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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, 1998
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 UNDER SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.05 PER SHARE
PREFERRED SHARE PURCHASE RIGHTS
(TITLE OF CLASS)
Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X].
As of March 26, 1999, 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
$87,476,998 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 26, 1999, there were 7,658,726 shares of the registrant's
common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the issuer's definitive Proxy Statement for the 1999 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, 1998
TABLE OF CONTENTS
PART I
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Item 1. Business.................................................... 1
Item 2. Properties.................................................. 17
Item 3. Legal Proceedings........................................... 18
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
Stockholder Matters......................................... 18
Item 6. Selected Consolidated Financial Data........................ 19
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 20
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 27
Item 8. Financial Statements and Supplementary Data................. 27
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 27
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 27
Item 11. Executive Compensation...................................... 27
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 27
Item 13. Certain Relationships and Related Transactions.............. 27
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 28
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's products address critical
functions to assure IC quality, reduce manufacturing costs, improve the accuracy
of manufacturing yield data, and identify repairable memory ICs.
The Company has grown its business and expanded its product lines through
internal product development, strategic acquisitions, and joint ventures. The
development of the Company's CerCard(TM) technology, in 1990, served as the
foundation for the growth of the Company's core probe card business. The
acquisition of Fresh Test Technology Corporation ("Fresh Test"), in April 1995,
enabled the Company to expand its product line to include ATE interface
assemblies. The acquisition of Cerprobe Interconnect Solutions, Inc. ("CIS"),
formerly CompuRoute, Inc., in December 1996, enabled the Company to offer ATE
test boards, the Company's first packaged IC testing product. The establishment,
in May 1997, of a joint development agreement with Japan based Mitsubishi
Materials Corporation, enabled the development of the next generation probe card
technology based upon the Company's proprietary P4(TM) (Photolithographic
Pattern Plated Probe) technology. The acquisition of France based Cerprobe
Europe S.A.S., formerly SemiConducteur Services, S.A., a probe card company,
enabled the Company to further service the European market. The signing of an
agreement with Feinmetall GmbH, a German contact technology company, in November
1998, enabled Cerprobe to acquire an exclusive license to design, manufacture,
and distribute Vertical integrated Probe (ViProbe(R)) products worldwide, except
Europe.
The Company maintains regional full service facilities in Arizona,
California, and Texas as well as sales offices in Colorado, Florida,
Massachusetts, and Oregon to serve the U.S. market for its products and
services. The Company maintains full service facilities in Scotland and France
and a sales office in Germany to serve the European market. The Company also
maintains full service facilities in Singapore and Taiwan to serve the Southeast
Asian market. Additionally, the Company is in the process of establishing a full
service facility in Japan. Each of the Company's facilities is located in
proximity to major semiconductor manufacturing centers. Cerprobe's focus on high
quality products and innovative technologies has enabled it to establish strong
relationships with leading worldwide semiconductor manufacturers. In 1998, the
Company's top five customers were Intel Corporation, IBM Corporation, LSI Logic
Corporation, Motorola Inc., 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:
- Provide comprehensive solutions for semiconductor test integration
- Maintain strong customer relationships
- Expand global presence
- Focus on technological innovation
- Provide quality products and services
The Company was incorporated in California in 1976 and reincorporated in
Delaware in 1987. The Company maintains its principal executive offices at 1150
North Fiesta Boulevard, Gilbert, Arizona 85233, and 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.
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INDUSTRY OVERVIEW
The semiconductor industry is characterized as cyclical, with capacity boom
cycles followed by bust cycles that create tremendous pricing pressures. For the
past several years the IC market has been a high volume, high growth commodity
market characterized by rapid technological change. According to independent
semiconductor market research, worldwide production of ICs increased from
approximately 41 billion units in 1994 to nearly 60 billion units in 1998.
Presently the industry is in a downturn driven by excess capacity, pricing
pressures, and the economic crisis in Asia.
Growing demand for ICs has driven the increased demand for semiconductor
testing products, such as probe cards, ATE interface assemblies, and ATE test
boards. Because probe cards, and to a lesser extent ATE test boards, are
consumable products rather than capital equipment, the historically rapid unit
growth of ICs and new IC designs have in particular fueled the demand for probe
cards and ATE test boards. VLSI Research Inc. ("VLSI"), an independent
semiconductor market research company, estimates the worldwide market for probe
cards in 1999 to be approximately $500 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.
In addition to the historically rapid unit growth in ICs, technological
advances in ICs have also fueled the increased demand for semiconductor testing
products. IC technology is changing rapidly due to constantly increasing demand
for greater functionality and higher processing speeds. Advances in IC design
and process technologies have enabled manufacturers to meet these demands by
producing ICs with shrinking geometries and ever greater circuit densities,
higher pin counts, more varied configurations, and increased complexity. The
intense competition among semiconductor manufacturers to be first to market with
a new IC and gain a competitive edge has caused design and production cycles to
continue to shrink. As a result of the increased complexity of ICs and shorter
product life cycles, demand for sophisticated test 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. IC manufacturers are
placing added emphasis on greater test accuracy, testing at higher speeds,
testing multiple ICs simultaneously, and quicker turnaround times for probing
devices and testing packaged 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.
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The testing of ICs in wafer form is important to avoid incurring the significant
expense of assembling and packaging ICs that do not meet specifications. The
principal components of a wafer probing system include:
- The ATE, which is capital equipment that transmits the electrical signals
to the IC and evaluates the signals upon their return
- The ATE test board, a complex, multilayer printed circuit board ("PCB")
that is mounted directly to the ATE and transfers the test signals
between the ATE and the pogo tower of the ATE interface assembly
- 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
- A probe card, which consists of a complex, multilayer PCB and numerous
probes positioned to "touch down" on or make electrical contact with
metallized test pads on the IC
- A wafer prober, which is 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
Corporation, IBM Corporation, LSI Logic Corporation, Motorola Inc., and
Texas Instruments, as well as with emerging companies. Engineering,
sales, and management personnel
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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 approximately 130 engineers and designers, provides it with a
competitive advantage in meeting customer requirements for increasingly
sophisticated testing products. To help meet the demanding service needs
of the semiconductor manufacturing industry, all of the Company's
facilities are located in proximity to semiconductor manufacturing
centers in the United States, Europe, and Asia.
- Expand Global Presence. The Company believes that the international
market for its products is at least as large as the domestic market. The
Company intends to continue its expansion into international markets,
including Europe and Asia, 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, France, Singapore, and Taiwan. In addition, the Company is in
the process of establishing manufacturing operations in Japan and expects
to begin manufacturing in 1999. 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 also has worked closely with
SEMATECH, the U.S. semiconductor industry consortium that defines the
standards for future semiconductor products, 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 November 1998, the Company signed a 10-year agreement with Feinmetall
GmbH, a German contact technology company. The agreement gives Cerprobe
the exclusive license to design, manufacture, and distribute Vertical
integrated Probe (ViProbe(R)) products worldwide, except Europe. The
technology is to be transferred to Cerprobe's Gilbert facility in the
first quarter of 1999 with production beginning the second quarter of
1999. In addition, the Company established in May 1997 a joint
development agreement with Japan based Mitsubishi Materials Corporation
to develop next generation probe card technology based upon the Company's
proprietary P4(TM) technology. The Company believes these new probe cards
wil1 address chip manufacturers increasing demands for tighter test pad
pitches, for testing at higher frequencies, and for testing multiple IC
simultaneously.
- 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, the Company is able to be a single
source provider for its customers.
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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
72%, 73%, and 82% of net sales in 1998, 1997, and 1996 respectively. Probe card
sales continue to grow; however, as a result of the CIS acquisition in December
1996 and related new product and service offerings, the Company's probe card
sales have accounted for a 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 3,000
probes. Because the type and complexity of ICs vary, the number and positioning
of the probes and the size of each probe card must be custom designed for the
specific IC being tested to ensure proper alignment.
The 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 four technologies:
Epoxy ring technology uses probes that connect directly to a printed
circuit board. Probe cards using this type of technology are capable of high
frequency, high density probing. The Company introduced its first ceramic based
epoxy ring probe card, the CerCard, in October 1990. Sales of ceramic based
epoxy ring probe cards generated approximately 63%, 61%, and 70% of the
Company's net sales for 1998, 1997, and 1996, respectively. 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 current and
low density probing. With optional features, the ceramic blade can be used for
high frequency probing.
Vertical (buckling beam) probe technology uses vertical probes that match
the pattern of the pads on the IC being tested. This technology allows for the
probing of pads in the center of an IC (area array) and is used generally for
high density applications. In November 1998, the Company licensed the ViProbe(R)
(Vertical integrated Probe) products from Feinmetall GmbH, a German contact
technology company. The ViProbe(R) vertical products address customers' current
requirements of probing area array and also testing multiple ICs simultaneously,
meeting the needs of memory manufacturers.
Photolithographic technology is a chemical plating process that uses photo
masks to pattern unique flex circuit contact sets used on probe cards. The flex
circuit contact sets are attached to probe cards using mechanical leaf springs.
The Company has jointly developed and patented its P4(TM)(Photolithographic
Pattern Plated Probe) technology for use in several probe card applications. The
first application is for probe cards that are capable of fine pitch, ultra high
frequency, and high accuracy probe tip placement on the decreasing size of
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IC test pads. Another application using P4(TM) is a vertical contact product
using a C-shaped probe. Its vertical contact set enables probing of ultra fine
pitches and testing of multiple ICs simultaneously, which is a requirement for
the memory market.
The Company's probe cards generally range in price from $500 to over
$65,000, depending upon the complexity and performance specifications of the
probe cards.
ATE Interface Assemblies
The Company entered the ATE interface business through the acquisition in
April 1995 of Fresh Test, a company engaged primarily in the design,
manufacture, and sale of ATE interface products. An ATE interface assembly
securely connects the ATE to the wafer prober or handler and is used to carry
signals from the ATE to the DUT. An interface assembly typically consists of
custom mechanical docking hardware such as a lock ring and insert ring, as well
as two intricate multilayer PCBs connected by either a system of cables or,
increasingly, spring-loaded "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.
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 over $65,000.
ATE Test Boards
Through the acquisition of CIS in December 1996, the Company expanded its
product offerings to include custom-designed ATE test boards. The CIS
acquisition also enabled the Company to internalize the fabrication of 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 over $30,000.
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ENGINEERING AND PRODUCT DEVELOPMENT
The customized nature of the Company's products results in ongoing
engineering and product development being included in the cost of goods sold for
the Company's products. In addition, the Company has devoted and will continue
to devote substantial resources to materials, process engineering, and product
development. Engineering and product development expenses were $3,101,082,
$996,253, and $902,909 for the years ended December 31, 1998, 1997, and 1996,
respectively, which represented 4.1%, 1.4%, and 2.4% of net sales, respectively.
The Company employs approximately 130 engineers and designers.
The Company has from time to time collaborated with certain customers that
pay the Company to develop new products. Funds received from such engineering
and product development are accounted for as offsets to the total expenses for
the related project.
In 1997, the Company entered into a joint development agreement with
Mitsubishi Materials Corporation to accelerate the 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. In 1998, the Company expanded
the agreement with Mitsubishi Materials Corporation to apply P4(TM) technology
to develop vertical probe cards to address customers' increasing interest in
array testing, memory, and multiple IC testing. 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.
In November 1998, the Company signed a 10-year agreement with Feinmetall
GmbH, a German contact technology company. The agreement gives Cerprobe the
exclusive license to design, manufacture, and distribute Vertical integrated
Probe (ViProbe(R)) products worldwide, except Europe. The technology is to be
transferred to Cerprobe's Gilbert facility in the first quarter of 1999 with
production beginning in the second quarter of 1999. Cerprobe and Feinmetall will
jointly enhance and extend the ViProbe(R) family of products.
In June of 1998, Cerprobe introduced the StingRay(TM) flexible interface.
This is a patent pending design that gives its customers the flexibility to
easily reconfigure their interface system for a new test set-up or tester/prober
test combination using the same interface assembly with interchangeable pogo
towers and probe card trays.
To address the final package test requirements of increased pin counts and
increasing operating frequencies, CIS has furthered its technological
advancements in microvia drilling capabilities, mixed dielectric board
materials, and ever increasing board layer count. Microvia technology is the
ability to drill holes smaller than 8 mils in diameter. Such holes are needed in
high density DUT boards to test ball grid arrays and chip scale packages. CIS
has developed seven different levels of board material offerings, including
several proprietary mix dielectric materials to provide the customers with
solutions targeted specifically for their high performance test application. CIS
has also perfected their manufacturing process to be able to reliably produce
printed circuit test boards in excess of 35 layers.
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,
California, and Texas as well as in Scotland, France, Singapore, and Taiwan. The
Company is in the process of establishing manufacturing operations in Japan and
expects to begin manufacturing in 1999. The Company
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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 eight weeks of receiving an order. The Company
conducts its ATE test board and related PCB fabrication and assembly operations
at its Dallas, Texas facility. The Company typically designs and fabricates its
ATE test boards within four weeks of receiving an order.
The Company emphasizes quality and reliability in both the design and
manufacture of its products. ISO 9000, the internationally recognized standard
for quality management, sets the criteria for the Company's quality management
system throughout its manufacturing processes. The Company's Scotland facility
is ISO 9001 certified. The Company's use of advanced metrology tools, which
ensure precise measurement of all key product parameters, is a cornerstone of
its quality management system. The accuracy of measurements becomes increasingly
important with the advancements in technology driving smaller IC geometeries.
The Company's Quality and Engineering Departments work together to define
measurement needs and develop tools that can achieve desired results.
The Company relies on third party suppliers in the production and shipment
of its products. Although the Company believes that all raw materials, component
parts, and services are currently available in adequate amounts, 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
1998 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, consumers, automotive, military,
and aerospace industries. In addition to serving high volume established
manufacturers, the Company's products also are designed to meet the needs of
emerging and leading edge technology firms such as those offering ASICs and
Gallium Arsenide ICs. During 1998, two customers comprised more than 10% of the
Company's business, Intel and Texas Instruments. Intel accounted for 17%, 17%,
and 16% of net sales for the years ended December 31, 1998, 1997, and 1996,
respectively. Texas Instruments accounted for 12%, 10%, and 2% of net sales for
the years ended December 31, 1998, 1997, and 1996, respectively. The Company's
top 15 customers in 1998, which together accounted for approximately 73% of net
sales, were as follows:
<TABLE>
<S> <C> <C>
Advanced Micro Devices Intel Raytheon
Dominion Semiconductor LSI Logic Symbios Logic
(IBM/Toshiba J.V.) Lucent Technologies Tech Semiconductor
Hewlett-Packard Motorola Teradyne Texas
IBM National Semiconductor Instruments
Integrated Device Technologies
</TABLE>
MARKETING, SALES, AND SERVICES
The Company's customers place a high value on service. Technical features
and product quality also are attributes expected by the Company's customers. The
unique needs of purchasers of semiconductor testing products demand a high level
of customer responsiveness. The Company's products usually require a high degree
of customization in order to meet customer specifications. Response time,
product design specifications, and rapid delivery typically are critical factors
in customer satisfaction. In addition, the customer's evaluation of the design
and performance of completed products can be quite subjective. Engineering,
sales, and management personnel collaborate closely with customer counterparts
to determine their needs and
8
<PAGE> 11
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 four 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's international business represented approximately 18%, 18%,
and 20% of net sales for 1998, 1997, and 1996, respectively. The Company
believes the potential exists to increase sales in international markets, and
the Company has positioned itself to initiate a more aggressive marketing and
sales program in these markets in the future. In particular, the Company has
expanded its sales efforts throughout Europe through its full service facility
in Scotland and a new sales office in Germany. Additionally in September 1998,
the Company acquired France based SemiConducteur Services, S.A. (renamed
Cerprobe Europe S.A.S.) to further support its European probe card customers.
The Company established full service manufacturing and repair facilities in
Singapore and Taiwan in April 1996 and January 1997, respectively, to penetrate
the growing markets for the Company's products in Southeast Asia. In addition,
the Company is establishing manufacturing operations in Japan and expects to
begin manufacturing in 1999. The Company augments its direct sales force with a
network of independent distributors in Asia.
COMPETITION
The semiconductor testing products industry is highly competitive. The
Company faces substantial competition in each of the probe card, interface
assembly, 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.
BACKLOG
As of December 31, 1998, the Company had a backlog of orders of
approximately $4.9 million. These orders are believed to be firm and all are
expected to be filled during fiscal 1999. The Company's business has not been
seasonal to date. Because of possible changes in delivery schedules and
cancellations of orders, the Company's backlog at any particular date is not
necessarily indicative of future sales.
ENVIRONMENTAL REGULATIONS
The Company is subject to federal, state, and local provisions regulating
the discharge of materials into the environment. The Company has made certain
leasehold improvements in order to comply with Environmental Protection Agency
and local regulations. Proper waste disposal is a major consideration for PCB
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.
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<PAGE> 12
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, 1998, the Company had 590 employees from continuing
operations, consisting of 127 in engineering and product development, 285 in
manufacturing, 67 in sales and marketing, and 111 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.......... 49 President, Chief Executive Officer, and Director
Eswar Subramanian...... 41 Senior Vice President and Chief Operating Officer
Michael K. Bonham...... 60 Senior Vice President -- Sales and Marketing
Randal L. Buness....... 42 Senior Vice President, Chief Financial Officer,
Secretary, and Treasurer
Kevin Kurtz............ 37 Vice President, Operations
Dennis Legal........... 58 Vice President, Research and Development
Henry P. Scutoski...... 53 Vice President, Quality
</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.
Eswar Subramanian served as Senior Vice President and Chief Operating
Officer of the Company from June 1996 until his resignation in March 1999. 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
10
<PAGE> 13
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 Senior Vice President since January 1999,
and served as Vice President from June 1996 to January 1999. He has also served
as Chief Financial Officer, Secretary, and Treasurer of the Company since June
1996. From September 1994 to June 1996, Mr. Buness served as Vice President --
Finance and Administration, Chief Financial Officer, Secretary, and Treasurer of
Three-Five Systems, Inc., a publicly held manufacturer of liquid crystal
displays. Mr. Buness served as Chief Financial Officer, Secretary, and Treasurer
of United Medical Network, a developer of video conferencing networks for
healthcare providers, from January 1993 to September 1994. From January 1989 to
January 1993, Mr. Buness worked as 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.
Kevin Kurtz has served as Vice President, Operations of the Company since
February 1999. From May 1997 to January 1999, Mr. Kurtz served as President of
SVTR, Inc., a wholly owned subsidiary of Cerprobe Corporation. From January 1996
to April 1997, Mr. Kurtz served as Vice President, Manufacturing of the Company.
Mr. Kurtz served as Regional Sales Manager, then as General Manager of the
Company's San Jose facility from December 1990 to December 1995. From September
1985 to November 1990, Mr. Kurtz held various Sales and Sales Management
positions with Probe Technology, a manufacturer of probing devices for the
testing of integrated circuits.
Dennis Legal has served as Vice President, Research and Development since
February 1998. Mr. Legal was Vice President, Engineering at Aseco Corporation, a
developer of semiconductor handling equipment, from 1996 to 1998. Mr. Legal held
a number of engineering positions from 1986 through 1996 at Teradyne culminating
as Division Manager of Engineering. Teradyne is a leading semiconductor test
equipment manufacturer.
Henry P. Scutoski has served as Vice President, Quality since April 1995.
Mr. Scutoski served as Director of Quality of the Company from March 1994 to
April 1995. From February 1991 to March 1994, Mr. Scutoski worked as a
self-employed Quality consultant. Mr. Scutoski was a Quality Assurance Manager
for Motorola's Government Electronics Group from January 1985 to February 1991.
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:
- 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
- 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
- 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
- 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
- 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.
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<PAGE> 15
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
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 future 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 underwent a period of rapid growth through 1997, followed by a
period of slowdown due to the severe industry downturn in 1998. Through these
periods the Company adjusted the levels of management, manufacturing, and human
resources and worked closely with material suppliers and other third parties to
manage costs and delivery of goods and services on which the Company is
dependent. The Company's operating results could be materially and adversely
affected if it is unable to effectively manage resources in a similar manner
through future periods of growth and contraction in its industry. There can be
no assurance that the management systems and controls currently in place or any
steps taken to expand or contract such management systems and controls will be
adequate in the future to respond to changing industry conditions.
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
13
<PAGE> 16
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 will not be reduced or lost as a
result of technological advances by competitors or customers.
RELIANCE ON THIRD PARTY DISTRIBUTION CHANNELS
The Company's international business represented approximately 18%, 18%,
and 20% of net sales for 1998, 1997, and 1996, respectively. In Asia a
significant portion of sales are generated by independent distributors. A
reduction in the sales efforts by the Company's Asian 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, France, Singapore, Taiwan, and recently in Japan, 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 1998, sales to the Company's largest customers, Intel and
Texas Instruments, accounted for approximately 17% and 12% of net sales. The
Company's top 15 customers in 1998 together accounted for approximately 73% 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, and ATE test board 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 compliance
with presently applicable environmental regulations, the failure to comply with
present or future regulations could result in fines being imposed on the
Company, suspension of its production, or a cessation of its operations. Such
regulations could require the Company to acquire costly equipment or to incur
other significant expenses to comply with environmental regulations. Any failure
by the Company to control the use or adequately restrict the discharge of
hazardous substances could subject it to future liabilities. See
"Business -- Environmental Regulations" contained in Item 1 of this Report.
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<PAGE> 18
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 16.91% 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, 1998, options to acquire a total of 1,199,566 shares
were outstanding under the Company's stock option plans. An additional 375,334
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 37,275 shares of Common Stock in connection with the sale in 1996 of
Series A Convertible Preferred Stock. During the terms of such options and
warrants, the holders thereof will have the opportunity to profit from an
increase in the market price of the Common Stock with resulting dilution in the
interests of holders of Common Stock. The existence of such stock options and
warrants could adversely affect the terms on which the Company can obtain
additional financing, and the holders of such options and warrants can be
expected to exercise such options and warrants at a time when the Company, in
all likelihood, would be able to obtain additional capital by offering shares of
its Common Stock on terms more favorable to the Company than those provided by
the exercise of such options and warrants. The Company also has the authority to
issue additional shares of Common Stock and shares of one or more series of
convertible preferred stock. The issuance of such shares could result in the
dilution of the voting power of outstanding shares of Common Stock and could
have a dilutive effect on earnings per share.
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).
The Company has also adopted a Rights Plan whereby, if and when the Rights
become exercisable, holders of shares of Common Stock will be entitled to
purchase one one-thousandth of a share of Series A Junior Participating
Preferred Stock at a purchase price of $110 (subject to certain antidilution
adjustments). The Rights will expire October 8, 2008 and will be exercisable
only if a person or group becomes the beneficial owner of 15% or more of the
Common Stock or commences a tender or exchange offer that would result in the
offeror beneficially owning 15% or more of the Common Stock (the earlier of such
dates being called the "Distribution Date"). If a Distribution Date has
occurred, each Right, unless redeemed by the Company, entitles the holder to
exercise a Right for $110 and receive an amount of Common Stock of the Company,
or in certain circumstances a combination of securities and/or assets or the
common stock of the acquirer, having a market value of two times the exercise
price of the Right.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
on terms not approved by the Company's Board of Directors, except pursuant to an
offer conditioned on a substantial number of Rights being acquired. The Rights
should not interfere with any merger or other business combination approved by
the Board of Directors since the Rights may be redeemed by the Company at $.01
per Right prior to the public announcement of a Distribution Date.
ITEM 2. PROPERTIES
The Company's principal executive offices and primary manufacturing
facility are located in Gilbert, Arizona. The facility is owned by CRPB
Investors, L.L.C. ("CRPB Investors"). The Company owns a 36% interest in CRPB
Investors. The Company has entered into a long-term lease with CRPB Investors,
the initial term of which expires in May 2012 with seven options to extend the
lease for successive five-year terms.
The Company's major facilities are described in the table below:
<TABLE>
<CAPTION>
LEASE
EXPIRATION
FACILITY SQUARE FEET FUNCTION PRODUCTS DATE
- -------- ----------- -------- -------- --------------
<S> <C> <C> <C> <C>
Gilbert, Arizona.......... 83,000 Corporate headquarters, Probe cards May 2012
53,000 Manufacturing, sales ATE interface July 2008
and service assemblies
Dallas, Texas............. 35,000 CIS headquarters, ATE test boards Company owned
Manufacturing, sales
and service
San Jose, California...... 34,000 Manufacturing, sales Probe cards July 2002
and service
Hsin Chu, Taiwan.......... 10,600 Manufacturing and Probe cards April 2003
service
Austin, Texas............. 7,000 Manufacturing, sales Probe cards March 2002
and service
East Kilbride, Scotland... 11,700 Manufacturing, sales Probe cards November 2007
and service
Singapore................. 2,900 Manufacturing and Probe cards August 2001
service
</TABLE>
17
<PAGE> 20
<TABLE>
<CAPTION>
LEASE
EXPIRATION
FACILITY SQUARE FEET FUNCTION PRODUCTS DATE
- -------- ----------- -------- -------- --------------
<S> <C> <C> <C> <C>
Meyreuil, France.......... 5,600 Manufacturing, sales Probe cards June 2012
and service
Yokohama, Japan........... 13,900 Manufacturing, sales Probe cards April 2009
and service
</TABLE>
In addition, the Company leases space in Colorado Springs, Colorado; Boca
Raton, Florida; Westboro, Massachusetts; Beaverton, Oregon; Richardson, Texas;
Dallas, Texas; Austin, Texas; Santa Clara, California; Tempe, Arizona; and
Massy, France. The Company believes that its existing facilities are adequate to
meet its current requirements.
ITEM 3. LEGAL PROCEEDINGS
In October 1998, the Company filed an action against the former President,
Director, and shareholder of Silicon Valley Test & Repair, Inc., which was
acquired by the Company by way of a merger into its wholly-owned subsidiary,
SVTR, Inc., in January 1997. The suit seeks rescission of the acquisition and/or
money damages arising from failure of the defendants to disclose material facts
regarding the origins of certain software necessary for SVTR, Inc.'s business.
In February 1999, after the date of the auditors' report, the defendants filed a
counter claim against the Company, alleging conversion, interference with
contractual relations, unfair business practices, breach of contract, and
specific performance allegedly arising from the Company's actions to preclude
the defendants from selling their Company stock received by the defendants as
part of the purchase price of Silicon Valley Test & Repair, Inc., which the
Company seeks to recover through rescission. In March 1999, the Company and SVTR
filed an amended complaint. The defendants have not yet responded. While the
Company intends to vigorously prosecute this action, it is impossible to predict
the outcome of this or any litigation. It is not anticipated that this suit will
have a material adverse impact on the Company's financial condition or results
of operations.
The Company is involved in other legal actions arising in the ordinary
course of business. In the opinion of management, the disposition of these
actions would not have a material adverse effect on the Company.
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 1998.
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 26, 1998,
the closing price for the Company's Common Stock was $14.00. 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.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
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>
18
<PAGE> 21
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1998:
First Quarter............................................. 22 16 1/4
Second Quarter............................................ 20 9/16 11 5/8
Third Quarter............................................. 12 3/4 9
Fourth Quarter............................................ 15 5/8 9
</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 26, 1999, there were approximately 3,000 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, 1998,
1997, and 1996 and the consolidated balance sheet data as of December 31, 1998
and 1997 are derived from, and are qualified by reference to, the consolidated
financial statements included elsewhere in this Report, which have been audited
by KPMG LLP. The consolidated statement of operations data for the year ended
December 31, 1996, 1995, and 1994, and the consolidated balance sheet data as of
December 31, 1995, and 1994, 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.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1998(1) 1997 1996(2) 1995 1994
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................ $76,207 $69,012 $37,308 $26,099 $14,251
Cost of goods sold....................... 45,052 39,251 20,343 13,706 8,214
------- ------- ------- ------- -------
Gross profit............................. 31,155 29,761 16,965 12,393 6,037
Expenses:
Selling, general and administrative.... 18,778 16,605 10,725 7,503 3,693
Engineering and product development.... 3,101 996 903 707 417
Purchased research and development..... 1,568 -- 4,584 -- --
------- ------- ------- ------- -------
Total expenses...................... 23,447 17,601 16,212 8,210 4,110
------- ------- ------- ------- -------
Operating income......................... 7,708 12,160 753 4,183 1,927
Other income (expense):
Interest income........................ 1,324 349 467 45 19
Interest expense....................... (269) (388) (222) (154) (115)
Other, net............................. 543 323 247 140 92
------- ------- ------- ------- -------
Total other income (expense)........ 1,598 284 492 31 (4)
------- ------- ------- ------- -------
Income from continuing operations before
income taxes and minority interest..... 9,306 12,444 1,245 4,214 1,923
Income taxes............................. (3,685) (4,810) (2,701) (1,812) (710)
Minority interest........................ (384) 30 95 -- --
------- ------- ------- ------- -------
Income (loss) from continuing
operations............................. 5,237 7,664 (1,361) 2,402 1,213
</TABLE>
19
<PAGE> 22
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1998(1) 1997 1996(2) 1995 1994
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Discontinued operations:
Loss from operations of SVTR, Inc., net
of taxes............................ (1,925) (5,767) -- -- --
Loss on disposal of SVTR, Inc., net of
taxes............................... (3,808) -- -- -- --
------- ------- ------- ------- -------
Loss from discontinued operations...... (5,733) (5,767) -- -- --
------- ------- ------- ------- -------
Net income (loss)........................ $ (496) $ 1,897 $(1,361) $ 2,402 $ 1,213
======= ======= ======= ======= =======
Net income (loss) per share:
Basic.................................. $ (0.06) $ 0.28 $ (0.30) $ 0.62 $ 0.38
======= ======= ======= ======= =======
Diluted................................ $ (0.06) $ 0.27 $ (0.30) $ 0.53 $ 0.30
======= ======= ======= ======= =======
Weighted average number of shares:
Basic.................................. 7,964 6,690 4,580 3,874 3,213
Diluted................................ 8,251 6,982 4,580 4,666 4,007
BALANCE SHEET DATA:
Working capital.......................... $30,519 $42,505 $10,004 $ 4,771 $ 3,572
Total assets............................. 63,686 68,108 31,512 14,967 7,015
Long-term debt........................... 3,204 1,275 1,741 981 791
Stockholders' equity..................... 53,474 59,344 23,130 10,656 4,923
</TABLE>
- ---------------
(1) Includes a one-time write-off of purchased research and development of $1.6
million in 1998, or $0.11 per diluted share, net of tax benefit, related to
the acquisition of Cerprobe Europe S.A.S.
(2) Includes a one-time write-off of purchased research and development of $4.6
million in 1996, or $1.00 per diluted share, related to the acquisition of
CIS.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Selected Consolidated Financial Data and the Consolidated Financial
Statements and related Notes thereto of the Company appearing elsewhere in this
Report.
OVERVIEW
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 address critical functions to assure IC
quality, reduce manufacturing costs, improve the accuracy of manufacturing yield
data, and identify repairable memory IC's.
The semiconductor industry is characterized as cyclical, with capacity boom
cycles followed by bust cycles that create tremendous pricing pressures. For the
past several years, the IC market has been a high volume, high growth commodity
market characterized by rapid technological change. Cerprobe has benefited from
this and has grown substantially over the last five years as the Company has
increased its market share. Net sales have increased from $14.3 million for 1994
to $76.2 million for 1998, representing an average annualized growth rate of
approximately 52%. Similarly, the Company's net income has increased from $1.2
million for 1994 to $6.2 million for 1998 (before a one-time charge for
purchased research and development of $1.6 million, resulting in a tax benefit
of $627,000 and the loss from discontinued operations of SVTR of $5.7 million
net of taxes, which together reduced net income from continuing operations by
$6.7 million). Until 1995, substantially all of the Company's growth was from
the existing probe card product line.
20
<PAGE> 23
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 Cerprobe Interconnect Solutions ("CIS") in
December 1996, which enabled the Company to offer ATE test boards. In May 1997,
the Company established an international joint development agreement with
Mitsubishi Materials Corporation to develop next generation probe card
technology based upon the Company's proprietary P4(TM) technology. In September
1998, the Company acquired France based Cerprobe Europe S.A.S. which expanded
the Company's presence in the European market. In November 1998, the Company
acquired an exclusive license to design, manufacture, and distribute the
Vertical integrated Probe (ViProbe(R)) products worldwide, except Europe.
In June 1998, the Company terminated its distribution agreement with Upsys,
and in connection therewith, Upsys' 45% interest in Upsys-Cerprobe L.L.C. was
purchased. In the third quarter of 1998, the Company discontinued operations of
SVTR, a wafer prober refurbishing and upgrading subsidiary acquired by the
Company in January 1997. The Company disposed of SVTR's assets in early 1999.
SVTR has been accounted for as a discontinued operation and, accordingly, its
results of operations and financial position are segregated in the financial
statements.
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 North America, Europe,
and Asia. Presently the semiconductor industry is in a downturn driven by excess
capacity pricing pressures and the economic crisis in Asia, therefore, there can
be no assurance that the Company can continue the growth exhibited the past five
years. The Company maintains regional full service facilities in Arizona,
California, and Texas as well as sales offices in Colorado, Florida,
Massachusetts, and Oregon to service the U.S. market for its products and
services. The Company continues to expand into international markets, including
Europe and Asia. The Company maintains full service facilities in Scotland and
France and a sales office in Germany to serve the European market. The Company
also maintains full service facilities in Singapore and Taiwan to serve the
Southeast Asian market. Additionally, the company is in the process of
establishing a full service facility in Japan. 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.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1998(1) 1997 1996(2)
------- ----- -------
<S> <C> <C> <C>
Net sales................................................... 100.0% 100.0% 100.0%
Cost of goods sold.......................................... 59.1 56.9 54.5
----- ----- -----
Gross profit................................................ 40.9 43.1 45.5
Expenses:
Selling, general and administrative....................... 24.6 24.1 28.7
Engineering and product development....................... 4.1 1.4 2.4
Purchased research and development........................ 2.1 -- 12.3
----- ----- -----
Total expenses......................................... 30.8 25.5 43.4
----- ----- -----
Operating income............................................ 10.1 17.6 2.1
</TABLE>
21
<PAGE> 24
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1998(1) 1997 1996(2)
------- ----- -------
<S> <C> <C> <C>
Other income (expense):
Interest income........................................... 1.7 0.5 1.3
Interest expense.......................................... (.3) (0.6) (0.6)
Other, net................................................ .7 0.5 0.6
----- ----- -----
Total other income..................................... 2.1 0.4 1.3
----- ----- -----
Income from continuing operations before income taxes and
minority interest......................................... 12.2 18.0 3.4
Income taxes................................................ (4.8) (7.0) (7.2)
Minority interest........................................... (0.5) 0.1 0.2
----- ----- -----
Income (loss) from continuing operations.................... 6.9 11.1 (3.6)
Discontinued operations:
Loss from operations of SVTR, net of taxes................ (2.5) (8.4) --
Loss on disposal of SVTR, net of taxes.................... (5.0) -- --
----- ----- -----
Loss from discontinued operations......................... (7.5) (8.4) --
----- ----- -----
Net income (loss)......................................... (0.6)% 2.7% (3.6)%
===== ===== =====
</TABLE>
- ---------------
(1) Includes a one-time write off of purchased research and development costs of
$1.6 million related to the acquisition of Cerprobe Europe S.A.S.
(2) Includes a one-time write-off of purchased research and development costs of
$4.6 million related to the acquisition of CIS.
YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997
Net Sales. Net sales for 1998 were $76.2 million, an increase of 10.4%
over net sales of $69.0 million for 1997. The majority of this increase occurred
in the first quarter of 1998 as a result of higher order rates for the Company's
probe card and interface products. However, during the remainder of 1998, slower
sales resulted from the softness in the worldwide demand for semiconductors.
Gross Profit. The gross profit for 1998 was $31.2 million, an increase of
4.7% from the gross profit of $29.8 million for 1997. Gross margin decreased
from 43.1% in 1997 to 40.9% in 1998. The decrease in gross margin was a result
of a change in product mix, which included a higher ratio of lower margin ATE
interface product sales and a result of the Company's production infrastructure
capable of higher production run rates, resulting in over capacity and
under-absorption of overhead.
Selling, General, and Administrative. Selling, general, and administrative
expenses were $18.8 million, or 24.6% of net sales, for 1998, compared to $16.6
million, or 24.1% of net sales, for 1997, an increase of 13.1%. The increase in
selling, general, and administrative expenses resulted primarily from the
increase in fixed general and administrative costs due to the Company's
continued domestic expansion occurring in the later part of 1997 and first
quarter of 1998.
Engineering and Product Development. Engineering and product development
expenses were $3.1 million, or 4.1% of net sales, for 1998, an increase of
211.3% over $996,253, or 1.4% of net sales, for 1997. The Company has added
substantial resources to its product development team to address emerging and
next generation probing requirements for grid array, multi-chip testing, very
high frequency ICs, and those that have pad pitch architecture of less than 60
microns.
Purchased Research and Development. Purchased research and development
costs from the September 1998 acquisition of Cerprobe Europe S.A.S. totaled $1.6
million. The acquisition was accounted for using the purchase method.
Accordingly, the purchase price was allocated to the assets acquired and the
liabilities assumed based upon their estimated fair values. The state of the
research and development prod-
22
<PAGE> 25
ucts/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 $1.3 million in 1998, compared to
$348,000 for 1997. This increase is attributable to the interest earned on the
net proceeds from the Company's 1997 secondary offering.
Income Taxes. Income taxes decreased to $3.7 million, which represented an
effective tax rate of 41.1% for 1998 (excluding the purchased research and
development expenses of $1.6 million, which resulted in a tax benefit of
$627,000), compared to $4.8 million, which represented an effective tax rate of
38.6% for 1997. The increased effective tax rate, as adjusted, was due primarily
to the addition of foreign income taxes on foreign taxable income. In 1998,
foreign subsidiaries' taxable income exceeded prior years foreign subsidiaries'
accumulated losses.
Minority Interest. The minority interest share of income of $383,637 for
1998 and share of loss of $29,715 for 1997 represented the Company's joint
venture partners' share of income (loss) from the Company's Asian operations
(40%, 30% prior to August 18, 1997) and the Upsys Joint Venture (45%).
Discontinued Operations. The Company recorded $5.7 and $5.8 million in
loss from discontinued operations from the disposal of its wafer prober
refurbishing and upgrading subsidiary, SVTR, Inc. for 1998 and 1997,
respectively. The Company disposed of the operations of SVTR through the sale of
assets in 1999.
Net Income (Loss). Net loss for 1998 was $495,908, compared to the income
of $1.9 million for 1997. Excluding net purchased research and development and
discontinued operations, net income for 1998 would have been $6.2 million, or
8.1% of net sales for 1998, compared to 11.1% of net sales, for 1997. This
decrease is primarily a result of slower sales in the later part of 1998 due to
the softness in the worldwide demand for semiconductors. The Company's
production infrastructure was capable of higher production run rates, resulting
in over capacity and under-absorption of overhead.
YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996
Net Sales. Net sales for 1997 were $69.0 million, an increase of 85.0%
over net sales of $37.3 million for 1996. This increase in net sales of $31.7
million resulted from the acquisition of CIS ($12.7 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 $29.8 million, an increase of
75.3% from the gross profit of $17.0 million for 1996. Gross margin decreased
from 45.5% in 1996 to 43.1% in 1997. The decrease in gross margin was primarily
a result of a change in product mix due to acquisitions. Approximately 18% of
net sales in the period were attributed to ATE test boards, which has lower
gross margins than the Company's core products of probe cards and ATE
interfaces.
Selling, General, and Administrative. Selling, general, and administrative
expenses were $16.6 million, or 24.1% of net sales, for 1997, compared to $10.7
million, or 28.7% of net sales, for 1996, an increase of $5.9 million. The
increase in selling, general, and administrative expenses resulted primarily
from the acquisition of CIS ($2.2 million), and the Company's continued domestic
and international expansion ($3.7 million).
Engineering and Product Development. Engineering and product development
expenses were $996,253, or 1.4% of net sales, for 1997, an increase of 10.3%
over $902,909, or 2.4% of net sales, for 1996. These increased expenses resulted
from the Company's acquisition of CIS and continued emphasis on engineering and
product development in an effort to anticipate and address 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.
23
<PAGE> 26
Interest Income. Interest income was $348,816 in 1997, compared to
$467,043 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 CIS and SVTR acquisitions in December 1996 and January 1997,
respectively.
Income Taxes. Income taxes increased to $4.8 million, which represented an
effective tax rate of 38.6% for 1997, compared to $2.7 million, which
represented an effective rate of 45.6% for 1996 (excluding the non-deductible
purchased research and development costs of $4.6 million). The decreased
effective tax rate, as adjusted for 1996, was due primarily to the benefit in
1997 from CIS'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. The minority interest of $29,715 for 1997 represented
the Company's joint venture partners' share of the loss from the Company's Asian
operations (40%, 30% prior to August 18, 1997) and the Upsys Joint Venture.
Net Income (Loss). Net income for 1997 was $1.9 million, compared to the
loss of $1.4 million for 1996. Excluding purchased research and development
costs and discontinued operations, net income for 1997 would have been $7.7
million, or 11.1% of net sales, compared to $3.2 million, or 8.6% of net sales
for 1996.
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, 1998. 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(2)
-------------------------------------------------------------------------------
1998 1997
--------------------------------------- -------------------------------------
DEC 31 SEP 30(1) JUN 30 MAR 31 DEC 31 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............................ $15,008 $20,107 $18,139 $22,953 $19,879 $17,562 $17,047 $14,525
Gross profit......................... 5,430 8,593 7,253 9,879 8,122 7,572 7,815 6,253
Operating income..................... 223 2,922 1,686 4,445 2,854 3,353 3,589 2,366
Net income (loss).................... 251 1,977 1,203 2,748 2,120 1,932 2,227 1,385
Diluted net income per share......... $ 0.03 $ 0.25 $ 0.14 $ 0.32 $ 0.25 $ 0.29 $ 0.34 $ 0.22
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......................... 36.2 42.7 40.0 43.7 40.9 43.1 45.8 43.0
Operating income..................... 1.5 14.5 9.3 19.7 14.4 19.1 21.1 16.3
Net income (loss).................... 1.7% 9.8% 6.6% 12.0% 10.7% 11.0% 13.1% 9.5%
</TABLE>
- ---------------
(1) Excludes a one-time write-off of purchased research and development costs of
$1.6 million or $0.11 per diluted share, net of tax benefit, related to the
acquisition of Cerprobe Europe S.A.S.
(2) Excludes discontinued operations of SVTR, Inc.
Quarterly results can be affected by a number of factors, including the
cyclical nature of the semiconductor industry, market acceptance of the
Company's products, product mix, customer order patterns, competition, the
availability and cost of raw materials and production capacity, and the
Company's ability to respond to technological advances.
LIQUIDITY AND CAPITAL RESOURCES
Cerprobe has financed its operations and capital requirements primarily
through cash flow from operations, equipment lease financing arrangements and
sales of equity securities. In September 1997, the Company completed a secondary
offering, which raised net proceeds of approximately $31.1 million. In
24
<PAGE> 27
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 for repaying existing Company debt, acquisitions,
and purchase of Treasury Stock. The remainder, approximately $19.0 million, will
be used for general corporate purposes, including working capital, and for
possible future acquisitions. At December 31, 1998, cash and short-term
investments were $19.1 million compared to $29.7 million at December 31, 1997.
Cerprobe generated $9.5 million in cash from operating activities for the
year ended December 31, 1998. Accounts receivable increased by $721,502, or
8.8%, to $9.0 million at December 31, 1998. Inventories increased $333,827, or
6.7%, over December 31, 1997, to $5.3 million at December 31, 1998. Accounts
payable and accrued expenses decreased $723,429, or 11.4%, to $5.6 million at
December 31, 1998.
Working capital decreased $12.0 million, or 28.2%, to $30.5 million at
December 31, 1998, primarily as a result of the acquisition of Cerprobe Europe
S.A.S. and the stock repurchase program. The current ratio decreased from 7.0 at
December 31, 1997, to 5.8 at December 31, 1998. This decrease was due primarily
to the purchase of Treasury Stock and the acquisition of Cerprobe Europe S.A.S.
Cerprobe increased its investment in property, plant, and equipment during
the year ended December 31, 1998, by $8.3 million, or 57.2%, to $22.7 million.
This increase was attributable to the Company's efforts, in the first quarter,
to expand capacity to meet customer demand for its products, the purchase of
Cerprobe Europe S.A.S., and the purchase of its Oracle Enterprise Resource
Planning ("ERP") System, as further discussed under Year 2000 costs below. These
capital expenditures were funded primarily from capital leases, cash flow from
operations, and net proceeds from the secondary offering.
In December 1998, the Company entered into a $10,000,000 revolving line of
credit agreement, which matures June 30, 2000, with Bank of America for general
corporate purposes. Interest on the outstanding balance is at either the
Reference Rate, determined by Bank of America in San Francisco, California, the
Offshore Rate plus 1.50 percentage points calculated by dividing the Grand
Caymen Rate by 1 minus the reserve percentage determined by the reserves to be
maintained by member banks of the Federal Reserve System for Eurocurrency
Liabilities, or the LIBOR Rate plus 1.50 percentage points. The non-use fee
under the line of credit is 0.125 % of the unused balance. The line of credit
contains certain restrictive covenants that include, among other things,
restrictions on the declaration or payment of dividends, the incurrance or
assumption of other indebtedness, and the making of loans to or investments in
others. The credit 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, 1998. There were no amounts outstanding under this agreement
as of December 31, 1998.
In February 1999, the Company financed $3,000,000 of its Oracle ERP System.
Monthly payments, under this loan, are made of principle of $83,333 plus
interest of 6.95% per annum for 36 months.
In February 1998, the Company entered into a $5,000,000 lease line of
credit agreement, which matured in February 1999, with Banc One Leasing
Corporation. The maximum term for each lease schedule may not exceed 60 months.
Pricing was indexed to like term treasuries plus 150 basis points. Advances are
collateralized by the underlying leased manufacturing equipment, furniture,
fixtures, software, and/or hardware. As of December 31, 1998, there was
$1,349,730 outstanding under all lease schedules with Banc One Leasing
Corporation.
On August 5, 1998, the Company announced a stock repurchase program whereby
up to 500,000 shares, or approximately 6% of the Company's Common Stock, may be
purchased from time to time in the open market. This repurchase program was
completed early in December 1998. The Company intends to utilize a portion of
the reacquired shares for reissuance in connection with its Employee Stock
Purchase Plan. As of December 31, 1998, the Company had purchased 500,000 shares
at an average price of $11.37 per share.
On September 30, 1998, the Company acquired France-based Cerprobe Europe
S.A.S. for $3.0 million in cash and approximately $250,000 in acquisition
related expenses. Cerprobe Europe S.A.S. designs, manufactures, and distributes
probe cards at its manufacturing plant near Marseilles.
25
<PAGE> 28
The Company believes that its working capital, together with the loan and
lease commitments described above and anticipated cash flow from operations,
will provide adequate sources to fund operations for at least the next 12
months. The Company anticipates that any additional cash requirements for
operations or capital expenditures will be financed through cash flow from
operations, by borrowing from the Company's primary lender, by lease financing
arrangements, or by sales of equity securities. 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 in the process of performing a comprehensive review of its
Year 2000 issues and has completed its review of internal systems (information
technology ("IT") and non-IT). The majority of the Company's application
software programs have been replaced with Oracle ERP applications that are Year
2000 compliant. The Oracle project budget, including software, hardware, and
implementation was approximately $3.5 million. The Company estimates the status
of progress on these internal systems as of December 31, 1998 was as follows:
<TABLE>
<S> <C>
IT Systems 100%
Non-IT Systems 75%
</TABLE>
The Company presently believes that with modifications and updates to
existing software and the recent implementation of the Oracle applications, the
Year 2000 problem will not pose significant operational problems for the
Company's internal systems. The Company also believes that remediation costs to
become Year 2000 compliant, excluding the costs associated with the replacement
Oracle applications, are not material.
The Company is also continuing to verify the Year 2000 readiness of third
parties (vendors and customers) with whom the Company has material
relationships. The Company is not able to determine the effect on the Company's
results of operations, liquidity, and financial condition in the event the
Company's material vendors and customers are not Year 2000 compliant. The
Company will continue to monitor the progress of its material vendors and
customers and formulate a contingency plan at the point in time when the Company
believes a material vendor or customer will not be compliant.
INFLATION AND CHANGING PRICES
The Company is impacted by inflationary trends and business trends within
the semiconductor industry and by the general condition of the worldwide
semiconductor markets. Market price pressures are exerted on semiconductor
manufacturers by the global marketplace and global competition. Such pressures
mandate that semiconductor manufacturers closely scrutinize the prices they pay
for goods and services purchased from the Company and other suppliers.
Accordingly, the price structure for the Company's products must be competitive.
Changes in the Company's supplier prices did not have a significant impact
on cost of sales during 1998 or 1997.
As a result of the Company's operation of the manufacturing, repair, and
sales facilities in Scotland, France, Singapore, and Taiwan, the Company's
foreign transactions may be denominated in currencies other than the U.S.
dollar. Such transactions may expose the Company to exchange rate fluctuations
for the period of time from inception of the transaction until it is settled.
There can be no assurance that fluctuations in the currency exchange rate in the
future will not have an adverse impact on the Company's foreign operations.
In addition, the Company may purchase a substantial portion of its raw
materials and equipment from foreign suppliers and will incur labor costs in a
foreign currency. The foreign manufacture and sale of products and the purchase
of raw material and equipment from foreign suppliers may be adversely affected
by political and economic conditions abroad. Protective trade legislation in
either the United States or foreign countries, such as a change in the current
tariff structures, export compliance laws or other trade policies, could
adversely affect the Company's ability to manufacture or sell its products in
foreign markets and purchase materials or
26
<PAGE> 29
equipment from foreign suppliers. In countries in which Cerprobe conducts
business in local currency, currency exchange rate fluctuations could adversely
affect the Company's net sales or costs.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A portion of the Company's foreign sales are denominated in currencies
other than the U.S. dollar. The Company may also purchase a portion of its raw
materials and equipment from foreign suppliers and will incur labor costs in a
foreign currency. Such transactions expose the Company to exchange rate
fluctuations for the period of time from inception of the transaction until it
is settled. The Company monitors its foreign currency exposure and from time to
time enters into hedging transactions to manage this exposure.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Independent Auditors' Report and Consolidated Financial Statements of
the Company are set forth on pages F-1 to F-23 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 1999 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 1999 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 1999 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 1999 Annual Meeting of Stockholders and is incorporated herein
by reference.
27
<PAGE> 30
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, 1998 and 1997..... F-2
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996.......................... F-3
Consolidated Statements of Stockholders' Equity and
Comprehensive Income for the years ended December 31,
1998, 1997 and 1996....................................... F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996.......................... 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) Second Restated Certificate of Incorporation of Cerprobe
Corporation, filed with the Secretary of State on June 23,
1998, as exhibit 3(c) to the Company's Form 10-Q for the
period ended June 30, 1998.
3(b) Bylaws of the Company dated March 14, 1987, filed as Exhibit
4(b) to the Company's Form 10-Q for the period ended June
30, 1987 and incorporated herein by reference.
3(c) Rights Agreement, dated September 28, 1998, between Cerprobe
Corporation and American Securities Transfer & Trust,
Incorporated, as Rights Agent, filed as an exhibit to the
Company's Form 8-A filed on or about October 2, 1998 and
incorporated herein by reference.
4(a) Specimen Stock Certificate filed as Exhibit 4(c) to the
Company's Form S-18 Registration Statement (No. 2-85679) and
incorporated herein by reference.
4(b) Specimen Convertible Subordinated Debenture filed as Exhibit
4(b) to the Company's Form 10-K for the year ended December
31, 1990 and incorporated herein by reference.
4(c) Specimen Series A Preferred Stock Certificate filed as
Exhibit 4(c) to the Company's Form 10-KSB for the year ended
December 31, 1995 and incorporated herein by reference.
4(d) Certificate of Designations of Series A Preferred Stock
dated January 11, 1996, as filed with the Secretary of State
of Delaware filed as Exhibit 4(d) to the Company's Form
10-KSB for the year ended December 31, 1995 and incorporated
herein by reference.
10(a) Non-Qualified Stock Option Plan adopted by the Company's
Board of Directors on June 25, 1983, as amended, and Form of
Qualified Stock Option Agreement filed as Exhibits 4(a) and
4(c) to the Company's Form S-8 Registration Statement (No.
33-65200) and incorporated herein by reference.
10(b) Incentive Stock Option Plan adopted by the Company's Board
of Directors on April 3, 1989, filed as Exhibit 10(k) to the
Company's Form 10-K for the year ended December 31, 1989 and
incorporated herein by reference and Form of Incentive Stock
Option Agreement filed as Exhibit 4(d) to the Company's Form
S-8 Registration Statement (No. 33-65200) and incorporated
herein by reference.
</TABLE>
28
<PAGE> 31
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
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(r) Employment Contract dated July 16, 1990 between the Company
and Carl Zane Close filed as Exhibit 10(p) to the Company's
Form 10-K for the year ended December 31, 1990 and
incorporated herein by reference.
10(s) Employment Contract dated July 17, 1990 between the Company
and Michael K. Bonham filed as Exhibit 10(q) to the
Company's Form 10-K for the year ended December 31, 1990 and
incorporated herein by reference.
10(t) Employment Contract dated July 16, 1990 between the Company
and Eswar Subramanian filed as Exhibit 10(r) to the
Company's Form 10-K for the year ended December 31, 1990 and
incorporated herein by reference.
10(u) Employment Contract dated July 16, 1990 between the Company
and Henry Wong filed as Exhibit 10(s) to the Company's Form
10-K for the year ended December 31, 1990 and incorporated
herein by reference.
10(v) Manufacturing Licensing Agreement between the Company and
Intertrade Scientific, Inc. dated August 30, 1993 filed as
Exhibit 10(x) to the Company's Form 10-KSB for the year
ended December 31, 1993 and incorporated herein by
reference.
10(w) Manufacturing Licensing Agreement between the Company and
ESJ Corporation dated January 21, 1994 filed as Exhibit
10(y) to the Company's Form 10-KSB for the year ended
December 31, 1993 and incorporated herein by reference.
10(x) Loan Agreement between the Company and First Interstate Bank
of Arizona, N.A. dated June 6, 1994 and related Promissory
Note filed as Exhibit 10(x) to the Company's Form 10-KSB for
the year ended December 31, 1994 and incorporated herein by
reference.
10(y) Master Lease Agreement between the Company and First
Interstate Bank of Arizona, N.A. dated as of June 6, 1994
filed as Exhibit 10(y) to the Company's Form 10-KSB for the
year ended December 31, 1994 and incorporated herein by
reference.
10(z) Master Lease Agreement between the Company and PFC, Inc.
dated August 9, 1994 filed as Exhibit 10(z) to the Company's
Form 10-KSB for the year ended December 31, 1994 and
incorporated herein by reference.
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.
</TABLE>
29
<PAGE> 32
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
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(ll) The Company's 1995 Stock Option Plan filed as Exhibit 10(ll)
to the Company's Form 10-KSB for the year ended December 31,
1995 and incorporated herein by reference.
10(mm) Capital Lease Agreement between the Company and Wells Fargo
Leasing Corporation dated October 10, 1996 filed as an
Exhibit to the Company's Form 10-QSB for the quarter ended
September 30, 1996 and incorporated herein by reference.
10(nn) Capital Lease Agreement between the Company and Wells Fargo
Leasing Corporation dated September 9, 1996 filed as an
Exhibit to the Company's Form 10-QSB for the quarter ended
September 30, 1996 and incorporated herein by reference.
10(oo) Memorandum of Lease with respect to the Lease Agreement
between the Company and CRPB Investors, L.L.C. dated August
21, 1996, and the Addendum to the Lease Agreement filed as
an Exhibit to the Company's Form 10-QSB for the quarter
ended September 30, 1996 and incorporated herein by
reference.
10(pp) Employment Agreement between the Company and Randal L.
Buness dated June 26, 1996 filed as an Exhibit to the
Company's Form 10-QSB for the quarter ended September 30,
1996 and incorporated herein by reference.
10(qq) Operating Agreement between the Company and CRPB Investors,
L.L.C. dated September 18, 1996 filed as an Exhibit to the
Company's Form 10-QSB for the quarter ended September 30,
1996 and incorporated herein by reference.
10(rr) Agreement of Merger and Plan of Reorganization, dated as of
October 25, 1996, by and among the Company, C-Route
Acquisition, Inc., CROUTE, Inc., COMPUROUTE, INCORPORATED,
and Souad Shrime filed as Exhibit 10(rr) to the Company's
Registration Statement on Form S-4 (No. 333-15785) and
incorporated herein by reference.
10(ss) Agreement and Plan of Merger, dated as of October 25, 1996,
by and between COMPUROUTE, INCORPORATED, and CROUTE, Inc.
filed as Exhibit 10(ss) to the Company's Registration
Statement on Form S-4 (No. 333-15785) and incorporated
herein by reference.
10(tt) Purchase and Sale Agreement dated as of October 25, 1996, by
and between Souad Shrime and the Company filed as Exhibit
10(tt) to the Company's Registration Statement on Form S-4
(No. 333-15785) and incorporated herein by reference.
10(uu) Indemnification Agreement by Souad Shrime in favor of and
for the benefit of the Company and C-Route Acquisition, Inc.
filed as Exhibit 10(uu) to the Company's Registration
Statement on Form S-4 (No. 333-15785) and incorporated
herein by reference.
10(vv) Agreement of Merger and Plan of Reorganization dated January
15, 1997, by and among the Company, EMI Acquisition, Inc.,
Silicon Valley Test & Repair, Inc., and William and Carol
Mayer filed as Exhibit 1 to the Company's Current Report on
Form 8-K filed with the Commission on or about January 30,
1997 and incorporated herein by reference.
10(ww) Registration Rights Agreement dated January 15, 1997, by and
between the Company and William and Carol Mayer filed as
Exhibit 2 to the Company's Current Report on Form 8-K filed
with the Commission on or about January 30, 1997 and
incorporated herein by reference.
10(xx) Employment Agreement dated January 15, 1997, by and between
the Company and William and Carol Mayer filed as Exhibit 2
to the Company's Current Report on Form 8-K filed with the
Commission on or about January 30, 1997 and incorporated
herein by reference.
10(yy) Credit Agreement between the Company and Wells Fargo Bank,
National Association dated February 28, 1997.
10(zz) Revolving Line of Credit Note between the Company and Wells
Fargo Bank, National Associated dated February 28, 1997.
10(aaa) Lease agreement between CompuRoute and Banc One Leasing
dated November 17, 1997, filed as exhibit 10(aaa) to the
Company's Form 10-K for the year ended December 31, 1997 and
incorporated herein by reference.
10(bbb) Master Lease Agreement between Company and Banc One Leasing
Corporation, dated February 16, 1998, filed as exhibit
10(bbb) to the Company's Form 10-K for the year ended
December 31, 1997 and incorporated herein by reference.
</TABLE>
30
<PAGE> 33
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10(ccc) Lease agreement between CompuRoute and Banc One Leasing
Corporation, dated May 7, 1998, filed as exhibit 10(ccc) to
the Company's Form 10-Q for the period ended June 30, 1998
and incorporated herein by reference.
10(ddd) Lease agreement between CompuRoute and Banc One Leasing
Corporation, dated June 17, 1998, filed as exhibit 10(ddd)
to the Company's Form 10-Q for the period ended June 30,
1998 and incorporated herein by reference.
10(eee) Lease agreement between Cerprobe Corporation and
Jackson-Shaw El Dorado Tech I Limited Partnerships, dated
May 15, 1998, filed as exhibit 10(eee) to the Company's Form
10-Q for the period ended June 30, 1998 and incorporated
herein by reference.
10(fff) Lease agreement between Cerprobe Corporation and Banc One
Leasing Corporation, dated October 22, 1998, filed as
exhibit 10(fff) to the Company's Form 10-Q for the period
ended June 30, 1998 and incorporated herein by reference.
10(ggg) Business Loan agreement between Cerprobe Corporation and
Bank of America, dated December 22, 1998.
10(hhh) Lease agreement between Cerprobe Corporation and Bank of
America, dated February 26, 1999.
11 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,
1998.
27.2 Restated Financial Data Schedule for twelve months ended
December 31, 1997.
</TABLE>
(b) REPORTS ON FORM 8-K
Form 8-K, filed on October 2, 1998, to report the approval of the
declaration of a dividend distribution of one Preferred Share Purchase Right
on each outstanding share of Cerprobe's Common Stock.
31
<PAGE> 34
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 31, 1999
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 31, 1999
- ------------------------------------------------ and Director
Ross J. Mangano
/s/ C. ZANE CLOSE President, Chief Executive Officer, March 31, 1999
- ------------------------------------------------ and Director (Principal Executive
C. Zane Close Officer
/s/ RANDAL L. BUNESS Senior Vice President, Chief March 31, 1999
- ------------------------------------------------ Financial Officer, Secretary, and
Randal L. Buness Treasurer (Principal Financial and
Accounting Officer)
/s/ WILLIAM A. FRESH Director March 31, 1999
- ------------------------------------------------
William A. Fresh
/s/ KENNETH W. MILLER Director March 31, 1999
- ------------------------------------------------
Kenneth W. Miller
/s/ DONALD F. WALTER Director March 31, 1999
- ------------------------------------------------
Donald F. Walter
</TABLE>
32
<PAGE> 35
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of
Cerprobe Corporation:
We have audited the accompanying consolidated balance sheets of Cerprobe
Corporation and subsidiaries as of December 31, 1998 and 1997 and the related
consolidated statements of operations, stockholders' equity and comprehensive
income, and cash flows for each of the years in the three-year period ended
December 31, 1998. 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, 1998 and 1997 and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1998 in conformity with generally accepted accounting
principles.
KPMG LLP
Phoenix, Arizona
February 2, 1999
F-1
<PAGE> 36
CERPROBE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 4,753,696 $ 2,715,490
Short-term investment securities.......................... 14,305,400 27,000,698
Accounts receivable, net of allowance of $333,364 in 1998
and $215,179 in 1997................................... 8,951,680 8,230,178
Inventories, net.......................................... 5,303,631 4,969,804
Accrued interest receivable............................... 102,093 202,939
Prepaid expenses.......................................... 869,382 377,799
Income taxes receivable................................... 714,811 471,046
Deferred tax asset........................................ 446,092 411,177
Net assets of discontinued operations..................... 1,481,903 5,220,343
----------- -----------
Total current assets.............................. 36,928,688 49,599,474
Property, plant and equipment, net.......................... 22,698,509 14,439,254
Intangible assets, net...................................... 3,050,460 2,279,347
Other assets................................................ 1,007,917 957,175
Net assets of discontinued operations....................... -- 832,653
----------- -----------
Total assets...................................... $63,685,574 $68,107,903
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 2,534,997 $ 3,502,561
Accrued expenses.......................................... 3,075,894 2,831,759
Current portion of notes payable.......................... 138,985 139,661
Current portion of capital lease obligations.............. 660,192 620,570
----------- -----------
Total current liabilities......................... 6,410,068 7,094,551
Notes payable, less current portion......................... 731,555 138,985
Capital lease obligations, less current portion............. 2,472,563 1,136,032
Deferred tax liability...................................... -- 245,160
Other liabilities........................................... 7,073 16,700
----------- -----------
Total liabilities................................. 9,621,259 8,631,428
----------- -----------
Minority interest........................................... 590,465 132,437
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.05 par value; authorized 10,000,000
shares; issued and outstanding none.................... -- --
Common stock, $.05 par value; authorized 25,000,000
shares; issued 8,131,279 and outstanding 7,645,126
shares at December 31, 1998 and issued and outstanding
8,097,979 shares at December 31, 1997.................. 406,564 404,899
Additional paid-in capital................................ 55,271,200 55,136,307
Retained earnings......................................... 3,505,734 4,001,642
Accumulated other comprehensive income:
Foreign currency translation........................... (188,131) (198,810)
----------- -----------
58,995,367 59,344,038
Treasury stock, at cost, 486,153 shares at December 31,
1998................................................... (5,521,517) --
----------- -----------
Total stockholders' equity........................ 53,473,850 59,344,038
----------- -----------
Total liabilities and stockholders' equity........ $63,685,574 $68,107,903
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 37
CERPROBE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net sales........................................... $76,207,477 $69,012,395 $37,308,199
Costs of goods sold................................. 45,052,300 39,251,446 20,343,516
----------- ----------- -----------
Gross profit.............................. 31,155,177 29,760,949 16,964,683
----------- ----------- -----------
Expenses:
Selling, general and administrative............... 18,778,140 16,605,176 10,725,075
Engineering and product development............... 3,101,082 996,253 902,909
Purchased research and development................ 1,568,000 -- 4,584,000
----------- ----------- -----------
Total expenses............................ 23,447,222 17,601,429 16,211,984
----------- ----------- -----------
Operating income.................................... 7,707,955 12,159,520 752,699
----------- ----------- -----------
Other income (expense):
Interest income................................... 1,323,918 348,816 467,043
Interest expense.................................. (269,115) (388,025) (221,248)
Other, net........................................ 542,839 323,065 246,862
----------- ----------- -----------
Total other income........................ 1,597,642 283,856 492,657
----------- ----------- -----------
Income from continuing operations before minority
interest and income taxes......................... 9,305,597 12,443,376 1,245,356
Minority interest................................... (383,637) 29,715 94,854
----------- ----------- -----------
Income from continuing operations before income
taxes............................................. 8,921,960 12,473,091 1,340,210
Income taxes........................................ (3,685,308) (4,810,167) (2,701,000)
----------- ----------- -----------
Income (loss) from continuing operations............ 5,236,652 7,662,924 (1,360,790)
Discontinued operations:
Loss from operations of SVTR, Inc., net of
taxes.......................................... (1,924,820) (5,766,956) --
Loss on disposal of SVTR, Inc., net of taxes...... (3,807,740) -- --
----------- ----------- -----------
Loss from discontinued operations.............. (5,732,560) (5,766,956) --
----------- ----------- -----------
Net income (loss)................................... $ (495,908) $ 1,895,968 $(1,360,790)
=========== =========== ===========
Net income (loss) per common share:
Basic:
From continuing operations........................ $ 0.66 $ 1.14 $ (0.30)
From discontinued operations...................... (0.72) (0.86) --
----------- ----------- -----------
Net income (loss) per common share................ $ (0.06) $ 0.28 $ (0.30)
=========== =========== ===========
Weighted average number of common shares
outstanding.................................... 7,963,747 6,690,265 4,579,598
=========== =========== ===========
Diluted:
From continuing operations........................ $ 0.63 $ 1.10 $ (0.30)
From discontinued operations...................... (0.69) (0.83) --
----------- ----------- -----------
Net income (loss) per common share................ $ (0.06) $ 0.27 $ (0.30)
=========== =========== ===========
Weighted average number of common and common
equivalent shares outstanding.................. 8,251,373 6,982,368 4,579,598
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 38
CERPROBE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
NUMBER OF
NUMBER OF PREFERRED NUMBER
COMMON SHARES OF ADDITIONAL
SHARES ISSUED AND TREASURY COMMON PREFERRED TREASURY PAID-IN
ISSUED OUTSTANDING SHARES STOCK STOCK STOCK CAPITAL
--------- ----------- -------- -------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995........ 4,095,851 -- -- $204,792 $ -- $ -- $ 7,239,410
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)
Exercise of stock options......... 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
Comprehensive income (loss):
Foreign currency translation, net
of taxes....................... -- -- -- -- -- -- --
Net loss......................... -- -- -- -- -- -- --
Total comprehensive loss.......... -- -- -- -- -- -- --
--------- ----- -------- -------- ---- ----------- -----------
Balance, December 31, 1996........ 6,027,714 330 -- $301,386 $ 16 $ -- $20,652,290
Exercise of stock options......... 95,265 -- -- 4,763 -- -- 811,702
Issuance of common stock for
acquisition...................... 175,000 -- -- 8,750 -- -- 1,662,062
Issuance of common stock in
secondary offering, net of
issuance cost of $226,764........ 1,800,000 -- -- 90,000 -- -- 37,015,237
Redemption of Preferred Stock..... -- (330) -- -- (16) -- (5,249,984)
Tax benefit from exercise of
nonqualified stock options....... -- -- -- -- -- -- 245,000
Comprehensive income (loss):
Foreign currency translation, net
of taxes....................... -- -- -- -- -- -- --
Net income....................... -- -- -- -- -- -- --
Total comprehensive income........ -- -- -- -- -- -- --
--------- ----- -------- -------- ---- ----------- -----------
Balance, December 31, 1997........ 8,097,979 -- -- $404,899 $ -- $ -- $55,136,307
Exercise of stock options......... 31,300 -- -- 1,565 -- -- 204,048
Expenses from issuance of common
stock............................ -- -- -- -- -- -- (178,650)
Issuance of common stock for
employee stock purchase plan..... 37,198 -- -- 480,454 (74,519)
Exercise of warrants.............. 2,000 (1,551) 100 -- (33,114) 33,014
Purchase of treasury stock........ -- -- (521,800) -- -- (5,968,857) --
Tax benefit from exercise of
nonqualified stock options....... -- -- -- -- -- -- 151,000
Comprehensive income (loss):
Foreign currency translation, net
of taxes....................... -- -- -- -- -- -- --
Net loss......................... -- -- -- -- -- -- --
Total comprehensive loss.......... -- -- -- -- -- -- --
--------- ----- -------- -------- ---- ----------- -----------
Balance, December 31, 1998........ 8,131,279 -- (486,153) $406,564 $ -- $(5,521,517) $55,271,200
========= ===== ======== ======== ==== =========== ===========
<CAPTION>
ACCUMULATED
OTHER TOTAL
RETAINED UNEARNED COMPREHENSIVE STOCKHOLDERS'
EARNINGS COMPENSATION INCOME EQUITY
----------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Balance, December 31, 1995........ $ 3,466,464 $(241,872) $ (7,532) $10,661,262
Issuance of preferred stock....... -- -- -- 9,400,000
Conversion of subordinated
debentures....................... -- -- -- 595,000
Compensation expense related to
stock options.................... -- 241,872 -- 49,383
Exercise of stock options......... -- -- -- 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
Comprehensive income (loss):
Foreign currency translation, net
of taxes....................... -- -- 50,128 50,128
Net loss......................... (1,360,790) -- -- (1,360,790)
-----------
Total comprehensive loss.......... -- (1,310,662)
----------- --------- --------- -----------
Balance, December 31, 1996........ $ 2,105,674 $ -- $ 42,596 $23,101,962
Exercise of stock options......... -- -- -- 816,465
Issuance of common stock for
acquisition...................... -- -- -- 1,670,812
Issuance of common stock in
secondary offering, net of
issuance cost of $226,764........ -- -- -- 37,105,237
Redemption of Preferred Stock..... -- -- -- (5,250,000)
Tax benefit from exercise of
nonqualified stock options....... -- -- -- 245,000
Comprehensive income (loss):
Foreign currency translation, net
of taxes....................... -- -- (241,406) (241,406)
Net income....................... 1,895,968 -- -- 1,895,968
-----------
Total comprehensive income........ -- 1,654,562
----------- --------- --------- -----------
Balance, December 31, 1997........ $ 4,001,642 $ -- $(198,810) $59,344,038
Exercise of stock options......... -- -- -- 205,613
Expenses from issuance of common
stock............................ -- -- -- (178,650)
Issuance of common stock for
employee stock purchase plan..... -- -- -- 405,935
Exercise of warrants.............. -- -- -- --
Purchase of treasury stock........ -- -- -- (5,968,857)
Tax benefit from exercise of
nonqualified stock options....... -- -- -- 151,000
Comprehensive income (loss):
Foreign currency translation, net
of taxes....................... -- -- 10,679 10,679
Net loss......................... (495,908) -- -- (495,908)
-----------
Total comprehensive loss.......... -- (485,229)
----------- --------- --------- -----------
Balance, December 31, 1998........ $ 3,505,734 $ -- $(188,131) $53,473,850
=========== ========= ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 39
CERPROBE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) from continuing operations....... $ 5,236,652 $ 7,662,924 $ (1,360,790)
Adjustments to reconcile net income (loss) from
continuing operations to net cash provided by
continuing operations:
Depreciation and amortization................... 4,676,110 3,546,154 1,930,341
Purchased research and development.............. 1,568,000 -- 4,584,000
Loss on sale of equipment....................... 373,245 12,583 --
Tax benefit from exercise of nonqualified stock
options....................................... 151,000 245,000 542,000
Deferred income taxes........................... (509,174) 8,062 35,419
Provision for losses on accounts receivable..... 186,585 24,000 12,000
Provision for obsolete inventory................ 534,000 621,000 75,000
Compensation expense............................ -- (33,536) 49,383
Income (loss) applicable to minority interest... 383,637 (29,715) (94,854)
Changes in working capital of continuing
operations, net of acquisitions:
Accounts receivable........................... 571,725 (2,689,975) (194,293)
Inventories................................... (736,703) (1,728,051) (812,904)
Prepaid expenses and other assets............. (72,967) (236,085) (562,590)
Income taxes receivable....................... (243,765) (256,949) (50,633)
Accounts payable and accrued expenses......... (1,359,857) 2,075,238 1,229,408
Accrued income taxes.......................... (108,648) -- --
Other liabilities............................. (9,627) -- 311,947
------------ ------------ ------------
Net cash provided by continuing
operations............................... 10,640,213 9,220,650 5,693,434
------------ ------------ ------------
Net cash used in discontinued operations... (1,161,467) (7,558,443) --
------------ ------------ ------------
Net cash provided by operating
activities............................... 9,478,746 1,662,207 5,693,434
------------ ------------ ------------
Cash flows from investing activities:
Purchase of property, plant and equipment.......... (11,900,133) (6,302,918) (4,922,960)
Proceeds from sale (purchase) of investment
securities...................................... 12,695,298 (24,019,378) (2,981,320)
Investment in CRPB Investors, L.L.C. .............. 88,455 107,293 (659,233)
Purchase of Upsys-Cerprobe, L.L.C. ................ (376,366) -- --
Purchase of Cerprobe Europe S.A.S., net of cash
acquired........................................ (3,230,230) -- --
Purchase of Cerprobe Interconnect Solutions, Inc.,
net of cash acquired............................ -- (80,102) (4,327,162)
Purchase of SVTR, net of cash acquired............. -- (2,590,697) --
Proceeds from sale of equipment.................... 15,267 74,683 --
Payment (issuance) of notes receivable............. -- 250,000 (250,000)
------------ ------------ ------------
Net cash used in investing activities...... (2,707,709) (32,561,119) (13,140,675)
------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 40
CERPROBE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from financing activities:
Issuance of (payments on) notes payable and
capital leases................................. 893,200 (1,499,131) (356,015)
Net proceeds from issuance of preferred stock..... -- -- 9,400,000
Net proceeds from issuance of common stock........ -- 37,105,237 --
Redemption of convertible preferred stock......... -- (5,250,000) --
Expenses from issuance of common stock............ (178,650) -- --
Purchase of treasury stock........................ (5,968,857) -- --
Net proceeds from employee stock purchase plan.... 405,935 -- --
Net proceeds from exercise of stock options....... 205,613 816,465 564,979
Capital contribution by minority interest
partners....................................... -- 100,000 107,705
----------- ----------- -----------
Net cash provided by (used in) financing
activities.............................. (4,642,759) 31,272,571 9,716,669
----------- ----------- -----------
Effect of exchange rates on cash.................... (90,072) (241,406) 50,128
----------- ----------- -----------
Net increase in cash................................ 2,038,206 132,253 2,319,556
Cash, beginning of period........................... 2,715,490 2,583,237 263,681
----------- ----------- -----------
Cash, end of period................................. $ 4,753,696 $ 2,715,490 $ 2,583,237
=========== =========== ===========
Supplemental schedule of non-cash financing
activities from continuing operations:
Equipment acquired under capital leases........... $ 1,126,084 $ 357,010 $ 1,553,968
----------- ----------- -----------
Cash-less exercise of warrants.................... $ 33,114 $ -- $ --
----------- ----------- -----------
Supplemental disclosures of cash flow information
from continuing operations:
Interest paid..................................... $ 269,115 $ 388,025 $ 221,248
----------- ----------- -----------
Income taxes paid................................. $ 2,184,182 $ 3,937,456 $ 2,060,000
----------- ----------- -----------
Supplemental disclosures of non-cash investing
activities:
The Company made acquisitions for $3.6 million,
$4.5 million and $7.4 million in the years
ended December 31, 1998, 1997 and 1996,
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.................................... $ 3,626,366 $ 4,546,825 $ 7,432,543
Less cash acquired................................ (19,770) (285,316) (505,381)
Common stock issued............................... -- (1,670,812) (2,600,000)
----------- ----------- -----------
Cash invested....................................... $ 3,606,596 $ 2,590,697 $ 4,327,162
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 41
CERPROBE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Cerprobe Corporation offers comprehensive solutions for semiconductor test
integration and is a leading manufacturer of probe cards, automatic test
equipment ("ATE") interface assemblies, and ATE test boards. The Company
believes it is the only company that designs, manufactures, and assembles each
of the electromechanical components that assure the integrity of the electrical
test signal that passes from the ATE to the integrated circuits ("ICs") device
under test. The Company's products address critical functions to assure IC
quality, reduce manufacturing costs, improve the accuracy of manufacturing yield
data, and identify repairable memory ICs.
Unless the context indicates otherwise, all references to "Cerprobe" or the
"Company" refer to Cerprobe Corporation and its subsidiaries.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Cerprobe
Corporation and its subsidiaries: Cerprobe Europe Limited, Cerprobe Europe
S.A.S. (formerly SemiConducteur Services, S.A.), Cerprobe Asia Holdings Pte Ltd,
Cerprobe Interconnect Solutions, Inc. ("CIS") (formerly CompuRoute, Inc.), SVTR,
Inc. ("SVTR"), Upsys-Cerprobe, L.L.C., and Cobra Venture Management, Inc. All
significant inter-company transactions have been eliminated in consolidation.
Cerprobe Asia Holdings Pte Ltd is a 60% (70% before August 18, 1997) owner
of Cerprobe Asia Pte Ltd; the balance is owned by Asian investors. Cerprobe Asia
Pte Ltd's wholly owned subsidiaries, Cerprobe Singapore Pte Ltd and Cerprobe
Taiwan Co., Ltd., operate full service sales and manufacturing plants.
On December 27, 1996 the Company acquired all of the outstanding stock of
Cerprobe Interconnect Solutions, Inc., a manufacturer of printed circuit boards.
Accordingly, the consolidated financial statements include CIS's activities
since the date of acquisition. See Note 17.
On January 15, 1997, the Company acquired all of the outstanding stock of
SVTR, Inc., a company that refurbishes, reconfigures, and services wafer probing
equipment. In the third quarter of 1998, the Company discontinued operations of
SVTR. See Note 16.
On May 30, 1997, the Company entered into a joint venture with Upsys Reseau
Eurisys ("Upsys"), a French company owned by IBM and GAME COGEMA Group, a French
testing and engineering company. The joint venture, called Upsys-Cerprobe,
L.L.C., assembled and repaired Upsys's vertical probe card that had been
distributed by Cerprobe throughout the United States and Asia. Cerprobe owned
55% of the joint venture and Upsys owned 45%. On June 25, 1998, the Company
terminated its distribution agreement with Upsys, and in connection therewith,
Upsys's 45% interest in Upsys-Cerprobe, L.L.C. was purchased. Accordingly, the
consolidated financial statements as of and for the years ended December 31,
1998 and 1997 include the activities of Upsys-Cerprobe, L.L.C. since the
formation of the venture and until the termination of the venture. See Note 17.
On September 30, 1998, the Company acquired France based Cerprobe Europe
S.A.S. The Company designs, manufactures and distributes probe cards at its
manufacturing plant near Marseilles. Accordingly, the consolidated financial
statements as of and for the year ended December 31, 1998 include Cerprobe
Europe S.A.S.'s activities since the date of acquisition. See Note 17.
F-7
<PAGE> 42
CERPROBE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
SHORT-TERM INVESTMENT SECURITIES
The Company's investment securities have original maturities of six months
or less, are classified as held to maturity, and are carried at amortized cost
as the Company has the ability and intent to hold these securities until
maturity.
A decline in the market value of any security below cost that is deemed to
be other than temporary results in a reduction in carrying amount to fair value.
The impairment is charged to earnings and a new carrying value for the security
is established. Premiums and discounts are amortized or accreted over the life
of the related security as an adjustment to yield using the effective interest
method. Dividend and interest income are recognized when earned.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and depreciated using the
straight-line method over the following estimated useful lives:
<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 consist of goodwill, assembled workforce, patents, and
technology.
Goodwill represents the amount by which the cost of businesses purchased
exceeds the fair value of the net assets acquired. Goodwill is amortized over a
period of eight to ten years using the straight-line method. Assembled workforce
represents the amount allocated to an acquired company's existing personnel
infrastructure and is being amortized over four years using the straight-line
method. Patents and technology are stated at fair market value at the date of
acquisition and are amortized over a period of five 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.
F-8
<PAGE> 43
CERPROBE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES
The Company uses the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
FOREIGN CURRENCY TRANSLATION
The financial statements of the Company's Europe, France, and Asia
subsidiaries are translated into U.S. dollars in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency Translation".
Assets and liabilities of the subsidiaries are translated into U.S. dollars at
current exchange rates. Income and expense items are translated at the average
exchange rate for the year. The resulting translation adjustments are recorded
directly as a separate component of stockholders' equity and minority interest.
All transaction gains or losses are recorded in the statement of operations.
REVENUE RECOGNITION
The Company records revenue when goods are shipped.
NET INCOME (LOSS) PER SHARE
The Company calculates basic and diluted net income (loss) per share in
accordance with SFAS No. 128, "Earnings per Share". See Note 20.
STOCK BASED COMPENSATION
In accordance with the provisions of Accounting Principals Board Opinion
No. 25, "Accounting for Stock Issued to Employees," the Company measures
stock-based compensation expense as the excess of the market price at the grant
date over the amount the employee must pay for the stock. The Company's policy
is to grant stock options at fair market value at the date of grant;
accordingly, no compensation expense is recognized. As permitted, the Company
has elected to adopt the pro forma disclosure provisions only of SFAS No. 123,
"Accounting for Stock-Based Compensation." ("SFAS No. 123").
COMPREHENSIVE INCOME
On January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for reporting and
presentation of comprehensive income and its components in a full set of
financial statements. Comprehensive income consists of net income and foreign
currency translations, net of taxes and is presented in the consolidated
statements of stockholders' equity and comprehensive income; it does not affect
the Company's financial position or results of operations.
SEGMENT REPORTING
On January 1, 1998, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131 supersedes SFAS
No. 14, "Financial Reporting for Segments of a Business Enterprise" replacing
the "industry segment" approach with the "management" approach. The management
approach designates the internal organization that is used by management for
making operating decisions and assessing performance, as the source of the
Company's reportable segments. SFAS No. 131 also requires disclosure about
products and services, geographical areas, and major customers. The adoption of
F-9
<PAGE> 44
CERPROBE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SFAS No. 131 does not affect results of operations or financial position but did
affect the disclosure of segment information.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consists principally of cash, investment
securities, forward currency contracts, and accounts receivable. The Company
invests primarily in U.S. Treasury and government agency securities and
corporate debt securities rated A1 or higher which have minimal credit risk. The
Company places forward currency contracts with high credit-quality financial
instruments in order to minimize credit risk exposure. Concentrations of credit
risk with respect to accounts receivable are limited due to the Company's large
semiconductor industry customer base.
RECLASSIFICATIONS
Certain amounts in the 1997 and 1996 financial statements have been
reclassified to conform with the 1998 presentation.
(2) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Raw materials....................................... $5,147,311 $4,557,848
Work-in-process..................................... 416,409 528,320
Finished goods...................................... 4,567 127,636
---------- ----------
5,568,287 5,213,804
Reserve for obsolete inventories.................... (264,656) (244,000)
---------- ----------
$5,303,631 $4,969,804
========== ==========
</TABLE>
(3) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
Land............................................. $ 589,950 $ 364,017
Building......................................... 2,394,679 1,973,704
Manufacturing tools and equipment................ 15,385,727 10,969,906
Office furniture and equipment................... 2,489,523 2,052,070
Leasehold improvements........................... 2,380,259 1,738,792
Computer hardware and software................... 4,675,543 3,685,699
Construction in progress......................... 5,345,132 719,875
------------ -----------
33,260,813 21,504,063
Accumulated depreciation and amortization........ (10,562,304) (7,064,809)
------------ -----------
$ 22,698,509 $14,439,254
============ ===========
</TABLE>
F-10
<PAGE> 45
CERPROBE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Goodwill........................................... $ 3,974,156 $3,089,740
Assembled workforce................................ 98,000 --
Patents and technology............................. 340,840 90,840
----------- ----------
4,412,996 3,180,580
Accumulated amortization........................... (1,362,536) (901,233)
----------- ----------
$ 3,050,460 $2,279,347
=========== ==========
</TABLE>
(5) OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
1998 1997
---------- --------
<S> <C> <C>
Investment in CRPB Investors, L.L.C. ................ $ 463,845 $551,941
Other assets and deposits............................ 544,072 405,234
---------- --------
$1,007,917 $957,175
========== ========
</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 1998 and 1997, $100,721
and $0, respectively, was recorded by Cerprobe as income from CRPB Investors,
L.L.C.
(6) ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Accrued payroll and related taxes................... $2,390,522 $2,119,373
Other accrued expenses.............................. 685,372 712,386
---------- ----------
$3,075,894 $2,831,759
========== ==========
</TABLE>
(7) NOTES PAYABLE AND LINE OF CREDIT
In December 1998, the Company entered into a $10,000,000 revolving line of
credit agreement, which matures June 30, 2000, with Bank of America for general
corporate purposes. Interest on the outstanding balance is at either the
Reference Rate, announced by Bank of America in San Francisco, California; the
Offshore Rate plus 1.50 percentage points calculated by dividing the Grand
Caymen Rate by 1 minus the reserve percentage determined by the reserves to be
maintained by member banks of the Federal Reserve System for Eurocurrency
Liabilities; or the LIBOR Rate plus 1.50 percentage points. The non-use fee
under the line of credit is 0.125 % of the unused balance. The line of credit
contains certain restrictive covenants that include, among other things,
restrictions on the declaration or payment of dividends, the incurrance or
assumption of other indebtedness, and the making of loans to or investments in
others. The line also requires the Company to maintain a specified net worth, as
defined, to maintain a required debt to equity ratio, and to
F-11
<PAGE> 46
CERPROBE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
maintain certain other financial ratios. The Company was in compliance with all
covenants as of December 31, 1998. There were no amounts outstanding under this
agreement as of December 31, 1998.
In addition, in February 1999, after the date of the auditors' report, the
Company entered into a $3,000,000 term loan with Bank of America for the
purchase of computer equipment, software, and associated consulting fees.
Monthly payments, under this loan, are made of principle of $83,333 plus
interest of 6.95% per annum for 36 months.
The Company also has various demand loans outstanding with minority
shareholders of Cerprobe Asia Holdings Pte Ltd. Interest is accrued at the five
year Treasury Rate plus 1.50% per anum. These loans are not expected to be paid
within the next 12 months, and accordingly, are classified as long-term debt.
The outstanding balances, including interest at December 31, 1998 totaled
$713,030.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Notes payable........................................ $ 870,540 $ 278,646
Less current portion................................. (138,985) (139,661)
--------- ---------
Notes payable, less current portion.................. $ 731,555 $ 138,985
========= =========
</TABLE>
Annual maturities of long-term debt are as follows:
<TABLE>
<S> <C>
1999.............................................. $138,985
2000.............................................. 731,555
--------
$870,540
========
</TABLE>
(8) LEASES
In February 1998, the Company entered into a $5,000,000 lease line of
credit agreement, which matures in February 1999, 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 150 basis points. Advances are
collateralized by the underlying leased manufacturing equipment, furniture,
fixtures, software, and/or hardware. As of December 31, 1998, there was
$1,349,730 outstanding under all lease schedules with Banc One Leasing
Corporation.
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 $4,710,745 and $2,925,320 with related accumulated amortization of
$1,454,205 and $1,177,474 as of December 31, 1998 and 1997, 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.
In May 1998, Cerprobe entered into a long-term commercial operating lease
on a 53,000 square foot building located in Gilbert, Arizona near the Company's
worldwide headquarters. The lease commenced August 1, 1998 with an initial lease
term of 10 years with an option to extend the lease for 5 years. Rental expense
under this lease for 1998 was $100,280.
F-12
<PAGE> 47
CERPROBE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a schedule of the future minimum lease payments for the
years ending December 31:
<TABLE>
<CAPTION>
RENTALS
RECEIVABLE
CAPITAL OPERATING UNDER
LEASES LEASES SUBLEASES
---------- ----------- ----------
<S> <C> <C> <C>
1999........................................... $1,251,528 $ 1,747,967 $ 78,900
2000........................................... 1,140,389 1,658,982 47,600
2001........................................... 652,949 1,606,137 --
2002........................................... 337,960 1,515,780 --
2003........................................... 172,631 1,279,027 --
Thereafter..................................... -- 10,449,662 --
---------- ----------- --------
Total future minimum lease payments............ $3,555,457 $18,257,555 $126,500
=========== ========
Less amounts representing interest (at rates
ranging from 4.5% to 10.5%).................. (422,702)
----------
Present value of net minimum capital lease
payments..................................... $3,132,755
Less current portion........................... (660,192)
----------
Capital lease obligations, less current
portion...................................... $2,472,563
==========
</TABLE>
Depreciation expense for assets under capital leases is charged to
depreciation and amortization expense.
Rental expense for the years ended December 31, 1998, 1997, and 1996 was
$1,663,829, $1,640,272, and $1,002,856, respectively.
(9) INCOME TAXES
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Foreign........................................ $ 549,245 $ 115,763 $ --
Federal........................................ 2,488,841 3,643,959 2,093,000
State.......................................... 647,222 1,050,445 608,000
---------- ---------- ----------
$3,685,308 $4,810,167 $2,701,000
========== ========== ==========
Current........................................ $4,194,482 $4,802,105 $2,665,581
Deferred....................................... (509,174) 8,062 35,419
---------- ---------- ----------
$3,685,308 $4,810,167 $2,701,000
========== ========== ==========
</TABLE>
F-13
<PAGE> 48
CERPROBE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of actual income taxes to income taxes at the "expected"
United States federal corporate income tax rate of 34% is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Income tax expense at "expected" federal
corporate rate............................... $3,033,466 $4,240,851 $ 456,000
State income taxes, net of federal tax
benefit...................................... 427,167 693,294 362,700
Purchased research and development expense not
benefited.................................... -- -- 1,558,560
Foreign losses not benefited (income taxed at
lower than U.S federal rate)................. (3,326) (79,408) 167,450
Amortization of intangibles.................... 156,843 131,406 90,200
Foreign sales corporation benefit.............. (106,236) (82,501) --
Nontaxable income.............................. -- (79,013)
Utilization of net operating loss
carryforwards................................ -- (47,706) --
Other.......................................... 177,394 33,244 66,090
---------- ---------- ----------
$3,685,308 $4,810,167 $2,701,000
========== ========== ==========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax asset and deferred tax liability are as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
Deferred tax assets:
Foreign tax loss carryforward............................. $ 349,364 $ 177,554
Acquisition costs not currently deductible................ 616,747 --
Amortization not currently deductible..................... 1,693 --
Currency translation not currently deductible............. 192,589 132,541
Reserves and accruals not currently deductible............ 446,092 411,177
---------- ---------
Deferred tax assets....................................... $1,606,485 $ 721,272
Less valuation allowance.................................. (349,364) (177,554)
---------- ---------
Deferred tax assets....................................... $1,257,121 $ 543,718
Deferred tax liabilities:
Difference between book and tax depreciation of property,
plant and equipment.................................... (581,930) (377,701)
---------- ---------
Net deferred tax asset (liability)........................ $ 675,191 $ 166,017
========== =========
</TABLE>
The net non-current deferred tax asset of $229,099 is included in other
assets on the balance sheet.
The valuation allowance increased by $171,810 in 1998 and decreased by
$367,446 in 1997, 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.
(10) STOCKHOLDER'S EQUITY
SHAREHOLDER RIGHTS PLAN
On October 8, 1998, each shareholder of record received one Preferred Share
Purchase Right ("Right") on each outstanding share of Common Stock owned. Each
Right entitled shareholders to buy one one-thousandth of a share of newly
created Series A Junior Participating Preferred Stock of the Company at an
exercise price of $110. The Rights will be exercisable if a person or group
hereafter acquires 15% or more of
F-14
<PAGE> 49
CERPROBE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the Common Stock of the Company or announces a tender offer for 15% or more of
the Common Stock. Should this occur, the Right will entitle its holder to
purchase, at the Right's exercise price, a number of shares of Common Stock
having a market value at the time of twice the Right's exercise price. Rights
held by the 15% holder will become void and will not be exercisable to purchase
shares at the bargain purchase price. If the Company is acquired in a merger or
other business combination transaction after a person acquires 15% or more of
the Company's Common Stock, each Right will entitle its holder to purchase, at
the Right's then current exercise price, a number of the acquiring company's
common shares having a market value at that time of twice the Right's exercise
price.
TREASURY STOCK
On August 5, 1998, the Company announced a stock repurchase program whereby
up to 500,000 shares, or approximately 6%, of the Company's common stock could
be purchased from time to time in the open market. As of December 31, 1998, the
Company had purchased 500,000 shares at an approximate price of $11.37 per
share. The Company intends to utilize a portion of the reacquired shares for
reissuance in connection with its Employee Stock Purchase Plan.
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.
(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
2,585,000 shares of the Company's common stock, of which 375,334 were available
for grant as of December 31, 1998. In accordance with the plans, options are to
be granted at no less than 100% of the fair market value of the shares at the
date of grant. The options become exercisable on a basis as established by the
Company's Compensation Advisory Committee of the Board of Directors and are
exercisable for a period of 5 to 10 years. The Company extended the exercise
date on 72,000 options issued under the nonqualified stock option plan in 1995.
Compensation expense related to these options for 1996 was $49,383.
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 1998, 1997, and 1996 was estimated as of the date of the
grant using the Black-Scholes option pricing model with the following weighted
average assumptions for 1998, 1997, and 1996, respectively; risk-free interest
rates of 5.1%, 5.6%, and 6.1%; dividend yields of zero for all years;
F-15
<PAGE> 50
CERPROBE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
volatility factors of the expected market price of the Company's common stock of
52%, 52%, and 53%, 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 that 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 years 1995
through 1998. Therefore, the full impact of calculating compensation cost for
employee stock options under SFAS No. 123 is not reflected in the pro forma
amounts presented below because compensation cost is reflected over the options'
vesting periods of generally between 3 and 4 years and the compensation cost for
options granted before January 1, 1995 is not considered. The Company's pro
forma information follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- ---------- -----------
UNAUDITED
--------------------------------------
<S> <C> <C> <C> <C>
Net income (loss)............... As reported $(495,908) $1,895,968 $(1,360,790)
Pro forma $(708,146) $1,784,019 $(1,470,158)
Basic net income (loss) per
share......................... As reported $ (0.06) $ 0.28 $ (0.30)
Pro forma $ (0.09) $ 0.27 $ (0.32)
Diluted net income (loss) per
share......................... As reported $ (0.06) $ 0.27 $ (0.30)
Pro forma $ (0.09) $ 0.26 $ (0.32)
</TABLE>
A summary of the Company's employee stock option activity and related
information for the years ended December 31 follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------- ------------------ -------------------
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...................... 639,866 $ 8.81 593,631 $ 8.46 598,333 $ 6.44
Granted................... 984,000 $13.44 153,000 $10.38 160,000 $10.86
Exercised................. (31,300) $ 6.57 (95,265) $ 8.57 (164,702) $ 3.43
Expired/canceled.......... (393,000) $16.37 (11,500) $12.88 -- --
--------- ------- --------
Outstanding at end of
year................... 1,199,566 $10.19 639,866 $ 8.81 593,631 $ 8.46
========= ======= ========
Exercisable at end of
year................... 569,898 $ 9.01 367,320 $ 7.45 360,233 $ 6.94
========= ======= ========
Weighted average fair
value of options
granted during the
year................... $ 5.35 $ 4.16 $ 4.45
========= ======= ========
</TABLE>
F-16
<PAGE> 51
CERPROBE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------- OPTIONS EXERCISABLE
WEIGHTED- -----------------------
NUMBER AVERAGE WEIGHTED- NUMBER WEIGHTED-
OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
AT CONTRACTUAL EXERCISE AT EXERCISE
12/31/98 LIFE PRICE 12/31/98 PRICE
----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
$5.500 to $5.742........ 218,366 0.4 $ 5.742 218,366 $ 5.742
$8.250.................. 8,000 6.5 $ 8.250 8,000 $ 8.250
$10.250 to $10.500...... 289,000 7.8 $10.336 156,832 $10.346
$11.000 to $11.875...... 430,000 9.3 $11.104 112,132 $11.239
$12.250 to $13.125...... 254,200 9.6 $12.367 74,568 $12.559
--------- -------
1,199,566 7.1 $10.190 569,898 $ 9.010
========= =======
</TABLE>
(12) COMPREHENSIVE INCOME
The Company recognized comprehensive income (loss) for the years ended
December 31, as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
--------- ---------- -----------
<S> <C> <C> <C>
Net income (loss)............................. $(495,908) $1,895,968 $(1,360,790)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment....... 17,798 (402,344) 83,547
Tax benefit (expense) from foreign currency
translation................................. (7,119) 160,938 (33,419)
--------- ---------- -----------
Net other comprehensive income (loss)......... 10,679 (241,406) 50,128
--------- ---------- -----------
Comprehensive income (loss)................... $(485,229) $1,654,562 $(1,310,662)
========= ========== ===========
</TABLE>
(13) SEGMENT INFORMATION
The Company operates principally in one industry segment; the design,
development, manufacture and market of semiconductor integrated circuit test
products and services. The Company's principal customers are North American,
European, and Asian based semiconductor manufacturing companies.
Two of the Company's customers exceeded 10% of net sales. The first
customer accounted for 17%, 17%, and 16% of net sales for the years ended
December 31, 1998, 1997, and 1996, respectively. The accounts receivable from
that customer were $586,318, $1,081,424, and $449,380 at December 31, 1998,
1997, and 1996, respectively. The second customer accounted for 12%, 10%, and 2%
of net sales for the years ended December 31, 1998, 1997, and 1996,
respectively, with accounts receivable of $451,766, $654,015, and $512,867 at
December 31, 1998, 1997, and 1996, respectively.
International sales represented 18%, 18%, and 20% of the Company's net
sales in 1998, 1997, and 1996, respectively.
F-17
<PAGE> 52
CERPROBE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of the Company's geographic operations:
<TABLE>
<CAPTION>
NORTH EUROPE
AMERICA AND ASIA ELIMINATIONS CONSOLIDATED
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
1998
- --------------------------------------
Customer sales........................ $62,412,140 $13,795,337 $ -- $76,207,477
Intercompany sales.................... 494,987 3,304,021 (3,799,008) --
----------- ----------- ----------- -----------
Total sales...................... $62,907,127 $17,099,358 $(3,799,008) $76,207,477
=========== =========== =========== ===========
Long-lived assets..................... $28,134,572 $ 4,375,940 $(5,753,626) $26,756,886
=========== =========== =========== ===========
1997
- --------------------------------------
Customer sales........................ $56,670,599 $12,341,796 $ -- $69,012,395
Intercompany sales.................... 864,575 2,110,599 (2,975,174) --
----------- ----------- ----------- -----------
Total sales...................... $57,535,174 $14,452,395 $(2,975,174) $69,012,395
=========== =========== =========== ===========
Long-lived assets..................... $18,514,131 $ 1,967,317 $(2,805,672) $17,675,776
=========== =========== =========== ===========
1996
- --------------------------------------
Customer sales........................ $29,973,727 $ 7,334,472 $ -- $37,308,199
Intercompany sales.................... -- 1,206,441 (1,206,441) --
----------- ----------- ----------- -----------
Total sales...................... $29,973,727 $ 8,540,913 $ 1,206,441 $37,308,199
=========== =========== =========== ===========
Long-lived assets..................... $16,010,845 $ 1,942,106 $(2,577,257) $15,375,694
=========== =========== =========== ===========
</TABLE>
Although the Company has been impacted by the international economic
climate, management does not believe significant credit risk existed at December
31, 1998. The Company monitors its customers' financial condition and does not
require collateral. Historically, the Company has not experienced significant
losses related to receivables from any individual or groups of customers.
(14) COMMITMENTS AND CONTINGENCIES
In October 1998, the Company filed an action against the former President,
Director, and shareholders of Silicon Valley Test & Repair, Inc., which was
acquired by the Company by way of a merger into its wholly-owned subsidiary,
SVTR, Inc., in January 1997. The suit seeks rescission of the acquisition and/or
monetary damages arising from failure of the defendants to disclose material
facts regarding the origins of certain software necessary for SVTR, Inc.'s
business. In February 1999, after the date of the auditors' report, the
defendants filed a counter claim against the Company alleging conversion,
interference with contractual relations, unfair business practices, breach of
contract, and specific performance allegedly arising from the Company's actions
to preclude the defendants from selling the Company stock received by defendants
as part of the purchase price of Silicon Valley Test & Repair, Inc.; the Company
seeks to recover this stock and the balance of the purchase price through its
claims for rescission. In March 1999, the Company and SVTR filed an amended
complaint. The defendants have not yet responded. While the Company intends to
vigorously prosecute this action, it is impossible to predict the outcome of
this or any litigation. It is not anticipated that this suit will have a
material adverse impact on the Company's financial condition or results of
operations.
The Company is involved in other legal actions arising in the ordinary
course of business. In the opinion of management, the disposition of these
actions would not have a material adverse effect on the Company.
F-18
<PAGE> 53
CERPROBE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(15) EMPLOYEE BENEFIT PLANS
In December 1997, the Board of Directors approved the Employee Stock
Purchase Plan (the "ESPP") which provides employees the means to acquire an
equity interest in the Company. Eligible employees of the Company can purchase
Common Stock through payroll deductions at the lower of 85% of the closing price
of the Common Stock on the offering commencement date or the offering
termination date. Payroll deductions for the purchase of the stock may not
exceed 10% of an employee's base compensation or $25,000. As of December 31,
1998, 37,198 shares had been purchased under this plan. The maximum number of
shares that may be issued under this plan is 150,000.
The Company established the Cerprobe Corporation 401(k) Plan ("the Plan")
in 1993. Employees who have reached 18 years of age and who have completed 90
days of service for the Company are eligible to participate in the Plan.
Participants may elect to defer up to 15% of their salary.
Any contribution by the Company is at its discretion and only for those
participants who have completed one year of service for the Company. The Company
expensed discretionary contributions pursuant to the Plan in the approximate
amounts of $324,000, $241,000, and $91,000 for the years ended December 31,
1998, 1997, and 1996, respectively. The participants are fully vested in their
and the Company's contributions.
(16) DISCONTINUED OPERATIONS
In the third quarter of 1998, the Company discontinued operations of SVTR,
a wafer prober refurbishing and upgrading subsidiary acquired by the Company in
January 1997. The discontinuance resulted from questions regarding the origins
of certain software necessary for SVTR's business. In March 1999, after the date
of the auditors' report, Cerprobe sold certain SVTR assets for $500,000. No gain
or loss was recognized on the sale.
SVTR has been accounted for as a discontinued operation and accordingly,
its results of operations and financial position are segregated for all periods
presented in the accompanying consolidated financial statements. Net sales,
related losses, and income taxes associated with the discontinued operations are
as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Net sales................................................. $ 3,871,292 $ 8,097,809
----------- -----------
Loss from operations...................................... $(3,550,636) $(6,865,376)
Income tax benefit........................................ 1,625,816 1,098,420
----------- -----------
Loss from operations, net................................. $(1,924,820) $(5,766,956)
=========== ===========
Loss on disposal.......................................... $(6,346,233) $ --
Income tax benefit........................................ 2,538,493 --
----------- -----------
Loss on disposal, net..................................... $(3,807,740) $ --
=========== ===========
</TABLE>
The effective tax rate used in calculating the income tax benefit from
discontinued operations is approximately the same as the Company's effective tax
rate for continuing operations.
The Company recorded a pretax charge of $4,597,034 to write down its assets
to estimated net realizable value and to record additional liabilities in the
shut down period. A charge of $1,749,199 was also recorded to reflect the
estimated phase out costs and losses from operations associated with SVTR. The
tax benefit associated with these charges was $2,538,493.
F-19
<PAGE> 54
CERPROBE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The net assets of SVTR, as reclassified in the accompanying consolidated
balance sheets, include the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Current assets............................................ $ 3,445,737 $ 6,527,594
Property, plant and equipment, net........................ -- 702,648
Intangibles, net.......................................... -- 116,954
Other assets.............................................. 46,865 52,741
Current liabilities....................................... (1,990,852) (1,307,251)
Long term debt............................................ (19,847) (39,690)
----------- -----------
$ 1,481,903 $ 6,052,996
=========== ===========
</TABLE>
(17) ACQUISITIONS
CERPROBE INTERCONNECT SOLUTIONS, INC. (FORMERLY COMPUROUTE, INC.)
On December 27, 1996, the Company acquired all of the outstanding stock of
CIS, 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:
<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 state. The Company did not believe
that the research and development products had any future alternative use
because if these products were not finished and brought to ultimate product
completion, they would have no other value. Therefore, consistent with generally
accepted accounting principles, the Company recorded a one-time charge for the
full value of the purchased research and development.
F-20
<PAGE> 55
CERPROBE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CERPROBE EUROPE S.A.S. (FORMERLY SEMICONDUCTEUR SERVICES S.A.)
On September 30, 1998, the Company acquired France based Cerprobe Europe
S.A.S. for $3.0 million in cash and $250,000 in acquisition related expenses.
Cerprobe Europe S.A.S. designs, manufactures and distributes probe cards. The
acquisition resulted in $1,568,000 in purchased research and development, which
was charged to operations upon acquisition, and $508,051 in goodwill, which is
being amortized on a straight-line basis over 10 years, and $98,000 in assembled
workforce, which is being amortized on a straight line basis over 4 years.
The acquisition was accounted for as a purchase and, accordingly, the
accompanying consolidated balance sheet includes the assets purchased and
liabilities assumed of Cerprobe Europe S.A.S. at December 31, 1998 and the
accompanying consolidated statements of operations include the results of
Cerprobe Europe S.A.S. since the date of acquisition.
UPSYS-CERPROBE L.L.C.
On June 25, 1998, the Company purchased Upsys's 45% interest in
Upsys-Cerprobe L.L.C. The acquisition resulted in $376,366 of goodwill, which is
being amortized on a straight-line basis over eight years.
(18) FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires that the Company disclose estimated fair values for its financial
instruments. The following summary presents a description of the methodologies
and assumptions used to determine the amounts.
The carrying amount of investment securities, receivables, accounts
payable, and accrued expenses approximates fair value because of the short term
nature of these items. The fair value of notes payable and capital lease
obligations approximate the terms in the marketplace at which they could be
replaced. Therefore, the fair value approximates the carrying value of these
financial instruments.
(19) SUPPLEMENTAL FINANCIAL INFORMATION
A summary of additions and deductions related to the allowances for
accounts receivable and inventories for the years ended December 31, 1998, 1997,
and 1996 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,
1998.................. $215,179 $186,585 $ -- $ 68,400 $333,364
Year ended December 31,
1997.................. $223,000 $ 24,000 $ -- $ 31,821 $215,179
Year ended December 31,
1996.................. $173,000 $ 12,000 $44,000 $ 6,000 $223,000
Allowance for obsolescence
of inventories:
Year ended December 31,
1998.................. $244,000 $534,000 $ -- $513,344 $264,656
Year ended December 31,
1997.................. $129,000 $621,000 $ -- $506,000 $244,000
Year ended December 31,
1996.................. $ 83,000 $ 75,000 $ -- $ 29,000 $129,000
</TABLE>
F-21
<PAGE> 56
CERPROBE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(20) NET INCOME (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted net
income (loss) per share:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- -----------
<S> <C> <C> <C>
Net income (loss)............................. $ (495,908) $1,895,968 $(1,360,790)
========== ========== ===========
Weighted average outstanding common shares.... 7,963,747 6,690,265 4,579,598
Effect of dilutive securities:
Stock options............................... 287,626 292,103 194,883
Convertible preferred stock................. -- -- 553,858
Antidilutive effect of dilutive
securities............................... -- -- (748,741)
---------- ---------- -----------
Weighted average and common equivalent
shares outstanding....................... 8,251,373 6,982,368 4,579,598
========== ========== ===========
Basic net income (loss) per share........... $ (0.06) $ 0.28 $ (0.30)
========== ========== ===========
Diluted net income (loss) per share......... $ (0.06) $ 0.27 $ (0.30)
========== ========== ===========
</TABLE>
(21) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER(1) QUARTER
------- ------- ---------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
- -------------------------------------------
Net sales.................................. $22,953 $18,139 $20,107 $15,008
Gross profit............................... 9,879 7,253 8,593 5,430
Operating income........................... 4,445 1,686 1,354 223
Income from continuing operations.......... 2,748 1,202 1,036 251
Net income (loss).......................... 2,345 467 (3,557) 249
Basic net income (loss) per share.......... 0.29 0.06 (0.46) 0.03
Diluted net income (loss) per share........ 0.28 0.06 (0.45) 0.03
YEAR ENDED DECEMBER 31, 1997
- -------------------------------------------
Net sales.................................. $14,525 $17,047 $17,562 $19,879
Gross profit............................... 6,253 7,815 7,572 8,122
Operating income........................... 2,366 3,589 3,353 2,854
Income from continuing operations.......... 1,385 2,227 1,932 2,120
Net income (loss).......................... (4,895) 1,590 2,962 2,240
Basic net income (loss) per share.......... (0.79) 0.26 0.47 0.28
Diluted net income (loss) per share........ (0.78) 0.24 0.45 0.27
</TABLE>
- ---------------
(1) Includes a one-time write-off of purchased research and development of $1.6
million, or $0.11 per diluted share, not of tax benefit, related to the
acquisition of Cerprobe Europe S.A.S.
F-22
<PAGE> 57
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
2 (a) Agreement of Merger and Plan of Reorganization dated
February 21, 1995, as amended by that certain Amendment of
Agreement of Merger and Plan of Reorganization dated March
31, 1995, by and among Fresh Test Acquisition, Inc., the
Company, Fresh Technology Corporation, and William A. Fresh,
Robert K. Bench, Harold D. Higgins, WAF Investment Company
and Orem Tek Development Corp. filed as Exhibit 2 to the
Company's Current Report on Form 8-K filed with the
Commission on or about April 4, 1995 and incorporated herein
by reference.
3 (a) Second Restated Certificate of Incorporation of Cerprobe
Corporation, filed with the Secretary of State on June 23,
1998, as exhibit 3(e) to the Company's Form 10-Q for the
period ended June 30, 1998
3 (b) Bylaws of the Company dated March 14, 1987, filed as Exhibit
4(b) to the Company's Form 10-Q for the period ended June
30, 1987 and incorporated herein by reference.
3 (c) Rights Agreement, dated September 28, 1998, between Cerprobe
Corporation and American Securities Transfer & Trust,
Incorporated, as Rights Agent, filed as an exhibit to the
Company's Form 8-A filed on or about October 2, 1998 and
incorporated herein by reference.
4 (a) Specimen Stock Certificate filed as Exhibit 4(c) to the
Company's Form S-18 Registration Statement (No. 2-85679) and
incorporated herein by reference.
4 (b) Specimen Convertible Subordinated Debenture filed as Exhibit
4(b) to the Company's Form 10-K for the year ended December
31, 1990 and incorporated herein by reference.
4 (c) Specimen Series A Preferred Stock Certificate filed as
Exhibit 4(c) to the Company's Form 10-KSB for the year ended
December 31, 1995 and incorporated herein by reference.
4 (d) Certificate of Designations of Series A Preferred Stock
dated January 11, 1996, as filed with the Secretary of State
of Delaware filed as Exhibit 4(d) to the Company's Form
10-KSB for the year ended December 31, 1995 and incorporated
herein by reference.
10 (a) Non-Qualified Stock Option Plan adopted by the Company's
Board of Directors on June 25, 1983, as amended, and Form of
Qualified Stock Option Agreement filed as Exhibits 4(a) and
4(c) to the Company's Form S-8 Registration Statement (No.
33-65200) and incorporated herein by reference.
10 (b) Incentive Stock Option Plan adopted by the Company's Board
of Directors on April 3, 1989, filed as Exhibit 10(k) to the
Company's Form 10-K for the year ended December 31, 1989 and
incorporated herein by reference and Form of Incentive Stock
Option Agreement filed as Exhibit 4(d) to the Company's Form
S-8 Registration Statement (No. 33-65200) and incorporated
herein by reference.
10 (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 (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.
</TABLE>
<PAGE> 58
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10 (s) Employment Contract dated July 17, 1990 between the Company
and Michael K. Bonham filed as Exhibit 10(q) to the
Company's Form 10-K for the year ended December 31, 1990 and
incorporated herein by reference.
10 (t) Employment Contract dated July 16, 1990 between the Company
and Eswar Subramanian filed as Exhibit 10(r) to the
Company's Form 10-K for the year ended December 31, 1990 and
incorporated herein by reference.
10 (u) Employment Contract dated July 16, 1990 between the Company
and Henry Wong filed as Exhibit 10(s) to the Company's Form
10-K for the year ended December 31, 1990 and incorporated
herein by reference.
10 (v) Manufacturing Licensing Agreement between the Company and
Intertrade Scientific, Inc. dated August 30, 1993 filed as
Exhibit 10(x) to the Company's Form 10-KSB for the year
ended December 31, 1993 and incorporated herein by
reference.
10 (w) Manufacturing Licensing Agreement between the Company and
ESJ Corporation dated January 21, 1994 filed as Exhibit
10(y) to the Company's Form 10-KSB for the year ended
December 31, 1993 and incorporated herein by reference.
10 (x) Loan Agreement between the Company and First Interstate Bank
of Arizona, N.A. dated June 6, 1994 and related Promissory
Note filed as Exhibit 10(x) to the Company's Form 10-KSB for
the year ended December 31, 1994 and incorporated herein by
reference.
10 (y) Master Lease Agreement between the Company and First
Interstate Bank of Arizona, N.A. dated as of June 6, 1994
filed as Exhibit 10(y) to the Company's Form 10-KSB for the
year ended December 31, 1994 and incorporated herein by
reference.
10 (z) Master Lease Agreement between the Company and PFC, Inc.
dated August 9, 1994 filed as Exhibit 10(z) to the Company's
Form 10-KSB for the year ended December 31, 1994 and
incorporated herein by reference.
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 (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 (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.
</TABLE>
<PAGE> 59
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10 (mm) Capital Lease Agreement between the Company and Wells Fargo
Leasing Corporation dated October 10, 1996 filed as an
Exhibit to the Company's Form 10-QSB for the quarter ended
September 30, 1996 and incorporated herein by reference.
10 (nn) Capital Lease Agreement between the Company and Wells Fargo
Leasing Corporation dated September 9, 1996 filed as an
Exhibit to the Company's Form 10-QSB for the quarter ended
September 30, 1996 and incorporated herein by reference.
10 (oo) Memorandum of Lease with respect to the Lease Agreement
between the Company and CRPB Investors, L.L.C. dated August
21, 1996, and the Addendum to the Lease Agreement filed as
an Exhibit to the Company's Form 10-QSB for the quarter
ended September 30, 1996 and incorporated herein by
reference.
10 (pp) Employment Agreement between the Company and Randal L.
Buness dated June 26, 1996 filed as an Exhibit to the
Company's Form 10-QSB for the quarter ended September 30,
1996 and incorporated herein by reference.
10 (qq) Operating Agreement between the Company and CRPB Investors,
L.L.C. dated September 18, 1996 filed as an Exhibit to the
Company's Form 10-QSB for the quarter ended September 30,
1996 and incorporated herein by reference.
10 (rr) Agreement of Merger and Plan of Reorganization, dated as of
October 25, 1996, by and among the Company, C-Route
Acquisition, Inc., CROUTE, Inc., COMPUROUTE, INCORPORATED,
and Souad Shrime filed as Exhibit 10(rr) to the Company's
Registration Statement on Form S-4 (No. 333-15785) and
incorporated herein by reference.
10 (ss) Agreement and Plan of Merger, dated as of October 25, 1996,
by and between COMPUROUTE, INCORPORATED, and CROUTE, Inc.
filed as Exhibit 10(ss) to the Company's Registration
Statement on Form S-4 (No. 333-15785) and incorporated
herein by reference.
10 (tt) Purchase and Sale Agreement dated as of October 25, 1996, by
and between Souad Shrime and the Company filed as Exhibit
10(tt) to the Company's Registration Statement on Form S-4
(No. 333-15785) and incorporated herein by reference.
10 (uu) Indemnification Agreement by Souad Shrime in favor of and
for the benefit of the Company and C-Route Acquisition, Inc.
filed as Exhibit 10(uu) to the Company's Registration
Statement on Form S-4 (No. 333-15785) and incorporated
herein by reference.
10 (vv) Agreement of Merger and Plan of Reorganization dated January
15, 1997, by and among the Company, EMI Acquisition, Inc.,
Silicon Valley Test & Repair, Inc., and William and Carol
Mayer filed as Exhibit 1 to the Company's Current Report on
Form 8-K filed with the Commission on or about January 30,
1997 and incorporated herein by reference.
10 (ww) Registration Rights Agreement dated January 15, 1997, by and
between the Company and William and Carol Mayer filed as
Exhibit 2 to the Company's Current Report on Form 8-K filed
with the Commission on or about January 30, 1997 and
incorporated herein by reference.
10 (xx) Employment Agreement dated January 15, 1997, by and between
the Company and William and Carol Mayer filed as Exhibit 2
to the Company's Current Report on Form 8-K filed with the
Commission on or about January 30, 1997 and incorporated
herein by reference.
10 (yy) Credit Agreement between the Company and Wells Fargo Bank,
National Association dated February 28, 1997.
10 (zz) Revolving Line of Credit Note between the Company and Wells
Fargo Bank, National Associated dated February 28, 1997.
10 (aaa) Lease agreement between CompuRoute and Banc One Leasing
dated November 17, 1997, filed as exhibit 10(aaa) to the
Company's Form 10-K for the year ended December 31, 1997 and
incorporated herein by reference.
</TABLE>
<PAGE> 60
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10 (bbb) Master Lease Agreement between Company and Banc One Leasing
Corporation, dated February 16, 1998, filed as exhibit
10(bbb) to the Company's Form 10-K for the year ended
December 31, 1997 and incorporated herein by reference.
10 (ccc) Lease agreement between CompuRoute and Banc One Leasing
Corporation, dated May 7, 1998, filed as exhibit 10(ccc) to
the Company's Form 10-Q for the period ended June 30, 1998
and incorporated herein by reference.
10 (ddd) Lease agreement between CompuRoute and Banc One Leasing
Corporation, dated June 17, 1998, filed as exhibit 10(ddd)
to the Company's Form 10-Q for the period ended June 30,
1998 and incorporated herein by reference.
10 (eee) Lease agreement between Cerprobe Corporation and
Jackson-Shaw El Dorado Tech I Limited Partnerships, dated
May 15, 1998, filed as exhibit 10(eee) to the Company's Form
10-Q for the period ended June 30, 1998 and incorporated
herein by reference.
10 (fff) Lease agreement between Cerprobe Corporation and Banc One
Leasing Corporation, dated October 22, 1998, filed as
exhibit 10(fff) to the Company's Form 10-Q for the period
ended June 30, 1998 and incorporated herein by reference.
10 (ggg) Business Loan agreement between Cerprobe Corporation and
Bank of America, dated December 31, 1998.
10 (hhh) Lease agreement between Cerprobe Corporation and Bank of
America, dated February 26, 1999.
11 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,
1998
27.2 Restated Financial Data Schedule for twelve months ended
December 31, 1997
</TABLE>
<PAGE> 1
Exhibit: 10(ggg)
Business Loan Agreement
[Bank of America Logo]
- --------------------------------------------------------------------------------
This Agreement dated as of December 22, 1998 is between Bank of America
National Trust and Savings Association (the "Bank") and Cerprobe Corporation
(the "Borrower").
1. LINE OF CREDIT AMOUNT AND TERMS
1.1 Line of Credit Amount.
(a) During the availability period described below, the Bank will provide a
line of credit to the Borrower. The amount of the line of credit (the
"Commitment") is Ten Million and no/100 Dollars ($10,000,000.00).
(b) This is a revolving line of credit. During the availability period, the
Borrower may repay principal amounts and reborrow them.
(c) The Borrower agrees not to permit the outstanding principal balance of the
line of credit to exceed the Commitment.
1.2 Availability Period. The line of credit is available between the date of
this Agreement and June 30, 2000 (the "Expiration Date") unless the Borrower is
in default.
1.3 Interest Rate.
(a) Unless the Borrower elects an optional interest rate as described below,
the interest rate is the Reference Rate.
(b) The "Reference Rate" is the rate of interest publicly announced from time
to time by the Bank in San Francisco, California, as its Reference Rate.
The Reference Rate is set by the Bank based on various factors, including
the Bank's costs and desired return, general economic conditions and other
factors, and is used as a reference point for pricing some loans. The Bank
may price loans to its customers at, above or below the Reference Rate. Any
change in the Reference Rate shall take effect at the opening of business
on the day specified in the public announcement of a change in the Bank's
Reference Rate.
1.4 Repayment Terms.
(a) The Borrower will pay interest on January 1, 1998 and on the 1st day of
each month thereafter until payment in full of any principal outstanding
under this line of credit.
(b) The Borrower will repay in full all principal and any unpaid interest or
other charges outstanding under this line of credit no later than the
Expiration Date.
(c) Any amount bearing interest at an optional interest rate (as described
below) may be repaid at the end of the applicable interest period, which
shall be no later than the Expiration Date.
1.5 Optional Interest Rates. Instead of the interest rate based on the
Reference Rate, the Borrower may elect to have all or portions of the line of
credit (during the availability period) bear interest at the rate(s) described
below in Sections 1.6 and 1.7 during an interest period agreed to by the Bank
and the Borrower. Each interest rate is a rate per year. Interest will be paid
on the last day of each interest period, and on the first day of each month
during the interest period. At the end of any interest period, the interest
rate will revert to the rate based on the Reference Rate, unless the Borrower
has designated another optional interest rate for the portion.
1.6 Offshore Rate. The Borrower may elect to have all or portions of the
principal balance of the line of credit or of the Term Loan (as defined below)
bear interest at the Offshore Rate plus 1.50 percentage points.
Designation of an Offshore Rate portion is subject to the following
requirements:
1
<PAGE> 2
(a) The interest period during which the Offshore Rate will be in effect will
be one year or less. The last day of the interest period will be determined
by the Bank using the practices of the offshore dollar inter-bank market.
(b) Each Offshore Rate portion will be for an amount not less than Five Hundred
Thousand Dollars ($500,000) for interest periods of 30 days or longer. For
shorter maturities, each Offshore Rate portion will be for an amount which,
when multiplied by the number of days in the applicable interest period, is
not less than fifteen million (15,000,000) dollar-days. As an example of
the foregoing, if the Borrower were to request an Offshore Rate portion for
a period of 20 days, the amount of such Offshore Rate portion would have to
be at least $750,000 (20 days times $750,000 equals 15,000,000
dollar-days).
(c) The "Offshore Rate" means the interest rate determined by the following
formula, rounded upward to the nearest 1/100 of one percent. (All amounts
in the calculation will be determined by the Bank as of the first day of
the interest period.)
Offshore Rate = Grand Cayman Rate
-----------------------------
(1.00 - Reserve Percentage)
Where,
(i) "Grand Cayman Rate" means the interest rate (rounded upward to the
nearest 1/16th of one percent) at which the Bank's Grand Cayman
Branch, Grand Cayman, British West Indies, would offer U.S. dollar
deposits for the applicable interest period to other major banks in
the offshore dollar inter-bank markets.
(ii) "Reserve Percentage" means the total of the maximum reserve
percentages for determining the reserves to be maintained by member
banks of the Federal Reserve System for Eurocurrency Liabilities, as
defined in Federal Reserve Board Regulation D, rounded upward to the
nearest 1/100 of one percent. The percentage will be expressed as a
decimal, and will include, but not be limited to, marginal,
emergency, supplemental, special, and other reserve percentages.
(d) The Borrower may not elect an Offshore Rate with respect to any portion of
the principal balance of the line of credit or of the Term Loan which is
scheduled to be repaid before the last day of the applicable interest
period.
(e) Any portion of the principal balance of the line of credit or the Term Loan
already bearing interest at the Offshore Rate will not be converted to a
different rate during its interest period.
(f) Each prepayment of an Offshore Rate portion, whether voluntary, by reason
of acceleration or otherwise, will be accompanied by the amount of accrued
interest on the amount prepaid; and a prepayment fee equal to the amount
(if any) by which:
(i) the additional interest which would have been payable, at the
Offshore Rate, on the amount prepaid had it not been paid until the
last day of the interest period, exceeds
(ii) the interest which would have been recoverable by the Bank by placing
the amount prepaid on deposit in the offshore dollar market for a
period starting on the date on which it was prepaid and ending on the
last day of the interest period for such portion, plus interest on
such portion from the date of prepayment to the last day of the
interest period for such portion at the rate of 1.50% per annum.
(g) The Bank will have no obligation to accept an election for an Offshore Rate
portion if any of the following described events has occurred and is
continuing:
(i) Dollar deposits in the principal amount, and for periods equal to the
interest period, of an Offshore Rate portion are not available in the
offshore Dollar inter-bank markets; or
(ii) the Offshore Rate does not accurately reflect the cost of an Offshore
Rate portion.
2
<PAGE> 3
1.7 LIBOR RATE. The Borrower may elect to have all or portions of the
principal balance of the line of credit or of the Term Loan bear interest at
the LIBOR Rate plus 1.50 percentage points. Designation of a LIBOR Rate portion
is subject to the following requirements:
(a) The interest period during which the LIBOR Rate will be in effect will be
one year or less. The last day of the interest period and the actual number
of days during the interest period will be determined by the Bank using the
practices of the London inter-bank market.
(b) Each LIBOR Rate portion will be for an amount not less than Five Hundred
Thousand Dollars ($500,000) for interest periods of one month or longer.
For shorter maturities, each LIBOR Rate portion will be for an amount
which, when multiplied by the number of days in the applicable interest
period, is not less than fifteen million (15,000,000) dollar-days. As an
example of the foregoing, if the Borrower were to request a LIBOR Rate
portion for a period of 20 days, the amount of such LIBOR Rate portion
would have to be at least $750,000 (20 days times $750,000 equals
15,000,000 dollar-days).
(c) The "LIBOR Rate" means the interest rate determined by the following
formula, rounded upward to the nearest 1/100 of one percent. (All amounts
in the calculation will be determined by the Bank as of the first day of
the interest period.)
London Inter-Bank Offered Rate
LIBOR Rate = ------------------------------
(1.00 - Reserve Percentage)
Where,
(i) "London Inter-Bank Offered Rate" means the interest rate at
which the Bank's London Branch, London, Great Britain, would offer
U.S. dollar deposits for the applicable interest period to other
major banks in the London inter-bank market at approximately 11:00
a.m. London time two (2) London Banking Days before the commencement
of the interest period. A "London Banking Day" is a day on which the
Bank's London Branch is open for business and dealing in offshore
dollars.
(ii) "Reserve Percentage" means the total of the maximum reserve
percentages for determining the reserves to be maintained by member
banks of the Federal Reserve System for Eurocurrency Liabilities, as
defined in the Federal Reserve Board Regulation D, rounded upward to
the nearest 1/100 of one percent. The percentage will be expressed as
a decimal, and will include, but not be limited to, marginal,
emergency, supplemental, special, and other reserve percentages.
(d) The Borrower shall irrevocably request a LIBOR Rate portion no later than
9:00 a.m. Phoenix time three (3) banking days before the commencement of
the interest period.
(e) The Borrower may not elect a LIBOR Rate with respect to any portion of the
principal balance of the line of credit or the Term Loan which is scheduled
to be repaid before the last day of the applicable interest period.
(f) Any portion of the principal balance of the line of credit already bearing
interest at the LIBOR Rate will not be converted to a different rate during
its interest period.
(g) Each prepayment of a LIBOR Rate portion, whether voluntary, by reason of
acceleration or otherwise, will be accompanied by the amount of accrued
interest on the amount prepaid and a prepayment fee as described below. A
"prepayment", for the purposes of this section, is a payment of an amount
on a date earlier than the scheduled payment date for such amount as
required by this Agreement. The prepayment fee shall be equal to the amount
(if any) by which:
(i) the additional interest which would have been payable, at the LIBOR
Rate, during the interest period on the amount prepaid had it not been
prepaid, exceeds
(ii) the interest which would have been recoverable by the Bank by placing
the amount prepaid on deposit in the domestic certificate of deposit
market, the eurodollar deposit market, or other appropriate money
market selected by the Bank, for a period starting on the date on
which it was
3
<PAGE> 4
prepaid and ending on the last day of the interest period for such
portion, plus interest on such portion from the date of prepayment to
the last day of the interest period for such portion at the rate of
1.50% per annum.
(h) The Bank will have no obligation to accept an election for a LIBOR Rate
portion if any of the following described events has occurred and is
continuing:
(i) Dollar deposits in the principal amount, and for periods equal to the
interest period of a LIBOR Rate portion are not available in the London
inter-bank market; or
(ii) the LIBOR Rate does not accurately reflect the cost of a LIBOR Rate
portion.
1.8 GUARANTY OF OBLIGATIONS. The obligations of the Borrower to the Bank shall
at all times by guarantied by CompuRoute, Inc. and SVTR, Inc. ("SVTR") and each
other wholly-owned subsidiary of the Borrower which is organized under the laws
of a jurisdiction in the United States of America (each a "Wholly-Owned
Domestic Subsidiary"; CompuRoute, Inc. and SVTR, Inc., together with all
Wholly-Owned Domestic Subsidiaries and any other person or entity who may now or
hereafter guarantee any portion of the obligations of the Borrower under this
Agreement, are referred to herein collectively as the "Guarantors", and each
individually as a "Guarantor") on the Bank's standard form in an amount as may
be reasonably acceptable to the Bank. The obligations of the Borrower to the
Bank shall, at all times, also be guarantied by each entity which is presently
or later becomes a Wholly-Owned Domestic Subsidiary of the Borrower, pursuant to
a payment guaranty in form and substance reasonably satisfactory to the Bank,
which payment guaranty shall be executed within 15 days of the time any such
entity becomes a Wholly-Owned Domestic Subsidiary.
2. TERM LOAN AMOUNT AND TERMS
2.1 THE TERM LOAN. The Bank agrees to make a term loan (the "Term Loan") to
the Borrower, in a single disbursement, to be made on or before February 28,
1999, in an amount not exceeding Three Million and no/100 Dollars
($3,000,000.00), as requested by the Borrower (the actual amount of such
disbursement is referred to herein as the "Disbursement Amount"). The proceeds
of the Term Loan shall be used by the Borrower solely for the purchase of
computer equipment, software, and associated consulting fees, or to finance
equipment already purchased by the Borrower, or to reimburse the Borrower for
the cost of the Borrower's prior purchase of computer equipment, software, and
associated consulting fees.
2.2 INTEREST RATE. The outstanding principal balance of the Term Loan shall
bear interest at the Reference Rate, unless the Borrower has elected to have all
or a portion of the outstanding balance of the Term Loan bear interest at the
Long Term Rate (defined below), the Average Life Treasuries Rate (defined
below), the LIBOR Rate plus 1.50% per annum (the "Term Loan LIBOR Rate"), or the
Offshore Rate plus 1.50% per annum (the "Term Loan Offshore Rate"; each of the
Long Term Rate, Average Life Treasuries Rate, the Term Loan Offshore Rate, and
the Term Loan LIBOR Rate is referred to herein as an "Term Loan Optional Rate";
a portion of the Term Loan bearing interest at a Term Loan Optional Rate is
referred to herein as a "Term Loan Optional Rate Portion") for all or portions
of the outstanding principal balance of the Term Loan in accordance with the
provisions of Sections 1.6, 1.7, and 2.3 of this Agreement. No interest period
for a portion of the Term Loan Optional Rate Portion may extend beyond the Term
Loan Maturity Date (defined below). At the end of any interest period for a Term
Loan Optional Rate Portion, the interest rate for that Term Loan Optional Rate
Portion will revert to the Reference Rate, unless the Borrower has elected
another Term Loan Optional Rate in accordance with the terms of this Agreement.
2.3 LONG TERM RATE. The Borrower may elect to have all or portions of the
principal balance of the Term Loan bear interest at the Long Term Rate, subject
to the following requirements (each such portion bearing interest at a Long Term
Rate is referred to herein as a "Long Term Rate Portion"):
(a) The interest period for a Long Term Rate Portion will be one year or
more, as elected by the Borrower.
(b) The "Long Term Rate" means the fixed interest rate the Bank and the
Borrower agree will apply to a Long Term Rate Portion during the
applicable interest period, as provided in this Section 2.3.
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(c) Each Long Term Rate Portion will be for an amount not less than One Hundred
Thousand Dollars ($100,000).
(d) No Long Term Rate Portion may be converted to a different Long Term Rate
Portion or another Term Loan Optional Rate Portion during its Long Term
Rate interest period.
(e) The Borrower may prepay a Long Term Rate Portion in whole or in part in the
minimum amount of One Hundred Thousand Dollars ($100,000). The Borrower
will give the Bank irrevocable written notice of the Borrower's intention
to make the prepayment, specifying the date and amount of the prepayment.
The notice must be received by the Bank at least 5 banking days in advance
of the prepayment. All prepayments of principal on a Long Term Rate Portion
will be applied on the most remote principal installments of that Long Term
Rate Portion which are then unpaid.
(f) Each prepayment of a Long Term Rate Portion, whether voluntary, by reason
of acceleration or otherwise, will be accompanied by payment of all accrued
interest on the amount of the prepayment and the Prepayment Fee described
below.
(g) The "Prepayment Fee" will be the sum (over each Prepaid Installment related
to such prepayment) of the amounts calculated below, where the amount
calculated below is for a single Prepaid Installment, as follows:
(i) The Bank will first determine the amount of interest which would
have accrued each month for the Prepaid Installment had it remained
outstanding until the applicable Original Payment Date, using the
Long Term Rate in effect for the Long Term Rate Portion being
prepaid;
(ii) The Bank will then subtract from each monthly interest amount
determined in (i), above, the amount of interest which would accrue
for that Prepaid Installment if it were reinvested the entire
applicable interest period, using the Long Term Rate which the Bank
would quote to the Borrower if the Borrower had requested a Long
Term Rate portion in the amount of such Prepaid Installment for the
period from the date of prepayment to the Original Payment Date
(or, in the event that the Bank would not offer a Long Term Rate
for the period from the date of prepayment to the Original Payment
Date, such other rate as the Bank would quote as a fixed rate for
such period, as determined by the Bank in its reasonable
discretion).
(iii) If (i) minus (ii) for the Prepaid Installment is greater than
zero, the Bank will discount the monthly differences to the date of
prepayment by the rate used in (ii) above. The sum of the
discounted monthly differences is the Prepayment Fee for that
Prepaid Installment.
(h) The following terms have the meanings given to them below for the purposes
of this Section 1.4:
"Applicable Interest Period" means the interest period in effect for the Long
Term Rate Portion which is being prepaid.
"Money Market" means the domestic certificate of deposit market, the eurodollar
deposit market, or other appropriate money market selected by the Bank.
"Money Market Rate" means the fixed interest rate per annum which the Bank
determines could be obtained by reinvesting a specified Prepaid Installment in
the Money Market from the date of prepayment through the Original Payment Date.
"Original Payment Dates" mean, collectively and, as applicable, to any amount
prepaid, (1) the dates on which payments are due under Section 2.5 of this
Agreement, and (2) the last day of the applicable interest period. If a portion
of the outstanding principal of the Term Loan would have been paid later than
the end of the applicable interest period in effect at the time of such
prepayment, then the Original Payment Date for that portion will be the last day
of the applicable interest period.
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"Prepaid Installment" means the amount of the prepayment which would have
been paid on a single Original Payment Date.
The Bank may adjust the Money Market Rate to reflect the compounding, accrual
basis, or other related costs. Each of the rates shall be the Bank's estimate
only and the Bank is under no obligation actually to reinvest any prepayment.
The rates will be based on information from either the Telerate or Reuters
information services. The Wall Street Journal, or other information sources the
Bank deems reasonably appropriate.
2.4 AVERAGE LIFE TREASURIES RATE. The Borrower may elect to have all or
portions of the outstanding principal balance of the Term Loan bear interest at
the Average Life Treasuries Rate (each portion which the Borrowers so elect is
referred to herein as a "Average Life Treasuries Rate Portion"), subject to the
following requirements:
(a) The interest period during which the Average Life Treasuries Rate
will be in effect with respect to an Average Life Treasuries Rate Portion will
be three months, six months, one year, or two years, as requested by the
Borrower and agreed to by the Bank, but shall not extend beyond the Term Loan
Maturity Date. The interest period must begin on or after the last day of the
availability period specified above.
(b) The "Average Life Treasuries Rate" is, at a time, the sum of (a)
1.85% per annum and (b) the weekly average yield on United States Treasury
Securities Constant Maturities Series issued by the United States Government for
a term corresponding to the term of the requested interest period, as most
recently published by the Board of Governors of the Federal Reserve System and
Federal Reserve Statistical Release H.15(519) (or any similar or successor
publication selected by the Bank).
(c) Each Average Life Treasuries Rate Portion will be for an amount
not less than One Hundred Thousand Dollars ($100,000).
(d) Any portion of the outstanding principal balance of the Term Loan
already bearing interest at a Term Loan Optional Rate will not be converted to a
different rate during its interest period.
(e) The Borrower may prepay an Average Life Treasuries Rate Portion
in whole or in part, but in a minimum amount of One Hundred Thousand and No/100
Dollars ($100,000.00). The Borrower will give the Bank irrevocable written
notice of the Borrower's intention to make the prepayment, specifying the date
and amount of the prepayment. The notice must be received by the Bank at least 5
banking days in advance of the prepayment. All prepayments of principal on an
Average Life Treasuries Rate Portion will be applied to the most remote
principal installment or installments then unpaid.
(f) Each prepayment of an Average Life Treasuries Rate Portion,
whether voluntary, by reason of acceleration or otherwise, will be accompanied
by payment of all accrued interest on the amount of the prepayment and the
prepayment fee (the "ALT Prepayment Fee") described below.
(g) The "ALT Prepayment Fee" will be the sum (over each ALT Prepaid
Installment related to such prepayment) of the amounts calculated below, where
the amount calculated below is for a single ALT Prepaid Installment, as follows:
(i) The Bank will first determine the amount of interest which
would have accrued each month for the ALT Prepaid
Installment had it remained outstanding until the
applicable ALT Original Payment Date, using the Average
Life Treasuries Rate in effect for the Average Life
Treasuries Rate Portion being prepaid;
(ii) The Bank will then subtract from each monthly interest
amount determined in (i), above, the amount of interest
which would accrue for that ALT Prepaid Installment if it
were reinvested the entire applicable interest period at
the Average Life Treasuries Rate in effect at the time of
prepayment.
(iii) If (i) minus (ii) for the ALT Prepaid Installment is
greater than zero, the Bank will discount the monthly
differences to the date of prepayment by the rate used in
(ii) above.
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The sum of the discounted monthly differences is the ALT
Prepayment Fee for that ALT Prepaid Installment.
(h) The following definitions will also apply to the
calculation of the ALT Prepayment Fee:
"ALT Original Payment Date" mean, with respect to an ALT Prepaid
Installment, the date on which principal of the related Average Life Treasuries
Rate Portion would have been paid if there had been no prepayment. If a portion
of the principal would have been paid later than the end of the interest period
in effect at the time of prepayment, then the ALT Original Payment Date for
that portion will be the last day of the interest period.
"ALT Prepaid Installment" means the amount of the prepaid principal of an
Average Life Treasuries Rate Portion which would have been paid on a single ALT
Original Payment Date.
2.5 REPAYMENT TERMS. The Borrower will pay all accrued but unpaid
interest on the first day of each month, beginning on the first such day to
occur after disbursement of the proceeds of the Term Loan, and upon payment in
full of the principal of the Term Loan. The Borrower will repay principal in
successive monthly installments, due and payable on the first day of each
month, beginning on the first such day to occur after disbursement of the
proceeds of the Term Loan (such day is referred to herein as the "First
Principal Payment Date"). Each such monthly principal installment shall be in
the amount of $83,333.34 multiplied by the Disbursement Ratio. As used in this
Agreement, "Disbursement Ratio" means the Disbursement Amount divided by
$3,000,000. All payments hereunder shall be applied first to accrued and unpaid
interest, and then to principal. On the date which is the earlier of (a) the
date which is 35 months after the First Principal Payment Date, and (b) April
30, 2002 (the earlier of such dates is referred to herein as the "Term Loan
Maturity Date"), all accrued and unpaid interest and all remaining principal
shall then be due and payable in full.
2.6 PREPAYMENTS.
(a) The Borrower may prepay the Term Loan in full or in part at
any time, provided, however, that any partial prepayment shall be in an amount
not less than One Hundred Thousand Dollars ($100,000). The Borrower will give
the Bank irrevocable written notice of the Borrower's intention to make the
prepayment, specifying the date and amount of the prepayment. The notice must
be received by the Bank at least 5 banking days in advance of the prepayment.
The prepayment will be applied to the most remote installment of principal due
under this Agreement.
(b) Each prepayment of a Term Loan Optional Rate Portion,
whether voluntary, by reason of acceleration or otherwise, which occurs on a
date which is not the end of the interest period for such Term Loan Optional
Rate Portion will be accompanied by the amount of accrued interest on the
amount prepaid, and the Prepayment Fee, ALT Prepayment Fee, or other prepayment
fee or premium described in Sections 1.6, 1.7, 2.3, and 2.4 of this Agreement.
2.7 COLLATERAL FOR THE TERM LOAN. The Borrower's obligations to the Bank
with respect to the Term Loan shall be secured, at all times, by a first
priority security interest in favor of the Bank on the equipment purchased with
the proceeds of the Term Loan and on the equipment financed by the Bank with
proceeds of the Term Loan. Prior to the disbursement of the proceeds of the
Term Loan, and as a condition precedent to the Bank's obligation to make the
Term Loan, the Borrower shall execute and deliver to the Bank a security
agreement, in the form attached as Exhibit A hereto, granting to the Bank a
security interest in the equipment purchased or to be purchased with the
proceeds of the Term Loan, and shall execute such other documents and
instruments as the Bank may reasonably require in order to perfect the Bank's
security interest in such equipment. Also, as a condition precedent to the
Bank's obligation to make the Term Loan, prior to the disbursement of the Term
Loan, the Borrower shall furnish the Bank with all receipts and invoices
related to the purchase of computer equipment and software and the payment of
the related consulting fees associated with such purchase.
3. FEES
3.1 UNUSED COMMITMENT FEE. Subject to the termination of this Agreement
by the Borrower pursuant to the provisions of section 10.13 below, the Borrower
agrees to pay a fee on any difference between the Commitment
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and the amount of credit it actually uses, determined by the weighted average
loan balance maintained during the specified period. The fee will be calculated
at 1/8% per year. This fee is due on January 1, 1999, and on the first day of
each following quarter, until the expiration of the availability period.
3.2 REIMBURSEMENT COSTS. The Borrower agrees to reimburse the Bank for
any reasonable expenses it incurs in the preparation of this Agreement and any
agreement or instrument required by this Agreement. Expenses include, but are
not limited to, reasonable attorneys' fees, including any allocated costs of
the Bank's in-house counsel.
4. DISBURSEMENTS, PAYMENTS AND COSTS
4.1 REQUESTS FOR CREDIT. Each request for an extension of credit will be
made in writing in a manner acceptable to the Bank, or by another means
acceptable to the Bank.
4.2 DISBURSEMENTS AND PAYMENTS. Each disbursement by the Bank and each
payment by the Borrower will be:
(a) made at the Bank's branch (or other location) selected by the Bank
from time to time;
(b) made for the account of the Bank's branch selected by the Bank from
time to time;
(c) made in immediately available funds, or such other type of funds
selected by the Bank;
(d) evidenced by records kept by the Bank. In addition, the Bank may, at
its discretion, require the Borrower to sign one or more promissory
notes.
4.3 TELEPHONE AND TELEFAX AUTHORIZATION.
(a) The Bank may honor telephone or telefax instructions for advances or
repayments or for the designation of optional interest rates given by
any one of the individual signer(s) of this Agreement or a person or
persons authorized in writing by any one of the signer(s) of this
Agreement.
(b) Advances will be deposited in and repayments will be withdrawn from
the Borrower's account number 252-352-661, or such other of the
Borrower's accounts with the Bank as designated in writing by the
Borrower.
(c) The Borrower indemnifies and excuses the Bank (including its officers,
employees, and agents) from all liability, loss, and costs in
connection with any act resulting from telephone or telefax
instructions it reasonably believes are made by any individual
authorized by the Borrower to give such instructions, provided,
however, that this indemnification shall not extend to the gross
negligence or willful misconduct of the Bank. This indemnity and
excuse will survive this Agreement's termination.
4.4 DIRECT DEBIT.
(a) The Borrower agrees that interest and principal payments and any fees
will be deducted automatically on the due date from Borrower's account
number 252-352-661, or such other of the Borrower's accounts with the
Bank as designated in writing by the Borrower (the "Designated
Account").
(b) The Bank will debit the account on the dates the payments become due.
If a due date does not fall on a banking day, the Bank will debit the
account on the first banking day following the due date.
(c) The Borrower will maintain sufficient funds in the account on the
dates the Bank enters debits authorized by this Agreement. If there
are insufficient funds in the account on the date the Bank enters any
debt authorized by this Agreement, the debit will be reversed.
(d) The Borrower may terminate this direct debit arrangement at any time
by sending written notice to the Bank at the address specified at the
end of this Agreement.
4.5 BANKING DAYS. Unless otherwise provided in this Agreement, a banking
day is a day other than a Saturday or a Sunday on which the Bank is open for
business in Arizona. For amounts bearing interest at the
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Offshore Rate or the LIBOR Rate (if any), a banking day is a day other than a
Saturday or a Sunday on which the Bank is open for business in California and
is dealing in offshore dollars. All payments and disbursements which would be
due on a day which is not a banking day will be due on the next banking day.
All payments received on a day which is not a banking day will be applied to
the credit on the next banking day.
4.6 TAXES. The Borrower will not deduct any taxes from any payments it
makes to the Bank. If any government authority imposes any taxes on any
payments made by the Borrower, the Borrower will pay the taxes and will also
pay to the Bank, at the time interest is paid, any additional amount which the
Bank specifies as necessary to preserve the after-tax yield the Bank would have
received if such taxes had not been imposed. Upon request by the Bank, the
Borrower will confirm that it has paid the taxes by giving the Bank official
tax receipts (or notarized copies) within 30 days after the due date. However,
the Borrower will not pay the Bank's net income taxes.
4.7 ADDITIONAL COSTS. The Borrower will pay the Bank, on demand, for the
Bank's reasonable costs or losses arising from any statute or regulation, or
any request or requirement of a regulatory agency. The costs and losses will be
allocated to the credit facilities extended under this Agreement in a manner
determined by the Bank, using any reasonable method. The costs include the
following:
(a) any reserve or deposit requirements; and
(b) any capital requirements relating to the Bank's assets and
commitments for credit.
4.8 INTEREST CALCULATION. Except as otherwise stated in this Agreement,
all interest and fees, if any, will be computed on the basis of a 360 day year
and the actual number of days elapsed. This results in more interest or a
higher fee than if a 365-day year is used.
4.9 INTEREST ON LATE PAYMENTS. At the Bank's sole option in each
instance, any amount not paid when due under this Agreement (including
interest) shall bear interest from the due date at the Reference Rate plus 2.00
percentage points. This may result in compounding of interest.
4.10 DEFAULT RATE. Upon the occurrence and during the continuation of any
default under this Agreement, advances under this Agreement will at the option
of the Bank bear interest at a rate per annum which is 2.00 percentage points
higher than the rate of interest otherwise provided under this Agreement. This
will not constitute a waiver of any default.
5. CONDITIONS The Bank must receive the following items, in form and
content acceptable to the Bank, before it is required to extend any credit to
the Borrower under this Agreement:
5.1 AUTHORIZATIONS. Evidence that the execution, delivery and performance
by the Borrower and any Guarantor of this Agreement and any instrument or
agreement required under this Agreement have been duly authorized.
5.2 GOVERNING DOCUMENTS. A copy of the Borrower and each Guarantor's
articles of incorporation.
5.3 INSURANCE. Evidence of insurance coverage, as required in the
"Covenants" section of this Agreement.
5.4 GUARANTIES. Guaranties signed by CompuRoute, Inc. and SVTR, Inc. on
the Bank's standard form in an amount as may be reasonably acceptable to the
Bank.
5.5 PAYMENT OF FEES. Payment of all accrued and unpaid reasonable
expenses incurred by the Bank as required by the paragraph entitled
"Reimbursement Costs".
6. REPRESENTATIONS AND WARRANTIES When the Borrower signs this
Agreement, and until the Bank is repaid in full, the Borrower makes the
following representations and warranties. Each request for an extension of
credit constitutes a renewed representation.
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6.1 ORGANIZATION OF BORROWER. The Borrower is a corporation duly formed
and existing under the laws of the state where organized.
6.2 AUTHORIZATION. This Agreement, and any instrument or agreement
required hereunder, are within the Borrower's or Guarantor's powers, have been
duly authorized, and do not conflict with any of their respective
organizational papers.
6.3 ENFORCEABLE AGREEMENT. This Agreement, and each other agreement or
document executed and delivered to the Bank in connection with this Agreement,
is a legal, valid and binding agreement of the Borrower, enforceable against
the Borrower in accordance with its terms, and any instrument or agreement
required hereunder, when executed and delivered, will be similarly legal,
valid, binding and enforceable, except as such enforceability may be subject to
or impaired by bankruptcy, insolvency, reorganization, arrangement, moratorium,
fraudulent conveyance, or other similar laws relating to or affecting the
rights of creditors generally.
6.4 GOOD STANDING. In each state in which the Borrower does business, it
is properly licensed, in good standing, and, where required, in compliance with
fictitious name statutes.
6.5 NO CONFLICTS. This Agreement does not conflict with any law, material
agreement, or material obligation by which the Borrower is bound.
6.6 FINANCIAL INFORMATION. All financial and other information that has
been or will be supplied to the Bank is:
(a) sufficiently complete to give the Bank accurate knowledge of the
Borrower's and any Guarantor's financial condition in all material
respects.
(b) in form and content reasonably required by the Bank.
(c) in compliance with all government regulations that apply.
6.7 LAWSUITS. There is no lawsuit, tax claim or other dispute pending or,
to the Borrower's knowledge, threatened against the Borrower, which, if lost,
would materially impair the Borrower's financial condition or ability to repay
the credit facilities extended under this Agreement, except as have been
disclosed in writing to the Bank prior to the date of this Agreement.
6.8 PERMITS, FRANCHISES. The Borrower possesses all permits, memberships,
franchises, contracts and licenses required and all trademark rights, trade
name rights, patent rights and fictitious name rights necessary to enable it to
conduct the business in which it is now engaged and where the failure to do so
would cause a material adverse effect on the financial condition of the
Borrower and its subsidiaries, taken as a whole, or would materially affect the
ability of the Borrower to repay its obligations to the Bank.
6.9 OTHER OBLIGATIONS. The Borrower is not in default on any obligation
for borrowed money (where such default would allow the creditor of Borrower to
accelerate the payment of the obligation or to foreclose on any material
security for such obligations), any purchase money obligation (where such
default would allow the creditor of Borrower to accelerate the payment of the
obligation or to foreclose on any material security for such obligation) or any
other material lease, commitment, contract, instrument or obligation.
6.10 INCOME TAX RETURNS. The Borrower has no knowledge of any material
pending assessments or adjustments of its income tax for any year, except as
have been disclosed in writing to the Bank.
6.11 NO EVENT OF DEFAULT. There is no event which is, or with notice or
lapse of time or both would be, a default under this Agreement.
6.12 ERISA PLANS.
(a) To the Borrower's knowledge, the Borrower has fulfilled its
obligations, if any, under the minimum funding standards of ERISA and
the Code with respect to each Plan and is in compliance in all material
respects with the presently applicable provisions of ERISA and the
Code, and has not incurred any material liability with respect to any
Plan under Title IV of ERISA.
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(b) To the Borrower's knowledge, no reportable event has occurred under Section
4043(b) of ERISA for which the PBGC requires 30 day notice.
(c) To the Borrower's knowledge, no action by the Borrower to terminate or
withdraw from any Plan has been taken and no notice of intent to terminate a
Plan has been filed under Section 4041 of ERISA.
(d) No proceeding has been commenced with respect to a Plan under Section 4042
of ERISA, and, to the Borrower's knowledge, no event has occurred or
condition exists which might constitute grounds for the commencement of such
a proceeding.
(e) The following terms have the meanings indicated for purposes of this
Agreement:
(i) "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
(ii) "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"PBGC" means the Pension Benefit Guaranty Corporation established pursuant to
Subtitle A of Title IV of ERISA.
(iv) "Plan" means any employee pension benefit plan maintained or
contributed to by the Borrower and insured by the Pension Benefit
Guaranty Corporation under Title IV of ERISA.
6.13 LOCATION OF BORROWER. The Borrower's place of business (or, if the
Borrower has more than one place of business, its chief executive office) is
located at the address listed under the Borrower's signature on this Agreement.
6.14 REPRESENTATIONS CONCERNING THE YEAR 2000. The Borrower is in the process
of performing a comprehensive review of its Year 2000 issues and has completed
its review of internal systems (information technology ("IT") and non-IT). The
majority of the Borrower's application software programs are currently being
replaced with Oracle applications which are Year 2000 compliant. The Borrower
estimates the status of progress on these internal systems as follows: (a) 50%
for IT systems, and (b) 50% for non-IT systems. The Borrower presently believes
that with modifications and updates to existing software and the implementation
of the Oracle applications, the Year 2000 problem will not pose significant
operational problems for the Borrower's internal systems. The Borrower also
believes that remediation costs to become Year 2000 compliant, excluding the
costs associated with the replacement Oracle applications, are not material. The
Borrower is also continuing to verify the Year 2000 readiness of third parties
(vendors and customers) with whom the Borrower has material relationships. The
Borrower is not able to determine the effect on the Borrower's rules of
operations, liquidity, and financial condition in the event the Borrower's
material vendors and customers are not Year 2000 compliant. The Borrower will
continue to monitor the progress of its material vendors and customers and
formulate a contingency plan at that point in time when the Borrower believes a
material vendor or customer will not be compliant.
7. COVENANTS The Borrower agrees, so long as credit is available under
this Agreement and until the Bank is repaid in full:
7.1 USE OF PROCEEDS. To use the proceeds of the credit only for working
capital and general corporate purposes, including capital expenditures and
acquisitions.
7.2 FINANCIAL INFORMATION. To provide the following financial
information and statements and such additional information as reasonably
requested by the Bank from time to time:
(a) Within 90 days of the Borrower's fiscal year end, the Borrower's
annual financial statements, including a compliance certificate. These
financial statements must be audited (with an unqualified opinion) by
a Certified Public Accountant ("CPA") acceptable to the Bank. The
statements shall be prepared on a consolidated basis.
(b) Copies of the Borrower's Form 10-K Annual Report within 90 days of
fiscal year end.
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(c) Copies of the Borrower's Form 10-Q Quarterly Report within 45 days of
quarter end.
(d) Within 45 days of the end of each fiscal year and within 30 days after the
end of each of the first three fiscal quarters, a Quarterly Compliance
Certificate, in form and content reasonably satisfactory to the Bank, (i)
certifying that during such quarter and as of the end of such quarter, no
defaults exist or existed under this Agreement, or if such defaults exist
or existed, specifying such defaults, and (ii) certifying the value of the
ratios described in sections 7.3, 7.4, and 7.5 of this Agreement and showing
the calculation of such ratios as of the end of such fiscal quarter, in such
detail as the Bank may request.
7.3 QUICK RATIO. To maintain on a consolidated basis a ratio of quick assets to
current liabilities of at least 1.25:1.00, measured quarterly (outstandings
under the revolving line of credit to be including as current liabilities).
"Quick assets" means cash, short-term cash investments, net trade receivables
and marketable securities.
7.4 TOTAL LIABILITIES TO TANGIBLE NET WORTH RATIO. To maintain on a consolidated
basis a ratio of Total Liabilities to Tangible Net Worth not exceeding
1.00:1.00, measured quarterly.
"Total Liabilities" means the sum of current liabilities plus long term
liabilities (including, without limitation, liabilities of the type described
in section 7.7(f).
"Tangible net worth" means the gross book value of the Borrower's assets
(excluding goodwill, patents, trademarks, trade names, organization expense,
treasury stock, unamortized debt discount and expense, deferred research and
development costs, deferred marketing expenses, and other like intangibles and
monies due from affiliates, officers, directors or shareholders of the
Borrower) less total liabilities, including but not limited to accrued and
deferred income taxes, and any reserves against assets.
7.5 DEBT COVERAGE RATIO. To maintain on a consolidated basis a debt coverage
ratio of at least 2.00:1.00, measured quarterly.
"Debt Coverage ratio" means the ratio of cash flow to total interest expense
and the current portion of long term debt. "Cash flow" is defined as net income
from operations and investments, after taxes, plus total interest expense,
depreciation, amortization, any non-recurring charges which are write-offs of
any research and development assets purchased as a part of a business
acquisition, and other non-cash charges.
This ratio will be calculated at the end of each fiscal quarter, using the
results of that quarter and each of the 3 immediately preceding quarters. The
current portion of long term debt will be measured as of the last day of the
preceding fiscal year.
7.6 NET LOSSES. Borrower is not to incur a net loss (on a consolidated basis) in
any two consecutive quarters or on a fiscal year end basis (excluding any
non-recurring charges which are write-offs of any research and development
assets purchased as a part of a business acquisition, and excluding the losses
for the fiscal year 1998, in the approximate amount of $4,593,000, attributable
to the discontinued operations of SVTR).
7.7 OTHER DEBTS. Not to have outstanding or incur, or permit any of its
consolidated subsidiaries to have outstanding or incur, any direct or
contingent debts or lease obligations (other than those to the Bank), or become
liable for the debts of others without the Bank's written consent. This does
not prohibit:
(a) Acquiring goods, supplies, or merchandise on normal trade credit.
(b) Endorsing negotiable instruments received in the usual course of business.
(c) Obtaining surety bonds in the usual course of business.
(d) Debts, guarantees, and lines of credit and leases in existence on the date
of this Agreement disclosed in writing to the Bank, including, without
limitation, those described in Exhibit B, and any refinancings or refundings
thereof.
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(e) Additional debts secured in full by purchase money security interests or
arising pursuant to capital leases or secured by real property, to the
extent permitted by section 7.8 below.
(f) Additional unsecured debts, including contingent obligations, of the
Borrower which arise from acquisitions of other business permitted under
this Agreement, to the extent that the aggregate of the Borrower's and its
consolidated subsidiaries' unsecured debt (including contingent
obligations) does not exceed Three Million and no/100 Dollars
($3,000,000.00) outstanding at any one time.
(g) Prepaid expenses accrued in the ordinary course of business.
(h) Direct or contingent debts or lease obligations consented to by the Bank in
writing, in the Bank's sole discretion.
(i) Indebtedness or obligations to any of the wholly-owned domestic
subsidiaries of the Borrower.
(j) Guaranties of any of the obligations which are permitted by this Section
7.7.
7.8 OTHER LIENS. Not to create, assume, or allow, and not to permit any of its
consolidated or other wholly-owned subsidiaries to create, assume, or allow,
any security interest or lien (including, without limitation, liens on any
accounts receivable or inventory and any judicial liens) on property the
Borrower or any of its consolidated and other wholly-owned subsidiaries now or
later owns, except, on a consolidated basis for the Borrower and its
consolidated subsidiaries:
(a) Deeds of trust and security agreements in favor of the Bank.
(b) Liens for taxes, assessments, or governmental charges and levies not yet due
(as to which the period of grace, if any, related thereto has not yet
expired) or which are being contested in good faith.
(c) Liens outstanding on the date of this Agreement disclosed in writing to the
Bank, including, without limitation, those described on Exhibit C.
(d) Additional liens which are purchase money security interests or liens
arising pursuant to capital lease obligations or which are liens on real
property and lease obligations, to the extent that the aggregate of the
Borrower's and its consolidated subsidiaries' secured debt does not exceed
Eight Million and no/100 Dollars ($8,000,000.00).
(e) Liens of materialmen, mechanics, carriers, warehousemen, processors, or
landlords for labor, materials, supplies, or rentals incurred in the
ordinary course of business.
(f) Liens consisting of deposits or pledges made in the ordinary course of
business in connection with, or to secure payment of, obligations under
workers compensation, unemployment insurance, or similar legislation and
utility deposits.
(g) Liens securing the performance of bids, tenders, statutory obligations,
surety and appeal bonds, and other obligations of like nature, incurred in
the ordinary course of business.
(h) Liens constituting encumbrances in the nature of zoning restrictions,
easements, and rights of restriction of record on the use of real
property, which in the aggregate do not materially detract from the value
of such property.
(i) Liens consented to by the Bank in writing, in the Bank's sole discretion.
7.9 DIVIDENDS. Not to declare or pay any dividends or distributions on any of
its shares except dividends payable in capital stock of the Borrower, and not
to purchase, redeem or otherwise acquire for value any of its shares, or create
any sinking fund in relation thereto; provided, however, that the foregoing
shall not restrict the ability of the Borrower to purchase, redeem, or
otherwise acquire for value its shares of stock in connection with (1) the
warrant to purchase 39,275 shares of common stock issued to Swartz Investments,
Inc., (2) any resolution of the case styled Cerprobe Corporation v. William E.
Mayer and Carol Mayer, C. 98-4034, filed in the United States
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District Court in and for the Northern District of California, to the extent
that such resolution does not require the Borrower to purchase, redeem, or
otherwise acquire more than 150,000 shares of the Borrower's capital stock, (3)
any employee stock purchase plan, employee stock option plan, or 401(k) plan, or
(4) an effort to avoid dilution of the stock of the Borrower as the result of
any stock option plan, as long as, after giving effect to such purchase,
redemption, or other acquisition for value, the Borrower remains in compliance
with the financial covenants set forth in this Agreement.
7.10 NOTICES TO BANK. To promptly notify the Bank in writing of:
(a) any lawsuit over Five Hundred Thousand and no/100 Dollars ($500,000.00)
against the Borrower not adequately covered by insurance;
(b) any substantial dispute between the Borrower or any Guarantor and any
government authority;
(c) any failure to comply with this Agreement;
(d) any material adverse change in the Borrower's or any Guarantor's
financial condition or operations taken as a whole;
(e) any change in the Borrower's name, legal structure, place of business, or
chief executive office if the Borrower has more than one place of
business;
(f) any investment made, after the date hereof, in any subsidiaries,
affiliates, or joint ventures, within 15 days of the date of such
investment;
(g) any acquisition of any business (or a substantial portion thereof),
whether by purchase of assets or acquisition of stock or otherwise,
within 15 days of the date of such acquisition;
(h) any termination of the business of any Guarantor, other than SVTR.
7.11 BOOKS AND RECORDS. To maintain adequate books and records.
7.12 AUDITS. Upon reasonable prior notice, to allow the Bank and its agents to
inspect the Borrower's properties and examine, audit, and make copies of books
and records at any reasonable time during normal business hours. If any of the
Borrower's properties, books or records are in the possession of a third party,
the Borrower authorizes that third party to permit the Bank or its agents to
have access to perform inspections or audits and to respond to the Bank's
requests for information concerning such properties, books and records.
7.13 COMPLIANCE WITH LAWS. To comply with all material requirements and to
comply with the laws, (including any fictitious name statute), regulations, and
orders of any government body with authority over the Borrower's business.
7.14 PRESERVATION OF RIGHTS. To maintain and preserve all rights, privileges,
and franchises the Borrower now has, the loss of which would have a material
adverse effect upon the Borrower and its subsidiaries taken as a whole.
7.15 MAINTENANCE OF PROPERTIES. To make any repairs, renewals, or replacements
reasonably necessary to keep the Borrower's properties in good working
condition, consistent with past practices of the Borrower.
7.16 COOPERATION. To take any action reasonably requested by the Bank to carry
out the intent of this Agreement.
7.17 INSURANCE. To maintain insurance as is usual for the business it is in.
7.18 ADDITIONAL NEGATIVE COVENANTS. Not to, without the Bank's written
consent:
(a) engage in any business activities substantially different from the
Borrower's present business.
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(b) liquidate or dissolve the Borrower's business.
(c) enter into any consolidation or merger or other combination, unless both
(i) the Borrower is the surviving entity and (ii) no other default under
this Agreement would result therefrom.
(d) lease or dispose of all or a substantial part of the Borrower's business or
the Borrower's assets, except in the ordinary course of business.
(e) acquire or purchase a business or substantially all of its assets whether
by acquisition or merger, unless (i) the entity being acquired is in a
similar or related business or industry; (ii) the acquisition is not
considered hostile; (iii) no event of default exists prior to or as a
result of the acquisition, and (iv) within 30 days after such acquisition,
the Borrower provides the Bank such financial information as the Bank may
reasonably request regarding the proposed acquisition.
(f) sell or otherwise dispose of any assets for less than fair market value or
enter into any sale and leaseback agreement covering any of its fixed or
capital assets, except for the proposed sale and leaseback agreement
related to (i) Borrower's Dallas, Texas, facility, or (ii) the Borrower's
headquarters located in Gilbert, Arizona.
7.19 ERISA PLANS. To give prompt written notice to the Bank of:
(a) The occurrence of any reportable event under Section 4043(b) of ERISA for
which the PBGC requires 30 day notice.
(b) Any action by the Borrower to terminate or withdraw from a Plan or the
filing of any notice of intent to terminate under Section 4041 of ERISA.
(c) Any notice of noncompliance made with respect to a Plan under Section
4041(b) of ERISA.
(d) The commencement of any proceeding with respect to a Plan under Section
4042 of ERISA.
7.20 DEPOSITS. The Borrower shall maintain investments and cash deposits at the
Bank or at an affiliate of the Bank in an amount equal to or exceeding the
outstanding principal balance of the Term Loan; provided, however, that the Bank
or such affiliate of the Bank, as applicable, shall pay the Borrower a
reasonable amount of interest with respect to such investments and cash
deposits.
7.21 INVESTMENTS IN SUBSIDIARIES. The aggregate investments of the Borrower made
after the date hereof in entities which are subsidiaries, affiliates, or joint
ventures, but which are not Guarantors, shall not at any time exceed
$10,000,000.
7.22 OUT OF DEBT PERIOD. During each period of 12 consecutive calendar months,
the aggregate outstanding principal amount of the line of credit described in
Article 1 of this Agreement shall be $0.00 for each of 30 consecutive days in
such period of 12 calendar months.
8. HAZARDOUS WASTE The Borrower will indemnify and hold harmless the Bank from
any loss or liability directly or indirectly arising out of the use, generation,
manufacture, production, storage, release, threatened release, discharge,
disposal or presence of a hazardous substance. This indemnity will apply whether
the hazardous substance is on, under or about the Borrower's property or
operations or property leased to the Borrower. The indemnity includes but is not
limited to reasonable attorney's fees (including the reasonable estimate of the
allocated cost of in-house counsel and staff). The indemnity extends to the
Bank, its parent, subsidiaries and all of their directors, officers, employees,
agents, successors, attorneys and assigns. For these purposes, the term
"hazardous substances" means any substance which is or becomes designated as
"hazardous" or "toxic" under any federal, state or local law. This indemnity
will survive repayment of the Borrower's obligations to the Bank.
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9. DEFAULT If any of the following events occur, the Bank may do one or
more of the following: declare the Borrower in default, stop making any
additional credit available to the Borrower, and require the Borrower to repay
its entire debt immediately and without prior notice. If an event of default
occurs under the paragraph entitled "Bankruptcy" below with respect to the
Borrower, the entire debt outstanding under this Agreement will automatically be
due immediately.
9.1 FAILURE TO PAY. The Borrower fails to make any payment of principal
or interest due under this Agreement within two (2) days of the date when due;
or the Borrower fails to make any other payment under this Agreement within
five (5) days of the date when due.
9.2 FALSE INFORMATION. The Borrower or any Guarantor has given the Bank
information or representations that are false or misleading in any material
respects.
9.3 BANKRUPTCY. The Borrower or any Guarantor files a bankruptcy
petition, a bankruptcy petition is filed against the Borrower or any Guarantor,
or the Borrower or any Guarantor makes a general assignment for the benefit of
creditors and, in the case of an involuntary bankruptcy, such filing is not
dismissed within 60 days of such filing.
9.4 RECEIVERS. A receiver or similar official is appointed for the
Borrower's or any Guarantor's business, or the business of the Borrower is
terminated.
9.5 LAWSUITS. Any lawsuit or lawsuits are filed on behalf of one or more
trade creditors against the Borrower in an aggregate amount of Five Hundred
Thousand and no/100 Dollars ($500,000.00) or more in excess of any insurance
coverage.
9.6 JUDGMENTS. Any judgments or arbitration awards are entered against
the Borrower or any Guarantor, or the Borrower or any Guarantor enters into any
settlement agreements with respect to any litigation or arbitration, in an
aggregate amount of Five Hundred Thousand and no/100 Dollars ($500,000.00) or
more in excess of any insurance coverage, and any such judgment or award shall
continue undischarged, unstayed, or unbonded for a period of 60 days.
9.7 GOVERNMENT ACTION. Any government authority takes action that the
Bank believes materially adversely affects the Borrower's and the Guarantors',
taken as a whole, financial condition or ability to repay its obligations to
the Bank under this Agreement or any guarantee of obligations under this
Agreement.
9.8 MATERIAL ADVERSE CHANGE. A material adverse change occurs in the
Borrower's and the Guarantors', taken as a whole, financial condition,
properties or prospects, or ability to repay the extensions of credit under
this Agreement.
9.9 CROSS-DEFAULT. Any default occurs under any agreement in connection
with any credit the Borrower or any Guarantor has obtained from anyone else or
which the Borrower or any Guarantor has guaranteed, and such creditor has the
right to accelerate such credit or to foreclose on any material collateral
therefor.
9.10 DEFAULT UNDER RELATED DOCUMENTS. Any guaranty or other document
required by this Agreement is violated or no longer in effect, as the result of
any action by any party other than the Bank.
9.11 OTHER BANK AGREEMENTS. The Borrower or any Guarantor fails to meet
the conditions of, or fails to perform any material obligation under any other
material agreement the Borrower or Guarantor has with the Bank or any affiliate
of the Bank.
9.12 ERISA PLANS. The occurrence of any one or more of the following
events with respect to the Borrower, provided such event or events could
reasonably be expected, in the reasonable judgment of the Bank, to subject the
Borrower to any tax, penalty or liability (or any combination of the foregoing)
which, in the aggregate, could have a material adverse effect on the financial
condition of the Borrower and its subsidiaries, taken as a whole, with respect
to a Plan:
(a) A reportable event shall occur with respect to a Plan which is, in the
reasonable judgment of the Bank, likely to result in the termination of
such Plan for purposes of Title IV or ERISA.
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(b) Any Plan termination (or commencement of proceedings to terminate a Plan)
or the Borrower's full or partial withdrawal from a Plan.
9.13 OTHER BREACH UNDER AGREEMENT. The Borrower fails to meet the
conditions of, or fails to perform any obligation under, any term of this
Agreement not specifically referred to in this Article, and, if such failure is
susceptible of being cured, such failure is not cured within 30 days of the
earlier of (a) the earliest date on which the Borrower knew or reasonably
should have known of such failure, and (b) the date on which the Bank notifies
the Borrower of such failure.
10. ENFORCING THIS AGREEMENT; MISCELLANEOUS
10.1 GAAP. Except as otherwise stated in this Agreement, all financial
information provided to the Bank and all financial covenants will be made under
generally accepted accounting principles, consistently applied.
10.2 ARIZONA LAW. This Agreement is governed by Arizona law.
10.3 SUCCESSORS AND ASSIGNS. This Agreement is binding on the Borrower's
and the Bank's successors and assignees. The Borrower agrees that it may not
assign this Agreement without the Bank's prior consent. The Bank may sell
participations in or assign this loan, and may exchange financial information
about the Borrower with actual or potential participants or assignees. If a
participation is sold or the loan is assigned, the purchaser will have the
right of set-off against the Borrower.
10.4 ARBITRATION.
(a) This section concerns the resolution of any controversies or claims
between the Borrower and the Bank, including but not limited to those
that arise from:
(i) This Agreement (including any renewals, extensions or
modifications of this Agreement);
(ii) Any document, agreement or procedure related to or
delivered in connection with this Agreement;
(iii) Any violation of this Agreement; or
(iv) Any claims for damages resulting from any business conducted
between the Borrower and the Bank, including claims for
injury to persons, property or business interests (torts).
(b) At the request of the Borrower or the Bank, any such controversies or
claims will be settled by arbitration in accordance with the United
States Arbitration Act. The United States Arbitration Act will apply
even though this Agreement provides that it is governed by Arizona
law.
(c) Arbitration proceedings will be administered by the American
Arbitration Association and will be subject to its commercial rules of
arbitration.
(d) For purposes of the application of the statute of limitations, the
filing of an arbitration pursuant to this section is the equivalent of
the filing of a lawsuit, and any claim or controversy which may be
arbitrated under this section is subject to any applicable statute of
limitations. The arbitrators will have the authority to decide whether
any such claim or controversy is barred by the statute of limitations
and, if so, to dismiss the arbitration on that basis.
(e) If there is a dispute as to whether an issue is arbitrable, the
arbitrators will have the authority to resolve any such dispute.
(f) The decision that results from an arbitration proceeding may be
submitted to any authorized court of law to be confirmed and enforced.
(g) This provision does not limit the right of the Borrower or the Bank
to:
(i) exercise self-help remedies such as setoff;
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(ii) foreclose against or sell any real or personal property
collateral; or
(iii) act in a court of law, before, during or after the
arbitration proceeding to obtain:
(A) an interim remedy; and/or
(B) additional or supplementary remedies.
(h) The pursuit of or a successful action for interim, additional or
supplementary remedies, or the filing of a court action, does not
constitute a waiver of the right of the Borrower or the Bank,
including the suing party to submit the controversy or claim to
arbitration if the other party contests the lawsuit.
(i) If the Bank forecloses against any real property securing this
Agreement, the Bank has the option to exercise the power of sale under
the deed of trust or mortgage, or to proceed by judicial foreclosure.
10.5 SEVERABILITY; WAIVERS. If any part of this Agreement is not
enforceable, the rest of the Agreement may be enforced. The Bank retains all
rights, even if it makes a loan after default. If the Bank waives a default, it
may enforce a later default. Any consent or waiver under this Agreement must be
in writing.
10.6 ATTORNEYS' FEES. The Borrower shall reimburse the Bank for any
reasonable costs and reasonable attorneys' fees incurred by the Bank in
connection with the enforcement or preservation of any rights or remedies under
this Agreement and any other documents executed in connection with this
Agreement, and including any amendment, waiver, "workout" or restructuring
under this Agreement. In the event of a lawsuit or arbitration proceeding, the
prevailing party is entitled to recover reasonable costs and reasonable
attorneys' fees incurred in connection with the lawsuit or arbitration
proceeding, as determined by the court or arbitrator. As used in this section,
"attorneys' fees" includes the allocated costs of in-house counsel.
10.7 ONE AGREEMENT. This Agreement and any related security or other
agreements required by this Agreement, collectively:
(a) represent the sum of the understandings and agreements between the
Bank and the Borrower concerning this credit; and
(b) replace any prior oral or written agreements between the Bank and the
Borrower concerning this credit; and
(c) are intended by the Bank and the Borrower as the final, complete and
exclusive statement of the terms agreed to by them.
In the event of any conflict between this Agreement and any other agreements
required by this Agreement, this Agreement will prevail.
10.8 EXCHANGE OF INFORMATION. The Borrower agrees that the Bank may
exchange financial information about the Borrower with BankAmerica Corporation
affiliates and other related entities.
10.9 USURY LAWS. This section covers the transactions described in this
Agreement and any other agreements with the Bank or its affiliates executed in
connection with this Agreement, to the extent they are subject to the Arizona
usury laws (the "Transactions"). The Borrower understands and believes that the
Transactions comply with the Arizona usury laws. However, if any interest or
other charges paid or payable in connection with the Transactions are ever
determined to exceed the maximum amount permitted by law, the Borrower agrees
that:
(a) the amount of interest or other charges payable by the Borrower
pursuant to the Transactions shall be reduced to the maximum amount
permitted by law; and
(b) any excess amount previously collected from the Borrower in connection
with the Transactions which exceeded the maximum amount permitted by
law will be credited against the then outstanding principal balance.
If the outstanding principal balance has been repaid in full, the
excess amount paid will be refunded to the Borrower.
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All fees, charges, goods, things in action or any other sums or things of value,
other than interest at the interest rate described in this Agreement, paid or
payable by the Borrower (collectively the "Additional Sums"), that may be deemed
to be interest with respect to the Transactions, shall, for the purpose of any
laws of the State of Arizona that may limit the maximum amount of interest to be
charged with respect to the Transactions, be payable by Borrower as, and shall
be deemed to be, additional interest. For such purposes only, the agreed upon
and "contracted for rate of interest" of the Transactions shall be deemed to be
increased by the rate of interest resulting from the Additional Sums.
10.10 NOTICES. All notices required under this Agreement shall be personally
delivered or sent by first class mail, postage prepaid, to the addresses on the
signature page of this Agreement, or to such other addresses as the Bank and the
Borrower may specify from time to time in writing.
10.11 HEADINGS. Article and section headings are for reference only and
shall not affect the interpretation or meaning of any provisions of this
Agreement.
10.12 COUNTERPARTS. This Agreement may be executed in as many counterparts
as necessary or convenient, and by the different parties on separate
counterparts each of which, when so executed, shall be deemed an original but
all such counterparts shall constitute but one and the same agreement.
10.13 TERMINATION. Notwithstanding any provision of this Agreement, this
Agreement may be terminated by the Borrower provided that the Borrower pays all
principal, interest, and other sums and fees then outstanding under this
Agreement.
This Agreement is executed as of the date stated at the top of the first page.
BANK OF AMERICA NATIONAL TRUST AND CERPROBE CORPORATION
SAVINGS ASSOCIATION
/s/Kathleen Sowa /s/Randal L. Buness
- -------------------- ------------------------
Name: RANDAL L. BUNESS
Title: VICE PRESIDENT & CFO
By: Kathleen Sowa, Vice President
------------------------
Name:
Title:
Address where notices to the Bank Address where notices to the
are to be sent: Borrower are to be sent:
Phoenix Commercial & Industrial, #8211 1150 North Fiesta Blvd.
101 North First Avenue Gilbert, Arizona 85233-2237
Phoenix, Arizona 85003
with a copy to:
O'Connor Cavanagh
One East Camelback Road, Suite 1100
Phoenix, Arizona 85012
Attention: Karl A. Freeburg, Esq.
Facsimile No.: (602) 263-2900
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EXHIBIT A
[BANK OF AMERICA LOGO]
SECURITY AGREEMENT (EQUIPMENT)
- -------------------------------------------------------------------------------
THIS SECURITY AGREEMENT (this "Agreement") is entered into as of December
, 1998, between CERPROBE CORPORATION (the "Borrower") and BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION (the "Bank").
1. THE SECURITY. The Borrower hereby assigns and grants to the Bank a
security interest in the following described property ("Collateral"):
A. All of the machinery, furniture, fixtures and other equipment of
every type which is purchased or financed with, or for the purchase of
which the Borrower is reimbursed for with, the proceeds of the Term Loan
as defined in the Business Loan Agreement, dated as of December , 1998,
between the Borrower and the Bank, as amended from time to time (the "Loan
Agreement"), including, without limitation, the equipment and other
property listed on Exhibit A attached hereto and incorporated herein,
together with any and all replacements thereof and substitutions therefor.
B . All documents now owned or hereafter acquired by Borrower covering any
of the above-described property.
C. All rights under contracts of insurance now owned or hereafter acquired by
Borrower covering any of the above-described property.
D. All proceeds, product, rents and profits now owned or hereafter acquired
by Borrower of any of the above-described property.
2. THE INDEBTEDNESS. The Collateral secures and will secure all Indebtedness
of Borrower to Bank. For the purpose of this Agreement, "Indebtedness" means
all of the Borrower's obligations under the Loan Agreement with respect to the
Term Loan (as such term is defined in the Loan Agreement).
3. BORROWER'S COVENANTS. Borrower covenants and warrants that unless
compliance is waived by Bank in writing:
A. Borrower will properly preserve the Collateral; defend the Collateral
against any adverse claims and demands; and keep accurate books and
records relating to the Collateral (the "Books and Records"), time during
normal business hours for the purpose of examination and for the purpose
of making copies of any portion thereof.)
B. Borrower has notified Bank in writing of, and will notify Bank in writing
prior to any change in, the locations of (i) Borrower's place of business
or Borrower's chief executive office if Borrower has more than one place
of business, and (ii) any Collateral, including the Books and Records.
C. Borrower will notify Bank in writing prior to any change in Borrower's
name, identity or organizational documents.
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<PAGE> 21
D. Borrower will maintain and keep in force insurance covering Collateral
designated by Bank against fire and extended coverages. Such insurance
shall require losses to be paid on a replacement cost basis, be issued by
insurance companies reasonably acceptable to Bank and include a loss
payable endorsement in favor of Bank in a form acceptable to Bank.
E. Borrower has not granted and will not grant any security interest in any of
the Collateral except to Bank, and will keep the Collateral free of all
liens, claims, security interests and encumbrances of any kind or nature
except the security interest of Bank and other liens permitted by
Section 7.8 of the Loan Agreement.
F. Borrower will not sell, lease, agree to sell or lease, or otherwise dispose
of any Collateral or remove any Collateral from Borrower's place of
business except with the prior written consent of Bank, except for any
obsolete equipment having a value of less than $5,000.00 disposed of or
sold in the ordinary course of Borrower's business.
G. Borrower will promptly notify Bank in writing of any event which materially
affects the value of any Collateral, the ability of Borrower or Bank to
dispose of any Collateral, or the rights and remedies of Bank in relation
thereto, including, but not limited to, the levy of any legal process
against any Collateral.
H. If any Collateral is or becomes the subject of any registration certificate
or negotiable document of title, including any warehouse receipt or bill of
lading, Borrower shall immediately deliver such document to Bank.
I. Borrower will not attach any Collateral to any real property or fixture in
a manner which might cause such Collateral to become a part thereof unless
Borrower first obtains the written consent of any owner, holder of any lien
on the real property or fixture, or other person having an interest in such
property to the removal by Bank of the Collateral from such real property
or fixture. Such written consent shall be in form and substance acceptable
to Bank and shall provide that Bank has no liability to such owner, holder
of any lien, or any other person.
4. ADDITIONAL OPTIONAL REQUIREMENTS. Borrower agrees that Bank may at its
option at any time, whether or not Borrower is in default:
A. Require Borrower to deliver to Bank (i) copies of or extracts from the
Books and Records, and (ii) information on any contracts or other matters
affecting the Collateral.
B. Examine the Collateral, including the Books and Records, and make copies of
or extracts from the Books and Records, and for such purposes enter at any
reasonable time upon the property where any Collateral or any Books and
Records are located in accordance with Section 3A. above.
C. Notify any person of Bank's interest in the Collateral to the extent
necessary to continue the perfection or priority of the security interest
of Bank in the Collateral.
D. After a default under this Agreement or the Loan Agreement, demand and
collect any proceeds of the Collateral. In connection therewith Borrower
irrevocably authorizes Bank to endorse or sign Borrower's name on all
checks, drafts, collections, receipts and other documents, and to take
possession of and open the mail addressed to Borrower and remove therefrom
any proceeds of the Collateral.
5. DEFAULTS. Any one or more of the following shall be a default hereunder:
A. Borrower fails to make any payment of principal or interest due under the
Loan Agreement within two
A-2
<PAGE> 22
(2) days of the date when due; or the Borrower fails to make any other
payment of Indebtedness within five (5) days of the date when due.
B. Borrower breaches any term, provision, material warranty or material
representation under this Agreement not specifically referred to in this
Section 5, and, if such breach is susceptible of being cured, such breach
is not cured within thirty (30) days of the earlier of (i) the earliest
date on which the Borrower knew or reasonably should have known of such
breach, and (ii) the date on which the Borrower notifies the Bank of such
breach; or Borrower breaches any term, provision, material warranty, or
material representation under any other obligation of Borrower to Bank,
and such breach is not cured within any applicable cure period.
C. Any custodian, receiver or trustee is appointed to take possession,
custody or control of all or a substantial portion of the property of
Borrower or of any guarantor of any Indebtedness.
D. Borrower or any guarantor of any Indebtedness becomes insolvent, or is
generally not paying or admits in writing its inability to pay its debts
as they become due, fails in business, makes a general assignment for the
benefit of creditors, dies or commences any case, proceeding or other
action under any bankruptcy or other law for the relief of, or relating
to, debtors and, in the case of the commencement of an involuntary
bankruptcy proceeding, such proceeding is not dismissed within 60 days of
the filing thereof.
E. Any case, proceeding or other action is commenced against Borrower or any
guarantor of any Indebtedness under any bankruptcy or other law for the
relief of, or relating to, debtors and, in the case of the commencement of
an involuntary bankruptcy proceeding, such proceeding is not dismissed
within 60 days of the filing thereof.
F. Any involuntary lien of any kind or character attaches to any material
portion of the Collateral.
G. Any financial statements, certificates, schedules, or other information
now or hereafter furnished by Borrower to Bank proves false or incorrect
in any material respect.
6. BANK'S REMEDIES AFTER DEFAULT. In the event of any default Bank may do
any one or more of the following:
A. Declare any Indebtedness immediately due and payable, without notice or
demand.
B. Enforce the security interest given hereunder pursuant to the Arizona
Uniform Commercial Code and any other applicable law.
C. Require Borrower to assemble the Collateral, including the Books and
Records, and make them available to Bank at a place designated by Bank.
D. Enter upon the property where any Collateral, including any Books and
Records, are located and take possession of such Collateral and such Books
and Records, and use such Collateral and such Books and Records relating
thereto, if Bank deems such use necessary or advisable in order to take
possession of, hold, preserve, process, assemble, prepare for sale or
lease, market for sale or lease, sell or lease, or otherwise dispose of,
any Collateral.
E. Grant extensions and compromise or settle claims for less than face value
relating to any proceeds of the Collateral, all without prior notice to
Borrower.
F. Use or transfer any of Borrower's rights and interests in any Intellectual
Property now owned or hereafter acquired by Borrower, if Bank deems such
use or transfer necessary or advisable in order to
A-3
<PAGE> 23
take possession of, hold, preserve, process, assemble, prepare for sale or
lease, market for sale or lease, sell or lease, or otherwise dispose of,
any Collateral. Borrower agrees that any such use or transfer shall be
without any additional consideration to Borrower. As used in this
paragraph, "Intellectual Property" includes, but is not limited to, all
trade secrets, computer software, service marks, trademarks, trade names,
trade styles, copyrights, patents, applications for any of the foregoing,
customer lists, working drawings, instructional manuals, and rights in
processes for technical manufacturing, packaging and labeling, in which
Borrower has any right or interest, whether by ownership, license, contract
or otherwise.
G. Have a receiver appointed by any court of competent jurisdiction to take
possession of the Collateral.
H. Take such measures as Bank may deem necessary or advisable to take
possession of, hold, preserve, process, assemble, insure, prepare for sale
or lease, market for sale or lease, sell or lease, or otherwise dispose of,
any Collateral, and Borrower hereby irrevocably constitutes and appoints
Bank as Borrower's attorney-in-fact to perform all acts and execute all
documents in connection therewith.
7. MISCELLANEOUS
A. Any waiver, express or implied, of any provision hereunder and any delay or
failure by Bank to enforce any provision shall not preclude Bank from
enforcing any such provision thereafter.
B. Borrower shall, at the reasonable request of Bank, execute such other
agreements, documents, instruments or financing statements in connection
with this Agreement as Bank may reasonably deem necessary. A carbon,
photostat or other reproduction of this Agreement or any financing
statement is sufficient as a financing statement.
C. All notes, security agreements, subordination agreements and other
documents executed by Borrower or furnished to Bank in connection with this
Agreement must be in form and substance reasonably satisfactory to Bank.
D. This Agreement shall be governed by and construed according to the laws of
the State of Arizona, to the jurisdiction of which the parties hereto
submit.
E. All rights and remedies herein provided are cumulative and not exclusive of
any rights or remedies otherwise provided by law. Any single or partial
exercise of any right or remedy shall not preclude the further exercise
thereof or the exercise of any other right or remedy.
F. All terms not defined herein are used as set forth in the Arizona Uniform
Commercial Code.
G. In the event of any action by Bank to enforce this Agreement or to protect
the security interest of Bank in the Collateral, or to preserve, process,
assemble, insure, prepare for sale of lease, market for sale or lease, sell
or lease, or otherwise dispose of, any Collateral, Borrower agrees to pay
immediately all reasonable costs and expenses thereof, together with
reasonable attorney's fees and allocated costs for in-house legal services.
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
_________________________________
Kathleen P. Sowa, Vice President
A-4
<PAGE> 24
CERPROBE CORPORATION
____________________________
Name:
Title:
A-5
<PAGE> 25
[BANK OF AMERICA LOGO] PAYMENT GUARANTY
Borrower: Cerprobe Corporation
Guarantor: CompuRoute, Inc.
- -------------------------------------------------------------------------------
(1) For valuable consideration, the undersigned ("Guarantor") unconditionally
guarantees and promises to pay to Bank of America National Trust and
Savings Association ("Bank"), or order, on demand, in lawful money of the
United States, any and all indebtedness of Cerprobe Corporation, a
Delaware corporation ("Borrower") to Bank. The word "indebtedness" is
used herein in its most comprehensive sense and includes any and all
advances, debts, obligations and liabilities of Borrower, heretofore,
now, or hereafter made, incurred or created, whether voluntary or
involuntary arising pursuant to the Business Loan Agreement of
December__, 1998, executed by Borrower and Bank, or any document executed
in connection therewith, as such loan agreement and other documents may
be amended, modified, extended, or renewed from time to time (said loan
agreement, together with such other documents, as amended, modified,
extended, or renewed from time to time are collectively referred to
herein as the "Loan Documents"), whether due or not due, absolute or
contingent, liquidated or unliquidated, determined or undetermined, and
whether Borrower may be liable individually or jointly with others, or
whether recovery upon such indebtedness may be or hereafter become barred
by any statute of limitations, or whether such indebtedness may be or
hereafter become otherwise unenforceable.
(2) The liability of Guarantor under this Guaranty (exclusive of liability
under any other guaranties executed by Guarantor) shall not exceed at any
one time the total of (a) Thirteen Million and No/100 Dollars
($13,000,000.00), for the principal amount of the indebtedness and (b)
all interest, fees, and other reasonable costs and expenses relating to
or arising out of the indebtedness or such part of the indebtedness as
shall not exceed the foregoing limitation. Bank may permit the
indebtedness of Borrower to exceed Guarantor's liability, and may apply
any amounts received from any source, other than from Guarantor, to the
unguaranteed portion of Borrower's indebtedness. Any payment by Guarantor
shall not reduce their maximum obligation hereunder, unless written
notice to that effect be actually received by Bank at or prior to the
time of such payment.
(3) The obligations hereunder are joint and several, and independent of the
obligations of Borrower, and a separate action or actions may be brought
and prosecuted against Guarantor whether action is brought against
Borrower or whether Borrower be joined in any such action or actions and
regardless of whether a trustee's sale is held under any deed of trust,
if any, securing the indebtedness or regardless of whether a judicial
foreclosure sale is held if any deed of trust, if any, securing the
indebtedness is judicially foreclosed as a mortgage. Guarantor waives the
benefit of any statute of limitations affecting their liability
hereunder.
(4) Guarantor authorizes Bank, without notice or demand and without affecting
their liability hereunder, from time to time, either before or after
revocation hereof, to (a) renew, compromise, extend, accelerate or
otherwise change the time for payment of, or otherwise change the terms
of the indebtedness or any part thereof, including increase or decrease
of the rate of interest thereon; (b) receive and hold security for the
payment of this Guaranty or the indebtedness guaranteed, and exchange,
enforce, waive, release, fail to perfect, sell, or otherwise dispose of
any such security; (c) apply such security and direct the order or manner
of sale thereof as Bank in its discretion may determine, except to the
extent specifically prohibited by law; and (d) release or substitute any
one or more of the endorsers or Guarantor.
(5) Guarantor waives any right to require Bank to (a) proceed against
Borrower; (b) proceed against or exhaust any security held from Borrower;
or (c) pursue any other remedy in Bank's power whatsoever. Guarantor
waives any defense arising by reason of any disability or other defense
of Borrower, or the cessation from any cause whatsoever of the liability
of Borrower, or any claim that Guarantor's obligations exceed or are more
burdensome than those of Borrower. Guarantor waives any benefit of the
provisions of Arizona Revised Statutes Sections 12-1641 and 12-1642 et
seq., and Rule 17(f) of the Arizona Rules of Civil Procedures, which set
forth certain rights and obligations among guarantors, debtors and
creditors, to the extent applicable. Guarantor waives any right of
subrogation, reimbursement, indemnification, and contribution
(contractual, statutory or otherwise), including without limitation, any
claim or right of subrogation under the Bankruptcy
<PAGE> 26
Code (Title 11 of the U.S. Code) or any successor statute, arising from
the existence or performance of this Guaranty and Guarantor waives any
right to enforce any remedy which Bank now has or may hereafter have
against Borrower, and waives any benefit of, and any right to participate
in, any security now or hereafter held by Bank. Bank may foreclose, either
by judicial foreclosure or by exercise of power of sale, any deed of trust
securing the indebtedness, and, even though the foreclosure may destroy or
diminish Guarantor's rights against Borrower, Guarantor shall be liable to
Bank for any part of the indebtedness remaining unpaid after the
foreclosure. Guarantor waives any benefit of any statutory provision
limiting the right of Bank to recover a deficiency judgment, or to
otherwise proceed, against any person or entity obligated for payment of
the indebtedness, after any judicial foreclosure sale or trustee's sale of
any collateral securing the indebtedness including, without limitation,
the benefits, if any, of Arizona Revised Statutes Section 33-814, except
to the extent otherwise required by law. Guarantor waives any homestead or
exemption rights. Guarantor waives all presentments, demands for
performance, notices of nonperformance, protests, notices of protest,
notices of dishonor, and notices of acceptance of this Guaranty and of the
existence, creation, or incurring of new or additional indebtedness.
(6) Guarantor acknowledges and agrees that it shall have the sole
responsibility for obtaining from Borrower such information concerning
Borrower's financial conditions or business operations as Guarantor may
require, and that Bank has no duty at any time to disclose to Guarantor
any information relating to the business operations or financial
conditions of Borrower.
(7) In addition to Bank's rights of setoff, to secure all of Guarantor's
obligations hereunder, Guarantor assigns and grants to Bank a security
interest in all moneys, securities and other property of Guarantor now or
hereafter in the possession of Bank, and all deposit accounts of Guarantor
maintained with Bank, and all proceeds thereof. Upon material default or
material breach of any of Guarantor's obligations to Bank, Bank may apply
any deposit account to reduce the indebtedness, and may foreclose any
collateral as provided in the Uniform Commercial Code and in any security
agreements between Bank and Guarantor.
(8) Any obligations of Borrower or Guarantor, nor or hereafter existing,
including but not limited to any obligations to Guarantor as subrogees of
Bank or resulting from Guarantor's performance under this Guaranty, are
hereby subordinated to the indebtedness. Such obligations of Borrower to
Guarantor if Bank so requests shall be enforced and performance received
by Guarantor as trustee for Bank and the proceeds thereof shall be paid
over to Bank on account of the indebtedness of Borrower to Bank, but
without reducing or affecting in any manner the liability of Guarantor
under the provisions of this Guaranty.
(9) This Guaranty shall automatically terminate upon payment of all
obligations under the Loan Documents and cancellation of the Loan
Documents.
(10) It is not necessary for Bank to inquire into the powers of Borrower or of
the officers, directors, or agents acting or purporting to act on behalf
of Borrower, and any indebtedness made or created in reliance upon the
professed exercise of such powers shall be guaranteed hereunder.
(11) Bank may, without notice to Guarantor and without affecting Guarantor's
obligations hereunder, assign the indebtedness and this Guaranty, in whole
or in part. Guarantor agrees that Bank may disclose to any prospective
purchaser and any purchaser of all or part of the indebtedness any and all
information in Bank's possession concerning Guarantor, this Guaranty and
any security for this Guaranty.
(12) Guarantor agrees to pay all reasonable attorneys' fees, the reasonable
allocated costs of Bank's in-house counsel, and all other reasonable costs
and expenses which may be incurred by Bank in the enforcement of this
Guaranty, including without limitation all reasonable costs and necessary
disbursements in any legal action or arbitration proceeding.
(13) This Guaranty shall be governed by and construed according to the laws of
the State of Arizona, to the jurisdiction of which the parties hereto
submit.
(14) (a) Any controversy or claim between or among the parties, including but
not limited to those arising out of or relating to this Guaranty or any
agreements or instruments relating hereto or delivered in connection
herewith and any claim based on or arising from an alleged tort, shall at
the request of any party be determined by arbitration. The arbitration
shall be conducted in accordance with the United States Arbitration
2
<PAGE> 27
Act (Title 9, U.S. Code), notwithstanding any choice of law provision in
this Guaranty, and under the Commercial Rules of the American Arbitration
Association ("AAA"). The arbitrator(s) shall give effect to statutes of
limitation in determining any claim. Any controversy concerning whether an
issue is arbitrable shall be determined by the arbitrator(s). Judgment upon
the arbitration award may be entered in any court having jurisdiction. The
institution and maintenance of an action for judicial relief or pursuit of
a provisional or ancillary remedy shall not constitute a waiver of the
right of any party, including the plaintiff, to submit the controversy or
claim to arbitration if any other party contests such action for judicial
relief.
(b) No provision of this paragraph shall limit the right of any party to
this Guaranty to exercise self-help remedies such as setoff, to foreclose
against or sell any real or personal property collateral or security, or to
obtain provisional or ancillary remedies from a court of competent
jurisdiction before, after, or during the pendency of any arbitration or
other proceeding. The exercise of a remedy does not waive the right of
either party to resort to arbitration. At Bank's option, foreclosure under
a deed of trust or mortgage may be accomplished either by exercise of power
of sale under the deed of trust or mortgage or by judicial foreclosure.
Executed this day of , 1998.
---------- ----------------
CompuRoute, Inc.
By: /s/ Randal L. Buness
----------------------
Name: Randal L. Buness
--------------------
Title: CFO
-------------------
Dallas, Texas
Tax I.D. No.: 91-1752910
Address for notices to Bank:
Bank of America National Trust and Savings Association
Phoenix C&I, Unit #8211
101 North First Avenue
Phoenix, Arizona 85003
3
<PAGE> 28
[BANK OF AMERICA LOGO]
PAYMENT GUARANTY
Borrower: Cerprobe Corporation
Guarantor: SVTR, Inc.
(1) For valuable consideration, the undersigned ("Guarantor") unconditionally
guarantees and promises to pay to Bank of America National Trust and
Savings Association ("Bank"), or order, on demand, in lawful money of the
United States, any and all indebtedness of Cerprobe Corporation, a
Delaware corporation ("Borrower") to Bank. The word "indebtedness" is
used herein in its most comprehensive sense and includes any and all
advances, debts, obligations and liabilities of Borrower, heretofore,
now, or hereafter made, incurred or created, whether voluntary or
involuntary arising pursuant to the Business Loan Agreement of December
, 1998, executed by Borrower and Bank, or any document executed in
connection therewith, as such loan agreement and other documents may be
amended, modified, extended, or renewed from time to time (said loan
agreement, together with such other documents, as amended, modified,
extended, or renewed from time to time are collectively referred to
herein as the "Loan Documents"), whether due or not due, absolute or
contingent, liquidated or unliquidated, determined or undetermined, and
whether Borrower may be liable individually or jointly with others, or
whether recovery upon such indebtedness may be or hereafter become barred
by any statue of limitations, or whether such indebtedness may be or
hereafter become otherwise unenforceable.
(2) The liability of Guarantor under this Guaranty (exclusive of
liability under any other guaranties executed by Guarantor) shall not
exceed at any one time the total of (a) Thirteen Million and No/100
Dollars ($13,000,000.00), for the principal amount of the indebtedness
and (b) all interest, fees, and other reasonable costs and expenses
relating to or arising out of the indebtedness or such part of the
indebtedness as shall not exceed the foregoing limitation. Bank may
permit the indebtedness of Borrower to exceed Guarantor's liability, and
may apply any amounts received from any source, other than from
Guarantor, to the unguaranteed portion of Borrower's indebtedness. Any
payment by Guarantor shall not reduce their maximum obligation
hereunder, unless written notice to that effect be actually received by
Bank at or prior to the time of such payment.
(3) The obligations hereunder are joint and several, and independent of the
obligations of Borrower, and a separate action or actions may be brought
and prosecuted against Guarantor whether action is brought against
Borrower or whether Borrower be joined in any such action or actions and
regardless of whether a trustee's sale is held under any deed of trust,
if any, securing the indebtedness or regardless of whether a judicial
foreclosure sale is held if any deed of trust, if any, securing the
indebtedness is judicially foreclosed as a mortgage. Guarantor waives the
benefit of any statute of limitations affecting their liability
hereunder.
(4) Guarantor authorizes Bank, without notice or demand and without affecting
their liability hereunder, from time to time, either before or after
revocation hereof, to (a) renew, compromise, extend, accelerate or
otherwise change the time for payment of, or otherwise change the terms
of the indebtedness or any part thereof, including increase or decrease
of the rate of interest thereon; (b) receive and hold security for the
payment of this Guaranty or the indebtedness guaranteed, and exchange,
enforce, waive, release, fail to perfect, sell, or otherwise dispose of
any such security; (c) apply such security and direct the order or manner
of sale thereof as Bank in its discretion may determine, except to the
extent specifically prohibited by law; and (d) release or substitute any
one or more of the endorsers or Guarantor.
(5) Guarantor waives any right to require Bank to (a) proceed against
Borrower; (b) proceed against or exhaust any security held from Borrower;
or (c) pursue any other remedy in Bank's power whatsoever. Guarantor
waives any defense arising by reason of any disability or other defense
of Borrower, or the cessation from any cause whatsoever of the liability
of Borrower, or any claim that Guarantor's obligations exceed or are more
burdensome than those of Borrower. Guarantor waives any benefit of the
provisions of Arizona Revised Statutes Sections 12-1641 and 12-1642 et
seq., and Rule 17(f) of the Arizona Rules of Civil Procedures, which set
forth certain rights and obligations among guarantors, debtors and
creditors, to the extent applicable. Guarantor waives any right of
subrogation, reimbursement, indemnification, and contribution
(contractual, statutory or otherwise), including without limitation, any
claim or right of subrogation under the Bankruptcy
1
<PAGE> 29
Code (Title 11 of the U.S. Code) or any successor statute, arising from
the existence or performance of this Guaranty and Guarantor waives any
right to enforce any remedy which Bank now has or may hereafter have
against Borrower, and waives any benefit of, and any right to
participate in, any security now or hereafter held by Bank. Bank may
foreclose, either by judicial foreclosure or by exercise of power of
sale, any deed of trust securing the indebtedness, and, even though the
foreclosure may destroy or diminish Guarantor's rights against
Borrower, Guarantor shall be liable to Bank for any part of the
indebtedness remaining unpaid after the foreclosure. Guarantor waives
any benefit of any statutory provision limiting the right of Bank to
recover a deficiency judgment, or to otherwise proceed, against any
person or entity obligated for payment of the indebtedness, after any
judicial foreclosure sale or trustee's sale of any collateral securing
the indebtedness including, without limitation, the benefits, if any,
of Arizona Revised Statutes Section 33-814, except to the extent
otherwise required by law. Guarantor waives any homestead or exemption
rights. Guarantor waives all presentments, demands for performance,
notices of nonperformance, protests, notices of protest, notices of
dishonor, and notices of acceptance of this Guaranty and of the
existence, creation, or incurring of new or additional indebtedness.
(6) Guarantor acknowledges and agrees that it shall have the sole
responsibility for obtaining from Borrower such information concerning
Borrower's financial conditions or business operations as Guarantor may
require, and that Bank has no duty at any time to disclose to Guarantor
any information relating to the business operations or financial
conditions of Borrower.
(7) In addition to Bank's rights of setoff, to secure all of Guarantor's
obligations hereunder, Guarantor assigns and grants to Bank a security
interest in all moneys, securities and other property of Guarantor now
or hereafter in the possession of Bank, and all deposit accounts of
Guarantor maintained with Bank, and all proceeds thereof. Upon material
default or material breach of any of Guarantor's obligations to Bank,
Bank may apply any deposit account to reduce the indebtedness, and may
foreclose any collateral as provided in the Uniform Commercial Code and
in any security agreements between Bank and Guarantor.
(8) Any obligations of Borrower to Guarantor, now or hereafter existing,
including but not limited to any obligations to Guarantor as subrogees
of Bank or resulting from Guarantor's performance under this Guaranty,
are hereby subordinated to the indebtedness. Such obligations of
Borrower to Guarantor if Bank so requests shall be enforced and
performance received by Guarantor as trustee for Bank and the proceeds
thereof shall be paid over to Bank on account of the indebtedness of
Borrower to Bank, but without reducing or affecting in any manner the
liability of Guarantor under the provisions of this Guaranty.
(9) This Guaranty shall automatically terminate upon payment of all
obligations under the Loan Documents and cancellation of the Loan
Documents.
(10) It is not necessary for Bank to inquire into the powers of Borrower or
of the officers, directors, or agents acting or purporting to act on
behalf of Borrower, and any indebtedness made or created in reliance
upon the professed exercise of such powers shall be guaranteed
hereunder.
(11) Bank may, without notice to Guarantor and without affecting Guarantor's
obligations hereunder, assign the indebtedness and this Guaranty, in
whole or in part. Guarantor agrees that Bank may disclose to any
prospective purchaser and any purchaser of all or part of the
indebtedness any and all information in Bank's possession concerning
Guarantor, this Guaranty and any security for this Guaranty.
(12) Guarantor agrees to pay all reasonable attorneys' fees, the reasonable
allocated costs of Bank's in-house counsel, and all other reasonable
costs and expenses which may be incurred by Bank in the enforcement of
this Guaranty, including without limitation all reasonable costs and
necessary disbursements in any legal action or arbitration proceeding.
(13) This Guaranty shall be governed by and construed according to the laws
of the State of Arizona, to the jurisdiction of which the parties
hereto submit.
(14) (a) Any controversy or claim between or among the parties,
including but not limited to those arising out of or relating to this
Guaranty or any agreements or instruments relating hereto or delivered
in connection herewith and any claim based on or arising from an
alleged tort, shall at the request of any party be determined by
arbitration. The arbitration shall be conducted in accordance with the
United States Arbitration
2
<PAGE> 30
Act (Title 9, U.S. Code), notwithstanding any choice of law provision in
this Guaranty, and under the Commercial Rules of the American Arbitration
Association ("AAA"). The arbitrator(s) shall give effect to statutes of
limitation in determining any claim. Any controversy concerning whether an
issue is arbitrable shall be determined by the arbitrator(s). Judgment upon
the arbitration award may be entered in any court having jurisdiction. The
institution and maintenance of an action for judicial relief or pursuit of
a provisional or ancillary remedy shall not constitute a waiver of the
right of any party, including the plaintiff, to submit the controversy or
claim to arbitration if any other party contests such action for judicial
relief.
(b) No provision of this paragraph shall limit the right of any party to
this Guaranty to exercise self-help remedies such as setoff, to foreclose
against or sell any real or personal property collateral or security, or to
obtain provisional or ancillary remedies from a court of competent
jurisdiction before, after, or during the pendency of any arbitration or
other proceeding. The exercise of a remedy does not waive the right of
either party to resort to arbitration. At Bank's option, foreclosure under
a deed of trust or mortgage may be accomplished either by exercise of power
of sale under the deed of trust or mortgage or by judicial foreclosure.
Executed this day of , 1998.
--------- -----------
SVTR, Inc.
By: /s/ Randal L. Buness
--------------------
Name: RANDAL L. BUNESS
Title: CFO
Tax I.D. No.: 66-0516446
Address for notices to Bank:
Bank of America National Trust and Savings Association
Phoenix C&I, Unit #8211
101 North First Avenue
Phoenix, Arizona 85003
3
<PAGE> 1
[BANK OF AMERICA LETTERHEAD] Exhibit: 10(hhh)
SECURITY AGREEMENT (EQUIPMENT)
THIS SECURITY AGREEMENT (this "Agreement") is entered into as of
February ____, 1998, between CERPROBE CORPORATION (the "Borrower") and BANK OF
AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION (the "Bank").
1. THE SECURITY. The Borrower hereby assigns and grants to the Bank a security
interest in the following described property ("Collateral"):
A. All of the machinery, furniture, fixtures and other equipment of every type
which is purchased or financed with, or for the purchase of which the
Borrower is reimbursed for with, the proceeds of the Term Loan as defined
in the Business Loan Agreement, dated as of December 22, 1998, between the
Borrower and the Bank, as amended from time to time (the "Loan Agreement"),
including, without limitation, the equipment and other property listed on
Exhibit A attached hereto and incorporated herein, together with any and
all replacements thereof and substitutions therefor.
B. All documents now owned or hereafter acquired by Borrower covering any of
the above-described property.
C All rights under contracts of insurance now owned or hereafter acquired by
Borrower covering any of the above-described property.
D. All proceeds, product, rents and profits now owned or hereafter acquired by
Borrower of any of the above-described property.
2. THE INDEBTEDNESS. The Collateral secures and will secure all Indebtedness
of Borrower to Bank. For the purpose of this Agreement, "Indebtedness"
means all of the Borrower's obligations under the Loan Agreement with
respect to the Term Loan (as such term is defined in the Loan Agreement).
3. BORROWER'S COVENANTS. Borrower covenants and warrants that unless
compliance is waived by Bank in writing:
A. Borrower will properly preserve the Collateral; defend the Collateral
against any adverse claims and demands; and keep accurate books and records
relating to the Collateral (the "Books and Records"), which Books and
Records, upon reasonable prior notice, will be made available to the Bank
at any time during normal business hours for the purpose of examination and
for the purpose of making copies of any portion thereof).
B. Borrower has notified Bank in writing of, and will notify Bank in writing
prior to any change in, the locations of (i) Borrower's place of business
or Borrower's chief executive office if Borrower has more than one place of
business, and (ii) any Collateral, including the Books and Records.
C. Borrower will notify Bank in writing prior to any change in Borrower's
name, identity or organizational documents.
D. Borrower will maintain and keep in force insurance covering Collateral
designated by Bank against fire and extended coverages. Such insurance
shall require losses to be paid on a replacement cost basis,
1
<PAGE> 2
be issued by insurance companies reasonably acceptable to Bank and include a
loss payable endorsement in favor of Bank in a form acceptable to Bank.
E. Borrower has not granted and will not grant any security interest in any of
the Collateral except to Bank, and will keep the Collateral free of all
liens, claims, security interests and encumbrances of any kind or nature
except the security interest of Bank and other liens permitted by Section
7.8 of the Loan Agreement.
F. Borrower will not sell, lease, agree to sell or lease, or otherwise dispose
of any Collateral or remove any Collateral from Borrower's place of
business except with the prior written consent of Bank, except for any
obsolete equipment having a value of less than $5,000.00 disposed of or
sold in the ordinary course of Borrower's business.
G. Borrower will promptly notify Bank in writing of any event which materially
affects the value of any Collateral, the ability of Borrower or Bank to
dispose of any Collateral, or the rights and remedies of Bank in relation
thereto, including, but not limited to, the levy of any legal process
against any Collateral.
H. If any Collateral is or becomes the subject of any registration certificate
or negotiable document of title, including any warehouse receipt or bill of
lading, Borrower shall immediately deliver such document to Bank.
I. Borrower will not attach any Collateral to any real property or fixture in
a manner which might cause such Collateral to become a part thereof unless
Borrower first obtains the written consent of any owner, holder of any lien
on the real property or fixture, or other person having an interest in such
property to the removal by Bank of the Collateral from such real property
or fixture. Such written consent shall be in form and substance acceptable
to Bank and shall provide that Bank has no liability to such owner, holder
of any lien, or any other person.
4. ADDITIONAL OPTIONAL REQUIREMENTS. Borrower agrees that Bank may at its
option at any time, whether or not Borrower is in default:
A. Require Borrower to deliver to Bank (i) copies of or extracts from the
Books and Records, and (ii) information on any contracts or other matters
affecting the Collateral.
B. Examine the Collateral, including the Books and Records, and make copies of
or extracts from the Books and Records, and for such purposes enter at any
reasonable time upon the property where any Collateral or any Books and
Records are located in accordance with Section 3A. above.
C. Notify any person of Bank's interest in the Collateral to the extent
necessary to continue the perfection or priority of the security interest
of Bank in the Collateral.
D. After a default under this Agreement or the Loan Agreement, demand and
collect any proceeds of the Collateral. In connection therewith Borrower
irrevocably authorizes Bank to endorse or sign Borrower's name on all
checks, drafts, collections, receipts and other documents, and to take
possession of and open the mail addressed to Borrower and remove therefrom
any proceeds of the Collateral.
5. DEFAULTS. Any one or more of the following shall be a default hereunder:
A. Borrower fails to make any payment of principal or interest due under the
Loan Agreement within two (2) days of the date when due; or the Borrower
fails to make any other payment of Indebtedness within five (5) days of the
date when due.
2
<PAGE> 3
B. Borrower breaches any term, provision, material warranty or material
representation under this Agreement not specifically referred to in this
Section 5, and, if such breach is susceptible of being cured, such breach
is not cured within thirty (30) days of the earlier of (i) the earliest
date on which the Borrower knew or reasonably should have known of such
breach, and (ii) the date on which the Borrower notifies the Bank of such
breach; or Borrower breaches any term, provision, material warranty, or
material representation under any other obligation of Borrower to Bank, and
such breach is not cured within any applicable cure period.
C. Any custodian, receiver or trustee is appointed to take possession, custody
or control of all or a substantial portion of the property of Borrower or
of any guarantor of any Indebtedness.
D. Borrower or any guarantor of any Indebtedness becomes insolvent, or is
generally not paying or admits in writing its inability to pay its debts as
they become due, fails in business, makes a general assignment for the
benefit of creditors, dies or commences any case, proceeding or other
action under any bankruptcy or other law for the relief of, or relating to,
debtors and, in the case of the commencement of an involuntary bankruptcy
proceeding, such proceeding is not dismissed within 60 days of the filing
thereof.
E. Any case, proceeding or other action is commenced against Borrower or any
guarantor of any Indebtedness under any bankruptcy or other law for the
relief of, or relating to, debtors and, in the case of the commencement of
an involuntary bankruptcy proceeding, such proceeding is not dismissed
within 60 days of the filing thereof.
F. Any involuntary lien of any kind or character attaches to any material
portion of the Collateral.
G. Any financial statements, certificates, schedules, or other information now
or hereafter furnished by Borrower to Bank proves false or incorrect in any
material respect.
6. BANK'S REMEDIES AFTER DEFAULT. In the event of any default Bank may do any
one or more of the following:
A. Declare any Indebtedness immediately due and payable, without notice or
demand.
B. Enforce the security interest given hereunder pursuant to the Arizona
Uniform Commercial Code and any other applicable law.
C. Require Borrower to assemble the Collateral, including the Books and
Records, and make them available to Bank at a place designated by Bank.
D. Enter upon the property where any Collateral, including any Books and
Records, are located and take possession of such Collateral and such Books
and Records, and use such Collateral and such Books and Records relating
thereto, if Bank deems such use necessary or advisable in order to take
possession of, hold, preserve, process, assemble, prepare for sale or
lease, market for sale or lease, sell or lease, or otherwise dispose of,
any Collateral.
E. Grant extensions and compromise or settle claims for less than face value
relating to any proceeds of the Collateral, all without prior notice to
Borrower.
F. Use or transfer any of Borrower's rights and interests in any Intellectual
Property now owned or hereafter acquired by Borrower, if Bank deems such
use or transfer necessary or advisable in order to take possession of,
hold, preserve, process, assemble, prepare for sale or lease, market for
sale or lease, sell or lease, or otherwise dispose of, any Collateral.
Borrower agrees that any such use or
3
<PAGE> 4
transfer shall be without any additional consideration to Borrower. As used
in this paragraph, "Intellectual Property" includes, but is not limited to,
all trade secrets, computer software, service marks, trademarks, trade
names, trade styles, copyrights, patents, applications for any of the
foregoing, customer lists, working drawings, instructional manuals, and
rights in processes for technical manufacturing, packaging and labeling, in
which Borrower has any right or interest, whether by ownership, license,
contract or otherwise.
G. Have a receiver appointed by any court of competent jurisdiction to take
possession of the Collateral.
H. Take such measures as Bank may deem necessary or advisable to take
possession of, hold, preserve, process, assemble, insure, prepare for sale
or lease, market for sale or lease, sell or lease, or otherwise dispose of,
any Collateral, and Borrower hereby irrevocably constitutes and appoints
Bank as Borrower's attorney-in-fact to perform all acts and execute all
documents in connection therewith.
7. MISCELLANEOUS
A. Any waiver, express or implied, of any provision hereunder and any delay or
failure by Bank to enforce any provision shall not preclude Bank from
enforcing any such provision thereafter.
B. Borrower shall, at the reasonable request of Bank, execute such other
agreements, documents, instruments or financing statements in connection
with this Agreement as Bank may reasonably deem necessary. A carbon,
photostat or other reproduction of this Agreement or any financing
statement is sufficient as a financing statement.
C. All notes, security agreements, subordination agreements and other
documents executed by Borrower or furnished to Bank in connection with this
Agreement must be in form and substance reasonably satisfactory to Bank.
D. This Agreement shall be governed by and construed according to the laws of
the State of Arizona, to the jurisdiction of which the parties hereto
submit.
E. All rights and remedies herein provided are cumulative and not exclusive of
any rights or remedies otherwise provided by law. Any single or partial
exercise of any right or remedy shall not preclude the further exercise
thereof or the exercise of any other right or remedy.
F. All terms not defined herein are used as set forth in the Arizona Uniform
Commercial Code.
G. In the event of any action by Bank to enforce this Agreement or to protect
the security interest of Bank in the Collateral, or to preserve, process,
assemble, insure, prepare for sale of lease, market for sale or lease, sell
or lease, or otherwise dispose of, any Collateral, Borrower agrees to pay
immediately all reasonable costs and expenses thereof, together with
reasonable attorney's fees and allocated costs for in-house legal services.
BANK OF AMERICA NATIONAL TRUST AND CERPROBE CORPORATION
SAVINGS ASSOCIATION
- -------------------------------- ------------------------------------
Kathleen P. Sowa, Vice President Randal L. Buness, Vice President/CFO
4
<PAGE> 5
EXHIBIT A
List of Equipment:
(Will be provided by Borrower)
5
<PAGE> 6
Recording Requested by and when recorded mail to:
Bank of America NT&SA
101 N. 1st Avenue
Phoenix, Arizona 85003
Attn: Documentation #9950
------------------Space above this line for Recorder's Use-----------------
ARIZONA UNIFORM COMMERCIAL CODE
FINANCING STATEMENT - FORM UCC-1
This FINANCING STATEMENT is presented for filing (recording)
pursuant to the Arizona Uniform Commercial Code.
<TABLE>
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
1. Debtor(s) (Last name first and address): 2. Secured Party(ies) and address:
Cerprobe Corporation Bank of America National Trust and Savings Association
1150 North Fiesta Boulevard 101 North First Avenue, Dept. 8211
Gilbert, Arizona 85233-2237 Phoenix, Arizona 85003
- ---------------------------------------------------------------------------------------------------------------------------------
3. Name and Address of Assignee of Secured Party(ies): 4. [X] If checked, products of collateral are also
covered.
- ---------------------------------------------------------------------------------------------------------------------------------
6. If the collateral is crops, the crops are growing or to 5. This financing Statement covers the following types
be grown on the following described real estate: (or items) of property:
SEE ATTACHED EXHIBIT "A"
</TABLE>
- --------------------------------------------------------------------------------
7. If the collateral is (a) goods which are or are to become fixtures; (b)
timber to be cut; or (c) minerals or the like (including oil and gas),
or accounts resulting from the sale thereof at the wellhead or minehead
to which the security interest attaches upon extraction, the legal
description of the real estate concerned is:
And, this Financing Statement is to be recorded in the office where a
mortgage on such real estate would be recorded. If the Debtor does not
have an interest of record, the name of a record owner is:
- --------------------------------------------------------------------------------
8. This Financing Statement is signed by the Secured Party instead of the
debtor to perfect or continue perfection of a security interest in:
<TABLE>
<S> <C> <C> <C>
[] collateral already subject to a security interest in [] collateral as to which the filing has lapsed or will
jurisdiction when it was brought into this state. lapse.
[] proceeds of collateral because of a change in type or [] collateral acquired after a change of name, identity,
use. or corporate structure of the Debtor.
- ---------------------------------------------------------------------------------------------------------------------------------
Dated: February _______, 1999
--------------------------------------------------------- --------------------------------------------------------
Cerprobe Corporation Bank of America National Trust and Savings Association
--------------------------------------------------------- --------------------------------------------------------
By: By:
--------------------------------------------------------- --------------------------------------------------------
Randal L. Buness, Vice President/CFO Kathleen P. Sowa, Vice President
--------------------------------------------------------- --------------------------------------------------------
Signature(s) of Debtor(s) or Assignor Signature of Secured Party or Assignee
</TABLE>
<PAGE> 1
CERPROBE CORPORATION
COMPUTATION OF NET INCOME (LOSS) PER SHARE
Exhibit 11
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net income (loss) $ (495,908) $ 1,895,968 $(1,360,790)
=========== =========== ===========
Weighted average number of
common shares outstanding 7,963,747 6,690,265 4,579,598
Common equivalent shares representing shares
issuable upon exercise of stock options 287,626 292,103 194,883
Convertible preferred stock -- -- 553,858
Subtraction of common equivalent shares due to
antidilutive nature -- -- (748,741)
----------- ----------- -----------
Dilutive adjusted weighted average shares
and assumed conversions 8,251,373 6,982,368 4,579,598
=========== =========== ===========
Basic net income (loss) per share $ (0.06) $ 0.28 $ (0.30)
=========== =========== ===========
Diluted net income (loss) per share $ (0.06) $ 0.27 $ (0.30)
=========== =========== ===========
</TABLE>
<PAGE> 1
CERPROBE CORPORATION
LIST OF SUBSIDIARIES
Exhibit 21
SUBSIDIARIES OF CERPROBE CORPORATION:
Cerprobe Interconnect Solutions, Inc.
SVTR, Inc.
Cerprobe Europe Limited
Cerprobe Asia Holdings Pte Ltd
Cerprobe Europe S.A.S.
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
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 and No. 333-34493 on
Form S-3 of Cerprobe Corporation of our report dated February 2, 1999, relating
to the consolidated balance sheets of Cerprobe Corporation and subsidiaries as
of December 31, 1998 and 1997, and the related consolidated statements of
operations, stockholders' equity and comprehensive income, and cash flows for
each of the years in the three-year period ended December 31, 1998, which report
appears in the December 31, 1998 annual report on Form 10-K of Cerprobe
Corporation.
Phoenix, Arizona
March 30, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1998 AND THE CONSOLIDATED STATEMENTS
OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 4,753,696
<SECURITIES> 14,305,400
<RECEIVABLES> 9,285,044
<ALLOWANCES> 333,364
<INVENTORY> 5,303,631
<CURRENT-ASSETS> 36,928,688
<PP&E> 33,260,813
<DEPRECIATION> 10,562,304
<TOTAL-ASSETS> 63,685,574
<CURRENT-LIABILITIES> 6,410,068
<BONDS> 3,204,118
0
0
<COMMON> 406,564
<OTHER-SE> 53,067,286
<TOTAL-LIABILITY-AND-EQUITY> 63,685,574
<SALES> 76,207,477
<TOTAL-REVENUES> 76,207,477
<CGS> 45,052,300
<TOTAL-COSTS> 23,447,222
<OTHER-EXPENSES> 269,115
<LOSS-PROVISION> 186,585
<INTEREST-EXPENSE> 269,115
<INCOME-PRETAX> 9,305,597
<INCOME-TAX> (3,685,308)
<INCOME-CONTINUING> 5,236,652
<DISCONTINUED> (5,732,560)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (495,908)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1997 AND THE CONSOLIDATED STATEMENTS
OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,715,490
<SECURITIES> 27,000,698
<RECEIVABLES> 8,445,357
<ALLOWANCES> 215,179
<INVENTORY> 4,969,804
<CURRENT-ASSETS> 49,599,474
<PP&E> 21,504,063
<DEPRECIATION> 7,064,809
<TOTAL-ASSETS> 68,107,903
<CURRENT-LIABILITIES> 7,094,551
<BONDS> 1,275,017
0
0
<COMMON> 404,899
<OTHER-SE> 58,939,139
<TOTAL-LIABILITY-AND-EQUITY> 68,107,903
<SALES> 69,012,395
<TOTAL-REVENUES> 69,012,395
<CGS> 39,251,446
<TOTAL-COSTS> 17,601,429
<OTHER-EXPENSES> 388,025
<LOSS-PROVISION> 24,000
<INTEREST-EXPENSE> 388,025
<INCOME-PRETAX> 12,443,376
<INCOME-TAX> (4,810,167)
<INCOME-CONTINUING> 7,662,924
<DISCONTINUED> (5,766,956)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,895,968
<EPS-PRIMARY> 0.28
<EPS-DILUTED> 0.27
</TABLE>
