted enforcement of this Guaranty, whether or not suit is
filed in connection therewith, or in the exercise by Lessor of any right,
privilege, power or remedy conferred by this Guaranty.
9. The undersigned represent and warrant that they have relied exclusively
on their own independent investigation of Lessee, the leased property and the
collateral for their decision to guarantee Lessee's Obligations now existing or
thereafter arising. The undersigned agree that they have sufficient knowledge
of the Lessee, the leased property, and the collateral to make an informed
decision about this Guaranty, and that Lessor has no duty or obligation to
disclose any information in its possession or control about Lessee, the leased
property, and the collateral to the undersigned. The undersigned warrant to
Lessor that they have adequate means to obtain from the Lessee on a continuing
basis information concerning the financial condition of the Lessee and that
they are not relying on Lessor to provide such information either now or in the
future.
10. As long as any indebtedness under any of the Obligations remains
unpaid or any credit is available to Lessee under any of the Obligations, the
undersigned agree to furnish to Lessor: (a) annual financial statements setting
forth the financial condition and results of operation of the undersigned
(financial statements shall include balance sheet, income statement, changes in
financial position and all notes thereto) within 120 days of the end of each
fiscal year of the undersigned; (b) quarterly financial statements setting
forth the financial condition and results of operation of the undersigned
within 60 days of the end of each of the first three fiscal quarters of the
undersigned; and (c) such other financial information as Lessor may from time
to time request including, without limitation, financial reports filed by the
undersigned with federal or state regulatory agencies.
11. No postponement or delay on the part of Lessor in the enforcement of
any right hereunder shall constitute a waiver of such right. The failure of
any person or entity to sign this Guaranty shall not discharge the liability of
any of the undersigned.
12. This Guaranty remains fully enforceable irrespective of any claim,
defense or counterclaim which the Lessee may or could assert on any of the
Obligations including but not limited to failure of consideration, breach of
warranty, payment, statute of frauds, statute of limitations, fraud,
bankruptcy, accord and satisfaction, and usury, same of which the undersigned
hereby waive along with any standing by the undersigned to assert any said
claim, defense or counterclaim.
13. This Guaranty contains the entire agreement of the parties and
supersedes all prior agreements and understandings, oral or written, with
respect to the subject matter hereof. This Guaranty is not intended to replace
or supersede any other guaranty which the undersigned have entered into or may
enter into in the future. The undersigned may enter into additional guaranties
in the future which may or may not refer to the Master Lease identified above
and such guaranties are not intended to replace or supersede this Guaranty
unless
<PAGE> 17
specifically provided in that additional guaranty. The interpretation,
construction and validity of this guaranty shall be governed by the laws of the
State of Ohio. With respect to any action brought by Lessor against Guarantor
to enforce any term of this guaranty, Guarantor hereby irrevocably consents to
the jurisdiction and venue of any state or federal court in Franklin County,
Ohio, where Lessor has its principal place of business and where payments are
to be made by Lessee and Guarantor.
ALL PARTIES TO THIS GUARANTY, INCLUDING GUARANTOR AND LESSOR, WAIVE ALL RIGHTS
TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY PARTY
AGAINST ANY OTHER PARTY ON ANY MATTER WHATSOEVER ARISING OUT OF, IN CONNECTION
WITH OR IN ANY WAY RELATED TO THIS GUARANTY.
Guarantor:
CERPROBE CORPORATION
- --------------------
By: /s/ Randal L. Buness
---------------------------------------------------
Title: V.P. & CFO
------------------------------------------------
Witness: /s/ Laura M. Back
----------------------------------------------
Date: 11/17/97
-----------------
<PAGE> 1
10 (bbb) Ex 10(bbb)
MASTER LEASE AGREEMENT
[BANK1ONE Logo]
Banc One Leasing Corporation
THIS MASTER LEASE AGREEMENT is made, entered and dated as of February 16, 1998,
by and between:
LESSOR: LESSEE:
BANC ONE LEASING CORPORATION CERPROBE CORPORATION
1111 Polaris Parkway, Suite A-3 1150 N. FIESTA DRIVE
Columbus, Ohio 43240 GILBERT, AZ 85233
1. LEASE OF EQUIPMENT: Lessor leases to Lessee, and Lessee leases from
Lessor, all the property described in the Lease Schedules which are signed from
time to time by Lessor and Lessee.
2. CERTAIN DEFINITIONS: "Schedule" means each Lease Schedule signed by Lessee
and Lessor which incorporates the terms of this Master Lease Agreement, together
with all exhibits, riders, attachments and addenda thereto. "Equipment" means
the property described in each Schedule, together with all attachments,
additions, possessions, parts, repairs, improvements, replacements and
substitutions thereto. "Lease", "herein", "hereunder", "hereof" and similar
words mean this Master Lease Agreement and all Schedules, together with all
exhibits, riders, attachments and addenda to any of the foregoing, as the same
may from time to time be amended, modified or supplemented. "Prime Rate" means
the prime rate of interest announced from time to time as the prime rate by Bank
One, Columbus, NA; provided, that the parties acknowledge that the Prime Rate is
not intended to be the lowest rate of interest charged by said bank in
connection with extensions of credit. "Lien" means any security interest, lien,
mortgage, pledge, encumbrance, judgment, execution, attachment, warrant, writ,
levy, other judicial process or claim of any nature whatsoever by or of any
person. "Fair Market Value" means the amount which would be paid for an item of
Equipment by an informed and willing buyer (other than a used equipment or scrap
dealer) and an informed and willing seller neither under a compulsion to buy or
sell. "Lessor's Cost" means the invoiced price of any item of Equipment plus any
other cost to Lessor of acquiring an item of Equipment. All items defined in the
Lease are equally applicable to both the singular and plural form of such terms.
3. LEASE TERM AND RENT: The term of the lease of the Equipment described in
each Schedule ("Lease Term") commences on the date stated in the Schedule and
continues for the term stated therein. As rent for the Equipment described in
each Schedule, Lessee shall pay Lessor the rent payments and all other amounts
stated in such Schedule, payable on the dates specified therein. All payments
due under the Lease shall be made in United States dollars at Lessor's office
stated in the opening paragraph or as otherwise directed by Lessor in writing.
4. ORDERING, DELIVERY, REMOVAL AND INSPECTION OF EQUIPMENT: If an event of
default occurs or if for any reason Lessee does not accept, or revokes its
acceptance of, equipment covered by a purchase order or purchase contract or if
any commitment or agreement of Lessor to lease equipment to Lessee expires,
terminates or is otherwise canceled, then automatically upon notice from Lessor,
any purchase order or purchase contract and all obligations thereunder shall be
assigned to Lessee and Lessee shall pay and perform all obligations thereunder.
Lessee agrees to pay, defend, indemnify and hold Lessor harmless from any
liabilities, obligations, claims, costs and expenses (including reasonable
attorney fees and expenses) of whatever kind imposed on or asserted against
Lessor in any way related to any purchase orders or purchase contracts. Lessee
shall make all arrangements for, and Lessee shall pay all costs of,
transportation, delivery, installation and testing of Equipment. The equipment
shall be delivered to Lessee's premises stated in the applicable Schedule and
shall not be removed without Lessor's prior written consent. Lessor has the
right upon reasonable notice to Lessee to inspect the Equipment wherever
located. Lessor may enter upon any premises where Equipment is located and
remove it immediately, without notice or liability to Lessee, upon the
expiration or other termination of the Lease Term.
5. MAINTENANCE AND USE: Lessee agrees it will, at its sole expense: (a) repair
and maintain the Equipment in good condition and working order and supply and
install all replacement parts of other devices when required to so maintain the
Equipment or when required by applicable law or regulation, which parts or
devices shall automatically become part of the Equipment; (b) use and operate
the Equipment in a careful manner in the normal course of its business and only
for the purposes for which it was designed in accordance with the manufacturer's
warranty requirements, and comply with all laws and regulations relating to the
Equipment, and obtain all permits or licenses necessary to install, use or
operate the Equipment; and (c) make no alterations, additions, subtractions,
upgrades or improvements to the Equipment without Lessor's prior written
consent, but any such alterations, additions, upgrades or improvements shall
automatically become part of the Equipment. The Equipment will not be used or
located outside the United States.
6. NET LEASE; NO EARLY TERMINATION: The Lease is a net lease. Lessee's
obligation to pay all rent and all other amounts payable under the Lease is
absolute and unconditional under any and all circumstances and shall not be
affected by any circumstances of any character including, without limitation,
(a) any setoff, claim, counterclaim, defense or reduction which Lessee may have
at any time against Lessor or any other party for any reason, or (b) any defect
in the condition, design or operation of, any lack of fitness for use of, any
damage to or loss of, or any lack of maintenance or service for any of the
Equipment. Each Schedule is a noncancelable lease of the Equipment described
therein and Lessee's obligation to pay rent and perform all other obligations
thereunder and under the Lease are not subject to cancellation or termination
by Lessee for any reason.
7. NO WARRANTIES BY LESSOR: LESSOR LEASES THE EQUIPMENT AS-IS, WHERE-IS, AND
WITH ALL FAULTS. LESSOR MAKES NO WARRANTIES OR REPRESENTATION, EXPRESS OR
IMPLIED, OF ANY KIND AS TO THE EQUIPMENT INCLUDING, WITHOUT LIMITATIONS: ITS
MERCHANTABILITY; ITS FITNESS FOR ANY PARTICULAR PURPOSE; ITS DESIGN, CONDITION,
QUALITY, CAPACITY, DURABILITY, CAPABILITY, SUITABILITY OR WORKMANSHIP; ITS
NON-INTERFERENCE WITH OR NON-INFRINGEMENT OF ANY PATENT, TRADEMARK, COPYRIGHT OR
OTHER INTELLECTUAL PROPERTY RIGHT; OR ITS COMPLIANCE WITH ANY LAW, RULE,
SPECIFICATION, PURCHASE ORDER OR CONTRACT PERTAINING THERETO. Lessor hereby
assigns to Lessee the benefit of any assignable manufacturer's or supplier's
warranties, but Lessor, at Lessee's written request, will cooperate with Lessee
in pursuing any remedies Lessee may have under such warranties. Any action taken
with regard to warranty claims against any manufacturer or supplier by Lessee
will be at Lessee's sole expense. LESSOR MAKES NO REPRESENTATIONS OR WARRANTIES,
EXPRESS OR IMPLIED, OF ANY KIND AS TO THE FINANCIAL CONDITION OR FINANCIAL
STATEMENTS OF ANY PARTY OF ANY PARTY OR AS TO THE TAX OR ACCOUNTING TREATMENT OR
CONSEQUENCES OF THE LEASE, THE EQUIPMENT OR THE RENTAL PAYMENTS.
8. INSURANCE: Lessee at its sole expense shall at all times keep each item of
Equipment insured against all risks of loss or damage from every cause
whatsoever for an amount not less than the greater of the full replacement value
or the Lessor's Cost of such item of Equipment. Lessee at its sole expense shall
at all times carry public liability and property damage insurance in amounts
satisfactory to Lessor protecting Lessee and Lessor from liabilities for
injuries to persons and damage to property of others relating in any way to the
Equipment. All insurers shall be reasonably satisfactory to Lessor, Lessee shall
deliver to Lessor satisfactory evidence of such coverage. Proceeds of any
insurance covering damage or loss of the Equipment shall be payable to Lessor as
loss Payee and shall, at Lessor's option, be applied toward (a) the replacement,
restoration or repair of the Equipment, or (b) payment of the obligations of
Lessee under the Lease. Proceeds of any public liability or property insurance
shall be payable first to Lessor as additional insured to the extent of its
liability, then to Lessee. If an event of default occurs and is continuing, or
if Lessee fails to make timely payments due under Section 9 hereof, then Lessee
automatically appoints Lessor as Lessee's attorney-in-fact with full power and
authority in the place of Lessee and in the name of Lessee or Lessor to make
claim for, receive payment of, and sign and endorse all documents, checks or
drafts for loss or damage under any such policy. Each insurance policy will
require that the insurer give Lessor at least 30 days prior written notice of
any cancellation of such policy and will require that Lessor's interests remain
insured regardless of any act, error, omission, neglect or misrepresentation of
Lessee. The insurance maintained by Lessee shall be primary without any right of
contribution from insurance which may be maintained by Lessor.
9. LOSS AND DAMAGE: (a) Lessee bears the entire risk of loss, theft, damage
or destruction of Equipment in whole or in part from any reason whatsoever
("Casualty Loss"). No Casualty Loss to Equipment shall relieve Lessee from the
obligation to pay rent or from any other obligation under the Lease.
Page 1 of 4
<PAGE> 2
9. LOSS AND DAMAGE (CONTINUED): In the event of Casualty Loss to any item of
Equipment, Lessee shall immediately notify Lessor of the same and Lessee shall,
if so directed by Lessor, immediately repair the same. If Lessor determines that
any item of Equipment has suffered a Casualty Loss beyond repair ("Lost
Equipment"), then Lessee, at the option of Lessor, shall: (1) immediately
replace the Lost Equipment with similar equipment in good repair, condition and
working order free and clear of any Liens and deliver to Lessor a bill of sale
covering the replacement equipment, in which event such replacement equipment
shall automatically be Equipment under the Lease; or (2) On the rent payment
date which is at least 30 but no more than 60 days after the date of the
Casualty Loss, pay to Lessor all amounts then due and payable by Lessee under
the Lease for the Lost Equipment plus the Stipulated Loss Value for such Lost
Equipment as of the date of the Casualty Loss. Upon payment by Lessee of all
amounts due under the above clause (2), the lease of the Lost Equipment will
terminate and Lessor shall transfer to Lessee all of Lessor's right, title and
interest in such Equipment on an "as-is, where-is" basis with all faults,
without recourse and without representation of warranty of any kind, express or
implied.
(b) "Stipulated Loss Value" of any item of Equipment during its Lease term
equals the present value discounted in arrears to the applicable date of the
applicable SLV Discount Rate of (1) the remaining rents and all other amounts
(including, without limitation, any balloon payment and, as to a terminal rental
adjustment clause ("TRAC") lease, the TRAC value stated in the Schedule, and any
other payments required to be paid by Lessee at the end of the applicable Lease
Term] payable under the Lease for such item on and after such date to the end at
the applicable Lease Term and (2) an amount equal to the Economic Value of the
Equipment. For any item of Equipment, "Economic Value" means the Fair Market
Value of the Equipment at the end of the applicable Lease Term as originally
anticipated by Lessor at the Commencement Date of the applicable Schedule;
provided, that Lessee agrees that such value shall be determined by the books of
Lessor as of the Commencement Date of the applicable Schedule. After the payment
of all rent due under the applicable Schedule and the expiration of the Lease
Term of any item of Equipment, the Stipulated Loss Value of such item equals the
Economic Value of such item. Stipulated Loss Value shall also include any Taxes
payable by Lessor in connection with its receipt thereof. For any item of
Equipment, "SLV Discount Rate" means an interest rate equal to the Prime Rate in
effect on the Commencement Date of the Schedule for such item minus two
percentage points.
10. TAX BENEFITS INDEMNITY. (a) The Lease has been entered into on the basis
that Lessor shall be entitled to such deductions, credits and other tax
benefits as are provided by federal, state and local income tax law to an owner
of the Equipment (the "Tax Benefits") including, with limitation: (1) modified
accelerated cost recovery deductions on each item of Equipment under Section
168 of the Code (as defined below) in an amount determined commencing with the
taxable year in which the Commencement Date of this applicable Schedule occurs,
using the maximum allowable depreciation method available under Section 168 of
the Code, using a recovery period (as defined in Section 168 of the Code)
reasonably determined by Lessor, and using an initial adjusted basis which is
equal to the Lessor's Cost of such item; (2) amortization of the expenses paid
by Lessor in connection with the Lease on a straight-line basis over the term
of the applicable Schedule; and (3) Lessor's federal taxable income will be
subject to the maximum rate on corporations in effect under the Code as of the
Commencement Date of the applicable Schedule.
(b) If on any one or more occasions (1) Lessor shall lose, shall not have
or shall lose the right to claim all or any part of the Tax Benefits, (2) there
shall be reduced, disallowed, recalculated or recaptured all or any part of the
Tax Benefits, or (3) all or any part of the Tax Benefits is reduced by a change
in law or regulation (each of these events described in subparagraphs 1, 2 or 3
of this paragraph (b) will be referred to as a "Tax Loss"), then, upon 30 days
written notice by Lessor to Lessee that a Tax Loss has occurred, Lessee shall
pay Lessor an amount which, in the reasonable opinion of Lessor and after the
deduction of all taxes required to be paid by Lessor with respect to the
receipt of such amount, will provide Lessor with the same after-tax net
economic yield which was originally anticipated by Lessor as of the
Commencement Date of the applicable Schedule.
(c) A Tax Loss shall occur upon the earliest of: (1) the happening of any
event (such as disposition or change in use of an item of Equipment) which may
cause such Tax Loss; (2) Lessor's payment to the applicable taxing authority of
the tax increase resulting from such Tax Loss; or (3) the adjustment of
Lessor's tax return to reflect such Tax Loss.
(d) Lessor shall not be entitled to payment under this section for any Tax
Loss caused solely by one or more of the following events: (1) a disqualifying
sale or disposition of an item of Equipment by Lessor prior to any default by
Lessee; (2) Lessor's failure to timely or properly claim the Tax Benefits in
Lessor's tax return; (3) a disqualifying change in the nature of Lessor's
business or liquidation thereof; (4) a foreclosure by any person holding
through Lessor a security interest on an item of Equipment which foreclosure
results solely from an act of Lessor; or (5) Lessor's failure to have
sufficient taxable income or tax liability to utilize the Tax Benefits.
(e) "Code" shall mean the Internal Revenue Code of 1966, as amended. For
the purposes of this Section 10, the term "Lessor" shall include any affiliate
group (within the meaning of Section 1504 of the Code) of which Lessor is a
member for any year in which a consolidated income tax return in filed for such
affiliated group. Lessee's obligations under this section shall survive the
expiration, cancellation or termination of the Lease.
11. GENERAL TAX INDEMNITY: Lessee will pay, and will defend, indemnify and hold
harmless on an after-tax basis from, any and all Taxes (as defined below) and
related audit and contest expenses on or relating to (a) any of the Equipment,
(b) the Lease, (c) purchase, acceptance, ownership, lease, possession, use,
operation, transportation, return or other disposition of any of the Equipment,
and (d) rentals or earnings relating to any of the Equipment or the Lease.
"Taxes" means present and future taxes or other governmental charges that are
not based on the net income of Lessor, whether they are assessed to or payable
by Lessee or Lessor, including, with limitation (l) sales, use, excise,
licensing, registration, titling, franchise, business and occupation, gross
receipts, stamp and personal property taxes, (ii) levies, imposts, duties,
assessments, charges and withholdings, (iii) penalties, fines, and additions to
tax and (iv) interest on any of the foregoing. Unless Lessor elects otherwise,
Lessor will prepare and file all reports and returns relating to any Taxes and
will pay all Taxes to the appropriate taxing authority. Lessee will reimburse
Lessor for all such payments promptly on request. On or after any applicable
assessment/levy/lien date for any personal property Taxes relating to any
Equipment, Lessee agrees that upon Lessor's request Lessee shall pay to Lessor
the personal property Taxes which Lessor reasonably anticipates will be due,
assessed, levied or otherwise imposed on any Equipment during its Lease Term. If
Lessor elects in writing, Lessee will itself prepare and file all such reports
and returns, pay all such Taxes directly to the taxing authority, and send
Lessor evidence thereof. Lessee's obligations under this section shall survive
the expiration, cancellation or termination of the Lease.
12. GENERAL INDEMNITY: Lessee assumes all risk and liability for, and shall
defend, indemnify and keep Lessor harmless on an after-tax basis from, any and
all liabilities, obligations, losses, damages, penalties, claims, actions,
suits, costs and expenses, including reasonable attorney fees and expenses, of
whatsoever kind and nature imposed on, incurred by or asserted against Lessor,
in any way relating to or arising out of the manufacture, purchase, acceptance,
rejection, ownership, possession, use, selection, delivery, lease, operation,
condition, sale, return or other disposition of the Equipment or any part
thereof (including, without limitation, any claim for latent or other defects,
whether or not discoverable by Lessee or any other person, any claim for
negligence, tort or strict liability, any claim under any environmental
protection or hazardous waste law and any claim for patent, trademark or
copyright infringement). Lessee will not indemnify Lessor under this section for
loss or liability arising from the events which occur after the Equipment has
been returned to Lessor or for loss or liability caused directly and solely by
the gross negligence of willful misconduct of Lessor. In this section, "Lessor"
also includes any director, officer, employee, agent, successor or assign of
Lessor. Lessee's obligations under this section shall survive the expiration,
cancellation or termination of the Lease.
13. PERSONAL PROPERTY: Lessee represents and agrees that the Equipment is,
and shall at all times remain, separately identifiable personal property. Upon
Lessor's request, Lessee shall furnish Lessor a landlord's and/or mortgagee's
waiver and consent to remove all Equipment. Lessor may display notice of its
interest in the Equipment by any reasonable identification. Lessee shall not
alter or deface any such indicia of Lessor interest.
14. DEFAULT: Each of the following events shall constitute an event of default
under the Lease: (a) Lessee fails to pay any rent or other amount due under the
Lease within ten days of its due date; or (b) Lessee fails to perform or observe
any of its obligations in Section 8, 18, or 22 hereof; or (c) Lessee fails to
perform or observe any of its other obligations in the Lease for more than 30
days after Lessor notifies Lessee of such failure; or (d) Lessee or any Lessee
affiliate defaults in the payment, performance or observance of any obligation
under any loan, credit agreement or other lease in which Lessor or any
subsidiary (direct or indirect) of Banc One Corporation (which is Lessor's
ultimate parent corporation) is the creditor or lessor; or (e) any settlement,
representation or warranty made by Lessee in the Lease, in any Schedule or in
any document, certificate or financial statement in connection with the Lease
proves at any time to have been untrue or misleading in any material respect as
of the time when made; or (f) Lessee becomes insolvent or bankrupt, or Lessee
admits its inability to pay its debts as they mature, or Lessee makes an
assignment for the benefit of creditors, or Lessee applies for, institutes or
consents to the appointment of a receiver, trustee or similar official for
Lessee or any substantial part of its property or any such official is appointed
without Lessee's consent, or Lessee applies for, institutes or consents to any
bankruptcy, insolvency, reorganization, debt moratorium, liquidation, or similar
proceeding relating to Lessee or any substantial part of its property under the
laws of any jurisdiction or any such proceeding is instituted against Lessee
without stay or dismissal for more than 30 days, or Lessee commences any act
amounting to a business failure or a winding up of its affairs, or Lessee ceases
to do business as a going concern; or (g) with respect to any guaranty, letter
of credit, pledge agreement, security agreement, mortgage, deed of trust, debt
subordination agreement or other credit enhancement or credit support agreement
(whether now existing or hereafter arising) signed or issued by any party in
connection with all or any part of Lessee's obligations under the Lease, the
party signing or issuing any such agreement defaults in its obligations
thereunder or any such agreement shall cease to be in full force and effect or
shall be declared to be null, void, invalid or unenforceable by the party
signing or issuing it; or (h) there shall occur in Lessor's reasonable opinion
any material adverse change in the financial condition, business or operations
of Lessee.
Page 2 of 4
<PAGE> 3
14. DEFAULT: (CONTINUED):
As used in this section 14, the term "Lessee" also includes any guarantor
(whether now existing or hereafter arising) of all or any part of Lessee's
obligations under the Lease and/or any issuer of a letter of credit (whether no
existing or hereafter arising) relating to all or any part of Lessee's
obligations under the Lease, and the term "Lease" also includes any guaranty or
letter of credit (whether now existing or hereafter arising) relating to all or
any part of Lessee's obligations under the Lease.
15. REMEDIES. If any event of default exists, Lessor may exercise in any order
one or more of the remedies described in the lettered subparagraphs of this
section, and Lessee shall perform its obligations imposed thereby:
(a) Lessor may require Lessee to return any or all Equipment as provided in
the Lease.
(b) Lessor or its agent may repossess any or all Equipment wherever found,
may enter the premises where the Equipment is located and disconnect, render
unusable and remove it, and may use such premises without charge to store or
show the Equipment for sale.
(c) Lessor may sell any or all Equipment at public or private sale, with or
without advertisement or publication, may re-lease or otherwise dispose of it
or may use, hold or keep it.
(d) Lessor may require Lessee to pay to Lessor on a date specified by Lessor
with respect to any or all Equipment (i) all accrued and unpaid rent, late
charges and other amounts due under the Lease on or before such date, plus (ii)
as liquidated damages for loss of a bargain and not as a penalty, and in lieu of
any further payments of rent, the Stipulated Loss Value of the Equipment on
such date, plus (iii) interest at the Overdue Rate on the total of the
foregoing ("Overdue Rate" means an interest rate per annum equal to the higher
of 18% or 2% over the Prime Rate, but not to exceed the highest rate permitted
by applicable law). The parties acknowledge that the foregoing money damage
calculation reasonably reflects Lessor's anticipated loss with respect to the
Equipment and the related Lease resulting from the event of default. If an
event of default under section 14(f) of this Master Lease Agreement exists,
then Lessee will be automatically liable to pay Lessor the foregoing amounts
as of the next rent payment date unless Lessor otherwise elects in writing.
(e) Lessee shall pay all costs, expenses and damages incurred by Lessor
because of the event of default or its actions under this section, including,
without limitation any collection agency and/or attorney fees and expenses, any
costs related to the repossession, safekeeping, storage, repair, reconditioning
or disposition of the Equipment and any incidental and consequential damages.
(f) Lessor may terminate the Lease and/or any or all Schedules, may sue to
enforce Lessee's performance of the obligations under the Lessee an/or may
exercise any other right or remedy then available to Lessor at law or in equity.
Lessor is not required to take any legal process or give Lessee any notice
before exercising any of the above remedies. None of the above remedies is
exclusive, but each is cumulative and in addition to any other remedy available
to Lessor. Lessor's exercise of one or more remedies shall not preclude its
exercise of any other remedy. No action taken by Lessor shall release Lessee
from any of its obligations to Lessor. No delay or failure on the part of
Lessor to exercise any right hereunder shall operate as a waiver thereof, nor
as an acquiescence in any default, nor shall any single or partial exercise
of any right preclude any other exercise thereof or the exercise of any other
right. After any default, Lessor's acceptance of any payment by Lessee under
the Lease shall not constitute a waiver by Lessor of such default, regardless
of Lessor's knowledge or lack of knowledge at the time of such payment, and
shall not constitute a reinstatement of the Lease if the Lease has been
declared in default by Lessor, unless Lessor has agreed in writing to reinstate
the Lease and to waive the default.
If Lessor actually repossesses any Equipment, then it will use
commercially reasonable efforts under the then current circumstances to attempt
to mitigate its damages; provided, that Lessor shall not be required to sell,
re-lease or otherwise dispose of any Equipment prior to Lessor enforcing any of
the remedies described above. Lessor may sell or re-lease the Equipment in any
manner it chooses, free and clear of any claims or rights of Lessee and without
any duty to account to Lessee with respect therein except as provided below.
If Lessor actually sells or re-leases the Equipment, it will credit the net
proceeds of any sale of the Equipment, or the net present value (discounted at
the then current Prime Rate) of the rents payable under any new lease of the
Equipment, against and up to (but not exceeding) the Stipulated Loss Value of
the Equipment and any other amounts Lessee owes Lessor, or will reimburse
Lessee for and up to (but not exceeding) Lessee's payment thereof. The term
"net" as used above shall mean such amount after deducting the costs and
expenses described in clause (a) above of this section. If Lessor elects in
writing not to sell or re-lease any Equipment, it will similarly credit or
reimburse Lessee for Lessor's reasonable estimate of such Equipment's Fair
Market Value.
16. LESSOR'S RIGHT TO PERFORM: If Lessee fails to make any payment under the
Lease or fails to perform any of the other agreements in the Lease (including,
without limitation, its agreement to provide insurance coverage as stated in
the Lease), Lessor may itself make such payment or perform such agreement, and
the amount of such payment and the amount of the expenses of Lessor incurred in
connection with such payment or performance shall be deemed to be additional
rent, payable by Lessee on demand.
17. FINANCIAL REPORTS: Lessee agrees to furnish to Lessor: (a) annual financial
statements setting forth the financial condition and results of operation of
Lessee (financial statements shall include the balance sheet, income statement
and changes in financial position and all notes thereto) within 120 days of the
end of each fiscal year of Lessee; (b) quarterly financial statements setting
forth the financial condition and results of operation of Lessee within 60 days
of the end of each of the first three fiscal quarters of Lessee; and (c) such
other financial information as Lessor may from time to time reasonably request
including, without limitation, financial reports filed by Lessee with federal or
state regulatory agencies. All such financial information shall be prepared in
accordance with generally accepted accounting principles. If Lessee fails to
furnish the annual financial statements to Lessor within 30 days of Lessor's
written request, then Lessor may, at its option, charge Lessee a non-performance
fee equal to all of the rentals due under the Lease for the then current month
(unless otherwise prohibited by law) and such fees shall be deemed to be
additional rent, payable by Lessee on demand.
18. NO CHANGES IN LESSEE: Lessee shall not: (a) liquidate, dissolve or suspend
business; (b) sell, transfer or otherwise dispose of all or a majority of its
assets, except that Lessee may sell its inventory in the ordinary course of its
business; (c) enter into any merger, consolidation or similar reorganization
unless it is the surviving corporation; (d) transfer all or any substantial
part of its operations or assets outside of the United States of America; or
(e) without 30 days advance written notice to Lessor, change its name or chief
place of business. Lessee shall at all times maintain a tangible net worth
which is no less than the greater of 75% of its tangible net worth as of the
date of the Master Lease Agreement or 75% of its highest tangible net worth
thereafter.
19. LATE CHARGES: If any rent or other amount payable under the Lease is not
paid when due, then as compensation for the administration and enforcement of
Lessee's obligation to make timely payments, Lessee shall pay with respect to
each overdue payment on demand an amount equal to the greater of fifteen
dollars ($15.00) or five percent (5%) of each overdue payment (but not to
exceed the highest late charge permitted by applicable law) plus any collection
agency and fees and expenses.
20. NOTICES; POWER OF ATTORNEY: (a) Service of all notices under the Lease shall
be sufficient if given personally or couriered or mailed to the party involved
at its respective address set forth herein or at such other address as such
party may provide in writing from time to time. Any such notice mailed to such
address shall be effective three days after deposit in the United States mail
with postage prepaid. (b) With respect to any power of attorney covered by the
Lease, the powers conferred on Lessor thereby; are powers coupled with an
interest; are irrevocable; are solely to protect Lessor's interests under the
Lease; and do not impose any duty on Lessor to exercise such powers. Lessor
shall be accountable solely for amounts it actually receives as a result of its
exercise of such powers.
21. ASSIGNMENT BY LESSOR: Lessor and any assignee of Lessor, with or without
notice to or consent of Lessee, may sell, assign, transfer or grant a security
interest in all or any part of Lessor's rights, obligations, title or interest
in the Equipment, the Lease, any Schedule of the amounts payable under the Lease
or any Schedule to any entity ("transferee"). the transferee shall succeed to
all of Lessor's rights in respect to the Lease (including, without limitation,
all rights to insurance and indemnity protection described in the Lease). Lessee
agrees to sign any acknowledgement and other documents reasonably requested by
Lessor or the transferee in connection with any such transfer transaction.
Lessee, upon receiving notice of any such transfer transaction, shall comply
with the terms and conditions thereof. Lessee agrees that it shall not assert
against any transferee any claim, defense, setoff, deduction or counterclaim
which Lessee may now or hereafter be entitled to assert against lessor. Unless
otherwise agreed in writing, the transfer transaction shall not relieve Lessor
of any of its obligations to Lessee under the Lease and Lessee agrees that the
transfer transaction shall not be construed as being an assumption of such
obligations by the transferee.
22. NO ASSIGNMENT, SUBLEASE OR LIEN BY LESSEE: LESSEE SHALL NOT, DIRECTLY OR
INDIRECTLY, (a) MORTGAGE, ASSIGN, SELL, TRANSFER, OR OTHERWISE DISPOSE OF THE
LEASE OR ANY INTEREST THEREIN OR THE EQUIPMENT OR ANY PART THEREOF, OR (b)
SUBLEASE, RENT, LEND OR TRANSFER POSSESSION OR USE OF THE EQUIPMENT OR ANY
PART THEREFOR TO ANY PARTY, OR (c) CREATE, INCUR GRANT, ASSUME OR ALLOW TO
EXIST ANY LIEN ON THE LEASE, ANY SCHEDULE, THE EQUIPMENT OR ANY PART THEREOF.
Page 3 of 4
<PAGE> 4
23. EXPIRATION OF LEASE TERM: (a) At least 90 days (or earlier if otherwise
specified), but no more than 270 days prior to expiration of the Lease Term of
each Schedule, Lessee shall give Lessor written notice of its electing one of
the following options for all (but not less than all) of the Equipment covered
by such Schedule; return the Equipment under clause (b) below, or purchase the
Equipment under clause (c) below. The election of an option shall be
irrevocable. If Lessee fails to give timely notice of its election, it shall be
deemed to have elected to return the Equipment.
(b) If Lessee elects or is deemed to have elected to return the Equipment at
the expiration of the Lease Term of a Schedule or if Lessee is obligated at any
time to return the Equipment, then Lessee shall, at its sole expense and risk,
deinstall, disassemble, pack, crate, insure and return the Equipment to Lessor
(all in accordance with applicable industry standards) at any location in the
continental United States of America selected by Lessor. The Equipment shall be
in the same condition as when received by Lessee, reasonable wear, tear and
depreciation resulting from normal and proper use excepted (or, if applicable,
in the condition set forth in the Lease or the Schedule), shall be in good
operating order and maintenance as required by the Lease, shall be certified as
being eligible for any available manufacturer's maintenance program, shall be
free and clear of any Liens as required by the Lease, shall comply with all
applicable laws and regulations and shall include all manuals, specifications,
repair and maintenance records and similar documents. Until Equipment is
returned as required above, all terms of the Lease shall remain in full force
and effect including, without limitation, obligations to pay rent and insure the
Equipment; provided, that after the expiration of any Schedule and before Lessee
has completed its return of the Equipment or its purchase option (if elected),
the term of the lease of the Equipment covered by such Schedule shall be
month-to-month or such shorter period as may be specified by Lessor.
(c) If Lessee gives Lessor timely notice of its election to purchase
Equipment, then on the expiration date of the applicable Schedule Lessee shall
purchase all (but not less than all) of the Equipment and shall pay to Lessor
the Fair Market Value of the Equipment plus all Taxes (other than income taxes
on Lessor's gains on such sale), costs and expenses incurred or paid by Lessor
in connection with such sale plus all accrued but unpaid amounts due with
respect to the Equipment and/or the Schedule. The Stipulated Loss Value or
Economic Value of any item of Equipment shall have no bearing or influence on
the determination of Fair Market Value under this clause (c). Upon payment in
full of the above amounts, and if no default has occurred and is continuing
under the Lease, Lessor shall transfer title to such Equipment to Lessee "as-is,
where-is" with all faults and without recourse to Lessor and without any
representation or warranty of any kind whatsoever by Lessor, express or implied.
(d) For purposes of the purchase option of the Lease, the determination of
the Fair Market Value of any Equipment shall be determined (1) without
deducting any costs of dismantling or removal from the location of use, (2) on
the assumption that the Equipment is in the condition required by the
applicable return and maintenance provisions of the Lease and is free and clear
of any Liens as required by the Lease, and (3) shall be determined by mutual
agreement of Lessee and Lessor or, if Lessor and Lessee are not able to agree
on such value, by the Appraisal Procedure. "Appraisal Procedure" means the
determination of Fair Market Value by an independent appraiser acceptable to
Lessor and Lessee, or, if the parties are unable to agree on an acceptable
appraiser, by averaging the valuation (disregarding the one which differs the
most from the other two) of three independent appraisers, the first appointed
by Lessor, the second appointed by Lessee and the third appointed by the first
two appraisers. For purposes of the "Remedies" section of the Lease, the Fair
Market Value shall be determined by Lessor in good faith and any such valuation
shall be on an "as-is, where-is" basis without regard to the first sentence of
this clause (d). Lessee, at its sole expense, shall pay all fees, costs and
expenses of the above described appraisers.
24. GOVERNING LAW: THE INTERPRETATION, CONSTRUCTION AND VALIDITY OF THE LEASE
SHALL BE GOVERNED BY THE LAWS OF THE STATE OF OHIO. WITH RESPECT TO ANY ACTION
BROUGHT BY LESSOR AGAINST LESSEE TO ENFORCE ANY TERM OF THE LEASE, LESSEE
HEREBY IRREVOCABLY CONSENTS TO THE JURISDICTION AND VENUE OF ANY STATE OR
FEDERAL COURT IN THE FRANKLIN COUNTY, OHIO, WHERE LESSOR HAS ITS PRINCIPAL
PLACE OF BUSINESS AND WHERE PAYMENTS ARE TO BE MADE BY LESSEE.
25. MISCELLANEOUS: (a) Subject to the limitations herein, the Lease shall be
binding upon and inure to the benefit of the partes hereto and their respective
heirs, administrators, successors and assigns. (b) This Master Lease Agreement
and each Schedule may be executed in any number of counterparts, which together
shall constitute a single instrument. Only one counterpart of each Schedule
shall be marked "Lessor's Original" and all other counterparts shall be marked
"Duplicate". A security interest in any Schedule may be created through transfer
and possession only of the counterpart marked "Lessor's Original". (c) Section
and paragraph headings in this Master Lease Agreement and the Schedules are for
convenience only and have no independent meaning. (d) The terms of the Lease
shall be severable and if any term thereof is declared unconscionable, invalid,
illegal or void, in whole or in part, the decision so holding shall not be
construed as impairing the other terms of the Lease and the Lease shall continue
in full force and effect as if such invalid, illegal, void or unconscionable
term were not originally included herein. (e) All indemnity obligations of
Lessee under the Lease and all rights, benefits and protections provided by
Lessor by warranty disclaimers shall survive the cancellation, expiration or
termination of the Lease. (f) Lessor shall not be liable to Lessee for any
indirect, consequential or special damages for any reason whatsoever. (g) Each
payment made by Lessee shall be applied by Lessor in such manner as Lessor
determines in its discretion which may include, without limitation, application
as follows: first, to accrued late charges; second, to accrued rent; and third,
the balance to any other amounts then due and payable by Lessee under the Lease.
(h) If the Lease is signed by more than one Lessee, each of such Lessees shall
be jointly and severally liable for payment and performance of all of Lessee's
obligations under the Lease.
26. ENTIRE AGREEMENT: THE LEASE REPRESENTS THE FINAL, COMPLETE AND ENTIRE
AGREEMENT BETWEEN THE PARTIES HERETO. THERE ARE NO ORAL OR UNWRITTEN AGREEMENTS
OR UNDERSTANDINGS AFFECTING THE LEASE OR THE EQUIPMENT. Lessee agrees that
Lessor is not the agent of any manufacturer or supplier, that no manufacturer
or supplier is an agent of Lessor, and that any representation, warranty or
agreement made by a manufacturer, supplier or their employees, sales
representatives or agents shall not be binding on Lessor.
27. JURY WAIVER: ALL PARTIES TO THIS MASTER LEASE AGREEMENT WAIVE ALL RIGHTS
TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY PARTY
AGAINST ANY OTHER PARTY ON ANY MATTER WHATSOEVER ARISING OUT OF, IN CONNECTION
WITH OR IN ANY WAY RELATED TO THIS MASTER LEASE AGREEMENT.
BANC ONE LEASING CORPORATION CERPROBE CORPORATION
---------------------------------
(Name of Lessee)
Lessor
By: /s/ Clive R. Camlin By: /s/ Randal L. Buness
------------------------ ----------------------------
Title: Funding Authority Title: Vice President and
Chief Financial Officer
--------------------- -------------------------
Lease Witness: /s/ Laura M. Back
-----------------
(SEAL) OFFICIAL SEAL
LAURA M. BACK
Notary Public-State of Arizona
MARICOPA COUNTY
My Comm. Expires July 14, 2001
Regardless of any prior, present or future oral agreement or course of dealing,
no term or condition of the Lease may be amended, modified, waived, discharged,
cancelled or terminated except by a written instrument signed by the party to
be bound; except Lessee authorizes Lessor to complete the Acceptance Date of
each Schedule and the serial numbers of any Equipment.
CERPROBE CORPORATION
- -------------------------------
(Name of Lessee)
By: /s/ Randal L. Buness
----------------------------
Title: Vice President and
Chief Financial Officer
-------------------------
Page 4 of 4
<PAGE> 1
EXHIBIT 11
COMPUTATION OF NET INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1997 1996 1995
---------- ----------- ----------
<S> <C> <C> <C>
Net income (loss)..................................... $1,895,968 $(1,360,790) $2,402,247
Convertible debenture interest after tax effect....... -- -- 53,291
---------- ----------- ----------
Income (loss) available to common stockholders........ $1,895,968 $(1,360,790) $2,455,538
========== =========== ==========
Weighted average common shares outstanding............ 6,690,265 4,579,598 3,874,459
---------- ----------- ----------
Common equivalent shares representing shares issuable
upon exercise of stock options...................... 292,103 194,883 196,773
Convertible Preferred Stock........................... -- 553,858 --
Convertible Debentures................................ -- -- 595,000
Antidilutive nature of dilutive securities............ -- (748,741) --
Dilutive adjusted weighted average shares and assumed
conversions:........................................ 6,982,368 4,579,598 4,666,232
---------- ----------- ----------
Basic net income (loss) per share..................... $ 0.28 $ (0.30) $ 0.62
========== =========== ==========
Diluted net income (loss) per share................... $ 0.27 $ (0.30) $ 0.53
========== =========== ==========
</TABLE>
<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARIES
SUBSIDIARIES OF CERPROBE CORPORATION:
CompuRoute, Inc.
SVTR, Inc.
Cerprobe Europe Limited
Cerprobe Asia Holdings PTE LTD.
Cobra Venture Management, Inc.
Cerprobe-Upsys L.L.C.
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 until August 18, 1997, at which time
Cerprobe's ownership was reduced to 60%.
<PAGE> 1
EXHIBIT 23
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 6, 1998, relating to the consolidated
balance sheets of Cerprobe Corporation and subsidiaries as of December 31, 1997
and 1996, 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, 1997, which report appears in the December 31, 1997 annual report
on Form 10-K of Cerprobe Corporation.
KPMG PEAT MARWICK L.L.P.
Phoenix, Arizona
March 27, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<CIK> 0000725259
<NAME> CERPROBE CORPORATION
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 30,347,173
<SECURITIES> 0
<RECEIVABLES> 10,633,428
<ALLOWANCES> 292,000
<INVENTORY> 8,483,141
<CURRENT-ASSETS> 50,906,725
<PP&E> 22,341,915
<DEPRECIATION> 7,200,013
<TOTAL-ASSETS> 69,454,844
<CURRENT-LIABILITIES> 8,401,802
<BONDS> 0
0
0
<COMMON> 404,899
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 69,454,844
<SALES> 77,110,204
<TOTAL-REVENUES> 77,110,204
<CGS> 45,477,486
<TOTAL-COSTS> 26,240,432
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 112,000
<INTEREST-EXPENSE> 486,069
<INCOME-PRETAX> 5,607,715
<INCOME-TAX> 3,711,747
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,895,968
<EPS-PRIMARY> .28
<EPS-DILUTED> .27
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<CIK> 0000725259
<NAME> CERPROBE CORPORATION
<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> 16,135,878
<PP&E> 16,158,535
<DEPRECIATION> 4,712,244
<TOTAL-ASSETS> 31,511,573
<CURRENT-LIABILITIES> 6,132,119
<BONDS> 0
0
16
<COMMON> 301,386
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 31,511,573
<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)
<FN>
<F1>EPS - PRIMARY AND EPS - DILUTED ARE RESTATED TO INCLUDE THE IMPACT OF
FINANCIAL ACCOUNTING STANDARDS' BOARD STATEMENT NO. 128.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<CIK> 0000725259
<NAME> CERPROBE CORPORATION
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 263,681
<SECURITIES> 0
<RECEIVABLES> 4,550,041
<ALLOWANCES> 173,000
<INVENTORY> 2,802,081
<CURRENT-ASSETS> 7,988,539
<PP&E> 7,746,492
<DEPRECIATION> 3,078,706
<TOTAL-ASSETS> 14,967,450
<CURRENT-LIABILITIES> 3,217,080
<BONDS> 0
0
0
<COMMON> 204,792
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 14,967,450
<SALES> 26,098,637
<TOTAL-REVENUES> 26,098,637
<CGS> 13,706,435
<TOTAL-COSTS> 8,209,278
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 12,000
<INTEREST-EXPENSE> 153,758
<INCOME-PRETAX> 4,213,974
<INCOME-TAX> 1,811,727
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,402,247
<EPS-PRIMARY> .62
<EPS-DILUTED> .53
<FN>
<F1>EPS - PRIMARY AND EPS - DILUTED ARE RESTATED TO INCLUDE THE IMPACT OF
FINANCIAL ACCOUNTING STANDARDS' BOARD STATEMENT NO. 128.
</FN>
</TABLE>
