Index to Financial Statements

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨ ____________

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨ ____________

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨ ____________

If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. ¨

CALCULATION OF REGISTRATION FEE CHART

(1)

Includes shares which the underwriters have the option to purchase to cover over-allotments, if any.

(2)

Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933.

(3)

Includes $13,956 previously paid.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED OCTOBER 17, 2003

PROSPECTUS

LOGO

Shares

NPTest Holding Corporation

Common Stock

$ per share

We are selling shares of our common stock. The selling stockholder has granted the underwriters an option to purchase up to additional shares of common stock to cover over-allotments. We will not receive proceeds from the sale of any shares of common stock by the selling stockholder.

This is the initial public offering of our common stock. We currently expect the initial public offering price to be between $ and $ per share. We have applied to have the common stock included for quotation on the Nasdaq National Market under the symbol “NPTT.”

Investing in our common stock involves risks. See “ Risk Factors” beginning on page 6.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

	Per Share	Total
Public Offering Price	$	$
Underwriting Discount	$	$
Proceeds to NPTest Holding Corporation (before expenses)	$	$

The underwriters expect to deliver the shares to purchasers on or about , 2003.

Citigroup

Credit Suisse First Boston

Lehman Brothers

Banc of America Securities LLC

, 2003

LOGO

Sapphire NP – A highly flexible test platform which can be used in design debug, validation, characterization, wafer sort and final test for a wide range of integrated circuits (IC). The Sapphire NP tester is designed to be scalable and capable of both functional and structural test, resulting in a significant reduction in IC test costs. It is scheduled to be first shipped in late 2003 or early 2004.

LOGO

IDS OptiFIB – A focused ion beam system used for circuit edit and repair of ICs, in design and failure analysis. It combines ion and photon optics in a single coaxial column, with a computer aided design navigation interface, resulting in more accurate circuit modifications.

You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with different information. We are not making an offer of these securities in any state where the offer is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date on the front of this prospectus.

TABLE OF CONTENTS

		Page
Prospectus Summary		1
Risk Factors		6
Forward-looking Statements		18
Use of Proceeds		18
Dividend Policy		18
Capitalization		19
Dilution		21
Unaudited Pro Forma Combined Condensed Financial Information		23
Selected Combined Financial Data		34
Management’s Discussion and Analysis of Financial Condition and Results of Operations		36
Business		53
Management		63
Certain Relationships and Related Party Transactions		71
Principal and Selling Stockholders		75
Description of Capital Stock		76
Shares Eligible for Future Sale		77
Underwriting		79
Legal Matters		81
Experts		81
Where You Can Find More Information		81
Index to Combined Financial Statements		F-1

Until , 2003 (25 days after the date of this prospectus), all dealers that buy, sell or trade our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

In this prospectus, statistical information about the semiconductor market is based on data published by the Semiconductor Industry Association and VLSI Research.

NPTest, the NPTest logo, DeFT, Sapphire NP, IDS, IDS OptiFIB, IDS OptiCA and SABER are our trademarks in the United States and other countries. All other trademarks, trade names or service marks appearing in this prospectus are the property of their respective owners.

PROSPECTUS SUMMARY

You should read the following summary together with the more detailed information regarding our company and the securities being sold in this offering and the financial statements and the related notes and the pro forma financial data appearing elsewhere in this prospectus.

NPTest Holding Corporation

We design, develop and manufacture advanced semiconductor test and diagnostic systems and provide related services for the semiconductor industry. Our customers include integrated device manufacturers, fabless design companies, foundries and assembly and test subcontractors worldwide. Our products and services enable our customers to bring their increasingly complex integrated circuits to market faster, at lower cost and without compromising integrated circuit quality. We offer products that enable our customers to debug, characterize and test a wide range of integrated circuits, including the fastest multi-Gigahertz microprocessors and the most highly integrated, high-speed system-on-a-chip devices. In addition, we provide test engineering services, including debug, repair and characterization. As of June 30, 2003, we had 888 employees worldwide.

Our Solution

Our test and diagnostic systems and our test engineering services enable our customers to increase their engineering and manufacturing efficiency and lower their cost of test. Our solution offers:

•

Leading technology. We are recognized as a technology leader in functional and structural test with our EXA and DeFT platforms. Our products test the most complex system-on-a-chip devices and the highest performance microprocessors at high levels of accuracy. In addition to our test platforms, our diagnostic tools detect circuit defects and design faults down to 90nm.

•

Accelerated time-to-market for our customers. Our products and services enable our customers to reduce the number of prototype iterations, reduce engineering and mask costs and accelerate time-to-market for their integrated circuits. Our systems perform signal measurement, failure analysis, circuit edit and characterization to identify design defects and functional failures early in the design cycle.

•

Multiple test capabilities on a single platform. We have designed our latest platform, Sapphire NP, for use throughout the semiconductor design and manufacturing process. With lower infrastructure costs, the same system can be configured for the engineering stages, including device debug, validation and characterization, and the high volume manufacturing stages, including wafer sort and final test.

•

A reconfigurable, scalable test platform. We have designed our Sapphire NP platform to be reconfigurable as the performance requirements, functionality needs and test methodologies of our customers change. Sapphire NP is designed to perform both functional and structural test. This platform is designed to test a wide range of integrated circuits, including complex system-on-a-chip devices, at varying operating speeds, without sacrificing accuracy and at a significantly lower cost of test.

Our Business Strategy

Our objective is to lead the semiconductor test industry by introducing technologies that enhance the efficiency of test, validation and characterization in the semiconductor design and manufacturing process. Key elements of our strategy include:

•

Extending our technology leadership. We are committed to maintaining our leadership at the high end of the market, and therefore, work closely with our customers and share product roadmaps to anticipate technology progression.

•

Innovating for cost efficiency. We strive to offer leading-edge products and services that drive cost efficiency in the test and diagnostic industry. We expect the recently introduced Sapphire NP platform to improve cost efficiency by bringing a new level of integration to the test market and providing a scalable cost structure for our customers.

•

Enabling the transition to low cost test strategies. As semiconductor manufacturers transition from functional to structural test, we intend to provide systems that facilitate the transition to lower cost test strategies. Our DeFT platform was the first structural test product commercially available and our Sapphire NP platform supports both functional and structural test.

•

Expanding our addressable market. Our products have traditionally focused on the high end of the market. We are expanding our addressable market to test integrated circuits operating at frequencies of 200 MHz and less, and further penetrate the fabless semiconductor and assembly and test subcontractor markets.

•

Collaborating with strategic customers to improve our market position. We have and will continue to develop strategic relationships with the leading companies in the semiconductor industry to develop new products and services. By collaborating with existing and potential customers, we attempt to minimize our development risk and to better understand the product roadmaps and development needs of our customers.

•

Facilitating collaboration between design and manufacturing test engineers. We offer systems and software which allow design and manufacturing test engineers to collaborate and to operate on a common hardware and software platform, thereby facilitating communication between design and manufacturing test engineers, improving manufacturing yields and easing the transition to structural test.

Our History

Our business dates back to 1965 when Fairchild Semiconductor established an automated test equipment division. Schlumberger Limited, a global oilfield and information services company with major activity in the energy industry, acquired Fairchild Semiconductor in 1979. The business we now operate, which we refer to as NPTest, Inc., was a part of the business Schlumberger acquired. On July 29, 2003, NPTest Holding, LLC, which is owned by Francisco Partners (95.7%) and Shah Management (4.3%), acquired NPTest, Inc. from Schlumberger. NPTest Holding, LLC acquired the business, in part, on the belief that Francisco Partners could add value to the business through its experience in the semiconductor industry. After completion of this offering, NPTest Holding, LLC will beneficially own approximately % of our outstanding common stock, assuming no exercise of the underwriters’ over-allotment option.

We and certain of our subsidiaries have entered into agreements with NPTest Holding, LLC and various Schlumberger subsidiaries. In particular, we may be required to make certain additional payments to Schlumberger in connection with the acquisition of NPTest, Inc. These agreements are described more fully in the section entitled “Certain Relationships and Related Transactions” included elsewhere in this prospectus.

We were incorporated in June 2003 in Delaware. Our principal executive offices are located at 150 Baytech Drive, San Jose, CA 95134 and our telephone number is (408) 586-8200. We maintain a web site at www.nptest.com. The information on our web site is not part of this prospectus.

Corporate Structure

We indirectly own 100% of the capital stock of NPTest, Inc., the subsidiary through which we conduct substantially all of our operations. NPTest, Inc. conducts its operations, in part, through direct and indirect wholly-owned subsidiaries in the United States, Europe and Asia.

The Offering

Common stock offered		shares

Common stock to be outstanding after the offering		shares

Use of proceeds		We estimate that our net proceeds from this offering will be approximately $160.8 million. We expect to use approximately $75.0 million of the net proceeds from the sale of the shares by us in this offering to repay our senior term loan from an affiliate of Citigroup. We intend to use the remainder of our net proceeds to redeem preferred stock of our subsidiary, to pay an advisory termination fee and for working capital and general corporate purposes, including investments in sales and marketing, general and administrative activities and product development. In addition, we may use a portion of the net proceeds to acquire complementary products, technologies or businesses. We will not receive any proceeds from the exercise of the underwriters’ over-allotment option. See “Use of Proceeds.”

Proposed Nasdaq National Market symbol		“NPTT”

Dividend policy		We intend to retain all future earnings to fund the development and growth of our business. We do not anticipate paying cash dividends on our common stock in the foreseeable future.

The common stock to be outstanding immediately after the offering is based on shares outstanding as of , 2003, and excludes:

•

shares subject to options at a weighted average exercise price of $ per share; and

•

shares to be reserved for issuance under our stock option plan which will become effective upon completion of this offering.

Except as otherwise indicated, all information in this prospectus assumes:

•

an initial public offering price of $ per share, the mid-point of the filing range set forth on the cover of this prospectus;

•

a for reverse stock split effected on , 2003;

•

the repayment of our existing senior term loan upon completion of this offering;

•

the redemption of $20.75 million of outstanding shares of mandatory redeemable Series A Preferred Stock of NPTest Capital Corporation, our subsidiary, held by NPTest Holding, LLC, our sole stockholder, and the exchange immediately prior to completion of this offering of all remaining shares of mandatory redeemable Series A Preferred Stock of NPTest Capital Corporation (including the additional amounts accreted from July 29, 2003 through the assumed closing date of this offering) for shares of our common stock at $ per share, the assumed initial public offering price;

•

the exchange immediately prior to completion of this offering of all of our outstanding shares of convertible mandatory redeemable Series A Preferred Stock (including the additional amounts accreted from July 29, 2003 through the assumed closing date of this offering) held by NPTest Holding, LLC, our sole stockholder, for shares of our common stock at $1.02304 per share, the conversion price of the preferred stock;

•

the filing of our amended and restated certificate of incorporation immediately prior to completion of this offering; and

•

no exercise of the underwriters’ over-allotment option.

SUMMARY HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA

The pro forma as adjusted statement of operations data assume that the acquisition of NPTest, Inc. was completed as of January 1, 2002. The pro forma balance sheet data assume that the acquisition of NPTest, Inc. was completed as of the balance sheet date. The pro forma as adjusted financial information reflects: (i) the pro forma effect of the acquisition of NPTest, Inc. from Schlumberger; (ii) our application of the estimated net proceeds from the sale of the shares of common stock by us in the offering, based on an assumed initial public offering price of $ per share after deducting underwriting discounts and estimated expenses payable by us, to repay our existing $75.0 million senior term loan, redeem $20.75 million of the outstanding mandatory redeemable Series A Preferred Stock of our subsidiary, NPTest Capital Corporation, all of which is held by NPTest Holding, LLC, and make a one-time payment of $5.0 million to Francisco Partners payable in consideration for the termination of certain obligations to Francisco Partners; (iii) the exchange immediately prior to completion of this offering of all remaining shares of mandatory redeemable Series A Preferred Stock of NPTest Capital Corporation (including the additional amounts accreted from July 29, 2003 through the assumed closing date of this offering) held by NPTest Holding, LLC for shares of our common stock at $ per share, the assumed initial public offering price, and (iv) the exchange immediately prior to completion of this offering of all of our outstanding shares of convertible mandatory redeemable Series A Preferred Stock (including the additional amounts accreted from July 29, 2003 through the assumed closing date of this offering) held by NPTest Holding, LLC for shares of our common stock at $1.02304 per share, the conversion price of the preferred stock.

The following financial information may not be indicative of our future performance and does not reflect what our financial position and results of operations would have been if we had operated as a separate, stand-alone entity during the periods presented.

	Actual									Pro Forma as Adjusted	Actual						Pro Forma as Adjusted
	Year Ended December 31,										Six Months Ended June 30,
	2000			2001			2002			2002	2002			2003			2003
										(unaudited)	(unaudited)						(unaudited)
	(in thousands, except per share data)
Statement of Operations Data
Net revenue:
Product	$	216,445		$	149,543		$	180,035		$	$	98,598		$	83,830		$
Services		69,889			71,389			63,456				31,710			33,954

Total net revenue		286,334			220,932			243,491				130,308			117,784
Cost of net revenue:
Product		140,255			130,627	(a)		110,056				57,589			49,009
Services		44,127			49,549			38,137				19,908			21,798

Total cost of net revenue		184,382			180,176			148,193				77,497			70,807
Operating expenses:
Research and development		32,718			34,748			36,573				16,297			23,152
Selling, general and administrative		66,571			51,971			49,652				26,646			20,872
Gain on curtailment of pensions and employee benefits								(8,667	)

Total operating expenses		99,289			86,719			77,558				42,943			44,024


Operating income (loss)		2,663			(45,963	)		17,740				9,868			2,953
Foreign currency transactions gain (loss), net		(34	)		(139	)		(1,147	)			(811	)		(510	)

Income (loss) before income taxes		2,629			(46,102	)		16,593				9,057			2,443
Income tax provision (benefit)		(3,328	)		(22,366	)		2,117				1,173			(209	)

Net income (loss)	$	5,957		$	(23,736	)	$	14,476		$	$	7,884		$	2,652		$

Unaudited pro forma basic and diluted net income (loss) per share	$			$			$			$	$			$			$

Shares used in computing unaudited pro forma basic and diluted net income (loss) per share

(a)

Cost of product revenue for the year ended December 31, 2001 included a charge of approximately $35.4 million related to excess inventory.

	June 30, 2003
	Actual			Pro Forma		Pro Forma as Adjusted
	(in thousands)
Balance Sheet Data
Cash and cash equivalents	$	0	(a)	$	4,942	$
Working capital		—			171,078
Total assets		0	(a)		274,240
Senior term loan		—			75,000
Mandatory redeemable preferred stock		—			48,641
Convertible mandatory redeemable preferred stock		—			15,838
Stockholders’ equity		0	(a)		85,479

(a)

Represents one dollar ($1) rounded down to zero because amounts are presented in thousands.

RISK FACTORS

Risks Related to Our Business

Our operating results could be harmed by the highly cyclical nature of the semiconductor industry and general economic slowdowns.

Our business and operating results depend in significant part upon capital expenditures of manufacturers of semiconductors, which in turn depend upon the current and anticipated market demand for these products. Historically, the semiconductor industry has been highly cyclical with recurring periods of over-supply, which often have had a severe negative effect on demand for test equipment, including systems manufactured and marketed by us. During these periods, we experienced significant reductions in customer orders. In the most recent downward cycle, our net product revenue decreased from approximately $216.4 million in 2000 to approximately $149.5 million in 2001 and increased to approximately $180.0 million in 2002. During industry downturns when our products are used less frequently, our services may also be adversely affected. The current industry slowdown has had, and future slowdowns may have, a material adverse effect on our operating results.

The downturn in the semiconductor industry has affected the test equipment market more significantly than the overall capital equipment sector. The impact of this slowdown is magnified due to the high proportion of fixed costs in our industry, including significant research and development, manufacturing and sales costs. The uncertainty regarding the growth rate of economies throughout the world has caused companies to reduce capital investment and may cause further reduction of such investments. These reductions have been particularly severe in the semiconductor equipment industry. If the worldwide economies rebound in the near future, we do not know if our business will experience similar effects. If the worldwide economies do not rebound in the near future, we expect that the growth we have recently experienced may not be sustainable and that our business may be harmed.

Our quarterly operating results fluctuate significantly from period to period and this may cause our stock price to decline.

In the past we have experienced, and in the future we expect to continue to experience, fluctuations in revenue and operating results from quarter to quarter for a variety of reasons, including:

•

demand for and market acceptance of our products as a result of the cyclical nature of the semiconductor equipment industry or otherwise, often resulting in reduced equipment sales during industry downturns and increased equipment sales during periods of industry recovery;

•

changes in the timing and terms of product orders by our customers as a result of our customer concentration or otherwise, as the loss of a significant customer or reduced orders by that customer would likely adversely affect revenues in one or more quarters;

•

changes in the mix of products that we offer, as well as the relative mix of our product and service offerings, thereby affecting our margins in a particular quarter;

•

timeliness of our new product introductions and market acceptance of our new products, including our new Sapphire NP tester;

•

delays or problems in the planned introduction of new products, including new versions of our Sapphire NP tester, which could result in the loss of anticipated revenue for a particular quarter and limited ability to contemporaneously reduce our costs;

•

competitive pressures resulting in lower selling prices arising from the current economic downturn in our industry or otherwise;

•

adverse changes in the semiconductor and electronics industries, on which we are particularly dependent, which would likely reduce overall demand for semiconductor equipment, including our products;

•

our competitors’ announcements of new products, services or technological innovations, which can, among other things, render our products less competitive due to the rapid technological change in our industry;

•

our inability to quickly reduce our costs in response to decreased demand for our products and services as many of our costs are fixed in nature;

•

disruptions in our manufacturing or in the supply of components to us causing us to delay shipment of products; and

•

write-offs of excess or obsolete inventory.

Each of the risks indicated in the foregoing list applies to us without regard to geographic or other boundaries as a result of the global nature of the semiconductor industry. As a result of these risks, we believe that quarter-to-quarter comparisons of our revenue and operating results may not be meaningful, and that these comparisons may not be an accurate indicator of our future performance. Also, sales of a relatively limited number of our systems account for a substantial portion of our net revenue in any particular quarter. Thus, changes in the timing or terms of a small number of transactions could disproportionately affect our operating results in any particular quarter. Moreover, our operating results in one or more future quarters may fail to meet the expectations of securities analysts or investors. If this occurs, we would expect to experience an immediate and significant decline in the trading price of our stock.

Variations in the amount of time it takes for us to sell our systems may cause fluctuations in our operating results.

Variations in the length of our sales cycles could cause our net sales, and therefore our business, financial condition, operating results and cash flows, to fluctuate widely from period to period. These variations often are based upon factors partially or completely outside our control. The factors that affect the length of time it takes for us to complete a sale depend upon many elements including:

•

the complexity of the customer’s fabrication processes;

•

the willingness of customers to adopt new product platforms or products;

•

the availability of components from our suppliers;

•

the internal technical capabilities and sophistication of the customer;

•

our actual or perceived ability to scale our manufacturing processes to meet the customer’s requirements; and

•

the capital expenditures of our customers.

As a result of these and a number of other factors influencing our sales cycles with particular customers, the period between our initial contact with a potential customer and the time when we recognize revenue from that customer, if ever, varies widely. Our product sales cycle typically can range from six to 24 months. Sometimes our sales cycle can be much longer, particularly when the sales cycle involves developing new applications for our systems and technology or the introduction of new products. During these cycles, we commit substantial resources to our sales efforts before receiving any revenue, and we may never receive any revenue from a customer despite these sales efforts.

We rely on a small number of customers for a significant portion of our revenues, and the termination of any of these relationships would adversely affect our business.

Intel Corporation accounted for 30% in 2000, 37% in 2001, 52% in 2002, and 39% in the six months ended June 30, 2003 of our net revenue, and Customer B accounted for 30% in 2000, 18% in 2001, 10% in 2002, and 14% in the six months ended June 30, 2003 of our net revenue. Our customers are generally not obligated by

long-term contracts to purchase our systems, and frequently evaluate competitive products prior to placing new orders. The semiconductor industry is highly concentrated, and a small number of IC device manufacturers and assembly and test subcontractors account for a substantial portion of the purchases of IC test equipment generally, including our diagnostic and test equipment. Consequently, our business and operating results would be materially adversely affected by the loss of, or any reduction in orders by, any of our significant customers, particularly if we were not able to replace that lost revenue with additional orders from new or existing customers.

If we do not develop and maintain new customer relationships, our ability to generate revenue growth will be adversely affected.

Our ability to increase our sales will depend in part upon our ability to obtain orders from new customers. Obtaining orders from new customers is difficult because IC manufacturers typically select one vendor’s systems for testing an entire generation of ICs and make substantial investments to develop related test program software and interfaces. Once a manufacturer has selected a test system vendor for a generation of ICs, that manufacturer is more likely to continue to purchase test systems from that vendor for that generation of ICs, as well as subsequent generations of ICs. If we are unable to obtain new customers that adopt and implement our products and technology, our business will be harmed.

New customer acquisition can be a costly process. The development of new customer relationships can require substantial investment in components and processes without any assurance from prospective customers that they will place significant orders. In addition, the length of time required to complete a sale varies widely, with some sales taking up to two years.

If we do not continue to introduce new products and services that reflect advances in IC technology in a timely manner, our products and services will become obsolete, we will not achieve broad market penetration and our operating results will suffer.

The IC design and manufacturing industry into which we sell our products is characterized by rapid technological changes, frequent new product and service introductions and evolving industry standards. The success of our new product and service offerings will depend on several factors, including our ability to:

•

properly identify customer needs and anticipate technological advances and industry trends;

•

innovate, develop and commercialize new technologies and applications in a timely manner;

•

introduce and promote market acceptance of new products, such as our new Sapphire NP tester;

•

adjust to changing market conditions;

•

manufacture and deliver our products in sufficient volumes on time;

•

price our products competitively and maintain effective marketing strategies; and

•

differentiate our offerings from our competitors’ offerings.

Many of our products are used by our customers to develop, test and manufacture their new products. We therefore must anticipate industry trends and develop products in advance of the commercialization of our customers’ products. Development of new products generally requires a substantial investment before we can determine the commercial viability of these innovations. The future success of our new technologies, products and services depends on broad acceptance among our customers. In addition, new methods of testing ICs such as self-testing ICs, may be developed which render our products uncompetitive or obsolete. If we fail to adequately predict our customers’ needs and technological advances, we may invest heavily in research and development of products and services that do not lead to significant revenue, or we may fail to invest in technology necessary to meet changing customer demands. Without the timely introduction of new products, services and enhancements that reflect these changes, our products and services will likely become technologically obsolete and our revenue and operating results would suffer.

If we are not able to successfully market and sell our new Sapphire NP platform, our revenue and financial condition will be adversely affected.

Our success will depend in large part upon broad adoption of our new Sapphire NP platform. We are currently devoting and intend to continue to devote significant resources to the development, production and commercialization of the Sapphire NP products, the first of which is expected to ship to our first customers in late 2003 or early 2004. As this is a new product, it will be subject to acceptance criteria which could delay the recognition of revenue from these sales until 2004. Typically, these acceptance criteria will consist of testing to ensure the tester conforms to published specifications and will not include any customer-specific acceptance criteria. We have not marketed the product broadly to date. Only a small number of products in the IC test equipment market have achieved broad market acceptance. Accordingly, we cannot be sure that the Sapphire NP platform will achieve market acceptance or generate substantial revenue. Furthermore, existing and prospective customers may not order any of our current products as they assess the Sapphire NP platform and the degree to which it is accepted in the market. The success of Sapphire NP depends upon a number of factors, including:

•

willingness of our customers to invest in a new testing platform;

•

our ability to timely and efficiently manufacture the product;

•

the product’s performance and reliability at customer locations;

•

our ability to effectively install and support the product;

•

our ability to continually offer enhancements to the platform; and

•

our ability to effectively market and sell the platform worldwide.

Delays in introducing Sapphire NP or in our ability to obtain customer acceptance would delay the recognition of revenue by us. If the Sapphire NP platform has actual or perceived reliability, quality or other problems, we may suffer reduced orders, higher manufacturing costs, delays in collecting accounts receivable and higher service, support and warranty expenses, and/or inventory write-offs, among other effects. In addition, Sapphire NP runs on Microsoft Windows-based operating software. If viruses or other problems develop in this software the operation of our Sapphire NP tester could be adversely affected. We believe that the acceptance, volume production, timely delivery and customer satisfaction of our Sapphire NP platform is of critical importance to our future financial results. As a result, our inability to correct any technical, reliability, parts shortages or other difficulties or to manufacture and ship the Sapphire NP testers on a timely basis to meet customer requirements could damage our relationships with current and prospective customers and would materially adversely affect our business, financial condition and results of operations.

If we discover problems in the design or development of our new Sapphire NP platform, our business would be harmed.

Our new Sapphire NP platform is continuing to undergo further development, modification and enhancement. Successful development of Sapphire NP is dependent on a number of factors, including:

•

further development and improvement of the product design;

•

timely and efficient achievement of product hardware and software engineering milestones; and

•

successful achievement of functionality and reliability standards.

We expect to begin to ship our Sapphire NP tester in late 2003 or early 2004. As this is a new product, these shipments are likely to be subject to acceptance criteria that could delay the recognition of revenue from these sales. Typically, these acceptance criteria will consist of testing to ensure the tester conforms to published specifications and will not include any customer-specific acceptance criteria. At introduction, Sapphire NP will be available in less complex configurations targeted at markets that require cost effective test solutions. Our future operating results will depend in large part upon our ability to successfully introduce and commercialize a

range of Sapphire NP products, many of which are not yet available and are under development. We experienced delays from time to time in the development of the Sapphire NP platform. Unanticipated difficulties or delays in further design and development of the Sapphire NP platform could lead to increased production costs and could adversely impact our ability to take customer orders, ship products and fulfill contractual obligations. As a result, our relationship with our customers could be harmed and our business, financial condition and results of operations could be materially adversely affected.

Existing customers may be unwilling to bear expenses associated with transitioning to a new product.

The expense to our customers of transitioning to a new product can be significant. Certain customers may be unwilling, or unable, to bear the increased costs of migrating to a new testing platform, particularly during the current industry downturn. This may make it difficult to market and sell new products, such as the Sapphire NP tester, to customers, including our existing customers, at least in the short-term. In addition, as we introduce new products, such as Sapphire NP testers, we cannot predict with certainty if and when our customers will transition to those products.

If we fail to plan the production of products accurately, we could incur inventory losses.

Given the nature of the markets in which we participate, we cannot reliably predict future revenue or profitability. Accordingly, we must order components and build some inventory in advance of the receipt of actual purchase orders. Furthermore, purchase orders may be cancelled or postponed, generally without penalty to the customer. If we do not obtain orders as we anticipate, we could have excess inventory for a specific product that we would not be able to sell to any other customer, likely resulting in inventory write-offs, which could have a material adverse effect on our business, financial condition and results of operations.

Failure in our ability to effectively design custom ICs or to develop the software used for our products would harm our business.

We customize ICs and develop software as part of the production of many of our products. Design defects in the custom ICs or in the software used for our products could cause delays in the manufacturing and shipment of our products. Such delays may adversely affect customer relationships, as well as our business, financial condition and results of operations.

Products that do not meet customer specifications or contain defects that harm our customers could damage our reputation and cause us to lose customers and revenue.

The complexity and ongoing development of our products could lead to design or manufacturing problems. Our test equipment may fail to meet our customers’ technical requirements and may harm our customers’ business. If any of our products fail to meet specifications or have reliability or quality problems, our reputation could be damaged significantly and customers might be reluctant to buy our products, which could result in a decline in revenues, an increase in product returns and the loss of existing customers or the failure to attract new customers.

We may not be able to fund our future capital requirements from our operations, and financing from other sources may not be available on favorable terms or at all.

We made capital expenditures of $27.0 million in 2000, $4.0 million in 2001, $5.3 million in 2002 and $2.1 million in the six months ended June 30, 2003. During the periods in which we were owned by Schlumberger, it provided funds to finance our working capital or other cash requirements. However, since our acquisition by Francisco Partners, Schlumberger no longer provides these funds. Our future capital requirements will depend on many factors, including the timing and extent of spending to support product development efforts, the expansion of sales and marketing activities, the timing of introductions of new products and enhancement to existing products, the cost to ensure access to adequate manufacturing capacity, and the market acceptance of our

products. To the extent that existing cash and cash equivalents, together with any cash from operations, are insufficient to fund our future activities, we may need to raise additional funds through public or private equity or debt financing. Future equity financings could be dilutive to the existing holders of our common stock. Future debt financings could involve restrictive covenants. We will likely not be able to obtain financing with interest rates as favorable as those that we have enjoyed in the past. If we cannot raise funds on acceptable terms, if and when needed, we may not be able to develop or enhance our products and services, take advantage of future opportunities, grow our business or respond to competitive pressures or unanticipated requirements, which could materially adversely affect our business, financial condition and results of operations.

We face substantial competition which, among other things, may lead to price pressure and adversely affect our sales.

We face substantial competition throughout the world in each of our product areas. Our competitors include Advantest, Agilent Technologies, Credence Systems, FEI Company, Hamamatsu, LTX Corporation and Teradyne. Some of these competitors have substantially greater financial resources and more extensive engineering, manufacturing, marketing and customer support capabilities than we do. We expect our competitors to continue to improve the performance of their current products and to introduce new products, new technologies or services that could adversely affect sales of our current and future products and services. We may not be able to compete effectively with these competitors.

Our competitors may also elect to reduce the price of their products leading to a reduction in average selling prices throughout our industry. The overall demand for test equipment is not likely to increase as prices are reduced. Accordingly, price reductions may limit our opportunities for growth as the overall size of the test equipment market may be reduced and could result in reduced sales.

Economic, political and other risks associated with international sales and operations, particularly in Asia, could adversely affect our sales.

Since we sell our products and services worldwide, our business is subject to risks associated with doing business internationally. Our revenue originating outside the United States, including export sales from our United States manufacturing facilities to foreign customers and sales by our foreign subsidiaries and branches, as a percentage of our total net revenue, was 65.0% in 2000, 60.7% in 2001, 47.6% in 2002 and 50.9% in the six months ended June 30, 2003. In particular, the economies of Asia have been highly volatile and recessionary in the past, resulting in significant fluctuations in local currencies and other instabilities. Many countries in Asia have recently been affected by the occurrence of severe acute respiratory syndrome, or SARS. These instabilities continue and may occur again in the future. Our exposure to the business risks presented by the economies of Asia will increase to the extent that we continue to expand our operations in that region. An outbreak of SARS could result in delay in customer acceptance of our products or prevent us from installing or servicing our products sold in the affected region.

International turmoil, exacerbated by the war in Iraq, and the escalating tensions in North Korea have contributed to an uncertain political and economic climate, both in the United States and globally, which may affect our ability to generate revenue on a predictable basis. In addition, terrorist attacks and the threat of future terrorist attacks both domestically and internationally have negatively impacted an already weakened worldwide economy. As we sell products both in the United States and internationally, the threat of future terrorist attacks may adversely affect our business. These conditions make it difficult for us and for our customers to accurately forecast and plan future business activities and could have a material adverse effect on our business, financial condition and results of operations.

We are subject to risks associated with currency fluctuations.

We sell our products and services and incur a variety of costs outside of the United States. Therefore we are exposed to foreign currency exchange movements, particularly in the Euro, the Japanese Yen and, to a lesser extent,

the British Pound. With respect to revenue, our primary exposure exists during the period between execution of a purchase order denominated in a foreign currency and collection of the related receivable. During this period, changes in the exchange rates of the foreign currency to the U.S. Dollar will affect our revenue, cost of revenue and operating margins and could result in exchange losses. While a significant portion of our purchase orders to date have been denominated in U.S. Dollars, competitive conditions may require us to enter into an increasing number of purchase orders denominated in foreign currencies. We incur a variety of costs in foreign currencies, including some of our manufacturing costs, components and sales costs. While we have not entered into foreign currency hedging arrangements in the past, we may do so in the future. We cannot assure you that any hedging transactions we may enter into will be effective or will not result in foreign exchange hedging losses.

The technology labor market is very competitive, and our business will suffer if we are not able to hire and retain key personnel.

Our future success depends in part on the continued service of our key executive officers, as well as our research, engineering, sales, marketing, manufacturing and administrative personnel, most of whom are not subject to employment or non-competition agreements. In addition, competition for qualified personnel in the technology area is intense, and we operate in several geographic locations where labor markets are particularly competitive, including the Silicon Valley region of Northern California where our headquarters and central research and development laboratories are located. Our business is particularly dependent on expertise which only a very limited number of engineers possess. The loss of any of our key employees, or a broader loss of any of our employees who are highly-skilled in our specialized sector of IC technology, would materially adversely affect our business, financial condition and results of operations.

Our dependence on subcontractors and sole source suppliers may prevent us from delivering an acceptable product on a timely basis.

We rely on subcontractors to manufacture certain subassemblies for our products, and we rely on both single source and sole source suppliers, some of whom are relatively small in size, for many of the components we use in our products. Our reliance on subcontractors gives us less control over the manufacturing process and exposes us to significant risks, especially inadequate capacity, late delivery, substandard quality and high costs. Additionally, our subcontractors and suppliers are generally under no obligation to provide us with material for as long as our requirements may exist. As a result, the loss or failure to perform by any of these providers could adversely affect our business and operating results.

In addition, the manufacturing of certain components and subassemblies is an extremely complex process. Therefore, if a supplier became unable to provide the volume of parts required on a timely basis, or at an acceptable price, we would have to identify and qualify acceptable replacements from alternative sources of supply, or manufacture such components internally. The process of qualifying new subcontractors and new suppliers, or initiating manufacturing internally for these complex components is a lengthy process and could also materially adversely affect our business, financial condition and results of operations.

Third parties may claim we are infringing their intellectual property, and we could suffer significant litigation or licensing expenses or be prevented from selling our products or services.

Third parties may claim that we are infringing their intellectual property rights and we may be unaware of intellectual property rights of others that may cover some of our technology, products and services. Any litigation regarding patents or other intellectual property could be costly and time-consuming, and divert our management and key personnel from our business operations. The complexity of the technology involved and the uncertainty of intellectual property litigation increase these risks. Claims of intellectual property infringement might also require us to enter into costly royalty or license agreements. However, we may not be able to obtain royalty or license agreements on terms acceptable to us, or at all. We also may be subject to significant damages or injunctions against development and sale of certain of our products and services.

We often rely on licenses of intellectual property useful for our business. These licenses may not be available in the future on favorable terms, or at all. In addition, our position with respect to the negotiation of licenses may change as a result of our acquisition from Schlumberger. The loss of any of these licenses could harm our business, financial condition and results of operations.

Third parties may infringe our intellectual property, and we may expend significant resources enforcing our rights or suffer competitive injury.

Our success depends in large part on our proprietary technology. We rely on a combination of patents, copyrights, trademarks, trade secrets, confidentiality provisions and licensing arrangements to establish and protect our proprietary rights. If we fail to successfully enforce our intellectual property rights, our competitive position could suffer, which could harm our operating results.

Our pending patent and trademark registration applications may not be allowed or competitors may challenge the validity or scope of these patent applications or trademark registrations. In addition, our patents may not provide us with a significant competitive advantage.

We may be required to spend significant resources to monitor and protect our intellectual property rights. We may not be able to detect infringement and may lose competitive position in the market before we do so. In addition, competitors may design around our technology or develop competing technologies. Intellectual property rights may also be unavailable or limited in some foreign countries, which could make it easier for competitors to capture market share in those countries.

In the event that environmental contamination were to occur as a result of our ongoing operations, we could be subject to substantial liabilities in the future.

Our manufacturing processes involve the use of substances regulated under various international, federal, state and local laws governing the environment. The failure or inability to comply with existing or future laws could result in significant remediation liabilities, the imposition of fines or the suspension or termination of production. Schlumberger has agreed to indemnify us for up to three years from the acquisition date for environmental liabilities resulting from operations conducted prior to our acquisition of the NPTest business. However, we are responsible for any liabilities resulting from our operation of the business after the acquisition and also for future costs of compliance with these laws. In addition, we may not be aware of all conditions that could subject us to liability.

If our facilities were to experience catastrophic loss due to earthquake, our operations would be seriously harmed.

Several of our facilities could be subject to a catastrophic loss caused by earthquake. We have significant facilities in areas with above average seismic activity, such as our production facilities and headquarters in California. If any of these facilities were to experience a catastrophic loss, it could disrupt our operations, delay production and shipments, reduce revenue and result in large expenses to repair or replace the facility. We do not carry catastrophic insurance policies which cover potential losses caused by earthquakes.

We may incur a variety of costs to engage in future acquisitions of companies, products or technologies, and the anticipated benefits of those acquisitions may never be realized.

We may make acquisitions of, or significant investments in, complementary companies, products or technologies, although no acquisition or investments are currently pending. Any future acquisitions would be accompanied by risks such as:

•

difficulties in assimilating the operations and personnel of acquired companies;

•

diversion of our management’s attention from ongoing business concerns;

•

our potential inability to maximize our financial and strategic position through the successful incorporation of acquired technology and rights into our products and services;

•

additional expense associated with amortization of acquired assets;

•

maintenance of uniform standards, controls, procedures and policies;

•

impairment of existing relationships with employees, suppliers and customers as a result of the integration of new management personnel;

•

dilution to our stockholders in the event we issue stock as consideration to finance an acquisition; and

•

increased leverage if we incur debt to finance an acquisition.

We cannot guarantee that we will be able to successfully integrate any business, products, technologies or personnel that we might acquire in the future, and our failure to do so could harm our business.

Risks Related to Our Ownership by Francisco Partners and our Previous Ownership by Schlumberger

Our historical financial information may not be representative of our results as a separate company.

Our combined financial statements have been derived in part from the combined financial statements of Schlumberger. Accordingly, the historical financial information we have included in this prospectus does not necessarily reflect what our financial position, operating results and cash flows would have been had we been a separate, stand-alone entity during the periods presented. Schlumberger did not account for us, and we were not operated, as a separate, stand-alone entity during the periods in which we were owned by Schlumberger.

During the periods in which we were owned by Schlumberger, certain amounts of Schlumberger’s corporate expenses, including legal, accounting, employee benefits, real estate, insurance services, information technology services, treasury and other corporate and infrastructure costs, although not directly attributable to our operations, were allocated to us until the third quarter of 2002 on a basis that Schlumberger and we considered to be a reasonable reflection of the utilization of services provided or the benefit received by us. However, the financial information included in this prospectus may not reflect our combined financial position, operating results, changes in equity and cash flows in the future or what they would have been had we been a separate, stand-alone entity during the periods in which we were owned by Schlumberger.

Our overall tax rate will increase as a result of our acquisition from Schlumberger.

When we were owned by Schlumberger, our tax rate was based on our earnings before taxes in the various tax jurisdictions in which we operate throughout the world. Part of the income that was previously recognized from Schlumberger’s foreign operations and that was not subject to U.S. taxation due to Schlumberger’s foreign incorporation became subject to U.S. taxation following our acquisition from Schlumberger due to our incorporation in Delaware. As a result, we expect that our overall tax rate will increase. Our effective tax rates before adjustments for purchase accounting for 2002 and the six month period ended June 30, 2003 would have been 16% and 15%, respectively, had we been independent from Schlumberger, compared to a 12% tax rate for 2002 and a tax benefit for the six months ended June 30, 2003 when we were owned by Schlumberger.

We must create our own systems to operate as a stand-alone company.

During the period in which we were owned by Schlumberger we used Schlumberger’s systems and processes to support our operations, including to manage inventory, financial reporting, order processing and accounting. Many of these systems are critical to our business and very complex. We have created, and are continuing to upgrade, our systems and processes to perform these functions which we need in order to operate as a stand-alone public company. To the extent that we are not successful, our business, financial condition and results of operations may suffer.

We will be controlled by NPTest Holding, LLC as long as it owns a significant percentage of our common stock, and our other stockholders will be unable to affect the outcome of stockholder voting during such time.

After the completion of this offering, Francisco Partners will beneficially own approximately % of our outstanding common stock, or approximately % if the underwriters exercise in full their over-allotment option to purchase additional shares. Because of our ownership structure, we are not required to comply with regulations that would otherwise require a majority of our board to be comprised of independent directors. As long as NPTest Holding, LLC owns at least 25% of our outstanding common stock, it will continue to be able to nominate a majority of our board of directors in accordance with the terms of our stockholders’ agreement with NPTest Holding, LLC. Furthermore, investors in this offering will not be able to affect the outcome of any stockholder vote prior to the time that NPTest Holding, LLC owns less than a majority of our outstanding common stock. As a result, NPTest Holding, LLC will control all matters affecting us, including:

•

the composition of our board of directors and, through it, any determination with respect to our business direction and policies, including the appointment and removal of officers;

•

any determinations with respect to mergers or other business combinations;

•

our acquisition or disposition of assets; and

•

our financing.

In addition, to the extent that NPTest Holding, LLC continues to beneficially own a significant portion of our outstanding common stock, although less than a majority, it will continue to have a significant influence over all matters submitted to our stockholders and to exercise significant control over our business policies and affairs. In particular, for so long as NPTest Holding, LLC holds at least 25% of our common stock the board of directors is prohibited from taking many significant corporate actions without the consent of NPTest Holding, LLC, including mergers, acquisitions or sales of assets outside of the ordinary course of business, the issuance of securities and the incurrence of debt in excess of $10 million. Such power could have the effect of delaying, deterring or preventing a change of control or other business combination that might otherwise be beneficial to our stockholders. NPTest Holding, LLC also is not prohibited from selling a controlling interest in us to a third party or a participant in our industry. Furthermore, NPTest Holding, LLC and its designees on our board of directors may have interests that conflict with, or are different from, our own. For additional information regarding our relationship with NPTest Holding, LLC, you should read the section of this prospectus entitled “Certain Relationships and Related Transactions.”

As part of our acquisition from Schlumberger, we may be required to make additional payments to Schlumberger under certain circumstances.

As part of the consideration for the acquisition of the NPTest business from Schlumberger, we may be required to make additional payments to Schlumberger. We will be required to make a payment if NPTest Holding, LLC, our parent company, distributes to its members our stock, or other consideration in respect of our stock, with an aggregate value in excess of $330 million. The payment would be an amount equal to 15% of the excess of the aggregate value of the distribution by NPTest Holding, LLC to its members over $330 million. Once the first payment to Schlumberger occurs, future distributions from NPTest Holding, LLC will only require payment of an amount equal to 15% of that future distribution. Alternatively, upon the first anniversary of the completion of this offering or upon the first anniversary of an acquisition of our business, and in certain other circumstances, Schlumberger has the option to receive from us an amount equal to 15% of any excess over $330 million of the sum of the value of NPTest Holding, LLC’s then current holdings of our stock plus any proceeds previously received by NPTest Holding, LLC from our stock, including proceeds resulting from the transaction which triggered the payment obligation. We may generally settle this obligation in cash or shares of our common stock.

Furthermore, in the event of a merger, acquisition or sale of all or substantially all of our assets involving a specified party that occurs by January 26, 2004, and that results in NPTest Holding, LLC receiving at least $227 million in consideration, Schlumberger will have the right to receive from us an amount equal to 50% of the excess over $227 million of the value of the consideration received by NPTest Holding, LLC in such sale. The payment may be made in a combination of cash or stock, depending on the type of consideration received by NPTest Holding, LLC.

As a result of the foregoing, we could be required to make a substantial payment when we have not actually received any additional funds or issue additional shares of our common stock without receiving further consideration. In the event we issue additional shares of our common stock, our stockholders would suffer dilution. After completion of this offering, NPTest Holding, LLC will beneficially own % of our outstanding common stock and, as of the date of this offering, NPTest Holding, LLC has not received any distributions. This obligation is described more fully under “Certain Relationships and Related Party Transactions—Transactions with Schlumberger.”

Risks Related to the Securities Markets and Ownership of Our Common Stock

Future sales of our common stock could depress our stock price.

Sales of substantial amounts of our common stock by Francisco Partners, or the perception that these sales might occur, may depress prevailing market prices of our common stock. All of our outstanding shares are subject to lock-up agreements with our underwriters that prohibit the resale of these shares for 180 days from the date of this prospectus. The shares beneficially owned by Francisco Partners and Shah Management have the benefit of an agreement with us that provides for customary demand and piggyback registration rights. We will also be required to provide registration rights for any shares that may be issued to Schlumberger as part of the contingent consideration we may become obligated to pay them. Upon expiration of the 180-day lock-up, in addition to the shares beneficially owned by Francisco Partners and Shah Management that may be sold under a registration statement, shares underlying exercisable options to purchase our common stock will be available for resale without restriction or further registration under the Securities Act.

Our underwriters may release all or a portion of the shares subject to lock-up agreements at any time without notice.

Our securities have no prior trading history, and we cannot assure you that our stock price will not decline after the offering.

Before this offering, there has not been a public market for our common stock, and an active public market for our common stock may not develop or be sustained after this offering. The market price of our common stock could be subject to significant fluctuations after this offering. Among the factors that could affect our stock price are:

•

quarterly variations in our operating results;

•

our ability to successfully introduce new products and manage new product transitions;

•

changes in revenue or earnings estimates or publication of research reports by analysts;

•

speculation in the press or investment community;

•

strategic actions by us or our competitors, such as acquisitions or restructurings;

•

announcements relating to any of our key customers, significant suppliers or the semiconductor manufacturing and capital equipment industry generally;

•

general market conditions; and

•

domestic and international economic factors unrelated to our performance.

The stock markets in general, and the markets for technology stocks in particular, have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock. In particular, we cannot assure you that you will be able to resell your shares at or above the initial public offering price, which will be determined by negotiations between the representatives of the underwriters and us.

We have broad discretion in how we use a substantial portion of the net proceeds of this offering, and we may not use these proceeds in a manner desired by our stockholders.

We do not currently have a specific plan with respect to the use of a substantial portion of the net proceeds of this offering and have not committed these proceeds to any particular purpose. Accordingly, our management will have broad discretion with respect to the use of those net proceeds and investors will be relying on the judgment of our management regarding the application of these proceeds. Our management could spend these proceeds in ways which our stockholders may not desire or that do not yield a favorable return. You will not have the opportunity, as part of your investment in our common stock, to influence the manner in which the net proceeds of this offering are used. We plan to use the net proceeds from this offering to repay indebtedness, to redeem preferred stock and to pay a $5.0 million advisory termination fee to Francisco Partners. We plan to use the balance primarily for working capital and general corporate purposes, including the further development, production and commercialization of the Sapphire NP platform. We may also use a portion of the net proceeds to acquire complementary products, technologies or businesses, but currently we do not have any such transactions pending. Any investment may not yield a favorable return. Our financial performance may differ from our current expectations or our business needs may change as our business evolves. As a result, a substantial portion of the proceeds we receive in this offering may be used in a manner significantly different from our current expectations.

Provisions of our charter documents could discourage potential acquisition proposals and could delay, deter or prevent a change in control.

In addition to the provisions of our stockholders’ agreement with NPTest Holding, LLC described above, the provisions of our amended and restated certificate of incorporation and by-laws to be effective on the completion of this offering could deter, delay or prevent a third party from acquiring us, even if doing so would benefit our stockholders. These provisions include:

•

a requirement that special meetings of stockholders may be called only by our board of directors, the chairman of the board, the president or the secretary;

•

advance notice requirements for stockholder proposals and nominations; and

•

the authority of the board to issue, without stockholder approval, preferred stock with such terms as the board may determine.

You will incur immediate and substantial dilution.

The initial public offering price is substantially higher than the pro forma net book value per share of our outstanding common stock. As a result, if you purchase shares in this offering, you will incur immediate and substantial dilution in the amount of $ per share, assuming an initial public offering price of $ per share. In addition, we have issued options to acquire common stock at prices significantly below the initial public offering price. To the extent these securities are exercised, you will incur further dilution. See “Dilution” for a more complete description of the dilution that you will incur.

FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements which reflect our current views with respect to future events and financial performance. You should not rely on forward-looking statements in this prospectus. We use words such as “anticipates,” “believes,” “plans,” “expects,” “future,” “intends,” “may,” “will,” “should,” “estimates,” “predicts,” “potential,” “continue” and similar expressions to identify these forward-looking statements. This prospectus also contains forward-looking statements attributed to third parties relating to their estimates regarding the growth of our markets. All forward-looking statements address matters that involve risks and uncertainties. Accordingly, there are or will be important factors that could cause our actual results, as well as those of the markets we serve, levels of activity, performance, achievements and prospects to differ materially from the results predicted, and our reported results should not be considered as an indication of our future performance. These risks, uncertainties and other factors include, among others, those identified in “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this prospectus. We undertake no obligation to publicly update or review any forward-looking statements, whether as a result of new information, future developments or otherwise.

USE OF PROCEEDS

We estimate that our net proceeds from this offering will be approximately $160.8 million, based on an assumed initial public offering price of $ per share after deducting underwriting discounts and estimated expenses payable by us. We will not receive any proceeds from the exercise of the underwriters’ over-allotment option. We expect to use our net proceeds from the sale of the shares in this offering to repay our $75 million principal amount senior term loan, plus any accrued but unpaid interest, from an affiliate of Citigroup, one of the underwriters of this offering. The loan currently bears interest at an annual rate of LIBOR plus 150 basis points and matures on July 29, 2006. It is guaranteed by Francisco Partners, the principal beneficial holder of our common stock. The loan was used by us to finance in part our acquisition of NPTest, Inc. from Schlumberger. We intend to use $20.75 million of our net proceeds for the redemption of a portion of the mandatory redeemable Series A Preferred Stock issued by our subsidiary, NPTest Capital Corporation, all of which is held by NPTest Holding, LLC, which is 95.7% owned by Francisco Partners and 4.3% owned by Shah Management. In addition, $5.0 million of our net proceeds will be used to make a one-time payment to Francisco Partners in consideration for the termination of certain obligations to Francisco Partners. See “Certain Relationships and Related Party Transactions—Relationship with Francisco Partners.” The remainder of our net proceeds from this offering will be used for working capital and general corporate purposes, including the further development, production and commercialization of the Sapphire NP platform, and investments in selling, general and administrative activities and other product development. In addition, we may use a portion of the net proceeds to acquire complementary products, technologies or businesses.

We will have significant discretion in the use of a significant portion of the net proceeds we receive from this offering. Investors will be relying on the judgment of our management regarding the application of those net proceeds. In addition, any investments, capital expenditures, cash acquisitions or other application of our proceeds may not produce the anticipated results. Pending use of these proceeds as discussed above, we intend to invest these funds in short-term, interest-bearing investment-grade obligations.

DIVIDEND POLICY

We have not paid any cash dividends on our common stock since we were acquired from Schlumberger. We intend to retain any future earnings to fund the development and growth of our business. We do not anticipate paying any cash dividends in the foreseeable future. Any determination to pay dividends in the future will be at the discretion of our board of directors and will require the approval of NPTest Holding, LLC for so long as it holds at least 40% of our common stock.

CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of June 30, 2003. Our capitalization is presented:

•

on an actual basis;

•

on a pro forma basis giving effect to the pro forma adjustments arising from the acquisition of NPTest, Inc. from Schlumberger; and

•

on a pro forma as adjusted basis to reflect:

•

the pro forma effect of the acquisition of NPTest, Inc. from Schlumberger;

•

our application of the net proceeds from the sale of the shares of common stock by us in this offering, based on an assumed initial public offering price of $ per share after deducting underwriting discounts and estimated expenses payable by us, to repay our existing $75.0 million senior term loan, redeem $20.75 million of the outstanding mandatory redeemable Series A Preferred Stock of our subsidiary, NPTest Capital Corporation, and make a one-time payment of $5.0 million to Francisco Partners in consideration for the termination of certain obligations to Francisco Partners;

•

the exchange immediately prior to completion of this offering of all remaining shares of mandatory redeemable Series A Preferred Stock of NPTest Capital Corporation held by NPTest Holding, LLC (including the additional amounts accreted from July 29, 2003 through the assumed closing date of this offering) for shares of our common stock at $ per share, the assumed initial public offering price; and

•

the exchange immediately prior to completion of this offering of all of our outstanding shares of convertible mandatory redeemable preferred stock (including the additional amounts accreted from July 29, 2003 through the assumed closing date of this offering) for shares of our common stock at $1.02304 per share, the conversion price of the preferred stock.

You should read the information set forth below together with the “Pro Forma Condensed Financial Statements,” our combined financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.

	June 30, 2003
	Actual			Pro Forma			Pro Forma As Adjusted
	(in thousands)
Cash and cash equivalents	$	0	(b)	$	4,942		$


Long-term debt	$	—		$	75,000		$
Mandatory redeemable preferred stock		—			48,641
Convertible mandatory redeemable preferred stock		—			15,838
Stockholders’ equity:
Preferred stock, par value $0.001 per share, shares authorized; no shares issued and outstanding		—
Common stock, par value $0.001 per share, shares authorized; shares issued and outstanding, actual and pro forma; and shares issued and outstanding, pro forma as adjusted (a)		0	(b)		22
Additional paid in capital					90,457
Accumulated deficit		—			(5,000	)

Total stockholders’ equity		0	(b)		85,479

Total capitalization	$	0	(b)	$	224,958		$

(a)

The number of shares of common stock outstanding after this offering excludes: shares subject to options outstanding as of June 30, 2003 at a weighted average exercise price of $ per share; and additional shares reserved for issuance, in each case, under our stock option plan as amended upon completion of this offering.

(b)

Represents one dollar ($1) rounded down to zero because amounts are presented in thousands.

DILUTION

Dilution in unaudited pro forma net tangible book value per share represents the difference between the amount per share paid by purchasers of shares of our common stock in this offering and the pro forma net tangible book value per share of our common stock immediately after this offering. Pro forma net tangible book value per share is determined by dividing our pro forma stockholders’ net investment, which is total pro forma tangible assets less total liabilities, in each case as set forth in the “Pro Forma Condensed Financial Statements” appearing elsewhere in this prospectus, by the number of shares of common stock outstanding immediately before this offering. Our net tangible book value, on a pro forma basis to reflect the acquisition of our business from Schlumberger, at June 30, 2003, was approximately $ million, or $ per share. After giving effect to our sale of shares of common stock in this offering, based on an assumed initial public offering price of $ per share, and after deducting underwriting discounts and estimated expenses payable by us, our pro forma as adjusted net tangible book value at June 30, 2003, would have been approximately $ million, or $ per share. This represents an immediate increase in pro forma net tangible book value of $ per share to our existing stockholder and an immediate dilution in pro forma net tangible book value of $ per share to new investors purchasing shares of common stock in this offering. The following table illustrates this dilution per share:

Assumed initial public offering price per share		$
Pro forma net tangible book value per share before this offering, as of June 30, 2003	$
Increase per share attributable to new investors

Pro forma as adjusted net tangible book value per share after this offering

Dilution in pro forma net tangible book value per share to new investors		$

The discussion and table above assume no exercise of options outstanding under our stock option plan and no issuance of shares reserved for future issuance under our stock option plan.

Assuming this offering had occurred on June 30, 2003, the following table summarizes the differences between the total consideration paid, or to be paid, and the average price per share paid, or to be paid, by our current stockholder and the investors in this offering with respect to the number of shares of common stock purchased from us (without giving effect to the underwriting discount and offering expenses payable by us):

	Shares Purchased			Total Consideration			Average Price Per Share
	Number	Percent		Amount	Percent		Average Price Per Share
Current stockholder				$			$
New investors							$

Total		100	%	$	100	%

If the underwriters exercise their over-allotment option in full, the following will occur: (1) the number of shares of common stock held by our current stockholder will represent approximately % of the total number of shares of common stock outstanding; and (2) the number of shares of common stock held by new investors will increase to , or approximately % of the total number of shares of our common stock outstanding after this offering.

As of , 2003, without giving effect to the amendment of our stock option plan, there were an aggregate of (1) shares of common stock issuable upon the exercise of outstanding options granted under our stock plan at a weighted average exercise price of $ per share, of which no options to purchase shares were then exercisable; and (2) additional shares of common stock reserved for future issuance under our existing stock option plan. Upon completion of this offering, the total number of additional shares reserved for future issuance under our stock option plan following the completion of this offering will be .

The following table adjusts the information set forth in the table above to reflect the assumed exercise of options described in the preceding paragraph that were outstanding as of , 2003:

	Shares Purchased			Total Consideration			Average Price
	Number	Percent		Amount	Percent		Per Share
Current stockholder				$			$
Option holders							$
New investors in this offering							$

Total		100	%	$	100	%

UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION

NPTest Holding Corporation was formed in June 2003 for the purpose of acquiring NPTest, Inc. from Schlumberger on July 29, 2003 and had no operations prior to this date. Accordingly, the following Unaudited Pro Forma Combined Condensed Financial Information of NPTest Holding Corporation has been prepared based on the combined financial statements of NPTest, Inc., predecessor to NPTest Holding Corporation, included elsewhere in this prospectus, adjusted to give pro forma effect to the additional capitalization of NPTest Holding Corporation, subsequent to June 30, 2003, and the acquisition of NPTest, Inc. The Unaudited Pro Forma financial information has been further adjusted to give effect to (i) the pro forma effect of the acquisition of NPTest, Inc. from Schlumberger; (ii) our application of the estimated net proceeds from the sale of the shares of common stock by us in the offering, based on an assumed initial public offering price of $ per share after deducting underwriting discounts and estimated expenses payable by us, to repay our existing $75.0 million senior term loan, to redeem $20.75 million of the outstanding mandatory redeemable Series A Preferred Stock of our subsidiary, NPTest Capital Corporation, and to make a one-time payment of $5.0 million to Francisco Partners payable in consideration for the termination of certain obligations to Francisco Partners; (iii) the exchange immediately prior to completion of this offering of all remaining shares of mandatory redeemable Series A Preferred Stock of NPTest Capital Corporation (including the additional amounts accreted from July 29, 2003 through the assumed closing date of the offering) held by NPTest Holding, LLC for shares of our common stock at $ per share, the assumed initial public offering price, and (iv) the exchange immediately prior to completion of this offering of all of our outstanding shares of convertible mandatory redeemable Series A Preferred Stock (including the additional amounts accreted from July 29, 2003 through the assumed closing date of the offering) held by NPTest Holding, LLC for shares of our common stock at $1.02304 per share, the conversion price of the preferred stock. The unaudited pro forma combined condensed statements of operations of NPTest Holding Corporation for the six months ended June 30, 2003 and the year ended December 31, 2002 give effect to the Acquisition as if it had occurred at January 1, 2002. The unaudited pro forma combined condensed balance sheet of NPTest Holding Corporation gives effect to the acquisition as if it had occurred on June 30, 2003. The Unaudited Pro Forma as adjusted financial information gives effect to the completion of this offering and the application of the proceeds therefrom as if it had occurred on June 30, 2003.

The unaudited pro forma adjustments, which are based upon available information and upon assumptions that management believes are reasonable, are described in the accompanying notes. The Unaudited Pro Forma Combined Condensed Financial Information is for informational purposes only and do not purport to represent what our financial position or results of operations would actually have been had the acquisition and the offering occurred as of the dates indicated, nor does the Unaudited Pro Forma Combined Condensed Financial Information purport to project our results for any future period.

The acquisition was accounted for using the purchase method of accounting. The purchase price has been allocated to the assets acquired and liabilities assumed, based on their respective fair values. The purchase accounting adjustments reflect the fair values of the assets that were acquired and liabilities assumed and were determined by management.

Prior to the acquisition, NPTest, Inc. was a fully integrated business of several indirect wholly owned subsidiaries of Schlumberger Limited. Consequently, the historical combined financial statements of NPTest, Inc. have been derived from the consolidated financial statements and accounting records of Schlumberger Limited and reflect significant assumptions and allocations. The combined financial statements of NPTest, Inc. include the historical assets, liabilities, revenues and expenses that were directly related to the NPTest, Inc. business of Schlumberger. Certain amounts of Schlumberger’s corporate expenses, including legal, accounting, employee benefits, real estate, insurance services, information technology services, treasury and other corporate and infrastructure costs although not directly attributable to NPTest, Inc.’s operations, have benefited NPTest, Inc. and have been allocated to NPTest, Inc. Management believes that these costs have been allocated on a reasonable basis. However, as a result of these allocations, the audited combined financial statements may not

reflect the combined financial position, operating results, changes in equity and cash flows of NPTest, Inc. in the future or what they would have been had NPTest, Inc. been a separate, stand-alone entity during the periods presented.

You should read the Unaudited Pro Forma Combined Condensed Financial Information in conjunction with the “Selected Historical Combined Financial Statements of NPTest, Inc.,” the audited combined financial statements of NPTest, Inc. as of and for six month period ended June 30, 2003 and at and for the three year period ended December 31, 2002, and the audited balance sheet of NPTest Holding Corporation at June 30, 2003, together with the related notes, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the other financial information included elsewhere in this prospectus.

NPTest Holding Corporation

UNAUDITED PRO FORMA COMBINED CONDENSED

BALANCE SHEET

As of June 30, 2003

(in thousands)

	NPTest Holding Corporation			NPTest, Inc. (Predecessor)		Adjustments for Purchase Accounting and the Acquisition Financing			Pro Forma			Adjustments for the Offering			Pro Forma As Adjusted
Assets
Current assets:
Cash and cash equivalents	$	0	(a)	$	4,290	$	652	(b)	$	4,942		$			$
Accounts receivable					56,812					56,812
Receivables from related parties					1,367		(1,367	)(c)		—
Inventory					101,457		10,430	(d)		111,887
Deferred income taxes					34,404		(7,682	)(e)		26,722
Prepaid expenses and other current assets					6,978		2,878	(f)		9,856

Total current assets		0	(a)		205,308		4,911			210,219
Property, plant and equipment, net					23,506		1,210	(g)		24,716
Goodwill					—		8,099	(h)		8,099
Intangible assets					—		25,300	(i)		25,300
Deferred income taxes					1,199		(1,151	)(e)		48
Deferred financing costs					—		3,537	(j)					(p	)
							2,038	(m)		5,575
Other assets					283		—			283

Total assets	$	0	(a)	$	230,296	$	43,944		$	274,240		$			$

Liabilities, Convertible, Mandatory Redeemable Preferred Stock and Stockholders’ Equity
Current liabilities:
Accounts payable	$			$	9,846	$	—		$	9,846		$			$
Accrued liabilities					26,417		—			26,417
Payables to related parties					69		(69	)(c)		—
Income taxes payable					2,878					2,878

Total current liabilities					39,210		(69	)		39,141
Senior term loan					—		75,000	(j)		75,000			(p	)
Deferred income taxes							9,499	(e)		9,499
Mandatory redeemable preferred stock							50,000	(k)
							(1,359	)(m)		48,641			(q	)
Pension and post-retirement benefits					642		—			642

Total liabilities					39,852		133,071			172,923

Convertible mandatory redeemable preferred stock					—		68,000	(k)		—
							(1,848	)(m)		—
Stockholders’ Equity							(50,314	)(n)		15,838			(q	)

Stockholders’ net investment					190,444		(190,444	)(k)		—
Common stock		0	(a)		—		22	(1)		22			(q	)
Additional paid in capital					—		40,143	(1)		—
							50,314	(n)		90,457
Accumulated deficit					—		(5,000	)(o)		(5,000	)

Stockholders’ equity					190,444		(104,965	)		85,479
Total liabilities, convertible, mandatory redeemable preferred stock and stockholders’ equity	$	0	(a)	$	230,296	$	43,944		$	274,240		$			$

See accompanying Notes to the Unaudited Pro Forma Combined Condensed Financial Information.

NPTest Holding Corporation

UNAUDITED PRO FORMA COMBINED CONDENSED

STATEMENT OF OPERATIONS

For the six month period ended June 30, 2003

(in thousands, except per share data)

	NPTest, Inc. (Predecessor)			Adjustments for Purchase Accounting and the Acquisition Financing			Pro Forma			Adjustments for the Offering			Pro Forma As Adjusted
Net revenue
Product	$	83,830		$	—		$	83,830		$			$
Services		33,954			—			33,954

Total net revenue		117,784			—			117,784
Cost of net revenue
Product		49,009			151	(s)		49,160
Services		21,798			—			21,798
Amortization of identifiable intangible assets		—			1,114	(v)		1,114

Total cost of net revenue		70,807			1,265			72,072

Operating expenses
Research and development		23,152			—			23,152
Selling, general and administrative		20,872			1,000	(t)
					(473	)(u)		21,399			(r	)

Total operating expenses		44,024			527			44,551
Operating income (loss)		2,953			(1,792	)		1,161
Interest expense		—			(1,932	)(w)		(1,932	)		(bb	)
Mandatory redeemable preferred dividend		—			(2,067	)(x)		(2,067	)		(cc	)
Foreign currency transactions gain (loss), net		(510	)		—			(510	)

Income (loss) before income taxes		2,443			(5,791	)		(3,348	)
Income tax provision (benefit)		(209	)		(870	)(z)		(1,079	)		(z	)

Net income (loss)	$	2,652			(4,921	)		(2,269	)	$			$

Preferred stock dividends					(4,445	)(y)		(4,445	)
Net income (loss) attributable to common shareholders				$	(9,366	)	$	(6,714	)

Pro forma net income (loss) per share
Basic							$	(0.30	)(aa)				$	(dd	)

Diluted							$	(0.30	)(aa)				$	(dd	)

Weighted average shares used in pro forma net income (loss) per share calculation
Basic								22,499

Diluted								22,499

Note: NPTest Holding Corporation was formed in June 2003 and did not have any operations during the period presented.

See accompanying Notes to the Unaudited Pro Forma Combined Condensed Financial Information.

NPTest Holding Corporation

UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS

For the year ended December 31, 2002

(dollars in thousands, except per share data)

	NPTest, Inc. (Predecessor)			Adjustments for Purchase Accounting and the Acquisition Financing			Pro Forma			Adjustments for the Offering			Pro Forma As Adjusted
Net revenue
Product	$	180,035		$	—		$	180,035		$			$
Services		63,456			—			63,456

Total net revenue		243,491			—			243,491
Cost of net revenue
Product		110,056			302	(s)		110,359
Services		38,137			—			38,137
Amortization of identifiable intangible assets		—			11,929	(v)		11,929

Total cost of net revenue		148,193			12,231			160,425

Operating expenses:
Research and development		36,573			—			36,573
Selling, general and administrative		49,652			2,000	(t)
					(946	)(u)		50,706			(r	)
Gain on curtailment of pensions and employee benefits		(8,667	)		—			(8,667	)

Total operating expenses		77,558			1,054			78,612
Operating income (loss)		17,740			(13,285	)		4,454
Interest expense		—			(3,670	)(w)		(3,670	)		(bb	)
Mandatory redeemable preferred dividend		—			(4,134	)(x)		(4,134	)		(cc	)
Foreign currency transactions gain (loss), net		(1,147	)		—			(1,147	)

Income (loss) before income taxes		16,593			(21,089	)		(4,497	)
Income tax provision (benefit)		2,117			(5,743	)(z)		(3,626	)		(z	)

Net income (loss)	$	14,476			(15,346	)		(871	)	$			$

Preferred stock dividends					(8,604	)(y)		(8,604	)
Net income (loss) attributable to common shareholders				$	(23,950	)	$	(9,475	)

Pro forma net income (loss) per share:
Basic							$	(0.42	)(aa)				$	(dd	)

Diluted							$	(0.42	)(aa)				$	(dd	)

Weighted average shares used in pro forma net income (loss) per share calculation
Basic								22,499

Diluted								22,499

Note: NPTest Holding Corporation was formed in June 2003, and did not have any operations during the period presented.

See accompanying Notes to the Unaudited Pro Forma Combined Condensed Financial Information.

NPTest Holding Corporation

NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED

FINANCIAL INFORMATION

(dollars in thousands)

(a)

Represents one dollar ($1) rounded down to zero because amounts are presented in thousands.

(b)

To record NPTest Holding Corporation’s remaining cash balance after the capitalization of NPTest Holding Corporation in July 2003 and the acquisition of NPTest, Inc. from Schlumberger.

(c)

To eliminate amounts due from and payable to Schlumberger as these were settled as part of the acquisition.

(d)

To adjust inventory to fair value based on stage of completion less cost to dispose.

(e)

To adjust deferred income tax assets and liabilities to reflect the tax effects of the acquisition and the application of purchase accounting.

(f)

To record amounts receivable from Schlumberger to fund the income tax payable liability as of the date of the acquisition.

(g)

To adjust Property Plant and Equipment to fair value (see footnote (2) below).

(h)

To record goodwill arising from the acquisition.

(i)

To record identified intangible assets acquired in the acquisition (see footnote (4) below).

(j)

To record the senior term loan of $75,000 and related deferred financing costs of $3,537 of fees paid to lenders and $2,038 of fees paid to Francisco Partners (see (m) below for terms related to the fees to Francisco Partners).

(k)

To eliminate NPTest, Inc.’s (Predecessor) stockholders’ net investment and to record the additional capitalization of NPTest Holding Corporation. In addition to the senior term loan, NPTest Holding Corporation and a subsidiary issued common stock and preferred stock in July 2003 to fund the acquisition:

•

NPTest Holding Corporation issued $40,000 of common stock.

•

The $68,000 convertible mandatory redeemable preferred stock was issued by NPTest Holding Corporation and is convertible at the option of the holder and is redeemable on July 31, 2013. The convertible, mandatory redeemable preferred stock accrues dividends at the rate of 9% and is convertible into shares of common stock, at the option of the holder, at a conversion price of $1.02304. The carrying amount of the preferred stock was reduced by the amount of the beneficial conversion feature of $50,314 (see (n) below).

•

The $50,000 mandatory redeemable preferred stock was issued by NPTest Capital Corporation, a subsidiary of NPTest Holding Corporation and is redeemable on July 31, 2013. The mandatory redeemable preferred stock accrues dividends at the rate of 8%, however, it is not convertible and does not grant its holders any voting rights.

Above amounts were recorded net of issuance costs. See (m) below.

(1)

Purchase accounting adjustments and acquisition financing transactions were recorded in common stock, and consist of the following (please see note references above for further detail of each adjustment):

652	(b)		Remaining cash balance after capitalization and acquisition activity
(1,298)	(c)		Elimination of Schlumberger net receivable
10,430	(d)		Inventory fair value adjustment - purchase accounting adjustment
(7,682)	(e)		Deferred tax adjustment - current asset
2,878	(f)		Income tax receivable due from Schlumberger
1,210	(g)		PP&E fair value adjustment - purchase accounting adjustment
8,099	(h)		Goodwill - purchase accounting adjustment
25,300	(i)		Identifiable intangible assets - purchase accounting adjustment
(1,151)	(e)		Deferred tax adjustment - noncurrent asset
3,537	(j)		Deferred financing costs for senior term loan
2,038	(m)		Capitalized fees paid to Francisco Partners
(75,000)	(j)		Senior term loan
(9,499)	(e)		Deferred tax adjustment - noncurrent liability
(50,000)	(k)		Capitalization of NPTest Holding Corp - mandatory redeemable preferred stock
1,359	(m)		One time transaction fee paid to Francisco Partners - mandatory redeemable preferred stock
(68,000)	(k)		Capitalization of NPTest Holding Corp - convertible, mandatory redeemable preferred stock
1,848	(m)		One time transaction fee paid to Francisco Partners - convertible, mandatory redeemable preferred stock
190,444	(k)		NPTest Holding Corp capitalization adjustment
5,000	(o)		To expense in-process research and development

40,165
(22)		Common stock

$ 40,143		To additional paid in capital

(m)

To record a one-time transaction fee of $6,270, plus out-of-pocket expenses paid to Francisco Partners and Shah Management in connection with raising the equity and financing for the acquisition. The transaction fee was recorded against the proceeds of the debt and equity financings as follows based on the relative proceeds:

Senior term loan (amount to be amortized over term of financing)	$	2,038
Mandatory redeemable preferred stock		1,359
Convertible mandatory redeemable preferred stock		1,848
Common stock		1,087

Total	$	6,332

(n)

The convertible, mandatory redeemable preferred stock is convertible into common stock at a conversion ratio that results in a beneficial conversion feature of $50,314.

(o)

To expense in-process research and development. See footnote 5 below.

(p)

To record use of proceeds from this offering to repay the senior term loan and to record the write-off of existing deferred financing costs.

(q)

To record the pro forma effect of the offering and the related issuance of shares of common stock for total net proceeds of $ . Part of the proceeds from the offering will be used to redeem $20.75 million of mandatory redeemable preferred stock of NPTest Capital Corporation. The remaining shares of mandatory redeemable preferred stock of NPTest Capital Corporation will be exchanged for shares of our common stock at $ per share, the assumed initial public offering price. In addition, the holder of the convertible, mandatory redeemable preferred stock will exchange its preferred stock for common stock of NPTest Holding Corporation at a conversion price of $1.02304.

(r)

To eliminate the advisory fee expense because under the amended advisory agreement, upon completion of the offering, NPTest Holding Corporation will pay to Francisco Partners an aggregate of $5,000 in lieu of all future annual advisory fees under the agreement. The $5,000 will be expensed at the time of the offering.

(s)

To record the increase to depreciation of Property Plant and Equipment due to the purchase accounting adjustment.

(t)

To record amounts payable to Francisco Partners for advisory services following the acquisition. The advisory fee is payable based on the greater of the $2,000 per year or 0.6% of our combined annual revenue for the last twelve months.

(u)

To record future payments to be received from Schlumberger for services provided under the transition services agreement at the rate of $89 per month. This was partially offset by future payments to be paid to Schlumberger for services received under the transition services agreement at the rate of $10 per month.

(v)

To record the amortization of identifiable intangibles acquired in the acquisition.

(w)

To record additional interest expense resulting from the borrowing of $75,000 for the senior term loan and includes $1,712 and $953 of deferred financing cost amortization for the year ended December 31, 2002 and the six months ended June 30, 2003, respectively. Such borrowing is expected to bear interest at the current Fed Funds or the Euro Libor rates plus a margin. For purposes of the adjustment, we have assumed a rate of 2.61% per annum. If the assumed rate increased (decreased) by 12.5 basis points then the interest expense would increase (decrease) by $89 and $49 for the year ended December 31, 2002 and the six month period ended June 30, 2003, respectively.

(x)

To record dividends as interest expense for the mandatory redeemable preferred stock of NPTest Capital Corporation. In addition, the amount includes accretion of issuance costs.

(y)

To record dividends for the convertible mandatory redeemable preferred stock issued by NPTest Holding Corporation. In addition, the amount includes accretion of issuance costs and accretion of beneficial conversion features over the 10 year period to the mandatory redemption date of the preferred stock.

(z)

Following our acquisition from Schlumberger, we will be subject to U.S. taxation due to our incorporation in Delaware. As a result, the tax expense (benefit) computed for adjustments for purchase accounting includes incremental U.S. tax on income earned by foreign subsidiaries on selling products and services outside its country of incorporation. The adjustments for purchase accounting were tax effected based on statutory tax rates of the respective countries that were impacted by the gross adjustments. The tax rate used was based on an average tax rate by using the ratio of the amount of deferred tax assets to gross temporary differences in each incorporation before the adjustments for purchase accounting. The tax rate for the period ended December 31, 2002 and the six month period ended June 30, 2003 was 27% and 15% respectively.

(aa)

Weighted average shares used in calculating earnings per share include the 22,499,000 shares of common stock issued on July 29, 2003. The convertible mandatory redeemable preferred stock issued on July 29, 2003 is anti-dilutive.

(bb)

To eliminate interest expense resulting from the senior term loan to be repaid in full from the proceeds of the offering.

(cc)

To eliminate preferred dividends for the mandatory redeemable preferred stock and the convertible, mandatory redeemable preferred stock which are to be exchanged for common stock of NPTest Holding Corporation at the time of the offering (see (q) above).

(dd)

Weighted average shares used in calculating earnings per share include the 22,499,000 shares of common stock issued on July 29, 2003, the shares of common stock resulting from exchange of the convertible mandatory redeemable preferred stock, the shares of common stock resulting from redemption of mandatory redeemable preferred stock of NPTest Capital Corporation (see (q) above) and the shares of common stock issued in this offering.

We accounted for the Acquisition as a purchase in accordance with Statement of Financial Accounting Standards, or SFAS, No. 141, “Business Combinations.” All acquired tangible assets, identifiable intangible assets as well as assumed liabilities were valued based on their relative fair values.

The following table summarizes the sources and uses of funds related to the acquisition of NPTest, Inc. from Schlumberger:

Sources:
Senior term loan	$	75,000
Common stock		40,000
Mandatory redeemable preferred stock		50,000
Convertible mandatory redeemable preferred stock		68,000

Total sources	$	233,000

Uses:
Cash paid to Schlumberger	$	220,290
Legal and accounting fees for the acquisition		2,189

Net purchase price		222,479
Transaction costs related to senior term loan (see (j) above)		3,537
Transaction cost to capitalize NPTest Holding Corporation (see (l) above)		6,332
Cash remaining		652

Total uses	$	233,000

The following presents the preliminary allocation to the acquired assets and liabilities as of July 29, 2003, the date the acquisition of NPTest, Inc. was completed:

Description	Remaining Useful Life In Years	Estimated Fair Value
Net current assets(1)(3)		$	169,134
Property, plant & equipment(2)	4		24,600
Other assets			283
Identified intangibles(4):
Customer contracts and relationships	7		1,500
Developed technologies	7		14,100
Backlog	0.3		9,700
Goodwill			8,099
Other non-current liabilities			(486	)
Long term deferred taxes(3)			(9,451	)


Net assets			217,479
In-process research & development(5)			5,000


Net purchase price(6)		$	222,479

(1)

Acquired current assets included cash and cash equivalents, accounts receivable, inventories and other current assets. The fair values of current assets generally approximated the recorded historic book values. Short-term investments were valued based on quoted market prices. Inventory values were estimated based on the current market value of the inventories less completion costs and less a profit margin for activities remaining to be completed until the inventory is sold. Assumed current liabilities included accounts payable, accrued compensation and expenses and accrued income taxes. The fair values of current liabilities generally approximated the historic recorded book values because of the monetary nature of most of the liabilities.

(2)

Management estimated the value of the acquired property, plant and equipment. In arriving at the determination of market value for the assets, the estimated cost to construct or acquire comparable property was considered. Machinery and equipment were assessed using replacement cost estimates reduced by depreciation factors representing the condition, functionality and operability of the assets. The sales comparison approach was used for office and data communication equipment. Land, land improvements, buildings, and building and leasehold improvements were valued based upon discussions with knowledgeable personnel.

(3)

Deferred taxes were calculated based on the difference between the tax basis and the fair value of the asset acquired excluding non-deductible goodwill.

(4)

The acquired identified intangibles were valued based on management estimates. The significant assumptions relating to each category are discussed in the following paragraphs. Also, these assets are being amortized on the straight-line basis over their estimated useful life and resultant amortization is included in amortization of other intangibles.

Customer contracts and relationships—The value of customer contracts and relationships was determined by discounting net cash flows attributable to current customer contracts and relationships adjusted to take into account expected attrition.

Backlog—The value of current backlog was determined by discounting expected net cash flows attributable to current backlog.

Developed technologies—The value of this asset was determined by discounting the expected future cash flows attributable to all existing technologies which had reached technological feasibility, after considering risks relating to: (1) the characteristics and applications of the technology, (2) existing and future markets, and (3) life cycles of the technologies. Estimates of future revenues and expenses used to determine the value of developed technology was consistent with the historical trends in the industry and expected outlooks.

(5)

In-process research & development—The value of in-process research & development was based on an evaluation of all developmental projects using the guidance set forth in Interpretation No. 4 of Statement of Financial Accounting Standards, or SFAS, No. 2, “Accounting for Research and Development Costs.”

The amount relates solely to the Sapphire NP tester product that is beyond the conceptualization phase and has no alternative future use.

The amount was determined by: (1) obtaining management estimates of future revenues and operating profits associated with existing development projects, (2) projecting the cash flows and costs to complete the underlying technologies and resultant products and (3) discounting these cash flows to their net present value.

Estimates of future revenue and expenses used to determine the value of in-process research and development was consistent with the historical trends in the industry and expected outlooks. The entire amount of $5,000 was charged to operations because related technologies had not reached technological feasibility and they had no alternative future use.

(6)

The Net Purchase Price is calculated as follows (in thousands):

Cash paid to Schlumberger	$	220,290
Legal and accounting fees		2,189

Total	$	222,479

The Net Purchase Price above does not reflect contingent consideration described below:

In connection with the acquisition, NPTest Holding Corporation agreed that Schlumberger would have a right to participate, to a limited extent, in a portion of future increases in the value of the business.

In particular, under the agreement, we will be required to make payments to Schlumberger under the following scenarios:

•

if NPTest Holding, LLC at any time distributes to its members our stock, or other consideration in respect of our stock, with a cumulative aggregate value in excess of $330 million. Upon the first such distribution, we would make a payment equal to 15% of the excess of the aggregate value of the distribution by NPTest Holding, LLC to its members over $330 million which would be in the same form (i.e. cash or stock) as the distribution. Upon any subsequent distribution, we would make a payment equal to 15% of that subsequent distribution; or

•

on the earlier of (i) the first anniversary of the completion of this offering or (ii) the date after the offering that NPTest Holding, LLC has received at least $330 million in cash proceeds related to our stock. Upon this date, Schlumberger will have the option, at its election (a “Value Increase Election”), to receive from us a one-time payment, in lieu of any other payments, equal to 15% of the excess over $330 million of the sum of the then current value of NPTest Holding, LLC’s remaining holdings of our stock plus any proceeds related to our stock previously received by NPTest Holding, LLC; or

•

on the earlier of (i) the first anniversary of the closing of a merger, acquisition or sale of all or substantially all of our assets in which either (a) NPTest Holding, LLC receives (together with all cash proceeds related to our stock previously received by NPTest Holding, LLC) at least $330 million in cash proceeds related to our stock or (b) NPTest Holding, LLC receives proceeds consisting only of cash and freely tradeable securities, or (ii) the date after such a merger, acquisition or sale that NPTest Holding, LLC has received at least $330 million in cash proceeds related to our stock. Upon this date, Schlumberger will have the option, at its election (an “Acquisition Election”), to receive from us a one-time payment, in lieu of any other payments, equal to 15% of the excess over $330 million of the sum of the then current value of NPTest Holding, LLC’s remaining holdings of our stock plus any proceeds related to our stock previously received by NPTest Holding, LLC plus the consideration received by NPTest Holding, LLC from the acquisition.

If Schlumberger makes a Value Increase Election or an Acquisition Election, we may choose to make the payment in any combination of cash or stock. If we make the payment in stock, we have agreed to use our reasonable efforts to give Schlumberger customary registration rights.

Furthermore, in the event of a merger, acquisition or sale of all or substantially all of NPTest Holding Corporation’s assets involving a specified party that occurs by January 26, 2004, and that results in NPTest Holding, LLC receiving at least $227,000 in consideration, Schlumberger will have the right to receive from NPTest Holding Corporation an amount equal to 50% of the excess over $227,000 of the value of the consideration received by NPTest Holding, LLC in such sale. The payment may be made in a combination of cash or stock, depending on the type of consideration received by NPTest Holding, LLC.

To the extent contingent consideration is paid, it will be reflected as an adjustment to goodwill. No amount is estimable at this time.

SELECTED COMBINED FINANCIAL DATA

NPTest Holding Corporation was formed in June 2003 for the purpose of acquiring NPTest, Inc. from Schlumberger. Accordingly, our operations prior to our acquisition of NPTest, Inc. on July 29, 2003 were not meaningful. The statement of operations and balance sheet below are derived from the financial statements of NPTest, Inc. (predecessor) included herein. These financial statements do not reflect the purchase accounting resulting from the acquisition. The following tables present NPTest, Inc.’s selected historical combined financial data. The information set forth below should be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and NPTest, Inc.’s historical combined financial statements and notes to those statements included in this prospectus. NPTest, Inc.’s combined statement of operations data set forth below for the three years ended December 31, 2002, the six months ended June 30, 2003 and the combined balance sheet data as of December 31, 2001, 2002 and June 30, 2003 are derived from, and are qualified by reference to, NPTest, Inc.’s audited combined financial statements included in this prospectus, which have been audited by PricewaterhouseCoopers LLP, independent accountants, whose report is also included in this prospectus. The audited combined statement of operations data for the year ended December 31, 1999, the unaudited combined statement of operations data for the year ended December 31, 1998, the audited combined balance sheet data as of December 31, 2000 and the unaudited combined balance sheet data as of December 31, 1998 and 1999 are derived from NPTest, Inc.’s combined financial data that are not included in this prospectus. NPTest, Inc.’s combined financial statements for all periods presented have been derived from the consolidated financial statements of Schlumberger and are presented as if NPTest, Inc. had existed as an entity separate from Schlumberger and its subsidiaries. The combined statement of operations data for the six months ended June 30, 2002 are derived from unaudited combined financial statements included in this prospectus and, in the opinion of management, include all adjustments, consisting only of normal recurring accruals, that are necessary for a fair presentation of NPTest, Inc.’s financial position and results of operations for this period. The pro forma per share data assume that all of the currently outstanding shares of common stock of NPTest Holding Corporation were issued and outstanding during the year ended December 31, 2002 and during the six months ended June 30, 2003. The combined financial statements include the historical assets, liabilities, revenues and expenses that were directly related to NPTest, Inc. Schlumberger during the periods presented and have been derived from Schlumberger’s historical bases in the assets and liabilities and the historical results of operations of NPTest, Inc. The historical financial information may not be indicative of our future performance and does not reflect what our financial position and results of operations would have been had we operated as a separate, stand-alone entity during the periods presented. Results for the six months ended June 30, 2003 are not necessarily indicative of results to be expected for the full year.

	Year Ended December 31,															Six Months Ended June 30,
	1998			1999			2000			2001			2002			2002			2003
	(in thousands, except per share data)
Statement of Operations Data
Net revenue:
Product	$	405,783		$	228,806		$	216,445		$	149,543		$	180,035		$	98,598		$	83,830
Services		34,776			43,232			69,889			71,389			63,456			31,710			33,954

Total net revenue		440,559			272,038			286,334			220,932			243,491			130,308			117,784
Cost of net revenue:
Product		244,693			140,622			140,255			130,627	(a)		110,056			57,589			49,009
Services		27,102			31,796			44,127			49,549			38,137			19,908			21,798

Total cost of net revenue		271,795			172,418			184,382			180,176			148,193			77,497			70,807
Operating expenses:
Research and development		45,665			36,281			32,718			34,748			36,573			16,297			23,152
Selling general and administrative		60,056			55,625			66,571			51,971			49,652			26,646			20,872
Gain on curtailment of pensions and employee benefits														(8,667	)

Total operating expenses		105,721			91,906			99,289			86,719			77,558			42,943			44,024

Operating income (loss)		63,043			7,714			2,663			(45,963	)		17,740			9,868			2,953
Foreign currency transactions gain (loss), net		(606	)		957			(34	)		(139	)		(1,147	)		(811	)		(510	)

Income (loss) before income taxes		62,437			8,671			2,629			(46,102	)		16,593			9,057			2,443
Income tax provision (benefit)		21,961			(422	)		(3,328	)		(22,366	)		2,117			1,173			(209	)

Net income (loss)	$	40,476		$	9,093		$	5,957		$	(23,736	)	$	14,476		$	7,884		$	2,652

Unaudited pro forma basic and diluted net income (loss) per share													$						$

Shares used in computing unaudited pro forma basic and diluted net income (loss) per share

(a)

Cost of product revenue for the year ended December 31, 2001 included a charge of approximately $35.4 million related to excess inventory.

	As of December 31,										As of June 30, 2003
	1998		1999		2000		2001		2002		As of June 30, 2003
	(in thousands)
Balance Sheet Data
Cash and cash equivalents	$	5,642	$	13,599	$	16,387	$	10,184	$	17,487	$	4,290
Working capital		235,610		142,324		190,482		191,495		171,702		166,098
Total assets		322,271		252,574		366,444		295,504		242,240		230,296
Total debt		—		—		—		—		—		—
Stockholders’ equity		233,391		147,895		214,140		205,804		197,038		190,444

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

We were formed in June 2003 for the purpose of acquiring NPTest, Inc. from Schlumberger. Accordingly, we had no operations prior to our acquisition of NPTest, Inc. and our historical financial statements are not meaningful. For purposes of the following discussion, our financial statements therefore refer to historical financial statements of NPTest, Inc. included herein. The following discussion should be read in conjunction with the combined financial statements and notes thereto and the pro forma financial data included elsewhere in this prospectus. The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from the results contemplated by these forward-looking statements due to certain factors, including those factors discussed below and elsewhere in this prospectus.

Overview

General

We design, develop and manufacture advanced semiconductor test and diagnostic systems and provide related services for the semiconductor industry. Our customers include integrated device manufacturers, or IDMs, fabless design companies, foundries and assembly and test subcontractors worldwide. Our products and services enable our customers to bring their increasingly complex integrated circuits, or ICs, to market faster, at lower cost and without compromising IC quality. We offer products that enable our customers to debug, characterize and test a wide range of ICs, including the fastest multi-Gigahertz microprocessors and the most highly integrated, high-speed system-on-a-chip, or SOC, devices. In addition, we provide test engineering services, including debug, repair and characterization. As of June 30, 2003, we had 888 employees worldwide.

As part of Schlumberger we benefited from various economies of scale including shared global administrative functions, facilities and volume purchase discounts. As a stand-alone entity, we will be required, among other things, to obtain insurance as a public company, and expect that these costs will exceed the insurance costs we previously incurred as part of Schlumberger. As a result, some of our costs and expenses may increase. However, we will no longer be subject to a general and administrative charge imposed by Schlumberger which is reflected in our historical results through the third quarter of 2002.

In connection with the acquisition of NPTest, Inc., Francisco Partners guaranteed the repayment of a $75 million loan we received from Citicorp North America, Inc., or Citicorp, at the time of the acquisition. A portion of the net proceeds of this offering will be used to repay that loan. In July 2003, we entered into a ten-year agreement with Francisco Partners for advisory services for which we will pay the greater of $2.0 million or 0.6% of our consolidated annual revenue. This agreement will be amended effective upon the completion of this offering. Pursuant to the amended advisory agreement, we will pay to Francisco Partners an aggregate of $5.0 million, plus all accrued fees, in lieu of all future annual advisory fees under the agreement. However, we may pay future service fees to Francisco Partners under the amended agreement in exchange for any acquisition, financing or other services as we and Francisco Partners may agree. We have paid Francisco Partners and Shah Management a $6.27 million fee, plus reasonable out of pocket expenses, for services rendered in connection with the structuring of

the financing of our acquisition from Schlumberger. We also entered into a transition services agreement with Schlumberger under which we are required to pay to Schlumberger, and Schlumberger is required to pay to us, fees for a limited set of transition services to be provided by the other party for a period of time following the acquisition.

In connection with the acquisition, we agreed to make certain payments (generally in cash or stock) to Schlumberger in the event that the value of our common stock held by NPTest Holding, LLC exceeds a specified threshold at the first anniversary of the completion of this offering and under certain other circumstances generally related to distributions over a certain threshold by NPTest Holding, LLC to its members related to our common stock. This arrangement is described in more detail under the heading “—Contractual Obligation and Contingent Liabilities and Commitments” and “Certain Relationships and Related Party Transactions—Transactions with Schlumberger.”

Basis of Presentation

Our combined financial statements have been derived from the consolidated financial statements of Schlumberger until June 30, 2003. Although NPTest, Inc. was not a separate company, the accompanying combined financial statements are presented as if NPTest, Inc. had existed as an entity separate from Schlumberger and its subsidiaries. These financial statements do not reflect the purchase accounting resulting from the acquisition. The combined financial statements include the historical assets, liabilities, revenues and expenses that were directly related to the NPTest, Inc. business of Schlumberger during the periods presented and have been derived from Schlumberger’s historical bases in the assets and liabilities and the historical results of operations of NPTest, Inc. U.S. pension and retiree medical benefits liabilities along with related deferred tax assets as of December 31, 2002 were retained by Schlumberger. Schlumberger has agreed to reimburse us for all income taxes payable generated through July 29, 2003. Stockholders’ net investment for the period through June 30, 2003 represents Schlumberger’s transfer of its net capital investment in NPTest, Inc., after giving effect to the net earnings of NPTest, Inc. plus net cash transfers to Schlumberger and other transfers from Schlumberger. Following the acquisition of the business from Schlumberger, we began accumulating retained earnings.

Certain amounts of Schlumberger’s corporate expenses, including legal, accounting, employee benefits, real estate, insurance services, information technology services, treasury and other corporate and infrastructure costs, although not directly attributable to NPTest, Inc.’s operations, have been allocated to NPTest, Inc. on a basis that Schlumberger and NPTest, Inc. considered to be a reasonable reflection of the utilization of services provided or the benefit received by NPTest, Inc. However, the financial information included in this prospectus may not reflect the combined financial position, operating results, changes in our equity and cash flows in the future or what they would have been had we been a separate, stand-alone entity during the periods presented. As of December 31, 2002, pension and retiree medical benefits in North America are no longer provided by us, thereby eliminating these expenses going forward.

The interim unaudited combined financial information for the period ended June 30, 2002 has been prepared on the same basis as the accompanying annual audited combined financial statements. In the opinion of management, such interim combined financial information reflects adjustments consisting only of normal and recurring adjustments necessary for a fair presentation of such financial information. The results of operations for the interim periods ended June 30, 2002 and 2003 are not necessarily indicative of the results of operations to be expected for any other interim period or for the full year.

The financial information presented in this prospectus is not indicative of our financial position, results of operations and cash flows in the future nor is it necessarily indicative of what our financial position, results of operations and cash flows would have been had we been a separate, stand-alone entity for the periods presented. The financial information presented in this prospectus does not reflect significant changes that will occur in our funding and operations as a result of our having become a stand-alone entity.

Reorganization and Restructuring

In the fourth quarter of 2000 and throughout 2001, we formulated and implemented reorganization, restructuring and reduction-in-force actions that significantly reduced our personnel costs. The restructuring separated NPTest, Inc.’s activities from other Schlumberger technology businesses and eliminated shared positions. The reorganization efforts primarily combined the North America product and field marketing organizations. The reductions in force continued throughout 2001 due in part to the continued deterioration in market conditions. We recognized charges of approximately $1.8 million for severance payments related to these initiatives, of which approximately $1.4 million was recognized during the fourth quarter of 2000 and approximately $200,000 was recognized in each of the first and third quarters of 2001. These charges are reflected in our cost of net product revenue. We eliminated additional positions in North America during the third quarter of 2002. Related charges of approximately $300,000 are reflected in our operating results for the third quarter of 2002. In addition, we recorded in 2002 a charge of approximately $800,000 for payments to employees in Japan in connection with our legal reorganization to a stand alone NPTest entity in that country. We recognized charges of approximately $1.8 million for severance payments related to these initiatives, of which approximately $1.4 million was recognized during the fourth quarter of 2000 and approximately $200,000 was recognized in each of the first and third quarters of 2001. These charges are reflected in our cost of net product revenue. Savings realized from the reductions-in-force were approximately $12.0 million in compensation and benefits on an annual basis.

We eliminated 23 positions in North America during the third quarter of 2002. Related charges of approximately $300,000 are reflected in our operating results for the third quarter of 2002. Our estimate of approximate annual salary and benefit savings from this reduction was $1.6 million.

Cyclical Business

Our business and operating results depend in significant part upon capital expenditures of manufacturers of semiconductors, which in turn depend upon the current and anticipated market demand for those products. Historically, the semiconductor industry has been highly cyclical with recurring periods of over-supply, which often have had a severe negative effect on demand for test equipment, including systems manufactured and marketed by us. During these periods, we experienced significant reductions in customer orders. In the most recent downward cycle, our net product revenue decreased from $216.4 million in 2000 to approximately $149.5 million in 2001 and increased to $180.0 million in 2002. Services revenue depends largely upon the size of the installed base of our products and is not as directly affected by industry cyclicality as is our net product revenue. Our net service revenue increased from $69.9 million in 2000 to approximately $71.4 million in 2001 and decreased to approximately $63.5 million in 2002. In the fourth quarter of 2001, we incurred a charge of approximately $35.4 million related to excess inventory resulting from the abrupt slowdown in sales during that period. This industry slowdown is having, and future slowdowns may have, a material adverse effect on our backlog and operating results.

Foreign Currencies

We sell our products and services primarily in two major currencies. Sales in North America, Europe and Asia Pacific are primarily denominated in U.S. Dollars, and sales in Japan are primarily denominated in Yen. We incur expenses primarily in four major currencies, the U.S. Dollar, the Euro, the Yen and the British Pound. A weakening U.S. Dollar will generally result in higher operating costs for us principally in Europe and, to a lesser extent, in Japan. Sales by region translated into U.S. Dollars, as more fully set forth in the notes to our combined financial statements, are indicated as follows:

	Year Ended December 31,						Six Months Ended June 30,
	2000		2001		2002		2002		2003
North America	$	100,608	$	86,796	$	127,574	$	76,614	$	57,812
Europe		96,300		51,731		35,088		8,951		24,089
Asia Pacific		77,143		61,915		59,400		33,408		23,129
Japan		12,283		20,490		21,429		11,335		12,754

Total	$	286,334	$	220,932	$	243,491	$	130,308	$	117,784

Our historical financial statements do not reflect any foreign currency hedging arrangements as we have not hedged our foreign currency exposure to date. However, we may seek to hedge our exposure to foreign currency rate fluctuations in the future.

Introduction of Sapphire NP

We are currently devoting and intend to continue to devote significant resources to the development, production and commercialization of our new Sapphire NP platform. We expect to begin to ship our Sapphire NP tester in the fourth quarter of 2003. These shipments are likely to be subject to acceptance criteria that could delay the recognition of revenue from these sales until 2004. At introduction, Sapphire NP will be available in less complex configurations targeted at markets that require cost effective test solutions. Our future operating results will depend in large part upon our ability to successfully introduce and commercialize a range of Sapphire NP products, many of which are not yet available and are under development. We have not marketed the product broadly to date. We cannot be sure that the Sapphire NP product will achieve market acceptance or generate substantial revenue. We believe that the acceptance, volume production, timely delivery and customer satisfaction of our Sapphire NP tester is of critical importance to our future financial results.

Concentration of Customers

Intel accounted for 30% in 2000, 37% in 2001, 52% in 2002 and 57% and 39% in the six months ended June 30, 2002 and 2003 of our net revenue, and Customer B accounted for 30% in 2000, 18% in 2001, 10% in 2002 and 7% and 14% in the six months ended June 30, 2002 and 2003 of our net revenue. Our customers are generally not obligated by long-term contracts to purchase our systems. A small number of IDMs and assembly and test subcontractors account for a substantial portion of the purchases of test equipment generally. Consequently, our business and operating results would be materially adversely affected by the loss of, or any significant reduction in orders by, any of our significant customers.

Income Taxes

When we were part of Schlumberger, our tax rate was based on our earnings before taxes in the various tax jurisdictions in which we operate throughout the world. Changes in our mix of earnings before taxes in these tax jurisdictions caused our tax rate to fluctuate. In certain periods, we recognized tax benefits on pre-tax income due to the benefits generated on pre-tax losses in certain jurisdictions exceeding the tax expense generated by pre-tax income in other jurisdictions with different tax rates. In addition, we realized U.S. research and development tax credits when earned. We have subsidiaries in several foreign countries, mainly in Europe and Asia. Part of the income that was previously recognized from Schlumberger’s foreign operations and was not subject to U.S. taxation due to Schlumberger’s foreign incorporation became subject to U.S. taxation following our acquisition from Schlumberger due to our incorporation in Delaware. As a result, we expect that our overall tax rate will increase. For example, our effective tax rates before adjustments for purchase accounting for 2002 and the six month period ended June 30, 2003 would have been 16% and 15%, respectively, assuming we had been independent from Schlumberger, compared to a 12% tax rate for 2002 and a tax benefit for the six months ended June 30, 2003 when we were owned by Schlumberger. We were a part of Schlumberger’s U.S. consolidated tax return through July 29, 2003. Schlumberger has agreed to reimburse us for all income taxes payable through July 29, 2003. There is no U.S. net operating loss carry forward from activities before July 29, 2003 because Schlumberger is entitled to the tax benefit from any losses generated through July 29, 2003. We have recorded net operating loss carryforwards in certain foreign tax jurisdictions generated subsequent to July 1, 2002 when we became a separate taxpayer in those jurisdictions.

Acquisition of NPTest, Inc.

On July 29, 2003 we acquired NPTest, Inc. from Schlumberger. We accounted for the acquisition as a purchase in accordance with Statement of Financial Accounting Standards, or SFAS, No. 141 “Business

Combinations.” All acquired tangible assets, identifiable intangible assets as well as assumed liabilities were valued based on their relative fair values. Accordingly, we adjusted the value of our inventory to fair value based on the stage of completion less cost to dispose. The resulting $11.0 million increase in the value of our inventory will result in increased cost of product revenue and reduced operating margins.

Amortization of Intangibles

In connection with our acquisition of NPTest, Inc. from Schlumberger, we recorded intangible assets of approximately $32.4 million. Of this amount, approximately $7.4 million is goodwill which will not be amortized. Of the remaining $25.0 million, approximately $15.3 million will be amortized over seven years and approximately $9.7 million relating to backlog will be amortized over four months.

Critical Accounting Policies

We have identified the policies below as critical to our business operations and the understanding of our results of operations. For a detailed discussion on the application of these and other accounting policies, see note 1 to our combined financial statements. In preparing the combined financial statements included in this prospectus, we are required to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our combined financial statements, and the reported amounts of revenue and expenses during the reporting period. We expect that our actual results may differ from these estimates.

Revenue Recognition. We recognize revenue in accordance with the Securities and Exchange Commission’s Staff Accounting Bulletin No. 101 (SAB 101), “Revenue Recognition in Financial Statements” and EITF 00-21, “Accounting for Revenue Arrangement with Multiple Deliverables.” Generally, acceptance of products with published specifications is received at the factory floor prior to shipment, therefore revenue is recognized upon shipment when legal title passes. In those limited instances where there are customer-specific acceptance conditions, revenue is only recognized upon final customer-site acceptance. Our shipping terms are primarily freight-on-board, or FOB, shipping point. However, a portion of revenue associated with certain installation-related tasks, based upon fair value of that service, is recognized when the tasks are completed. When several elements are bundled into one contract, revenue is not recognized unless the fair value of the undelivered element(s) is objective and reliable and the delivered element has stand-alone value to the customer. The total contract revenue is allocated to the individual elements based upon the relative fair value of each element. For multiple element arrangements, management having the relevant authority establishes fair value based upon vendor-specific objective evidence. The fair value of the undelivered element is either the price charged when the element is sold separately or, for an element not yet being sold separately, the price established by management. When a price is established by management it must be probable that the price will not change before the element is actually sold separately. For products that have not been demonstrated to meet product specifications prior to shipment, revenue is recognized on receipt of customer technical acceptance. In any event, no revenue is recognized before legal title passes to the customer. A provision for the estimated cost of warranty is recorded when revenue is recognized. Revenue related to spare parts is generally recognized upon shipment. Service revenue is generally recognized ratably over the period of the related contract or, in some cases, as the services are performed. Deferred income includes amounts that have been billed per the contractual terms, but have not been recognized as revenue. For product revenue, this typically includes the amount of deferred product revenue less all product and warranty costs.

Tax. Even during the period we were a part of Schlumberger, we calculated our tax provision on a separate return basis. We record the estimated future tax effects of temporary differences between the tax bases of assets and liabilities and amounts reported in the accompanying combined balance sheets, as well as operating loss and tax credit carry forwards. We follow very specific and detailed guidelines regarding the recoverability of any tax assets recorded on the balance sheet and provide any necessary allowances as required. To date, we have not recorded any valuation allowance because, based on the available evidence, we believe it is more likely than not

that we will be able to utilize all of our deferred tax assets in the future. If estimates of future taxable income prove inaccurate, a valuation allowance could be required in the future in light of, among other things, the cyclical industry in which we operate.

Inventory. We value our inventory at the lower of cost or estimated market value. Cost includes material, labor, allocated overhead and contract manufacturing costs. Provisions are recorded to reduce excess and obsolete inventory to net realizable value. We regularly review inventory quantities on hand and record a provision for excess and obsolete inventory based primarily on our estimated forecast of product demand and production requirements for the next 18 months. A significant decrease in demand for our products could result in excess inventory. We expect that demand for our products and services will fluctuate in the future in light of, among other things, the cyclical industry in which we operate, therefore impacting the provisions for excess and obsolete inventory.

Results of Operations

The following table sets forth certain items in our statement of operations for the years ended December 31, 2000, 2001, and 2002 and for the six months ended June 30, 2002 and 2003 expressed as a percentage of total net revenue, except that cost of product revenue is expressed as a percentage of product revenue, and cost of services revenue is expressed as a percentage of services revenue:

	Years Ended December 31,						Six Months Ended June 30,
	2000		2001		2002		2002		2003
Net revenue:
Product	75.6	%	67.7	%	73.9	%	75.7	%	71.2	%
Services	24.4		32.3		26.1		24.3		28.8

Total net revenue	100.0		100.0		100.0		100.0		100.0
Cost of net revenue:
Product	64.8		87.4		61.1		58.4		58.5
Services	63.1		69.4		60.1		62.8		64.2

Total cost of net revenue	64.4		81.6		60.9		59.5		60.1
Operating expenses:
Research and development	11.4		15.7		15.0		12.5		19.7
Selling, general and administrative	23.3		23.6		20.4		20.4		17.7
Gain on curtailment of pensions and employee benefits	—		—		(3.6	)	—		—

Total operating expenses	34.7		39.3		31.8		32.9		37.4

Operating income (loss)	0.9		(20.9	)	7.3		7.6		2.5
Foreign currency transactions gain (loss), net	(0.0	)	(0.0	)	(0.5	)	(0.6	)	(0.4	)

Income (loss) before income taxes	0.9		(20.9	)	6.8		7.0		2.1
Income tax provision (benefit)	(1.2	)	(10.2	)	0.9		0.9		(0.2	)

Net income (loss)	2.1	%	(10.7	)%	5.9	%	6.1	%	2.3	%

Six months ended June 30, 2003 and 2002

Net Product Revenue

Our product revenue is derived from the sale of test and diagnostic products. Product revenue decreased 15.0% to approximately $83.8 million in the six months ended June 30, 2003 from approximately $98.6 million in the six months ended June 30, 2002. The decrease was due primarily to a decline in net revenue from sales of structural test products of approximately $13.1 million from unusually high levels in the period ended June 30, 2002 reflecting the introduction of some new products in late 2001. Product revenue was also unusually high in the six months ended June 30, 2002 due to approximately $5.5 million of deferred income recognized from delayed acceptances of products that were shipped to new customers in Asia prior to June 30, 2001.

Net Services Revenue

Our services revenue includes maintenance fees for our installed base of systems and engineering services. Services revenue increased 7.1% to approximately $34.0 million in the six months ended June 30, 2003 from approximately $31.7 million in the six months ended June 30, 2002. Of this increase, approximately $1.6 million was from an increase in equipment support maintenance. Our services revenue is generally somewhat less affected by industry cyclicality than our product revenue because it is driven in large part by our installed base of products rather than order rate.

Cost of Net Product Revenue

Cost of product revenue consists of costs of manufacturing products. These costs include materials, costs of third-party contract manufacturers, salaries and related expenses for manufacturing, distribution costs, warranty costs, depreciation of manufacturing equipment and overhead allocations for facilities expenses and information technology services. Cost of product revenue decreased 14.9% to approximately $49.0 million in the six months ended June 30, 2003 from approximately $57.6 million in the six months ended June 30, 2002. As a percentage of product revenue, cost of product revenue increased slightly to 58.5% in the six months ended June 30, 2003 from 58.4% in the six months ended June 30, 2002.

Cost of Net Services Revenue

Cost of services revenue consists of service personnel and related overhead allocations for facilities expenses and information technology services. Cost of services revenue increased 9.5% to approximately $21.8 million in the six months ended June 30, 2003 from approximately $19.9 million in the six months ended June 30, 2002. Of this increase, approximately $1.4 million relates to increased activity and approximately $300,000 relates to higher repair costs on a newly released configuration of our high end product offering. As a percentage of services revenue, cost of services revenue increased to 64.2% from 62.8% in the six months ended June 30, 2002.

Research and Development

Research and development expenses include salaries and expenses of engineers and related engineering support personnel, initial tooling, project materials, depreciation on equipment used in research and development and an allocation of facilities expenses and information technology services. Research and development expenses increased 42.1% to approximately $23.2 million in the six months ended June 30, 2003 from approximately $16.3 million in the six months ended June 30, 2002 primarily due to increased expenditures on the development of our Sapphire NP platform technology. As a percentage of total revenue, research and development expenses increased to 19.7% in the six months ended June 30, 2003 from 12.5% in the six months ended June 30, 2002. We expect that our research and development costs may increase in absolute dollars in subsequent periods as we invest in future product offerings and enhance our current products.

Selling, General and Administrative

Selling, general and administrative expenses include salaries and related expenses for sales, account management, marketing, commissions, consignment costs and other expenses for marketing programs and trade shows as well as salaries and related expenses for administrative, finance, legal, human resources and executive personnel. These expenses historically have included an allocation for general and administrative expenses provided by Schlumberger until the third quarter of 2002. Selling, general and administrative expenses decreased 21.7% to approximately $20.9 million in the six months ended June 30, 2003 from approximately $26.6 million in the six months ended June 30, 2002. As a percentage of net revenue, selling, general and administrative expenses decreased to 17.7% in the six months ended June 30, 2003 from 20.4% in the six months ended June 30, 2002. The decrease was primarily due to the elimination in 2003 of charges for general and administrative expenses provided by Schlumberger, which in 2002 totaled $3.7 million. This reflects a transition

away from reliance on Schlumberger administrative support to our own administrative infrastructure. The decrease was also partially due to $1.8 million of reduced depreciation charges on demonstration equipment consigned to customers, as a number of consigned units were sold.

Foreign currency transactions loss was approximately $510,000 in the six months ended June 30, 2003 as compared to foreign currency transactions loss of approximately $811,000 in the six months ended June 30, 2002. Losses in both periods were driven by the Euro strengthening against the U.S. Dollar.

Income Taxes

Income tax benefit was approximately $209,000 for the six months ended June 30, 2003 on pretax income of approximately $2.4 million. This compares to a tax provision of approximately $1.2 million for the six months ended June 30, 2002 on pre-tax income of approximately $9.1 million. The change in taxes is primarily due to the change in earnings among jurisdictions with differing tax rates.

Years Ended December 31, 2002 and 2001

Net Product Revenue

Product revenue increased 20.4% to approximately $180.0 million in 2002 from approximately $149.5 million in 2001. Our product revenue in 2002 was favorably affected by an increase in revenue of approximately $28.5 million related to the release of structural test products late in 2001, and an increase of $5.5 million of deferred income recognized from delayed acceptances of products that were shipped to new customers in Asia prior to June 30, 2001.

Net Services Revenue

Services revenue decreased 11.1% to approximately $63.5 million in 2002 from approximately $71.4 million in 2001. Of this decrease, approximately $7.0 million was the result of lower demand for design and engineering services following the industry downturn and approximately $1.1 million was the result of lower after-sale services partially due to the transition of a number of monthly service fee contracts to billable-charge based contracts, which typically occurs during industry downturns when products are used less frequently.

Cost of Net Product Revenue

Cost of product revenue decreased 15.7% to approximately $110.1 million in 2002 from approximately $130.6 million in 2001. This decrease was primarily due to approximately $35.4 million in excess inventory charges in 2001 resulting from the abrupt slowdown in sales during that period, partially offset by approximately $18.3 million in increased product costs associated with higher sales. Excluding this charge, cost of product revenue increased 15.6% from approximately $95.2 million in 2001, which was generally consistent with the revenue increase during this period. As a percentage of product revenue, cost of product revenue decreased to 61.1% in 2002 from 63.7% in 2001 (excluding this excess inventory charge) primarily as a result of approximately $2.4 million resulting from price reductions on older model system-on-a-chip tester products sold during the first quarter of 2001, and approximately $2.2 million in reduced manufacturing costs associated with restructuring initiatives.

Cost of Net Services Revenue

Cost of services revenue decreased 23.0% to approximately $38.1 million in 2002 from approximately $49.5 million in 2001, primarily as a result of lower personnel costs and related expenses corresponding to decreased activity levels and reduction in costs following our restructuring initiatives. As a percentage of services revenue, cost of services revenue decreased to 60.1% in 2002 from 69.4% in 2001. After-sale service costs were reduced by $5.7 million in part as a result of the restructuring described above. Cost of services revenue also

reflects an additional $5.7 million reduction in costs related to design and engineering services consisting of $3.0 million in reduced material and equipment charges and $2.7 million in lower personnel costs associated with restructuring initiatives.

Research and Development

Research and development expenses increased 5.3% to approximately $36.6 million in 2002 from approximately $34.7 million in 2001. As a percentage of total revenue, research and development expenses decreased to 15.0% in 2002 from 15.7% in 2001.

Selling, General and Administrative

Selling, general and administrative expenses decreased 4.5% to approximately $49.7 million in 2002 from approximately $52.0 million in 2001. As a percentage of net revenue, selling, general and administrative expenses decreased to 20.4% in 2002 from 23.6% in 2001. The decrease was primarily due to a reduction in charges for general and administrative expenses provided by Schlumberger of approximately $4.4 million from approximately $8.4 million in 2001 as a result of the gradual phasing out of group support. This decrease was partially offset by approximately $800,000 for payments to employees in Japan in connection with our legal reorganization to a stand alone NPTest entity in that country, approximately $400,000 in stand alone costs incurred at the headquarter level, and approximately $300,000 in severance payments related to restructuring initiatives in North America. As indicated earlier, the annual savings related to these severance payments is approximately $1.6 million.

Gain on Curtailment of Pensions and Employee Benefits

Schlumberger terminated the participation of NPTest, Inc. employees in both the Schlumberger Pension Plan and the US Group Health Care Plan and Trust effective December 31, 2002. Upon termination of NPTest, Inc.’s participation, Schlumberger also assumed the liabilities as of December 31, 2002 relating to these plans and any future obligations relating to these liabilities. We therefore recorded a curtailment gain of $8.7 million as of December 31, 2002.

Foreign Currency Transactions Gain (Loss), Net

Foreign currency transactions loss was approximately $1.1 million in 2002 as compared to foreign currency transactions loss of approximately $139,000 in 2001. The difference was primarily due to foreign exchange rate gains and losses in Europe.

Income Taxes

Income tax provision was approximately $2.1 million for 2002 on pretax income of approximately $16.6 million. This compares to a tax benefit of approximately $22.4 million in 2001 on a pre-tax loss of approximately $46.1 million. The change in taxes is primarily due to the change in earnings among jurisdictions with differing tax rates.

Years ended December 31, 2001 and 2000

Net Product Revenue

Product revenue decreased 30.9% to approximately $149.5 million in 2001 from approximately $216.4 million in 2000. This decrease in product revenue was primarily due to an industry-wide reduction in demand across our customer base and products, partially offset by an increase related to the commencement of structural tester sales of approximately $22.9 million in the second half of 2001.

Net Services Revenue

Services revenue increased 2.1% to approximately $71.4 million in 2001 from approximately $69.9 million in 2000. The increase in services revenue in 2001 was primarily due to increased product engineering services of approximately $1.0 million.

Cost of Net Product Revenue

Cost of product revenue decreased 6.9% to approximately $130.6 million in 2001 from approximately $140.3 million in 2000. This decrease was primarily due to lower product costs on reduced sales, offset by approximately $35.4 million in excess inventory charges in 2001 resulting from the abrupt slowdown in sales during that period. Excluding this charge, cost of product revenue decreased 32.1% to approximately $95.2 million in 2001, which was generally consistent with the revenue decrease during this period. As a percentage of product revenue, cost of product revenue, excluding the excess inventory charge, decreased to 63.7% in 2001 from 64.8% in 2000.

Cost of Net Services Revenue

Cost of services revenue increased 12.3% to approximately $49.5 million in 2001 from approximately $44.1 million in 2000. As a percentage of services revenue, cost of services revenue increased to 69.4% in 2001, from 63.1% in 2000 primarily as a result of an increase in product engineering service personnel costs due to a shift in resources of approximately $4.2 million.

Research and Development

Research and development expenses increased 6.2% to approximately $34.7 million in 2001 from approximately $32.7 million in 2000. This increase was primarily driven by a decision to continue new product investment during the industry downturn. As a percentage of total revenue, research and development expenses increased to 15.7% in 2001 from 11.4% in 2000.

Selling, General and Administrative

Selling, general and administrative expenses decreased 21.9% to approximately $52.0 million in 2001 from approximately $66.6 million in 2000. This decrease was primarily due to approximately $11.6 million in savings related to restructuring initiatives, a decrease in Schlumberger general and administrative fees, including both direct costs and general allocation, of approximately $1.2 million and a decrease of approximately $900,000 for trade show expenses and approximately $300,000 for advertising costs.

Foreign Currency Transactions Gain (Loss), Net

Foreign currency transactions loss increased to approximately $139,000 in 2001 from approximately $34,000 in 2000.

Income Taxes

Income tax benefit was approximately $22.4 million in 2001 on pre-tax loss of approximately $46.1 million. This compares to a tax benefit of approximately $3.3 million in 2000 on pre-tax income of approximately $2.6 million. The change in taxes is primarily due to the change in earnings among jurisdictions with differing tax rates.

Unaudited Quarterly Financial Results

The following tables present our operating results for each of the ten quarters ended June 30, 2003, in dollars and as a percentage of net revenue, except that cost of product revenue is expressed as a percentage of product revenue, and cost of services revenue is expressed as a percentage of services revenue. In general, recognition of revenue in a given quarter is heavily weighted toward the last third of the quarter, thus a delay in recognition of revenue could impact results in a particular quarter. The information for each of these quarters is unaudited and has been prepared on the same basis as the audited combined financial statements included elsewhere in this prospectus. In the opinion of management, all necessary adjustments, which consist only of normal and recurring adjustments, have been included to present fairly the unaudited quarterly results. This data should be read in conjunction with the combined financial statements and the related notes included elsewhere in this prospectus. These operating results are not indicative of the results of any future period.

	Quarters Ended
	2001												2002												2003
	Q1			Q2			Q3			Q4			Q1			Q2			Q3			Q4			Q1			Q2
	(in thousands)
Net revenue
Product	$	50,052		$	31,233		$	21,649		$	46,609		$	51,662		$	46,936		$	48,341		$	33,096		$	42,289		$	41,541
Services		19,385			18,604			17,155			16,245			15,978			15,732			15,299			16,447			16,618			17,336

Total net revenue		69,437			49,837			38,804			62,854			67,640			62,668			63,640			49,543			58,907			58,877

Cost of net revenue
Product		31,364			19,921			16,345			62,997			28,039			29,550			30,806			21,661			23,470			25,539
Services		12,845			12,902			12,214			11,588			10,602			9,306			9,250			8,979			10,925			10,873

Total cost of net revenue		44,209			32,823			28,559			74,585			38,641			38,856			40,056			30,640			34,395			36,412

Operating expenses
Research and development		10,029			8,749			7,807			8,163			7,821			8,476			9,953			10,323			11,280			11,872
Selling, general and administrative		15,407			13,864			11,506			11,194			13,060			13,586			12,503			10,503			10,426			10,446
Gain on curtailment of pensions and employee benefits		—			—			—			—			—			—			—			(8,667	)		—			—

Total operating expenses		25,436			22,613			19,313			19,357			20,881			22,062			22,456			12,159			21,706			22,318

Operating income (loss)		(208	)		(5,599	)		(9,068	)		(31,088	)		8,118			1,750			1,128			6,744			2,806			147
Foreign currency transaction gain (loss), net		52			(268	)		44			33			(122	)		(689	)		(239	)		(97	)		(388	)		(122	)

Income (loss) before income taxes		(156	)		(5,867	)		(9,024	)		(31,055	)		7,996			1,061			889			6,647			2,418			25
Income tax provision (benefit)		(1,965	)		(3,221	)		(4,265	)		(12,915	)		1,553			(380	)		(46	)		990			214			(423	)

Net income (loss)	$	1,809		$	(2,646	)	$	(4,759	)	$	(18,140	)	$	6,443		$	1,441		$	935		$	5,657		$	2,204		$	448


	Quarters Ended
	2001												2002												2003
	Q1			Q2			Q3			Q4			Q1			Q2			Q3			Q4			Q1			Q2
Net revenue
Product		72.1	%		62.7	%		55.8	%		74.2	%		76.4	%		74.9	%		76.0	%		66.8	%		71.8	%		70.6	%
Services		27.9			37.3			44.2			25.8			23.6			25.1			24.0			33.2			28.2			29.4

Total net revenue		100.0			100.0			100.0			100.0			100.0			100.0			100.0			100.0			100.0			100.0

Cost of net revenue
Product		62.7			63.8			75.5			135.2			54.3			63.0			63.7			65.4			55.5			61.5
Services		66.3			69.4			71.2			71.3			66.4			59.2			60.5			54.6			65.7			62.7

Total cost of net revenue		63.7			65.9			73.6			118.7			57.1			62.0			62.9			61.8			58.4			61.8

Operating expenses
Research and development		14.4			17.6			20.1			13.0			11.6			13.5			15.6			20.8			19.1			20.2
Selling, general and administrative		22.2			27.7			29.7			17.8			19.3			21.7			19.6			21.2			17.7			17.7
Gain on curtailment of pensions and employee benefits		—			—			—			—			—			—			—			(17.4	)		—			—

Total operating expenses		36.6			45.3			49.8			30.8			30.9			35.2			35.2			24.6			36.8			37.9

Operating income (loss)		(0.3	)		(11.2	)		(23.4	)		(49.5	)		12.0			2.8			1.9			13.6			4.8			0.3
Foreign currency transaction gain (loss), net		0.1			(0.6	)		0.1			0.1			(0.2	)		(1.1	)		(0.5	)		(0.2	)		(0.7	)		(0.2	)

Income (loss) before income taxes		(0.2	)		(11.8	)		(23.3	)		(49.4	)		11.8			1.7			1.4			13.4			4.1			0.1
Income tax provision (benefit)		(2.8	)		(6.5	)		(11.0	)		(20.5	)		2.3			(0.6	)		(0.1	)		2.0			0.4			(0.7	)

Net income (loss)		2.6	%		(5.3	)%		(12.3	)%		(28.9	)%		9.5	%		2.3	%		1.5	%		11.4	%		3.7	%		0.8	%

Net Revenue

The decline in product revenue in each of the first three quarters of 2001, from approximately $69.4 million to approximately $49.8 million, to approximately $38.8 million, respectively, was due to an industry-wide downturn in demand. The rapid rebound in the fourth quarter of 2001 to approximately $62.9 million was due primarily to the launch of a new structural tester in that period. Product revenue declined approximately $4.8 million to approximately $46.9 million in the second quarter of 2002 as the earlier quarter included approximately $5.5 million in sales from products that were shipped to new customers in Asia prior to June 30, 2001 and accepted in the first quarter of 2002. Product revenue declined $15.2 million to approximately $33.1 million in the fourth quarter of 2002 due to a decline in test equipment sales as demand for our structural test equipment slowed. Product revenue increased in the first quarter of 2003 as a result of increased industry demand from very low fourth quarter levels. Service revenue decreased sequentially in each of the six quarters ended September 30, 2002, from approximately $19.4 million in the first quarter of 2001 to approximately $15.2 million in the third quarter of 2002, due to reduced activity throughout the industry which encouraged customers in certain instances to transition from monthly service fee contracts to billable-charge based contracts.

Cost of Revenue

Cost of product revenue in the fourth quarter of 2001 included a charge of approximately $35.4 million related to excess inventory. Cost of product revenue increased to 75.5% of product revenue in the third quarter of 2001 due to an increase in unabsorbed production costs. Cost of product revenue decreased to 54.3% of product revenue in the first quarter of 2002 due to increased product sales and a strong mix of sales of our high end products and newly introduced structural test equipment. As a percentage of total product revenue, total cost of product revenue decreased to 55.5% in the first quarter of 2003, primarily due to higher gross margins associated with deferred income recognized in the period. Cost of services revenue in the second quarter of 2002 decreased to 59.2% of service revenue due to lower installation and warranty costs. Cost of services revenue in the fourth quarter of 2002 decreased to 54.6% of service revenue due to lower repair costs.

Operating Expenses

Research and development expenses increased in each of the four quarters ended June 30, 2003, as we invested in future products and enhanced existing products.

Liquidity and Capital Resources

Net cash used by operating activities in the six months ended June 30, 2003 was $2.3 million, which reflects net income of approximately $2.7 million, depreciation of approximately $3.8 million, inventory provision of approximately $5.8 million, and working capital and other movements utilizing cash of approximately $14.6 million. Key movements within working capital and other include favorable movements in accounts payable of approximately $2.0 million offset by unfavorable movements in accounts receivable of approximately $8.3 million, payables to related parties of approximately $4.3 million and prepaid expenses and other assets of approximately $2.6 million. Accounts payable increased from low year-end levels due mainly to increased procurement activity. Accounts receivable increased due to transactions with longer payment terms in Asia on flat region-level revenue in the second quarter of 2003. Payables to related parties decreased as these balances were paid off in advance of the sale of the business. Prepaid expenses and other assets increased largely due to a delay in collecting a VAT receivable in Europe.

Net cash provided by operating activities in the six months ended June 30, 2002 was $32.5 million, which reflects net income of approximately $7.9 million, depreciation of approximately $4.9 million, inventory provision of approximately $6.4 million, and working capital and other movements generating cash of approximately $13.3 million. Key movements within working capital and other include favorable movements in inventory of approximately $17.0 million, other accrued liabilities of approximately $8.5 million, accounts receivable of approximately $4.0 million and accounts payable of approximately $3.9 million, offset by

unfavorable movements in payables to related parties of approximately $11.8 million, and deferred income of approximately $7.6 million. Inventory decreased due to the utilization of excess supplies on hand following the abrupt decline in activity that began in 2000. Other accrued liabilities increased mainly due to approximately $4.4 million in customer liabilities/advances and approximately $3.3 million in increased payroll accruals. Accounts receivable decreased as a greater portion of our revenue was derived from North American customers with shorter payment cycles. Accounts payable increased from low year-end levels due to increased inventory procurement levels in the second quarter. Payables to related parties decreased mainly due to a large payment to a related party payroll service provider. Deferred income decreased as the number of outstanding product acceptances decreased in the period.

Net cash provided by operating activities in 2002 was approximately $52.8 million, which reflects net income of approximately $14.5 million, depreciation of approximately $9.5 million, inventory provision of approximately $8.8 million, gain on curtailment of pension and employee benefits of approximately $8.7 million, and working capital and other movements generating cash of approximately $28.7 million. Key movements within working capital and other include favorable movements in inventory of approximately $26.6 million, deferred income taxes of approximately $9.4 million, accounts receivable of approximately $4.7 million, pension and post-retirement benefits of approximately $3.5 million offset by unfavorable movements in deferred income of approximately $7.9 million, and payables to related parties of approximately $7.7 million. Inventory decreased due to the utilization of excess supplies on hand following the abrupt decline in activity that began in 2000. Deferred income taxes decreased as a result of the large amount of inventory scrapped during this period. Accounts receivable decreased as a result of account collection and reduced activity in the fourth quarter of 2002 versus the prior period. The pension and post-retirement benefits increase reflects the normal increase of our obligation in the year. Deferred income decreased as the result of receiving product acceptances relating to product revenue previously deferred. Payables to related parties decreased mainly due to a payment to a related party payroll service provider.

Net cash used by operating activities in 2001 was approximately $17.8 million, which reflects a net loss of approximately $23.7 million, depreciation of approximately $10.8 million, inventory provision of approximately $39.1 million, and working capital and other movements utilizing cash of approximately $43.9 million. Key movements within working capital and other include favorable movements in accounts receivable of approximately $33.9 million, offset by unfavorable movements in deferred income of approximately $42.6 million, accounts payable of approximately $18.0 million, and deferred income taxes of approximately $12.9 million. Accounts receivable decreased due to collection of outstanding balances and reduced revenue at year end versus the prior period. Deferred income decreased due to the receipt of product acceptances relating to the product revenue previously deferred. Accounts payable decreased due to reduced procurement activity at the end of the year. Deferred income taxes increased as the result of tax timing differences related to the reserve for excess material recognized during the year.

Net inventory decreased approximately $35.0 million from December 31, 2001 to December 31, 2002. The improvement in our inventory position resulted from a focused effort to utilize the high levels of net inventory accumulated as a result of the abrupt market decline that occurred in late 2000 and early 2001. Net inventory decreased approximately $6.2 million from December 31, 2002 to June 30, 2003. The improvement in our inventory position resulted from further utilization of the accumulated inventory on hand.

As described in critical accounting policies, we value our inventory at the lower of cost or estimated market value at each balance sheet date. We regularly review inventory quantities on hand and record a provision for excess and obsolete inventory to net realizable value.

Our accounts receivable balance increased from approximately $48.5 million as of December 31, 2002 to approximately $56.8 million as of June 30, 2003. This increase was attributable primarily to an increase in the amount of our net revenue during the quarter ended June 30, 2003 compared to the quarter ended December 31, 2002.

Cash used in investing activities was approximately $2.5 million and $2.1 million in the six months ended June 30, 2002 and 2003. Cash used in investing activities was approximately $27.0 million in 2000, $4.0 million in 2001, and $5.3 million in 2002. Capital spending on building improvements specific to our headquarters in San Jose accounted for approximately $17.5 million in 2000.

Cash used in financing activities was approximately $35.0 million and $9.4 million in the six months ended June 30, 2002 and 2003. Cash used in financing activities was approximately $40.8 million in 2002, and cash provided by financing activities was approximately $66.2 million in 2000 and $15.8 million in 2001. Cash flows from financing activities in each period are comprised of net investments received from Schlumberger.

We expect that our capital expenditures for the last six months of 2003 will be approximately $3.0 million. These anticipated expenditures primarily relate to the purchase of capital equipment for the general support of our business. Our other commitments are primarily comprised of our lease obligations, which aggregate approximately $29.2 million through 2007 and thereafter.

In the past, our capital needs were funded by Schlumberger. However, following our acquisition from Schlumberger, it will no longer provide funds to finance our working capital or other cash requirements. We will benefit from net proceeds received from the issuance of the shares by us in this offering and expect to use a portion of the net proceeds for general corporate purposes. The net proceeds of this offering will be used to repay in full our $75 million senior term loan, plus accrued but unpaid interest, from Citicorp, the repayment of which was guaranteed by Francisco Partners. We are in the process of negotiating a revolving credit facility to provide us with an additional source of liquidity, though there can be no assurance that we will be successful in doing so. We also intend to make a one-time payment of $5.0 million to Francisco Partners in connection with the amendment of our advisory agreement with them and the termination of the annual fee payable to them under that agreement. Our future capital requirements will depend on many factors, including our rate of revenue growth, the price received for our products and services, the timing and extent of spending to support product development efforts, the expansion of sales and marketing activities, the timing of introductions of new products and enhancement to existing products, the cost to ensure access to adequate manufacturing capacity, and the continuing market acceptance of our products. We currently expect that our existing cash and cash equivalents together with our anticipated future cash flow from operations, will be sufficient to satisfy our anticipated cash needs for at least the next 12 months. To the extent that our existing cash and cash equivalents, together with any cash flows from operations, are insufficient to fund our future activities, we may need to raise additional funds through public or private equity or debt financing. Future equity financings would be dilutive to the existing holders of our common stock. Future debt financings could involve restrictive covenants. We will likely not be able to obtain financing with interest rates as favorable as those in the past. If we cannot raise funds on acceptable terms, if and when needed, we may not be able to develop or enhance our products and services, take advantage of future opportunities, grow our business or respond to competitive pressures or unanticipated requirements, which could seriously harm our business.

As described more fully under “Transactions with Schlumberger—Stock Purchase and Sale Agreement”, as part of the consideration for the acquisition of the NPTest business from Schlumberger, we may be required to make additional payments to Schlumberger. We could be required to make a substantial payment when we have not actually received any additional funds. In the event we cannot satisfy these obligations in cash or elect not to do so, we may settle them by issuing shares of our common stock to Schlumberger resulting in dilution to our stockholders.

Although we are not a party to any agreement or letter of intent with respect to potential investments in, or acquisitions of, complementary businesses, products or technologies, we may enter into these arrangements in the future, which could also require us to seek additional equity or debt financing. Additional funds may not be available on terms favorable to us or at all.

Contractual Obligations and Contingent Liabilities and Commitments

Other than operating leases for certain equipment and real estate, we have no significant off-balance sheet transactions, unconditional purchase obligations or similar instruments and we are not a guarantor of any other entities, debt or other financial obligations. The following table presents a summary of our contractual obligations and payments, by period, as of June 30, 2003.

Cash Payments Due by Period

(in millions)

		Total			Six months ending December 31, 2003			January 1, 2004 through the year ending December 31, 2005			January 1, 2006 through the year ending December 31, 2007			Thereafter
Operating leases		$	29.2		$	2.6		$	9.3		$	8.6		$	8.7

We also have the following contingent consideration that may be required to be paid to Schlumberger:

In July 2003, NPTest Holding, LLC, a company controlled by Francisco Partners and Shah Management, purchased NPTest, Inc. from Schlumberger for approximately $220 million, subject to a customary post-closing working capital adjustment. In connection with the acquisition, we agreed that Schlumberger would have a right to participate, to a limited extent, in a portion of future increases in the value of the business.

In particular, under the agreement, we will be required to make payments to Schlumberger under the following scenarios:

•

To the extent contingent consideration is paid, it will be reflected as an adjustment to goodwill.

Recent Accounting Pronouncements

In June 2001, the FASB issued Statement No. 143, “Accounting for Asset Retirement Obligations.” FAS 143 requires that obligations associated with the retirement of a tangible long-lived asset be recorded as a liability when those obligations are incurred, with the amount of the liability initially measured at fair value. Upon initially recognizing a liability for an Asset Retirement Obligation (“ARO”), an entity must capitalize the cost by recognizing an increase in the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. FAS 143 is effective for financial statements for fiscal years beginning after June 15, 2002. Upon adoption of the final Statement, an entity will use a cumulative-effect approach to recognize transition amounts for existing ARO liabilities, asset retirement costs, and accumulated depreciation. All transition amounts are to be measured using current (as of the date of adoption of the final Statement) information, current assumptions, and current interest rates. The implementation of SFAS No. 143 did not have a material impact on our financial position, results of operations and cash flows.

In July 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS 46”). This Statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” This Statement requires that a liability for costs associated with an exit or disposal activity be recognized and measured initially at fair value only when the liability is incurred. The provisions of this Statement are effective for exit or disposal activities that are initiated after December 15, 2002. The implementation of this statement did not have a material impact on our financial position, results of operations and cash flows.

In January 2003, the EITF issued No. 00-21 “Accounting for Revenue Arrangements with Multiple Deliverables”. This EITF establishes the criteria for recognizing revenue in arrangements when several items are bundled into one agreement. EITF 00-21 does not allow revenue recognition unless the fair value of the undelivered element(s) is available and the element has stand-alone value to the customer. EITF 00-21 also provides guidance on allocating the total contract revenue to the individual elements based upon the available fair value of each deliverable. The implementation of this statement did not have a material impact on our financial position, results of operations and cash flows.

In January 2003, the FASB issued FASB Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.” FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity, if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its

activities without additional subordinated financial support from other parties. FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. We do not expect that the adoption of FIN 46 will have a material impact on our results of operations, financial condition and cash flows.

In May 2003, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classifies a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. The Statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The implementation of this statement did not have a material impact on our financial position, results of operations and cash flows.

Qualitative and Quantitative Disclosure about Market Risk

Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates, and other relevant market rate or price changes. Market risk is directly influenced by the volatility and liquidity in the markets in which the related underlying assets are traded.

Foreign Exchange Rates

We are exposed to foreign currency exchange movements, primarily in the Euro, and the Japanese Yen, and to a lesser extent, the British Pound, as we enter into various contracts, which change in value as foreign currency exchange rates change. The primary exposure exists during the period between when a contract price is fixed in foreign currency and when the related receivable is collected. To mitigate this risk we only fix contracts in the above referenced foreign currencies, and normally fix prices for long term contracts using U.S. dollar prices. The length of time between when a short-term contract price is contractually fixed, and when the equipment is delivered, typically ranges between two to four months, unless the equipment can be taken from finished goods inventory. Our standard terms of sale are 80% due 30 days after delivery, and 20% due 30 days after customer site acceptance, which is required within 30 days of delivery. On completion of this offering, we may seek to hedge our exposure to foreign currency rate fluctuations with forward contracts. We cannot assure you that any hedging transactions we may enter into will be effective or will not result in foreign exchange hedging losses. Our historical financial statements do not reflect any foreign currency arrangements.

Interest Rates

After the application of the proceeds from this offering, we will have virtually no debt, and therefore our exposure to market risk related to interest rates is limited. If and when we do enter into future borrowing arrangements, we will seek to manage the exposure to interest rate changes by using a mix of debt maturities and variable- and fixed-rate debt together with interest rate swaps, where appropriate, to fix or lower borrowing costs.

BUSINESS

Overview

We design, develop and manufacture advanced semiconductor test and diagnostic systems and provide related services for the semiconductor industry. Our customers include integrated device manufacturers, or IDMs, fabless design companies, foundries and assembly and test subcontractors worldwide. Our products and services enable our customers to bring their increasingly complex integrated circuits, or ICs, to market faster, at lower cost and without compromising IC quality. We offer products that enable our customers to debug, characterize and test a wide range of ICs, including the fastest multi-Gigahertz microprocessors and the most highly integrated, high-speed system-on-a-chip, or SOC, devices. In addition, we provide test engineering services, including debug, repair and characterization. As of June 30, 2003, we had 888 employees worldwide.

Industry Background

Historically, the semiconductor industry has been driven by the ability to integrate an increasing number of transistors on a given area of silicon, which has allowed for the production of smaller, faster and more complex integrated circuits at decreasing costs. This has been accomplished by shrinking circuit dimensions, increasing the silicon wafer size to allow for more die per wafer and introducing new conductive and insulating materials. These advancements, in combination with decreasing average selling prices, have allowed for the proliferation of semiconductor devices, as well as an increase in semiconductor content, in a wide variety of end market applications including computer, consumer and communication devices.

Despite the proliferation of semiconductor devices and increase in semiconductor content, the semiconductor industry is traditionally cyclical. Sales of semiconductor devices are estimated to have been approximately $50.5 billion in 1990, $204.4 billion in 2000 and $140.7 billion in 2002, according to the Semiconductor Industry Association. Since peaking in 2000, the industry has been in the midst of a downturn which has been characterized by depressed end market demand, low utilization of equipment by semiconductor manufacturers and assembly and test subcontractors, and reduced spending on semiconductor capital equipment. This downturn has affected the test equipment market more significantly than the overall capital equipment sector. According to VLSI Research, worldwide sales of automated test systems decreased from approximately $6.8 billion in 2000 to approximately $2.2 billion in 2002. Over the last two years, semiconductor manufacturers have focused capital equipment spending on advanced wafer processing equipment, but have invested less in improvements in back-end processes such as test and diagnostics. In addition, life cycles of end products have shortened and leading edge devices have moved to smaller geometries and higher performance levels. As a result, test systems installed during the industry peak do not meet the requisite performance requirements and are not cost-effective for new generations of ICs.

Recent evidence points to a recovery in the industry as semiconductor manufacturers have seen increased demand for their products. Industry research firms are currently forecasting improved market conditions in 2004 and beyond. For example, the Semiconductor Industry Association estimates that by 2006 sales of semiconductor devices will be approximately $204.9 billion, or a compound annual growth rate of 9.9% from 2002 sales. Since the downturn began, under-investment in capital equipment, particularly in the back-end processes, and advances in IC design and architecture have occurred. We believe these factors will lead to demand for new cost-effective test products that are flexible enough to meet the evolving needs and rapid time-to-market requirements of semiconductor manufacturers.

Semiconductor Design and Manufacturing Process

The diagram below depicts the multistage semiconductor design and manufacturing process:

LOGO

•

Design and Simulation Stage. The product concept is developed into a software-based model of the electrical circuit. This model is developed into a photolithographic template or “mask” that has the circuit layout etched into it.

•

Prototype Development Stage. The mask is used to manufacture a small quantity of prototype ICs.

•

Validation and Characterization Stage. The functionality of prototype ICs is validated, comparing the prototype to the model, and the specifications are characterized in detail. Prototypes often require redesign and repetition of the photolithographic process with a new mask to correct architectural or design flaws.

•

Wafer Fabrication Stage. After validation and characterization, the IC is moved to high volume manufacturing. At the end of wafer fabrication, wafer test, or wafer sort, where faulty ICs are identified, is conducted.

•

Assembly and Final Test Stage. The good ICs are assembled, packaged, and undergo final testing. Final test can involve structurally testing and/or functionally testing the IC to ensure it meets necessary quality levels prior to shipping.

•

Failure Analysis Stage. Defective ICs rejected by the end user, as well as defective ICs found during manufacturing test, are analyzed to identify and correct the cause of the malfunction, whether in the manufacturing process or in the IC design.

Market Challenges

Test and associated design diagnostics play key roles in the semiconductor design and manufacturing process. Test and diagnostics are critical in high volume manufacturing for identifying non-performing ICs and isolating the cause of malfunctions. They are also essential to debugging and characterizing ICs, and measuring and increasing yield as manufacturing volumes increase. Test and diagnostics are becoming more challenging due to a number of factors, including:

•

Rising complexity of chip designs. The trend towards smaller geometries and an increasing number of transistors and metal layers, and the integration of analog, digital and memory functions on a single IC has created new challenges for test. In addition, advances in bus technology and the adoption of new design protocols are increasingly making ICs more complex. Process technology innovations have added to this complexity. Existing device debug and characterization methodologies are becoming inadequate to identify faults and defects in these designs and customers are seeking alternative methodologies.

•

Increasing cost of test. Traditionally semiconductor manufacturers have used functional testers which attempt to re-create the end-user application environment. As semiconductor designs, ICs and process technologies have become increasingly complex, this form of test has become less cost effective. To manage test costs, customers are pursuing lower-cost test techniques, such as structural test, built-in self-test (BIST), and design-for-test (DFT). Continued cost pressures are driving customers to demand higher utilization of test systems, as well as test systems that can be re-used across different types and generations of ICs. Current test system products lack the flexibility and scalability required to permit desired levels of utilization and extend the product’s useful life.

•

Increased pressure for rapid time-to-market and time-to-volume manufacturing. Today’s semiconductor market is characterized by diminishing product life cycles and obsolescing technologies. Semiconductor manufacturers are focused on accelerating their time-to-market with new ICs in order to maximize their revenue opportunity. Customers are seeking test solutions that enable them to debug, validate and characterize new IC designs with a minimum number of design iterations. Collaboration among design and manufacturing test engineers is becoming more critical for optimizing time-to-volume manufacturing and yield. Failure to work collaboratively increases the number of design iterations required to produce an IC ready for high volume manufacturing and, therefore, delays time-to-market. Today, 60% of IC designs require more than one design iteration, and 35% require three or more iterations according to VLSI Research.

Our Solution

We design, develop, manufacture, sell and support advanced semiconductor test and diagnostic systems and offer test engineering services that enable our customers to increase their engineering and manufacturing efficiency and lower their cost of test. Our solution offers:

•

Leading technology. We design tools that debug, characterize and test the fastest multi-Gigahertz microprocessors, as well as the most highly integrated, high-speed SOCs. We are recognized as a leader in functional and structural test with our EXA and DeFT platforms, respectively. Our EXA3000 functional tester can provide data rates of 3.2 Gb/s and timing accuracy of 50 picoseconds. The DeFT structural tester was the first commercially available structural tester when it was introduced in 2001. Sapphire NP, our latest test platform, integrates our knowledge of functional and structural test and is capable of performing both. In addition to our test platforms, our diagnostic tools detect circuit defects and design faults down to 90nm with high accuracy. Our IDS OptiFIB integrates photon and ion optics into a single coaxial column which allows for the simultaneous capture of real-time optical and focused ion beam, or FIB, images, a new technology for the market.

•

Accelerated time-to-market for our customers. Our products enable our customers to reduce the number of prototype iterations required to complete a product design. Our systems perform signal measurement, failure analysis, circuit edit and characterization to identify design defects and functional failures during the first design cycle. We also provide these services on an outsourced basis to customers who do not possess, or choose not to use, in-house test engineering capabilities. Customers who use our test engineering services are able to limit prototype iterations, reduce engineering and mask costs and accelerate time-to-market for their ICs. We are also implementing compatible software interfaces which can be used in debug, validation and characterization and manufacturing. This software facilitates communication between design and manufacturing test engineers, helping them shorten time-to-market.

•

Multiple test capabilities on a single platform. We have designed our latest test platform, Sapphire NP, for use throughout the semiconductor design and manufacturing process. This test platform has been designed to lower infrastructure costs, and to have a smaller footprint and reduced power requirements. The same system can be configured for the engineering stages, including device debug, validation and characterization, and the high volume manufacturing stages, including wafer sort and final test.

•

A reconfigurable, scalable test platform. By placing the intelligence of the tester in the test head and designing test instruments that “plug and play” within the test head, we have designed our Sapphire NP platform to be fully reconfigurable. This test platform design allows customers to reconfigure the platform as their performance requirements and functionality needs change by implementing test instruments that are capable of testing SOC devices, high-performance logic or any other IC, including mixed-signal, analog and radio frequency, or RF. The performance and pincount of Sapphire NP are fully scalable. Sapphire NP can be used to test all of the various functional blocks of an SOC simultaneously regardless of block operating speed and without sacrificing accuracy. Sapphire NP is designed to be reconfigured to help our customers as they adopt new DFT methodologies and transition from solely functional test to structural test or a combination. These features enhance utilization and forward compatibility, and significantly reduce the overall cost of test.

Business Strategy

•

Extending our technology leadership. We have consistently introduced new products that have enabled our customers to overcome their testing, characterization and validation challenges and to bring next generation products to market. We are committed to maintaining our leadership at the high end of the market, and therefore, work closely with our customers and share product roadmaps to anticipate technology progression such as operating frequencies in excess of 6.4 GHz and timing accuracy of 20 picoseconds. Our Sapphire NP tester architecture allows our customers to reduce time-to-market for new products at the leading edge of technology with a lower cost of test. We also continue to innovate with our diagnostic systems. Our current e-beam, circuit analysis and FIB diagnostic products are validated to deliver 90nm capability today, and we are actively developing technology for next generation devices.

•

Innovating for cost efficiency. We strive to offer leading-edge products and services that drive cost efficiency in the test and diagnostic industry. We have continually developed products that have reduced the cost of test, such as the EXA3000 and the DeFT test platform, introduced in 2000 and 2001 respectively. We expect the recently introduced Sapphire NP platform to improve cost efficiency by bringing a new level of integration to the test market and providing a scalable cost structure for our customers. We plan to continue to innovate for cost efficiency by building on or re-using our test technology and further integrating it within the Sapphire NP platform and instrument set.

•

Enabling the transition to low cost test strategies. Confronted with competitive pressures and the inability to test the full functionality of highly integrated ICs, semiconductor manufacturers have identified test techniques such as structural test, BIST, and DFT as key enablers of testability and lower manufacturing costs. Our DeFT platform was the first structural test product commercially available. Our recently introduced Sapphire NP platform supports both functional and structural test on a single platform. As semiconductor manufacturers transition from functional to structural test, we intend to provide systems that facilitate the transition to lower cost test strategies.

•

Expanding our addressable market. Our products have traditionally focused on the high end of the market. As IC complexity has increased with greater integration of digital, analog and mixed signal technologies, the testing performance requirements for a wider range of ICs have grown, increasing the addressable market for our products. Our Sapphire NP platform will also expand our addressable market by allowing us to service products at different performance levels, including devices operating at frequencies of 200 MHz and less, where we have not traditionally focused. This will allow us to target high volume, cost sensitive devices such as advanced microcontrollers, devices for mid- to low-end consumer products and RF devices. We also plan to further penetrate the fabless semiconductor and subcontractor markets. We plan to build on our success in selling our EXA platform in these markets by

meeting the needs of fabless semiconductor companies and subcontractors with the flexibility and configurability of our Sapphire NP platform.

•

Collaborating with strategic customers to improve our market position. We have and will continue to develop strategic relationships with the leading companies in the semiconductor industry, including the leading manufacturers of microprocessors and mixed-signal SOCs, to develop new products and services. By collaborating with existing and potential customers, we attempt to minimize our development risk and to better understand the product roadmap and development needs of our customers. Through defining key milestones for cost of test reductions and meeting joint development program requirements with strategic partners we have introduced new products including our EXA3000, DeFT and Sapphire NP platforms. For example, we recently entered into a collaboration with Beijing Microelectronics Technology Institute to establish a high-end central processing unit and SOC testing center, offering testing services to IC design companies throughout China. We will continue to pursue new collaborations to broaden our customer base.

•

Facilitating collaboration between design and manufacturing test engineers. Traditionally, in semiconductor manufacturing, organizational boundaries have existed between design and manufacturing test. We intend to continue to develop systems and software which allow design and manufacturing test engineers to collaborate and to operate on a common hardware and software platform, thereby simplifying the transition from prototyping to manufacturing. Our systems and software enable manufacturers to facilitate communication between design and manufacturing test engineers, improve manufacturing yields and ease the transition to DFT and structural test.

Products and Services

Our suite of products and services allows us to cost effectively meet our customers’ needs in IC design debug and validation, IC repair, characterization, wafer sort, final test and failure analysis. We deliver high quality customer support and make available our engineering, diagnostic and test process expertise to semiconductor companies.

Our products for IC design debug and validation, IC repair and characterization are used in the validation and characterization stage; wafer sort products are employed at the end of the wafer fabrication stage; final test products are used in the assembly and final test stage; and failure analysis products are used in the failure analysis stage. Customer support and engineering services are available at each stage to help customers achieve optimal use of our products.

LOGO

Products

Our principal products include the following:

EXA3000. The EXA3000, introduced in 2000, is a high performance functional test platform capable of testing a wide range of ICs. The EXA3000 provides a wide performance range from 400 MHz to 3.2 GHz, allowing the test of most SOCs, microprocessors and graphics ICs. The EXA3000 is used for characterization and final test. Most recently, NVIDIA Corporation purchased multiple EXA3000 test systems to test current and next generation graphic ICs for characterization and production. The EXA3000 is flexible and customizable and includes features such as high performance digital instruments, advanced analog instruments, mixed signal synchronization, low electrical noise and a common graphical user interface. When configured with a high performance test head, the EXA3000 offers up to 1,280 configurable pins for high pin count ICs or for multiple testing of low pin count ICs.

DeFT. The DeFT is a structural test system which is used to test high end microprocessors and chipsets for wafer sort and final test. When it was introduced in 2001, it was the first commercially available structural tester. The DeFT is a low cost system, featuring a reduced pin count test interface, that can test DFT-ready ICs. The DeFT also features high performance scan capability, a high accuracy clock and proprietary power supply technology that can provide up to 400 Amps with fast transient response.

Sapphire NP. Sapphire NP, our next generation platform introduced in July 2003, is designed to be a highly reconfigurable and scalable functional and structural tester for a wide range of ICs. Sapphire NP has all of its test electronics integrated in the test head and interconnected by a proprietary high bandwidth bus, which results in a lower cost platform and a smaller footprint. Sapphire NP can be used for design debug and validation, characterization, wafer sort and final test. Sapphire NP’s design supports a broad configuration range of up to 5,000 pins and a performance envelope that ranges from 200 MHz to 6.4 GHz. At introduction, Sapphire NP will be sold in less complex configurations targeted at markets that require cost effective test solutions. We expect to ship our first Sapphire NP systems in late 2003 or early 2004.

IDS 10000. The IDS 10000, introduced in 1994, is a compact electron beam system for IC diagnostics, with a computer aided design, or CAD, navigation user interface. During IC design debug and validation, the IDS 10000 can measure signals inside the IC, enabling the user to trace malfunctions to their root cause. In addition, in the failure analysis stage, IDS 10000 is capable of analyzing malfunctions down to 0.18 micron for non-working devices returned by customers.

IDS OptiCA. The IDS OptiCA, introduced in 2002, is an in-circuit probe and defect analysis tool using photon emission technology. The IDS OptiCA complements the IDS 10000 for testing flip chip and other advanced package devices which require instruments that can test from both sides of the IC as well as at the wafer level. IDS OptiCA detects electrical leakages and faulty electrical paths in the IC, two common problems associated with advanced process technologies through the integrated photon emission microscope, thermal laser simulation tool and timing analysis tool. The IDS OptiCA is capable of analyzing defects down to 90 nm. The IDS OptiCA is used for design debug and validation as well as failure analysis.

IDS OptiFIB. The IDS OptiFIB, introduced in 2002, is a FIB product used for circuit edit and repair. The IDS OptiFIB is unique because it combines ion and photon optics in a single coaxial column, with a CAD navigation interface, which enables the user to align FIB and CAD images simultaneously, increasing the accuracy of circuit modifications. In failure analysis, the IDS OptiFIB can identify and repair circuit layout at inner metal layers.

Services

NPTest services are an integral part of our business and directly contribute to customer satisfaction, as evidenced by the customer satisfaction awards that we have received. We have recently received the following awards:

•

VLSI Research 10 Best award for excellence in customer service, in 2002 and 2003;

•

Intel Preferred Quality Supplier award, for calendar years 2001 and 2002; and

•

NEC Key Supplier award for supporting the Nintendo GameCube project in 2002.

Customer Service. We have established a worldwide organization of engineers and specialists to help our customers maintain and repair our products. As of June 30, 2003, we had a customer service support staff of 244 people, including a call center staffed by trained technicians. A broad range of services is offered to address the technical needs of our customers. Our customer service effort is supported by a 24-hour 7-day-a-week logistics network and two repair centers in North America. Our spare parts logistics network is outsourced to a specialized third party supplier with an international network of warehouses that provides express deliveries to our customer sites within two to 24 hours of receiving an order and offers our customers on-line access to shipment status.

We believe that we have increased the productivity of our customer service organization through:

•

Remote Support and e-Support. Our specialists can remotely access a piece of our equipment at a customer site and quickly diagnose a problem, often permitting a rapid solution without the need for an on-site visit.

•

Worldwide Call Center. Customer requests are collected on a 24-hour 7-day-a-week basis by our call center and routed to the relevant experts, based on skill set requirements.

•

In-Touch Knowledge Base. Our field technicians can instantly and remotely access the experience of our worldwide engineering and technical team through our web-enabled knowledge base. This tool permits us to quickly and efficiently apply our vast experience to an individual customer’s particular problem.

SABER. Established in 1997, our SABER group provides test engineering services for fabless semiconductor companies, system integrators, and IDMs. Many IC vendors, typically fabless companies, require outsourced assistance to help them reduce their IC design debug cycle-time, number of design iterations, and overall development costs. SABER services leverage our competencies in characterization, validation, circuit edit and high volume manufacturing test deployment, and provide access to leading edge techniques for companies who choose to outsource these type of engineering activities. SABER’s service offerings complement and optimize our customers’ overall outsourcing strategy by working cohesively with their design service, foundries, and assembly and test subcontractors. To better serve these customers, SABER has formed a strategic alliance with a major foundry that positions SABER to reach a broad universe of fabless semiconductor companies through its customer referrals. As of June 30, 2003, our SABER group had a staff of 74 people.

Sales and Marketing

We generate business primarily by expanding customer relationships. In a number of cases, early technology exchanges with industry leaders have developed into common projects, whereby the customer specifies product requirements and we develop the technology and implement the solution, within specified timing and pricing constraints. We work with our customers collaboratively to develop specific products which we then market on a broader basis. We place a high value on developing and maintaining these types of relationships with our customers, which we believe is the best approach to product development.

We sell our products and services directly to IDMs, fabless companies and assembly and test subcontractors. As of June 30, 2003, we had 51 people in our sales organization and sales offices in the major semiconductor manufacturing markets. We market our products and services to IDMs through our account managers. Account managers are responsible for the general relationship with the customer, including the coordination and preparation of technology roadmap exchanges. We have also established specialized sales and marketing teams to meet the particular requirements of fabless companies and assembly and test subcontractors, with a team dedicated to each group. These teams market our products and services to take advantage of cross-selling opportunities.

Customers

The semiconductor industry is highly concentrated, and a small number of IC device manufacturers and assembly and test subcontractors account for a substantial portion of the purchases of IC test equipment. In the first half of 2003, two customers, Intel and Customer B, accounted for 39% and 14%, respectively, of our total revenue. These two customers are the only customers who accounted for 10% of more of our total revenue in 2002 and in the first half of 2003.

Sales to customers in North America accounted for approximately 35%, 39% and 52% of total revenue for the years ended December 31, 2000, 2001 and 2002, respectively and 59% and 49% for the six months ended June 30, 2002 and 2003, respectively; sales to customers in France accounted for approximately 22%, 10% and 9% of total revenue for the years ended December 31, 2000, 2001 and 2002, respectively and 2% and 12% for the six months ended June 30, 2002 and 2003, respectively; sales to customers in other countries in Europe accounted for approximately 12%, 13% and 5% of total revenue for the years ended December 31, 2000, 2001 and 2002, respectively and 5% and 8% for the six months ended June 30, 2002 and 2003, respectively; and sales to customers in Asia accounted for approximately 31%, 37% and 33% of total revenue for the years ended December 31, 2000, 2001 and 2002, respectively and 34% and 30% for the six months ended June 30, 2002 and 2003, respectively.

Manufacturing

All of the products manufactured by NPTest are assembled and shipped from our 105,000 square foot facility in Simi Valley, California. Our manufacturing operations are comprised of four segments: supply chain management, front-end manufacturing, system integration and test, and quality control. The supply chain organization is responsible for the planning and procurement of material, based on a monthly build plan approved by senior management, utilizing an MRP (material requirements planning) information system. Front-end manufacturing delivers complete and fully tested multi-layer electronic boards. System integration and test performs electro-mechanical integration, system calibration and final test and assists with customer acceptance. There is a formal quality structure in place with a strategy focused on process improvement teams to achieve overall factory quality targets. Both internal teams and customer representatives conduct regular quality assessments.

We outsource a portion of our front-end manufacturing requirements to Flextronics in St. Etienne, France. This strategy gives us the capability to increase our production volumes in a timely manner when there is a sudden surge in market demand. We expect to continue this arrangement with Flextronics in the future or, if advantageous, to obtain these services from another contract manufacturer.

Research and Development

We have a highly structured approach to maximize research and development efficiency. A group of internal advisors formulates a long-term technology plan with clear objectives. Through our direct engagement with customers, high-priority projects are identified and appropriate resources are allocated. Engineering resources are organized by area of competence to effectively develop expertise and to share technologies across product lines. To improve our time-to-market with new products and technologies, we have multiple development centers worldwide that work simultaneously on projects, delivering 24-hour a day engineering capability.

We internally develop software components for our products to achieve ease of use, integrated functionality, throughput efficiency and calibration/diagnostic effectiveness. This development is based on object-oriented architecture, modeling and design.

We design critical devices, boards and modules that implement our proprietary architecture in our products. We use both internally developed and licensed sub-micron technology in our products.

Our technologists include leaders in their field who regularly publish technical articles in leading industry publications and present at industry conferences.

Our expenditures for research and development for the first six months of 2002 and 2003 were $16.3 million and $23.2 million, respectively, representing 12.5% and 19.7% of revenue. Our historical expenditures for 2000, 2001 and 2002 were $32.7 million, $34.7 million and $36.6 million, respectively, representing 11.4%, 15.7% and 15.0% of revenue in each of the respective periods.

Competition

We face substantial competition throughout the world in each of our product areas. Our competitors in the test and diagnostic systems market primarily include Advantest, Agilent Technologies, Credence Systems, FEI Company, Hamamatsu, LTX Corporation and Teradyne. Some of these competitors have substantially greater financial resources and more extensive engineering, manufacturing, marketing and customer support capabilities. We expect our competitors to continue to improve the performance of their current products and to introduce new products or new technologies that could adversely affect sales of our current and future products. In addition, we anticipate that increased competitive pressures will cause intensified price-based competition and we may have to adjust the prices of many of our products.

Intellectual Property

Our success depends in large part on our proprietary technology. We are not dependent on any individual patent but instead we rely on a combination of patents, copyrights, trademarks, trade secrets, confidentiality provisions and licensing arrangements to establish and protect our proprietary rights. As of June 30, 2003, we had 81 United States patents. These patents primarily relate to our products and expire from time to time over the next 18 years. As of June 30, 2003, we had approximately 55 United States patent applications pending. As of June 30, 2003, we had 74 foreign patents granted and approximately 188 foreign patent applications pending. We may be required to spend significant resources to monitor and protect our intellectual property rights. We may not be able to detect infringement and may lose our competitive position in the market before we do so. In addition, competitors may design around our technology or develop competing technologies. Intellectual property rights may also be unavailable or limited in some foreign countries, which could make it easier for competitors to capture market share. We often rely on licenses of intellectual property useful for our business. We cannot be sure that these licenses will be available in the future on favorable terms or at all. In addition, our position with respect to the negotiation of licenses may change as a result of our acquisition from Schlumberger.

Third parties may claim that we are infringing their intellectual property rights, and although we do not know of any infringement by our products of the valid intellectual property rights of third parties, we may be unaware of intellectual property rights of others that may cover some of our technology, products and services. Any litigation regarding patents or other intellectual property rights could be costly and time-consuming, and divert our management and key personnel from our business operations. The complexity of the technology involved and the uncertainty of intellectual property litigation increase these risks. Claims of intellectual property infringement might also require us to enter into costly royalty or license agreements and we may not be able to obtain royalty or license agreements on terms acceptable to us, or at all. We also may be subject to significant damages or injunctions against development and sale of certain of our products.

Employees

As of June 30, 2003, we had approximately 888 full time employees, of which 158 were located in Europe, 155 were located in Asia (including 48 in Japan) and 575 were located in North America. Of our total employees, 216 were principally dedicated to research and development, 162 were dedicated to sales, general and administrative, 381 were dedicated to customer service, marketing and applications and 129 were dedicated to manufacturing.

None of our employees located in the United States are represented by a union. Our employees in Europe are represented by workers’ councils. Employees are compensated with a combination of salary, cash bonus and stock options.

Facilities

We are headquartered in San Jose, California, where we lease approximately 150,000 square feet of commercial space under a term lease that expires on October 31, 2009, subject to renewal for up to 15 years at our option. Under the lease, monthly payments are approximately $180,000. Our monthly payments under this lease will increase in 2005 to approximately $255,000. These facilities are used for executive office space, including sales and marketing, and finance and administration. We also lease approximately 105,000 square feet in Simi Valley, California under a term lease that expires on January 14, 2007. Monthly payments under this lease are approximately $74,000. The Simi Valley facility is primarily used for product assembly and manufacturing. We lease approximately 10,000 square feet in St. Etienne, France under the transition services agreement with Schlumberger which expires on July 29, 2004. Monthly payments for the St. Etienne facility under the agreement are $24,500. We also lease approximately 7,700 square feet in Ferndown, U.K. under the transition services agreement that expires on July 29, 2004. Monthly payments for the Ferndown facility under the agreement are approximately £9,350. The Ferndown and St. Etienne facilities are primarily used for engineering.

Backlog

Our backlog of unfilled orders for all products and services was $75.1 million at June 30, 2003 and $90.4 million at June 30, 2002. While backlog is calculated on the basis of firm orders, all orders are subject to cancellation or delay by the customer, generally without penalty. Our backlog at any particular date, therefore, is not necessarily indicative of actual sales which may be generated for any succeeding period. Historically, our backlog levels have fluctuated based upon the ordering patterns of our customers.

MANAGEMENT

Executive Officers and Directors

Set forth below is information concerning our directors, executive officers and key employees and their ages as of September 1, 2003:

Name	Age	Position
Executive Officers

Ashok Belani	45	President, Chief Executive Officer and Director

Jean-Luc Pelissier	41	President, Products

William Dillon	46	Vice President and General Manager, Operations

Thomas Ho	42	Vice President and General Manager, SABER Services

David Mullin	50	Chief Financial Officer

Jack Sexton	39	Controller and Chief Accounting Officer

Directors

Dipanjan Deb	34	Director

Benjamin Ball	37	Director

Ashok Belani	45	Director

Ajay Shah	44	Director

John Sullivan	57	Director

Key Employees

Burnell West	64	Technical Advisor

Brett Hooper	40	Vice President, Human Resources and Communications

Allan Chu	54	Vice President, Asia

Douglas Cutsforth	62	Vice President, Europe

Toru Toda	49	Vice President, Japan

Ashok Belani has served as our President and Chief Executive Officer and as a Director since our inception. Prior to our inception, Mr. Belani served as President of Schlumberger Semiconductor Solutions from March 2000 and Chief Information Officer for Schlumberger from September 2001 to May 2002. Previously, he was appointed Vice President of Business Development for Schlumberger Test & Transactions in September 1999, Vice President of Marketing and Product Development for Schlumberger Oilfield Services in January 1998 and Vice President of Marketing and Product Development for Schlumberger Wireline & Testing in October 1994. Mr. Belani joined Schlumberger in 1980. Mr. Belani received a Bachelor of Technology in Electronics Engineering from the Indian Institute of Technology in New Delhi, and an M.S. in Petroleum Engineering from Stanford University.

Jean-Luc Pelissier has served as our President, Products since September 2003. Dr. Pelissier served as our Vice President and General Manager, Test Systems prior to that and previously held an equivalent position with Schlumberger Semiconductor Solutions from October 2001. Dr. Pelissier was appointed Vice President Business Development for Schlumberger Semiconductor Solutions in September 2000. For a period of four months in 2000, Dr. Pelissier left Schlumberger to pursue other business interests. From January 1998 to April 2000 he had held the position of Vice President and General Manager, SABER Services. Dr. Pelissier joined Schlumberger in 1987. Dr. Pelissier completed his doctorate in Microelectronics, Circuits and Systems at the University of Science and Techniques of Languedoc in Montpellier, France.

William Dillon has served as our Vice President and General Manager, Operations since our inception and previously held an equivalent position with Schlumberger Semiconductor Solutions from late 2001. Mr. Dillon was appointed Vice President Customer Service for Schlumberger Semiconductor Solutions in May 1998 and Director of Field Operations for Schlumberger Semiconductor Solutions in February 1997. Mr. Dillon joined Schlumberger in 1979. Mr. Dillon received a B.S. in Electronic Engineering Technology from DeVry Institute of Technology.

Thomas Ho has served as our Vice President and General Manager, SABER Services, since our inception and previously held an equivalent position with Schlumberger Semiconductor Solutions from 2000. Mr. Ho was appointed Vice President and General Manager for Asia for Schlumberger Smart Cards & Terminals in January 1999 and Vice President Technical Development for Semiconductor Solutions in July 1997. Mr. Ho joined Schlumberger in 1983. Mr. Ho received a B.S. in Electrical Engineering/Computer Science from the University of California, Berkeley, and an M.B.A. from the University of Santa Clara.

David Mullin has served as our Chief Financial Officer since September 2003. From February 2001 through July 2003, Mr. Mullin served as Executive Vice President of Finance and Administration and Chief Financial Officer of Terawave Communications, Inc. From March 2000 through August 2000, Mr. Mullin served as Vice President of Finance and Administration and Chief Financial Officer of OnLink Technologies, Inc. From 1996 through February 2000, Mr. Mullin served as Vice President of Finance and Administration and Chief Financial Officer of SMART Modular Technologies, Inc. Earlier in his career, Mr. Mullin also served as Vice President and Chief Financial Officer of Borland International and prior to that, held senior financial and managerial positions at Conner Peripherals, Inc., Sun Microsystems, Inc. and PriceWaterhouse, where he practiced as a CPA. Mr. Mullin also serves on the software advisory board at JP Morgan Ventures. Mr. Mullin received a B.A. in business administration with honors from San Francisco State University.

Jack Sexton has served as our Controller and Chief Accounting Officer since our inception and previously held an equivalent Controller position with Schlumberger Semiconductor Solutions from February 2002. Previously, Mr. Sexton was appointed Worldwide Controller for Schlumberger Resource Management Services in June 2001, Regional Controller & Director for Schlumberger Industries, United Kingdom and South Africa in March 1998 and North America Regional Controller in August 1996. Mr. Sexton joined Schlumberger in 1990. Mr. Sexton received a B.S. in Finance and a B.S. in Accounting from Boston College.

Dipanjan Deb has been a director since July 2003. Mr. Deb is a founder of Francisco Partners and has been a partner since its formation in August 1999. Prior to joining Francisco Partners, Mr. Deb was a principal with Texas Pacific Group from 1998 to 1999. Earlier in his career, Mr. Deb was director of semiconductor banking at Robertson Stephens & Company from 1996 to 1998 and a management consultant at McKinsey & Company. Mr. Deb is also on the boards of AMIS Holdings, Inc., GlobespanVirata, Inc., Legerity Inc., and Ultra Clean Technology Systems & Services, Inc. Mr. Deb holds a B.S. degree in Electrical Engineering and Computer Science from the University of California, Berkeley, where he was a Regents Scholar, and an M.B.A. from the Stanford Graduate School of Business.

Benjamin Ball has been a director since July 2003. Mr. Ball is a founder of Francisco Partners and has been a partner since its formation in August 1999. Prior to founding Francisco Partners, Mr. Ball was a Vice President with TA Associates where he led private equity investments in the software, semiconductor and communications segments. Previously, he worked for Genstar Capital LLC, a middle-market LBO firm, where he focused on investments in the semiconductor, capital equipment and communications industries. Earlier in his career, Mr. Ball worked for AEA Investors, a New York-based private equity firm, and also for the consulting firm of Bain & Company. Mr. Ball is also on the boards of Legerity and XcelleNet. Mr. Ball holds an A.B. degree from Harvard College, and an M.B.A. from the Stanford Graduate School of Business.

Ajay Shah has been a director since August 2003. Mr. Shah is the General Partner of Shah Management, LLC. Most recently, Mr. Shah was the President and Chief Executive Officer of the Technology Solutions unit of

Solectron, an electronic manufacturing services company. Mr. Shah is also on the boards of Proactive Networks, Tachyon Corp. and Vcustomer, Inc. He holds an M.S. in Engineering Management from Stanford University and a Bachelor degree in Engineering from the University of Baroda, India.

John Sullivan has been a director since September 2003. Most recently, Mr. Sullivan was the chief financial officer and vice president of finance of PMC-Sierra, Inc. from 1997 to 2002. Prior to joining PMC-Sierra, Inc., Mr. Sullivan was the chief financial officer and vice president of finance of Semitool, Inc. from 1993 to 1997. Mr. Sullivan is also a director of Vortek, Inc. Mr. Sullivan holds a B.S. from Bentley College, and an M.B.A. from Fordham University.

Burnell West has served as our Technical Advisor since our inception and previously held an equivalent position with Schlumberger Semiconductor Solutions from April 2000. From January 1996, he held an Engineering Advisor position with Schlumberger and has held several technical positions in its Test Systems business unit. Dr. West joined Schlumberger in January 1982. Dr. West received a B.S. in Physics from Massachusetts Institute of Technology and a doctorate in Physics from the University of Colorado.

Brett Hooper has served as our Vice President of Human Resources and Communications since our inception and previously held an equivalent Human Resources position with Schlumberger Semiconductor Solutions from early 2001. Previously, Mr. Hooper was appointed Personnel Manager for Schlumberger Semiconductor Solutions in April of 2000, Personnel Manager North America in April 1999, Director of Marketing Communications for Schlumberger Test & Transactions in January 1997 and Schlumberger Investor Relations Manager North America in 1995. Mr. Hooper joined Schlumberger in 1987. Mr. Hooper holds a B.S. in Petroleum Engineering from the University of Texas at Austin.

Allan Chu has served as our Vice President of Asia since our inception and previously held an equivalent position with Schlumberger Semiconductor Solutions from October 2001. Previously, Mr. Chu was appointed Vice President Taiwan in May 2001, General Manager Schlumberger Semiconductor Solutions, Taiwan in October 2000 and General Manager for ATE, North Asia in November 1996. Mr. Chu joined Schlumberger in 1996. Mr. Chu received a B.S. from the Chinese Naval Academy (Taiwan) and graduated from the US Naval War College in Newport, RI. He also holds an M.S. in Mechanical Engineering from California State University in Long Beach.

Douglas Cutsforth has served as our Vice President of Europe since January 2003. Previously, Mr. Cutsforth was appointed Vice President of Test Systems Product Marketing for Schlumberger Semiconductor Solutions in March 2001, Vice President and General Manager Test Systems in December 1999 and Vice President of SOC Product Marketing in December 1997. Mr. Cutsforth joined Schlumberger in June 1996. Prior to joining Schlumberger, Mr. Cutsforth held various marketing and executive management positions in the test and computer industries. Mr. Cutsforth holds an M.S. in Mathematics from Oregon State University and a B.S. in Mathematics Education from Western Oregon State University.

Toru Toda has served as our Vice President of Japan since our inception. Previously, Mr. Toda was appointed Director of Japan for Schlumberger Semiconductor Solutions in September 2001, Director of Sales for Japan in April 1998 and District Manager of Japan and Korea for Schlumberger GeoQuest in 1994. Mr. Toda joined Schlumberger in 1977. Mr. Toda holds a B.S. in Electronics and Communication Engineering from Musashi Institute of Technology in Tokyo.

Board Structure and Compensation

NPTest Holding, LLC, which is controlled by Francisco Partners, has the right to designate members of our board pursuant to the terms of a stockholders’ agreement with us. Our board of directors currently consists of five directors. All of our directors will stand for election at each annual meeting of stockholders. As described in “Certain Relationships and Related Party Transactions”, we may not take certain significant actions, such as a

merger or sale of assets, without the approval of NPTest Holding, LLC. Non-employee directors will be paid an annual fee in an amount to be determined. Directors will be eligible for stock option grants under our 2003 Stock Incentive Plan.

Our board of directors has the following committees:

Audit Committee

Our audit committee consists of Messrs. Deb, Shah and Sullivan. The audit committee reviews our financial statements and accounting practices and makes recommendations to our board of directors regarding the selection of independent auditors. In addition, any transaction in which one of our directors has a conflict of interest must be disclosed to the board of directors and reviewed by the audit committee.

Compensation Committee

Our compensation committee consists of Messrs. Ball, Deb and Shah. The compensation committee makes recommendations to the board of directors concerning salaries and incentive compensation for our officers and employees and administers our employee benefit plans.

Nominating and Corporate Governance Committee

Our nominating and corporate governance committee consists of Messrs. Ball, Deb and Shah. The nominating and corporate governance committee identifies and recommends nominees to our board of directors, oversees and sets compensation for our directors and oversees compliance with our corporate governance guidelines.

Compensation Committee Interlocks and Insider Participation

No member of our compensation committee will serve as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our board of directors or compensation committee. Additional information concerning transactions between us and entities affiliated with members of the compensation committee is included in this prospectus under the caption “Certain Relationships and Related Transactions.”

Executive Compensation

The following table sets forth compensation information for our chief executive officer and our four other executive officers who, based on salary and bonus compensation, were the most highly compensated executive officers of NPTest for the year ended December 31, 2002.

Summary Compensation Table

	Annual Compensation
Name and Principal Position	Salary ($)	Bonus ($)	Other Annual Compensation ($)		All Other Compensation ($)
Ashok Belani President & Chief Executive Officer	362,500	120,000	54,600	(2)	22,125	(3)(4)(5)
Jean-Luc Pelissier President, Products	250,000	113,750	—		7,500	(3)
Jorge Celaya (1) Chief Financial Officer	180,000	78,667	—		55,761	(6)
Thomas Ho Vice President & General Manager, SABER Services	206,666	48,000	—		8,009	(3)(4)
William Dillon Vice President & General Manager, Operations	150,000	70,050	—		7,416	(3)

(1)

Mr. Celaya left the company in June 2003.

(2)

Consists of reimbursement of dependent children’s school tuition pursuant to his international employment status with Schlumberger. This reimbursement terminated in July, 2003.

(3)

Includes Schlumberger contributions to the Schlumberger Profit Sharing Plans.

(4)

Includes Schlumberger unfunded credits to the Schlumberger Supplementary Benefit Plan.

(5)

Includes Schlumberger unfunded matching credits to the Schlumberger Restorations Savings Plan.

(6)

Includes relocation costs of $45,956 and Schlumberger contributions to defined contribution plans of $9,805.

Mr. Belani and Dr. Pelissier’s year ended December 31, 2003 compensation information and employment agreements are described in “—Employment Agreements.” Each executive officer named in the Summary Compensation Table above received a divestiture bonus in connection with our acquisition of NPTest, Inc. from Schlumberger, as described further under “Certain Relationships and Related Party Transactions—Transactions with Schlumberger—Divestiture Bonuses.”

The following table shows options to purchase shares of Schlumberger common stock held at the end of the year ended December 31, 2002 by the executive officers in the Summary Compensation Table above. These options were received by these executive officers as part of their compensation while NPTest was owned by Schlumberger. None of the executive officers in the Summary Compensation table above received any new options to purchase shares of Schlumberger common stock, or exercised any options, during the year ended December 31, 2002.

Name	Shares of Schlumberger Common Stock Acquired on Exercise (#)	Value Realized ($)	Number of Shares of Schlumberger Common Stock Underlying Unexercised Options Held at Fiscal Year-End (#)		Value of Unexercised In-The- Money Options at Fiscal Year-End ($)
Name		Value Realized ($)	Exercisable	Unexercisable	Exercisable	Unexercisable
Ashok Belani	—	—	121,108	64,782	375,748	—
Jean-Luc Pelissier	—	—	9,000	21,000	—	—
Jorge Celaya	—	—	7,445	3,638	16,056	—
Thomas Ho	—	—	27,504	8,113	68,715	—
William Dillon	—	—	9,173	658	57,172	—

On July 30, 2003, each of the executive officers named in the Summary Compensation Table above who was still an employee of ours received options to purchase our common stock. Mr. Belani received options to purchase 3,500,000 shares; Dr. Pelissier received options to purchase 1,250,000 shares; Mr. Ho received options to purchase 200,000 shares; and Mr. Dillon received options to purchase 200,000 shares. The exercise price of each of these options is $1.78 per share, and the options vest over four years, with 25% vesting after one year and monthly vesting thereafter.

Employment Agreements

We entered into an employment agreement with Ashok Belani, which became effective on July 29, 2003, pursuant to which he agreed to serve as our President and Chief Executive Officer. His employment agreement provides for an initial base salary of $410,000 per year with a target bonus opportunity of 50% to 100% of his base salary. Pursuant to the agreement, Mr. Belani was granted options to purchase 3,500,000 shares of our common stock, of which 25% will vest in July 2004 and the remainder will then vest monthly over the following three years. In the event of a change of control, his options would become fully vested on certain termination events. Mr. Belani received a signing bonus in the amount of $1,000,000, which will be forfeited if he resigns without good reason or is terminated for cause before the second anniversary of the effective date of the agreement, except that only half of this bonus will be forfeited if this departure is after the first anniversary. If we terminate his employment without cause or he leaves with good reason, Mr. Belani is entitled to severance equal to two years of his base salary as in effect on the effective date of the agreement. In addition, if we terminate his employment without cause, he is entitled to the excess, if any, of $3 million over any value realized on his options. If Mr. Belani leaves after two years for any reason, he is entitled to the excess, if any, of $1.5 million (or $3 million if he leaves after four years) over any value realized on his options.

We have entered into an employment agreement with Jean-Luc Pelissier, which became effective on July 29, 2003, pursuant to which he agreed to serve as our President, Products. His employment agreement provides for an initial base salary of $250,000 with a target bonus opportunity up to 75% of his annual salary. Pursuant to his employment agreement, Dr. Pelissier was granted options to purchase 1,250,000 shares of our common stock, of which 25% will vest in July 2004 and the remainder will then vest monthly over the following three years. He would be entitled to 12 months’ accelerated vesting of his options on certain termination events after a change of control. If we terminate his employment without cause at any time, Dr. Pelissier is entitled to severance equal to 18 months of his base salary.

We have entered into an employment agreement with Jack Sexton, which became effective on July 29, 2003, pursuant to which he agreed to serve as our Controller and Chief Accounting Officer. His employment

agreement provides for an initial base salary of $175,000 with a target bonus opportunity up to 50% of his annual salary. Pursuant to his employment agreement, Mr. Sexton was granted options to purchase 400,000 shares of our common stock, of which 25% will vest in July 2004 and the remainder will then vest monthly over the following three years. He would be entitled to 12 months’ accelerated vesting of his options on certain termination events after a change of control. If we terminate his employment without cause at any time, Mr. Sexton is entitled to severance equal to 12 months of his base salary.

David Mullin became our Chief Financial Officer in September 2003. His initial base salary is $225,000 with a target bonus opportunity up to 50% of his annual salary. Mr. Mullin was granted options to purchase 700,000 shares of our common stock, of which 25% will vest in September 2004 and the remainder will then vest monthly over the following three years. He would be entitled to accelerated vesting of his options on certain termination events after a change of control. If we terminate his employment without cause at any time, Mr. Mullin is entitled to severance equal to 12 months of compensation.

Benefit Plans

2003 Stock Incentive Plan

In 2003, our board of directors adopted and our stockholders approved our 2003 Stock Incentive Plan, referred to as the “2003 Plan.”

The 2003 Plan provides for the grant of incentive stock options within the meaning of section 422 of the Internal Revenue Code, nonstatutory stock options and other stock-based awards, such as restricted stock or restricted stock units.

The common stock that has been reserved for issuance pursuant to exercise of awards under the 2003 Plan consists of 11,280,000 shares of our authorized but unissued common stock, subject to certain adjustments as described below. As of September 30, 2003, 11,199,500 options to purchase our common stock had been granted.

Employees, consultants and non-employee members of the board of directors of us or any of our subsidiaries may participate in the 2003 Plan.

Our board of directors or a committee appointed by our board of directors administers the 2003 Plan. Subject to the provisions of the 2003 Plan, the board or the committee, as applicable, has the authority to, among other things, make rules and regulations appropriate for the administration of the 2003 Plan, determine the persons to whom stock options may be granted, the number of shares to be covered by each stock option, the exercise price of each stock option, the vesting schedule of each option, and whether the stock option will be designated as an incentive stock option or nonstatutory stock option.

Unless otherwise provided in the optionee’s option agreement, if the optionee’s employment is terminated other than due to death or disability or for cause, then the optionee has three months from the date of termination to exercise any options that are vested and exercisable on the date of termination. Regardless of the reason for termination (including death or disability), in no event may any option be exercised following its expiration.

If the optionee’s termination of employment is due to the optionee’s death or disability, all vested and exercisable stock options on the date of termination will remain exercisable for 12 months following the date of termination. If the optionee’s employment is terminated for cause, any outstanding options, whether vested or unvested, will terminate immediately.

Subject to certain conditions and stockholder approval as necessary, our board of directors may amend, alter or terminate the plan at any time, provided, however, that no amendment may impair the rights of any optionee

with respect to any outstanding option without that optionee’s consent. Our 2003 Plan will automatically terminate after ten years.

401(k) Plan

We sponsor a defined contribution plan intended to qualify under Section 401 of the Internal Revenue Code, or a 401(k) plan. Substantially all our U.S. employees are eligible to participate and may participate in the plan as soon as administratively possible. Participants may make pre-tax contributions to the plan of a percentage of their eligible compensation, not to exceed the limits allowable under the Internal Revenue Code. We are required to match 100% of employee contributions, up to 4% of the employee’s annual eligible compensation, and may match, at our discretion, up to an additional 2% of the employee’s annual eligible compensation. In years of significant profitability, after completing the 401(k) match, management may elect to make a profit sharing contribution.

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Relationship with Francisco Partners

On July 29, 2003, NPTest Holding, LLC, which is 95.7% owned by Francisco Partners and 4.3% owned by Shah Management, acquired NPTest, Inc. After completion of this offering, NPTest Holding, LLC will beneficially own approximately % of our outstanding common stock, assuming no exercise of the underwriters’ over-allotment option. Two of our directors, Messrs. Ball and Deb, are partners in Francisco Partners. Set forth below is a brief description of the existing relationships and agreements between us and Francisco Partners.

Advisory Agreement

In July 2003, we entered into an advisory agreement with Francisco Partners pursuant to which Francisco Partners may provide financial, advisory and consulting services to us and our subsidiaries. These services have in the past included and may in the future include: executive and management services; identification, support and analysis of acquisitions and dispositions by us or our subsidiaries; support and analysis of financing alternatives; finance functions; human resource functions; and other services for us or our subsidiaries upon which our board of directors and Francisco Partners agree.

This agreement will be amended effective upon the completion of this offering. Under the original agreement, in exchange for such services (if and when provided), Francisco Partners would be entitled to receive fees billed at their customary rates for actual time spent performing such services, plus reimbursement for out-of-pocket expenses. In lieu of these hourly fees, Francisco Partners may elect to receive an annual advisory fee in an amount equal to the greater of $2.0 million per year or 0.6% of our annual revenue for the last twelve months, plus out-of-pocket expenses. There are no minimum levels of service required to be provided pursuant to the advisory agreement. The advisory agreement has an initial term of ten years. The advisory agreement includes customary indemnification provisions in favor of Francisco Partners. Francisco Partners and Shah Management received a one-time fee of $6.27 million, plus reasonable out-of-pocket expenses, for services rendered in connection with the structuring of the financing of our acquisition from Schlumberger.

Pursuant to the amended advisory agreement, we will pay to Francisco Partners an aggregate of $5.0 million, plus all accrued fees, in lieu of all future annual advisory fees under the original agreement. However, we may pay future service fees to Francisco Partners under the amended agreement in exchange for any acquisition, financing or other services as we and Francisco Partners may agree. The amended advisory agreement will include customary indemnification provisions in favor of Francisco Partners.

Loan Guaranty

In connection with our acquisition of NPTest, Inc., we received a $75 million loan from Citicorp North America, Inc., an affiliate of one of the underwriters, which we intend to repay using a portion of the proceeds of this offering. Francisco Partners has guaranteed the repayment of that loan. The guarantee will terminate upon repayment of the loan.

Stockholders’ Agreement

We and NPTest Holding, LLC, our sole stockholder, have entered into a stockholders’ agreement. The stockholders’ agreement covers matters of corporate governance, restrictions on transfer of our securities, registration rights and information rights.

Corporate Governance. The stockholders’ agreement provides that NPTest Holding, LLC has the right to nominate for election a majority of the members of our board of directors. However, if NPTest Holding, LLC holds less than 25% of our common stock its right to nominate directors will be reduced so that it will have a

right to nominate only such percentage of the board as is proportionate to its shareholding of our outstanding common stock and such right will terminate completely when its beneficial ownership interest falls below 5%. The board may not take certain significant actions without the approval of NPTest Holding, LLC as long as it owns at least 40% of our outstanding common stock. These actions include: the declaration of dividends or other distributions; any incurrence or refinancing of indebtedness in excess of $10 million; approval of our business plan, budget and strategy; and modification of our long-term business strategy. In addition, as long as NPTest Holding, LLC owns at least 25% of our outstanding common stock, the board may not take the following actions without its approval: mergers, acquisitions or certain sales of assets; any liquidation, dissolution or bankruptcy; issuances of securities; determination of compensation and benefits for our chief executive officer and chief financial officer; appointment or dismissal of any of the chairman of the board of directors, chief executive officer, chief financial officer or any other executive officer in any similar capacity; amendments to the stockholders’ agreement or exercise or waiver of rights under the stockholders’ agreement; amendments to our charter or bylaws; and any increase or decrease in the number of directors that comprise the board. All of the provisions of the stockholders’ agreement are expressly subject to any requirements as to governance imposed by rules of the Securities and Exchange Commission, the Nasdaq National Market or any other exchange on which our securities are listed.

Restrictions on Transfer. Generally, the parties to the stockholders’ agreement are prohibited from transferring their securities of NPTest Holding Corporation without complying with restrictions relating to the timing of the transfer, the number of securities subject to the transfer and the transferee of such securities.

Registration Rights. For a description of the registration rights under the stockholders’ agreement, see “Shares Eligible For Future Sale—Registration Rights.”

Information Rights. So long as NPTest Holding, LLC or any party to the stockholders’ agreement holds any of our securities, they have the right to receive from us financial information, monthly management reports, reports from our independent public accountants and such additional information regarding our financial position or business as they may reasonably request.

Transactions with Schlumberger

Stock Purchase and Sale Agreement

In July 2003, NPTest Holding, LLC, a company controlled by Francisco Partners and Shah Management, purchased NPTest, Inc. from Schlumberger for approximately $220 million. In connection with the acquisition, we agreed that Schlumberger would have a right to participate, to a limited extent, in a portion of future increases in the value of the business.

In particular, under the agreement, we will be required to make payments to Schlumberger under the following scenarios:

•

on the earlier of (i) the first anniversary of the completion of this offering or (ii) the date after the offering that NPTest Holding, LLC has received at least $330 million in cash proceeds and/or distributions related to our stock. Upon this date, Schlumberger will have the option, at its election (a “Value Increase Election”), to receive from us a one-time payment, in lieu of any other payments, equal to 15% of the excess over $330 million of the sum of the then current value of NPTest Holding, LLC’s remaining holdings of our stock plus any proceeds related to our stock previously received by NPTest Holding, LLC; or

•

proceeds related to our stock previously received by NPTest Holding, LLC) at least $330 million in cash proceeds and/or distributions related to our stock or (b) NPTest Holding, LLC receives proceeds consisting only of cash and freely tradeable securities, or (ii) the date after such a merger, acquisition or sale that NPTest Holding, LLC has received at least $330 million in cash proceeds related to our stock. Upon this date, Schlumberger will have the option, at its election (an “Acquisition Election”), to receive from us a one-time payment, in lieu of any other payments, equal to 15% of the excess over $330 million of the sum of the then current value of NPTest Holding, LLC’s remaining holdings of our stock plus any proceeds related to our stock previously received by NPTest Holding, LLC plus the consideration received by NPTest Holding, LLC from the acquisition.

Intellectual Property Cross-License Agreement

In connection with our acquisition from Schlumberger, we entered into an Intellectual Property Cross-License Agreement with Schlumberger pursuant to which each party grants a personal, irrevocable, non-exclusive, worldwide, fully-paid, royalty-free and generally non-transferable license to its technology to the other party in connection with the other party’s non-competitive business (subject to certain restrictions), but only to the extent the technology had been disclosed to or was in the possession of the other party as of the effective date of the acquisition. The licenses granted to each party’s technology continue in perpetuity, or, in the case of copyrights, database rights, and mask work rights, until the expiration of their respective term. Each party will be able to sublicense the technology licensed to its distributors, resellers, customers, systems integrators, distribution channels and, subject to certain limitations, transferees of any ongoing businesses of such party. The purpose of the license agreement is to enable each party to continue to operate their businesses as conducted before the acquisition without infringing on the intellectual property rights of the other party. Each party may only terminate the licenses and rights granted to it by the other party, and the parties have agreed that there is no other right to termination and that remedies for breach are the recovery of damages and appropriate equitable relief other then termination of the licenses.

Transition Services Agreement

In connection with our acquisition of NPTest, Inc. from Schlumberger, we entered into a transition services agreement with Schlumberger through certain of our subsidiaries under which we and Schlumberger agreed to provide each other various services to facilitate our acquisition of NPTest, Inc.

Under the transition services agreement, we agreed to provide Schlumberger with access to certain information systems and facilities, accounting services and certain other assistance in transitioning the separation of our business. We are required to provide these services until December 31, 2003, unless Schlumberger elects to shorten or extend this period in accordance with the agreement. During the time that we provide these services, Schlumberger is required to pay us $89,000 per month.

The transition services agreement also requires Schlumberger to provide us services that include payroll, continuation of employee benefits, retirement plans and services related to our facilities. Schlumberger is required to provide these services until July 29, 2004, unless we elect to shorten this period in accordance with

the agreement. During the time that Schlumberger provides these services, we are required to pay Schlumberger up to $10,150 per month with respect to payroll services and additional fees that vary by country and facilities with respect to the other services being provided.

Divestiture Bonuses

Upon our acquisition of NPTest, Inc. from Schlumberger, the officers and substantially all employees of NPTest, Inc. received aggregate bonuses of $7.7 million. These bonuses were funded by Schlumberger and were recorded in the third quarter of 2003. Of this aggregate amount, the executive officers of NPTest Holding Corporation named in the Summary Compensation Table above received the following divestiture bonuses: Mr. Belani received $700,000, Dr. Pelissier received $250,000, Mr. Dillon received $125,000, and Mr. Ho received $100,000. The divestiture bonus for the executive officers was paid in recognition of efforts associated with meeting divestiture objectives, the termination of certain benefits provided by Schlumberger and the regular performance bonus for the first six months of 2003.

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information regarding the beneficial ownership of our common stock as of October 1, 2003 by (i) each person known by us to be the beneficial owner of 5% or more of the outstanding shares of our common stock, including our selling stockholder, (ii) each of our directors, (iii) each of our named executive officers and (iv) all of our executive officers and directors as a group.

Percentage ownership calculations are based on shares of common stock to be outstanding immediately prior to the closing of this offering assuming the conversion of shares of Series A Convertible Preferred Stock into common stock at a conversion price equal to $ , and shares of common stock outstanding after completion of this offering, assuming no exercise of the underwriters’ over-allotment option. Beneficial ownership is calculated based on SEC requirements. To the extent that any shares are issued upon exercise of options, warrants or other rights to acquire our capital stock that are presently outstanding or granted in the future or reserved for future issuance under our stock plans, there will be further dilution to new public investors. Unless otherwise indicated, the address of each of the named entities or individuals is c/o NPTest Holding Corporation, 150 Baytech Drive, San Jose, California 95134, other than for Messrs. Deb and Ball, whose address is care of Francisco Partners.

Shares Beneficially Owned

Prior to Offering

Shares Beneficially Owned
Subsequent to Offering Without
Over-Allotment

Number
of Shares
Offered in
the Over-
Allotment

Shares Beneficially Owned
Subsequent to Offering With

Over-Allotment

Beneficial Owner

Number of
Shares

Number of
Shares
Subject to
Options

Percent of
Total

Number of
Shares

Number of
Shares
Subject to
Options

Percent of
Total

Number of
Shares

Number of
Shares
Subject to
Options

Percent of
Total

Greater than 5% Stockholders:

NPTest Holding, LLC (1)(2)

c/o Francisco Partners, L.P.
2882 Sand Hill Road, Suite 280
Menlo Park, CA 94025

Francisco Partners, L.P. (2)

c/o Francisco Partners, L.P.
2882 Sand Hill Road, Suite 280
Menlo Park, CA 94025

Named Executive Officers and Directors:

Ashok Belani

Jean-Luc Pelissier

William Dillon

Thomas Ho

Jack Sexton

Dipanjan Deb (3)

Benjamin Ball (3)

Ajay Shah (4)

John Sullivan

All executive officers and directors as group (ten persons)

Less than 1% of the outstanding shares of common stock.

(1)

Assumes no exercise of the underwriters’ over-allotment option.

(2)

Includes shares beneficially owned by Francisco Partners, L.P.

(3)

Voting and investment power belongs to a group of managing directors of Francisco Partners, L.P. (including Mr. Deb and Mr. Ball) who are employees of Francisco Partners, L.P. Francisco Partners, L.P.’s managing directors include David Stanton, Benjamin Ball, Dipanjan Deb, Neil Garfinkel, David Golob, Sanford Robertson and Gerald Morgan. The voting and investment power belongs to a group and not to any individual managing director. Each of these managing directors disclaims beneficial ownership of the securities held by Francisco Partners, L.P.

(4)

Individual is a person at Francisco Partners, L.P. and disclaims beneficial ownership of the securities held by NPTest Holding, LLC and Francisco Partners, L.P.

(5)

Includes shares beneficially owned by SP NPT Partnership, L.P. and shares beneficially owned by the Krishnan-Shah Family Limited Partnership.

DESCRIPTION OF CAPITAL STOCK

The following description summarizes the material terms of our capital stock. This information does not purport to be complete and is subject in all respects to the applicable provisions of our amended and restated certificate of incorporation and bylaws.

General Matters

Upon completion of this offering, the total amount of our authorized capital stock will consist of shares of common stock and shares of undesignated preferred stock. After giving effect to this offering and the application of our net proceeds from this offering and the filing of our amended and restated certificate of incorporation, assuming an initial public offering price of $ per share, we will have shares of common stock and no shares of preferred stock outstanding.

Common Stock

Our amended and restated certificate of incorporation provides that we may issue shares of common stock. The holders of common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders. All shares of our common stock are entitled to share equally in any dividends our board of directors may declare from legally available sources.

We have applied to have our common stock included for quotation on the Nasdaq National Market under the symbol “NPTT.”

Preferred Stock

Upon the closing of this offering, our board of directors will be authorized, subject to any limitations imposed by law, without stockholder approval, from time to time to issue up to a total of shares of preferred stock, par value of $0.001 per share, in one or more series, each series to have rights and preferences, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, as our board of directors may determine. The issuance of preferred stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, a majority of our voting stock outstanding. We have no present plans to issue any shares of preferred stock.

Anti-Takeover Measures

Delaware law and provisions of our charter documents could discourage potential acquisition proposals and could delay, deter or prevent a change in control. The anti-takeover provisions of Delaware law impose various impediments to the ability of a third party to acquire control of us, even if a change in control would be beneficial to our existing stockholders. However, we have elected not to be governed by Section 203 of Delaware law, which means that we have elected not to take advantage of anti-takeover protection related to transactions with interested stockholders. Additionally, provisions of our amended and restated certificate of incorporation and by-laws to be effective on the completion of this offering could deter, delay or prevent a third party from acquiring us, even if doing so would benefit our stockholders. These provisions include:

•

a requirement that special meetings of stockholders may be called only by our board of directors, the chairman of the board (if any), the president or the secretary;

•

advance notice requirements for stockholder proposals and nominations; and

•

the authority of the board to issue, without stockholder approval, preferred stock with such terms as the board may determine.

Transfer Agent and Registrar

Wells Fargo Shareowner Services will serve as the transfer agent and registrar for our common stock. The transfer agent’s address is 161 North Concord Exchange, South St. Paul, Minnesota 55075-1139, and the telephone number is 800-468-9716.

SHARES ELIGIBLE FOR FUTURE SALE

All of the shares of our common stock sold in this offering will be freely tradable without restriction under the Securities Act, except for any shares which may be acquired by one of our affiliates, as such term is defined in Rule 144 under the Securities Act. Persons who may be deemed to be affiliates generally include individuals or entities that control, are controlled by, or are under common control with us and may include our directors and officers as well as significant shareholders. Persons who are affiliates will be permitted to sell the shares of common stock that are issued in this offering through registration under the Securities Act, or under an exemption from registration, such as the one provided by Rule 144.

The shares of our common stock deemed “restricted securities,” as defined in Rule 144, may not be sold other than through registration under the Securities Act or under an exemption from registration, such as the one provided by Rule 144. Our outstanding shares, substantially all of which are beneficially owned by Francisco Partners and Shah Management, are “restricted securities” that may be sold pursuant to the volume, notice and other limitations of Rule 144 commencing in July 2004. None of our outstanding shares are currently eligible for sale under Rule 144(k) or Rule 701. Our officers and directors and Francisco Partners and Shah Management have agreed not to offer or sell any shares of our common stock, subject to exceptions, for a period of 180 days after the date of this prospectus, without the prior written consent of Citigroup. Citigroup may release any of the securities subject to these lock-up agreements at any time without notice.

On July 30, 2003 we granted 10,321,750 options to acquire shares of our common stock at an exercise price of $1.78 per share, on September 25, 2003 we granted 824,000 options at an exercise price of $3.10 per share, and on September 29, 2003 we granted 53,750 options at an exercise price of $3.10 per share. None of our outstanding stock options are exercisable prior to July 30, 2004. We currently expect to file a registration statement under the Securities Act to register shares reserved for issuance under our stock option plan. Shares issued under the plan will be registered and therefore freely tradable, unless those shares are held by one of our affiliates. However, we have agreed with the underwriters to include a provision in our stock option plans providing that our officers, directors and employees who receive shares of our common stock under these plans cannot dispose of or hedge any shares of this common stock for a period of 180 days after the date of this prospectus.

Registration Rights

NPTest Holding, LLC and other shareholders who became party to the stockholders’ agreement have registration rights with respect to our common stock pursuant to the stockholders’ agreement.

Demand Registration. The stockholders’ agreement provides that, after we have completed this offering and upon the expiration of the lock-up period imposed by the underwriters, we can be required to effect additional registration statements, or “demand registrations,” registering the securities held by NPTest Holding, LLC. We are required to pay the registration expenses in connection with each demand registration. We may decline to honor any of these demand registrations if the size of the offering does not reach a defined dollar threshold or if we have effected a demand registration within the preceding six months. If a demand registration is underwritten and the managing underwriter advises us that the number of securities offered to the public needs to be reduced, priority of inclusion in the demand registration shall be such that first priority shall be given to NPTest Holding, LLC and its permitted transferees.

Incidental Registration. In addition to our obligations with respect to demand registrations, if we propose to register any of our securities, other than a registration on Form S-8 or S-4 or successor forms to these forms, whether or not such registration is for our own account, we shall give each stockholder who is a party to the stockholders’ agreement the opportunity to participate in such registration. These rights do not apply in connection with this offering. Expenses relating to these “incidental registrations” are required to be paid by us. If an incidental registration is underwritten and the managing underwriter advises us that the number of securities offered to the public needs to be reduced, priority of inclusion in the demand registration shall be such that first

priority shall be given to us and second priority shall be given to NPTest Holding, LLC and its permitted transferees. We and the stockholders selling securities under a registration statement are required to enter into customary indemnification and contribution arrangements with respect to each registration statement.

Schlumberger. We have also agreed to register the resale of any shares we may issue to Schlumberger as part of our contingent consideration obligation.

UNDERWRITING

Citigroup Global Markets Inc. is acting as sole bookrunning manager of the offering, and, together with Credit Suisse First Boston LLC, Lehman Brothers Inc. and Banc of America Securities LLC, are acting as representatives of the underwriters named below. Subject to the terms and conditions stated in the underwriting agreement dated the date of this prospectus, each underwriter named below has agreed to purchase, and we have agreed to sell to that underwriter, the number of shares set forth opposite the underwriter’s name.

Underwriter		Number of Shares
Citigroup Global Markets Inc.
Credit Suisse First Boston LLC
Lehman Brothers Inc.
Banc of America Securities LLC





Total

The underwriting agreement provides that the obligations of the underwriters to purchase the shares included in this offering are subject to approval of legal matters by counsel and to other conditions. The underwriters are obligated to purchase all the shares (other than those covered by the over-allotment option described below) if they purchase any of the shares.

The underwriters propose to offer some of the shares directly to the public at the public offering price set forth on the cover page of this prospectus and some of the shares to dealers at the public offering price less a concession not to exceed $ per share. The underwriters may allow, and dealers may reallow, a concession not to exceed $ per share on sales to other dealers. If all of the shares are not sold at the initial offering price, the representatives may change the public offering price and the other selling terms. The representatives have advised us that the underwriters do not intend sales to discretionary accounts to exceed five percent of the total number of shares of our common stock offered by them.

The selling stockholder has granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to additional shares of common stock at the public offering price less the underwriting discount. The underwriters may exercise the option solely for the purpose of covering over-allotments, if any, in connection with this offering. To the extent the option is exercised, each underwriter must purchase a number of additional shares approximately proportionate to that underwriter’s initial purchase commitment.

We, our officers and directors, and the selling stockholder have agreed that, for a period of 180 days from the date of this prospectus, we and they will not, without prior consent of Citigroup, dispose of or hedge any shares of our common stock or any securities convertible into or exchangeable for our common stock. Citigroup in its sole discretion may release any of the securities subject to these lock-up agreements at any time without notice. In addition, we have agreed with the underwriters to include a provision in our stock option plans providing that our officers, directors and employees who receive shares of our common stock under these plans cannot dispose of or hedge any of these shares of our common stock received under these plans or any securities convertible into or exchangeable for these shares for a period of 180 days from the date of this prospectus.

Prior to this offering, there has been no public market for our common stock. Consequently, the initial public offering price for the shares was determined by negotiations among us, the selling stockholder and the representatives. Among the factors considered in determining the initial public offering price were our record of operations, our current financial condition, our future prospects, our markets, the economic conditions in and future prospects for the

industry in which we compete, our management, and currently prevailing general conditions in the equity security markets, including current market valuations of publicly traded companies considered comparable to our company. We cannot assure you, however, that the prices at which the shares will sell in the public market after this offering will not be lower than the initial public offering price or that an active trading market in our common stock will develop and continue after this offering.

We have applied to have our common stock included for quotation on the Nasdaq National Market under the symbol “NPTT.”

The following table shows the underwriting discounts and commissions that we and the selling shareholder are to pay to the underwriters in connection with this offering. These amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase additional shares of common stock.

Paid by NPTest Holding Corporation

Paid by selling shareholder

No Exercise

Full Exercise

No Exercise

Full Exercise

Per Share

Total

In connection with the offering, Citigroup on behalf of the underwriters, may purchase and sell shares of common stock in the open market. These transactions may include short sales, syndicate covering transactions and stabilizing transactions. Short sales involve syndicate sales of common stock in excess of the number of shares to be purchased by the underwriters in the offering, which creates a syndicate short position. “Covered” short sales are sales of shares made in an amount up to the number of shares represented by the underwriters’ over-allotment option. In determining the source of shares to close out the covered syndicate short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option. Transactions to close out the covered syndicate short involve either purchases of the common stock in the open market after the distribution has been completed or the exercise of the over-allotment option. The underwriters may also make “naked” short sales of shares in excess of the over-allotment option. The underwriters must close out any naked short position by purchasing shares of common stock in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering. Stabilizing transactions consist of bids for or purchases of shares in the open market while the offering is in progress.

The underwriters also may impose a penalty bid. Penalty bids permit the underwrites to reclaim a selling concession from a syndicate member when Citigroup repurchases shares originally sold by that syndicate member in order to cover syndicate short positions or make stabilizing purchases.

Any of these activities may have the effect of preventing or retarding a decline in the market price of the common stock. They may also cause the price of the common stock to be higher than the price that would otherwise exist in the open market in the absence of these transactions. The underwriters may conduct these transactions on the Nasdaq National Market or in the over-the-counter market, or otherwise. If the underwriters commence any of these transactions, they may discontinue them at any time.

We estimate that our portion of the total expenses of this offering will be $ .

Because an affiliate of Citigroup Global Markets Inc. is the lender under our credit facility, and will receive more than 10% of the net proceeds of this offering when we repay that facility, it may be deemed to have a “conflict of interest” with us under Rule 2710(c)(8) of the National Association of Securities Dealers, Inc. When a NASD member with a conflict of interest participates as an underwriter in a public offering, that rule requires that the initial public offering price may be no higher than that recommended by a “qualified independent underwriter,” as defined by the NASD. In accordance with this rule, Banc of America Securities LLC has

assumed the responsibilities of acting as a qualified independent underwriter. In its role as a qualified independent underwriter, Banc of America Securities LLC has performed a due diligence investigation and participated in the preparation of this prospectus and the registration statement of which this prospectus is a part. Banc of America Securities LLC will not receive any additional fees for serving as qualified independent underwriter in connection with this offering. We have agreed to indemnify Banc of America Securities LLC against liabilities incurred in connection with acting as a qualified independent underwriter, including liabilities under the Securities Act.

The underwriters have performed investment banking and advisory services for us from time to time for which they have received customary fees and expenses. The underwriters may, from time to time, engage in transactions with and perform services for us in the ordinary course of their business. An affiliate of Citigroup is the administrative agent and a lender under our credit facility and Citigroup also served as a financial advisor to Francisco Partners in its acquisition of us in June 2003. In addition, an affiliate of Credit Suisse First Boston LLC acquired, indirectly, approximately 1.8% of the equity interests in us in July 2003 through its investment in Francisco Partners.

A prospectus in electronic format may be made available on the websites maintained by one or more of the underwriters and one or more of the underwriters participating in this offering may distribute prospectuses electronically. The representatives may agree to allocate a number of shares to underwriters for sale to their online brokerage account holders. The representatives will allocate shares to underwriters that may make Internet distributions on the same basis as other allocations. In addition, shares may be sold by the underwriters to securities dealers who resell shares to online brokerage account holders.

We and the selling stockholder have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act of 1933, or to contribute to payments the underwriters may be required to make because of any of those liabilities.

LEGAL MATTERS

The validity of the shares of common stock being offered will be passed upon for us by Davis Polk & Wardwell, Menlo Park, California. Selected legal matters in connection with this offering will be passed on for the underwriters by Simpson Thacher & Bartlett LLP, Palo Alto, California.

EXPERTS

The combined financial statements of NPTest, Inc. (the predecessor to NPTest Holding Corporation) as of December 31, 2001, 2002 and June 30, 2003 and for each of the three years in the period ended December 31, 2002 and the six months ended June 30, 2003 and the consolidated balance sheet of NPTest Holding Corporation as of June 30, 2003 included in this prospectus have been so included in reliance on the reports of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting.

WHERE YOU CAN FIND MORE INFORMATION

We have filed a registration statement regarding this offering on Form S-1, including all amendments and supplements thereto with the Securities and Exchange Commission under the Securities Act of 1933, as amended. This prospectus, which constitutes a part of the registration statement, does not contain all of the information included in the registration statement, certain items of which are contained in schedules and exhibits to the registration statement as permitted by the rules and regulations of the SEC. You should refer to the registration statement and its exhibits to read that information. Statements made in this prospectus as to any of our contracts, agreements or other documents referred to are not necessarily complete and you should refer to the

exhibits attached to the registration statement for copies of the actual contract, agreement or other document. You may read and copy information omitted from this prospectus but contained in the registration statement at the public reference facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. You may also request copies of all or any portion of such material may from the Public Reference Section of the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference rooms. In addition, materials filed electronically with the SEC are available at the SEC’s World Wide Web site at http://www.sec.gov. You may also request a copy of these filings, at no cost, by writing or telephoning us at: NPTest, 150 Baytech Drive, San Jose, California 95134, (408) 586-8200.

We intend to furnish to our stockholders annual reports containing combined financial statements and quarterly reports for the first three quarters of each fiscal year containing unaudited interim financial information, in each case prepared in accordance with generally accepted accounting principles.

NPTest Holding Corporation and NPTest, Inc.

NPTest Holding Corporation

INDEX TO CONSOLIDATED BALANCE SHEET

at June 30, 2003

		Page
Report of Independent Auditors		F-2
Consolidated Balance Sheet		F-3
Notes to Consolidated Financial Statements		F-4

NPTest, Inc.

INDEX TO COMBINED FINANCIAL STATEMENTS

at December 31, 2001, 2002 and June 30, 2003 and each of the three years in the period ended

December 31, 2002 and the six months periods ended June 30, 2003 and June 30, 2002 (unaudited)

		Page
Report of Independent Auditors		F-12
Combined Balance Sheets		F-13
Combined Statements of Operations		F-14
Combined Statements of Stockholders’ Net Investment		F-15
Combined Statements of Cash Flows		F-16
Notes to Combined Financial Statements		F-17

F-1

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Shareholder of NPTest Holding Corporation

In our opinion, the accompanying consolidated balance sheet presents fairly, in all material respects, the financial position of NPTest Holding Corporation (the “Company”) and its subsidiaries at June 30, 2003, in conformity with accounting principles generally accepted in the United States of America. This consolidated balance sheet is the responsibility of the Company’s management; our responsibility is to express an opinion on this consolidated balance sheet based on our audit. We conducted our audit of this consolidated balance sheet in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated balance sheet is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated balance sheet, assessing the accounting principles used and significant estimates made by management, and evaluating the overall balance sheet presentation. We believe that our audit provides a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

San Jose, California

September 9, 2003

F-2

NPTest Holding Corporation

CONSOLIDATED BALANCE SHEET

	June 30, 2003
Assets
Cash	$	1

Total assets	$	1

Equity
Common stock, par value of $0.001 per share, 1,000 shares authorized, issued and outstanding	$	1

Total shareholder’s equity	$	1

The accompanying notes are an integral part of these consolidated financial statements.

F-3

NPTest Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Background and Basis of Presentation

Background

NPTest Holding Corporation (“the Company”) was incorporated in Delaware on June 20, 2003 and is a wholly owned subsidiary of NPTest Holding, LLC. The Company was incorporated by Francisco Partners to acquire the net assets of NPTest, Inc. On the date of incorporation, the Company was authorized to issue 1,000 shares of Common Stock at a price of $0.001 per share. On June 21, 2003, the Company issued 1,000 shares of Common Stock at a price of $0.001 per share. The Company had no operations during the period ended June 30, 2003.

2. Significant Accounting Policy

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries.

3. Common Stock

At June 30, 2003, the Company’s authorized capital stock consisted of 1,000 shares of Common Stock, par value $0.001 per share, all of which were issued and outstanding.

4. Subsequent Events

On July 25, 2003 the Company amended and restated its articles of incorporation increasing the authorized capital stock to 160,000,000 shares, of which 150,000,000 shares were authorized to be issued as Common Stock, par value $0.001 per share and 10,000,000 shares were authorized to be issued as Preferred Stock, par value $0.001 per share.

On July 29, 2003 the Company issued 22,499,000 shares of Common Stock to NPTest Holding, LLC at a price per share of $1.78 and 68,000 shares of Convertible, Mandatory Redeemable Preferred Stock at a price per share of $1,000 in exchange for a capital contribution from NPTest Holding, LLC of $108,000,000.

On July 29, 2003, NPTest Capital Corporation, a subsidiary of the Company, issued 50,000 shares of Mandatory Redeemable Preferred Stock at a price per share of $1,000.

On July 29, 2003, the Company received a $75 million senior term loan from Citicorp North America, Inc. Francisco Partners has guaranteed the repayment of that loan. The senior term loan bears interest at an annual rate of LIBOR plus 150 basis points and matures on July 29, 2006.

Acquisition of NPTest, Inc. from Schlumberger

In July 2003, the Company, purchased NPTest, Inc. from Schlumberger for approximately $220 million. In connection with the acquisition, the Company agreed that Schlumberger would have a right to participate, to a limited extent, in a portion of future increases in the value of the business.

In particular, under the agreement, the Company will be required to make payments to Schlumberger under the following scenarios:

•

if NPTest Holding, LLC at any time distributes to its members the Company’s stock, or other consideration in respect of the Company’s stock, with a cumulative aggregate value in excess of $330 million. Upon the first such distribution, the Company would make a payment equal to 15% of the

F-4

NPTest Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

excess of the aggregate value of the distribution by NPTest Holding, LLC to its members over $330 million which would be in the same form (i.e. cash or stock) as the distribution. Upon any subsequent distribution, the Company would make a payment equal to 15% of that subsequent distribution; or

•

on the earlier of (i) the first anniversary of the completion of this offering or (ii) the date after the offering that NPTest Holding, LLC has received at least $330 million in cash proceeds and/or distributions related to the Company’s stock. Upon this date, Schlumberger will have the option, at its election (a “Value Increase Election”), to receive from the Company a one-time payment, in lieu of any other payments, equal to 15% of the excess over $330 million of the sum of the then current value of NPTest Holding, LLC’s remaining holdings of the Company’s stock plus any proceeds related to the Company’s stock previously received by NPTest Holding, LLC; or

•

on the earlier of (i) the first anniversary of the closing of a merger, acquisition or sale of all or substantially all of the Company’s assets in which either (a) NPTest Holding, LLC receives (together with all cash proceeds related to the Company’s stock previously received by NPTest Holding, LLC) at least $330 million in cash proceeds and/or distributions related to the Company’s stock or (b) NPTest Holding, LLC receives proceeds consisting only of cash and freely tradeable securities, or (ii) the date after such a merger, acquisition or sale that NPTest Holding, LLC has received at least $330 million in cash proceeds related to the Company’s stock. Upon this date, Schlumberger will have the option, at its election (an “Acquisition Election”), to receive from the Company a one-time payment, in lieu of any other payments, equal to 15% of the excess over $330 million of the sum of the then current value of NPTest Holding, LLC’s remaining holdings of the Company’s stock plus any proceeds related to the Company’s stock previously received by NPTest Holding, LLC plus the consideration received by NPTest Holding, LLC from the acquisition.

If Schlumberger makes a Value Increase Election or an Acquisition Election, the Company may choose to make the payment in any combination of cash or stock. If the Company makes the payment in stock, the Company has agreed to use the Company’s reasonable efforts to give Schlumberger customary registration rights.

Furthermore, in the event of a merger, acquisition or sale of all or substantially all of the Company’s assets involving a specified party that occurs by January 26, 2004, and that results in NPTest Holding, LLC receiving at least $227 million in consideration, Schlumberger will have the right to receive from the Company an amount equal to 50% of the excess over $227 million of the value of the consideration received by NPTest Holding, LLC in such sale. The payment may be made in a combination of cash or stock, depending on the type of consideration received by NPTest Holding, LLC.

Any future consideration paid to Schlumberger, as a result of the contingencies noted above, would be recorded as an adjustment to goodwill.

The purchase price was allocated to the acquired assets and liabilities assumed, based upon management’s estimate of their fair market values as of the acquisition date.

Net current assets(a)	$	169,134
Property, plant and equipment		24,600
Other assets		283
Identified intangibles(b)		25,300
Goodwill		8,099
Other noncurrent liabilities		(486	)
Long term deferred taxes		(9,451	)
In-process research & development		5,000

Total consideration	$	222,479

F-5

NPTest Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(a)

Net current assets are comprised of cash & cash equivalents, accounts receivable, inventories and other current assets, less current liabilities. The fair values of current assets generally approximated the recorded historic book values. Short-term investments were valued based on quoted market prices. Inventory values were estimated based on the current market value of the inventories less completion costs and less a profit margin for activities remaining to be completed until the inventory is sold. Assumed current liabilities included accounts payable, accrued compensation and expenses and accrued income taxes. The fair values of current liabilities generally approximated the historic recorded book values because of the monetary nature of most of the liabilities.

(b)

Other intangibles include customer contracts and relationships of $1,500, developed technologies of $14,100 and backlog of $9,700, with estimated useful lives for amortization of 7 years, 7 years, and 0.3 years, respectively.

Amortizable intangible assets

Acquired identified intangibles were valued based in part on management estimates. The significant assumptions relating to each category are discussed in the following paragraphs. Also, these assets will be amortized on the straight-line basis over their estimated useful life and resultant amortization is included in cost of net revenue.

Backlog—The value of current backlog was determined by discounting expected net cash flows attributable to current backlog.

In-process research & development

Of the total purchase price, $5,000 was allocated to in-process research and development and will be expensed in the period ending September 30, 2003. The value of in-process research & development was based on an evaluation of all developmental projects using the guidance set forth in Interpretation No. 4 of Statement of Financial Accounting Standards, or SFAS, No. 2, “Accounting for Research and Development Costs.” Projects that qualify as in-process research and development represent those that have not yet reached technological feasibility and for which no future alternative uses existed. Technological feasibility is defined as being equivalent to a beta-phase working prototype in which there is no remaining risk relating to the development.

The value of in-process research and development was determined by: (1) obtaining management estimates of future revenues and operating profits associated with existing development projects, (2) projecting the cash flows and costs to complete the underlying technologies and resultant products and (3) discounting these cash flows to their net present value. Estimates of future revenue and expenses used to determine the value of in-process research and development was consistent with the historical trends in the industry and expected outlooks.

F-6

NPTest Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Intellectual Property Cross-License Agreement

In connection with the acquisition from Schlumberger, the Company entered into an Intellectual Property Cross-License Agreement with Schlumberger pursuant to which each party grants a personal, irrevocable, non-exclusive, worldwide, fully-paid, royalty-free and generally non-transferable license to its technology to the other party in connection with the other party’s non-competitive business (subject to certain restrictions), but only to the extent the technology has been disclosed to or is in the possession of the other party as of the effective date of the acquisition. Each party will be able to sublicense the technology licensed to its distributors, resellers, customers, systems integrators, distribution channels and, subject to certain limitations, transferees of any going businesses of such party. The purpose of the license agreement is to enable each party to continue to operate their businesses as conducted before the acquisition without infringing on the intellectual property rights of the other party.

Transition Services Agreement

In connection with the acquisition from Schlumberger, the Company entered into a transition services agreement with Schlumberger through certain of its subsidiaries under which the Company and Schlumberger will provide each other various services to facilitate the sale of the business. Under the transition services agreement, the Company agreed to provide Schlumberger with access to certain information systems and facilities, accounting services and certain other assistance in transitioning the separation of the Company’s business. The Company is required to provide these services until December 31, 2003, unless Schlumberger elects to shorten or extend this period in accordance with the agreement. During the time that these services are provided, Schlumberger is required to pay the Company $89,000 per month. The transition services agreement also requires Schlumberger to provide the Company services that include payroll, continuation of employee benefits, retirement plans and services related to our facilities. Schlumberger is required to provide these services until July 29, 2004, unless the Company elects to shorten this period in accordance with the agreement. During the time that Schlumberger provides these services, the Company is required to pay Schlumberger up to $10,150 per month with respect to payroll services and additional fees that vary by country and facilities with respect to the other services being provided.

Employment Agreement

On July 29, 2003, the Company entered into an employment agreement with its president and chief executive officer. Pursuant to the agreement, the executive received a signing bonus in the amount of $1,000,000 which will be forfeited if he resigns without good reason or is terminated for cause before the second anniversary of the effective date of the agreement, except that only half of this bonus will be forfeited if this departure is after the first anniversary.

Redeemable Preferred Stock

On July 29, 2003, the Company issued 68,000 shares of Convertible, Mandatory Redeemable Preferred Stock (“Series A Preferred Stock”) at a price per share of $1,000, for total cash consideration of $68 million.

The holders of Series A Preferred Stock have various rights and preferences as follows:

Voting

Each share of Series A Preferred Stock has voting rights equal to an equivalent number of shares of common stock into that which it is convertible. The Company must obtain written consent from at least 50% of the outstanding shares of Series A Preferred Stock in order to alter the Company’s Certificate of Incorporation so as to adversely affect the preferences and rights of the Series A Preferred Stock, issue any additional shares of Series A Preferred Stock, or authorize any shares of capital stock on parity with Series A Preferred Stock.

F-7

NPTest Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Dividends

The holders of Series A Preferred Stock are entitled to receive, when, as and if declared by the Board of Directors, dividends at an amount equal to the greater of (i) cash dividends at the annual rate of 9%, and (ii) cash dividends on common stock into which the Series A Preferred Stock could be converted. Such dividends are cumulative and payable in arrears on March 31, June 30, September 30 and December 31 of each year. The dividends are cumulative from the date of issue, whether or not funds of the Company are legally available for the payment of such dividends.

As long as dividends on Series A Preferred Stock are outstanding, the Company or its subsidiaries are restricted from declaring or paying any dividends to holders of securities that are either junior to or on parity with Series A Preferred Stock. There have not been any dividends declared by the Board on Series A Preferred Stock or common stock from inception through September 30, 2003.

Liquidation

In the event of any liquidation, dissolution or winding up of the Company, including a merger, acquisition or sale of assets where the beneficial owners of the Company’s common stock and preferred stock own less than 50% of the resulting voting power of the surviving entity, the holders of Series A Preferred Stock are each entitled to receive an amount of $1,000 per share plus all accrued and unpaid cumulative dividends (whether or not earned or declared) prior to and in preference to any distribution to the holders of securities with preferences and rights junior to Series A Preferred Stock. The remaining assets, if any, shall be distributed to holders of common stock or other securities with preferences and rights junior to Series A Preferred Stock. The Series A Preferred Stock is not entitled to share in this distribution of the remaining assets. Should the Company’s legally available assets be insufficient to satisfy the liquidation preferences of Series A Preferred Stock and any shares of capital stock on parity with Series A Preferred Stock, then the funds will be distributed pro rata to the holders of Series A Preferred Stock and the capital stock on a parity with Series A Preferred Stock.

Redemption

To the extent the Company has funds legally available for such payment, on July 31, 2013, the Company shall redeem all outstanding shares of Series A Preferred Stock at an amount of $1,000 per share plus all accrued and unpaid cumulative dividends. The Company, at its option, may redeem shares of Series A Preferred Stock prior to the redemption date for an amount an amount of $1,000 per share plus all accrued and unpaid cumulative dividends.

Conversion

Each share of Series A Preferred Stock is convertible, at the option of the holder, according to a conversion ratio, subject to adjustment for dilution. The number of shares of common stock into which Series A Preferred Stock is convertible is computed by dividing the sum of $1,000 per share and all accrued and unpaid cumulative dividend, by the applicable conversion ratio. The current conversion price is $1.02304. At September 30, 2003, the Company reserved shares of common stock for the conversion of Series A Preferred Stock.

Beneficial Conversion

In connection with the issuance of Series A Preferred Stock, the Company determined that the holders of Series A Preferred Stock received a beneficial conversion feature in the amount of $50.3 million. This amount was determined by comparing the conversion ratio on the Series A Preferred Stock to the fair value of the

F-8

Title of Each Class of

Securities to be Registered

Proposed Maximum

Aggregate Offering

Price(1)(2)

Amount of

Registration Fee(3)

Common Stock, par value $0.001 per share

NPTest Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NPTEST HOLDING CORP S-1/A